PEPCO HOLDINGS,
INC.
REVISED AND
RESTATED
EXECUTIVE AND DIRECTOR DEFERRED
COMPENSATION PLAN
Potomac Electric Power Company
(“Pepco”) established the Potomac
Electric Power Company Executive Deferred Compensation Plan (the
“Pepco plan”), effective November 18, 1982, to
enable certain executives to supplement their retirement income by
deferring the receipt of compensation for services performed while
the plan was in effect. The Pepco plan was amended from
time to time thereafter, including an amendment to make Directors
eligible to participate in the plan. On March 13, 2002,
further amendments were authorized to the Pepco plan to recognize
the intent to consummate a transaction (the “Merger”)
by which Pepco and Conectiv, Inc. (“Conectiv”) will
become wholly owned subsidiaries of Pepco Holdings, Inc. (the
“Company” or “Pepco Holdings”) and, for the
near term future, to maintain for the benefit of the executives of
Pepco Holdings and its subsidiaries, the level of benefits provided
to such executives prior to the Merger. Such amendments
include authorization to name Pepco Holdings as the sponsor of the
plan; to change the name of the Pepco plan to reflect the change in
plan sponsorship to amend the definition of “executive”
eligible to participate in the plan; to add an in-service
withdrawal feature to the plan; and to provide an investment option
which credits a participant’s account with increases or
decreases in value attributable to phantom units of Pepco Holdings
Common Stock, together with any dividends or stock reinvestment
rights associated with the designated units. The plan
was thereafter amended to comply with Section 409A of the Internal
Revenue Code and regulations issued thereunder. The Plan
is restated herein and is
known as the
Pepco Holdings, Inc. Executive and Director Deferred Compensation
Plan. (the “Plan”).
2.01 “Account”
means the bookkeeping account maintained by the Company (i) for
each participating Executive and (ii) for each participating
Director, which is credited with the Executive’s or the
Director’s Deferred Compensation, as the case may be, and
with additional amounts in the nature of interest and which is
debited to reflect benefit distributions. Effective as
of January 1, 2005, each Account shall be divided into two (2)
subaccounts. The first subaccount shall reflect the
vested balance of such Account as of December 31, 2004, adjusted to
reflect (i) subsequent earnings or losses attributable to the
hypothetical investment options in which such subaccount is deemed
invested and (ii) any distributions made from such
subaccount. The second subaccount shall reflect (i) all
contributions made to the account on and after January 1,
2005, (ii) any amounts which had been credited to the account prior
to January 1, 2005 but which first became vested on or after
January 1, 2005, (iii) all earnings or losses attributable to the
hypothetical investment options in which such subaccount is deemed
vested, and (iv) any distributions made from such
subaccount.
2.02 “Agreement”
means the Participation Agreement executed by the Company and an
Executive or a Director, as the case may be, which designates the
amount of the Executive’s or the Director’s Deferred
Compensation, the time and manner of benefit distributions, and the
Executive’s or the Director’s Beneficiary.
2.03 “Beneficiary”
means any person designated by a participating Executive or a
participating Director to receive benefits under the Plan in the
event of the Executive’s or the Director’s death prior
to the completion of all benefit payments under the Plan. An
Executive’s
or a
Director’s Agreement, as the case may be, may designate more
than one Beneficiary or may designate primary and contingent
Beneficiaries.
2.04 “Board
of Directors” means the Board of Directors of Pepco Holdings,
Inc.
2.05 “Deferred
Compensation” means any remuneration which would otherwise be
currently payable to the Executive or the Director, but which the
Executive or the Director irrevocably agrees to receive on a
deferred basis in accordance with the terms of the Plan.
2.06 “Director”
means a member of the Board of Directors.
2.07 “Executive”
means such employee of any Pepco Holdings subsidiary as designated
by the Chief Executive Officer of Pepco Holdings (the Chief
Executive Officer to be designated by the Board).
2.08 “Human
Resources Committee” shall mean that Committee comprised of
members of the Board of Directors, which governs the development of
personnel policies for the Company.
2.09
“Internal Revenue Code” shall mean the Internal Revenue
Code of 1986, as amended.
2.10 “Normal
Compensation” with respect to an Executive means the amount
of salary that would be payable to an Executive for the twelve (12)
month period commencing on the first day of any Plan Year if the
Executive were not participating
hereunder. “Normal Compensation” with
respect to a Director means the amount of retainer/fees that would
be payable to a Director for the twelve (12) month period
commencing on the first day of any Plan Year if the Director were
not participating hereunder.
2.11 “Plan
Year” means the twelve-month period commencing on July 1 of
each calendar year and ending on June 30 of the following calendar
year. Notwithstanding the above,
the time period
between July 1, 2005 and December 31, 2005 shall be treated as a
separate Plan Year and effective as of January 1, 2006, the Plan
Year shall constitute the calendar year.
2.12 “Retirement”
with respect to an Executive means the date following an
Executive’s Separation from Service on which the payment of
benefits to the Executive commences under the principal
tax-qualified defined benefit pension plan of Pepco Holdings or one
of its subsidiaries in which the Executive participates (the
“Applicable Defined Benefit Pension Plan”) by reason of
the Executive having attained normal or early retirement age under
that plan. In the event that an Executive is not
entitled to receive benefits under that plan following Separation
from Service, “Retirement” means Separation from
Service and attainment of age sixty-five (65) .
“Retirement” with respect to a Director means
Separation from Service and attainment of age sixty-five
(65).
2.13 “Separation
from Service” means an Executive’s termination of
employment with the Company and any of its subsidiaries or a
Director’s cessation of participation on the Board of
Directors. An Executive who terminates regular
employment or a Director who discontinues participation on the
Board of Directors and who thereafter performs consulting services
for the Company on a part-time basis will nonetheless be deemed to
have had a Separation from Service at the date of termination of
regular employment or the date of discontinuance of participation
on the Board of Directors, as the case may be.
2.14 “Unforeseen
Financial Emergency” means a severe financial hardship to the
Executive or Director resulting from an illness or accident of the
Executive or Director, the Executive or Director’s spouse, or
a dependent (as defined in Section 152(a) of the Internal Revenue
Code) of the Executive or Director, loss of the Executive or
Director’s property due to
casualty, or
other similar extraordinary and unforeseeable circumstances arising
as a result of events beyond the control of the Executive or
Director.
3.01 An
Executive or a Director may execute an Agreement and become a
participant in the Plan prior to the first day of any Plan Year.
Except as set forth in Section 5.02, an Executive’s or a
Director’s Agreement for a Plan Year may not be amended or
revoked once that Plan Year has commenced, provided that a
participating Executive or a participating Director may at any time
change his Beneficiary designation by providing written notice of
such change to the Company. Notwithstanding the above,
any election to participate in the Plan in respect of the short
Plan Year beginning July 1, 2005 and ending December 31, 2005 must
be made prior to March 15, 2005.
3.02 An
Executive’s or a Director’s Agreement shall relate to
(i) compensation for services performed during the Plan Year to
which it relates, (ii) benefit entitlements otherwise payable in
connection with prior deferrals pursuant to Section 5.01 of the
Potomac Electric Power Company Director and Executive Deferred
Compensation Plan, (iii) other remuneration approved by the Board
of Directors as eligible to be deferred under the Plan, provided
that such Agreement shall be entered into prior to payment of such
compensation to the Executive or the Director, as the case may be,
or (iv)other remuneration approved by the Board of Directors as
eligible to be credited under the Plan by way of a transfer of a
deferred compensation entitlement to this Plan from any other
nonqualified deferred compensation program maintained by the
Company. Notwithstanding the above, any Agreement
entered into on or after January 1, 2005 shall be structured so as
to comply with the timing of election rules contained in
Section
409A(a)(4) of
the Internal Revenue Code, as interpreted by the Internal Revenue
Service through any proposed or final Regulation or other
guidance.
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DEFERRAL
OF COMPENSATION - EXECUTIVE AND DIRECTOR
RULES
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4.01 The
deferral of compensation for an Executive shall be made in
accordance with the following provisions.
A. Each
Plan Year, the Executive may elect any or all of the following five
options for deferring compensation, to the extent
applicable:
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Option 1
– The
Executive may elect to defer an amount of Normal
Compensation. The Agreement may specify that the
Executive’s salary will be reduced by the amount of the
Deferred Compensation on a ratable basis throughout the Plan Year
or that the Executive’s salary will be reduced by a specified
amount or amounts in a specified month or months of the Plan
Year.
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The Executive
may elect to defer the difference between (i) the lesser of (a) the
dollar limitation then in effect pursuant to Section 402(g)(1)(B)
of the Internal Revenue Code and (b) six percent (6%) of his
compensation, as defined in the principal tax-qualified defined
contribution savings plan of Pepco Holdings or one of its
subsidiaries in which the Executive participates (the
“Applicable Savings Plan”), and (ii) the amount of
pre-tax contributions he is permitted to make under the Applicable
Savings Plan. Under this Option 2A., the
Executive’s salary will be reduced by the amount of Deferred
Compensation at the same time and in the same amounts as if such
reduction
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was governed by the election then in effect for the Executive under
the Applicable Savings Plan.
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Under this
Option 2B., the Executive may also elect to defer up to the
difference between (i) six percent (6%) of his compensation and
(ii) the dollar limitation then in effect pursuant to Section
402(g)(1)(B) of the Internal Revenue Code. For the 2005
Plan Year, any election made by a Participant which involves Option
2 will be construed and applied by reference to these two
subelection formats.
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Option 3
- The Executive may elect
to defer such other compensation which would otherwise be paid to
the Executive during the Plan Year provided such compensation has
been approved by the Board of Directors in its sole discretion as
eligible to be deferred under the Plan.
Option 4
- Subject to the prior
approval of the Board of Directors, which approval may be granted
or withheld in the sole discretion of the Board of the Directors,
the Executive may elect to have the Executive’s Account under
this Plan credited with a deferred compensation entitlement
attributable to any other nonqualified deferred compensation
program maintained by the Company, provided that such transfer will
be accompanied by a corresponding elimination of the
Company’s obligation under such other deferred compensation
arrangement and provided further that no such transfer will be
permitted with respect to any deferred compensation entitlement
which would otherwise become payable to the Executive under the
terms of such other nonqualified deferred compensation program
within the same calendar year as the year of the
proposed
transfer. Each Executive who elects
Deferred Compensation with respect to a Plan Year shall specify in
his Agreement for such Plan Year the Option or Options which shall
apply for such Plan Year.
B. The
Company will credit the Deferred Compensation to the Account of
each participating Executive as of the day such amount would have
been paid to the Executive if the Executive’s Agreement had
not been in effect. The Executive may elect to have the
Company credit, on a monthly basis all Deferred Compensation into
the Executive’s Account with an amount in the nature of
interest at either (i) the prime rate quoted by the Chase Manhattan
Bank, N.A. (the “Prime Rate”), as of the last day of
the month; (ii) a rate equal to the rate of return with respect to
any one or a combination of the investment funds selected by the
Human Resources Committee (an “Investment Fund Rate”),
or (iii) a combination of the Prime Rate and an Investment Fund
Rate. The Prime Rate or the appropriate Investment Fund
Rate(s) shall be credited to the Executive’s Account as of
the last day of each calendar month based on the daily balances in
the Account whic
