SEVERANCE AGREEMENT
This Agreement is made the 1st day of August, 1995, by and
between Potomac Electric Power Company (the "Company") and
Xxxxxx X. Xxxxxxxx (the "Executive").
WHEREAS, the Company desires to establish a severance benefit
for the Executive when a Change in Control (as hereinafter defined)
occurs, to avoid the loss or the serious distraction of the
Executive to the detriment of the Company and its stockholders
during periods when the Executive's undivided attention and
commitment to the needs of the Company would be particularly
important; and
WHEREAS, the Executive desires to devote his time and energy
for the benefit of the Company and its stockholders and not to be
distracted during any potential change in control.
NOW, THEREFORE, the parties agree as follows:
1. Definitions
1.1 Change in Control. Change in Control shall be
deemed to have occurred as of the first day that any one or more of
the following conditions shall have been satisfied:
(a) Any "Person" (other than (i) those Persons in
control of the Company as of the Effective Date, (ii) any person or
persons acting on behalf of the Company in a distribution of stock
to the public, (iii) any trustee or other fiduciary holding
securities under any employee benefit plan of the Company, or (iv)
a corporation owned directly or indirectly by the stockholders
(immediately prior to such transaction) of the Company in
substantially the same proportions as their ownership of stock of
the Company) becomes a Beneficial Owner, directly or indirectly, of
securities of the Company representing thirty percent (30%) or more
of the combined voting power of the Company's then outstanding
securities; or
(b) (i) a complete or substantial liquidation of
the Company; or (ii) the sale or disposition of all or
substantially all the Company's assets; or (iii) a
merger, consolidation, or reorganization of the Company with or
involving any other corporation or entity, other than a merger,
consolidation, or reorganization that would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at
least seventy percent (70%) of the combined voting power of the
voting securities of the Company (or such surviving entity)
outstanding immediately after such merger, consolidation or
reorganization.
In no event shall a Change in Control be deemed to have
occurred, with respect to the Executive, if the Executive is part
of a purchasing group which consummates the Change in Control
transaction. The Executive shall be deemed "part of a purchasing
group" for purposes of the preceding sentence if the Executive is
an equity Executive in the purchasing company or group (except for:
(i) passive ownership of less than one percent (1%) of the stock of
the purchasing company; or (ii) ownership of equity participation
in the purchasing company or group which is otherwise not
significant, as determined prior to the Change in Control by a
majority of the nonemployee continuing directors of the Company).
1.2 Qualifying Termination
(a) The occurrence of any one or more of the following
events within twenty-four (24) calendar months after a Change in
Control of the Company shall constitute a "Qualifying Termination":
(i) The Company's involuntary termination of the
Executive's employment without Cause (as defined in Section 1.4);
(ii) The Executive's voluntary employment
termination for Good Reason (as defined in Section 1.3);
(iii) Failure or refusal by a successor company to
assume the Company's obligations under this Agreement in its
entirety, as required by Section 9 herein; or
(iv) Commission by the Company, or any successor
company, of a material breach of any of the provisions of this
Agreement.
(b) A Qualifying Termination also shall include an
involuntary termination of the Executive, without Cause, "in
contemplation of," but prior to, a Change in Control of the
Company. An involuntary termination shall be deemed to be "in
contemplation of," a Change in Control if it occurs at any time
subsequent to (but in no event after an actual Change in Control):
(i) The Board of Directors accepting, or
recommending to the Company's shareholders the acceptance of, an
offer from any Person (other than those Persons in control of the
Company as of the Effective Date, or other than a trustee or other
fiduciary holding securities under an employee benefit plan of the
Company, or a corporation owned directly or indirectly by the
stockholders of the Company (immediately prior to such transaction)
in substantially the same proportions as their ownership of stock
of the Company) to become the beneficial owner, directly or
indirectly, or securities of the Company representing thirty
percent (30%) or more of the combined voting power of the
Company's then outstanding securities; or
(ii) The Board of Directors approving, or
recommending to the Company's shareholders for approval: (a) a plan
of complete or substantial liquidation of the Company; or (b) an
agreement for the sale or disposition of all or substantially all
of the Company's assets; or (c) a merger, consolidation, or
reorganization of the Company with or involving any other
corporation or entity, other than a merger, consolidation or
reorganization that would result in the voting securities of the
Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted to
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voting securities of the surviving entity), at least seventy
percent (70%) of the combined voting power of the voting securities
of the Company (or such surviving entity) outstanding immediately
after such merger, consolidation, or reorganization.
(c) A Qualifying Termination shall not include a
termination of employment by reason of death, disability, or
voluntary normal retirement (as such term is defined under the
then-established rules of the company's tax-qualified retirement
plan), the Executive's voluntary termination without Good Reason,
or the Company's involuntary termination of the Executive's
employment for Cause.
1.3 Good Reason. Good Reason means, without the Executive's
express written consent, the occurrence after or in contemplation
of a Change in Control of the company, of any one or more of the
following:
(a) The assignment to the Executive of duties materially
inconsistent with the Executive's authorities, duties,
responsibilities, and status (including offices, title and
reporting relationships) as an executive and/or officer of the
Company, or a material reduction or alteration in the nature or
status of the Executive's authorities, duties, or responsibilities
from those in effect as of ninety (90) days prior to the Change in
Control (or, in the case of a termination in contemplation of a
Change in Control, 90 days prior to the occurrence described in
Section 1.2(b)(i) or (ii) above), unless such act is remedied by
the Company within 10 business days after receipt of written notice
thereof given by the Executive;
(b) A reduction by the Company of the Executive's base
salary in effect on the effective date of a Change in Control, or
as the same shall be increased from time to time, unless such
reduction is less than ten percent (10%) and its either (i)
replaced by an incentive opportunity equal in value; or is (ii)
consistent and proportional with an overall reduction in management
compensation due to extraordinary business conditions, including
but not limited to reduced profitability and other financial stress
(i.e., the base salary of the Executive will not be singled out for
reduction in a manner inconsistent to a reduction imposed on other
executives of the Company);
(c) The relocation of the Executive's office more than
50 miles from the Executive's office on the effective date of the
Change in Control.
The Executive's right to terminate employment for
Good Reason shall not be affected by the Executive's incapacity due
to physical or mental illness. The Executive's continued
employment shall not constitute consent to, or a waiver of rights
with respect to, any circumstance constituting Good Reason herein.
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1.4. Cause. Cause shall mean the occurrence of any one or
more of the following:
(a) The Executive is convicted of a felony involving
moral turpitude; or
(b) The Executive engages in conduct or activities that
constitutes disloyalty to the Company and such conduct or
activities are materially damaging to the property, business or
reputation of the Company; or
(c) The Executive persistently fails or refuses to
comply with any written direction of an authorized representative
of the Company other than a directive constituting an assignment
described in Section 1.3(a); or
(d) The Executive embezzles or knowingly, and with
intent, misappropriates property of the Company, or unlawfully
appropriates any corporate opportunity of the Company.
1.5 Annual Bonus Amount. The average of the annual target
bonuses applicable to the Executive during the three calendar years
preceding the calendar year in which the Qualifying Termination
occurs.
2. Severance Payment. Upon the occurrence of a Qualifying
Termination with respect to the Executive, the Company shall pay to
the Executive an amount equal to two times the Executive's annual
base salary (as in effect on the date of the Qualifying
Termination, not reduced by any reduction described in Section
1.3(b) above) and Annual Bonus Amount. The payment shall be made
in twenty-four (24) equal monthly installments beginning on the
first day of the month following Qualifying Termination.
3. Severance Health Benefits. Upon the occurrence of a
Qualifying Termination, and for the thirty-six (36) month period
thereafter, the Company shall provide to the Executive and
Executive's family medical, accidental death and dismemberment,
disability and death benefits as provided to other executive
officers who remain employed by the Company (or a surviving entity
other than the Company). The Executive shall be required to make
payments for such coverage in the same amount as is required of
executive officers who remain employed by the Company or a
successor.
4. Code Section 280G
4.1 Limitations. Notwithstanding Section 2 and 3, in the
event that a Change in Control occurs and the independent public
accountants for the Company (the "Accountants") determine that if
the benefits to be provided under Section 2 and 3 (together with
any other benefits payable to the Executive under any applicable
plan maintained by the Company) were paid to the Executive:
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(a) the Executive would incur an excise tax under
Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), and the Company would be denied a deduction under Section
280G of the Code of all or some of such amounts to be paid to the
Executive, and
(b) the net after tax benefits to the Executive
attributable to payments under Sections 2 and 3 hereof would not be
at least $10,000 greater than the net after tax benefits which
would accrue to the Executive if the amounts which would otherwise
cause the Executive to be subject to this excise tax were not paid,
the amounts payable to the Executive pursuant to Section 2 and 3
(or pursuant to such other plans maintained by the Company) shall
be reduced so that the amount payable to the Executive hereunder is
the greatest amount (as determined by the Accountants) that may be
paid by the Company to the Executive without any such amount being
subject to an excise tax under Section 4999 or being nondeductible
for the Company pursuant to Section 280G.
4.2 Executive's Election. If the amounts to be paid to the
Executive are to be reduced under paragraph 4.1 of this Section,
the Executive shall be given the opportunity to designate which
benefits or payments shall be reduced and in what order of
priority.
4.3 Later Adjustments.
(a) If the Executive receives reduced payments or
benefits pursuant to the preceding paragraph, or if it had been
determined that no such reduction was required, but it nonetheless
is established pursuant to the final determination of a court or an
Internal Revenue Service proceeding that, notwithstanding the good
faith of the Executive and the Company in applying the terms of
this Section, the aggregate amount paid to the Executive or for his
benefit would result in any amount being treated as an "excess
parachute payment" for purposes of Sections 280G and 4999 of the
Code, then an amount equal to the amount that would be an "excess
parachute payment" shall be deemed for all purposes a loan to the
Executive made on the date of the receipt of such excess amount,
which the Executive shall have an obligation to repay to the
Company on demand, together with interest on such amount at the
applicable Federal rate (as defined in Section 1274(d) of the Code)
from the date of the Executive's receipt of such excess until the
date of such repayment.
(b) In the event that it is determined for any reason
that the amount of "excess parachute payments" are less than
originally calculated, the Company shall promptly pay to the
Executive the amount necessary so that, after such adjustment, the
Executive will have received or be entitled to receive the maximum
payments payable under this Section without any of such payments
constituting an "excess parachute payment," together with
interest on such amount at the applicable Federal rate (as defined
in Section 1274(d) of the Code).
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5. Termination of Agreement. This Agreement shall continue until
and terminate three (3) years from the date first set forth above;
provided, however, that this Agreement shall be renewed
automatically for subsequent three-year periods unless notified by
the Chief Executive Officer at least six (6) months prior to the
end of the first three-year period or of any subsequent three-year
period, indicates that this Agreement shall not be renewed.
Further, if a Change in Control occurs during the term of this
Agreement, this Agreement shall continue until the Company or its
successor shall have fully performed all of its obligations
thereunder with respect to the Executive, with no future
performance being possible.
6. Amendment of Agreement. Subject to the provisions of Section
5, this Agreement may not be amended in any manner which has a
significant adverse effect on the rights of any executive without
the written consent of such executive. Notwithstanding the
foregoing, upon the occurrence of a Change in Control, this
Agreement may not be amended in any respect without the written
consent of the Executive.
7. Construction. Wherever any words are used herein in the
masculine gender they shall be construed as though they were also
used in the feminine gender in all cases where they would so apply,
and wherever any words are used herein in the singular form, they
shall be construed as though they were also used in the plural form
in all cases where they would so apply.
8. Governing Law. This Agreement shall be governed by the laws
of the District of Columbia.
9. Successors and Assigns. This Agreement shall be binding upon
the Company and any assignee or successor in interest to the
Company.
10. Dispute Resolution and Notice.
10.1 Dispute Resolution.
(a) Any good faith dispute or controversy arising under or in
connection with this Agreement shall be settled by binding
arbitration. Such proceeding shall be conducted by final and
binding arbitration before a single arbitrator mutually acceptable
to both the Company and the Executive, in accordance with the rules
of, and under the administration of the Center for Public
Resources, in New York.
(b) All reasonable costs and expenses arising out of such
arbitration proceedings shall be borne by the Company. The Company
shall in all events also pay its own costs (including its
attorneys' fees) incurred in connection with such arbitration and,
if Executive shall prevail on any issue that is material to the
resolution of the dispute before the arbitrator, the Company shall
also pay or reimburse Executive for his expenses incurred in
connection with the arbitration (including, without limitation, his
reasonable attorneys' fees).
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10.2 Notice. Any notices, requests, demands, or other
communications provided for by this Agreement shall be sufficient
if in writing and if sent by registered or certified mail to the
Executive at the last address he has filed in writing with the
Company, or in the case of the Company, to its principal offices.
POTOMAC ELECTRIC POWER COMPANY
/s/ X. X. XXXXXXXX
By:_____________________________________
Its Chief Executive Officer
_______________________________
"COMPANY"
/s/ XXXXXX X. XXXXXXXX
________________________________________
"EXECUTIVE"
