ex10-5.htm


    PEPCO
HOLDINGS, INC. LONG-TERM INCENTIVE PLAN

     

    


     

    1.           Objective.  The
objective of this Plan is to increase shareholder value by providing a long-term
incentive to reward officers and key employees of the Company and its
Subsidiaries and directors of the Company, who are mainly responsible for the
continued growth, development, and financial success of the Company and its
Subsidiaries, for the profitable performance of the Company and its
Subsidiaries.  The Plan is also designed to permit the Company and its
Subsidiaries to retain talented and motivated officers, key employees, and
Directors and to increase their ownership of Company common stock.

     

    2.           Definitions.  All
singular terms defined in this Plan will include the plural and VICE
VERSA.  As used herein, the following terms will have the meaning
specified below:

     

    “Award”
means, individually or collectively, Restricted Stock and Restricted Stock
Units, Options, Performance Units, Stock Appreciation Rights, Dividend
Equivalents, or Unrestricted Stock granted under this Plan.

     

    “Base
Salary” means the annual base rate of regular compensation of a Participant
immediately before a Change in Control, or if greater, the highest annual such
rate at any time during the 12-month period immediately preceding the Change in
Control.

     

    “Board”
means the Board of Directors of the Company.

     

    “Book
Value” means the book value of a share of Stock determined in accordance with
the Company’s regular accounting practices as of the last business day of the
month immediately preceding the month in which a Stock Appreciation Right is
exercised or granted as provided in Section 11.

     

    “Change
in Control” means a “change in control” as defined in the Pepco Holdings, Inc.
Change-In-Control Severance Plan for Certain Executive Employees.

     

    “Code”
means the Internal Revenue Code of 1986, as amended.  Reference in the
Plan to any section of the Code will be deemed to include any amendments or
successor provisions to such section and any regulations promulgated
thereunder.

     

    “Committee”
means either (i) the committee of the Board that has been assigned by the Board
to administer the Plan and which shall consist solely of two or more directors,
each of whom is (A) a “non-employee director” (as such term is defined in Rule
16b-3(b)(3) promulgated pursuant to Section 16 of the Exchange Act), or which
otherwise shall meet any disinterested administration or other requirements of
rules promulgated under Section 16 of the Exchange Act, and (B) an “outside
director” (as such term is defined by Treas. Reg. (S)1.162-27(e)(3)), or which
otherwise shall meet the administration or other requirements of regulations
promulgated under Section 162(m) of the Code, in each case as in effect at the
applicable time or on the Board in its entirety if it elects at any time, or
from time to time, to assume responsibility for and perform any or all of the
functions of the Committee as set forth in the Plan, except that the Board shall
not perform any of the functions of the Committee as provided for in Section 7
of the Plan.

     


    
      
        
          


           

        

         


      

      
         


        
          

        

      

      
         


      

    


    “Company”
means Pepco Holdings, Inc., a Delaware corporation, or its successor, including
any “New Company” as provided in Section 161.

     

    “Date of
Grant” means the date on which the granting of an Award is authorized by the
Committee or such later date as may be specified by the Committee in such
authorization.

     

    “Director”
means a member of the Board/

     

    “Disability”
means the determination that a Participant is “disabled” under the disability
plan of the Company or any of its Subsidiaries in which the Participant
participates and, in the case of any Award that is subject to Section 409A of
the Code and paid out upon Disability, the Participant is “disabled” under
Section 409A of the Code.

     

    “Dividend
Equivalent” means an award granted under Section 12.

     

    “Early
Retirement” means retirement prior to the Normal Retirement Date.

     

    “Earned
Performance Award” means an actual award of a specified number of Performance
Units (or shares of Restricted Stock or Restricted Stock Units, as the context
requires) that the Committee has determined have been earned and are payable
for, in the case of Restricted Stock, earned and with respect to which
restrictions will lapse) for a particular Performance Period.

     

    “Effective
Date” has the meaning set forth in Section 3A.

     

    “Eligible
Employee” means any person employed by the Company or a Subsidiary on a
regularly scheduled basis who satisfies all of the requirements of Section
5.

     

    “Exchange
Act* means the Securities Exchange Act of 1934, as amended.

     

    “Exercise
Period” means the period or periods during which a Stock Appreciation Right is
exercisable as described in Section 11.

     

    “Fair
Market Value” means the average of the highest and lowest price at which the
Stock was sold the regular way on the New York Stock Exchange Composite
Transactions on a specified date.

     

    “Good
Reason means, without the express written consent of the Participant, the
occurrence after a Change in Control of any of the following circumstances,
provided that the Participant provides written notification of such
circumstances to the Company (or, if applicable, Subsidiary) no later than
ninety (90) days from the original occurrence of such circumstances and the
Company (or Subsidiary) fails to fully correct such circumstances within thirty
(30) days of receipt of such notification:

     

    
      	
               
      

            	
              (i)

            	
              the
      assignment to the Participant of any duties inconsistent in any materially
      adverse respect with his or her position, authority, duties or
      responsibilities from those in effect immediately prior to the Change in
      Control;

            


    

     


    
      
        
          - 2 -


          


           

        

         


      

      
         


        
          

        

      

      
         


      

    


    
      	
               
      

            	
              (ii)

            	
              a
      material reduction in the Participant’s base compensation, as such term is
      used in Treas. Reg. §1.409A(n)(2), as in effect immediately before the
      Change-in-Control;

            


    

     

    
      	
               
      

            	
              (iii)

            	
              a
      material diminution in the authority, duties, or responsibilities of the
      supervisor to whom the Participant is required to
  report;

            


    

     

    
      	
               
      

            	
              (iv)

            	
              a
      material diminution in the budget over which the Participant retains
      authority;

            


    

     

    
      	
               
      

            	
              (v)

            	
              the
      Company’s (of, if applicable, Subsidiary’s) requiring the Participant to
      be based in any office or location more than 50 miles from that location
      at which he or she performed his or her services immediately prior to the
      occurrence of a Change in Control, except for travel reasonably required
      in the performance of the Participant’s responsibilities
  or

            


    

     

    
      	
               
      

            	
              (vi)

            	
              any
      other action or inaction that constitutes a material breach by the Company
      (or Subsidiary) of the agreement under which the Participant provides
      services to the Company (or Subsidiary). “Incentive Stock Option” means an
      incentive stock option within the meaning of Section 422 of the
      Code.

            


    

     

    “Normal
Retirement Date” is the earliest date as described in the Pension Plan when a
Participant is entitled to an unreduced retirement benefit under such
plan.

     

    “Option”
or “Stock Option” means either a nonqualified stock option or an Incentive Stock
Option granted under Section 9.

     

    “Option
Period” or “Option Periods” means the period or periods during which an Option
is exercisable as described in Section 9.

     

    “Participant”
means an employee of the Company or a Subsidiary or a Director who has been
granted an Award under this Plan.

     

    “Pension
Plan” means the principal defined benefit pension plan of the Company or one of
its Subsidiaries in which the Participant participates.

     

    “Performance-Based”
means that in determining the amount of a Restricted Stock Award or Restricted
Stock Unit Award payout, the Committee will take into account the performance of
the Participant, the Company, one or more Subsidiaries, or any combination
thereof.

     

    “Performance
Period” means a period of time, established by the Committee at the time an
Award is granted, during which corporate and/or individual performance is
measured.

     


    
      
        
          - 3 -


          


           

        

         


      

      
         


        
          

        

      

      
         


      

    


    “Performance
Unit” means a unit of measurement equivalent to such amount or measure as
defined by the Committee which may include, but is not limited to, dollars,
market value shares, or book value shares.

     

    “Permitted
Transferee” means (i) a spouse, child, step-child, grandchild or step-grandchild
of the Participant (an “Immediate Family Member”), (ii) a trust the
beneficiaries of which do not include any person other than the Participant and
immediate family Members, (iii) a partnership (either general or limited)
the partners of which do not include any person other than the Participant and
Immediate Family Members (or corporations the shareholders of which do not
include persons other than the Participant and Immediate Family Members), (iv) a
corporation the shareholders of which do not include persons other than the
Participant and Immediate Family Members, or (v) any other person or entity
designated by the Committee as a Permitted Transferee.

     

    “Plan”
means the Pepco Holdings, Inc. Long-Term Incentive Plan, as set forth
herein.

     

    “Restricted
Stock” means one or more shares of Stock granted under Section 8 that are
subject to forfeiture it service-based or performance-based criteria established
by the Committee are not achieved .

     

    “Restricted
Stock Unit” means a contractual right granted under Section 8 to receive an
amount (payable in cash or Stock, as determined by the Committee) having a value
that corresponds to the Fair Market Value of a share of Stock if service-based
or performance-based criteria established by the Committee are
achieved.

     

    “Retirement”
means retirement on or after the Normal Retirement Date (as determined in
accordance with the provisions of the Pension Plan applicable to the
Participant).

     

    “Service-Based”
means that in determining the amount of a Restricted Stock Award or Restricted
Stock Unit payout, the Committee will take into account only the period of time
that the Participant performed services for the Company or its Subsidiaries
since the Date of Grant.

     

    “Stock”
means the common stock of the Company.

     

    “Stock
Appreciation Right” means an Award granted under Section 11.

     

    “Subsidiary(ies)”
means any corporation or other form of organization of which 20% or more of its
outstanding voting sock or voting power is beneficially owned, directly or
indirectly, by the Company.

     

    “Target
Performance Award” means a targeted award of a specified number of Performance
Units (or shares of Restricted Stock or Restricted Stock Units, as the context
requires) which may be earned and payable (or, in the case of Restricted Stock,
earned and with respect to which restrictions will lapse) based upon the
performance objectives for a particular Performance Period, all as determined by
the Committee.  The Target Performance Award will be a factor in the
Committees ultimate determination of the Earned Performance Award.

     


    
      
        
          - 4
- 

          


           

        

         


      

      
         


        
          

        

      

      
         


      

    


    “Termination”
means resignation or discharge as a Director or resignation or discharge from
employment with the Company or any of its Subsidiaries, except in the event of
death, Disability, Retirement or Early Retirement.

     

    “Unrestricted
Stock” means an Award granted under Section 13.

     

    3.           Effective
Date, Duration and Stockholder Approval.

     

    A.           Effective
Date and Stockholder Approval.  The Plan was originally effective on
August 1, 20002 (herein referred to as the Effective Date).  This
restatement of the Plan is effective January 1, 2005.

     

    B.           Period
for Grants of Awards.  Awards may be made as provided herein for a
period of ten years after the Effective Date.

     

    C.           Termination.  The
Plan will continue in effect until all matters relating to the payment of
outstanding Awards and administration of the Plan have been
settled.

     

    4.           Plan
Administration.

     

    A.           Except
as set forth in paragraph B of this Section 4 or as otherwise specifically
provided herein, the Committee is the Plan administrator and has sole authority
to determine all questions of interpretation and application of the Plan, the
terms and conditions pursuant to which Awards are granted, exercised or
forfeited under the Plan provisions, and, in general, to make all determinations
advisable for the administration of the Plan to achieve its stated
objective.  Such determinations shall be final and not subject to
further appeal.

     

    B.           Notwithstanding
the provisions of paragraph A, the Board shall have the sole authority and
discretion to modify the annual Option grant to Directors under Section
9A.

     

    5.           Eligibility.  Each
officer or key employee of the Company and its Subsidiaries (including offers or
employees who are members of the Board, but excluding Directors who are not
officers or employees of the Company or any Subsidiary) may be designated by the
Committee as a Participant, from time to time, with respect to one or more
Awards.  In addition, Directors who are not officers or employees of
the Company or any Subsidiary may be granted Options under Section 9 of the
Plan.  No officer or employee of the Company or its Subsidiaries shall
have any right to be granted an Award under this Plan.

     

    6.           Grant
of Awards And Limitation of Number of Shares Awarded.  The Committee
may, from time to time, grant Awards to one or more Eligible Employees and may
grant awards in the form of non-qualified Stock Options to Directors who are not
officers or employees of the Company or any Subsidiary, provided that (i)
subject to any adjustment pursuant to Section 16H, the aggregate number of
shares of Stock subject to Awards under this Plan may not exceed 10,000,000
shares; (ii) to the extent that an Award lapses or the rights of the Participant
to whom it was granted terminate (except with respect to an Option that lapses
due to the exercise of a related Stock Appreciation Right), the corresponding
shares of Stock subject to such Award shall again be available for the grant of
an Award under the Plan; and (iii) shares delivered by the

     


    
      
        
          - 5 -


          


           

        

         


      

      
         


        
          

        

      

      
         


      

    


    Company
under the Plan may be authorized and unissued Stock, Stock held in the treasury
of the Company, or Stock purchased on the open market (including private
purchases).

     

    7.           Section
162(M) Compliance

     

    A.           Performance-Based
Awards; Covered Executives.  Notwithstanding any provisions herein to
the contrary, with respect to any Award that is contingent upon the attainment
of performance objectives, including, without limitation, Performance-Based
Restricted Stock, Performance-Based Restricted Stock Units and Performance Units
and is intended to comply with the requirements of Section 162(m) of the Code
(for purposes of this Section 7, “Performance-Based Awards”), granted to an
executive of the Company who, in the opinion of the Board or the Committee, for
a given Performance Period is or is likely to be a “covered employee” within the
meaning of Section 162(m) of the Code (for purposes of this Section 7, a
“Covered Executive”), the Committee shall establish performance objectives (for
purposes of this Section 7, “Performance Goals”) with respect to such Awards no
later than the earlier of (i) 90 days after commencement of the Performance
Period relating to the Performance-Based Award or (ii) the date on which 25% of
the Performance Period relating to the Performance-Based Award will have
elapsed.

     

    B.           Performance
Criteria.  Performance Goals, in the sole discretion of the Committee,
may be based on one or more business criteria that relate to the individual,
groups of individuals, a product or service line, business unit division or
Subsidiary of the Company or the Company as a whole, individually or in any
combination (each of which business criteria may be relative to a specified
goal, to historical performance of the Company or a product or service line,
business unit, division or Subsidiary thereof, or to the performance of any
other corporation or group of corporations or a product or service line,
business unit, division or Subsidiary thereof).  Performance Goals
will be based on one or more of the following criteria: (i) gross, operating or
not earnings before or after income taxes; (ii) earnings per share; (iii) book
value per share; (iv) cash flow per share; (v) return on equity, (vi) return on
investment; (vii) return on assets, employed assets or net assets; (viii) total
stockholder return (expressed on a dollar or percentage basis); (ix) return on
cash flow; (x) internal rate of return; (xi) cash flow return on investment;
(xii) improvements in capital structure; (xiii) residual income; (xiv) gross
income, profitability or net income; (xv) price of any Company security; (xvi)
sales to customers (expressed on a dollar or percentage basis); (xvii) retention
of customers (expressed on a dollar or percentage basis); (xviii) increase in
the Company’s or a Subsidiary’s customer satisfaction ratings (based on a survey
conducted by an independent third party); (xix) economic value added (defined to
mean net operating profit minus the cost of capital); (xx) market value added
(defined to mean the difference between the market value of debt and equity; and
economic book value); (xxi) market share; (xxii) level of expenses; (xxiii)
combined ratio; (xxiv) payback period on investment and (xxv) net present value
of investment.

     

    C.           Certification;
Maximum Award and Committee Discretion.  The Committee shall certify
the satisfaction of the foregoing Performance Goals prior to the payment of a
Performance-Based Award.  No Performance-Based Award with respect to
any Covered Executive shall exceed $3,000,000 (either in cash or in Fair Market
Value of Stock as determined on the Date of Grant, as appropriate to a given
type of Award) for any three-year period.  The Committee, in its sole
discretion, may reduce (but not increase) the amount of any

     


    
      
        
          - 6 -


          


           

        

         


      

      
         


        
          

        

      

      
         


      

    


    Performance-Based
Award determined to be payable to a Covered Executive.  No Covered
Executive may receive more than 5,000,000 in the aggregate of Options, Stock
Appreciation Rights, shares of Performance-Based Restricted Stock, and
Performance-Based Restricted Stock Units for the ten-year period during which
Awards may be made pursuant to Section 3B hereof.

     

    D.           Deferral
of Payment.  Regardless of whether provided for in or in conjunction
with the grant of the Award, the Committee, in its sole discretion, may defer
payment of a Participant’s benefit under this Plan if and to the extent that the
sum of the Participant's Plan benefit, plus all other compensation paid or
payable to the Participant for the fiscal year in which the Plan benefit would
otherwise be paid exceeds the maximum amount of compensation that the Company
may deduct under Section 162(m) of the Code with respect to the Participant for
the year.  If deferred by the Committee, such Award benefit shall be
paid in the first fiscal year of the Company in which the sum of the
Participant’s Plan benefit and all other compensation paid or payable to the
Participant does not exceed the maximum amount of compensation deductible by the
Company under Section 162(m), provided, however, that if the Award is subject to
Section 409A of the Code, payment will be deferred under this Section 7D, unless
the Committee provides otherwise in the Award agreement.

     

    8.           Restricted
Stock and Restricted Stock Unit Awards.

     

    A.           Grants
of Restricted Stock and Restricted Stock Units.  One or more shares of
Restricted Stock or Restricted Stock Units may be granted to any Eligible
Employee.  The Restricted Stock or Restricted Stock Units will be
issued to the Participant on the Date of Grant without the payment of
consideration by the Participant and shall be in the form of either
Service-Based Awards or Performance-Based Awards as described in Paragraph
B.

     

    Restricted
Stock will be issued in the name of the Participant and will bear a restrictive
legend prohibiting sale, transfer, pledge, or hypothecation of the Restricted
Stock until the expiration of the restriction period.  Upon issuance
to the Participant of the Restricted Stock, the Participant will have the right
to vote the shares of Restricted Stock, and unless otherwise provided in the
Award agreement, to receive the cash dividends distributable with respect to
such shares.  If the Committee directs that dividends shall not be
paid currently and instead shall be accumulated, the payment of such dividends
to the Participant shall be made at such times, and in such form and manner, as
satisfies the requirements of Section 409A of the Code.

     

    A
Restricted Stock Unit is a contractual right and no Stock is issued to the
Participant on the Date of Grant.  A Restricted Stock Unit shall not
entitle the holder to receive dividends or to exercise any rights of a holder of
Stock (although the Committee, in its discretion, may award Dividend Equivalents
to the holder under Section 12).

     

    The
Committee may also impose such other restrictions and conditions on the
Restricted Stock and Restricted Stock Units as it deems
appropriate.

     

    B.           Service-Based
Award.

     

    i.           Restriction
Period.  At the time a Service-Based award of Restricted Stock or
Restricted Stock Units is granted, the Committee will establish a restriction
period applicable to such Award which will be not less than one year and not
more than ten

     


    
      
        
          - 7 -


          


           

        

         


      

      
         


        
          

        

      

      
         


      

    


    years.  Each
award of Restricted Stock or Restricted Stock Units may have a different
restriction period, at the discretion of the Committee.

     

    ii.           Forfeiture
or Payout of Award.  In the event a participant ceases employment
during a restriction period, a Restricted Stock Award or Restricted Stock Unit
Award is subject to forfeiture or payout (i.e., removal of restrictions) as
follows: (a) Termination--the Restricted Stock Award or Restricted Stock Unit
Award is completely forfeited; (b) Retirement, Disability or death--payout of
the Restricted Stock Award or Restricted Stock Unit Award is prorated for
service during the period; or (c) Early Retirement--if at the Participant’s
request, the payout or forfeiture of to Restricted Stock Award or Restricted
Stock Unit Award is determined at the discretion of the Committee, or if at the
Company's request, payout of the Restricted Stock Award or Restricted Stock Unit
Award is prorated for service during the period; provided, however, that the
Committee may modify, in the case of clause (b) and (c), the above if it
determines in its sole discretion that special circumstances warrant such
modification.

     

    Any
shares of Restricted Stock that are forfeited will be transferred by the
Participant to the Company.

     

    Upon
completion of the restriction period applicable to a Restricted Stock Award, all
restrictions will expire and a new certificate or certificates representing the
number of Shares as to which the restriction has expired will be issued to the
Participant without the restrictive legend described in Section 8A.

     

    C.           Performance-Based
Award,

     

    i.           Restriction
Period.  At the time a Performance-Based award of Restricted Stock or
Restricted Stock Units is granted, the Committee will establish a restriction
period applicable to such Award that will be not less than one year and not more
than ten years.  Each award of Restricted Stock or Restricted Stock
Units may have a different restriction period, at the discretion of the
Committee.  The Committee will also establish a Performance
Period.

     

    ii.           Performance
Objectives.  The Committee will determine, no later than 90 days after
the beginning of each Performance Period, the performance objectives for each
Participant’s Target Performance Award and the number of shares of Restricted
Stock or Restricted Stock Units for each Target Performance Award that will be
issued on the Date of Grant.  Performance objectives may vary from
Participant to Participant and will be based upon such performance criteria or
combination of factors as the Committee deems appropriate, which may include,
but not be limited to, the performance of the Participant, the Company, one or
more Subsidiaries, or any combination thereof.  Performance Periods
may overlap and Participants may participate simultaneously with respect to,
Performance-Based Restricted Stock Awards and Restricted Stock Unit Awards for
which different Performance Periods are prescribed.

     

    If,
during the course of a Performance Period, significant events occur as
determined in the sole discretion of the Committee, which the Committee expects
to have a substantial effect on a performance objective during such period, the
Committee may revise such objective, provided, however, that with respect to an
Award subject to Section 7, no adjustment

     


    
      
        
          - 8 -


          


           

        

         


      

      
         


        
          

        

      

      
         


      

    


    will be
made that would prevent the Award from satisfying the requirements of Section
162(m) of the Code.

     

    iii.           Forfeiture
or Payout of Award.  As soon as practicable after the end of each
Performance Period, the Committee will determine whether the performance
objectives and other material terms of the Award were satisfied.  The
Committee's determination of all such matters will be final and
conclusive.

     

    As soon
as practicable after the later of (i) the date the Committee makes the above
determination or (ii)  the completion of the restriction period, the
Committee will determine the Earned Performance Award for each
Participant.  Such determination may result in forfeiture of all or
some shares of Restricted Stock or Restricted Stock Units (if Target Performance
Award performance objectives were not attained), or an increase in the amount of
the award (if Target Performance Award performance objectives were exceeded),
and will be based upon such factors as the Committee determines in its sole
discretion, but including the Target Performance Award performance
objectives.

     

    In the
event a Participant ceases employment during a restriction period, the
Restricted Stock Award or Restricted Stock Unit Award is subject to forfeiture
or payout (i.e., removal of restrictions) as follows: (a) Termination--the
Restricted Stock Award or Restricted Stock Unit Award is completely forfeited;
(b) Retirement, Disability or death--payout of the Restricted Stock Award or
Restricted Stock Unit Award is prorated taking into account factors including,
but not limited to, service during the period and the performance of the
Participant during the portion of the Performance Period before employment
ceased; or (c) Early Retirement--if at the Participant's request, the payout or
forfeiture of the Restricted Stock Award or Restricted Stock Unit Award is
determined at the discretion of the Committee, or if at the Company's request,
payout of the Restricted Stock Award or Restricted Stock Unit Award is prorated
taking into account factors including, but not limited to, service during the
period and the performance of the Participant during the portion of the
Performance Period before employment ceased; provided, however, that, in the
case of (b) and (c), the Committee may modify the above if it determines in its
sole discretion that special circumstances warrant such
modification.

     

    Any
shares of Restricted Stock that are forfeited shall be transferred by the
Participant to the Company.

     

    With
respect to shares of Restricted Stock which are earned, a new certificate or
certificates will be issued to the Participant without the restrictive legend
described in Section 8A.  A certificate or certificates will also be
issued for additional Stock, if any, awarded to the Participant because Target
Performance Award performance objectives were exceeded.

     

    With
respect to Restricted Stock Units which are earned, a payment will be made to
the Participant in cash, Stock or a combination thereof, as determined by the
Committee in its sole discretion.  Unless the Committee provides
otherwise in an Award agreement, such payment shall be made in full to the
Participant no later than the 15th day of the third month after the end of the
first calendar year in which the Restricted Stock Unit is no longer

     


    
      
        
          - 9 -


          


           

        

         


      

      
         


        
          

        

      

      
         


      

    


    subject
to a “substantial risk of forfeiture” within the meaning of Section 409A of the
Code.  If the Committee provides in an Award agreement that a
Restricted Stock Unit is intended to be subject to Section 409A of the Code, the
Award agreement will include terms that are designed to satisfy the requirements
of Section 409A.

     

    D.           Waiver
of Section 83(B) Election.  Unless otherwise directed by the
Committee, as a condition of receiving an Award of Restricted Stock, a
Participant must waive in writing the right to make an election under Section
83(b) of the Code to report the value of the Restricted Stock as income on the
Date of Grant.

     

    9.           Stock
Options.

     

    A.           Grants
of Options.  One or more Options may be granted to any Eligible
Employee or Director, without the payment of consideration by the
Participant.  In addition, unless prospectively modified by the Board,
each year each director who is not an officer or employee of the Company or any
Subsidiary will receive on or about May 1, commencing after the Effective Date,
a non-qualified Stock Option to purchase 1,000 shares of Stock.

     

    B.           Stock
Option Agreement.  Each Option granted under the Plan will be
evidenced by a “Stock Option Agreement” between the Company and the Participant
containing provisions determined by the Committee, including, without
limitation, provisions to qualify Incentive Stock Options as such under Section
422 of the Code if directed by the Committee at the Date of Grant; provided,
however, that each Stock Option Agreement with respect to an Incentive Stock
Option must include the following terms and conditions:  (i) that the
Options are exercisable, either in total or in part, with a partial exercise not
affecting the exercisability of the balance of the Option; (ii) every share of
Stock purchased through the exercise of an Option will be paid for in full at
the time of the exercise; (iii) each Option will cease to be exercisable, as to
any share of Stock, at the earliest of (a) the Participant’s purchase of the
Stock to which the Option relates, (b) the Participant’s exercise of a related
Stock Appreciation Right or (c) the lapse of the Option; (iv) Options will not
be transferable by to Participant except by Will or the laws of descent and
distribution and will be exercisable during the Participant's lifetime only by
the Participant or by the Participant's guardian or legal representative; and
(v) notwithstanding any other provision, in the event of a public tender for all
or any portion of the Stock or in the event that any proposal to merge or
consolidate the Company with another company is submitted to the stockholders of
the Company for a vote, the Committee, in its sole discretion, may declare any
previously granted Option to be immediately exercisable.  A
Participant to whom an Incentive Stock Option is granted must be an employee of
the Company or of a corporation in which the Company owns, directly or
indirectly, stock possessing 50% or more of the voting interest within the
meaning of Section 424(f) of the Code.

     

    C.           Option
Price.  The Option price per share of Stock will be set by the
Committee at the time of the grant, but will be not less than 100% of the Fair
Market Value at the Date of Grant.

     

    D.           Form
of Payment.  At the time of the exercise of the Option, the Option
price will be payable in cash or, if permitted by the Committee, in other shares
of Stock or in a combination of cash and other shares of Stock in a form and
manner as required by the

     


    
      
        
          - 10 -


          


           

        

         


      

      
         


        
          

        

      

      
         


      

    


    Committee
in its sole discretion; provided that any shares of Stock used in full or
partial payment of the Option price shall have been held by the Participant for
a period of at least six months.  When Stock is used in full or
partial payment of the Option price, it will be valued at the Fair Market Value
on the date the Option is exercised.

     

    E.           Other
Terms and Conditions.  The Option will become exercisable in such
manner and within such Option Period or Periods, not to exceed ten years from
its Date of Grant, as set forth in the Stock Option Agreement upon payment in
full of the Option Price.  Except as otherwise provided in this Plan
or in the Stock Option Agreement, any Option may be exercised in whole or in
part at any time.

     

    F.           Lapse
of Option.  An Option will lapse upon the earlier of: (i) ten years
from the Date of Grant, or (ii) at the expiration of the Option
Period.  If the Participant ceases employment or ceases to be a
Director within the Option Period and prior to the lapse of the Option, the
Option will lapse as follows: (a) Termination--the Option will lapse on the
effective date of the Termination; or (b) Retirement, Early Retirement, or
Disability--the Option will lapse at the expiration of the Option Period;
provided, however, that the Committee may modify the consequences of this clause
(b) if it determines in its sole discretion that special circumstances warrant
such modification.  If the Participant dies within the Option Period
and prior to the lapse of the Option, the Option will lapse at the expiration of
the Option Period, unless it is exercised before such time by the Participants
legal representative(s) or by the person(s) entitled to do so under the
Participant’s Will or, if the Participant fails to make testamentary disposition
of the Option or dies intestate, by the person(s) entitled to receive the Option
under the applicable laws of descent and distribution, provided, however, that
the Committee may modify the above if it determines in its full discretion that
special circumstances warrant such modification.

     

    G.           Individual
Limitation.  In the case of an Incentive Stock Option, the aggregate
Fair Market Value of the Stock for which Incentive Stock Options (whether under
this Plan or another arrangement) in any calendar year are first exercisable
will not exceed $100,000 with respect to such calendar year (or such other
individual limit as may be in effect under the Code on the Date of Grant) plus
any unused portion of such limit as the Code may permit to be carried
over.

     

    10.           Performance
Units.

     

    A.           Performance
Units.  One or more Performance Units may be earned by an Eligible
Employee based on the achievement of preestablished performance objectives
during a Performance Period.

     

    B.           Performance
Period and Performance Objectives.  The Committee will determine a
Performance Period and will determine, no later than 90 days after the beginning
of each Performance Period, the performance objectives for each Participant’s
Target Performance Award and the number of Performance Units subject to each
Target Performance Award. Performance objectives may vary from Participant to
Participant and will be based upon such performance criteria or combination of
factors as the Committee deems appropriate, which may include, but not be
limited to, the performance of the Participant, the Company, one or more
subsidiaries, or any combination thereof.  Performance Periods may
overlap and Participants

     


    
      
        
          - 11 -


          


           

        

         


      

      
         


        
          

        

      

      
         


      

    


    may
participate simultaneously with respect to Performance Units for which different
Performance Periods are prescribed.

     

    If during
the course of a Performance Period significant events occur as determined in the
sole discretion of the Committee that the Committee expects to have a
substantial effect on a performance objective during such period, the Committee
may revise such objective, provided, however, that with respect to an Award
subject to Section 7, no adjustment will be made that would prevent the Award
from satisfying the requirements of Section 162(m) of the Code.

     

    C.           Forfeiture
or Payout of Award.  As soon as practicable after the end of each
Perforce Period, the Committee will determine whether the performance objectives
and other material terms of the Award were satisfied.  The Committee’s
determination of all such matters will be final and conclusive.

     

    As soon
as practicable after the date the Committee makes the above determination, the
Committee will determine the Earned Performance Award for each
Participant.  Such determination may result in an increase or decrease
in the number of Performance Units payable based upon such Participant’s Target
Performance Award, and will be based upon such factors as the Committee
determines in its sole discretion, but including the Target Performance Award
performance objectives.

     

    In the
event a Participant ceases employment during a Performance Period, the
Performance Unit Award is subject to forfeiture or payout as follows: (a)
Termination--the Performance Unit Award is completely forfeited; (b) Retirement,
Disability or death--payout of the Performance Unit Award is prorated taking
into account factors including, but not limited to, service and the performance
of the Participant during the portion of the Performance Period before
employment ceased; or (c) Early Retirement--if at the Participant’s request, the
payout or forfeiture of the Performance Unit Award is determined at the
discretion of the Committee, or if at the Company's request, payout of the
Performance Unit Award is prorated taking into account factors including, but
not limited to, service and the performance of the Participant during the
portion of the Performance Period before employment ceased; provided, however,
that the Committee may modify the above if it determines in its sole discretion
that special circumstances warrant such modification.

     

    D.           Form
and Timing of Payment.  Each Performance Unit is payable in cash or
shares of Stock or in a combination of cash and Stock, as determined by the
Committee in its sole discretion.  Such payment will be made, except
if otherwise specified in the Award agreement, no later than the 15th day of the
third month after the end of the first calendar year in which the Performance
Unit is no longer subject to a “substantial risk of forfeiture” within the
meaning of Section 409A of the Code.  If the Committee provides in an
Award agreement that a Performance Unit is intended to be subject to Section
409A of the Code, the Award agreement will include terms that are designed to
satisfy the requirements of Section 409A.

     


    
      
        
          - 12 -


          


           

        

         


      

      
         


        
          

        

      

      
         


      

    


    11.           Stock
Appreciation Rights.

     

    A.           Grants
of Stock Appreciation Rights.  Stock Appreciation Rights may be
granted under the Plan in conjunction with an Option either at the Date of Grant
or by amendment or may be separately granted.  Stock Appreciation
Rights will be subject to such terms and conditions not inconsistent with the
Plan as the Committee may impose.

     

    B.           Right
to Exercise; Exercise Period.  A Stock Appreciation Right issued
pursuant to an Option will be exercisable to the extent the Option is
exercisable; both such Stock Appreciation Right and the Option to which it
relates will not be exercisable during the six months following their respective
Dates of Grant except in the event of the Participant's Disability or
death.  A Stock Appreciation Right issued independent of an Option
will be exercisable pursuant to such terms and conditions established in the
grant.  Notwithstanding such terms and conditions, in the event of a
public tender for all or any portion of the Stock or in the event that any
proposal to merge or consolidate the Company with another company is submitted
to the stockholders of the Company for a vote, the Committee, in its sole
discretion, may declare any previously granted Stock Appreciation Right
immediately exercisable.

     

    C.           Failure
to Exercise.  If on the last day of the Option Period, in the case of
a Stock Appreciation Right granted pursuant to an Option, or the specified
Exercise Period, in the case of a Stock Appreciation Right issued independent of
an Option, the Participant has not exercised a Stock Appreciation Right, then
such Stock Appreciation Right will be deemed to have been exercised by the
Participant on the last day of the Option Period or Exercise
Period.

     

    D.           Payment.  An
exercisable Stock Appreciation Right granted pursuant to an Option will entitle
the Participant to surrender unexercised the Option or any portion thereof to
which the Stock Appreciation Right is attached, and to receive in exchange for
the Stock Appreciation Right payment (in cash or Stock or a combination thereof
as described below) equal to the excess of the Fair Market Value of one share of
Stock on the trading day preceding the date of exercise over the Option price,
times the number of shares called for by the Stock Appreciation Right (or
portion thereof) which is so surrendered.  Upon exercise of a Stock
Appreciation Right not granted pursuant to an Option, the Participant will
receive for each Stock Appreciation Right payment (in cash or Stock or a
combination thereof as described below) equal to the excess of the Fair Market
Value of one share of Stock on the trading day preceding the date on which the
Stock Appreciation Right is exercised over the Fair Market Value of one share of
Stock on the Date of Grant of the Stock Appreciation Right, times the number of
shares called for by the Stock Appreciation Right.

     

    The
Committee may direct the payment in settlement of the Stock Appreciation Right
to be in cash or Stock or a combination thereof.  Alternatively, the
Committee may permit the Participant to elect to receive cash in full or partial
settlement of the Stock Appreciation Right.  The value of the Stock to
be received upon exercise of a Stock Appreciation Right shall be the Fair Market
Value of the Stock on the trading day preceding the date on which the Stock
Appreciation Right is exercised.  To the extent that a Stock
Appreciation Right issued pursuant to an Option is exercised, such Option shall
be deemed to have been cancelled.

     


    
      
        
          - 13 -


          


           

        

         


      

      
         


        
          

        

      

      
         


      

    


    E.           Nontransferable.  A
Stock Appreciation Right will not be transferable by the Participant except by
Will or the laws of descent and distribution and will be exercisable during the
Participant’s lifetime only by the Participant or by the Participant's guardian
or legal representative.

     

    F.           Lapse
of a Stock Appreciation Right.  A Stock Appreciation Right will lapse
upon the earlier of: (i) ten years from the Date of Grant; or (ii) at the
expiration of the Exercise Period.  If the Participant ceases
employment within the Exercise Period and prior to the lapse of the Stock
Appreciation Right, the Stock Appreciation Right will lapse as follows: (a)
Termination--the Stock Appreciation Right will lapse on the effective date of
the Termination; or (b) Retirement, Early Retirement, or Disability--the Stock
Appreciation Right will lapse at the expiration of the Exercise Period;
provided, however, that the Committee may modify the consequences of this clause
(b) if it determines in its sole discretion that special circumstances warrant
such modification.  If the Participant dies within the Exercise Period
and prior to the lapse of the Stock Appreciation Right, the Stock Appreciation
Right will lapse at the expiration of the Exercise Period, unless it is
exercised before such time by the Participant’s legal representative(s) or by
the person(s) entitled to do so under the Participant's Will or, if the
Participant fails to make testamentary disposition of the Stock Appreciation
Right or dies intestate, by the person(s) entitled to receive the Stock
Appreciation Right under the applicable laws of descent and distribution,
provided, however, that the Committee may modify the above if it determines in
its sole discretion that special circumstances warrant such
modification.

     

    12.           Dividend
Equivalents.

     

    A.           Grants
of Dividend Equivalents.  Dividend Equivalents may be granted under
the Plan in conjunction with an Option or a separately awarded Stock
Appreciation Right, at the Date of Grant or by amendment, without consideration,
by the Participant.  Dividend Equivalents may also be granted under
the Plan in conjunction with Restricted Stock Awards, Restricted Stock Unit
Awards or Performance Units, at any time during the Performance Period, without
consideration by the Participant.  Dividend Equivalents may be granted
under a Performance-Based Restricted Stock Award in conjunction with additional
shares of Stock issued if Target Performance Award performance objectives are
exceeded.  In each such case, the granting of Dividend Equivalents in
conjunction with an Award that is intended to satisfy the requirements of
Section 162(m) of the Code shall be subject to such limitations or requirements
as are necessary to prevent the Award from failing to satisfy such
requirements.

     

    B.           Payment.  Each
Dividend Equivalent will entitle the Participant to receive an amount equal to
the dividend actually paid with respect to a share of Stock on each dividend
payment date from the Date of Grant to the date the Dividend Equivalent lapses
as set forth in Section 12D.  The Committee, in its sole discretion,
may direct the payment of such amount at such times and in such form and manner
as determined by the Committee.

     

    C.           Nontransferable.  A
Dividend Equivalent will not be transferable by the Participant.

     

    D.           Lapse
of a Dividend Equivalent.  Each Dividend Equivalent will lapse on the
earlier of (i) the date of the lapse of the related Option or Stock Appreciation
Right; (ii) the

     


    
      
        
          - 14 -


          


           

        

         


      

      
         


        
          

        

      

      
         


      

    


    date of
the exercise of the related Option or Stock Appreciation Right; (iii) the end of
the Performance Period (or, if earlier, the date the Participant ceases
employment) of the related Performance Units, Performance Based Restricted Stock
Award or Performance-Based Restricted Stock Unit Award; or (iv) the lapse date
established by the Committee on the Date of Grant of the Dividend
Equivalent.

     

    13.           Unrestricted
Stock

     

    One or
more shares of Unrestricted Stock may be granted to an Eligible
Employee.  Shares of Unrestricted Stock so issued shall not be subject
to any restriction on sale or other transfer by the Participant other than any
restrictions that may be required by law.

     

    14.           Accelerated
Award Payout/Exercise.

     

    A.           Change
in Control.  Notwithstanding anything in this Plan document to the
contrary, a Participant is entitled to an accelerated payout or accelerated
Option Period or Exercise Period (as set forth in Section 14B) with respect to
any previously granted Award if the Participant is terminated as an employee or
Director or terminates for Good Reason within 12 months following a Change in
Control.

     

    B.           Amount
of Award Subject to Accelerated Payout/Option Period/Exercise
Period.  The amount of a Participant’s previously granted Award that
will be paid or exercisable upon the happening of a change in control will be
determined as follows:

     

    Restricted
Stock Awards.  The Participant will be entitled to an accelerated
Award payout, and the amount of the payout will be based on the number of shares
of Restricted Stock that were issued on the Date of Grant, prorated based on the
number of months of the restriction period that have elapsed as of the payout
date.  Also, with respect to Performance-Based Restricted Stock
Awards, in determining the amount of the payout, target award level achievement
will be assumed.

     

    Stock
Option Awards and Stock Appreciation Rights.  Any previously granted
Stock Option Awards or Stock Appreciation Rights will be immediately
exercisable.

     

    Performance
Units.  The Participant will be entitled to an accelerated Award
payout, and the amount of the payout will be based on the number of Performance
Units subject to the Target Performance Award as established on the Date of
Grant, prorated based on the number of months of the Performance Period that
have elapsed as of the payout date, and assuming that target award level was
achieved.

     

    C.           Timing
of Accelerated Payout/Option Period/Exercise Period.  The accelerated
payout set forth in Section 14B will be made within 30 days after the date of
the Participant’s termination, except as provided below.  The
accelerated Option Period/Exercise Period set forth in Section 13B will begin on
the date of the Participant’s termination.  If the original Award
provided for a payout in Stock, any accelerated payout set forth in Section 14B
will be made in Stock.  With respect to any compensation that is
subject to Section 409A of the Code, the accelerated payout set forth in Section
14B will not be paid until the Participant separates from service, within the
meaning of Section 409A, and, in the case of Participant who

     


    
      
        
          - 15 -


          


           

        

         


      

      
         


        
          

        

      

      
         


      

    


    is a
“specified employee” (as determined under Section 409A(a)(2)(B) of the Code),
any payment that would otherwise be made under Section 14B within six months
after the Participant’s separation from employment will be paid in the seventh
month following the Participant's separation.

     

    15.           Amendment
of Plan.  The Board may at any time and from time to time alter,
amend, suspend, or terminate the Plan, in whole or in part, as it shall
determine in its sole discretion; provided that no such action shall, without
the consent of the Participant to whom any Award was previously granted,
adversely affect the rights of such Participant concerning such Award, except to
the extent that such termination, suspension, or amendment of the Plan or the
Award (i) is required by law (including as required to comply with Section 409A
of the Code) or (ii) is deemed by the Board necessary in order to comply with
the requirements of Section 162(m) of the Code or Rule 16b-3 under the Exchange
Act.

     

    16.           Miscellaneous
Provisions,

     

    A.           Nontransferability.  No
benefit provided under this Plan shall be subject to alienation or assignment by
a Participant (or by any person entitled to such benefit pursuant to the terms
of this Plan), nor shall it be subject to attachment or other legal process
except:

     

    (i)           to
the extent specifically mandated and directed by applicable state or federal
statute,

     

    (ii)           as
requested by the Participant (or by any person entitled to such benefit pursuant
to the terms of this Plan), and approved by the Committee, to satisfy income tax
withholding, and

     

    (iii)           if
requested by the Participant, and approved by the Committee, a Participant may
transfer a Stock Option (other than an Incentive Stock Option) for no
consideration to a Permitted Transferee, subject to such terms and condition as
the Committee may impose.

     

    B.           No
Employment Right.  Participation in this Plan shall not constitute a
contract of employment between the Company or any Subsidiary and any person and
shall not be deemed to be consideration for, or a condition of, continued
employment of any person.

     

    C.           Tax
Withholding.  The Company or a Subsidiary may withhold any applicable
federal, state or local taxes at such time and upon such terms and conditions as
required by law or determined by the Company or a Subsidiary.  Subject
to compliance with any requirements of applicable law, the Committee may permit
or require a Participant to have any portion of any withholding or other taxes
payable in respect to a distribution of Stock satisfied through the payment of
cash by the Participant to the Company or a Subsidiary, the retention by the
Company or a Subsidiary of shares of Stock, or delivery of previously owned
shares of the Participant’s Stock having a Fair Market Value equal to the
withholding amount.  Any fractional share of Common Stock required to
satisfy such withholding obligations shall be disregarded and the amount due
shall be paid in cash by the Participant.

     


    
      
        
          - 16 -


          


           

        

         


      

      
         


        
          

        

      

      
         


      

    


    D.           Fractional
Shares.  Any fractional shares concerning Awards shall be eliminated
at the time of payment or payout by rounding down for fractions of less than
one-half and rounding up for fractions of equal to or more than
one-half.  No cash settlements shall be made with respect to
fractional shares eliminated by rounding.

     

    E.           
Government and Other Regulations.  The obligation of the Company to
make payment of Awards in Stock or otherwise shall be subject to all applicable
laws, rules, and regulations, and to such approvals by any government agencies
as may be required.  The Company shall be under no obligation to
register under the Securities Act of 1933, as amended (“Act”), any of the shares
of Stock issued, delivered or paid in settlement under the Plan.  If
Stock awarded under the Plan is issued under circumstances that are designed to
exempt the transaction from registration under the Act, the Company may restrict
the transfer of the Stock in such manner as it deems advisable to ensure such
exempt status.

     

    F.           Indemnification.  Each
person who is or at any time serves as a member of the Board or the Committee
(and each person to whom the Board or the Committee has delegated any of its
authority or power under this Plan) shall be indemnified and hold harmless by
the Company against and from (i) any loss, cost, liability, or expense that may
be imposed upon or reasonably incurred by such person in connection with or
resulting from any claim, action, suit, or proceeding to which such person may
be a party or in which such person may be involved by reason of any action or
failure to act under the Plan; and (ii) any and all amounts paid by such person
in satisfaction of judgment in any such action, suit, or proceeding relating to
the Plan.  Each person covered by this indemnification shall give the
Company an opportunity, at its own expense, to handle and defend the same before
such person undertakes to handle and defend it on such person's own
behalf.  The foregoing right of indemnification shall not be exclusive
of any other rights of indemnification to which such persons may be entitled
under the Certificate of incorporation or Bylaws of the Company or any of its
Subsidiaries, as a matter of law, or otherwise, or any power that the Company
may have to indemnify such person or hold such person harmless.

     

    G.           Reliance
on Reports.  Each member of the Board or the Committee (and each
person to whom the Board or the Committee has delegated any of its authority or
power under this Plan) shall be fully justified in relying or acting in good
faith upon any report made by the independent public accountants of the Company
and its Subsidiaries and upon any other information furnished in connection with
the Plan.  In no event shall any person who is or shall have been a
member of the Board or the Committee (or their delegates) be liable for any
determination made or other action taken or any omission to act in reliance upon
any such report or information or for any action taken, including the furnishing
of information, or failure to act, if in good faith.

     

    H.           Changes
in Capital Structure.  In the event of any change in the outstanding
shares of Stock by reason of any stock dividend or split, recapitalization,
combination or exchange of shares or other similar changes in the Stock, then
appropriate adjustments shall be made in the shares of Stock theretofore awarded
to the Participants and in the aggregate number of shares of Stock which may be
awarded pursuant to the Plan.  Such adjustments shall be conclusive
and binding for all purposes.  Additional shares of Stock
issued

     


    
      
        
          - 17 -


          


           

        

         


      

      
         


        
          

        

      

      
         


      

    


    to a
Participant as the result of any such change shall bear the same restrictions as
the shares of Stock to which they relate.

     

    I.           Company
Successors.  In the event the Company becomes a party to a merger,
consolidation, sale of substantially all of its assets or any other corporate
reorganization in which the Company will not be the surviving corporation or in
which the holders of the Stock will receive securities of another corporation
(in any such case, the “New Company”), then the New Company shall assume the
rights and obligations of the Company under this Plan.

     

    J.           Governing
Law.  All matters relating to the Plan or to Awards granted hereunder
shall be governed by the laws of the State of Delaware, without regard to the
principles of conflict of laws.

     

    K.           Relationship
to Other Benefits.  Any Awards under this Plan are not considered
compensation for purposes of determining benefits under any pension, profit
sharing, or other retirement or welfare plan, or for any other general employee
benefit program.

     

    L.           Expenses.  The
expenses of administering the Plan shall be borne by the Company and its
Subsidiaries.

     

    M.           Titles
and Headings.  The titles and headings of the sections in the Plan are
for convenience of reference only, and in the event of any conflict, the text of
the Plan, rather than such titles or headings, shall control.

     

    N.           Deferred
Payment.  The Committee, in its discretion, may permit a Participant
to deter the payment of an Award that would otherwise be made under this Plan,
provided, however, that no deferral election will be offered if such deferral
election or the offer of such deferral election would cause an Award that is
otherwise exempt from Section 409A of the Code to become subject to Section
409A.  Any election to defer payment of an Award shall be made under
the Pepco Holdings, Inc. Executive and Director Deferred Compensation Plan, or
any successor plan.

     

    0.           No
Guarantee of Favorable TV Treatment.  Although the Committee intends
to administer the Plan so that Awards will be exempt from, or will comply with,
the requirements of Section 409A of the Code, the Company does not warrant that
any Award under the Plan will qualify for favorable tax treatment under Code
Section 409A or any other provision of federal, state, local, or foreign
law.  The Company shall not be liable to any Participant for any tax
the Participant might owe as a result of the grant, holding, vesting, exercise,
or payment of any Award under the Plan.


    
      
        
          - 18
- 

          


           

        

         


      

      
         


        
          

        

      

      
         


      

    


    IN WITNESS THEREOF, the
Company has caused this Plan to be signed this 3rd day of
November, 2008 which version reflects all modifications made to the Plan through
such date of execution.

    


    
      	
              ATTEST

            	 
      	 
      	
              Pepco
      Holdings, Inc.

            
	 
      	 
      	 
      	 
      
	
              By:

            	
              /s/
      ELLEN S. ROGERS

            	 
      	
              /s/
      D. R. WRAASE

            
	 
      	
              Corporate
      Secretary

            	 
      	
              Chief
      Executive Officer

            


    

    



    
      
        
          - 19 -