This document sets forth the Insider Trading Policy (the "Policy") of Pepco Holdings, Inc. ("Pepco Holdings"). This Policy establishes the policies, procedures and restrictions that govern trading by personnel of Pepco Holdings and each of its subsidiaries in Pepco Holdings securities, as well as the pre-clearance requirements applicable to transactions in company stock. The Policy has been adopted by the Board of Directors of Pepco Holdings to fulfill Pepco Holdings' responsibilities as a public company under the federal securities laws.
Under the federal securities laws, it is unlawful for any person who has a duty of trust and confidence to a public company to trade in the securities of the public company on the basis of material nonpublic information (so-called "inside" information). Generally, the purchase or sale of a security is considered to be on the basis of material nonpublic information if the person making the purchase or sale is aware of the material nonpublic information at the time of the trade.
In addition, the Board of Directors has determined that certain trading activities involving Pepco Holdings securities or instruments that derive their value from the price of Pepco Holdings securities ("Derivative Securities") are contrary to the best interests of Pepco Holdings and are also inconsistent with the share ownership guidelines applicable to the directors and officers of Pepco Holdings. It is important that all personnel of Pepco Holdings and its subsidiaries review the Policy carefully. Noncompliance with the Policy is grounds for immediate dismissal. Trading on inside information also can result in a serious violation of the securities laws leading potentially to both civil and criminal penalties.
Any director, officer or employee (including any person whose employment relationship is formally that of an independent contractor or consultant) of Pepco Holdings or any of its subsidiaries.
1. Trading in Pepco Holdings securities or other Derivative Securities.
2. Advising others concerning the trading of Pepco Holdings securities.
3. Disclosing the material information to any other person for the purpose of enabling such person to trade in Pepco Holdings securities or other Derivative Securities.
These restrictions remain in effect until the material information is fully disclosed to the public or until the information, although not disclosed, ceases to be material. These restrictions also continue in effect notwithstanding the resignation or retirement of the director, officer or employee.
For the purposes of this Policy, trading includes purchases and sales of securities, Derivative Securities and debt securities (such as debentures, bonds and notes) of Pepco Holdings. Trading also includes certain transactions under Pepco Holdings plans, as follows:
"Material" information is any information that a reasonable investor would consider important in deciding whether to buy, sell or hold Pepco Holdings securities. Although what is "material" will depend on the specific facts, common examples of information frequently regarded as material are:
Either positive or adverse information may be material. The broadest interpretation should be given to what is "material." Any director, officer or employee who has questions concerning the materiality of any nonpublic information, should contact the Office of the Corporate Secretary (202-872-3487) for guidance. When in doubt as to the materiality of any nonpublic information, personnel of Pepco Holdings and its subsidiaries should refrain from trading.
Directors, officers and other executives of Pepco Holdings and its subsidiaries, together with their family members, may not engage in any transaction covered by this Policy without first obtaining pre-clearance of the transaction. Officers include individuals designated as executives of the Company. A request for pre-clearance should be submitted to the Corporate Secretary in writing or via email at least two days in advance of the proposed transaction. You may not proceed with the transaction until written approval is obtained. Any such approval will be valid for only two business days after it is communicated, after which time a new request for pre-clearance must be submitted. Please check with the Office of Corporate Secretary if you have a question regarding whether you are included in this group.
There are strict criminal and civil penalties for violating the insider trading rules.
There are no limits on the size of the transaction that can trigger insider trading liability. Relatively small trades have in the past occasioned investigations by the SEC and lawsuits.
Information is considered to be "nonpublic" if it has not received adequate public disclosure. Adequate public disclosure requires that the information be widely disclosed (such as to the wire services through a press release) and that a sufficient period of time has elapsed for the information to be effectively disseminated to shareholders. Until there has been adequate public disclosure of material information, any director, officer or employee of Pepco Holdings or its subsidiaries with knowledge of the information must refrain from trading Pepco Holdings securities. Equally important, such person may not authorize or direct any members of such person's immediate family or anyone acting on such person's behalf to trade in Pepco Holdings securities. As a general rule, directors, officers and employees of Pepco Holdings and its subsidiaries with inside information should wait until the third business day after a public disclosure of such information in a quarterly or annual earnings release or other form of public disclosure before trading in Pepco Holdings securities.
Furthermore, subject to certain limited exceptions, directors, officers and executives of Pepco Holdings and its subsidiaries are generally prohibited from trading in Company securities during certain prescribed periods each quarter, which are referred to as “black-out periods.” A black-out period commences on the business day occurring two weeks prior to the end of each calendar quarter and ends on the second business day following the release of the Company’s year-end or quarterly financial information to the public. An email is sent to all officers by the Office of the Corporate Secretary indicating the black-out has been lifted following the release of quarterly or year-end financial information. All transactions covered by the Policy are prohibited during a black-out period.
Any person with questions regarding the black-out period should contact the Office of the Corporate Secretary.
Yes. It is also vital that directors, officers and employees of Pepco Holdings and its subsidiaries not disclose material nonpublic information to others (except where necessary in the proper conduct of Pepco Holdings' business). If the recipient of the information then trades on the basis of the information, the disclosure (referred to as tipping) also is a violation of the federal securities laws and the result can be liability imposed on both the tipper and the recipient of the information.
A director, officer or employee also could be liable under the federal securities laws for trading in the securities of any other public company based on material nonpublic information that they learn in the course of their employment with or service to Pepco Holdings. This includes information about companies that are co-venturers, subcontractors, suppliers or customers. Trading in securities of another public company on the basis of material nonpublic information is a violation of this Policy.
If you are a director or member of the ELT or another officer subject to Section 16 reporting requirements and you effect any transaction in Pepco Holdings securities, including pursuant to a Rule 10b5-1 trading plan, you (or, in the case of a Rule 10b5-1 plan transaction, the broker administering the plan) must immediately report the transaction to the Office of the Corporate Secretary. This requirement is to ensure compliance with the accelerated reporting requirements under Section 16 of the Exchange Act and the requirement to deliver to the Securities and Exchange Commission a Form 144 in connection with certain sales of Pepco Holdings’’ common stock and this Policy.
Under SEC Rule 10b5-1, a purchase or sale of a security will not be deemed to have been made on the basis of material nonpublic information if the person making the trade demonstrates that the trade was made pursuant to a binding agreement or written plan entered into or adopted at a time that the person was not aware of any material nonpublic information. Such a binding agreement or written plan must:
After entering into the agreement or plan, the person cannot, while in possession of material nonpublic information, (i) alter or deviate from the agreement or plan or (ii) enter into or alter any corresponding or hedging transaction or position to offset or reduce the risk associated with the agreement or plan.
A transaction in accordance with an agreement or plan that meets the requirements of Rule 10b5-1 is permitted under this Policy, and purchases or sales pursuant to such an agreement or plan will not violate this Policy, if the following conditions are satisfied:
1. Any person subject to the pre-clearance requirements of this Policy who wishes to implement a trading plan, or amend an existing pre-cleared plan, under SEC Rule 10b5-1 must also obtain pre-clearance of the plan. A copy of the 10b5-1 plan or any amendment thereof must be provided to the Office of the Corporate Secretary for review and approval. As required by Rule 10b5-1, you may enter into a trading plan only when you are not in possession of material nonpublic information. In addition, you may not enter into a trading plan during a black-out period: for example, the period of time commencing on the business day occurring two weeks prior to the end of each quarter until two business days after earnings information has been released. Transactions effected pursuant to a pre-cleared trading plan will not require further pre-clearance at the time of the transaction if the plan specifies the dates, prices and amounts of the contemplated trades, or establishes a formula for determining the dates, prices and amounts.; and
2. The person promptly reports to the Office of the Corporate Secretary (i) all transactions made pursuant to the pre-cleared trading plan and (ii) the completion or termination thereof.
Even in circumstances where a director, officer or employee is not aware of any material nonpublic information concerning Pepco Holdings or any of its subsidiaries, the Board of Directors has determined that certain types of transactions involving Pepco Holdings securities or a Derivative Security are prohibited. This prohibition is based on the Board's desire to ensure that all directors, officers and employees (i) are focused on the long-term goals and prospects of Pepco Holdings and are not distracted by speculative trading in Pepco Holdings securities and Derivative Securities and (ii) do not enter into transactions with the purpose of limiting the investment risk of owning Pepco Holdings securities.
The following transactions are prohibited by this Policy:
Because hedging transactions can result in the misalignment of the ownership interests of Pepco Holdings' directors, officers and employees and those of the company's shareholders, the Board of Directors has determined that no director, officer or employee may engage in any of the transactions described above or in any other transaction of a similar nature that has the effect of reducing or eliminating the investment risks associated with any Pepco Holdings securities owned by such person. This prohibition applies whether the stock has been acquired from Pepco Holdings, as for example pursuant to an employee benefit plan, or has been purchased by the holder in the market.
Any director, officer or employee who has questions concerning the application of these prohibitions should contact the Office of the Corporate Secretary (202-872-3487) for guidance.
1. The rules against "insider trading" are applicable to all directors, officers and employees of Pepco Holdings and its subsidiaries.
2. Legal constraints and Company policy prohibit all directors, officers and employees of Pepco Holdings and its subsidiaries from trading in Pepco Holdings securities at any time when they are aware of material nonpublic information.
Officers, directors and other supervisory personnel should take steps to limit the disclosure of confidential and material information to those employees with a "need to know," and when disclosure is necessary, all recipients should be counseled to comply with the laws and Company policy.
3. All directors, officers and employees are prohibited from (i) engaging in short sales of Pepco Holdings securities, (ii) purchasing and selling call options and put options on Pepco Holdings securities and other Derivative Securities,(iii) engaging in hedging transactions to reduce or eliminate the risks of ownership of Pepco Holdings securities and (iv) pledging or margining Pepco Holdings securities.
4. The restrictions imposed by this Policy on Pepco Holdings’ directors, officers and employees also extend to members of such person's immediate family or to anyone acting on such person's behalf.