-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DZCxgKNZqyedt23dmoj3HBy1ISA2GM9QBwxanR/zFb39H7JnIn4c0d9FFy17ncCz PNzyktXvnHkSKPCEDbFRzA== 0000009466-00-000006.txt : 20000414 0000009466-00-000006.hdr.sgml : 20000414 ACCESSION NUMBER: 0000009466-00-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 20000413 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BALTIMORE GAS & ELECTRIC CO CENTRAL INDEX KEY: 0000009466 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 520280210 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-01910 FILM NUMBER: 600494 BUSINESS ADDRESS: STREET 1: 39 W LEXINGTON ST STREET 2: CHARLES CTR CITY: BALTIMORE STATE: MD ZIP: 21201 BUSINESS PHONE: 4102345511 10-Q 1 QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ---------------------------------- QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Quarterly Period Ended March 31, 1999 Commission Exact name of registrant IRS Employer file number as specified in its charter Identification No. ----------- --------------------------- ------------------ 1-12869 CONSTELLATION ENERGY GROUP, INC. 52-1964611 1-1910 BALTIMORE GAS AND ELECTRIC COMPANY 52-0280210 Maryland ----------------------------------- (State of Incorporation) 39 W. Lexington Street Baltimore, Maryland 21201 ------------------------------------------------ (Address of principal executive offices) (Zip Code) 410-783-5920 (Registrant's telephone number, including area code) Not Applicable (Former name,former address and former fiscal year,if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No Common Stock, without par value - 149,556,416 shares outstanding on May 3, 1999. 1 CONSTELLATION ENERGY GROUP, INC. -------------------------------- PART I. FINANCIAL INFORMATION - ----------------------------- Item 1. Financial Statements Consolidated Statements of Income (Unaudited) - ---------------------------------------------
Three Months Ended March 31, --------------------------------- 1999 1998 ---------- ---------- (In Millions, Except Per-Share Amounts) Revenues Electric $ 513.0 $ 499.2 Gas 192.8 180.5 Diversified businesses 226.5 186.4 ---------- ---------- Total revenues 932.3 866.1 ---------- ---------- Expenses Other Than Interest and Income Taxes Electric fuel and purchased energy 121.1 126.5 Gas purchased for resale 102.1 98.3 Operations 135.3 126.1 Maintenance 48.9 34.2 Diversified businesses - selling, general, and administrative 176.3 144.1 Depreciation and amortization 90.3 96.5 Taxes other than income taxes 60.2 57.0 ---------- ---------- Total expenses other than interest and income taxes 734.2 682.7 ---------- ---------- Income From Operations 198.1 183.4 ---------- ---------- Other Income (Expense) Allowance for equity funds used during construction 1.7 1.7 Equity in earnings of Safe Harbor Water Power Corporation 1.3 1.2 Net other expense (3.8) (1.0) ---------- ---------- Total other income (expense) (0.8) 1.9 ---------- ---------- Income Before Interest and Income Taxes 197.3 185.3 ---------- ---------- Interest Expense Interest charges 62.4 61.8 Capitalized interest (0.3) (1.4) Allowance for borrowed funds used during construction (0.9) (0.9) ---------- ---------- Net interest expense 61.2 59.5 ---------- ---------- Income Before Income Taxes 136.1 125.8 ---------- ---------- Income Taxes Current 49.6 57.3 Deferred 2.5 (9.9) Investment tax credit adjustments (2.2) (1.8) ---------- ---------- Total income taxes 49.9 45.6 ---------- ---------- Net Income 86.2 80.2 Preference Stock Dividends 3.4 5.8 ---------- ---------- Earnings Applicable to Common Stock $ 82.8 $ 74.4 ========== ========== Average Shares of Common Stock Outstanding 149.5 147.9 Earnings Per Common Share and Earnings Per Common Share - Assuming Dilution $0.55 $0.50 Dividends Declared Per Share of Common Stock $0.42 $0.41 Consolidated Statements of Comprehensive Income (Unaudited) - ----------------------------------------------------------- Net income $ 86.2 $ 80.2 Other comprehensive income (expense), net of taxes (3.2) 0.9 ---------- ---------- Comprehensive Income $ 83.0 $ 81.1 ========== ==========
See Notes to Consolidated Financial Statements. 2 CONSTELLATION ENERGY GROUP, INC. -------------------------------- PART I. FINANCIAL INFORMATION (Continued) - ----------------------------------------- Item 1. Financial Statements Consolidated Balance Sheets - ---------------------------
March 31, December 31, 1999* 1998 -------------- ------------- (In Millions) ASSETS Current Assets Cash and cash equivalents $ 344.0 $ 173.7 Accounts receivable (net of allowance for uncollectibles of $21.4 and $20.3 respectively) 422.7 401.8 Trading securities 118.5 119.7 Fuel stocks 47.2 85.4 Materials and supplies 148.3 145.1 Prepaid taxes other than income taxes 32.0 68.8 Assets from energy trading activities 215.6 160.2 Other 19.7 21.4 -------------- ------------- Total current assets 1,348.0 1,176.1 -------------- ------------- Investments and Other Assets Real estate projects and investments 335.6 353.9 Power projects 641.4 656.8 Financial investments 188.9 198.0 Nuclear decommissioning trust fund 191.0 181.4 Net pension asset 102.3 108.0 Safe Harbor Water Power Corporation 34.4 34.4 Senior living facilities 99.3 93.5 Other 114.5 115.4 -------------- ------------- Total investments and other assets 1,707.4 1,741.4 -------------- ------------- Utility Plant Plant in service Electric 6,927.3 6,890.3 Gas 934.3 921.3 Common 554.3 552.8 -------------- ------------- Total plant in service 8,415.9 8,364.4 Accumulated depreciation (3,141.7) (3,087.5) -------------- ------------- Net plant in service 5,274.2 5,276.9 Construction work in progress 218.2 223.0 Nuclear fuel (net of amortization) 122.2 132.5 Plant held for future use 25.4 24.3 -------------- ------------- Net utility plant 5,640.0 5,656.7 -------------- ------------- Deferred Charges Regulatory assets (net) 529.4 565.7 Other 58.8 55.1 -------------- ------------- Total deferred charges 588.2 620.8 -------------- ------------- TOTAL ASSETS $ 9,283.6 $ 9,195.0 ============== =============
* Unaudited See Notes to Consolidated Financial Statements. 3 CONSTELLATION ENERGY GROUP, INC. -------------------------------- PART I. FINANCIAL INFORMATION (Continued) - ----------------------------------------- Item 1. Financial Statements Consolidated Balance Sheets - ---------------------------
March 31, December 31, 1999* 1998 -------------- ------------- (In Millions) LIABILITIES AND CAPITALIZATION Current Liabilities Current portions of long-term debt and preference stock $ 510.4 $ 541.7 Accounts payable 254.6 249.6 Customer deposits 36.9 35.5 Accrued taxes 59.8 6.5 Accrued interest 66.9 58.6 Dividends declared 66.3 66.1 Accrued vacation costs 36.1 34.7 Liabilities from energy trading activities 158.2 126.2 Other 23.7 45.3 -------------- ------------- Total current liabilities 1,212.9 1,164.2 -------------- ------------- Deferred Credits and Other Liabilities Deferred income taxes 1,305.5 1,309.1 Postretirement and postemployment benefits 226.3 217.0 Deferred investment tax credits 115.8 118.0 Decommissioning of federal uranium enrichment facilities 30.8 30.8 Other 60.6 56.3 -------------- ------------- Total deferred credits and other liabilities 1,739.0 1,731.2 -------------- ------------- Capitalization Long-term Debt First refunding mortgage bonds of BGE 1,554.2 1,554.2 Other long-term debt of BGE 1,000.8 1,000.8 BGE obligated mandatorily redeemable trust preferred securities 250.0 250.0 Long-term debt of diversified businesses 846.4 870.2 Unamortized discount and premium (12.1) (12.4) Current portion of long-term debt (503.4) (534.7) -------------- ------------- Total long-term debt 3,135.9 3,128.1 -------------- ------------- Redeemable Preference Stock 7.0 7.0 Current portion of redeemable preference stock (7.0) (7.0) -------------- ------------- Total redeemable preference stock - - -------------- ------------- Preference Stock Not Subject to Mandatory Redemption 190.0 190.0 -------------- ------------- Common Shareholders' Equity Common stock 1,492.6 1,485.1 Retained earnings 1,510.3 1,490.3 Accumulated other comprehensive income 2.9 6.1 -------------- ------------- Total common shareholders' equity 3,005.8 2,981.5 -------------- ------------- Total capitalization 6,331.7 6,299.6 -------------- ------------- TOTAL LIABILITIES AND CAPITALIZATION $ 9,283.6 $ 9,195.0 ============== =============
* Unaudited See Notes to Consolidated Financial Statements. 4 CONSTELLATION ENERGY GROUP, INC. -------------------------------- PART I. FINANCIAL INFORMATION (Continued) - ----------------------------------------- Item 1. Financial Statements Consolidated Statements of Cash Flows (Unaudited) - -------------------------------------------------
Three Months Ended March 31, -------------------------------- 1999 1998 ------------ ------------ (In Millions) Cash Flows From Operating Activities Net income $ 86.2 $ 80.2 Adjustments to reconcile to net cash provided by operating activities Depreciation and amortization 104.7 110.3 Deferred income taxes 2.5 (9.9) Investment tax credit adjustments (2.2) (1.8) Deferred fuel costs 7.6 22.8 Accrued pension and postemployment benefits 16.2 4.5 Allowance for equity funds used during construction (1.7) (1.7) Equity in earnings of affiliates and joint ventures (net) 22.5 (6.0) Changes in assets from energy trading activities (55.5) (51.2) Changes in liabilities from energy trading activities 32.0 41.9 Changes in other current assets 57.6 94.4 Changes in other current liabilities 53.4 4.6 Other (2.4) (12.1) ------------ ------------ Net cash provided by operating activities 320.9 276.0 ------------ ------------ Cash Flows From Investing Activities Utility construction expenditures (including AFC) (73.4) (63.1) Allowance for equity funds used during construction 1.7 1.7 Nuclear fuel expenditures (1.6) (2.8) Deferred conservation expenditures (0.3) (4.8) Contributions to nuclear decommissioning trust fund (4.4) (4.4) Purchases of marketable equity securities (7.8) (6.1) Sales of marketable equity securities 4.2 9.8 Other financial investments 5.5 (2.1) Real estate projects and investments 26.1 31.8 Power projects (5.5) (61.7) Other (12.1) (11.6) ------------ ------------ Net cash used in investing activities (67.6) (113.3) ------------ ------------ Cash Flows From Financing Activities Proceeds from issuance of: Short-term borrowings 523.5 1,090.1 Long-term debt 104.6 36.4 Common stock 9.6 12.6 Repayment of short-term borrowings (523.5) (1,185.6) Reacquisition of long-term debt (128.8) (29.9) Common stock dividends paid (62.7) (60.5) Preference stock dividends paid (3.4) (5.8) Other (2.3) (3.3) ------------ ------------ Net cash used in financing activities (83.0) (146.0) ------------ ------------ Net Increase in Cash and Cash Equivalents 170.3 16.7 Cash and Cash Equivalents at Beginning of Period 173.7 162.6 ------------ ------------ Cash and Cash Equivalents at End of Period $ 344.0 $ 179.3 ============ ============ Other Cash Flow Information: Interest paid (net of amounts capitalized) $ 51.6 $ 51.5 Income taxes paid $ 1.0 $ 0.8
See Notes to Consolidated Financial Statements. Certain prior period amounts have been reclassified to conform with the current period presentation. 5 Notes to Consolidated Financial Statements - ------------------------------------------ Weather conditions can have a great impact on our results for interim periods. This means that results for interim periods do not necessarily represent results to be expected for the year. Our interim financial statements on the previous pages reflect all adjustments which Management believes are necessary for the fair presentation of the financial position and results of operations for the interim periods presented. These adjustments are of a normal recurring nature. Holding Company Formation - ------------------------- On April 30, 1999, Constellation Energy Group, Inc. (Constellation Energy) became the holding company for Baltimore Gas and Electric Company (BGE) and BGE's former subsidiary Constellation Enterprises, Inc. BGE's outstanding common stock was exchanged on a share-for-share basis for shares of common stock of Constellation Energy. BGE's debt securities, BGE obligated mandatorily redeemable trust preferred securities, and preference stock remain securities of BGE. Basis of Presentation - --------------------- This Quarterly Report on Form 10-Q is a combined report of Constellation Energy and BGE. The consolidated financial statements include the accounts of BGE, Constellation Enterprises, Inc. and its subsidiaries, District Chilled Water General Partnership (ComfortLink), and BGE Capital Trust I and, therefore, also represent the consolidated financial statements of Constellation Energy. References in this report to "we" and "our" are to Constellation Energy and its subsidiaries, collectively. Information by Operating Segment - --------------------------------
Energy Other Unallocated Electric Gas Services Diversified Corporate Business Business Businesses Businesses Items (a) Eliminations Consolidated ------------ ------------ ------------- --------------- -------------- ------------- --------------- For the three months ended March 31, (in millions) 1999 - ---- Unaffiliated revenues $ 513.0 $192.8 $ 177.5 $ 49.0 $ - $ - $ 932.3 Intersegment revenues 0.4 2.1 0.6 (0.3) - (2.8) - ----------- ------------ ------------- --------------- -------------- ------------- --------------- Total revenues 513.4 194.9 178.1 48.7 - (2.8) 932.3 Net income (loss) 49.4 22.0 16.1 (1.6) - 0.3 86.2 Segment assets 6,314.7 888.8 1,299.9 803.8 (11.4) (12.2) 9,283.6 - -------------------------- ----------- ------------ ------------- --------------- -------------- ------------- --------------- 1998 - ---- Unaffiliated revenues $ 499.2 $180.5 $ 116.3 $ 70.1 $ - $ - $ 866.1 Intersegment revenues - - 0.1 0.2 - (0.3) - ----------- ------------ ------------- --------------- -------------- ------------- --------------- Total revenues 499.2 180.5 116.4 70.3 - (0.3) 866.1 Net income 50.5 16.4 10.0 3.0 - 0.3 80.2 Segment assets 6,287.3 864.5 1,070.6 647.6 2.8 (1.3) 8,871.5
(a) A holding company for our diversified businesses does not allocate the items presented in the table to our Energy Services and Other Diversified businesses. 6 Financing Activity - ------------------ Constellation Energy - -------------------- Issuances - --------- As discussed on page 6, effective April 30, 1999, BGE's outstanding common stock was exchanged on a share-for-share basis for shares of common stock of Constellation Energy. BGE - --- Issuances - --------- BGE issued the following medium-term notes during the period from January 1, 1999 through the date of this report: Date Net Principal Issued Proceeds --------- ------ -------- (In millions) Series G - -------- Floating rate, due 2001 $60.0 3/99 $59.9 Series H - -------- Floating rate, due 2001 27.0 3/99 26.9 During the period from January 1, 1999 through April 30, 1999, BGE issued a total of 310,775 shares of common stock, without par value, under the Shareholder Investment Plan. Net proceeds were about $9.6 million. In the future, BGE may purchase some of its long-term debt or preference stock in the market. This will depend on market conditions and BGE's capital structure, including the mix of secured and unsecured debt. Diversified Businesses - ---------------------- Please refer to the "Capital Requirements of our Diversified Businesses" section of Management's Discussion and Analysis on page 22 for information about the debt of our diversified businesses. Commitments - ----------- In 1998, Constellation Power Source, Inc., our power marketing and trading business, and Goldman, Sachs Capital Partners II L.P., an affiliate of Goldman, Sachs & Co., formed Orion Power Holdings, Inc. to acquire electric generating plants in the United States and Canada. Constellation Power Source owns a minority interest in Orion, and has committed to contribute up to $175 million in equity to fund its investment in Orion. Environmental Matters - --------------------- The Clean Air Act of 1990 contains two titles designed to reduce emissions of sulfur dioxide and nitrogen oxide (NOx) from electric generating stations Title IV and Title I. Title IV addresses emissions of sulfur dioxide. Compliance is required in two phases: o Phase I became effective January 1, 1995. We met the requirements of this phase by installing flue gas desulfurization systems, switching fuels, and retiring some units. o Phase II must be implemented by January 1, 2000. We expect to meet the compliance requirements through a combination of switching fuels and allowance trading. Title I addresses NOx emissions. The Maryland Department of the Environment (MDE) issued NOx regulations effective June 1, 1998. The MDE regulations require major NOx sources to reduce NOx emissions up to 65% by May 1999. On February 9, 1999, the Baltimore City Circuit Court ordered the MDE to issue a new compliance date to meet their 65% emissions reduction regulations. In the meantime, we are taking steps to control NOx emissions at our generating plants. The Environmental Protection Agency (EPA) issued a final rule in September 1998 that requires the reduction of NOx emissions up to 85% by 22 states (including Maryland and Pennsylvania). The 22 states must submit plans to the EPA by September 1999 showing how they will meet its new NOx emissions reduction requirements. Based on the MDE and EPA regulations, we currently estimate that the additional controls needed at our generating plants to meet the 65% NOx emission reduction requirements will cost approximately $126 million. Through the date of this report, we have spent approximately $30 million to meet the 65% reduction requirements. We cannot estimate the cost for the 85% reduction requirements at this time, however, these costs could be material. In July 1997, the EPA published new National Ambient Air Quality Standards for very fine particulates and revised standards for ozone attainment. These standards may require increased controls at our fossil generating plants in the future. We cannot estimate the cost of these increased controls at this time because the states, including Maryland, still need to determine what reductions in pollutants will be necessary to meet the federal standards. 7 The EPA and several state agencies have notified us that we are considered a potentially responsible party with respect to the cleanup of certain environmentally contaminated sites owned and operated by others. We cannot estimate the cleanup costs for all of these sites. We can, however, estimate that our current 15.42% share of the reasonably possible cleanup costs at one of these sites, Metal Bank of America (a metal reclaimer in Philadelphia), could be as much as $4.9 million higher than amounts we have recorded as a liability on our Consolidated Balance Sheets. This estimate is based on a Record of Decision issued by the EPA in 1998. The cleanup costs for some of the remaining sites could be significant, but we do not expect them to have a material effect on our financial position or results of operations. Also, we are coordinating investigation of several sites where gas was manufactured in the past. The investigation of these sites includes reviewing possible actions to remove coal tar. In late December 1996, we signed a consent order with the MDE that requires us to implement remedial action plans for contamination at and around the Spring Gardens site, located in Baltimore, Maryland. We submitted the required remedial action plans and they have been approved by MDE. Based on the remedial action plans, the costs we consider to be probable to remedy the contamination are estimated to total $47 million in nominal dollars (including inflation). We have recorded these costs as a liability on our Consolidated Balance Sheets and have deferred these costs, net of accumulated amortization and amounts recovered from insurance companies, as a regulatory asset. We discuss this further in Note 4 of BGE's 1998 Annual Report on Form 10-K. Through the date of this report, we have spent approximately $33 million for remediation at this site. We are also required by accounting rules to disclose additional costs we consider to be less likely than probable costs, but still "reasonably possible" of being incurred at these sites. Because of the results of studies at these sites, it is reasonably possible that these additional costs could exceed the amount we recognized by approximately $14 million in nominal dollars ($7 million in current dollars, plus the impact of inflation at 3.1% over a period of up to 36 years). Our potential environmental liabilities and pending environmental actions are described further in BGE's 1998 Annual Report on Form 10-K under "Item 1. Business - Environmental Matters." Nuclear Insurance - ----------------- If there were an accident or an extended outage at either unit of the Calvert Cliffs Nuclear Power Plant (Calvert Cliffs), it could have a substantial adverse financial effect on us. The primary contingencies that would result from an incident at Calvert Cliffs could include: o physical damage to the plant, o recoverability of replacement power costs, and o our liability to third parties for property damage and bodily injury. We have insurance policies that cover these contingencies, but the policies have certain exclusions. Furthermore, the costs that could result from a covered major accident or a covered extended outage at either of the Calvert Cliffs units could exceed our insurance coverage limits. Insurance for Calvert Cliffs and Third Party Claims - --------------------------------------------------- For physical damage to Calvert Cliffs, we have $2.75 billion of property insurance from an industry mutual insurance company. If an outage at either of the two units at Calvert Cliffs is caused by an insured physical damage loss and lasts more than 17 weeks, we have insurance coverage for replacement power costs up to $494.2 million per unit, provided by an industry mutual insurance company. This amount can be reduced by up to $98.8 million per unit if an outage at both units of the plant is caused by a single insured physical damage loss. If accidents at any insured plants cause a shortfall of funds at the industry mutual insurance company, all policyholders could be assessed, with our share being up to $23.2 million. In addition we, as well as others, could be charged for a portion of any third party claims associated with a nuclear incident at any commercial nuclear power plant in the country. At the date of this report, the limit for third party claims from a nuclear incident is $9.71 billion under the provisions of the Price Anderson Act. If third party claims exceed $200 million (the amount of primary insurance), our share of the total liability for third party claims could be up to $176.2 million per incident. That amount would be payable at a rate of $20 million per year. 8 Insurance for Worker Radiation Claims - ------------------------------------- As an operator of a commercial nuclear power plant in the United States, we are required to purchase insurance to cover radiation injury claims of certain nuclear workers. On January 1, 1998, a new insurance policy became effective for all operators requiring coverage for current operations. Waiving the right to make additional claims under the old policy was a condition for acceptance under the new policy. We describe both the old and new policies below. o BGE nuclear worker claims reported on or after January 1, 1998 are covered by a new insurance policy with an annual industry aggregate limit of $200 million for radiation injury claims against all those insured by this policy. o All nuclear worker claims reported prior to January 1, 1998 are still covered by the old insurance policies. Insureds under the old policies, with no current operations, are not required to purchase the new policy described above, and may still make claims against the old policies for the next nine years. If radiation injury claims under these old policies exceed the policy reserves, all policyholders could be assessed, with our share being up to $6.3 million. If claims under these polices exceed the coverage limits, the provisions of the Price Anderson Act (discussed in this section) would apply. Recoverability of Electric Fuel Costs - ------------------------------------- By law, we are allowed to recover our cost of electric fuel if the Maryland Public Service Commission (Maryland PSC) finds that, among other things, we have kept the productive capacity of our generating plants at a reasonable level. To do this, the Maryland PSC will evaluate the performance of our generating plants, and will determine if we used all reasonable and cost-effective maintenance and operating control procedures. The Maryland PSC, under the Generating Unit Performance Program, measures annually whether we have maintained the productive capacity of our generating plants at reasonable levels. To do this, the program uses a system-wide generating performance target and an individual performance target for each base load generating unit. In fuel rate hearings, actual generating performance adjusted for planned outages will be compared first to the system-wide target. If that target is met, it should mean that the requirements of Maryland law have been met. If the system-wide target is not met, each unit's adjusted actual generating performance will be compared to its individual performance target to determine if the requirements of Maryland law have been met and, if not, to determine the basis for possibly imposing a penalty on BGE. Even if we meet these targets, parties to fuel rate hearings may still question whether we used all reasonable and cost-effective procedures to try to prevent an outage. If the Maryland PSC decides we were deficient in some way, the Maryland PSC may not allow us to recover the cost of replacement energy. The two units at Calvert Cliffs use the cheapest fuel. As a result, the costs of replacement energy associated with outages at these units can be significant. We cannot estimate the amount of replacement energy costs that could be challenged or disallowed in future fuel rate proceedings, but such amounts could be material. We discuss significant disallowances in prior years related to past outages at Calvert Cliffs in BGE's 1998 Annual Report on Form 10-K. BGE's electric fuel rate clause will be discontinued when electric generation is deregulated and, therefore, earnings will be affected by the changes in the cost of fuel and energy. We discuss competition and its impact on BGE's generation business further in the "Competition and Response to Regulatory Change" section of Management's Discussion and Analysis on page 14. California Power Purchase Agreements - ------------------------------------ Constellation Power, Inc. and subsidiaries and Constellation Investments, Inc. (whose power projects are managed by Constellation Power) have $293.6 million invested in 15 projects that sell electricity in California under power purchase agreements called "Interim Standard Offer No. 4" agreements. Earnings from these projects were $8.0 million, or $.05 per share, for the quarter ended March 31,1999. Under these agreements, the projects supply electricity to utility companies at: o a fixed rate for capacity and energy for the first 10 years of the agreements, and o a fixed rate for capacity plus a variable rate for energy based on the utilities' avoided cost for the remaining term of the agreements. Generally, a "capacity rate" is paid to a power plant for its availability to supply electricity, and an "energy rate" is paid for the electricity actually generated. 9 "Avoided cost" generally is the cost of a utility's cheapest next-available source of generation to service the demands on its system. We use the term "transition period" to describe the time frame when the 10-year periods for fixed energy rates expire for these 15 power generation projects and they begin supplying electricity at variable rates. The transition period for some of the projects began in 1996 and will continue for the remaining projects through 2000. The projects that have already transitioned to variable rates have had lower revenues under variable rates than they did under fixed rates. However, we have not yet experienced significantly lower earnings from the California projects because the combined revenues from the remaining projects, which continue to supply electricity at fixed rates, are high enough to offset the lower revenues from the variable-rate projects. When the remaining projects transition to variable rates, we expect the revenues from those projects also to be lower than they are under fixed rates. Our power generation business is pursuing alternatives for some of these power generation projects including: o repowering the projects to reduce operating costs, o changing fuels to reduce operating costs, o renegotiating the power purchase agreements to improve the terms, o restructuring financing to improve existing terms, and o selling its ownership interests in the projects. At the date of this report, nine projects had already transitioned to variable rates. The remaining six projects that make the highest revenues will transition between June 1999 and December 2000. The projects which transition in 1999 contributed $2.1 million, or $.01 per share to the quarter ended March 31, 1999 earnings, while those changing over in 2000 contributed $5.9 million, or $.04 per share to the quarter ended March 31, 1999 earnings. We expect earnings to ultimately decrease by similar amounts as these projects transition. Constellation Real Estate - ------------------------- In April 1999, Constellation Real Estate Group, Inc. (CREG) sold Church Street Station, our entertainment, dining, and retail complex in Orlando, Florida for $11.5 million, the approximate book value of the complex. Most of CREG's remaining real estate projects are in the Baltimore-Washington corridor. The area has had a surplus of available land in recent years and as a result these projects have been economically hurt. CREG's real estate projects have continued to incur carrying costs and depreciation over the years. Additionally, CREG has been charging interest payments to expense rather than capitalizing them for some undeveloped land where development activities have stopped. These carrying costs, depreciation, and interest expenses have decreased earnings and are expected to continue to do so. Cash flow from real estate operations has not been enough to make the monthly loan payments on some of these projects. Cash shortfalls have been covered by cash obtained from the cash flows of, or additional borrowings by, other diversified subsidiaries. Management's current real estate strategy is to hold each real estate project until we can realize a reasonable value for it. Management evaluates strategies for all its businesses, including real estate, on an ongoing basis. We anticipate that competing demands for our financial resources and changes in the utility industry will cause us to evaluate thoroughly all diversified business strategies on a regular basis so we use capital and other resources in a manner that is most beneficial. We consider market demand, interest rates, the availability of financing, and the strength of the economy in general when making decisions about our real estate projects. If we were to decide to sell our real estate projects, we could have write-downs. In addition, if we were to sell our remaining real estate projects in the current market, we would have losses which could be material, although the amount of the losses is hard to predict. Depending on market conditions, we could also have material losses on any future sales. It may be helpful for you to understand when we are required, by accounting rules, to write down the value of a real estate project to market value. A write-down is required in either of two cases. The first is if we change our intent about a project from an intent to hold to an intent to sell and the market value of that project is below book value. The second is if the expected cash flow from the project is less than the investment in the project. 10 Item 2. Management's Discussion - ------------------------------- Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- Introduction - ------------ On April 30, 1999, Constellation Energy(R) Group, Inc. (Constellation Energy) became the holding company for Baltimore Gas and Electric Company (BGE(R)) and Constellation(R) Enterprises, Inc. Constellation Enterprises was previously owned by BGE. BGE is an electric and gas public utility company with a service territory in the City of Baltimore and in all or part of ten counties in Central Maryland. Constellation Enterprises is a holding company for several diversified businesses engaged primarily in energy services. Our energy services businesses include certain subsidiaries of Constellation Enterprises and the District Chilled Water General Partnership (ComfortLink(R)), a general partnership in which BGE is a partner. Our energy services businesses are as follows: o Constellation Power Source,(TM) Inc. -- our wholesale power marketing and trading business, o Constellation Power, Inc.,(TM) and Subsidiaries -- our power projects business, o Constellation Energy Source,(TM) Inc. -- our energy products and services business, o BGE Home Products & Services,(TM) Inc. and Subsidiaries -- our home products, commercial building systems, and residential and small commercial gas retail marketing business, o ComfortLink -- our cooling services business for commercial customers in Baltimore. Constellation Enterprises, Inc. also has two other subsidiaries: o Constellation Investments,(TM) Inc. -- our financial investments business, and o Constellation Real Estate Group,(TM) Inc. -- our real estate and senior-living facilities business. The consolidated financial statements in this report include the accounts of BGE and its subsidiaries. Therefore, they also represent the financial statements of Constellation Energy and its subsidiaries. References in this report to "we" and "our" are to Constellation Energy and its subsidiaries, collectively. In Exhibit 99(a), we present financial information summarizing certain pro forma financial effects of the restructuring of BGE. The pro forma information assumes that the holding company was formed as of January 1, 1999. It presents BGE's summarized financial statements on a "stand-alone" basis by excluding the results of Constellation Enterprises and its subsidiaries. These companies became subsidiaries of Constellation Energy effective April 30, 1999. The electric utility industry is undergoing rapid and substantial change. On April 8, 1999, legislation authorizing customer choice and competition among electric suppliers in Maryland was enacted. In the natural gas industry, deregulation is well under way. The regulatory environment (federal and state) for both electricity and natural gas is shifting toward customer choice. These matters are discussed further in the "Competition and Response to Regulatory Change" section on page 14. In response to this change, we regularly evaluate our strategies with two goals in mind: to improve our competitive position, and to anticipate and adapt to regulatory change. Constellation Energy will continue to invest in the growth of its power projects and power marketing and trading businesses with the objective of providing new sources of earnings in anticipation of lower electric utility revenues as competition is introduced into this industry in Maryland. In addition, we might consider one or more of the following strategies: o the complete or partial separation of our generation, transmission, and distribution functions, o purchase or sale of generation assets, o mergers or acquisitions of utility or non-utility businesses, o spin-off or sale of one or more businesses, and o growth of earnings from other nonregulated businesses. We cannot predict whether any of the strategies described above may actually occur, or what their effect on our financial condition or competitive position might be. Please refer to the "Forward Looking Statements" section. Additional detail on competition is included in BGE's 1998 Annual Report on Form 10-K under the heading "Electric Regulatory Matters and Competition." 11 In this discussion and analysis, we explain the general financial condition and the results of operations for Constellation Energy including: o what factors affect our business, o what our earnings and costs were in the periods presented, o why earnings and costs changed between periods, o where our earnings came from, o how all of this affects our overall financial condition, o what our expenditures for capital projects were in the current period and what we expect them to be in the future, and o where we expect to get cash for future capital expenditures. As you read this discussion and analysis, it may be helpful to refer to our Consolidated Statements of Income on page 2, which present the results of our operations for the quarters ended March 31, 1999 and 1998. We analyze and explain the differences between periods in the specific line items of the Consolidated Statements of Income. Our analysis may be important to you in making decisions about your investments in Constellation Energy. Results of Operations for the Quarter Ended March 31, 1999 Compared With the Same Period of 1998 - -------------------------------------------------------------------------------- In this section, we discuss our earnings and the factors affecting them. We begin with a general overview, then separately discuss earnings for the utility business and for diversified businesses. Overview - -------- Total Earnings per Share of Common Stock - ---------------------------------------- Quarter Ended March 31 -------------------- 1999 1998 -------- -------- Utility business......... $ .45 $ .41 Diversified businesses... .10 .09 -------- -------- Total earnings per share. $ .55 $ .50 ======== ======== Our total earnings for the quarter ended March 31, 1999 increased $8.4 million, or $.05 per share, compared to the same period of 1998 mostly because we had higher utility earnings. In the first quarter of 1999, we had higher utility earnings than we did in the same period of 1998 mostly because we sold more electricity and gas due to colder weather this year (people use more electricity and gas to heat their homes in colder weather). Utility earnings would have been even higher except we had higher operations and maintenance expenses. We discuss our utility earnings in more detail in the "Utility Business" section below. In the first quarter of 1999, diversified business earnings increased slightly compared to the same period of 1998 mostly because of higher earnings from our power marketing and trading business. Diversified business earnings would have been even higher except we had lower earnings from our financial investments business. We discuss our diversified business earnings in further in the "Diversified Businesses" section beginning on page 18. Utility Business - ---------------- Before we go into the details of our electric and gas operations, we believe it is important to discuss four factors that have a strong influence on our utility business performance: regulation, the weather, other factors including the condition of the economy in our service territory, and competition. Regulation by the Maryland Public Service Commission (Maryland PSC) - ------------------------------------------------------------------- The Maryland PSC determines the rates we can charge our customers. Our rates consist of a "base rate" and a "fuel rate." The base rate is the rate the Maryland PSC allows us to charge our customers for the cost of providing them service, plus a profit. We have both an electric base rate and a gas base rate. Higher electric base rates apply during the summer when the demand for electricity is the highest. Gas base rates are not affected by seasonal changes. The Maryland PSC allows us to include in base rates a component to recover money spent on conservation programs. This component is called a "conservation surcharge." However, under this surcharge the Maryland PSC limits what our profit can be. If, at the end of the year, we have exceeded our allowed profit, we defer (include as a liability in our Consolidated Balance Sheets and exclude from our Consolidated Statements of Income) the excess in that year and we lower the amount of future surcharges to our customers to correct the amount of overage, plus interest. 12 In addition, we charge our electric customers separately for the fuel we use to generate electricity (nuclear fuel, coal, gas, or oil) and for the net cost of purchases and sales of electricity (primarily with other utilities). We charge the actual cost of these items to the customer with no profit to us. If these fuel costs go up, the Maryland PSC permits us to increase the fuel rate. If these costs go down, our customers benefit from a reduction in the fuel rate. The fuel rate is impacted most by the amount of electricity generated at the Calvert Cliffs Nuclear Power Plant (Calvert Cliffs) because the cost of nuclear fuel is cheaper than coal, gas, or oil. We discuss this in more detail in the "Electric Fuel Rate Clause" section on page 17 and in Note 1 of BGE's 1998 Annual Report on Form 10-K. Changes in the fuel rate normally do not affect earnings. However, if the Maryland PSC disallows recovery of any part of the fuel costs, our earnings are reduced. We discuss this in the "Recoverability of Electric Fuel Costs" section of the Notes to Consolidated Financial Statements on page 9. BGE's electric fuel rate clause will be discontinued when electric generation is deregulated and, therefore, earnings will be affected by the changes in the cost of fuel and energy. In addition, any accumulated difference between our actual costs of fuel and energy and the amounts collected from customers under the electric fuel rate clause will be refunded to or collected from our customers. This will occur over a period not to exceed twelve months from when the electric fuel rate clause no longer exists. At March 31, 1999, we have collected $6.7 million of electric fuel rate revenues in excess of our actual costs of fuel and energy. We also charge our gas customers separately for the natural gas they purchase from us. The price we charge for the natural gas is based on a market based rates incentive mechanism approved by the Maryland PSC. We discuss market based rates in more detail in the "Gas Cost Adjustments" section on page 17. From time to time, when necessary to cover increased costs, we ask the Maryland PSC for base rate increases. The Maryland PSC holds hearings to determine whether to grant us all or a portion of the amount requested. The Maryland PSC has historically allowed us to increase base rates to recover increased utility plant asset costs, plus a profit, beginning at the time of replacement. Generally, rate increases improve our utility earnings because they allow us to collect more revenue. However, rate increases are normally granted based on historical data and those increases may not always keep pace with increasing costs. Other parties may petition the Maryland PSC to lower our base rates. We discuss this in more detail in the "Competition and Response to Regulatory Change" section on page 14. Weather - ------- Weather affects the demand for electricity and gas. Very hot summers and very cold winters increase demand. Mild weather reduces demand. Weather impacts residential sales more than commercial and industrial sales, which are mostly affected by business needs for electricity and gas. We measure the weather's effect using "degree days." A degree day is the difference between the average daily actual temperature and a baseline temperature of 65 degrees. Cooling degree days result when the average daily actual temperature exceeds the 65 degree baseline. Heating degree days result when the average daily actual temperature is less than the baseline. During the cooling season, hotter weather is measured by more cooling degree days and results in greater demand for electricity to operate cooling systems. During the heating season, colder weather is measured by more heating degree days and results in greater demand for electricity and gas to operate heating systems. Effective March 1, 1998, the Maryland PSC allowed us to implement a monthly adjustment to our gas business revenues to eliminate the effect of abnormal weather patterns. We discuss this further in the "Weather Normalization" section on page 17. We show the number of heating degree days in the quarters ended March 31, 1999 and 1998 and the percentage change in the number of degree days between these two periods in the following table: Quarter Ended March 31 ------------------------ 1999 1998 ---------- --------- Heating degree days........ 2,389 2,022 Percent change compared to prior period 18.2% Other Factors - ------------- Other factors, aside from weather, impact the demand for electricity and gas. These factors include the "number of customers" and "usage per customer" during a given period. We use these terms later in our discussions of electric and gas operations. In those sections, we discuss how these and other factors affected electric and gas sales during the periods presented. 13 The number of customers in a given period is affected by new home and apartment construction and by the number of businesses in our service territory. Usage per customer refers to all other items impacting customer sales that cannot be separately measured. These factors include the strength of the economy in our service territory. When the economy is healthy and expanding, customers tend to consume more electricity and gas. Conversely, during an economic downtrend, our customers tend to consume less electricity and gas. Competition and Response to Regulatory Change - --------------------------------------------- Our electric and gas businesses are also affected by competition as discussed below. Electric Business - ----------------- Electric utilities are facing competition on various fronts, including: o the construction of generating units to meet increased demand for electricity, o the sale of electricity in bulk power markets, o competing with alternative energy suppliers, and o electric sales to retail customers. On July 1, 1998, BGE and all other Maryland investor-owned electric utilities filed with the Maryland PSC their individual proposals for the transition from a regulated electric supply system to one where generation is priced based on a competitive retail electric market. The details of our proposal are discussed in BGE's 1998 Annual Report on Form 10-K. On December 22, 1998, other parties filed their positions in response to our proposals. The counter-proposals contain provisions, which, if adopted by the Maryland PSC, could negatively impact BGE's electric business. On September 3, 1998, the Office of People's Counsel (OPC) filed a petition requesting the Maryland PSC to lower our electric base rates. At our request, the Maryland PSC agreed to consolidate any such review of our electric base rates with its review of our electric restructuring transition proposal mentioned above. We filed testimony and exhibits with the Maryland PSC supporting our position that our current electric base rates are justified. On February 5, 1999, other parties, including the OPC, filed testimonies to lower our electric base rates by as much as $131 million. As a condition of the Maryland PSC's consolidation of these matters, we agreed to make our rates subject to refund effective July 1, 1999 should the Maryland PSC issue a rate reduction order after that date. On April 8, 1999, Maryland enacted the Electric Customer Choice and Competition Act of 1999 (the "Act") and accompanying tax legislation that will significantly restructure Maryland's electric utility industry and modify the industry's tax structure. Major elements of the Act are: o residential customer choice begins on July 1, 2000 for a third of customers, and the next two thirds will be phased in over the following two years, o all commercial and industrial customers may choose electric suppliers beginning January 1, 2001, o rates are frozen for all customers for four years after choice begins, at the rates in effect on June 30, 2000, o residential customers are guaranteed a reduction of 3% to 7.5% of rates in effect on June 30, 1999 (exact amount to be determined by the Maryland PSC) on electric base rates effective July 1, 2000 for 4 years after choice begins, o generation is deregulated beginning on July 1, 2000, o existing utilities are responsible for the transmission and delivery of electricity, o the Maryland PSC continues to have the authority to mandate cost-effective energy conservation programs, o the Maryland PSC will determine transition costs or benefits as discussed further in this section, o the Maryland PSC is empowered to protect low-income customers through the establishment of a $34 million statewide universal service fund, o competitive billing is required to begin July 1, 2000 and competitive metering is required to begin in 2002, o a reciprocity provision is included for the sale of electricity, whereby utilities in neighboring states are prevented from competing with Maryland utilities unless the Maryland utility can compete in their service territory, and o customers who do not wish to change their electricity provider will receive "standard offer service" under procedures established by the Maryland PSC. 14 The tax legislation made comprehensive changes to the state and local taxation of electric and gas utilities. Starting in the year 2000, the Maryland public service franchise tax will be altered to generally include a tax equal to .062 cents on each kilowatt-hour of electricity and .402 cents on each therm of natural gas delivered for final consumption in Maryland. The Maryland 2% franchise (gross receipts) tax on electric and natural gas utilities will continue to apply to transmission and distribution revenue. Additionally, all electric and natural gas utility revenue will become subject to the Maryland corporate income tax. Beginning July 1, 2000, the tax legislation also provides for a two-year phase-in of a 50% reduction in the local personal property taxes on machinery and equipment used to generate electricity for resale and a 60% corporate income tax credit for real property taxes paid on those facilities. The impact of these tax law changes will depend on Maryland PSC's ruling on our transition plan and BGE's operating results once generation is deregulated. The changes are designed, in part, to tax Maryland electric generating facilities on a more comparable basis with electric generation in surrounding states. On May 7, 1999, we reached a tentative agreement in principle with a majority of the active parties on the major issues in the electric restructuring proceedings discussed above and are in the process of finalizing an agreement that will potentially resolve all the issues. As a result, the Maryland PSC has suspended the procedural schedule and has instructed the settling parties to file a settlement agreement by June 15, 1999. All parties will then have an opportunity to comment on the settlement agreement based on a schedule to be determined. At that point, the Maryland PSC will determine what type of proceedings are necessary to render a decision regarding whether the settlement is in the public interest. The settlement agreement can modify some of the Act's provisions discussed above, with the Maryland PSC's concurrence. It is expected that the Maryland PSC will issue a final order by October 1, 1999. As part of its ruling, the Maryland PSC must authorize the amount, if any, of BGE's stranded investments in its generation plants. If it determines that there are stranded investments, the time frame over which BGE will recover its investment from customers must also be determined. BGE's current estimate of its stranded investments is approximately $900 million, including costs associated with the transition to competition. At March 31, 1999, we met the requirements to continue to apply Statement of Financial Accounting Standards (SFAS) No. 71 to BGE's utility operations. When sufficient details of the transition plan ultimately approved by the Maryland PSC become known, the generation portion of BGE's electric business will likely no longer meet the provisions of SFAS No. 71. At that time, we would implement SFAS No. 101, "Regulated Enterprises - Accounting for the Discontinuation of FASB Statement No. 71." A provision under SFAS No. 101 requires an evaluation of potential impairments of plant assets under SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of. If any of our generating plant assets are impaired under the provisions of SFAS No. 121, BGE would be required to record a write-down. The amount of any such write-down could materially affect BGE's financial position and results of operations. However, we cannot estimate the amount of the potential impairment loss, if any, at this time. Currently, Maryland law does not allow BGE to securitize the recovery of stranded investments. A securitization bill was introduced in the Maryland General Assembly this year but was not considered for enactment. It is expected that a securitization bill will be considered in the 2000 General Assembly. Securitization is a mechanism to recover stranded investments. Generally, bonds would be issued and the proceeds used primarily to reduce stranded investments and related capitalization of BGE. The bonds would be payable from irrevocable customer charges. We cannot predict the ultimate effect the implementation of electric customer choice as described in this section will have on BGE's financial position or results of operations, but such effects could be material. Gas Business - ------------ Currently, no regulation exists for the wholesale price of natural gas as a commodity, and the regulation of interstate transmission at the federal level has been reduced. All BGE industrial and commercial gas customers, and 50,000 BGE residential gas customers (under a pilot program) have the option to purchase gas from other suppliers. On November 1, 1999, all BGE residential customers will have the same option. 15 Utility Business Earnings per Share of Common Stock - --------------------------------------------------- Quarter Ended March 31 -------------------- 1999 1998 -------- -------- Electric business........ $ .31 $ .31 Gas business............. .14 .10 -------- -------- Total utility earnings per share.... $ .45 $ .41 ======== ======== Our utility earnings for the quarter ended March 31, 1999 increased $6.9 million, or $.04 per share compared to the same period of 1998. We discuss the factors affecting utility earnings below. Electric Operations - ------------------- Electric Revenues - ----------------- The changes in electric revenues in 1999 compared to 1998 were caused by: Quarter Ended March 31 1999 vs. 1998 ---------------------- (In millions) Electric system sales volumes.. $ 19.2 Base rates..................... - Fuel rates..................... 2.7 --------- Total change in electric revenues from electric system sales. 21.9 Interchange and other sales.... (8.3) Other........................... 0.2 --------- Total change in electric revenues $ 13.8 ========= Electric System Sales Volumes - ----------------------------- "Electric system sales volumes" are sales to customers in our service territory at rates set by the Maryland PSC. These sales do not include interchange sales and sales to others. The percentage changes in our electric system sales volumes, by type of customer, in 1999 compared to 1998 were: Quarter Ended March 31 1999 vs. 1998 ---------------------- Residential................... 7.9% Commercial.................... 3.7 Industrial.................... (0.9) During the quarter ended March 31, 1999, we sold more electricity to residential and commercial customers mostly due to colder weather. We sold about the same amount of electricity to industrial customers as we did during the same period of 1998. Base Rates - ---------- During the quarter ended March 31, 1999, base rate revenues were about the same as they were in the same period of 1998. Although we sold more electricity this quarter, our base rate revenues were about the same because of lower conservation surcharge revenues. Fuel Rates - ---------- During the quarter ended March 31, 1999, fuel rate revenues increased compared to the same period of 1998 because we sold more electricity. Interchange and Other Sales - --------------------------- "Interchange and other sales" are sales in the PJM (Pennsylvania-New Jersey-Maryland) Interconnection energy market and to others. The PJM is a regional power pool with members that include many wholesale market participants, as well as BGE and seven other utility companies. We sell energy to PJM members and to others after we have satisfied the demand for electricity in our own system. During the quarter ended March 31, 1999, we had lower interchange and other sales compared to the same period of 1998 mostly because the increased demand for system sales this quarter reduced the amount of energy we had available for off-system sales. Electric Fuel and Purchased Energy Expenses - ------------------------------------------- Quarter Ended March 31 ----------------------- 1999 1998 --------- ---------- (In millions) Actual costs.............. $ 127.2 $ 114.6 Net recovery (deferral) of costs under electric fuel rate clause (see Note 1 of BGE's 1998 Form 10-K)... (6.1) 11.9 --------- ---------- Total electric fuel and purchased energy expenses $ 121.1 $ 126.5 ========= ========== Actual Costs - ------------ During the quarter ended March 31, 1999, our actual costs of fuel to generate electricity (nuclear fuel, coal, gas, or oil) and electricity we bought from others was higher than in the same period of 1998 mostly because the price of purchased electricity was higher. The price 16 of electricity purchased changes based on market conditions, complex pricing formulas for PJM transactions, and contract terms. Electric Fuel Rate Clause - ------------------------- Under the electric fuel rate clause, we defer (include as an asset or liability on the Consolidated Balance Sheets and exclude from the Consolidated Statements of Income) the difference between our actual costs of fuel and energy and what we collect from customers under the fuel rate in a given period. We either bill or refund our customers that difference in the future. During the quarter ended March 31, 1999, our actual costs of fuel and energy were higher than the fuel rate revenues we collected from our customers. Gas Operations - -------------- Gas Revenues - ------------ The changes in gas revenues in 1999 compared to 1998 were caused by: Quarter Ended March 31 1999 vs. 1998 ---------------------- (In millions) Gas system sales volumes..... $ 5.8 Base rates................... 2.6 Weather normalization........ 3.7 Gas cost adjustments......... 7.8 --------- Total change in gas revenues from gas 19.9 system sales.............. Off-system sales............. (7.4) Other........................ (0.2) --------- Total change in gas revenues. $ 12.3 ========= Gas System Sales Volumes - ------------------------ The percentage changes in our gas system sales volumes, by type of customer, in 1999 compared to 1998 were: Quarter Ended March 31 1999 vs. 1998 --------------------- Residential................ 11.8% Commercial................. 13.3 Industrial................. 4.2 During the quarter ended March 31, 1999, we sold more gas to residential customers mostly because of two factors: colder weather and the number of customers increased. We would have sold even more gas to residential customers except we had lower usage per customer. We sold more gas to commercial customers mostly because of colder weather and the number of customers increased. We sold more gas to industrial customers mostly because of two factors: colder weather and increased usage by Bethlehem Steel (our largest customer) and other industrial customers. Base Rates - ---------- During the quarter ended March 31, 1999, base rate revenues were higher than they were during the same period of 1998. Effective March 1, 1998, the Maryland PSC allowed us to increase our base rates which increased our base rate revenues over the twelve-month period March 1998 through February 1999 by approximately $16 million. Weather Normalization - --------------------- Effective March 1, 1998, the Maryland PSC allowed us to implement a monthly adjustment to our gas revenues to eliminate the effect of abnormal weather patterns on our gas system sales volumes. This means our monthly gas revenues will be based on weather that is considered "normal" for the month and, therefore, will not be affected by actual weather conditions. Gas Cost Adjustments - -------------------- We charge our gas customers for the natural gas they purchase from us using gas cost adjustment clauses set by the Maryland PSC which include a market based rate incentive mechanism. These clauses operate similar to the electric fuel rate clause described in the "Electric Fuel Rate Clause" section above. Under market based rates, our actual cost of gas is compared to a market index (a measure of the market price of gas in a given period). The difference between our actual cost and the market index is shared equally between shareholders and customers, and does not significantly impact earnings. Delivery service customers, including Bethlehem Steel, are not subject to the gas cost adjustment clauses because we are not selling gas to them. We charge these customers fees to recover the fixed costs for the transportation service we provide. These fees are essentially the same as the base rate charged for gas sales and are included in gas system sales volumes. During the quarter ended March 31, 1999, gas cost adjustment revenues increased compared to the same period of 1998 mostly because we sold more gas. 17 Off-System Sales - ---------------- Off-system gas sales are low-margin direct sales of gas to wholesale suppliers of natural gas outside our service territory. Off-system gas sales, which occur after we have satisfied our customers' demand, are not subject to gas cost adjustments. The Maryland PSC approved an arrangement for part of the margin from off-system sales to benefit customers (through reduced costs) and the remainder to be retained by BGE (which benefits shareholders). During the quarter ended March 31, 1999, revenues from off-system gas sales decreased compared to the same period of 1998 mostly because we sold less gas off-system. Gas Purchased For Resale Expenses - --------------------------------- Quarter Ended March 31 ---------------------- 1999 1998 --------- --------- (In millions) Actual costs................ $ 93.2 $ 96.6 Net recovery of costs under gas adjustment clauses (see Note 1 of BGE's 1998 Form 10-K)................ 8.9 1.7 --------- --------- Total gas purchased for resale expenses...... $102.1 $ 98.3 ========= ========= Actual Costs - ------------ Actual costs include the cost of gas purchased for resale to our customers and for off-system sales. Actual costs do not include the cost of gas purchased by delivery service customers. During the quarter ended March 31, 1999, actual gas costs decreased compared to the same period of 1998 mostly because we bought less gas for off-system sales and we bought it at a lower price. Gas Adjustment Clauses - ---------------------- We charge customers for the cost of gas sold through gas adjustment clauses (determined by the Maryland PSC), as discussed under "Gas Cost Adjustments" earlier in this section. During the quarter ended March 31, 1999, our actual gas costs were lower than the fuel rate revenues we collected from our customers. Other Operating Expenses - ------------------------ Operations and Maintenance Expenses - ----------------------------------- During the quarter ended March 31, 1999, operations and maintenance expenses increased $23.9 million compared to the same period of 1998 mostly because of the timing of costs associated with the annual refueling outage at Calvert Cliffs. Costs related to a major storm during 1999 also contributed to the increase. Depreciation and Amortization Expenses - -------------------------------------- During the quarter ended March 31, 1999, depreciation and amortization decreased $6.2 million compared to the same period of 1998 mostly because 1998 expense reflects an adjustment for the reduction of the amortization period for certain computer software from five years to three years. We did not have a similar adjustment in 1999. Other Income and Expenses - ------------------------- Interest Charges - ---------------- Interest charges represent the interest on our outstanding debt. During the quarter ended March 31, 1999, interest charges were about the same compared to the same period of 1998. Income Taxes - ------------ During the quarter ended March 31, 1999, our total income taxes increased $4.3 million compared to the same period of 1998 mostly because we had higher taxable income from our utility operations. Diversified Businesses - ---------------------- Our diversified businesses engage primarily in energy services. We list each of our diversified businesses in the "Introduction" section on page 11. We describe our diversified businesses in more detail in BGE's 1998 Annual Report on Form 10-K under "Item 1. Business -- Diversified Businesses." 18 Diversified Business Earnings per Share of Common Stock - ------------------------------------------------------- Quarter Ended March 31 ---------------------- 1999 1998 ---- ---- Energy Services - -------------------------------- Power marketing and trading................. $ .05 $ .00 Power projects............ .06 .07 Other.................... .00 .00 --------- --------- Total energy services earnings per share....... .11 .07 Other diversified businesses earnings per share................ (.01) .02 --------- --------- Total earnings per share... $ .10 $ .09 ========= ========= Our total diversified business earnings for the quarter ended March 31, 1999 increased $1.5 million, or $.01 per share, compared to the same period of 1998. We discuss the factors affecting the earnings of our diversified businesses below. Energy Services - --------------- Power Marketing and Trading - --------------------------- During the quarter ended March 31, 1999, earnings from our power marketing and trading business increased compared to the same period of 1998 mostly because of increased transaction margins and volume. Constellation Power Source uses the mark-to-market method of accounting for its trading activities. We discuss the mark-to-market method of accounting and Constellation Power Source's trading activities in more detail in BGE's 1998 Annual Report on Form 10-K. As a result of the nature of its trading activities, Constellation Power Source's revenue and earnings will fluctuate. We cannot predict these fluctuations, but the effect on our revenues and earnings could be material. The primary factors that cause these fluctuations are: o the number and size of new transactions, o the magnitude and volatility of changes in commodity prices and interest rates, and o the number and size of open commodity and derivative positions Constellation Power Source holds or sells. Constellation Power Source's management uses its best estimates to determine the fair value of commodity and derivative positions it holds and sells. These estimates consider various factors including closing exchange and over-the-counter price quotations, time value, volatility factors, and credit exposure. However, it is possible that future market prices could vary from those used in recording assets and liabilities from trading activities, and such variations could be material. Assets and liabilities from energy trading activities increased at March 31, 1999 compared to December 31, 1998 because of greater business activity during the period. Power Projects - -------------- During the quarter ended March 31, 1999, earnings from our power projects business decreased compared to the same period of 1998 mostly because of slightly lower earnings from various energy projects. California Power Purchase Agreements - ------------------------------------ Constellation Power and subsidiaries and Constellation Investments have $293.6 million invested in 15 projects that sell electricity in California under power purchase agreements called "Interim Standard Offer No. 4" agreements. Earnings from these projects were $8.0 million, or $.05 per share, for the quarter ended March 31, 1999 compared to $10.0 million, or $.07 per share for the same period of 1998. Under these agreements, the electricity rates change from fixed rates to variable rates beginning in 1996 and continuing through 2000. The projects which already have had rate changes have lower revenues under variable rates than they did under fixed rates. When the remaining projects transition to variable rates, we expect their revenues also to be lower than they are under fixed rates. We describe these projects and the transition process in detail in the Notes to Consolidated Financial Statements on page 9. International - ------------- At March 31, 1999, Constellation Power had invested about $178.9 million in 11 power projects in Latin America compared to $83.7 million invested in Latin America at March 31, 1998. These investments include: o the purchase of a 51% interest in a Panamanian electric distribution company for approximately $90 million in 1998 by an investment group in which subsidiaries of Constellation Power hold an 80% interest, and o approximately $98 million for the purchase of existing electric generation facilities and the construction of an electric generation facility in Guatemala. 19 In the future, Constellation Power expects to expand its power projects business further in both domestic and international projects. Other Energy Services - --------------------- During the quarter ended March 31, 1999, earnings from our other energy services businesses were about the same compared to the same period of 1998. Other Diversified Businesses - ---------------------------- During the quarter ended March 31, 1999, earnings from our other diversified businesses were lower compared to the same period of 1998 mostly because we had lower earnings from our financial investments business. Earnings from our real estate and senior-living facilities business were about the same compared to the same period of 1998. Constellation Real Estate's projects have continued to incur carrying costs and depreciation over the years. Additionally, this business has been charging interest payments to expense rather than capitalizing them for some undeveloped land where development activities have stopped. These carrying costs, depreciation, and interest expenses have decreased earnings and are expected to continue to do so. Cash flow from real estate operations has not been enough to make the monthly loan payments on some of these projects. Cash shortfalls have been covered by cash obtained from the cash flows of, or additional borrowings by, other diversified subsidiaries. Management's current real estate strategy is to hold each real estate project until we can realize a reasonable value for it. Management evaluates strategies for all its businesses, including real estate, on an ongoing basis. We anticipate that competing demands for our financial resources and changes in the utility industry will cause us to evaluate thoroughly all diversified business strategies on a regular basis so we use capital and other resources in a manner that is most beneficial. We consider market demand, interest rates, the availability of financing, and the strength of the economy in general when making decisions about our real estate projects. If we were to decide to sell our real estate projects, we could have write-downs. In addition, if we were to sell our real estate projects in the current market, we would have losses which could be material, although the amount of the losses is hard to predict. Depending on market conditions, we could also have material losses on any future sales. It may be helpful for you to understand when we are required, by accounting rules, to write down the value of a real estate project to market value. A write-down is required in either of two cases. The first is if we change our intent about a project from an intent to hold to an intent to sell and the market value of that project is below book value. The second is if the expected cash flow from the project is less than the investment in the project. In April 1999, we announced our intent to sell our senior-living facilities business during 1999 to focus on our energy-related businesses. We expect the proceeds from the sale to be at least equal to book value. We discuss our real estate and senior-living facilities business further in the Notes to Consolidated Financial Statements on page 10. Financial Condition - ------------------- Cash Flows - ---------- For the quarter ended March 31, 1999 1998 - --------------------------------------------------------- (In millions) Cash provided by (used in): Operating Activities $320.9 $ 276.0 Investing Activities (67.6) (113.3) Financing Activities (83.0) (146.0) During the quarter ended March 31, 1999, we generated more cash from operations compared to the same period in 1998 mostly because of improved operating results and changes in working capital requirements. During the quarter ended March 31, 1999, we used less cash for investing activities compared to the same period in 1998 mostly because in the first quarter of 1998, our power projects business invested $60.7 million for the purchase of a generation facility in Guatemala. We did not have a similar investment in 1999. We would have used less cash for investing activities except our utility construction expenditures increased by $10.3 million during the quarter ended March 31, 1999. During the quarter ended March 31, 1999, we used less cash for financing activities compared to the same period of 1998 mostly because we issued more long-term debt and our net repayments of short-term borrowings were less. We would have used less cash for financing activities except we repaid more long-term debt in first quarter 1999. 20 Security Ratings - ---------------- Independent credit-rating agencies rate Constellation Energy's and BGE's fixed-income securities. The ratings indicate the agencies' assessment of our ability to pay interest, distributions, dividends, and principal on these securities. These ratings affect how much it will cost us to sell these securities. The better the rating, the lower the cost of the securities to us when they sell them. Constellation Energy's and BGE's securities ratings at the date of this report are: Standard Moody's Duff & Phelps' & Poors Investors Credit Rating Group Service Rating Co. ------------ ------- ---------- Constellation Energy - -------------------- Unsecured Debt Pending A3 Pending BGE - --- Mortgage Bonds AA- A1 AA- Unsecured Debt A A2 A+ Trust Originated Preferred Securities and Preference Stock A- "a2" A Capital Resources - ----------------- Our business requires a great deal of capital. Our actual capital requirements for the three months ended March 31, 1999, along with estimated annual amounts for the years 1999 through 2001, are shown below. For the twelve months ended March 31, 1999, our ratio of earnings to fixed charges was 2.97 and our ratio of earnings to combined fixed charges and preferred and preference dividend requirements was 2.66. Investment requirements for 1999 through 2001 include estimates of funding for existing and anticipated projects. We continuously review and modify those estimates. Actual investment requirements may vary from the estimates included in the table below because of a number of factors including: o regulation, legislation, and competition, o load growth, o environmental protection standards, o the type and number of projects selected for development, o the effect of market conditions on those projects, o the cost and availability of capital, and o the availability of cash from operations. Our estimates are also subject to additional factors. Please see "Forward Looking Statements" on page 28.
Quarter Ended March 31, Calendar Year Estimates 1999 1999 2000 2001 --------- ------- -- -------- -- -------- (In millions) Utility Business Capital Requirements: - -------------------------------------- Construction expenditures (excluding AFC) Electric $53 $285 $290 $278 Gas 12 74 70 69 Common 5 25 20 18 -------- ------- ------- ------- Total construction expenditures 70 384 380 365 AFC 3 12 13 19 Nuclear fuel (uranium purchases and processing charges) 2 48 50 48 Deferred energy conservation expenditures - 1 - - Retirement of long-term debt and redemption of preference stock 87 254 253 282 -------- ------- ------- ------- Total utility business capital requirements 162 699 696 714 -------- ------- ------- ------- Diversified Business Capital Requirements: - ------------------------------------------ Investment requirements 17 402 498 556 Retirement of long-term debt 27 200 273 365 -------- ------- ------- ------- Total diversified business capital requirements 44 602 771 921 -------- ------- ------- ------- Total capital requirements $206 $1,301 $1,467 $1,635 ======== ======= ======= =======
21 Capital Requirements of Our Utility Business - -------------------------------------------- Our estimates of future electric construction expenditures do not include costs to build more generating units. Electric construction expenditures include improvements to generating plants and to our transmission and distribution facilities. Future electric construction expenditures include estimated costs for replacing the steam generators and renewing the operating licenses at Calvert Cliffs. The operating licenses expire in 2014 for Unit 1 and in 2016 for Unit 2. We estimate these Calvert Cliffs costs to be: o $34 million in 1999, o $44 million in 2000, and o $58 million in 2001. We estimate that during the two-year period 2002 through 2003, we will spend an additional $151 million to complete the replacement of the steam generators and extend the operating licenses at Calvert Cliffs. We discuss the license extension process further in the "Other Matters - Calvert Cliffs License Extension" section of BGE's 1998 Annual Report on Form 10-K. If we do not replace the steam generators, we estimate that Calvert Cliffs could not operate for the full term of its current operating licenses. We expect the steam generator replacements to occur during the 2002 refueling outage for Unit 1 and during the 2003 outage for Unit 2. Additionally, our estimates of future electric construction expenditures include the costs of complying with Environmental Protection Agency (EPA) and State of Maryland nitrogen oxides emissions (NOx) reduction regulations as follows: o $34 million in 1999, o $49 million in 2000, and o $21 million in 2001. We discuss the NOx regulations in the "Environmental Matters" section of the Notes to Consolidated Financial Statements on page 7. During the twelve months ended March 31, 1999, our utility operations provided about 102% of the cash needed to meet its capital requirements, excluding cash needed to retire debt and redeem preference stock. We will continue to have cash requirements for: o working capital needs including the payments of interest, distributions, and dividends, o capital expenditures, and o the retirement of debt and redemption of preference stock. During the three years from 1999 through 2001, we expect utility operations to provide about 115% of the cash needed to meet its capital requirements, excluding cash needed to retire debt and redeem preference stock. When BGE cannot meet utility capital requirements internally, BGE sells debt and preference stock. BGE also sells securities when market conditions permit them to refinance existing debt or preference stock at a lower cost. The amount of cash BGE needs and market conditions determine when and how much BGE sells. Future funding for capital expenditures, the retirement of debt, redemption of preference stock, and payments of interest and dividends is expected from internally generated funds, commercial paper issuances, available capacity under credit facilities, and/or the issuance of long-term debt, trust securities, or preference stock. At March 31, 1999 the Federal Energy Regulatory Commission has authorized BGE to issue up to $700 million of short-term borrowings. In addition, BGE maintains $113 million in committed bank lines of credit and has $100 million in bank revolving credit agreements to support its commercial paper program. Capital Requirements of Our Diversified Businesses - -------------------------------------------------- We expect to expand certain of our energy services businesses which will require additional funding for: o growing our power marketing and trading business, o the development and acquisition of power projects, as well as loans made to project entities, o investments in financial limited partnerships, and o funding for construction of cooling system projects. The investment requirements exclude Constellation Power Source, Inc.'s commitment to contribute up to $175 million in equity to fund its investment in Orion Power Holdings, Inc. Orion acquires electric generating plants in the United States and Canada. 22 Our diversified businesses have met their capital requirements in the past through borrowing, cash from their operations, sales of receivables, and from time to time, equity contributions from BGE. Future funding for the expansion of our energy services businesses is expected from internally generated funds, short-and long-term financing by Constellation Energy, and from time to time equity contributions from Constellation Energy. BGE Home Products & Services may also meet capital requirements through sales of receivables. If we can get a reasonable value for our real estate projects and our senior-living facilities, additional cash may be obtained by selling them. Our ability to sell or liquidate assets will depend on market conditions, and we cannot give assurances that these sales or liquidations could be made. Our diversified businesses also have revolving credit agreements totaling $270 million to provide additional liquidity for short-term financial needs, including the issuance of up to $135 million of letters of credit. Other Matters - ------------- Environmental Matters - --------------------- We are subject to federal, state, and local laws and regulations that work to improve or maintain the quality of the environment. If certain substances were disposed of or released at any of our properties, whether currently operating or not, these laws and regulations require us to remove or remedy the effect on the environment. This includes Environmental Protection Agency Superfund sites. You will find details of our environmental matters in the "Environmental Matters" section of the Notes to Consolidated Financial Statements beginning on page 7 and in BGE's 1998 Annual Report on Form 10-K under "Item 1. Business - Environmental Matters." These details include financial information. Some of the information is about costs that may be material. Year 2000 Readiness Disclosure - ------------------------------ We have not experienced any significant year 2000 problems to date and we do not expect any significant problems to impair our operations as we transition to the new century. However, due to the magnitude and complexity of the year 2000 issue, even the most conscientious efforts cannot guarantee that every problem will be found and corrected prior to January 1, 2000. We are focusing on critical operating and business systems and expect to have contingency plans in place to deal with any problems, if they should occur. Please refer to "Forward Looking Statements" on page 28. Utility Business - ---------------- We established a year 2000 Program Management Office (PMO). Based on a work plan developed by the PMO, we have targeted the following six key areas: o digital systems (devices with embedded microprocessors such as power instrumentation, controls, and meters), o telecommunications systems, o major suppliers, o information technology applications (our customer, business, and human resources information systems), o computer hardware and software infrastructure, and o contingency plans. Of these areas, digital systems have the most impact on our ability to provide electric and gas service. Telecommunications, major suppliers, and certain information technology applications also impact our ability to provide electric and gas service. Year 2000 Project Phases - ------------------------ Our year 2000 project is divided into two phases: o Phase I - initial assessment and detailed analysis, and o Phase II - testing, remediation, certification, and contingency planning. Phase I involves conducting an inventory of all systems and identifying appropriate resources. We have identified the following appropriate resources for each system or piece of equipment: o BGE employees familiar with each system or piece of equipment, o specialized contractors, and o specific vendors. 23 Phase I also includes developing action plans to ensure that the key areas identified above are year 2000 ready. The action plans for each system or piece of equipment include: o our budget, o schedules for Phase I and II, and o our remediation approach - repair, upgrade, replace or retire. In evaluating our risks and estimating our costs, we utilized employees with expertise in each line of business to perform the activities under Phase I. We believe our employees are the most familiar with their systems or equipment and therefore will provide a reliable estimate of our risks and costs. Phase II includes converting and testing all of our systems. Each system will be tested by those employees used in Phase I following formal guidelines developed by the PMO. Each system or piece of equipment will then be certified by a tester and the PMO, following testing guidelines developed with the help of outside consultants. We are currently evaluating whether we will have our year 2000 testing independently certified. Phase II also includes identifying our major suppliers and developing contingency plans. We have identified our major suppliers and have assessed their year 2000 readiness through surveys. We are currently following-up with our major suppliers via interviews. Contingency Planning - -------------------- Year 2000 operational contingency planning is underway. Staffing and initial planning was completed in 1998. Contingency plans are expected to be completed, including company-wide training, by June 1999. We are developing contingency plans using the contingency guidelines issued by the Nuclear Energy Institute (which are endorsed by the Nuclear Regulatory Commission), the contingency guidelines issued by the North American Electric Reliability Council (NERC), and guidance from consultants. We are also addressing the impact of electric power grid problems that may occur outside of our own electric system. We are developing year 2000 electric power grid impact planning through our various electric interconnection affiliations. The PJM interconnection has drafted year 2000 operational preparedness plans and restoration scenarios and will continue to coordinate and develop these plans during the first half of 1999 in cooperation with NERC. The NERC performs monthly assessments of the electric utility industry to communicate the readiness of the national electric grid for year 2000. On April 9, 1999, we participated in a NERC sponsored drill, along with other North American electric bulk operating utilities. The drill focused on testing backup voice and data communications and protocols. The drill was successful as it demonstrated our ability to operate the bulk power and gas distribution systems reliably during a partial loss of telephone communications. The NERC has scheduled a second drill beginning September 8, 1999 to simulate January 1, 2000. In addition, the PJM has scheduled two drills in May and December 1999. Through the Electric Power Research Institute (EPRI), an industry-wide effort has been established to deal with year 2000 problems affecting digital systems and equipment used by the nation's electric power companies. Under this effort, participating utilities assessed specific vendors' system problems and test plans. The assessment was shared by the industry as a whole to facilitate year 2000 problem solving. BGE has joined the American Gas Association (AGA) in an initiative similar to the one with EPRI to facilitate year 2000 problem solving among gas utilities. The AGA and its affiliates perform quarterly assessments of the gas utility industry to communicate the readiness of its members for the year 2000. Current Status - -------------- The most reasonably likely worst case scenario faced by our utility business is a localized interruption in providing electric and gas service to our customers. We cannot predict the impact of any interruption on our results of operations, but the impact could be material. The following table shows our estimate as of the date of this report of the percentage completed for Phases I and II and our expected year 2000 readiness target dates for the six key areas: Year 2000 readiness Phase I Phase II target date ------- -------- ----------- (approximate % complete) Digital systems 100% 80% June 1999 Telecommunications system 100% 95% June 1999 Major suppliers 100% 92% June 1999 Information technology applications 100% 85% June 1999 Computer hardware and software infrastructure 100% 92% June 1999 Contingency plans - 40% June 1999 24 The completion percentages listed above are reviewed by our PMO in monthly status meetings with the personnel responsible for each project and their supervision. Monthly progress is also monitored by senior Constellation Energy and BGE management. Costs - ----- In the following table, we show the breakdown of our total costs between normal system replacements that will be capitalized (included in the Consolidated Balance Sheets) and the costs that will be expensed (included in our Consolidated Statements of Income) through operations and maintenance (O&M) cost. We also show the breakdown of non-incremental (previously included in our information technology budget) and incremental O&M cost: Estimated Total Actual Costs Costs Costs ------------ ----- ----- Through 1996 - March 31, Remainder 1997 1998 1999 of 1999 2000 ---- ---- ---- ------- ---- (In millions) Total Cost $1.8 $18.9 $5.2 $14.3 $2.0 $42.2 Less: Capital Cost - 7.3 1.5 4.2 - 13.0 ------ ----- ----- ----- ------ ------ O&M cost 1.8 11.6 3.7 10.1 2.0 29.2 Less: non-incremental O&M cost 1.8 4.6 1.1 5.9 1.0 14.4 ------ ----- ----- ----- ------ ------ Incremental O&M cost $- $7.0 $2.6 $4.2 $1.0 $14.8 ====== ===== ===== ======= ====== ====== The costs incurred in 1996 and 1997 were for Phase I. The costs incurred in 1998 were for Phases I and II. Cost incurred in 1999 and 2000 will be for Phase II. In 1998, we had the equivalent of approximately 110 full-time employees assigned to our year 2000 project. We expect a similar level of commitment of resources to continue during 1999. Diversified Businesses - ---------------------- Overview - -------- Our diversified businesses have established year 2000 task forces to address their year 2000 issues. As the initial assessments are completed, the businesses have developed, and will be developing, action plans to prepare their systems for the year 2000. Outside consultants have been retained by several of our diversified businesses to help complete the initial assessment and detailed analysis phase, and to assist in the testing, remediation, and certification phase of their year 2000 projects. The action plans developed are similar to those used by our utility business, including a test certification process. All systems are expected to be certified by December 1999. Our diversified businesses are evaluating whether they will have their year 2000 testing independently certified. In evaluating their risks and estimating their costs, our diversified businesses utilized employees with expertise in each line of business to perform initial assessments. We believe our diversified businesses' employees are the most familiar with their systems or equipment and therefore will provide a reliable estimate of our risks and costs. The progress of our diversified businesses' year 2000 projects are reviewed by their year 2000 task forces in monthly status meetings with the personnel responsible for each project and their supervision. Monthly progress is also monitored by senior management for each business and monthly updates are provided to Constellation Energy and BGE senior management. Contingency Planning - -------------------- Each of our diversified businesses will develop contingency plans, which are expected to be completed by December 1999. Current Status - -------------- The most reasonably likely worst case scenarios faced by our energy services businesses and our other diversified businesses are discussed below. However, if any of these scenarios actually occurred, the impact is not expected to be material to our consolidated financial results. Energy Services - --------------- The most reasonably likely worst case scenarios for any one of our power projects would be: o a shutdown of the plant's systems (most of which can be manually overridden), o inability of the purchasing utility to take the plant's power, or o failure of critical suppliers. Personnel at each plant are currently assessing their particular year 2000 issues and certain plants have started the testing, remediation, and certification phase of their year 2000 project. In Latin America, personnel are currently assessing the year 2000 readiness of suppliers and are preparing contingency plans where necessary. 25 For our power marketing and trading business and our energy products and services business, the most reasonably likely worst case scenario would be encountering any Internet access problems with trading partners, transmission service providers, independent operators, power exchanges, and various electronic bulletin boards. Each of these businesses has three Internet service providers for alternate routing to critical Internet sites necessary to perform day-to-day business functions. Both have completed the assessment and detailed analysis phase and have started the testing, remediation, and certification phase of its year 2000 project. For our home products and commercial building systems business, the most reasonably likely worst case scenarios would be any interruption in billing customers or renewing maintenance contracts. This business has substantially completed the assessment and detailed analysis phase and has started the testing, remediation, and certification phase of its year 2000 project. Other Diversified Businesses - ---------------------------- The most reasonably likely worst case scenarios for our financial investments business would be a breakdown in the systems of the brokers or safekeeping banks which it uses to trade, or the failure of its investment managers' computer programs that set investment strategy. This business is currently surveying and monitoring the year 2000 readiness of its banks, brokers, and investment managers. For our real estate and senior-living facilities business, the most reasonably likely worst case scenario is a failure of the systems that support the health, safety, and welfare of residents in the senior-living facilities. Personnel at each senior-living facility are involved in assessing its particular year 2000 issues and have a consultant coordinating the overall year 2000 activity. Costs - ----- We estimate our total year 2000 costs for our power projects business to be approximately $4.2 million, of which $1.2 million is related to our year 2000 efforts for our Panamanian electric distribution company. The total estimated year 2000 costs for our remaining diversified businesses are approximately $2.8 million. Item 3. Quantitative and Qualitative Disclosures About Market Risk - ------------------------------------------------------------------ We discuss the following information related to our market risk: o quarterly financing activities in the Notes to Consolidated Financial Statements on page 7, and o trading activities of our power marketing and trading business in the "Power Marketing and Trading" section of Management's Discussion and Analysis on page 19. 26 PART II. OTHER INFORMATION - -------- ----------------- Item 1. Legal Proceedings - ------- ----------------- Asbestos - -------- Since 1993, we have been involved in several actions concerning asbestos. The actions are based upon the theory of "premises liability," alleging that we knew of and exposed individuals to an asbestos hazard. The actions relate to two types of claims. The first type is direct claims by individuals exposed to asbestos. We described these claims in BGE's Report on Form 8-K filed August 20, 1993. We are involved in these claims with approximately 70 other defendants. Approximately 520 individuals that were never employees of BGE each claim $6 million in damages ($2 million compensatory and $4 million punitive). These claims were filed in the Circuit Court for Baltimore City, Maryland in the summer of 1993. We do not know the specific facts necessary to estimate our potential liability for these claims. The specific facts we do not know include: o the identity of our facilities at which the plaintiffs allegedly worked as contractors, o the names of the plaintiff's employers, and o the date on which the exposure allegedly occurred. To date, seven of these cases were settled before trial for amounts that were immaterial. One trial is currently scheduled for August 1999. The second type is claims by one manufacturer -- Pittsburgh Corning Corp. -- against us and approximately eight others, as third-party defendants. These claims relate to approximately 1,500 individual plaintiffs and were filed in the Circuit Court for Baltimore City, Maryland in the fall of 1993. We do not know the specific facts necessary to estimate our potential liability for these claims. The specific facts we do not know include: o the identity of our facilities containing asbestos manufactured by the manufacturer, o the relationship (if any) of each of the individual plaintiffs to us, o the settlement amounts for any individual plaintiffs who are shown to have had a relationship to us, and o the dates on which/places at which the exposure allegedly occurred. Until the relevant facts for both types of claims are determined, we are unable to estimate what our liability, if any, might be. Although insurance and hold harmless agreements from contractors who employed the plaintiffs may cover a portion of any awards in the actions, our potential liability could be material. Item 2. Changes in Securities and Use of Proceeds - ------- ----------------------------------------- Effective April 30, 1999, the outstanding common stock of BGE was exchanged on a share-for-share basis for shares of common stock of Constellation Energy. Certain rights of the holders of common stock of Constellation Energy were modified. We discussed this further in the joint proxy statement / prospectus of Constellation Energy and BGE in Post-Effective Amendment No. 1 to Form S-4 (Registration No. 33-64799), under the section "Comparative Shareholder Rights," attached as an exhibit to this document, and incorporated by reference herein. 27 PART II. OTHER INFORMATION (Continued) - -------- ----------------------------- Item 5. Other Information - ------- ----------------- Forward Looking Statements - -------------------------- We make statements in this report that are considered forward looking statements within the meaning of the Securities Exchange Act of 1934. Sometimes these statements will contain words such as "believes," "expects," "intends," "plans," and other similar words. These statements are not guarantees of our future performance and are subject to risks, uncertainties and other important factors that could cause our actual performance or achievements to be materially different from those we project. These risks, uncertainties and factors include, but are not limited to: o general economic, business, and regulatory conditions, o energy supply and demand, o competition, o federal and state regulations, o availability, terms, and use of capital, o nuclear and environmental issues, o weather, o industry restructuring and cost recovery (including the potential effect of stranded investments), o commodity price risk, and o year 2000 readiness. Given these uncertainties, you should not place undue reliance on these forward looking statements. Please see the other sections of this report and our other periodic reports filed with the SEC for more information on these factors. These forward looking statements represent our estimates and assumptions only as of the date of this report. 28 PART II. OTHER INFORMATION (Continued) - -------- ----------------------------- Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------
(a) Exhibit No. 10(a) Constellation Energy Group, Inc. Deferred Compensation Plan for Non-Employee Directors. Exhibit No. 10(b) Constellation Energy Group, Inc. Long-Term Incentive Plan. Exhibit No. 10(c) Constellation Energy Group, Inc. 1995 Long-Term Incentive Plan. Exhibit No. 10(d) Constellation Energy Group, Inc. Nonqualified Deferred Compensation Plan, as amended and restated. Exhibit No. 10(e) Grantor Trust Agreement dated as of April 30, 1999 between Constellation Energy Group, Inc. and T. Rowe Price Trust Company. Exhibit No. 10(f) Constellation Energy Group, Inc. Executive Benefits Plans. Exhibit No. 10(g) Grantor Trust Agreement Dated as of April 30, 1999 between Constellation Energy Group, Inc. and Citibank, N.A. Exhibit No. 10(h) Executive Incentive Plan of Constellation Energy Group, Inc. Exhibit No. 10(i) Summary of severance arrangement for a named executive officer. Exhibit No. 10(j) Form of Severance Agreement between Constellation Energy Group, Inc. and eight key employees. Exhibit No. 10(k) Constellation Enterprises, Inc. Deferred Compensation Plan for Non-Employee Directors. Exhibit No. 10(l) Summary of enhanced retirement benefits for a named executive officer. Exhibit No. 10(m) Baltimore Gas and Electric Company Retirement Plan for Non-Employee Directors, as amended and restated. Exhibit No. 12 Computation of Ratio of Earnings to Fixed Charges and Computation of Ratio of Earnings to Combined Fixed Charges and Preferred and Preference Dividend Requirements. Exhibit No. 27 Financial Data Schedule. Exhibit No. 99(a) Summarized Pro Forma Financial Information Related to the Formation of a Holding Company. Exhibit No. 99(b) Comparative Shareholder Rights Section From the Joint Proxy Statement / Prospectus of Constellation Energy and BGE in Post-Effective Amendment No. 1 to Form S-4 (Registration No. 33-64799).
(b) Reports on Form 8-K for the quarter ended March 31, 1999: Date Filed Items Reported ---------- -------------- January 22, 1999 Item 5. Other Events Item 7. Financial Statements and Exhibits March 1, 1999 Item 5. Other Events Item 7. Financial Statements and Exhibits 29 SIGNATURE --------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CONSTELLATION ENERGY GROUP, INC. -------------------------------- (Registrant) BALTIMORE GAS AND ELECTRIC COMPANY ---------------------------------- (Registrant) Date: May 14, 1999 /s/ D. A. Brune ---------------- ----------------------------------- D. A. Brune, Vice President on behalf of each Registrant and as Principal Financial Officer of each Registrant 30
EXHIBIT INDEX Exhibit Number 10(a) Constellation Energy Group, Inc. Deferred Compensation Plan for Non-Employee Directors. 10(b) Constellation Energy Group, Inc. Long-Term Incentive Plan. 10(c) Constellation Energy Group, Inc. 1995 Long-Term Incentive Plan. 10(d) Constellation Energy Group, Inc. Nonqualified Deferred Compensation Plan, as amended and restated. 10(e) Grantor Trust Agreement dated as of April 30, 1999 between Constellation Energy Group, Inc. and T. Rowe Price Trust Company. 10(f) Constellation Energy Group, Inc. Executive Benefits Plans. 10(g) Grantor Trust Agreement Dated as of April 30, 1999 between Constellation Energy Group, Inc. and Citibank, N.A. 10(h) Executive Incentive Plan of Constellation Energy Group, Inc. 10(i) Summary of severance arrangement for a named executive officer. 10(j) Form of Severance Agreement between Constellation Energy Group, Inc. and eight key employees. 10(k) Constellation Enterprises, Inc. Deferred Compensation Plan for Non-Employee Directors. 10(l) Summary of enhanced retirement benefits for a named executive officer. 10(m) Baltimore Gas and Electric Company Retirement Plan for Non-Employee Directors, as amended and restated. 12 Computation of Ratio of Earnings to Fixed Charges and Computation of Ratio of Earnings to Combined Fixed Charges and Preferred and Preference Dividend Requirements. 27 Financial Data Schedule. 99(a) Summarized Pro Forma Financial Information Related to the Formation of a Holding Company. 99(b) Comparative Shareholders Rights Section From the Joint Proxy Statement / Prospectus of Constellation Energy and BGE in Post-Effective Amendment No. 1 to Form S-4 (Registration No. 33-64799).
31 EX-10 2 EX-10(A) Exhibit 10(a) Constellation Energy Group, Inc. Deferred Compensation Plan For Non-Employee Directors 1. Objective. The objective of this Plan is to provide a portion of the Compensation of non-employee Directors of CEG in the form of Stock Units, thereby promoting a greater identity of interest between CEG's non-employee Directors and its stockholders, and to enable such Directors to defer receipt of the portion of their Compensation that is payable in cash. 2. Definitions. As used herein, the following terms will have the meaning specified below: "Annual Retainer" means the amount payable by CEG to a Director as annual compensation for performance of services as a Director, and includes Committee Chair retainers. All other amounts (including without limitation Board/committee meeting fees, and expense reimbursements) shall be excluded in calculating the amount of the Annual Retainer. "Board" means the Board of Directors of CEG. "Cash Account" means an account by that name established pursuant to Section 7. The maintenance of Cash Accounts is for bookkeeping purposes only. "CEG" means Constellation Energy Group, Inc., a Maryland corporation, or its successor. "Change in Control" means (i) the purchase or acquisition by any person, entity or group of persons (within the meaning of section 13(d) or 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), or any comparable successor provisions), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20 percent or more of either the outstanding shares of common stock of CEG or the combined voting power of CEG's then outstanding shares of voting securities entitled to a vote generally, or (ii) the consummation of, following the approval by the stockholders of CEG of a reorganization, merger or consolidation of CEG, in each case, with respect to which persons who were stockholders of CEG immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 50 percent of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated entity's then outstanding securities, or (iii) a 1 liquidation or dissolution of CEG or the sale of substantially all of its assets, or (iv) a change of more than one-half of the members of the Board within a 90-day period for reasons other than the death, disability, or retirement of such members. "Committee" means the Committee on Management of the Board. "Common Stock" means the common stock, without par value, of CEG. "Compensation" means any Annual Retainer and meeting fees payable by CEG to a participant in his/her capacity as a Director. Compensation excludes expense reimbursements paid by CEG to a participant in his/her capacity as a Director. "Deferred Cash Compensation" means any cash Compensation that is voluntarily deferred by a participant pursuant to Section 6. "Director" means a member of the Board who is not an employee of CEG or any of its subsidiaries/ affiliates. "Disability" or "Disabled" means that the Plan Administrator has determined that the participant is unable to fulfill his/her responsibilities of Board membership because of illness or injury. For purposes of this Plan, a participant's eligibility to participate shall be deemed to have terminated on the date he/she is determined by the Plan Administrator to be Disabled. "Earnings" means, with respect to the Cash Account, hypothetical interest credited to the Cash Account. "Earnings" means, with respect to the Stock Account, hypothetical dividends credited to the Stock Account. "Fair Market Value" means, as of any specified date, the average closing price of a share of Common Stock, reported in "New York Stock Exchange Composite Transactions" as published in the Eastern Edition of The Wall Street Journal for the most recent 30 days during which Common Stock was traded on the New York Stock Exchange (including such valuation date if a trading date). "Plan Accounts" means a participant's Cash Account and/or Stock Account. The maintenance of Plan Accounts is for bookkeeping purposes only. "Plan Administrator" means, as set forth in Section 3, the Board. 2 "Stock Account" means an account by that name established pursuant to Section 8. The maintenance of Stock Accounts is for bookkeeping purposes only. "Stock Unit(s)" means the share equivalents credited to a Participant's Stock Account pursuant to Section 8. The use of Stock Units is for bookkeeping purposes only; the Stock Units are not actual shares of Common Stock. CEG will not reserve or otherwise set aside any Common Stock for or to any Stock Account. 3. Plan Administration. (i) Plan Administrator - The Plan is administered by the Board, who has sole authority to interpret the Plan, and, in general, to make all other determinations advisable for the administration of the Plan to achieve its stated objective. Decisions by the Plan Administrator shall be final and binding upon all persons for all purposes. The Plan Administrator shall have the power to delegate all or any part of its non-discretionary duties to one or more designees, and to withdraw such authority, by written designation. (ii) Amendment - This Plan may be amended from time to time or suspended or terminated at any time, at the written direction of the Plan Administrator. However, amendments required to keep the Plan in compliance with applicable laws and regulations may be made by the Vice President - Human Resources of CEG (or other vice president succeeding to that function) on advice of counsel. Nothing herein creates a vested right. (iii) Indemnification - The Plan Administrator (and its designees), Chairman of the Board, Chief Executive Officer, President, and Vice President-Human Resources of CEG and all other employees of CEG or its subsidiaries/affiliates whose assigned duties include matters under the Plan, shall be indemnified by CEG or its subsidiaries /affiliates or from proceeds under insurance policies purchased by CEG or its subsidiaries/affiliates, against any and all liabilities arising by reason of any act or failure to act made in good faith pursuant to the provisions of the Plan, including expenses reasonably incurred in the defense of any related claim. 4. Eligibility and Participation. (i) Mandatory participation - A Director is required to participate in this Plan with respect to the receipt of fifty 3 percent (50%) of his/her Annual Retainer in the form of Stock Units under Section 5 of the Plan, while so classified. (ii) Voluntary participation - A Director is eligible to participate in the Plan by electing to defer all or certain portions of the participant's Compensation, that is payable in cash, under Section 6 of the Plan, while so classified. (iii) Termination of participation - Eligibility to participate shall terminate on the date the participant ceases to be a Director. Notwithstanding termination of eligibility, such person with Plan Accounts will remain a participant of the Plan, solely for purposes of the administration of existing Plan Accounts, and no additional Stock Units will be granted and no further deferrals of cash Compensation under the Plan will be permitted. 5. Mandatory Stock Units. The Stock Account of a participant will be credited on January 1 of each calendar year with Stock Units equal to the number of shares of Common Stock (including fractions of a share) that could have been purchased, with fifty percent (50%) of the participant's Annual Retainer for such calendar year, at Fair Market Value on such January 1. If a participant initially becomes eligible to participate in the Plan during a calendar year, the Stock Account of the participant for such calendar year will be credited, on the date that is the first day of the calendar month after the participant initially becomes eligible to participate in the Plan, with Stock Units equal to the number of shares of Common Stock (including fractions of a share) that could have been purchased at Fair Market Value on such date, with an amount equal to (i) fifty percent (50%) of the participant's Annual Retainer multiplied by (ii) a fraction the numerator of which is the number of full calendar months in the calendar year on and after such date, and the denominator of which is 12. The Stock Account will be maintained pursuant to Section 8. 6. Cash Compensation Deferral Election. A participant may elect to defer none, all or fifty percent (50%) of his/her Annual Retainer that is payable in cash (i.e., fifty percent (50%) of the Annual Retainer) and/or may elect to defer none, all, fifty percent (50%), or seventy-five percent (75%) of his/her other Compensation that is payable in cash (i.e., one hundred percent (100%) of all other Compensation). A participant's cash Compensation deferral election with respect to the Annual Retainer shall specify whether the deferred Annual 4 Retainer is to be credited to the Cash Account or to the Stock Account. All other Cash Compensation that a participant elects to defer will be credited to the Cash Account. Such election shall be made by written notification to the Vice President-Human Resources of CEG (or other vice president succeeding to that function). Such election shall be made prior to the calendar year during which the applicable cash Compensation is payable, and shall be effective as of the first day of such calendar year. If a participant initially becomes eligible to participate in the Plan during a calendar year, the election for such calendar year must be made within thirty (30) calendar days after the date the participant initially becomes eligible to participate in the Plan, and shall be effective with respect to Compensation earned after the date the election is received by the Vice President-Human Resources of CEG (or other vice president succeeding to that function). Elections under this Section shall remain in effect for all succeeding calendar years until revoked. Elections may be revoked by written notification to the Vice President-Human Resources of CEG (or other vice president succeeding to that function), and shall be effective as of the first day of the calendar year following the calendar year during which the revocation is received by such Vice President. Notwithstanding anything herein contained to the contrary, the Plan Administrator shall have the right in its sole discretion to permit a participant to defer other percentages of his/her Annual Retainer and/or other Compensation that is payable in cash. 7. Cash Accounts. Cash Compensation that consists of the Annual Retainer that a participant has elected to defer into the Cash Account is credited to the participant's Cash Account on January 1 (or if later, the date the participant's initial election to participate in the Plan becomes effective). All other cash Compensation that a participant has elected to defer is credited to the participant's Cash Account on each date such cash Compensation would otherwise have been paid to the Director. A participant's Cash Account shall be credited with earnings at the rate earned by the Interest Income Fund under the Constellation Energy Group, Inc. Employee Savings Plan, and computed in the same manner as under such plan. Earnings are credited to the Cash Account commencing on the date the applicable Deferred Cash Compensation is credited to the Cash Account. 5 8. Stock Accounts. Cash Compensation that consists of the Annual Retainer that a participant has elected to defer into the Stock Account is credited to the participant's Stock Account on January 1 (or if later, the date the participant's initial election to participate in the Plan becomes effective). A participant's Stock Account shall be credited with Stock Units equal to the number of shares of Common Stock (including fractions of a share) that could have been purchased with such Deferred Cash Compensation, at Fair Market Value on such date. Grants of mandatory Stock Units are credited to the Stock Account as set forth in Section 5. As of any dividend distribution date for the Common Stock, the participant's Stock Account shall be credited with additional Stock Units equal to the number of shares of Common Stock (including fractions of a share) that could have been purchased, at the closing price of a share of Common Stock on such date as reported in "New York Stock Exchange Composite Transactions" as published in the Eastern Edition of the The Wall Street Journal, with the amount which would have been paid as dividends on that number of shares (including fractions of a share) of Common Stock which is equal to the number of Stock Units then credited to the participant's Stock Account. In the event of any change in the outstanding shares of Common Stock by reason of any stock dividend or split, recapitalization, combination or exchange of shares or other similar changes in the Common Stock, then appropriate adjustments shall be made in the number of Stock Units in each participant's Stock Account. Such adjustments shall be made effective on the date of the change related to the Common Stock. 9. Distributions of Plan Accounts. Distributions of Plan Accounts shall be made in cash only, from the general assets of CEG. A participant may elect (by notification in the form and manner established by the Vice President-Human Resources of CEG (or other vice President succeeding to that function) from time to time) to begin distributions (i) in the calendar year following the calendar year that eligibility to participate terminates, (ii) in the calendar year following the calendar year in which a participant attains age 70, if later, or (iii) any calendar year between (i) and (ii). Such election must be made prior to the end of the calendar year in which eligibility to participate terminates. Alternatively, a participant who reaches age 70 while still 6 eligible to participate may elect to begin distributions, in the calendar year following the calendar year that the participant reaches age 70, of amounts in his/her Plan Accounts as of the end of the calendar year the participant reaches age 70. Such election must be made prior to the end of the calendar year in which the participant reaches age 70, and a distribution election to receive any subsequently deferred amounts beginning in the calendar year following the calendar year that eligibility to participate terminates, must be made prior to the end of the calendar year in which eligibility to participate terminates. A participant may elect (by notification in the form and manner established by the Vice President-Human Resources of CEG (or other vice President succeeding to that function) from time to time) to receive distributions in a single payment or in annual installments during a period not to exceed fifteen years. The single payment or the first installment payment, whichever is applicable, shall be made within the first sixty (60) calendar days of the calendar year elected for distribution. Subsequent installments, if any, shall be made within the first sixty (60) calendar days of each succeeding calendar year until the participant's Cash Account has been paid out. In the event applicable elections are not timely made, a participant shall receive a distribution in a single payment within the first sixty (60) calendar days of the calendar year following the calendar year that eligibility to participate terminates. The value of the Stock Account, which is equal to the number of Stock Units in the Stock Account multiplied by the Fair Market Value on the date on which the participant's eligibility to participate terminates (or, the date that is the last day of the calendar year during which the participant reaches age 70, for a participant who elects to begin distributions while still eligible to participate), is transferred to the Cash Account on such date. Earnings are credited to the Cash Account through the date of distribution, and amounts held for installment payments shall continue to be credited with Earnings. The value of the Cash Account that is payable in cash on the date of the single payment distribution is equal to the balance in the Cash Account on the date that is no earlier than five (5) calendar days prior to the day of such distribution ("Distribution Valuation Date"). The amount of any cash distribution to be made in installments from the Cash Account will be determined by multiplying (i) the balance in such Cash Account on the Distribution Valuation Date by (ii) a fraction, the 7 numerator of which is one and the denominator of which is the number of installments in which distributions remain to be made (including the current distribution). If a participant dies or becomes Disabled, the entire unpaid balance of his/her Plan Accounts shall be paid to the beneficiary(ies) designated by the participant by notification in the form and manner established by the Vice President-Human Resources of CEG (or other vice president succeeding to that function) from time to time or, if no designation was made, in the event of death, to the estate of the participant, and in the event of Disability, to the participant. Payment shall be made within sixty (60) calendar days after notice of death or Disability is received by such Vice President, unless prior to the participant's death or Disability, the participant elected (in the form and manner established by the Vice President-Human Resources of CEG (or other vice president succeeding to that function) from time to time) a delayed and/or installment distribution option for such beneficiary(ies); provided, however that (i) such a distribution option election shall be effective only if the value of the participant's Plan Accounts is more than $50,000 on the date of the participant's death or Disability; and (ii) the final distribution must be made to such beneficiary(ies) no later than 15 years after the participant's death or Disability. After the end of the calendar year that a participant's eligibility to participate terminates, a distribution option election for a particular beneficiary is irrevocable; provided, however, that the participant may make a distribution option election for a new beneficiary who is initially designated after the participant's eligibility to participate terminates, and such election is irrevocable with respect to the new beneficiary. The value of the Stock Account, which is equal to the number of Stock Units in the Stock Account multiplied by the Fair Market Value on the date of the participant's death or Disability, is transferred to the Cash Account on such date. Earnings are credited to the Cash Account through the date of distribution, and amounts held for installment payments shall continue to be credited with Earnings. The value of the Cash Account that is payable in cash on the date of the single payment distribution is equal to the balance in the Cash Account on the date that is no earlier than five (5) calendar days prior to the day of such distribution ("Beneficiary Distribution Valuation Date"). The amount of any cash distribution to be made in installments from the Cash Account will be determined by multiplying (i) the balance in such Cash Account on the Beneficiary Distribution Valuation Date by (ii) a fraction, the numerator of which is one and the 8 denominator of which is the number of installments in which distributions remain to be made (including the current distribution). Upon the death of a participant's beneficiary for whom a delayed and/or installment distribution option was elected, the entire unpaid balance of the participant's Cash Account shall be paid to the beneficiary(ies) designated by the participant's beneficiary by notification in the form and manner established by the Vice President-Human Resources of CEG (or other vice president succeeding to that function) from time to time or, if no designation was made, to the estate of the participant's beneficiary. Payment shall be made within sixty (60) calendar days after notice of death is received by such Vice President. The value of the Cash Account that is payable in cash is equal to the balance in the Cash Account on the date that is no earlier than five (5) calendar days prior to the day of such distribution. Notwithstanding anything herein contained to the contrary, the Plan Administrator shall have the right in its sole discretion to (i) vary the manner and timing of distributions of a participant or beneficiary entitled to a distribution under this Section 9, and may make such distributions in a single payment or over a shorter or longer period of time than that elected by a participant; and (ii) vary the period during which the closing price of Common Stock is referenced to determine the value of the Stock Account that is transferred to the Cash Account on the date on which the participant's eligibility to participate terminates. Any affected participants will not participate in exercising such discretion. 10. Beneficiaries. A participant shall have the right to designate, change or rescind a beneficiary(ies) who is to receive a distribution(s) pursuant to Section 9 in the event of the death or Disability of the participant. A participant's beneficiary(ies) for whom a delayed and/or installment distribution option was elected shall have the right to designate a beneficiary(ies) who is to receive a distribution pursuant to Section 9 in the event of the death of the participant's beneficiary(ies). Any designation, change or recision of the designation of beneficiary shall be made by notification in the form and manner established by the Vice President-Human Resources of CEG (or other vice president succeeding to that function) from time to time. The last designation of beneficiary received by such Vice President shall be controlling over any testamentary or purported disposition by the participant (or, 9 if applicable, the participant's beneficiary(ies)), provided that no designation, recision or change thereof shall be effective unless received by such Vice President prior to the death or Disability (whichever is applicable) of the participant (or, if applicable, the death of the participant's beneficiary(ies)). If the designated beneficiary is the estate, or the executor or administrator of the estate, of the participant (or, if applicable, the participant's beneficiary(ies)), a distribution pursuant to Section 9 may be made to the person(s) or entity (including a trust) entitled thereto under the will of the participant (or, if applicable, the participant's beneficiary(ies)), or, in the case of intestacy, under the laws relating to intestacy. 11. Valuation of Plan Accounts. The Plan Administrator shall cause the value of a participant's Plan Accounts to be determined and reported to CEG and the participant at least once per year as of the last business day of the calendar year. The value of the Stock Account will equal the number of Stock Units in the Stock Account multiplied by the closing price of a share of Common Stock on the last business day of the calendar year as reported in "New York Stock Exchange Composite Transactions" as published in the Eastern Edition of the The Wall Street Journal. The value of the Cash Account will equal the balance in the Cash Account on the last business day of the calendar year. 12. Withdrawals. No withdrawals of Plan Accounts may be made, except a participant may at any time request a hardship withdrawal from his/her Plan Accounts if he/she has incurred an unforeseeable financial emergency. An unforeseeable financial emergency is defined as severe financial hardship to the participant resulting from a sudden and unexpected illness or accident of the participant (or of his/her dependents), loss of the participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the participant. The need to send a child to college or the desire to purchase a home are not considered to be unforeseeable emergencies. The circumstance that will constitute an unforeseeable emergency will depend upon the facts of each case. A hardship withdrawal will be permitted by the Plan Administrator only as necessary to satisfy an immediate and heavy financial need. A hardship withdrawal may be permitted only to the extent reasonably necessary to satisfy the financial need. Payment may not be made to the extent that 10 such hardship is or may be relieved (i) through reimbursement or compensation by insurance or otherwise, (ii) by liquidation of the participant's assets, to the extent the liquidation of such assets would not itself cause severe financial hardship, or (iii) by cessation of deferrals under the Plan. The request for hardship withdrawal shall be made by notification in the form and manner established by the Plan Administrator from time to time. Such hardship withdrawal will be permitted only with approval of the Plan Administrator. The participant will receive a lump sum payment after the Plan Administrator has had reasonable time to consider and then approve the request. The value of the Stock Account for purposes of processing a hardship cash withdrawal is equal to the number of Stock Units in the Stock Account multiplied by the Fair Market Value on the date on which the hardship withdrawal is processed. The value of the Cash Account for purposes of processing a hardship cash withdrawal is equal to the balance in the Cash Account on the date on which the hardship withdrawal is processed. 13. Change in Control. The terms of this Section 13 shall immediately become operative, without further action or consent by any person or entity, upon a Change in Control, and once operative shall supersede and control over any other provisions of this Plan. Upon the occurrence of a Change in Control followed within one year of the date of such Change in Control by the participant's cessation of Board membership for any reason, such participant shall be paid the value of his/her Plan Accounts in a single, lump sum cash payment. The value of the Stock Account, which is equal to the number of Stock Units in the Stock Account multiplied by the Fair Market Value on the date of the participant's cessation of Board membership, is transferred to the Cash Account on such date. Earnings are credited to the Cash Account through the date of distribution. The value of the Cash Account that is payable in cash on the date of the single lump sum cash payment is equal to the balance in the Cash Account on the date that is no earlier than five (5) calendar days prior to the day of such distribution. Such payment shall be made as soon as practicable, but in no event later than thirty (30) calendar days after the date of the participant's cessation of Board membership. On or after a Change in Control, no action, including, but not by way of limitation, the amendment, suspension or termination of the Plan, shall be taken which would affect the rights of any participant or the 11 operation of this Plan with respect to the balance in the participant's Plan Accounts. 14. Withholding. CEG may withhold to the extent required by law all applicable income and other taxes from amounts deferred or distributed under the Plan. 15. Copies of Plan Available. Copies of the Plan and any and all amendments thereto shall be made available to all participants during normal business hours at the office of the Plan Administrator. 16. Miscellaneous. (i) Inalienability of benefits - Except as may otherwise be required by law or court order, the interest of each participant or beneficiary under the Plan cannot be sold, pledged, assigned, alienated or transferred in any manner or be subject to attachment or other legal process of whatever nature; provided, however, that any applicable taxes may be withheld from any cash benefit payment made under this Plan. (ii) Controlling law - The Plan and its administration shall be governed by the laws of the State of Maryland, except to the extent preempted by federal law. (iii) Gender and number - A masculine pronoun when used herein refers to both men and women and words used in the singular are intended to include the plural, and vice versa, whenever appropriate. (iv) Titles and headings - Titles and headings to articles and sections in the Plan are placed herein solely for convenience of reference and in any case of conflict, the text of the Plan rather than such titles and headings shall control. (v) References to law - All references to specific provisions of any federal or state law, rule or regulation shall be deemed to also include references to any successor provisions or amendments. (vi) Funding and expenses - Benefits under the Plan are not vested or funded, and shall be paid out of the general assets of CEG. To the extent that any person acquires a right to receive payments from CEG under this Plan, such rights shall be no greater than the right of any unsecured general creditor of CEG. The expenses of administering the Plan will be borne by CEG. 12 (vii) Not a contract - Participation in this Plan shall not constitute a contract of employment or Board membership between CEG and any person and shall not be deemed to be consideration for, or a condition of, continued employment or Board membership of any person. (viii) Successors - In the event CEG becomes a party to a merger, consolidation, sale of substantially all of its assets or any other corporate reorganization in which CEG will not be the surviving corporation or in which the holders of the common stock of CEG will receive securities of another corporation (in any such case, the "New Company"), then the New Company shall assume the rights and obligations of CEG under this Plan. 13 EX-10 3 EX-10(B) Exhibit 10(b) CONSTELLATION ENERGY GROUP, INC. LONG-TERM INCENTIVE PLAN SECTION ONE. PURPOSE OF PLAN. The purpose of the Constellation Energy Group, Inc. Long-Term Incentive Plan is to increase the ownership of Constellation Energy Group, Inc. common stock by those key employees who are mainly responsible for the continued growth and development and financial success of the Company and its subsidiaries, and to attract and retain such employees and reward them for the continued profitable performance of Constellation Energy Group, Inc. and its subsidiaries. SECTION TWO. DEFINITIONS. The following definitions are applicable herein: A. "Award" means, individually or collectively, Options, Stock Appreciation Rights or Restricted Stock granted hereunder. B. "Board" means the Board of Directors of the Company. C. "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 as provided in Section Nine D. D. "Code" means the Internal Revenue Code of 1954, as amended. Reference in the Plan to any section of the Code shall be deemed to include any amendments or successor provisions to such section and any regulations promulgated thereunder. E. "Committee" means the Committee of the Board referred to in Section Four. F. "Company" means Constellation Energy Group, Inc. or its successors, including any "New Company" as provided in Section Eleven I. G. "Date of Disability" means the date on which a Participant is classified as Disabled. 1 H. "Date of Grant" means the date on which the granting of an Award is authorized by the Board or such later date as may be specified by the Board in such authorization. I. "Date of Retirement" means the date of Retirement or Early Retirement. J. "Disability" or "Disabled" means the classification of a Participant as "disabled" pursuant to Section 2.0 (iii) of the Long Term Disability Plan of Constellation Energy Group, Inc. or any amendment or successor provision to such section of such Plan. K. "Early Retirement" means the retirement of an employee prior to the Normal Retirement Date. L. "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 Six. M. "Exercise Period" means the period or periods during which a Stock Appreciation Right is exercisable as described in Section Nine B. N. "Fair Market Value" means the average of the highest and lowest price at which the Stock was sold regular way on the New York Stock Exchange-Composite Transactions on a specified date. 0. "Incentive Stock Option" means an incentive stock option within the meaning of Section 422A of the Code. P. "Normal Retirement Date" is the retirement date as described in the Company's or Subsidiary's retirement or pension plan. Q. "Option" or "Stock Option" means either a nonqualified stock option or an incentive stock option granted under Section Eight. R. "Option Period" or "Option Periods" means the period or periods during which an Option is exercisable as described in Section Eight E. S. "Participant" means an employee of the Company or a Subsidiary who has been granted an Option, a Stock Appreciation 2 Right or a Restricted Stock Award under this Plan. T. "Plan" means the Constellation Energy Group, Inc. Long-Term Incentive Plan. U. "Restricted Stock" means an Award granted under Section Seven. V. "Retirement" means retirement on or after the "Normal Retirement Date" (as such term is defined in the Company's or Subsidiary's pension or retirement plan). W. "Stock" means the common stock, without par value, of the Company. X. "Stock Appreciation Right" means an Award granted to a participant under Section Nine. Y. "Subsidiary" means any corporation of which 20% or more of its outstanding voting stock or voting power is beneficially owned, directly or indirectly, by the Company. Z. "Termination" means resignation or discharge from employment with the Company or any of its Subsidiaries except in the event of Death, Disability, Retirement or Early Retirement. SECTION THREE. EFFECTIVE DATE, DURATION AND STOCKHOLDER APPROVAL. A. Effective Date and Stockholder Approval. This Plan has been transferred from Baltimore Gas and Electric Company (BGE) to CEG effective April 30, 1999 in connection with a share exchange between CEG and the common stockholders of BGE. The Plan was approved by a majority of the outstanding shares of common stock of BGE voted at the 1986 Annual Meeting of Stockholders, and became effective as of October 1, 1985. B. Period for Grants of Awards. Awards may be made as provided herein for a period of 10 years after October 1, 1985. C. Termination. The Plan shall continue in effect until all matters relating to the payment of Awards and administration of the Plan have been settled. D. Grants Outstanding. Grants outstanding at the effective time of the share exchange between CEG and the common stockholders of Baltimore Gas and Electric Company (BGE) will be converted from BGE common stock-based grants to CEG common 3 stock-based grants. SECTION FOUR. ADMINISTRATION. The Plan shall be administered by the Board; provided, however, that the Board in its discretion may delegate its authority in this respect to a Committee, consisting of not less than three members of the Board who are not eligible for grants hereunder, for the purpose of administering the Plan. Except as otherwise provided by the Board, such Committee shall have all of the powers (other than amending this Plan as provided in Section Ten, delegating its authority pursuant to this Section Four or approving the issuance of Stock) respecting the Plan. All questions of interpretation and application of the Plan, or of the terms and conditions pursuant to which Awards are granted, exercised or forfeited under the provisions hereof, shall be subject to the determination of the Board or said Committee, as the case may be. Such determination shall be final and binding upon all parties affected thereby. SECTION FIVE. GRANT OF AWARDS AND LIMITATION OF NUMBER OF SHARES AWARDED. The Board may, from time to time, grant Awards to one or more Eligible Employees, provided that (i) subject to any adjustment pursuant to Section Eleven H, the aggregate number of shares of Stock subject to Awards under this Plan may not exceed one million (1,000,000) shares; (ii) to the extent that an Award lapses or the rights of the Participant to whom it was granted terminate, any 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 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) in accordance with applicable securities laws. In determining the size of Awards, the Board shall take into account a Participant's responsibility level, performance, potential, cash compensation level, and the Fair Market Value of the Stock at the time of Awards, as well as such other considerations as it deems appropriate. SECTION SIX. ELIGIBILITY. Key employees of the Company and its Subsidiaries (including officers or employees who are members of the Board, but excluding directors who are not officers or employees) who, in the opinion of the Board, are mainly responsible for the 4 continued growth and development and financial success of the business of the Company or one or more of its Subsidiaries shall be eligible to be granted Awards under the Plan. Subject to the provisions of the Plan, the Board shall from time to time select from such eligible persons those to whom Awards shall be granted and determine the number of shares to be granted. No officer or employee of the Company or its Subsidiaries shall have any right to be granted an Award under this Plan. SECTION SEVEN. RESTRICTED STOCK AWARDS. A. Grants of Restricted Shares. An Award made pursuant to this Section Seven shall be granted to a Participant in the form of shares of Stock, restricted as provided in this Section Seven. The Restricted Shares shall be issued to the Participant without the payment of consideration by the Participant. The Restricted Shares shall be issued in the name of the Participant and shall bear a restrictive legend prohibiting sale, transfer, pledge or hypothecation of the Restricted Shares until the expiration of the restriction period. The Board may also impose such other restrictions and conditions on the Restricted Shares as it deems appropriate. Upon issuance to the Participant of the Award, the Participant shall have the right to vote the Restricted Shares and receive the cash dividends distributable with respect to such shares, such dividends to be treated as compensation to the Participant. B. Restriction Period. At the time a Restricted Stock Award is made, the Board shall establish a restriction period applicable to such Award which shall be not less than three years and not more than ten years. Each Restricted Stock Award may have a different restriction period, at the discretion of the Board. Notwithstanding the other provisions of this Section Seven B, 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 Board, in its sole discretion, may change or eliminate the restriction period. C. Forfeiture or Payout of Award. In the event a participant ceases employment during a restriction period, a Restricted Stock Award is subject to forfeiture or payout (i.e. removal of restrictions) as follows: 5 (i) Termination - the Restricted Stock Award would be completely forfeited. (ii) Retirement - payout of the Restricted Stock Award would be prorated for service during the period. (iii) Early Retirement - if at the Participant's request, the Restricted Stock Award would be completely forfeited; or - if at the Company's request, payout of the Restricted Stock Award would be prorated for service during the period. (iv) Disability - payout of the Restricted Stock Award would be prorated as if the Participant had maintained active employment until the Normal Retirement Date. (v) Death - payout of the Restricted Stock Award would be prorated for service during the period. In any instance where payout of a Restricted Stock Award is to be prorated, the Board may choose to provide the Participant (or the Participant's estate) with the entire Award rather than the prorated portion thereof. Any Restricted Shares which are forfeited will be transferred to the Company. Upon completion of the restriction period, all restrictions upon the Award will expire and new certificates representing the Award will be issued (the payout) without the restrictive legend described in Section A. As a condition precedent to receipt of the new certificates, the Participant (or the Participant's designated beneficiary or personal representative) will agree to make payment to the Company in the amount of any taxes, payable by the Participant, which are required to be withheld with respect to such Restricted Shares. D. Waiver of Section 83(b) Election. As a condition of receiving an Award of Restricted Shares, a Participant shall waive in writing the right to make an election under Section 83(b) of the Code to report the value of the Restricted Shares as income on the Date of Grant. 6 SECTION EIGHT. STOCK OPTIONS. A. Grant of Option. One or more Options may be granted to any Eligible Employee. B. Stock Option Agreement. Each Option granted under the Plan shall be evidenced by a "Stock Option Agreement" between the Company and the Participant containing provisions determined by the Board, including, without limitation, provisions to qualify Incentive Stock Options as such under Section 422A of the Code; provided, however, that each Stock Option Agreement 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 shall be paid for in full at the time of the exercise; (iii) each Option shall 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 shall not be transferable by the Participant except by Will or the laws of descent and distribution and shall 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 Board, in its sole discretion, may declare any previously granted Option to be immediately exercisable. C. Option Price. The Option price per share of Stock shall be set by the grant, but shall 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 shall be payable in cash or in other shares of Stock or in a combination of cash and other shares of Stock. When Stock is used in full or partial payment of the Option price, it shall be valued at the Fair Market Value on the date the Option is exercised. E. Other Terms and Conditions. The Option shall become exercisable in such manner and within such Option Period or Periods, not to exceed 10 years from its Date of Grant, as set 7 forth in the Stock Option Agreement upon payment in full. 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 first occurrence of one of the following circumstances: (i) 10 years from the Date of Grant; (ii) on the 90th day following the Participant's Date of Retirement; (iii) at the time of a Participant's Termination; or (iv) at the expiration of the Option Period set by the grant. If, however, the Participant dies within the Option Period and prior to the lapse of the Option, the Option shall lapse unless it is exercised within the Option Period or one year from the date of the Participant's death, whichever is earlier, by the Participant's legal representative or representatives or by the person or persons entitled to do so under the Participant's Will or, if the Participant shall fail to make testamentary disposition of such Option or shall die intestate, by the person or persons entitled to receive said Option under the applicable laws of descent and distribution. G. Special Limitations or Exercise of Incentive Stock Options. Notwithstanding any other provisions of the Plan, all Incentive Stock Options must be exercised in the same order or sequence in which they were granted, and no portion of any Incentive Stock Option may be exercised if at that time there are unexercised Incentive Stock Options for which the Date of Grant is earlier than the Date of Grant of the Incentive Stock Option in question. H. Individual Dollar Limitations. In the case of an Incentive Stock Option, the aggregate Fair Market Value of the Stock for which any employee may be granted Incentive Stock Options (whether under this Plan or another arrangement) in any calendar year shall not exceed $100,000 (or such other individual grant 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. SECTION NINE. STOCK APPRECIATION RIGHTS. A. Grant of Stock Appreciation Rights. Stock Appreciation Rights may be granted under the Plan in conjunction with an Option either at the time of grant or by amendment or may be separately awarded. Stock Appreciation Rights shall be subject to such terms and conditions not inconsistent with the 8 Plan as the Board shall impose. B. Right to Exercise; Exercise Period. A Stock Appreciation Right issued pursuant to an Option shall be exercisable to the extent the Option is exercisable; both such Stock Appreciation Right and the Option to which it relates shall 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 shall 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 Board, 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 Award 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 shall be deemed to have been exercised by the Participant on the last day of the Option period or Award Period. D. Payment. An exercisable Stock Appreciation Right granted pursuant to an Option shall 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 greater of (1) the excess of the Fair Market Value of one share of Stock at 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, or (2) the excess of the Book Value of one share of Stock at the Date of Grant of the related Option, times the number of shares called for by the Stock Appreciation Right. Upon exercise of a Stock Appreciation Right not granted pursuant to an Option, the Participant shall receive for each Stock Appreciation Right payment (in cash or stock or a combination thereof as described below) equal to the greater of (1) the excess of the Fair Market Value of one share of Stock at the date of exercise over the Fair Market Value of one share of Stock at the Date of Grant 9 of the Stock Appreciation Right, of one share of Stock at the Date of Grant of the Stock Appreciation Right, times the number of shares called for by the Stock Appreciation Right, or (2) the excess of the Book Value of one share of Stock at the date of exercise of the Stock Appreciation Right over the Book Value of one share of Stock at the Date of Grant of the Stock Appreciation Right, times the number of shares called for by the Stock Appreciation Right. If the Participant elects to receive cash in full or partial settlement of the Stock Appreciation Right (i) the Board must consent to or disapprove such election and (ii) the election and the exercise must be made during the period beginning on the 3rd business day following the date of public release of quarterly or year-end earnings and ending on the 12th business day following the date of public release of quarterly or year-end earnings. 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 exercised, and shall not be deemed to have lapsed. E. Nontransferable. A Stock Appreciation Right shall not be transferable by the Participant except by Will or the laws of descent and distribution and shall 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 first occurrence of one of the following circumstances: (i) 10 years from the Date of Grant; (ii) on the 90th day following the Participant's Date of Retirement; (iii) at the time of a Participant's Termination; or (iv) at the expiration of the Exercise Period, as set by the grant. If, however, the Participant dies within the Exercise Period and prior to the lapse of the Stock Appreciation Right, then the Stock Appreciation Right shall lapse unless it is exercised within the Exercise Period or one year from the date of the Participant's death, whichever is earlier, by the Participants legal representative or representatives or by the person or persons entitled to do so under the Participant's Will or, if the Participant shall fail to make testamentary disposition of the Stock Appreciation Right or shall die intestate, by the person or persons entitled to receive the Stock Appreciation Right under the applicable laws of descent 10 and distribution. SECTION TEN. 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, except (i) no such action may be taken without stockholder approval which materially increases the benefits accruing to Participants pursuant to the Plan, materially increases the number of securities which may be issued pursuant to the Plan (except as provided in Section Eleven H), extends the period for granting Options under the Plan or materially modifies the requirements as to eligibility for participation in the Plan; and (ii) no such action may be taken without the consent of the Participant to whom any award shall theretofore have been granted, which adversely affects the rights of such Participant concerning such award, except as such termination or amendment of the Plan is required by statute, or rules and regulations promulgated thereunder. SECTION ELEVEN. 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 of whatever nature. Any attempted alienation, assignment or attachment shall be void and of no effect whatsoever. Payment shall be made only into the hands of the Participant entitled to receive the same or into the hands of the Participant's authorized legal representative. Deposit of any sum in any financial institution to the credit of any Participant (or of a person entitled to such sum pursuant to the terms of this Plan) shall constitute payment into the hands of that Participant (or such person). B. No Employment Right. Neither this Plan nor any action taken hereunder shall be construed as giving any right to be retained as an officer or employee of the Company or any of its Subsidiaries. C. Tax Withholding. Either the company or a Subsidiary, as appropriate, shall have the right to deduct from all Awards paid in cash any federal, state or local taxes as it deems to be required by law to be withheld with respect to such cash payments. In the case of Awards paid in Stock, the employee or other person receiving such Stock may be required to pay to the 11 Company or a Subsidiary, as appropriate, the amount of any such taxes which the Company or Subsidiary is required to withhold with respect to such Stock. At the request of a Participant, or as required by law, such sums as may be required for the payment of any estimated or accrued income tax liability may be withheld and paid over to the governmental entity entitled to receive the same. 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 may in certain circumstances be exempt from registration under the Act, the Company may restrict its transfer 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 (and each person or Committee to whom the Board or any member thereof has delegated any of its authority or power under this Plan pursuant to Section Four) shall be indemnified and held 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 Charter or By-Laws of the Company or any of its Subsidiaries, as a matter of law, or 12 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 (and each person or Committee to whom the Board or any member thereof has delegated any of its authority or power under this Plan pursuant to Section Four) 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 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 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 Maryland, without regard to the principles of conflict of laws. K. Relationship to Other Benefits. No payment under the Plan shall be taken into account in determining any benefits under any pension, retirement, profit sharing or group insurance plan of the Company or any subsidiary. 13 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. 14 EX-10 4 EX-10(C) Exhibit 10(c) Constellation Energy Group, Inc. 1995 Long-Term Incentive Plan (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 CEG and its Subsidiaries, who are mainly responsible for the continued growth, development, and financial success of CEG and its Subsidiaries, for the continued profitable performance of CEG and its subsidiaries. The Plan is also designed to permit CEG and its Subsidiaries to retain talented and motivated officers and key employees and to increase their ownership of CEG 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, Options, Performance Units, Stock Appreciation Rights, or Dividend Equivalents granted under this Plan. "Board" means the Board of Directors of CEG. "Book Value" means the book value of a share of Stock determined in accordance with CEG'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 as provided in Section 10. "CEG" means Constellation Energy Group, Inc., a Maryland corporation, or its successor, including any "New Company" as provided in Section 14I. "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 the Committee on Management of the Board, provided, however, that if such Committee fails to satisfy the disinterested administration provisions of Section 16b-3 of the 1934 Act, "Committee" shall mean a committee of directors of CEG who satisfy the disinterested person requirements of such Section. "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. "Date of Retirement" means the date of Retirement or Early Retirement. 1 "Disability" means the determination that a Participant is "disabled" under the CEG disability plan in effect at that time. "Dividend Equivalent" means an award granted under Section 11. "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, as the context requires) which the Committee has determined have been earned and are payable (or, in the case of Restricted Stock, earned and with respect to which restrictions will lapse) for a particular Performance Period. "Eligible Employee" means any person employed by CEG or a Subsidiary on a regularly scheduled basis who satisfies all of the requirements of Section 5. "Exercise Period" means the period or periods during which a Stock Appreciation Right is exercisable as described in Section 10. "Fair Market Value" means the average of the highest and lowest price at which the Stock was sold regular way on the New York Stock Exchange-Composite Transactions on a specified date. "Incentive Stock Option" means an incentive stock option within the meaning of Section 422 of the Code. "1934 Act" means the Securities Exchange Act of 1934, as amended. "Normal Retirement Date" is the retirement date as described in the Pension Plan or a Subsidiary's retirement or pension plan. "Option" or "Stock Option" means either a nonqualified stock option or an incentive stock option granted under Section 8. "Option Period" or "Option Periods" means the period or periods during which an Option is exercisable as described in Section 8. "Participant" means an employee of CEG or a Subsidiary who has been granted an Award under this Plan. "Pension Plan" means the Pension Plan of Constellation Energy Group, Inc. as may be amended from time to time. "Performance-Based" means that in determining the amount of a Restricted Stock Award payout, the Committee will take into account the performance of the Participant, CEG, 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. 2 "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. "Plan Administrator" means, as set forth in Section 4, the Committee. "Restricted Stock" means an Award granted under Section 7. "Retirement" means retirement on or after the "Normal Retirement Date" (as such term is defined in the Pension Plan or a Subsidiary's retirement or pension plan). "Service-Based" means that in determining the amount of a Restricted Stock Award payout, the Committee will take into account only the period of time that the Participant performed services for CEG or its Subsidiaries since the Date of Grant. "Stock" means the common stock, without par value, of CEG. "Stock Appreciation Right" means an Award granted under Section 10. "Subsidiary(ies)" means any corporation of which 20% or more of its outstanding voting stock or voting power is beneficially owned, directly or indirectly, by CEG. "Target Performance Award" means a targeted award of a specified number of Performance Units (or shares of Restricted Stock, 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 Committee's ultimate determination of the Earned Performance Award. "Termination" means resignation or discharge from employment with CEG or any of its Subsidiaries except in the event of death, Disability, Retirement or Early Retirement. 3. Effective Date, Duration and Stockholder Approval. A. Effective Date and Stockholder Approval. This Plan has been transferred from Baltimore Gas and Electric Company (BGE) to CEG effective April 30, 1999 in connection with a share exchange between CEG and the common stockholders of BGE. The Plan was approved by a majority of the outstanding shares of common stock of BGE voted at its 1995 Annual Meeting of Stockholders, and became effective as of January 1, 1995. B. Period for Grants of Awards. Awards may be made as provided herein for a period of 10 year after January 1, 1995. 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. 3 D. Grants Outstanding. Grants outstanding at the effective time of the share exchange between CEG and the common stockholders of Baltimore Gas and Electric Company (BGE) will be converted from BGE common stock-based grants to CEG common stock-based grants. 4. Plan Administration. The Committee is the Plan Administrator and has sole authority (except as specified otherwise herein) to determine all questions of interpretation and application of the Plan, or of 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. 5. Eligibility. Each officer or key employee of CEG and its Subsidiaries (including officers or employees who are members of the Board, but excluding directors who are not officers or employees) may be designated by the Committee as a Participant, from time to time, with respect to one or more Awards. No officer or employee of CEG 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, provided that (i) subject to any adjustment pursuant to Section 14H, the aggregate number of shares of Stock subject to Awards under this Plan may not exceed three million (3,000,000) shares; (ii) to the extent that an Award lapses or the rights of the Participant to whom it was granted terminate, any 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 CEG under the Plan may be authorized and unissued Stock, Stock held in the treasury of CEG, or Stock purchased on the open market (including private purchases) in accordance with applicable securities laws. 7. Restricted Stock Awards. A. Grants of Restricted Shares. One or more shares of Restricted Stock may be granted to any Eligible Employee. The Restricted Stock will be issued to the Participant on the Date of Grant without the payment of consideration by the Participant. The 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. The Committee may also impose such other restrictions and conditions on the Restricted Stock as it deems appropriate, and will designate the grant as either a Service-Based or Performance-Based Award. Upon issuance to the Participant of the Restricted Stock, the Participant will have the right to vote the Restricted Stock, and subject to the Committee's discretion, to receive the cash dividends distributable with respect to such shares, with such dividends treated as compensation to the Participant. The Committee, in its sole 4 discretion, may direct the accumulation and payment of distributable dividends to the Participant at such times, and in such form and manner, as determined by the Committee. B. Service-Based Award. i. Restriction Period. At the time a Service-Based Restricted Stock Award 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 years. Each Restricted Stock Award 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 is subject to forfeiture or payout (i.e., removal of restrictions) as follows: (a) Termination - the Restricted Stock Award is completely forfeited; (b) Retirement, Disability or death - payout of the Restricted Stock Award is prorated for service during the period; or (c) Early Retirement - if at the Participant's request, the payout or forfeiture of the Restricted Stock Award is determined at the discretion of the Committee, or if at CEG's request, payout of the Restricted Stock Award is prorated for service during the period; provided, however, that the Committee may modify the above if it determines at its sole discretion that special circumstances warrant such modification. Any shares of Restricted Stock which are forfeited will be transferred to CEG. Upon completion of the restriction period, all Award restrictions will expire and new certificates representing the Award will be issued (the payout) without the restrictive legend described in Section 7A. C. Performance-Based Award. i. Restriction Period. At the time a Performance-Based Restricted Stock Award 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 years. Each Restricted Stock Award 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 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, CEG, one or more Subsidiaries, or any combination thereof. Performance Periods may overlap and Participants 5 may participate simultaneously with respect to Performance-Based Restricted Stock 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. 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 (if Target Performance Award performance objectives were not attained), or the issuance of additional shares of Stock (if Target Performance Award performance objectives were exceeded), and will be based upon such factors as the Committee determines at 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 is subject to forfeiture or payout (i.e., removal of restrictions) as follows: (a) Termination - the Restricted Stock Award is completely forfeited; (b) Retirement, Disability or death - payout of the Restricted Stock 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 is determined at the discretion of the Committee, or if at CEG's request, payout of the Restricted Stock 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 the Committee may modify the above if it determines at its sole discretion that special circumstances warrant such modification. Any shares of Restricted Stock which are forfeited will be transferred to CEG. With respect to shares of Restricted Stock for which restrictions lapse, new certificates will be issued (the payout) without the restrictive legend described in Section 7A. New certificates will also be issued for additional Stock, if any, awarded to the Participant because Target Performance Award performance objectives were exceeded. D. Waiver of Section 83(b) Election. Unless otherwise directed by the Committee, as a condition of receiving an Award of Restricted Stock, a 6 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. 8. Stock Options. A. Grants of Options. One or more Options may be granted to any Eligible Employee on the Date of Grant without the payment of consideration by the Participant. B. Stock Option Agreement. Each Option granted under the Plan will be evidenced by a "Stock Option Agreement" between CEG 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 Incentive Stock Option Agreement 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 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; 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 CEG with another company is submitted to the stockholders of CEG for a vote, the Committee, in its sole discretion, may declare any previously granted Option to be immediately exercisable. C. Option Price. The Option price per share of Stock will be set by 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 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 Committee in its sole discretion. 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 10 years from its Date of Grant, as set forth in the Stock Option Agreement upon payment in full. 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. 7 F. Lapse of Option. An Option will lapse upon the earlier of: (i) 10 years from the Date of Grant, or (ii) at the expiration of the Option Period set by the grant. If the Participant ceases employment 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 set by the grant; provided, however, that the Committee may modify the above 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 set by the grant 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 Option or dies intestate, by the person(s) entitled to receive the Option under the applicable laws of descent and distribution. 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. 9. 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, CEG, one or more Subsidiaries, or any combination thereof. Performance Periods may overlap and Participants 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 which the Committee expects to have a substantial effect on a performance objective during such period, the Committee may revise such objective. C. Forfeiture or Payout of Award. As soon as practicable after the end of each Performance Period, the Committee will determine whether the 8 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 CEG'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 as soon as practicable after the Earned Performance Award is determined. 10. 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 CEG with another company is submitted to the stockholders of CEG for a vote, the Committee, in its sole 9 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 either of the following amounts, determined in the sole discretion of the Committee at the Date of Grant: (1) the excess of the Fair Market Value of one share of Stock at 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, or (2) the excess of the Book Value of one share of Stock at the date of exercise over the Book Value of one share of Stock at the Date of Grant of the related Option, times the number of shares called for by the Stock Appreciation Right. 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 either of the following amounts, determined in the sole discretion of the Committee at the Date of Grant: (1) the excess of the Fair Market Value of one share of Stock at the date of exercise over the Fair Market Value of one share of Stock at the Date of Grant of the Stock Appreciation Right, times the number of shares called for by the Stock Appreciation Right, or (2) the excess of the Book Value of one share of Stock at the date of exercise of the Stock Appreciation Right over the Book Value of one share of Stock at 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, provided that (i) the Committee must consent to or disapprove such election and (ii) unless the Committee directs otherwise, the election and the exercise must be made during the period beginning on the 3rd business day following the date of public release of quarterly or year-end earnings and ending on the 12th business day following the date of public release of quarterly or year-end earnings. 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 exercised, and shall not be deemed to have lapsed. 10 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) 10 years from the Date of Grant; or (ii) at the expiration of the Exercise Period as set by the grant. 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 set by the grant; provided, however, that the Committee may modify the above 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 set by the grant 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. 11. 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 Performance Units, at any time during the Performance Period, without consideration by the Participant. Dividend Equivalents will 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. 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 11D. 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 date of the exercise of the related Option or Stock Appreciation 11 Right; (iii) the end of the Performance Period (or if earlier, the date the Participant ceases employment) of the related Performance Units or Performance-Based Restricted Stock Award; or (iv) the lapse date established by the Committee on the Date of Grant of the Dividend Equivalent. 12. 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 or Exercise Period (as set forth in Section 12B) with respect to any previously granted Award, upon the happening of a change in control. A change in control for purposes of this Section 12 means (i) the purchase or acquisition by any person, entity or group of persons, (within the meaning of section 13(d) or 14(d) of the 1934 Act, or any comparable successor provisions), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of 20 percent or more of either the outstanding shares of common stock of CEG or the combined voting power of CEG's then outstanding shares of voting securities entitled to a vote generally, or (ii) the approval by the stockholders of CEG of a reorganization, merger, or consolidation, in each case, with respect to which persons who were stockholders of CEG immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 50 percent of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated entity's then outstanding securities, or (iii) a liquidation or dissolution of CEG or the sale of substantially all of its assets, or (iv) a change of more than one-half of the members of the Board within a 90-day period for reasons other than the death, disability, or retirement of such members. 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, maximum performance 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 12 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 maximum performance was achieved. C. Timing of Accelerated Payout/Option Period/Exercise Period. The accelerated payout set forth in Section 12B will be made in cash within 30 days after the date of the change in control. The accelerated Option Period/Exercise Period set forth in Section 12B will begin on the date of the change in control, and applicable payments will be in cash. When Stock is related to the Award, the amount of cash will be determined based on the Fair Market Value of Stock on the payout or exercise date, whichever is applicable. 13. Amendment of Plan. The Committee may at any time and from time to time alter, amend, suspend or terminate the Plan in whole or in part, except (i) no such action may be taken without stockholder approval which materially increases the benefits accruing to Participants pursuant to the Plan, materially increases the number of securities which may be issued pursuant to the Plan (except as provided in Section 14H), extends the period for granting Options under the Plan or materially modifies the requirements as to eligibility for participation in the Plan; and (ii) no such action may be taken without the consent of the Participant to whom any Award was previously granted, which adversely affects the rights of such Participant concerning such Award, except as such termination or amendment of the Plan is required by statute, or rules and regulations promulgated thereunder. Notwithstanding the foregoing, the Committee may amend the Plan as desirable at the discretion of the Committee to address any issues concerning (i) Section 162(m) of the Code, or (ii) maintaining an exemption under rule 16b-3 of the 1934 Act. 14. 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, and (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. B. No Employment Right. Participation in this Plan shall not constitute a contract of employment between CEG 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. CEG 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 CEG or a Subsidiary. Subject to compliance with any requirements of applicable law, the Committee may permit or require a 13 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 CEG or a Subsidiary, the retention by CEG 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. 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 CEG 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. CEG 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 may in certain circumstances be exempt from registration under the Act, CEG may restrict its transfer 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 Committee (and each person or Committee to whom the Committee or any member thereof has delegated any of its authority or power under this Plan) shall be indemnified and held harmless by CEG 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 CEG 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 Charter or By-Laws of CEG or any of its Subsidiaries, as a matter of law, or otherwise, or any power that CEG may have to indemnify such person or hold such person harmless. G. Reliance on Reports. Each member of the Committee (and each person or Committee to whom the Committee or any member thereof 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 CEG 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 Committee 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 14 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 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. CEG Successors. In the event CEG becomes a party to a merger, consolidation, sale of substantially all of its assets or any other corporate reorganization in which CEG 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 CEG 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 Maryland, 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 CEG 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. 15 EX-10 5 EX-10(D) Exhibit 10(d) CONSTELLATION ENERGY GROUP, INC. NONQUALIFIED DEFERRED COMPENSATION PLAN (PLAN) 1. Objective The objective of this Plan is to enable certain management employees of CEG and its subsidiaries to defer compensation. 2. Definitions. All words beginning with an initial capital letter and not otherwise defined herein shall have the meaning set forth in the Employee Savings Plan. 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: "Basic Compensation" means such compensation as set forth in the Employee Savings Plan, without regard to the Internal Revenue Code Section 401(a)(17) annual compensation limitation. "CEG" means Constellation Energy Group, Inc., a Maryland corporation, or its successor. "Committee" means the Committee on Management of the Board of Directors of CEG. "Deferred Compensation" means any compensation payable by CEG or its subsidiaries to a participant that is deferred under the provisions of this Plan. "Employee Savings Plan" means the Constellation Energy Group, Inc. Employee Savings Plan as may be amended from time to time, or any successor plan. "Executive Incentive Plan" means the Executive Incentive Plan of Constellation Energy Group, Inc. as may be amended from time to time, or any successor plan, and/or any other incentive plan designated in writing by the Plan Administrator. "Incentive Award" means an award granted under the Executive Incentive Plan or the Managers' Incentive Plan. "Managers' Incentive Plan" means the Managers' Incentive Plan of Constellation Energy Group, Inc. as may be amended from time to time, or any successor 1 plan, and/or any other incentive plan designated in writing by the Plan Administrator. "Matching Contributions" means the matching contributions described in Section 8. "Plan Accounts" means amounts of a participant's Deferred Compensation, Matching Contributions, and earnings under the Plan. "Plan Administrator" means, as set forth in Section 3, the Vice President - Human Resources of CEG, (or the Vice-President succeeding to that function). "Rabbi Trust" means the trust established by CEG pursuant to Grantor Trust Agreement dated as of April 30, 1999 between CEG and T. Rowe Price Trust Company. "Termination From Employment with CEG" means a participant's separation from service with CEG or a subsidiary of CEG; however, a participant's transfer of employment to or from a subsidiary of CEG shall not constitute a Termination From Employment with CEG. 3. Plan Administration. The Vice President - Human Resources of CEG, (or the Vice-President succeeding to that function) is the Plan Administrator and has the sole authority (except as specified otherwise herein) to interpret the Plan, and, in general, to make all other determinations advisable for the administration of the Plan to achieve its stated objective. Appeals of written decisions by the Plan Administrator may be made to the Committee. Decisions by the Committee shall be final and not subject to further appeal. The Plan Administrator shall have the power to delegate all or any part of his/her duties to one or more designees, and to withdraw such authority, by written designation. 4. Eligibility and Participation. Each officer or key employee of CEG or its subsidiaries, or employees of CEG or its subsidiaries who hold manager level positions, may be designated in writing by the Plan Administrator as eligible to participate with respect to one or more of the provisions of Sections 5, 6, 7 and 8, which designation will also indicate whether all 2 or part of such participant's Plan Accounts will be held in the Rabbi Trust. Once designated, eligibility shall continue until such designation is withdrawn at the discretion and by written order of the Plan Administrator. Notwithstanding subsequent withdrawal of eligibility of an employee, such an employee with Plan Accounts will remain a participant of the Plan, except that no further deferrals of compensation under the Plan are permitted. While designated as eligible with respect to one or more of the provisions of Sections 5, 6, 7 or 8, an employee may participate in the Plan to the extent set forth in such designation. 5. Basic Compensation Deferral Election. Unless otherwise designated in writing by the Plan Administrator, a participant may defer Basic Compensation as set forth in this Section 5. A participant may elect to defer up to 15% of monthly Basic Compensation. A participant may also elect to defer up to 100% of Basic Compensation, if any, in excess of the dollar limitation set forth in Internal Revenue Code Section 401(a)(17) (as adjusted by the Commissioner for increases in the cost of living in accordance with Internal Revenue Code Section 401(a)(17)(B)). Any deferrals shall be in 1% multiples, subject to adjustment as necessary to provide for any required withholding taxes. Such election shall be made by notification in the form and manner established by the Plan Administrator from time to time, and shall be effective as of the beginning of the month following the month during which the election is received by the Plan Administrator. Such election may be revoked by notification in the form and manner established by the Plan Administrator from time to time, and shall be effective as of the beginning of the month following the month during which the revocation is received by the Plan Administrator. 6. Incentive Award Deferral Election. A participant may elect to defer Incentive Award compensation in 1% multiples, subject to adjustment as necessary to provide for any required withholding taxes. Such election shall be made annually by notification in the form and manner established by the Plan Administrator from time to time. Such annual election shall be made prior to the Incentive Award performance year, and shall be effective as of the first day of such 3 performance year. If a participant initially becomes eligible to participate in the Plan during a performance year, the election for such performance year must be made prior to the date the participant initially becomes eligible to participate in the Plan, and shall be effective on such date. Elections under this Section are irrevocable once effective. 7. Other Deferral Election. A participant may elect to defer, in 1% multiples, other forms of compensation that are designated in writing by the Plan Administrator. Such election must be made prior to the date the compensation is earned by the participant, by notification in the form and manner established by the Plan Administrator from time to time. Such election is effective as of the date the compensation is earned. Elections under this Section are irrevocable once effective. 8. Matching Contributions. Matching Contributions are made by CEG to the Plan in an amount equal to (i) up to the rate of Company Matching Contributions under the Employee Savings Plan multiplied by a participant's monthly Basic Compensation deferral, less (ii) the amount of Company Matching Contributions made to the Employee Savings Plan on behalf of such participant with respect to such month. 9. Plan Accounts. Deferred Compensation and Matching Contributions shall be (i) credited to participant Plan Accounts as soon as practicable; (ii) to the extent designated by the Plan Administrator, held for the benefit of the participant in the Rabbi Trust; and (iii) credited with earnings at the T. Rowe Price Prime Reserve Fund rate. However, a participant may elect (by notification in the form and manner established by the Plan Administrator from time to time) to have all or a portion of his/her Plan Accounts credited with earnings at a rate equal to the T. Rowe Price Prime Reserve Fund rate, the T. Rowe Price New Income Fund rate, or one or more of the rates earned by investment options available under the Employee Savings Plan, except the Common Stock Fund and the Interest Income Fund. Earnings are credited to Plan Accounts commencing on the day the Deferred Compensation and Matching Contributions are credited to the Plan Accounts. Plan Accounts will be valued daily in the 4 same manner as for Investment Funds under the Employee Savings Plan. A participant may elect to change the investment option of future Deferred Compensation and Matching Contributions, which election shall be effective when the next Deferred Compensation contributions and/or Matching Contributions are credited to the participant's Plan Accounts. A participant may elect to reallocate to other investment options current Plan Accounts, which election shall be effective at the same time as, and valued in accordance with, the interfund transfer provisions under the Employee Savings Plan. Such elections shall be made by notification in the form and manner established by the Plan Administrator from time to time. 10. Distributions of Plan Accounts. Distributions of Plan Accounts shall be made in cash only, and to the extent designated by the Plan Administrator, from the Rabbi Trust. Prior to the end of the calendar year of a participant's Termination From Employment with CEG, such participant must elect the timing of distributions of his/her Plan Accounts. The participant may elect (by notification in the form and manner established by the Plan Administrator from time to time) to begin distributions (i) in the calendar year following the calendar year of the participant's Termination From Employment with CEG, (ii) in the year following the year in which a participant attains age 70-1/2, if later, or (iii) any calendar year between (i) and (ii). A participant may elect (by notification in the form and manner established by the Plan Administrator from time to time) to receive distributions in a single payment or in annual installments during a period not to exceed fifteen years. The single payment or the first installment payment, whichever is applicable, shall be made within the first sixty (60) days of the calendar year elected for distribution. Subsequent installments, if any, shall be made within the first sixty (60) days of each succeeding calendar year until the participant's Plan Accounts have been paid. In the event no election is made prior to the end of the year of a participant's Termination From Employment with CEG, a participant shall receive a distribution in a 5 single payment within the first sixty (60) days of the following year. Earnings are credited to Plan Accounts through the date of distribution, and amounts held for installment payments shall continue to be credited with earnings, as specified in Section 9. If a participant dies, the entire unpaid balance of his/her Plan Accounts shall be paid to the beneficiary(ies) designated by the participant by notification in the form and manner established by the Plan Administrator from time to time or, if no designation was made, to the estate of the participant. Payment shall be made within sixty (60) days after notice of death is received by the Plan Administrator, unless prior to the end of the calendar year of the participant's Termination From Employment with CEG, the participant elected (in the form and manner established by the Plan Administrator from time to time) a delayed and/or installment distribution option for such beneficiary(ies); provided, however that (i) such a distribution option election shall be effective only if the value of the participant's Plan Accounts is more than $50,000 on the date of the participant's death; and (ii) the final distribution must be made to such beneficiary(ies) no later than 15 years after the participant's death. After the end of the calendar year of a participant's Termination From Employment with CEG, a distribution option election for a particular beneficiary is irrevocable; provided, however, that the participant may make a distribution option election for a new beneficiary who is initially designated after the participant's Termination From Employment with CEG, and such election is irrevocable with respect to the new beneficiary. In the event a participant's deferred Incentive Award is credited to the Plan after the participant's death, such Incentive Award shall be either paid to his/her beneficiary(ies), or if a delayed and/or installment distribution option was elected for such beneficiary(ies), paid as part of the aggregate Plan Accounts in accordance with such election. Upon the death of a participant's beneficiary for whom a delayed and/or installment distribution option was elected, the entire unpaid balance of the participant's Plan Accounts shall be paid to the beneficiary(ies) 6 designated by the participant's beneficiary by notification in the form and manner established by the Plan Administrator from time to time or, if no designation was made, to the estate of the participant's beneficiary. Payment shall be made within sixty (60) days after notice of death is received by the Plan Administrator. Notwithstanding anything herein contained to the contrary, the Committee shall have the right in its sole discretion to vary the manner and timing of distributions, and may make such distributions in a single payment or over a shorter or longer period of time than that elected by a participant. 11. Beneficiaries. A participant shall have the right to designate a beneficiary(ies) who is to receive a distribution(s) pursuant to Section 10 in the event of the death of the participant. A participant's beneficiary(ies) for whom a delayed and/or installment distribution option was elected shall have the right to designate a beneficiary(ies) who is to receive a distribution pursuant to Section 10 in the event of the death of the participant's beneficiary(ies). Any designation, change or recision of the designation of beneficiary shall be made by notification in the form and manner established by the Plan Administrator from time to time. The last designation of beneficiary received by the Plan Administrator shall be controlling over any testamentary or purported disposition by the participant (or, if applicable, the participant's beneficiary(ies)), provided that no designation, recision or change thereof shall be effective unless received by the Plan Administrator prior to the death of the participant (or, if applicable, the participant's beneficiary(ies)). If the designated beneficiary is the estate, or the executor or administrator of the estate, of the participant (or, if applicable, the participant's beneficiary(ies)), a distribution pursuant to Section 10 may be made to the person(s) or entity (including a trust) entitled thereto under the will of the participant (or, if applicable, the participant's beneficiary(ies)), or, in the case of intestacy, under the laws relating to intestacy. 7 A participant's beneficiary(ies) for whom a delayed and/or installment distribution option was elected shall have the right, after the death of the participant, to make investment elections or changes in investment elections with respect to a participant's Plan Accounts to the same extent available to the participant pursuant to Section 9. A beneficiary(ies) of the participant's beneficiary(ies) shall have no right to make any investment election or change in investment election pursuant to Section 9 with respect to a participant's Plan Accounts. 12. Valuation of Interest. The Plan Administrator shall cause the value of a participant's Plan Accounts, at least once per year as of December 31, to be determined separately and be reported to CEG and the participant (or, if applicable, the participant's beneficiary(ies)). Valuation of a participant's Plan Accounts shall be determined in accordance with the procedures contained in the Employee Savings Plan. 13. Withdrawals. No withdrawals of Plan Accounts may be made, except a participant may at any time request a hardship withdrawal from his/her Plan Accounts if he/she has incurred an unforeseeable financial emergency. An unforeseeable financial emergency is defined as severe financial hardship to the participant resulting from a sudden and unexpected illness or accident of the participant (or of his/her dependents), loss of the participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the participant. The need to send a child to college or the desire to purchase a home are not considered to be unforeseeable emergencies. The circumstance that will constitute an unforeseeable emergency will depend upon the facts of each case. A hardship withdrawal will be permitted by the Plan Administrator only as necessary to satisfy an immediate and heavy financial need. A hardship withdrawal may be permitted only to the extent reasonably necessary to satisfy the financial need. Payment may not be made to the extent that such hardship is or may be relieved (i) through reimbursement or compensation by insurance or otherwise, (ii) by liquidation of the participant's 8 assets, to the extent the liquidation of such assets would not itself cause severe financial hardship, or (iii) by cessation of deferrals under the Plan. The request for hardship withdrawal shall be made by notification in the form and manner established by the Plan Administrator from time to time. Such hardship withdrawal will be permitted only with approval of the Plan Administrator. The participant will receive a lump sum payment after the Plan Administrator has had reasonable time to consider and then approve the request. 14. Miscellaneous. A participant's Plan Accounts shall not be subject to alienation or assignment by any participant or beneficiary nor shall any of them be subject to attachment or garnishment or other legal process except (i) to the extent specially mandated and directed by applicable State or Federal statute; and (ii) as requested by the participant or beneficiary to satisfy income tax withholding or liability. This Plan may be amended from time to time or suspended or terminated at any time. All amendments to this Plan which would increase or decrease the compensation of any senior management officer or key employee of CEG, either directly or indirectly, must be approved by the Board of Directors. All other permissible amendments may be made at the written direction of the Committee. No amendment to or termination of this Plan shall prejudice the rights of any participant or beneficiary entitled to receive payment hereunder at the time of such action. Participation in this Plan shall not constitute a contract of employment between CEG and any person and shall not be deemed to be consideration for, or a condition of, continued employment of any person. The Plan, notwithstanding the creation of the Rabbi Trust, is intended to be unfunded for purposes of Title I of the Employee Retirement Income Security Act of 1974. CEG shall make contributions to the Rabbi Trust in accordance with the terms of the Rabbi Trust. Any funds which may be invested and any assets which may be held to provide benefits under this Plan shall continue for all purposes to be a part of the general funds and 9 assets of CEG and no person other than CEG shall by virtue of the provisions of this Plan have any interest in such funds and assets. To the extent that any person acquires a right to receive payments from CEG under this Plan, such rights shall be no greater than the right of any unsecured general creditor of CEG. This Plan shall be governed in all respects by Maryland law. 10 EX-10 6 EX-10(E) Exhibit 10(e) Grantor Trust Agreement Dated as of APRIL 30, 1999 between Constellation Energy Group, Inc. and T. Rowe Price Trust Company This Agreement made this 30th day of April, 1999, by and between Constellation Energy Group, Inc., a Maryland Corporation, or its successor ("CEG") and T. Rowe Price Trust Company ("Trustee"); WITNESSETH THAT: WHEREAS, effective with the April 30, 1999 share exchange between CEG and the common stockholders of Baltimore Gas and Electric Company ("BGE"), BGE transferred to CEG the former BGE Nonqualified Deferred Compensation Plan and BGE's rights and obligations under the Grantor Trust Agreement dated as of June 1, 1996, between BGE and T. Rowe Price Trust Company. WHEREAS, CEG has adopted the Constellation Energy Group, Inc. Nonqualified Deferred Compensation Plan (formerly the Baltimore Gas and Electric Company Nonqualified Deferred Compensation Plan) ("Plan"); WHEREAS, CEG has incurred or expects to incur liability under the terms of such Plan with respect to the individuals participating in such Plan; WHEREAS, CEG wishes to establish a trust ("Trust") and to contribute to the Trust assets that shall be held therein, subject to the claims of CEG's creditors in the event of CEG's Insolvency, as defined in Section 3(a) hereof, until paid to Plan participants and their beneficiaries in such manner and at such times as specified in the Plan; WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Plan as an unfunded plan maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees for purposes of Title I of the Employee Retirement Income Security Act of 1974; 1 WHEREAS, it is the intention of CEG to make contributions to the Trust to provide a source of funds to assist it in the meeting of its liabilities under the Plan; and NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows: Section 1. Establishment of Trust. (a) CEG hereby adopts and establishes with Trustee the Trust consisting of such sums of cash (the "principal") that currently constitute the Trust and as from time to time shall be paid to Trustee to be held, administered, and disposed of by Trustee as provided in this Trust Agreement. The principal of the Trust and any earnings thereon (the "Trust Assets") shall be held by Trustee and shall be dealt with in accordance with the provisions of this Trust Agreement until all payments required by this Trust Agreement have been made. (b) The Trust hereby established shall be irrevocable. (c) The Trust is intended to be a grantor trust, of which CEG is the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly. (d) The Trust Assets shall be held separate and apart from other funds of CEG and shall be used exclusively for the uses and purposes of Plan participants and general creditors as herein set forth. Plan participants and their beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any Trust Assets. Any rights created under the Plan and this Trust Agreement shall be mere unsecured contractual rights of Plan participants and their beneficiaries against CEG. Any Trust Assets will be subject to the claims of CEG's general creditors under federal and state law in the event of Insolvency, as defined in Section 3(a) herein. (e) As soon as practicable, but no later than the last business day, which for purposes of this Trust Agreement shall be defined as any day the New York Stock Exchange is open for business ("Business Day"), of the month following the month in which a payment of compensation subject to a deferral election under the Plan would otherwise have been paid, CEG shall be required to irrevocably contribute cash to the Trust in an amount equal to such Deferred Compensation, plus any Matching Contributions related thereto, to the extent the Plan requires such funding. Trustee shall have no obligation to compute or compel such contribution(s). (f) The Board of Directors of CEG may at any time by resolution amend the contribution requirements of Section 1(e) hereof such that CEG will not be required to make additional contributions of cash to the Trust or will be required to make only a stated percentage of the contributions otherwise required under Section 1(e) hereof. If Section 1(e) is so amended, contributions of cash to the Trust over and above the amounts required under Section 1(e) if 2 amended, will be in the sole discretion of CEG pursuant to Section 1(g) hereof. Trustee shall have no obligation to compute or compel such contribution(s). (g) CEG, in its sole discretion, may at any time or from time to time, make additional deposits of cash in trust with Trustee to augment the Trust Assets to be held, administered and disposed of by Trustee as provided in this Trust Agreement. Neither Trustee nor any Plan participant or beneficiary shall have any right or obligation to compel such additional deposits. Section 2. Payments to Plan Participants and Their Beneficiaries. (a) CEG shall deliver or cause to be delivered to Trustee a schedule (the "Payment Schedule") that indicates the amounts payable in respect of each Plan participant (or his or her beneficiaries), that provides a formula or other instructions acceptable to Trustee for determining the amounts so payable, the form in which such amount is to be paid (as provided for or available under the Plan), and the time of commencement for payment of such amounts. Except as otherwise provided herein, Trustee shall make payments to the Plan participants and their beneficiaries in accordance with such Payment Schedule. If so instructed by CEG, the Trustee shall withhold federal and state taxes from each payment under this agreement at the rate(s) designated by CEG and shall report and pay such amounts to the appropriate federal and state taxing authorities. (b) The entitlement of a Plan participant or his or her beneficiaries to benefits under the Plan shall be determined by CEG or such party as it shall designate under the Plan and any claim for such benefits shall be considered and reviewed under the procedures set out in the Plan. Trustee shall have no right or duty to inquire into CEG's decisions with respect to entitlement to benefits. (c) CEG may make payment of benefits directly to Plan participants or their beneficiaries as they become due under the terms of the Plan. CEG shall notify Trustee in writing of its decision to make payment of benefits directly prior to the time amounts are payable to participants or their beneficiaries. CEG shall provide to the Trustee documentation substantiating that such payments were made under the terms of the Plan. If such documentation is not provided, Trustee shall make such payments in accordance with the Payment Schedule directly to Plan participants and their beneficiaries. In addition, if the Trust Assets, are not sufficient to make such payments of benefits in accordance with the terms of the Plan, CEG shall make the balance of each such payment as it falls due. Trustee shall notify CEG where Trust Assets are not sufficient to make benefit payments, however, Trustee shall have no duty to require any contributions to be made, or to determine that any of the contributions received comply with the conditions and limitations of the Plan. (d) In the event there is a final judicial determination or a final determination by the Internal Revenue Service that the Plan participants or their beneficiaries are subject to any tax with respect to any amounts held under the terms of the Trust, then Trustee solely at the direction of CEG shall make payments from the Trust to such Plan participants or their beneficiaries in such amounts as set forth in such final determination for the purpose of paying all applicable 3 taxes and interest and any penalties thereon which such Plan participants or their beneficiaries incur arising out of such determination. CEG's decision as to whether a final determination has occurred shall be binding and conclusive on all Plan participants and their beneficiaries. Section 3. Trustee Responsibility Regarding Payments to Trust Beneficiary When CEG is Insolvent. (a) Upon receipt of notification issued in accordance with Section 3(b)(1) hereof, Trustee shall cease payment of benefits to Plan participants and their beneficiaries if CEG is Insolvent. CEG shall be considered "Insolvent" for purposes of this Trust Agreement if (1) CEG makes a voluntary filing under the United States Bankruptcy Code, or (2) CEG is subject to a pending proceeding as a debtor under the United States Bankruptcy Code. (b) At all times during the continuance of this Trust, as provided in Section 1(d) hereof, the Trust Assets shall be subject to claims of general creditors of CEG under federal and state law as set forth below. (1) The Board of Directors of CEG and the Chief Executive Officer of CEG shall have the duty to inform Trustee in writing of CEG's Insolvency. When so informed or when the Trustee is in receipt of a copy of a bankruptcy petition relating to CEG or a court order determining CEG to be Insolvent, Trustee shall discontinue payment of benefits to Plan participants or their beneficiaries. (2) Unless Trustee has received written notification in accordance with Section 3(b)(1) of this Trust Agreement, Trustee may in all events rely on such evidence concerning CEG's solvency as may be furnished by CEG to Trustee. (3) If at any time Trustee has received written notification in accordance with Section 3(b)(1), Trustee shall discontinue payments to Plan participants or their beneficiaries and shall hold the Trust Assets for the benefit of CEG's general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of Plan participants or their beneficiaries to pursue their rights as general creditors of CEG with respect to benefits due under the Plan or otherwise. (4) Trustee shall resume the payment of benefits to Plan participants or their beneficiaries in accordance with Section 2 of this Trust Agreement only after Trustee has received a copy of a court order determining CEG to be no longer Insolvent or evidencing that such bankruptcy proceeding is dismissed in connection with any notification made in accordance with Section 3(b)(1) (c) Provided that there are sufficient assets, if Trustee discontinues the payment of benefits from the Trust pursuant to Section 3(b) hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Plan participants or their beneficiaries under the terms of the Plan for the period of such 4 discontinuance, less the aggregate amount of any payments made to Plan participants or their beneficiaries by CEG in lieu of the payments provided for hereunder during any period of discontinuance. Section 4. Payments to CEG. (a) Except as provided in Section 3 and Section 4(b) hereof, CEG shall have no right or power to direct Trustee to return to CEG or to divert to others any of the Trust Assets before all payment of benefits have been made to Plan participants and their beneficiaries pursuant to the terms of the Plan and of this Trust Agreement. (b) In the event (1) CEG makes payment of benefits directly to Plan participants or their beneficiaries in accordance with Section 2(c) hereof, or (2) if for any other reason Trust Assets exceed the market value of the aggregate balances of Plan participant accounts, then CEG may in its sole discretion, direct Trustee in writing to distribute the amount of such payment or excess, in whole or in part, to CEG provided such distribution does not contravene any provision of law. (c) Notwithstanding Section 4(b)(2) hereof, CEG may not direct Trustee to distribute such excess Trust Assets for 2 years from the date a Change of Control is deemed to occur under Section 13(e) hereof except to reimburse CEG for any payment it makes directly to participants in accordance with Section 2(c) hereof. Section 5. Investment Authority. (a) In no event may Trustee invest in securities (including stock or rights to acquire stock) or obligations issued by CEG, other than a de minimis amount held in common investment vehicles in which Trustee invests. All rights associated with assets of the Trust shall be exercised, solely upon the direction of CEG, by Trustee or the person designated by Trustee and shall in no event be exercisable by or rest with Plan participants and their beneficiaries. (b) Trustee shall invest and reinvest the Trust Assets and keep the Trust invested, without distinction between principal and income, in such investments as directed in writing by CEG or its designee, which instruction may be modified from time to time by CEG or its designee. Trustee shall have no duty to question any action or direction of CEG or its designee or any failure to give directions, or to make any suggestion to CEG as to the investment, reinvestment, disposition or distribution of, such assets. (c) CEG shall have the right, at anytime, and from time to time in its sole discretion, and with Trustee's approval, to substitute assets of equal fair market value for any asset held by the Trust. Section 6. Disposition of Income. 5 During the term of this Trust, all income received by the Trust, net of expenses and taxes, shall be accumulated and reinvested, until otherwise required for disbursement under the terms of this Trust Agreement. Section 7. Accounting by Trustee. (a) Trustee shall keep accurate, and detailed records of all investments, receipts, disbursements and all other transactions required to be made, including such specific records as shall be agreed upon in writing between CEG and Trustee. Within 60 days following the close of each calendar year and within 60 days after the removal or resignation of Trustee, Trustee shall deliver to CEG a written account of its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivables being shown separately), and showing all cash, cost and market value of all securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be. (b) CEG shall prepare and file such tax returns and other reports as may be required for the Trust, with any taxing authority or any other government authority except for IRS Form 1041 which shall be prepared and filed by the Trustee. Section 8. Responsibility of Trustee. (a) Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, provided, however, that Trustee shall incur no liability, costs or expense to any person, for any action taken pursuant to a direction, request or approval given by CEG which is contemplated by, and in conformity with, the terms of this Trust Agreement and is given in writing by CEG. Trustee shall also be reimbursed by CEG for reasonable expenses or fees incurred in connection with governmental or regulatory inquiries related to this Trust. (b) If Trustee undertakes or defends any litigation arising in connection with this Trust, unless such litigation results in a determination that Trustee breached its duties undertaken pursuant to this Trust Agreement, CEG agrees to indemnify Trustee against Trustee's reasonable costs, expenses and liabilities (including, without limitation, reasonable attorneys' fees and expenses) relating thereto and to be primarily liable for such payments. If CEG does not pay such costs, expenses and liabilities in a reasonably timely manner, Trustee may obtain payment from the Trust. (c) Trustee may consult with legal counsel (who may also be counsel for CEG generally) with respect to any of its duties or obligations hereunder. In the event that Trustee 6 anticipates charging legal fees to the Trust, Trustee must obtain CEG's prior written consent for such legal counsel, which consent will not be unreasonably withheld. (d) Trustee may hire agents, accountants, actuaries, investment advisors, financial consultants or other professionals to assist it in performing any of its duties or obligations hereunder. In the event that Trustee anticipates charging fees for such services to the Trust, Trustee must obtain CEG's prior written consent for such legal counsel, which consent will not be unreasonably withheld. (e) Notwithstanding any powers granted to Trustee pursuant to this Trust Agreement or to applicable law, Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code. Section 9. Compensation and Expenses of Trustee. CEG shall pay all reasonable administrative and Trustee's fees and expenses. If not so paid, the fees and expenses shall be paid from the Trust. Section 10. Resignation and Removal of Trustee. (a) Trustee may resign at any time by written notice to CEG, which shall be effective 30 days after receipt of such notice unless CEG and Trustee agree otherwise. (b) Except as provided in Section 10(c), Trustee may be removed by CEG on 30 days written notice unless CEG and Trustee agree otherwise. (c) Upon written notification by CEG that a Change of Control, as defined in Section 13(e) hereof has occurred, Trustee may not be removed by CEG for 2 years from the date a Change of Control is deemed to occur under Section 13(e) hereof. (d) If Trustee resigns within 2 years after a Change of Control, as defined herein, CEG shall apply to a court of competent jurisdiction for the appointment of successor Trustee or for instructions. (e) Upon resignation or removal of Trustee and appointment of a successor Trustee, all Trust Assets shall subsequently be transferred to the successor Trustee. The transfer shall be completed at the later of (1) 30 days after receipt of notice of resignation or removal of Trustee or (2) appointment of successor Trustee. (f) If Trustee resigns or is removed, a successor shall be appointed, in accordance with Section 11 hereof, by the effective date of resignation or removal under paragraphs (a) or (b) of this 7 section. If no such appointment has been made, Trustee may apply to a court of competent jurisdiction for appointment of a successor or for instructions. All reasonable expenses of Trustee in connection with the proceeding shall be allowed as administrative expenses of the Trust. Section 11. Appointment of Successor. (a) If Trustee resigns or is removed in accordance with Section 10(a) or (b) hereof, CEG may appoint any third party, such as a bank trust department or other party that may be granted corporate trustee powers under state law, as a successor to replace Trustee upon resignation or removal. The appointment shall be effective when accepted in writing by the successor Trustee, who shall have all of the rights and powers of the former Trustee, including ownership rights in the Trust Assets. The former Trustee shall execute any instrument necessary or reasonably requested by CEG or the successor Trustee (in which case former Trustee shall have received a copy of successor Trustee's acceptance) to evidence the transfer of the Trust Assets. (b) If Trustee resigns pursuant to the provisions of Section 10(d) hereof, the appointment of a successor Trustee shall be effective when accepted in writing by the successor Trustee. The successor Trustee shall have all the rights and powers of the former Trustee, including ownership rights in Trust Assets. The former Trustee shall execute any instrument necessary or reasonably requested by the successor Trustee to evidence the transfer of the Trust Assets. (c) The successor Trustee need not examine the records and acts of any prior Trustee and may retain or dispose of existing Trust Assets, subject to Sections 7 and 8 hereof. The successor Trustee shall not be responsible for and CEG shall indemnify and defend the successor Trustee from any claim or liability resulting from any action or inaction of any prior Trustee or from any other past event, or any condition existing at the time it becomes successor Trustee. (d) In the event of such removal or resignation, Trustee shall duly file with CEG a written account as provided in Section 7(a) hereof. Section 12. Amendment or Termination. (a) Except as provided in Section 12(d), this Trust Agreement may be amended by a written instrument executed by Trustee and CEG. Notwithstanding the foregoing, no such amendment shall conflict with the terms of the Plan or shall make the Trust revocable. (b) The Trust shall not terminate until the date on which Plan participants and their beneficiaries are no longer entitled to benefits pursuant to the terms of the Plan or have received payment of all benefits to which they are entitled under the terms of this Trust Agreement. Upon termination of the Trust any assets remaining in the Trust shall be returned to CEG. (c) Upon written approval of all Plan participants or beneficiaries entitled to payment of benefits pursuant to the terms of the Plan and this Trust Agreement, CEG may terminate this Trust 8 prior to the time all benefit payments under the Plan and this Trust Agreement have been made. All Trust Assets at termination shall be returned to CEG. (d) This Trust Agreement may not be amended by CEG for 2 years following a Change of Control, unless CEG determines that such amendment does not adversely affect the rights of the Plan participants and their beneficiaries entitled to payment of benefits pursuant to terms of the Plan on the date a Change of Control is deemed to occur. Section 13. Miscellaneous. (a) Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof. (b) Benefits payable to Plan participants and their beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process, and any attempt to so alienate, sell, transfer, assign, pledge, attach, charge or otherwise encumber any such amount, whether presently or thereafter payable, shall be void. The Trust shall be in no manner liable for or subject to the debts or liabilities of any participant. (c) This Trust Agreement shall be governed by and construed in accordance with the laws of the State of Maryland and applicable federal law. (d) All words beginning with an initial capital letter and not otherwise defined herein shall have the meaning set forth in the Plan. All singular terms defined in this Trust will include the plural and vice versa. (e) For a Change of control to be effective with respect to this Trust Agreement, CEG must issue written notification of Change of Control to Trustee. Trustee has no obligation to make any independent determination or verification that a Change of Control has occurred. For purposes of this Trust Agreement, Change of Control shall mean (a) the purchase or acquisition by any person, entity or group of persons (within the meaning of section 13(d) or 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), or any comparable successor provisions) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20 percent or more of either the outstanding shares of common stock of CEG or the combined voting power of CEG's then outstanding shares of voting securities entitled to a vote generally, or (b) the consummation of, following the approval by the stockholders of CEG of a reorganization, merger, or consolidation of CEG, in each case, with respect to which persons who were stockholders of CEG immediately prior to such reorganization, merger, or consolidation do not, immediately thereafter, own more than 50 percent of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated entity's then outstanding securities, or (c) a liquidation or dissolution of CEG or the sale of substantially all of its assets, or (d) a change of more than one-half of the members of the Board of Directors of 9 CEG within a 90-day period for reasons other than death, disability, or retirement of such members. (f) CEG shall certify to Trustee the name or names of any person or persons authorized to act for CEG under this Trust Agreement. Such certification shall be signed by a Vice President of CEG. Until CEG notifies Trustee, in a similarly signed notice or certification, that any such person is no longer authorized to act for CEG, Trustee may continue to rely upon the authority of such person. Trustee may rely upon any certificate, schedule, notice or direction of CEG which Trustee in good faith believes to be genuine, executed and delivered by a duly authorized officer or agent of CEG. Communications to Trustee shall be sent in writing to Trustee at the address specified in Section 13(h) hereof or to such other address as the Trustee may specify in writing. No communication shall be binding upon the Trust or Trustee until it is received by Trustee and unless it is in writing and signed by an authorized person. Communications to CEG shall be sent in writing to CEG's principal offices at the address specified in Section 13(h) hereof or to such other address as CEG may specify in writing. No communication shall be binding upon CEG until it is received by CEG and unless it is in writing and signed by Trustee. (g) In the event of any conflict between the provisions of the Plan document and this Trust Agreement, the provisions of this Trust Agreement shall prevail. This Trust Agreement sets forth the entire understanding of the parties with respect to the subject matter hereof and supersedes any and all prior agreements, arrangements and understandings relating thereto. (h) Any notice, report, demand, waiver or communication required or permitted hereunder shall be in writing and shall be given personally or by prepaid registered or certified mail, return receipt requested, addressed as follows: If to CEG: Constellation Energy Group, Inc. 250 West Pratt Street 24th Floor Baltimore, MD 21201 Attention: Elaine W. Johnston Manager - Corporate and Enterprises Human Resources 10 If to Trustee: T. Rowe Price Trust Company 4555 Painters Mill Road Owings Mills, MD 21117 Attention: CEG Client Manager If to a participant or beneficiary: To the address shown on the most recent Payment Schedule provided by CEG to Trustee. (i) In the event of insufficiency of Trust assets and to the extent CEG does not make payments directly to Plan participants or their beneficiaries, as provided in Section 2(c) hereof, or if CEG as provided in Section 1(f) hereof fails to contribute cash to the Trust to restore such insufficiency, such insufficiency shall be allocated by the record keeper among all Plan Accounts subject to funding on a proportionate basis according to the market value of the Plan Account subject to funding. Trustee shall have no obligation to determine or calculate such insufficiency, the amount of timing of any additional funding or the allocation of any insufficiency among Plan Accounts. Section 14. Effective Date. The effective date of this Trust Agreement shall be April 30, 1999. IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement to be executed by their respective officers thereunto duly authorized as of the Effective Date indicated above. WITNESS: T. ROWE PRICE TRUST COMPANY ___________________________ By:_________________________________(Seal) Name: Title: WITNESS: CONSTELLATION ENERGY GROUP, INC. ___________________________ By:__________________________________(Seal) Name: Linda D. Miller Title: Vice President, Human Resources 11 EX-10 7 EX-10(F) Exhibit 10(f) CONSTELLATION ENERGY GROUP, INC. EXECUTIVE BENEFITS PLAN Effective April 30, 1999 TABLE OF CONTENTS Page No. 1. Objective 1 2. Definitions 1 3. Plan Administration 3 4. Eligibility 3 5. Supplemental Pension Benefit 4 (a) Retirement benefits 4 (i) Eligibility for retirement benefits 4 (ii) Computation of retirement benefits 4 (iii) Form of payout of retirement benefits 5 (iv) Amount, timing, and source of monthly retirement benefit payout 5 (v) Amount, timing, and source of lump sum retirement benefit payout 6 (vi) Death of participant entitled to lump sum payout 6 (vii) Health and dental benefits 7 (b) Accrued benefit 7 (i) Computation of gross accrued benefit 7 (ii) Computation of net accrued benefit 8 (c) Entitlement to benefit upon happening of certain events 8 (i) Satisfaction of requirements 8 (ii) Other events 8 (1) Change in control 8 (2) Plan amendment 9 (3) Involuntary Demotion, Termination From Employment With CEG, or eligibility withdrawal without Cause 10 (iii) Form of benefit payout 10 (iv) Amount, timing and source of benefit payout 10 (v) Death of participant entitled to lump sum payout 11 (d) Other benefits 12 (i) Eligibility for other benefits 12 (ii) Computation of other benefits 12 (iii) Form of payout of other benefits 13 (iv) Amount, timing, and source of monthly other benefit payout 13 6. Supplemental Long-Term Disability Benefit 13 (i) Eligibility for disability benefits 13 (ii) Computation of disability benefits 13 (iii) Form of payment of disability benefits 14 (iv) Amount, timing, and source of monthly disability benefit payout 14 (v) Bonus 14 7. Supplemental Survivor Annuity Benefit 14 (a) Survivor annuity benefit 14 (i) Eligibility for survivor annuity benefit16 (ii) Computation of survivor annuity benefit 15 (iii) Form of payout of survivor annuity benefits 16 (iv) Amount, timing, and source of monthly 16 survivor annuity benefit payout (b) Other survivor benefit 17 (i) Eligibility for other survivor benefit 17 (ii) Computation of other survivor benefit 17 (iii) Form of payout of other survivor benefit 17 (iv) Amount, timing, and source of monthly other survivor benefit payout 18 8. Death Benefit 18 9. Dependent Death Benefit 18 10. Sickness Benefit 19 11. Vacation Benefit 19 12. Planning Benefit 19 13. Miscellaneous 20 CONSTELLATION ENERGY GROUP, INC. EXECUTIVE BENEFITS PLAN 1. Objective. The objective of this Plan is to enhance the benefits provided to officers and key employees of CEG and its subsidiaries in order to attract and retain talented executive personnel. 2. Definitions. All words beginning with an initial capital letter and not otherwise defined herein shall have the meaning set forth in the Pension Plan. 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: "Annual Base Salary" means an amount determined by adding the monthly base rate of pay amounts (i.e., the types of such pay that are includable in the computation of Pension Plan benefits)earned over the twelve calendar months immediately preceding the month that includes the date of the computation. "Average Incentive Award" (or "Average Award") means generally the product of the percentage equal to an average of the two highest of the participant's five immediately prior year award percentages earned under CEG's Executive Annual Incentive Plan, CEG's Manager Annual Incentive Plan and/or the Results Incentive Awards Program multiplied by the participant's annualized base rate of pay amount (i.e., the types of such pay that are includable in the computation of Pension Plan benefits) in effect at the end of the prior year. "Cause" means the participant's (a) failure to comply with CEG policy, (b) deliberate and continual refusal to satisfactorily perform employment duties on substantially a full-time basis, (c) deliberate and continual refusal to act in accordance with any specific instructions of a majority of CEG's Board of Directors, (d) disclosure, without the consent of a majority of CEG's Board of Directors, of confidential information or trade secrets concerning CEG which could be materially damaging to CEG, or (e) deliberate misconduct which could be materially damaging to CEG without 1 reasonable good faith belief by the participant that such conduct was in the best interest of CEG. "Committee" means the Committee on Management of the Board of Directors of CEG. "CEG" means Constellation Energy Group, Inc., a Maryland corporation, or its successor. "CEG's Executive Annual Incentive Plan" means such plan or other incentive plan or arrangement designated in writing by the Plan Administrator. "CEG's Manager Annual Incentive Plan" means such plan or other incentive plan or arrangement designated in writing by the Plan Administrator. "Demotion" means a transfer to a position with CEG or a subsidiary of CEG that either (a) is below the substantially equivalent position in which the participant was employed on the date of transfer, or (b) results in a substantial reduction in pay when compared to the participant's pay on the date of the transfer. Whether a position is a substantially equivalent position shall be determined in the reasonable discretion of the Committee, with reference to factors including whether the participant retains principal responsibility for a department or division, and whether the participant remains eligible for the perquisites enjoyed by the participant before the position change. "Income Replacement Percentage" means the percentage under the LTD Plan that is used to calculate the participant's actual LTD Plan benefit. "Interest Rate" means the rate equal to 3.5% plus 65% of yield on the Lehman Brothers Government/Corporate Bond Index. "LTD Plan" means the Constellation Energy Group, Inc. Disability Insurance Plan as may be amended from time to time, or any successor plan. "Mortality Table" means the mortality table used to value liabilities for Pension Plan funding purposes. 2 "Pension Plan" means the Pension Plan of Constellation Energy Group, Inc. as may be amended from time to time, or any successor plan. "Plan Administrator" means, as set forth in Section 3, the Committee. "Rabbi Trust" means the trust adopted by CEG pursuant to the Grantor Trust Agreement Dated as of April 30, 1999, between CEG and Citibank, N.A. "Results Incentive Awards Program" means the program applicable to certain employees that provides awards; but includes only the types of awards that are includable in the computation of Pension Plan benefits. "Termination From Employment With CEG" means a participant's separation from service with CEG or a subsidiary of CEG; however, a participant's retirement, disability, or transfer of employment to or from a subsidiary of CEG shall not constitute a Termination From Employment With CEG. 3. Plan Administration. The Committee is the Plan Administrator and has sole authority (except as specified otherwise herein) to interpret the Plan and, in general, to make all other determinations advisable for the administration of the Plan to achieve its stated objective. Appeals of written decisions by the Plan Administrator may be made to the Board of Directors of CEG. Decisions by the Board shall be final and not subject to further appeal. The Plan Administrator shall have the power to delegate all or any part of its duties to one or more designees, and to withdraw such authority, by written designation. 4. Eligibility. Each officer or key employee of CEG or its subsidiaries may be designated in writing by the Plan Administrator as a participant with respect to one or more benefits under the Plan. Once designated, participation shall continue until such designation is withdrawn at the discretion and by written order of the Plan Administrator, provided, however, that such withdrawal may not be made for benefits provided pursuant to Sections 5 and 7 with respect to a participant who has satisfied the eligibility requirements to retire (as set forth in Section 5(a)(i)). Notwithstanding the foregoing, any participant who is disabled under the LTD Plan shall continue to participate in this Plan while classified as disabled and, for purposes of the supplemental pension benefit provided by this Plan, 3 while classified as disabled, shall be deemed to continue to accrue Credited Service until no later than his/her Normal Retirement Date. 5. Supplemental Pension Benefit. (a) Retirement benefits. (i) Eligibility for retirement benefits. A participant shall be eligible to retire under this Plan on or after the participant's Normal Retirement Date, or on the first day of any month preceding his/her Normal Retirement Date, if the participant has attained (1) age 55 and has accumulated at least 20 years of Credited Service; or (2) age 60 and has accumulated at least one year of Credited Service. (ii) Computation of retirement benefits. A participant who is eligible to retire under this Plan will be entitled to supplemental pension retirement benefits under this Plan, which will be calculated as set forth below on the participant's Retirement Date: (1) add the Annual Base Salary and the Average Incentive Award, (2) divide the sum by 12, (3) multiply this dollar amount by the appropriate percentage, determined as follows: Chairman of the Board and President of CEG, and President of Constellation Enterprises, Inc. - 60%; all other participants (by completed years of Credited Service) 1 through 9 - 3% per year; 10 through 19 - 40%; 20 through 24 - 45%; 25 through 29 - 50%; and 30 or more - 55%, (4) multiply this dollar amount by the Early Retirement Adjustment Factor set forth under the Pension Plan; provided, however, if the participant is age 62 or older and is an officer or key employee of CEG or its subsidiaries, other than the Chairman of the Board and President of CEG or the President 4 of Constellation Enterprises, Inc., such factor shall be one (1), (5) subtract from this dollar amount the charges relating to coverage for a preretirement survivor annuity in excess of 50%, and for a post-retirement survivor annuity in excess of 50%, and (6) subtract from the remainder the net amount payable to the participant under the Pension Plan. (iii) Form of payout of retirement benefits. Each participant entitled to supplemental pension retirement benefits will receive his/her supplemental pension retirement benefits payout in the form of a monthly payment, unless the participant makes a valid election to receive his/her supplemental pension retirement benefits payout in the form of a lump sum. A participant may elect to receive his/her supplemental pension retirement benefits payout in the form of a lump sum by submitting to the Plan Administrator a signed Lump Sum Election Form. The Form must be received by the Plan Administrator before the beginning of the calendar year during which the participant's Retirement Date occurs. The election may be revoked at any time before the beginning of the calendar year during which the participant's Retirement Date occurs, by submitting to the Plan Administrator a signed Lump Sum Revocation Form. (iv) Amount, timing, and source of monthly retirement benefit payout. A participant entitled to monthly supplemental pension retirement benefits will receive monthly payments equal to the amount determined under paragraph (a)(ii). Such payments shall commence effective with the participant's Retirement Date. If such participant receives (or would have received but for the Internal Revenue Code limitations) cost of living adjustment(s) under the Pension Plan, the monthly payments hereunder will be automatically increased based on the percentage of, and at the same time as, such adjustment(s). Monthly payments hereunder shall 5 permanently cease upon the death of the participant, effective with the monthly payment for the month following the month of the participant's death. Monthly payments hereunder shall be made in accordance with the provisions of the Rabbi Trust and, to the extent not paid under the terms of the Rabbi Trust, from general corporate assets. (v) Amount, timing, and source of lump sum retirement benefit payout. A participant entitled to a lump sum supplemental pension retirement benefit will receive a lump sum payment. This lump sum payment will be calculated by a certified actuary and will be equal to the present value of an immediate annuity including the estimated present value of post-retirement supplemental survivor annuity benefits described in Section 7, using (1) the supplemental pension retirement benefit amount calculated under paragraph (a)(ii), which is expressed as a monthly amount, (2) the Interest Rate computed on the participant's Retirement Date, and (3) the Mortality Table. Such lump sum payment shall be made within 60 days after the participant's Retirement Date. The lump sum payment shall be made in accordance with the provisions of the Rabbi Trust and, to the extent not paid under the terms of the Rabbi Trust, from general corporate assets. A participant who receives a lump sum payment shall not be entitled to any cost of living adjustments or to post-retirement survivor annuity coverage under the Plan. (vi) Death of participant entitled to lump sum payout. In the event of the death of a participant after his/her Retirement Date and before the participant receives the lump sum payment under paragraph (a)(v), such lump sum payment shall be made to the participant's surviving spouse (as defined in Section 7(i)). The lump sum payment shall be the same amount and made at the same time and from the same sources as set forth in paragraph (a)(v). If there is no surviving spouse at the date of the participant's death, no payments shall be made pursuant to Sections 5 or 7. A surviving spouse who receives a lump sum benefit under this paragraph (a)(vi) shall not be entitled to any 6 cost of living adjustments or to post-retirement survivor annuity coverage under the Plan. (vii) Health and dental benefits. A participant who receives supplemental pension retirement benefits under this Plan, but who is not eligible for benefits under the CEG Retiree Flexible Benefits Program, is entitled to health and dental benefits under this Plan that in the sole discretion of the Plan Administrator, are reasonably similar to health and dental benefits provided for participants under the CEG Retiree Flexible Benefits Program, taking into account employer cost, age and service. (b) Accrued benefit. (i) Computation of gross accrued benefit. The computation of the gross accrued supplemental pension benefit for a participant as of the date of the computation will be made as follows: (1) add the Annual Base Salary and the Average Incentive Award, (2) divide the sum by 12, and (3) multiply this dollar amount by the appropriate percentage, determined as follows: Chairman of the Board and President of CEG and President of Constellation Enterprises, Inc. - 60%; all other participants (by completed years of Credited Service as of the date of the computation) 1 through 9 - 3% per year; 10 through 19 - 40%; 20 through 24 - 45%; 25 through 29 - 50%; and 30 or more - 55%. (ii) Computation of net accrued benefit. The computation of the net accrued supplemental pension benefit for a participant as of the date of the computation will be made by subtracting from the gross accrued benefit determined under paragraph (b)(i) the amount, computed on the date a benefit is payable under paragraph (c)(iv), of (1) the participant's Accrued Gross Pension under the Pension Plan, expressed as a monthly amount if 7 the participant is not eligible for Normal Retirement, Early Retirement or Disability Retirement benefits under the Pension Plan, otherwise (2) the gross amount payable to the participant under the Pension Plan. (c) Entitlement to benefit upon happening of certain events. (i) Satisfaction of requirements. A participant who has satisfied the age and Credited Service requirements set forth in Section 5(a)(i) while eligible as set forth in Section 4, but who does not retire under the Plan due to Demotion, Termination From Employment With CEG, or the withdrawal of a participant's eligibility to participate under Section 5, shall be entitled to his/her net accrued supplemental pension benefit. The effective date of the Demotion, Termination From Employment With CEG, or eligibility withdrawal event shall be the date of such Demotion, Termination From Employment With CEG, or eligibility withdrawal. (ii) Other events. A participant, regardless of his/her age and years of Credited Service, shall be entitled to his/her net accrued supplemental pension benefit upon the happening of any of the following entitlement events, but only if such entitlement event occurs before a participant retires under this Plan: (1) Change in control. A change in control, followed within two years by the participant's Demotion, a participant's Termination From Employment With CEG, or the withdrawal of the participant's eligibility to participate under the Plan, is an entitlement event. The effective date of the entitlement event shall be the date of the Demotion, Termination From Employment With CEG, or eligibility withdrawal. A change in control for purposes of this paragraph (c)(i)(1) shall mean (w) the purchase or acquisition by any person, entity or group of persons, (within the meaning of 8 section 13(d) or 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), or any comparable successor provisions), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20 percent or more of either the outstanding shares of common stock of CEG or the combined voting power of CEG's then outstanding shares of voting securities entitled to a vote generally, or (x) the consummation of, following the approval by the stockholders of CEG of a reorganization, merger, or consolidation of CEG, in each case, with respect to which persons who were stockholders of CEG immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 50 percent of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated entity's then outstanding securities, or (y) a liquidation or dissolution of CEG or the sale of substantially all of its assets, or (z) a change of more than one-half of the members of the Board of Directors of CEG within a 90-day period for reasons other than the death, disability, or retirement of such members. (2) Plan amendment. A Plan amendment that has the effect of reducing a participant's gross accrued supplemental pension benefit is an entitlement event. In determining whether such a reduction has occurred, the participant's gross accrued supplemental pension benefit calculated on the day immediately preceding the effective date of the amendment shall be compared to the participant's gross accrued supplemental pension benefit calculated on the effective date of the amendment. An amendment that has the effect of reducing future benefit accruals is not an entitlement event. It is intended that an entitlement event under this paragraph (c)(i)(2) will occur only with respect to those amendments that are substantially similar to amendments that are prohibited by Internal Revenue Code section 9 411(d)(6) with respect to qualified pension plans. The effective date of the entitlement event shall be the effective date of the Plan amendment. (3) Involuntary Demotion, Termination From Employment With CEG, or eligibility withdrawal without Cause. A participant's involuntary Demotion or involuntary Termination From Employment With CEG without Cause, or the withdrawal of a participant's eligibility to participate under Sections 5 or 7 of the Plan without Cause, is an entitlement event. The effective date of the entitlement event shall be the effective date of the participant's involuntary Demotion or involuntary Termination From Employment With CEG without Cause, or the eligibility withdrawal without Cause. (iii) Form of benefit payout. Each participant entitled to a payout under this paragraph (c) will receive such payout in the form of a lump sum payment. (iv) Amount, timing, and source of benefit payout. A participant entitled to a payout of his/her net accrued benefit, as a result of the occurrence of an event described in paragraphs (c)(i), (c)(ii)(1), (2), or (3) will be entitled to a lump sum benefit. This lump sum benefit will be calculated by a certified actuary as the present value of an annuity beginning at age 62 (unless the participant is the Chairman of the Board or President of CEG, or the President of Constellation Enterprises, Inc. in which case age 65) (or the participant's actual age, if the participant is older than age 62 (unless the participant is the Chairman of the Board or President of CEG, or the President of Constellation Enterprises, Inc. in which case age 65) on the date the lump sum benefit is payable), including the estimated present value of post-retirement survivor annuity benefits described in Section 7, using (1) the net accrued benefit amount calculated under paragraph (b)(ii) on the effective date of the event, which is expressed as a monthly amount, (2) the Early Retirement 10 Adjustment Factor (using the method set forth in (a)(ii)(4)) computed by substituting the date the lump sum benefit is payable for the Retirement Date, (3) the Interest Rate computed on the date the lump sum benefit is payable, and (4) the Mortality Table. The lump sum benefit shall be payable on the date that is the later of the date of the participant's Termination From Employment With CEG or the date the participant reaches age 55. The lump sum payment shall be made within 60 days after such date and shall be made in accordance with the provisions of the Rabbi Trust and, to the extent not paid under the terms of the Rabbi Trust, from general corporate assets. A participant who receives a lump sum benefit under this paragraph (c)(iv) shall not be entitled to any cost of living adjustments or to preretirement or post-retirement survivor annuity coverage. (v) Death of participant entitled to lump sum payout. In the event of the death of a participant after the occurrence of an event described in paragraphs (c)(i), (c)(ii)(1), (2), or (3) and before the participant receives the lump sum payment under paragraph (c)(iv), such lump sum payment shall be made to the participant's surviving spouse (as defined in Section 7(i)). The lump sum payment will be calculated by a certified actuary and will be equal to 50% of the present value of an immediate annuity using (1) the monthly amount under paragraph (c)(iv), (2) the Early Retirement Adjustment Factor computed using the participant's age at the date of the participant's death, or if the participant was younger than age 60 on the date of death, using age 60, (3) the Interest Rate computed on the date the lump sum benefit is payable, and (4) the Mortality Table. However, if the participant's death occurred during the 60 day period described in paragraph (c)(iv), 100% shall be used instead of 50% in the preceding sentence. The lump sum benefit shall be payable on the date that is the later of the date that the participant would have reached age 55 or the date of the participant's death. The lump sum payment shall be made within 60 days after such date, and shall be made in accordance with the provisions of the Rabbi Trust and, to the extent not paid under the terms of the Rabbi Trust, from general corporate 11 assets. If there is no surviving spouse at the date of the participant's death, no payments shall be made pursuant to Sections 5 or 7. A surviving spouse who receives a lump sum benefit under this paragraph (c) (v) shall not be entitled to any cost of living adjustments or to preretirement or post-retirement survivor annuity coverage under the Plan. (d) Other benefits. (i) Eligibility for other benefits. Upon a participant's Termination From Employment With CEG, if such participant (1) does not satisfy the requirements of Sections 5(a)(i), 5(c)(i), and/or 5(c)(ii), and (2) is a vested participant under the Pension Plan, such participant shall be entitled to the benefits in this Section 5(d). (ii) Computation of other benefits. A participant who is eligible for other benefits will be entitled to benefits under this Plan, which will be calculated as set forth below on the date the participant begins receipt of benefit payments under the Pension Plan: (1) compute the participant's adjusted monthly benefit payment under the terms of the Pension Plan, by also treating awards, if any, paid to the participant under CEG's Executive Annual Incentive Plan and/or CEG's Manager Annual Incentive Plan during the immediately preceding twenty-four consecutive months as bonuses and/or incentives included in the computation of the participant's Average Pay (as defined under the Pension Plan), and (2) subtract from the amount in (1) above the participant's actual monthly benefit payment under the Pension Plan. For purposes of the computation in (1), the participant will bear the cost of any post-retirement survivor annuity coverage provided under Section 7(b). 12 (iii) Form of payout of other benefits. Each participant entitled to other benefits will receive his/her other benefits payout in the form of a monthly payment. (iv) Amount, timing, and source of monthly other benefit payout. A participant entitled to monthly other benefits will receive monthly payments equal to the amount determined under paragraph (d)(ii). Such payments shall commence effective with the date the participant commences receipt of benefit payments under the Pension Plan. Monthly payments hereunder shall permanently cease upon the death of the participant, effective with the monthly payment for the month following the month of the participant's death. Monthly payments hereunder shall be made from general corporate assets. 6. Supplemental Long-Term Disability Benefit. (i) Eligibility for disability benefits. Any participant who has completed at least one full calendar month of service with CEG or its subsidiaries, who has elected coverage under the LTD Plan, and who is disabled (as determined under the LTD Plan) will be entitled to supplemental disability benefits under this Plan. (ii) Computation of disability benefits. The amount of such supplemental disability benefits shall be determined as follows: (1) multiply the monthly base rate of pay amount in effect immediately prior to becoming entitled to benefits under the LTD Plan by twelve, (2) add the Average Incentive Award to the product, (3) add certain bonuses and incentives that are included in the computation of Average Pay under the Pension Plan (except that awards under the Results Incentive Awards Program shall be excluded), earned over the last 12 months to the product, (4) divide the sum by 12, 13 (5) multiply this monthly dollar amount by the Income Replacement Percentage, and (6) subtract from the product the gross monthly amount provided for the participant under the LTD Plan before such amount is reduced for other benefits as set forth under the LTD Plan. (iii) Form of payment of disability benefits. Each participant entitled to supplemental disability benefits will receive his/her supplemental disability benefit payout in the form of a monthly payment. (iv) Amount, timing, and source of monthly disability benefit payout. A participant entitled to supplemental disability benefits will receive a monthly payment equal to the amount determined under (ii) above. Such payments shall commence effective with the commencement of the participant's LTD Plan benefit payments. Monthly payments shall permanently cease when benefit payments under the LTD Plan cease. Monthly payments shall be made from CEG's general corporate assets. If a participant receiving payments pursuant to this Section 6 receives cost of living adjustment(s) under the LTD Plan, the payments hereunder will be automatically increased based on the same percentage of, and at the same time as, such adjustment(s). (v) Bonus. Any participant who has less than ten years of Credited Service shall be entitled to a monthly taxable cash bonus, equal to an amount based on the cost of LTD Plan coverage, using the formula for computing CEG-provided Flexible Benefits Plan credits for LTD Plan coverage and taking into account the Participant's Credited Service and covered compensation. Such cash bonus shall be made from general corporate assets. 7. Supplemental Survivor Annuity Benefit. (a) Survivor annuity benefit. (i) Eligibility for survivor annuity benefit. Following the death of a participant (other than a participant who satisfied the requirements of Section 5(d)(i) upon such participant's Termination From Employment With CEG), a 14 supplemental survivor annuity may be paid to the participant's surviving spouse until the death of that spouse, using the same percentage to compute such supplemental benefit that is actually used to compute any survivor annuity provided on behalf of the participant under the Pension Plan. The participant will not bear the cost of up to a 50% survivor annuity benefit, but will bear the cost of a survivor annuity benefit in excess of 50%. For purposes of this Section 7(a), a participant's surviving spouse is the individual married to the participant on the date of the participant's death. If there is no surviving spouse, or if the participant or the participant's spouse previously received or is entitled to receive a lump sum payment under Section 5, no supplemental survivor annuity will be payable. (ii) Computation of survivor annuity benefit. The amount of the supplemental survivor annuity will be determined as follows: (1) if the participant had retired prior to the date of death: (a) begin with the monthly pension benefit (under Section 5(a) of this Plan) that the participant was receiving prior to the date of death, and (b) multiply this dollar amount by the percentage used to compute the survivor annuity provided on behalf of the participant under the Pension Plan. (2) otherwise: (a) begin with the larger of the Early Retirement pension benefit (under both the Pension Plan and Section 5(a) of this Plan) to which the participant would have been entitled to receive if the: (A) participant had been retired at age 60 on the date of death for purposes of computing the Early Retirement Adjustment Factor, or 15 (B) participant had retired on the date of death for purposes of computing the Early Retirement Adjustment Factor, (b) multiply this dollar amount by the percentage used to compute the survivor annuity provided on behalf of the participant under the Pension Plan, (c) subtract from the product the net amount, if any, of the survivor annuity provided on behalf of the participant under the Pension Plan, and (d) subtract from this dollar amount the charges relating to coverage (under both the Pension Plan and this Plan) for a preretirement survivor annuity in excess of 50%, and for a post-retirement survivor annuity in excess of 50%. (iii) Form of payout of survivor annuity benefits. Each surviving spouse entitled to a supplemental survivor annuity benefit will receive his/her survivor annuity benefit payout in the form of a monthly payment. (iv) Amount, timing, and source of monthly survivor annuity benefit payout. A surviving spouse entitled to monthly supplemental survivor annuity benefits will receive a monthly payment equal to the amount determined under (ii) above. Such payments shall commence effective with the first day of the month following the month of the participant's death. If such surviving spouse receives (or would have received but for the Internal Revenue Code limitations) cost of living adjustment(s) under the Pension Plan, the monthly payments hereunder will be automatically increased based on the percentage of, and at the same time as, such adjustment(s). Monthly payments hereunder shall permanently cease upon the death of the surviving spouse, effective with the monthly payment for the month following the month of the surviving spouse's death. Monthly payments hereunder shall be made in accordance with the 16 provisions of the Rabbi Trust and, to the extent not paid under the terms of the Rabbi Trust, from general corporate assets. (b) Other survivor benefit. (i) Eligibility for other survivor benefit. Following the death of a participant who satisfied the requirements of Section 5(d)(i) upon such participant's Termination From Employment With CEG, a survivor benefit may be paid to the participant's surviving spouse until the death of that spouse. For purposes of this Section 7(b), a participant's surviving spouse is the individual who is the Surviving Spouse under the Pension Plan. If there is no surviving spouse, no survivor benefit will be payable. (ii) Computation of other survivor benefit. The amount of the survivor benefit will be calculated as set forth below on the date the surviving spouse begins receipt of benefit payments under the Pension Plan: (1) compute the surviving spouse's adjusted monthly benefit payment under the terms of the Pension Plan, by also treating awards, if any, paid to the participant under CEG's Executive Annual Incentive Plan and/or CEG's Manager Annual Incentive Plan during the immediately preceding twenty-four consecutive months as bonuses and/or incentives included in the computation of the participant's Average Pay (as defined under the Pension Plan), and (2) subtract from the amount in (1) above the surviving spouse's actual monthly benefit payment under the Pension Plan. For purposes of the computation in (1), the surviving spouse will bear the cost of the survivor benefit. (iii) Form of payout of other survivor benefit. Each surviving spouse entitled to a survivor benefit 17 will receive his/her survivor benefit payout in the form of a monthly payment. (iv) Amount, timing, and source of monthly other survivor benefit payout. A surviving spouse entitled to monthly survivor benefits will receive monthly payments equal to the amount determined under paragraph (b)(ii). Such payments shall commence effective with the date the surviving spouse commences receipt of benefit payments under the Pension Plan. Monthly payments hereunder shall permanently cease upon the death of the surviving spouse, effective with the monthly payment for the month following the month of the surviving spouse's death. Monthly payments hereunder shall be made from general corporate assets. 8. Death Benefit. CEG shall make arrangements, through its split-dollar life insurance program or otherwise, for life insurance coverage for each participant providing that the participant's beneficiary shall receive, as a pre-rollout death benefit, an amount which is approximately equal to three times the participant's compensation, and as a post-rollout benefit, an amount which is approximately equal to two times the participant's compensation, as set forth in a separate agreement between CEG and the participant. As determined in the sole discretion of the Plan Administrator, in the event that either (i) a participant is ineligible to receive the type of life insurance coverage provided to other participants under this Plan, or (ii) such coverage is not available on reasonably cost-effective terms as a result of any penalty for smoking or other factors that are reflected in the insurance carrier's rates, then CEG shall provide a benefit that, in the discretion of the Plan Administrator, is substantially equivalent to the cost of the benefit provided to other participants under this Plan. 9. Dependent Death Benefit. In the event of the death of a participant's qualified dependent while the participant is an active employee of CEG or a subsidiary of CEG, CEG shall make a death benefit payment to the participant, from general corporate assets. For purposes of this Section 9, qualified dependent shall have the same meaning as set forth in CEG's Family Life Insurance Plan. For purposes of this Section 9, the amount of the death benefit payment shall be 18 the highest amount of insurance that would have been payable with respect to such qualified dependent if coverage had been provided under CEG's Family Life Insurance Plan. The dependent death benefit payment under this Plan shall be grossed-up for income tax withholding. 10. Sickness Benefit. Each participant, without regard to length of service, shall be entitled to the greater of the benefits stipulated under the CEG sick benefit policy for employees or twenty-six (26) weeks of paid sick benefits within a rolling 52-week period. 11. Vacation Benefit. Each participant, without regard to length of service, shall be entitled to the greater of the benefits stipulated under the CEG vacation benefit policy for employees or five weeks of paid vacation during a calendar year. 12. Planning Benefit. Each participant shall be entitled to certain personal financial, tax, and estate planning services paid for by CEG but provided through designated professional firms. This entitlement shall be subject to any dollar limitation established by the Plan Administrator with respect to all such fees. The services shall be provided to each participant by the chosen firm(s) on a personalized and confidential basis; and each firm shall have sole responsibility for quality of the services which it may render. The services to be provided shall be on an on-going and continuous basis, but shall be limited to (i) the development and legal documentation of both career-oriented financial plans and personal estate plans, and (ii) tax counseling regarding personal tax return preparation and the most advantageous structuring, tax-wise, of proposed personal transactions. Such planning benefit shall continue during the year of retirement plus the next two calendar years and include the completion of the federal and state personal tax returns for the second calendar year following retirement. However, if a retired member of senior management continues to serve as a member of the Board of Directors of CEG, his/her planning benefit period shall be extended until he/she no longer serves as a member of the Board of Directors. Upon the death of a participant entitled to the planning benefit provided hereunder, his/her surviving spouse shall 19 be entitled to receive the following planning benefit: (i) if the deceased was not retired at the time of death, the surviving spouse shall be entitled to the planning benefit for the year in which the death occurred plus the next two calendar years, including completion of the federal and state personal tax returns for the second calendar year after the year in which the death occurred; or (ii) if the deceased was retired at the time of death, then the surviving spouse shall receive a planning benefit equal to that the deceased would have received if he/she had not died prior to expiration of the planning benefit. The surviving spouse of a retired member of senior management whose death occurs while serving as a member of the Board of Directors of CEG, shall be entitled to a planning benefit as set forth in (i) above. The planning benefit provided under this Plan shall be grossed-up for income tax withholding. 13. Miscellaneous. None of the benefits provided under this Plan shall be subject to alienation or assignment by any participant or beneficiary nor shall any of them be subject to attachment or garnishment or other legal process except (i) to the extent specially mandated and directed by applicable State or Federal statute; (ii) as requested by the participant or beneficiary to satisfy income tax withholding or liability; and (iii) any policy of insurance written by a commercial carrier on a split-dollar basis shall be assignable. This Plan may be amended from time to time, or suspended or terminated at any time, provided, however, that no amendment or termination shall reduce any previously accrued supplemental pension benefit under this Plan or prejudice the rights of any participant or beneficiary entitled to receive payment hereunder at the time of such action. All amendments to this Plan which would increase or decrease the compensation of any Officer of CEG, either directly or indirectly, must be approved by the Board of Directors. All other permissible amendments may be made at the written direction of the Committee. Participation in this Plan shall not constitute a contract of employment between CEG and any person and shall not be deemed to be consideration for, or a condition of, continued employment of any person. 20 The Plan, notwithstanding the creation of the Rabbi Trust, is intended to be unfunded for purposes of Title I of the Employee Retirement Income Security Act of 1974. CEG shall make contributions to the Rabbi Trust in accordance with the terms of the Rabbi Trust. Any funds which may be invested and any assets which may be held to provide benefits under this Plan shall continue for all purposes to be a part of the general funds and assets of CEG and no person other than CEG shall by virtue of the provisions of this Plan have any interest in such funds and assets. To the extent that any person acquires a right to receive payments from CEG under this Plan, such rights shall be no greater than the right of any unsecured general creditor of CEG. This Plan shall be governed in all respects by Maryland law. 21 EX-10 8 EX-10(G) Exhibit 10(g) GRANTOR TRUST AGREEMENT DATED AS OF APRIL 30, 1999 BETWEEN CONSTELLATION ENERGY GROUP, INC. AND CITIBANK, N.A. GRANTOR TRUST AGREEMENT CONTENTS
Page SECTION 1 ESTABLISHMENT OF TRUST 2 1.1 Trust is established with Trustee. 1.2 Trust is irrevocable. 1.3 Trust is a grantor trust. 1.4 Assets subject to claims of creditors. 1.5 Due date of Trust contributions. 1.6 Discretionary contributions. 1.7 Eligibility for Trust benefits. 1.8 Definition of "Required Contribution." 1.9 Responsibility for Required Contribution calculation. 1.10 Notification upon failure to made Required Contribution. SECTION 2 PAYMENTS TO PLAN PARTICIPANTS AND THEIR SURVIVING SPOUSES 8 2.1 CEG required to provide Payment Schedule to Trustee. 2.2 Failure by CEG to provide Payment Schedule. 2.3 Tax withholding. 2.4 Determination entitlement to benefits. 2.5 Payment of benefits directly by CEG. 2.6 Authorization for Trustee to defer payments. 2.7 Determination of insufficient assets. 2.8 Notification of insufficiency. 2.9 Restoration of discontinued or reduced payments. 2.10 Determination of immediate taxation. 2.11 Reduction of future benefits following immediate taxation. SECTION 3 TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST BENEFICIARY WHEN CEG IS INSOLVENT 17 3.1 Payments cease when CEG is Insolvent. 3.2 Assets subject to claims of creditors. 3.2(a) Duty to inform Trustee of CEG's Insolvency. 3.2(b) Trustee's responsibility to cease payments. 3.2(c) Trustee reliance on Insolvency evidence. 3.2(d) Trustee holds assets for general creditors. 3.2(e) Authority to resume payments. 3.3 Restoration of discontinued payments. i SECTION 4 PAYMENTS TO BGE 20 4.1 Return or diversion of Trust assets. 4.2 Distribution of excess Trust assets to CEG. 4.3 Distribution of excess Trust assets following a Change of Control. SECTION 5 INVESTMENT AUTHORITY 21 5.1 No investment in CEG stock. 5.2 Acknowledgement of investment guidelines. 5.3 CEG may appoint investment advisor. 5.4 CEG may transfer life insurance to Trust. SECTION 6 DISPOSITION OF INCOME 23 SECTION 7 ACCOUNTING BY TRUSTEE 23 7.1 Trustee provides monthly accounting to CEG. 7.2 Deemed approval of accounting by CEG. 7.3 Tax returns. 7.4 Right of Trustee to judicial settlement of accounts. SECTION 8 RESPONSIBILITY OF TRUSTEE 26 8.1 Prudency standard for Trustee. 8.2 Indemnification of Trustee. 8.3 Powers of Trustee. 8.4 Additional powers of Trustee. 8.5 Trustee prohibited from carrying on business through Trust. SECTION 9 COMPENSATION AND EXPENSES OF TRUSTEE 30 9.1 Trustee's fees. 9.2 Taxes on Trust income. SECTION 10 RESIGNATION AND REMOVAL OF TRUSTEE 31 10.1 Resignation of Trustee. 10.2 Removal of Trustee. 10.3 Removal of Trustee after Change of Control. 10.4 Resignation of Trustee after Change of Control. 10.5 Transfer of assets after resignation or removal of Trustee. 10.6 Appointment of successor Trustee. SECTION 11 APPOINTMENT OF SUCCESSOR 32 11.1 Appointment of successor after removal or resignation of Trustee. ii 11.2 Appointment of successor Trustee following Change of Control. 11.3 Responsibility of successor Trustee. 11.4 Trustee provides written account after removal or resignation. SECTION 12 AMENDMENT OR TERMINATION 33 12.1 Amendments to Trust. 12.2 Termination date of Trust. 12.3 Trust termination after participant approval. 12.4 Amendment following Change of Control. SECTION 13 MISCELLANEOUS 34 13.1 Provisions prohibited by law. 13.2 Alienation clause. 13.3 Trust under New York law. 13.4 Definitions and plurals. 13.5 Definition of Change of Control. 13.6 Certification of authority to act. 13.7 Indemnification of Trustee. 13.8 Authority of Trust Agreement. 13.9 Addresses for Trustee and CEG. SECTION 14 EFFECTIVE DATE 39 EXHIBIT A PAYMENT SCHEDULE
iii GRANTOR TRUST AGREEMENT Dated as of April 30, 1999 between Constellation Energy Group, Inc. and Citibank, N.A. THIS AGREEMENT dated as ofApril 30, 1999, by and betweenConstellation Energy Group, Inc., a Maryland corporation, or its successor ("CEG") and Citibank, N. A., a national banking association as trustee for the trust created hereby ("Trustee"). WITNESSETH THAT: WHEREAS, effective with the April 30, 1999 share exchange between CEG and the common stockholders of Baltimore Gas and Electric Company (BGE), BGE transferred to CEG the former BGE Executive Benefits Plan and BGE's rights and obligations under the Grantor Trust Agreement Dated as of July 31, 1994 between BGE and Citibank, N.A.; and WHEREAS, CEG has adopted the Constellation Energy Group, Inc. Executive Benefits Plan (formerly the Baltimore Gas and Electric Company Executive Benefits Plan) ("Plan"); and WHEREAS, CEG has incurred or expects to incur liability under the terms of such Plan for nonqualified supplemental pension retirement benefits with respect to the individuals participating in such Plan; and 1 WHEREAS, CEG wishes to adopt the trust ("Trust") and to contribute to the Trust assets that shall be held therein, subject to the claims of CEG's creditors in the event of CEG's Insolvency, as defined in Section 3.1 hereof, until paid to Plan participants and their surviving spouses, as defined in Section 7 of the Plan, in such manner and at such times as specified in the Plan; and WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Plan as an unfunded plan maintained for the purpose of providing nonqualified supplemental pension retirement benefits for a select group of management or highly compensated employees, for purposes of Title I of the Employee Retirement Income Security Act of 1974; and WHEREAS, it is the intention of CEG to make contributions to the Trust to provide a source of funds to assist in meeting CEG's liabilities under the Plan; NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows: Section 1. ESTABLISHMENT OF TRUST. 1.1 CEG hereby adopts and establishes with Trustee the Trust consisting of such sums of cash and other property, 2 including collateral assignments of interests in certain split dollar life insurance policies, (the "principal"), that currently constitute the Trust and as from time to time shall be paid or delivered to Trustee to be held, administered, and disposed of by Trustee as provided in this Trust Agreement. The principal of the Trust and any earnings thereon (the "Trust assets") shall be held by Trustee and shall be dealt with in accordance with the provisions of this Trust Agreement until all payments required by this Trust Agreement have been made. 1.2 The Trust hereby established shall be irrevocable. 1.3 The Trust is intended to be a grantor trust, of which CEG is the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly. 1.4 The Trust assets shall be held separate and apart from other funds of CEG and shall be used exclusively for the uses and purposes of Plan participants, their surviving spouses, and CEG's general creditors as herein set forth. Plan participants and their surviving spouses shall have no preferred claim on, or any beneficial ownership interest in, any Trust assets. Any rights created under the Plan and this Trust Agreement shall be mere unsecured contractual rights of Plan participants and their surviving spouses against CEG. Any Trust assets will be subject 3 to the claims of CEG's general creditors under federal and state law in the event of Insolvency, as defined in Section 3.1 hereof. 1.5 By August 31, 1994, for the Plan year 1993, BGE was required to irrevocably contribute cash or other property to the Trust in an amount equal to 50% of the Required Contribution, as defined in Section 1.9 hereof. By April 30 of the year following each of the Plan years 1994-1998, BGE was required to irrevocably contribute additional cash or other peroperty to the Trust in an amount equal to 100% of the Required Contribution. By April 30 of the year following each of the Plan years 1999-2002, , CEG shall be required to irrevocably contribute cash or other property to the Trust in an amount equal to 100% of the Required Contribution. 1.6 CEG, in its sole discretion, may at any time, or from time to time, make additional contributions of cash or other property to the Trust to augment the Trust assets to be held, administered and disposed of by Trustee as provided in this Trust Agreement. Neither Trustee nor any Plan participant or surviving spouse shall have any right to compel such additional contributions. 1.7 Plan participants or their surviving spouses shall be eligible to receive benefits under this Trust Agreement only if the Plan participant was an employee of CEG or a subsidiary in CEG's controlled group ("Employee") as well as a Plan participant 4 as of the end of any Plan year for which a contribution was required pursuant to Section 1.5 hereof, or as of the end of any Plan year for which a contribution was made pursuant to Section 1.6, except that for the Plan year 1993, Plan participants or their surviving spouses shall be eligible to receive benefits under this Trust Agreement only if the Plan participant was an Employee as well as a Plan participant as of the first day of 1993. 1.8 "Required Contribution," for purposes of the contribution requirements as set forth in Section 1.5 hereof, means the sum of (1), (2), (3), (4) and (5) below computed as indicated herein, less the fair market value of the Trust assets at the end of the Plan year for which the contribution is required. (1) For Plan participants eligible to receive benefits under this Trust Agreement pursuant to Section 1.7 hereof, who were also Employees as of the end of the Plan year for which the contribution is required (except Employees entitled to lump sum payments as indicated under Section 1.8(4) hereof) and who were not eligible for early retirement under the Plan at the end of the Plan year for which the contribution is required, an amount equal to the present value of an annuity including the estimated present value of post retirement supplemental survivor annuity benefits under the Plan commencing effective with the month in which the participant becomes age 65 using (i) the net accrued benefit as computed under the Plan (without regard to age and 5 Credited Service eligibility requirements), expressed as a monthly amount, (ii) an interest rate equal to the lesser of 8% or 95% of the Interest Rate under the Plan, and (iii) the Mortality Table. (2) For Plan participants eligible to receive benefits under this Trust Agreement pursuant to Section 1.7 hereof, who were also Employees as of the end of the Plan year for which the contribution is required (except CEG Employees entitled to lump sum payments as indicated under Section 1.8(4) hereof) and who were eligible for early retirement under the Plan as of the end of the Plan year for which the contribution is required, an amount equal to the present value of an annuity including the present value of post retirement supplemental survivor annuity benefits under the Plan commencing effective with the first month following the Plan year for which the contribution is required using (i) the net accrued benefit as computed under the Plan, expressed as a monthly amount, (ii) an interest rate equal to the lesser of 8% or 95% of the Interest Rate under the Plan, and (iii) the Mortality Table. (3) For Plan participants or their surviving spouses who are eligible to receive benefits under this Trust Agreement pursuant to Section 1.7 hereof who were also receiving a retirement benefit under the Plan in the form of a monthly payment as of the end of the Plan year for which the contribution is required, an amount equal to the present value of an annuity as computed under (2)(i),(ii), and (iii) above except that the 6 interest rate used to compute the present value under (ii) shall be 8%. (4) For all Plan participants eligible to receive benefits under this Trust Agreement pursuant to Section 1.7 hereof who are also entitled under Section 5(c) of the Plan to receive a lump sum payment at the later of age 55 or upon separation from service as of the end of the Plan year for which the contribution is required, an amount equal to the present value of an annuity as computed under (1) above. (5) In the event there has been a reduction or discontinuance of payments pursuant to Sections 2.6, 2.7, or Section 3 hereof, an amount equal to the total amount of any previously reduced or discontinued payments to Plan participants and their surviving spouses, less the aggregate amount of any payments made to Plan participants and their surviving spouses by CEG or BGE in lieu of such payments, plus interest computed pursuant to Section 2.9 hereof on the net aggregate amount. 1.9 CEG shall have sole responsibility for providing to Trustee the determination and calculation of the Required Contribution which shall be determined and calculated by the actuary of the Pension Plan of Constellation Energy Group, Inc. Trustee shall have no responsibility with respect to such determination and calculation including the responsibility to verify (i) the accuracy of such calculation or (ii) compliance by CEG with the terms of Section 1 hereof, except as provided in Section 1.11 hereof. Trustee shall have no duty, obligation or 7 responsibility to bring any action or proceeding to enforce the collection of the Required Contribution from CEG. 1.10 In the event CEG fails to make the Required Contribution to the Trust by the dates specified in Section 1.5 hereof, Trustee shall notify CEG of such failure by the 15th day of the month following the month in which the contribution was required. Such notification shall stipulate that CEG may correct the failure to contribute by the last day of the month following the month in which the contribution was required (the "Required Contribution correction date"). Trustee shall notify the Plan participants or their surviving spouses shown on the most recent Payment Schedule, as defined in Section 2.1 hereof, provided by CEG to Trustee, in the event CEG fails to make the Required Contribution by the Required Contribution correction date. Trustee shall make such notification no later than 15 days following the Required Contribution correction date. Section 2. PAYMENTS TO PLAN PARTICIPANTS AND THEIR SURVIVING SPOUSES. 2.1 By April 30 of the year following each Plan year until termination of the Trust under the provisions of Section 12 hereof, and at other times as reasonably requested by Trustee including such times as Trustee is notified in writing of the death of a Plan participant or surviving spouse eligible to receive benefits under this Trust Agreement, CEG shall deliver to Trustee a schedule, substantially in the format of Exhibit A 8 hereof, and any other necessary documentation (such schedule and other documentation being referred to for this purpose as the "Payment Schedule") that indicates the Plan benefit amounts currently payable in respect of each Plan participant (and his or her surviving spouse), the form in which such amount is to be paid (as provided for or available under the Plan), the time of commencement for payment of such amounts, whether the Plan participant is receiving such payment as a result of an entitlement event (as defined in Section 5(c) of the Plan), the present value of the future benefits payable to Plan participants and their surviving spouses under the terms of this Trust Agreement computed as under Section 1.8 (1), (2), (3), and (4) hereof, and the Required Contribution computed pursuant to Section 1.8 hereof. Plan participants or their surviving spouses shall be included on the Payment Schedule and shall be eligible for benefits under this Trust Agreement pursuant to Section 1.7 hereof only to the extent contributions to the Trust were required under Section 1.5 hereof, or for which a contribution was made by CEG to the Trust pursuant to Section 1.6 hereof. A modified Payment Schedule shall be delivered by CEG to Trustee upon the occurrence of any event, such as early retirement of a Plan participant or an entitlement event, as defined in Section 5(c) of the Plan, requiring a modification of the Payment Schedule or a modified Payment Schedule. 9 CEG shall cause the Payment Schedule which CEG shall provide to Trustee to be prepared by the actuary for the Pension Plan of Constellation Energy Group, Inc. Except as otherwise provided in Sections 2.5 through 2.11 hereof, Trustee shall make payments to Plan participants and their surviving spouses in accordance with such Payment Schedule, and shall act only upon such written direction and shall have no duty to determine the rights of any person under this Trust Agreement or under the Plan or to inquire into the right or power of CEG to direct or not direct any such payment and shall be authorized to rely on the Payment Schedule most recently provided to Trustee by CEG. 2.2 In the event CEG fails to deliver the Payment Schedule to Trustee by the date specified in Section 2.1 hereof, Trustee shall notify CEG of such failure by the 15th day of the month following the month in which the Payment Schedule was required to be delivered to Trustee. Such notification shall stipulate that CEG may correct the failure by the last day of the month following the month in which the Payment Schedule was required to be delivered to Trustee (the "Payment Schedule correction date"). Trustee shall notify the Plan participants or their surviving spouses shown on the most recent Payment Schedule provided by CEG to Trustee in the event CEG fails to deliver the Payment Schedule to Trustee by the Payment Schedule correction date. Trustee shall make such notification no later than 15 days following the Payment Schedule correction date If CEG fails to deliver the 10 Payment Schedule to Trustee by the date specified in Section 2.1 hereof, Trustee shall make payments to Plan participants and their surviving spouses, except as otherwise provided in Sections 2.5 through 2.11 hereof, in accordance with the Payment Schedule most recently provided to Trustee by CEG (or prior to April 30, 1999, by BGE). Within a reasonable period of time after CEG delivers the updated Payment Schedule to Trustee, Trustee shall pay all amounts due to the Plan participants and their surviving spouses for the period during which Trustee relied on the previous Payment Schedule to the extent such amounts have not been paid by Trustee under the previous Payment Schedule or by CEG pursuant to Sections 2.5 through 2.11 hereof. Such amounts paid by Trustee shall include interest computed at an 8% per annum rate from the date the payments were due under the Plan to the first day of the month in which such amount was paid. 2.3 Trustee shall make provision for the reporting and withholding of any federal, state or local taxes that may be required to be withheld with respect to the payment of benefits from the Trust and shall pay amounts withheld to the appropriate taxing authorities or determine that such amounts have been reported, withheld and paid by CEG, provided, however, that CEG shall be required to provide Trustee with all information reasonably necessary for Trustee to perform such withholding. 2.4 The entitlement of Plan participants and their surviving spouses to benefits under the Plan shall be determined 11 by CEG or such party as it shall designate under the Plan, and any claim for such benefits shall be considered and reviewed under the procedures set out in the Plan. Except as provided in Section 2.7 hereof, Trustee shall have no responsibility to determine such entitlements or to verify the accuracy of their determination or to review or supervise the review of claims for benefits. 2.5 CEG may make payment of benefits directly to Plan participants and their surviving spouses as they become due in accordance with the most recent Payment Schedule provided by CEG to Trustee. CEG shall notify Trustee of its decision to make payment of benefits prior to the time amounts are payable to Plan participants and their surviving spouses by indicating such intent on the Payment Schedule provided by CEG to Trustee pursuant to Section 2.1 or by separate written notification. CEG shall provide Trustee with documentation substantiating that such payments were made no later than the last day of the month in which such payments were due in accordance with the most recent Payment Schedule provided by CEG to Trustee. If such documentation is not provided, Trustee is authorized to make such payments directly to Plan participants and their surviving spouses. In addition, if the Trust assets are insufficient to make payments of benefits in accordance with the most recent Payment Schedule provided by CEG to Trustee, or are not available to make such payments because all or part of the Trust assets are invested in collateral assignments of certain split dollar life 12 insurance policies, CEG shall pay the balance of each such payment to the Plan participant or their surviving spouse as it falls due. Trustee shall notify CEG of such insufficiency or unavailability as specified in Sections 2.6 and 2.8 hereof. 2.6 Where Trustee is required to make payments from the Trust according to the most recent Payment Schedule and CEG does not make payments in lieu of such payments as provided under Section 2.5 hereof, and Trustee is unable to make the required payments because all or part of the Trust assets are invested in the collateral assignment portion of certain split dollar life insurance policies, Trustee is authorized to defer the required payments until cash is available to make the required payments under the terms of this Trust Agreement. 2.7 A determination of insufficiency of Trust assets shall be made with respect to the end of each Plan year after receipt by the Trustee of the Payment Schedule prepared with respect to such Plan year or the most recent Payment Schedule in the event CEG fails to deliver the Payment Schedule to Trustee by the date specified in Section 2.1 hereof. The Trust assets will be deemed to be insufficient to make payments of benefits in accordance with the terms of such Payment Schedule if the market value of the Trust assets at the end of the Plan year for which the determination is being made plus the Required Contribution actually made with respect to such Plan year is less than the present value of the future benefits as shown on the most recent 13 Payment Schedule. In determining the market value of collateral assignments of interests in split dollar life insurance policies held by the Trust, Trustee may rely on the valuation provided by the insurance carrier who issued such policies, or the broker administering such policies. In the event of such insufficiency and to the extent CEG does not make payments directly to Plan participants or their surviving spouses as provided under Section 2.5 hereof, any payment made from the Trust will be reduced by multiplying such payment by a fraction, the numerator of which shall be the value of all cash and other property held by the Trust and the denominator of which shall be the aggregate present value of all benefits under the Plan as shown on the most recent Payment Schedule. 2.8 If the Trust assets are insufficient to make payments of benefits in accordance with the most recent Payment Schedule, Trustee shall notify CEG of such insufficiency by May 15 of the year following the Plan year with respect to which the insufficiency has been determined. Such notification shall stipulate that CEG may correct the insufficiency by May 31 of the year following the Plan year with respect to which the insufficiency has been determined (the "insufficiency correction date"). Trustee shall notify the participants or their surviving spouses shown on the most recent Payment Schedule provided by CEG to Trustee in the event CEG fails to correct the insufficiency by the insufficiency correction date. Trustee shall make such 14 notification no later than 15 days following the insufficiency correction date and shall proceed to reduce any payment made from the Trust in the manner specified in Section 2.7 hereof as soon as practicable. 2.9 If Trustee reduces or discontinues the payment of benefits from the Trust pursuant to Section 2.6 and 2.7 hereof and the Trust assets subsequently become sufficient to pay all or part of the previously reduced or discontinued benefits, the first payment following thereafter shall include the aggregate of all payments due to Plan participants and their surviving spouses under the terms of this Trust Agreement for the period of such reduction or discontinuance to the extent Trust assets are available, less the aggregate amount of any payments made to Plan participants and their surviving spouses by CEG in lieu of the payments provided for hereunder during any such period of reduction or discontinuance. In such event where Trust assets are sufficient to pay only a part of the previously reduced or discontinued benefits, amounts relating to the earliest payments reduced or discontinued shall be paid before all other amounts due under this Trust Agreement. Such payments shall also include interest computed at an 8% per annum rate on the net aggregate amount of all payment reductions from the date the payments were due under the Plan to the first day of the month in which such net aggregate amount was paid. 15 2.10 In the event there is a final judicial determination or a final determination by the Internal Revenue Service that the Plan participants and their surviving spouses are subject to any tax with respect to any amounts held under the terms of the Trust, then Trustee shall make payments from the Trust to such Plan participants and their surviving spouses in such amounts as set forth in such final determination for the purpose of paying federal taxes and interest and any penalties thereon which such Plan participants and their surviving spouses incur arising out of such determination. Trustee's decision as to whether a final determination has occurred shall be binding and conclusive on all Plan participants and their surviving spouses. 2.11 Any payment from the Trust, as provided in Section 2.10 hereof, excluding interest and penalties paid with respect to federal taxes, shall reduce the benefits payable under the Plan of those participants and their surviving spouses on whose behalf such payments are made. It shall be the responsibility of CEG to determine or cause to be determined by the actuary for the Pension Plan of Constellation Energy Group, Inc. the amount of such reduction and to provide Trustee with an updated Payment Schedule to reflect any such reduction made hereunder. Trustee shall have no duty to verify any calculations provided by CEG under this Section 2.11. 16 Section 3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST BENEFICIARY WHEN CEG IS INSOLVENT. 3.1 Trustee shall cease payment of benefits to Plan participants and their surviving spouses if CEG is Insolvent. CEG shall be considered Insolvent for purposes of this Trust Agreement if (i) CEG makes a voluntary filing under the United States Bankruptcy Code, or (ii) CEG is subject to a pending involuntary proceeding as a debtor under the United States Bankruptcy Code. 3.2 At all times during the continuance of this Trust, as provided in Section 1.4 hereof, the Trust assets shall be subject to claims of general creditors of CEG under federal and state law as set forth below. 3.2(a) The Board of Directors of CEG and the Chief Executive Officer of CEG shall have the duty to inform Trustee in writing of CEG's Insolvency. If a person claiming to be a creditor of CEG alleges in writing to Trustee that CEG has become Insolvent, Trustee shall determine whether CEG is Insolvent and, pending such determination, Trustee shall discontinue payment of benefits to Plan participants and their surviving spouses. 3.2(b) Until receipt of a notice of Insolvency as set forth above, Trustee shall be under no obligation and shall have no responsibility to suspend payments hereunder and hold the Trust assets for the benefit of CEG's general creditors. Trustee 17 shall not be deemed to have notice or knowledge of facts or events in public records or received by departments or divisions of Trustee bank other than the Investor Services division of Trustee bank. Trustee shall not have any liability to any party for making any payments or withholding any payments pursuant to court order or request from trustee in bankruptcy or receivership pursuant to notice of Insolvency as provided above. 3.2(c) Unless Trustee has actual knowledge of CEG's Insolvency, or has received notice from CEG or a person claiming to be a creditor alleging that CEG is Insolvent, Trustee shall have no duty to inquire whether CEG is Insolvent. Trustee may in all events rely on such evidence concerning CEG's solvency as may be furnished to Trustee and that provides Trustee with a reasonable basis for making a determination concerning CEG's solvency. 3.2(d) If at any time Trustee has determined that CEG is Insolvent, Trustee shall discontinue payments to Plan participants and their surviving spouses and shall hold the Trust assets for the benefit of CEG's general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of Plan participants and their surviving spouses to pursue their rights as general creditors of CEG with respect to benefits due under the Plan or otherwise. 18 3.2(e) Trustee shall resume the payment of benefits to Plan participants and their surviving spouses in accordance with Section 2 of this Trust Agreement only after Trustee has determined that CEG is not Insolvent (or is no longer Insolvent). Where CEG is subject to a pending proceeding as a debtor under the United States Bankruptcy Code, Trustee shall resume payment when such proceeding is dismissed. In all other cases, Trustee shall have no obligation to so resume payment until it shall have received an unqualified opinion of a certified public accountant that CEG is no longer Insolvent and an opinion of counsel that there is no legal prohibition to resuming payment hereunder. 3.3 If Trustee discontinues the payment of benefits from the Trust pursuant to Section 3.2 hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Plan participants and their surviving spouses under the terms of this Trust Agreement for the period of such discontinuance, less the aggregate amount of any payments made to Plan participants and their surviving spouses by CEG or BGE in lieu of the payments provided for hereunder during any such period of discontinuance plus interest computed as under Section 2.9 hereof on the net aggregate amount of all payments from the date the payments were due under the Plan to the first day of the month in which such net aggregate amount was paid. CEG shall cause to be determined and calculated by the actuary of the Pension Plan of Constellation Energy Group, Inc. such net aggregate amount, which 19 determination shall be conclusive for CEG, Trustee, and all Plan participants and their surviving spouses. Section 4. PAYMENTS TO CEG. 4.1 Except as provided in Sections 3.2 and 4.2 hereof, CEG shall have no right or power to direct Trustee to return to CEG or to divert to others any of the Trust assets before all payments of benefits have been made to Plan participants and their surviving spouses in accordance with the most recent Payment Schedule provided by CEG to Trustee and the terms of this Trust Agreement. 4.2 In the event the market value of Trust assets as of the end of a Plan year exceeds 120 percent of the present value of future benefits as shown on the Payment Schedule for such Plan year, plus the amount of any payments as computed under Section 1.9(5) hereof as of the end of such Plan year, then CEG may, in its sole discretion, direct Trustee in writing to distribute such excess Trust assets, in whole or in part, to CEG provided such distribution does not contravene any provision of law. Trustee shall have no responsibility to determine the propriety of any such direction. 4.3 Notwithstanding Section 4.2 hereof, CEG may not direct Trustee to distribute such excess Trust assets for 2 years from the date a Change of Control is deemed to occur under Section 13.5 hereof. 20 Section 5. INVESTMENT AUTHORITY. 5.1 In no event may Trustee invest in securities (including stock or rights to acquire stock) or obligations issued by CEG or BGE, other than a de minimis amount held in common investment vehicles in which Trustee invests. All rights associated with the Trust assets shall be exercised by Trustee, and shall in no event be exercisable by or rest with Plan participants and their surviving spouses; provided that CEG may at any time, upon delivery of written notice to Trustee, terminate Trustee's authority over the Trust assets. 5.2 CEG shall submit to Trustee investment guidelines which shall be acknowledged by Trustee in writing. The Trust assets shall be held, invested and reinvested by Trustee upon written direction of CEG and only in accordance with the investment guidelines most recently acknowledged by Trustee. CEG shall direct Trustee to invest or reinvest from time to time the Trust assets (taking into account, among other things, anticipated cash requirements for benefits under the Plans); provided, however, that pending receipt of investment directions or guidelines from CEG or pending the acknowledgement by Trustee of such investment guidelines, the Trust assets may be held in interest bearing cash accounts maintained by Trustee; and provided, however, that Trustee shall not be liable for any failure to maximize the income earned on the Trust assets, or for any loss suffered by the Trust, as a result of its investment or reinvestment of the 21 Trust assets in accordance with 1) directions received by Trustee from CEG, or 2) the investment guidelines as acknowledged by Trustee. 5.3 CEG may, in its sole discretion, appoint an investment manager or managers to manage (including the power to acquire and dispose of) any Trust assets. Trustee may rely on direction of such investment manager upon receipt of written direction from CEG and shall be entitled to rely on such direction until revoked in writing by CEG. Trustee shall not be liable for the acts or omissions of such investment manager or managers, unless Trustee participates knowingly in, or knowingly undertakes to conceal, an act or omission of such investment manager, knowing that such act or omission is a breach of its or the investment manager's fiduciary duty. Trustee is under no obligation to review, inquire into or examine the acts or omissions of any such investment manager. Trustee shall have the duty to inform CEG in the event Trustee becomes aware of any such acts or omissions. Trustee shall not be under an obligation to invest or otherwise manage Trust assets which are subject to the management of the investment manager. 5.4 CEG reserves the right to transfer to the Trust in satisfaction of the contribution requirements as set forth in Section 1.5 hereof, life insurance, annuity policies or contracts on or for the life of any Plan participant, or to direct Trustee to purchase any such policies or contracts on or for the life of 22 any such Plan participant out of the Trust assets. Any such policy or contract shall be a Trust asset subject to the claims of CEG's creditors in the event of Insolvency, as defined in Section 3.1 hereof. The proceeds, dividends, or distributions of cash value paid with respect to any life insurance policy or contract held in the Trust shall be paid to the Trust. Trustee shall be under no duty to question any direction of CEG or to review the form of any policies or contracts or the selection of the issuer thereof, or to make suggestions to CEG with respect to the form of such policies or contracts or to the issuer thereof. Section 6. DISPOSITION OF INCOME. During the term of this Trust, all income received by the Trust, net of expenses and taxes, shall be accumulated and reinvested, until otherwise required for disbursement under the terms of this Trust Agreement. Section 7. ACCOUNTING BY TRUSTEE. 7.1 Trustee shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between CEG and Trustee. Within 15 days following the close of each calendar month and within 90 days after the removal or resignation of Trustee, Trustee shall deliver to CEG a written account of its administration of the Trust pursuant to terms of this Trust Agreement during such year or during the period from the close of the last preceding year to 23 the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, and the cost and market value of all securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be. In the event the insurance carrier who issued the insurance policies which are held by or collaterally assigned to the Trust or the broker who administers such policies does not timely provide Trustee with the market value of such insurance policies or collateral assignments, Trustee shall provide to CEG written accounts under this Section 7.1 containing all valuations except such insurance valuations. As soon as practicable following the receipt of the market valuations from the carrier or the broker, Trustee shall provide CEG with written accounts containing such insurance valuations. 7.2 Unless CEG shall have filed with Trustee written exceptions to any such statement or account delivered by Trustee pursuant to Section 7.1 hereof within 90 days after receipt of such statement or account, CEG shall be deemed to have approved such statement or account, and in such case or upon the written approval by CEG of any such statement or account, Trustee shall be forever released and discharged with respect to all matters 24 and things embraced in such statement or account as though it had been settled by a decree of a court of competent jurisdiction in an action or proceeding to which CEG or persons having any beneficial interest in the Trust were parties. 7.3 CEG shall prepare and file such tax returns and other reports as may be required for the Trust, with any taxing authority or any other government authority and shall provide Trustee with copies of such returns and reports as soon as practicable following the date of filing. Trustee shall provide to CEG such information, to the extent not already provided through written accounts delivered to CEG pursuant to Section 7.1, as is necessary for CEG to prepare and file such tax returns and other reports. 7.4 Nothing contained in this Trust Agreement or in the Plan shall deprive Trustee of the right to have a judicial settlement of its accounts. In any proceeding for a judicial settlement of the accounts of Trustee or for instruction in connection with the Trust assets, the only necessary party thereto in addition to Trustee shall be CEG. If Trustee so elects, it may bring in as a party any other person or persons. No person interested in the Trust assets, other than CEG, shall have a right to compel an accounting, judicial or otherwise, by Trustee and each such person shall be bound by all accountings as herein provided, as if the account had been settled by decree of 25 a court of competent jurisdiction in an action or proceeding to which such person was a party. Section 8. RESPONSIBILITY OF TRUSTEE. 8.1 Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, provided, however, that Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval given by CEG (or investment manager designated pursuant to terms hereof) which is contemplated by, and in conformity with, the terms of this Trust Agreement and is given in writing by CEG. 8.2 Trustee need not engage in any litigation, arbitration or administrative proceeding related to this Trust Agreement unless first indemnified to its reasonable satisfaction by CEG unless such litigation, arbitration or administrative proceeding is prompted by an allegation that Trustee has breached its duties undertaken pursuant to this Trust Agreement. If Trustee proceeds to engage in any such litigation, arbitration or administrative proceeding and is not so indemnified, all reasonable costs of Trustee including reasonable attorney's fees incurred pursuant to such action shall be charged against and paid from the Trust assets, except when the claim relates to an allegation that 26 Trustee has breached its duties in which case Trustee shall be responsible for such costs. Trustee may consult with any legal counsel, including, without limitation, counsel to CEG or Trustee's own independent counsel, to assist Trustee in the management and administration of the Trust or with respect to (a) the meaning or construction of the terms of this Trust Agreement, (b) its obligations or duties hereunder, (c) any act which Trustee should take or omit hereunder, (d) any action or proceeding, or (e) any question of law. In any action taken or omitted by Trustee in good faith pursuant to the advice of such counsel, CEG shall indemnify and hold Trustee harmless against reasonable litigation expenses and attorney's fees occasioned by such action; except when Trustee acted or omitted to act upon the advice of counsel other than counsel to CEG. 8.3 Trustee shall have, without exclusion, all powers conferred on trustees by applicable law, unless expressly provided otherwise herein, provided, however, that if an insurance policy is held as an asset of the Trust, Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against such policy. Trustee, as assignee under split dollar life insurance policies, may exercise the right to obtain policy loans in accordance with the terms of the collateral assignment document. 27 8.4 In executing its duties, obligations and responsibilities as herein provided, and in addition to those powers given by law, Trustee shall have the power, in its sole discretion: (a) to collect and receive any and all money and other property due to the Trust and to give full discharge therefor; (b) to settle, compromise or submit to arbitration any claims, debts or damages due to or owing to or from the Trust; to commence or defend suits or legal proceedings to protect any interest of the Trust; and to represent the Trust in all suits or legal proceedings in any court or before any other body or tribunal; (c) if specifically instructed by CEG, to provide benefits through the purchase of individual or group annuity or life insurance contracts issued by insurance companies licensed to do business in the State of New York; (d) if specifically instructed by CEG, to act as agent for CEG to perform multiple services for the Plan, its participants and beneficiaries and to receive and withdraw from the Trust assets reasonable compensation therefor; (e) to engage accountants or other advisors as Trustee may deem necessary to control and manage the Trust assets and to carry out the purposes of this Trust Agreement; (f) subject to Section 5 hereof, to invest and reinvest the Trust assets without distinction between principal and income in any form of property not prohibited by law including, without 28 limitation on the amount which may be invested therein, any common or group trust fund operated by Trustee or in demand deposits of Trustee; (g) to hold cash uninvested in an amount considered necessary and practical for proper administration of the Trust and/or to deposit the same with any banking, savings or similar financial institution supervised by the United States or any State, including Trustee's own banking department; and (h) to perform all such acts and exercise all such rights and privileges consistent with applicable law and the terms of this Trust Agreement, although not specifically mentioned herein, as Trustee may deem desirable or necessary to control and manage the Trust assets and to carry out the purposes of this Trust Agreement. Except as provided under Section 13.2, if all or any part of the Trust assets are at any time attached, garnished, or levied upon by any court order, or in case the payment, assignment, transfer, conveyance or delivery of any such property shall be stayed or enjoined by any court order, or in case any order, judgment or decree shall be made or entered by a court affecting such property or any part thereof, then and in any of such events Trustee is authorized, in its sole discretion, to rely upon and comply with any such order, writ, judgment or decree, and it shall not be liable to CEG (or any of its subsidiaries) or any participant by reason of such compliance even though such order, writ, judgment or decree subsequently may be reversed, modified, annulled, set aside or vacated. 29 8.5 Notwithstanding any powers granted to Trustee pursuant to this Trust Agreement or to applicable law, Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code. Section 9. COMPENSATION AND EXPENSES OF TRUSTEE. 9.1 CEG shall pay all administrative and Trustee's fees and expenses (including, without limitation, reasonable fees of agents and counsel). If not so paid, the fees and expenses shall be paid from the Trust; provided, however, that CEG may approve in writing the automatic payment of fees, compensation and expenses from the Trust. Trustee shall have a lien on the Trust in the amount of such fees, expenses and compensation until the same have been paid. 9.2 CEG shall pay any federal, state, local or other taxes imposed or levied with respect to the Trust assets under the existing or future laws. 30 Section 10. RESIGNATION AND REMOVAL OF TRUSTEE. 10.1 Trustee may resign at any time by written notice to CEG, which shall be effective 30 days after receipt of such notice unless CEG and Trustee agree otherwise in writing. 10.2 Accept as provided in Section 10.3, Trustee may be removed by CEG on 30 days written notice or upon shorter notice accepted by Trustee. 10.3 Upon a Change of Control, as defined in Section 13.5 hereof, Trustee may not be removed by CEG for 2 years from the date a Change of Control is deemed to occur under Section 13.5 hereof. 10.4 If Trustee resigns within 2 years of a Change of Control, Trustee shall select a successor Trustee in accordance with the provisions of Section 11.2 hereof prior to the effective date of Trustee's resignation. 10.5 Upon resignation or removal of Trustee and appointment of a successor Trustee, all Trust assets shall subsequently be transferred to the successor Trustee. The transfer shall be completed at the later of (i) 90 days after receipt of notice of resignation or removal of Trustee, or (ii) appointment of successor Trustee, unless CEG extends the time limit in writing. 31 10.6 If Trustee resigns or is removed, a successor shall be appointed, in accordance with Section 11 hereof, by the effective date of resignation or removal under Sections 10.1 or 10.2 hereof. If no such appointment has been made, Trustee may apply to a court of competent jurisdiction for appointment of a successor or for instructions. All expenses of Trustee in connection with the proceeding shall be allowed as administrative expenses of the Trust. Section 11. APPOINTMENT OF SUCCESSOR. 11.1 If Trustee resigns or is removed in accordance with Sections 10.1 or 10.2 hereof, CEG may appoint any third party, such as a bank trust department or other party that may be granted corporate trustee powers under state law, as a successor to replace Trustee upon resignation or removal. The appointment shall be effective when accepted in writing by the successor Trustee, who shall have all of the rights and powers of the former Trustee, including ownership rights in the Trust assets. The former Trustee shall execute any instrument necessary or reasonably requested by CEG or the successor Trustee (in which case Trustee shall have received a copy of successor Trustee's acceptance) to evidence the transfer of the Trust assets. 11.2 If Trustee resigns pursuant to the provisions of Section 10.4 hereof, Trustee may appoint any third party such as a bank trust department or other party that may be granted corporate trustee powers under state law. The appointment of a 32 successor Trustee shall be effective when accepted in writing by the successor Trustee. The successor Trustee shall have all the rights and powers of the former Trustee, including ownership rights in Trust assets. The former Trustee shall execute any instrument necessary or reasonably requested by the successor Trustee to evidence the transfer of the Trust assets. 11.3 The successor Trustee need not examine the records and acts of any prior Trustee and may retain or dispose of existing Trust assets, subject to Sections 7 and 8 hereof. The successor Trustee shall not be responsible for and CEG shall indemnify and defend the successor Trustee from any claim or liability resulting from any action or inaction of any prior Trustee or from any other past event, or any condition existing at the time it becomes successor Trustee. 11.4 In the event of such removal or resignation, Trustee shall duly file with CEG a written account as provided in Section 7.1 hereof. Section 12. AMENDMENT OR TERMINATION. 12.1 Except as provided in Section 12.4, this Trust Agreement may be amended by a written instrument executed by Trustee and CEG. Notwithstanding the foregoing, no such amendment shall conflict with the terms of the Plan or shall make the Trust revocable. 33 12.2 The Trust shall not terminate until the earlier of the date on which Plan participants and their surviving spouses are no longer entitled to benefits pursuant to the terms of the Plan or have received payment of all benefits to which they are entitled under this Trust Agreement. Upon termination of the Trust any assets remaining in the Trust shall be returned to CEG. 12.3 Upon written approval of all Plan participants and surviving spouses entitled to payment of benefits pursuant to the terms of the Plan and this Trust Agreement, CEG may terminate this Trust prior to the time all benefit payments under the Plan and this Trust Agreement have been made. All Trust assets at termination shall be returned to CEG. 12.4 This Trust Agreement may not be amended by CEG for 2 years following a Change of Control, unless such amendment is by written agreement between CEG and Trustee and such amendment does not adversely affect the rights of the Plan participants and their surviving spouses entitled to payment of benefits pursuant to terms of the Plan on the date a Change of Control is deemed to occur. Section 13. MISCELLANEOUS. 13.1 Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof. 34 13.2 Benefits payable to Plan participants and their surviving spouses under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levies, execution or other legal or equitable process, and any attempt to so alienate, sell, transfer, assign, pledge, attach, charge or otherwise encumber any such amount, whether presently or thereafter payable, shall be void. The Trust shall be in no manner liable for or subject to the debts or liabilities of any participant. 13.3 This Trust Agreement shall be governed by and construed in accordance with the laws of the State of New York and Trustee shall be liable to account only in the courts of that state. 13.4 All words beginning with an initial capital letter and not otherwise defined herein shall have the meaning set forth in the Plan. All singular terms defined in this Trust will include the plural and vice versa. 13.5 For purposes of this Trust Agreement, Change of Control shall mean (a) the purchase or acquisition by any person, entity or group of persons (within the meaning of section 13(d) or 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), or any comparable successor provisions) of beneficial 35 ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20 percent or more of either the outstanding shares of common stock of CEG or the combined voting power of CEG's then outstanding shares of voting securities entitled to a vote generally, or (b) the consummation of, following the approval by the stockholders of CEG of a reorganization, merger, or consolidation of CEG, in each case, with respect to which persons who were stockholders of CEG immediately prior to such reorganization, merger, or consolidation do not, immediately thereafter, own more than 50 percent of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated entity's then outstanding securities, or (c) a liquidation or dissolution of CEG or the sale of substantially all of its assets, or (d) a change of more than one-half of the members of the Board of Directors of CEG within a 90-day period for reasons other than death, disability, or retirement of such members. 13.6 CEG shall certify to Trustee the name or names of any person or persons authorized to act for CEG under this Trust Agreement. Such certification shall be signed by a Vice President of CEG. Until CEG notifies Trustee, in a similarly signed notice or certification, that any such person is no longer authorized to act for CEG, Trustee may continue to rely upon the authority of such person. Trustee may rely upon any certificate, schedule, notice or direction of CEG which Trustee in good faith believes to be 36 genuine, executed and delivered by a duly authorized officer or agent of CEG. Trustee shall have no duty to verify any calculations provided by CEG in connection with such certificate, schedule, notice or direction. Communications to Trustee shall be sent in writing to Trustee at the address specified in Section 13.9 hereof or to such other address as the Trustee may specify in writing. No communication shall be binding upon the Trust or Trustee until it is received by Trustee and unless it is in writing and signed by an authorized person. Communications to CEG shall be sent in writing to CEG's principal offices at the address specified in Section 13.9 hereof or to such other address as CEG may specify in writing. No communication shall be binding upon CEG until it is received by CEG and unless it is in writing and signed by Trustee. 13.7 CEG shall pay and shall protect, indemnify and save harmless Trustee and its officers, employees and agents from and against any and all losses, liabilities (including liabilities for penalties), actions, suits, judgments, demands, damages, costs and expenses of any nature arising from or relating to any action by or any failure to act by Trustee (and its officers, employees and agents) in accordance with the terms of this Trust Agreement, or the transactions contemplated by this Trust Agreement (including any action by Trustee on the direction or instruction of CEG or any failure to act on the part of Trustee in the absence of directions or instructions by CEG), 37 except to the extent that any such loss, liability, action, suit, judgment, demand, damage or expense has been determined by final judgement of a court of competent jurisdiction to be the result of the negligence or willful misconduct of Trustee, its officers, employees or agents. To the extent that CEG has not fulfilled its obligations under the foregoing provisions of this Section 13.7, Trustee shall be reimbursed out of the Trust assets or may set up reasonable reserves for the payment of such obligations. To the maximum extent permitted by applicable law, no personal liability whatsoever shall attach to or be incurred by any employee, officer or director of CEG, as such, under or by reason of the terms or conditions contained in or implied from this Trust Agreement. Trustee assumes no obligation or responsibility with respect to any action required by this Trust Agreement on the part of CEG and shall have those responsibilities only as expressly set forth herein. 13.8 This Trust Agreement sets forth the entire understanding of the parties with respect to the subject matter hereof and supersedes any and all prior agreements, arrangements and understandings relating thereto. 13.9 Any notice, report, demand, waiver or communication required or permitted hereunder shall be in writing and shall be given personally or by prepaid registered or certified mail, return receipt requested, addressed as follows: 38 If to CEG: Constellation Investments, Inc. 250 West Pratt Street Baltimore, Maryland 21201 Attention: Steven D. Kesler If to Trustee: Citibank, N. A. Client Services Division 111 Wall Street, 24th Floor New York, NY 10005 Attention: Ed Flannery If to a participant or to a participant's surviving spouse: To the address shown on the most recent Payment Schedule provided by CEG to Trustee. Section 14. EFFECTIVE DATE. The date of this Trust Agreement shall be July 31, 1994. IN WITNESS WHEREOF, and intending to be legally bound hereby, CEG and Trustee sign and seal this Trust Agreement the day and year first above written. WITNESS: CITIBANK, N. A.: By: (Seal) Name: Sam Borowski Title: Managing Director WITNESS: CONSTELLATION ENERGY GROUP, INC.: By: (Seal) Name: Linda D. Miller Title: Vice President Human Resources 39 EX-10 9 EX-10(H) Exhibit 10(h) Executive Incentive Plan Of Constellation Energy Group, Inc. 1. Plan Objective. The objective of this Plan is to allow Constellation Energy Group, Inc. (CEG or Company) to attract, retain and motivate highly competent officers and key employees of the Company and its subsidiaries by focusing incentive compensation toward the achievement of performance results that primarily support the interests of shareholders and customers of the Company. 2. Plan Administration. The Plan is administered by the CEG Board of Directors' (Board) Committee on Management (Committee on Management) which has sole authority (unless otherwise specified herein) to interpret the Plan; to refine its provisions from time to time subject to Board approval, particularly those relating to factors, targets and procedures used in connection with calculating the awards (which refinements shall be reflected in guidelines for the performance year); to suspend the Plan at any time; and in general, to make all other determinations necessary or advisable for the administration of the Plan to achieve its stated objective. The Committee on Management shall have the power to delegate all or any part of their duties to one or more designees, and to withdraw such authority, by written designation. 3. Eligibility. Each officer or key employee of CEG or its subsidiaries may be designated in writing by the Committee on Management as a participant under the Plan. Once designated, participation shall continue until such designation is withdrawn at the discretion and by written order of the Committee on Management. Participation is subject to the following conditions: Participant must have been an eligible participant for some portion of the performance year and at the time of distribution be actively employed by the Company or elsewhere with the approval of the Company unless employment was terminated by death, disability or retirement. Except as otherwise provided herein, where an individual is not an eligible participant for the entire performance year, the amount of the award, whether full, partial or none, will be at the Committee on Management's discretion, subject to Board approval. Where, prior to the end of a performance year, a participant's active employment is terminated as a result of death, disability 1 or retirement, the award is calculated based on the participant's position at the time of termination. Unless otherwise stated, any such award will be made on a pro-rata basis for the period of active employment, or, in total, at the discretion of the Committee on Management. Where active employment is terminated as a result of death of participant, distribution is made in accordance with Section 9. (Designation of Beneficiary) of this Plan. 4. Performance Goals A. Performance Targets. The Committee on Management shall establish for each plan year Performance Targets designed to accomplish the purpose set forth in Section 1 of this Plan. The Committee on Management will ensure that each plan year's Performance Targets meet the following general criteria: (1) The interests of the Company's shareholders will be balanced with the interests of the Company's customers. (2) The targets should be set at levels which are attainable, but which, in the Committee on Management's judgment, are attainable only with a high degree of competence and diligence. The Committee on Management shall have sole authority to amend Performance Targets at any time when, in the Committee's judgment, unforeseen circumstances exist which require modification in order to ensure that the purpose of the Plan is properly served. The Committee on Management shall have authority to establish appropriate Performance Targets, differing to the degree necessary from those established for the Company, for each of the Company's subsidiaries employing one or more participants in this Plan; and shall have authority to adjust such targets subsequently should unforeseen circumstances arise. B. Individual Performance. A participant's individual per- formance will be evaluated by the Chairman of the Board. 5. Award Opportunity. The Committee on Management shall establish for each plan year the Award Opportunity (minimum, target, and maximum, as appropriate) applicable to participants in the Plan. The Award Opportunity may be allocated among the various 2 Performance Targets and Individual Performance and may vary among classes of participants. 6. Award Determination. The Committee on Management, with the concurrence of the Board, shall determine the Awards, if any, to be made for each plan year as soon after the end of the plan year as is practical. In the case of participants in this Plan employed by a subsidiary of the Company, the Award, if any, will be recommended by the non-employee members of the board of directors of that subsidiary and subsequently approved by the Committee on Management. Awards are calculated taking into account the degree of attainment of performance targets, individual performance, and the percent of participation during the performance year. The dollar amount of the participants' award is determined by multiplying the participant's prior December 31 annualized base salary by the award percentage. All amounts awarded to participants are subject to the approval of the Board. 7. Payment of Awards. Awards approved by the Board for each plan year shall be paid as soon as practicable after such determination has been made. Payment may be made in a lump cash sum or, at the participants' election, may be deferred in whole or in part. When required by applicable law, Federal, State and FICA taxes will be withheld from awards at applicable rates. Awards will not be paid for any performance year in which Company earnings are less than the amount necessary to fund the annual dividend. Additionally, awards will not be paid for any plan year in which the dividend is suspended or effectively reduced from its prior amount. 8. Deferred Payment of Award. A participant may elect to defer the receipt of all or a portion of the award for the plan year. Any such deferral and investment of any such amounts deferred pursuant to this Plan shall be made in accordance with the provisions of the CEG Nonqualified Deferred Compensation Plan. 9. Designation of Beneficiary. A participant shall have the right to designate a beneficiary or beneficiaries who are to receive in a lump sum any undistributed incentive compensation award to the extent a participant has chosen not to defer all or a portion of his incentive award pursuant to Section 8 hereof, should the participant die during the plan year and be entitled to an incentive award for that plan year. Such designation shall apply only to the portion of the undistributed incentive award not subject to a deferral election. Any 3 designation, change or rescission of the designation shall be made in writing by completing and furnishing to the Vice President - Human Resources of the Company a notice on an appropriate form designated by the Vice President - Human Resources of the Company. The last designation of beneficiary received by the Vice President - Human Resources of the Company shall be controlling over any testamentary or purported disposition by the participant, provided that no designation, rescission or change thereof shall be effective unless received prior to death of the participant. Distribution of any incentive awards previously deferred pursuant to Section 8 of the Plan shall be paid to the beneficiary or beneficiaries designated under the CEG Nonqualified Deferred Compensation Plan. 10. Miscellaneous. The plan year and the performance year shall be the same and shall be the calendar year. Any payments made under this Plan are not considered as earnings for purpose of the Company's qualified pension or Employee Saving Plan, or for any other general employee benefit program. However, all payments made under this Plan will be included in the determination of benefits provided under the Company's Executive Benefits Plan. None of the payments provided under this Plan which are deferred shall be subject to alienation or assignment by any participant or beneficiary nor shall any of them be subject to attachment or garnishment or other legal process except to the extent specifically mandated and directed by applicable State or Federal statute. Payment shall be made only into the hands of the participant or beneficiary entitled to receive the same or into the hands of his or her authorized legal representative. Deposit of any sum into any financial institution to the credit of the participant or beneficiary entitled thereto shall constitute payment into his or her hands. Notwithstanding the foregoing, at the request of the participant or beneficiary or as required by law, such sums as may be requisite for payment of any estimated or currently accrued income tax liability may be withheld and paid over to the governmental entity entitled to receive the same. Participation in this Plan shall not constitute a contract of employment between the Company and any employee and shall not be deemed to be consideration for, inducement to, or a condition of employment of any person. The deferral of any incentive compensation amounts pursuant to the provisions of the Plan shall not be construed to give any employee the right to be retained in the employ of the Company or to interfere with the right of the company to terminate such employment at any time. 4 The Board intends to continue the Plan indefinitely but reserves the right to amend the Plan from time to time or to permanently discontinue it provided none of these, nor any suspension, may deprive the participants of any payment of amounts which were previously awarded at the time thereof. 5 EX-10 10 EX-10(I) Exhibit 10(i) Summary Severance Arrangement For A Named Executive Officer In connection with Bruce M. Ambler's early retirement, and in recognition of his service as President and Chief Executive Officer of Constellation Holdings, Inc., he received a severance package when he retired on January 1, 1999. His severance benefits include a $509,503 lump sum severance payment equal to the total of (1) annual base salary, (2) average of the two highest annual bonus percentages earned during the preceding five years multiplied by the prior year's final annual salary, (3) payment toward the cost of active employee health coverage for 12 months, and (4) vacation accrual. He also receives a pension benefit computed at 60% of total final average salary plus bonus, and retired executive life insurance, home security, planning, and club membership benefits. His effective cost of medical and dental benefits beginning January 1, 2000 will be the same as if he were retired at age 60 with 20 years of service. Mr. Ambler received a 1998 short-term incentive payment, and will be entitled to a prorata payout of any earned performance-based restricted stock award for the 1997-1999 and 1998-2000 performance periods. 1 EX-10 11 EX-10(J) Exhibit 10(j) SEVERANCE AGREEMENT This Agreement is made the ___ day of _____________, 1999, by and between CONSTELLATION ENERGY GROUP, INC. (the "Company") and _______________________ (the "Executive"). WHEREAS, the Company wishes to encourage the orderly succession of management in the event of a Change in Control (as hereinafter defined); and WHEREAS, the Company desires to establish a severance benefit for the Executive covering the period from the date of a Change in Control (as hereinafter defined) until the end of the twenty-four month period following the date of a Change in Control, to avoid the loss or the serious distraction of the Executive to the detriment of the Company and its stockholders prior to and during such period 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 as a result of a Change in Control. NOW, THEREFORE, the parties agree as follows: 1. Definitions. 1.1 Board. The term "Board" means the Board of Directors of the Company. 1.2 Change in Control. The term "Change in Control" means: (i) the purchase or acquisition by any person, entity or group of persons (within the meaning of section 13(d) or 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), or any comparable successor provisions), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20 percent or more of either the outstanding shares of common stock of the Company or the combined voting power of the Company's then outstanding shares of voting securities entitled to a vote generally, or (ii) the consummation of, following the approval by the Company's stockholders of, a reorganization, merger or consolidation of the Company, in each case, with respect to which persons who were stockholders of the Company 1 immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 50 percent of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated entity's then outstanding securities, or (iii) a liquidation or dissolution of the Company or the sale of substantially all of its assets, or (iv) a change of more than one-half of the members of the Board within a 90-day period for reasons other than the death, disability, or retirement of such members. 1.3 Qualifying Termination. (a) The occurrence of any one or more of the following events within twenty-four calendar months after the date of a Change in Control shall constitute a "Qualifying Termination": (i) The Company's termination of the Executive's employment without Cause (as defined in Section 1.7); or (ii) The Executive's resignation for Good Reason (as defined in Section 1.6). (b) A Qualifying Termination shall not include a termination of employment by reason of death, disability, the Executive's voluntary termination of employment without Good Reason, or the Company's termination of the Executive's employment for Cause. 1.4 Ineligible to Retire. Ineligible to Retire, means an Executive who has not either (i) attained age 55 and completed 20 years of service with the Company and any successor company and any Affiliate or (ii) attained age 60 and completed one year of service with the Company and any successor company and any Affiliate, upon the occurrence of a Qualifying Termination. 1.5 Eligible to Retire. Eligible to Retire, means an Executive who has either (i) attained age 55 and completed 20 years of service with the Company and any successor company and any Affiliate or (ii) attained age 60 with one year of service with the Company and any successor company and any Affiliate, upon the occurrence of a Qualifying Termination. 1.6 Good Reason. Good Reason means, without the Executive's express written consent, the occurrence after the date of a Change in Control of any one or more of the following: 2 (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 an Affiliate immediately prior to the date of the Change in Control, or a material reduction or alteration in the nature or status of the Executive's authorities, duties, or responsibilities from those in effect immediately prior to the date of the Change in Control, unless such act is remedied by the Company or such Affiliate within 10 business days after receipt of written notice thereof given by the Executive; or (b) A reduction by the Company or an Affiliate of the Executive's base salary in effect immediately prior to the date of the Change in Control or as the same shall be increased from time to time, unless such reduction is less than ten percent (10%) and it is 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 with a reduction imposed on other executives of the Company or such Affiliate); or (c) The relocation of the Executive's office more than 50 miles from the Executive's office immediately prior to the date of the Change in Control; or (d) Failure of the Company or an Affiliate (whichever is the Executive's employer) to provide (i) the Executive the opportunity to participate in all applicable incentive, savings and retirement plans, practices, policies and programs of the Company or such Affiliate to the same extent as other senior executives (or, where applicable, retired senior executives) of the Company or such Affiliate, and (ii) the Executive and/or the Executive's family, as the case may be, the opportunity to participate in, and receive all benefits under, all applicable welfare benefit plans, practices, policies and programs provided by the Company or such Affiliate, including, without limitation, medical, prescription, dental, disability, sick benefits, employee life insurance, accidental death and travel insurance plans and programs, to the same extent as other senior executives (or, where applicable, retired senior executives) of the Company or such Affiliate; or (e) Failure of the Company or an Affiliate (whichever is the Executive's employer) to provide the Executive such perquisites as the Company or such Affiliate may establish from time to time which are commensurate with the Executive's position 3 and at least comparable to those received by other senior executives at the Company or such Affiliate; or (f) The failure by the Company to comply with paragraph (c) of Section 11 of this Agreement; or (g) Any other substantial breach of this Agreement by the Company that either is not taken in good faith or is not remedied by the Company promptly after receipt of notice thereof from the Executive. 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. 1.7 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 or an Affiliate and such conduct or activities are materially damaging to the property, business or reputation of the Company or an Affiliate; 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 1.6(a); or (d) The Executive embezzles or knowingly, and with intent, misappropriates property of the Company or an Affiliate, or unlawfully appropriates any corporate opportunity of the Company or an Affiliate. A termination of the Executive's employment for Cause for purposes of this Agreement shall be effected in accordance with the following procedures. The Company shall give the Executive written notice ("Notice of Termination for Cause") of its intention to terminate the Executive's employment for Cause, setting forth in reasonable detail the specific conduct of the Executive that it considers to constitute Cause and the specific provision(s) of this Agreement on which it relies, and stating the date, time and place of the Board Meeting for Cause. The "Board Meeting for Cause" means a meeting of the Board at which the Executive's termination for Cause will be considered, that 4 takes place not less than ten (10) and not more than twenty (20) business days after the Executive receives the Notice of Termination for Cause. The Executive shall be given an opportunity, together with counsel, to be heard at the Board Meeting for Cause. The Executive's Termination for Cause shall be effective when and if a resolution is duly adopted at the Board Meeting for Cause by a two-thirds vote of the entire membership of the Board, excluding employee directors, stating that in the good faith opinion of the Board, the Executive is guilty of the conduct described in the Notice of Termination for Cause, and that conduct constitutes Cause under this Agreement. 1.8 Annual Award Amount. The average of the two highest annual incentive awards under the Company's Executive Incentive Plan (or the annual cash incentive plan maintained by a successor company or an Affiliate) paid in the last five years to the Executive prior to the occurrence of the Qualifying Termination. 1.9. Affiliate. The term "Affiliate" means any company directly or indirectly controlling, controlled by or under common control with the Company or any successor company. 2. Severance Benefits for an Executive Ineligible to Retire. Upon the occurrence of a Qualifying Termination with respect to an Executive who is Ineligible to Retire: (a) Severance Payment. 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 1.6(b) above) and Annual Award Amount. The payment shall be made in twenty-four equal monthly installments beginning on the first day of the month following the Qualifying Termination. (b) Supplemental Retirement Benefits. For purposes of determining the Executive's supplemental retirement benefits which the Executive is entitled to under the Company's Executive Benefits Plan (or the supplemental retirement plan maintained by a successor company or an Affiliate), (i) the Executive's age shall be deemed equal to the greater of (A) age 55 or (B) the Executive's actual age, (ii) the Executive's service shall be deemed equal to the greater of (A) 10 or (B) the Executive's actual service plus 3, and (iii) any minimum service eligibility requirements for such benefits shall be waived. (c) Severance Health Benefits. The Company shall provide to the Executive and the Executive's family medical and dental benefits on the same basis and on the same terms as any retiree of the Company or a successor or an Affiliate (whichever 5 is the Executive's employer) who has attained the deemed age and service used to compute supplemental retirement benefits in Section 2(b) above. (d) Split Dollar. The Qualifying Termination shall not constitute a termination of the Split Dollar Agreement between the Company and the Executive (or the split dollar agreement between a successor company or an Affiliate and the Executive), and the Executive shall be deemed to have retired upon such Qualifying Termination for purposes of such Split Dollar Agreement (or the split dollar agreement between a successor company or an Affiliate and the Executive). 3. Severance Benefits for an Executive Eligible to Retire. Upon the occurrence of a Qualifying Termination with respect to an Executive who is Eligible to Retire: (a) Severance Payment. 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 1.6(b) above) and Annual Award Amount. The payment shall be made in twenty-four equal monthly installments beginning on the first day of the month following the Qualifying Termination. (b) Supplemental Retirement Benefits. For purposes of determining the Executive's supplemental retirement benefits which the Executive is entitled to under the Company's Executive Benefits Plan (or the supplemental retirement plan maintained by a successor company or an Affiliate), (i) the Executive's service shall be deemed equal to the greater of (A) 10 or (B) the Executive's actual service, and (ii) the Early Retirement Adjustment Factor (as such term is defined in the Company's Pension Plan or within the meaning of the tax qualified retirement plan maintained by a successor company or such Affiliate) will be one (l). (c) Severance Health Benefits. The Company shall provide to the Executive and the Executive's family medical and dental benefits on the same basis and on the same terms as any retiree of the Company or a successor company or an Affiliate (whichever is the Executive's employer) who has attained age 65 and completed the greater of 20 years or actual years of service. (d) Retirement. The Executive shall be treated as having retired at the Company's request for purposes of all of the Company's benefit plans (or the benefit plans maintained by a successor company or an Affiliate (whichever is the Executive's employer)). 6 4. Non-Exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or a successor company or an Affiliate (whichever is the Executive's employer) for which the Executive may qualify, nor shall anything in this Agreement limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or a successor Company or such Affiliate. Vested benefits and other amounts that the Executive is otherwise entitled to receive under any incentive compensation, deferred compensation and other benefit programs listed in Section 1.6(d), life insurance coverage, or any other plan, policy, practice or program of, or any contract or agreement with, the Company or a successor Company or such Affiliate on or after the date of the Qualifying Termination shall be payable in accordance with the terms of each such plan, policy, practice, program, contract or agreement, as the case may be, except as explicitly modified by this Agreement. 5. Full Settlement. The Company's obligation to make the payments provided for in, and otherwise to perform its obligations under, this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and, such amounts shall not be reduced, regardless of whether the Executive obtains other employment. 6. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (other than a payment or distribution made in respect of any program in which the Executive participated prior to the Change in Control, while employed by Constellation Energy Group, Inc. or an Affiliate, regardless whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, and determined without regard to any additional payments required under this Section 6) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including 7 any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereon) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of paragraph (c) of this Section 6, all determinations required to be made under this Section 6, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by one of the major internationally recognized certified public accounting firms (commonly referred to, as of the date hereof, as a Big Five firm) designated by the Executive and approved by the Company (which approval shall not be unreasonably withheld) (the "Accounting Firm"), which shall provide detailed supporting calculations both to the Company and the Executive within fifteen (15) business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group affecting the change of control, the Executive shall designate another Big Five accounting firm (subject to the approval of the Company, which approval shall not be unreasonably withheld) to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 6, shall be paid by the Company to the Executive within five (5) days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment") consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to paragraph (c) of this Section 6 and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no 8 later than ten (10) business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the thirty (30) day period following the date on which he gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; PROVIDED, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this paragraph (c) of Section 6, the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; PROVIDED, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect 9 to such advance or with respect to any imputed income with respect to such advance; and PROVIDED, further, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph (c) of this Section 6, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall promptly take all necessary action to obtain such refund and (subject to the Company's complying with the requirements of paragraph (c) of this Section 6) upon receipt of such refund shall promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph (c) of this Section 6, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 7. Termination of Agreement. This Agreement shall remain in effect from the date hereof until the last day of the twenty-fourth calendar month following the date of a Change in Control. Further, upon the date of a Change in Control, 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. Notwithstanding the foregoing, this Agreement may be terminated by the Board at any time prior to the date of a Change in Control. 8. Amendment of Agreement. This Agreement may be amended by the Board at any time prior to the date of a Change in Control. At and after the date of a Change in Control, this Agreement may not be amended in any respect without the written consent of the Executive. 10 9. 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. 10. Governing Law. This Agreement shall be governed by the laws of Maryland. 11. Successors and Assigns. (a) This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would have been required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean both the Company as defined above and any such successor that assumes and agrees to perform this Agreement, by operation of law or otherwise. 12. Indemnification. The Company will pay all reasonable fees and expenses, if any, (including, without limitation, legal fees and expenses) that are incurred by the Executive to enforce this Agreement and that result from a breach of this Agreement by the Company. 13. 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. 14. Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law. 11 15. Withholding. Notwithstanding any other provision of this Agreement, the Company may withhold from amounts payable under this Agreement all federal, state, local and foreign taxes that are required to be withheld by applicable laws or regulations. 16. Entire Agreement. Unless otherwise specifically provided in this Agreement, the Executive and the Company acknowledge that this Agreement supersedes any other agreement between them or between the Executive and the Company or an Affiliate, concerning the subject matter hereof. 17. Alienability. The rights and benefits of the Executive under this Agreement may not be anticipated, alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process except as required by law. Any attempt by the Executive to anticipate, alienate, assign, sell, transfer, pledge, encumber or charge the same shall be void. Payments hereunder shall not be considered assets of the Executive in the event of insolvency or bankruptcy. 18. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original, and said counterparts shall constitute but one and the same instrument. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization of the Board, the Company has caused this Agreement to be executed in its name on its behalf, all as of the day and year first above written. CONSTELLATION ENERGY GROUP, INC. By:_______________________________ ---------------------------------- ------------------- 12 EX-10 12 EX-10(K) Exhibit 10(k) Plan Document for the CONSTELLATION ENTERPRISES, INC. Deferred Compensation Plan for Non-Employee Directors EFFECTIVE JULY 17, 1998 Constellation Enterprises, Inc. Deferred Compensation Plan For Non-Employee Directors 1. Objective. The objective of this Plan is to provide a portion of the Compensation of non-employee Directors of CEI in the form of Stock Units, thereby promoting a greater identity of interest between CEI's non-employee Directors and its parent company's stockholders, and to enable such Directors to defer receipt of the portion of their Compensation that is payable in cash. 2. Definitions. As used herein, the following terms will have the meaning specified below: "Annual Retainer" means the amount payable by CEI to a Director as annual compensation for performance of services as a Director, and includes Committee Chair retainers. All other amounts (including without limitation Board/committee meeting fees, and expense reimbursements) shall be excluded in calculating the amount of the Annual Retainer. "BGE" means Baltimore Gas and Electric Company, a Maryland corporation, or its successor. "Board" means the Board of Directors of CEI. "Cash Account" means an account by that name established pursuant to Section 7. The maintenance of Cash Accounts is for bookkeeping purposes only. "Change in Control" means (i) the purchase or acquisition by any person, entity or group of persons (within the meaning of section 13(d) or 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), or any comparable successor provisions), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20 percent or more of either the outstanding shares of common stock of BGE or the combined voting power of BGE's then outstanding shares of voting securities entitled to a vote generally, or (ii) the approval by the stockholders of BGE of a reorganization, merger or consolidation, in each case, with respect to which persons who were stockholders of BGE immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 50 percent of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated entity's then outstanding securities, 1 or (iii) a liquidation or dissolution of BGE or the sale of substantially all of its assets, or (iv) a change of more than one-half of the members of the board of directors of BGE within a 90-day period for reasons other than the death, disability, or retirement of such members, or (v) the purchase or acquisition by any person, entity or group of persons (within the meaning of section 13(d) or 14(d) of the Exchange Act, or any comparable successor provisions), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20 percent or more of either the outstanding shares of common stock of CEI or the combined voting power of CEI's then outstanding shares of voting securities entitled to a vote generally unless such purchase or acquisition is deemed to have occurred as the result of a reorganization, merger or consolidation involving BGE, or (vi) the approval by the stockholders of CEI of a reorganization, merger or consolidation, in each case, with respect to which persons who were stockholders of CEI immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 50 percent of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated entity's then outstanding securities, or (vii) a liquidation or dissolution of CEI or the sale of substantially all of its assets, or (viii) a change of more than one-half of the members of the Board of Directors of CEI within a 90-day period for reasons other than the death, disability, or retirement of such members. "CEI" means Constellation Enterprises, Inc., a Maryland corporation, or its successor. "Common Stock" means the common stock, without par value, of BGE. "Compensation" means any Annual Retainer and meeting fees payable by CEI to a participant in his/her capacity as a Director. Compensation excludes expense reimbursements paid by CEI to a participant in his/her capacity as a Director. "Deferred Cash Compensation" means any cash Compensation that is voluntarily deferred by a participant pursuant to Section 6. "Director" means a member of the Board who is not an employee of CEI or any of its subsidiaries/affiliates. "Disability" or "Disabled" means that the Plan Administrator has determined that the participant is unable to fulfill his/her responsibilities of Board membership because of illness or injury. For purposes of this Plan, a participant's eligibility to participate shall be deemed to have terminated 2 on the date he/she is determined by the Plan Administrator to be Disabled. "Earnings" means, with respect to the Cash Account, hypothetical interest credited to the Cash Account. "Earnings" means, with respect to the Stock Account, hypothetical dividends credited to the Stock Account. "Fair Market Value" means, as of any specified date, the average closing price of a share of Common Stock, reported in "New York Stock Exchange Composite Transactions" as published in the Eastern Edition of The Wall Street Journal for the most recent 30 days during which Common Stock was traded on the New York Stock Exchange (including such valuation date if a trading date). "Plan Accounts" means a participant's Cash Account and/or Stock Account. The maintenance of Plan Accounts is for bookkeeping purposes only. "Plan Administrator" means, as set forth in Section 3, the Board. "Stock Account" means an account by that name established pursuant to Section 8. The maintenance of Stock Accounts is for bookkeeping purposes only. "Stock Unit(s)" means the share equivalents credited to a Participant's Stock Account pursuant to Section 8. The use of Stock Units is for bookkeeping purposes only; the Stock Units are not actual shares of Common Stock. CEI will not reserve or otherwise set aside any Common Stock for or to any Stock Account. 3. Plan Administration. (i) Plan Administrator - The Plan is administered by the Board, who has sole authority to interpret the Plan, and, in general, to make all other determinations advisable for the administration of the Plan to achieve its stated objective. Decisions by the Plan Administrator shall be final and binding upon all persons for all purposes. The Plan Administrator shall have the power to delegate all or any part of its non-discretionary duties to one or more designees, and to withdraw such authority, by written designation. (ii) Amendment - This Plan may be amended from time to time or suspended or terminated at any time, at the written direction of the Plan Administrator. However, amendments required to keep the Plan in compliance with applicable laws and 3 regulations may be made by the Secretary of CEI (or other officer of CEI succeeding to that function) on advice of counsel. Nothing herein creates a vested right. (iii) Indemnification - The Plan Administrator (and its designees), Chairman of the Board, Chief Executive Officer, President, and Secretary of CEI and all other employees of CEI or its subsidiaries/affiliates whose assigned duties include matters under the Plan, shall be indemnified by CEI or its subsidiaries/affiliates or from proceeds under insurance policies purchased by CEI or its subsidiaries/affiliates, against any and all liabilities arising by reason of any act or failure to act made in good faith pursuant to the provisions of the Plan, including expenses reasonably incurred in the defense of any related claim. 4. Eligibility and Participation. (i) Mandatory participation - A Director is required to participate in this Plan with respect to the receipt of fifty percent (50%) of his/her Annual Retainer in the form of Stock Units under Section 5 of the Plan, while so classified. (ii) Voluntary participation - A Director is eligible to participate in the Plan by electing to defer the remainder of the participant's Compensation, that is payable in cash, under Section 6 of the Plan, while so classified. (iii) Termination of participation - Eligibility to participate shall terminate on the date the participant ceases to be a Director. Notwithstanding termination of eligibility, such person with Plan Accounts will remain a participant of the Plan, solely for purposes of the administration of existing Plan Accounts, and no additional Stock Units will be granted and no further deferrals of cash Compensation under the Plan will be permitted. 5. Mandatory Stock Units. The Stock Account of a participant will be credited on January 1 of each calendar year with Stock Units equal to the number of shares of Common Stock (including fractions of a share) that could have been purchased, with fifty percent (50%) of the participant's Annual Retainer for such calendar year, at Fair Market Value on such January 1. If a participant initially becomes eligible to participate in the Plan during a calendar year, the Stock Account of the participant for such calendar year will be credited, on the date that is the first day of the calendar month after the 4 participant initially becomes eligible to participate in the Plan, with Stock Units equal to the number of shares of Common Stock (including fractions of a share) that could have been purchased at Fair Market Value on such date, with an amount equal to (i) fifty percent (50%) of the participant's Annual Retainer multiplied by (ii) a fraction the numerator of which is the number of full calendar months in the calendar year on and after such date, and the denominator of which is 12. The Stock Account will be maintained pursuant to Section 8. 6. Cash Compensation Deferral Election. A participant may elect to defer all of his/her Annual Retainer that is payable in cash (i.e., fifty percent (50%) of the Annual Retainer) and/or may elect to defer all of his/her other Compensation that is payable in cash (i.e., one hundred percent (100%) of all other Compensation). A participant's cash Compensation deferral election with respect to the Annual Retainer shall specify whether the deferred Annual Retainer is to be credited to the Cash Account or to the Stock Account. All other Cash Compensation that a participant elects to defer will be credited to the Cash Account. Such election shall be made by written notification to the Secretary of CEI (or other officer of CEI succeeding to that function). Such election shall be made prior to the calendar year during which the applicable cash Compensation is payable, and shall be effective as of the first day of such calendar year. If a participant initially becomes eligible to participate in the Plan during a calendar year, the election for such calendar year must be made within thirty (30) calendar days after the date the participant initially becomes eligible to participate in the Plan, and shall be effective with respect to Compensation earned after the date the election is received by the Secretary of CEI (or other officer of CEI succeeding to that function). Elections under this Section shall remain in effect for all succeeding calendar years until revoked. Elections may be revoked by written notification to the Secretary of CEI (or other officer of CEI succeeding to that function), and shall be effective as of the first day of the calendar year following the calendar year during which the revocation is received by the Secretary of CEI. Notwithstanding anything herein contained to the contrary, the Plan Administrator shall have the right in its sole discretion to permit a participant to defer a portion (rather than all) of his/her Annual Retainer and/or other Compensation that is payable in cash. 5 7. Cash Accounts. Cash Compensation that consists of the Annual Retainer that a participant has elected to defer into the Cash Account is credited to the participant's Cash Account on January 1 (or if later, the date the participant's initial election to participate in the Plan becomes effective). All other cash Compensation that a participant has elected to defer is credited to the participant's Cash Account on each date such cash Compensation would otherwise have been paid to the Director. A participant's Cash Account shall be credited with earnings at the rate earned by the Interest Income Fund under the Baltimore Gas and Electric Company Employee Savings Plan, and computed in the same manner as under such plan. Earnings are credited to the Cash Account commencing on the date the applicable Deferred Cash Compensation is credited to the Cash Account. 8. Stock Accounts. Cash Compensation that consists of the Annual Retainer that a participant has elected to defer into the Stock Account is credited to the participant's Stock Account on January 1 (or if later, the date the participant's initial election to participate in the Plan becomes effective). A participant's Stock Account shall be credited with Stock Units equal to the number of shares of Common Stock (including fractions of a share) that could have been purchased with such Deferred Cash Compensation, at Fair Market Value on such date. Grants of mandatory Stock Units are credited to the Stock Account as set forth in Section 5. As of any dividend distribution date for the Common Stock, the participant's Stock Account shall be credited with additional Stock Units equal to the number of shares of Common Stock (including fractions of a share) that could have been purchased, at the closing price of a share of Common Stock on such date as reported in "New York Stock Exchange Composite Transactions" as published in the Eastern Edition of the The Wall Street Journal, with the amount which would have been paid as dividends on that number of shares (including fractions of a share) of Common Stock which is equal to the number of Stock Units then credited to the participant's Stock Account. In the event of any change in the outstanding shares of Common Stock by reason of any stock dividend or split, recapitalization, combination or exchange of shares or other similar changes in the Common Stock, then appropriate adjustments shall be made in the number of Stock Units in each participant's Stock Account. Such adjustments shall be made effective on the date of the change related to the Common Stock. 6 9. Distributions of Plan Accounts. Distributions of Plan Accounts shall be made in cash only, from the general assets of CEI. A participant may elect (by notification in the form and manner established by the Secretary of CEI (or other officer of CEI succeeding to that function) from time to time) to begin distributions (i) in the calendar year following the calendar year that eligibility to participate terminates, (ii) in the calendar year following the calendar year in which a participant attains age 70, if later, or (iii) any calendar year between (i) and (ii). Such election must be made prior to the end of the calendar year in which eligibility to participate terminates. Alternatively, a participant who reaches age 70 while still eligible to participate may elect to begin distributions, in the calendar year following the calendar year that the participant reaches age 70, of amounts in his/her Plan Accounts as of the end of the calendar year the participant reaches age 70. Such election must be made prior to the end of the calendar year in which the participant reaches age 70, and a distribution election to receive any subsequently deferred amounts beginning in the calendar year following the calendar year that eligibility to participate terminates, must be made prior to the end of the calendar year in which eligibility to participate terminates. A participant may elect (by notification in the form and manner established by the Secretary of CEI (or other officer of CEI succeeding to that function) from time to time) to receive distributions in a single payment or in annual installments during a period not to exceed fifteen years. The single payment or the first installment payment, whichever is applicable, shall be made within the first sixty (60) calendar days of the calendar year elected for distribution. Subsequent installments, if any, shall be made within the first sixty (60) calendar days of each succeeding calendar year until the participant's Cash Account has been paid out. In the event applicable elections are not timely made, a participant shall receive a distribution in a single payment within the first sixty (60) calendar days of the calendar year following the calendar year that eligibility to participate terminates. The value of the Stock Account, which is equal to the number of Stock Units in the Stock Account multiplied by the Fair Market Value on the date on which the participant's eligibility to participate terminates (or, the date that is 7 the last day of the calendar year during which the participant reaches age 70, for a participant who elects to begin distributions while still eligible to participate), is transferred to the Cash Account on such date. Earnings are credited to the Cash Account through the date of distribution, and amounts held for installment payments shall continue to be credited with Earnings. The value of the Cash Account that is payable in cash on the date of the single payment distribution is equal to the balance in the Cash Account on the date that is no earlier than five (5) calendar days prior to the day of such distribution ("Distribution Valuation Date"). The amount of any cash distribution to be made in installments from the Cash Account will be determined by multiplying (i) the balance in such Cash Account on the Distribution Valuation Date by (ii) a fraction, the numerator of which is one and the denominator of which is the number of installments in which distributions remain to be made (including the current distribution). If a participant dies or becomes Disabled, the entire unpaid balance of his/her Plan Accounts shall be paid to the beneficiary(ies) designated by the participant by notification in the form and manner established by the Secretary of CEI (or other officer of CEI succeeding to that function) from time to time or, if no designation was made, in the event of death, to the estate of the participant, and in the event of Disability, to the participant. Payment shall be made within sixty (60) calendar days after notice of death or Disability is received by the Secretary, unless prior to the participant's death or Disability, the participant elected (in the form and manner established by the Secretary of CEI (or other officer of CEI succeeding to that function) from time to time) a delayed and/or installment distribution option for such beneficiary(ies); provided, however that (i) such a distribution option election shall be effective only if the value of the participant's Plan Accounts is more than $50,000 on the date of the participant's death or Disability; and (ii) the final distribution must be made to such beneficiary(ies) no later than 15 years after the participant's death or Disability. After the end of the calendar year that a participant's eligibility to participate terminates, a distribution option election for a particular beneficiary is irrevocable; provided, however, that the participant may make a distribution option election for a new beneficiary who is initially designated after the participant's eligibility to participate terminates, and such election is irrevocable with respect to the new beneficiary. 8 The value of the Stock Account, which is equal to the number of Stock Units in the Stock Account multiplied by the Fair Market Value on the date of the participant's death or Disability, is transferred to the Cash Account on such date. Earnings are credited to the Cash Account through the date of distribution, and amounts held for installment payments shall continue to be credited with Earnings. The value of the Cash Account that is payable in cash on the date of the single payment distribution is equal to the balance in the Cash Account on the date that is no earlier than five (5) calendar days prior to the day of such distribution ("Beneficiary Distribution Valuation Date"). The amount of any cash distribution to be made in installments from the Cash Account will be determined by multiplying (i) the balance in such Cash Account on the Beneficiary Distribution Valuation Date by (ii) a fraction, the numerator of which is one and the denominator of which is the number of installments in which distributions remain to be made (including the current distribution). Upon the death of a participant's beneficiary for whom a delayed and/or installment distribution option was elected, the entire unpaid balance of the participant's Cash Account shall be paid to the beneficiary(ies) designated by the participant's beneficiary by notification in the form and manner established by the Secretary of CEI (or other officer of CEI succeeding to that function) from time to time or, if no designation was made, to the estate of the participant's beneficiary. Payment shall be made within sixty (60) calendar days after notice of death is received by the Secretary . The value of the Cash Account that is payable in cash is equal to the balance in the Cash Account on the date that is no earlier than five (5) calendar days prior to the day of such distribution. Notwithstanding anything herein contained to the contrary, the Plan Administrator shall have the right in its sole discretion to (i) vary the manner and timing of distributions of a participant or beneficiary entitled to a distribution under this Section 9, and may make such distributions in a single payment or over a shorter or longer period of time than that elected by a participant; and (ii) vary the period during which the closing price of Common Stock is referenced to determine the value of the Stock Account that is transferred to the Cash Account on the date on which the participant's eligibility to participate terminates. Any affected participants will not participate in exercising such discretion. 9 10. Beneficiaries. A participant shall have the right to designate, change or rescind a beneficiary(ies) who is to receive a distribution(s) pursuant to Section 9 in the event of the death or Disability of the participant. A participant's beneficiary(ies) for whom a delayed and/or installment distribution option was elected shall have the right to designate a beneficiary(ies) who is to receive a distribution pursuant to Section 9 in the event of the death of the participant's beneficiary(ies). Any designation, change or recision of the designation of beneficiary shall be made by notification in the form and manner established by the Secretary of CEI (or other officer of CEI succeeding to that function) from time to time. The last designation of beneficiary received by the Secretary shall be controlling over any testamentary or purported disposition by the participant (or, if applicable, the participant's beneficiary(ies)), provided that no designation, recision or change thereof shall be effective unless received by the Secretary prior to the death or Disability (whichever is applicable) of the participant (or, if applicable, the death of the participant's beneficiary(ies)). If the designated beneficiary is the estate, or the executor or administrator of the estate, of the participant (or, if applicable, the participant's beneficiary(ies)), a distribution pursuant to Section 9 may be made to the person(s) or entity (including a trust) entitled thereto under the will of the participant (or, if applicable, the participant's beneficiary(ies)), or, in the case of intestacy, under the laws relating to intestacy. 11. Valuation of Plan Accounts. The Plan Administrator shall cause the value of a participant's Plan Accounts to be determined and reported to CEI and the participant at least once per year as of the last business day of the calendar year. The value of the Stock Account will equal the number of Stock Units in the Stock Account multiplied by the closing price of a share of Common Stock on the last business day of the calendar year as reported in "New York Stock Exchange Composite Transactions" as published in the Eastern Edition of the The Wall Street Journal. The value of the Cash Account will equal the balance in the Cash Account on the last business day of the calendar year. 12. Withdrawals. No withdrawals of Plan Accounts may be made, except a participant may at any time request a hardship withdrawal from his/her Plan Accounts if he/she has incurred an unforeseeable financial emergency. An unforeseeable 10 financial emergency is defined as severe financial hardship to the participant resulting from a sudden and unexpected illness or accident of the participant (or of his/her dependents), loss of the participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the participant. The need to send a child to college or the desire to purchase a home are not considered to be unforeseeable emergencies. The circumstance that will constitute an unforeseeable emergency will depend upon the facts of each case. A hardship withdrawal will be permitted by the Plan Administrator only as necessary to satisfy an immediate and heavy financial need. A hardship withdrawal may be permitted only to the extent reasonably necessary to satisfy the financial need. Payment may not be made to the extent that such hardship is or may be relieved (i) through reimbursement or compensation by insurance or otherwise, (ii) by liquidation of the participant's assets, to the extent the liquidation of such assets would not itself cause severe financial hardship, or (iii) by cessation of deferrals under the Plan. The request for hardship withdrawal shall be made by notification in the form and manner established by the Plan Administrator from time to time. Such hardship withdrawal will be permitted only with approval of the Plan Administrator. The participant will receive a lump sum payment after the Plan Administrator has had reasonable time to consider and then approve the request. The value of the Stock Account for purposes of processing a hardship cash withdrawal is equal to the number of Stock Units in the Stock Account multiplied by the Fair Market Value on the date on which the hardship withdrawal is processed. The value of the Cash Account for purposes of processing a hardship cash withdrawal is equal to the balance in the Cash Account on the date on which the hardship withdrawal is processed. 13. Change in Control. The terms of this Section 13 shall immediately become operative, without further action or consent by any person or entity, upon a Change in Control, and once operative shall supersede and control over any other provisions of this Plan. Upon the occurrence of a Change in Control followed within one year of the date of such Change in Control by the participant's cessation of Board membership for any reason, such participant shall be paid the value of his/her Plan Accounts in a single, lump sum cash payment. The value of the Stock Account, which is equal to the number 11 of Stock Units in the Stock Account multiplied by the Fair Market Value on the date of the participant's cessation of Board membership, is transferred to the Cash Account on such date. Earnings are credited to the Cash Account through the date of distribution. The value of the Cash Account that is payable in cash on the date of the single lump sum cash payment is equal to the balance in the Cash Account on the date that is no earlier than five (5) calendar days prior to the day of such distribution. Such payment shall be made as soon as practicable, but in no event later than thirty (30) calendar days after the date of the participant's cessation of Board membership. On or after a Change in Control, no action, including, but not by way of limitation, the amendment, suspension or termination of the Plan, shall be taken which would affect the rights of any participant or the operation of this Plan with respect to the balance in the participant's Plan Accounts. 14. Withholding. CEI may withhold to the extent required by law all applicable income and other taxes from amounts deferred or distributed under the Plan. 15. Copies of Plan Available. Copies of the Plan and any and all amendments thereto shall be made available to all participants during normal business hours at the office of the Plan Administrator. 16. Miscellaneous. (i) Inalienability of benefits - Except as may otherwise be required by law or court order, the interest of each participant or beneficiary under the Plan cannot be sold, pledged, assigned, alienated or transferred in any manner or be subject to attachment or other legal process of whatever nature; provided, however, that any applicable taxes may be withheld from any cash benefit payment made under this Plan. (ii) Controlling law - The Plan and its administration shall be governed by the laws of the State of Maryland, except to the extent preempted by federal law. (iii) Gender and number - A masculine pronoun when used herein refers to both men and women and words used in the singular are intended to include the plural, and vice versa, whenever appropriate. (iv) Titles and headings - Titles and headings to articles and sections in the Plan are placed herein solely for convenience of reference and in any case of conflict, the text of the Plan rather than such titles and headings shall control. 12 (v) References to law - All references to specific provisions of any federal or state law, rule or regulation shall be deemed to also include references to any successor provisions or amendments. (vi) Funding and expenses - Benefits under the Plan are not vested or funded, and shall be paid out of the general assets of CEI. To the extent that any person acquires a right to receive payments from CEI under this Plan, such rights shall be no greater than the right of any unsecured general creditor of CEI. The expenses of administering the Plan will be borne by CEI. (vii) Not a contract - Participation in this Plan shall not constitute a contract of employment or Board membership between CEI and any person and shall not be deemed to be consideration for, or a condition of, continued employment or Board membership of any person. (viii) Successors - In the event CEI becomes a party to a merger, consolidation, sale of substantially all of its assets or any other corporate reorganization in which CEI will not be the surviving corporation or in which the holders of the common stock of CEI will receive securities of another corporation (in any such case, the "New Company"), then the New Company shall assume the rights and obligations of CEI under this Plan. 13 EX-10 13 EX-10(L) Exhibit 10(l) Summary Enhanced Retirement Benefits For A Named Executive Officer Under an arrangement with Frank O. Heintz, Constellation Energy Group, Inc. will provide enhanced retirement benefits to Mr. Heintz. Under the arrangement, after he attains age 60 in 2004, Mr. Heintz will be entitled to retirement benefits equal to 40% of total final average salary plus bonus. 1 EX-10 14 EX-10(M) Exhibit 10(m) BALTIMORE GAS AND ELECTRIC COMPANY RETIREMENT PLAN FOR NON-EMPLOYEE DIRECTORS 1. Objective. The objective of this Plan is to provide Non-Employee Directors of BG&E with retirement benefits in recognition of their service on the Board of Directors of BG&E, and to assist BG&E in attracting and retaining individuals who are highly qualified to serve on the Board of Directors of BG&E. 2. Definitions. As used herein, the following terms will have the meaning specified below: "Annual Retainer" means the amount payable by BG&E to a Director as annual compensation for performance of services as a Director at the time of the Non-Employee Director's Retirement. All other amounts (including without limitation board/committee meeting fees, committee chair retainers, and expense reimbursements) shall be excluded in calculating the amount of the Annual Retainer. "BG&E" means Baltimore Gas and Electric Company, a Maryland corporation, or its successor. "Director" means a member of the Board of Directors of BG&E. "Non-Employee Director" means a Director who is not, and will never be, eligible to receive employee retirement benefits from BG&E or any affiliated company. "Plan" means the BG&E Retirement Plan for Non-Employee Directors. "Retirement" means ceases membership on the Board of Directors of BG&E. 3. Plan Administration. The Plan is administered by the Vice President Management Services of BG&E, who has sole authority (except as specified otherwise herein) to interpret the Plan, and, in general, to make all other determinations advisable for the administration of the Plan to achieve its stated objective. The Plan Administrator shall have the power to delegate all or any part of his/her duties to one or more designees, and to withdraw such authority, by written designation. 4. Eligibility and Participation. A Non-Employee Director is eligible to participate in the Plan if he/she has served as a Director of BG&E for at least five years prior to Retirement. 5. Amount and Timing of Plan Benefit Payout. An eligible participant is entitled to an annual benefit amount equal to the Annual Retainer. The Annual Retainer is payable in cash each year for life; however, no payments shall be made after a participant's death. Payment of the Annual Retainer to a participant who on his/her Retirement date is at least age 60 shall be made within the first sixty days of the applicable calendar year, beginning with the calendar year after his/her Retirement. Payment of the Annual Retainer to all other participants shall be made within the first sixty days of the applicable calendar year, 1 beginning with the calendar year after the later to occur of his/her (1) 65th birthday, or (2) Retirement. The Plan Administrator may, in his/her sole discretion, vary the manner and timing of payments to participant. 6. Copies of Plan Available. Copies of the Plan and any and all amendments thereto shall be made available to all participants during normal business hours at the office of the Plan Administrator. 7. Amendment; Termination. This Plan may be amended from time to time or suspended or terminated at any time, at the written direction of the Board of Directors. However, amendments required to keep the Plan in compliance with applicable laws and regulations (including tax rules) may be made by the Plan Administrator, on advice of counsel. No amendment to or termination of this Plan shall prejudice the rights of any participant entitled to receive payment hereunder at the time of such action. 8. Miscellaneous. With respect to Plan benefits, a participant has the status of a general unsecured creditor of BG&E, and the Plan constitutes a mere promise by BG&E to make benefit payments in the future. It is the intention of BG&E and each participant that the Plan be unfunded for tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of 1974. A participant's Plan benefits shall not be subject to alienation or assignment by any participant nor shall any of them be subject to attachment or garnishment or other legal process except to the extent specially mandated and directed by applicable state or federal statute. Participation in this Plan shall not constitute a contract of employment between BG&E and any person and shall not be deemed to be consideration for, or a condition of, any person's employment by, or continual service as a Director of, BG&E or any affiliated company. This Plan shall be governed in all respects by Maryland law. 2 EX-12 15 RATIO OF EARNINGS TO FIXED CHARGES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED AND PREFERENCE DIVIDEND REQUIREMENTS
12 Months Ended ----------------------------------------------------------------------------------------- March December December December December December 1999 1998 1997 1996 1995 1994 ------------ ------------- ------------ ------------ ------------ ------------ (In Millions of Dollars) Net Income $ 333.7 $ 327.7 $ 282.8 $ 310.8 $ 338.0 $ 323.6 Taxes on Income 185.7 181.3 161.5 169.2 172.4 156.7 ------------ ------------- ------------ ------------ ------------ ------------ Adjusted Net Income $ 519.4 $ 509.0 $ 444.3 $ 480.0 $ 510.4 $ 480.3 ------------ ------------- ------------ ------------ ------------ ------------ Fixed Charges: Interest and Amortization of Debt Discount and Expense and Premium on all Indebtedness $ 258.4 $ 255.3 $ 234.2 $ 203.9 $ 206.7 $ 204.2 Capitalized Interest 2.4 3.6 8.4 15.7 15.0 12.4 Interest Factor in Rentals 1.8 1.9 1.9 1.5 2.1 2.0 ------------ ------------- ------------ ------------ ------------ ------------ Total Fixed Charges $ 262.6 $ 260.8 $ 244.5 $ 221.1 $ 223.8 $ 218.6 ------------ ------------- ------------ ------------ ------------ ------------ Preferred and Preference Dividend Requirements: (1) Preferred and Preference Dividends $ 19.4 $ 21.8 $ 28.7 $ 38.5 $ 40.6 $ 39.9 Income Tax Required 10.8 12.0 16.4 20.9 20.4 19.1 ------------ ------------- ------------ ------------ ------------ ------------ Total Preferred and Preference Dividend Requirements $ 30.2 $ 33.8 $ 45.1 $ 59.4 $ 61.0 $ 59.0 ------------ ------------- ------------ ------------ ------------ ------------ Total Fixed Charges and Preferred and Preference Dividend Requirements $ 292.8 $ 294.6 $ 289.6 $ 280.5 $ 284.8 $ 277.6 ============ ============= ============ ============ ============ ============ Earnings (2) $ 779.6 $ 766.2 $ 680.4 $ 685.4 $ 719.2 $ 686.5 ============ ============= ============ ============ ============ ============ Ratio of Earnings to Fixed Charges 2.97 2.94 2.78 3.10 3.21 3.14 Ratio of Earnings to Combined Fixed Charges and Preferred and Preference Dividend Requirements 2.66 2.60 2.35 2.44 2.52 2.47
(1) Preferred and preference dividend requirements consist of an amount equal to the pre-tax earnings that would be required to meet dividend requirements on preferred stock and preference stock. (2) Earnings are deemed to consist of net income that includes earnings of BGE's consolidated subsidiaries, equity in the net income of BGE's unconsolidated subsidiary, income taxes (including deferred income taxes and investment tax credit adjustments), and fixed charges other than capitalized interest. EX-27 16 FINANCIAL DATA SCHEDULE
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSTELLATION ENERGY'S MARCH 31, 1999 INTERIM CONSOLIDATED INCOME STATEMENT, BALANCE SHEET AND STATEMENT OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS. 1,000,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 PER-BOOK 5,640 1,708 1,348 588 0 9,284 1,493 0 1,510 3,006 0 190 3,136 0 0 0 248 7 0 0 2,697 9,284 932 50 734 784 148 (1) 147 61 86 3 83 63 62 321 0.55 0.55
EX-99 17 EX-99(A) Exhibit 99(a) SUMMARIZED PRO FORMA FINANCIAL INFORMATION RELATED TO THE FORMATION OF A HOLDING COMPANY
Pro Forma --------------------------------------- BGE Constellation Consolidated Pro Forma BGE Energy Group Historical Adjustments(1) Consolidated(1) Consolidated ---------------------------------------------------------------------------------------- (In Millions, Except Per Share Amounts) BALANCE SHEETS -- AS OF MARCH 31, 1999 (Unaudited) ASSETS Current assets $ 1,348.0 $ (698.7) $ 649.3 $ 1,348.0 Investments and other assets 1,707.4 (1,335.7) 371.7 1,707.4 Net utility plant 5,640.0 - 5,640.0 5,640.0 Deferred charges 588.2 (7.4) 580.8 588.2 ---------------- ------------------ ------------------ ---------------- TOTAL ASSETS $ 9,283.6 $ (2,041.8) $ 7,241.8 $ 9,283.6 ================ ================== ================== ================ LIABILITIES AND CAPITALIZATION Current liabilities $ 1,212.9 $ (499.6) $ 713.3 $ 1,212.9 Deferred credits and other liabilities 1,739.0 (290.3) 1,448.7 1,739.0 Capitalization Long-term debt 3,135.9 (627.3) 2,508.6 3,135.9 Preference stock not subject to mandatory redemption 190.0 - 190.0 190.0 Common Shareholders' Equity 3,005.8 (624.6) 2,381.2 3,005.8 ---------------- ------------------ ------------------ ---------------- TOTAL CAPITALIZATION 6,331.7 (1,251.9) 5,079.8 6,331.7 ---------------- ------------------ ------------------ ---------------- TOTAL LIABILITIES AND CAPITALIZATION $ 9,283.6 $ (2,041.8) $ 7,241.8 $ 9,283.6 ================ ================== ================== ================ STATEMENTS OF INCOME -- THREE MONTHS ENDED MARCH 31, 1999 (Unaudited) Total revenues $ 932.3 $ (223.4) $ 708.9 $ 932.3 Total expenses other than interest and income taxes 734.2 (180.6) 553.6 734.2 ---------------- ------------------ ------------------ ---------------- Income from operations 198.1 (42.8) 155.3 198.1 Other income (expense) (0.8) 4.1 3.3 (0.8) Net interest expense 61.2 (13.6) 47.6 61.2 Preference stock dividends of BGE - - - 3.4 (2) ---------------- ------------------ ------------------ ---------------- Income before income taxes 136.1 (25.1) 111.0 132.7 Income taxes 49.9 (10.0) 39.9 49.9 ---------------- ------------------ ------------------ ---------------- Net income 86.2 $ (15.1) $ 71.1 82.8 ================== ================== Preference stock dividends 3.4 $ 3.4 (2) - ---------------- ================== ---------------- Earnings applicable to common stock $ 82.8 $ 82.8 ================ ================ Earnings per common share $ 0.55 $ 0.55 ================ ================
(1) Reflects the transfer of Constellation Enterprises, Inc. and its subsidiaries from BGE to Constellation Energy in connection with the formation of the holding company. (2) Reflects dividends associated with BGE preference stock as a charge against retained earnings for BGE and as a charge against net income for Constellation Energy. EX-99 18 EX-99(B) Exhibit 99(b) Extract From Post-Effective Amendment No. 1 to Form S-4 THE COMPARATIVE SHAREHOLDER RIGHTS After the share exchange, BGE common shareholders will become Constellation Energy common shareholders, and their rights will be governed by Constellation Energy's charter and by-laws rather than BGE's charter and by-laws. Constellation Energy's charter and by-laws differ from BGE's in certain respects. The differences in Constellation Energy's charter and by-laws reflect the: (1) removal of obsolete and unnecessary provisions; (2) inclusion of provisions that provide flexibility to operate in a competitive market; and (3) inclusion of provisions that provide additional financing flexibility. Approval of the share exchange will also be considered approval and ratification of Constellation Energy's charter and by-laws. For more information, please refer to the forms of the charter and by-laws that are included as appendices B and C in Post-Effective Amendment No. 1 to Form S-4 (Registration No. 33-64799). The table below compares some of the rights provided to BGE and Constellation Energy shareholders under their respective charters and by-laws, under Securities and Exchange Commission (SEC) rules, and Maryland law: RIGHT BGE CONSTELLATION ENERGY ----- --- -------------------- Voting rights for Superior voting rights No superior voting rights preferred shareholders (Four votes per share) (One vote per share) Call of special meeting Permitted by 25% of votes Permitted by 25% of votes entitled to be cast entitled to be cast Shareholder action by written consent Permitted Permitted Removal of directors by Permitted by majority vote Permitted by majority vote shareholders for cause Advance notice of Proxy Proposals -- Proxy Proposals -- shareholder proposals 120 days 120 days Meeting Proposals -- Meeting Proposals -- 45 days 75 days Charter amendments by Permitted by two-thirds Permitted by two-thirds common shareholders vote vote(Board may provide for lesser number) By-law amendments by Permitted by majority Permitted by two-thirds common shareholders vote vote The differences between BGE's and Constellation Energy's charter and by-laws are summarized below: AUTHORIZED SHARES BGE. BGE has authorized: o 175,000,000 shares of common stock, o 1,000,000 shares of preferred stock, and o 6,500,000 shares of preference stock. CONSTELLATION ENERGY. Constellation Energy has authorized: o 250,000,000 shares of common stock, and o 25,000,000 shares of preferred stock. PREFERRED STOCK BGE. BGE's charter authorizes both preferred and preference stock. The charter specifies, among other things: o the number of votes per share (4 votes per share for preferred and 1 vote per share for preference), o matters preferred and preference shareholders may vote on, o a limit on the amount of dividends that are payable on the preferred stock, and o certain financial tests that must be met before the preferred or preference stock may be issued. 1 The charter allows BGE's Board of Directors to specify the other rights and terms of both types of stock, such as redemption and convertibility provisions. CONSTELLATION ENERGY. Constellation Energy's charter authorizes only preferred stock. It specifies that the preferred stock will have no more than one vote per share, as determined by the Board. The Board will determine the other terms of any preferred stock at the time of issuance. Constellation Energy will not issue preferred stock as a defensive takeover mechanism without prior shareholder approval and will not afford preferred shareholders voting rights superior (including votes per share) to common shareholders. VOTE REQUIRED TO PASS CERTAIN MATTERS BGE. The approval of two-thirds of all the votes entitled to be cast must be received to approve charter amendments and certain extraordinary matters such as mergers, share exchanges and the sale of substantially all of BGE's assets. CONSTELLATION ENERGY. The approval of two-thirds of all the votes entitled to be cast must be received to approve charter amendments and certain extraordinary matters such as mergers, share exchanges and the sale of substantially all of Constellation Energy's assets. However, the Board may authorize that such a matter be approved by a majority of all the votes entitled to be cast. REMOVAL OF DIRECTORS BGE. Under BGE's by-laws, the shareholders, at any meeting duly called and at which a quorum is present, may remove any director from office by a majority vote. CONSTELLATION ENERGY. Under Constellation Energy's charter, the shareholders, at any meeting duly called and at which a quorum is present, may remove any director from office for cause by a majority vote. AMENDING THE BY-LAWS BGE. BGE's by-laws may be amended or repealed, and new by-laws adopted, by a majority vote of the Board of Directors or the common shareholders. CONSTELLATION ENERGY. Constellation Energy's by-laws may be amended or repealed, and new by-laws adopted by a majority vote of the Board of Directors or by a two-thirds vote of the common shareholders. ADVANCE NOTICE PROVISION BGE. Neither BGE's charter nor its by-laws include a provision with respect to advance notice of shareholder proposals or director nominations. Under SEC rules, shareholder proposals must be received at least 120 days prior to the anniversary of the date that the prior year's proxy statement was mailed to shareholders in order to be considered for inclusion in the proxy statement. Other proposals sought to be presented at the shareholders' meeting must be received at least 45 days prior to the anniversary of the date that the prior year's proxy statement was mailed to shareholders. CONSTELLATION ENERGY. The SEC rule requiring 120 days advance notice of shareholder proposals sought to be included in the proxy statement will also apply to Constellation Energy. In addition, under Constellation Energy's by-laws, written notice of a proposal to be presented by any shareholder at the shareholders' meeting (including nominations for director) must be received by the Secretary of Constellation Energy at its principal executive office not less than 75 days prior to the anniversary of the date the proxy statement was mailed for the prior year's annual meeting (if the share exchange is approved, the anniversary of the mail date for Constellation Energy's first annual meeting will be March 5, 2000). If the proposal is not timely received, the shareholder may not present it at the annual meeting. See "Submission of Shareholder Proposals for Next Year" on page 38. The additional 30 day time period has been added to ensure that Constellation Energy has sufficient time to inform all shareholders, in the proxy statement, of the matter sought to be presented at the meeting. 2 MARYLAND LAW Certain provisions of Maryland law provide enhanced rights to shareholders, including the right of holders of at least 25% of the outstanding common stock to call a special meeting of shareholders for any purpose and the right to take action by way of unanimous written consent without calling a special meeting of shareholders. However, certain other provisions of Maryland law may have the effect of discouraging persons from acquiring large blocks of a Maryland corporation's stock and/or delaying or preventing a change of control of a Maryland corporation. Under certain circumstances, these provisions could have the effect of, among other things: o reducing or eliminating the voting power of a 20% or more shareholder, o prohibiting a 10% or more shareholder from engaging in a business combination with a Maryland corporation for five years following the acquisition of the 10% stake (a "freezeout" provision), and o requiring a premium payment for shares purchased in a two-step acquisition. Friendly mergers and other business combinations would not be affected by these provisions. However, a Maryland corporation may opt out of the provisions by providing so in its charter or by-laws. An amendment adopted for the purpose of opting out of the freeze-out provision does not become effective until 18 months after its adoption. Neither BGE nor Constellation Energy have opted out of the provisions. 3 -----END PRIVACY-ENHANCED MESSAGE-----