AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 3, 1999
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REGISTRATION NO. 33-64799
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST EFFECTIVE AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
CONSTELLATION ENERGY GROUP, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 4931 52-1964611
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
DAVID A. BRUNE
VICE PRESIDENT
39 West Lexington Street
Baltimore, Maryland 21201
(410) 234-5511
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices
and agent for service)
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Amendment becomes effective and all other conditions
to the share exchange between the common shareholders of Baltimore Gas and
Electric Company and Constellation Energy Group, Inc. pursuant to the Agreement
and Plan of Share Exchange described in the Proxy Statement/Prospectus contained
herein have been satisfied or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
This Post Effective Amendment No. 1 relates to the possible
issuance of shares of common stock, no par value, of Constellation Energy Group,
Inc. which were originally registered on a Registration Statement on Form S-4 to
which this is a post effective amendment. The registration fee in respect of the
common stock was paid at the time of the original filing of the Registration
Statement on Form S-4 relating to such shares of Constellation Energy Group,
Inc. common stock.
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NOTICE OF ANNUAL MEETING
AND PROXY STATEMENT FOR
BALTIMORE GAS AND ELECTRIC COMPANY
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PROSPECTUS FOR
CONSTELLATION ENERGY GROUP, INC.
BALTIMORE GAS AND ELECTRIC COMPANY
ANNUAL MEETING OF SHAREHOLDERS
APRIL 16, 1999
MORRIS MECHANIC THEATRE
25 HOPKINS PLAZA
BALTIMORE, MARYLAND 21201
[L0GO OF CONSTELLATION ENERGY] [LOGO OF BGE]
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<TABLE>
<S> <C>
CHRISTIAN H. POINDEXTER BALTIMORE GAS AND ELECTRIC COMPANY
CHAIRMAN, PRESIDENT 39 W. LEXINGTON STREET
AND CHIEF EXECUTIVE OFFICER BALTIMORE, MARYLAND 21201
</TABLE>
March 5, 1999
[LOGO OF BGE]
Dear Shareholder:
You are invited to attend our annual meeting of shareholders to
be held on Friday, April 16, 1999, at 10:00 a.m. at the Morris
Mechanic Theatre located at 25 Hopkins Plaza in downtown
Baltimore. Enclosed is our 1998 annual report to shareholders
for your review.
The enclosed proxy statement and prospectus discusses the
important matters to be considered at this year's meeting,
including approval by our common shareholders of a share
exchange, which would result in the formation of a holding
company for BGE. While all of our common and preference
shareholders are receiving notice of the meeting, only common
shareholders may vote at the meeting.
The enclosed proxy card lists all matters that require the vote
of our common shareholders. PLEASE COMPLETE YOUR PROXY CARD AND
RETURN IT PROMPTLY IN THE PRE-ADDRESSED, POSTAGE PAID ENVELOPE
PROVIDED. This will allow your shares to be voted whether or
not you plan to attend the meeting. If you plan to be at the
meeting, please check the box on your proxy card.
The Mechanic Theatre is handicapped-accessible. In addition, if
you need any special accommodations, please indicate them on
your proxy card.
Thank you for your continued support of Baltimore Gas and
Electric Company.
Sincerely,
/s/ C.H. Poindexter
Chairman of the Board, President
and Chief Executive Officer
<PAGE>
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BALTIMORE GAS AND ELECTRIC COMPANY
Notice of 1999 Annual Meeting of Shareholders
Our annual meeting of shareholders will be held on FRIDAY, APRIL 16, 1999
at 10:00 a.m., at the Morris Mechanic Theatre, 25 Hopkins Plaza, Baltimore,
Maryland, to:
1. approve a one-for-one common stock share exchange with Constellation
Energy Group, Inc., resulting in Constellation Energy becoming the
holding company for BGE,
2. elect fifteen directors for one year terms,
3. ratify PricewaterhouseCoopers LLP as our independent accountants for
1999,
4. vote on a shareholder proposal concerning Calvert Cliffs' license
extensions,
5. vote on a shareholder proposal concerning confidential voting, and
6. transact any other business that properly comes before the meeting.
We discuss the matters to be voted on at the annual meeting in the
attached proxy statement and prospectus.
Only common shareholders of record as of February 18, 1999 will be
entitled to vote at the meeting. Common and preference shareholders are
entitled to notice of the meeting. BGE's stock transfer books will not be
closed before the annual meeting.
David A. Brune
Secretary
March 5, 1999
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PROXY STATEMENT FOR
BALTIMORE GAS AND ELECTRIC COMPANY'S
1999 ANNUAL MEETING OF SHAREHOLDERS
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PROSPECTUS FOR CONSTELLATION ENERGY GROUP, INC.
154 MILLION SHARES OF COMMON STOCK
BGE is sending you this proxy statement and prospectus in connection with
our annual meeting to be held Friday, April 16, 1999, at 10:00 a.m. You are
asked to vote on several matters that will be brought up at the annual meeting,
including a one-for-one share exchange between the holders of BGE common stock
and Constellation Energy Group, Inc. If the share exchange is approved,
Constellation Energy will become the holding company of BGE and all of the
other companies currently owned by BGE. BGE's common shareholders will then
become common shareholders of Constellation Energy. PLEASE SEE PAGE 5 FOR A
DISCUSSION OF RISKS ASSOCIATED WITH THE SHARE EXCHANGE.
BGE common stock is listed on the New York Stock Exchange under the symbol
"BGE." If the share exchange is approved, we expect that Constellation Energy's
common stock will be listed on the same exchange under the symbol "CEG." BGE's
common stock will then be delisted.
Please mark your vote on the enclosed proxy card and mail it to BGE in the
enclosed postage-paid envelope. YOUR VOTE IS IMPORTANT!
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this proxy statement and prospectus. Any representation
to the contrary is a criminal offense.
The date of this proxy statement and prospectus is March 5, 1999. It and
the annual report to shareholders are being sent to shareholders on or about
March 5, 1999.
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TABLE OF CONTENTS
<TABLE>
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MATTERS YOU ARE VOTING ON ................................................. 1
PROPOSAL NO. 1 -- APPROVAL OF THE SHARE EXCHANGE AND
FORMATION OF THE HOLDING COMPANY ........................................ 2
Summary Questions and Answers About the Share Exchange .................. 2
Risk Factors ............................................................ 5
Reasons for Forming a Holding Company ................................... 6
Constellation Energy's Business ......................................... 7
Constellation Energy Group, Inc. ....................................... 7
BGE .................................................................... 7
Other Constellation Energy Subsidiaries ................................ 9
Dividends ............................................................... 10
Directors and Executive Officers of Constellation Energy and BGE ........ 10
Constellation Energy Capital Stock ...................................... 11
Comparative Shareholder Rights .......................................... 12
Material Federal Income Tax Consequences ................................ 14
Accounting Treatment .................................................... 15
BGE Stock Plans ......................................................... 15
Market Value of BGE Common Stock ........................................ 15
Regulatory Approvals .................................................... 16
Conditions to the Share Exchange ........................................ 16
Amendment or Termination ................................................ 16
Implementation of the Share Exchange .................................... 16
Exchange of BGE Common Stock Certificates ............................... 17
Listing of Constellation Energy Common Stock ............................ 17
Exemption from Public Utility Holding Company Act of 1935 ............... 17
Preference Stock of BGE ................................................. 18
Obtaining Fair Value for BGE Common Stock ............................... 18
PROPOSAL NO. 2 -- ELECTION OF BGE DIRECTORS ............................... 19
Nominees for the Board of Directors ..................................... 19
Committees of the Board of Directors .................................... 20
Directors' Compensation ................................................. 21
Certain Relationships and Transactions .................................. 22
Section 16(a) Beneficial Ownership Reporting Compliance ................. 22
Compensation Committee Interlocks and Insider Participation ............. 22
</TABLE>
i
TABLE OF CONTENTS
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TABLE OF CONTENTS (continued)
<TABLE>
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PAGE
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Security Ownership ........................................................ 23
Executive Compensation .................................................... 24
Common Stock Performance Graph ............................................ 28
Report of the Committee on Management on Executive Compensation ........... 29
PROPOSAL NO. 3 -- RATIFICATION OF PRICEWATERHOUSECOOPERS LLP AS
INDEPENDENT ACCOUNTANTS FOR 1999 .......................................... 32
PROPOSAL NO. 4 -- A SHAREHOLDER PROPOSAL CONCERNING CALVERT CLIFFS'
LICENSE EXTENSIONS ........................................................ 32
PROPOSAL NO. 5 -- A SHAREHOLDER PROPOSAL CONCERNING CONFIDENTIAL VOTING ..... 34
GENERAL QUESTIONS AND ANSWERS ON VOTING PROCEDURES .......................... 36
SUBMISSION OF SHAREHOLDER PROPOSALS FOR NEXT YEAR ........................... 38
WHERE YOU CAN GET MORE INFORMATION .......................................... 38
FORWARD LOOKING STATEMENTS .................................................. 39
VALIDITY OF CONSTELLATION ENERGY COMMON STOCK ............................... 40
EXPERTS ..................................................................... 40
APPENDICES:
Appendix A -- Agreement and Plan of Share Exchange
Appendix B -- Amended and Restated Articles of Incorporation
Appendix C -- By-laws
</TABLE>
THIS PROXY STATEMENT AND PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND
FINANCIAL INFORMATION ABOUT BGE THAT IS NOT INCLUDED IN OR DELIVERED WITH THIS
DOCUMENT. THIS INFORMATION IS AVAILABLE WITHOUT CHARGE TO SHAREHOLDERS UPON
WRITTEN OR ORAL REQUEST. PLEASE CONTACT:
BGE SHAREHOLDER SERVICES
39 W. LEXINGTON STREET
BALTIMORE, MD. 21201
(410)783-5920
TO OBTAIN TIMELY DELIVERY, SHAREHOLDERS MUST REQUEST THE INFORMATION NO LATER
THAN APRIL 9, 1999.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS DOCUMENT. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT
INFORMATION.
ii
TABLE OF CONTENTS
<PAGE>
MATTERS YOU ARE VOTING ON
PROPOSAL NO. 1 APPROVAL OF THE SHARE EXCHANGE AND FORMATION OF THE HOLDING
COMPANY
This proposal is to approve a one-for-one share exchange between BGE
common shareholders and Constellation Energy Group, Inc., which will then
become the holding company of BGE and all of the other companies currently
owned by BGE, pursuant to the Agreement and Plan of Share Exchange attached as
Appendix A. If the share exchange is approved, you will own common stock in
Constellation Energy, instead of BGE. THE BOARD OF DIRECTORS RECOMMENDS A VOTE
"FOR" THIS PROPOSAL.
PROPOSAL NO. 2 ELECTION OF BGE DIRECTORS
Each of our Directors is elected every year at the annual meeting for a
one year term. All of the nominees, except Adm. Larson and Mr. Becker, were
elected as a director at the 1998 annual meeting. Each of the nominated
directors agrees to serve if elected. However, if for some reason one of them
is unable to accept nomination or election, your proxies will vote for the
election of another person nominated by the Board of Directors, unless the
Board reduces the number of directors. Biographical information for each of the
nominees and other information about them is presented beginning on page 19.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
PROPOSAL NO. 3 RATIFICATION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
ACCOUNTANTS FOR 1999
This proposal is to ratify the Board of Directors' selection of
PricewaterhouseCoopers LLP as BGE's independent accountants for 1999. See
Proposal No. 3 on page 32. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS
PROPOSAL.
PROPOSAL NO. 4 SHAREHOLDER PROPOSAL CONCERNING CALVERT CLIFFS' LICENSE
EXTENSIONS
A shareholder proposal concerning the Calvert Cliffs license extension and
BGE's Board of Directors' response begin on page 32. THE BOARD OF DIRECTORS
RECOMMENDS A VOTE "AGAINST" THIS PROPOSAL.
PROPOSAL NO. 5 SHAREHOLDER PROPOSAL CONCERNING CONFIDENTIAL VOTING
A shareholder proposal concerning confidential voting and BGE's Board of
Directors' response begin on page 34. THE BOARD OF DIRECTORS RECOMMENDS A VOTE
"AGAINST" THIS PROPOSAL.
OTHER BUSINESS MATTERS
The Board of Directors is not aware of any other business for the annual
meeting. However, if any
o other matters come before the meeting that have not been timely filed by
a shareholder in accordance with Rule 14a-4(c) of the Securities Exchange
Act of 1934,
o of the persons named to serve as directors are unable to serve or for
good cause will not serve,
o shareholder proposal which is not in this proxy statement or on the proxy
card pursuant to Rule 14a-8 or 14a-9 of the Securities Exchange Act of
1934 is presented for action at the meeting, or
o matters concerning the conduct of the meeting are presented for action
then shareholders present at the meeting will vote on such items. If you
are represented by proxy, your proxy will vote your shares using his best
judgment.
1
MATTERS YOU ARE VOTING ON
<PAGE>
PROPOSAL NO. 1 -- APPROVAL OF THE SHARE EXCHANGE AND FORMATION OF THE
HOLDING COMPANY
SUMMARY QUESTIONS AND ANSWERS ABOUT THE SHARE EXCHANGE
The following questions and answers briefly describe the share exchange
and formation of the holding company, but may not include all the information
about the proposal that is important to you. For more complete information,
please read this entire proxy statement and prospectus, including the exhibits,
and the other documents to which we refer. See "Where You Can Get More
Information" on page 38.
WHY IS BGE PROPOSING TO FORM A HOLDING COMPANY?
We believe that a holding company structure will provide the financial and
regulatory flexibility needed to effectively compete in the unregulated energy
business while continuing to operate our regulated utility business.
Constellation Energy will be able to raise capital for its unregulated
businesses in the public markets, which is an efficient and cost effective way
to finance businesses. BGE is prohibited from doing this under Maryland public
utility law. See "Reasons for Forming a Holding Company" on page 6.
WILL I HAVE TO PHYSICALLY EXCHANGE MY BGE COMMON STOCK CERTIFICATES FOR
CONSTELLATION ENERGY COMMON STOCK CERTIFICATES?
No. Your BGE common stock certificates will automatically represent an equal
number of shares of Constellation Energy common stock when the share exchange
is complete. See "Exchange of BGE Common Stock Certificates" on page 17.
WILL I CONTINUE TO RECEIVE DIVIDENDS?
After the share exchange, you will receive dividends from Constellation Energy,
when declared by its Board of Directors. It is expected that Constellation
Energy common stock dividends will initially be paid at the same rate and at
the same time as BGE paid them. See "Risk Factors" on page 5.
WILL MY RIGHTS AS A SHAREHOLDER BE AFFECTED?
Yes. Constellation Energy common shareholders' rights will be governed by
Constellation Energy's charter and by-laws (forms of which are included as
Appendices B and C, respectively, to this document). For a discussion of the
differences between BGE's and Constellation Energy's charter and by-laws, see
"Comparative Shareholder Rights" on page 12. BGE's preference stock is not
being exchanged.
ARE THERE FEDERAL INCOME TAX CONSEQUENCES TO BGE'S COMMON SHAREHOLDERS?
No. No income, gain or loss will be recognized under federal income tax laws as
a result of the share exchange, and your tax basis in the common stock you own
will stay the same. See "Material Federal Income Tax Consequences" on page 14.
HOW WILL MY PARTICIPATION IN BGE'S SHAREHOLDER INVESTMENT PLAN BE AFFECTED?
All shares of BGE common stock you hold under this plan will be automatically
exchanged for an equal number of shares of Constellation Energy common stock.
Following the share exchange, the plan will provide for transactions in
Constellation Energy common stock. See "BGE Stock Plans" on page 15.
2
SUMMARY QUESTIONS AND ANSWERS
ABOUT THE SHARE EXCHANGE
<PAGE>
HOW WILL BGE'S EMPLOYEE SAVINGS PLAN AND OTHER EMPLOYEE BENEFIT PLANS BE
AFFECTED?
BGE common stock held in BGE's Employee Savings Plan, Manager Long-Term
Incentive Plan and the Long-Term Incentive Plan will automatically be exchanged
for an equal number of shares of Constellation Energy common stock. Benefits
under BGE's other employee benefit plans, such as the pension plan and health
plans, will not change as a result of the share exchange because they do not
issue common stock. See "BGE Stock Plans" on page 15.
WHAT WILL BE THE BUSINESS OF CONSTELLATION ENERGY?
After the share exchange, Constellation Energy will own the stock of two
subsidiaries, BGE and Constellation Enterprises, Inc. BGE will continue to
operate the regulated utility business, and Constellation Enterprises will
continue to operate the unregulated businesses. See "Constellation Energy's
Business" on page 7.
This is what the BGE corporate structure looks like now:
BALTIMORE GAS AND
ELECTRIC COMPANY
|
|
Constellation
Enterprises, Inc.
|
|
--------------------------------------------------------------
| | | |
| | | |
BGE Home Products Constellation Constellation Constellation
& Services, Inc. Holdings, Inc. Power Source, Inc. Energy Source, Inc.
|
---------------------|------------------
| | |
| |
Constellation Constellation Constellation
Real Estate Group, Inc. Investments, Inc. Power, Inc.
NOTE: THIS CHART ONLY SHOWS THE PRIMARY OPERATING SUBSIDIARIES OF BGE.
3
SUMMARY QUESTIONS AND ANSWERS
ABOUT THE SHARE EXCHANGE
<PAGE>
This is what the holding company structure will look like after the share
exchange:
CONSTELLATION
ENERGY GROUP, INC.
|
|
------------------------------------------
| |
| |
Baltimore Gas and Constellation
Electric Company Enterprises, Inc.
|
|
-----------------------------------------------------------
| | | |
| | | |
BGE Home Products Constellation Constellation Constellation
& Services, Inc. Holdings, Inc. Power Source, Inc. Energy Source, Inc.
|
|
------------------------------------------
| |
| |
Constellation Constellation Constellation
Real Estate Group, Inc. Investments, Inc. Power, Inc.
NOTE: THIS CHART ONLY SHOWS THE PRIMARY OPERATING SUBSIDIARIES OF CONSTELLATION
ENERGY GROUP, INC.
WHO WILL MANAGE CONSTELLATION ENERGY?
All 15 directors of BGE will be the directors of Constellation Energy
immediately after the share exchange. Christian H. Poindexter will be Chairman
of the Board, President and Chief Executive Officer of Constellation Energy.
The other executive officers of Constellation Energy are expected to come from
BGE. See "Directors and Executive Officers of Constellation Energy and BGE" on
page 10.
HAVE ALL REGULATORY APPROVALS BEEN OBTAINED?
Most of the approvals have been received. The Federal Energy Regulatory
Commission and the Pennsylvania Public Utility Commission have approved the
share exchange. We expect to receive Nuclear Energy Regulatory Commission
approval by April 1, 1999. We do not anticipate any problems with obtaining
that approval. No Maryland Public Service Commission approval is required. See
"Regulatory Approvals" on page 16.
WHEN WILL CONSTELLATION ENERGY BECOME THE HOLDING COMPANY?
We expect to form the holding company on or about April 30, 1999, assuming all
conditions are met by then. See "Conditions to Share Exchange" on page 16.
WHAT VOTE IS REQUIRED TO APPROVE THE SHARE EXCHANGE?
The share exchange must be approved by the affirmative vote of the holders of
two-thirds of the outstanding shares of BGE common stock. BGE's directors and
executive officers combined beneficially own less than 1% of the outstanding
common stock of BGE.
4
SUMMARY QUESTIONS AND ANSWERS
ABOUT THE SHARE EXCHANGE
<PAGE>
WILL BGE PREFERENCE STOCK OR DEBT BE EXCHANGED?
No. BGE preference stock will not be exchanged and will remain outstanding
shares of BGE. BGE's outstanding debt will remain the obligation of BGE and
will not become an obligation of Constellation Energy. See "Preference Stock of
BGE" on page 18.
CAN I GET FAIR VALUE FOR MY BGE COMMON STOCK IF I OBJECT TO THE SHARE EXCHANGE?
No. Under Maryland law since BGE's stock was traded on the New York Stock
Exchange on February 18, 1999, the record date for determining eligibility to
vote on the share exchange, BGE's common shareholders cannot get fair value
(cash) for their stock if they object to the share exchange. Since BGE's
preference stock is not being exchanged, these holders also do not have fair
value rights. See "Obtaining Fair Value For BGE Common Stock" on page 18.
WHO CAN I CONTACT IF I HAVE ANY QUESTIONS?
The principal executive offices of both BGE and Constellation Energy are
located at 39 W. Lexington Street, Baltimore, MD 21201. The telephone number
for both companies is: 410-234-5000. In addition, BGE's Shareholder Services
unit is available to answer your questions. You may contact them at the
appropriate number listed below:
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Baltimore Metropolitan area 410-783-5920
Within Maryland 1-800-492-2861
Outside of Maryland 1-800-258-0499
</TABLE>
RISK FACTORS
UNREGULATED BUSINESSES MAY INVOLVE MORE RISK
Constellation Energy's unregulated subsidiaries intend to engage mostly in
energy-related businesses. In the future, assuming the generation segment of
our utility business is deregulated, we expect that unregulated businesses,
which would include generation, will contribute more to Constellation Energy's
overall earnings than BGE's regulated utility operations. However, the
unregulated businesses are very competitive and may have different, and perhaps
greater, investment risks and earnings fluctuations than the regulated utility
business of BGE. As is the case now, we will not be able to recover any losses
incurred by these businesses in BGE's utility rates and such losses could
adversely affect the market value of Constellation Energy.
AMOUNT OF DIVIDENDS ON CONSTELLATION ENERGY COMMON STOCK CANNOT BE ASSURED
Constellation Energy does not now, nor will it initially after the share
exchange, directly conduct any business from which it will earn revenues or
produce cash. Constellation Energy plans to pay its expenses by billing its
subsidiaries for services it performs for them. Constellation Energy plans to
pay dividends on its common stock from dividends it receives from its
subsidiaries. The amount of the subsidiaries' dividends to Constellation Energy
depend upon the future earnings, financial condition, capital requirements and
regulation of those companies. While we currently anticipate that dividends
received by Constellation Energy from its subsidiaries will be sufficient to
enable it to pay dividends on its common stock, there can be no guarantee of
the amount of any quarterly dividends paid, if at all.
5
RISK FACTORS
<PAGE>
ANTI-TAKEOVER PROVISIONS OF MARYLAND LAW AND CONSTELLATION ENERGY'S CHARTER AND
BY-LAWS
Some provisions of Maryland law and Constellation Energy's charter and
by-laws could discourage transactions that involve an actual or threatened
change of control of Constellation Energy. These include provisions such as
changes to the by-laws, advance notice of matters to be brought before a
meeting of shareholders and removal of directors. Because Constellation Energy
will not be subject to the same regulatory oversight afforded BGE's regulated
utility operations, it may be more vulnerable than BGE to unsolicited attempts
to acquire control. The provisions in Constellation Energy's charter and
by-laws are designed to compensate for this vulnerability by improving the
ability of Constellation Energy's Board of Directors to prevent transactions
that, in the Board's opinion, do not maximize long-term shareholder value or
are otherwise not in the best interest of shareholders. They may, however,
delay, discourage or prevent an unsolicited takeover attempt that a shareholder
might believe is in his interest. This could include takeover attempts that
would pay a premium over the market price for Constellation Energy common
stock.
REASONS FOR FORMING A HOLDING COMPANY
GENERAL
BGE's traditional regulated business of providing electricity and natural
gas to customers in its service territory is being opened to competition, as
discussed in the next section. Partially in response to this competitive
environment, BGE has increased its unregulated, energy-related business.
However, under Maryland public utility law, BGE cannot raise capital for its
unregulated businesses. Since we anticipate that in the future the capital
needs of the unregulated businesses will be greater than that of BGE, the
holding company structure will separate the operation of the regulated business
from the unregulated businesses, allowing Constellation Energy to raise capital
for its unregulated businesses in the public markets, which is more efficient
and cost effective. In addition, the capital structure of each unregulated
business may be tailored to suit its individual business. These factors will
enhance Constellation Energy's competitiveness.
A holding company structure is common for companies engaged in multiple
lines of business and is preferred by the investment community because it is
easier to analyze and value individual lines of business. A holding company
structure also makes it easier for regulators to assure that there is no
cross-subsidization of costs or transfer of business risk from unregulated to
regulated lines of business. Finally, a holding company structure provides the
regulated utility legal protection from the results of unregulated business
activities.
COMPETITION
In recent years, federal and state initiatives have promoted the
development of competition in the sale of electricity and gas. In general,
these initiatives have sought to unbundle the integrated services that electric
and gas utilities have traditionally provided and to enable customers to
purchase electricity and gas directly from suppliers other than their local
utilities.
With the passage of the Energy Policy Act of 1992, there has been a
significant increase in the level of competition for the generation and sale of
electricity at wholesale. The Energy Policy Act reduces barriers to market
entry for companies that wish to build, own and operate electric generating
facilities, and it also promotes competition by authorizing the Federal Energy
Regulatory Commission (FERC) to require electric utilities to provide
transmission service to other companies for wholesale power transactions. In
1996, the FERC issued Order 888 requiring electric utilities to make the
utility transmission systems available to wholesale sellers and buyers of
electric energy on a non-discriminatory basis. This means that other companies
may use BGE's transmission system to transport electricity to their customers.
6
REASONS FOR FORMING A HOLDING COMPANY
<PAGE>
Also, BGE is a member of the Pennsylvania-New Jersey-Maryland
interconnection which is an independent system operator that controls and
operates electric transmission facilities in this region as an integrated
system on a non-discriminatory basis. The interconnection provides open access
to the transmission facilities of all of its members based on tariffs filed
with the FERC.
At the retail level, many states are implementing "retail access" programs
giving electric retail customers the option to choose among energy suppliers.
Maryland is considering offering a retail access program beginning in July
2000. See "Constellation Energy's Business -- BGE" below for a further
discussion.
Similar events have already occurred in the gas utility industry. Two
decades ago, the price of gas was regulated from the original producer and
supplier through the ultimate end-user. Currently, there is no regulation over
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 have the option to purchase gas from
other suppliers. A pilot program is currently in place allowing BGE's
residential gas customers the option to purchase gas from other suppliers,
including BGE Home Products & Services, Inc. Currently, this program is open to
over 50,000 residential customers and in November 1999, will be open to all
residential customers.
CONSTELLATION ENERGY'S BUSINESS
CONSTELLATION ENERGY GROUP, INC.
The name of the holding company will be Constellation Energy Group, Inc.
All of its outstanding shares of common stock are currently owned by BGE. These
shares will be cancelled when the share exchange is completed.
Following the share exchange, Constellation Energy will own all the
outstanding BGE and Constellation Enterprises common stock. Constellation
Energy will finance its expenses, investment in its subsidiaries and various
transactions that it may undertake from:
o dividends it receives from its subsidiaries,
o loans from financial institutions,
o sales of equity and debt securities, and
o payments from subsidiaries for services it performs on their behalf.
Constellation Energy will not be subject to regulation by the Maryland
Public Service Commission, the Federal Energy Regulatory Commission, the
Nuclear Regulatory Commission or the Pennsylvania Public Utility Commission,
except to the extent that the rules or orders of these agencies impose
restrictions on Constellation Energy's relationship with BGE or BGE's
relationship with Constellation Energy's other subsidiaries.
Constellation Energy will be a "public utility holding company" under the
Public Utility Holding Company Act of 1935. However, Constellation Energy
expects to obtain an exemption from most of the provisions of that law. See
"Exemption from Public Utility Holding Company Act of 1935" on page 17.
BGE
BGE's utility business includes both electric and gas businesses. The
electric business generates, purchases, and sells electricity. The gas business
purchases, transports, and sells natural gas. The focus of these activities is
serving customers in BGE's service territory.
7
CONSTELLATION ENERGY'S BUSINESS
<PAGE>
BGE also owns two-thirds of the outstanding capital stock, including
one-half of the voting stock, of Safe Harbor Water Power Corporation. Safe
Harbor produces hydroelectric power on the Susquehanna River at Safe Harbor,
Pennsylvania.
BGE furnishes electric and gas retail service in the City of Baltimore and
in all or part of ten counties in Central Maryland. The electric service
territory includes an area of approximately 2,300 square miles with an
estimated population of 2.6 million. The gas service territory includes an area
of more than 600 square miles with an estimated population of 2.0 million.
There are no municipal or cooperative wholesale customers within the service
territory. The two units at Calvert Cliffs nuclear power plant are the
principal generating facilities. Following the share exchange, BGE will
continue to directly operate its utility business.
BGE's utility business is subject to regulation by the Maryland Public
Service Commission (Maryland PSC), the FERC, the Nuclear Regulatory Commission
and other governmental agencies. The Maryland PSC regulates BGE's electric and
gas rates and the issuance of its securities. The FERC regulates BGE's rates
for sales at wholesale, rates for electric transmission and interconnections
with other utilities and short-term borrowings. The Nuclear Regulatory
Commission regulates the Calvert Cliffs nuclear power plant.
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. BGE's plan proposed that:
o all customers would be able to choose other suppliers or BGE's service,
o BGE would guarantee its service at rates frozen until July 2002. Prices
would then be adjusted for inflation until the transition is complete, but
not beyond 2008,
o customers who choose an alternate supplier would receive a shopping
credit. This credit would reduce their BGE bill by the market value of
capacity, energy, and other services that BGE no longer provides those
customers,
o BGE would attempt to reduce potentially stranded investments by lowering
operating costs and applying all earnings in excess of its authorized rate
of return to accelerate the depreciation of generation assets. This would
lower the generation asset book values to their competitive market values
thereby reducing any potentially stranded investment,
o market value of generation assets would be determined by annual
independent appraisals beginning in 2002 and continuing through the
transition period,
o when the difference between the book value and market value of generation
assets is within 10%, the transition period would end and a non-bypassable
surcharge would be applied to customers' bills to recover the remaining
stranded investments over a two-to-three year period, and
o net regulatory assets and nuclear decommissioning costs would continue to
be collected from customers through the regulated transmission and
distribution business.
All the other parties participating in the BGE proceeding before the
Maryland PSC filed positions in response to our proposal on December 22, 1998.
The Maryland PSC will hold hearings to examine our proposal and the counter
proposals of the other parties in the spring of 1999. In the meantime,
settlement negotiations are ongoing. Absent a settlement, the Maryland PSC is
scheduled to issue an order by October 1, 1999.
8
CONSTELLATION ENERGY'S BUSINESS
<PAGE>
OTHER CONSTELLATION ENERGY SUBSIDIARIES
After the share exchange, the only two direct subsidiaries of
Constellation Energy will be BGE and Constellation Enterprises, Inc.
Constellation Enterprises, in turn, directly owns the stock of several other
companies primarily engaged in unregulated energy-related businesses, discussed
below. See page 4 for a chart of the proposed holding company structure.
CONSTELLATION POWER SOURCE, INC. provides power marketing and risk management
services to wholesale customers in North America by purchasing and selling
electric power, other energy commodities, and related derivatives.
Constellation Power Source's business activities include trading:
o electricity,
o other energy commodities, and
o related derivative contracts.
In addition, Constellation Power Source and Goldman, Sachs Capital
Partners II L.P., an affiliate of Goldman, Sachs & Co., have formed Orion Power
Holdings, Inc. to acquire electric generating plants in the United States and
Canada.
CONSTELLATION POWER, INC. and its subsidiaries develop, own, and operate
domestic and international power projects and manage power projects owned by
Constellation Investments, Inc. and Orion.
CONSTELLATION ENERGY SOURCE, INC. offers energy products and services designed
to primarily provide solutions to the energy needs of mid-sized commercial and
industrial customers. These energy products and services include:
o wholesale and retail natural gas marketing services,
o a full range of heating, ventilation, air-conditioning, and energy
services,
o energy consulting and power-quality services,
o services to enhance the reliability of individual electric supply
systems,
o customized financing alternatives, and
o retail electricity, as available.
BGE HOME PRODUCTS & SERVICES, INC. and its subsidiaries offer services to
residential and small commercial customers, including:
o the sale and service of electric and gas appliances,
o home improvements,
o the sale and service of heating, air-conditioning, plumbing, electrical,
and indoor air quality systems, and
o natural gas retail marketing.
CONSTELLATION INVESTMENTS, INC. engages in financial investments, including:
o marketable securities,
o financial limited partnerships, and
o financial guaranty insurance companies.
CONSTELLATION REAL ESTATE GROUP, INC. develops, owns, and manages real estate
and senior-living facilities, including:
o land under development in the Baltimore - Washington corridor,
o an entertainment, dining, and retail complex in Orlando, Florida,
o a mixed-use, planned-unit development, and
o a 41.9% equity interest in Corporate Office Properties Trust, a real
estate investment trust.
9
CONSTELLATION ENERGY'S BUSINESS
<PAGE>
DIVIDENDS
After the share exchange, former BGE common shareholders, who will be
Constellation Energy common shareholders, will receive dividends on
Constellation Energy common stock when and if declared by the Board of
Directors of Constellation Energy. Dividends on Constellation Energy common
stock are expected to be paid initially at the same rate and at the same time
as BGE paid them. However, there can be no guarantee that Constellation Energy
will pay dividends at this rate, if at all. The most recent dividend paid by
BGE on its common stock was $.42 per share, which was paid on January 4, 1999.
Constellation Energy may issue preferred stock, which would have preferential
dividend rights over its common stock.
DIRECTORS AND EXECUTIVE OFFICERS OF
CONSTELLATION ENERGY AND BGE
CONSTELLATION ENERGY
BEFORE THE SHARE EXCHANGE. The following persons currently hold the offices
indicated with Constellation Energy:
Charles W. Shivery- Director, Chairman of the Board and President
David A. Brune- Director, Vice President and Secretary
Thomas E. Ruszin, Jr.- Director, Treasurer
Until the share exchange, these individuals will serve as the only
directors and officers of Constellation Energy. Effective with the share
exchange, they will resign as directors of Constellation Energy. Messrs. Brune
and Ruszin will continue as officers of Constellation Energy. Mr. Shivery will
resign as an officer of Constellation Energy but will remain an officer of
Constellation Power Source, Inc.
AFTER THE SHARE EXCHANGE. All 15 directors of BGE will be the directors of
Constellation Energy after the share exchange. The number of directors of
Constellation Energy is currently set at 15, and each will have a one year
term. That number, however, is expected to be increased after the share
exchange to 18 by the Board of Constellation Energy, which has the power
generally to fill vacancies and increase the number of directors. Any new
directors are expected to be elected from the directors of the current
subsidiaries of BGE.
Christian H. Poindexter will be the Chairman of the Board, President and
Chief Executive Officer of Constellation Energy. The other executive officers
of Constellation Energy are expected to come from BGE.
BGE
BEFORE THE SHARE EXCHANGE. Information concerning the directors of BGE and
certain executive officers begins on page 19. Information concerning BGE's
other executive officers can be found in BGE's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997, under the caption "Executive Officers
of the Registrant."
10
DIVIDENDS
<PAGE>
AFTER THE SHARE EXCHANGE. The directors of BGE are expected to be some of the
current executive officers of BGE.
Christian H. Poindexter will be Chairman of the Board, President and Chief
Executive Officer of BGE. The other executive officers are expected to be some
of the current executive officers of BGE.
CONSTELLATION ENERGY CAPITAL STOCK
COMMON STOCK
GENERAL. Constellation Energy's charter authorizes it to issue 250,000,000
shares of common stock.
When issued in the share exchange, Constellation Energy's common stock
will be fully paid and nonassessable.
Constellation Energy's common shareholders are not entitled to any
preemptive, redemption or conversion rights. Constellation Energy may purchase
or otherwise acquire outstanding shares of its common stock.
VOTING RIGHTS. Constellation Energy's common shareholders are entitled to
one vote for each share. There are no cumulative voting rights.
DIVIDENDS. Subject to any prior rights of Constellation Energy's preferred
stock (if any are issued), Constellation Energy's common shareholders are
entitled to dividends if and when declared by the Board of Directors.
LIQUIDATION RIGHTS. Subject to any prior rights of Constellation Energy's
preferred stock (if any are issued), upon liquidation, dissolution or winding
up, any remaining net assets of Constellation Energy would be evenly
distributed to its common shareholders.
PREFERRED STOCK
Constellation Energy's charter authorizes it to issue 25,000,000 shares of
preferred stock. Each share will have up to 1 vote per share. The Board of
Directors is authorized from time to time to issue the preferred stock in any
series, and to specify the:
o number of shares,
o designation,
o preferences and relative participating, optional or other rights,
o convertibility, redemption, put and sinking fund provisions, and
o qualifications or restrictions
of each series, to the full extent permitted by Maryland law. There will be no
restrictions on repurchases or redemptions of preferred stock, even if
Constellation Energy has not paid any dividends owed or sinking fund
installments. Preferred shareholders are not entitled to preemptive rights.
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.
11
CONSTELLATION ENERGY CAPITAL STOCK
<PAGE>
TRANSFER AGENTS AND REGISTRARS
Constellation Energy will be a transfer agent and registrar, and Harris
Trust and Savings Bank will be a co-transfer agent and registrar, for
Constellation Energy common stock. Constellation Energy's address is:
Shareholder Services, P.O. Box 1642, Baltimore, MD 21203-1642. Harris Trust's
address is: Shareholder Services Division, 11th floor, 311 West Monroe Street,
Chicago, IL 60606. Constellation Energy will be the transfer agent and
registrar for its preferred stock if any shares are issued.
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.
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:
<TABLE>
<CAPTION>
RIGHT BGE CONSTELLATION ENERGY
----- --- --------------------
<S> <C> <C>
Voting rights for preferred Superior voting rights No superior voting rights
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
entitled to be cast be cast
Shareholder action by written consent Permitted Permitted
Removal of directors by Permitted by majority vote Permitted by majority vote for cause
shareholders
Advance notice of shareholder Proxy Proposals -- 120 days Proxy Proposals -- 120 days
proposals Meeting Proposals -- 45 days Meeting Proposals -- 75 days
Charter amendments by common Permitted by two-thirds vote Permitted by two-thirds vote (Board
shareholders may provide for lesser number)
By-law amendments by common Permitted by majority vote Permitted by two-thirds vote
shareholders
</TABLE>
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.
12
COMPARATIVE SHAREHOLDER RIGHTS
<PAGE>
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.
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.
13
COMPARATIVE SHAREHOLDER RIGHTS
<PAGE>
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.
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.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
BGE and Constellation Energy have received an opinion from Miller &
Chevalier Chartered, their special tax counsel, regarding material federal
income tax consequences of the share exchange. Miller & Chevalier's opinion is
based on certain representations of BGE and is summarized below:
o no income, gain or loss will be recognized by a BGE common shareholder
solely upon the exchange of the holder's BGE common stock for
Constellation Energy common stock;
o no income, gain or loss will be recognized on the share exchange by
holders of outstanding shares of BGE preference stock with respect to
their shares because they will not participate in the share exchange and
will keep their BGE preference stock;
o the aggregate tax basis of shares of Constellation Energy common stock
received by a former BGE common shareholder in the share exchange will
equal their tax basis in the shares of BGE common stock exchanged. The
holding period for the Constellation Energy common stock received will
include
14
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
<PAGE>
the holding period for the BGE common stock exchanged to the extent that
such shares were held as capital assets at the time the share exchange
occurred;
o no gain or loss will be recognized by Constellation Energy or BGE on
account of the share exchange or the issuance of shares of Constellation
Energy common stock to the former BGE common shareholders pursuant to the
Agreement and Plan of Share Exchange; and
o the share exchange will not result in the termination of the existence of
the affiliated group of corporations of which BGE has been the common
parent, and Constellation Energy will be included in such affiliated group
of corporations of which Constellation Energy will become the new common
parent.
Former BGE common shareholders are required under Treasury Regulation
1.351-3(a) to attach to their income tax returns for 1999 the following facts
relating to the share exchange: the cost basis of BGE common stock exchanged
with Constellation Energy, the number of shares exchanged and the fair market
value at the date of the exchange of the Constellation Energy common stock
received. We will provide a statement to shareholders that will indicate the
fair market value per share of Constellation Energy common shares received in
the exchange and the date of the exchange, to assist shareholders with the
required tax filing.
This United States federal income tax discussion is based upon current law
and may not apply for certain taxpayers subject to special treatment under the
federal income tax laws (for example, foreign corporations and individuals who
are not citizens or residents of the United States). This is not intended to be
a comprehensive discussion of all possible federal income tax consequences of
the share exchange. Furthermore, this proxy statement and prospectus does not
provide any information regarding the tax consequences of the share exchange
under the tax laws of any state or any local or foreign jurisdiction. We urge
BGE common shareholders to consult their own tax advisors with respect to
specific tax consequences of the share exchange.
ACCOUNTING TREATMENT
The consolidated assets and liabilities of Constellation Energy and its
subsidiaries immediately after the share exchange will be the same as the
consolidated assets and liabilities of BGE and its subsidiaries immediately
before the share exchange. Constellation Energy, on an unconsolidated basis,
will record its investment in BGE and in the subsidiaries transferred by BGE at
their existing values. After the share exchange, Constellation Energy will
become the owner of the BGE common stock. This change in ownership has no
accounting effect on BGE. The transfer of the ownership of BGE's subsidiaries
to Constellation Energy will reduce BGE's assets and retained earnings by an
amount equal to BGE's investments in the subsidiaries.
BGE STOCK PLANS
Under the Agreement and Plan of Share Exchange, all shares of BGE common
stock (including uncertificated whole and fractional shares) held under BGE's
Shareholder Investment Plan, the Employee Savings Plan, the Manager Long-Term
Incentive Plan and the Long-Term Incentive Plan will be automatically exchanged
for an equal number of Constellation Energy common stock shares. The plans will
be amended to provide for future transactions in Constellation Energy common
stock instead of BGE common stock.
MARKET VALUE OF BGE COMMON STOCK
BGE's common stock is listed on the New York, Chicago and Pacific Stock
Exchanges. The high and low sales prices of the common stock on February 18,
1999 were $27 1/8 and $26 3/16, respectively.
15
ACCOUNTING TREATMENT
<PAGE>
REGULATORY APPROVALS
MARYLAND PUBLIC SERVICE COMMISSION (MARYLAND PSC). The share exchange does
not require the approval of the Maryland PSC pursuant to Section 6-101(c) of
The Public Utility Companies Article of the Maryland Annotated Code.
FEDERAL ENERGY REGULATORY COMMISSION (FERC). The FERC has said that the
transfer of a public utility's common stock from its existing shareholders to a
holding company constitutes a transfer of the ownership and control of the
utility's jurisdictional facilities and is thus a "disposition of facilities"
subject to FERC review and approval under Section 203 of the Federal Power Act.
In February, 1999, the FERC issued an order authorizing BGE to adopt the
proposed holding company structure.
PENNSYLVANIA PUBLIC UTILITY COMMISSION (PA PUC). The Pa PUC has taken the
position that it must approve the proposed share exchange. BGE is subject to Pa
PUC regulation due to its partial ownership of Safe Harbor Water Power
Corporation, a hydroelectric plant, and two mine mouth generating plants
located in Pennsylvania. In February, 1999, BGE received the Pa PUC approval
for the share exchange.
NUCLEAR REGULATORY COMMISSION (NRC). A provision in the Atomic Energy Act
requires that the NRC consent to the transfer of control of NRC licenses. The
staff of the NRC has in the past asserted that this provision applies to the
creation of a holding company by an NRC-licensed utility company in a
transaction such as the share exchange. BGE holds licenses, including an
operating license, for its Calvert Cliffs nuclear power plant. In November
1998, BGE applied for NRC approval of the share exchange, which is expected by
April 1, 1999. We do not anticipate any problems with obtaining this approval.
CONDITIONS TO THE SHARE EXCHANGE
In addition to approval of the share exchange by BGE's common
shareholders, the share exchange is subject to the listing of Constellation
Energy's common stock with the New York Stock Exchange and receipt of NRC
approval without any unacceptable conditions attached to it.
AMENDMENT OR TERMINATION
BGE's and Constellation Energy's Boards of Directors may amend or
terminate the Agreement and Plan of Share Exchange, or abandon the share
exchange at any time before it is completed. Following the approval of the
share exchange by BGE's common shareholders, no amendment to the Agreement and
Plan of Share Exchange may be made if it would materially and adversely affect
the rights of BGE shareholders, as determined in the sole judgment of BGE's
Board of Directors.
IMPLEMENTATION OF THE SHARE EXCHANGE
The share exchange will be implemented pursuant to the Agreement and Plan
of Share Exchange (Appendix A) as follows:
o each share of BGE common stock outstanding immediately prior to the share
exchange will be automatically exchanged for one share of Constellation
Energy common stock,
o Constellation Energy will become the owner of all outstanding BGE common
stock,
o the shares of Constellation Energy common stock held by BGE immediately
prior to the share exchange will be canceled, and
16
REGULATORY APPROVALS
<PAGE>
o the shares of the subsidiaries held by BGE will be distributed to
Constellation Energy.
The Agreement and Plan of Share Exchange has been unanimously adopted by
BGE's Board of Directors and Constellation Energy's Board of Directors. The
terms of the Agreement and Plan of Share Exchange are incorporated into this
document as if the entire agreement was set forth here.
Each person who owns BGE common stock immediately prior to the share
exchange will own the same number of shares of Constellation Energy common
stock immediately following the share exchange.
EXCHANGE OF BGE COMMON STOCK CERTIFICATES
BGE common shareholders will not have to physically exchange their
existing stock certificates for certificates of Constellation Energy common
stock. The certificates which represent shares of BGE common stock outstanding
immediately before the share exchange will automatically represent an equal
number of shares of Constellation Energy common stock immediately after the
share exchange and will no longer represent BGE common stock. Thereafter, new
certificates in the name of Constellation Energy will be issued as old BGE
common stock certificates are presented for exchange or transfer.
LISTING OF CONSTELLATION ENERGY COMMON STOCK
Constellation Energy has applied to have its common stock listed on the
New York, Chicago and Pacific Stock Exchanges to trade under the symbol "CEG."
We expect the listings to be effective when the share exchange is completed.
Quotations will be carried in major newspapers and other media as they have
been for BGE common stock. Following the share exchange, BGE common stock,
which will then be owned by Constellation Energy, will no longer trade on any
stock exchange and will be delisted.
EXEMPTION FROM PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
Constellation Energy will be a "public utility holding company" under the
Public Utility Holding Company Act of 1935. However, Constellation Energy
expects to obtain an exemption under this law on the basis that it and BGE are
each organized and carry on their businesses substantially in Maryland and that
neither will derive any material part of their income from a public utility
company organized outside of Maryland. Constellation Energy will file for this
exemption the day the share exchange is effective. If obtained, Constellation
Energy would be exempt from all provisions of the law except the provision
requiring Securities and Exchange Commission approval for a direct or indirect
acquisition of 5 percent or more of the voting securities of any other electric
or gas utility company.
To maintain the exemption, Constellation Energy must file an exemption
statement each year on or before March 1 with the Securities and Exchange
Commission. The exemption may be revoked by the Securities and Exchange
Commission if a substantial question of law or fact exists as to whether
Constellation Energy continues to meet the exemption's requirements, or if it
appears that the exemption may be detrimental to the public interest or the
interest of investors or consumers.
If Constellation Energy is not exempt from this law, then it will be
subject to the law's provisions which would require Securities and Exchange
Commission approval for a wide range of transactions, including financings,
acquisitions, and intrasystem transactions. Constellation Energy would also be
subject to various accounting and reporting requirements.
17
EXCHANGE OF BGE COMMON STOCK CERTIFICATES
<PAGE>
PREFERENCE STOCK OF BGE
Approval of the share exchange will not alter the rights of BGE's
preference shareholders as provided in BGE's charter since the preference stock
is not being exchanged. BGE preference stock will continue to rank senior to
BGE's common stock held by Constellation Energy as to dividends and
distribution of BGE's assets upon any liquidation.
Approval of the share exchange is not expected to affect adversely BGE's
preference shareholders and dividends are expected to continue to be paid as
before. However, if the share exchange is approved, the assets and earnings of
Constellation Energy's subsidiaries other than BGE will not be available to pay
dividends on BGE preference stock or to make distributions if there was a
liquidation of BGE.
No fair value rights under Maryland law are available to the holders of
BGE's preference stock because the preference stock is not being exchanged.
Following the share exchange, BGE will continue to be subject to the
informational requirements of the Securities Exchange Act of 1934, and will
continue to hold annual shareholder meetings.
However, BGE does not intend to solicit proxies for these annual meetings
from preference shareholders (or preferred shareholders, if any) if the matters
to be voted at the meeting do not require the vote of those shareholders
pursuant to BGE's charter or Maryland law.
OBTAINING FAIR VALUE FOR BGE COMMON STOCK
Pursuant to the Maryland General Corporation Law, holders of BGE common
stock who object to the share exchange may not demand fair value for their
stock. They are bound by the terms of the Agreement and Plan of Share Exchange,
if it is approved, because BGE common stock was traded on the New York Stock
Exchange on February 18, 1999, the record date for determining the common
shareholders eligible to vote on the share exchange.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
18
PREFERENCE STOCK OF BGE
<PAGE>
PROPOSAL NO. 2 -- ELECTION OF BGE
DIRECTORS
NOMINEES FOR THE BOARD OF DIRECTORS
H. FURLONG BALDWIN, age 67, a director since 1988, is Chairman of the Board,
President and Chief Executive Officer of Mercantile Bankshares Corporation
(a bank holding company) and Mercantile-Safe Deposit & Trust Company. He is
also a director of Constellation Enterprises, Inc., the parent company of
all of BGE's subsidiaries, and two of its direct subsidiaries,
Constellation Holdings, Inc. and BGE Home Products & Services, Inc. In
addition, he is a director of GRC International, Inc., The St. Paul
Companies, CSX Corp., Offitbank and Wills Group LLC, and is on the
nominating committee of the National Association of Securities Dealers,
Inc.
DOUGLAS L. BECKER, age 33, a director since 1998, is President and Co-Chief
Executive Officer of Sylvan Learning Systems, Inc., and Founder and
Principal of Sterling Capital, LTD., an investment company.
BEVERLY B. BYRON, age 66, a director since 1993, served as a Maryland
Congresswoman in the United States House of Representatives from 1978 to
1992. She is also a director of Care First, Inc., the holding company for
Care First of Maryland, Inc. (formerly Blue Cross and Blue Shield of
Maryland, Inc.), Farmers & Mechanics National Bank and Logistics Management
Institute.
J. OWEN COLE, age 69, a director since 1977, is also a director of First
Maryland Bancorp. (a bank holding company) and The First National Bank of
Maryland. At both companies he served as Chairman of the Executive
Committee from 1988 to 1994 and Chairman of the Trust Committee from 1994
to 1997. From January 1995 to December 1996, he was Chairman of the Board
of Blue Cross and Blue Shield of Maryland, Inc.
DAN A. COLUSSY, age 67, a director since 1992, has been Chairman of the Board
of Care First, Inc., the holding company for Care First of Maryland, Inc.
(formerly Blue Cross and Blue Shield of Maryland, Inc.) and Group
Hospitalization and Medical Services, Inc., since January 1998. He
previously was Chairman of the Board of Blue Cross and Blue Shield of
Maryland, Inc., from January 1997 to January 1998, and Chairman-Elect in
1996. He retired as Chairman of the Board, President and Chief Executive
Officer of UNC Incorporated (aviation services) in November 1997.
EDWARD A. CROOKE, age 60, a director since 1988, became Vice Chairman of BGE in
March, 1998, after serving as President and Chief Operating Officer. He
became Chairman of the Board of Constellation Enterprises, Inc., the parent
company of all of BGE's subsidiaries, in January, 1998, and President and
Chief Executive Officer in March, 1998. He also serves as Chairman of the
Board of each of Constellation Enterprises, Inc.'s direct subsidiaries, and
is on the Board of Directors of most of its subsidiaries.
He is also a director of First Maryland Bancorp., The First National Bank
of Maryland, AEGIS Insurance Services, Inc., Associated Electric & Gas
Insurance Services, Limited, Baltimore Equitable Society, and Corporate
Office Properties Trust.
JAMES R. CURTISS, age 45, a director since 1994, is a partner in the law firm
of Winston & Strawn. From 1988 to 1993, he served as a Commissioner of the
United States Nuclear Regulatory Commission. He is also a director of
Cameco Corporation.
JEROME W. GECKLE, age 69, a director since 1980, retired as Chairman of the
Board of PHH Corporation (vehicle, relocation, and management services) in
1989. He is also a director of Constellation Enterprises,
19
NOMINEES FOR THE
BOARD OF DIRECTORS
<PAGE>
Inc., the parent company of all of BGE's subsidiaries, and a direct
subsidiary, Constellation Holdings, Inc. In addition, he is a director of
First Maryland Bancorp. and The First National Bank of Maryland.
DR. FREEMAN A. HRABOWSKI III, age 48, a director since 1994, has been President
of the University of Maryland Baltimore County since 1993. He is also a
director of the Baltimore Equitable Society, McCormick & Company, Inc., and
Mercantile Bankshares Corporation.
NANCY LAMPTON, age 56, a director since 1994, is Chairman and Chief Executive
Officer of American Life and Accident Insurance Company of Kentucky. She is
also a director of Bank One Kentucky, Brinly-Hardy Corporation, and Duff &
Phelps Utility Income Fund.
ADM. CHARLES R. LARSON, age 62, a director since 1998, served as Superintendent
of the U.S. Naval Academy from 1994 until he retired in 1998 with more than
40 years naval service. He also was Commander-in-Chief of the U.S. Pacific
Command from 1991 to 1994.
GEORGE V. MCGOWAN, age 71, a director since 1980, has been Chairman of BGE's
Executive Committee since 1993. He is also a director of Constellation
Enterprises, Inc., the parent company of all of BGE's subsidiaries, and a
direct subsidiary, Constellation Holdings, Inc. In addition, he is a
director of GTS Duratek Corp., Life of Maryland, Inc., McCormick & Company,
Inc., Organization Resources Counselors, Inc., Scientech, Inc., and The
Baltimore Life Insurance Company.
CHRISTIAN H. POINDEXTER, age 60, a director since 1988, has been BGE's Chairman
of the Board and Chief Executive Officer since 1993, and President since
March, 1998. He is also a director of Constellation Enterprises, Inc., and
most of its direct subsidiaries. He was Chairman of the Board of
Constellation Holdings, Inc. from 1993 to 1996.
He is also a director of Johns Hopkins Medicine Board, Mercantile
Bankshares Corporation, Mercantile-Safe Deposit & Trust Company, Baltimore
Life Insurance Company, Life of Maryland, Inc., and Nuclear Electric
Insurance Limited.
GEORGE L. RUSSELL, JR., age 69, a director since 1988, is Senior Counsel in the
law firm of Piper & Marbury L.L.P. He is also a director of the Federal
Reserve Bank of Richmond - Baltimore Branch.
MICHAEL D. SULLIVAN, age 59, a director since 1992, has been Chairman of the
Board of Golf America Stores, Inc. (golf apparel retailing), since October
1996, and Jay Jacobs, Inc. (specialty apparel retailing), since December
1997. He was also Chairman of the Board of ProAxon International, LLC (hair
care products and restoration) from 1995 to 1997.
He was Chief Executive Officer and President of Merry-Go-Round Enterprises,
Inc. (specialty retailing) from 1982 to 1994. That company filed a
reorganization petition under Chapter XI of the Federal bankruptcy law in
January 1994 and a bankruptcy petition under Chapter VII of the Federal
bankruptcy law in March 1996, and subsequently was liquidated.
COMMITTEES OF THE BOARD OF DIRECTORS
EXECUTIVE COMMITTEE: Has limited powers to act on behalf of the Board between
meetings of the Board. May not declare dividends, authorize the issuance of
stock (unless the Board has already given general authorization for such
issuance), recommend to shareholders any action requiring shareholder
approval, amend the by-laws, or approve mergers or share exchanges which do
not require shareholder approval. Mr. McGowan is Chairperson, and Messrs.
Baldwin, Crooke, Hrabowski, Poindexter and Russell are members. The
committee did not meet in 1998.
20
COMMITTEES OF THE BOARD OF DIRECTORS
<PAGE>
AUDIT COMMITTEE: Recommends BGE's independent accounting firm and reviews their
services. Oversees BGE's auditing, accounting, financial reporting and
internal control functions. All members are non-employee directors. The
committee met 4 times in 1998. Mr. Cole is Chairperson, and Mrs. Byron,
Messrs. Becker, Hrabowski and Russell are members.
COMMITTEE ON NUCLEAR POWER: Monitors performance and safety at BGE's Calvert
Cliffs Nuclear Power Plant. The committee met 3 times in 1998. Mr. Curtiss
is Chairperson, and Mrs. Byron, Messrs. Larson and McGowan are members.
COMMITTEE ON MANAGEMENT: Considers and recommends to the Board nominees for
officers and nominees for election as directors, including nominees
recommended by shareholders. Makes recommendations concerning directors'
and officers' compensation. All members are non-employee directors. The
committee met 6 times in 1998. Mr. Geckle is Chairperson, and Messrs. Cole,
Colussy and Sullivan are members.
If the share exchange is approved, a shareholder who wishes to recommend a
nominee for director should submit the recommendation in writing to the
Corporate Secretary, Constellation Energy Group, Inc., 39 W. Lexington St.,
Baltimore, MD 21201. If the share exchange is not approved, a shareholder
recommendation of a nominee for director should be submitted in writing to
the Corporate Secretary, Baltimore Gas and Electric Company, 39 W.
Lexington Street, Baltimore, MD 21201.
COMMITTEE ON WORKPLACE DIVERSITY: Provides input on setting goals and
developing strategies to achieve employee diversity. Oversees the
implementation of the strategies and evaluates results. The committee met 2
times in 1998. Mrs. Byron is Chairperson, and Messrs. Curtiss, Hrabowski
and Ms. Lampton are members.
LONG RANGE STRATEGY COMMITTEE: Oversees the development and appropriateness of
BGE's long range strategic goals. Reviews major regulatory, environmental
and public policy issues and technology advances which may affect
operations. The committee met 2 times in 1998. Mr. Baldwin is Chairperson,
and Messrs. Becker, Colussy, Curtiss, Geckle, Larson, Sullivan and Ms.
Lampton are members.
DIRECTORS' COMPENSATION
The Board met 7 times for regularly scheduled meetings in 1998. Each of
the nominees attended 75% or more of the total number of meetings of the Board
and of any committees on which they served.
We do not pay directors who are also employees of BGE or its subsidiaries
for their service as directors. In 1998, compensation for non-employee
directors included the following:
o $1,250 fee for each regular, committee or special Board meeting
attended
o directors may defer receipt of some or all of their fees
o $26,000 annual retainer, and a $3,500 annual retainer for chairing
committees
o half of these retainers are invested in deferred stock units
(explained below), and directors may elect to invest some or all of
the other half of their retainers in deferred stock units
o reasonable travel expenses to attend the meetings
Deferred stock units are bookkeeping entries that track the performance of
BGE common stock and are not actual shares of stock. The bookkeeping entries
reflect BGE common stock price changes, dividends, stock splits and other
capital changes. At the end of their Board service, directors receive cash
based on the value of their deferred stock units.
21
DIRECTORS' COMPENSATION
<PAGE>
Mr. McGowan, our former Chairman of the Board and Chief Executive Officer,
continues to participate in civic and community activities on behalf of BGE. We
provide an automobile to him at an approximate yearly cost to us of $11,000.
In 1998, compensation for non-employee directors who serve on the Boards
of BGE subsidiaries also included the following:
o $1,250 fee for each regular, committee or special Board meeting
attended
o directors may defer receipt of some or all of their fees
o $20,000 annual retainer, and a $3,500 annual retainer for chairing
committees
o half of these retainers are invested in deferred stock units
(explained above), and directors may elect to invest some or all of
the other half of their retainers in deferred stock units
o reasonable travel expenses to attend the meetings
CERTAIN RELATIONSHIPS AND TRANSACTIONS
One of our directors, George L. Russell, Jr., is Senior Counsel at the law
firm of Piper & Marbury L.L.P. BGE and certain subsidiaries paid fees to this
firm for legal services rendered in 1998.
One of our directors, James P. Curtiss, is a partner at the law firm of
Winston & Strawn. BGE paid fees to this firm for legal services rendered in
1998.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Due to an administrative error after Gregory C. Martin, an executive
officer of BGE, had provided timely notice of his sale of 117 shares of BGE
common stock, a report of that sale was filed late with the Securities and
Exchange Commission under Section 16(a) of the Securities Exchange Act of 1934.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Christian H. Poindexter, Chairman of the Board, President and Chief
Executive Officer of BGE, serves on the Compensation Committee of Mercantile
Bankshares Corporation. H. Furlong Baldwin, a director of BGE, is Chairman of
the Board and Chief Executive Officer of Mercantile Bankshares Corporation.
22
CERTAIN RELATIONSHIPS AND TRANSACTIONS
<PAGE>
SECURITY OWNERSHIP
The following table shows as of January 15, 1999 the beneficial ownership
of BGE common stock of each nominee for director, the six executive officers
shown in the SUMMARY COMPENSATION TABLE on page 24, and all directors and
executive officers as a group. If the individual participates in BGE's
Shareholder Investment Plan, BGE's Long-Term Incentive Plan or BGE's Employee
Savings Plan, those shares are included. Each of the individuals listed in the
table, as well as all directors and executive officers as a group, beneficially
owned less than 1% of BGE's outstanding common stock. None of them beneficially
own shares of any other class of our equity securities.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP DEFERRED
NAME (SHARES OF COMMON STOCK) STOCK UNITS
- - ------------------------------------------------------ -------------------------- ------------
<S> <C> <C>
Bruce M. Ambler ................................... 43,717
H. Furlong Baldwin ................................ 750 2,233
Douglas L. Becker ................................. 300 109
Beverly B. Byron .................................. 1,500 697
J. Owen Cole ...................................... 4,752 697
Dan A. Colussy .................................... 1,500 1,394
Edward A. Crooke .................................. 73,007
James R. Curtiss .................................. 300 1,258
Robert E. Denton .................................. 32,391
Jerome W. Geckle .................................. 7,343 1,453
Frank O. Heintz ................................... 18,296
Freeman A. Hrabowski, III ......................... 550 1,229
Nancy Lampton ..................................... 3,153 614
Charles R. Larson ................................. 300 150
George V. McGowan ................................. 108,485 1,133
Christian H. Poindexter ........................... 112,413
George L. Russell, Jr. ............................ 1,974 1,229
Charles W. Shivery ................................ 46,202
Michael D. Sullivan ............................... 1,500 614
All Directors and Executive Officers as a Group (28
Individuals) ..................................... 610,610
</TABLE>
23
SECURITY OWNERSHIP
<PAGE>
EXECUTIVE COMPENSATION
1998 SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION(1)
LONG-TERM
INCENTIVE PLAN ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) PAYOUT ($)(2) COMPENSATION ($)(3)
- - ------------------------------------------- ------ ------------ ----------- ---------------- -------------------
<S> <C> <C> <C> <C> <C>
Christian H. Poindexter 1998 638,333 178,626 -0- 72,212
Chairman of the Board, President 1997 608,533 -0- 425,436 52,283
& Chief Executive Officer 1996 567,300 212,500 181,500 324,799
Charles W. Shivery
Chairman of the Board, President, 1998 240,767 366,240 -0- 21,109
& Chief Executive Officer 1997 233,900 55,000 151,856 13,982
of Constellation Power Source, Inc. 1996 218,700 77,000 33,000 86,902
Edward A. Crooke
BGE Vice Chairman and Chairman of 1998 441,867 123,772 -0- 56,492
the Board, President & Chief 1997 420,667 -0- 298,799 40,658
Executive Officer of Constellation 1996 403,400 150,000 118,800 252,504
Enterprises, Inc.
Bruce M. Ambler 1998 342,033 77,452 -0- 40,310
Retired President & Chief Executive 1997 330,400 -0- 172,843 27,841
Officer of Constellation Holdings, Inc. 1996 315,100 120,000 180,000 117,101
Robert E. Denton 1998 272,733 64,983 -0- 28,791
Executive Vice President -- 1997 248,533 -0- 178,917 18,786
Generation 1996 230,567 75,100 38,500 70,899
Frank O. Heintz 1998 243,067 70,888 -0- 16,200
Executive Vice President -- 1997 189,433 -0- 52,621 9,227
Utility Operations 1996 64,362 18,000 3,667 57,372
</TABLE>
NOTES TO SUMMARY COMPENSATION TABLE:
1 The following executives held shares of performance-based restricted stock
listed below at December 31, 1998:
<TABLE>
<CAPTION>
SHARES MARKET VALUE
-------- -------------
<S> <C> <C>
C. H. Poindexter 28,183 $ 870,142
C. W. Shivery 22,930 $ 707,950
E. A. Crooke 19,511 $ 602,406
B. M. Ambler 15,913 $ 491,304
R. E. Denton 12,196 $ 376,558
F. O. Heintz 11,490 $ 354,763
</TABLE>
During the performance period, dividends on performance-based restricted
stock are accumulated and used to purchase additional shares that are
reflected in the above share numbers and market values. The market value
for the shares held is based on the closing price per share for BGE common
stock as listed in THE WALL STREET JOURNAL. Additional performance-based
restricted stock was granted early in 1999 as described in the LONG-TERM
INCENTIVE PLAN TABLE section beginning on page 25.
2 For 1997 the amounts were paid in BGE common stock for performance during the
1995 - 1997 period. For 1996 the amounts were paid in cash for performance
during the 1994 - 1996 period.
3 For 1996, 1997 and 1998, the amounts in the ALL OTHER COMPENSATION column
include BGE's matching contributions under its savings plans, and the
interest on the cumulative corporate funds used to pay annual premiums on
policies providing split-dollar life insurance benefits (calculated at the
Internal Revenue Service's blended rate). For 1996 and 1998, the amounts
also include a contribution by BGE to a trust securing the executives'
supplemental pension benefits. For 1996, the amounts also include a one-time
contribution by BGE to fund a trust that was established in 1996 to secure
executives' deferred compensation plan benefits. A breakdown of the 1998
amounts in the ALL OTHER COMPENSATION column is shown in the table at the
top of page 25.
24
EXECUTIVE COMPENSATION
<PAGE>
<TABLE>
<CAPTION>
BGE'S SPLIT SUPPLEMENTAL
MATCHING DOLLAR PENSION TRUST
CONTRIBUTIONS AMOUNTS CONTRIBUTION TOTAL
--------------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
C. H. Poindexter $18,925 $ 49,622 $ 3,665 $ 72,212
C. W. Shivery $ 7,175 $ 10,269 $ 3,665 $ 21,109
E. A. Crooke $13,100 $ 39,727 $ 3,665 $ 56,492
B. M. Ambler $10,150 $ 26,495 $ 3,665 $ 40,310
R. E. Denton $ 8,125 $ 17,001 $ 3,665 $ 28,791
F. O. Heintz $ 5,360 $ 7,175 $ 3,665 $ 16,200
</TABLE>
LONG-TERM INCENTIVE PLAN TABLE
The Committee on Management, early in 1999, made grants of restricted BGE
common stock under the Long-Term Incentive Plan. Grants under this plan were
not made during 1999 to Mr. Ambler (because he retired on January 1, 1999). The
grants are subject to both performance and time contingencies.
For each named executive, except for Mr. Shivery, performance will be
measured over a three year period by comparing BGE's total shareholder return
to the Dow Jones Electric Utilities Index. Both are shown in the performance
graph on page 28. A minimum award will be earned if the BGE cumulative total
shareholder return percentile rank is at the 50th percentile, progressing to
the maximum award if the return is at or above the 75th percentile. Restricted
shares granted were equal to the number of shares of BGE common stock that will
be earned if "target" performance (62.5th percentile) is achieved.
For Mr. Shivery, performance will be measured based on both BGE's total
shareholder return (as described above), and also by comparing subsidiary
business value appreciation to targets established by the Committee on
Management. The business value appreciation formula is based on the cumulative
net income, book value, and derived market value of Constellation Power Source.
Restricted shares were granted equal to the number of shares of BGE common
stock that will be earned if "target" performance is achieved, and there is no
maximum award limit. However, no awards will be made unless the subsidiary
cumulative net income threshold is achieved for the performance measurement
period. The measurement period for Mr. Shivery's grant is three years.
For all named executives, all or a portion of these restricted shares will
be forfeited if performance is below target at the end of the performance
period. Additional shares will be awarded if performance is above target at the
end of the performance period. However, the total shares awarded will not
exceed any maximum noted in the table at the top of page 26.
During the performance period, dividends on restricted shares will be
accumulated and reinvested in additional shares. At the end of the performance
period, actual dividends awarded will be based upon performance and paid in BGE
common stock (except that the recipients may elect to have a portion of the
shares withheld to satisfy tax withholding requirements). Dividend equivalents
from the date of the grant will be paid in stock for any additional shares that
are awarded. Shares earned through reinvested dividends are not counted toward
any maximum award limit.
25
EXECUTIVE COMPENSATION
<PAGE>
The table below shows the restricted shares granted in 1999.
<TABLE>
<CAPTION>
PERFORMANCE
NAME PERIOD MINIMUM TARGET MAXIMUM
- - -------------------- ------------ --------- -------- --------
<S> <C> <C> <C> <C>
C. H. Poindexter 3 years 7,000 14,000 21,000
C. W. Shivery 3 years 5,250 10,500 N/A
E. A. Crooke 3 years 5,000 10,000 15,000
R. E. Denton 3 years 3,250 6,500 9,750
F. O. Heintz 3 years 3,250 6,500 9,750
</TABLE>
PENSION BENEFITS
The table below shows annual pension benefits payable at normal retirement
to executives, including the individuals named in the SUMMARY COMPENSATION
TABLE on page 24. Normal retirement occurs at age 65 for Messrs. Poindexter and
Crooke, and at age 62 for all other executives. Pension benefits are computed
at 60% of total final average salary plus bonus for Messrs. Poindexter and
Crooke, without regard to years of service. Pension benefits are computed at
50% of total final average salary plus bonus for Messrs. Shivery and Denton.
When Mr. Denton attains 30 years service in 2000, and Mr. Shivery attains 30
years service in 2001, their pension benefits will be computed at 55%. Pension
benefits for Mr. Heintz are computed at 40%. However, he will not be eligible
for pension benefits until he attains age 60 in 2004.
When Mr. Ambler retired January 1, 1999, he had not yet attained
retirement age. However, his pension benefits were computed at 60% of total
final average salary plus bonus in recognition of his service as President and
Chief Executive Officer of Constellation Holdings, Inc.
<TABLE>
<CAPTION>
PERCENTAGE OF FINAL AVERAGE SALARY AND
BONUS
---------------------------------------
TOTAL FINAL
AVERAGE SALARY AND BONUS 40% 50% 60%
- - -------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
$ 250,000 $100,000 $125,000 $150,000
275,000 110,000 137,500 165,000
300,000 120,000 150,000 180,000
325,000 130,000 162,500 195,000
350,000 140,000 175,000 210,000
400,000 160,000 200,000 240,000
450,000 180,000 225,000 270,000
475,000 190,000 237,500 285,000
500,000 200,000 250,000 300,000
550,000 220,000 275,000 330,000
600,000 240,000 300,000 360,000
625,000 250,000 312,500 375,000
650,000 260,000 325,000 390,000
700,000 280,000 350,000 420,000
750,000 300,000 375,000 450,000
800,000 320,000 400,000 480,000
850,000 340,000 425,000 510,000
875,000 350,000 437,500 525,000
900,000 360,000 450,000 540,000
</TABLE>
26
EXECUTIVE COMPENSATION
<PAGE>
Salary used to compute pension benefits is salary earned during the
preceding year. Salary is calculated in the same manner as shown in the SUMMARY
COMPENSATION TABLE on page 24. The bonus amount used to compute pension
benefits is the average of the two highest annual bonus percentages earned
during the preceding five years, multiplied by the prior year's final annual
salary. Bonus used in the calculation is based on the amounts shown in the
SUMMARY COMPENSATION TABLE. There is no offset of pension benefits for social
security or other amounts. Compensation used to compute pension benefits for
the individuals named in the SUMMARY COMPENSATION TABLE as of December 31, 1998
is as follows:
<TABLE>
<S> <C>
C. H. Poindexter $884,898
C. W. Shivery $312,628
E. A. Crooke $612,143
B. M. Ambler $460,928
R. E. Denton $345,858
F. O. Heintz $260,667
</TABLE>
BGE has a program to secure the supplemental pension benefits for each
executive officer, and a program to secure deferred compensation of each
executive officer, including those listed in the SUMMARY COMPENSATION TABLE.
These programs do not increase the amount of supplemental pension benefits or
deferred compensation. To provide security, accrued supplemental pension
benefits and deferred compensation are funded through a trust at the time they
are earned. An executive officer's accrued benefits in the supplemental pension
trust become vested when any of these events occur: retirement eligibility;
termination, demotion or loss of benefit eligibility without cause; a change of
control of BGE followed within two years by the executive's demotion,
termination or loss of benefit eligibility; or reduction of previously accrued
benefits. As a result of becoming vested, the executive would be entitled to a
payout of the vested amount from the supplemental pension trust at the later of
age 55 or employment termination. An executive's benefits under the deferred
compensation plan always are fully vested and are payable at employment
termination. Any payments to these trusts are included in the SUMMARY
COMPENSATION TABLE in the "All Other Compensation" column.
SEVERANCE AGREEMENTS
BGE has severance agreements with Messrs. Poindexter, Shivery, Crooke,
Denton, Heintz and three other key employees. Mr. Ambler's severance agreement
terminated effective with his retirement on January 1, 1999. The severance
agreements provide benefits if (1) there is a change in control of BGE, and (2)
within two years of the change in control, the executive's employment is
terminated without cause, or the executive resigns for good reason.
The severance agreements provide benefits equal to two times the sum of
(1) the executive's annual base salary and (2) the average of the executive's
two highest annual incentive awards paid in the last five years. These payments
are made in 24 equal monthly installments beginning on the first day of the
month after employment ceases.
For an executive who is ineligible to retire, the agreements also provide
retirement, medical and dental benefits computed assuming the executive: (1) is
the greater of age 55 or the executive's actual age; (2) has the greater of 10
years of service or actual service plus 3; and (3) has satisfied the minimum
service eligibility requirements for these benefits, and further provide for
continued life insurance benefits.
For an executive who is eligible to retire, the agreements also provide
retirement benefits computed assuming the executive has the greater of 10 years
of service or actual service, and without any penalty for early retirement, and
medical and dental benefits based on the same terms as any retiree who is at
least age
27
EXECUTIVE COMPENSATION
<PAGE>
65 with 20 or more years of service. Further, for purposes of other benefit
plans, the executive will be treated as retiring at BGE's request.
In connection with Mr. 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 60%
pension benefit as described on page 26, 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 (as shown in the Bonus column of the SUMMARY
COMPENSATION TABLE on page 24), 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.
COMMON STOCK PERFORMANCE GRAPH
The following graph assumes $100 was invested on December 31, 1993 in BGE
common stock, the S&P 500 Index and the Dow Jones Electric Utilities Index.
Total return is computed assuming reinvestment of dividends.
[PERFORMANCE GRAPH APPEARS HERE. SEE TABLE FOR PLOT POINTS.]
<TABLE>
<CAPTION>
93 94 95 96 97 98
-- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
BGE 100 93.24 127.8 127.22 172.18 164.38
S&P 100 101.32 139.4 171.4 228.59 293.91
DJEUI 100 87.68 115.37 116.49 147.35 168.57
</TABLE>
28
COMMON STOCK PERFORMANCE GRAPH
<PAGE>
REPORT OF COMMITTEE ON MANAGEMENT ON EXECUTIVE COMPENSATION
COMMITTEE ON MANAGEMENT
The Committee on Management is responsible for executive compensation
policies. We also approve all compensation plans and recommend to the Board of
Directors specific salary amounts and other compensation awards for individual
executives. All of our Committee members are outside directors.
PHILOSOPHY
We design compensation policies to encourage executives to manage BGE and
its subsidiaries in the best long-term interests of shareholders and to allow
BGE to attract and retain executives best suited to lead BGE in a changing
industry. We have retained an outside executive compensation consultant since
1993. He provides information and advice on a regular basis. In addition,
internal compensation analysts (certified by the American Compensation
Association) use published survey data, outside consultants, and other
resources to make recommendations to us.
Our Committee determined that the relevant labor market for BGE executives
is the utility industry. Utilities used for comparison in 1998 were electric
utilities and combination electric/gas utilities, analyzed using regression
analysis to account for BGE's size. We believe these utilities best represent
the portion of the executive labor market in which BGE competes. Most of these
utilities are included in the Dow Jones Electric Utilities Index shown on the
Performance Graph on page 28. For subsidiary executives, we also used labor
market data from various industries that are similar to their diversified
businesses.
The elements of executive compensation are:
o base salary,
o short-term incentive awards, and
o long-term incentive awards.
The Committee's philosophy is that base salary should approximate the
median level of the relevant labor market. Base salary and short-term incentive
awards should approximate the median level of the relevant labor market for
average performance, and the 75th percentile for superior performance.
Long-term incentive awards for superior performance should bring total
compensation to approximately the 75th percentile of the labor market. As
described below, corporate and/or diversified business performance are among
the criteria we use in determining base salary, and are key components in
determining both short-term and long-term incentive awards.
ANNUAL CASH COMPENSATION
BASE SALARY. We used survey data and the policies mentioned above to
determine base salary range increases for Mr. Poindexter and the other named
executives in 1998.
We determined base salary increases during 1998 for Mr. Poindexter and the
other named executives taking into account 1997 corporate and/or diversified
business performance, each executive's position in the salary range, individual
performance, and the corporate response to changes in the industry and the
regulatory environment. We did not assign specific weights to the various
factors. Mr. Poindexter's base salary increase of 4.1% maintained his position
in the middle third of his salary range.
SHORT-TERM INCENTIVES. Bonus payments to Mr. Poindexter and other named
executives represent the short-term incentive component of executive
compensation. The Committee based the 1998 short-term incentives for Messrs.
Poindexter, Crooke and Ambler on two factors: corporate financial performance
weighted at
29
REPORT OF COMMITTEE ON
MANAGEMENT ON EXECUTIVE COMPENSATION
<PAGE>
75%, and the executives' contribution to the completion of the business plan
weighted at 25%. The Committee based the 1998 short-term incentives for Messrs.
Denton and Heintz on two factors that were weighted equally: corporate
financial performance and the executives' business plan performance. In
evaluating the corporate financial performance factor, the Committee determined
that earnings from ongoing operations was a more appropriate measure than
reported earnings, which included a number of one-time charges. In determining
the bonus payments for these executives, we also took into account a subjective
assessment of business plan performance and recognized that significant
progress was made during the year to prepare the corporation for competition in
the deregulated energy business. For Mr. Shivery, his 1998 short-term incentive
was based on Constellation Power Source and Constellation Energy Source
financial performance weighted at 75%, and his business plan performance
weighted at 25%. Mr. Shivery's bonus payment was based on Constellation Power
Source's net income greater than target and a subjective assessment of his
business plan performance. The bonus payments are shown in the SUMMARY
COMPENSATION TABLE on page 24.
LONG-TERM INCENTIVES
The BGE Long-Term Incentive Plan will be in effect until 2005. The Plan
allows various types of awards keyed to corporate performance, including
performance shares and restricted stock subject to performance-based
contingencies. Performance-based restricted stock generally with three-year
performance periods was granted under the Plan in 1996, 1997, 1998 and 1999 to
the named executives (except Mr. Ambler who retired on January 1, 1999 and
consequently did not receive a 1999 grant). The performance period for the 1996
grants ended in 1998 and the reason why there were no award payouts is
described below. The 1997 and 1998 grants are shown in footnote 1 to the
SUMMARY COMPENSATION TABLE. The 1999 grants are shown on the Long-Term
Incentive Plan table on page 26. The awards are subject to forfeiture if
performance criteria are not satisfied or if the executive's employment
terminates for certain reasons during the applicable performance period.
The performance criteria for the 1999 grants for all named executives
include a corporate total shareholder return measure for the three-year
performance period compared to total shareholder return for the other companies
included in the Dow Jones Electric Utilities Index (one of the indices used in
the Performance Graph). For this criterion, the award payout can range from a
threshold award at the 50th percentile, progressing to a maximum payout if
percentile rank for total shareholder return equals or exceeds the 75th
percentile. For BGE executives, total shareholder return has been the only
performance criterion since the 1996 grants.
For Mr. Shivery's 1996 grant, corporate total shareholder return was the
sole performance criterion. For his 1997, 1998 and 1999 grants, the Committee
determined that it was also appropriate to establish a Constellation Power
Source (CPS) performance criterion for a portion of each award, to more closely
tie his long-term incentive compensation to CPS performance. The CPS
performance criterion is a business value appreciation formula, utilizing CPS
cumulative net income, book value, and derived market value. A cumulative net
income threshold will be established for each performance measurement period.
Since the business value appreciation formula is intended to measure a
surrogate market value, no maximum award amount was established. The number of
shares granted at the beginning of each performance period equals the targeted
value of the long-term incentive award.
For Mr. Ambler's 1996 grant, the performance criterion measures
improvement in Constellation Holdings' cumulative net income over the
three-year period. For his 1997 grant, the performance criteria measure
corporate total shareholder return and Constellation Holdings' average return
on equity over the three-year period. For his 1998 grant, the criteria include
both corporate total shareholder return, and a business value appreciation
formula for Constellation Power, Inc. (CPI), the largest Constellation
Holdings' subsidiary. The business value appreciation formula for CPI is
similar to the formula for CPS described above.
30
REPORT OF COMMITTEE ON
MANAGEMENT ON EXECUTIVE COMPENSATION
<PAGE>
The named executives did not earn awards of BGE common stock under the BGE
Long-Term Incentive Plan, based on the 1996-1998 performance period. There were
no awards for Messrs. Poindexter, Shivery, Crooke, Denton and Heintz because
BGE total shareholder return during the three-year performance period was below
the 50th percentile. Mr. Ambler also did not receive an award because
Constellation Holdings' cumulative net income over the three-year performance
period was below the minimum performance level.
POLICY CONCERNING $1 MILLION DEDUCTION LIMITATION
Section 162(m) of the Internal Revenue Code limits tax deductions for
executive compensation to $1 million. There are several exemptions to Section
162(m), including one for qualified performance-based compensation. To be
qualified, performance-based compensation must meet various requirements,
including shareholder approval. Our Committee has considered annually whether
it should adopt a policy regarding 162(m) and concluded it was not appropriate
to do so. One reason for the conclusion is that, assuming the current
compensation policies and philosophy remain in place, the limitations of
Section 162(m) have no current impact, and are expected to have only minimal
applicability in the near future. Our Committee also notes that while generally
we wish to maximize the deductibility of compensation, we believe the 162(m)
requirements are not fully consistent with sound executive compensation policy
and incentives to improve shareholder value. Therefore, our Committee may
approve incentive payments that do not qualify for deduction if the recipient's
compensation exceeds the $1 million limit.
Jerome W. Geckle, Chairman Dan A. Colussy
J. Owen Cole Michael D. Sullivan
31
REPORT OF COMMITTEE ON
MANAGEMENT ON EXECUTIVE COMPENSATION
<PAGE>
PROPOSAL NO. 3 -- RATIFICATION OF
PRICEWATERHOUSECOOPERS LLP AS
INDEPENDENT ACCOUNTANTS FOR 1999
PricewaterhouseCoopers LLP, Certified Public Accountants, is the successor
to Coopers & Lybrand. It was formed when Price Waterhouse merged with Coopers &
Lybrand in 1998. Coopers & Lybrand has been BGE's independent accountants since
1941. A member of PricewaterhouseCoopers LLP will be at the annual meeting and
will have the opportunity to make a statement and answer appropriate questions.
PricewaterhouseCoopers LLP audited BGE's 1998 consolidated financial
statements, as well as the financial statements of our Shareholder Investment
Plan and various employee benefit plans, and BGE's transfer agent functions. As
part of its audit function, they also reviewed BGE's 1998 annual report to
shareholders and various filings with the Securities and Exchange Commission
and Federal Energy Regulatory Commission. THE BOARD OF DIRECTORS RECOMMENDS A
VOTE "FOR" THIS PROPOSAL.
PROPOSAL NO. 4 -- A SHAREHOLDER
PROPOSAL CONCERNING CALVERT
CLIFFS' LICENSE EXTENSIONS
We have been advised by the Maryland Safe Energy Coalition, c/o Richard
Ochs, 1443 Gorsuch, Baltimore, MD 21218, together with co-filers Virginia
Bates, 14949 Old Frederick Rd., Woodbine, MD 21797 and Anne Broderick, 9217
Waycross Rd., Ellicott City, MD 21042, shareholders who together each own
common stock with a market value of at least $2,000, that the following
proposal will be presented for action at the annual meeting.
The Board of Directors' objection follows the shareholder proposal.
The following proposal is presented word-for-word:
A Shareholder Proposal to the Baltimore Gas and Electric Co. for its 1999
Annual Meeting
OPPOSE CALVERT CLIFFS LICENSE EXTENSION
Whereas: Baltimore Gas and Electric Company has applied for a 20 year
extension of the 40 year operating license for Calvert Cliffs Nuclear
Plant;
Whereas: The Calvert Cliffs Nuclear Plant was built and designed to
operate for only 40 years;
Whereas: Degradation and embrittlement of critical components threatens
serious accidents which will cost the company, stockholders, Chesapeake
Bay and nearby population;
Whereas: Operating costs of the Calvert Cliffs plant are higher than other
power sources and operating costs will continue to increase with age of
the plant making the plant even more uneconomical;
THEREFORE BE IT RESOLVED that the shareholders require the Board of
Directors to close and decommission the Calvert Cliffs Nuclear Plant
before or on the originally planned date.
SUPPORTING STATEMENT
As this nuclear plant gets older, repairs will become more expensive, more
numerous and more dangerous. Some of the components of the plant are
inaccessible within reasonable cost. The estimate for replacement of the
steam generators is $300 million! These costs will make it difficult for
BG&E to
32
RATIFICATION OF PRICEWATERHOUSECOOPERS LLP
AS INDEPENDENT ACCOUNTANTS FOR 1999
<PAGE>
compete in a deregulated electric environment. Operation of the plant past
its initial planned lifetime is therefore a bad plan for the company from
a financial standpoint.
Many of the larger nuclear plant parts can not be repaired or replaced at
all. These pieces are becoming brittle due to neutron radiation from the
reactor core. An emergency shutdown, rapid cooling and/or water hammer
could cause these pieces to crack, fail and cause hugely expensive
accidents. Emergency shutdowns occur on average twice a year in American
nuclear power plants. Even 40 years is risky because the effects of
neutron embrittlement were mostly unknown when the plant was built. In
fact, no nuclear reactor has ever operated longer than 34 years, yet BG&E
wants to try to operate the Calvert Cliffs reactors for 60 years. This is
something no one anywhere has ever tried. Risky!
The financial benefits from an additional 20 years of operation will be
small due to the high operating costs which are sure to continue to
increase. Meanwhile the risk of an accident will be going up as the plant
passes its planned design lifetime. Any accident could destroy the
Chesapeake Bay and contaminate Washington D.C. Our position is, "The
benefits are too small to justify the greatly increased risk."
BOARD OF DIRECTORS' OBJECTIONS TO THE PROPOSAL ON CALVERT CLIFFS
Our policy is to operate Calvert Cliffs Nuclear Power Plant in a safe and
efficient manner. The Plant, a key component of our generation strategy for the
future, provides customers our lowest cost energy in a safe and environmentally
sound manner. Calvert Cliffs is one of the primary reasons why our electric
service rates are among the lowest along the east coast.
Ten years ago we began to study the long-term outlook for Calvert Cliffs,
in light of the expiration of the original operating license for Unit 1 in 2014
and Unit 2 in 2016. These studies included a component-by-component,
step-by-step analysis of the viability of extending the operating licenses and
financial and competitive evaluations. We also conducted a thorough assessment
of the Plant's condition, the need for future maintenance, and evaluated the
effect of embrittlement. We received Nuclear Regulatory Commission (NRC)
certification that the Plant will not experience the embrittlement alleged by
the proponents of the proposal during the remainder of the existing licenses or
during the 20-year renewed licenses.
In fact, through an extensive, NRC-approved monitoring program, we
continuously manage the life cycle of the Plant to maintain optimum, safe
operation. Over the years, we have replaced and refurbished components and
structures to keep the Plant running safely and reliably. A significant example
of our life cycle management is the installation of the four new steam
generators at the Plant, expected to be installed in Unit 1 during the 2002
refueling outage and in Unit 2 during the 2003 refueling outage. We believe
that the new steam generators will pay for themselves before the current
license periods expire in 2014 and 2016, and will support operation of the
Plant throughout the license renewal periods.
In recent years, by managing operating costs, Calvert Cliffs has produced
BGE's least expensive power. Calvert Cliffs is in the lower third of regional
nuclear plant costs. As a result, since 1993, we have been able to reduce the
fuel rate we charge customers 11 times. It is now at a 17 year low.
Our overall goal is to make sure BGE maintains a competitive posture in
the marketplace. Obtaining a license renewal for both units at Calvert Cliffs
is a key part of that goal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" THIS PROPOSAL. PROXIES
SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS SHAREHOLDERS SPECIFY A CONTRARY
CHOICE ON THE PROXY CARD.
33
SHAREHOLDER PROPOSAL CONCERNING
CALVERT CLIFFS' LICENSE EXTENSIONS
<PAGE>
PROPOSAL NO. 5 -- A SHAREHOLDER
PROPOSAL CONCERNING
CONFIDENTIAL VOTING
We have been advised by The Trust for the International Brotherhood of
Electrical Workers' Pension Benefit Fund, 1125 Fifteenth St. N.W., Washington,
D.C. 20005, owners of common stock with a market value of at least $2,000, that
the following proposal will be presented for action at the annual meeting.
The Board of Directors' objection follows the shareholder proposal.
The following proposal is presented word-for-word:
BALTIMORE GAS & ELECTRIC COMPANY (BGE)
SHAREHOLDER PROPOSAL CONCERNING
CONFIDENTIAL VOTING
BE IT RESOLVED: That the stockholders of Baltimore Gas & Electric
Company (BGE) ("Company"), recommend that our Board of Directors take the
steps necessary to adopt and implement a policy of CONFIDENTIAL VOTING at
all meetings of its stockholders, which includes the following provisions:
1. That the voting of all proxies, consents and authorizations be
secret, and that no such document shall be available for examination
nor shall the vote or identity of any shareholder be disclosed except
to the extent necessary to meet the legal requirements, if any, of the
Corporation's state of incorporation; and
2. That the receipt, certification and tabulation of such votes shall be
performed by independent election inspectors.
SUPPORTING STATEMENT:
It is the proponents' belief that it is vitally important that a system
of CONFIDENTIAL PROXY VOTING be established at BGE. Confidential balloting
is a basic tenet of our political electoral process ensuring its integrity.
The integrity of corporate board elections should also be protected against
potential abuses given the importance of corporate policies and practices
to corporate owners (stockholders) and our national economy.
The implementation of a CONFIDENTIAL VOTING SYSTEM would enhance
shareholder rights in several ways. First, in protecting the
confidentiality of the corporate ballot, shareholders would feel free to
oppose management nominees and issue positions without fear of retribution.
This is especially important for professional money managers whose business
relationships can be jeopardized by their voting positions.
A second important benefit of CONFIDENTIAL VOTING would be to invigorate
the corporate governance process at the Corporation. We believe that
shareholder activism would be promoted within the Corporation. It is our
belief that shareholders empowered with a free and protected vote would be
more active in the proposing of corporate policy resolutions and alternate
board candidates.
Finally, it is our belief that the enhancement of the proxy voting
process would change the system where too often shareholders vote "with
their feet," not with their ballots. This change would help to develop a
long-term investment perspective where corporate assets could be deployed,
and used in a more effective and efficient manner.
34
SHAREHOLDER PROPOSAL CONCERNING
CONFIDENTIAL VOTING
<PAGE>
THE VAST MAJORITY OF MAJOR CORPORATIONS HAVE ADOPTED A CONFIDENTIAL VOTING
POLICY AND IT'S TIME FOR BGE TO JOIN THEM.
WE URGE YOU TO VOTE FOR THIS PROPOSAL.
BOARD OF DIRECTORS' OBJECTIONS TO THE PROPOSAL ON CONFIDENTIAL VOTING
A confidential voting policy would substantially limit the ability of
shareholders and BGE to communicate with each other, and would not
significantly enhance the confidentiality already available to shareholders.
BGE's existing proxy solicitation system allows shareholders the freedom
to choose whether to vote on a confidential basis. A shareholder who wants
anonymity and confidentiality may hold shares in street name through a bank,
broker, or other nominee who cannot disclose the names of the shareholder
without the shareholder's permission. Shares held by employees in BGE's
employee savings plan are held in trust and voted by the plan trustee. BGE has
no access to the voting instructions employees provide to the trustee. Under
the terms of a trust agreement, plan participants confidentially direct the
trustee how to vote.
Shareholders who choose not to vote on a confidential basis may openly
communicate with management. Large institutional shareholders use their votes
on particular issues to send messages to management. Other shareholders use
proxy cards to write comments to management. The Board of Directors must be
able to use these extremely valuable sources of information to learn the
viewpoints of its shareholders.
A confidential voting policy would impair BGE's ability to contact
shareholders on issues that are important to BGE's success. The Board of
Directors must be able to clarify directly with shareholders issues of
importance to BGE and shareholders, and when necessary to counter false
statements in proxy contests. BGE may need to contact shareholders who have not
voted their proxies to encourage them to vote on important issues. BGE also may
contact shareholders whose proxy cards are not correctly completed, so that
their shares will be voted as they intended. Contact with shareholders is
critical in these situations so that the Board of Directors can proceed in the
best interest of BGE and all of its shareholders, and a confidential voting
policy would limit the Board of Directors' ability to do this.
The proponent argues that confidential voting is necessary to ensure the
integrity of Board elections and protect shareholders from retribution. This is
a farfetched notion for corporate governance and has no historical basis at
BGE. BGE is a good corporate citizen as many long-time shareholders know, and
has always conducted its shareholder solicitations in a fair and equitable
manner, without any threat of retribution. Further, contrary to the proponent's
claim that shareholder activism would be promoted with confidential voting, it
has not been the experience of BGE that its shareholders are reluctant to
communicate with management because of the absence of confidential voting.
Activist shareholders want management to know who they are and what they stand
for.
BGE's existing proxy solicitation system encourages open communication
with shareholders. It permits confidentiality for those who desire it, but does
not mandate it for all shareholders. The existing system has served
shareholders fairly for many years, and has been a valuable tool to help the
Board of Directors and management successfully run BGE.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" THIS PROPOSAL. PROXIES
SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS SHAREHOLDERS SPECIFY A CONTRARY
CHOICE ON THE PROXY CARD.
35
SHAREHOLDER PROPOSAL CONCERNING
CONFIDENTIAL VOTING
<PAGE>
GENERAL QUESTIONS & ANSWERS ON
VOTING PROCEDURES
WHAT IS A QUORUM OF SHAREHOLDERS, AND HOW MANY VOTES DOES IT TAKE TO PASS EACH
MATTER?
A quorum is the presence at the annual meeting in person or by proxy of
shareholders entitled to cast a majority of all the votes entitled to be cast.
Since there were 149,556,416 shares of common stock outstanding on February 18,
1999, 74,778,209 shares is a quorum. Broker non-votes, abstentions and
withhold-authority votes COUNT for purposes of determining a quorum. We must
have a quorum to conduct the meeting. If a quorum of shareholders is present at
the meeting, we need the affirmative vote of the holders of two-thirds of the
outstanding shares of BGE common stock to approve the share exchange, a
plurality of all the votes cast to elect each director, and a majority of all
the votes cast to pass each of the other matters. Broker non-votes, abstentions
and withhold-authority votes DO NOT COUNT as votes cast.
HOW DO I VOTE?
You must be present, or represented by proxy, at the annual meeting in order to
vote your shares. Since many of our shareholders are unable to attend the
meeting in person, we send proxy cards to all of our shareholders.
IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
Your broker has discretion to vote only for the election of directors and
ratification of the independent accountants. Your broker cannot vote your
shares on the share exchange or the shareholder proposals without your
instructions. You should instruct your broker to vote your shares on these
matters, following the directions your broker provides.
WHAT IS A PROXY?
A proxy is a person you appoint to vote on your behalf. We solicit proxies so
that all common shares may be voted at the annual meeting. You must complete
and return the enclosed proxy card to have your shares voted by proxy by BGE
management.
BY COMPLETING AND RETURNING THE PROXY CARD, WHO AM I DESIGNATING AS MY PROXY?
You will be designating Jerome W. Geckle, George V. McGowan, and Christian H.
Poindexter as your proxies.
HOW WILL MY PROXY VOTE MY SHARES?
Your proxy will vote according to the instructions on your proxy card. If you
complete and return your proxy card but do not indicate your vote on the
matters, your proxy will vote "FOR" Items 1, 2 and 3 and "AGAINST" Items 4 and
5. Also, your proxy card will give your proxy authority to vote, using his best
judgment, on any other business that properly comes before the meeting.
WHO IS ENTITLED TO VOTE AT THE ANNUAL MEETING, AND HOW MANY VOTES DO THEY HAVE?
Common shareholders who own shares as of February 18, 1999 may vote at the
meeting. Each share has one vote. There were 149,556,416 shares of common stock
outstanding on that date.
36
GENERAL QUESTIONS & ANSWERS ON
VOTING PROCEDURES
<PAGE>
HOW DO I VOTE USING MY PROXY CARD?
There are three steps.
1. Vote on each of the matters as follows:
o ITEMS 1, 3, 4 AND 5. You check the box "FOR," or "AGAINST," or
"ABSTAIN" (to cast no vote).
o ITEM 2. The names of all the directors to be elected are listed on your
proxy card. You have three options:
o OPTION 1. To vote for all directors, you check the box marked
"FOR."
o OPTION 2. To vote for some of the directors and against the rest,
you check the box marked "FOR" and then draw a line through the
names of the directors that you want to vote against.
o OPTION 3. To abstain from voting for all directors (that is, not
vote for or against any of the directors), you check the box marked
"WITHHOLD AUTHORITY."
2. Sign and date your proxy card. IF YOU DO NOT SIGN AND DATE YOUR PROXY
CARD, YOUR VOTES CANNOT BE COUNTED.
3. Mail your proxy card in the pre-addressed, postage-paid envelope.
REMEMBER TO CHECK THE BOX ON YOUR PROXY CARD IF YOU PLAN TO ATTEND THE ANNUAL
MEETING.
HOW DO I REVOKE MY PROXY?
You may revoke your proxy at any time before your shares are voted at the
annual meeting by:
o notifying our Corporate Secretary, David A. Brune, in writing at P.O. Box
1475, Baltimore, MD 21203-1475, that you are revoking your proxy; or
o completing and sending in another proxy card at a later date; or
o attending the annual meeting and voting by ballot.
WHY MIGHT I RECEIVE MORE THAN ONE PROXY CARD? SHOULD I VOTE ON EACH PROXY CARD
I RECEIVE?
First, you may have various accounts with us that are registered differently,
perhaps in different names or different social security or federal tax
identification numbers. Second, you may also own shares indirectly through your
broker or our employee savings plan. Your broker or our plan trustee will send
you a proxy card for these shares. You should vote on each proxy card you
receive and mail it to the address shown on the proxy card.
CAN I VOTE BY PROXY EVEN IF I PLAN TO ATTEND THE ANNUAL MEETING?
Yes. If you vote by proxy, you do not need to fill out a ballot at the annual
meeting, unless you want to change your vote.
WHO IS SOLICITING MY PROXY, HOW IS IT BEING SOLICITED, AND WHO PAYS THE COST?
BGE, on behalf of the Board of Directors, through its directors, officers and
employees, is soliciting proxies primarily by mail. However, proxies may also
be solicited in person, by telephone or facsimile. Georgeson & Company, Inc., a
proxy solicitation firm, will be assisting us for a fee of approximately
$19,500 plus out-of-pocket expenses. BGE pays the cost of soliciting proxies.
37
GENERAL QUESTIONS & ANSWERS ON
VOTING PROCEDURES
<PAGE>
SUBMISSION OF SHAREHOLDER PROPOSALS
FOR NEXT YEAR
For Inclusion in Next Year's Proxy Statement. If the share exchange
occurs, any Constellation Energy shareholder who wants to include a proposal in
the proxy statement for the 2000 annual meeting must deliver it so we receive
it by November 8, 1999.
If the share exchange does not occur, any BGE shareholder who wants to
include a proposal in the proxy statement for the 2000 annual meeting must
deliver it so we receive it by November 8, 1999.
For Presentation at the Next Annual Meeting. If the share exchange occurs,
any Constellation Energy shareholder who wants to present a proposal at the
2000 annual meeting must deliver it so we receive it by December 20, 1999.
Proposals not received by this date may not be presented at the annual meeting.
If the share exchange does not occur, any BGE shareholder who wants to
present a proposal at the 2000 annual meeting must deliver it so we receive it
by January 20, 2000 in order for it to be considered timely filed in accordance
with the Securities Exchange Act of 1934. For proposals timely filed, your
proxy retains discretion to vote your shares, provided: (1) BGE includes in its
proxy statement a description of the proposal and how the proxy intends to
vote, and (2) the proponent does not issue a proxy statement. For proposals not
timely filed because they are received after January 20, 2000, your proxy has
the discretion to vote your shares in accordance with his best judgment, if the
matter is brought before the annual meeting.
Any proposals must be sent, in writing, to the Secretary of BGE or
Constellation Energy, as applicable, at P.O. Box 1475, Baltimore, MD
21203-1475. Proposals will not be accepted by facsimile.
WHERE YOU CAN GET MORE INFORMATION
Constellation Energy has filed a registration statement on form S-4 to
register with the Securities and Exchange Commission (SEC) its common stock to
be issued in the share exchange. This proxy statement and prospectus is a part
of that registration statement and constitutes a prospectus of Constellation
Energy in addition to being a proxy statement of BGE for the annual meeting. As
permitted by SEC rules, this proxy statement and prospectus does not contain
all the information you can find in the registration statement or in its
exhibits. Statements made in this proxy statement and prospectus about the
contents of any document included as an exhibit are qualified in their entirety
by reference to that exhibit.
BGE files annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document BGE files at
the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C.,
20549. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference room. The SEC maintains a web site at http://www.sec.gov that
contains reports, proxy and information statements, and other information,
regarding issuers (including BGE) that file documents with the SEC
electronically. BGE's SEC filings may also be obtained from its web site at
http://www.bge.com. Following the share exchange, Constellation Energy will
make these filings, and they will be available from the SEC as described above
and at Constellation Energy's web site at http://www.Constellation.com.
The SEC allows BGE to "incorporate by reference" the information it files
with the SEC, which means that BGE can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and later information that BGE files
with
38
SUBMISSION OF SHAREHOLDER PROPOSALS
FOR NEXT YEAR
<PAGE>
the SEC will automatically update and supersede this information. BGE
incorporates by reference the document(s) listed below and any future filings
made with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities
Exchange Act of 1934 until the share exchange is completed. Constellation
Energy incorporates by reference any future filings made with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until
the share exchange is completed.
o Annual Report on Form 10-K for the year ended December 31, 1997;
o Quarterly Reports on Form 10Q for the quarters ended March 31, 1998, June
30, 1998 and September 30, 1998;
o Current Reports on Form 8-K dated June 15, 1998 and January 21, 1999.
If you are a BGE shareholder, you may have already received some of the
documents incorporated by reference. If you need copies of the documents you
can obtain them as described above.
FORWARD LOOKING STATEMENTS
BGE and Constellation Energy make statements in this proxy statement and
prospectus and the documents incorporated by reference that are considered
forward looking statements within the meaning of the Securities Act of 1933 and
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 future performance and are
subject to risks, uncertainties and other important factors that could cause
actual performance or achievements to be materially different from those
projected. These risks, uncertainties and factors include:
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 documents incorporated by reference
for more information on these factors. These forward looking statements
represent estimates and assumptions only as of the date of this proxy statement
and prospectus.
39
FORWARD LOOKING STATEMENT
<PAGE>
VALIDITY OF CONSTELLATION ENERGY
COMMON STOCK
The validity of the shares of Constellation Energy common stock to be
issued in the share exchange will be passed upon by Janet E. McHugh, Esq.,
counsel to Constellation Energy.
EXPERTS
PricewaterhouseCoopers LLP, independent accountants, audited BGE's annual
financial statements and schedules incorporated by reference in this proxy
statement and prospectus. BGE's financial statements and schedules are
incorporated by reference in this document in reliance on the authority of that
firm as experts in accounting and auditing.
40
VALIDITY OF CONSTELLATION ENERGY COMMON STOCK
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF SHARE EXCHANGE
BETWEEN
BALTIMORE GAS AND ELECTRIC COMPANY
AND
CONSTELLATION ENERGY GROUP, INC.
RECITALS
Baltimore Gas and Electric Company ("BGE") is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Maryland and has authorized one hundred seventy-five million (175,000,000)
shares of Common Stock, no par value. The shares of Common Stock, which are the
only shares entitled to vote on the share exchange, are entitled to one (1)
vote per share on this plan of share exchange.
Constellation Energy Group, Inc. ("Constellation Energy"), a wholly-owned
subsidiary corporation of BGE, is a corporation duly organized, validly
existing and in good standing under the laws of the State of Maryland and has
authorized two hundred fifty million (250,000,000) shares of Common Stock, no
par value.
The Board of Directors of BGE has adopted resolutions approving this
Agreement and Plan of Share Exchange (the "Agreement") and declaring the Plan
of Share Exchange advisable in accordance with the Maryland General Corporation
Law ("MGCL") and directing that the Agreement be submitted to the common
shareholders of BGE for approval.
ARTICLE I
1.01 BGE and Constellation Energy shall effect a share exchange (the
"Exchange") in accordance with and subject to the terms of this Agreement,
subject to (1) the receipt of all necessary regulatory approvals which do not
contain, in the sole judgment of the Board of Directors of BGE, unacceptable
conditions; (2) receipt of shareholder approval as required by the MGCL and
BGE's charter; and (3) amendment of Section 6-101(c) of the Public Utility
Companies Article of the Annotated Code of Maryland allowing BGE to form a
holding company which does not contain, in the sole judgment of the Board of
Directors of BGE, unacceptable conditions; (4) the receipt of approval of the
listing, on official notice of issuance, of the Constellation Energy Common
Stock; (5) the receipt of an opinion of counsel covering certain United States
federal income tax matters; and (6) the effectiveness of a registration
statement under the Securities Act of 1933 relating to Constellation Energy
Common Stock to be issued or reserved for issuance in connection with the
Exchange.
1.02 The Articles of Share Exchange (the "Articles"), complying in all
respects with the MGCL, shall be delivered to the Maryland Department of
Assessments and Taxation ("MDAT"). The Exchange shall become effective as
specified in the Articles filed with the MDAT (the "Effective Time").
ARTICLE II
2.01 At the Effective Time, each share of BGE's Common Stock valid and
outstanding immediately prior to the Effective Time will be exchanged for one
(1) share of Constellation Energy's Common Stock, which Constellation Energy
shares shall be validly issued, fully paid and nonassessable, and Constellation
Energy shall thereupon have acquired and be the holder of each share of BGE's
Common Stock exchanged in the Exchange.
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2.02 Each share of BGE's Common Stock held in the treasury of BGE
immediately prior to the Effective Time shall be cancelled and shall be
restored to the status of an authorized but unissued share of BGE's Common
Stock.
2.03 Immediately after the Effective Time, all of the issued and
outstanding shares of BGE's Common Stock will be held by Constellation Energy,
and all of the issued and outstanding shares of Constellation Energy Common
Stock will be held by the holders of shares of BGE's Common Stock that were
outstanding immediately prior to the Effective Time.
2.04 Shares of BGE's preferred and preference stock shall not be exchanged
or otherwise affected by this plan of share exchange. Each share of BGE's
preferred and preference stock issued and outstanding immediately prior to the
Effective Time of the share exchange shall continue to be issued and
outstanding following the Exchange.
2.05 Each outstanding certificate which immediately prior to the Effective
Time represents BGE's Common Stock shall, without any further action on the
part of the holder thereof, be deemed and treated for all corporate purposes to
represent the ownership of the same number of shares of Constellation Energy
Common Stock as though a surrender or transfer and exchange had taken place.
The holders of BGE's Common Stock at the Effective Time shall have no right at
and after the Effective Time to have their shares of BGE's Common Stock
transferred on the stock transfer books of BGE (such stock transfer books being
deemed closed for this purpose at the Effective Time) and at and after the
Effective Time such stock transfer books may be deemed to be the stock transfer
books of Constellation Energy.
2.06 At the Effective Time, Constellation Energy shall adopt a shareholder
investment plan ("Constellation Energy SIP") substantially similar to BGE's
Shareholder Investment Plan ("BGE SIP") in effect immediately prior to the
Effective Time and the BGE SIP shall be discontinued. At the Effective Time,
all shares of BGE's Common Stock held under the BGE SIP (including fractional
and uncertificated shares) shall be exchanged for shares (including fractional
and uncertificated shares) of Constellation Energy Common Stock and shall be
held pursuant to the Constellation Energy SIP. At the Effective Time,
Constellation Energy shall adopt, become subject to and/or agree to issue
Constellation Energy Common Stock in connection with BGE's Employee Savings
Plan, 1995 Long-Term Incentive Plan, and the Manager Long-Term Incentive Plan
(collectively, the "BGE Plans"); and, by virtue of the Exchange and without any
action on the part of the holder thereof, each right or option under the BGE
Plans to purchase shares of BGE's Common Stock granted and outstanding
immediately prior to the Effective Time shall be converted into and become a
right or option to purchase an equivalent number of shares of Constellation
Energy Common Stock at the same price per share, and upon the same terms and
subject to the same conditions, as applicable immediately prior to the
Effective Time under the relevant right or option.
Constellation Energy will reserve, for purposes of the BGE Plans, a number
of shares of Constellation Energy Common Stock equivalent to the number of
shares of BGE's Common Stock reserved by BGE for such purposes immediately
prior to the Effective Time.
2.07 Prior to or as of the Effective Time, BGE shall cause each director
of BGE who is not then also a director of Constellation Energy to be elected a
director of Constellation Energy, so that as of the Effective Time,
Constellation Energy will have 15 board members.
2.08 Immediately prior to the Effective Time, each share of Constellation
Energy's Common Stock issued and outstanding immediately before the Effective
Time shall be cancelled and thereupon shall constitute an authorized but
unissued share, and all rights in respect thereof shall cease. BGE, pursuant to
the Agreement, as the sole holder of Constellation Energy's Common Stock,
consents to such cancellation.
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ARTICLE III
3.01 Notwithstanding satisfaction of the conditions specified in Article I
of this Agreement, this Agreement may be amended or terminated or the Exchange
abandoned at any time prior to the Effective Time. Following adoption of the
Plan of Share Exchange by stockholders of BGE, no amendment to this Agreement
may materially and adversely affect the rights of the stockholders of BGE, as
determined in the sole judgment of the Board of Directors of BGE.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
Plan of Share Exchange as of February 19, 1999.
BALTIMORE GAS AND ELECTRIC COMPANY
By: /s/ David A. Brune
------------------------------
David A. Brune, Vice President
CONSTELLATION ENERGY GROUP, INC.
By: /s/ Thomas E. Ruszin, Jr.
--------------------------------
Thomas E. Ruszin, Jr., Treasurer
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<PAGE>
APPENDIX B
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
CONSTELLATION ENERGY GROUP, INC.
The Amended and Restated Articles of Incorporation of Constellation Energy
Group, Inc. are as follows:
FIRST: CORPORATE NAME. The name of the corporation (the "CORPORATION") is
Constellation Energy Group, Inc.
SECOND: PRINCIPAL OFFICE; RESIDENT AGENTS. The post office address of the
principal office of the Corporation in this State is 39 West Lexington Street,
Baltimore, Maryland 21201. The names and post office address of the Resident
Agents of the Corporation in this State are Kerry B. Fisher and Robert S.
Fleishman, 39 West Lexington Street, Baltimore, Maryland 21201. Said Resident
Agents are individuals actually residing in this State.
THIRD: PURPOSES. The nature of the business or purposes to be conducted or
promoted are:
(a) To conduct or promote the energy business, including, but not limited
to, the gas and electric energy business.
(b) To engage in and carry on any other business which may conveniently be
conducted in conjunction with any business of the Corporation, or
otherwise, or that may benefit the interests of the Corporation.
(c) To have and exercise all powers necessary or convenient to effectuate
any or all of the purposes for which the Corporation is formed.
(d) In general, to engage in any lawful act or activity for which
corporations may be organized under the general laws of the State of
Maryland.
The foregoing purposes shall, except when otherwise expressed, be in no
way limited or restricted by the terms of any other clause of this or any other
article of these Articles of Incorporation or of any amendment thereto, and
shall each be regarded as independent, and construed as powers as well as
purposes.
The Corporation shall be authorized to exercise and enjoy all of the
powers, rights and privileges granted to, or conferred upon, corporations by
the general laws of the State of Maryland now or hereafter in force, and the
enumeration of the foregoing powers and purposes shall not be deemed to exclude
any powers, rights or privileges so granted or conferred.
FOURTH: DURATION. The duration of the Corporation is perpetual.
FIFTH: BOARD OF DIRECTORS.
(a) MANAGEMENT OF CORPORATION. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors.
(b) NUMBER. The Board of Directors shall consist of no less than three (3)
members. The actual number of Directors shall be as set forth in the
by-laws.
(c) VACANCY.
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(i) Any vacancy on the Board of Directors that results from any cause
other than an increase in the number of Directors may be filled by a
majority of the remaining Directors although such majority is less
than a quorum, or by a sole remaining Director.
(ii) Any vacancy on the Board of Directors that results from an increase
in the number of Directors may be filled only by a majority of the
Board of Directors.
(d) REMOVAL. Subject to the rights of the holders of any class separately
entitled to elect one or more directors, any director, or the entire
Board of Directors, may be removed from office at any time, but only for
cause (as defined below) and then only by the affirmative vote of the
holders of at least a majority of the combined voting power of all
classes of shares of capital stock entitled to vote in the election for
directors voting together as a single class.
As used in this Charter, "cause" shall mean dishonesty, fraud,
intentional material damage to the property or business of the
Corporation, commission (resulting in conviction) of a felony or other
actions not meeting the standard of care required of directors under the
Maryland General Corporation Law.
(e) OTHER VOTING RIGHTS. Notwithstanding any other provision of this
Article FIFTH, whenever the holders of any class or series of stock
issued by the Corporation shall have the right, voting separately by
class or series, to elect Directors at an annual or special meeting of
stockholders, the election, term of office, filling of vacancies and
other features of such directorships shall be governed by the terms of
the Charter applicable thereto.
SIXTH: CAPITAL STOCK.
(a) The total amount of capital stock which this Corporation is authorized
to issue is two hundred seventy-five million (275,000,000) shares,
classified as follows:
(i) twenty-five million (25,000,000) shares are Preferred Stock, $.01
par value per share, all of which are authorized but unissued and
unclassified Preferred Stock. The Preferred Stock may be issued from
time to time in one or more series. The Board of Directors is
authorized, by resolution adopted and filed in accordance with the
Maryland General Corporation Law, to fix the number of shares in
each series, the designation thereof, the voting powers, votes per
share (which, in any case, shall be no greater than one vote per
share), preferences, relative participating, optional or other
rights thereof, conversion rights, redemption, put and sinking fund
provisions, the qualifications or restrictions thereon, dividend
rights, and the terms or conditions of redemption, of each series
and the variations in such voting powers and preferences and rights
as between series. Any shares of any class or series of Preferred
Stock purchased, exchanged, converted or otherwise acquired by the
Corporation, in any manner whatsoever, shall be retired and
cancelled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued shares
of Preferred Stock, without designation as to series, and may be
reissued as part of any series of Preferred Stock created by
resolution or resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth in these Articles
of Incorporation or in such resolution or resolutions; and
(ii) the balance, two hundred fifty million (250,000,000) shares without
par value, is Common Stock of which one hundred fifty-one million,
eleven thousand, six hundred and sixty-three (151,011,663) shares
have either been issued and are now outstanding or have been
reserved for issuance and forty-eight million, nine hundred
eighty-eight thousand, three hundred thirty-seven (48,988,337)
shares are authorized but unissued and unreserved.
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SEVENTH: POWERS OF THE CORPORATION. The following provisions are hereby
adopted for the purpose of defining, limiting and regulating the powers of the
Corporation and its Directors and stockholders:
(a) The Board of Directors of the Corporation is hereby empowered to
authorize the issuance from time to time of shares of its stock of any
class, whether now or hereafter authorized, or securities convertible
into shares of its stock of any class, whether now or hereafter
authorized, without the approval of the stockholders of the Corporation
for such consideration as is determined by the Board of Directors in
accordance with applicable law.
(b) Notwithstanding any other provision contained in these Articles of
Incorporation, the Board of Directors of the Corporation may authorize
the issuance of some or all of the shares of Common Stock or Preferred
Stock of any or all classes or series authorized under these Articles of
Incorporation without certificates. This authorization shall not affect
shares already represented by certificates outstanding until they are
surrendered to the Corporation.
(c) No stockholder of the Corporation shall have preferential or preemptive
rights to subscribe for, purchase or otherwise acquire any stock or
other securities of the Corporation, now or hereafter authorized, and
any and all preemptive rights are hereby denied.
(d) The Corporation reserves the right from time to time to make any
amendment of its Charter, now or hereafter authorized by law, including
any amendment which alters the contract rights, as expressly set forth
in the Charter, of any outstanding stock.
(e) The Board of Directors may classify or reclassify any unissued shares
of stock of the Corporation by setting or changing in any one or more
respects, from time to time before issuance of such shares, the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms or conditions of
redemption of such shares.
(f) With respect to any corporate action to be taken by the Corporation
which, under the Maryland General Corporation Law, would (in the absence
of this subparagraph (f) of this Article SEVENTH) require the
authorization or approval of a greater proportion than a majority of all
votes entitled to be cast for such action to be effective and valid,
such corporate action shall be effective and valid if authorized or
approved by at least a majority of all the votes entitled to be cast
thereon, after due authorization and/or approval and/or advice of such
action by the Board of Directors as required by law.
EIGHTH: INDEMNIFICATION AND LIMITATION OF LIABILITY.
(a) (i) The Corporation shall indemnify
(A) its Directors and Officers, whether serving the Corporation or at
its request any other entity, to the full extent required or
permitted by the general laws of the State of Maryland, now or
hereafter in force, including the advance of expenses, under the
procedures and to the full extent permitted by law, and
(B) other employees and agents, to such extent as shall be authorized
by the Board of Directors or the Corporation's by-laws and be
permitted by law.
(ii) The foregoing rights of indemnification shall not be exclusive of
any other rights to which those seeking indemnification may be
entitled.
(iii) The Board of Directors may take such action as is necessary to
carry out these indemnification provisions and is expressly
empowered to adopt, approve and amend from time to time such
by-laws, resolutions or contracts implementing such provisions or
such further indemnification
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<PAGE>
arrangements as may be permitted by law. No amendment of the Charter
of the Corporation or repeal of any of its provisions shall limit or
eliminate the right to indemnification provided hereunder with
respect to any act or omission occurring prior to such amendment or
repeal.
(b) To the fullest extent permitted by Maryland statutory or decisional
law, as amended or interpreted, no Director or Officer of this
Corporation shall be personally liable to the Corporation or its
stockholders for money damages. No amendment of the Charter of the
Corporation or repeal of any of its provisions shall limit or eliminate
the limitation on liability provided to Directors and Officers hereunder
with respect to any act or omission occurring prior to such amendment or
repeal.
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<PAGE>
APPENDIX C
BY-LAWS
OF
CONSTELLATION ENERGY GROUP, INC.
ARTICLE I
OFFICES AND HEADQUARTERS
Section 1. -- NAME.
The name of the corporation is Constellation Energy Group, Inc. (the
"Corporation").
Section 2. -- OFFICES.
The principal office of the Corporation is 39 West Lexington Street,
Baltimore, Maryland 21201. The Corporation may also have other offices at such
other places, either within or without the State of Maryland, as the Board of
Directors of the Corporation (the "Board") may determine or as the activities
of the Corporation may require.
ARTICLE II
STOCKHOLDERS
Section 1. -- PLACE OF MEETINGS.
Meetings of stockholders of the Corporation shall be held at such places,
either within or without the State of Maryland as may be fixed from time to
time by the Board and stated in the notice of meeting or in a duly executed
waiver of notice thereof.
Section 2. -- ANNUAL MEETINGS.
The Annual Meeting of the stockholders for the election of Directors and
for the transaction of general business shall be held on any date during the
period of April 14 through May 13, as determined year to year by the Board. The
time and location of the meeting shall be determined by the Board. Failure to
hold an Annual Meeting does not invalidate the Corporation's existence or
affect any otherwise valid corporate acts.
The Chief Executive Officer of the Corporation shall prepare, or cause to
be prepared, an annual report containing a full and correct statement of the
affairs of the Corporation, including a balance sheet and a financial statement
of operations for the preceding fiscal year, which shall be submitted to the
stockholders at or prior to the Annual Meeting.
Section 3. -- SPECIAL MEETINGS.
Special meetings of the stockholders may be held in the City of Baltimore
or in any county in which the Corporation provides service or owns property
upon call by the Chairman of the Board, the President, or a majority of the
Board whenever they deem expedient, or by the Secretary upon the written
request of the holders of shares entitled to not less than twenty-five percent
of all the votes entitled to be cast at such meeting. Such request of the
stockholders shall state the purpose or purposes of the meeting and the matters
proposed to be acted on thereat and shall be delivered to the Secretary, who
shall inform such stockholders of the reasonably estimated cost of preparing
and mailing such notice of the meeting, and upon payment to the Corporation of
such costs the Secretary shall give notice stating the purpose or purposes of
the meeting to all
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stockholders entitled to vote at such meeting. No special meeting need be
called upon the request of the holders of the shares entitled to cast less than
a majority of all votes entitled to be cast at such meeting, to consider any
matter which is substantially the same as a matter voted upon at any special
meeting of the stockholders held during the preceding twelve months. The
business at all special meetings shall be confined to that specifically named
in the notice thereof.
Section 4. -- NOTICE AND WAIVER; ORGANIZATION OF MEETING.
When stockholders are required or permitted to take any action at a
meeting whether special or annual, written or printed notice of every meeting
shall be given to each stockholder entitled to vote at the meeting and each
other stockholder entitled to notice of the meeting. The notice shall state the
place, day, and hour of such meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called. The written notice of any
meeting shall be given, personally or by mail, not less than 10 or more than 90
days before the date of the meeting. If mailed, such notice shall be deemed
given when deposited with the United States Postal Service, postage prepaid,
addressed to the stockholder at his or her address as it appears on the records
of the Corporation or its registrar. The business at all special meetings shall
be confined to that specifically named in the notice thereof.
When a meeting is adjourned to another time or place, notice need not be
given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken unless the adjournment is for
more than 120 days, or, if after the adjournment, a new record date is fixed
for the adjourned meeting, in which circumstances a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting. At the adjourned meeting the Corporation may transact any business
which might have been transacted at the original meeting.
Notice of any meeting of stockholders may be waived in writing by any
stockholders entitled to vote at such meeting. Attendance at a meeting by any
stockholder, in person or by proxy, shall constitute a waiver of notice of such
meeting, except when the person attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened.
All meetings of the stockholders shall be called to order by the Chairman
of the Board, or in his or her absence by the President or a Vice President; or
in the case of the absence of such Officers, then by any stockholder. The party
calling the meeting to order shall be Chairman of the meeting. The Secretary of
the Corporation, if present, shall act as secretary of the meeting, unless some
other person shall be elected by the stockholders at the meeting to act as
secretary. An accurate record of the meeting shall be kept by the secretary
thereof, and placed in the record books of the Corporation.
Section 5. -- ORDER OF BUSINESS.
(a) At any Annual Meeting, only such business shall be conducted as shall
have been brought before the Annual Meeting (i) by or at the direction
of the Board, or (ii) by any stockholder who complies with the
procedures set forth in this Section 5.
(b) For nominations or other business to be brought properly before an
Annual Meeting by a stockholder, the stockholder must have given timely
notice thereof in proper written form to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered to
or mailed and received at the principal office of the Corporation not
less than 75 days prior to the anniversary of the date on
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which notice of the prior year's Annual Meeting was given to
stockholders in accordance with Section 4 of this Article II. Notices by
facsimile will not be accepted by the Secretary of the Corporation. To
be in proper written form, a stockholder's notice to the Secretary shall
set forth in writing as to each matter the stockholder proposes to bring
before the Annual Meeting:
(i) as to each person whom the stockholder proposes to nominate for
election or re-election as a Director, all information relating to
such person that is required to be disclosed in solicitations of
proxies for election of Directors, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of
1934 (the "Exchange Act") or any applicable successor provisions
thereto, including such person's written consent to being named in
the proxy statement as a nominee and to serving as a Director if
elected; and as to the stockholder giving the notice, the name and
address, as they appear on the Corporation's books, of the
stockholder proposing such nomination and the class and number of
shares of stock of the Corporation which are beneficially owned by
the stockholder.
(ii) as to any other business that the stockholder proposes to bring
before the meeting:
(A) a brief description of the business desired to be brought before
the Annual Meeting and the reasons for conducting such business
at the Annual Meeting;
(B) the name and address, as they appear on the Corporation's books,
of the stockholder proposing such business;
(C) the class and number of shares of stock of the Corporation which
are beneficially owned by the stockholder; and
(D) any material interest of the stockholder in such business.
(c) Notwithstanding anything in these by-laws to the contrary, no business
shall be conducted at an Annual Meeting except in accordance with the
procedures set forth in this Section 5 of Article II. The Chairman of an
Annual Meeting shall, if the facts warrant, determine and declare at the
Annual Meeting that business was not properly brought before the Annual
Meeting in accordance with the provisions of this Section 5 of Article
II and, if the Chairman should so determine, he or she shall so declare
at the Annual Meeting and any such business not properly brought before
the Annual Meeting shall not be transacted.
(d) Notwithstanding the foregoing provisions of this Section, a stockholder
shall also comply with all applicable requirements of the Exchange Act
and the rules and regulations thereunder with respect to the matters set
forth in this Section. Nothing in this Section shall be deemed to affect
any rights of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange
Act.
Section 6. -- QUORUM.
At any meeting of the stockholders the presence in person or by proxy of
stockholders entitled to cast a majority of the votes thereat shall constitute
a quorum for the transaction of business.
When a quorum is once present to organize a meeting, it is not broken by
the subsequent withdrawal of any stockholders.
The stockholders present, although less than a quorum, may adjourn the
meeting to another time or place; provided that notice of such adjourned
meeting is given in accordance with the provisions of Section 4 of this Article
II.
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Section 7. -- VOTING; PROXIES.
At all meetings of the stockholders each stockholder shall be entitled to
one vote for each share of Common Stock standing in his or her name and, when
the Preferred Stock is entitled to vote, such number of votes as shall be
provided in the Charter of the Corporation for each share of Preferred Stock
standing in his or her name, and the votes shall be cast by stockholders in
person or by lawful proxy. However, no proxy shall be voted 11 months after the
date thereof, unless the proxy provides for a longer period.
Section 8. -- METHOD OF VOTING.
All elections and all other questions shall be decided by a majority of
the votes cast, at a meeting at which a quorum is present, except as expressly
provided otherwise by the general laws of the State of Maryland or the Charter
and except that Directors shall be elected by a plurality of the votes cast.
Section 9. -- OWNERSHIP OF ITS OWN STOCK.
Shares of capital stock of the Corporation held by either (i) the
Corporation or (ii) another corporation, if a majority of the shares entitled
to vote in the election of Directors of such other corporation is held,
directly or indirectly, by the Corporation (a "Controlled Corporation"), shall
neither be entitled to vote nor be counted for quorum purposes. Nothing in this
Section 9 shall be construed as limiting the right of the Corporation or any
Controlled Corporation to vote stock of the Corporation held by it in a
fiduciary capacity.
Section 10. -- JUDGE OF ELECTION AND TELLERS.
The Directors shall, at a regular or special meeting, appoint a Judge of
Election and two Tellers to serve at each meeting of stockholders. If the
Directors fail to make such appointments, or if the Judge of Election and/or
Tellers, or any of them, fail to appear at the meeting, the Chairman of the
meeting shall appoint a Judge of Election and/or a Teller or Tellers to serve
at that meeting. It shall be the duty of the Tellers to receive the ballots of
all the holders of stock entitled to vote and present at a meeting either in
person or by proxy, and to count and tally said ballots by the official record
of stockholders of the Corporation, or by a summary prepared therefrom and
certified by the Stock Transfer Agent or the Secretary of the Corporation
showing the number of shares of Common and, if entitled to vote, Preferred
Stock owned of record by each stockholder, who may be designated therein by
name, code number, or otherwise, and certify them to the Judge of Election, and
the said Judge shall communicate in writing the result of the balloting so
certified by the Tellers to the Chairman who shall at once announce the same to
the meeting. This certificate, signed by the Tellers and countersigned by the
Judge, shall be duly recorded as part of the minutes of the meeting and filed
among the records of the Corporation.
Section 11. -- RECORD DATE FOR STOCKHOLDERS; CLOSING OF TRANSFER BOOKS.
The Board may fix, in advance, a date as the record for the determination
of the stockholders entitled to notice of, or to vote at, any meeting of
stockholders, or entitled to receive payment of any dividend, or entitled to
the allotment of any rights, or for any other proper purpose. Such date in any
case shall not be more than 90 days (and in the case of a meeting of
stockholders not less than 10 days) prior to the date on which the particular
action requiring such determination of stockholders is to be taken. Only
stockholders of record on such date shall be entitled to notice of or to vote
at such meeting or to receive such dividends or rights, as the case may be. In
lieu of fixing a record date the Board may close the stock transfer books of
the Corporation for a period not exceeding 20 nor less than 10 days preceding
the date of any meeting of stockholders or not exceeding 20 days preceding any
other of the above mentioned events.
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ARTICLE III
BOARD OF DIRECTORS AND COMMITTEES
Section 1. -- POWERS OF DIRECTORS.
The business and affairs of the Corporation shall be managed by the Board
which shall have and may exercise all the powers of the Corporation, except
such as are expressly conferred upon or reserved by the stockholders by law, by
Charter, or by these by-laws. Except as otherwise provided herein, the Board
shall appoint the Officers for the conduct of the business of the Corporation,
determine their duties and responsibilities and fix their compensation. The
Board may remove any Officer.
Section 2. -- NUMBER AND ELECTION OF DIRECTORS.
The number of Directors shall be fifteen (15), or such other number as the
Board of Directors shall determine by amendment to these by-laws. Each Director
shall own at least 300 shares of the Corporation's Common Stock. The Directors
shall be elected at each Annual Meeting of the stockholders except as otherwise
provided in these by-laws. They shall hold their offices for one year and until
their successors are elected and qualified, or until their earlier resignation
or removal.
Section 3. -- VACANCIES.
Any vacancy occurring in the Board from any cause other than by reason of
a removal or an increase in the number of Directors, may be filled only by a
majority of the remaining Directors although such majority is less than a
quorum or by a sole remaining Director. Any vacancy occurring by reason of an
increase in the number of Directors may be filled only by a majority of
Directors. A Director elected to fill a vacancy shall hold office until the
next Annual Meeting of stockholders and until his or her successor is elected
and qualified, or until his or her earlier resignation or removal.
Section 4. -- RESIGNATIONS.
Any Director of the Corporation may resign at any time by giving written
notice to the Corporation. Such resignation shall take effect at the time
specified therein, if any, or if no time is specified therein, then upon
receipt of such notice by the Corporation; and, unless otherwise provided
therein, the acceptance of such resignation shall not be necessary to make it
effective.
Section 5. -- MEETINGS OF THE BOARD.
A regular meeting of the Board shall be held immediately after the Annual
Meeting of stockholders or any special meeting of the stockholders at which the
Board is elected, and thereafter regular meetings of the Board shall be held on
such dates during the year as may be designated from time to time by the Board.
All meetings of the Board shall be held at the general offices of the
Corporation in the City of Baltimore or elsewhere, as ordered by the Board. Of
all such meetings (except the regular meeting held immediately after the
election of Directors) the Secretary shall give notice to each Director
personally or by telephone, by facsimile directed to, or by written notice
deposited in the mails addressed to, his or her residence or business address
at least 48 hours before such meeting.
Special meetings may be held at any time or place upon the call of the
Chairman of the Board, or the President, or in their absence, on order of the
Executive Committee by notices as above. In the event three-fourths of the
Directors in office waive notice of any meeting in writing at or before the
meeting, the meeting may be held without the aforesaid advance notices.
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The Chairman shall preside at all meetings of the Board, or, in his or her
absence, the President or one of the Vice Presidents (if a member of the Board)
shall preside. If at any meeting none of the foregoing persons is present, the
Directors present shall designate one of their number to preside at such
meeting.
Section 6. -- TELEPHONE MEETINGS PERMITTED.
Members of the Board, or any committee, may participate in a meeting
thereof by means of conference telephone or similar communications equipment in
which all persons participating in the meeting can hear each other, and such
participation shall constitute presence in person at such meeting.
Section 7. -- QUORUM.
A majority of the Directors in office shall constitute a quorum of the
Board for the transaction of business. If a quorum be not present at any
meeting, a majority of the Directors present may adjourn to any time and place
they may see fit.
Section 8. -- EXECUTIVE COMMITTEE.
The Directors shall annually, at their first meeting succeeding the
stockholders' meeting at which they are elected, elect from among their number
an Executive Committee of at least three. The Executive Committee may exercise,
in the intervals between meetings of the Board, all of the powers of the Board
in the management of the business and affairs of the Corporation, except the
power to declare dividends, to issue stock other than as hereinafter stated, to
recommend to stockholders any action requiring stockholder approval, amend the
by-laws, or approve any merger or share exchange which does not require
stockholder approval. If the Board has given general authorization for the
issuance of stock, the Executive Committee, in accordance with a general
formula or method specified by the Board by resolution or by adoption of a
stock option or other plan, may fix the terms of stock subject to
classification or reclassification and the terms on which any stock may be
issued, including all terms and conditions required or permitted to be
established or authorized by the Board.
The members of the Executive Committee shall hold their offices as such
for one year and until their successors are elected and qualified, or until
their earlier resignation or removal. All vacancies in said Committee shall be
filled by the Board, but in the absence of a member or members of the Executive
Committee, the members thereof present at any meeting (whether or not they
constitute a quorum) may appoint a member of the Board to act in the place of
such absent member. They shall designate one of their number as Chairman of the
Committee, and shall keep a separate book of minutes of their proceedings and
actions. They shall elect a Secretary to the Committee who shall give notice
personally or by mail, telephone, or facsimile to each member of the Committee
of all meetings, not later than 12 noon of the day before the meeting, unless a
majority of the members of the Executive Committee in office waive notice
thereof in writing at or before the meeting in which case the meeting may be
held without the aforesaid advance notice. Meetings may be called by the
Chairman of the Committee or by the Chief Executive Officer, or, in the event
of their absence, by one of the other Officers among the Chairman of the Board,
the President or the Vice Presidents (if a member of the Board). A majority of
the members of the Executive Committee shall constitute a quorum for the
transaction of business.
Section 9. -- AUDIT COMMITTEE.
The Directors shall annually, at their first meeting succeeding the
stockholders' meeting at which they are elected, elect from among their number
an Audit Committee which shall consist of at least three Directors who shall be
independent of Management and free from any relationship that, in the opinion
of the Board, would interfere with the exercise of independent judgment as a
Committee member, PROVIDED that no Director
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who was formerly an Officer of the Corporation shall be a member of the said
Audit Committee. The members of the Audit Committee shall hold their offices as
such for one year and until their successors are elected and qualified, or
until their earlier resignation or removal. All vacancies in said Committee
shall be filled by the Board. They shall designate one of their number as
Chairman of the Committee, and shall keep a separate book of minutes of their
proceedings and actions. They shall elect a Secretary to the Committee who
shall give notice personally or by mail, telephone, or facsimile to each member
of the Committee of all meetings, not later than 12 noon of the day before the
meeting, unless a majority of the members of the Audit Committee in office
waive notice thereof in writing at or before the meeting in which case the
meeting may be held without the aforesaid advance notice. A majority of the
members of the Audit Committee shall constitute a quorum for the transaction of
business.
In order to provide for direct communication between representatives of
the Board and the Independent Auditors for the Corporation, the Audit
Committee, in furtherance of this charge, shall have the following duties and
responsibilities:
(1) To recommend to the Board the public accounting firm (the "Independent
Auditors") to be engaged to conduct the annual financial audit of the
Corporation.
(2) To discuss with such Independent Auditors the scope of their examination
which shall be in accordance with generally accepted auditing standards
with appropriate reports thereon to be submitted to the Board.
(3) To review with the Independent Auditors and appropriate financial
officers and Management of the Corporation, the annual financial
statements and the Independent Auditors' report thereon.
(4) To invite comments and recommendations from the Independent Auditors
regarding the need for and/or results of the reviews of those financial
statements and other documents and data reviewed or certified by such
Independent Auditors.
(5) To invite comments and recommendations from the Independent Auditors
regarding the system of internal controls, accounting policies and
practices, and any other related matters employed by the Corporation.
(6) To meet with the Corporation's internal auditor in order to ensure, as a
part of the system of internal controls, that an adequate program of
internal auditing is being continuously carried out, to determine that
the Corporation's internal audit staff is adequate and to review the
findings of such staff's investigations.
(7) To report periodically regarding its activities to the Board and to make
such recommendations and findings concerning any audit or audit-related
matter as the Audit Committee deems appropriate.
Section 10. -- COMMITTEE ON MANAGEMENT.
The Directors shall annually, at their first meeting succeeding the
stockholders' meeting at which they are elected, elect from among their number
a Committee on Management consisting of at least three members. The members of
the Committee on Management shall hold their offices as such for one year and
until their successors are elected and qualified, or until their earlier
resignation or removal. All vacancies in said Committee shall be filled by the
Board. They shall designate one of their number as Chairman of the Committee,
and shall keep a separate book of minutes of their proceedings and actions.
They shall elect a Secretary to the Committee who shall give notice personally
or by mail, telephone, or facsimile to each member
of the Committee of all meetings, not later than 12 noon of the day before the
meeting, unless a majority of the members of the Committee on Management in
office waive notice thereof in writing at or before the
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meeting in which case the meeting may be held without the aforesaid advance
notice. A majority of the members of the Committee on Management shall
constitute a quorum for the transaction of business.
The Committee on Management shall recommend to the Board nominees for
election as Directors and shall consider the performance of incumbent Directors
in determining whether to nominate them to stand for reelection. The Committee
shall, among other things, consider any major changes in the organization of
the Corporation. It shall recommend to the Board the remuneration arrangements
for Officers and Directors of the Corporation. The Committee shall recommend to
the full Board nominees for Officers of the Corporation. The Committee on
Management shall have such additional powers and perform such duties as shall
be prescribed by resolution of the Board.
Section 11. -- OTHER COMMITTEES.
The Board is authorized to appoint from among its members such other
committees as it may, from time to time, deem advisable and to delegate to such
committee or committees any of the powers of the Board which it may lawfully
delegate. Each such committee shall consist of at least three Directors.
Section 12. -- FEES AND EXPENSES.
Each member of the Board, other than salaried Officers and employees,
shall be paid an annual retainer fee, payable in quarterly installments, in
such amount as shall be specified from time to time by the Board. Each
Committee Chair shall be paid an annual retainer fee, payable in quarterly
installments, in such amount as shall be specified from time to time by the
Board.
Each member of the Board, other than salaried Officers and employees,
shall be paid such fee as shall be specified from time to time by the Board for
attending each regular or special meeting of the Board and for attending, as a
committee member, each meeting of the Executive Committee, Audit Committee,
Committee on Management and any other committee appointed by the Board. Each
member shall be paid reasonable traveling expenses incident to attendance at
meetings.
ARTICLE IV
OFFICERS
Section 1. -- OFFICERS.
The Corporation shall have a Chairman of the Board, a President, one or
more Vice Presidents, a Treasurer, and a Secretary who shall be elected by, and
hold office at the will of, the Board. The Chairman of the Board and the
President shall be chosen from among the Directors. The Board shall designate
either the Chairman of the Board or the President to be the Chief Executive
Officer of the Corporation. The Board shall also elect such other Officers as
they may deem necessary for the conduct of the business and affairs of the
Corporation. Any two offices, except those of President and Vice President, may
be held by the same person, but no person shall sign checks, drafts and
promissory notes, or execute, acknowledge or verify any other instrument in
more than one capacity, if such instrument is required by law, the Charter,
these by-laws, a resolution of the Board or order of the Chief Executive
Officer to be signed, executed, acknowledged or verified by two or more
Officers. The President, any Vice President, or such other persons as may be
designated by the Board, shall sign all special contracts of the Corporation,
countersign checks, drafts and promissory notes, and such other papers as may
be directed by the Board. The President, or any Vice President, together with
the Treasurer or an Assistant Treasurer (if any), shall have authority to sell,
assign or transfer and deliver any bonds, stocks or other securities owned by
the Corporation. The Chairman of the Board, President and Vice Presidents shall
receive such compensation as shall be fixed by the Board. Compensation for
Officers other than the Chairman of the Board, President and Vice Presidents
shall be fixed by the Chief Executive Officer.
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The Board shall require a fidelity bond to be given by each Officer, or, in its
discretion, the Board may substitute a general blanket fidelity bond or
insurance contract to cover all Officers and employees.
Section 2. -- DUTIES OF THE OFFICERS.
(a) CHAIRMAN OF THE BOARD
The Chairman of the Board shall preside at all meetings of the Board and
of stockholders. The Chairman of the Board shall also have such other
powers and duties as from time to time may be assigned by the Board.
(b) PRESIDENT
The President shall have general executive powers, as well as specific
powers conferred by these by-laws. The President shall also have such
other powers and duties as from time to time may be assigned by the
Board. In the absence of the Chairman of the Board, the President shall
perform all the duties of the Chairman of the Board.
(c) VICE PRESIDENTS
Each Vice President shall have such powers and duties as may be assigned
by the Board or the Chief Executive Officer, as well as the specific
powers assigned by these by-laws. A Vice President may be designated by
the Board or the Chief Executive Officer to perform, in the absence of
the President, all the duties of the President.
(d) TREASURER
The Treasurer shall have the care and the custody of the funds and
valuable papers of the Corporation, and shall receive and disburse all
moneys in such a manner as may be prescribed by the Board or the Chief
Executive Officer. The Treasurer shall have such other powers and duties
as may be assigned by the Board, or the Chief Executive Officer, as well
as specific powers assigned by these by-laws.
(e) SECRETARY
The Secretary shall attend all meetings of the stockholders and Directors
and shall notify the stockholders and Directors of such meetings in the
manner provided in these by-laws. The Secretary shall record the
proceedings of all such meetings in books kept for that purpose. The
Secretary shall have such other powers and duties as may be assigned by
the Board or the Chief Executive Officer, as well as the specific powers
assigned by these by-laws.
(f) OTHER OFFICERS
Such other Officers as are appointed by the Board shall exercise such
duties and have such powers as by custom and applicable law generally
pertain to their respective offices as well as such duties and powers as
the Board or the Chief Executive Officer may assign.
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Section 3. -- TERMS OF OFFICE; REMOVALS AND VACANCIES.
Any Officer may be removed by the Board in its sole judgment. In case of
removal, the salary of such Officer shall cease. Removal shall be without
prejudice to the contractual rights, if any, of the person so removed, but
election of an Officer shall not of itself create contractual rights.
Each Officer shall hold office until his or her successor is elected and
qualified or until his or her earlier removal or resignation.
Any vacancy occurring in any office of the Corporation shall be filled by
the Board and the Officer so elected shall hold office for the unexpired term
in respect of which the vacancy occurred and until his or her successor shall
be duly elected and qualified.
In any event of absence or temporary disability of any Officer of the
Corporation, the Board may authorize another person to perform the duties of
that office.
Section 4. -- VOTING SECURITIES OWNED BY THE CORPORATION.
Powers of attorney, proxies, waivers of notice of meeting, consents and
other instruments relating to securities owned by the Corporation may be
executed in the name of and on behalf of the Corporation by the Chairman, the
President or any Vice President and any such Officer may, in the name of and on
behalf of the Corporation, take all such action as any such Officer may deem
advisable to vote in person or by proxy at any meeting of security holders of
any corporation in which the Corporation may own securities and at any such
meeting shall possess and may exercise any and all rights and powers incident
to the ownership of such securities and which, as the owner thereof, the
Corporation might have exercised and possessed if present. The Board may, by
resolution, from time to time confer like powers upon any other person or
persons.
ARTICLE V
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. -- PROCEDURE.
The Corporation shall indemnify all Directors, Officers and employees to
the fullest extent permitted by the general laws of the State of Maryland and
shall provide indemnification expenses in advance to the extent permitted
thereby. The Corporation will follow the procedures required by applicable law
in determining persons eligible for indemnification and in making
indemnification payments and advances.
Section 2. -- EXCLUSIVITY, ETC.
The indemnification and advance of expenses provided by the Charter and
these by-laws shall not be deemed exclusive of any other rights to which a
person seeking indemnification or advance of expenses may be entitled under any
law (common or statutory), or any agreement, vote of stockholders or
disinterested Directors or other provision that is consistent with law, both as
to action in his or her official and administrators of such person. All rights
to indemnification and advance of expenses under the Charter of the Corporation
and hereunder shall be deemed to be a contract between the Corporation and each
Director or Officer of the Corporation who serves or served in such capacity at
any time while this by-law is in effect. Nothing herein shall prevent the
amendment of this by-law, PROVIDED that no such amendment shall diminish the
rights of any person hereunder with respect to events occurring or claims made
before its adoption or as to claims made after its adoption in respect of
events occurring before its adoption. Any repeal or modification of this by-law
shall not in any way diminish any rights to indemnification or advance of
expenses of such Director or Officer or the obligations of the Corporation
arising hereunder with respect to events occurring, or claims made, while this
by-law or any provision hereof is in force.
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Section 3. -- SEVERABILITY; DEFINITIONS.
The invalidity or unenforceability of any provision of this Article V
shall not affect the validity or enforceability of any other provision hereof.
The phrase "this by-law" in this Article V means this Article V in its
entirety.
ARTICLE VI
CAPITAL STOCK
Section 1. -- EVIDENCE OF STOCK OWNERSHIP.
Evidence of ownership of stock in the Corporation may be either pursuant
to a certificate(s) or a statement in compliance with the general laws of the
State of Maryland, each of which shall represent the number of shares of stock
owned by a stockholder in the Corporation. Stockholders may request that their
stock ownership be represented by a certificate(s). In case any Officer who
signed any certificate, in facsimile or otherwise, ceases to be such Officer of
the Corporation before the certificate is issued, the certificate may
nevertheless be issued by the Corporation with the same effect as if the
Officer had not ceased to be such Officer as of the date of its issue.
For stock ownership evidenced by a statement, such statement shall be in
such form, and executed, as required from time to time by the general laws of
the State of Maryland.
Section 2. -- TRANSFER OF SHARES.
Stock shall be transferable only on the books of the Corporation by
assignment in writing by the registered holder thereof, his or her legally
constituted attorney, or his or her legal representative, either upon surrender
and cancellation of the certificate(s) therefor, if such stock is represented
by a certificate, or upon receipt of such other documentation for stock not
represented by a certificate as the Board and the general laws of the State of
Maryland may, from time to time, require.
Section 3. -- LOST, STOLEN OR DESTROYED CERTIFICATES.
No certificate for shares of stock of the Corporation shall be issued in
place of any other certificate alleged to have been lost, stolen, or destroyed,
except upon production of such evidence of the loss, theft or destruction and
upon indemnification of the Corporation to such extent and in such manner as
the Board may prescribe.
Section 4. -- TRANSFER AGENTS AND REGISTRARS.
The Board shall appoint a person or persons, the Corporation or any
incorporated trust company or companies or any of them, as transfer agents and
registrars and, if stock is represented by a certificate, may require that such
certificate bear the signatures or the counter-signatures of such transfer
agents and registrars, or either of them.
Section 5. -- STOCK LEDGER.
The Corporation shall maintain at its principal office, a stock record
containing the names and addresses of all stockholders and the numbers of
shares of each class held by each stockholder.
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ARTICLE VII
MISCELLANEOUS
Section 1. -- SEAL.
The Board shall provide, subject to change, a suitable corporate seal
which may be used by causing it, or facsimile thereof, to be impressed or
affixed or reproduced on the Corporation's stock certificates, bonds, or any
other documents on which the seal may be appropriate.
Section 2. -- AMENDMENTS.
These by-laws, or any of them, may be amended or repealed, and new by-laws
may be made or adopted only at any meeting of the Board, by vote of a majority
of the Directors or at a meeting of the shareholders, duly called, by a vote of
two-thirds of the shareholders eligible to vote thereon.
Section 3. -- SECTION HEADINGS AND STATUTORY REFERENCES.
The headings of the Articles and Sections of these by-laws have been
inserted for convenience of reference only and shall not be deemed to be a part
of these by-laws.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The following description of indemnification allowed under Maryland
statutory law is a summary rather than a complete description. Reference is made
to Section 2-418 of the Corporations and Associations Article of the Maryland
Annotated Code, which is incorporated herein by reference, and the following
summary is qualified in its entirety by such reference.
By statute, a Maryland corporation may indemnify any director who was
or is a party or is threatened to be made a party to any threatened, pending, or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative ("Proceeding") by reason of the fact that he is a present or
former director of the corporation and any person who, while a director of the
corporation, is or was serving at the request of the corporation as a director,
officer, partner, trustee, employee, or agent of another corporation,
partnership, joint venture, trust, other enterprise, or employee benefit plan
("Director"). Such indemnification may be against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by him in connection with
the Proceeding unless it is proven that (a) the act or omission of the Director
was material to the matter giving rise to the Proceeding and (i) was committed
in bad faith, or (ii) was the result of active and deliberate dishonesty; or (b)
the Director actually received an improper personal benefit in money, property,
or services; or (c) in the case of any criminal action or proceeding, the
Director had reasonable cause to believe his act or omission was unlawful.
However, the corporation may not indemnify any Director in connection with a
Proceeding by or in the right of the corporation if the Director has been
adjudged to be liable to the corporation. A Director or officer who has been
successful in the defense of any Proceeding described above shall be indemnified
against reasonable expenses incurred in connection with the Proceeding. The
corporation may not indemnify a Director in respect of any Proceeding charging
improper personal benefits to the Director in which the Director was adjudged to
be liable on the basis that personal benefit was improperly received.
Notwithstanding the above provisions, a court of appropriate jurisdiction, upon
application of the Director or officer, may order indemnification if it
determines that in view of all the relevant circumstances, the Director or
officer is fairly and reasonably entitled to indemnification; however,
indemnification with respect to any Proceeding by or in the right of the
corporation or in which liability was adjudged on the
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basis that personal benefit was improperly received shall be limited to
expenses. A corporation may advance reasonable expenses to a Director under
certain circumstances, including a written undertaking by or on behalf of such
Director to repay the amount if it shall ultimately be determined that the
standard of conduct necessary for indemnification by the corporation has not
been met.
A corporation may indemnify and advance expenses to an officer of the
corporation to the same extent that it may indemnify Directors under the
statute.
The indemnification and advancement of expenses provided or authorized
by this statute may not be deemed exclusive of any other rights, by
indemnification or otherwise, to which a Director or officer may be entitled
under the charter, by-laws, a resolution of shareholders or directors, an
agreement or otherwise.
A corporation may purchase and maintain insurance on behalf of any
person who is or was a Director or officer, whether or not the corporation would
have the power to indemnify a Director or officer against liability under the
provision of this section of Maryland law. Further, a corporation may provide
similar protection, including a trust fund, letter of credit or surety bond, not
inconsistent with the statute.
Article Eighth of the Company's Charter reads as follows:
"(a) (i) The Corporation shall indemnify
(A) its Directors and Officers, whether serving the
Corporation or at its request any other entity, to the full extent required or
permitted by the general laws of the State of Maryland, now or hereafter in
force, including the advance of expenses, under the procedures and to the full
extent permitted by law, and
(B) other employees and agents, to such extent as shall be
authorized by the Board of Directors or the Corporation's by-laws and be
permitted by law.
(ii) The foregoing rights of indemnification shall not be
exclusive of any other rights to which those seeking indemnification may be
entitled.
(iii) The Board of Directors may take such action as is necessary
to carry out these indemnification provisions and is expressly empowered to
adopt, approve and amend from time to time
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such by-laws, resolutions or contracts implementing such provisions or such
further indemnification arrangements as may be permitted by law. No amendment of
the Charter of the Corporation or repeal of any of its provisions shall limit or
eliminate the right to indemnification provided hereunder with respect to any
act or omission occurring prior to such amendment or repeal.
(b) To the fullest extent permitted by Maryland statutory or decisional
law, as amended or interpreted, no Director or Officer of this Corporation shall
be personally liable to the Corporation or its stockholders for money damages.
No amendment of the Charter of the Corporation or repeal of any of its
provisions shall limit or eliminate the limitation on liability provided to
Directors and Officers hereunder with respect to any act or omission occurring
prior to such amendment or repeal."
Article V of the Company's By-Laws reads as follows:
"The Corporation shall indemnify all Directors, Officers and employees
to the fullest extent permitted by the general laws of the State of Maryland and
shall provide indemnification expenses in advance to the extent permitted
thereby. The Corporation will follow the procedures required by applicable law
in determining persons eligible for indemnification and in making
indemnification payments and advances.
The indemnification and advance of expenses provided by the Charter and
these by-laws shall not be deemed exclusive of any other rights to which a
person seeking indemnification or advance of expenses may be entitled under any
law (common or statutory), or any agreement, vote of stockholders or
disinterested Directors or other provision that is consistent with law, both as
to action in his or her official capacity and as to action in another capacity
while holding office or while employed by or acting as agent for the
Corporation, shall continue in respect of all events occurring while a person
was a Director or Officer after such person has ceased to be a Director or
Officer, and shall inure to the benefit of the estate, heirs, executors and
administrators of such person. All rights to indemnification and advance of
expenses under the Charter of the Corporation and hereunder shall be deemed to
be a contract between the Corporation and each Director or Officer of the
Corporation who serves or served in such capacity at any time while this by-law
is in effect. Nothing herein shall prevent the amendment of this by-law,
provided that no such amendment shall diminish the rights of any person
hereunder with respect to events occurring or claims made before its adoption or
as to claims made after its adoption in respect of events occurring before its
adoption. Any repeal or modification of this by-law shall not in any way
diminish any rights to indemnification or advance of expenses of
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such Director or Officer or the obligations of the Corporation arising hereunder
with respect to events occurring, or claims made, while this by-law or any
provision hereof is in force."
The Directors and officers of the Company are covered by insurance
indemnifying them against certain liabilities which might be incurred by them in
their capacities as such, including certain liabilities arising under the
Securities Act of 1933. The premium for this insurance is paid by the Company.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following exhibits are filed herewith:
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
2 Agreement and Plan of Share Exchange (included as Appendix A to the
Proxy Statement and Prospectus in Part I of this Registration
Statement).
3.1 Amended and Restated Articles of Incorporation of Constellation Energy
Group, Inc. (included as Appendix B to the Proxy Statement and
Prospectus in Part I of this Registration Statement).
3.2 By-laws of Constellation Energy Group, Inc. (included as Appendix C to
the Proxy Statement and Prospectus in Part I of this Registration
Statement).
3.3 Charter of Baltimore Gas and Electric Company, restated as of August
16, 1996 (designated as Exhibit No. 3 in Form 10-Q dated November 14,
1996, File No. 1-1910).
3.4 By-laws of Baltimore Gas and Electric Company, as amended to October
16, 1998 (designated as Exhibit No. 3 in Form 10-Q dated November 13,
1998, File No. 1-1910).
5 Opinion of Janet E. McHugh, Counsel to Constellation Energy Group, Inc.
8 Opinion of Miller & Chevalier
23.1 Consent of Janet E. McHugh (included in Exhibit 5)
23.2 Consent of Miller & Chevalier (included in Exhibit 8)
23.3 Consent of PricewaterhouseCoopers LLP
99.1 Form of Proxy Cards and other proxy solicitation materials
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99.2 Consents of persons to become directors of Constellation Energy Group,
Inc. upon the share exchange
(b) The financial statement schedules are incorporated by reference
from BGE's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.
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ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii)to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3, Form S-8 or Form
F-3 and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed
with or furnished to the Commission by Registrant pursuant to Section
13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
II-6
<PAGE>
that time shall be deemed to be the initial bona fide offering
thereof; and
(3) to remove from registration by means of a post-effective amendment
any shares of Constellation Energy common stock which are not
issued in the share exchange.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form S-4, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
II-7
<PAGE>
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baltimore, State of
Maryland, on March 3, 1999.
Constellation Energy Group, Inc.
/s/ David A. Brune
By:______________________________
David A. Brune, Vice President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ Charles W. Shivery
_________________________________ Director, March 3, 1999
Charles W. Shivery Chairman of
the Board,
and President
/s/ David A. Brune
_________________________________ Director, March 3, 1999
David A. Brune Vice President,
and Secretary
/s/ Thomas E. Ruszin, Jr.
_________________________________ Director, March 3, 1999
Thomas E. Ruszin, Jr. Treasurer
II-9
<PAGE>
Exhibit Index
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
2 Agreement and Plan of Share Exchange (included as Appendix A
to the Proxy Statement and Prospectus in Part I of this
Registration Statement).
3.1 Amended and Restated Articles of Incorporation of
Constellation Energy Group, Inc. (included as Appendix B to
the Proxy Statement and Prospectus in Part I of this
Registration Statement).
3.2 By-laws of Constellation Energy Group, Inc. (included as
Appendix C to the Proxy Statement and Prospectus in Part I of
this Registration Statement).
3.3 Charter of Baltimore Gas and Electric Company, restated as of
August 16, 1996 (designated as Exhibit No. 3 in Form 10-Q
dated November 14, 1996, File No. 1-1910).
3.4 By-laws of Baltimore Gas and Electric Company, as amended to
October 16, 1998 (designated as Exhibit No. 3 in Form 10-Q
dated November 13, 1998, File No. 1-1910).
5 Opinion of Janet E. McHugh, Counsel to Constellation Energy
Group, Inc.
8 Opinion of Miller & Chevalier
23.1 Consent of Janet E. McHugh (included in Exhibit 5)
23.2 Consent of Miller & Chevalier (included in Exhibit 8)
23.3 Consent of PricewaterhouseCoopers LLP
99.1 Form of Proxy Cards and other proxy solicitation materials
99.2 Consents of persons to become directors of Constellation
Energy Group, Inc. upon the share exchange
II-10
<PAGE>
JANET E. MCHUGH Baltimore Gas and Electric Company
Deputy General Counsel P.O. Box 1475
Manager, Legal Department Baltimore, Maryland 21203-1475
410 234-5613 FAX 410 234-7660
Exhibit 5
[BGE LOGO}
March 3, 1999
Constellation Energy Group, Inc.
39 W. Lexington Street
Baltimore, MD 21201
Gentlemen:
This opinion is provided in connection with Post Effective Amendment No. 1
to Registration No. 33-64799 on Form S-4 (the "Registration Statement ("CEG")
filed by Constellation Energy Group, Inc. (formerly Constellation Energy
Corporation) with the Securities and Exchange Commission ("Commission") under
the Securities Act of 1933, regarding the proposed issuance of up to 154 million
shares of Constellation Energy common stock, no par value (the "Common Shares").
The Common Shares will be issued in connection with the proposed share exchange
between CEG and the common stockholders of Baltimore Gas and Electric Company
("BGE") as described in the Agreement and Plan of Share Exchange dated as of
February 19, 1999 between BGE and CEG, (the "Agreement"). The Agreement is filed
as Appendix A to the Registration Statement.
I am Deputy General Counsel of BGE, a Maryland corporation, and head of its
Legal Department. BGE is the sole shareholder of CEG, and CEG has requested that
I provide this opinion. I am licensed to practice law in the State of Maryland.
In connection with this opinion, I, together with attorneys I supervise, have
considered, among other things (1) the proposed Amended and Restated Articles of
Incorporation of CEG filed as Appendix B to the Registration Statement (the
"Proposed Charter"); (2) the proposed by-laws of CEG filed as Appendix C to the
<PAGE>
Constellation Energy Group, Inc.
March 3, 1999
Page 2
Registration Statement (the "Proposed By-laws"); (3) the corporate proceedings
for approval of the issuance and sale of the Common Shares; (4) the Registration
Statement; (5) the Agreement; (6) the provisions of the Public Utility Holding
Company Act of 1935 (the "1935 Act"), together with an order dated January 16,
1956 issued by the Commission (File No. 31-631) exempting BGE from the
provisions of the 1935 Act applicable to it as a holding company; and (7) such
other documents, transactions, and matters of law as we deemed necessary or
desirable in order to render this opinion.
This opinion is subject to (1) appropriate resolutions being adopted by the
CEG Board of Directors prior to the issuance of the Common Shares; (2) the
Registration Statement becoming effective under the Securities Act of 1933; (3)
proper adoption, filing, and recording of the Proposed Charter and the proper
adoption of the Proposed By-laws so that both are in effect at the time of
issuance of the Common Shares; and (4) the proposed share exchange being
consummated as contemplated in the Agreement.
Based on the foregoing, I am of the opinion that the Common Shares, when
issued and delivered in accordance with the provisions of the Agreement, will
constitute legally issued, fully paid and nonassessable shares of CEG common
stock.
The opinion expressed herein concerns only the effect of the law (excluding
the principles of conflicts of law) of the State of Maryland and the United
States of America as currently in effect.
This opinion is provided solely for your benefit and may not be relied upon
by, or quoted to, any other person or entity, in whole or in part, without my
prior written consent.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to me in the Registration Statement
(and any amendments thereto) or the prospectus and proxy
<PAGE>
Constellation Energy Group, Inc.
March 3, 1999
Page 3
statement constituting a part of the Registration Statement (and any amendments
or supplements thereto).
Very truly yours,
/s/ Janet E. McHugh
Exhibit 8
MILLER & CHEVALIER
Chartered
655 Fifteenth Street, N.W. Suite 900
Washington, D.C. 20005-5701
(202) 626-5800 FAX:(202) 628-0858
March 3, 1999
Baltimore Gas & Electric Company
P.O. Box 1475
Baltimore, Maryland 21203-1475
Constellation Energy Group, Inc.
39 W. Lexington Street
17th Floor, G & E Building
Baltimore, Maryland 21201
Attn: David A. Brune, Vice-President
Dear Mr. Brune:
Baltimore Gas and Electric Company ("BGE") has asked for our opinion
regarding certain federal income tax consequences of a proposed share exchange
in which Constellation Energy Group, Inc. ("Constellation Energy") will acquire
all of the common stock of BGE. As explained in more detail below, we believe
that the proposed share exchange will qualify as a tax-free transaction under
the federal income tax laws, so that the participants in the exchange will not
recognize any income, gain or loss as a result of the exchange. A more specific
statement of our conclusions follows summaries of the relevant facts and the
analysis that supports our conclusions. Our conclusions are based on our review
of (i) drafts of relevant documents, including the proxy statement for BGE's
1999 annual meeting of shareholders, the Agreement and Plan of Share Exchange
between BGE and Constellation Energy, the Amended and Restated Articles of
Incorporation of Constellation Energy, and the amended By-Laws of Constellation
Energy, (ii) the representations provided in the letter to us dated this date
from David A. Brune, Vice President, Chief Financial Officer, and Secretary of
BGE, and (iii) other information that BGE has provided to us.
FACTS
THE PARTIES. BGE is engaged in the utility business. Its activities
include the generation, purchase and sale of electricity and the purchase,
transportation and sale of natural
<PAGE>
Baltimore Gas and Electric Company
March 3, 1999
Page 2
gas. BGE has six classes of stock outstanding: common stock and five classes of
preference shares. The common shares are widely-held and are traded on the New
York Stock Exchange. The preference shares, although issued in public offerings,
are not traded on any exchange.
The preference shares generally provide their holders with limited
but preferred rights. Holders of preference shares are entitled to vote in only
two circumstances. First, a favorable vote of the holders of two-thirds of the
preference shares is required for any amendment of BGE's charter that would
create or authorize any stock that would rank prior to or on a parity with the
preference shares as to dividends or distribution of assets or that would
substantially adversely affect the rights of the preference shares. Second, if
BGE were to fail to pay full dividends on a class of preference shares for one
year, the holders of those shares would be entitled to one vote per share on all
matters until BGE pays in full the deficiency in dividends. No such deficiency
in dividends on BGE preference shares currently exists. The holders of each
class of preference stock are entitled to dividends, as and when declared, equal
to a fixed rate that varies by class. Dividends on each class of preference
shares are cumulative, and must be paid before any dividends may be paid on
common stock. Each class of preference shares is redeemable at the option of the
Board of Directors by payment of a prescribed redemption price plus accrued
dividends. The prescribed redemption price includes a premium over par ($100)
that declines with time. The 7.78% Cumulative Preference Stock, 1973 Series may
be redeemed at any time. The redemption price for these shares began at $108 per
share for any redemptions prior to December 1, 1978 and has declined to $101 per
share for any redemptions after December 1, 1988. The shares in the remaining
series, issued in 1993 and 1995, are not currently redeemable, but become
redeemable ten years after issuance. In each case, the maximum premium, for
redemptions that occur ten years after issuance, would be less than $4. The
stated premium then declines each year, and is eliminated entirely for
redemptions that occur twenty or more years after issuance. Upon the
liquidation, dissolution, or winding up of BGE, the holders of the preference
shares will be entitled to receive, from any assets of BGE remaining after
payment of debts and claims, the par value of their shares plus any accrued
dividends on those shares. All of the preference shares were issued at their par
value of $100. The preference shares are not convertible into shares of another
class of BGE stock.
Constellation Energy is a wholly-owned subsidiary of BGE. It was
formed in 1995 for the purpose of a proposed transaction that did not occur.
Since its formation, Constellation Energy has not held any assets or engaged in
any business operations.
Constellation Enterprises, Inc. ("Constellation Enterprises") is also
a wholly-owned subsidiary of BGE. Constellation Enterprises owns the stock of
several other companies primarily engaged in unregulated, energy-related
businesses.
<PAGE>
Baltimore Gas and Electric Company
March 3, 1999
Page 3
THE TRANSACTION. Management of BGE has determined that it would be
advisable to establish a holding company to own the stock of BGE and
Constellation Enterprises. This structure will divide between separate chains of
corporations BGE's regulated business and the unregulated businesses conducted
by Constellation Enterprises and its subsidiaries. This separation of regulated
and unregulated businesses will have several favorable effects. First, the new
structure will allow funds to be raised for the unregulated businesses more
efficiently. Second, the structure will facilitate valuation of the separate
lines of businesses by the investment community. Third, it will allow regulators
to more easily verify the absence of any subsidies between the two types of
businesses. Fourth, it will protect the assets of the regulated business from
claims arising from the unregulated businesses.
To carry out the purposes described above, BGE management has
proposed that Constellation Energy be established as a holding company that will
own all of the stock of Constellation Enterprises and all of the common stock of
BGE. The establishment of Constellation Energy as a holding company will be
accomplished by means of a statutory "share exchange" under section 3-102(a)(7)
of the Maryland Corporations and Associations Code. The Boards of Directors of
both BGE and Constellation Energy have each unanimously adopted a draft
Agreement and Plan of Share Exchange (the "Draft Agreement"). As a result of the
share exchange, the holders of BGE common stock will be deemed to have exchanged
their BGE stock for Constellation Energy common stock, as provided in articles
of share exchange that will be filed with the Maryland Department of Assessments
and Taxation. MD. CODE ANN., CORPS. & ASS'NS ss. 3-114.1 (1993). The deemed
exchange will occur by operation of law, without any further act by the BGE
common shareholders. ID. The articles will provide for the cancellation of the
Constellation Energy stock owned by BGE immediately prior to the share exchange.
Draft Agreement, ss. 2.08.
Completion of the proposed share exchange is subject to several
conditions. The share exchange must be approved by a vote of two-thirds of those
BGE shareholders entitled to vote on the matter. MD. CODE ANN., CORPS. & ASS'NS
ss. 3-105(d) (1998). In addition, formation of a holding company to own the BGE
stock will require an amendment of the Maryland Public Utilities Code. Draft
Agreement, ss. 1.01. Further, the Constellation Energy stock that will be issued
in the deemed exchange must be covered by a Registration Statement under the
Securities Act of 1933 and must be listed on the New York Stock Exchange.
Finally, the transaction is subject to the approval of various state and federal
regulatory agencies.
The share exchange will not affect the holders of BGE preference
shares. The preference shares will not be subject to the share exchange but
instead will remain outstanding after the transaction.
<PAGE>
Baltimore Gas and Electric Company
March 3, 1999
Page 4
After completion of the share exchange, the stock of Constellation
Enterprises will be distributed to Constellation Energy, thereby separating the
regulated and unregulated businesses into two chains of corporations beneath the
single holding company.
ANALYSIS
SHARE EXCHANGE TAX-FREE TO HOLDERS OF BGE COMMON STOCK. In general,
transfers of property to a corporation in exchange for its stock qualify for
tax-free treatment if the transferors, in the aggregate, control the corporation
after the transfer. I.R.C. ss. 351(a). For this purpose, "control" means the
ownership of 80 percent of the corporation's voting stock and 80 percent of each
class of the corporation's nonvoting stock.
I.R.C. ss. 368(c).
The proposed share exchange will meet the requirements for tax-free
treatment under section 351(a). The holders of BGE common stock will be deemed
by operation of law to have transferred property, in the form of their BGE
shares, to Constellation Energy. They will own all of the stock of Constellation
Energy immediately after the exchange. The Constellation Energy stock currently
owned by BGE will be cancelled as part of the transaction. Consequently, the
former holders of BGE common shares will "control" Constellation Energy, within
the meaning of section 368(c), immediately after the share exchange.
NO TAX CONSEQUENCES TO HOLDERS OF BGE PREFERENCE STOCK. The share
exchange will not have any tax consequences to the holders of BGE preference
stock because those holders will not participate in the share exchange. In
general, the owner of property recognizes gain or loss on the property only upon
a "sale or other disposition" of the property. I.R.C. ss. 1001.
BASIS AND HOLDING PERIOD OF CONSTELLATION ENERGY STOCK. When an owner
of property transfers that property to a corporation in a tax-free exchange to
which section 351(a) applies, the transferor's basis in the stock received is
determined by reference to the basis of the transferred property. I.R.C. 358(a).
This "substituted basis" rule ensures that the taxation of any unrealized
appreciation in the transferred property is merely deferred. Under section
358(a)(1), the transferor's basis in the transferred property serves as the
starting point for the basis of the stock received. The statute provides for
various adjustments to this basis when the transferor receives cash or property
other than stock of the transferee corporation, or when the transferor
recognized a loss on the exchange. SEE I.R.C. ss. 358(a)(1)(A) and (B). None of
these adjustments will apply in the present case. Therefore, the aggregate tax
basis of shares of Constellation Energy common stock received by a former BGE
common shareholder in the exchange will equal the shareholder's tax basis in the
shares of BGE common stock exchanged. I.R.C. ss. 358(a)(1).
<PAGE>
Baltimore Gas and Electric Company
March 3, 1999
Page 5
The holding period of property received in a "substituted basis"
transaction includes the holding period of the property surrendered in the
exchange if the taxpayer held that property as a capital asset. I.R.C. ss.
1223(1). Because the deemed exchange of BGE common stock for Constellation
Energy common stock will be a substituted basis transaction, if a holder of BGE
common stock holds that stock as a capital asset, the holding period for that
stock will be tacked on to the holding period of the Constellation Energy stock
received in the exchange. ID.
SHARE EXCHANGE TAX-FREE TO CONSTELLATION ENERGY AND BGE. A
corporation recognizes no gain or loss on its receipt of cash or other property
in exchange for stock of the corporation. I.R.C. ss. 1032(a). Section 1032(a),
by its plain terms, will apply to Constellation Energy's acquisition of
property, in the form of BGE common stock, in exchange for Constellation
Energy's own stock. Therefore, Constellation Energy will recognize no gain or
loss as a result of the share exchange.
A corporation generally recognizes no gain or loss on the transfer of
its shares between shareholders because the transfer does not involve property
owned by the corporation. CF. I.R.C. ss. 1001. In certain cases, a purchaser of
a controlling interest in the stock of a corporation can elect to have the
transaction treated as a purchase of the corporation's assets. SEE GENERALLY
I.R.C. ss. 338. In the present case, Constellation Energy will not acquire the
BGE common stock by purchase, and would not make an election to treat the
transaction as a transfer of BGE's assets even if such an election were
possible. Therefore, the share exchange will not involve an actual or
constructive transfer of any assets owned by BGE, and BGE, consequently, will
recognize no gain or loss as a result of the share exchange.
EFFECT OF SHARE EXCHANGE ON BGE AFFILIATED GROUP. The Internal
Revenue Code and Treasury regulations provide special rules for affiliated
groups of corporations. These rules allow an affiliated group to file a single,
consolidated tax return. The filing of consolidated returns can be advantageous
because it allows losses incurred by one member of the group to offset income
earned by another member of the group. In addition, the recognition of gain or
loss on transactions between members of the group is generally deferred as long
as the members remain affiliated and the transferred property remains within the
group.
BGE and its direct and indirect subsidiaries currently comprise an
affiliated group within the meaning of section 1504(a) of the Code. (Unless
otherwise noted, references to Code sections are to sections of the Internal
Revenue Code of 1986, as amended.) That section defines "affiliated group" as a
group of corporations connected by one or more chains of at least 80 percent
stock ownership.
<PAGE>
Baltimore Gas and Electric Company
March 3, 1999
Page 6
The identity of an affiliated group is generally determined by the
common parent of the group. SEE Treas. Reg. ss. 1.1502-75(d)(1) (a group remains
in existence if the common parent remains the common parent and at least one
subsidiary remains affiliated with it).
Despite the general rule identifying an affiliated group by reference
to the common parent, in certain circumstances, an affiliated group can remain
in existence with a new common parent. One such circumstance is a transaction
that the regulations label a "reverse acquisition." Treas. Reg. ss.
1.1502-75(d)(3). A transaction is a reverse acquisition if it meets two
requirements. First, an acquiring corporation must acquire substantially all of
the assets of another corporation or an amount of stock of the acquired
corporation sufficient to cause the acquired corporation to become an affiliated
subsidiary of the acquiring corporation. Second, after the transaction, the
shareholders of the acquired corporation must own, by reason of their prior
ownership of acquired corporation stock, at least 50 percent of the stock of the
acquiring corporation. Treas. Reg. ss. 1.1502-75(d)(3)(i). If a reverse
acquisition occurs, any affiliated group of which the acquired corporation was
the common parent remains in existence after the transaction, with the acquiring
corporation as its new common parent. ID.
Constellation Energy's acquisition of BGE common stock will meet each
of the two requirements of a reverse acquisition. First, as explained in more
detail below, Constellation Energy will acquire, pursuant to the share exchange,
an amount of BGE stock sufficient to cause BGE to become an affiliated
subsidiary of Constellation Energy. Second, because BGE's stock in Constellation
Energy will be cancelled pursuant to the share exchange, the Constellation
Energy stock that the current holders of BGE common stock will receive in the
exchange will constitute all of the outstanding stock of Constellation Energy.
In acquiring all of the common stock of BGE, Constellation Energy
will acquire a sufficient amount of BGE stock to cause BGE to become an
affiliated subsidiary of Constellation Energy. The affiliation test of section
1504(a)(2) of the Code requires the ownership of 80 percent of the stock of the
affiliate, determined by both vote and value. In applying this test, certain
preferred stock is not treated as stock. I.R.C. ss. 1504(a)(4). Preferred stock
is excluded from the test if it (i) is nonvoting, (ii) is limited and preferred
as to dividends and does not participate in corporate growth to any significant
extent, (iii) has redemption and liquidation rights which do not exceed the
issue price of the stock (except for a reasonable redemption or liquidation
premium), and (iv) is not convertible into another class of stock. I.R.C. ss.
1504(a)(4)(A) through (D). As explained below, the preference shares in the 1993
and 1995 series meet each of these conditions. Therefore, these preference
shares will not be taken into account in applying the affiliation test of
section 1504(a)(2). It is possible, though less clear, that the 1973 series
preference shares would not be treated as stock for purposes of the affiliation
test. The issue is moot, however, because the 1973 series preference shares are
nonvoting and their value is only a small fraction of the value of the BGE
common shares. Thus, even if the 1973
<PAGE>
Baltimore Gas and Electric Company
March 3, 1999
Page 7
series preference shares were treated as stock, the common stock acquired by BGE
would carry all of the voting power of the BGE stock and would have a value of
more than 80 percent of the value of all shares that could be treated as stock
for purposes of the affiliation test.
Although BGE's preference shares have limited and contingent voting
rights, the shares are treated as nonvoting stock for purposes of section
1504(a)(4)(A) of the Code. For this purpose, stock is voting stock if its
holders have the present ability to elect directors of the corporation. The
ability of preferred shareholders to vote on matters other than the election of
directors does not make their stock voting stock for purposes of the affiliation
test. ERIE LIGHTING CO. V. COMMISSIONER, 93 F.2d 883 (1st Cir. 1937). In
addition, the ability of the holders of preference shares to vote for directors
if BGE fails to pay dividends on those shares for at least one year does not
mean that the shares are currently voting shares. The classification of stock as
voting stock depends on the rights of the holders during the period in issue.
VERMONT HYDRO-ELECTRIC CORP. V. COMMISSIONER, 29 B.T.A. 1006 (1934). If
preferred stock entitles its holders to vote after a failure to pay dividends,
the stock is treated as voting stock only after the contingency arises. ID.
Because no deficiency currently exists in the payment of dividends on BGE
preference shares, those shares constitute nonvoting stock within the meaning of
section 1504(a)(4)(A).
The BGE preference shares in the 1993 and 1995 series are limited and
preferred as to dividends and do not participate in corporate growth to any
significant extent. These shares carry a fixed dividend that must be paid before
BGE can pay dividends on its common shares. Thus, the shares are limited and
preferred as to dividends. Neither the dividend feature nor any other term of
the shares enables the holders to participate in corporate growth to a
significant extent. The shares do not participate in dividends with the common
stock. The stated dividend rate serves as a ceiling. Although the terms of the
shares do provide for a small redemption premium in certain circumstances, that
premium is separately addressed under section 1504(a)(4)(C). As explained below,
the redemption premium provided under the terms of the shares in the 1993 and
1995 series should be viewed as "reasonable," within the meaning of that
section. Consequently, the redemption premium should not be viewed as affording
significant participation in corporate growth for purposes of section
1504(a)(4)(B).
The liquidation rights of the preference shares do not exceed the
issue price, and the redemption rights provided under the terms of the shares in
the 1993 and 1995 series exceed the issue price only by a reasonable redemption
premium. Upon liquidation, the holders of the preference shares will receive
only the par value, at which the shares were issued, plus accrued dividends.
Although the holders of preference shares could receive a premium on redemption,
in addition to par value plus accrued dividends, these premiums, at least in the
case of the shares in the 1993 and 1995 series, should be viewed as
"reasonable," within the meaning of section 1504(a)(4)(C).
<PAGE>
Baltimore Gas and Electric Company
March 3, 1999
Page 8
Regulations issued under section 305 of the Code provide the best
available guidance on when a redemption premium is reasonable. Neither the
Treasury Department nor the courts have defined the term "reasonable redemption
premium" specifically for the purpose of section 1504(a)(4)(C). When Congress
enacted that section in 1984, however, the phrase "reasonable redemption
premium" was significant under section 305 and the accompanying regulations. In
the absence of special rules, redemption premiums could be used as a means to
convert what would otherwise be dividend income, taxed at ordinary rates, into
capital gain recognized on redemption. Section 305 and the accompanying
regulations address this issue by requiring the holder of the preferred stock,
in certain circumstances, to include the premium in income prior to redemption.
Before their amendment in 1995, the regulations provided that this accrual rule
did not apply to a "reasonable redemption premium." Treas. Reg. ss.
1.305-5(b)(2) (prior to amendment by T.D. 8643). For this purpose, a redemption
premium was considered reasonable if it was "in the nature of a penalty for
premature redemption of the preferred stock and if such premium does not exceed
the amount the corporation would be required to pay for the right to make such
premature redemption under market conditions existing at the time of issuance."
ID. The regulations provided a safe harbor under which a redemption premium was
considered reasonable if it did not exceed 10 percent of the issue price of the
stock and the stock was not redeemable for at least 5 years after issuance. ID.
Amendments to the regulations adopted in 1995 eliminated the exception for
reasonable redemption premiums. The regulations now require accrual of a
redemption premium if two conditions are met. First, the premium must exceed a
de minimis amount determined by reference to the original issue discount rules
that require the accrual of interest on debt instruments. Treas. Reg. ss.
1.305-5(b)(1). Second, in the case of stock that is callable at the option of
the issuer, accrual is required only when the issuer is likely to exercise the
call option. Treas. Reg. ss. 1.305-5(b)(3)(i). In general, exercise of the call
option is not considered likely if doing so would not reduce the yield on the
stock. Treas. Reg. ss. 1.305-5(b)(3)(ii). A call premium on redemption that
would reduce the yield cannot be viewed as a penalty for premature redemption.
Notice of Proposed Rulemaking and Notice of Public Hearing, Distributions of
Stock and Stock Rights, CO-8-91, 1994-2 C.B. 844, 845. Therefore, the only
circumstances in which a call premium would be subject to accrual - when
redemption would reduce the yield of the stock - would necessarily be
circumstances in which the premium could not be viewed as a reasonable
prepayment penalty. Consequently, the exception for reasonable redemption
premiums was no longer necessary. Nonetheless, the definition of reasonable
redemption premium in the prior regulations, including the safe harbor
provision, provide the best evidence of the concept Congress had in mind when it
used that term in section 1504(a)(4).
In assessing the reasonableness of the redemption premiums provided
under the terms of BGE's preference shares, separate analyses apply to the
shares in the 1973 shares and those in the 1993 and 1995
<PAGE>
Baltimore Gas and Electric Company
March 3, 1999
Page 9
series. The redemption premiums provided for the shares in 1993 and 1995 series
meet the safe harbor test and thus are clearly reasonable within the meaning of
the prior section 305 regulations. Because the shares in the 1973 series were
redeemable from the time of issuance, the safe harbor does not apply to the
redemption premium provided for those shares. Therefore, assessing the
reasonableness of the redemption premium on those shares would require a factual
inquiry into such factors as the market conditions when the shares were issued.
As explained below, however, this factual inquiry is unnecessary in the present
case because the Constellation Energy's acquisition of the BGE common shares
would cause BGE to become an affiliated subsidiary of Constellation Energy even
if the BGE 1973 series preference shares, which Constellation Energy will not
acquire, are treated as stock for purposes of the affiliation test.
The safe harbor test provided in the prior section 305 regulations
will apply to the redemption premiums provided under the terms of the 1993 and
1995 series preference shares. The maximum premium that might be paid on the
redemption of shares in these series would be well below 10 percent of the par
value at which the shares were issued. The 7.125% Cumulative Preference Shares,
1993 Series provide the highest possible redemption premium. At $3.56, this
premium is only 3.56 percent of the $100 issue price. Further, the shares in the
1993 and 1995 series do not become callable until ten years after issuance.
Although the redemption premiums in each case exceed the de minimis threshold
that applies for purposes of the original issue discount rules, SEE I.R.C. ss.
1273(a)(3), that should not prevent the premiums from being treated as
reasonable. In each case, exercise by BGE of its option to call the preference
shares would increase the yield on the shares. Therefore, the amended
regulations under section 305 would not require accrual of the premiums, even
though they exceed the applicable de minimis threshold. The fact that exercise
of the call option would increase the yield on the shares illustrates that the
redemption premium is in the nature of a prepayment penalty. Therefore, the
premiums are reasonable in amount, based on the safe harbor provided in the
regulations in effect under section 305 when Congress enacted section
1504(a)(4).
The redemption premium provided for the shares in the 1973 series may
also be viewed as reasonable under the general rule of the prior section 305
regulations. Again, the regulations provided that a redemption premium was
considered reasonable if it was "in the nature of a penalty for premature
redemption of the preferred stock and if such premium does not exceed the amount
the corporation would be required to pay for the right to make such premature
redemption premium under market conditions existing at the time of issuance."
Treas. Reg. ss. 1.305-5(b)(2) (prior to amendment by T.D. 8643). The fact that
the shares were immediately redeemable strongly suggests that the stated premium
was intended to compensate the holder for the loss of the dividends he would
have earned had the stock not been redeemed. Nonetheless, concluding that the
redemption premium provided on the 1973 series preference shares was reasonable
within the meaning of the prior section 305 regulations would require an inquiry
into
<PAGE>
Baltimore Gas and Electric Company
March 3, 1999
Page 10
market conditions existing in 1973. As explained below, such an inquiry is
unnecessary in the present case.
The BGE preference shares are not convertible into shares of any
other class of BGE stock. Therefore, the preference shares meet the fourth and
last condition for being disregarded in applying the affiliation test of section
1504(a)(2). SEE I.R.C. ss. 1504(a)(4)(D).
The preceding analysis demonstrates that the BGE preference shares in
the 1993 and 1995 series meet all of the conditions specified in section
1504(a)(4) and thus are disregarded in applying the affiliation test of section
1504(a)(2). The shares in the 1973 series may also meet the conditions for being
disregarded. If all of the preference shares were disregarded, the BGE common
shares that Constellation Energy will acquire in the share exchange would
constitute all of the stock taken into account for purposes of the affiliation
test. Even if the 1973 series preference shares were treated as stock, the BGE
common shares would still carry all of the voting power of the BGE stock and
would represent well more than 80 percent of the BGE stock by value. Because the
1973 series preference shares may be redeemed at any time for $101, their value
cannot exceed the prescribed redemption price. There are currently 200,000 of
these shares outstanding. Thus, they have an aggregate value of $20,200,000
(200,000 x $101). By contrast, 149,556,416 BGE common shares are outstanding. A
recent trading price of those shares (at mid-day on February 18, 1999) was
$26.88. Therefore, at that price, the common shares have an aggregate value of
approximately $4,040,276,462 (149,556,416 x $26.88). Even if the 1973 series
preference shares were treated as stock, the BGE common shares would constitute
approximately 99.5 percent of the total BGE stock by value (4,020,076,462 /
(4,020,076,462 + $20,200,000) = .995) Thus, regardless of whether the 1973
series preference shares are treated as stock, Constellation Energy's
acquisition of all of the BGE common shares will cause BGE to become an
affiliated subsidiary of Constellation Energy.
Because Constellation Energy's acquisition of BGE common stock will
constitute a reverse acquisition, within the meaning of section 1.1502-75(d)(3)
of the regulations, the share exchange will not terminate the existence of the
BGE affiliated group. Instead, the group will remain in existence with
Constellation Energy as the new common parent. Treas. Reg. ss.
1.1502-75(d)(3)(i).
OPINION
For the reasons explained above, assuming the accuracy of the facts
stated in this letter and the representations made in your letter to us of this
date, in our opinion:
<PAGE>
Baltimore Gas and Electric Company
March 3, 1999
Page 11
(1) No income, gain or loss will be recognized by a BGE common
shareholder upon the deemed exchange solely of such holder's BGE
common stock solely for Constellation Energy Common stock. I.R.C.
ss. 351(a).
(2) No income, gain or loss will be recognized on the share exchange
by holders of outstanding shares of BGE preference stock with respect
to their shares because they will not participate in the share
exchange and will keep their BGE preference stock. CF. I.R.C. ss.
1001.
(3) The aggregate tax basis of shares of Constellation Energy common
stock received by a former BGE common shareholder in the exchange
will equal the shareholder's tax basis in the shares of BGE common
stock exchanged. I.R.C. ss. 358(a)(1). The holding period for the
Constellation Energy common stock received will include the holding
period for the BGE common stock exchanged to the extent that such
shares were held as capital assets at the time the share exchange
occurred. I.R.C. ss. 1223(1).
(4) No gain or loss will be recognized by Constellation Energy or BGE
on account of the share exchange or the issuance of shares of
Constellation Energy common stock to the former BGE shareholders
pursuant to the Agreement and Plan of Share Exchange. I.R.C. ss.
1032(a).
(5) The share exchange will not result in the termination of the
existence of the affiliated group of corporations of which BGE has
been the common parent, and Constellation Energy will be included in
such affiliated group of corporations of which Constellation Energy
will become the new common parent. Treas. Reg. ss. 1.1502-75(d)(3).
The opinions stated above are based on the Code, Treasury
regulations, court decisions, and published rulings of the Internal Revenue
Service currently in effect. Each of these authorities is subject to change and
any such changes could affect the validity of the above opinions. To the extent
that the opinions address the federal income tax consequences of the share
exchange to holders of BGE common stock, the opinions assume that the
shareholders are not subject to special treatment because of unique
circumstances, as could be the case, for example, for foreign corporations or
individuals who are not citizens or residents of the United States.
We hereby consent to (i) the filing of this opinion with the
Securities and Exchange Commission as an exhibit to the registration statement
regarding the issuance of Constellation Energy common stock and (ii) the
reference to our firm under the heading "Material Federal Income Tax
Consequences" in the Proxy Statement/Prospectus that constitutes a part of the
<PAGE>
Baltimore Gas and Electric Company
March 3, 1999
Page 12
registration statement. In giving such consent, we do not admit that we are in
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933.
Very truly yours,
MILLER & CHEVALIER, CHARTERED
By: /s/ Thomas W. Mahoney, Jr.
Thomas W. Mahoney, Jr.
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
--------
We consent to the incorporation by reference in Post Effective Amendment No. 1
to the Registration Statement (File No. 33-64799) of Constellation Energy Group,
Inc. on Form S-4 of our report dated January 15, 1999, on our audits of the
consolidated financial statements included in Form 8-K dated March 1, 1999 of
Baltimore Gas and Electric Company and Subsidiaries as of December 31, 1998 and
1997 and for each of the three years in the period ended December 31, 1998.
We also consent to the reference to our firm under the caption "Experts" in this
Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Baltimore, Maryland
March 1, 1999
Exhibit 99.1
Form of Proxy Cards and other proxy solicitation materials
The following are proxy cards and other proxy solicitation materials
provided to common stock shareholders.
<PAGE>
Exhibit 99.1
[BGE LOGO APPEARS HERE] BALTIMORE GAS AND ELECTRIC COMPANY
P. O. Box 1642, Baltimore, Maryland 21203-1642
COMMON STOCK PROXY FOR ANNUAL MEETING OF SHAREHOLDERS - APRIL 16, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PLEASE VOTE AND SIGN ON THE REVERSE SIDE AND RETURN IN THE ENCLOSED ENVELOPE.
The undersigned appoints Jerome W. Geckle, George V. McGowan and Christian
H. Poindexter (or a majority of them or their substitutes, or one acting
alone in the absence of the others), as proxies, with power to each to
appoint a substitute and to revoke the appointment of such substitute, to
vote all shares of common stock of Baltimore Gas and Electric Company which
the undersigned is entitled to vote at the annual meeting to be held on
April 16, 1999, and at any adjournments thereof, in the manner specified on
the reverse side of this card with respect to each item identified thereon
(as set forth in the Notice of Annual Meeting and Proxy Statement), and in
their discretion on any shareholder proposal omitted from this proxy and
such other business as may properly come before the annual meeting.
SHARES REPRESENTED BY ALL PROPERLY EXECUTED PROXIES WILL BE VOTED AT THE
ANNUAL MEETING IN THE MANNER SPECIFIED. IF NO SPECIFICATION IS MADE, VOTES
WILL BE CAST "FOR" ITEMS 1, 2 & 3 AND "AGAINST" ITEMS 4 & 5 ON THE REVERSE
OF THIS CARD.
(over)
<PAGE>
Exhibit 99.1
THIS IS YOUR PROXY CARD
TEAR HERE, VOTE, SIGN
AND RETURN IN THE PRE-ADDRESSED
POSTAGE PAID ENVELOPE
TEAR HERE ALONG PERFORATION
- - --------------------------------------------------------------------------------
A VOTE "FOR" ITEMS 1, 2 & 3 IS RECOMMENDED.
FOR AGAINST ABSTAIN
1. APPROVAL OF THE SHARE
EXCHANGE AND FORMATION
OF THE HOLDING COMPANY [ ] [ ] [ ]
2. THE ELECTION OF 15 DIRECTORS
[ ] FOR all nominees, except as [ ] WITHHOLD AUTHORITY
lined through below. (To vote (ABSTAIN) from voting
AGAINST any or all nominees for all nominees.
line through their names.)
H.F. BALDWIN D.L. BECKER B.B. BYRON J.O. COLE
D.A. COLUSSY E.A. CROOKE J.R. CURTISS J.W. GECKLE
F.A. HRABOWSKI, III N. LAMPTON C.R. LARSON G.V. MCGOWAN
C.H. POINDEXTER G.L. RUSSELL, JR. M.D. SULLIVAN
- - ------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
3. RATIFICATION OF PRICEWATERHOUSECOOPERS LLP
AS INDEPENDENT ACCOUNTANTS FOR 1999 [ ] [ ] [ ]
A VOTE "AGAINST" ITEMS 4 & 5 IS RECOMMENDED.
4. SHAREHOLDER PROPOSAL CONCERNING CALVERT
CLIFFS' LICENSE EXTENSIONS [ ] [ ] [ ]
5.SHAREHOLDER PROPOSAL CONCERNING CONFIDENTIAL
VOTING [ ] [ ] [ ]
[ ] Please check this box if you plan to attend the 1999 annual meeting.
Please sign below, exactly as name appears at left. Joint owners should EACH
sign. Attorneys, executors, administrators, trustees and corporate officials
should give title or capacity in which they are signing.
Signature _________________________________ Date ___________________
Signature _________________________________ Date ___________________
<PAGE>
Exhibit 99.1
CHRISTIAN H. POINDEXTER BALTIMORE GAS AND
CHAIRMAN OF THE BOARD, ELECTRIC COMPANY
PRESIDENT 39 W. LEXINGTON STREET
AND CHIEF EXECUTIVE BALTIMORE, MARYLAND 21201
OFFICER
March 31, 1999
[BGE LOGO APPEARS HERE]
Dear Shareholder:
As of March 26, 1999, we had not received your proxy card for the 1999 annual
shareholders meeting to be held April 16th.
We appreciate the support of our shareholders and encourage you to vote your
shares, regardless of the size of your holdings. We have, therefore, enclosed a
second proxy card so that you can vote your shares. Whether or not you plan to
attend the meeting, please complete and return the enclosed proxy card to ensure
that your vote will be counted at the meeting.
Our initial mailing to you also included a proxy statement and prospectus, and
our 1998 annual report to shareholders. If you would like to receive a duplicate
copy of these documents, simply contact one of our shareholder representatives
in metropolitan Baltimore at 410-783-5920, within Maryland at 1-800-492-2861, or
outside Maryland at 1-800-258-0499.
Sincerely,
/s/ C.H. Poindexter
Chairman of the Board
ENCLOSURES
<PAGE>
Exhibit 99.1
Please fold and detach card at perforation before mailing.
CONFIDENTIAL VOTING INSTRUCTIONS TO TRUSTEE
PLEASE VOTE AND SIGN ON REVERSE SIDE AND RETURN IN THE ENCLOSED ENVELOPE
These Voting Instructions are requested in conjunction with a proxy
solicitation by the BOARD OF DIRECTORS OF BALTIMORE GAS AND ELECTRIC COMPANY.
TO: T. ROWE PRICE TRUST COMPANY, AS TRUSTEE UNDER THE BALTIMORE GAS AND
ELECTRIC COMPANY EMPLOYEE SAVINGS PLAN
I hereby instruct T. Rowe Price Trust Company, as Trustee under the Baltimore
Gas and Electric Company Employee Savings Plan (Plan), to vote, by proxy, all
shares of common stock of Baltimore Gas and Electric Company (Company) allocated
to me under the Plan at the annual meeting of the shareholders of BGE to be held
on April 16, 1999, and at any adjournments thereof, in the manner specified on
the reverse side of this form with respect to each item identified thereon (as
set forth in the Notice of Annual Meeting and Proxy Statement / Prospectus), and
Jerome W. Geckle, George V. McGowan and Christian H. Poindexter, in their
discretion, shall vote in person on any shareholder proposal omitted from this
proxy and such other business as may properly come before the annual meeting.
The Trustee will vote the shares represented by this Voting Instructions Card if
properly signed and received by April 9, 1999. If no instructions are specified
on a signed card, the shares represented thereby will be voted in accordance
with the recommendations of the Board of Directors of BGE: "FOR" Items 1, 2 & 3
and "AGAINST" Items 4 & 5. The Trustee is not permitted under the Plan to vote
shares of common stock unless a signed Voting Instructions Card has been
received.
(over)
<PAGE>
Exhibit 99.1
From: First Class Mail
T. Rowe Price Retirement Plan Services, Inc. U.S. Postage
BGE PST PAID
P.O. Box 17215 Baltimore, MD
Baltimore, MD 21297-0354 Permit #250
~ Please fold and detach card at perforation before mailing. ~
Please vote by filling in the appropriate boxes below.
The Board of Directors recommends a vote "FOR" Items 1, 2 & 3.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FOR AGAINST ABSTAIN
1. APPROVAL OF THE SHARE EXCHANGE AND
FORMATION OF THE HOLDING COMPANY [ ] [ ] [ ]
2. THE ELECTION OF 15 DIRECTORS FOR all nominees listed WITHHOLD
at left, except as lined AUTHORITY
H.F. Baldwin, D.L. Becker, through (to vote AGAINST (ABSTAIN)
B.B. Byron, J.O. Cole, D.A. Colussy, any or all nominees line from voting for
E.A. Crooke, J.R. Curtiss, through their names.) all nominees
J.W. Geckle, F.A. Hrabowski, III, listed at left
N. Lampton, C.R. Larson, [ ] [ ]
G.V. McGowan, C.H. Poindexter,
G.L. Russell, Jr., M.D. Sullivan
FOR AGAINST ABSTAIN
3. RATIFICATION OF PRICEWATERHOUSECOOPERS LLP
AS INDEPENDENT ACCOUNTANTS FOR 1999 [ ] [ ] [ ]
The Board of Directors recommends a vote
"AGAINST Items 4 and 5.
4. SHAREHOLDER PROPOSAL CONCERNING
CALVERT CLIFFS' LICENSE EXTENSIONS [ ] [ ] [ ]
5. SHAREHOLDER PROPOSAL CONCERNING
CONFIDENTIAL VOTING [ ] [ ] [ ]
BALTIMORE GAS AND ELECTRIC COMPANY
Date: ________________________
Please sign below exactly as your name appears to the left.
------------------------------------------------------------
SIGNATURE
(over)
</TABLE>
<PAGE>
Exhibit 99.1
BALTIMORE GAS AND ELECTRIC COMPANY
TO PARTICIPANTS IN THE
EMPLOYEE SAVINGS PLAN (THE PLAN)
The enclosed Notice of Annual Meeting of Shareholders, Proxy Statement and
Prospectus, and Voting Instructions Card for the Annual Meeting of Shareholders,
to be held on April 16, 1999, are being furnished to you by Baltimore Gas and
Electric Company (BGE) on behalf of T. Rowe Price Trust Company, Trustee under
the Plan.
In accordance with the Plan and the Trust Agreement between BGE and the Trustee,
you may instruct the Trustee how to vote the shares of common stock held for you
under the Plan. Therefore, please complete the enclosed Voting Instructions Card
and return it in the accompanying envelope by April 9, 1999. After receipt of
the properly executed Voting Instructions Card, the Trustee will vote as
directed by those instructions. The Trustee is not permitted to vote your shares
of common stock unless a signed Voting Instructions Card has been received.
Each participant in the Plan who is a holder of record of other shares of BGE
stock will continue to receive, separately, a proxy card and accompanying proxy
material to vote the shares of common stock registered in his or her name.
Richard D. Honaker
Plan Administrator
<PAGE>
Exhibit 99.1
BALTIMORE GAS AND ELECTRIC COMPANY
EMPLOYEE SAVINGS PLAN
T. Rowe Price Trust Company, Trustee of the Employee Savings Plan, has not
received a Voting Instructions Card for the 1999 meeting for the shares that you
hold in the Plan. The Trustee is not permitted to vote your shares of common
stock unless a signed Voting Instructions card has been received.
We appreciate the support of our shareholders and encourage you to vote your
Employee Savings Plan shares, regardless of the size of your holdings. We have,
therefore, enclosed a second Voting Instructions Card so that you can vote your
shares. Whether or not you plan to attend the meeting, please complete the
Voting Instructions Card and return it to the Trustee in the envelope provided
by APRIL 9, 1999.
Our initial mailing to you included a proxy statement and prospectus. If you
would like to receive a duplicate copy, please contact one of our shareholder
representatives in metropolitan Baltimore at 410-783-5920, within Maryland at
1-800-492-2861, outside Maryland at 1-800-258-0499.
Richard D. Honaker
Plan Administrator
Exhibit 99.2
CONSENT
In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named as a prospective director of
Constellation Energy Group, Inc. in its Post-Effective Amendment No. 1 to
Registration Statement on Form S-4 (SEC File No. 33-64799) filed with the
Securities and Exchange Commission.
/s/ H. Furlong Baldwin /s/ James R. Curtiss
________________________ _____________________________
H. Furlong Baldwin James R. Curtiss
/s/ Douglas L. Becker /s/ Jerome W. Geckle
________________________ _____________________________
Douglas L. Becker Jerome W. Geckle
/s/ Beverly B. Byron /s/ Dr. Freeman A. Hrabowski, III
________________________ _____________________________
Beverly B. Byron Dr. Freeman A. Hrabowski, III
/s/ J. Owen Cole /s/ Nancy Lampton
________________________ _____________________________
J. Owen Cole Nancy Lampton
/s/ Dan A. Colussy /s/ Charles R. Larson
________________________ _____________________________
Dan A. Colussy Charles R. Larson
/s/ Edward A. Crooke /s/ George V. McGowan
________________________ _____________________________
Edward A. Crooke George V. McGowan
/s/ Christian H. Poindexter /s/ George L. Russell, Jr.
_________________________ _____________________________
Christian H. Poindexter George L. Russell, Jr.
/s/ Michael D. Sullivan
_________________________
Michael D. Sullivan
