UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended March 31, 1999
Commission Exact name of registrant IRS Employer
file number as specified in its charter Identification No.
----------- --------------------------- ------------------
1-12869 CONSTELLATION ENERGY GROUP, INC. 52-1964611
1-1910 BALTIMORE GAS AND ELECTRIC COMPANY 52-0280210
Maryland
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(State of Incorporation)
39 W. Lexington Street Baltimore, Maryland 21201
------------------------------------------------
(Address of principal executive offices) (Zip Code)
410-783-5920
(Registrant's telephone number, including area code)
Not Applicable
(Former name,former address and former fiscal year,if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
Common Stock, without par value - 149,556,416 shares outstanding on May 3, 1999.
1
<PAGE>
CONSTELLATION ENERGY GROUP, INC.
--------------------------------
PART I. FINANCIAL INFORMATION
- -----------------------------
Item 1. Financial Statements
Consolidated Statements of Income (Unaudited)
- ---------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------
1999 1998
---------- ----------
(In Millions, Except Per-Share Amounts)
Revenues
<S> <C> <C>
Electric $ 513.0 $ 499.2
Gas 192.8 180.5
Diversified businesses 226.5 186.4
---------- ----------
Total revenues 932.3 866.1
---------- ----------
Expenses Other Than Interest and Income Taxes
Electric fuel and purchased energy 121.1 126.5
Gas purchased for resale 102.1 98.3
Operations 135.3 126.1
Maintenance 48.9 34.2
Diversified businesses - selling, general, and administrative 176.3 144.1
Depreciation and amortization 90.3 96.5
Taxes other than income taxes 60.2 57.0
---------- ----------
Total expenses other than interest and income taxes 734.2 682.7
---------- ----------
Income From Operations 198.1 183.4
---------- ----------
Other Income (Expense)
Allowance for equity funds used during construction 1.7 1.7
Equity in earnings of Safe Harbor Water Power Corporation 1.3 1.2
Net other expense (3.8) (1.0)
---------- ----------
Total other income (expense) (0.8) 1.9
---------- ----------
Income Before Interest and Income Taxes 197.3 185.3
---------- ----------
Interest Expense
Interest charges 62.4 61.8
Capitalized interest (0.3) (1.4)
Allowance for borrowed funds used during construction (0.9) (0.9)
---------- ----------
Net interest expense 61.2 59.5
---------- ----------
Income Before Income Taxes 136.1 125.8
---------- ----------
Income Taxes
Current 49.6 57.3
Deferred 2.5 (9.9)
Investment tax credit adjustments (2.2) (1.8)
---------- ----------
Total income taxes 49.9 45.6
---------- ----------
Net Income 86.2 80.2
Preference Stock Dividends 3.4 5.8
---------- ----------
Earnings Applicable to Common Stock $ 82.8 $ 74.4
========== ==========
Average Shares of Common Stock Outstanding 149.5 147.9
Earnings Per Common Share and
Earnings Per Common Share - Assuming Dilution $0.55 $0.50
Dividends Declared Per Share of Common Stock $0.42 $0.41
Consolidated Statements of Comprehensive Income (Unaudited)
- -----------------------------------------------------------
Net income $ 86.2 $ 80.2
Other comprehensive income (expense), net of taxes (3.2) 0.9
---------- ----------
Comprehensive Income $ 83.0 $ 81.1
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
CONSTELLATION ENERGY GROUP, INC.
--------------------------------
PART I. FINANCIAL INFORMATION (Continued)
- -----------------------------------------
Item 1. Financial Statements
Consolidated Balance Sheets
- ---------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1999* 1998
-------------- -------------
(In Millions)
ASSETS
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 344.0 $ 173.7
Accounts receivable (net of allowance for uncollectibles
of $21.4 and $20.3 respectively) 422.7 401.8
Trading securities 118.5 119.7
Fuel stocks 47.2 85.4
Materials and supplies 148.3 145.1
Prepaid taxes other than income taxes 32.0 68.8
Assets from energy trading activities 215.6 160.2
Other 19.7 21.4
-------------- -------------
Total current assets 1,348.0 1,176.1
-------------- -------------
Investments and Other Assets
Real estate projects and investments 335.6 353.9
Power projects 641.4 656.8
Financial investments 188.9 198.0
Nuclear decommissioning trust fund 191.0 181.4
Net pension asset 102.3 108.0
Safe Harbor Water Power Corporation 34.4 34.4
Senior living facilities 99.3 93.5
Other 114.5 115.4
-------------- -------------
Total investments and other assets 1,707.4 1,741.4
-------------- -------------
Utility Plant
Plant in service
Electric 6,927.3 6,890.3
Gas 934.3 921.3
Common 554.3 552.8
-------------- -------------
Total plant in service 8,415.9 8,364.4
Accumulated depreciation (3,141.7) (3,087.5)
-------------- -------------
Net plant in service 5,274.2 5,276.9
Construction work in progress 218.2 223.0
Nuclear fuel (net of amortization) 122.2 132.5
Plant held for future use 25.4 24.3
-------------- -------------
Net utility plant 5,640.0 5,656.7
-------------- -------------
Deferred Charges
Regulatory assets (net) 529.4 565.7
Other 58.8 55.1
-------------- -------------
Total deferred charges 588.2 620.8
-------------- -------------
TOTAL ASSETS $ 9,283.6 $ 9,195.0
============== =============
</TABLE>
* Unaudited
See Notes to Consolidated Financial Statements.
3
<PAGE>
CONSTELLATION ENERGY GROUP, INC.
--------------------------------
PART I. FINANCIAL INFORMATION (Continued)
- -----------------------------------------
Item 1. Financial Statements
Consolidated Balance Sheets
- ---------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1999* 1998
-------------- -------------
(In Millions)
LIABILITIES AND CAPITALIZATION
Current Liabilities
<S> <C> <C>
Current portions of long-term debt and preference stock $ 510.4 $ 541.7
Accounts payable 254.6 249.6
Customer deposits 36.9 35.5
Accrued taxes 59.8 6.5
Accrued interest 66.9 58.6
Dividends declared 66.3 66.1
Accrued vacation costs 36.1 34.7
Liabilities from energy trading activities 158.2 126.2
Other 23.7 45.3
-------------- -------------
Total current liabilities 1,212.9 1,164.2
-------------- -------------
Deferred Credits and Other Liabilities
Deferred income taxes 1,305.5 1,309.1
Postretirement and postemployment benefits 226.3 217.0
Deferred investment tax credits 115.8 118.0
Decommissioning of federal uranium enrichment facilities 30.8 30.8
Other 60.6 56.3
-------------- -------------
Total deferred credits and other liabilities 1,739.0 1,731.2
-------------- -------------
Capitalization
Long-term Debt
First refunding mortgage bonds of BGE 1,554.2 1,554.2
Other long-term debt of BGE 1,000.8 1,000.8
BGE obligated mandatorily redeemable
trust preferred securities 250.0 250.0
Long-term debt of diversified businesses 846.4 870.2
Unamortized discount and premium (12.1) (12.4)
Current portion of long-term debt (503.4) (534.7)
-------------- -------------
Total long-term debt 3,135.9 3,128.1
-------------- -------------
Redeemable Preference Stock 7.0 7.0
Current portion of redeemable preference stock (7.0) (7.0)
-------------- -------------
Total redeemable preference stock - -
-------------- -------------
Preference Stock Not Subject to Mandatory Redemption 190.0 190.0
-------------- -------------
Common Shareholders' Equity
Common stock 1,492.6 1,485.1
Retained earnings 1,510.3 1,490.3
Accumulated other comprehensive income 2.9 6.1
-------------- -------------
Total common shareholders' equity 3,005.8 2,981.5
-------------- -------------
Total capitalization 6,331.7 6,299.6
-------------- -------------
TOTAL LIABILITIES AND CAPITALIZATION $ 9,283.6 $ 9,195.0
============== =============
</TABLE>
* Unaudited
See Notes to Consolidated Financial Statements.
4
<PAGE>
CONSTELLATION ENERGY GROUP, INC.
--------------------------------
PART I. FINANCIAL INFORMATION (Continued)
- -----------------------------------------
Item 1. Financial Statements
Consolidated Statements of Cash Flows (Unaudited)
- -------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------
1999 1998
------------ ------------
(In Millions)
Cash Flows From Operating Activities
<S> <C> <C>
Net income $ 86.2 $ 80.2
Adjustments to reconcile to net cash provided by operating activities
Depreciation and amortization 104.7 110.3
Deferred income taxes 2.5 (9.9)
Investment tax credit adjustments (2.2) (1.8)
Deferred fuel costs 7.6 22.8
Accrued pension and postemployment benefits 16.2 4.5
Allowance for equity funds used during construction (1.7) (1.7)
Equity in earnings of affiliates and joint ventures (net) 22.5 (6.0)
Changes in assets from energy trading activities (55.5) (51.2)
Changes in liabilities from energy trading activities 32.0 41.9
Changes in other current assets 57.6 94.4
Changes in other current liabilities 53.4 4.6
Other (2.4) (12.1)
------------ ------------
Net cash provided by operating activities 320.9 276.0
------------ ------------
Cash Flows From Investing Activities
Utility construction expenditures (including AFC) (73.4) (63.1)
Allowance for equity funds used during construction 1.7 1.7
Nuclear fuel expenditures (1.6) (2.8)
Deferred conservation expenditures (0.3) (4.8)
Contributions to nuclear decommissioning trust fund (4.4) (4.4)
Purchases of marketable equity securities (7.8) (6.1)
Sales of marketable equity securities 4.2 9.8
Other financial investments 5.5 (2.1)
Real estate projects and investments 26.1 31.8
Power projects (5.5) (61.7)
Other (12.1) (11.6)
------------ ------------
Net cash used in investing activities (67.6) (113.3)
------------ ------------
Cash Flows From Financing Activities
Proceeds from issuance of:
Short-term borrowings 523.5 1,090.1
Long-term debt 104.6 36.4
Common stock 9.6 12.6
Repayment of short-term borrowings (523.5) (1,185.6)
Reacquisition of long-term debt (128.8) (29.9)
Common stock dividends paid (62.7) (60.5)
Preference stock dividends paid (3.4) (5.8)
Other (2.3) (3.3)
------------ ------------
Net cash used in financing activities (83.0) (146.0)
------------ ------------
Net Increase in Cash and Cash Equivalents 170.3 16.7
Cash and Cash Equivalents at Beginning of Period 173.7 162.6
------------ ------------
Cash and Cash Equivalents at End of Period $ 344.0 $ 179.3
============ ============
Other Cash Flow Information:
Interest paid (net of amounts capitalized) $ 51.6 $ 51.5
Income taxes paid $ 1.0 $ 0.8
</TABLE>
See Notes to Consolidated Financial Statements.
Certain prior period amounts have been reclassified to conform with the current
period presentation.
5
<PAGE>
Notes to Consolidated Financial Statements
- ------------------------------------------
Weather conditions can have a great impact on our results for interim
periods. This means that results for interim periods do not necessarily
represent results to be expected for the year.
Our interim financial statements on the previous pages reflect all
adjustments which Management believes are necessary for the fair presentation of
the financial position and results of operations for the interim periods
presented. These adjustments are of a normal recurring nature.
Holding Company Formation
- -------------------------
On April 30, 1999, Constellation Energy Group, Inc. (Constellation Energy)
became the holding company for Baltimore Gas and Electric Company (BGE) and
BGE's former subsidiary Constellation Enterprises, Inc. BGE's outstanding common
stock was exchanged on a share-for-share basis for shares of common stock of
Constellation Energy. BGE's debt securities, BGE obligated mandatorily
redeemable trust preferred securities, and preference stock remain securities of
BGE.
Basis of Presentation
- ---------------------
This Quarterly Report on Form 10-Q is a combined report of Constellation
Energy and BGE. The consolidated financial statements include the accounts of
BGE, Constellation Enterprises, Inc. and its subsidiaries, District Chilled
Water General Partnership (ComfortLink), and BGE Capital Trust I and, therefore,
also represent the consolidated financial statements of Constellation Energy.
References in this report to "we" and "our" are to Constellation Energy and its
subsidiaries, collectively.
Information by Operating Segment
- --------------------------------
<TABLE>
<CAPTION>
Energy Other Unallocated
Electric Gas Services Diversified Corporate
Business Business Businesses Businesses Items (a) Eliminations Consolidated
------------ ------------ ------------- --------------- -------------- ------------- ---------------
For the three months ended March 31, (in millions)
1999
- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Unaffiliated revenues $ 513.0 $192.8 $ 177.5 $ 49.0 $ - $ - $ 932.3
Intersegment revenues 0.4 2.1 0.6 (0.3) - (2.8) -
----------- ------------ ------------- --------------- -------------- ------------- ---------------
Total revenues 513.4 194.9 178.1 48.7 - (2.8) 932.3
Net income (loss) 49.4 22.0 16.1 (1.6) - 0.3 86.2
Segment assets 6,314.7 888.8 1,299.9 803.8 (11.4) (12.2) 9,283.6
- -------------------------- ----------- ------------ ------------- --------------- -------------- ------------- ---------------
1998
- ----
Unaffiliated revenues $ 499.2 $180.5 $ 116.3 $ 70.1 $ - $ - $ 866.1
Intersegment revenues - - 0.1 0.2 - (0.3) -
----------- ------------ ------------- --------------- -------------- ------------- ---------------
Total revenues 499.2 180.5 116.4 70.3 - (0.3) 866.1
Net income 50.5 16.4 10.0 3.0 - 0.3 80.2
Segment assets 6,287.3 864.5 1,070.6 647.6 2.8 (1.3) 8,871.5
</TABLE>
(a) A holding company for our diversified businesses does not allocate the
items presented in the table to our Energy Services and Other Diversified
businesses.
6
<PAGE>
Financing Activity
- ------------------
Constellation Energy
- --------------------
Issuances
- ---------
As discussed on page 6, effective April 30, 1999, BGE's outstanding common
stock was exchanged on a share-for-share basis for shares of common stock of
Constellation Energy.
BGE
- ---
Issuances
- ---------
BGE issued the following medium-term notes during the period from January
1, 1999 through the date of this report:
Date Net
Principal Issued Proceeds
--------- ------ --------
(In millions)
Series G
- --------
Floating rate, due 2001 $60.0 3/99 $59.9
Series H
- --------
Floating rate, due 2001 27.0 3/99 26.9
During the period from January 1, 1999 through April 30, 1999, BGE issued a
total of 310,775 shares of common stock, without par value, under the
Shareholder Investment Plan. Net proceeds were about $9.6 million.
In the future, BGE may purchase some of its long-term debt or preference
stock in the market. This will depend on market conditions and BGE's capital
structure, including the mix of secured and unsecured debt.
Diversified Businesses
- ----------------------
Please refer to the "Capital Requirements of our Diversified Businesses"
section of Management's Discussion and Analysis on page 22 for information about
the debt of our diversified businesses.
Commitments
- -----------
In 1998, Constellation Power Source, Inc., our power marketing and trading
business, and Goldman, Sachs Capital Partners II L.P., an affiliate of Goldman,
Sachs & Co., formed Orion Power Holdings, Inc. to acquire electric generating
plants in the United States and Canada. Constellation Power Source owns a
minority interest in Orion, and has committed to contribute up to $175 million
in equity to fund its investment in Orion.
Environmental Matters
- ---------------------
The Clean Air Act of 1990 contains two titles designed to reduce emissions
of sulfur dioxide and nitrogen oxide (NOx) from electric generating stations
Title IV and Title I.
Title IV addresses emissions of sulfur dioxide. Compliance is required in
two phases:
o Phase I became effective January 1, 1995. We met the requirements of
this phase by installing flue gas desulfurization systems, switching
fuels, and retiring some units.
o Phase II must be implemented by January 1, 2000. We expect to meet the
compliance requirements through a combination of switching fuels and
allowance trading.
Title I addresses NOx emissions. The Maryland Department of the Environment
(MDE) issued NOx regulations effective June 1, 1998. The MDE regulations require
major NOx sources to reduce NOx emissions up to 65% by May 1999. On February 9,
1999, the Baltimore City Circuit Court ordered the MDE to issue a new compliance
date to meet their 65% emissions reduction regulations. In the meantime, we are
taking steps to control NOx emissions at our generating plants.
The Environmental Protection Agency (EPA) issued a final rule in September
1998 that requires the reduction of NOx emissions up to 85% by 22 states
(including Maryland and Pennsylvania). The 22 states must submit plans to the
EPA by September 1999 showing how they will meet its new NOx emissions reduction
requirements.
Based on the MDE and EPA regulations, we currently estimate that the
additional controls needed at our generating plants to meet the 65% NOx emission
reduction requirements will cost approximately $126 million. Through the date of
this report, we have spent approximately $30 million to meet the 65% reduction
requirements. We cannot estimate the cost for the 85% reduction requirements at
this time, however, these costs could be material.
In July 1997, the EPA published new National Ambient Air Quality Standards
for very fine particulates and revised standards for ozone attainment. These
standards may require increased controls at our fossil generating plants in the
future. We cannot estimate the cost of these increased controls at this time
because the states, including Maryland, still need to determine what reductions
in pollutants will be necessary to meet the federal standards.
7
<PAGE>
The EPA and several state agencies have notified us that we are considered a
potentially responsible party with respect to the cleanup of certain
environmentally contaminated sites owned and operated by others. We cannot
estimate the cleanup costs for all of these sites. We can, however, estimate
that our current 15.42% share of the reasonably possible cleanup costs at one of
these sites, Metal Bank of America (a metal reclaimer in Philadelphia), could be
as much as $4.9 million higher than amounts we have recorded as a liability on
our Consolidated Balance Sheets. This estimate is based on a Record of Decision
issued by the EPA in 1998. The cleanup costs for some of the remaining sites
could be significant, but we do not expect them to have a material effect on our
financial position or results of operations.
Also, we are coordinating investigation of several sites where gas was
manufactured in the past. The investigation of these sites includes reviewing
possible actions to remove coal tar. In late December 1996, we signed a consent
order with the MDE that requires us to implement remedial action plans for
contamination at and around the Spring Gardens site, located in Baltimore,
Maryland. We submitted the required remedial action plans and they have been
approved by MDE. Based on the remedial action plans, the costs we consider to be
probable to remedy the contamination are estimated to total $47 million in
nominal dollars (including inflation). We have recorded these costs as a
liability on our Consolidated Balance Sheets and have deferred these costs, net
of accumulated amortization and amounts recovered from insurance companies, as a
regulatory asset. We discuss this further in Note 4 of BGE's 1998 Annual Report
on Form 10-K. Through the date of this report, we have spent approximately $33
million for remediation at this site.
We are also required by accounting rules to disclose additional costs we
consider to be less likely than probable costs, but still "reasonably possible"
of being incurred at these sites. Because of the results of studies at these
sites, it is reasonably possible that these additional costs could exceed the
amount we recognized by approximately $14 million in nominal dollars ($7 million
in current dollars, plus the impact of inflation at 3.1% over a period of up to
36 years).
Our potential environmental liabilities and pending environmental actions
are described further in BGE's 1998 Annual Report on Form 10-K under "Item 1.
Business - Environmental Matters."
Nuclear Insurance
- -----------------
If there were an accident or an extended outage at either unit of the
Calvert Cliffs Nuclear Power Plant (Calvert Cliffs), it could have a substantial
adverse financial effect on us. The primary contingencies that would result from
an incident at Calvert Cliffs could include:
o physical damage to the plant,
o recoverability of replacement power costs, and
o our liability to third parties for property damage and bodily injury.
We have insurance policies that cover these contingencies, but the policies
have certain exclusions. Furthermore, the costs that could result from a covered
major accident or a covered extended outage at either of the Calvert Cliffs
units could exceed our insurance coverage limits.
Insurance for Calvert Cliffs and Third Party Claims
- ---------------------------------------------------
For physical damage to Calvert Cliffs, we have $2.75 billion of property
insurance from an industry mutual insurance company. If an outage at either of
the two units at Calvert Cliffs is caused by an insured physical damage loss and
lasts more than 17 weeks, we have insurance coverage for replacement power costs
up to $494.2 million per unit, provided by an industry mutual insurance company.
This amount can be reduced by up to $98.8 million per unit if an outage at both
units of the plant is caused by a single insured physical damage loss. If
accidents at any insured plants cause a shortfall of funds at the industry
mutual insurance company, all policyholders could be assessed, with our share
being up to $23.2 million.
In addition we, as well as others, could be charged for a portion of any
third party claims associated with a nuclear incident at any commercial nuclear
power plant in the country. At the date of this report, the limit for third
party claims from a nuclear incident is $9.71 billion under the provisions of
the Price Anderson Act. If third party claims exceed $200 million (the amount of
primary insurance), our share of the total liability for third party claims
could be up to $176.2 million per incident. That amount would be payable at a
rate of $20 million per year.
8
<PAGE>
Insurance for Worker Radiation Claims
- -------------------------------------
As an operator of a commercial nuclear power plant in the United States, we
are required to purchase insurance to cover radiation injury claims of certain
nuclear workers. On January 1, 1998, a new insurance policy became effective for
all operators requiring coverage for current operations. Waiving the right to
make additional claims under the old policy was a condition for acceptance under
the new policy. We describe both the old and new policies below.
o BGE nuclear worker claims reported on or after January 1, 1998 are
covered by a new insurance policy with an annual industry aggregate
limit of $200 million for radiation injury claims against all those
insured by this policy.
o All nuclear worker claims reported prior to January 1, 1998 are still
covered by the old insurance policies. Insureds under the old policies,
with no current operations, are not required to purchase the new policy
described above, and may still make claims against the old policies for
the next nine years. If radiation injury claims under these old policies
exceed the policy reserves, all policyholders could be assessed, with
our share being up to $6.3 million.
If claims under these polices exceed the coverage limits, the provisions of
the Price Anderson Act (discussed in this section) would apply.
Recoverability of Electric Fuel Costs
- -------------------------------------
By law, we are allowed to recover our cost of electric fuel if the Maryland
Public Service Commission (Maryland PSC) finds that, among other things, we have
kept the productive capacity of our generating plants at a reasonable level. To
do this, the Maryland PSC will evaluate the performance of our generating
plants, and will determine if we used all reasonable and cost-effective
maintenance and operating control procedures.
The Maryland PSC, under the Generating Unit Performance Program, measures
annually whether we have maintained the productive capacity of our generating
plants at reasonable levels. To do this, the program uses a system-wide
generating performance target and an individual performance target for each base
load generating unit. In fuel rate hearings, actual generating performance
adjusted for planned outages will be compared first to the system-wide target.
If that target is met, it should mean that the requirements of Maryland law
have been met. If the system-wide target is not met, each unit's adjusted actual
generating performance will be compared to its individual performance target to
determine if the requirements of Maryland law have been met and, if not, to
determine the basis for possibly imposing a penalty on BGE. Even if we meet
these targets, parties to fuel rate hearings may still question whether we used
all reasonable and cost-effective procedures to try to prevent an outage. If the
Maryland PSC decides we were deficient in some way, the Maryland PSC may not
allow us to recover the cost of replacement energy.
The two units at Calvert Cliffs use the cheapest fuel. As a result, the
costs of replacement energy associated with outages at these units can be
significant. We cannot estimate the amount of replacement energy costs that
could be challenged or disallowed in future fuel rate proceedings, but such
amounts could be material. We discuss significant disallowances in prior years
related to past outages at Calvert Cliffs in BGE's 1998 Annual Report on Form
10-K.
BGE's electric fuel rate clause will be discontinued when electric
generation is deregulated and, therefore, earnings will be affected by the
changes in the cost of fuel and energy. We discuss competition and its impact on
BGE's generation business further in the "Competition and Response to Regulatory
Change" section of Management's Discussion and Analysis on page 14.
California Power Purchase Agreements
- ------------------------------------
Constellation Power, Inc. and subsidiaries and Constellation Investments,
Inc. (whose power projects are managed by Constellation Power) have $293.6
million invested in 15 projects that sell electricity in California under power
purchase agreements called "Interim Standard Offer No. 4" agreements. Earnings
from these projects were $8.0 million, or $.05 per share, for the quarter ended
March 31,1999.
Under these agreements, the projects supply electricity to utility companies
at:
o a fixed rate for capacity and energy for the first 10 years of the
agreements, and
o a fixed rate for capacity plus a variable rate for energy based on the
utilities' avoided cost for the remaining term of the agreements.
Generally, a "capacity rate" is paid to a power plant for its availability
to supply electricity, and an "energy rate" is paid for the electricity actually
generated.
9
<PAGE>
"Avoided cost" generally is the cost of a utility's cheapest next-available
source of generation to service the demands on its system.
We use the term "transition period" to describe the time frame when the
10-year periods for fixed energy rates expire for these 15 power generation
projects and they begin supplying electricity at variable rates. The transition
period for some of the projects began in 1996 and will continue for the
remaining projects through 2000.
The projects that have already transitioned to variable rates have had lower
revenues under variable rates than they did under fixed rates. However, we have
not yet experienced significantly lower earnings from the California projects
because the combined revenues from the remaining projects, which continue to
supply electricity at fixed rates, are high enough to offset the lower revenues
from the variable-rate projects. When the remaining projects transition to
variable rates, we expect the revenues from those projects also to be lower than
they are under fixed rates.
Our power generation business is pursuing alternatives for some of these
power generation projects including:
o repowering the projects to reduce operating costs,
o changing fuels to reduce operating costs,
o renegotiating the power purchase agreements to improve the terms,
o restructuring financing to improve existing terms, and
o selling its ownership interests in the projects.
At the date of this report, nine projects had already transitioned to
variable rates. The remaining six projects that make the highest revenues will
transition between June 1999 and December 2000. The projects which transition in
1999 contributed $2.1 million, or $.01 per share to the quarter ended March 31,
1999 earnings, while those changing over in 2000 contributed $5.9 million, or
$.04 per share to the quarter ended March 31, 1999 earnings. We expect earnings
to ultimately decrease by similar amounts as these projects transition.
Constellation Real Estate
- -------------------------
In April 1999, Constellation Real Estate Group, Inc. (CREG) sold Church
Street Station, our entertainment, dining, and retail complex in Orlando,
Florida for $11.5 million, the approximate book value of the complex.
Most of CREG's remaining real estate projects are in the
Baltimore-Washington corridor. The area has had a surplus of available land in
recent years and as a result these projects have been economically hurt.
CREG's real estate projects have continued to incur carrying costs and
depreciation over the years. Additionally, CREG has been charging interest
payments to expense rather than capitalizing them for some undeveloped land
where development activities have stopped. These carrying costs, depreciation,
and interest expenses have decreased earnings and are expected to continue to do
so.
Cash flow from real estate operations has not been enough to make the
monthly loan payments on some of these projects. Cash shortfalls have been
covered by cash obtained from the cash flows of, or additional borrowings by,
other diversified subsidiaries.
Management's current real estate strategy is to hold each real estate
project until we can realize a reasonable value for it. Management evaluates
strategies for all its businesses, including real estate, on an ongoing basis.
We anticipate that competing demands for our financial resources and changes in
the utility industry will cause us to evaluate thoroughly all diversified
business strategies on a regular basis so we use capital and other resources in
a manner that is most beneficial.
We consider market demand, interest rates, the availability of financing,
and the strength of the economy in general when making decisions about our real
estate projects. If we were to decide to sell our real estate projects, we could
have write-downs. In addition, if we were to sell our remaining real estate
projects in the current market, we would have losses which could be material,
although the amount of the losses is hard to predict. Depending on market
conditions, we could also have material losses on any future sales.
It may be helpful for you to understand when we are required, by accounting
rules, to write down the value of a real estate project to market value. A
write-down is required in either of two cases. The first is if we change our
intent about a project from an intent to hold to an intent to sell and the
market value of that project is below book value. The second is if the expected
cash flow from the project is less than the investment in the project.
10
<PAGE>
Item 2. Management's Discussion
- -------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations
- --------------------------------------------------------------------------------
Introduction
- ------------
On April 30, 1999, Constellation Energy(R) Group, Inc. (Constellation
Energy) became the holding company for Baltimore Gas and Electric Company
(BGE(R)) and Constellation(R) Enterprises, Inc. Constellation Enterprises was
previously owned by BGE.
BGE is an electric and gas public utility company with a service territory
in the City of Baltimore and in all or part of ten counties in Central Maryland.
Constellation Enterprises is a holding company for several diversified
businesses engaged primarily in energy services.
Our energy services businesses include certain subsidiaries of Constellation
Enterprises and the District Chilled Water General Partnership (ComfortLink(R)),
a general partnership in which BGE is a partner. Our energy services businesses
are as follows:
o Constellation Power Source,(TM) Inc. -- our
wholesale power marketing and trading business,
o Constellation Power, Inc.,(TM) and Subsidiaries -- our power projects
business,
o Constellation Energy Source,(TM) Inc. -- our energy products and
services business,
o BGE Home Products & Services,(TM) Inc. and Subsidiaries -- our home
products, commercial building systems, and residential and small
commercial gas retail marketing business,
o ComfortLink -- our cooling services business for commercial customers in
Baltimore.
Constellation Enterprises, Inc. also has two other subsidiaries:
o Constellation Investments,(TM) Inc. -- our
financial investments business, and
o Constellation Real Estate Group,(TM) Inc. -- our
real estate and senior-living facilities
business.
The consolidated financial statements in this report include the accounts of
BGE and its subsidiaries. Therefore, they also represent the financial
statements of Constellation Energy and its subsidiaries. References in this
report to "we" and "our" are to Constellation Energy and its subsidiaries,
collectively. In Exhibit 99(a), we present financial information summarizing
certain pro forma financial effects of the restructuring of BGE. The pro forma
information assumes that the holding company was formed as of January 1, 1999.
It presents BGE's summarized financial statements on a "stand-alone" basis by
excluding the results of Constellation Enterprises and its subsidiaries. These
companies became subsidiaries of Constellation Energy effective April 30, 1999.
The electric utility industry is undergoing rapid and substantial change. On
April 8, 1999, legislation authorizing customer choice and competition among
electric suppliers in Maryland was enacted. In the natural gas industry,
deregulation is well under way. The regulatory environment (federal and state)
for both electricity and natural gas is shifting toward customer choice. These
matters are discussed further in the "Competition and Response to Regulatory
Change" section on page 14.
In response to this change, we regularly evaluate our strategies with two
goals in mind: to improve our competitive position, and to anticipate and adapt
to regulatory change. Constellation Energy will continue to invest in the growth
of its power projects and power marketing and trading businesses with the
objective of providing new sources of earnings in anticipation of lower electric
utility revenues as competition is introduced into this industry in Maryland. In
addition, we might consider one or more of the following strategies:
o the complete or partial separation of our generation, transmission, and
distribution functions,
o purchase or sale of generation assets,
o mergers or acquisitions of utility or non-utility businesses,
o spin-off or sale of one or more businesses, and
o growth of earnings from other nonregulated businesses.
We cannot predict whether any of the strategies described above may actually
occur, or what their effect on our financial condition or competitive position
might be. Please refer to the "Forward Looking Statements" section. Additional
detail on competition is included in BGE's 1998 Annual Report on Form 10-K under
the heading "Electric Regulatory Matters and Competition."
11
<PAGE>
In this discussion and analysis, we explain the general financial condition
and the results of operations for Constellation Energy including:
o what factors affect our business,
o what our earnings and costs were in the periods presented,
o why earnings and costs changed between periods,
o where our earnings came from,
o how all of this affects our overall financial condition,
o what our expenditures for capital projects were in the current period and
what we expect them to be in the future, and
o where we expect to get cash for future capital expenditures.
As you read this discussion and analysis, it may be helpful to refer to our
Consolidated Statements of Income on page 2, which present the results of our
operations for the quarters ended March 31, 1999 and 1998. We analyze and
explain the differences between periods in the specific line items of the
Consolidated Statements of Income. Our analysis may be important to you in
making decisions about your investments in Constellation Energy.
Results of Operations for the Quarter Ended March 31, 1999 Compared With the
Same Period of 1998
- --------------------------------------------------------------------------------
In this section, we discuss our earnings and the factors affecting them. We
begin with a general overview, then separately discuss earnings for the utility
business and for diversified businesses.
Overview
- --------
Total Earnings per Share of Common Stock
- ----------------------------------------
Quarter Ended
March 31
--------------------
1999 1998
-------- --------
Utility business......... $ .45 $ .41
Diversified businesses... .10 .09
-------- --------
Total earnings per share. $ .55 $ .50
======== ========
Our total earnings for the quarter ended March 31, 1999 increased $8.4
million, or $.05 per share, compared to the same period of 1998 mostly because
we had higher utility earnings.
In the first quarter of 1999, we had higher utility earnings than we did in
the same period of 1998 mostly because we sold more electricity and gas due to
colder weather this year (people use more electricity and gas to heat their
homes in colder weather). Utility earnings would have been even higher except we
had higher operations and maintenance expenses. We discuss our utility earnings
in more detail in the "Utility Business" section below.
In the first quarter of 1999, diversified business earnings increased
slightly compared to the same period of 1998 mostly because of higher earnings
from our power marketing and trading business. Diversified business earnings
would have been even higher except we had lower earnings from our financial
investments business. We discuss our diversified business earnings in further in
the "Diversified Businesses" section beginning on page 18.
Utility Business
- ----------------
Before we go into the details of our electric and gas operations, we believe
it is important to discuss four factors that have a strong influence on our
utility business performance: regulation, the weather, other factors including
the condition of the economy in our service territory, and competition.
Regulation by the Maryland Public Service Commission (Maryland PSC)
- -------------------------------------------------------------------
The Maryland PSC determines the rates we can charge our customers. Our rates
consist of a "base rate" and a "fuel rate." The base rate is the rate the
Maryland PSC allows us to charge our customers for the cost of providing them
service, plus a profit. We have both an electric base rate and a gas base rate.
Higher electric base rates apply during the summer when the demand for
electricity is the highest. Gas base rates are not affected by seasonal changes.
The Maryland PSC allows us to include in base rates a component to recover
money spent on conservation programs. This component is called a "conservation
surcharge." However, under this surcharge the Maryland PSC limits what our
profit can be. If, at the end of the year, we have exceeded our allowed profit,
we defer (include as a liability in our Consolidated Balance Sheets and exclude
from our Consolidated Statements of Income) the excess in that year and we lower
the amount of future surcharges to our customers to correct the amount of
overage, plus interest.
12
<PAGE>
In addition, we charge our electric customers separately for the fuel we use
to generate electricity (nuclear fuel, coal, gas, or oil) and for the net cost
of purchases and sales of electricity (primarily with other utilities). We
charge the actual cost of these items to the customer with no profit to us. If
these fuel costs go up, the Maryland PSC permits us to increase the fuel rate.
If these costs go down, our customers benefit from a reduction in the fuel rate.
The fuel rate is impacted most by the amount of electricity generated at the
Calvert Cliffs Nuclear Power Plant (Calvert Cliffs) because the cost of nuclear
fuel is cheaper than coal, gas, or oil.
We discuss this in more detail in the "Electric Fuel Rate Clause" section on
page 17 and in Note 1 of BGE's 1998 Annual Report on Form 10-K.
Changes in the fuel rate normally do not affect earnings. However, if the
Maryland PSC disallows recovery of any part of the fuel costs, our earnings are
reduced. We discuss this in the "Recoverability of Electric Fuel Costs" section
of the Notes to Consolidated Financial Statements on page 9.
BGE's electric fuel rate clause will be discontinued when electric
generation is deregulated and, therefore, earnings will be affected by the
changes in the cost of fuel and energy. In addition, any accumulated difference
between our actual costs of fuel and energy and the amounts collected from
customers under the electric fuel rate clause will be refunded to or collected
from our customers. This will occur over a period not to exceed twelve months
from when the electric fuel rate clause no longer exists. At March 31, 1999, we
have collected $6.7 million of electric fuel rate revenues in excess of our
actual costs of fuel and energy.
We also charge our gas customers separately for the natural gas they
purchase from us. The price we charge for the natural gas is based on a market
based rates incentive mechanism approved by the Maryland PSC. We discuss market
based rates in more detail in the "Gas Cost Adjustments" section on page 17.
From time to time, when necessary to cover increased costs, we ask the
Maryland PSC for base rate increases. The Maryland PSC holds hearings to
determine whether to grant us all or a portion of the amount requested. The
Maryland PSC has historically allowed us to increase base rates to recover
increased utility plant asset costs, plus a profit, beginning at the time of
replacement. Generally, rate increases improve our utility earnings because they
allow us to collect more revenue. However, rate increases are normally granted
based on historical data and those increases may not always keep pace with
increasing costs.
Other parties may petition the Maryland PSC to lower our base rates. We
discuss this in more detail in the "Competition and Response to Regulatory
Change" section on page 14.
Weather
- -------
Weather affects the demand for electricity and gas. Very hot summers and
very cold winters increase demand. Mild weather reduces demand. Weather impacts
residential sales more than commercial and industrial sales, which are mostly
affected by business needs for electricity and gas.
We measure the weather's effect using "degree days." A degree day is the
difference between the average daily actual temperature and a baseline
temperature of 65 degrees. Cooling degree days result when the average daily
actual temperature exceeds the 65 degree baseline. Heating degree days result
when the average daily actual temperature is less than the baseline.
During the cooling season, hotter weather is measured by more cooling degree
days and results in greater demand for electricity to operate cooling systems.
During the heating season, colder weather is measured by more heating degree
days and results in greater demand for electricity and gas to operate heating
systems.
Effective March 1, 1998, the Maryland PSC allowed us to implement a monthly
adjustment to our gas business revenues to eliminate the effect of abnormal
weather patterns. We discuss this further in the "Weather Normalization" section
on page 17.
We show the number of heating degree days in the quarters ended March 31,
1999 and 1998 and the percentage change in the number of degree days between
these two periods in the following table:
Quarter Ended
March 31
------------------------
1999 1998
---------- ---------
Heating degree days........ 2,389 2,022
Percent change
compared to prior period 18.2%
Other Factors
- -------------
Other factors, aside from weather, impact the demand for electricity and
gas. These factors include the "number of customers" and "usage per customer"
during a given period. We use these terms later in our discussions of electric
and gas operations. In those sections, we discuss how these and other factors
affected electric and gas sales during the periods presented.
13
<PAGE>
The number of customers in a given period is affected by new home and
apartment construction and by the number of businesses in our service territory.
Usage per customer refers to all other items impacting customer sales that
cannot be separately measured. These factors include the strength of the economy
in our service territory. When the economy is healthy and expanding, customers
tend to consume more electricity and gas. Conversely, during an economic
downtrend, our customers tend to consume less electricity and gas.
Competition and Response to Regulatory Change
- ---------------------------------------------
Our electric and gas businesses are also affected by competition as
discussed below.
Electric Business
- -----------------
Electric utilities are facing competition on various fronts, including:
o the construction of generating units to meet increased demand for
electricity,
o the sale of electricity in bulk power markets,
o competing with alternative energy suppliers, and
o electric sales to retail customers.
On July 1, 1998, BGE and all other Maryland investor-owned electric
utilities filed with the Maryland PSC their individual proposals for the
transition from a regulated electric supply system to one where generation is
priced based on a competitive retail electric market. The details of our
proposal are discussed in BGE's 1998 Annual Report on Form 10-K.
On December 22, 1998, other parties filed their positions in response to our
proposals. The counter-proposals contain provisions, which, if adopted by the
Maryland PSC, could negatively impact BGE's electric business. On September 3,
1998, the Office of People's Counsel (OPC) filed a petition requesting the
Maryland PSC to lower our electric base rates. At our request, the Maryland PSC
agreed to consolidate any such review of our electric base rates with its review
of our electric restructuring transition proposal mentioned above. We filed
testimony and exhibits with the Maryland PSC supporting our position that our
current electric base rates are justified.
On February 5, 1999, other parties, including the OPC, filed testimonies to
lower our electric base rates by as much as $131 million. As a condition of the
Maryland PSC's consolidation of these matters, we agreed to make our rates
subject to refund effective July 1, 1999 should the Maryland PSC issue a rate
reduction order after that date.
On April 8, 1999, Maryland enacted the Electric Customer Choice and
Competition Act of 1999 (the "Act") and accompanying tax legislation that will
significantly restructure Maryland's electric utility industry and modify the
industry's tax structure. Major elements of the Act are:
o residential customer choice begins on July 1, 2000 for a third of
customers, and the next two thirds will be phased in over the
following two years,
o all commercial and industrial customers may choose electric suppliers
beginning January 1, 2001,
o rates are frozen for all customers for four years after choice begins,
at the rates in effect on June 30, 2000,
o residential customers are guaranteed a reduction of 3% to 7.5% of
rates in effect on June 30, 1999 (exact amount to be determined by the
Maryland PSC) on electric base rates effective July 1, 2000 for 4
years after choice begins,
o generation is deregulated beginning on July 1, 2000,
o existing utilities are responsible for the transmission and delivery
of electricity,
o the Maryland PSC continues to have the authority to mandate
cost-effective energy conservation programs,
o the Maryland PSC will determine transition costs or benefits as
discussed further in this section,
o the Maryland PSC is empowered to protect low-income customers through
the establishment of a $34 million statewide universal service fund,
o competitive billing is required to begin July 1, 2000 and competitive
metering is required to begin in 2002,
o a reciprocity provision is included for the sale of electricity,
whereby utilities in neighboring states are prevented from competing
with Maryland utilities unless the Maryland utility can compete in
their service territory, and
o customers who do not wish to change their electricity provider will
receive "standard offer service" under procedures established by the
Maryland PSC.
14
<PAGE>
The tax legislation made comprehensive changes to the state and local
taxation of electric and gas utilities. Starting in the year 2000, the Maryland
public service franchise tax will be altered to generally include a tax equal to
.062 cents on each kilowatt-hour of electricity and .402 cents on each therm of
natural gas delivered for final consumption in Maryland. The Maryland 2%
franchise (gross receipts) tax on electric and natural gas utilities will
continue to apply to transmission and distribution revenue. Additionally, all
electric and natural gas utility revenue will become subject to the Maryland
corporate income tax.
Beginning July 1, 2000, the tax legislation also provides for a two-year
phase-in of a 50% reduction in the local personal property taxes on machinery
and equipment used to generate electricity for resale and a 60% corporate income
tax credit for real property taxes paid on those facilities.
The impact of these tax law changes will depend on Maryland PSC's ruling on
our transition plan and BGE's operating results once generation is deregulated.
The changes are designed, in part, to tax Maryland electric generating
facilities on a more comparable basis with electric generation in surrounding
states.
On May 7, 1999, we reached a tentative agreement in principle with a
majority of the active parties on the major issues in the electric restructuring
proceedings discussed above and are in the process of finalizing an agreement
that will potentially resolve all the issues. As a result, the Maryland PSC has
suspended the procedural schedule and has instructed the settling parties to
file a settlement agreement by June 15, 1999. All parties will then have an
opportunity to comment on the settlement agreement based on a schedule to be
determined. At that point, the Maryland PSC will determine what type of
proceedings are necessary to render a decision regarding whether the settlement
is in the public interest. The settlement agreement can modify some of the Act's
provisions discussed above, with the Maryland PSC's concurrence. It is expected
that the Maryland PSC will issue a final order by October 1, 1999.
As part of its ruling, the Maryland PSC must authorize the amount, if any,
of BGE's stranded investments in its generation plants. If it determines that
there are stranded investments, the time frame over which BGE will recover its
investment from customers must also be determined. BGE's current estimate of its
stranded investments is approximately $900 million, including costs associated
with the transition to competition.
At March 31, 1999, we met the requirements to continue to apply Statement of
Financial Accounting Standards (SFAS) No. 71 to BGE's utility operations. When
sufficient details of the transition plan ultimately approved by the Maryland
PSC become known, the generation portion of BGE's electric business will likely
no longer meet the provisions of SFAS No. 71. At that time, we would implement
SFAS No. 101, "Regulated Enterprises - Accounting for the Discontinuation of
FASB Statement No. 71."
A provision under SFAS No. 101 requires an evaluation of potential
impairments of plant assets under SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of. If any of our
generating plant assets are impaired under the provisions of SFAS No. 121, BGE
would be required to record a write-down. The amount of any such write-down
could materially affect BGE's financial position and results of operations.
However, we cannot estimate the amount of the potential impairment loss, if any,
at this time.
Currently, Maryland law does not allow BGE to securitize the recovery of
stranded investments. A securitization bill was introduced in the Maryland
General Assembly this year but was not considered for enactment. It is expected
that a securitization bill will be considered in the 2000 General Assembly.
Securitization is a mechanism to recover stranded investments. Generally, bonds
would be issued and the proceeds used primarily to reduce stranded investments
and related capitalization of BGE. The bonds would be payable from irrevocable
customer charges.
We cannot predict the ultimate effect the implementation of electric
customer choice as described in this section will have on BGE's financial
position or results of operations, but such effects could be material.
Gas Business
- ------------
Currently, no regulation exists for the wholesale price of natural gas as a
commodity, and the regulation of interstate transmission at the federal level
has been reduced. All BGE industrial and commercial gas customers, and 50,000
BGE residential gas customers (under a pilot program) have the option to
purchase gas from other suppliers. On November 1, 1999, all BGE residential
customers will have the same option.
15
<PAGE>
Utility Business Earnings per Share of Common Stock
- ---------------------------------------------------
Quarter Ended
March 31
--------------------
1999 1998
-------- --------
Electric business........ $ .31 $ .31
Gas business............. .14 .10
-------- --------
Total utility
earnings per share.... $ .45 $ .41
======== ========
Our utility earnings for the quarter ended March 31, 1999 increased $6.9
million, or $.04 per share compared to the same period of 1998. We discuss the
factors affecting utility earnings below.
Electric Operations
- -------------------
Electric Revenues
- -----------------
The changes in electric revenues in 1999 compared to 1998 were caused by:
Quarter Ended
March 31
1999 vs. 1998
----------------------
(In millions)
Electric system sales volumes.. $ 19.2
Base rates..................... -
Fuel rates..................... 2.7
---------
Total change in electric revenues
from electric system sales. 21.9
Interchange and other sales.... (8.3)
Other........................... 0.2
---------
Total change in electric revenues $ 13.8
=========
Electric System Sales Volumes
- -----------------------------
"Electric system sales volumes" are sales to customers in our service
territory at rates set by the Maryland PSC. These sales do not include
interchange sales and sales to others.
The percentage changes in our electric system sales volumes, by type of
customer, in 1999 compared to 1998 were:
Quarter Ended
March 31
1999 vs. 1998
----------------------
Residential................... 7.9%
Commercial.................... 3.7
Industrial.................... (0.9)
During the quarter ended March 31, 1999, we sold more electricity to
residential and commercial customers mostly due to colder weather. We sold about
the same amount of electricity to industrial customers as we did during the same
period of 1998.
Base Rates
- ----------
During the quarter ended March 31, 1999, base rate revenues were about the
same as they were in the same period of 1998. Although we sold more electricity
this quarter, our base rate revenues were about the same because of lower
conservation surcharge revenues.
Fuel Rates
- ----------
During the quarter ended March 31, 1999, fuel rate revenues increased
compared to the same period of 1998 because we sold more electricity.
Interchange and Other Sales
- ---------------------------
"Interchange and other sales" are sales in the PJM (Pennsylvania-New
Jersey-Maryland) Interconnection energy market and to others. The PJM is a
regional power pool with members that include many wholesale market
participants, as well as BGE and seven other utility companies. We sell energy
to PJM members and to others after we have satisfied the demand for electricity
in our own system.
During the quarter ended March 31, 1999, we had lower interchange and other
sales compared to the same period of 1998 mostly because the increased demand
for system sales this quarter reduced the amount of energy we had available for
off-system sales.
Electric Fuel and Purchased Energy Expenses
- -------------------------------------------
Quarter Ended
March 31
-----------------------
1999 1998
--------- ----------
(In millions)
Actual costs.............. $ 127.2 $ 114.6
Net recovery (deferral)
of costs under
electric fuel rate
clause (see Note 1 of
BGE's 1998 Form 10-K)... (6.1) 11.9
--------- ----------
Total electric fuel and
purchased energy expenses $ 121.1 $ 126.5
========= ==========
Actual Costs
- ------------
During the quarter ended March 31, 1999, our actual costs of fuel to
generate electricity (nuclear fuel, coal, gas, or oil) and electricity we bought
from others was higher than in the same period of 1998 mostly because the price
of purchased electricity was higher. The price
16
<PAGE>
of electricity purchased changes based on market conditions, complex pricing
formulas for PJM transactions, and contract terms.
Electric Fuel Rate Clause
- -------------------------
Under the electric fuel rate clause, we defer (include as an asset or
liability on the Consolidated Balance Sheets and exclude from the Consolidated
Statements of Income) the difference between our actual costs of fuel and energy
and what we collect from customers under the fuel rate in a given period. We
either bill or refund our customers that difference in the future.
During the quarter ended March 31, 1999, our actual costs of fuel and energy
were higher than the fuel rate revenues we collected from our customers.
Gas Operations
- --------------
Gas Revenues
- ------------
The changes in gas revenues in 1999 compared to 1998 were caused by:
Quarter Ended
March 31
1999 vs. 1998
----------------------
(In millions)
Gas system sales volumes..... $ 5.8
Base rates................... 2.6
Weather normalization........ 3.7
Gas cost adjustments......... 7.8
---------
Total change in gas
revenues from gas 19.9
system sales..............
Off-system sales............. (7.4)
Other........................ (0.2)
---------
Total change in gas revenues. $ 12.3
=========
Gas System Sales Volumes
- ------------------------
The percentage changes in our gas system sales volumes, by type of customer,
in 1999 compared to 1998 were:
Quarter Ended
March 31
1999 vs. 1998
---------------------
Residential................ 11.8%
Commercial................. 13.3
Industrial................. 4.2
During the quarter ended March 31, 1999, we sold more gas to residential
customers mostly because of two factors: colder weather and the number of
customers increased. We would have sold even more gas to residential customers
except we had lower usage per customer. We sold more gas to commercial customers
mostly because of colder weather and the number of customers increased. We sold
more gas to industrial customers mostly because of two factors: colder weather
and increased usage by Bethlehem Steel (our largest customer) and other
industrial customers.
Base Rates
- ----------
During the quarter ended March 31, 1999, base rate revenues were higher than
they were during the same period of 1998. Effective March 1, 1998, the Maryland
PSC allowed us to increase our base rates which increased our base rate revenues
over the twelve-month period March 1998 through February 1999 by approximately
$16 million.
Weather Normalization
- ---------------------
Effective March 1, 1998, the Maryland PSC allowed us to implement a monthly
adjustment to our gas revenues to eliminate the effect of abnormal weather
patterns on our gas system sales volumes. This means our monthly gas revenues
will be based on weather that is considered "normal" for the month and,
therefore, will not be affected by actual weather conditions.
Gas Cost Adjustments
- --------------------
We charge our gas customers for the natural gas they purchase from us using
gas cost adjustment clauses set by the Maryland PSC which include a market based
rate incentive mechanism. These clauses operate similar to the electric fuel
rate clause described in the "Electric Fuel Rate Clause" section above.
Under market based rates, our actual cost of gas is compared to a market
index (a measure of the market price of gas in a given period). The difference
between our actual cost and the market index is shared equally between
shareholders and customers, and does not significantly impact earnings.
Delivery service customers, including Bethlehem Steel, are not subject to
the gas cost adjustment clauses because we are not selling gas to them. We
charge these customers fees to recover the fixed costs for the transportation
service we provide. These fees are essentially the same as the base rate charged
for gas sales and are included in gas system sales volumes.
During the quarter ended March 31, 1999, gas cost adjustment revenues
increased compared to the same period of 1998 mostly because we sold more gas.
17
<PAGE>
Off-System Sales
- ----------------
Off-system gas sales are low-margin direct sales of gas to wholesale
suppliers of natural gas outside our service territory. Off-system gas sales,
which occur after we have satisfied our customers' demand, are not subject to
gas cost adjustments. The Maryland PSC approved an arrangement for part of the
margin from off-system sales to benefit customers (through reduced costs) and
the remainder to be retained by BGE (which benefits shareholders).
During the quarter ended March 31, 1999, revenues from off-system gas sales
decreased compared to the same period of 1998 mostly because we sold less gas
off-system.
Gas Purchased For Resale Expenses
- ---------------------------------
Quarter Ended
March 31
----------------------
1999 1998
--------- ---------
(In millions)
Actual costs................ $ 93.2 $ 96.6
Net recovery of costs under
gas adjustment clauses
(see Note 1 of BGE's 1998
Form 10-K)................ 8.9 1.7
--------- ---------
Total gas purchased
for resale expenses...... $102.1 $ 98.3
========= =========
Actual Costs
- ------------
Actual costs include the cost of gas purchased for resale to our customers
and for off-system sales. Actual costs do not include the cost of gas purchased
by delivery service customers. During the quarter ended March 31, 1999, actual
gas costs decreased compared to the same period of 1998 mostly because we bought
less gas for off-system sales and we bought it at a lower price.
Gas Adjustment Clauses
- ----------------------
We charge customers for the cost of gas sold through gas adjustment clauses
(determined by the Maryland PSC), as discussed under "Gas Cost Adjustments"
earlier in this section.
During the quarter ended March 31, 1999, our actual gas costs were lower
than the fuel rate revenues we collected from our customers.
Other Operating Expenses
- ------------------------
Operations and Maintenance Expenses
- -----------------------------------
During the quarter ended March 31, 1999, operations and maintenance expenses
increased $23.9 million compared to the same period of 1998 mostly because of
the timing of costs associated with the annual refueling outage at Calvert
Cliffs. Costs related to a major storm during 1999 also contributed to the
increase.
Depreciation and Amortization Expenses
- --------------------------------------
During the quarter ended March 31, 1999, depreciation and amortization
decreased $6.2 million compared to the same period of 1998 mostly because 1998
expense reflects an adjustment for the reduction of the amortization period for
certain computer software from five years to three years. We did not have a
similar adjustment in 1999.
Other Income and Expenses
- -------------------------
Interest Charges
- ----------------
Interest charges represent the interest on our outstanding debt. During the
quarter ended March 31, 1999, interest charges were about the same compared to
the same period of 1998.
Income Taxes
- ------------
During the quarter ended March 31, 1999, our total income taxes increased
$4.3 million compared to the same period of 1998 mostly because we had higher
taxable income from our utility operations.
Diversified Businesses
- ----------------------
Our diversified businesses engage primarily in energy services. We list each
of our diversified businesses in the "Introduction" section on page 11. We
describe our diversified businesses in more detail in BGE's 1998 Annual Report
on Form 10-K under "Item 1. Business -- Diversified Businesses."
18
<PAGE>
Diversified Business Earnings per Share of Common Stock
- -------------------------------------------------------
Quarter Ended
March 31
----------------------
1999 1998
---- ----
Energy Services
- --------------------------------
Power marketing and
trading................. $ .05 $ .00
Power projects............ .06 .07
Other.................... .00 .00
--------- ---------
Total energy services
earnings per share....... .11 .07
Other diversified
businesses earnings
per share................ (.01) .02
--------- ---------
Total earnings per share... $ .10 $ .09
========= =========
Our total diversified business earnings for the quarter ended March 31, 1999
increased $1.5 million, or $.01 per share, compared to the same period of 1998.
We discuss the factors affecting the earnings of our diversified businesses
below.
Energy Services
- ---------------
Power Marketing and Trading
- ---------------------------
During the quarter ended March 31, 1999, earnings from our power marketing
and trading business increased compared to the same period of 1998 mostly
because of increased transaction margins and volume.
Constellation Power Source uses the mark-to-market method of accounting for
its trading activities. We discuss the mark-to-market method of accounting and
Constellation Power Source's trading activities in more detail in BGE's 1998
Annual Report on Form 10-K.
As a result of the nature of its trading activities, Constellation Power
Source's revenue and earnings will fluctuate. We cannot predict these
fluctuations, but the effect on our revenues and earnings could be material. The
primary factors that cause these fluctuations are:
o the number and size of new transactions,
o the magnitude and volatility of changes in
commodity prices and interest rates, and
o the number and size of open commodity and
derivative positions Constellation Power Source holds or sells.
Constellation Power Source's management uses its best estimates to determine
the fair value of commodity and derivative positions it holds and sells. These
estimates consider various factors including closing exchange and
over-the-counter price quotations, time value, volatility factors, and credit
exposure. However, it is possible that future market prices could vary from
those used in recording assets and liabilities from trading activities, and such
variations could be material. Assets and liabilities from energy trading
activities increased at March 31, 1999 compared to December 31, 1998 because of
greater business activity during the period.
Power Projects
- --------------
During the quarter ended March 31, 1999, earnings from our power projects
business decreased compared to the same period of 1998 mostly because of
slightly lower earnings from various energy projects.
California Power Purchase Agreements
- ------------------------------------
Constellation Power and subsidiaries and Constellation Investments have
$293.6 million invested in 15 projects that sell electricity in California under
power purchase agreements called "Interim Standard Offer No. 4" agreements.
Earnings from these projects were $8.0 million, or $.05 per share, for the
quarter ended March 31, 1999 compared to $10.0 million, or $.07 per share for
the same period of 1998.
Under these agreements, the electricity rates change from fixed rates to
variable rates beginning in 1996 and continuing through 2000. The projects which
already have had rate changes have lower revenues under variable rates than they
did under fixed rates. When the remaining projects transition to variable rates,
we expect their revenues also to be lower than they are under fixed rates.
We describe these projects and the transition process in detail in the Notes
to Consolidated Financial Statements on page 9.
International
- -------------
At March 31, 1999, Constellation Power had invested about $178.9 million in
11 power projects in Latin America compared to $83.7 million invested in Latin
America at March 31, 1998. These investments include:
o the purchase of a 51% interest in a Panamanian electric distribution
company for approximately $90 million in 1998 by an investment group in
which subsidiaries of Constellation Power hold an 80% interest, and
o approximately $98 million for the purchase of existing electric
generation facilities and the construction of an electric generation
facility in Guatemala.
19
<PAGE>
In the future, Constellation Power expects to expand its power projects
business further in both domestic and international projects.
Other Energy Services
- ---------------------
During the quarter ended March 31, 1999, earnings from our other energy
services businesses were about the same compared to the same period of 1998.
Other Diversified Businesses
- ----------------------------
During the quarter ended March 31, 1999, earnings from our other diversified
businesses were lower compared to the same period of 1998 mostly because we had
lower earnings from our financial investments business. Earnings from our real
estate and senior-living facilities business were about the same compared to the
same period of 1998.
Constellation Real Estate's projects have continued to incur carrying costs
and depreciation over the years. Additionally, this business has been charging
interest payments to expense rather than capitalizing them for some undeveloped
land where development activities have stopped. These carrying costs,
depreciation, and interest expenses have decreased earnings and are expected to
continue to do so.
Cash flow from real estate operations has not been enough to make the
monthly loan payments on some of these projects. Cash shortfalls have been
covered by cash obtained from the cash flows of, or additional borrowings by,
other diversified subsidiaries.
Management's current real estate strategy is to hold each real estate
project until we can realize a reasonable value for it. Management evaluates
strategies for all its businesses, including real estate, on an ongoing basis.
We anticipate that competing demands for our financial resources and changes in
the utility industry will cause us to evaluate thoroughly all diversified
business strategies on a regular basis so we use capital and other resources in
a manner that is most beneficial.
We consider market demand, interest rates, the availability of financing,
and the strength of the economy in general when making decisions about our real
estate projects. If we were to decide to sell our real estate projects, we could
have write-downs. In addition, if we were to sell our real estate projects in
the current market, we would have losses which could be material, although the
amount of the losses is hard to predict. Depending on market conditions, we
could also have material losses on any future sales.
It may be helpful for you to understand when we are required, by accounting
rules, to write down the value of a real estate project to market value. A
write-down is required in either of two cases. The first is if we change our
intent about a project from an intent to hold to an intent to sell and the
market value of that project is below book value. The second is if the expected
cash flow from the project is less than the investment in the project.
In April 1999, we announced our intent to sell our senior-living facilities
business during 1999 to focus on our energy-related businesses. We expect the
proceeds from the sale to be at least equal to book value.
We discuss our real estate and senior-living facilities business further in
the Notes to Consolidated Financial Statements on page 10.
Financial Condition
- -------------------
Cash Flows
- ----------
For the quarter ended March 31, 1999 1998
- ---------------------------------------------------------
(In millions)
Cash provided by (used in):
Operating Activities $320.9 $ 276.0
Investing Activities (67.6) (113.3)
Financing Activities (83.0) (146.0)
During the quarter ended March 31, 1999, we generated more cash from
operations compared to the same period in 1998 mostly because of improved
operating results and changes in working capital requirements.
During the quarter ended March 31, 1999, we used less cash for investing
activities compared to the same period in 1998 mostly because in the first
quarter of 1998, our power projects business invested $60.7 million for the
purchase of a generation facility in Guatemala. We did not have a similar
investment in 1999. We would have used less cash for investing activities except
our utility construction expenditures increased by $10.3 million during the
quarter ended March 31, 1999.
During the quarter ended March 31, 1999, we used less cash for financing
activities compared to the same period of 1998 mostly because we issued more
long-term debt and our net repayments of short-term borrowings were less. We
would have used less cash for financing activities except we repaid more
long-term debt in first quarter 1999.
20
<PAGE>
Security Ratings
- ----------------
Independent credit-rating agencies rate Constellation Energy's and BGE's
fixed-income securities. The ratings indicate the agencies' assessment of our
ability to pay interest, distributions, dividends, and principal on these
securities. These ratings affect how much it will cost us to sell these
securities. The better the rating, the lower the cost of the securities to us
when they sell them. Constellation Energy's and BGE's securities ratings at the
date of this report are:
Standard Moody's Duff & Phelps'
& Poors Investors Credit
Rating Group Service Rating Co.
------------ ------- ----------
Constellation Energy
- --------------------
Unsecured Debt Pending A3 Pending
BGE
- ---
Mortgage Bonds AA- A1 AA-
Unsecured Debt A A2 A+
Trust Originated
Preferred Securities
and Preference Stock A- "a2" A
Capital Resources
- -----------------
Our business requires a great deal of capital. Our actual capital
requirements for the three months ended March 31, 1999, along with estimated
annual amounts for the years 1999 through 2001, are shown below. For the twelve
months ended March 31, 1999, our ratio of earnings to fixed charges was 2.97 and
our ratio of earnings to combined fixed charges and preferred and preference
dividend requirements was 2.66.
Investment requirements for 1999 through 2001 include estimates of funding
for existing and anticipated projects. We continuously review and modify those
estimates. Actual investment requirements may vary from the estimates included
in the table below because of a number of factors including:
o regulation, legislation, and competition,
o load growth,
o environmental protection standards,
o the type and number of projects selected for development,
o the effect of market conditions on those projects,
o the cost and availability of capital, and
o the availability of cash from operations.
Our estimates are also subject to additional factors. Please see "Forward
Looking Statements" on page 28.
<TABLE>
<CAPTION>
Quarter Ended
March 31, Calendar Year Estimates
1999 1999 2000 2001
--------- ------- -- -------- -- --------
(In millions)
Utility Business Capital Requirements:
- --------------------------------------
Construction expenditures (excluding AFC)
<S> <C> <C> <C> <C>
Electric $53 $285 $290 $278
Gas 12 74 70 69
Common 5 25 20 18
-------- ------- ------- -------
Total construction expenditures 70 384 380 365
AFC 3 12 13 19
Nuclear fuel (uranium purchases and processing charges) 2 48 50 48
Deferred energy conservation expenditures - 1 - -
Retirement of long-term debt and redemption of
preference stock 87 254 253 282
-------- ------- ------- -------
Total utility business capital requirements 162 699 696 714
-------- ------- ------- -------
Diversified Business Capital Requirements:
- ------------------------------------------
Investment requirements 17 402 498 556
Retirement of long-term debt 27 200 273 365
-------- ------- ------- -------
Total diversified business capital requirements 44 602 771 921
-------- ------- ------- -------
Total capital requirements $206 $1,301 $1,467 $1,635
======== ======= ======= =======
</TABLE>
21
<PAGE>
Capital Requirements of Our Utility Business
- --------------------------------------------
Our estimates of future electric construction expenditures do not include
costs to build more generating units. Electric construction expenditures include
improvements to generating plants and to our transmission and distribution
facilities.
Future electric construction expenditures include estimated costs for
replacing the steam generators and renewing the operating licenses at Calvert
Cliffs. The operating licenses expire in 2014 for Unit 1 and in 2016 for Unit 2.
We estimate these Calvert Cliffs costs to be:
o $34 million in 1999,
o $44 million in 2000, and
o $58 million in 2001.
We estimate that during the two-year period 2002 through 2003, we will spend
an additional $151 million to complete the replacement of the steam generators
and extend the operating licenses at Calvert Cliffs. We discuss the license
extension process further in the "Other Matters - Calvert Cliffs License
Extension" section of BGE's 1998 Annual Report on Form 10-K.
If we do not replace the steam generators, we estimate that Calvert Cliffs
could not operate for the full term of its current operating licenses. We expect
the steam generator replacements to occur during the 2002 refueling outage for
Unit 1 and during the 2003 outage for Unit 2.
Additionally, our estimates of future electric construction expenditures
include the costs of complying with Environmental Protection Agency (EPA) and
State of Maryland nitrogen oxides emissions (NOx) reduction regulations as
follows:
o $34 million in 1999,
o $49 million in 2000, and
o $21 million in 2001.
We discuss the NOx regulations in the "Environmental Matters" section of the
Notes to Consolidated Financial Statements on page 7.
During the twelve months ended March 31, 1999, our utility operations
provided about 102% of the cash needed to meet its capital requirements,
excluding cash needed to retire debt and redeem preference stock.
We will continue to have cash requirements for:
o working capital needs including the
payments of interest, distributions, and dividends,
o capital expenditures, and
o the retirement of debt and redemption of preference stock.
During the three years from 1999 through 2001, we expect utility operations
to provide about 115% of the cash needed to meet its capital requirements,
excluding cash needed to retire debt and redeem preference stock.
When BGE cannot meet utility capital requirements internally, BGE sells debt
and preference stock. BGE also sells securities when market conditions permit
them to refinance existing debt or preference stock at a lower cost. The amount
of cash BGE needs and market conditions determine when and how much BGE sells.
Future funding for capital expenditures, the retirement of debt, redemption
of preference stock, and payments of interest and dividends is expected from
internally generated funds, commercial paper issuances, available capacity under
credit facilities, and/or the issuance of long-term debt, trust securities, or
preference stock.
At March 31, 1999 the Federal Energy Regulatory Commission has authorized
BGE to issue up to $700 million of short-term borrowings. In addition, BGE
maintains $113 million in committed bank lines of credit and has $100 million in
bank revolving credit agreements to support its commercial paper program.
Capital Requirements of Our Diversified Businesses
- --------------------------------------------------
We expect to expand certain of our energy services businesses which will
require additional funding for:
o growing our power marketing and trading business,
o the development and acquisition of power
projects, as well as loans made to project entities,
o investments in financial limited partnerships, and
o funding for construction of cooling system projects.
The investment requirements exclude Constellation Power Source, Inc.'s
commitment to contribute up to $175 million in equity to fund its investment in
Orion Power Holdings, Inc. Orion acquires electric generating plants in the
United States and Canada.
22
<PAGE>
Our diversified businesses have met their capital requirements in the past
through borrowing, cash from their operations, sales of receivables, and from
time to time, equity contributions from BGE.
Future funding for the expansion of our energy services businesses is
expected from internally generated funds, short-and long-term financing by
Constellation Energy, and from time to time equity contributions from
Constellation Energy. BGE Home Products & Services may also meet capital
requirements through sales of receivables.
If we can get a reasonable value for our real estate projects and our
senior-living facilities, additional cash may be obtained by selling them. Our
ability to sell or liquidate assets will depend on market conditions, and we
cannot give assurances that these sales or liquidations could be made.
Our diversified businesses also have revolving credit agreements totaling
$270 million to provide additional liquidity for short-term financial needs,
including the issuance of up to $135 million of letters of credit.
Other Matters
- -------------
Environmental Matters
- ---------------------
We are subject to federal, state, and local laws and regulations that work
to improve or maintain the quality of the environment. If certain substances
were disposed of or released at any of our properties, whether currently
operating or not, these laws and regulations require us to remove or remedy the
effect on the environment. This includes Environmental Protection Agency
Superfund sites. You will find details of our environmental matters in the
"Environmental Matters" section of the Notes to Consolidated Financial
Statements beginning on page 7 and in BGE's 1998 Annual Report on Form 10-K
under "Item 1. Business - Environmental Matters." These details include
financial information. Some of the information is about costs that may be
material.
Year 2000 Readiness Disclosure
- ------------------------------
We have not experienced any significant year 2000 problems to date and we do
not expect any significant problems to impair our operations as we transition to
the new century. However, due to the magnitude and complexity of the year 2000
issue, even the most conscientious efforts cannot guarantee that every problem
will be found and corrected prior to January 1, 2000. We are focusing on
critical operating and business systems and expect to have contingency plans in
place to deal with any problems, if they should occur. Please refer to "Forward
Looking Statements" on page 28.
Utility Business
- ----------------
We established a year 2000 Program Management Office (PMO). Based on a work
plan developed by the PMO, we have targeted the following six key areas:
o digital systems (devices with embedded microprocessors such as power
instrumentation, controls, and meters),
o telecommunications systems,
o major suppliers,
o information technology applications (our customer, business, and human
resources information systems),
o computer hardware and software infrastructure, and
o contingency plans.
Of these areas, digital systems have the most impact on our ability to
provide electric and gas service. Telecommunications, major suppliers, and
certain information technology applications also impact our ability to provide
electric and gas service.
Year 2000 Project Phases
- ------------------------
Our year 2000 project is divided into two phases:
o Phase I - initial assessment and detailed analysis, and
o Phase II - testing, remediation, certification, and contingency
planning.
Phase I involves conducting an inventory of all systems and identifying
appropriate resources. We have identified the following appropriate resources
for each system or piece of equipment:
o BGE employees familiar with each system or piece of equipment,
o specialized contractors, and
o specific vendors.
23
<PAGE>
Phase I also includes developing action plans to ensure that the key areas
identified above are year 2000 ready. The action plans for each system or piece
of equipment include:
o our budget,
o schedules for Phase I and II, and
o our remediation approach - repair, upgrade, replace or retire.
In evaluating our risks and estimating our costs, we utilized employees with
expertise in each line of business to perform the activities under Phase I. We
believe our employees are the most familiar with their systems or equipment and
therefore will provide a reliable estimate of our risks and costs.
Phase II includes converting and testing all of our systems. Each system
will be tested by those employees used in Phase I following formal guidelines
developed by the PMO. Each system or piece of equipment will then be certified
by a tester and the PMO, following testing guidelines developed with the help of
outside consultants. We are currently evaluating whether we will have our year
2000 testing independently certified. Phase II also includes identifying our
major suppliers and developing contingency plans. We have identified our major
suppliers and have assessed their year 2000 readiness through surveys. We are
currently following-up with our major suppliers via interviews.
Contingency Planning
- --------------------
Year 2000 operational contingency planning is underway. Staffing and initial
planning was completed in 1998. Contingency plans are expected to be completed,
including company-wide training, by June 1999. We are developing contingency
plans using the contingency guidelines issued by the Nuclear Energy Institute
(which are endorsed by the Nuclear Regulatory Commission), the contingency
guidelines issued by the North American Electric Reliability Council (NERC), and
guidance from consultants.
We are also addressing the impact of electric power grid problems that may
occur outside of our own electric system. We are developing year 2000 electric
power grid impact planning through our various electric interconnection
affiliations. The PJM interconnection has drafted year 2000 operational
preparedness plans and restoration scenarios and will continue to coordinate and
develop these plans during the first half of 1999 in cooperation with NERC. The
NERC performs monthly assessments of the electric utility industry to
communicate the readiness of the national electric grid for year 2000.
On April 9, 1999, we participated in a NERC sponsored drill, along with
other North American electric bulk operating utilities. The drill focused on
testing backup voice and data communications and protocols. The drill was
successful as it demonstrated our ability to operate the bulk power and gas
distribution systems reliably during a partial loss of telephone communications.
The NERC has scheduled a second drill beginning September 8, 1999 to simulate
January 1, 2000. In addition, the PJM has scheduled two drills in May and
December 1999.
Through the Electric Power Research Institute (EPRI), an industry-wide
effort has been established to deal with year 2000 problems affecting digital
systems and equipment used by the nation's electric power companies. Under this
effort, participating utilities assessed specific vendors' system problems and
test plans. The assessment was shared by the industry as a whole to facilitate
year 2000 problem solving.
BGE has joined the American Gas Association (AGA) in an initiative similar
to the one with EPRI to facilitate year 2000 problem solving among gas
utilities. The AGA and its affiliates perform quarterly assessments of the gas
utility industry to communicate the readiness of its members for the year 2000.
Current Status
- --------------
The most reasonably likely worst case scenario faced by our utility business
is a localized interruption in providing electric and gas service to our
customers. We cannot predict the impact of any interruption on our results of
operations, but the impact could be material. The following table shows our
estimate as of the date of this report of the percentage completed for Phases I
and II and our expected year 2000 readiness target dates for the six key areas:
Year 2000
readiness
Phase I Phase II target date
------- -------- -----------
(approximate % complete)
Digital systems 100% 80% June 1999
Telecommunications
system 100% 95% June 1999
Major suppliers 100% 92% June 1999
Information technology
applications 100% 85% June 1999
Computer hardware and
software infrastructure 100% 92% June 1999
Contingency plans - 40% June 1999
24
<PAGE>
The completion percentages listed above are reviewed by our PMO in monthly
status meetings with the personnel responsible for each project and their
supervision. Monthly progress is also monitored by senior Constellation Energy
and BGE management.
Costs
- -----
In the following table, we show the breakdown of our total costs between
normal system replacements that will be capitalized (included in the
Consolidated Balance Sheets) and the costs that will be expensed (included in
our Consolidated Statements of Income) through operations and maintenance (O&M)
cost. We also show the breakdown of non-incremental (previously included in our
information technology budget) and incremental O&M cost:
Estimated Total
Actual Costs Costs Costs
------------ ----- -----
Through
1996 - March 31, Remainder
1997 1998 1999 of 1999 2000
---- ---- ---- ------- ----
(In millions)
Total Cost $1.8 $18.9 $5.2 $14.3 $2.0 $42.2
Less: Capital
Cost - 7.3 1.5 4.2 - 13.0
------ ----- ----- ----- ------ ------
O&M cost 1.8 11.6 3.7 10.1 2.0 29.2
Less:
non-incremental
O&M cost 1.8 4.6 1.1 5.9 1.0 14.4
------ ----- ----- ----- ------ ------
Incremental O&M
cost $- $7.0 $2.6 $4.2 $1.0 $14.8
====== ===== ===== ======= ====== ======
The costs incurred in 1996 and 1997 were for Phase I. The costs incurred in
1998 were for Phases I and II. Cost incurred in 1999 and 2000 will be for Phase
II.
In 1998, we had the equivalent of approximately 110 full-time employees
assigned to our year 2000 project. We expect a similar level of commitment of
resources to continue during 1999.
Diversified Businesses
- ----------------------
Overview
- --------
Our diversified businesses have established year 2000 task forces to address
their year 2000 issues. As the initial assessments are completed, the businesses
have developed, and will be developing, action plans to prepare their systems
for the year 2000. Outside consultants have been retained by several of our
diversified businesses to help complete the initial assessment and detailed
analysis phase, and to assist in the testing, remediation, and certification
phase of their year 2000 projects. The action plans developed are similar to
those used by our utility business, including a test certification process. All
systems are expected to be certified by December 1999. Our diversified
businesses are evaluating whether they will have their year 2000 testing
independently certified.
In evaluating their risks and estimating their costs, our diversified
businesses utilized employees with expertise in each line of business to perform
initial assessments. We believe our diversified businesses' employees are the
most familiar with their systems or equipment and therefore will provide a
reliable estimate of our risks and costs.
The progress of our diversified businesses' year 2000 projects are reviewed
by their year 2000 task forces in monthly status meetings with the personnel
responsible for each project and their supervision. Monthly progress is also
monitored by senior management for each business and monthly updates are
provided to Constellation Energy and BGE senior management.
Contingency Planning
- --------------------
Each of our diversified businesses will develop contingency plans, which are
expected to be completed by December 1999.
Current Status
- --------------
The most reasonably likely worst case scenarios faced by our energy services
businesses and our other diversified businesses are discussed below. However, if
any of these scenarios actually occurred, the impact is not expected to be
material to our consolidated financial results.
Energy Services
- ---------------
The most reasonably likely worst case scenarios for any one of our power
projects would be:
o a shutdown of the plant's systems (most of which can be manually
overridden),
o inability of the purchasing utility to take the plant's power, or
o failure of critical suppliers.
Personnel at each plant are currently assessing their particular year 2000
issues and certain plants have started the testing, remediation, and
certification phase of their year 2000 project. In Latin America, personnel are
currently assessing the year 2000 readiness of suppliers and are preparing
contingency plans where necessary.
25
<PAGE>
For our power marketing and trading business and our energy products and
services business, the most reasonably likely worst case scenario would be
encountering any Internet access problems with trading partners, transmission
service providers, independent operators, power exchanges, and various
electronic bulletin boards. Each of these businesses has three Internet service
providers for alternate routing to critical Internet sites necessary to perform
day-to-day business functions. Both have completed the assessment and detailed
analysis phase and have started the testing, remediation, and certification
phase of its year 2000 project.
For our home products and commercial building systems business, the most
reasonably likely worst case scenarios would be any interruption in billing
customers or renewing maintenance contracts. This business has substantially
completed the assessment and detailed analysis phase and has started the
testing, remediation, and certification phase of its year 2000 project.
Other Diversified Businesses
- ----------------------------
The most reasonably likely worst case scenarios for our financial
investments business would be a breakdown in the systems of the brokers or
safekeeping banks which it uses to trade, or the failure of its investment
managers' computer programs that set investment strategy. This business is
currently surveying and monitoring the year 2000 readiness of its banks,
brokers, and investment managers.
For our real estate and senior-living facilities business, the most
reasonably likely worst case scenario is a failure of the systems that support
the health, safety, and welfare of residents in the senior-living facilities.
Personnel at each senior-living facility are involved in assessing its
particular year 2000 issues and have a consultant coordinating the overall year
2000 activity.
Costs
- -----
We estimate our total year 2000 costs for our power projects business to be
approximately $4.2 million, of which $1.2 million is related to our year 2000
efforts for our Panamanian electric distribution company. The total estimated
year 2000 costs for our remaining diversified businesses are approximately $2.8
million.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ------------------------------------------------------------------
We discuss the following information related to our market risk:
o quarterly financing activities in the Notes to Consolidated Financial
Statements on page 7, and
o trading activities of our power marketing and trading business in the
"Power Marketing and Trading" section of Management's Discussion and
Analysis on page 19.
26
<PAGE>
PART II. OTHER INFORMATION
- -------- -----------------
Item 1. Legal Proceedings
- ------- -----------------
Asbestos
- --------
Since 1993, we have been involved in several actions concerning asbestos.
The actions are based upon the theory of "premises liability," alleging that we
knew of and exposed individuals to an asbestos hazard. The actions relate to two
types of claims.
The first type is direct claims by individuals exposed to asbestos. We
described these claims in BGE's Report on Form 8-K filed August 20, 1993. We are
involved in these claims with approximately 70 other defendants. Approximately
520 individuals that were never employees of BGE each claim $6 million in
damages ($2 million compensatory and $4 million punitive). These claims were
filed in the Circuit Court for Baltimore City, Maryland in the summer of 1993.
We do not know the specific facts necessary to estimate our potential liability
for these claims. The specific facts we do not know include:
o the identity of our facilities at which the
plaintiffs allegedly worked as contractors,
o the names of the plaintiff's employers, and
o the date on which the exposure allegedly occurred.
To date, seven of these cases were settled before trial for amounts that
were immaterial. One trial is currently scheduled for August 1999.
The second type is claims by one manufacturer -- Pittsburgh Corning Corp. --
against us and approximately eight others, as third-party defendants. These
claims relate to approximately 1,500 individual plaintiffs and were filed in the
Circuit Court for Baltimore City, Maryland in the fall of 1993. We do not know
the specific facts necessary to estimate our potential liability for these
claims. The specific facts we do not know include:
o the identity of our facilities containing asbestos manufactured by the
manufacturer,
o the relationship (if any) of each of the individual plaintiffs to us,
o the settlement amounts for any individual plaintiffs who are shown
to have had a relationship to us, and
o the dates on which/places at which the exposure allegedly occurred.
Until the relevant facts for both types of claims are determined, we are
unable to estimate what our liability, if any, might be. Although insurance and
hold harmless agreements from contractors who employed the plaintiffs may cover
a portion of any awards in the actions, our potential liability could be
material.
Item 2. Changes in Securities and Use of Proceeds
- ------- -----------------------------------------
Effective April 30, 1999, the outstanding common stock of BGE was exchanged
on a share-for-share basis for shares of common stock of Constellation Energy.
Certain rights of the holders of common stock of Constellation Energy were
modified. We discussed this further in the joint proxy statement / prospectus of
Constellation Energy and BGE in Post-Effective Amendment No. 1 to Form S-4
(Registration No. 33-64799), under the section "Comparative Shareholder Rights,"
attached as an exhibit to this document, and incorporated by reference herein.
27
<PAGE>
PART II. OTHER INFORMATION (Continued)
- -------- -----------------------------
Item 5. Other Information
- ------- -----------------
Forward Looking Statements
- --------------------------
We make statements in this report that are considered forward looking
statements within the meaning of the Securities Exchange Act of 1934. Sometimes
these statements will contain words such as "believes," "expects," "intends,"
"plans," and other similar words. These statements are not guarantees of our
future performance and are subject to risks, uncertainties and other important
factors that could cause our actual performance or achievements to be materially
different from those we project. These risks, uncertainties and factors include,
but are not limited to:
o general economic, business, and regulatory conditions,
o energy supply and demand,
o competition,
o federal and state regulations,
o availability, terms, and use of capital,
o nuclear and environmental issues,
o weather,
o industry restructuring and cost recovery (including the potential effect
of stranded investments),
o commodity price risk, and
o year 2000 readiness.
Given these uncertainties, you should not place undue reliance on these
forward looking statements. Please see the other sections of this report and our
other periodic reports filed with the SEC for more information on these factors.
These forward looking statements represent our estimates and assumptions only as
of the date of this report.
28
<PAGE>
PART II. OTHER INFORMATION (Continued)
- -------- -----------------------------
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(a) Exhibit No. 10(a) Constellation Energy Group, Inc. Deferred Compensation Plan for
Non-Employee Directors.
Exhibit No. 10(b) Constellation Energy Group, Inc. Long-Term Incentive Plan.
Exhibit No. 10(c) Constellation Energy Group, Inc. 1995 Long-Term Incentive Plan.
Exhibit No. 10(d) Constellation Energy Group, Inc. Nonqualified Deferred Compensation
Plan, as amended and restated.
Exhibit No. 10(e) Grantor Trust Agreement dated as of April 30, 1999 between
Constellation Energy Group, Inc. and T. Rowe Price Trust Company.
Exhibit No. 10(f) Constellation Energy Group, Inc. Executive Benefits Plans.
Exhibit No. 10(g) Grantor Trust Agreement Dated as of April 30, 1999 between
Constellation Energy Group, Inc. and Citibank, N.A.
Exhibit No. 10(h) Executive Incentive Plan of Constellation Energy Group, Inc.
Exhibit No. 10(i) Summary of severance arrangement for a named executive officer.
Exhibit No. 10(j) Form of Severance Agreement between Constellation Energy Group, Inc.
and eight key employees.
Exhibit No. 10(k) Constellation Enterprises, Inc. Deferred Compensation Plan for
Non-Employee Directors.
Exhibit No. 10(l) Summary of enhanced retirement benefits for a named executive
officer.
Exhibit No. 10(m) Baltimore Gas and Electric Company Retirement Plan for Non-Employee
Directors, as amended and restated.
Exhibit No. 12 Computation of Ratio of Earnings to Fixed Charges and
Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred and Preference Dividend Requirements.
Exhibit No. 27 Financial Data Schedule.
Exhibit No. 99(a) Summarized Pro Forma Financial Information Related to the Formation
of a Holding Company.
Exhibit No. 99(b) Comparative Shareholder Rights Section From the Joint Proxy
Statement / Prospectus of Constellation Energy and BGE in
Post-Effective Amendment No. 1 to Form S-4 (Registration No.
33-64799).
</TABLE>
(b) Reports on Form 8-K for the quarter ended March 31, 1999:
Date Filed Items Reported
---------- --------------
January 22, 1999 Item 5. Other Events
Item 7. Financial Statements and Exhibits
March 1, 1999 Item 5. Other Events
Item 7. Financial Statements and Exhibits
29
<PAGE>
SIGNATURE
---------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
each registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONSTELLATION ENERGY GROUP, INC.
--------------------------------
(Registrant)
BALTIMORE GAS AND ELECTRIC COMPANY
----------------------------------
(Registrant)
Date: May 14, 1999 /s/ D. A. Brune
---------------- -----------------------------------
D. A. Brune, Vice President on behalf
of each Registrant and as Principal
Financial Officer of each Registrant
30
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit
Number
<S> <C> <C>
10(a) Constellation Energy Group, Inc. Deferred Compensation Plan
for Non-Employee Directors.
10(b) Constellation Energy Group, Inc. Long-Term Incentive Plan.
10(c) Constellation Energy Group, Inc. 1995 Long-Term Incentive
Plan.
10(d) Constellation Energy Group, Inc. Nonqualified Deferred
Compensation Plan, as amended and restated.
10(e) Grantor Trust Agreement dated as of April 30, 1999 between
Constellation Energy Group, Inc. and T. Rowe Price Trust
Company.
10(f) Constellation Energy Group, Inc. Executive Benefits Plans.
10(g) Grantor Trust Agreement Dated as of April 30, 1999 between
Constellation Energy Group, Inc. and Citibank, N.A.
10(h) Executive Incentive Plan of Constellation Energy Group, Inc.
10(i) Summary of severance arrangement for a named executive
officer.
10(j) Form of Severance Agreement between Constellation Energy
Group, Inc. and eight key employees.
10(k) Constellation Enterprises, Inc. Deferred Compensation Plan
for Non-Employee Directors.
10(l) Summary of enhanced retirement benefits for a named executive
officer.
10(m) Baltimore Gas and Electric Company Retirement Plan for
Non-Employee Directors, as amended and restated.
12 Computation of Ratio of Earnings to Fixed Charges and
Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred and Preference Dividend Requirements.
27 Financial Data Schedule.
99(a) Summarized Pro Forma Financial Information Related to the
Formation of a Holding Company.
99(b) Comparative Shareholders Rights Section From the Joint Proxy
Statement / Prospectus of Constellation Energy and BGE in
Post-Effective Amendment No. 1 to Form S-4 (Registration No.
33-64799).
</TABLE>
31
<PAGE>
Exhibit 10(a)
Constellation Energy Group, Inc.
Deferred Compensation Plan
For Non-Employee Directors
1. Objective. The objective of this Plan is to provide a portion of the
Compensation of non-employee Directors of CEG in the form of Stock
Units, thereby promoting a greater identity of interest between CEG's
non-employee Directors and its stockholders, and to enable such
Directors to defer receipt of the portion of their Compensation that is
payable in cash.
2. Definitions. As used herein, the following terms will have the meaning
specified below:
"Annual Retainer" means the amount payable by CEG to a Director as
annual compensation for performance of services as a Director, and
includes Committee Chair retainers. All other amounts (including without
limitation Board/committee meeting fees, and expense reimbursements)
shall be excluded in calculating the amount of the Annual Retainer.
"Board" means the Board of Directors of CEG.
"Cash Account" means an account by that name established pursuant to
Section 7. The maintenance of Cash Accounts is for bookkeeping purposes
only.
"CEG" means Constellation Energy Group, Inc., a Maryland corporation,
or its successor.
"Change in Control" means (i) the purchase or acquisition by any person,
entity or group of persons (within the meaning of section 13(d) or 14(d)
of the Securities Exchange Act of 1934 (the "Exchange Act"), or any
comparable successor provisions), of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20 percent
or more of either the outstanding shares of common stock of CEG or the
combined voting power of CEG's then outstanding shares of voting
securities entitled to a vote generally, or (ii) the consummation of,
following the approval by the stockholders of CEG of a reorganization,
merger or consolidation of CEG, in each case, with respect to which
persons who were stockholders of CEG immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter,
own more than 50 percent of the combined voting power entitled to vote
generally in the election of directors of the reorganized, merged or
consolidated entity's then outstanding securities, or (iii) a
1
<PAGE>
liquidation or dissolution of CEG or the sale of substantially all of
its assets, or (iv) a change of more than one-half of the members of the
Board within a 90-day period for reasons other than the death,
disability, or retirement of such members.
"Committee" means the Committee on Management of the Board.
"Common Stock" means the common stock, without par value, of CEG.
"Compensation" means any Annual Retainer and meeting fees payable by CEG
to a participant in his/her capacity as a Director. Compensation
excludes expense reimbursements paid by CEG to a participant in his/her
capacity as a Director.
"Deferred Cash Compensation" means any cash Compensation that is
voluntarily deferred by a participant pursuant to Section 6.
"Director" means a member of the Board who is not an employee
of CEG or any of its subsidiaries/ affiliates.
"Disability" or "Disabled" means that the Plan Administrator has
determined that the participant is unable to fulfill his/her
responsibilities of Board membership because of illness or injury. For
purposes of this Plan, a participant's eligibility to participate shall
be deemed to have terminated on the date he/she is determined by the
Plan Administrator to be Disabled.
"Earnings" means, with respect to the Cash Account, hypothetical
interest credited to the Cash Account. "Earnings" means, with respect to
the Stock Account, hypothetical dividends credited to the Stock Account.
"Fair Market Value" means, as of any specified date, the average closing
price of a share of Common Stock, reported in "New York Stock Exchange
Composite Transactions" as published in the Eastern Edition of The Wall
Street Journal for the most recent 30 days during which Common Stock was
traded on the New York Stock Exchange (including such valuation date if
a trading date).
"Plan Accounts" means a participant's Cash Account and/or Stock Account.
The maintenance of Plan Accounts is for bookkeeping purposes only.
"Plan Administrator" means, as set forth in Section 3, the Board.
2
<PAGE>
"Stock Account" means an account by that name established pursuant to
Section 8. The maintenance of Stock Accounts is for bookkeeping purposes
only.
"Stock Unit(s)" means the share equivalents credited to a Participant's
Stock Account pursuant to Section 8. The use of Stock Units is for
bookkeeping purposes only; the Stock Units are not actual shares of
Common Stock. CEG will not reserve or otherwise set aside any Common
Stock for or to any Stock Account.
3. Plan Administration.
(i) Plan Administrator - The Plan is administered by the Board, who has sole
authority to interpret the Plan, and, in general, to make all other
determinations advisable for the administration of the Plan to achieve
its stated objective. Decisions by the Plan Administrator shall be final
and binding upon all persons for all purposes. The Plan Administrator
shall have the power to delegate all or any part of its
non-discretionary duties to one or more designees, and to withdraw such
authority, by written designation.
(ii) Amendment - This Plan may be amended from time to time or suspended or
terminated at any time, at the written direction of the Plan
Administrator. However, amendments required to keep the Plan in
compliance with applicable laws and regulations may be made by the Vice
President - Human Resources of CEG (or other vice president succeeding
to that function) on advice of counsel. Nothing herein creates a vested
right.
(iii) Indemnification - The Plan Administrator (and its designees), Chairman
of the Board, Chief Executive Officer, President, and Vice
President-Human Resources of CEG and all other employees of CEG or its
subsidiaries/affiliates whose assigned duties include matters under the
Plan, shall be indemnified by CEG or its subsidiaries /affiliates or
from proceeds under insurance policies purchased by CEG or its
subsidiaries/affiliates, against any and all liabilities arising by
reason of any act or failure to act made in good faith pursuant to the
provisions of the Plan, including expenses reasonably incurred in the
defense of any related claim.
4. Eligibility and Participation.
(i) Mandatory participation - A Director is required to participate in this
Plan with respect to the receipt of fifty
3
<PAGE>
percent (50%) of his/her Annual Retainer in the form of Stock Units
under Section 5 of the Plan, while so classified.
(ii) Voluntary participation - A Director is eligible to participate in the
Plan by electing to defer all or certain portions of the participant's
Compensation, that is payable in cash, under Section 6 of the Plan,
while so classified.
(iii) Termination of participation - Eligibility to participate shall
terminate on the date the participant ceases to be a Director.
Notwithstanding termination of eligibility, such person with Plan
Accounts will remain a participant of the Plan, solely for purposes of
the administration of existing Plan Accounts, and no additional Stock
Units will be granted and no further deferrals of cash Compensation
under the Plan will be permitted.
5. Mandatory Stock Units. The Stock Account of a participant will be
credited on January 1 of each calendar year with Stock Units equal to
the number of shares of Common Stock (including fractions of a share)
that could have been purchased, with fifty percent (50%) of the
participant's Annual Retainer for such calendar year, at Fair Market
Value on such January 1.
If a participant initially becomes eligible to participate in the Plan
during a calendar year, the Stock Account of the participant for such
calendar year will be credited, on the date that is the first day of the
calendar month after the participant initially becomes eligible to
participate in the Plan, with Stock Units equal to the number of shares
of Common Stock (including fractions of a share) that could have been
purchased at Fair Market Value on such date, with an amount equal to (i)
fifty percent (50%) of the participant's Annual Retainer multiplied by
(ii) a fraction the numerator of which is the number of full calendar
months in the calendar year on and after such date, and the denominator
of which is 12.
The Stock Account will be maintained pursuant to Section 8.
6. Cash Compensation Deferral Election. A participant may elect to defer
none, all or fifty percent (50%) of his/her Annual Retainer that is
payable in cash (i.e., fifty percent (50%) of the Annual Retainer)
and/or may elect to defer none, all, fifty percent (50%), or
seventy-five percent (75%) of his/her other Compensation that is payable
in cash (i.e., one hundred percent (100%) of all other Compensation). A
participant's cash Compensation deferral election with respect to the
Annual Retainer shall specify whether the deferred Annual
4
<PAGE>
Retainer is to be credited to the Cash Account or to the Stock Account.
All other Cash Compensation that a participant elects to defer will be
credited to the Cash Account.
Such election shall be made by written notification to the Vice
President-Human Resources of CEG (or other vice president succeeding to
that function). Such election shall be made prior to the calendar year
during which the applicable cash Compensation is payable, and shall be
effective as of the first day of such calendar year. If a participant
initially becomes eligible to participate in the Plan during a calendar
year, the election for such calendar year must be made within thirty
(30) calendar days after the date the participant initially becomes
eligible to participate in the Plan, and shall be effective with respect
to Compensation earned after the date the election is received by the
Vice President-Human Resources of CEG (or other vice president
succeeding to that function). Elections under this Section shall remain
in effect for all succeeding calendar years until revoked. Elections may
be revoked by written notification to the Vice President-Human Resources
of CEG (or other vice president succeeding to that function), and shall
be effective as of the first day of the calendar year following the
calendar year during which the revocation is received by such Vice
President.
Notwithstanding anything herein contained to the contrary, the Plan
Administrator shall have the right in its sole discretion to permit a
participant to defer other percentages of his/her Annual Retainer and/or
other Compensation that is payable in cash.
7. Cash Accounts. Cash Compensation that consists of the Annual Retainer
that a participant has elected to defer into the Cash Account is
credited to the participant's Cash Account on January 1 (or if later,
the date the participant's initial election to participate in the Plan
becomes effective). All other cash Compensation that a participant has
elected to defer is credited to the participant's Cash Account on each
date such cash Compensation would otherwise have been paid to the
Director. A participant's Cash Account shall be credited with earnings
at the rate earned by the Interest Income Fund under the Constellation
Energy Group, Inc. Employee Savings Plan, and computed in the same
manner as under such plan. Earnings are credited to the Cash Account
commencing on the date the applicable Deferred Cash Compensation is
credited to the Cash Account.
5
<PAGE>
8. Stock Accounts. Cash Compensation that consists of the Annual Retainer
that a participant has elected to defer into the Stock Account is
credited to the participant's Stock Account on January 1 (or if later,
the date the participant's initial election to participate in the Plan
becomes effective). A participant's Stock Account shall be credited with
Stock Units equal to the number of shares of Common Stock (including
fractions of a share) that could have been purchased with such Deferred
Cash Compensation, at Fair Market Value on such date. Grants of
mandatory Stock Units are credited to the Stock Account as set forth in
Section 5.
As of any dividend distribution date for the Common Stock, the
participant's Stock Account shall be credited with additional Stock
Units equal to the number of shares of Common Stock (including fractions
of a share) that could have been purchased, at the closing price of a
share of Common Stock on such date as reported in "New York Stock
Exchange Composite Transactions" as published in the Eastern Edition of
the The Wall Street Journal, with the amount which would have been paid
as dividends on that number of shares (including fractions of a share)
of Common Stock which is equal to the number of Stock Units then
credited to the participant's Stock Account.
In the event of any change in the outstanding shares of Common Stock by
reason of any stock dividend or split, recapitalization, combination or
exchange of shares or other similar changes in the Common Stock, then
appropriate adjustments shall be made in the number of Stock Units in
each participant's Stock Account. Such adjustments shall be made
effective on the date of the change related to the Common Stock.
9. Distributions of Plan Accounts. Distributions of Plan Accounts shall be
made in cash only, from the general assets of CEG.
A participant may elect (by notification in the form and manner
established by the Vice President-Human Resources of CEG (or other vice
President succeeding to that function) from time to time) to begin
distributions (i) in the calendar year following the calendar year that
eligibility to participate terminates, (ii) in the calendar year
following the calendar year in which a participant attains age 70, if
later, or (iii) any calendar year between (i) and (ii). Such election
must be made prior to the end of the calendar year in which eligibility
to participate terminates. Alternatively, a participant who reaches age
70 while still
6
<PAGE>
eligible to participate may elect to begin distributions, in the
calendar year following the calendar year that the participant reaches
age 70, of amounts in his/her Plan Accounts as of the end of the
calendar year the participant reaches age 70. Such election must be made
prior to the end of the calendar year in which the participant reaches
age 70, and a distribution election to receive any subsequently deferred
amounts beginning in the calendar year following the calendar year that
eligibility to participate terminates, must be made prior to the end of
the calendar year in which eligibility to participate terminates.
A participant may elect (by notification in the form and manner
established by the Vice President-Human Resources of CEG (or other vice
President succeeding to that function) from time to time) to receive
distributions in a single payment or in annual installments during a
period not to exceed fifteen years. The single payment or the first
installment payment, whichever is applicable, shall be made within the
first sixty (60) calendar days of the calendar year elected for
distribution. Subsequent installments, if any, shall be made within the
first sixty (60) calendar days of each succeeding calendar year until
the participant's Cash Account has been paid out.
In the event applicable elections are not timely made, a participant
shall receive a distribution in a single payment within the first sixty
(60) calendar days of the calendar year following the calendar year that
eligibility to participate terminates.
The value of the Stock Account, which is equal to the number of Stock
Units in the Stock Account multiplied by the Fair Market Value on the
date on which the participant's eligibility to participate terminates
(or, the date that is the last day of the calendar year during which the
participant reaches age 70, for a participant who elects to begin
distributions while still eligible to participate), is transferred to
the Cash Account on such date. Earnings are credited to the Cash Account
through the date of distribution, and amounts held for installment
payments shall continue to be credited with Earnings. The value of the
Cash Account that is payable in cash on the date of the single payment
distribution is equal to the balance in the Cash Account on the date
that is no earlier than five (5) calendar days prior to the day of such
distribution ("Distribution Valuation Date"). The amount of any cash
distribution to be made in installments from the Cash Account will be
determined by multiplying (i) the balance in such Cash Account on the
Distribution Valuation Date by (ii) a fraction, the
7
<PAGE>
numerator of which is one and the denominator of which is the number of
installments in which distributions remain to be made (including the
current distribution).
If a participant dies or becomes Disabled, the entire unpaid balance of
his/her Plan Accounts shall be paid to the beneficiary(ies) designated
by the participant by notification in the form and manner established by
the Vice President-Human Resources of CEG (or other vice president
succeeding to that function) from time to time or, if no designation was
made, in the event of death, to the estate of the participant, and in
the event of Disability, to the participant. Payment shall be made
within sixty (60) calendar days after notice of death or Disability is
received by such Vice President, unless prior to the participant's death
or Disability, the participant elected (in the form and manner
established by the Vice President-Human Resources of CEG (or other vice
president succeeding to that function) from time to time) a delayed
and/or installment distribution option for such beneficiary(ies);
provided, however that (i) such a distribution option election shall be
effective only if the value of the participant's Plan Accounts is more
than $50,000 on the date of the participant's death or Disability; and
(ii) the final distribution must be made to such beneficiary(ies) no
later than 15 years after the participant's death or Disability. After
the end of the calendar year that a participant's eligibility to
participate terminates, a distribution option election for a particular
beneficiary is irrevocable; provided, however, that the participant may
make a distribution option election for a new beneficiary who is
initially designated after the participant's eligibility to participate
terminates, and such election is irrevocable with respect to the new
beneficiary.
The value of the Stock Account, which is equal to the number of Stock
Units in the Stock Account multiplied by the Fair Market Value on the
date of the participant's death or Disability, is transferred to the
Cash Account on such date. Earnings are credited to the Cash Account
through the date of distribution, and amounts held for installment
payments shall continue to be credited with Earnings. The value of the
Cash Account that is payable in cash on the date of the single payment
distribution is equal to the balance in the Cash Account on the date
that is no earlier than five (5) calendar days prior to the day of such
distribution ("Beneficiary Distribution Valuation Date"). The amount of
any cash distribution to be made in installments from the Cash Account
will be determined by multiplying (i) the balance in such Cash Account
on the Beneficiary Distribution Valuation Date by (ii) a fraction, the
numerator of which is one and the
8
<PAGE>
denominator of which is the number of installments in which
distributions remain to be made (including the current distribution).
Upon the death of a participant's beneficiary for whom a delayed and/or
installment distribution option was elected, the entire unpaid balance
of the participant's Cash Account shall be paid to the beneficiary(ies)
designated by the participant's beneficiary by notification in the form
and manner established by the Vice President-Human Resources of CEG (or
other vice president succeeding to that function) from time to time or,
if no designation was made, to the estate of the participant's
beneficiary. Payment shall be made within sixty (60) calendar days after
notice of death is received by such Vice President. The value of the
Cash Account that is payable in cash is equal to the balance in the Cash
Account on the date that is no earlier than five (5) calendar days prior
to the day of such distribution.
Notwithstanding anything herein contained to the contrary, the Plan
Administrator shall have the right in its sole discretion to (i) vary
the manner and timing of distributions of a participant or beneficiary
entitled to a distribution under this Section 9, and may make such
distributions in a single payment or over a shorter or longer period of
time than that elected by a participant; and (ii) vary the period during
which the closing price of Common Stock is referenced to determine the
value of the Stock Account that is transferred to the Cash Account on
the date on which the participant's eligibility to participate
terminates. Any affected participants will not participate in exercising
such discretion.
10. Beneficiaries. A participant shall have the right to designate, change
or rescind a beneficiary(ies) who is to receive a distribution(s)
pursuant to Section 9 in the event of the death or Disability of the
participant. A participant's beneficiary(ies) for whom a delayed and/or
installment distribution option was elected shall have the right to
designate a beneficiary(ies) who is to receive a distribution pursuant
to Section 9 in the event of the death of the participant's
beneficiary(ies).
Any designation, change or recision of the designation of beneficiary
shall be made by notification in the form and manner established by the
Vice President-Human Resources of CEG (or other vice president
succeeding to that function) from time to time. The last designation of
beneficiary received by such Vice President shall be controlling over
any testamentary or purported disposition by the participant (or,
9
<PAGE>
if applicable, the participant's beneficiary(ies)), provided that no
designation, recision or change thereof shall be effective unless
received by such Vice President prior to the death or Disability
(whichever is applicable) of the participant (or, if applicable, the
death of the participant's beneficiary(ies)).
If the designated beneficiary is the estate, or the executor or
administrator of the estate, of the participant (or, if applicable, the
participant's beneficiary(ies)), a distribution pursuant to Section 9
may be made to the person(s) or entity (including a trust) entitled
thereto under the will of the participant (or, if applicable, the
participant's beneficiary(ies)), or, in the case of intestacy, under the
laws relating to intestacy.
11. Valuation of Plan Accounts. The Plan Administrator shall cause the value
of a participant's Plan Accounts to be determined and reported to CEG
and the participant at least once per year as of the last business day
of the calendar year. The value of the Stock Account will equal the
number of Stock Units in the Stock Account multiplied by the closing
price of a share of Common Stock on the last business day of the
calendar year as reported in "New York Stock Exchange Composite
Transactions" as published in the Eastern Edition of the The Wall Street
Journal. The value of the Cash Account will equal the balance in the
Cash Account on the last business day of the calendar year.
12. Withdrawals. No withdrawals of Plan Accounts may be made, except a
participant may at any time request a hardship withdrawal from his/her
Plan Accounts if he/she has incurred an unforeseeable financial
emergency. An unforeseeable financial emergency is defined as severe
financial hardship to the participant resulting from a sudden and
unexpected illness or accident of the participant (or of his/her
dependents), loss of the participant's property due to casualty, or
other similar extraordinary and unforeseeable circumstances arising as a
result of events beyond the control of the participant. The need to send
a child to college or the desire to purchase a home are not considered
to be unforeseeable emergencies. The circumstance that will constitute
an unforeseeable emergency will depend upon the facts of each case.
A hardship withdrawal will be permitted by the Plan Administrator only
as necessary to satisfy an immediate and heavy financial need. A
hardship withdrawal may be permitted only to the extent reasonably
necessary to satisfy the financial need. Payment may not be made to the
extent that
10
<PAGE>
such hardship is or may be relieved (i) through reimbursement or
compensation by insurance or otherwise, (ii) by liquidation of the
participant's assets, to the extent the liquidation of such assets would
not itself cause severe financial hardship, or (iii) by cessation of
deferrals under the Plan.
The request for hardship withdrawal shall be made by notification in the
form and manner established by the Plan Administrator from time to time.
Such hardship withdrawal will be permitted only with approval of the
Plan Administrator. The participant will receive a lump sum payment
after the Plan Administrator has had reasonable time to consider and
then approve the request.
The value of the Stock Account for purposes of processing a hardship
cash withdrawal is equal to the number of Stock Units in the Stock
Account multiplied by the Fair Market Value on the date on which the
hardship withdrawal is processed. The value of the Cash Account for
purposes of processing a hardship cash withdrawal is equal to the
balance in the Cash Account on the date on which the hardship withdrawal
is processed.
13. Change in Control. The terms of this Section 13 shall immediately become
operative, without further action or consent by any person or entity,
upon a Change in Control, and once operative shall supersede and control
over any other provisions of this Plan. Upon the occurrence of a Change
in Control followed within one year of the date of such Change in
Control by the participant's cessation of Board membership for any
reason, such participant shall be paid the value of his/her Plan
Accounts in a single, lump sum cash payment. The value of the Stock
Account, which is equal to the number of Stock Units in the Stock
Account multiplied by the Fair Market Value on the date of the
participant's cessation of Board membership, is transferred to the Cash
Account on such date. Earnings are credited to the Cash Account through
the date of distribution. The value of the Cash Account that is payable
in cash on the date of the single lump sum cash payment is equal to the
balance in the Cash Account on the date that is no earlier than five (5)
calendar days prior to the day of such distribution. Such payment shall
be made as soon as practicable, but in no event later than thirty (30)
calendar days after the date of the participant's cessation of Board
membership. On or after a Change in Control, no action, including, but
not by way of limitation, the amendment, suspension or termination of
the Plan, shall be taken which would affect the rights of any
participant or the
11
<PAGE>
operation of this Plan with respect to the balance in the participant's
Plan Accounts.
14. Withholding. CEG may withhold to the extent required by law all
applicable income and other taxes from amounts deferred or distributed
under the Plan.
15. Copies of Plan Available. Copies of the Plan and any and all amendments
thereto shall be made available to all participants during normal
business hours at the office of the Plan Administrator.
16. Miscellaneous.
(i) Inalienability of benefits - Except as may otherwise be required by
law or court order, the interest of each participant or beneficiary
under the Plan cannot be sold, pledged, assigned, alienated or
transferred in any manner or be subject to attachment or other legal
process of whatever nature; provided, however, that any applicable taxes
may be withheld from any cash benefit payment made under this Plan.
(ii) Controlling law - The Plan and its administration shall be governed
by the laws of the State of Maryland, except to the extent preempted by
federal law.
(iii) Gender and number - A masculine pronoun when used herein refers to
both men and women and words used in the singular are intended to
include the plural, and vice versa, whenever appropriate.
(iv) Titles and headings - Titles and headings to articles and sections
in the Plan are placed herein solely for convenience of reference and in
any case of conflict, the text of the Plan rather than such titles and
headings shall control.
(v) References to law - All references to specific provisions of any
federal or state law, rule or regulation shall be deemed to also include
references to any successor provisions or amendments.
(vi) Funding and expenses - Benefits under the Plan are not vested or
funded, and shall be paid out of the general assets of CEG. To the
extent that any person acquires a right to receive payments from CEG
under this Plan, such rights shall be no greater than the right of any
unsecured general creditor of CEG. The expenses of administering the
Plan will be borne by CEG.
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(vii) Not a contract - Participation in this Plan shall not constitute a
contract of employment or Board membership between CEG and any person
and shall not be deemed to be consideration for, or a condition of,
continued employment or Board membership of any person.
(viii) Successors - In the event CEG becomes a party to a merger,
consolidation, sale of substantially all of its assets or any other
corporate reorganization in which CEG will not be the surviving
corporation or in which the holders of the common stock of CEG will
receive securities of another corporation (in any such case, the "New
Company"), then the New Company shall assume the rights and obligations
of CEG under this Plan.
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Exhibit 10(b)
CONSTELLATION ENERGY GROUP, INC.
LONG-TERM INCENTIVE PLAN
SECTION ONE. PURPOSE OF PLAN.
The purpose of the Constellation Energy Group, Inc. Long-Term Incentive
Plan is to increase the ownership of Constellation Energy Group, Inc. common
stock by those key employees who are mainly responsible for the continued growth
and development and financial success of the Company and its subsidiaries, and
to attract and retain such employees and reward them for the continued
profitable performance of Constellation Energy Group, Inc. and its subsidiaries.
SECTION TWO. DEFINITIONS.
The following definitions are applicable herein:
A. "Award" means, individually or collectively, Options, Stock
Appreciation Rights or Restricted Stock granted hereunder.
B. "Board" means the Board of Directors of the Company.
C. "Book Value" means the book value of a share of Stock determined in
accordance with the Company's regular accounting practices as of the last
business day of the month immediately preceding the month in which a Stock
Appreciation Right is exercised as provided in Section Nine D.
D. "Code" means the Internal Revenue Code of 1954, as amended.
Reference in the Plan to any section of the Code shall be deemed to include any
amendments or successor provisions to such section and any regulations
promulgated thereunder.
E. "Committee" means the Committee of the Board referred to in Section
Four.
F. "Company" means Constellation Energy Group, Inc. or its successors,
including any "New Company" as provided in Section Eleven I.
G. "Date of Disability" means the date on which a Participant is
classified as Disabled.
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H. "Date of Grant" means the date on which the granting of an Award is
authorized by the Board or such later date as may be specified by the Board in
such authorization.
I. "Date of Retirement" means the date of Retirement or Early
Retirement.
J. "Disability" or "Disabled" means the classification of a Participant
as "disabled" pursuant to Section 2.0 (iii) of the Long Term Disability Plan of
Constellation Energy Group, Inc. or any amendment or successor provision to such
section of such Plan.
K. "Early Retirement" means the retirement of an employee prior to the
Normal Retirement Date.
L. "Eligible Employee" means any person employed by the Company or a
Subsidiary on a regularly scheduled basis who satisfies all of the requirements
of Section Six.
M. "Exercise Period" means the period or periods during which a Stock
Appreciation Right is exercisable as described in Section Nine B.
N. "Fair Market Value" means the average of the highest and lowest
price at which the Stock was sold regular way on the New York Stock
Exchange-Composite Transactions on a specified date.
0. "Incentive Stock Option" means an incentive stock option within the
meaning of Section 422A of the Code.
P. "Normal Retirement Date" is the retirement date as described in the
Company's or Subsidiary's retirement or pension plan.
Q. "Option" or "Stock Option" means either a nonqualified stock option
or an incentive stock option granted under Section Eight.
R. "Option Period" or "Option Periods" means the period or periods
during which an Option is exercisable as described in Section Eight E.
S. "Participant" means an employee of the Company or a Subsidiary who
has been granted an Option, a Stock Appreciation
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Right or a Restricted Stock Award under this Plan.
T. "Plan" means the Constellation Energy Group, Inc. Long-Term
Incentive Plan.
U. "Restricted Stock" means an Award granted under Section Seven.
V. "Retirement" means retirement on or after the "Normal Retirement
Date" (as such term is defined in the Company's or Subsidiary's pension or
retirement plan).
W. "Stock" means the common stock, without par value, of the Company.
X. "Stock Appreciation Right" means an Award granted to a participant
under Section Nine.
Y. "Subsidiary" means any corporation of which 20% or more of its
outstanding voting stock or voting power is beneficially owned, directly or
indirectly, by the Company.
Z. "Termination" means resignation or discharge from employment with
the Company or any of its Subsidiaries except in the event of Death, Disability,
Retirement or Early Retirement.
SECTION THREE. EFFECTIVE DATE, DURATION AND STOCKHOLDER APPROVAL.
A. Effective Date and Stockholder Approval. This Plan has been
transferred from Baltimore Gas and Electric Company (BGE) to CEG effective April
30, 1999 in connection with a share exchange between CEG and the common
stockholders of BGE. The Plan was approved by a majority of the outstanding
shares of common stock of BGE voted at the 1986 Annual Meeting of Stockholders,
and became effective as of October 1, 1985.
B. Period for Grants of Awards. Awards may be made as provided herein
for a period of 10 years after October 1, 1985.
C. Termination. The Plan shall continue in effect until all matters
relating to the payment of Awards and administration of the Plan have been
settled.
D. Grants Outstanding. Grants outstanding at the effective time of the
share exchange between CEG and the common stockholders of Baltimore Gas and
Electric Company (BGE) will be converted from BGE common stock-based grants to
CEG common
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stock-based grants.
SECTION FOUR. ADMINISTRATION.
The Plan shall be administered by the Board; provided, however, that
the Board in its discretion may delegate its authority in this respect to a
Committee, consisting of not less than three members of the Board who are not
eligible for grants hereunder, for the purpose of administering the Plan. Except
as otherwise provided by the Board, such Committee shall have all of the powers
(other than amending this Plan as provided in Section Ten, delegating its
authority pursuant to this Section Four or approving the issuance of Stock)
respecting the Plan. All questions of interpretation and application of the
Plan, or of the terms and conditions pursuant to which Awards are granted,
exercised or forfeited under the provisions hereof, shall be subject to the
determination of the Board or said Committee, as the case may be. Such
determination shall be final and binding upon all parties affected thereby.
SECTION FIVE. GRANT OF AWARDS AND LIMITATION OF NUMBER OF SHARES AWARDED.
The Board may, from time to time, grant Awards to one or more Eligible
Employees, provided that (i) subject to any adjustment pursuant to Section
Eleven H, the aggregate number of shares of Stock subject to Awards under this
Plan may not exceed one million (1,000,000) shares; (ii) to the extent that an
Award lapses or the rights of the Participant to whom it was granted terminate,
any shares of Stock subject to such Award shall again be available for the grant
of an Award under the Plan; and (iii) shares delivered by the Company under the
Plan may be authorized and unissued Stock, Stock held in the treasury of the
Company or Stock purchased on the open market (including private purchases) in
accordance with applicable securities laws. In determining the size of Awards,
the Board shall take into account a Participant's responsibility level,
performance, potential, cash compensation level, and the Fair Market Value of
the Stock at the time of Awards, as well as such other considerations as it
deems appropriate.
SECTION SIX. ELIGIBILITY.
Key employees of the Company and its Subsidiaries (including officers
or employees who are members of the Board, but excluding directors who are not
officers or employees) who, in the opinion of the Board, are mainly responsible
for the
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continued growth and development and financial success of the business of the
Company or one or more of its Subsidiaries shall be eligible to be granted
Awards under the Plan. Subject to the provisions of the Plan, the Board shall
from time to time select from such eligible persons those to whom Awards shall
be granted and determine the number of shares to be granted. No officer or
employee of the Company or its Subsidiaries shall have any right to be granted
an Award under this Plan.
SECTION SEVEN. RESTRICTED STOCK AWARDS.
A. Grants of Restricted Shares. An Award made pursuant to this Section
Seven shall be granted to a Participant in the form of shares of Stock,
restricted as provided in this Section Seven. The Restricted Shares shall be
issued to the Participant without the payment of consideration by the
Participant. The Restricted Shares shall be issued in the name of the
Participant and shall bear a restrictive legend prohibiting sale, transfer,
pledge or hypothecation of the Restricted Shares until the expiration of the
restriction period.
The Board may also impose such other restrictions and conditions on the
Restricted Shares as it deems appropriate.
Upon issuance to the Participant of the Award, the Participant shall
have the right to vote the Restricted Shares and receive the cash dividends
distributable with respect to such shares, such dividends to be treated as
compensation to the Participant.
B. Restriction Period. At the time a Restricted Stock Award is made,
the Board shall establish a restriction period applicable to such Award which
shall be not less than three years and not more than ten years. Each Restricted
Stock Award may have a different restriction period, at the discretion of the
Board. Notwithstanding the other provisions of this Section Seven B, in the
event of a public tender for all or any portion of the Stock or in the event
that any proposal to merge or consolidate the Company with another company is
submitted to the stockholders of the Company for a vote, the Board, in its sole
discretion, may change or eliminate the restriction period.
C. Forfeiture or Payout of Award. In the event a participant ceases
employment during a restriction period, a Restricted Stock Award is subject to
forfeiture or payout (i.e. removal of restrictions) as follows:
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(i) Termination - the Restricted Stock Award would be
completely forfeited.
(ii) Retirement - payout of the Restricted Stock Award
would be prorated for service during the period.
(iii) Early Retirement
- if at the Participant's request, the Restricted
Stock Award would be completely forfeited; or
- if at the Company's request, payout of the
Restricted Stock Award would be prorated for
service during the period.
(iv) Disability - payout of the Restricted Stock Award would
be prorated as if the Participant had maintained active
employment until the Normal Retirement Date.
(v) Death - payout of the Restricted Stock Award would be
prorated for service during the period.
In any instance where payout of a Restricted Stock Award is to be
prorated, the Board may choose to provide the Participant (or the Participant's
estate) with the entire Award rather than the prorated portion thereof.
Any Restricted Shares which are forfeited will be transferred to the
Company.
Upon completion of the restriction period, all restrictions upon the
Award will expire and new certificates representing the Award will be issued
(the payout) without the restrictive legend described in Section A. As a
condition precedent to receipt of the new certificates, the Participant (or the
Participant's designated beneficiary or personal representative) will agree to
make payment to the Company in the amount of any taxes, payable by the
Participant, which are required to be withheld with respect to such Restricted
Shares.
D. Waiver of Section 83(b) Election. As a condition of receiving an
Award of Restricted Shares, a Participant shall waive in writing the right to
make an election under Section 83(b) of the Code to report the value of the
Restricted Shares as income on the Date of Grant.
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SECTION EIGHT. STOCK OPTIONS.
A. Grant of Option. One or more Options may be granted to any Eligible
Employee.
B. Stock Option Agreement. Each Option granted under the Plan shall be
evidenced by a "Stock Option Agreement" between the Company and the Participant
containing provisions determined by the Board, including, without limitation,
provisions to qualify Incentive Stock Options as such under Section 422A of the
Code; provided, however, that each Stock Option Agreement must include the
following terms and conditions: (i) that the Options are exercisable either in
total or in part with a partial exercise not affecting the exercisability of the
balance of the Option; (ii) every share of Stock purchased through the exercise
of an Option shall be paid for in full at the time of the exercise; (iii) each
Option shall cease to be exercisable, as to any share of Stock, at the earliest
of (a) the Participant's purchase of the Stock to which the Option relates, (b)
the Participant's exercise of a related Stock Appreciation Right, or (c) the
lapse of the Option; (iv) Options shall not be transferable by the Participant
except by Will or the laws of descent and distribution and shall be exercisable
during the Participant's lifetime only by the Participant or by the
Participant's guardian or legal representative; and (v) notwithstanding any
other provision, in the event of a public tender for all or any portion of the
Stock or in the event that any proposal to merge or consolidate the Company with
another company is submitted to the stockholders of the Company for a vote, the
Board, in its sole discretion, may declare any previously granted Option to be
immediately exercisable.
C. Option Price. The Option price per share of Stock shall be set by
the grant, but shall be not less than 100% of the Fair Market Value at the Date
of Grant.
D. Form of Payment. At the time of the exercise of the Option, the
Option price shall be payable in cash or in other shares of Stock or in a
combination of cash and other shares of Stock. When Stock is used in full or
partial payment of the Option price, it shall be valued at the Fair Market Value
on the date the Option is exercised.
E. Other Terms and Conditions. The Option shall become exercisable in
such manner and within such Option Period or Periods, not to exceed 10 years
from its Date of Grant, as set
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forth in the Stock Option Agreement upon payment in full. Except as otherwise
provided in this Plan or in the Stock Option Agreement, any Option may be
exercised in whole or in part at any time.
F. Lapse of Option. An Option will lapse upon the first occurrence of
one of the following circumstances: (i) 10 years from the Date of Grant; (ii) on
the 90th day following the Participant's Date of Retirement; (iii) at the time
of a Participant's Termination; or (iv) at the expiration of the Option Period
set by the grant. If, however, the Participant dies within the Option Period and
prior to the lapse of the Option, the Option shall lapse unless it is exercised
within the Option Period or one year from the date of the Participant's death,
whichever is earlier, by the Participant's legal representative or
representatives or by the person or persons entitled to do so under the
Participant's Will or, if the Participant shall fail to make testamentary
disposition of such Option or shall die intestate, by the person or persons
entitled to receive said Option under the applicable laws of descent and
distribution.
G. Special Limitations or Exercise of Incentive Stock Options.
Notwithstanding any other provisions of the Plan, all Incentive Stock Options
must be exercised in the same order or sequence in which they were granted, and
no portion of any Incentive Stock Option may be exercised if at that time there
are unexercised Incentive Stock Options for which the Date of Grant is earlier
than the Date of Grant of the Incentive Stock Option in question.
H. Individual Dollar Limitations. In the case of an Incentive Stock
Option, the aggregate Fair Market Value of the Stock for which any employee may
be granted Incentive Stock Options (whether under this Plan or another
arrangement) in any calendar year shall not exceed $100,000 (or such other
individual grant limit as may be in effect under the Code on the Date of Grant)
plus any unused portion of such limit as the Code may permit to be carried over.
SECTION NINE. STOCK APPRECIATION RIGHTS.
A. Grant of Stock Appreciation Rights. Stock Appreciation Rights may be
granted under the Plan in conjunction with an Option either at the time of grant
or by amendment or may be separately awarded. Stock Appreciation Rights shall be
subject to such terms and conditions not inconsistent with the
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Plan as the Board shall impose.
B. Right to Exercise; Exercise Period. A Stock Appreciation Right
issued pursuant to an Option shall be exercisable to the extent the Option is
exercisable; both such Stock Appreciation Right and the Option to which it
relates shall not be exercisable during the six months following their
respective Dates of Grant except in the event of the participant's Disability or
death. A Stock Appreciation Right issued independent of an Option shall be
exercisable pursuant to such terms and conditions established in the grant.
Notwithstanding such terms and conditions, in the event of a public tender for
all or any portion of the stock or in the event that any proposal to merge or
consolidate the Company with another company is submitted to the stockholders of
the Company for a vote, the Board, in its sole discretion, may declare any
previously granted Stock Appreciation Right immediately exercisable.
C. Failure to Exercise. If on the last day of the Option Period, in the
case of a Stock Appreciation Right granted pursuant to an Option, or the
specified Award Period, in the case of a Stock Appreciation Right issued
independent of an Option, the participant has not exercised a Stock Appreciation
Right, then such Stock Appreciation Right shall be deemed to have been exercised
by the Participant on the last day of the Option period or Award Period.
D. Payment. An exercisable Stock Appreciation Right granted pursuant to
an Option shall entitle the participant to surrender unexercised the Option or
any portion thereof to which the Stock Appreciation Right is attached, and to
receive in exchange for the Stock Appreciation Right payment (in cash or Stock
or a combination thereof as described below) equal to the greater of (1) the
excess of the Fair Market Value of one share of Stock at the date of exercise
over the Option price, times the number of shares called for by the Stock
Appreciation Right (or portion thereof) which is so surrendered, or (2) the
excess of the Book Value of one share of Stock at the Date of Grant of the
related Option, times the number of shares called for by the Stock Appreciation
Right. Upon exercise of a Stock Appreciation Right not granted pursuant to an
Option, the Participant shall receive for each Stock Appreciation Right payment
(in cash or stock or a combination thereof as described below) equal to the
greater of (1) the excess of the Fair Market Value of one share of Stock at the
date of exercise over the Fair Market Value of one share of Stock at the Date of
Grant
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of the Stock Appreciation Right, of one share of Stock at the Date of Grant of
the Stock Appreciation Right, times the number of shares called for by the Stock
Appreciation Right, or (2) the excess of the Book Value of one share of Stock at
the date of exercise of the Stock Appreciation Right over the Book Value of one
share of Stock at the Date of Grant of the Stock Appreciation Right, times the
number of shares called for by the Stock Appreciation Right.
If the Participant elects to receive cash in full or partial settlement
of the Stock Appreciation Right (i) the Board must consent to or disapprove such
election and (ii) the election and the exercise must be made during the period
beginning on the 3rd business day following the date of public release of
quarterly or year-end earnings and ending on the 12th business day following the
date of public release of quarterly or year-end earnings. The value of the Stock
to be received upon exercise of a Stock Appreciation Right shall be the Fair
Market Value of the Stock on the trading day preceding the date on which the
Stock Appreciation Right is exercised. To the extent that a Stock Appreciation
Right issued pursuant to an Option is exercised, such Option shall be deemed to
have been exercised, and shall not be deemed to have lapsed.
E. Nontransferable. A Stock Appreciation Right shall not be
transferable by the Participant except by Will or the laws of descent and
distribution and shall be exercisable during the Participant's lifetime only by
the Participant or by the Participant's guardian or legal representative.
F. Lapse of a Stock Appreciation Right. A Stock Appreciation Right
will lapse upon the first occurrence of one of the following circumstances: (i)
10 years from the Date of Grant; (ii) on the 90th day following the
Participant's Date of Retirement; (iii) at the time of a Participant's
Termination; or (iv) at the expiration of the Exercise Period, as set by the
grant. If, however, the Participant dies within the Exercise Period and prior to
the lapse of the Stock Appreciation Right, then the Stock Appreciation Right
shall lapse unless it is exercised within the Exercise Period or one year from
the date of the Participant's death, whichever is earlier, by the Participants
legal representative or representatives or by the person or persons entitled to
do so under the Participant's Will or, if the Participant shall fail to make
testamentary disposition of the Stock Appreciation Right or shall die intestate,
by the person or persons entitled to receive the Stock Appreciation Right under
the applicable laws of descent
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and distribution.
SECTION TEN. AMENDMENT OF PLAN.
The Board may at any time and from time to time alter, amend, suspend
or terminate the Plan in whole or in part, except (i) no such action may be
taken without stockholder approval which materially increases the benefits
accruing to Participants pursuant to the Plan, materially increases the number
of securities which may be issued pursuant to the Plan (except as provided in
Section Eleven H), extends the period for granting Options under the Plan or
materially modifies the requirements as to eligibility for participation in the
Plan; and (ii) no such action may be taken without the consent of the
Participant to whom any award shall theretofore have been granted, which
adversely affects the rights of such Participant concerning such award, except
as such termination or amendment of the Plan is required by statute, or rules
and regulations promulgated thereunder.
SECTION ELEVEN. MISCELLANEOUS PROVISIONS.
A. Nontransferability. No benefit provided under this Plan shall be
subject to alienation or assignment by a Participant (or by any person entitled
to such benefit pursuant to the terms of this Plan), nor shall it be subject to
attachment or other legal process of whatever nature. Any attempted alienation,
assignment or attachment shall be void and of no effect whatsoever. Payment
shall be made only into the hands of the Participant entitled to receive the
same or into the hands of the Participant's authorized legal representative.
Deposit of any sum in any financial institution to the credit of any Participant
(or of a person entitled to such sum pursuant to the terms of this Plan) shall
constitute payment into the hands of that Participant (or such person).
B. No Employment Right. Neither this Plan nor any action taken
hereunder shall be construed as giving any right to be retained as an officer or
employee of the Company or any of its Subsidiaries.
C. Tax Withholding. Either the company or a Subsidiary, as appropriate,
shall have the right to deduct from all Awards paid in cash any federal, state
or local taxes as it deems to be required by law to be withheld with respect to
such cash payments. In the case of Awards paid in Stock, the employee or other
person receiving such Stock may be required to pay to the
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Company or a Subsidiary, as appropriate, the amount of any such taxes which the
Company or Subsidiary is required to withhold with respect to such Stock. At the
request of a Participant, or as required by law, such sums as may be required
for the payment of any estimated or accrued income tax liability may be withheld
and paid over to the governmental entity entitled to receive the same.
D. Fractional Shares. Any fractional shares concerning Awards shall be
eliminated at the time of payment or payout by rounding down for fractions of
less than one-half and rounding up for fractions of equal to or more than
one-half. No cash settlements shall be made with respect to fractional shares
eliminated by rounding.
E. Government and Other Regulations. The obligation of the Company to
make payment of Awards in Stock or otherwise shall be subject to all applicable
laws, rules, and regulations, and to such approvals by any government agencies
as may be required. The Company shall be under no obligation to register under
the Securities Act of 1933, as amended ("Act"), any of the shares of Stock
issued, delivered or paid in settlement under the Plan. If Stock awarded under
the Plan may in certain circumstances be exempt from registration under the Act,
the Company may restrict its transfer in such manner as it deems advisable to
ensure such exempt status.
F. Indemnification. Each person who is or at any time serves as a
member of the Board (and each person or Committee to whom the Board or any
member thereof has delegated any of its authority or power under this Plan
pursuant to Section Four) shall be indemnified and held harmless by the Company
against and from (i) any loss, cost, liability, or expense that may be imposed
upon or reasonably incurred by such person in connection with or resulting from
any claim, action, suit, or proceeding to which such person may be a party or in
which such person may be involved by reason of any action or failure to act
under the Plan; and (ii) any and all amounts paid by such person in satisfaction
of judgment in any such action, suit, or proceeding relating to the Plan. Each
person covered by this indemnification shall give the Company an opportunity, at
its own expense, to handle and defend the same before such person undertakes to
handle and defend it on such person's own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification to
which such persons may be entitled under the Charter or By-Laws of the Company
or any of its Subsidiaries, as a matter of law, or
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otherwise, or any power that the Company may have to indemnify such person or
hold such person harmless.
G. Reliance on Reports. Each member of the Board (and each person or
Committee to whom the Board or any member thereof has delegated any of its
authority or power under this Plan pursuant to Section Four) shall be fully
justified in relying or acting in good faith upon any report made by the
independent public accountants of the Company and its Subsidiaries and upon any
other information furnished in connection with the Plan. In no event shall any
person who is or shall have been a member of the Board be liable for any
determination made or other action taken or any omission to act in reliance upon
any such report or information or for any action taken, including the furnishing
of information, or failure to act, if in good faith.
H. Changes in Capital Structure. In the event of any change in the
outstanding shares of Stock by reason of any stock dividend or split,
recapitalization, combination or exchange of shares or other similar changes in
the Stock, then appropriate adjustments shall be made in the shares of Stock
theretofore awarded to the Participants and in the aggregate number of shares of
Stock which may be awarded pursuant to the Plan. Such adjustments shall be
conclusive and binding for all purposes. Additional shares of Stock issued to a
Participant as the result of any such change shall bear the same restrictions as
the shares of Stock to which they relate.
I. Company Successors. In the event the Company becomes a party to a
merger, consolidation, sale of substantially all of its assets or any other
corporate reorganization in which the Company will not be the surviving
corporation or in which the holders of the Stock will receive securities of
another corporation (in any such case, the "New Company"), then the New Company
shall assume the rights and obligations of the Company under this plan.
J. Governing Law. All matters relating to the Plan or to Awards granted
hereunder shall be governed by the laws of the State of Maryland, without regard
to the principles of conflict of laws.
K. Relationship to Other Benefits. No payment under the Plan shall be
taken into account in determining any benefits under any pension, retirement,
profit sharing or group insurance plan of the Company or any subsidiary.
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L. Expenses. The expenses of administering the Plan shall be
borne by the Company and its Subsidiaries.
M. Titles and Headings. The titles and headings of the sections in the
Plan are for convenience of reference only, and in the event of any conflict,
the text of the Plan, rather than such titles or headings, shall control.
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Exhibit 10(c)
Constellation Energy Group, Inc.
1995 Long-Term Incentive Plan
(Plan)
1. Objective. The objective of this Plan is to increase shareholder value
by providing a long-term incentive to reward officers and key employees
of CEG and its Subsidiaries, who are mainly responsible for the
continued growth, development, and financial success of CEG and its
Subsidiaries, for the continued profitable performance of CEG and its
subsidiaries. The Plan is also designed to permit CEG and its
Subsidiaries to retain talented and motivated officers and key
employees and to increase their ownership of CEG common stock.
2. Definitions. All singular terms defined in this Plan will include the
plural and vice versa. As used herein, the following terms will have
the meaning specified below:
"Award" means individually or collectively, Restricted Stock, Options,
Performance Units, Stock Appreciation Rights, or Dividend Equivalents
granted under this Plan.
"Board" means the Board of Directors of CEG.
"Book Value" means the book value of a share of Stock determined in
accordance with CEG's regular accounting practices as of the last
business day of the month immediately preceding the month in which a
Stock Appreciation Right is exercised as provided in Section 10.
"CEG" means Constellation Energy Group, Inc., a Maryland corporation,
or its successor, including any "New Company" as provided in Section
14I.
"Code" means the Internal Revenue Code of 1986, as amended. Reference
in the Plan to any section of the Code will be deemed to include any
amendments or successor provisions to such section and any regulations
promulgated thereunder.
"Committee" means the Committee on Management of the Board, provided,
however, that if such Committee fails to satisfy the disinterested
administration provisions of Section 16b-3 of the 1934 Act, "Committee"
shall mean a committee of directors of CEG who satisfy the
disinterested person requirements of such Section.
"Date of Grant" means the date on which the granting of an Award is
authorized by the Committee or such later date as may be specified by
the Committee in such authorization.
"Date of Retirement" means the date of Retirement or Early Retirement.
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"Disability" means the determination that a Participant is "disabled"
under the CEG disability plan in effect at that time.
"Dividend Equivalent" means an award granted under Section 11.
"Early Retirement" means retirement prior to the Normal Retirement
Date.
"Earned Performance Award" means an actual award of a specified number
of Performance Units (or shares of Restricted Stock, as the context
requires) which the Committee has determined have been earned and are
payable (or, in the case of Restricted Stock, earned and with respect
to which restrictions will lapse) for a particular Performance Period.
"Eligible Employee" means any person employed by CEG or a Subsidiary on
a regularly scheduled basis who satisfies all of the requirements of
Section 5.
"Exercise Period" means the period or periods during which a Stock
Appreciation Right is exercisable as described in Section 10.
"Fair Market Value" means the average of the highest and lowest price
at which the Stock was sold regular way on the New York Stock
Exchange-Composite Transactions on a specified date.
"Incentive Stock Option" means an incentive stock option within the
meaning of Section 422 of the Code.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Normal Retirement Date" is the retirement date as described in the
Pension Plan or a Subsidiary's retirement or pension plan.
"Option" or "Stock Option" means either a nonqualified stock option or
an incentive stock option granted under Section 8.
"Option Period" or "Option Periods" means the period or periods during
which an Option is exercisable as described in Section 8.
"Participant" means an employee of CEG or a Subsidiary who has been
granted an Award under this Plan.
"Pension Plan" means the Pension Plan of Constellation Energy Group,
Inc. as may be amended from time to time.
"Performance-Based" means that in determining the amount of a Restricted
Stock Award payout, the Committee will take into account the performance
of the Participant, CEG, one or more Subsidiaries, or any combination
thereof.
"Performance Period" means a period of time, established by the
Committee at the time an Award is granted, during which corporate and/or
individual performance is measured.
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"Performance Unit" means a unit of measurement equivalent to such amount
or measure as defined by the Committee which may include, but is not
limited to, dollars, market value shares, or book value shares.
"Plan Administrator" means, as set forth in Section 4, the Committee.
"Restricted Stock" means an Award granted under Section 7.
"Retirement" means retirement on or after the "Normal Retirement Date"
(as such term is defined in the Pension Plan or a Subsidiary's
retirement or pension plan).
"Service-Based" means that in determining the amount of a Restricted
Stock Award payout, the Committee will take into account only the period
of time that the Participant performed services for CEG or its
Subsidiaries since the Date of Grant.
"Stock" means the common stock, without par value, of CEG.
"Stock Appreciation Right" means an Award granted under Section 10.
"Subsidiary(ies)" means any corporation of which 20% or more of its
outstanding voting stock or voting power is beneficially owned, directly
or indirectly, by CEG.
"Target Performance Award" means a targeted award of a specified number
of Performance Units (or shares of Restricted Stock, as the context
requires) which may be earned and payable (or, in the case of Restricted
Stock, earned and with respect to which restrictions will lapse) based
upon the performance objectives for a particular Performance Period, all
as determined by the Committee. The Target Performance Award will be a
factor in the Committee's ultimate determination of the Earned
Performance Award.
"Termination" means resignation or discharge from employment with CEG or
any of its Subsidiaries except in the event of death, Disability,
Retirement or Early Retirement.
3. Effective Date, Duration and Stockholder Approval.
A. Effective Date and Stockholder Approval. This Plan has been
transferred from Baltimore Gas and Electric Company (BGE) to CEG
effective April 30, 1999 in connection with a share exchange between CEG
and the common stockholders of BGE. The Plan was approved by a majority
of the outstanding shares of common stock of BGE voted at its 1995
Annual Meeting of Stockholders, and became effective as of January 1,
1995.
B. Period for Grants of Awards. Awards may be made as provided herein
for a period of 10 year after January 1, 1995.
C. Termination. The Plan will continue in effect until all matters
relating to the payment of outstanding Awards and administration of the
Plan have been settled.
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D. Grants Outstanding. Grants outstanding at the effective time of the
share exchange between CEG and the common stockholders of Baltimore Gas
and Electric Company (BGE) will be converted from BGE common stock-based
grants to CEG common stock-based grants.
4. Plan Administration. The Committee is the Plan Administrator and has
sole authority (except as specified otherwise herein) to determine all
questions of interpretation and application of the Plan, or of the terms
and conditions pursuant to which Awards are granted, exercised or
forfeited under the Plan provisions, and, in general, to make all
determinations advisable for the administration of the Plan to achieve
its stated objective. Such determinations shall be final and not subject
to further appeal.
5. Eligibility. Each officer or key employee of CEG and its Subsidiaries
(including officers or employees who are members of the Board, but
excluding directors who are not officers or employees) may be designated
by the Committee as a Participant, from time to time, with respect to
one or more Awards. No officer or employee of CEG or its Subsidiaries
shall have any right to be granted an Award under this Plan.
6. Grant of Awards and Limitation of Number of Shares Awarded. The
Committee may, from time to time, grant Awards to one or more Eligible
Employees, provided that (i) subject to any adjustment pursuant to
Section 14H, the aggregate number of shares of Stock subject to Awards
under this Plan may not exceed three million (3,000,000) shares; (ii)
to the extent that an Award lapses or the rights of the Participant to
whom it was granted terminate, any shares of Stock subject to such
Award shall again be available for the grant of an Award under the
Plan; and (iii) shares delivered by CEG under the Plan may be
authorized and unissued Stock, Stock held in the treasury of CEG, or
Stock purchased on the open market (including private purchases) in
accordance with applicable securities laws.
7. Restricted Stock Awards.
A. Grants of Restricted Shares. One or more shares of Restricted Stock
may be granted to any Eligible Employee. The Restricted Stock will be
issued to the Participant on the Date of Grant without the payment of
consideration by the Participant. The Restricted Stock will be issued
in the name of the Participant and will bear a restrictive legend
prohibiting sale, transfer, pledge or hypothecation of the Restricted
Stock until the expiration of the restriction period.
The Committee may also impose such other restrictions and conditions on
the Restricted Stock as it deems appropriate, and will designate the
grant as either a Service-Based or Performance-Based Award.
Upon issuance to the Participant of the Restricted Stock, the
Participant will have the right to vote the Restricted Stock, and
subject to the Committee's discretion, to receive the cash dividends
distributable with respect to such shares, with such dividends treated
as compensation to the Participant. The Committee, in its sole
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discretion, may direct the accumulation and payment of distributable
dividends to the Participant at such times, and in such form and
manner, as determined by the Committee.
B. Service-Based Award.
i. Restriction Period. At the time a Service-Based Restricted
Stock Award is granted, the Committee will establish a restriction
period applicable to such Award which will be not less than one year
and not more than ten years. Each Restricted Stock Award may have a
different restriction period, at the discretion of the Committee.
ii. Forfeiture or Payout of Award. In the event a Participant
ceases employment during a restriction period, a Restricted Stock Award
is subject to forfeiture or payout (i.e., removal of restrictions) as
follows: (a) Termination - the Restricted Stock Award is completely
forfeited; (b) Retirement, Disability or death - payout of the
Restricted Stock Award is prorated for service during the period; or
(c) Early Retirement - if at the Participant's request, the payout or
forfeiture of the Restricted Stock Award is determined at the
discretion of the Committee, or if at CEG's request, payout of the
Restricted Stock Award is prorated for service during the period;
provided, however, that the Committee may modify the above if it
determines at its sole discretion that special circumstances warrant
such modification.
Any shares of Restricted Stock which are forfeited will be transferred
to CEG.
Upon completion of the restriction period, all Award restrictions will
expire and new certificates representing the Award will be issued (the
payout) without the restrictive legend described in Section 7A.
C. Performance-Based Award.
i. Restriction Period. At the time a Performance-Based
Restricted Stock Award is granted, the Committee will establish a
restriction period applicable to such Award which will be not less than
one year and not more than ten years. Each Restricted Stock Award may
have a different restriction period, at the discretion of the
Committee. The Committee will also establish a Performance Period.
ii. Performance Objectives. The Committee will determine, no
later than 90 days after the beginning of each Performance Period, the
performance objectives for each Participant's Target Performance Award
and the number of shares of Restricted Stock for each Target
Performance Award that will be issued on the Date of Grant. Performance
objectives may vary from Participant to Participant and will be based
upon such performance criteria or combination of factors as the
Committee deems appropriate, which may include, but not be limited to,
the performance of the Participant, CEG, one or more Subsidiaries, or
any combination thereof. Performance Periods may overlap and
Participants
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<PAGE>
may participate simultaneously with respect to Performance-Based
Restricted Stock Awards for which different Performance Periods are
prescribed.
If, during the course of a Performance Period significant events occur
as determined in the sole discretion of the Committee, which the
Committee expects to have a substantial effect on a performance
objective during such period, the Committee may revise such objective.
iii. Forfeiture or Payout of Award. As soon as practicable
after the end of each Performance Period, the Committee will determine
whether the performance objectives and other material terms of the
Award were satisfied. The Committee's determination of all such matters
will be final and conclusive.
As soon as practicable after the later of (i) the date the Committee
makes the above determination, or (ii) the completion of the
restriction period, the Committee will determine the Earned Performance
Award for each Participant. Such determination may result in forfeiture
of all or some shares of Restricted Stock (if Target Performance Award
performance objectives were not attained), or the issuance of
additional shares of Stock (if Target Performance Award performance
objectives were exceeded), and will be based upon such factors as the
Committee determines at its sole discretion, but including the Target
Performance Award performance objectives.
In the event a Participant ceases employment during a restriction
period, the Restricted Stock Award is subject to forfeiture or payout
(i.e., removal of restrictions) as follows: (a) Termination - the
Restricted Stock Award is completely forfeited; (b) Retirement,
Disability or death - payout of the Restricted Stock Award is prorated
taking into account factors including, but not limited to, service
during the period; and the performance of the Participant during the
portion of the Performance Period before employment ceased; or (c)
Early Retirement - if at the Participant's request, the payout or
forfeiture of the Restricted Stock Award is determined at the
discretion of the Committee, or if at CEG's request, payout of the
Restricted Stock Award is prorated taking into account factors
including, but not limited to, service during the period and the
performance of the Participant during the portion of the Performance
Period before employment ceased; provided, however, that the Committee
may modify the above if it determines at its sole discretion that
special circumstances warrant such modification.
Any shares of Restricted Stock which are forfeited will be transferred
to CEG.
With respect to shares of Restricted Stock for which restrictions
lapse, new certificates will be issued (the payout) without the
restrictive legend described in Section 7A. New certificates will also
be issued for additional Stock, if any, awarded to the Participant
because Target Performance Award performance objectives were exceeded.
D. Waiver of Section 83(b) Election. Unless otherwise directed by the
Committee, as a condition of receiving an Award of Restricted Stock, a
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Participant must waive in writing the right to make an election under
Section 83(b) of the Code to report the value of the Restricted Stock
as income on the Date of Grant.
8. Stock Options.
A. Grants of Options. One or more Options may be granted to any
Eligible Employee on the Date of Grant without the payment of
consideration by the Participant.
B. Stock Option Agreement. Each Option granted under the Plan will be
evidenced by a "Stock Option Agreement" between CEG and the Participant
containing provisions determined by the Committee, including, without
limitation, provisions to qualify Incentive Stock Options as such under
Section 422 of the Code if directed by the Committee at the Date of
Grant; provided, however, that each Incentive Stock Option Agreement
must include the following terms and conditions: (i) that the Options
are exercisable, either in total or in part, with a partial exercise
not affecting the exercisability of the balance of the Option; (ii)
every share of Stock purchased through the exercise of an Option will
be paid for in full at the time of the exercise; (iii) each Option will
cease to be exercisable, as to any share of Stock, at the earliest of
(a) the Participant's purchase of the Stock to which the Option
relates, (b) the Participant's exercise of a related Stock Appreciation
Right, or (c) the lapse of the Option; (iv) Options will not be
transferable by the Participant except by Will or the laws of descent
and distribution and will be exercisable during the Participant's
lifetime only by the Participant or by the Participant's guardian or
legal representative; and (v) notwithstanding any other provision, in
the event of a public tender for all or any portion of the Stock or in
the event that any proposal to merge or consolidate CEG with another
company is submitted to the stockholders of CEG for a vote, the
Committee, in its sole discretion, may declare any previously granted
Option to be immediately exercisable.
C. Option Price. The Option price per share of Stock will be set by the
grant, but will be not less than 100% of the Fair Market Value at the
Date of Grant.
D. Form of Payment. At the time of the exercise of the Option, the
Option price will be payable in cash or in other shares of Stock or in
a combination of cash and other shares of Stock, in a form and manner
as required by the Committee in its sole discretion. When Stock is used
in full or partial payment of the Option price, it will be valued at
the Fair Market Value on the date the Option is exercised.
E. Other Terms and Conditions. The Option will become exercisable in
such manner and within such Option Period or Periods, not to exceed 10
years from its Date of Grant, as set forth in the Stock Option
Agreement upon payment in full. Except as otherwise provided in this
Plan or in the Stock Option Agreement, any Option may be exercised in
whole or in part at any time.
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F. Lapse of Option. An Option will lapse upon the earlier of: (i) 10
years from the Date of Grant, or (ii) at the expiration of the Option
Period set by the grant. If the Participant ceases employment within
the Option Period and prior to the lapse of the Option, the Option will
lapse as follows: (a) Termination - the Option will lapse on the
effective date of the Termination; or (b) Retirement, Early Retirement,
or Disability - the Option will lapse at the expiration of the Option
Period set by the grant; provided, however, that the Committee may
modify the above if it determines in its sole discretion that special
circumstances warrant such modification. If the Participant dies within
the Option Period and prior to the lapse of the Option, the Option will
lapse at the expiration of the Option Period set by the grant unless it
is exercised before such time by the Participant's legal
representative(s) or by the person(s) entitled to do so under the
Participant's Will or, if the Participant fails to make testamentary
disposition of the Option or dies intestate, by the person(s) entitled
to receive the Option under the applicable laws of descent and
distribution.
G. Individual Limitation. In the case of an Incentive Stock Option, the
aggregate Fair Market Value of the Stock for which Incentive Stock
Options (whether under this Plan or another arrangement) in any
calendar year are first exercisable will not exceed $100,000 with
respect to such calendar year (or such other individual limit as may be
in effect under the Code on the Date of Grant) plus any unused portion
of such limit as the Code may permit to be carried over.
9. Performance Units.
A. Performance Units. One or more Performance Units may be earned by an
Eligible Employee based on the achievement of preestablished
performance objectives during a Performance Period.
B. Performance Period and Performance Objectives. The Committee will
determine a Performance Period and will determine, no later than 90
days after the beginning of each Performance Period, the performance
objectives for each Participant's Target Performance Award and the
number of Performance Units subject to each Target Performance Award.
Performance objectives may vary from Participant to Participant and
will be based upon such performance criteria or combination of factors
as the Committee deems appropriate, which may include, but not be
limited to, the performance of the Participant, CEG, one or more
Subsidiaries, or any combination thereof. Performance Periods may
overlap and Participants may participate simultaneously with respect to
Performance Units for which different Performance Periods are
prescribed.
If during the course of a Performance Period significant events occur
as determined in the sole discretion of the Committee which the
Committee expects to have a substantial effect on a performance
objective during such period, the Committee may revise such objective.
C. Forfeiture or Payout of Award. As soon as practicable after the end
of each Performance Period, the Committee will determine whether the
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<PAGE>
performance objectives and other material terms of the Award were
satisfied. The Committee's determination of all such matters will be
final and conclusive.
As soon as practicable after the date the Committee makes the above
determination, the Committee will determine the Earned Performance
Award for each Participant. Such determination may result in an
increase or decrease in the number of Performance Units payable based
upon such Participant's Target Performance Award, and will be based
upon such factors as the Committee determines in its sole discretion,
but including the Target Performance Award performance objectives.
In the event a Participant ceases employment during a Performance
Period, the Performance Unit Award is subject to forfeiture or payout
as follows: (a) Termination - the Performance Unit Award is completely
forfeited; (b) Retirement, Disability or death - payout of the
Performance Unit Award is prorated taking into account factors
including, but not limited to, service and the performance of the
Participant during the portion of the Performance Period before
employment ceased; or (c) Early Retirement - if at the Participant's
request, the payout or forfeiture of the Performance Unit Award is
determined at the discretion of the Committee, or if at CEG's request,
payout of the Performance Unit Award is prorated taking into account
factors including, but not limited to, service and the performance of
the Participant during the portion of the Performance Period before
employment ceased; provided, however, that the Committee may modify the
above if it determines in its sole discretion that special
circumstances warrant such modification.
D. Form and Timing of Payment. Each Performance Unit is payable in cash
or shares of Stock or in a combination of cash and Stock, as determined
by the Committee in its sole discretion. Such payment will be made as
soon as practicable after the Earned Performance Award is determined.
10. Stock Appreciation Rights.
A. Grants of Stock Appreciation Rights. Stock Appreciation Rights may
be granted under the Plan in conjunction with an Option either at the
Date of Grant or by amendment or may be separately granted. Stock
Appreciation Rights will be subject to such terms and conditions not
inconsistent with the Plan as the Committee may impose.
B. Right to Exercise; Exercise Period. A Stock Appreciation Right
issued pursuant to an Option will be exercisable to the extent the
Option is exercisable; both such Stock Appreciation Right and the
Option to which it relates will not be exercisable during the six
months following their respective Dates of Grant except in the event of
the Participant's Disability or death. A Stock Appreciation Right
issued independent of an Option will be exercisable pursuant to such
terms and conditions established in the grant. Notwithstanding such
terms and conditions, in the event of a public tender for all or any
portion of the Stock or in the event that any proposal to merge or
consolidate CEG with another company is submitted to the stockholders
of CEG for a vote, the Committee, in its sole
9
<PAGE>
discretion, may declare any previously granted Stock Appreciation
Right immediately exercisable.
C. Failure to Exercise. If on the last day of the Option Period, in the
case of a Stock Appreciation Right granted pursuant to an Option, or
the specified Exercise Period, in the case of a Stock Appreciation
Right issued independent of an Option, the Participant has not
exercised a Stock Appreciation Right, then such Stock Appreciation
Right will be deemed to have been exercised by the Participant on the
last day of the Option Period or Exercise Period.
D. Payment. An exercisable Stock Appreciation Right granted pursuant to
an Option will entitle the Participant to surrender unexercised the
Option or any portion thereof to which the Stock Appreciation Right is
attached, and to receive in exchange for the Stock Appreciation Right
payment (in cash or Stock or a combination thereof as described below)
equal to either of the following amounts, determined in the sole
discretion of the Committee at the Date of Grant: (1) the excess of the
Fair Market Value of one share of Stock at the date of exercise over
the Option price, times the number of shares called for by the Stock
Appreciation Right (or portion thereof) which is so surrendered, or (2)
the excess of the Book Value of one share of Stock at the date of
exercise over the Book Value of one share of Stock at the Date of Grant
of the related Option, times the number of shares called for by the
Stock Appreciation Right. Upon exercise of a Stock Appreciation Right
not granted pursuant to an Option, the Participant will receive for
each Stock Appreciation Right payment (in cash or Stock or a
combination thereof as described below) equal to either of the
following amounts, determined in the sole discretion of the Committee
at the Date of Grant: (1) the excess of the Fair Market Value of one
share of Stock at the date of exercise over the Fair Market Value of
one share of Stock at the Date of Grant of the Stock Appreciation
Right, times the number of shares called for by the Stock Appreciation
Right, or (2) the excess of the Book Value of one share of Stock at the
date of exercise of the Stock Appreciation Right over the Book Value of
one share of Stock at the Date of Grant of the Stock Appreciation
Right, times the number of shares called for by the Stock Appreciation
Right.
The Committee may direct the payment in settlement of the Stock
Appreciation Right to be in cash or Stock or a combination thereof.
Alternatively, the Committee may permit the Participant to elect to
receive cash in full or partial settlement of the Stock Appreciation
Right, provided that (i) the Committee must consent to or disapprove
such election and (ii) unless the Committee directs otherwise, the
election and the exercise must be made during the period beginning on
the 3rd business day following the date of public release of quarterly
or year-end earnings and ending on the 12th business day following the
date of public release of quarterly or year-end earnings. The value of
the Stock to be received upon exercise of a Stock Appreciation Right
shall be the Fair Market Value of the Stock on the trading day
preceding the date on which the Stock Appreciation Right is exercised.
To the extent that a Stock Appreciation Right issued pursuant to an
Option is exercised, such Option shall be deemed to have been
exercised, and shall not be deemed to have lapsed.
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E. Nontransferable. A Stock Appreciation Right will not be transferable
by the Participant except by Will or the laws of descent and
distribution and will be exercisable during the Participant's lifetime
only by the Participant or by the Participant's guardian or legal
representative.
F. Lapse of a Stock Appreciation Right. A Stock Appreciation Right will
lapse upon the earlier of: (i) 10 years from the Date of Grant; or (ii)
at the expiration of the Exercise Period as set by the grant. If the
Participant ceases employment within the Exercise Period and prior to
the lapse of the Stock Appreciation Right, the Stock Appreciation Right
will lapse as follows: (a) Termination - the Stock Appreciation Right
will lapse on the effective date of the Termination; or (b) Retirement,
Early Retirement, or Disability - the Stock Appreciation Right will
lapse at the expiration of the Exercise Period set by the grant;
provided, however, that the Committee may modify the above if it
determines in its sole discretion that special circumstances warrant
such modification. If the Participant dies within the Exercise Period
and prior to the lapse of the Stock Appreciation Right, the Stock
Appreciation Right will lapse at the expiration of the Exercise Period
set by the grant unless it is exercised before such time by the
Participant's legal representative(s) or by the person(s) entitled to
do so under the Participant's Will or, if the Participant fails to make
testamentary disposition of the Stock Appreciation Right or dies
intestate, by the person(s) entitled to receive the Stock Appreciation
Right under the applicable laws of descent and distribution.
11. Dividend Equivalents.
A. Grants of Dividend Equivalents. Dividend Equivalents may be granted
under the Plan in conjunction with an Option or a separately awarded
Stock Appreciation Right, at the Date of Grant or by amendment, without
consideration by the Participant. Dividend Equivalents may also be
granted under the Plan in conjunction with Performance Units, at any
time during the Performance Period, without consideration by the
Participant. Dividend Equivalents will be granted under a
Performance-Based Restricted Stock Award in conjunction with additional
shares of Stock issued if Target Performance Award performance
objectives are exceeded.
B. Payment. Each Dividend Equivalent will entitle the Participant to
receive an amount equal to the dividend actually paid with respect to a
share of Stock on each dividend payment date from the Date of Grant to
the date the Dividend Equivalent lapses as set forth in Section 11D.
The Committee, in its sole discretion, may direct the payment of such
amount at such times and in such form and manner as determined by the
Committee.
C. Nontransferable. A Dividend Equivalent will not be transferable by
the Participant.
D. Lapse of a Dividend Equivalent. Each Dividend Equivalent will lapse
on the earlier of (i) the date of the lapse of the related Option or
Stock Appreciation Right; (ii) the date of the exercise of the related
Option or Stock Appreciation
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Right; (iii) the end of the Performance Period (or if earlier, the date
the Participant ceases employment) of the related Performance Units or
Performance-Based Restricted Stock Award; or (iv) the lapse date
established by the Committee on the Date of Grant of the Dividend
Equivalent.
12. Accelerated Award Payout/Exercise.
A. Change in Control. Notwithstanding anything in this Plan document to
the contrary, a Participant is entitled to an accelerated payout or
accelerated Option or Exercise Period (as set forth in Section 12B)
with respect to any previously granted Award, upon the happening of a
change in control.
A change in control for purposes of this Section 12 means (i) the
purchase or acquisition by any person, entity or group of persons,
(within the meaning of section 13(d) or 14(d) of the 1934 Act, or any
comparable successor provisions), of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the 1934 Act) of 20 percent or
more of either the outstanding shares of common stock of CEG or the
combined voting power of CEG's then outstanding shares of voting
securities entitled to a vote generally, or (ii) the approval by the
stockholders of CEG of a reorganization, merger, or consolidation, in
each case, with respect to which persons who were stockholders of CEG
immediately prior to such reorganization, merger or consolidation do
not, immediately thereafter, own more than 50 percent of the combined
voting power entitled to vote generally in the election of directors of
the reorganized, merged or consolidated entity's then outstanding
securities, or (iii) a liquidation or dissolution of CEG or the sale of
substantially all of its assets, or (iv) a change of more than one-half
of the members of the Board within a 90-day period for reasons other
than the death, disability, or retirement of such members.
B. Amount of Award Subject to Accelerated Payout/Option Period/Exercise
Period. The amount of a Participant's previously granted Award that
will be paid or exercisable upon the happening of a change in control
will be determined as follows:
Restricted Stock Awards. The Participant will be entitled to an
accelerated Award payout, and the amount of the payout will be based on
the number of shares of Restricted Stock that were issued on the Date
of Grant, prorated based on the number of months of the restriction
period that have elapsed as of the payout date. Also, with respect to
Performance-Based Restricted Stock Awards, in determining the amount of
the payout, maximum performance achievement will be assumed.
Stock Option Awards and Stock Appreciation Rights. Any previously
granted Stock Option Awards or Stock Appreciation Rights will be
immediately exercisable.
Performance Units. The Participant will be entitled to an accelerated
Award payout, and the amount of the payout will be based on the number
of Performance Units subject to the Target Performance Award as
established on
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the Date of Grant, prorated based on the number of months of the
Performance Period that have elapsed as of the payout date, and
assuming that maximum performance was achieved.
C. Timing of Accelerated Payout/Option Period/Exercise Period. The
accelerated payout set forth in Section 12B will be made in cash within
30 days after the date of the change in control. The accelerated Option
Period/Exercise Period set forth in Section 12B will begin on the date
of the change in control, and applicable payments will be in cash. When
Stock is related to the Award, the amount of cash will be determined
based on the Fair Market Value of Stock on the payout or exercise date,
whichever is applicable.
13. Amendment of Plan.
The Committee may at any time and from time to time alter, amend,
suspend or terminate the Plan in whole or in part, except (i) no such
action may be taken without stockholder approval which materially
increases the benefits accruing to Participants pursuant to the Plan,
materially increases the number of securities which may be issued
pursuant to the Plan (except as provided in Section 14H), extends the
period for granting Options under the Plan or materially modifies the
requirements as to eligibility for participation in the Plan; and (ii)
no such action may be taken without the consent of the Participant to
whom any Award was previously granted, which adversely affects the
rights of such Participant concerning such Award, except as such
termination or amendment of the Plan is required by statute, or rules
and regulations promulgated thereunder. Notwithstanding the foregoing,
the Committee may amend the Plan as desirable at the discretion of the
Committee to address any issues concerning (i) Section 162(m) of the
Code, or (ii) maintaining an exemption under rule 16b-3 of the 1934
Act.
14. Miscellaneous Provisions.
A. Nontransferability. No benefit provided under this Plan shall be
subject to alienation or assignment by a Participant (or by any person
entitled to such benefit pursuant to the terms of this Plan), nor shall
it be subject to attachment or other legal process except (i) to the
extent specifically mandated and directed by applicable state or
federal statute, and (ii) as requested by the Participant (or by any
person entitled to such benefit pursuant to the terms of this Plan),
and approved by the Committee, to satisfy income tax withholding.
B. No Employment Right. Participation in this Plan shall not constitute
a contract of employment between CEG or any Subsidiary and any person
and shall not be deemed to be consideration for, or a condition of,
continued employment of any person.
C. Tax Withholding. CEG or a Subsidiary may withhold any applicable
federal, state or local taxes at such time and upon such terms and
conditions as required by law or determined by CEG or a Subsidiary.
Subject to compliance with any requirements of applicable law, the
Committee may permit or require a
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Participant to have any portion of any withholding or other taxes
payable in respect to a distribution of Stock satisfied through the
payment of cash by the Participant to CEG or a Subsidiary, the
retention by CEG or a Subsidiary of shares of Stock, or delivery of
previously owned shares of the Participant's Stock, having a Fair
Market Value equal to the withholding amount.
D. Fractional Shares. Any fractional shares concerning Awards shall be
eliminated at the time of payment or payout by rounding down for
fractions of less than one-half and rounding up for fractions of equal
to or more than one-half. No cash settlements shall be made with
respect to fractional shares eliminated by rounding.
E. Government and Other Regulations. The obligation of CEG to make
payment of Awards in Stock or otherwise shall be subject to all
applicable laws, rules, and regulations, and to such approvals by any
government agencies as may be required. CEG shall be under no
obligation to register under the Securities Act of 1933, as amended
("Act"), any of the shares of Stock issued, delivered or paid in
settlement under the Plan. If Stock awarded under the Plan may in
certain circumstances be exempt from registration under the Act, CEG
may restrict its transfer in such manner as it deems advisable to
ensure such exempt status.
F. Indemnification. Each person who is or at any time serves as a
member of the Committee (and each person or Committee to whom the
Committee or any member thereof has delegated any of its authority or
power under this Plan) shall be indemnified and held harmless by CEG
against and from (i) any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by such person in connection with
or resulting from any claim, action, suit, or proceeding to which such
person may be a party or in which such person may be involved by reason
of any action or failure to act under the Plan; and (ii) any and all
amounts paid by such person in satisfaction of judgment in any such
action, suit, or proceeding relating to the Plan. Each person covered
by this indemnification shall give CEG an opportunity, at its own
expense, to handle and defend the same before such person undertakes to
handle and defend it on such person's own behalf. The foregoing right
of indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the Charter
or By-Laws of CEG or any of its Subsidiaries, as a matter of law, or
otherwise, or any power that CEG may have to indemnify such person or
hold such person harmless.
G. Reliance on Reports. Each member of the Committee (and each person
or Committee to whom the Committee or any member thereof has delegated
any of its authority or power under this Plan) shall be fully justified
in relying or acting in good faith upon any report made by the
independent public accountants of CEG and its Subsidiaries and upon any
other information furnished in connection with the Plan. In no event
shall any person who is or shall have been a member of the Committee be
liable for any determination made or other action taken or any omission
to act in reliance upon any such report or information or for any
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action taken, including the furnishing of information, or failure to
act, if in good faith.
H. Changes in Capital Structure. In the event of any change in the
outstanding shares of Stock by reason of any stock dividend or split,
recapitalization, combination or exchange of shares or other similar
changes in the Stock, then appropriate adjustments shall be made in the
shares of Stock theretofore awarded to the Participants and in the
aggregate number of shares of Stock which may be awarded pursuant to
the Plan. Such adjustments shall be conclusive and binding for all
purposes. Additional shares of Stock issued to a Participant as the
result of any such change shall bear the same restrictions as the
shares of Stock to which they relate.
I. CEG Successors. In the event CEG becomes a party to a merger,
consolidation, sale of substantially all of its assets or any other
corporate reorganization in which CEG will not be the surviving
corporation or in which the holders of the Stock will receive
securities of another corporation (in any such case, the "New
Company"), then the New Company shall assume the rights and obligations
of CEG under this Plan.
J. Governing Law. All matters relating to the Plan or to Awards granted
hereunder shall be governed by the laws of the State of Maryland,
without regard to the principles of conflict of laws.
K. Relationship to Other Benefits. Any Awards under this Plan are not
considered compensation for purposes of determining benefits under any
pension, profit sharing, or other retirement or welfare plan, or for
any other general employee benefit program.
L. Expenses. The expenses of administering the Plan shall be borne by
CEG and its Subsidiaries.
M. Titles and Headings. The titles and headings of the sections in the
Plan are for convenience of reference only, and in the event of any
conflict, the text of the Plan, rather than such titles or headings,
shall control.
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Exhibit 10(d)
CONSTELLATION ENERGY GROUP, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN (PLAN)
1. Objective The objective of this Plan is to enable certain management
employees of CEG and its subsidiaries to defer compensation.
2. Definitions. All words beginning with an initial capital letter and not
otherwise defined herein shall have the meaning set forth in the
Employee Savings Plan. All singular terms defined in this Plan will
include the plural and vice versa. As used herein, the following terms
will have the meaning specified below:
"Basic Compensation" means such compensation as set forth in the
Employee Savings Plan, without regard to the Internal Revenue Code
Section 401(a)(17) annual compensation limitation.
"CEG" means Constellation Energy Group, Inc., a Maryland corporation,
or its successor.
"Committee" means the Committee on Management of the Board of Directors
of CEG.
"Deferred Compensation" means any compensation payable by CEG or its
subsidiaries to a participant that is deferred under the provisions of
this Plan.
"Employee Savings Plan" means the Constellation Energy Group, Inc.
Employee Savings Plan as may be amended from time to time, or any
successor plan.
"Executive Incentive Plan" means the Executive Incentive Plan of
Constellation Energy Group, Inc. as may be amended from time to time,
or any successor plan, and/or any other incentive plan designated in
writing by the Plan Administrator.
"Incentive Award" means an award granted under the Executive Incentive
Plan or the Managers' Incentive Plan.
"Managers' Incentive Plan" means the Managers' Incentive Plan of
Constellation Energy Group, Inc. as may be amended from time to time,
or any successor
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plan, and/or any other incentive plan designated in writing by the
Plan Administrator.
"Matching Contributions" means the matching contributions described in
Section 8.
"Plan Accounts" means amounts of a participant's Deferred Compensation,
Matching Contributions, and earnings under the Plan.
"Plan Administrator" means, as set forth in Section 3, the Vice
President - Human Resources of CEG, (or the Vice-President succeeding
to that function).
"Rabbi Trust" means the trust established by CEG pursuant to Grantor
Trust Agreement dated as of April 30, 1999 between CEG and T. Rowe
Price Trust Company.
"Termination From Employment with CEG" means a participant's separation
from service with CEG or a subsidiary of CEG; however, a participant's
transfer of employment to or from a subsidiary of CEG shall not
constitute a Termination From Employment with CEG.
3. Plan Administration. The Vice President - Human Resources of CEG, (or
the Vice-President succeeding to that function) is the Plan
Administrator and has the sole authority (except as specified otherwise
herein) to interpret the Plan, and, in general, to make all other
determinations advisable for the administration of the Plan to achieve
its stated objective.
Appeals of written decisions by the Plan Administrator may be made to
the Committee. Decisions by the Committee shall be final and not
subject to further appeal. The Plan Administrator shall have the power
to delegate all or any part of his/her duties to one or more designees,
and to withdraw such authority, by written designation.
4. Eligibility and Participation. Each officer or key employee of CEG or
its subsidiaries, or employees of CEG or its subsidiaries who hold
manager level positions, may be designated in writing by the Plan
Administrator as eligible to participate with respect to one or more of
the provisions of Sections 5, 6, 7 and 8, which designation will also
indicate whether all
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or part of such participant's Plan Accounts will be held in the Rabbi
Trust. Once designated, eligibility shall continue until such
designation is withdrawn at the discretion and by written order of the
Plan Administrator. Notwithstanding subsequent withdrawal of
eligibility of an employee, such an employee with Plan Accounts will
remain a participant of the Plan, except that no further deferrals of
compensation under the Plan are permitted. While designated as eligible
with respect to one or more of the provisions of Sections 5, 6, 7 or 8,
an employee may participate in the Plan to the extent set forth in such
designation.
5. Basic Compensation Deferral Election. Unless otherwise designated in
writing by the Plan Administrator, a participant may defer Basic
Compensation as set forth in this Section 5. A participant may elect to
defer up to 15% of monthly Basic Compensation. A participant may also
elect to defer up to 100% of Basic Compensation, if any, in excess of
the dollar limitation set forth in Internal Revenue Code Section
401(a)(17) (as adjusted by the Commissioner for increases in the cost
of living in accordance with Internal Revenue Code Section
401(a)(17)(B)). Any deferrals shall be in 1% multiples, subject to
adjustment as necessary to provide for any required withholding taxes.
Such election shall be made by notification in the form and manner
established by the Plan Administrator from time to time, and shall be
effective as of the beginning of the month following the month during
which the election is received by the Plan Administrator. Such election
may be revoked by notification in the form and manner established by
the Plan Administrator from time to time, and shall be effective as of
the beginning of the month following the month during which the
revocation is received by the Plan Administrator.
6. Incentive Award Deferral Election. A participant may elect to defer
Incentive Award compensation in 1% multiples, subject to adjustment as
necessary to provide for any required withholding taxes. Such election
shall be made annually by notification in the form and manner
established by the Plan Administrator from time to time. Such annual
election shall be made prior to the Incentive Award performance year,
and shall be effective as of the first day of such
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performance year. If a participant initially becomes eligible to
participate in the Plan during a performance year, the election for
such performance year must be made prior to the date the participant
initially becomes eligible to participate in the Plan, and shall be
effective on such date. Elections under this Section are irrevocable
once effective.
7. Other Deferral Election. A participant may elect to defer, in 1%
multiples, other forms of compensation that are designated in writing
by the Plan Administrator. Such election must be made prior to the date
the compensation is earned by the participant, by notification in the
form and manner established by the Plan Administrator from time to
time. Such election is effective as of the date the compensation is
earned. Elections under this Section are irrevocable once effective.
8. Matching Contributions. Matching Contributions are made by CEG to the
Plan in an amount equal to (i) up to the rate of Company Matching
Contributions under the Employee Savings Plan multiplied by a
participant's monthly Basic Compensation deferral, less (ii) the amount
of Company Matching Contributions made to the Employee Savings Plan on
behalf of such participant with respect to such month.
9. Plan Accounts. Deferred Compensation and Matching Contributions shall
be (i) credited to participant Plan Accounts as soon as practicable;
(ii) to the extent designated by the Plan Administrator, held for the
benefit of the participant in the Rabbi Trust; and (iii) credited with
earnings at the T. Rowe Price Prime Reserve Fund rate. However, a
participant may elect (by notification in the form and manner
established by the Plan Administrator from time to time) to have all or
a portion of his/her Plan Accounts credited with earnings at a rate
equal to the T. Rowe Price Prime Reserve Fund rate, the T. Rowe Price
New Income Fund rate, or one or more of the rates earned by investment
options available under the Employee Savings Plan, except the Common
Stock Fund and the Interest Income Fund. Earnings are credited to Plan
Accounts commencing on the day the Deferred Compensation and Matching
Contributions are credited to the Plan Accounts. Plan Accounts will be
valued daily in the
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same manner as for Investment Funds under the Employee Savings Plan.
A participant may elect to change the investment option of future
Deferred Compensation and Matching Contributions, which election shall
be effective when the next Deferred Compensation contributions and/or
Matching Contributions are credited to the participant's Plan Accounts.
A participant may elect to reallocate to other investment options
current Plan Accounts, which election shall be effective at the same
time as, and valued in accordance with, the interfund transfer
provisions under the Employee Savings Plan. Such elections shall be
made by notification in the form and manner established by the Plan
Administrator from time to time.
10. Distributions of Plan Accounts. Distributions of Plan Accounts shall be
made in cash only, and to the extent designated by the Plan
Administrator, from the Rabbi Trust.
Prior to the end of the calendar year of a participant's Termination
From Employment with CEG, such participant must elect the timing of
distributions of his/her Plan Accounts. The participant may elect (by
notification in the form and manner established by the Plan
Administrator from time to time) to begin distributions (i) in the
calendar year following the calendar year of the participant's
Termination From Employment with CEG, (ii) in the year following the
year in which a participant attains age 70-1/2, if later, or (iii) any
calendar year between (i) and (ii). A participant may elect (by
notification in the form and manner established by the Plan
Administrator from time to time) to receive distributions in a single
payment or in annual installments during a period not to exceed fifteen
years. The single payment or the first installment payment, whichever
is applicable, shall be made within the first sixty (60) days of the
calendar year elected for distribution. Subsequent installments, if
any, shall be made within the first sixty (60) days of each succeeding
calendar year until the participant's Plan Accounts have been paid. In
the event no election is made prior to the end of the year of a
participant's Termination From Employment with CEG, a participant shall
receive a distribution in a
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<PAGE>
single payment within the first sixty (60) days of the following year.
Earnings are credited to Plan Accounts through the date of
distribution, and amounts held for installment payments shall continue
to be credited with earnings, as specified in Section 9.
If a participant dies, the entire unpaid balance of his/her Plan
Accounts shall be paid to the beneficiary(ies) designated by the
participant by notification in the form and manner established by the
Plan Administrator from time to time or, if no designation was made, to
the estate of the participant. Payment shall be made within sixty (60)
days after notice of death is received by the Plan Administrator,
unless prior to the end of the calendar year of the participant's
Termination From Employment with CEG, the participant elected (in the
form and manner established by the Plan Administrator from time to
time) a delayed and/or installment distribution option for such
beneficiary(ies); provided, however that (i) such a distribution option
election shall be effective only if the value of the participant's Plan
Accounts is more than $50,000 on the date of the participant's death;
and (ii) the final distribution must be made to such beneficiary(ies)
no later than 15 years after the participant's death. After the end of
the calendar year of a participant's Termination From Employment with
CEG, a distribution option election for a particular beneficiary is
irrevocable; provided, however, that the participant may make a
distribution option election for a new beneficiary who is initially
designated after the participant's Termination From Employment with
CEG, and such election is irrevocable with respect to the new
beneficiary.
In the event a participant's deferred Incentive Award is credited to
the Plan after the participant's death, such Incentive Award shall be
either paid to his/her beneficiary(ies), or if a delayed and/or
installment distribution option was elected for such beneficiary(ies),
paid as part of the aggregate Plan Accounts in accordance with such
election.
Upon the death of a participant's beneficiary for whom a delayed and/or
installment distribution option was elected, the entire unpaid balance
of the participant's Plan Accounts shall be paid to the
beneficiary(ies)
6
<PAGE>
designated by the participant's beneficiary by notification in the form
and manner established by the Plan Administrator from time to time or,
if no designation was made, to the estate of the participant's
beneficiary. Payment shall be made within sixty (60) days after notice
of death is received by the Plan Administrator.
Notwithstanding anything herein contained to the contrary, the
Committee shall have the right in its sole discretion to vary the
manner and timing of distributions, and may make such distributions in
a single payment or over a shorter or longer period of time than that
elected by a participant.
11. Beneficiaries. A participant shall have the right to designate a
beneficiary(ies) who is to receive a distribution(s) pursuant to
Section 10 in the event of the death of the participant. A
participant's beneficiary(ies) for whom a delayed and/or installment
distribution option was elected shall have the right to designate a
beneficiary(ies) who is to receive a distribution pursuant to Section
10 in the event of the death of the participant's beneficiary(ies).
Any designation, change or recision of the designation of beneficiary
shall be made by notification in the form and manner established by the
Plan Administrator from time to time. The last designation of
beneficiary received by the Plan Administrator shall be controlling
over any testamentary or purported disposition by the participant (or,
if applicable, the participant's beneficiary(ies)), provided that no
designation, recision or change thereof shall be effective unless
received by the Plan Administrator prior to the death of the
participant (or, if applicable, the participant's beneficiary(ies)).
If the designated beneficiary is the estate, or the executor or
administrator of the estate, of the participant (or, if applicable, the
participant's beneficiary(ies)), a distribution pursuant to Section 10
may be made to the person(s) or entity (including a trust) entitled
thereto under the will of the participant (or, if applicable, the
participant's beneficiary(ies)), or, in the case of intestacy, under
the laws relating to intestacy.
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<PAGE>
A participant's beneficiary(ies) for whom a delayed and/or installment
distribution option was elected shall have the right, after the death
of the participant, to make investment elections or changes in
investment elections with respect to a participant's Plan Accounts to
the same extent available to the participant pursuant to Section 9. A
beneficiary(ies) of the participant's beneficiary(ies) shall have no
right to make any investment election or change in investment election
pursuant to Section 9 with respect to a participant's Plan Accounts.
12. Valuation of Interest. The Plan Administrator shall cause the value of
a participant's Plan Accounts, at least once per year as of December
31, to be determined separately and be reported to CEG and the
participant (or, if applicable, the participant's beneficiary(ies)).
Valuation of a participant's Plan Accounts shall be determined in
accordance with the procedures contained in the Employee Savings Plan.
13. Withdrawals. No withdrawals of Plan Accounts may be made, except a
participant may at any time request a hardship withdrawal from his/her
Plan Accounts if he/she has incurred an unforeseeable financial
emergency. An unforeseeable financial emergency is defined as severe
financial hardship to the participant resulting from a sudden and
unexpected illness or accident of the participant (or of his/her
dependents), loss of the participant's property due to casualty, or
other similar extraordinary and unforeseeable circumstances arising as
a result of events beyond the control of the participant. The need to
send a child to college or the desire to purchase a home are not
considered to be unforeseeable emergencies. The circumstance that will
constitute an unforeseeable emergency will depend upon the facts of
each case.
A hardship withdrawal will be permitted by the Plan Administrator only
as necessary to satisfy an immediate and heavy financial need. A
hardship withdrawal may be permitted only to the extent reasonably
necessary to satisfy the financial need. Payment may not be made to the
extent that such hardship is or may be relieved (i) through
reimbursement or compensation by insurance or otherwise, (ii) by
liquidation of the participant's
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<PAGE>
assets, to the extent the liquidation of such assets would not itself
cause severe financial hardship, or (iii) by cessation of deferrals
under the Plan.
The request for hardship withdrawal shall be made by notification in
the form and manner established by the Plan Administrator from time to
time. Such hardship withdrawal will be permitted only with approval of
the Plan Administrator. The participant will receive a lump sum payment
after the Plan Administrator has had reasonable time to consider and
then approve the request.
14. Miscellaneous. A participant's Plan Accounts shall not be subject to
alienation or assignment by any participant or beneficiary nor shall
any of them be subject to attachment or garnishment or other legal
process except (i) to the extent specially mandated and directed by
applicable State or Federal statute; and (ii) as requested by the
participant or beneficiary to satisfy income tax withholding or
liability.
This Plan may be amended from time to time or suspended or terminated
at any time. All amendments to this Plan which would increase or
decrease the compensation of any senior management officer or key
employee of CEG, either directly or indirectly, must be approved by the
Board of Directors. All other permissible amendments may be made at the
written direction of the Committee. No amendment to or termination of
this Plan shall prejudice the rights of any participant or beneficiary
entitled to receive payment hereunder at the time of such action.
Participation in this Plan shall not constitute a contract of
employment between CEG and any person and shall not be deemed to be
consideration for, or a condition of, continued employment of any
person.
The Plan, notwithstanding the creation of the Rabbi Trust, is intended
to be unfunded for purposes of Title I of the Employee Retirement
Income Security Act of 1974. CEG shall make contributions to the Rabbi
Trust in accordance with the terms of the Rabbi Trust. Any funds which
may be invested and any assets which may be held to provide benefits
under this Plan shall continue for all purposes to be a part of the
general funds and
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<PAGE>
assets of CEG and no person other than CEG shall by virtue of the
provisions of this Plan have any interest in such funds and assets. To
the extent that any person acquires a right to receive payments from
CEG under this Plan, such rights shall be no greater than the right of
any unsecured general creditor of CEG.
This Plan shall be governed in all respects by Maryland law.
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Exhibit 10(e)
Grantor Trust Agreement
Dated as of APRIL 30, 1999
between
Constellation Energy Group, Inc.
and
T. Rowe Price Trust Company
This Agreement made this 30th day of April, 1999, by and between
Constellation Energy Group, Inc., a Maryland Corporation, or its successor
("CEG") and T. Rowe Price Trust Company ("Trustee");
WITNESSETH THAT:
WHEREAS, effective with the April 30, 1999 share exchange between CEG
and the common stockholders of Baltimore Gas and Electric Company ("BGE"), BGE
transferred to CEG the former BGE Nonqualified Deferred Compensation Plan and
BGE's rights and obligations under the Grantor Trust Agreement dated as of June
1, 1996, between BGE and T. Rowe Price Trust Company.
WHEREAS, CEG has adopted the Constellation Energy Group, Inc.
Nonqualified Deferred Compensation Plan (formerly the Baltimore Gas and Electric
Company Nonqualified Deferred Compensation Plan) ("Plan");
WHEREAS, CEG has incurred or expects to incur liability under the terms
of such Plan with respect to the individuals participating in such Plan;
WHEREAS, CEG wishes to establish a trust ("Trust") and to contribute to
the Trust assets that shall be held therein, subject to the claims of CEG's
creditors in the event of CEG's Insolvency, as defined in Section 3(a) hereof,
until paid to Plan participants and their beneficiaries in such manner and at
such times as specified in the Plan;
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the Plan
as an unfunded plan maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
for purposes of Title I of the Employee Retirement Income Security Act of 1974;
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<PAGE>
WHEREAS, it is the intention of CEG to make contributions to the Trust
to provide a source of funds to assist it in the meeting of its liabilities
under the Plan; and
NOW, THEREFORE, the parties do hereby establish the Trust and agree
that the Trust shall be comprised, held and disposed of as follows:
Section 1. Establishment of Trust.
(a) CEG hereby adopts and establishes with Trustee the Trust consisting
of such sums of cash (the "principal") that currently constitute the Trust and
as from time to time shall be paid to Trustee to be held, administered, and
disposed of by Trustee as provided in this Trust Agreement. The principal of the
Trust and any earnings thereon (the "Trust Assets") shall be held by Trustee and
shall be dealt with in accordance with the provisions of this Trust Agreement
until all payments required by this Trust Agreement have been made.
(b) The Trust hereby established shall be irrevocable.
(c) The Trust is intended to be a grantor trust, of which CEG is the
grantor, within the meaning of subpart E, part I, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
(d) The Trust Assets shall be held separate and apart from other funds
of CEG and shall be used exclusively for the uses and purposes of Plan
participants and general creditors as herein set forth. Plan participants and
their beneficiaries shall have no preferred claim on, or any beneficial
ownership interest in, any Trust Assets. Any rights created under the Plan and
this Trust Agreement shall be mere unsecured contractual rights of Plan
participants and their beneficiaries against CEG. Any Trust Assets will be
subject to the claims of CEG's general creditors under federal and state law in
the event of Insolvency, as defined in Section 3(a) herein.
(e) As soon as practicable, but no later than the last business day,
which for purposes of this Trust Agreement shall be defined as any day the New
York Stock Exchange is open for business ("Business Day"), of the month
following the month in which a payment of compensation subject to a deferral
election under the Plan would otherwise have been paid, CEG shall be required to
irrevocably contribute cash to the Trust in an amount equal to such Deferred
Compensation, plus any Matching Contributions related thereto, to the extent the
Plan requires such funding. Trustee shall have no obligation to compute or
compel such contribution(s).
(f) The Board of Directors of CEG may at any time by resolution amend
the contribution requirements of Section 1(e) hereof such that CEG will not be
required to make additional contributions of cash to the Trust or will be
required to make only a stated percentage of the contributions otherwise
required under Section 1(e) hereof. If Section 1(e) is so amended, contributions
of cash to the Trust over and above the amounts required under Section 1(e) if
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<PAGE>
amended, will be in the sole discretion of CEG pursuant to Section 1(g) hereof.
Trustee shall have no obligation to compute or compel such contribution(s).
(g) CEG, in its sole discretion, may at any time or from time to time,
make additional deposits of cash in trust with Trustee to augment the Trust
Assets to be held, administered and disposed of by Trustee as provided in this
Trust Agreement. Neither Trustee nor any Plan participant or beneficiary shall
have any right or obligation to compel such additional deposits.
Section 2. Payments to Plan Participants and Their Beneficiaries.
(a) CEG shall deliver or cause to be delivered to Trustee a schedule
(the "Payment Schedule") that indicates the amounts payable in respect of each
Plan participant (or his or her beneficiaries), that provides a formula or other
instructions acceptable to Trustee for determining the amounts so payable, the
form in which such amount is to be paid (as provided for or available under the
Plan), and the time of commencement for payment of such amounts. Except as
otherwise provided herein, Trustee shall make payments to the Plan participants
and their beneficiaries in accordance with such Payment Schedule. If so
instructed by CEG, the Trustee shall withhold federal and state taxes from each
payment under this agreement at the rate(s) designated by CEG and shall report
and pay such amounts to the appropriate federal and state taxing authorities.
(b) The entitlement of a Plan participant or his or her beneficiaries
to benefits under the Plan shall be determined by CEG or such party as it shall
designate under the Plan and any claim for such benefits shall be considered and
reviewed under the procedures set out in the Plan. Trustee shall have no right
or duty to inquire into CEG's decisions with respect to entitlement to benefits.
(c) CEG may make payment of benefits directly to Plan participants or
their beneficiaries as they become due under the terms of the Plan. CEG shall
notify Trustee in writing of its decision to make payment of benefits directly
prior to the time amounts are payable to participants or their beneficiaries.
CEG shall provide to the Trustee documentation substantiating that such payments
were made under the terms of the Plan. If such documentation is not provided,
Trustee shall make such payments in accordance with the Payment Schedule
directly to Plan participants and their beneficiaries. In addition, if the Trust
Assets, are not sufficient to make such payments of benefits in accordance with
the terms of the Plan, CEG shall make the balance of each such payment as it
falls due. Trustee shall notify CEG where Trust Assets are not sufficient to
make benefit payments, however, Trustee shall have no duty to require any
contributions to be made, or to determine that any of the contributions received
comply with the conditions and limitations of the Plan.
(d) In the event there is a final judicial determination or a final
determination by the Internal Revenue Service that the Plan participants or
their beneficiaries are subject to any tax with respect to any amounts held
under the terms of the Trust, then Trustee solely at the direction of CEG shall
make payments from the Trust to such Plan participants or their beneficiaries in
such amounts as set forth in such final determination for the purpose of paying
all applicable
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<PAGE>
taxes and interest and any penalties thereon which such Plan participants or
their beneficiaries incur arising out of such determination. CEG's decision as
to whether a final determination has occurred shall be binding and conclusive on
all Plan participants and their beneficiaries.
Section 3. Trustee Responsibility Regarding Payments to Trust
Beneficiary When CEG is Insolvent.
(a) Upon receipt of notification issued in accordance with Section
3(b)(1) hereof, Trustee shall cease payment of benefits to Plan participants and
their beneficiaries if CEG is Insolvent. CEG shall be considered "Insolvent" for
purposes of this Trust Agreement if (1) CEG makes a voluntary filing under the
United States Bankruptcy Code, or (2) CEG is subject to a pending proceeding as
a debtor under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided in
Section 1(d) hereof, the Trust Assets shall be subject to claims of general
creditors of CEG under federal and state law as set forth below.
(1) The Board of Directors of CEG and the Chief Executive
Officer of CEG shall have the duty to inform Trustee in writing of CEG's
Insolvency. When so informed or when the Trustee is in receipt of a copy of a
bankruptcy petition relating to CEG or a court order determining CEG to be
Insolvent, Trustee shall discontinue payment of benefits to Plan participants or
their beneficiaries.
(2) Unless Trustee has received written notification in
accordance with Section 3(b)(1) of this Trust Agreement, Trustee may in all
events rely on such evidence concerning CEG's solvency as may be furnished by
CEG to Trustee.
(3) If at any time Trustee has received written notification
in accordance with Section 3(b)(1), Trustee shall discontinue payments to Plan
participants or their beneficiaries and shall hold the Trust Assets for the
benefit of CEG's general creditors. Nothing in this Trust Agreement shall in any
way diminish any rights of Plan participants or their beneficiaries to pursue
their rights as general creditors of CEG with respect to benefits due under the
Plan or otherwise.
(4) Trustee shall resume the payment of benefits to Plan
participants or their beneficiaries in accordance with Section 2 of this Trust
Agreement only after Trustee has received a copy of a court order determining
CEG to be no longer Insolvent or evidencing that such bankruptcy proceeding is
dismissed in connection with any notification made in accordance with Section
3(b)(1)
(c) Provided that there are sufficient assets, if Trustee discontinues
the payment of benefits from the Trust pursuant to Section 3(b) hereof and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to Plan
participants or their beneficiaries under the terms of the Plan for the period
of such
4
<PAGE>
discontinuance, less the aggregate amount of any payments made to Plan
participants or their beneficiaries by CEG in lieu of the payments provided for
hereunder during any period of discontinuance.
Section 4. Payments to CEG.
(a) Except as provided in Section 3 and Section 4(b) hereof, CEG shall
have no right or power to direct Trustee to return to CEG or to divert to others
any of the Trust Assets before all payment of benefits have been made to Plan
participants and their beneficiaries pursuant to the terms of the Plan and of
this Trust Agreement.
(b) In the event (1) CEG makes payment of benefits directly to Plan
participants or their beneficiaries in accordance with Section 2(c) hereof, or
(2) if for any other reason Trust Assets exceed the market value of the
aggregate balances of Plan participant accounts, then CEG may in its sole
discretion, direct Trustee in writing to distribute the amount of such payment
or excess, in whole or in part, to CEG provided such distribution does not
contravene any provision of law.
(c) Notwithstanding Section 4(b)(2) hereof, CEG may not direct Trustee
to distribute such excess Trust Assets for 2 years from the date a Change of
Control is deemed to occur under Section 13(e) hereof except to reimburse CEG
for any payment it makes directly to participants in accordance with Section
2(c) hereof.
Section 5. Investment Authority.
(a) In no event may Trustee invest in securities (including stock or
rights to acquire stock) or obligations issued by CEG, other than a de minimis
amount held in common investment vehicles in which Trustee invests. All rights
associated with assets of the Trust shall be exercised, solely upon the
direction of CEG, by Trustee or the person designated by Trustee and shall in no
event be exercisable by or rest with Plan participants and their beneficiaries.
(b) Trustee shall invest and reinvest the Trust Assets and keep the
Trust invested, without distinction between principal and income, in such
investments as directed in writing by CEG or its designee, which instruction may
be modified from time to time by CEG or its designee. Trustee shall have no duty
to question any action or direction of CEG or its designee or any failure to
give directions, or to make any suggestion to CEG as to the investment,
reinvestment, disposition or distribution of, such assets.
(c) CEG shall have the right, at anytime, and from time to time in its
sole discretion, and with Trustee's approval, to substitute assets of equal fair
market value for any asset held by the Trust.
Section 6. Disposition of Income.
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<PAGE>
During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested, until otherwise
required for disbursement under the terms of this Trust Agreement.
Section 7. Accounting by Trustee.
(a) Trustee shall keep accurate, and detailed records of all
investments, receipts, disbursements and all other transactions required to be
made, including such specific records as shall be agreed upon in writing between
CEG and Trustee. Within 60 days following the close of each calendar year and
within 60 days after the removal or resignation of Trustee, Trustee shall
deliver to CEG a written account of its administration of the Trust during such
year or during the period from the close of the last preceding year to the date
of such removal or resignation, setting forth all investments, receipts,
disbursements and other transactions effected by it, including a description of
all securities and investments purchased and sold with the cost or net proceeds
of such purchases or sales (accrued interest paid or receivables being shown
separately), and showing all cash, cost and market value of all securities and
other property held in the Trust at the end of such year or as of the date of
such removal or resignation, as the case may be.
(b) CEG shall prepare and file such tax returns and other reports as
may be required for the Trust, with any taxing authority or any other government
authority except for IRS Form 1041 which shall be prepared and filed by the
Trustee.
Section 8. Responsibility of Trustee.
(a) Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, provided, however, that
Trustee shall incur no liability, costs or expense to any person, for any action
taken pursuant to a direction, request or approval given by CEG which is
contemplated by, and in conformity with, the terms of this Trust Agreement and
is given in writing by CEG. Trustee shall also be reimbursed by CEG for
reasonable expenses or fees incurred in connection with governmental or
regulatory inquiries related to this Trust.
(b) If Trustee undertakes or defends any litigation arising in
connection with this Trust, unless such litigation results in a determination
that Trustee breached its duties undertaken pursuant to this Trust Agreement,
CEG agrees to indemnify Trustee against Trustee's reasonable costs, expenses and
liabilities (including, without limitation, reasonable attorneys' fees and
expenses) relating thereto and to be primarily liable for such payments. If CEG
does not pay such costs, expenses and liabilities in a reasonably timely manner,
Trustee may obtain payment from the Trust.
(c) Trustee may consult with legal counsel (who may also be counsel for
CEG generally) with respect to any of its duties or obligations hereunder. In
the event that Trustee
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<PAGE>
anticipates charging legal fees to the Trust, Trustee must obtain CEG's prior
written consent for such legal counsel, which consent will not be unreasonably
withheld.
(d) Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder. In the event that Trustee
anticipates charging fees for such services to the Trust, Trustee must obtain
CEG's prior written consent for such legal counsel, which consent will not be
unreasonably withheld.
(e) Notwithstanding any powers granted to Trustee pursuant to this
Trust Agreement or to applicable law, Trustee shall not have any power that
could give this Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.
Section 9. Compensation and Expenses of Trustee.
CEG shall pay all reasonable administrative and Trustee's fees and
expenses. If not so paid, the fees and expenses shall be paid from the Trust.
Section 10. Resignation and Removal of Trustee.
(a) Trustee may resign at any time by written notice to CEG, which
shall be effective 30 days after receipt of such notice unless CEG and Trustee
agree otherwise.
(b) Except as provided in Section 10(c), Trustee may be removed by CEG
on 30 days written notice unless CEG and Trustee agree otherwise.
(c) Upon written notification by CEG that a Change of Control, as
defined in Section 13(e) hereof has occurred, Trustee may not be removed by CEG
for 2 years from the date a Change of Control is deemed to occur under Section
13(e) hereof.
(d) If Trustee resigns within 2 years after a Change of Control, as
defined herein, CEG shall apply to a court of competent jurisdiction for the
appointment of successor Trustee or for instructions.
(e) Upon resignation or removal of Trustee and appointment of a
successor Trustee, all Trust Assets shall subsequently be transferred to the
successor Trustee. The transfer shall be completed at the later of (1) 30 days
after receipt of notice of resignation or removal of Trustee or (2) appointment
of successor Trustee.
(f) If Trustee resigns or is removed, a successor shall be appointed,
in accordance with Section 11 hereof, by the effective date of resignation or
removal under paragraphs (a) or (b) of this
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<PAGE>
section. If no such appointment has been made, Trustee may apply to a court of
competent jurisdiction for appointment of a successor or for instructions. All
reasonable expenses of Trustee in connection with the proceeding shall be
allowed as administrative expenses of the Trust.
Section 11. Appointment of Successor.
(a) If Trustee resigns or is removed in accordance with Section 10(a)
or (b) hereof, CEG may appoint any third party, such as a bank trust department
or other party that may be granted corporate trustee powers under state law, as
a successor to replace Trustee upon resignation or removal. The appointment
shall be effective when accepted in writing by the successor Trustee, who shall
have all of the rights and powers of the former Trustee, including ownership
rights in the Trust Assets. The former Trustee shall execute any instrument
necessary or reasonably requested by CEG or the successor Trustee (in which case
former Trustee shall have received a copy of successor Trustee's acceptance) to
evidence the transfer of the Trust Assets.
(b) If Trustee resigns pursuant to the provisions of Section 10(d)
hereof, the appointment of a successor Trustee shall be effective when accepted
in writing by the successor Trustee. The successor Trustee shall have all the
rights and powers of the former Trustee, including ownership rights in Trust
Assets. The former Trustee shall execute any instrument necessary or reasonably
requested by the successor Trustee to evidence the transfer of the Trust Assets.
(c) The successor Trustee need not examine the records and acts of any
prior Trustee and may retain or dispose of existing Trust Assets, subject to
Sections 7 and 8 hereof. The successor Trustee shall not be responsible for and
CEG shall indemnify and defend the successor Trustee from any claim or liability
resulting from any action or inaction of any prior Trustee or from any other
past event, or any condition existing at the time it becomes successor Trustee.
(d) In the event of such removal or resignation, Trustee shall duly
file with CEG a written account as provided in Section 7(a) hereof.
Section 12. Amendment or Termination.
(a) Except as provided in Section 12(d), this Trust Agreement may be
amended by a written instrument executed by Trustee and CEG. Notwithstanding the
foregoing, no such amendment shall conflict with the terms of the Plan or shall
make the Trust revocable.
(b) The Trust shall not terminate until the date on which Plan
participants and their beneficiaries are no longer entitled to benefits pursuant
to the terms of the Plan or have received payment of all benefits to which they
are entitled under the terms of this Trust Agreement. Upon termination of the
Trust any assets remaining in the Trust shall be returned to CEG.
(c) Upon written approval of all Plan participants or beneficiaries
entitled to payment of benefits pursuant to the terms of the Plan and this Trust
Agreement, CEG may terminate this Trust
8
<PAGE>
prior to the time all benefit payments under the Plan and this Trust Agreement
have been made. All Trust Assets at termination shall be returned to CEG.
(d) This Trust Agreement may not be amended by CEG for 2 years
following a Change of Control, unless CEG determines that such amendment does
not adversely affect the rights of the Plan participants and their beneficiaries
entitled to payment of benefits pursuant to terms of the Plan on the date a
Change of Control is deemed to occur.
Section 13. Miscellaneous.
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to Plan participants and their beneficiaries under
this Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subjected to attachment, garnishment,
levy, execution or other legal or equitable process, and any attempt to so
alienate, sell, transfer, assign, pledge, attach, charge or otherwise encumber
any such amount, whether presently or thereafter payable, shall be void. The
Trust shall be in no manner liable for or subject to the debts or liabilities of
any participant.
(c) This Trust Agreement shall be governed by and construed in
accordance with the laws of the State of Maryland and applicable federal law.
(d) All words beginning with an initial capital letter and not
otherwise defined herein shall have the meaning set forth in the Plan. All
singular terms defined in this Trust will include the plural and vice versa.
(e) For a Change of control to be effective with respect to this Trust
Agreement, CEG must issue written notification of Change of Control to Trustee.
Trustee has no obligation to make any independent determination or verification
that a Change of Control has occurred. For purposes of this Trust Agreement,
Change of Control shall mean (a) the purchase or acquisition by any person,
entity or group of persons (within the meaning of section 13(d) or 14(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"), or any comparable
successor provisions) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20 percent or more of either the
outstanding shares of common stock of CEG or the combined voting power of CEG's
then outstanding shares of voting securities entitled to a vote generally, or
(b) the consummation of, following the approval by the stockholders of CEG of a
reorganization, merger, or consolidation of CEG, in each case, with respect to
which persons who were stockholders of CEG immediately prior to such
reorganization, merger, or consolidation do not, immediately thereafter, own
more than 50 percent of the combined voting power entitled to vote generally in
the election of directors of the reorganized, merged or consolidated entity's
then outstanding securities, or (c) a liquidation or dissolution of CEG or the
sale of substantially all of its assets, or (d) a change of more than one-half
of the members of the Board of Directors of
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<PAGE>
CEG within a 90-day period for reasons other than death, disability, or
retirement of such members.
(f) CEG shall certify to Trustee the name or names of any person or
persons authorized to act for CEG under this Trust Agreement. Such certification
shall be signed by a Vice President of CEG. Until CEG notifies Trustee, in a
similarly signed notice or certification, that any such person is no longer
authorized to act for CEG, Trustee may continue to rely upon the authority of
such person.
Trustee may rely upon any certificate, schedule, notice or direction of
CEG which Trustee in good faith believes to be genuine, executed and delivered
by a duly authorized officer or agent of CEG.
Communications to Trustee shall be sent in writing to Trustee at the
address specified in Section 13(h) hereof or to such other address as the
Trustee may specify in writing. No communication shall be binding upon the Trust
or Trustee until it is received by Trustee and unless it is in writing and
signed by an authorized person.
Communications to CEG shall be sent in writing to CEG's principal
offices at the address specified in Section 13(h) hereof or to such other
address as CEG may specify in writing. No communication shall be binding upon
CEG until it is received by CEG and unless it is in writing and signed by
Trustee.
(g) In the event of any conflict between the provisions of the Plan
document and this Trust Agreement, the provisions of this Trust Agreement shall
prevail. This Trust Agreement sets forth the entire understanding of the parties
with respect to the subject matter hereof and supersedes any and all prior
agreements, arrangements and understandings relating thereto.
(h) Any notice, report, demand, waiver or communication required or
permitted hereunder shall be in writing and shall be given personally or by
prepaid registered or certified mail, return receipt requested, addressed as
follows:
If to CEG:
Constellation Energy Group, Inc.
250 West Pratt Street 24th Floor
Baltimore, MD 21201
Attention:
Elaine W. Johnston
Manager - Corporate and Enterprises Human Resources
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<PAGE>
If to Trustee:
T. Rowe Price Trust Company
4555 Painters Mill Road
Owings Mills, MD 21117
Attention: CEG Client Manager
If to a participant or beneficiary:
To the address shown on the most recent Payment Schedule provided by
CEG to Trustee.
(i) In the event of insufficiency of Trust assets and to the extent CEG
does not make payments directly to Plan participants or their beneficiaries, as
provided in Section 2(c) hereof, or if CEG as provided in Section 1(f) hereof
fails to contribute cash to the Trust to restore such insufficiency, such
insufficiency shall be allocated by the record keeper among all Plan Accounts
subject to funding on a proportionate basis according to the market value of the
Plan Account subject to funding. Trustee shall have no obligation to determine
or calculate such insufficiency, the amount of timing of any additional funding
or the allocation of any insufficiency among Plan Accounts.
Section 14. Effective Date.
The effective date of this Trust Agreement shall be April 30, 1999.
IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement
to be executed by their respective officers thereunto duly authorized as of the
Effective Date indicated above.
WITNESS: T. ROWE PRICE TRUST COMPANY
___________________________ By:_________________________________(Seal)
Name:
Title:
WITNESS: CONSTELLATION ENERGY GROUP, INC.
___________________________ By:__________________________________(Seal)
Name: Linda D. Miller
Title: Vice President, Human Resources
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<PAGE>
Exhibit 10(f)
CONSTELLATION ENERGY GROUP, INC.
EXECUTIVE BENEFITS PLAN
Effective April 30, 1999
<PAGE>
TABLE OF CONTENTS
Page No.
1. Objective 1
2. Definitions 1
3. Plan Administration 3
4. Eligibility 3
5. Supplemental Pension Benefit 4
(a) Retirement benefits 4
(i) Eligibility for retirement benefits 4
(ii) Computation of retirement benefits 4
(iii) Form of payout of retirement benefits 5
(iv) Amount, timing, and source of monthly
retirement benefit payout 5
(v) Amount, timing, and source of lump sum
retirement benefit payout 6
(vi) Death of participant entitled to lump
sum payout 6
(vii) Health and dental benefits 7
(b) Accrued benefit 7
(i) Computation of gross accrued benefit 7
(ii) Computation of net accrued benefit 8
(c) Entitlement to benefit upon happening of
certain events 8
(i) Satisfaction of requirements 8
(ii) Other events 8
(1) Change in control 8
(2) Plan amendment 9
(3) Involuntary Demotion, Termination
From Employment With CEG, or
eligibility withdrawal without
Cause 10
(iii) Form of benefit payout 10
(iv) Amount, timing and source of benefit
payout 10
(v) Death of participant entitled to lump
sum payout 11
<PAGE>
(d) Other benefits 12
(i) Eligibility for other benefits 12
(ii) Computation of other benefits 12
(iii) Form of payout of other benefits 13
(iv) Amount, timing, and source of monthly
other benefit payout 13
6. Supplemental Long-Term Disability Benefit 13
(i) Eligibility for disability benefits 13
(ii) Computation of disability benefits 13
(iii) Form of payment of disability benefits 14
(iv) Amount, timing, and source of monthly
disability benefit payout 14
(v) Bonus 14
7. Supplemental Survivor Annuity Benefit 14
(a) Survivor annuity benefit 14
(i) Eligibility for survivor annuity benefit16
(ii) Computation of survivor annuity benefit 15
(iii) Form of payout of survivor annuity
benefits 16
(iv) Amount, timing, and source of monthly 16
survivor annuity benefit payout
(b) Other survivor benefit 17
(i) Eligibility for other survivor benefit 17
(ii) Computation of other survivor benefit 17
(iii) Form of payout of other survivor
benefit 17
(iv) Amount, timing, and source of monthly
other survivor benefit payout 18
8. Death Benefit 18
9. Dependent Death Benefit 18
10. Sickness Benefit 19
11. Vacation Benefit 19
12. Planning Benefit 19
13. Miscellaneous 20
<PAGE>
CONSTELLATION ENERGY GROUP, INC.
EXECUTIVE BENEFITS PLAN
1. Objective. The objective of this Plan is to enhance the benefits
provided to officers and key employees of CEG and its subsidiaries in
order to attract and retain talented executive personnel.
2. Definitions. All words beginning with an initial capital letter and not
otherwise defined herein shall have the meaning set forth in the
Pension Plan. All singular terms defined in this Plan will include the
plural and vice versa. As used herein, the following terms will have
the meaning specified below:
"Annual Base Salary" means an amount determined by adding the monthly
base rate of pay amounts (i.e., the types of such pay that are
includable in the computation of Pension Plan benefits)earned over the
twelve calendar months immediately preceding the month that includes
the date of the computation.
"Average Incentive Award" (or "Average Award") means generally the
product of the percentage equal to an average of the two highest of the
participant's five immediately prior year award percentages earned
under CEG's Executive Annual Incentive Plan, CEG's Manager Annual
Incentive Plan and/or the Results Incentive Awards Program multiplied
by the participant's annualized base rate of pay amount (i.e., the
types of such pay that are includable in the computation of Pension
Plan benefits) in effect at the end of the prior year.
"Cause" means the participant's (a) failure to comply with CEG policy,
(b) deliberate and continual refusal to satisfactorily perform
employment duties on substantially a full-time basis, (c) deliberate
and continual refusal to act in accordance with any specific
instructions of a majority of CEG's Board of Directors, (d) disclosure,
without the consent of a majority of CEG's Board of Directors, of
confidential information or trade secrets concerning CEG which could be
materially damaging to CEG, or (e) deliberate misconduct which could be
materially damaging to CEG without
1
<PAGE>
reasonable good faith belief by the participant that such conduct was
in the best interest of CEG.
"Committee" means the Committee on Management of the Board of Directors
of CEG.
"CEG" means Constellation Energy Group, Inc., a Maryland corporation,
or its successor.
"CEG's Executive Annual Incentive Plan" means such plan or other
incentive plan or arrangement designated in writing by the Plan
Administrator.
"CEG's Manager Annual Incentive Plan" means such plan or other
incentive plan or arrangement designated in writing by the Plan
Administrator.
"Demotion" means a transfer to a position with CEG or a subsidiary of
CEG that either (a) is below the substantially equivalent position in
which the participant was employed on the date of transfer, or (b)
results in a substantial reduction in pay when compared to the
participant's pay on the date of the transfer. Whether a position is a
substantially equivalent position shall be determined in the reasonable
discretion of the Committee, with reference to factors including
whether the participant retains principal responsibility for a
department or division, and whether the participant remains eligible
for the perquisites enjoyed by the participant before the position
change.
"Income Replacement Percentage" means the percentage under the LTD Plan
that is used to calculate the participant's actual LTD Plan benefit.
"Interest Rate" means the rate equal to 3.5% plus 65% of yield on the
Lehman Brothers Government/Corporate Bond Index.
"LTD Plan" means the Constellation Energy Group, Inc. Disability
Insurance Plan as may be amended from time to time, or any successor
plan.
"Mortality Table" means the mortality table used to value liabilities
for Pension Plan funding purposes.
2
<PAGE>
"Pension Plan" means the Pension Plan of Constellation Energy Group,
Inc. as may be amended from time to time, or any successor plan.
"Plan Administrator" means, as set forth in Section 3, the Committee.
"Rabbi Trust" means the trust adopted by CEG pursuant to the Grantor
Trust Agreement Dated as of April 30, 1999, between CEG and Citibank,
N.A.
"Results Incentive Awards Program" means the program applicable to
certain employees that provides awards; but includes only the types of
awards that are includable in the computation of Pension Plan benefits.
"Termination From Employment With CEG" means a participant's separation
from service with CEG or a subsidiary of CEG; however, a participant's
retirement, disability, or transfer of employment to or from a
subsidiary of CEG shall not constitute a Termination From Employment
With CEG.
3. Plan Administration. The Committee is the Plan Administrator and has
sole authority (except as specified otherwise herein) to interpret the
Plan and, in general, to make all other determinations advisable for
the administration of the Plan to achieve its stated objective. Appeals
of written decisions by the Plan Administrator may be made to the Board
of Directors of CEG. Decisions by the Board shall be final and not
subject to further appeal. The Plan Administrator shall have the power
to delegate all or any part of its duties to one or more designees, and
to withdraw such authority, by written designation.
4. Eligibility. Each officer or key employee of CEG or its subsidiaries
may be designated in writing by the Plan Administrator as a participant
with respect to one or more benefits under the Plan. Once designated,
participation shall continue until such designation is withdrawn at the
discretion and by written order of the Plan Administrator, provided,
however, that such withdrawal may not be made for benefits provided
pursuant to Sections 5 and 7 with respect to a participant who has
satisfied the eligibility requirements to retire (as set forth in
Section 5(a)(i)). Notwithstanding the foregoing, any participant who is
disabled under the LTD Plan shall continue to participate in this Plan
while classified as disabled and, for purposes of the supplemental
pension benefit provided by this Plan,
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<PAGE>
while classified as disabled, shall be deemed to continue to accrue
Credited Service until no later than his/her Normal Retirement Date.
5. Supplemental Pension Benefit.
(a) Retirement benefits.
(i) Eligibility for retirement benefits. A participant
shall be eligible to retire under this Plan on or
after the participant's Normal Retirement Date, or on
the first day of any month preceding his/her Normal
Retirement Date, if the participant has attained (1)
age 55 and has accumulated at least 20 years of
Credited Service; or (2) age 60 and has accumulated
at least one year of Credited Service.
(ii) Computation of retirement benefits. A participant who
is eligible to retire under this Plan will be
entitled to supplemental pension retirement benefits
under this Plan, which will be calculated as set
forth below on the participant's Retirement Date:
(1) add the Annual Base Salary and the Average
Incentive Award,
(2) divide the sum by 12,
(3) multiply this dollar amount by the
appropriate percentage, determined as
follows: Chairman of the Board and President
of CEG, and President of Constellation
Enterprises, Inc. - 60%; all other
participants (by completed years of Credited
Service) 1 through 9 - 3% per year; 10
through 19 - 40%; 20 through 24 - 45%; 25
through 29 - 50%; and 30 or more - 55%,
(4) multiply this dollar amount by the Early
Retirement Adjustment Factor set forth under
the Pension Plan; provided, however, if the
participant is age 62 or older and is an
officer or key employee of CEG or its
subsidiaries, other than the Chairman of the
Board and President of CEG or the President
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<PAGE>
of Constellation Enterprises, Inc., such
factor shall be one (1),
(5) subtract from this dollar amount the charges
relating to coverage for a preretirement
survivor annuity in excess of 50%, and for a
post-retirement survivor annuity in excess
of 50%, and
(6) subtract from the remainder the net amount
payable to the participant under the Pension
Plan.
(iii) Form of payout of retirement benefits. Each
participant entitled to supplemental pension
retirement benefits will receive his/her supplemental
pension retirement benefits payout in the form of a
monthly payment, unless the participant makes a valid
election to receive his/her supplemental pension
retirement benefits payout in the form of a lump sum.
A participant may elect to receive his/her
supplemental pension retirement benefits payout in
the form of a lump sum by submitting to the Plan
Administrator a signed Lump Sum Election Form. The
Form must be received by the Plan Administrator
before the beginning of the calendar year during
which the participant's Retirement Date occurs. The
election may be revoked at any time before the
beginning of the calendar year during which the
participant's Retirement Date occurs, by submitting
to the Plan Administrator a signed Lump Sum
Revocation Form.
(iv) Amount, timing, and source of monthly retirement
benefit payout. A participant entitled to monthly
supplemental pension retirement benefits will receive
monthly payments equal to the amount determined under
paragraph (a)(ii). Such payments shall commence
effective with the participant's Retirement Date. If
such participant receives (or would have received but
for the Internal Revenue Code limitations) cost of
living adjustment(s) under the Pension Plan, the
monthly payments hereunder will be automatically
increased based on the percentage of, and at the same
time as, such adjustment(s). Monthly payments
hereunder shall
5
<PAGE>
permanently cease upon the death of the participant,
effective with the monthly payment for the month
following the month of the participant's death.
Monthly payments hereunder shall be made in
accordance with the provisions of the Rabbi Trust
and, to the extent not paid under the terms of the
Rabbi Trust, from general corporate assets.
(v) Amount, timing, and source of lump sum retirement
benefit payout. A participant entitled to a lump sum
supplemental pension retirement benefit will receive
a lump sum payment. This lump sum payment will be
calculated by a certified actuary and will be equal
to the present value of an immediate annuity
including the estimated present value of
post-retirement supplemental survivor annuity
benefits described in Section 7, using (1) the
supplemental pension retirement benefit amount
calculated under paragraph (a)(ii), which is
expressed as a monthly amount, (2) the Interest Rate
computed on the participant's Retirement Date, and
(3) the Mortality Table. Such lump sum payment shall
be made within 60 days after the participant's
Retirement Date. The lump sum payment shall be made
in accordance with the provisions of the Rabbi Trust
and, to the extent not paid under the terms of the
Rabbi Trust, from general corporate assets. A
participant who receives a lump sum payment shall not
be entitled to any cost of living adjustments or to
post-retirement survivor annuity coverage under the
Plan.
(vi) Death of participant entitled to lump sum payout. In
the event of the death of a participant after his/her
Retirement Date and before the participant receives
the lump sum payment under paragraph (a)(v), such
lump sum payment shall be made to the participant's
surviving spouse (as defined in Section 7(i)). The
lump sum payment shall be the same amount and made at
the same time and from the same sources as set forth
in paragraph (a)(v). If there is no surviving spouse
at the date of the participant's death, no payments
shall be made pursuant to Sections 5 or 7. A
surviving spouse who receives a lump sum benefit
under this paragraph (a)(vi) shall not be entitled to
any
6
<PAGE>
cost of living adjustments or to post-retirement
survivor annuity coverage under the Plan.
(vii) Health and dental benefits. A participant who
receives supplemental pension retirement benefits
under this Plan, but who is not eligible for benefits
under the CEG Retiree Flexible Benefits Program, is
entitled to health and dental benefits under this
Plan that in the sole discretion of the Plan
Administrator, are reasonably similar to health and
dental benefits provided for participants under the
CEG Retiree Flexible Benefits Program, taking into
account employer cost, age and service.
(b) Accrued benefit.
(i) Computation of gross accrued benefit. The computation
of the gross accrued supplemental pension benefit for
a participant as of the date of the computation will
be made as follows:
(1) add the Annual Base Salary and the Average
Incentive Award,
(2) divide the sum by 12, and
(3) multiply this dollar amount by the
appropriate percentage, determined as
follows: Chairman of the Board and President
of CEG and President of Constellation
Enterprises, Inc. - 60%; all other
participants (by completed years of Credited
Service as of the date of the computation) 1
through 9 - 3% per year; 10 through 19 -
40%; 20 through 24 - 45%; 25 through 29 -
50%; and 30 or more - 55%.
(ii) Computation of net accrued benefit. The computation
of the net accrued supplemental pension benefit for a
participant as of the date of the computation will be
made by subtracting from the gross accrued benefit
determined under paragraph (b)(i) the amount,
computed on the date a benefit is payable under
paragraph (c)(iv), of (1) the participant's Accrued
Gross Pension under the Pension Plan, expressed as a
monthly amount if
7
<PAGE>
the participant is not eligible for Normal
Retirement, Early Retirement or Disability Retirement
benefits under the Pension Plan, otherwise (2) the
gross amount payable to the participant under the
Pension Plan.
(c) Entitlement to benefit upon happening of certain events.
(i) Satisfaction of requirements. A participant who has
satisfied the age and Credited Service requirements
set forth in Section 5(a)(i) while eligible as set
forth in Section 4, but who does not retire under the
Plan due to Demotion, Termination From Employment
With CEG, or the withdrawal of a participant's
eligibility to participate under Section 5, shall be
entitled to his/her net accrued supplemental pension
benefit. The effective date of the Demotion,
Termination From Employment With CEG, or eligibility
withdrawal event shall be the date of such Demotion,
Termination From Employment With CEG, or eligibility
withdrawal.
(ii) Other events. A participant, regardless of his/her
age and years of Credited Service, shall be entitled
to his/her net accrued supplemental pension benefit
upon the happening of any of the following
entitlement events, but only if such entitlement
event occurs before a participant retires under this
Plan:
(1) Change in control. A change in control,
followed within two years by the
participant's Demotion, a participant's
Termination From Employment With CEG, or the
withdrawal of the participant's eligibility
to participate under the Plan, is an
entitlement event. The effective date of the
entitlement event shall be the date of the
Demotion, Termination From Employment With
CEG, or eligibility withdrawal.
A change in control for purposes of this
paragraph (c)(i)(1) shall mean (w) the
purchase or acquisition by any person,
entity or group of persons, (within the
meaning of
8
<PAGE>
section 13(d) or 14(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"),
or any comparable successor provisions), of
beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange
Act) of 20 percent or more of either the
outstanding shares of common stock of CEG or
the combined voting power of CEG's then
outstanding shares of voting securities
entitled to a vote generally, or (x) the
consummation of, following the approval by
the stockholders of CEG of a reorganization,
merger, or consolidation of CEG, in each
case, with respect to which persons who were
stockholders of CEG immediately prior to
such reorganization, merger or consolidation
do not, immediately thereafter, own more
than 50 percent of the combined voting power
entitled to vote generally in the election
of directors of the reorganized, merged or
consolidated entity's then outstanding
securities, or (y) a liquidation or
dissolution of CEG or the sale of
substantially all of its assets, or (z) a
change of more than one-half of the members
of the Board of Directors of CEG within a
90-day period for reasons other than the
death, disability, or retirement of such
members.
(2) Plan amendment. A Plan amendment that has
the effect of reducing a participant's gross
accrued supplemental pension benefit is an
entitlement event. In determining whether
such a reduction has occurred, the
participant's gross accrued supplemental
pension benefit calculated on the day
immediately preceding the effective date of
the amendment shall be compared to the
participant's gross accrued supplemental
pension benefit calculated on the effective
date of the amendment. An amendment that has
the effect of reducing future benefit
accruals is not an entitlement event. It is
intended that an entitlement event under
this paragraph (c)(i)(2) will occur only
with respect to those amendments that are
substantially similar to amendments that are
prohibited by Internal Revenue Code section
9
<PAGE>
411(d)(6) with respect to qualified pension
plans. The effective date of the entitlement
event shall be the effective date of the
Plan amendment.
(3) Involuntary Demotion, Termination From
Employment With CEG, or eligibility
withdrawal without Cause. A participant's
involuntary Demotion or involuntary
Termination From Employment With CEG without
Cause, or the withdrawal of a participant's
eligibility to participate under Sections 5
or 7 of the Plan without Cause, is an
entitlement event. The effective date of the
entitlement event shall be the effective
date of the participant's involuntary
Demotion or involuntary Termination From
Employment With CEG without Cause, or the
eligibility withdrawal without Cause.
(iii) Form of benefit payout. Each participant entitled to
a payout under this paragraph (c) will receive such
payout in the form of a lump sum payment.
(iv) Amount, timing, and source of benefit payout. A
participant entitled to a payout of his/her net
accrued benefit, as a result of the occurrence of an
event described in paragraphs (c)(i), (c)(ii)(1),
(2), or (3) will be entitled to a lump sum benefit.
This lump sum benefit will be calculated by a
certified actuary as the present value of an annuity
beginning at age 62 (unless the participant is the
Chairman of the Board or President of CEG, or the
President of Constellation Enterprises, Inc. in which
case age 65) (or the participant's actual age, if the
participant is older than age 62 (unless the
participant is the Chairman of the Board or President
of CEG, or the President of Constellation
Enterprises, Inc. in which case age 65) on the date
the lump sum benefit is payable), including the
estimated present value of post-retirement survivor
annuity benefits described in Section 7, using (1)
the net accrued benefit amount calculated under
paragraph (b)(ii) on the effective date of the event,
which is expressed as a monthly amount, (2) the Early
Retirement
10
<PAGE>
Adjustment Factor (using the method set forth in
(a)(ii)(4)) computed by substituting the date the
lump sum benefit is payable for the Retirement Date,
(3) the Interest Rate computed on the date the lump
sum benefit is payable, and (4) the Mortality Table.
The lump sum benefit shall be payable on the date
that is the later of the date of the participant's
Termination From Employment With CEG or the date the
participant reaches age 55. The lump sum payment
shall be made within 60 days after such date and
shall be made in accordance with the provisions of
the Rabbi Trust and, to the extent not paid under the
terms of the Rabbi Trust, from general corporate
assets. A participant who receives a lump sum benefit
under this paragraph (c)(iv) shall not be entitled to
any cost of living adjustments or to preretirement or
post-retirement survivor annuity coverage.
(v) Death of participant entitled to lump sum payout. In
the event of the death of a participant after the
occurrence of an event described in paragraphs
(c)(i), (c)(ii)(1), (2), or (3) and before the
participant receives the lump sum payment under
paragraph (c)(iv), such lump sum payment shall be
made to the participant's surviving spouse (as
defined in Section 7(i)). The lump sum payment will
be calculated by a certified actuary and will be
equal to 50% of the present value of an immediate
annuity using (1) the monthly amount under paragraph
(c)(iv), (2) the Early Retirement Adjustment Factor
computed using the participant's age at the date of
the participant's death, or if the participant was
younger than age 60 on the date of death, using age
60, (3) the Interest Rate computed on the date the
lump sum benefit is payable, and (4) the Mortality
Table. However, if the participant's death occurred
during the 60 day period described in paragraph
(c)(iv), 100% shall be used instead of 50% in the
preceding sentence. The lump sum benefit shall be
payable on the date that is the later of the date
that the participant would have reached age 55 or the
date of the participant's death. The lump sum payment
shall be made within 60 days after such date, and
shall be made in accordance with the provisions of
the Rabbi Trust and, to the extent not paid under the
terms of the Rabbi Trust, from general corporate
11
<PAGE>
assets. If there is no surviving spouse at the date
of the participant's death, no payments shall be made
pursuant to Sections 5 or 7. A surviving spouse who
receives a lump sum benefit under this paragraph (c)
(v) shall not be entitled to any cost of living
adjustments or to preretirement or post-retirement
survivor annuity coverage under the Plan.
(d) Other benefits.
(i) Eligibility for other benefits. Upon a participant's
Termination From Employment With CEG, if such
participant (1) does not satisfy the requirements of
Sections 5(a)(i), 5(c)(i), and/or 5(c)(ii), and (2)
is a vested participant under the Pension Plan, such
participant shall be entitled to the benefits in this
Section 5(d).
(ii) Computation of other benefits. A participant who is
eligible for other benefits will be entitled to
benefits under this Plan, which will be calculated as
set forth below on the date the participant begins
receipt of benefit payments under the Pension Plan:
(1) compute the participant's adjusted monthly
benefit payment under the terms of the
Pension Plan, by also treating awards, if
any, paid to the participant under CEG's
Executive Annual Incentive Plan and/or CEG's
Manager Annual Incentive Plan during the
immediately preceding twenty-four
consecutive months as bonuses and/or
incentives included in the computation of
the participant's Average Pay (as defined
under the Pension Plan), and
(2) subtract from the amount in (1) above the
participant's actual monthly benefit payment
under the Pension Plan.
For purposes of the computation in (1), the
participant will bear the cost of any
post-retirement survivor annuity coverage
provided under Section 7(b).
12
<PAGE>
(iii) Form of payout of other benefits. Each participant
entitled to other benefits will receive his/her other
benefits payout in the form of a monthly payment.
(iv) Amount, timing, and source of monthly other benefit
payout. A participant entitled to monthly other
benefits will receive monthly payments equal to the
amount determined under paragraph (d)(ii). Such
payments shall commence effective with the date the
participant commences receipt of benefit payments
under the Pension Plan. Monthly payments hereunder
shall permanently cease upon the death of the
participant, effective with the monthly payment for
the month following the month of the participant's
death. Monthly payments hereunder shall be made from
general corporate assets.
6. Supplemental Long-Term Disability Benefit.
(i) Eligibility for disability benefits. Any participant who has
completed at least one full calendar month of service with CEG
or its subsidiaries, who has elected coverage under the LTD
Plan, and who is disabled (as determined under the LTD Plan)
will be entitled to supplemental disability benefits under
this Plan.
(ii) Computation of disability benefits. The amount of such
supplemental disability benefits shall be determined as
follows:
(1) multiply the monthly base rate of pay amount in
effect immediately prior to becoming entitled to
benefits under the LTD Plan by twelve,
(2) add the Average Incentive Award to the product,
(3) add certain bonuses and incentives that are included
in the computation of Average Pay under the Pension
Plan (except that awards under the Results Incentive
Awards Program shall be excluded), earned over the
last 12 months to the product,
(4) divide the sum by 12,
13
<PAGE>
(5) multiply this monthly dollar amount by the Income
Replacement Percentage, and
(6) subtract from the product the gross monthly amount
provided for the participant under the LTD Plan
before such amount is reduced for other benefits as
set forth under the LTD Plan.
(iii) Form of payment of disability benefits. Each participant
entitled to supplemental disability benefits will receive
his/her supplemental disability benefit payout in the form of
a monthly payment.
(iv) Amount, timing, and source of monthly disability benefit
payout. A participant entitled to supplemental disability
benefits will receive a monthly payment equal to the amount
determined under (ii) above. Such payments shall commence
effective with the commencement of the participant's LTD Plan
benefit payments. Monthly payments shall permanently cease
when benefit payments under the LTD Plan cease. Monthly
payments shall be made from CEG's general corporate assets.
If a participant receiving payments pursuant to this Section 6
receives cost of living adjustment(s) under the LTD Plan, the
payments hereunder will be automatically increased based on
the same percentage of, and at the same time as, such
adjustment(s).
(v) Bonus. Any participant who has less than ten years of Credited
Service shall be entitled to a monthly taxable cash bonus,
equal to an amount based on the cost of LTD Plan coverage,
using the formula for computing CEG-provided Flexible Benefits
Plan credits for LTD Plan coverage and taking into account the
Participant's Credited Service and covered compensation. Such
cash bonus shall be made from general corporate assets.
7. Supplemental Survivor Annuity Benefit.
(a) Survivor annuity benefit.
(i) Eligibility for survivor annuity benefit. Following
the death of a participant (other than a participant
who satisfied the requirements of Section 5(d)(i)
upon such participant's Termination From Employment
With CEG), a
14
<PAGE>
supplemental survivor annuity may be paid to the
participant's surviving spouse until the death of
that spouse, using the same percentage to compute
such supplemental benefit that is actually used to
compute any survivor annuity provided on behalf of
the participant under the Pension Plan. The
participant will not bear the cost of up to a 50%
survivor annuity benefit, but will bear the cost of a
survivor annuity benefit in excess of 50%. For
purposes of this Section 7(a), a participant's
surviving spouse is the individual married to the
participant on the date of the participant's death.
If there is no surviving spouse, or if the
participant or the participant's spouse previously
received or is entitled to receive a lump sum payment
under Section 5, no supplemental survivor annuity
will be payable.
(ii) Computation of survivor annuity benefit. The amount
of the supplemental survivor annuity will be
determined as follows:
(1) if the participant had retired prior to the
date of death:
(a) begin with the monthly pension
benefit (under Section 5(a) of this
Plan) that the participant was
receiving prior to the date of
death, and
(b) multiply this dollar amount by the
percentage used to compute the
survivor annuity provided on behalf
of the participant under the Pension
Plan.
(2) otherwise:
(a) begin with the larger of the Early
Retirement pension benefit (under
both the Pension Plan and Section
5(a) of this Plan) to which the
participant would have been entitled
to receive if the:
(A) participant had been
retired at age 60 on the
date of death for purposes
of computing the Early
Retirement Adjustment
Factor, or
15
<PAGE>
(B) participant had retired on
the date of death for
purposes of computing the
Early Retirement Adjustment
Factor,
(b) multiply this dollar amount by the
percentage used to compute the
survivor annuity provided on behalf
of the participant under the Pension
Plan,
(c) subtract from the product the net
amount, if any, of the survivor
annuity provided on behalf of the
participant under the Pension Plan,
and
(d) subtract from this dollar amount the
charges relating to coverage (under
both the Pension Plan and this Plan)
for a preretirement survivor annuity
in excess of 50%, and for a
post-retirement survivor annuity in
excess of 50%.
(iii) Form of payout of survivor annuity benefits. Each
surviving spouse entitled to a supplemental survivor
annuity benefit will receive his/her survivor annuity
benefit payout in the form of a monthly payment.
(iv) Amount, timing, and source of monthly survivor
annuity benefit payout. A surviving spouse entitled
to monthly supplemental survivor annuity benefits
will receive a monthly payment equal to the amount
determined under (ii) above. Such payments shall
commence effective with the first day of the month
following the month of the participant's death. If
such surviving spouse receives (or would have
received but for the Internal Revenue Code
limitations) cost of living adjustment(s) under the
Pension Plan, the monthly payments hereunder will be
automatically increased based on the percentage of,
and at the same time as, such adjustment(s). Monthly
payments hereunder shall permanently cease upon the
death of the surviving spouse, effective with the
monthly payment for the month following the month of
the surviving spouse's death. Monthly payments
hereunder shall be made in accordance with the
16
<PAGE>
provisions of the Rabbi Trust and, to the extent not
paid under the terms of the Rabbi Trust, from general
corporate assets.
(b) Other survivor benefit.
(i) Eligibility for other survivor benefit. Following the
death of a participant who satisfied the requirements
of Section 5(d)(i) upon such participant's
Termination From Employment With CEG, a survivor
benefit may be paid to the participant's surviving
spouse until the death of that spouse. For purposes
of this Section 7(b), a participant's surviving
spouse is the individual who is the Surviving Spouse
under the Pension Plan. If there is no surviving
spouse, no survivor benefit will be payable.
(ii) Computation of other survivor benefit. The amount of
the survivor benefit will be calculated as set forth
below on the date the surviving spouse begins receipt
of benefit payments under the Pension Plan:
(1) compute the surviving spouse's adjusted
monthly benefit payment under the terms of
the Pension Plan, by also treating awards,
if any, paid to the participant under CEG's
Executive Annual Incentive Plan and/or CEG's
Manager Annual Incentive Plan during the
immediately preceding twenty-four
consecutive months as bonuses and/or
incentives included in the computation of
the participant's Average Pay (as defined
under the Pension Plan), and
(2) subtract from the amount in (1) above the
surviving spouse's actual monthly benefit
payment under the Pension Plan.
For purposes of the computation in (1), the
surviving spouse will bear the cost of the
survivor benefit.
(iii) Form of payout of other survivor benefit. Each
surviving spouse entitled to a survivor benefit
17
<PAGE>
will receive his/her survivor benefit payout in the
form of a monthly payment.
(iv) Amount, timing, and source of monthly other survivor
benefit payout. A surviving spouse entitled to
monthly survivor benefits will receive monthly
payments equal to the amount determined under
paragraph (b)(ii). Such payments shall commence
effective with the date the surviving spouse
commences receipt of benefit payments under the
Pension Plan. Monthly payments hereunder shall
permanently cease upon the death of the surviving
spouse, effective with the monthly payment for the
month following the month of the surviving spouse's
death. Monthly payments hereunder shall be made from
general corporate assets.
8. Death Benefit. CEG shall make arrangements, through its split-dollar
life insurance program or otherwise, for life insurance coverage for
each participant providing that the participant's beneficiary shall
receive, as a pre-rollout death benefit, an amount which is
approximately equal to three times the participant's compensation, and
as a post-rollout benefit, an amount which is approximately equal to
two times the participant's compensation, as set forth in a separate
agreement between CEG and the participant.
As determined in the sole discretion of the Plan Administrator, in the
event that either (i) a participant is ineligible to receive the type
of life insurance coverage provided to other participants under this
Plan, or (ii) such coverage is not available on reasonably
cost-effective terms as a result of any penalty for smoking or other
factors that are reflected in the insurance carrier's rates, then CEG
shall provide a benefit that, in the discretion of the Plan
Administrator, is substantially equivalent to the cost of the benefit
provided to other participants under this Plan.
9. Dependent Death Benefit. In the event of the death of a participant's
qualified dependent while the participant is an active employee of CEG
or a subsidiary of CEG, CEG shall make a death benefit payment to the
participant, from general corporate assets. For purposes of this
Section 9, qualified dependent shall have the same meaning as set forth
in CEG's Family Life Insurance Plan. For purposes of this Section 9,
the amount of the death benefit payment shall be
18
<PAGE>
the highest amount of insurance that would have been payable with
respect to such qualified dependent if coverage had been provided under
CEG's Family Life Insurance Plan. The dependent death benefit payment
under this Plan shall be grossed-up for income tax withholding.
10. Sickness Benefit. Each participant, without regard to length of
service, shall be entitled to the greater of the benefits stipulated
under the CEG sick benefit policy for employees or twenty-six (26)
weeks of paid sick benefits within a rolling 52-week period.
11. Vacation Benefit. Each participant, without regard to length of
service, shall be entitled to the greater of the benefits stipulated
under the CEG vacation benefit policy for employees or five weeks of
paid vacation during a calendar year.
12. Planning Benefit. Each participant shall be entitled to certain
personal financial, tax, and estate planning services paid for by CEG
but provided through designated professional firms. This entitlement
shall be subject to any dollar limitation established by the Plan
Administrator with respect to all such fees. The services shall be
provided to each participant by the chosen firm(s) on a personalized
and confidential basis; and each firm shall have sole responsibility
for quality of the services which it may render.
The services to be provided shall be on an on-going and continuous
basis, but shall be limited to (i) the development and legal
documentation of both career-oriented financial plans and personal
estate plans, and (ii) tax counseling regarding personal tax return
preparation and the most advantageous structuring, tax-wise, of
proposed personal transactions.
Such planning benefit shall continue during the year of retirement plus
the next two calendar years and include the completion of the federal
and state personal tax returns for the second calendar year following
retirement. However, if a retired member of senior management continues
to serve as a member of the Board of Directors of CEG, his/her planning
benefit period shall be extended until he/she no longer serves as a
member of the Board of Directors.
Upon the death of a participant entitled to the planning benefit
provided hereunder, his/her surviving spouse shall
19
<PAGE>
be entitled to receive the following planning benefit: (i) if the
deceased was not retired at the time of death, the surviving spouse
shall be entitled to the planning benefit for the year in which the
death occurred plus the next two calendar years, including completion
of the federal and state personal tax returns for the second calendar
year after the year in which the death occurred; or (ii) if the
deceased was retired at the time of death, then the surviving spouse
shall receive a planning benefit equal to that the deceased would have
received if he/she had not died prior to expiration of the planning
benefit. The surviving spouse of a retired member of senior management
whose death occurs while serving as a member of the Board of Directors
of CEG, shall be entitled to a planning benefit as set forth in (i)
above.
The planning benefit provided under this Plan shall be grossed-up for
income tax withholding.
13. Miscellaneous. None of the benefits provided under this Plan shall be
subject to alienation or assignment by any participant or beneficiary
nor shall any of them be subject to attachment or garnishment or other
legal process except (i) to the extent specially mandated and directed
by applicable State or Federal statute; (ii) as requested by the
participant or beneficiary to satisfy income tax withholding or
liability; and (iii) any policy of insurance written by a commercial
carrier on a split-dollar basis shall be assignable.
This Plan may be amended from time to time, or suspended or terminated
at any time, provided, however, that no amendment or termination shall
reduce any previously accrued supplemental pension benefit under this
Plan or prejudice the rights of any participant or beneficiary entitled
to receive payment hereunder at the time of such action. All amendments
to this Plan which would increase or decrease the compensation of any
Officer of CEG, either directly or indirectly, must be approved by the
Board of Directors. All other permissible amendments may be made at the
written direction of the Committee.
Participation in this Plan shall not constitute a contract of
employment between CEG and any person and shall not be deemed to be
consideration for, or a condition of, continued employment of any
person.
20
<PAGE>
The Plan, notwithstanding the creation of the Rabbi Trust, is intended
to be unfunded for purposes of Title I of the Employee Retirement
Income Security Act of 1974. CEG shall make contributions to the Rabbi
Trust in accordance with the terms of the Rabbi Trust. Any funds which
may be invested and any assets which may be held to provide benefits
under this Plan shall continue for all purposes to be a part of the
general funds and assets of CEG and no person other than CEG shall by
virtue of the provisions of this Plan have any interest in such funds
and assets. To the extent that any person acquires a right to receive
payments from CEG under this Plan, such rights shall be no greater than
the right of any unsecured general creditor of CEG.
This Plan shall be governed in all respects by Maryland law.
21
<PAGE>
Exhibit 10(g)
GRANTOR TRUST AGREEMENT
DATED AS OF APRIL 30, 1999
BETWEEN
CONSTELLATION ENERGY GROUP, INC.
AND
CITIBANK, N.A.
<PAGE>
GRANTOR TRUST AGREEMENT
CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 1 ESTABLISHMENT OF TRUST 2
1.1 Trust is established with Trustee.
1.2 Trust is irrevocable.
1.3 Trust is a grantor trust.
1.4 Assets subject to claims of creditors.
1.5 Due date of Trust contributions.
1.6 Discretionary contributions.
1.7 Eligibility for Trust benefits.
1.8 Definition of "Required Contribution."
1.9 Responsibility for Required Contribution calculation.
1.10 Notification upon failure to made Required Contribution.
SECTION 2 PAYMENTS TO PLAN PARTICIPANTS AND THEIR SURVIVING SPOUSES 8
2.1 CEG required to provide Payment Schedule to Trustee.
2.2 Failure by CEG to provide Payment Schedule.
2.3 Tax withholding.
2.4 Determination entitlement to benefits.
2.5 Payment of benefits directly by CEG.
2.6 Authorization for Trustee to defer payments.
2.7 Determination of insufficient assets.
2.8 Notification of insufficiency.
2.9 Restoration of discontinued or reduced payments.
2.10 Determination of immediate taxation.
2.11 Reduction of future benefits following immediate taxation.
SECTION 3 TRUSTEE RESPONSIBILITY REGARDING PAYMENTS
TO TRUST BENEFICIARY WHEN CEG IS INSOLVENT 17
3.1 Payments cease when CEG is Insolvent.
3.2 Assets subject to claims of creditors.
3.2(a) Duty to inform Trustee of CEG's Insolvency.
3.2(b) Trustee's responsibility to cease payments.
3.2(c) Trustee reliance on Insolvency evidence.
3.2(d) Trustee holds assets for general creditors.
3.2(e) Authority to resume payments.
3.3 Restoration of discontinued payments.
i
<PAGE>
SECTION 4 PAYMENTS TO BGE 20
4.1 Return or diversion of Trust assets.
4.2 Distribution of excess Trust assets to CEG.
4.3 Distribution of excess Trust assets following a
Change of Control.
SECTION 5 INVESTMENT AUTHORITY 21
5.1 No investment in CEG stock.
5.2 Acknowledgement of investment guidelines.
5.3 CEG may appoint investment advisor.
5.4 CEG may transfer life insurance to Trust.
SECTION 6 DISPOSITION OF INCOME 23
SECTION 7 ACCOUNTING BY TRUSTEE 23
7.1 Trustee provides monthly accounting to CEG.
7.2 Deemed approval of accounting by CEG.
7.3 Tax returns.
7.4 Right of Trustee to judicial settlement of accounts.
SECTION 8 RESPONSIBILITY OF TRUSTEE 26
8.1 Prudency standard for Trustee.
8.2 Indemnification of Trustee.
8.3 Powers of Trustee.
8.4 Additional powers of Trustee.
8.5 Trustee prohibited from carrying on business through Trust.
SECTION 9 COMPENSATION AND EXPENSES OF TRUSTEE 30
9.1 Trustee's fees.
9.2 Taxes on Trust income.
SECTION 10 RESIGNATION AND REMOVAL OF TRUSTEE 31
10.1 Resignation of Trustee.
10.2 Removal of Trustee.
10.3 Removal of Trustee after Change of Control.
10.4 Resignation of Trustee after Change of Control.
10.5 Transfer of assets after resignation or removal of Trustee.
10.6 Appointment of successor Trustee.
SECTION 11 APPOINTMENT OF SUCCESSOR 32
11.1 Appointment of successor after removal or
resignation of Trustee.
ii
<PAGE>
11.2 Appointment of successor Trustee following Change
of Control.
11.3 Responsibility of successor Trustee.
11.4 Trustee provides written account after removal or resignation.
SECTION 12 AMENDMENT OR TERMINATION 33
12.1 Amendments to Trust.
12.2 Termination date of Trust.
12.3 Trust termination after participant approval.
12.4 Amendment following Change of Control.
SECTION 13 MISCELLANEOUS 34
13.1 Provisions prohibited by law.
13.2 Alienation clause.
13.3 Trust under New York law.
13.4 Definitions and plurals.
13.5 Definition of Change of Control.
13.6 Certification of authority to act.
13.7 Indemnification of Trustee.
13.8 Authority of Trust Agreement.
13.9 Addresses for Trustee and CEG.
SECTION 14 EFFECTIVE DATE 39
EXHIBIT A PAYMENT SCHEDULE
</TABLE>
iii
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GRANTOR TRUST AGREEMENT
Dated as of April 30, 1999
between
Constellation Energy Group, Inc.
and
Citibank, N.A.
THIS AGREEMENT dated as ofApril 30, 1999, by and betweenConstellation
Energy Group, Inc., a Maryland corporation, or its successor ("CEG") and
Citibank, N. A., a national banking association as trustee for the trust created
hereby ("Trustee").
WITNESSETH THAT:
WHEREAS, effective with the April 30, 1999 share exchange between CEG
and the common stockholders of Baltimore Gas and Electric Company (BGE), BGE
transferred to CEG the former BGE Executive Benefits Plan and BGE's rights and
obligations under the Grantor Trust Agreement Dated as of July 31, 1994 between
BGE and Citibank, N.A.; and
WHEREAS, CEG has adopted the Constellation Energy Group, Inc. Executive
Benefits Plan (formerly the Baltimore Gas and Electric Company Executive
Benefits Plan) ("Plan"); and
WHEREAS, CEG has incurred or expects to incur liability under the terms
of such Plan for nonqualified supplemental pension retirement benefits with
respect to the individuals participating in such Plan; and
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<PAGE>
WHEREAS, CEG wishes to adopt the trust ("Trust") and to contribute to
the Trust assets that shall be held therein, subject to the claims of CEG's
creditors in the event of CEG's Insolvency, as defined in Section 3.1 hereof,
until paid to Plan participants and their surviving spouses, as defined in
Section 7 of the Plan, in such manner and at such times as specified in the
Plan; and
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the Plan
as an unfunded plan maintained for the purpose of providing nonqualified
supplemental pension retirement benefits for a select group of management or
highly compensated employees, for purposes of Title I of the Employee Retirement
Income Security Act of 1974; and
WHEREAS, it is the intention of CEG to make contributions to the Trust
to provide a source of funds to assist in meeting CEG's liabilities under the
Plan;
NOW, THEREFORE, the parties do hereby establish the Trust and agree
that the Trust shall be comprised, held and disposed of as follows:
Section 1. ESTABLISHMENT OF TRUST.
1.1 CEG hereby adopts and establishes with Trustee the Trust consisting
of such sums of cash and other property,
2
<PAGE>
including collateral assignments of interests in certain split dollar life
insurance policies, (the "principal"), that currently constitute the Trust and
as from time to time shall be paid or delivered to Trustee to be held,
administered, and disposed of by Trustee as provided in this Trust Agreement.
The principal of the Trust and any earnings thereon (the "Trust assets") shall
be held by Trustee and shall be dealt with in accordance with the provisions of
this Trust Agreement until all payments required by this Trust Agreement have
been made.
1.2 The Trust hereby established shall be irrevocable.
1.3 The Trust is intended to be a grantor trust, of which CEG is the
grantor, within the meaning of subpart E, part I, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
1.4 The Trust assets shall be held separate and apart from other funds
of CEG and shall be used exclusively for the uses and purposes of Plan
participants, their surviving spouses, and CEG's general creditors as herein set
forth. Plan participants and their surviving spouses shall have no preferred
claim on, or any beneficial ownership interest in, any Trust assets. Any rights
created under the Plan and this Trust Agreement shall be mere unsecured
contractual rights of Plan participants and their surviving spouses against CEG.
Any Trust assets will be subject
3
<PAGE>
to the claims of CEG's general creditors under federal and state law in the
event of Insolvency, as defined in Section 3.1 hereof.
1.5 By August 31, 1994, for the Plan year 1993, BGE was required to
irrevocably contribute cash or other property to the Trust in an amount equal to
50% of the Required Contribution, as defined in Section 1.9 hereof. By April 30
of the year following each of the Plan years 1994-1998, BGE was required to
irrevocably contribute additional cash or other peroperty to the Trust in an
amount equal to 100% of the Required Contribution. By April 30 of the year
following each of the Plan years 1999-2002, , CEG shall be required to
irrevocably contribute cash or other property to the Trust in an amount equal to
100% of the Required Contribution.
1.6 CEG, in its sole discretion, may at any time, or from time to time,
make additional contributions of cash or other property to the Trust to augment
the Trust assets to be held, administered and disposed of by Trustee as provided
in this Trust Agreement. Neither Trustee nor any Plan participant or surviving
spouse shall have any right to compel such additional contributions.
1.7 Plan participants or their surviving spouses shall be eligible to
receive benefits under this Trust Agreement only if the Plan participant was an
employee of CEG or a subsidiary in CEG's controlled group ("Employee") as well
as a Plan participant
4
<PAGE>
as of the end of any Plan year for which a contribution was required pursuant to
Section 1.5 hereof, or as of the end of any Plan year for which a contribution
was made pursuant to Section 1.6, except that for the Plan year 1993, Plan
participants or their surviving spouses shall be eligible to receive benefits
under this Trust Agreement only if the Plan participant was an Employee as well
as a Plan participant as of the first day of 1993.
1.8 "Required Contribution," for purposes of the contribution
requirements as set forth in Section 1.5 hereof, means the sum of (1), (2), (3),
(4) and (5) below computed as indicated herein, less the fair market value of
the Trust assets at the end of the Plan year for which the contribution is
required.
(1) For Plan participants eligible to receive benefits under this Trust
Agreement pursuant to Section 1.7 hereof, who were also Employees as of the end
of the Plan year for which the contribution is required (except Employees
entitled to lump sum payments as indicated under Section 1.8(4) hereof) and who
were not eligible for early retirement under the Plan at the end of the Plan
year for which the contribution is required, an amount equal to the present
value of an annuity including the estimated present value of post retirement
supplemental survivor annuity benefits under the Plan commencing effective with
the month in which the participant becomes age 65 using (i) the net accrued
benefit as computed under the Plan (without regard to age and
5
<PAGE>
Credited Service eligibility requirements), expressed as a monthly amount, (ii)
an interest rate equal to the lesser of 8% or 95% of the Interest Rate under the
Plan, and (iii) the Mortality Table.
(2) For Plan participants eligible to receive benefits under this Trust
Agreement pursuant to Section 1.7 hereof, who were also Employees as of the end
of the Plan year for which the contribution is required (except CEG Employees
entitled to lump sum payments as indicated under Section 1.8(4) hereof) and who
were eligible for early retirement under the Plan as of the end of the Plan year
for which the contribution is required, an amount equal to the present value of
an annuity including the present value of post retirement supplemental survivor
annuity benefits under the Plan commencing effective with the first month
following the Plan year for which the contribution is required using (i) the net
accrued benefit as computed under the Plan, expressed as a monthly amount, (ii)
an interest rate equal to the lesser of 8% or 95% of the Interest Rate under the
Plan, and (iii) the Mortality Table.
(3) For Plan participants or their surviving spouses who are eligible
to receive benefits under this Trust Agreement pursuant to Section 1.7 hereof
who were also receiving a retirement benefit under the Plan in the form of a
monthly payment as of the end of the Plan year for which the contribution is
required, an amount equal to the present value of an annuity as computed under
(2)(i),(ii), and (iii) above except that the
6
<PAGE>
interest rate used to compute the present value under (ii) shall be 8%.
(4) For all Plan participants eligible to receive benefits under this
Trust Agreement pursuant to Section 1.7 hereof who are also entitled under
Section 5(c) of the Plan to receive a lump sum payment at the later of age 55 or
upon separation from service as of the end of the Plan year for which the
contribution is required, an amount equal to the present value of an annuity as
computed under (1) above.
(5) In the event there has been a reduction or discontinuance of
payments pursuant to Sections 2.6, 2.7, or Section 3 hereof, an amount equal to
the total amount of any previously reduced or discontinued payments to Plan
participants and their surviving spouses, less the aggregate amount of any
payments made to Plan participants and their surviving spouses by CEG or BGE in
lieu of such payments, plus interest computed pursuant to Section 2.9 hereof on
the net aggregate amount.
1.9 CEG shall have sole responsibility for providing to Trustee the
determination and calculation of the Required Contribution which shall be
determined and calculated by the actuary of the Pension Plan of Constellation
Energy Group, Inc. Trustee shall have no responsibility with respect to such
determination and calculation including the responsibility to verify (i) the
accuracy of such calculation or (ii) compliance by CEG with the terms of Section
1 hereof, except as provided in Section 1.11 hereof. Trustee shall have no duty,
obligation or
7
<PAGE>
responsibility to bring any action or proceeding to enforce the collection of
the Required Contribution from CEG.
1.10 In the event CEG fails to make the Required Contribution to the
Trust by the dates specified in Section 1.5 hereof, Trustee shall notify CEG of
such failure by the 15th day of the month following the month in which the
contribution was required. Such notification shall stipulate that CEG may
correct the failure to contribute by the last day of the month following the
month in which the contribution was required (the "Required Contribution
correction date"). Trustee shall notify the Plan participants or their surviving
spouses shown on the most recent Payment Schedule, as defined in Section 2.1
hereof, provided by CEG to Trustee, in the event CEG fails to make the Required
Contribution by the Required Contribution correction date. Trustee shall make
such notification no later than 15 days following the Required Contribution
correction date.
Section 2. PAYMENTS TO PLAN PARTICIPANTS AND THEIR SURVIVING SPOUSES.
2.1 By April 30 of the year following each Plan year until termination
of the Trust under the provisions of Section 12 hereof, and at other times as
reasonably requested by Trustee including such times as Trustee is notified in
writing of the death of a Plan participant or surviving spouse eligible to
receive benefits under this Trust Agreement, CEG shall deliver to Trustee a
schedule, substantially in the format of Exhibit A
8
<PAGE>
hereof, and any other necessary documentation (such schedule and other
documentation being referred to for this purpose as the "Payment Schedule") that
indicates the Plan benefit amounts currently payable in respect of each Plan
participant (and his or her surviving spouse), the form in which such amount is
to be paid (as provided for or available under the Plan), the time of
commencement for payment of such amounts, whether the Plan participant is
receiving such payment as a result of an entitlement event (as defined in
Section 5(c) of the Plan), the present value of the future benefits payable to
Plan participants and their surviving spouses under the terms of this Trust
Agreement computed as under Section 1.8 (1), (2), (3), and (4) hereof, and the
Required Contribution computed pursuant to Section 1.8 hereof.
Plan participants or their surviving spouses shall be included on the
Payment Schedule and shall be eligible for benefits under this Trust Agreement
pursuant to Section 1.7 hereof only to the extent contributions to the Trust
were required under Section 1.5 hereof, or for which a contribution was made by
CEG to the Trust pursuant to Section 1.6 hereof. A modified Payment Schedule
shall be delivered by CEG to Trustee upon the occurrence of any event, such as
early retirement of a Plan participant or an entitlement event, as defined in
Section 5(c) of the Plan, requiring a modification of the Payment Schedule or a
modified Payment Schedule.
9
<PAGE>
CEG shall cause the Payment Schedule which CEG shall provide to Trustee
to be prepared by the actuary for the Pension Plan of Constellation Energy
Group, Inc.
Except as otherwise provided in Sections 2.5 through 2.11 hereof,
Trustee shall make payments to Plan participants and their surviving spouses in
accordance with such Payment Schedule, and shall act only upon such written
direction and shall have no duty to determine the rights of any person under
this Trust Agreement or under the Plan or to inquire into the right or power of
CEG to direct or not direct any such payment and shall be authorized to rely on
the Payment Schedule most recently provided to Trustee by CEG.
2.2 In the event CEG fails to deliver the Payment Schedule to Trustee
by the date specified in Section 2.1 hereof, Trustee shall notify CEG of such
failure by the 15th day of the month following the month in which the Payment
Schedule was required to be delivered to Trustee. Such notification shall
stipulate that CEG may correct the failure by the last day of the month
following the month in which the Payment Schedule was required to be delivered
to Trustee (the "Payment Schedule correction date"). Trustee shall notify the
Plan participants or their surviving spouses shown on the most recent Payment
Schedule provided by CEG to Trustee in the event CEG fails to deliver the
Payment Schedule to Trustee by the Payment Schedule correction date. Trustee
shall make such notification no later than 15 days following the Payment
Schedule correction date If CEG fails to deliver the
10
<PAGE>
Payment Schedule to Trustee by the date specified in Section 2.1 hereof, Trustee
shall make payments to Plan participants and their surviving spouses, except as
otherwise provided in Sections 2.5 through 2.11 hereof, in accordance with the
Payment Schedule most recently provided to Trustee by CEG (or prior to April 30,
1999, by BGE). Within a reasonable period of time after CEG delivers the updated
Payment Schedule to Trustee, Trustee shall pay all amounts due to the Plan
participants and their surviving spouses for the period during which Trustee
relied on the previous Payment Schedule to the extent such amounts have not been
paid by Trustee under the previous Payment Schedule or by CEG pursuant to
Sections 2.5 through 2.11 hereof. Such amounts paid by Trustee shall include
interest computed at an 8% per annum rate from the date the payments were due
under the Plan to the first day of the month in which such amount was paid.
2.3 Trustee shall make provision for the reporting and withholding of
any federal, state or local taxes that may be required to be withheld with
respect to the payment of benefits from the Trust and shall pay amounts withheld
to the appropriate taxing authorities or determine that such amounts have been
reported, withheld and paid by CEG, provided, however, that CEG shall be
required to provide Trustee with all information reasonably necessary for
Trustee to perform such withholding.
2.4 The entitlement of Plan participants and their surviving spouses to
benefits under the Plan shall be determined
11
<PAGE>
by CEG or such party as it shall designate under the Plan, and any claim for
such benefits shall be considered and reviewed under the procedures set out in
the Plan. Except as provided in Section 2.7 hereof, Trustee shall have no
responsibility to determine such entitlements or to verify the accuracy of their
determination or to review or supervise the review of claims for benefits.
2.5 CEG may make payment of benefits directly to Plan participants and
their surviving spouses as they become due in accordance with the most recent
Payment Schedule provided by CEG to Trustee. CEG shall notify Trustee of its
decision to make payment of benefits prior to the time amounts are payable to
Plan participants and their surviving spouses by indicating such intent on the
Payment Schedule provided by CEG to Trustee pursuant to Section 2.1 or by
separate written notification. CEG shall provide Trustee with documentation
substantiating that such payments were made no later than the last day of the
month in which such payments were due in accordance with the most recent Payment
Schedule provided by CEG to Trustee. If such documentation is not provided,
Trustee is authorized to make such payments directly to Plan participants and
their surviving spouses. In addition, if the Trust assets are insufficient to
make payments of benefits in accordance with the most recent Payment Schedule
provided by CEG to Trustee, or are not available to make such payments because
all or part of the Trust assets are invested in collateral assignments of
certain split dollar life
12
<PAGE>
insurance policies, CEG shall pay the balance of each such payment to the Plan
participant or their surviving spouse as it falls due. Trustee shall notify CEG
of such insufficiency or unavailability as specified in Sections 2.6 and 2.8
hereof.
2.6 Where Trustee is required to make payments from the Trust according
to the most recent Payment Schedule and CEG does not make payments in lieu of
such payments as provided under Section 2.5 hereof, and Trustee is unable to
make the required payments because all or part of the Trust assets are invested
in the collateral assignment portion of certain split dollar life insurance
policies, Trustee is authorized to defer the required payments until cash is
available to make the required payments under the terms of this Trust Agreement.
2.7 A determination of insufficiency of Trust assets shall be made with
respect to the end of each Plan year after receipt by the Trustee of the Payment
Schedule prepared with respect to such Plan year or the most recent Payment
Schedule in the event CEG fails to deliver the Payment Schedule to Trustee by
the date specified in Section 2.1 hereof. The Trust assets will be deemed to be
insufficient to make payments of benefits in accordance with the terms of such
Payment Schedule if the market value of the Trust assets at the end of the Plan
year for which the determination is being made plus the Required Contribution
actually made with respect to such Plan year is less than the present value of
the future benefits as shown on the most recent
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<PAGE>
Payment Schedule. In determining the market value of collateral assignments of
interests in split dollar life insurance policies held by the Trust, Trustee may
rely on the valuation provided by the insurance carrier who issued such
policies, or the broker administering such policies.
In the event of such insufficiency and to the extent CEG does not make
payments directly to Plan participants or their surviving spouses as provided
under Section 2.5 hereof, any payment made from the Trust will be reduced by
multiplying such payment by a fraction, the numerator of which shall be the
value of all cash and other property held by the Trust and the denominator of
which shall be the aggregate present value of all benefits under the Plan as
shown on the most recent Payment Schedule.
2.8 If the Trust assets are insufficient to make payments of benefits
in accordance with the most recent Payment Schedule, Trustee shall notify CEG of
such insufficiency by May 15 of the year following the Plan year with respect to
which the insufficiency has been determined. Such notification shall stipulate
that CEG may correct the insufficiency by May 31 of the year following the Plan
year with respect to which the insufficiency has been determined (the
"insufficiency correction date"). Trustee shall notify the participants or their
surviving spouses shown on the most recent Payment Schedule provided by CEG to
Trustee in the event CEG fails to correct the insufficiency by the insufficiency
correction date. Trustee shall make such
14
<PAGE>
notification no later than 15 days following the insufficiency correction date
and shall proceed to reduce any payment made from the Trust in the manner
specified in Section 2.7 hereof as soon as practicable.
2.9 If Trustee reduces or discontinues the payment of benefits from the
Trust pursuant to Section 2.6 and 2.7 hereof and the Trust assets subsequently
become sufficient to pay all or part of the previously reduced or discontinued
benefits, the first payment following thereafter shall include the aggregate of
all payments due to Plan participants and their surviving spouses under the
terms of this Trust Agreement for the period of such reduction or discontinuance
to the extent Trust assets are available, less the aggregate amount of any
payments made to Plan participants and their surviving spouses by CEG in lieu of
the payments provided for hereunder during any such period of reduction or
discontinuance. In such event where Trust assets are sufficient to pay only a
part of the previously reduced or discontinued benefits, amounts relating to the
earliest payments reduced or discontinued shall be paid before all other amounts
due under this Trust Agreement. Such payments shall also include interest
computed at an 8% per annum rate on the net aggregate amount of all payment
reductions from the date the payments were due under the Plan to the first day
of the month in which such net aggregate amount was paid.
15
<PAGE>
2.10 In the event there is a final judicial determination or a final
determination by the Internal Revenue Service that the Plan participants and
their surviving spouses are subject to any tax with respect to any amounts held
under the terms of the Trust, then Trustee shall make payments from the Trust to
such Plan participants and their surviving spouses in such amounts as set forth
in such final determination for the purpose of paying federal taxes and interest
and any penalties thereon which such Plan participants and their surviving
spouses incur arising out of such determination. Trustee's decision as to
whether a final determination has occurred shall be binding and conclusive on
all Plan participants and their surviving spouses.
2.11 Any payment from the Trust, as provided in Section 2.10 hereof,
excluding interest and penalties paid with respect to federal taxes, shall
reduce the benefits payable under the Plan of those participants and their
surviving spouses on whose behalf such payments are made. It shall be the
responsibility of CEG to determine or cause to be determined by the actuary for
the Pension Plan of Constellation Energy Group, Inc. the amount of such
reduction and to provide Trustee with an updated Payment Schedule to reflect any
such reduction made hereunder. Trustee shall have no duty to verify any
calculations provided by CEG under this Section 2.11.
16
<PAGE>
Section 3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST
BENEFICIARY WHEN CEG IS INSOLVENT.
3.1 Trustee shall cease payment of benefits to Plan participants and
their surviving spouses if CEG is Insolvent. CEG shall be considered Insolvent
for purposes of this Trust Agreement if (i) CEG makes a voluntary filing under
the United States Bankruptcy Code, or (ii) CEG is subject to a pending
involuntary proceeding as a debtor under the United States Bankruptcy Code.
3.2 At all times during the continuance of this Trust, as provided in
Section 1.4 hereof, the Trust assets shall be subject to claims of general
creditors of CEG under federal and state law as set forth below.
3.2(a) The Board of Directors of CEG and the Chief Executive Officer of
CEG shall have the duty to inform Trustee in writing of CEG's Insolvency. If a
person claiming to be a creditor of CEG alleges in writing to Trustee that CEG
has become Insolvent, Trustee shall determine whether CEG is Insolvent and,
pending such determination, Trustee shall discontinue payment of benefits to
Plan participants and their surviving spouses.
3.2(b) Until receipt of a notice of Insolvency as set forth above,
Trustee shall be under no obligation and shall have no responsibility to suspend
payments hereunder and hold the Trust assets for the benefit of CEG's general
creditors. Trustee
17
<PAGE>
shall not be deemed to have notice or knowledge of facts or events in public
records or received by departments or divisions of Trustee bank other than the
Investor Services division of Trustee bank. Trustee shall not have any liability
to any party for making any payments or withholding any payments pursuant to
court order or request from trustee in bankruptcy or receivership pursuant to
notice of Insolvency as provided above.
3.2(c) Unless Trustee has actual knowledge of CEG's Insolvency, or has
received notice from CEG or a person claiming to be a creditor alleging that CEG
is Insolvent, Trustee shall have no duty to inquire whether CEG is Insolvent.
Trustee may in all events rely on such evidence concerning CEG's solvency as may
be furnished to Trustee and that provides Trustee with a reasonable basis for
making a determination concerning CEG's solvency.
3.2(d) If at any time Trustee has determined that CEG is Insolvent,
Trustee shall discontinue payments to Plan participants and their surviving
spouses and shall hold the Trust assets for the benefit of CEG's general
creditors. Nothing in this Trust Agreement shall in any way diminish any rights
of Plan participants and their surviving spouses to pursue their rights as
general creditors of CEG with respect to benefits due under the Plan or
otherwise.
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<PAGE>
3.2(e) Trustee shall resume the payment of benefits to Plan
participants and their surviving spouses in accordance with Section 2 of this
Trust Agreement only after Trustee has determined that CEG is not Insolvent (or
is no longer Insolvent). Where CEG is subject to a pending proceeding as a
debtor under the United States Bankruptcy Code, Trustee shall resume payment
when such proceeding is dismissed. In all other cases, Trustee shall have no
obligation to so resume payment until it shall have received an unqualified
opinion of a certified public accountant that CEG is no longer Insolvent and an
opinion of counsel that there is no legal prohibition to resuming payment
hereunder.
3.3 If Trustee discontinues the payment of benefits from the Trust
pursuant to Section 3.2 hereof and subsequently resumes such payments, the first
payment following such discontinuance shall include the aggregate amount of all
payments due to Plan participants and their surviving spouses under the terms of
this Trust Agreement for the period of such discontinuance, less the aggregate
amount of any payments made to Plan participants and their surviving spouses by
CEG or BGE in lieu of the payments provided for hereunder during any such period
of discontinuance plus interest computed as under Section 2.9 hereof on the net
aggregate amount of all payments from the date the payments were due under the
Plan to the first day of the month in which such net aggregate amount was paid.
CEG shall cause to be determined and calculated by the actuary of the Pension
Plan of Constellation Energy Group, Inc. such net aggregate amount, which
19
<PAGE>
determination shall be conclusive for CEG, Trustee, and all Plan participants
and their surviving spouses.
Section 4. PAYMENTS TO CEG.
4.1 Except as provided in Sections 3.2 and 4.2 hereof, CEG shall have
no right or power to direct Trustee to return to CEG or to divert to others any
of the Trust assets before all payments of benefits have been made to Plan
participants and their surviving spouses in accordance with the most recent
Payment Schedule provided by CEG to Trustee and the terms of this Trust
Agreement.
4.2 In the event the market value of Trust assets as of the end of a
Plan year exceeds 120 percent of the present value of future benefits as shown
on the Payment Schedule for such Plan year, plus the amount of any payments as
computed under Section 1.9(5) hereof as of the end of such Plan year, then CEG
may, in its sole discretion, direct Trustee in writing to distribute such excess
Trust assets, in whole or in part, to CEG provided such distribution does not
contravene any provision of law. Trustee shall have no responsibility to
determine the propriety of any such direction.
4.3 Notwithstanding Section 4.2 hereof, CEG may not direct Trustee to
distribute such excess Trust assets for 2 years from the date a Change of
Control is deemed to occur under Section 13.5 hereof.
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<PAGE>
Section 5. INVESTMENT AUTHORITY.
5.1 In no event may Trustee invest in securities (including stock or
rights to acquire stock) or obligations issued by CEG or BGE, other than a de
minimis amount held in common investment vehicles in which Trustee invests. All
rights associated with the Trust assets shall be exercised by Trustee, and shall
in no event be exercisable by or rest with Plan participants and their surviving
spouses; provided that CEG may at any time, upon delivery of written notice to
Trustee, terminate Trustee's authority over the Trust assets.
5.2 CEG shall submit to Trustee investment guidelines which shall be
acknowledged by Trustee in writing. The Trust assets shall be held, invested and
reinvested by Trustee upon written direction of CEG and only in accordance with
the investment guidelines most recently acknowledged by Trustee. CEG shall
direct Trustee to invest or reinvest from time to time the Trust assets (taking
into account, among other things, anticipated cash requirements for benefits
under the Plans); provided, however, that pending receipt of investment
directions or guidelines from CEG or pending the acknowledgement by Trustee of
such investment guidelines, the Trust assets may be held in interest bearing
cash accounts maintained by Trustee; and provided, however, that Trustee shall
not be liable for any failure to maximize the income earned on the Trust assets,
or for any loss suffered by the Trust, as a result of its investment or
reinvestment of the
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Trust assets in accordance with 1) directions received by Trustee from CEG, or
2) the investment guidelines as acknowledged by Trustee.
5.3 CEG may, in its sole discretion, appoint an investment manager or
managers to manage (including the power to acquire and dispose of) any Trust
assets. Trustee may rely on direction of such investment manager upon receipt of
written direction from CEG and shall be entitled to rely on such direction until
revoked in writing by CEG. Trustee shall not be liable for the acts or omissions
of such investment manager or managers, unless Trustee participates knowingly
in, or knowingly undertakes to conceal, an act or omission of such investment
manager, knowing that such act or omission is a breach of its or the investment
manager's fiduciary duty. Trustee is under no obligation to review, inquire into
or examine the acts or omissions of any such investment manager. Trustee shall
have the duty to inform CEG in the event Trustee becomes aware of any such acts
or omissions. Trustee shall not be under an obligation to invest or otherwise
manage Trust assets which are subject to the management of the investment
manager.
5.4 CEG reserves the right to transfer to the Trust in satisfaction of
the contribution requirements as set forth in Section 1.5 hereof, life
insurance, annuity policies or contracts on or for the life of any Plan
participant, or to direct Trustee to purchase any such policies or contracts on
or for the life of
22
<PAGE>
any such Plan participant out of the Trust assets. Any such policy or contract
shall be a Trust asset subject to the claims of CEG's creditors in the event of
Insolvency, as defined in Section 3.1 hereof. The proceeds, dividends, or
distributions of cash value paid with respect to any life insurance policy or
contract held in the Trust shall be paid to the Trust. Trustee shall be under no
duty to question any direction of CEG or to review the form of any policies or
contracts or the selection of the issuer thereof, or to make suggestions to CEG
with respect to the form of such policies or contracts or to the issuer thereof.
Section 6. DISPOSITION OF INCOME.
During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested, until otherwise
required for disbursement under the terms of this Trust Agreement.
Section 7. ACCOUNTING BY TRUSTEE.
7.1 Trustee shall keep accurate and detailed records of all
investments, receipts, disbursements, and all other transactions required to be
made, including such specific records as shall be agreed upon in writing between
CEG and Trustee. Within 15 days following the close of each calendar month and
within 90 days after the removal or resignation of Trustee, Trustee shall
deliver to CEG a written account of its administration of the Trust pursuant to
terms of this Trust Agreement during such year or during the period from the
close of the last preceding year to
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the date of such removal or resignation, setting forth all investments,
receipts, disbursements and other transactions effected by it, including a
description of all securities and investments purchased and sold with the cost
or net proceeds of such purchases or sales (accrued interest paid or receivable
being shown separately), and showing all cash, and the cost and market value of
all securities and other property held in the Trust at the end of such year or
as of the date of such removal or resignation, as the case may be.
In the event the insurance carrier who issued the insurance policies
which are held by or collaterally assigned to the Trust or the broker who
administers such policies does not timely provide Trustee with the market value
of such insurance policies or collateral assignments, Trustee shall provide to
CEG written accounts under this Section 7.1 containing all valuations except
such insurance valuations. As soon as practicable following the receipt of the
market valuations from the carrier or the broker, Trustee shall provide CEG with
written accounts containing such insurance valuations.
7.2 Unless CEG shall have filed with Trustee written exceptions to any
such statement or account delivered by Trustee pursuant to Section 7.1 hereof
within 90 days after receipt of such statement or account, CEG shall be deemed
to have approved such statement or account, and in such case or upon the written
approval by CEG of any such statement or account, Trustee shall be forever
released and discharged with respect to all matters
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and things embraced in such statement or account as though it had been settled
by a decree of a court of competent jurisdiction in an action or proceeding to
which CEG or persons having any beneficial interest in the Trust were parties.
7.3 CEG shall prepare and file such tax returns and other reports as
may be required for the Trust, with any taxing authority or any other government
authority and shall provide Trustee with copies of such returns and reports as
soon as practicable following the date of filing. Trustee shall provide to CEG
such information, to the extent not already provided through written accounts
delivered to CEG pursuant to Section 7.1, as is necessary for CEG to prepare and
file such tax returns and other reports.
7.4 Nothing contained in this Trust Agreement or in the Plan shall
deprive Trustee of the right to have a judicial settlement of its accounts. In
any proceeding for a judicial settlement of the accounts of Trustee or for
instruction in connection with the Trust assets, the only necessary party
thereto in addition to Trustee shall be CEG. If Trustee so elects, it may bring
in as a party any other person or persons. No person interested in the Trust
assets, other than CEG, shall have a right to compel an accounting, judicial or
otherwise, by Trustee and each such person shall be bound by all accountings as
herein provided, as if the account had been settled by decree of
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a court of competent jurisdiction in an action or proceeding to which such
person was a party.
Section 8. RESPONSIBILITY OF TRUSTEE.
8.1 Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, provided, however, that
Trustee shall incur no liability to any person for any action taken pursuant to
a direction, request or approval given by CEG (or investment manager designated
pursuant to terms hereof) which is contemplated by, and in conformity with, the
terms of this Trust Agreement and is given in writing by CEG.
8.2 Trustee need not engage in any litigation, arbitration or
administrative proceeding related to this Trust Agreement unless first
indemnified to its reasonable satisfaction by CEG unless such litigation,
arbitration or administrative proceeding is prompted by an allegation that
Trustee has breached its duties undertaken pursuant to this Trust Agreement. If
Trustee proceeds to engage in any such litigation, arbitration or administrative
proceeding and is not so indemnified, all reasonable costs of Trustee including
reasonable attorney's fees incurred pursuant to such action shall be charged
against and paid from the Trust assets, except when the claim relates to an
allegation that
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Trustee has breached its duties in which case Trustee shall be responsible for
such costs.
Trustee may consult with any legal counsel, including, without
limitation, counsel to CEG or Trustee's own independent counsel, to assist
Trustee in the management and administration of the Trust or with respect to (a)
the meaning or construction of the terms of this Trust Agreement, (b) its
obligations or duties hereunder, (c) any act which Trustee should take or omit
hereunder, (d) any action or proceeding, or (e) any question of law. In any
action taken or omitted by Trustee in good faith pursuant to the advice of such
counsel, CEG shall indemnify and hold Trustee harmless against reasonable
litigation expenses and attorney's fees occasioned by such action; except when
Trustee acted or omitted to act upon the advice of counsel other than counsel to
CEG.
8.3 Trustee shall have, without exclusion, all powers conferred on
trustees by applicable law, unless expressly provided otherwise herein,
provided, however, that if an insurance policy is held as an asset of the Trust,
Trustee shall have no power to name a beneficiary of the policy other than the
Trust, to assign the policy (as distinct from conversion of the policy to a
different form) other than to a successor Trustee, or to loan to any person the
proceeds of any borrowing against such policy. Trustee, as assignee under split
dollar life insurance policies, may exercise the right to obtain policy loans in
accordance with the terms of the collateral assignment document.
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8.4 In executing its duties, obligations and responsibilities as herein
provided, and in addition to those powers given by law, Trustee shall have the
power, in its sole discretion:
(a) to collect and receive any and all money and other property due to
the Trust and to give full discharge therefor;
(b) to settle, compromise or submit to arbitration any claims, debts or
damages due to or owing to or from the Trust; to commence or defend suits or
legal proceedings to protect any interest of the Trust; and to represent the
Trust in all suits or legal proceedings in any court or before any other body or
tribunal;
(c) if specifically instructed by CEG, to provide benefits through the
purchase of individual or group annuity or life insurance contracts issued by
insurance companies licensed to do business in the State of New York;
(d) if specifically instructed by CEG, to act as agent for CEG to
perform multiple services for the Plan, its participants and beneficiaries and
to receive and withdraw from the Trust assets reasonable compensation therefor;
(e) to engage accountants or other advisors as Trustee may deem
necessary to control and manage the Trust assets and to carry out the purposes
of this Trust Agreement;
(f) subject to Section 5 hereof, to invest and reinvest the Trust
assets without distinction between principal and income in any form of property
not prohibited by law including, without
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limitation on the amount which may be invested therein, any common or group
trust fund operated by Trustee or in demand deposits of Trustee;
(g) to hold cash uninvested in an amount considered necessary and
practical for proper administration of the Trust and/or to deposit the same with
any banking, savings or similar financial institution supervised by the United
States or any State, including Trustee's own banking department; and
(h) to perform all such acts and exercise all such rights and
privileges consistent with applicable law and the terms of this Trust Agreement,
although not specifically mentioned herein, as Trustee may deem desirable or
necessary to control and manage the Trust assets and to carry out the purposes
of this Trust Agreement.
Except as provided under Section 13.2, if all or any part of the Trust
assets are at any time attached, garnished, or levied upon by any court order,
or in case the payment, assignment, transfer, conveyance or delivery of any such
property shall be stayed or enjoined by any court order, or in case any order,
judgment or decree shall be made or entered by a court affecting such property
or any part thereof, then and in any of such events Trustee is authorized, in
its sole discretion, to rely upon and comply with any such order, writ, judgment
or decree, and it shall not be liable to CEG (or any of its subsidiaries) or any
participant by reason of such compliance even though such order, writ, judgment
or decree subsequently may be reversed, modified, annulled, set aside or
vacated.
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8.5 Notwithstanding any powers granted to Trustee pursuant to this
Trust Agreement or to applicable law, Trustee shall not have any power that
could give this Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.
Section 9. COMPENSATION AND EXPENSES OF TRUSTEE.
9.1 CEG shall pay all administrative and Trustee's fees and expenses
(including, without limitation, reasonable fees of agents and counsel). If not
so paid, the fees and expenses shall be paid from the Trust; provided, however,
that CEG may approve in writing the automatic payment of fees, compensation and
expenses from the Trust. Trustee shall have a lien on the Trust in the amount of
such fees, expenses and compensation until the same have been paid.
9.2 CEG shall pay any federal, state, local or other taxes imposed or
levied with respect to the Trust assets under the existing or future laws.
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Section 10. RESIGNATION AND REMOVAL OF TRUSTEE.
10.1 Trustee may resign at any time by written notice to CEG, which
shall be effective 30 days after receipt of such notice unless CEG and Trustee
agree otherwise in writing.
10.2 Accept as provided in Section 10.3, Trustee may be removed by CEG
on 30 days written notice or upon shorter notice accepted by Trustee.
10.3 Upon a Change of Control, as defined in Section 13.5 hereof,
Trustee may not be removed by CEG for 2 years from the date a Change of Control
is deemed to occur under Section 13.5 hereof.
10.4 If Trustee resigns within 2 years of a Change of Control, Trustee
shall select a successor Trustee in accordance with the provisions of Section
11.2 hereof prior to the effective date of Trustee's resignation.
10.5 Upon resignation or removal of Trustee and appointment of a
successor Trustee, all Trust assets shall subsequently be transferred to the
successor Trustee. The transfer shall be completed at the later of (i) 90 days
after receipt of notice of resignation or removal of Trustee, or (ii)
appointment of successor Trustee, unless CEG extends the time limit in writing.
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10.6 If Trustee resigns or is removed, a successor shall be appointed,
in accordance with Section 11 hereof, by the effective date of resignation or
removal under Sections 10.1 or 10.2 hereof. If no such appointment has been
made, Trustee may apply to a court of competent jurisdiction for appointment of
a successor or for instructions. All expenses of Trustee in connection with the
proceeding shall be allowed as administrative expenses of the Trust.
Section 11. APPOINTMENT OF SUCCESSOR.
11.1 If Trustee resigns or is removed in accordance with Sections 10.1
or 10.2 hereof, CEG may appoint any third party, such as a bank trust department
or other party that may be granted corporate trustee powers under state law, as
a successor to replace Trustee upon resignation or removal. The appointment
shall be effective when accepted in writing by the successor Trustee, who shall
have all of the rights and powers of the former Trustee, including ownership
rights in the Trust assets. The former Trustee shall execute any instrument
necessary or reasonably requested by CEG or the successor Trustee (in which case
Trustee shall have received a copy of successor Trustee's acceptance) to
evidence the transfer of the Trust assets.
11.2 If Trustee resigns pursuant to the provisions of Section 10.4
hereof, Trustee may appoint any third party such as a bank trust department or
other party that may be granted corporate trustee powers under state law. The
appointment of a
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successor Trustee shall be effective when accepted in writing by the successor
Trustee. The successor Trustee shall have all the rights and powers of the
former Trustee, including ownership rights in Trust assets. The former Trustee
shall execute any instrument necessary or reasonably requested by the successor
Trustee to evidence the transfer of the Trust assets.
11.3 The successor Trustee need not examine the records and acts of any
prior Trustee and may retain or dispose of existing Trust assets, subject to
Sections 7 and 8 hereof. The successor Trustee shall not be responsible for and
CEG shall indemnify and defend the successor Trustee from any claim or liability
resulting from any action or inaction of any prior Trustee or from any other
past event, or any condition existing at the time it becomes successor Trustee.
11.4 In the event of such removal or resignation, Trustee shall duly
file with CEG a written account as provided in Section 7.1 hereof.
Section 12. AMENDMENT OR TERMINATION.
12.1 Except as provided in Section 12.4, this Trust Agreement may be
amended by a written instrument executed by Trustee and CEG. Notwithstanding the
foregoing, no such amendment shall conflict with the terms of the Plan or shall
make the Trust revocable.
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12.2 The Trust shall not terminate until the earlier of the date on
which Plan participants and their surviving spouses are no longer entitled to
benefits pursuant to the terms of the Plan or have received payment of all
benefits to which they are entitled under this Trust Agreement. Upon termination
of the Trust any assets remaining in the Trust shall be returned to CEG.
12.3 Upon written approval of all Plan participants and surviving
spouses entitled to payment of benefits pursuant to the terms of the Plan and
this Trust Agreement, CEG may terminate this Trust prior to the time all benefit
payments under the Plan and this Trust Agreement have been made. All Trust
assets at termination shall be returned to CEG.
12.4 This Trust Agreement may not be amended by CEG for 2 years
following a Change of Control, unless such amendment is by written agreement
between CEG and Trustee and such amendment does not adversely affect the rights
of the Plan participants and their surviving spouses entitled to payment of
benefits pursuant to terms of the Plan on the date a Change of Control is deemed
to occur.
Section 13. MISCELLANEOUS.
13.1 Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
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13.2 Benefits payable to Plan participants and their surviving spouses
under this Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subjected to attachment, garnishment,
levies, execution or other legal or equitable process, and any attempt to so
alienate, sell, transfer, assign, pledge, attach, charge or otherwise encumber
any such amount, whether presently or thereafter payable, shall be void. The
Trust shall be in no manner liable for or subject to the debts or liabilities of
any participant.
13.3 This Trust Agreement shall be governed by and construed in
accordance with the laws of the State of New York and Trustee shall be liable to
account only in the courts of that state.
13.4 All words beginning with an initial capital letter and not
otherwise defined herein shall have the meaning set forth in the Plan. All
singular terms defined in this Trust will include the plural and vice versa.
13.5 For purposes of this Trust Agreement, Change of Control shall mean
(a) the purchase or acquisition by any person, entity or group of persons
(within the meaning of section 13(d) or 14(d) of the Securities Exchange Act of
1934 (the "Exchange Act"), or any comparable successor provisions) of beneficial
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ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20 percent or more of either the outstanding shares of common stock of CEG or
the combined voting power of CEG's then outstanding shares of voting securities
entitled to a vote generally, or (b) the consummation of, following the approval
by the stockholders of CEG of a reorganization, merger, or consolidation of CEG,
in each case, with respect to which persons who were stockholders of CEG
immediately prior to such reorganization, merger, or consolidation do not,
immediately thereafter, own more than 50 percent of the combined voting power
entitled to vote generally in the election of directors of the reorganized,
merged or consolidated entity's then outstanding securities, or (c) a
liquidation or dissolution of CEG or the sale of substantially all of its
assets, or (d) a change of more than one-half of the members of the Board of
Directors of CEG within a 90-day period for reasons other than death,
disability, or retirement of such members.
13.6 CEG shall certify to Trustee the name or names of any person or
persons authorized to act for CEG under this Trust Agreement. Such certification
shall be signed by a Vice President of CEG. Until CEG notifies Trustee, in a
similarly signed notice or certification, that any such person is no longer
authorized to act for CEG, Trustee may continue to rely upon the authority of
such person.
Trustee may rely upon any certificate, schedule, notice or direction of
CEG which Trustee in good faith believes to be
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genuine, executed and delivered by a duly authorized officer or agent of CEG.
Trustee shall have no duty to verify any calculations provided by CEG in
connection with such certificate, schedule, notice or direction.
Communications to Trustee shall be sent in writing to Trustee at the
address specified in Section 13.9 hereof or to such other address as the Trustee
may specify in writing. No communication shall be binding upon the Trust or
Trustee until it is received by Trustee and unless it is in writing and signed
by an authorized person.
Communications to CEG shall be sent in writing to CEG's principal
offices at the address specified in Section 13.9 hereof or to such other address
as CEG may specify in writing. No communication shall be binding upon CEG until
it is received by CEG and unless it is in writing and signed by Trustee.
13.7 CEG shall pay and shall protect, indemnify and save harmless
Trustee and its officers, employees and agents from and against any and all
losses, liabilities (including liabilities for penalties), actions, suits,
judgments, demands, damages, costs and expenses of any nature arising from or
relating to any action by or any failure to act by Trustee (and its officers,
employees and agents) in accordance with the terms of this Trust Agreement, or
the transactions contemplated by this Trust Agreement (including any action by
Trustee on the direction or instruction of CEG or any failure to act on the part
of Trustee in the absence of directions or instructions by CEG),
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except to the extent that any such loss, liability, action, suit, judgment,
demand, damage or expense has been determined by final judgement of a court of
competent jurisdiction to be the result of the negligence or willful misconduct
of Trustee, its officers, employees or agents. To the extent that CEG has not
fulfilled its obligations under the foregoing provisions of this Section 13.7,
Trustee shall be reimbursed out of the Trust assets or may set up reasonable
reserves for the payment of such obligations. To the maximum extent permitted by
applicable law, no personal liability whatsoever shall attach to or be incurred
by any employee, officer or director of CEG, as such, under or by reason of the
terms or conditions contained in or implied from this Trust Agreement.
Trustee assumes no obligation or responsibility with respect to any
action required by this Trust Agreement on the part of CEG and shall have those
responsibilities only as expressly set forth herein.
13.8 This Trust Agreement sets forth the entire understanding of the
parties with respect to the subject matter hereof and supersedes any and all
prior agreements, arrangements and understandings relating thereto.
13.9 Any notice, report, demand, waiver or communication required or
permitted hereunder shall be in writing and shall be given personally or by
prepaid registered or certified mail, return receipt requested, addressed as
follows:
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If to CEG:
Constellation Investments, Inc.
250 West Pratt Street
Baltimore, Maryland 21201
Attention: Steven D. Kesler
If to Trustee:
Citibank, N. A.
Client Services Division
111 Wall Street, 24th Floor
New York, NY 10005
Attention: Ed Flannery
If to a participant or to a participant's
surviving spouse:
To the address shown on the most recent Payment
Schedule provided by CEG to Trustee.
Section 14. EFFECTIVE DATE.
The date of this Trust Agreement shall be July 31, 1994.
IN WITNESS WHEREOF, and intending to be legally bound hereby, CEG and
Trustee sign and seal this Trust Agreement the day and year first above written.
WITNESS: CITIBANK, N. A.:
By: (Seal)
Name: Sam Borowski
Title: Managing Director
WITNESS: CONSTELLATION ENERGY GROUP, INC.:
By: (Seal)
Name: Linda D. Miller
Title: Vice President
Human Resources
39
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Exhibit 10(h)
Executive Incentive Plan
Of
Constellation Energy Group, Inc.
1. Plan Objective. The objective of this Plan is to allow Constellation
Energy Group, Inc. (CEG or Company) to attract, retain and motivate
highly competent officers and key employees of the Company and its
subsidiaries by focusing incentive compensation toward the achievement
of performance results that primarily support the interests of
shareholders and customers of the Company.
2. Plan Administration. The Plan is administered by the CEG Board of
Directors' (Board) Committee on Management (Committee on Management)
which has sole authority (unless otherwise specified herein) to
interpret the Plan; to refine its provisions from time to time subject
to Board approval, particularly those relating to factors, targets and
procedures used in connection with calculating the awards (which
refinements shall be reflected in guidelines for the performance year);
to suspend the Plan at any time; and in general, to make all other
determinations necessary or advisable for the administration of the
Plan to achieve its stated objective.
The Committee on Management shall have the power to delegate all or any
part of their duties to one or more designees, and to withdraw such
authority, by written designation.
3. Eligibility. Each officer or key employee of CEG or its subsidiaries
may be designated in writing by the Committee on Management as a
participant under the Plan. Once designated, participation shall
continue until such designation is withdrawn at the discretion and by
written order of the Committee on Management. Participation is subject
to the following conditions:
Participant must have been an eligible participant for some
portion of the performance year and at the time of
distribution be actively employed by the Company or elsewhere
with the approval of the Company unless employment was
terminated by death, disability or retirement. Except as
otherwise provided herein, where an individual is not an
eligible participant for the entire performance year, the
amount of the award, whether full, partial or none, will be at
the Committee on Management's discretion, subject to Board
approval.
Where, prior to the end of a performance year, a participant's
active employment is terminated as a result of death,
disability
1
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or retirement, the award is calculated based on the
participant's position at the time of termination. Unless
otherwise stated, any such award will be made on a pro-rata
basis for the period of active employment, or, in total, at
the discretion of the Committee on Management. Where active
employment is terminated as a result of death of participant,
distribution is made in accordance with Section 9.
(Designation of Beneficiary) of this Plan.
4. Performance Goals
A. Performance Targets. The Committee on Management shall
establish for each plan year Performance Targets designed to
accomplish the purpose set forth in Section 1 of this Plan.
The Committee on Management will ensure that each plan year's
Performance Targets meet the following general criteria:
(1) The interests of the Company's shareholders will be
balanced with the interests of the Company's
customers.
(2) The targets should be set at levels which are
attainable, but which, in the Committee on
Management's judgment, are attainable only with a
high degree of competence and diligence.
The Committee on Management shall have sole authority to amend
Performance Targets at any time when, in the Committee's
judgment, unforeseen circumstances exist which require
modification in order to ensure that the purpose of the Plan
is properly served.
The Committee on Management shall have authority to establish
appropriate Performance Targets, differing to the degree
necessary from those established for the Company, for each of
the Company's subsidiaries employing one or more participants
in this Plan; and shall have authority to adjust such targets
subsequently should unforeseen circumstances arise.
B. Individual Performance. A participant's individual per-
formance will be evaluated by the Chairman of the Board.
5. Award Opportunity. The Committee on Management shall establish for each
plan year the Award Opportunity (minimum, target, and maximum, as
appropriate) applicable to participants in the Plan. The Award
Opportunity may be allocated among the various
2
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Performance Targets and Individual Performance and may vary among
classes of participants.
6. Award Determination. The Committee on Management, with the concurrence
of the Board, shall determine the Awards, if any, to be made for each
plan year as soon after the end of the plan year as is practical. In
the case of participants in this Plan employed by a subsidiary of the
Company, the Award, if any, will be recommended by the non-employee
members of the board of directors of that subsidiary and subsequently
approved by the Committee on Management.
Awards are calculated taking into account the degree of attainment of
performance targets, individual performance, and the percent of
participation during the performance year. The dollar amount of the
participants' award is determined by multiplying the participant's
prior December 31 annualized base salary by the award percentage. All
amounts awarded to participants are subject to the approval of the
Board.
7. Payment of Awards. Awards approved by the Board for each plan year
shall be paid as soon as practicable after such determination has been
made. Payment may be made in a lump cash sum or, at the participants'
election, may be deferred in whole or in part. When required by
applicable law, Federal, State and FICA taxes will be withheld from
awards at applicable rates.
Awards will not be paid for any performance year in which Company
earnings are less than the amount necessary to fund the annual
dividend. Additionally, awards will not be paid for any plan year in
which the dividend is suspended or effectively reduced from its prior
amount.
8. Deferred Payment of Award. A participant may elect to defer the receipt
of all or a portion of the award for the plan year. Any such deferral
and investment of any such amounts deferred pursuant to this Plan shall
be made in accordance with the provisions of the CEG Nonqualified
Deferred Compensation Plan.
9. Designation of Beneficiary. A participant shall have the right to
designate a beneficiary or beneficiaries who are to receive in a lump
sum any undistributed incentive compensation award to the extent a
participant has chosen not to defer all or a portion of his incentive
award pursuant to Section 8 hereof, should the participant die during
the plan year and be entitled to an incentive award for that plan year.
Such designation shall apply only to the portion of the undistributed
incentive award not subject to a deferral election. Any
3
<PAGE>
designation, change or rescission of the designation shall be made in
writing by completing and furnishing to the Vice President - Human
Resources of the Company a notice on an appropriate form designated by
the Vice President - Human Resources of the Company. The last
designation of beneficiary received by the Vice President - Human
Resources of the Company shall be controlling over any testamentary or
purported disposition by the participant, provided that no designation,
rescission or change thereof shall be effective unless received prior
to death of the participant. Distribution of any incentive awards
previously deferred pursuant to Section 8 of the Plan shall be paid to
the beneficiary or beneficiaries designated under the CEG Nonqualified
Deferred Compensation Plan.
10. Miscellaneous. The plan year and the performance year shall be the same
and shall be the calendar year.
Any payments made under this Plan are not considered as earnings for
purpose of the Company's qualified pension or Employee Saving Plan, or
for any other general employee benefit program. However, all payments
made under this Plan will be included in the determination of benefits
provided under the Company's Executive Benefits Plan.
None of the payments provided under this Plan which are deferred shall
be subject to alienation or assignment by any participant or
beneficiary nor shall any of them be subject to attachment or
garnishment or other legal process except to the extent specifically
mandated and directed by applicable State or Federal statute. Payment
shall be made only into the hands of the participant or beneficiary
entitled to receive the same or into the hands of his or her authorized
legal representative. Deposit of any sum into any financial institution
to the credit of the participant or beneficiary entitled thereto shall
constitute payment into his or her hands. Notwithstanding the
foregoing, at the request of the participant or beneficiary or as
required by law, such sums as may be requisite for payment of any
estimated or currently accrued income tax liability may be withheld and
paid over to the governmental entity entitled to receive the same.
Participation in this Plan shall not constitute a contract of
employment between the Company and any employee and shall not be deemed
to be consideration for, inducement to, or a condition of employment of
any person. The deferral of any incentive compensation amounts pursuant
to the provisions of the Plan shall not be construed to give any
employee the right to be retained in the employ of the Company or to
interfere with the right of the company to terminate such employment at
any time.
4
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The Board intends to continue the Plan indefinitely but reserves the
right to amend the Plan from time to time or to permanently discontinue
it provided none of these, nor any suspension, may deprive the
participants of any payment of amounts which were previously awarded at
the time thereof.
5
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Exhibit 10(i)
Summary
Severance Arrangement
For A Named Executive Officer
In connection with Bruce M. Ambler's early retirement, and in
recognition of his service as President and Chief Executive Officer of
Constellation Holdings, Inc., he received a severance package when he retired on
January 1, 1999. His severance benefits include a $509,503 lump sum severance
payment equal to the total of (1) annual base salary, (2) average of the two
highest annual bonus percentages earned during the preceding five years
multiplied by the prior year's final annual salary, (3) payment toward the cost
of active employee health coverage for 12 months, and (4) vacation accrual. He
also receives a pension benefit computed at 60% of total final average salary
plus bonus, and retired executive life insurance, home security, planning, and
club membership benefits. His effective cost of medical and dental benefits
beginning January 1, 2000 will be the same as if he were retired at age 60 with
20 years of service. Mr. Ambler received a 1998 short-term incentive payment,
and will be entitled to a prorata payout of any earned performance-based
restricted stock award for the 1997-1999 and 1998-2000 performance periods.
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Exhibit 10(j)
SEVERANCE AGREEMENT
This Agreement is made the ___ day of _____________, 1999, by
and between CONSTELLATION ENERGY GROUP, INC. (the "Company") and
_______________________ (the "Executive").
WHEREAS, the Company wishes to encourage the orderly
succession of management in the event of a Change in Control (as hereinafter
defined); and
WHEREAS, the Company desires to establish a severance benefit
for the Executive covering the period from the date of a Change in Control (as
hereinafter defined) until the end of the twenty-four month period following the
date of a Change in Control, to avoid the loss or the serious distraction of the
Executive to the detriment of the Company and its stockholders prior to and
during such period when the Executive's undivided attention and commitment to
the needs of the Company would be particularly important; and
WHEREAS, the Executive desires to devote his time and energy
for the benefit of the Company and its stockholders and not to be distracted as
a result of a Change in Control.
NOW, THEREFORE, the parties agree as follows:
1. Definitions.
1.1 Board. The term "Board" means the Board of Directors of
the Company.
1.2 Change in Control. The term "Change in Control" means:
(i) the purchase or acquisition by any person, entity or group
of persons (within the meaning of section 13(d) or 14(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"), or any comparable
successor provisions), of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 20 percent or more of
either the outstanding shares of common stock of the Company or the
combined voting power of the Company's then outstanding shares of
voting securities entitled to a vote generally, or
(ii) the consummation of, following the approval by the
Company's stockholders of, a reorganization, merger or consolidation of
the Company, in each case, with respect to which persons who were
stockholders of the Company
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immediately prior to such reorganization, merger or consolidation do
not, immediately thereafter, own more than 50 percent of the combined
voting power entitled to vote generally in the election of directors of
the reorganized, merged or consolidated entity's then outstanding
securities, or
(iii) a liquidation or dissolution of the Company or the sale
of substantially all of its assets, or
(iv) a change of more than one-half of the members of the
Board within a 90-day period for reasons other than the death,
disability, or retirement of such members.
1.3 Qualifying Termination.
(a) The occurrence of any one or more of the following events
within twenty-four calendar months after the date of a Change in Control shall
constitute a "Qualifying Termination":
(i) The Company's termination of the Executive's employment
without Cause (as defined in Section 1.7); or
(ii) The Executive's resignation for Good Reason (as defined
in Section 1.6).
(b) A Qualifying Termination shall not include a termination
of employment by reason of death, disability, the Executive's voluntary
termination of employment without Good Reason, or the Company's termination of
the Executive's employment for Cause.
1.4 Ineligible to Retire. Ineligible to Retire, means an
Executive who has not either (i) attained age 55 and completed 20 years of
service with the Company and any successor company and any Affiliate or (ii)
attained age 60 and completed one year of service with the Company and any
successor company and any Affiliate, upon the occurrence of a Qualifying
Termination.
1.5 Eligible to Retire. Eligible to Retire, means an Executive
who has either (i) attained age 55 and completed 20 years of service with the
Company and any successor company and any Affiliate or (ii) attained age 60 with
one year of service with the Company and any successor company and any
Affiliate, upon the occurrence of a Qualifying Termination.
1.6 Good Reason. Good Reason means, without the Executive's
express written consent, the occurrence after the date of a Change in Control of
any one or more of the following:
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(a) The assignment to the Executive of duties materially
inconsistent with the Executive's authorities, duties, responsibilities, and
status (including offices, title and reporting relationships) as an executive
and/or officer of the Company or an Affiliate immediately prior to the date of
the Change in Control, or a material reduction or alteration in the nature or
status of the Executive's authorities, duties, or responsibilities from those in
effect immediately prior to the date of the Change in Control, unless such act
is remedied by the Company or such Affiliate within 10 business days after
receipt of written notice thereof given by the Executive; or
(b) A reduction by the Company or an Affiliate of the
Executive's base salary in effect immediately prior to the date of the Change in
Control or as the same shall be increased from time to time, unless such
reduction is less than ten percent (10%) and it is either (i) replaced by an
incentive opportunity equal in value; or is (ii) consistent and proportional
with an overall reduction in management compensation due to extraordinary
business conditions, including but not limited to reduced profitability and
other financial stress (i.e., the base salary of the Executive will not be
singled out for reduction in a manner inconsistent with a reduction imposed on
other executives of the Company or such Affiliate); or
(c) The relocation of the Executive's office more than 50
miles from the Executive's office immediately prior to the date of the Change in
Control; or
(d) Failure of the Company or an Affiliate (whichever is the
Executive's employer) to provide (i) the Executive the opportunity to
participate in all applicable incentive, savings and retirement plans,
practices, policies and programs of the Company or such Affiliate to the same
extent as other senior executives (or, where applicable, retired senior
executives) of the Company or such Affiliate, and (ii) the Executive and/or the
Executive's family, as the case may be, the opportunity to participate in, and
receive all benefits under, all applicable welfare benefit plans, practices,
policies and programs provided by the Company or such Affiliate, including,
without limitation, medical, prescription, dental, disability, sick benefits,
employee life insurance, accidental death and travel insurance plans and
programs, to the same extent as other senior executives (or, where applicable,
retired senior executives) of the Company or such Affiliate; or
(e) Failure of the Company or an Affiliate (whichever is the
Executive's employer) to provide the Executive such perquisites as the Company
or such Affiliate may establish from time to time which are commensurate with
the Executive's position
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and at least comparable to those received by other senior executives at the
Company or such Affiliate; or
(f) The failure by the Company to comply with paragraph (c) of
Section 11 of this Agreement; or
(g) Any other substantial breach of this Agreement by the
Company that either is not taken in good faith or is not remedied by the Company
promptly after receipt of notice thereof from the Executive.
The Executive's right to terminate employment for Good Reason
shall not be affected by the Executive's incapacity due to physical or mental
illness. The Executive's continued employment shall not constitute consent to,
or a waiver of rights with respect to, any circumstance constituting Good Reason
herein.
1.7 Cause. Cause shall mean the occurrence of any one or more
of the following:
(a) The Executive is convicted of a felony involving moral
turpitude; or
(b) The Executive engages in conduct or activities that
constitutes disloyalty to the Company or an Affiliate and such conduct or
activities are materially damaging to the property, business or reputation of
the Company or an Affiliate; or
(c) The Executive persistently fails or refuses to comply with
any written direction of an authorized representative of the Company other than
a directive constituting an assignment described in Section 1.6(a); or
(d) The Executive embezzles or knowingly, and with intent,
misappropriates property of the Company or an Affiliate, or unlawfully
appropriates any corporate opportunity of the Company or an Affiliate.
A termination of the Executive's employment for Cause for
purposes of this Agreement shall be effected in accordance with the following
procedures. The Company shall give the Executive written notice ("Notice of
Termination for Cause") of its intention to terminate the Executive's employment
for Cause, setting forth in reasonable detail the specific conduct of the
Executive that it considers to constitute Cause and the specific provision(s) of
this Agreement on which it relies, and stating the date, time and place of the
Board Meeting for Cause. The "Board Meeting for Cause" means a meeting of the
Board at which the Executive's termination for Cause will be considered, that
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takes place not less than ten (10) and not more than twenty (20) business days
after the Executive receives the Notice of Termination for Cause. The Executive
shall be given an opportunity, together with counsel, to be heard at the Board
Meeting for Cause. The Executive's Termination for Cause shall be effective when
and if a resolution is duly adopted at the Board Meeting for Cause by a
two-thirds vote of the entire membership of the Board, excluding employee
directors, stating that in the good faith opinion of the Board, the Executive is
guilty of the conduct described in the Notice of Termination for Cause, and that
conduct constitutes Cause under this Agreement.
1.8 Annual Award Amount. The average of the two highest annual
incentive awards under the Company's Executive Incentive Plan (or the annual
cash incentive plan maintained by a successor company or an Affiliate) paid in
the last five years to the Executive prior to the occurrence of the Qualifying
Termination.
1.9. Affiliate. The term "Affiliate" means any company
directly or indirectly controlling, controlled by or under common control with
the Company or any successor company.
2. Severance Benefits for an Executive Ineligible to Retire.
Upon the occurrence of a Qualifying Termination with respect to an Executive who
is Ineligible to Retire:
(a) Severance Payment. The Company shall pay to the Executive
an amount equal to two times the Executive's annual base salary (as in effect on
the date of the Qualifying Termination, not reduced by any reduction described
in Section 1.6(b) above) and Annual Award Amount. The payment shall be made in
twenty-four equal monthly installments beginning on the first day of the month
following the Qualifying Termination.
(b) Supplemental Retirement Benefits. For purposes of
determining the Executive's supplemental retirement benefits which the Executive
is entitled to under the Company's Executive Benefits Plan (or the supplemental
retirement plan maintained by a successor company or an Affiliate), (i) the
Executive's age shall be deemed equal to the greater of (A) age 55 or (B) the
Executive's actual age, (ii) the Executive's service shall be deemed equal to
the greater of (A) 10 or (B) the Executive's actual service plus 3, and (iii)
any minimum service eligibility requirements for such benefits shall be waived.
(c) Severance Health Benefits. The Company shall provide to
the Executive and the Executive's family medical and dental benefits on the same
basis and on the same terms as any retiree of the Company or a successor or an
Affiliate (whichever
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is the Executive's employer) who has attained the deemed age and service used to
compute supplemental retirement benefits in Section 2(b) above.
(d) Split Dollar. The Qualifying Termination shall not
constitute a termination of the Split Dollar Agreement between the Company and
the Executive (or the split dollar agreement between a successor company or an
Affiliate and the Executive), and the Executive shall be deemed to have retired
upon such Qualifying Termination for purposes of such Split Dollar Agreement (or
the split dollar agreement between a successor company or an Affiliate and the
Executive).
3. Severance Benefits for an Executive Eligible to Retire.
Upon the occurrence of a Qualifying Termination with respect to an Executive who
is Eligible to Retire:
(a) Severance Payment. The Company shall pay to the Executive
an amount equal to two times the Executive's annual base salary (as in effect on
the date of the Qualifying Termination, not reduced by any reduction described
in Section 1.6(b) above) and Annual Award Amount. The payment shall be made in
twenty-four equal monthly installments beginning on the first day of the month
following the Qualifying Termination.
(b) Supplemental Retirement Benefits. For purposes of
determining the Executive's supplemental retirement benefits which the Executive
is entitled to under the Company's Executive Benefits Plan (or the supplemental
retirement plan maintained by a successor company or an Affiliate), (i) the
Executive's service shall be deemed equal to the greater of (A) 10 or (B) the
Executive's actual service, and (ii) the Early Retirement Adjustment Factor (as
such term is defined in the Company's Pension Plan or within the meaning of the
tax qualified retirement plan maintained by a successor company or such
Affiliate) will be one (l).
(c) Severance Health Benefits. The Company shall provide to
the Executive and the Executive's family medical and dental benefits on the same
basis and on the same terms as any retiree of the Company or a successor company
or an Affiliate (whichever is the Executive's employer) who has attained age 65
and completed the greater of 20 years or actual years of service.
(d) Retirement. The Executive shall be treated as having
retired at the Company's request for purposes of all of the Company's benefit
plans (or the benefit plans maintained by a successor company or an Affiliate
(whichever is the Executive's employer)).
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4. Non-Exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or a successor company or an
Affiliate (whichever is the Executive's employer) for which the Executive may
qualify, nor shall anything in this Agreement limit or otherwise affect such
rights as the Executive may have under any contract or agreement with the
Company or a successor Company or such Affiliate. Vested benefits and other
amounts that the Executive is otherwise entitled to receive under any incentive
compensation, deferred compensation and other benefit programs listed in Section
1.6(d), life insurance coverage, or any other plan, policy, practice or program
of, or any contract or agreement with, the Company or a successor Company or
such Affiliate on or after the date of the Qualifying Termination shall be
payable in accordance with the terms of each such plan, policy, practice,
program, contract or agreement, as the case may be, except as explicitly
modified by this Agreement.
5. Full Settlement. The Company's obligation to make the
payments provided for in, and otherwise to perform its obligations under, this
Agreement shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action that the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and, such amounts
shall not be reduced, regardless of whether the Executive obtains other
employment.
6. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of the Executive (other than a
payment or distribution made in respect of any program in which the Executive
participated prior to the Change in Control, while employed by Constellation
Energy Group, Inc. or an Affiliate, regardless whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, and determined without regard to any additional payments required
under this Section 6) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or
any interest or penalties are incurred by the Executive with respect to such
excise tax (such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the Executive
shall be entitled to receive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by the Executive of all taxes (including
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any interest or penalties imposed with respect to such taxes), including,
without limitation, any income taxes (and any interest and penalties imposed
with respect thereon) and Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of paragraph (c) of this Section
6, all determinations required to be made under this Section 6, including
whether and when a Gross-Up Payment is required and the amount of such Gross-Up
Payment and the assumptions to be utilized in arriving at such determination,
shall be made by one of the major internationally recognized certified public
accounting firms (commonly referred to, as of the date hereof, as a Big Five
firm) designated by the Executive and approved by the Company (which approval
shall not be unreasonably withheld) (the "Accounting Firm"), which shall provide
detailed supporting calculations both to the Company and the Executive within
fifteen (15) business days of the receipt of notice from the Executive that
there has been a Payment, or such earlier time as is requested by the Company.
In the event that the Accounting Firm is serving as accountant or auditor for
the individual, entity or group affecting the change of control, the Executive
shall designate another Big Five accounting firm (subject to the approval of the
Company, which approval shall not be unreasonably withheld) to make the
determinations required hereunder (which accounting firm shall then be referred
to as the Accounting Firm hereunder). All fees and expenses of the Accounting
Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section 6, shall be paid by the Company to the Executive within
five (5) days of the receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding upon the Company and the
Executive. As a result of the uncertainty in the application of Section 4999 of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Company should have been made ("Underpayment") consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to paragraph (c) of this Section 6 and the
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no
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later than ten (10) business days after the Executive is informed in writing of
such claim and shall apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid. The Executive shall not pay
such claim prior to the expiration of the thirty (30) day period following the
date on which he gives such notice to the Company (or such shorter period ending
on the date that any payment of taxes with respect to such claim is due). If the
Company notifies the Executive in writing prior to the expiration of such period
that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
PROVIDED, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this paragraph (c) of Section 6, the Company shall control all proceedings taken
in connection with such contest and, at its sole option, may pursue or forego
any and all administrative appeals, proceedings, hearings and conferences with
the taxing authority in respect of such claim and may, at its sole option,
either direct the Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the Executive agrees to
prosecute such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; PROVIDED, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect thereto)
imposed with respect
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to such advance or with respect to any imputed income with respect to such
advance; and PROVIDED, further, that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Executive with respect
to which such contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would be payable
hereunder and the Executive shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to paragraph (c) of this Section 6, the
Executive becomes entitled to receive any refund with respect to such claim, the
Executive shall promptly take all necessary action to obtain such refund and
(subject to the Company's complying with the requirements of paragraph (c) of
this Section 6) upon receipt of such refund shall promptly pay to the Company
the amount of such refund (together with any interest paid or credited thereon
after taxes applicable thereto). If after the receipt by the Executive of an
amount advanced by the Company pursuant to paragraph (c) of this Section 6, a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of thirty (30) days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.
7. Termination of Agreement. This Agreement shall remain in
effect from the date hereof until the last day of the twenty-fourth calendar
month following the date of a Change in Control. Further, upon the date of a
Change in Control, this Agreement shall continue until the Company or its
successor shall have fully performed all of its obligations thereunder with
respect to the Executive, with no future performance being possible.
Notwithstanding the foregoing, this Agreement may be terminated by the Board at
any time prior to the date of a Change in Control.
8. Amendment of Agreement. This Agreement may be amended by
the Board at any time prior to the date of a Change in Control. At and after the
date of a Change in Control, this Agreement may not be amended in any respect
without the written consent of the Executive.
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9. Construction. Wherever any words are used herein in the
masculine gender they shall be construed as though they were also used in the
feminine gender in all cases where they would so apply, and wherever any words
are used herein in the singular form, they shall be construed as though they
were also used in the plural form in all cases where they would so apply.
10. Governing Law. This Agreement shall be governed by the
laws of Maryland.
11. Successors and Assigns.
(a) This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would have been required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean both
the Company as defined above and any such successor that assumes and agrees to
perform this Agreement, by operation of law or otherwise.
12. Indemnification. The Company will pay all reasonable fees
and expenses, if any, (including, without limitation, legal fees and expenses)
that are incurred by the Executive to enforce this Agreement and that result
from a breach of this Agreement by the Company.
13. Notice. Any notices, requests, demands, or other
communications provided for by this Agreement shall be sufficient if in writing
and if sent by registered or certified mail to the Executive at the last address
he has filed in writing with the Company, or in the case of the Company, to its
principal offices.
14. Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement. If any provision of this Agreement shall
be held invalid or unenforceable in part, the remaining portion of such
provision, together with all other provisions of this Agreement, shall remain
valid and enforceable and continue in full force and effect to the fullest
extent consistent with law.
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15. Withholding. Notwithstanding any other provision of this
Agreement, the Company may withhold from amounts payable under this Agreement
all federal, state, local and foreign taxes that are required to be withheld by
applicable laws or regulations.
16. Entire Agreement. Unless otherwise specifically provided
in this Agreement, the Executive and the Company acknowledge that this Agreement
supersedes any other agreement between them or between the Executive and the
Company or an Affiliate, concerning the subject matter hereof.
17. Alienability. The rights and benefits of the Executive
under this Agreement may not be anticipated, alienated or subject to attachment,
garnishment, levy, execution or other legal or equitable process except as
required by law. Any attempt by the Executive to anticipate, alienate, assign,
sell, transfer, pledge, encumber or charge the same shall be void. Payments
hereunder shall not be considered assets of the Executive in the event of
insolvency or bankruptcy.
18. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and said counterparts
shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization of the Board, the Company
has caused this Agreement to be executed in its name on its behalf, all as of
the day and year first above written.
CONSTELLATION ENERGY GROUP, INC.
By:_______________________________
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Exhibit 10(k)
Plan Document for the
CONSTELLATION ENTERPRISES, INC.
Deferred Compensation Plan for
Non-Employee Directors
EFFECTIVE JULY 17, 1998
<PAGE>
Constellation Enterprises, Inc.
Deferred Compensation Plan
For Non-Employee Directors
1. Objective. The objective of this Plan is to provide a portion of the
Compensation of non-employee Directors of CEI in the form of Stock
Units, thereby promoting a greater identity of interest between CEI's
non-employee Directors and its parent company's stockholders, and to
enable such Directors to defer receipt of the portion of their
Compensation that is payable in cash.
2. Definitions. As used herein, the following terms will have the meaning
specified below:
"Annual Retainer" means the amount payable by CEI to a Director as annual
compensation for performance of services as a Director, and includes
Committee Chair retainers. All other amounts (including without
limitation Board/committee meeting fees, and expense reimbursements)
shall be excluded in calculating the amount of the Annual Retainer.
"BGE" means Baltimore Gas and Electric Company, a Maryland corporation, or its
successor.
"Board" means the Board of Directors of CEI.
"Cash Account" means an account by that name established pursuant to Section
7. The maintenance of Cash Accounts is for bookkeeping purposes only.
"Change in Control" means (i) the purchase or acquisition by any person, entity
or group of persons (within the meaning of section 13(d) or 14(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"), or any comparable
successor provisions), of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 20 percent or more of
either the outstanding shares of common stock of BGE or the combined
voting power of BGE's then outstanding shares of voting securities
entitled to a vote generally, or (ii) the approval by the stockholders
of BGE of a reorganization, merger or consolidation, in each case, with
respect to which persons who were stockholders of BGE immediately prior
to such reorganization, merger or consolidation do not, immediately
thereafter, own more than 50 percent of the combined voting power
entitled to vote generally in the election of directors of the
reorganized, merged or consolidated entity's then outstanding
securities,
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or (iii) a liquidation or dissolution of BGE or the sale of
substantially all of its assets, or (iv) a change of more than one-half
of the members of the board of directors of BGE within a 90-day period
for reasons other than the death, disability, or retirement of such
members, or (v) the purchase or acquisition by any person, entity or
group of persons (within the meaning of section 13(d) or 14(d) of the
Exchange Act, or any comparable successor provisions), of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20 percent or more of either the outstanding shares of
common stock of CEI or the combined voting power of CEI's then
outstanding shares of voting securities entitled to a vote generally
unless such purchase or acquisition is deemed to have occurred as the
result of a reorganization, merger or consolidation involving BGE, or
(vi) the approval by the stockholders of CEI of a reorganization, merger
or consolidation, in each case, with respect to which persons who were
stockholders of CEI immediately prior to such reorganization, merger or
consolidation do not, immediately thereafter, own more than 50 percent
of the combined voting power entitled to vote generally in the election
of directors of the reorganized, merged or consolidated entity's then
outstanding securities, or (vii) a liquidation or dissolution of CEI or
the sale of substantially all of its assets, or (viii) a change of more
than one-half of the members of the Board of Directors of CEI within a
90-day period for reasons other than the death, disability, or
retirement of such members.
"CEI" means Constellation Enterprises, Inc., a Maryland corporation, or its
successor.
"Common Stock" means the common stock, without par value, of BGE.
"Compensation" means any Annual Retainer and meeting fees payable by CEI to a
participant in his/her capacity as a Director. Compensation excludes
expense reimbursements paid by CEI to a participant in his/her capacity
as a Director.
"Deferred Cash Compensation" means any cash Compensation that is voluntarily
deferred by a participant pursuant to Section 6.
"Director" means a member of the Board who is not an employee of CEI or any of
its subsidiaries/affiliates.
"Disability" or "Disabled" means that the Plan Administrator has determined that
the participant is unable to fulfill his/her responsibilities of Board
membership because of illness or injury. For purposes of this Plan, a
participant's eligibility to participate shall be deemed to have
terminated
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on the date he/she is determined by the Plan Administrator to be
Disabled.
"Earnings" means, with respect to the Cash Account, hypothetical interest
credited to the Cash Account. "Earnings" means, with respect to the
Stock Account, hypothetical dividends credited to the Stock Account.
"Fair Market Value" means, as of any specified date, the average closing price
of a share of Common Stock, reported in "New York Stock Exchange
Composite Transactions" as published in the Eastern Edition of The Wall
Street Journal for the most recent 30 days during which Common Stock was
traded on the New York Stock Exchange (including such valuation date if
a trading date).
"Plan Accounts" means a participant's Cash Account and/or Stock Account. The
maintenance of Plan Accounts is for bookkeeping purposes only.
"Plan Administrator" means, as set forth in Section 3, the Board.
"Stock Account" means an account by that name established pursuant to Section
8. The maintenance of Stock Accounts is for bookkeeping purposes only.
"Stock Unit(s)" means the share equivalents credited to a Participant's Stock
Account pursuant to Section 8. The use of Stock Units is for bookkeeping
purposes only; the Stock Units are not actual shares of Common Stock.
CEI will not reserve or otherwise set aside any Common Stock for or to
any Stock Account.
3. Plan Administration.
(i) Plan Administrator - The Plan is administered by the Board, who has sole
authority to interpret the Plan, and, in general, to make all other
determinations advisable for the administration of the Plan to achieve
its stated objective. Decisions by the Plan Administrator shall be final
and binding upon all persons for all purposes. The Plan Administrator
shall have the power to delegate all or any part of its
non-discretionary duties to one or more designees, and to withdraw such
authority, by written designation.
(ii) Amendment - This Plan may be amended from time to time or suspended or
terminated at any time, at the written direction of the Plan
Administrator. However, amendments required to keep the Plan in
compliance with applicable laws and
3
<PAGE>
regulations may be made by the Secretary of CEI (or other officer of CEI
succeeding to that function) on advice of counsel. Nothing herein
creates a vested right.
(iii) Indemnification - The Plan Administrator (and its designees), Chairman
of the Board, Chief Executive Officer, President, and Secretary of CEI
and all other employees of CEI or its subsidiaries/affiliates whose
assigned duties include matters under the Plan, shall be indemnified by
CEI or its subsidiaries/affiliates or from proceeds under insurance
policies purchased by CEI or its subsidiaries/affiliates, against any
and all liabilities arising by reason of any act or failure to act made
in good faith pursuant to the provisions of the Plan, including expenses
reasonably incurred in the defense of any related claim.
4. Eligibility and Participation.
(i) Mandatory participation - A Director is required to participate in this
Plan with respect to the receipt of fifty percent (50%) of his/her
Annual Retainer in the form of Stock Units under Section 5 of the Plan,
while so classified.
(ii) Voluntary participation - A Director is eligible to participate in the
Plan by electing to defer the remainder of the participant's
Compensation, that is payable in cash, under Section 6 of the Plan,
while so classified.
(iii) Termination of participation - Eligibility to participate shall
terminate on the date the participant ceases to be a Director.
Notwithstanding termination of eligibility, such person with Plan
Accounts will remain a participant of the Plan, solely for purposes of
the administration of existing Plan Accounts, and no additional Stock
Units will be granted and no further deferrals of cash Compensation
under the Plan will be permitted.
5. Mandatory Stock Units. The Stock Account of a participant will be
credited on January 1 of each calendar year with Stock Units equal to
the number of shares of Common Stock (including fractions of a share)
that could have been purchased, with fifty percent (50%) of the
participant's Annual Retainer for such calendar year, at Fair Market
Value on such January 1.
If a participant initially becomes eligible to participate in the Plan
during a calendar year, the Stock Account of the participant for such
calendar year will be credited, on the date that is the first day of the
calendar month after the
4
<PAGE>
participant initially becomes eligible to participate in the Plan, with
Stock Units equal to the number of shares of Common Stock (including
fractions of a share) that could have been purchased at Fair Market
Value on such date, with an amount equal to (i) fifty percent (50%) of
the participant's Annual Retainer multiplied by (ii) a fraction the
numerator of which is the number of full calendar months in the calendar
year on and after such date, and the denominator of which is 12.
The Stock Account will be maintained pursuant to Section 8.
6. Cash Compensation Deferral Election. A participant may elect to defer
all of his/her Annual Retainer that is payable in cash (i.e., fifty
percent (50%) of the Annual Retainer) and/or may elect to defer all of
his/her other Compensation that is payable in cash (i.e., one hundred
percent (100%) of all other Compensation). A participant's cash
Compensation deferral election with respect to the Annual Retainer shall
specify whether the deferred Annual Retainer is to be credited to the
Cash Account or to the Stock Account. All other Cash Compensation that a
participant elects to defer will be credited to the Cash Account.
Such election shall be made by written notification to the Secretary of
CEI (or other officer of CEI succeeding to that function). Such election
shall be made prior to the calendar year during which the applicable
cash Compensation is payable, and shall be effective as of the first day
of such calendar year. If a participant initially becomes eligible to
participate in the Plan during a calendar year, the election for such
calendar year must be made within thirty (30) calendar days after the
date the participant initially becomes eligible to participate in the
Plan, and shall be effective with respect to Compensation earned after
the date the election is received by the Secretary of CEI (or other
officer of CEI succeeding to that function). Elections under this
Section shall remain in effect for all succeeding calendar years until
revoked. Elections may be revoked by written notification to the
Secretary of CEI (or other officer of CEI succeeding to that function),
and shall be effective as of the first day of the calendar year
following the calendar year during which the revocation is received by
the Secretary of CEI.
Notwithstanding anything herein contained to the contrary, the Plan
Administrator shall have the right in its sole discretion to permit a
participant to defer a portion (rather than all) of his/her Annual
Retainer and/or other Compensation that is payable in cash.
5
<PAGE>
7. Cash Accounts. Cash Compensation that consists of the Annual Retainer
that a participant has elected to defer into the Cash Account is
credited to the participant's Cash Account on January 1 (or if later,
the date the participant's initial election to participate in the Plan
becomes effective). All other cash Compensation that a participant has
elected to defer is credited to the participant's Cash Account on each
date such cash Compensation would otherwise have been paid to the
Director. A participant's Cash Account shall be credited with earnings
at the rate earned by the Interest Income Fund under the Baltimore Gas
and Electric Company Employee Savings Plan, and computed in the same
manner as under such plan. Earnings are credited to the Cash Account
commencing on the date the applicable Deferred Cash Compensation is
credited to the Cash Account.
8. Stock Accounts. Cash Compensation that consists of the Annual Retainer
that a participant has elected to defer into the Stock Account is
credited to the participant's Stock Account on January 1 (or if later,
the date the participant's initial election to participate in the Plan
becomes effective). A participant's Stock Account shall be credited with
Stock Units equal to the number of shares of Common Stock (including
fractions of a share) that could have been purchased with such Deferred
Cash Compensation, at Fair Market Value on such date. Grants of
mandatory Stock Units are credited to the Stock Account as set forth in
Section 5.
As of any dividend distribution date for the Common Stock, the
participant's Stock Account shall be credited with additional Stock
Units equal to the number of shares of Common Stock (including fractions
of a share) that could have been purchased, at the closing price of a
share of Common Stock on such date as reported in "New York Stock
Exchange Composite Transactions" as published in the Eastern Edition of
the The Wall Street Journal, with the amount which would have been paid
as dividends on that number of shares (including fractions of a share)
of Common Stock which is equal to the number of Stock Units then
credited to the participant's Stock Account.
In the event of any change in the outstanding shares of Common Stock by
reason of any stock dividend or split, recapitalization, combination or
exchange of shares or other similar changes in the Common Stock, then
appropriate adjustments shall be made in the number of Stock Units in
each participant's Stock Account. Such adjustments shall be made
effective on the date of the change related to the Common Stock.
6
<PAGE>
9. Distributions of Plan Accounts. Distributions of Plan Accounts shall be
made in cash only, from the general assets of CEI.
A participant may elect (by notification in the form and manner
established by the Secretary of CEI (or other officer of CEI succeeding
to that function) from time to time) to begin distributions (i) in the
calendar year following the calendar year that eligibility to
participate terminates, (ii) in the calendar year following the calendar
year in which a participant attains age 70, if later, or (iii) any
calendar year between (i) and (ii). Such election must be made prior to
the end of the calendar year in which eligibility to participate
terminates. Alternatively, a participant who reaches age 70 while still
eligible to participate may elect to begin distributions, in the
calendar year following the calendar year that the participant reaches
age 70, of amounts in his/her Plan Accounts as of the end of the
calendar year the participant reaches age 70. Such election must be made
prior to the end of the calendar year in which the participant reaches
age 70, and a distribution election to receive any subsequently deferred
amounts beginning in the calendar year following the calendar year that
eligibility to participate terminates, must be made prior to the end of
the calendar year in which eligibility to participate terminates.
A participant may elect (by notification in the form and manner
established by the Secretary of CEI (or other officer of CEI succeeding
to that function) from time to time) to receive distributions in a
single payment or in annual installments during a period not to exceed
fifteen years. The single payment or the first installment payment,
whichever is applicable, shall be made within the first sixty (60)
calendar days of the calendar year elected for distribution. Subsequent
installments, if any, shall be made within the first sixty (60) calendar
days of each succeeding calendar year until the participant's Cash
Account has been paid out.
In the event applicable elections are not timely made, a participant
shall receive a distribution in a single payment within the first sixty
(60) calendar days of the calendar year following the calendar year that
eligibility to participate terminates.
The value of the Stock Account, which is equal to the number of Stock
Units in the Stock Account multiplied by the Fair Market Value on the
date on which the participant's eligibility to participate terminates
(or, the date that is
7
<PAGE>
the last day of the calendar year during which the participant reaches
age 70, for a participant who elects to begin distributions while still
eligible to participate), is transferred to the Cash Account on such
date. Earnings are credited to the Cash Account through the date of
distribution, and amounts held for installment payments shall continue
to be credited with Earnings. The value of the Cash Account that is
payable in cash on the date of the single payment distribution is equal
to the balance in the Cash Account on the date that is no earlier than
five (5) calendar days prior to the day of such distribution
("Distribution Valuation Date"). The amount of any cash distribution to
be made in installments from the Cash Account will be determined by
multiplying (i) the balance in such Cash Account on the Distribution
Valuation Date by (ii) a fraction, the numerator of which is one and the
denominator of which is the number of installments in which
distributions remain to be made (including the current distribution).
If a participant dies or becomes Disabled, the entire unpaid balance of
his/her Plan Accounts shall be paid to the beneficiary(ies) designated
by the participant by notification in the form and manner established by
the Secretary of CEI (or other officer of CEI succeeding to that
function) from time to time or, if no designation was made, in the event
of death, to the estate of the participant, and in the event of
Disability, to the participant. Payment shall be made within sixty (60)
calendar days after notice of death or Disability is received by the
Secretary, unless prior to the participant's death or Disability, the
participant elected (in the form and manner established by the Secretary
of CEI (or other officer of CEI succeeding to that function) from time
to time) a delayed and/or installment distribution option for such
beneficiary(ies); provided, however that (i) such a distribution option
election shall be effective only if the value of the participant's Plan
Accounts is more than $50,000 on the date of the participant's death or
Disability; and (ii) the final distribution must be made to such
beneficiary(ies) no later than 15 years after the participant's death or
Disability. After the end of the calendar year that a participant's
eligibility to participate terminates, a distribution option election
for a particular beneficiary is irrevocable; provided, however, that the
participant may make a distribution option election for a new
beneficiary who is initially designated after the participant's
eligibility to participate terminates, and such election is irrevocable
with respect to the new beneficiary.
8
<PAGE>
The value of the Stock Account, which is equal to the number of Stock
Units in the Stock Account multiplied by the Fair Market Value on the
date of the participant's death or Disability, is transferred to the
Cash Account on such date. Earnings are credited to the Cash Account
through the date of distribution, and amounts held for installment
payments shall continue to be credited with Earnings. The value of the
Cash Account that is payable in cash on the date of the single payment
distribution is equal to the balance in the Cash Account on the date
that is no earlier than five (5) calendar days prior to the day of such
distribution ("Beneficiary Distribution Valuation Date"). The amount of
any cash distribution to be made in installments from the Cash Account
will be determined by multiplying (i) the balance in such Cash Account
on the Beneficiary Distribution Valuation Date by (ii) a fraction, the
numerator of which is one and the denominator of which is the number of
installments in which distributions remain to be made (including the
current distribution).
Upon the death of a participant's beneficiary for whom a delayed and/or
installment distribution option was elected, the entire unpaid balance
of the participant's Cash Account shall be paid to the beneficiary(ies)
designated by the participant's beneficiary by notification in the form
and manner established by the Secretary of CEI (or other officer of CEI
succeeding to that function) from time to time or, if no designation was
made, to the estate of the participant's beneficiary. Payment shall be
made within sixty (60) calendar days after notice of death is received
by the Secretary . The value of the Cash Account that is payable in cash
is equal to the balance in the Cash Account on the date that is no
earlier than five (5) calendar days prior to the day of such
distribution.
Notwithstanding anything herein contained to the contrary, the Plan
Administrator shall have the right in its sole discretion to (i) vary
the manner and timing of distributions of a participant or beneficiary
entitled to a distribution under this Section 9, and may make such
distributions in a single payment or over a shorter or longer period of
time than that elected by a participant; and (ii) vary the period during
which the closing price of Common Stock is referenced to determine the
value of the Stock Account that is transferred to the Cash Account on
the date on which the participant's eligibility to participate
terminates. Any affected participants will not participate in exercising
such discretion.
9
<PAGE>
10. Beneficiaries. A participant shall have the right to designate, change
or rescind a beneficiary(ies) who is to receive a distribution(s)
pursuant to Section 9 in the event of the death or Disability of the
participant. A participant's beneficiary(ies) for whom a delayed and/or
installment distribution option was elected shall have the right to
designate a beneficiary(ies) who is to receive a distribution pursuant
to Section 9 in the event of the death of the participant's
beneficiary(ies).
Any designation, change or recision of the designation of beneficiary
shall be made by notification in the form and manner established by the
Secretary of CEI (or other officer of CEI succeeding to that function)
from time to time. The last designation of beneficiary received by the
Secretary shall be controlling over any testamentary or purported
disposition by the participant (or, if applicable, the participant's
beneficiary(ies)), provided that no designation, recision or change
thereof shall be effective unless received by the Secretary prior to the
death or Disability (whichever is applicable) of the participant (or, if
applicable, the death of the participant's beneficiary(ies)).
If the designated beneficiary is the estate, or the executor or
administrator of the estate, of the participant (or, if applicable, the
participant's beneficiary(ies)), a distribution pursuant to Section 9
may be made to the person(s) or entity (including a trust) entitled
thereto under the will of the participant (or, if applicable, the
participant's beneficiary(ies)), or, in the case of intestacy, under the
laws relating to intestacy.
11. Valuation of Plan Accounts. The Plan Administrator shall cause the value
of a participant's Plan Accounts to be determined and reported to CEI
and the participant at least once per year as of the last business day
of the calendar year. The value of the Stock Account will equal the
number of Stock Units in the Stock Account multiplied by the closing
price of a share of Common Stock on the last business day of the
calendar year as reported in "New York Stock Exchange Composite
Transactions" as published in the Eastern Edition of the The Wall Street
Journal. The value of the Cash Account will equal the balance in the
Cash Account on the last business day of the calendar year.
12. Withdrawals. No withdrawals of Plan Accounts may be made, except a
participant may at any time request a hardship withdrawal from his/her
Plan Accounts if he/she has incurred an unforeseeable financial
emergency. An unforeseeable
10
<PAGE>
financial emergency is defined as severe financial hardship to the
participant resulting from a sudden and unexpected illness or accident
of the participant (or of his/her dependents), loss of the participant's
property due to casualty, or other similar extraordinary and
unforeseeable circumstances arising as a result of events beyond the
control of the participant. The need to send a child to college or the
desire to purchase a home are not considered to be unforeseeable
emergencies. The circumstance that will constitute an unforeseeable
emergency will depend upon the facts of each case.
A hardship withdrawal will be permitted by the Plan Administrator only
as necessary to satisfy an immediate and heavy financial need. A
hardship withdrawal may be permitted only to the extent reasonably
necessary to satisfy the financial need. Payment may not be made to the
extent that such hardship is or may be relieved (i) through
reimbursement or compensation by insurance or otherwise, (ii) by
liquidation of the participant's assets, to the extent the liquidation
of such assets would not itself cause severe financial hardship, or
(iii) by cessation of deferrals under the Plan.
The request for hardship withdrawal shall be made by notification in the
form and manner established by the Plan Administrator from time to time.
Such hardship withdrawal will be permitted only with approval of the
Plan Administrator. The participant will receive a lump sum payment
after the Plan Administrator has had reasonable time to consider and
then approve the request.
The value of the Stock Account for purposes of processing a hardship
cash withdrawal is equal to the number of Stock Units in the Stock
Account multiplied by the Fair Market Value on the date on which the
hardship withdrawal is processed. The value of the Cash Account for
purposes of processing a hardship cash withdrawal is equal to the
balance in the Cash Account on the date on which the hardship withdrawal
is processed.
13. Change in Control. The terms of this Section 13 shall immediately become
operative, without further action or consent by any person or entity,
upon a Change in Control, and once operative shall supersede and control
over any other provisions of this Plan. Upon the occurrence of a Change
in Control followed within one year of the date of such Change in
Control by the participant's cessation of Board membership for any
reason, such participant shall be paid the value of his/her Plan
Accounts in a single, lump sum cash payment. The value of the Stock
Account, which is equal to the number
11
<PAGE>
of Stock Units in the Stock Account multiplied by the Fair Market Value
on the date of the participant's cessation of Board membership, is
transferred to the Cash Account on such date. Earnings are credited to
the Cash Account through the date of distribution. The value of the Cash
Account that is payable in cash on the date of the single lump sum cash
payment is equal to the balance in the Cash Account on the date that is
no earlier than five (5) calendar days prior to the day of such
distribution. Such payment shall be made as soon as practicable, but in
no event later than thirty (30) calendar days after the date of the
participant's cessation of Board membership. On or after a Change in
Control, no action, including, but not by way of limitation, the
amendment, suspension or termination of the Plan, shall be taken which
would affect the rights of any participant or the operation of this Plan
with respect to the balance in the participant's Plan Accounts.
14. Withholding. CEI may withhold to the extent required by law all
applicable income and other taxes from amounts deferred or distributed
under the Plan.
15. Copies of Plan Available. Copies of the Plan and any and all amendments
thereto shall be made available to all participants during normal
business hours at the office of the Plan Administrator.
16. Miscellaneous.
(i) Inalienability of benefits - Except as may otherwise be required by law
or court order, the interest of each participant or beneficiary under
the Plan cannot be sold, pledged, assigned, alienated or transferred in
any manner or be subject to attachment or other legal process of
whatever nature; provided, however, that any applicable taxes may be
withheld from any cash benefit payment made under this Plan.
(ii) Controlling law - The Plan and its administration shall be governed by
the laws of the State of Maryland, except to the extent preempted by
federal law.
(iii) Gender and number - A masculine pronoun when used herein refers to both
men and women and words used in the singular are intended to include the
plural, and vice versa, whenever appropriate.
(iv) Titles and headings - Titles and headings to articles and sections in
the Plan are placed herein solely for convenience of reference and in
any case of conflict, the text of the Plan rather than such titles and
headings shall control.
12
<PAGE>
(v) References to law - All references to specific provisions of any federal
or state law, rule or regulation shall be deemed to also include
references to any successor provisions or amendments.
(vi) Funding and expenses - Benefits under the Plan are not vested or funded,
and shall be paid out of the general assets of CEI. To the extent that
any person acquires a right to receive payments from CEI under this
Plan, such rights shall be no greater than the right of any unsecured
general creditor of CEI. The expenses of administering the Plan will be
borne by CEI.
(vii) Not a contract - Participation in this Plan shall not constitute a
contract of employment or Board membership between CEI and any person
and shall not be deemed to be consideration for, or a condition of,
continued employment or Board membership of any person.
(viii) Successors - In the event CEI becomes a party to a merger,
consolidation, sale of substantially all of its assets or any other
corporate reorganization in which CEI will not be the surviving
corporation or in which the holders of the common stock of CEI will
receive securities of another corporation (in any such case, the "New
Company"), then the New Company shall assume the rights and obligations
of CEI under this Plan.
13
<PAGE>
Exhibit 10(l)
Summary
Enhanced Retirement Benefits
For A Named Executive Officer
Under an arrangement with Frank O. Heintz, Constellation Energy Group,
Inc. will provide enhanced retirement benefits to Mr. Heintz. Under the
arrangement, after he attains age 60 in 2004, Mr. Heintz will be entitled to
retirement benefits equal to 40% of total final average salary plus bonus.
1
<PAGE>
Exhibit 10(m)
BALTIMORE GAS AND ELECTRIC COMPANY
RETIREMENT PLAN
FOR NON-EMPLOYEE DIRECTORS
1. Objective. The objective of this Plan is to provide Non-Employee
Directors of BG&E with retirement benefits in recognition of their
service on the Board of Directors of BG&E, and to assist BG&E in
attracting and retaining individuals who are highly qualified to serve
on the Board of Directors of BG&E.
2. Definitions. As used herein, the following terms will have the meaning
specified below:
"Annual Retainer" means the amount payable by BG&E to a Director as
annual compensation for performance of services as a Director at the
time of the Non-Employee Director's Retirement. All other amounts
(including without limitation board/committee meeting fees, committee
chair retainers, and expense reimbursements) shall be excluded in
calculating the amount of the Annual Retainer.
"BG&E" means Baltimore Gas and Electric Company, a Maryland
corporation, or its successor.
"Director" means a member of the Board of Directors of BG&E.
"Non-Employee Director" means a Director who is not, and will never be,
eligible to receive employee retirement benefits from BG&E or any
affiliated company.
"Plan" means the BG&E Retirement Plan for Non-Employee Directors.
"Retirement" means ceases membership on the Board of Directors of BG&E.
3. Plan Administration. The Plan is administered by the Vice President
Management Services of BG&E, who has sole authority (except as
specified otherwise herein) to interpret the Plan, and, in general, to
make all other determinations advisable for the administration of the
Plan to achieve its stated objective. The Plan Administrator shall have
the power to delegate all or any part of his/her duties to one or more
designees, and to withdraw such authority, by written designation.
4. Eligibility and Participation. A Non-Employee Director is eligible to
participate in the Plan if he/she has served as a Director of BG&E for
at least five years prior to Retirement.
5. Amount and Timing of Plan Benefit Payout. An eligible participant is
entitled to an annual benefit amount equal to the Annual Retainer. The
Annual Retainer is payable in cash each year for life; however, no
payments shall be made after a participant's death.
Payment of the Annual Retainer to a participant who on his/her
Retirement date is at least age 60 shall be made within the first sixty
days of the applicable calendar year, beginning with the calendar year
after his/her Retirement. Payment of the Annual Retainer to all other
participants shall be made within the first sixty days of the
applicable calendar year,
1
<PAGE>
beginning with the calendar year after the later to occur of his/her
(1) 65th birthday, or (2) Retirement. The Plan Administrator may, in
his/her sole discretion, vary the manner and timing of payments to
participant.
6. Copies of Plan Available. Copies of the Plan and any and all amendments
thereto shall be made available to all participants during normal
business hours at the office of the Plan Administrator.
7. Amendment; Termination. This Plan may be amended from time to time or
suspended or terminated at any time, at the written direction of the
Board of Directors. However, amendments required to keep the Plan in
compliance with applicable laws and regulations (including tax rules)
may be made by the Plan Administrator, on advice of counsel. No
amendment to or termination of this Plan shall prejudice the rights of
any participant entitled to receive payment hereunder at the time of
such action.
8. Miscellaneous. With respect to Plan benefits, a participant has the
status of a general unsecured creditor of BG&E, and the Plan
constitutes a mere promise by BG&E to make benefit payments in the
future. It is the intention of BG&E and each participant that the Plan
be unfunded for tax purposes and for purposes of Title I of the
Employee Retirement Income Security Act of 1974.
A participant's Plan benefits shall not be subject to alienation or
assignment by any participant nor shall any of them be subject to
attachment or garnishment or other legal process except to the extent
specially mandated and directed by applicable state or federal statute.
Participation in this Plan shall not constitute a contract of
employment between BG&E and any person and shall not be deemed to be
consideration for, or a condition of, any person's employment by, or
continual service as a Director of, BG&E or any affiliated company.
This Plan shall be governed in all respects by Maryland law.
2
<PAGE>
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED AND PREFERENCE DIVIDEND REQUIREMENTS
<TABLE>
<CAPTION>
12 Months Ended
-----------------------------------------------------------------------------------------
March December December December December December
1999 1998 1997 1996 1995 1994
------------ ------------- ------------ ------------ ------------ ------------
(In Millions of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Net Income $ 333.7 $ 327.7 $ 282.8 $ 310.8 $ 338.0 $ 323.6
Taxes on Income 185.7 181.3 161.5 169.2 172.4 156.7
------------ ------------- ------------ ------------ ------------ ------------
Adjusted Net Income $ 519.4 $ 509.0 $ 444.3 $ 480.0 $ 510.4 $ 480.3
------------ ------------- ------------ ------------ ------------ ------------
Fixed Charges:
Interest and Amortization of
Debt Discount and Expense and
Premium on all Indebtedness $ 258.4 $ 255.3 $ 234.2 $ 203.9 $ 206.7 $ 204.2
Capitalized Interest 2.4 3.6 8.4 15.7 15.0 12.4
Interest Factor in Rentals 1.8 1.9 1.9 1.5 2.1 2.0
------------ ------------- ------------ ------------ ------------ ------------
Total Fixed Charges $ 262.6 $ 260.8 $ 244.5 $ 221.1 $ 223.8 $ 218.6
------------ ------------- ------------ ------------ ------------ ------------
Preferred and Preference
Dividend Requirements: (1)
Preferred and Preference Dividends $ 19.4 $ 21.8 $ 28.7 $ 38.5 $ 40.6 $ 39.9
Income Tax Required 10.8 12.0 16.4 20.9 20.4 19.1
------------ ------------- ------------ ------------ ------------ ------------
Total Preferred and Preference
Dividend Requirements $ 30.2 $ 33.8 $ 45.1 $ 59.4 $ 61.0 $ 59.0
------------ ------------- ------------ ------------ ------------ ------------
Total Fixed Charges and Preferred
and Preference Dividend Requirements $ 292.8 $ 294.6 $ 289.6 $ 280.5 $ 284.8 $ 277.6
============ ============= ============ ============ ============ ============
Earnings (2) $ 779.6 $ 766.2 $ 680.4 $ 685.4 $ 719.2 $ 686.5
============ ============= ============ ============ ============ ============
Ratio of Earnings to Fixed Charges 2.97 2.94 2.78 3.10 3.21 3.14
Ratio of Earnings to Combined Fixed
Charges and Preferred and Preference
Dividend Requirements 2.66 2.60 2.35 2.44 2.52 2.47
</TABLE>
(1) Preferred and preference dividend requirements consist of an amount equal
to the pre-tax earnings that would be required to meet dividend
requirements on preferred stock and preference stock.
(2) Earnings are deemed to consist of net income that includes earnings of
BGE's consolidated subsidiaries, equity in the net income of BGE's
unconsolidated subsidiary, income taxes (including deferred income taxes
and investment tax credit adjustments), and fixed charges other than
capitalized interest.
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSTELLATION ENERGY'S MARCH 31, 1999 INTERIM CONSOLIDATED INCOME STATEMENT,
BALANCE SHEET AND STATEMENT OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 5,640
<OTHER-PROPERTY-AND-INVEST> 1,708
<TOTAL-CURRENT-ASSETS> 1,348
<TOTAL-DEFERRED-CHARGES> 588
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 9,284
<COMMON> 1,493
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 1,510
<TOTAL-COMMON-STOCKHOLDERS-EQ> 3,006
0
190
<LONG-TERM-DEBT-NET> 3,136
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 248
7
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,697
<TOT-CAPITALIZATION-AND-LIAB> 9,284
<GROSS-OPERATING-REVENUE> 932
<INCOME-TAX-EXPENSE> 50
<OTHER-OPERATING-EXPENSES> 734
<TOTAL-OPERATING-EXPENSES> 784
<OPERATING-INCOME-LOSS> 148
<OTHER-INCOME-NET> (1)
<INCOME-BEFORE-INTEREST-EXPEN> 147
<TOTAL-INTEREST-EXPENSE> 61
<NET-INCOME> 86
3
<EARNINGS-AVAILABLE-FOR-COMM> 83
<COMMON-STOCK-DIVIDENDS> 63
<TOTAL-INTEREST-ON-BONDS> 62
<CASH-FLOW-OPERATIONS> 321
<EPS-BASIC> 0.55
<EPS-DILUTED> 0.55
</TABLE>
Exhibit 99(a)
SUMMARIZED PRO FORMA FINANCIAL INFORMATION
RELATED TO THE FORMATION OF A HOLDING COMPANY
<TABLE>
<CAPTION>
Pro Forma
---------------------------------------
BGE Constellation
Consolidated Pro Forma BGE Energy Group
Historical Adjustments(1) Consolidated(1) Consolidated
----------------------------------------------------------------------------------------
(In Millions, Except Per Share Amounts)
BALANCE SHEETS -- AS OF
MARCH 31, 1999 (Unaudited)
ASSETS
<S> <C> <C> <C> <C>
Current assets $ 1,348.0 $ (698.7) $ 649.3 $ 1,348.0
Investments and other assets 1,707.4 (1,335.7) 371.7 1,707.4
Net utility plant 5,640.0 - 5,640.0 5,640.0
Deferred charges 588.2 (7.4) 580.8 588.2
---------------- ------------------ ------------------ ----------------
TOTAL ASSETS $ 9,283.6 $ (2,041.8) $ 7,241.8 $ 9,283.6
================ ================== ================== ================
LIABILITIES AND CAPITALIZATION
Current liabilities $ 1,212.9 $ (499.6) $ 713.3 $ 1,212.9
Deferred credits and other liabilities 1,739.0 (290.3) 1,448.7 1,739.0
Capitalization
Long-term debt 3,135.9 (627.3) 2,508.6 3,135.9
Preference stock not subject to
mandatory redemption 190.0 - 190.0 190.0
Common Shareholders' Equity 3,005.8 (624.6) 2,381.2 3,005.8
---------------- ------------------ ------------------ ----------------
TOTAL CAPITALIZATION 6,331.7 (1,251.9) 5,079.8 6,331.7
---------------- ------------------ ------------------ ----------------
TOTAL LIABILITIES AND
CAPITALIZATION $ 9,283.6 $ (2,041.8) $ 7,241.8 $ 9,283.6
================ ================== ================== ================
STATEMENTS OF INCOME --
THREE MONTHS ENDED
MARCH 31, 1999 (Unaudited)
Total revenues $ 932.3 $ (223.4) $ 708.9 $ 932.3
Total expenses other than interest
and income taxes 734.2 (180.6) 553.6 734.2
---------------- ------------------ ------------------ ----------------
Income from operations 198.1 (42.8) 155.3 198.1
Other income (expense) (0.8) 4.1 3.3 (0.8)
Net interest expense 61.2 (13.6) 47.6 61.2
Preference stock dividends of BGE - - - 3.4 (2)
---------------- ------------------ ------------------ ----------------
Income before income taxes 136.1 (25.1) 111.0 132.7
Income taxes 49.9 (10.0) 39.9 49.9
---------------- ------------------ ------------------ ----------------
Net income 86.2 $ (15.1) $ 71.1 82.8
================== ==================
Preference stock dividends 3.4 $ 3.4 (2) -
---------------- ================== ----------------
Earnings applicable to common stock $ 82.8 $ 82.8
================ ================
Earnings per common share $ 0.55 $ 0.55
================ ================
</TABLE>
(1) Reflects the transfer of Constellation Enterprises, Inc. and its
subsidiaries from BGE to Constellation Energy in connection with the
formation of the holding company.
(2) Reflects dividends associated with BGE preference stock as a charge
against retained earnings for BGE and as a charge against net income for
Constellation Energy.
Exhibit 99(b)
Extract From Post-Effective Amendment No. 1 to Form S-4
THE COMPARATIVE SHAREHOLDER RIGHTS
After the share exchange, BGE common shareholders will become
Constellation Energy common shareholders, and their rights will be governed by
Constellation Energy's charter and by-laws rather than BGE's charter and
by-laws. Constellation Energy's charter and by-laws differ from BGE's in certain
respects. The differences in Constellation Energy's charter and by-laws reflect
the: (1) removal of obsolete and unnecessary provisions; (2) inclusion of
provisions that provide flexibility to operate in a competitive market; and (3)
inclusion of provisions that provide additional financing flexibility. Approval
of the share exchange will also be considered approval and ratification of
Constellation Energy's charter and by-laws. For more information, please refer
to the forms of the charter and by-laws that are included as appendices B and C
in Post-Effective Amendment No. 1 to Form S-4 (Registration No. 33-64799).
The table below compares some of the rights provided to BGE and
Constellation Energy shareholders under their respective charters and by-laws,
under Securities and Exchange Commission (SEC) rules, and Maryland law:
RIGHT BGE CONSTELLATION ENERGY
----- --- --------------------
Voting rights for Superior voting rights No superior voting rights
preferred shareholders (Four votes per share) (One vote per share)
Call of special meeting Permitted by 25% of votes Permitted by 25% of votes
entitled to be cast entitled to be cast
Shareholder action by
written consent Permitted Permitted
Removal of directors by Permitted by majority vote Permitted by majority vote
shareholders for cause
Advance notice of Proxy Proposals -- Proxy Proposals --
shareholder proposals 120 days 120 days
Meeting Proposals -- Meeting Proposals --
45 days 75 days
Charter amendments by Permitted by two-thirds Permitted by two-thirds
common shareholders vote vote(Board may provide
for lesser number)
By-law amendments by Permitted by majority Permitted by two-thirds
common shareholders vote vote
The differences between BGE's and Constellation Energy's charter and
by-laws are summarized below:
AUTHORIZED SHARES
BGE. BGE has authorized:
o 175,000,000 shares of common stock,
o 1,000,000 shares of preferred stock, and
o 6,500,000 shares of preference stock.
CONSTELLATION ENERGY. Constellation Energy has authorized:
o 250,000,000 shares of common stock, and
o 25,000,000 shares of preferred stock.
PREFERRED STOCK
BGE. BGE's charter authorizes both preferred and preference stock. The
charter specifies, among other things:
o the number of votes per share (4 votes per share for preferred and 1
vote per share for preference),
o matters preferred and preference shareholders may vote on,
o a limit on the amount of dividends that are payable on the preferred
stock, and
o certain financial tests that must be met before the preferred or
preference stock may be issued.
1
<PAGE>
The charter allows BGE's Board of Directors to specify the other rights
and terms of both types of stock, such as redemption and convertibility
provisions.
CONSTELLATION ENERGY. Constellation Energy's charter authorizes only
preferred stock. It specifies that the preferred stock will have no more
than one vote per share, as determined by the Board. The Board will
determine the other terms of any preferred stock at the time of issuance.
Constellation Energy will not issue preferred stock as a defensive
takeover mechanism without prior shareholder approval and will not afford
preferred shareholders voting rights superior (including votes per share)
to common shareholders.
VOTE REQUIRED TO PASS CERTAIN MATTERS
BGE. The approval of two-thirds of all the votes entitled to be cast must
be received to approve charter amendments and certain extraordinary matters such
as mergers, share exchanges and the sale of substantially all of BGE's assets.
CONSTELLATION ENERGY. The approval of two-thirds of all the votes
entitled to be cast must be received to approve charter amendments and certain
extraordinary matters such as mergers, share exchanges and the sale of
substantially all of Constellation Energy's assets. However, the Board may
authorize that such a matter be approved by a majority of all the votes entitled
to be cast.
REMOVAL OF DIRECTORS
BGE. Under BGE's by-laws, the shareholders, at any meeting duly called
and at which a quorum is present, may remove any director from office by a
majority vote.
CONSTELLATION ENERGY. Under Constellation Energy's charter, the
shareholders, at any meeting duly called and at which a quorum is present, may
remove any director from office for cause by a majority vote.
AMENDING THE BY-LAWS
BGE. BGE's by-laws may be amended or repealed, and new by-laws adopted,
by a majority vote of the Board of Directors or the common shareholders.
CONSTELLATION ENERGY. Constellation Energy's by-laws may be amended or
repealed, and new by-laws adopted by a majority vote of the Board of Directors
or by a two-thirds vote of the common shareholders.
ADVANCE NOTICE PROVISION
BGE. Neither BGE's charter nor its by-laws include a provision with
respect to advance notice of shareholder proposals or director nominations.
Under SEC rules, shareholder proposals must be received at least 120 days prior
to the anniversary of the date that the prior year's proxy statement was mailed
to shareholders in order to be considered for inclusion in the proxy statement.
Other proposals sought to be presented at the shareholders' meeting must be
received at least 45 days prior to the anniversary of the date that the prior
year's proxy statement was mailed to shareholders.
CONSTELLATION ENERGY. The SEC rule requiring 120 days advance notice of
shareholder proposals sought to be included in the proxy statement will also
apply to Constellation Energy. In addition, under Constellation Energy's
by-laws, written notice of a proposal to be presented by any shareholder at the
shareholders' meeting (including nominations for director) must be received by
the Secretary of Constellation Energy at its principal executive office not less
than 75 days prior to the anniversary of the date the proxy statement was mailed
for the prior year's annual meeting (if the share exchange is approved, the
anniversary of the mail date for Constellation Energy's first annual meeting
will be March 5, 2000). If the proposal is not timely received, the shareholder
may not present it at the annual meeting. See "Submission of Shareholder
Proposals for Next Year" on page 38. The additional 30 day time period has been
added to ensure that Constellation Energy has sufficient time to inform all
shareholders, in the proxy statement, of the matter sought to be presented at
the meeting.
2
<PAGE>
MARYLAND LAW
Certain provisions of Maryland law provide enhanced rights to
shareholders, including the right of holders of at least 25% of the outstanding
common stock to call a special meeting of shareholders for any purpose and the
right to take action by way of unanimous written consent without calling a
special meeting of shareholders.
However, certain other provisions of Maryland law may have the effect of
discouraging persons from acquiring large blocks of a Maryland corporation's
stock and/or delaying or preventing a change of control of a Maryland
corporation. Under certain circumstances, these provisions could have the effect
of, among other things:
o reducing or eliminating the voting power of a 20% or more
shareholder,
o prohibiting a 10% or more shareholder from engaging in a business
combination with a Maryland corporation for five years following the
acquisition of the 10% stake (a "freezeout" provision), and
o requiring a premium payment for shares purchased in a two-step
acquisition.
Friendly mergers and other business combinations would not be affected by
these provisions. However, a Maryland corporation may opt out of the provisions
by providing so in its charter or by-laws. An amendment adopted for the purpose
of opting out of the freeze-out provision does not become effective until 18
months after its adoption. Neither BGE nor Constellation Energy have opted out
of the provisions.
3
<PAGE>
