Exhibit 10(q)
Attachment 1

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (the “Agreement”) is made as of the 20th day of
December, 2001 by and between  Constellation Energy Group, Inc. (“Company”) and
Michael J. Wallace (“Executive”).

 

WITNESSETH:

 

WHEREAS, Company desires to employ Executive and Executive is willing to accept
such employment, all upon the terms and conditions hereinafter set forth.

 

NOW, THEREFORE, in consideration of the mutual covenants and obligations
hereinafter set forth, the parties hereto agree as follows:

 

1.             Employment Term.  Company hereby employs Executive and Executive
accepts employment with Company as President of the Company’s Generation Group
on the terms and conditions herein set forth, for a period commencing on January
2, 2002 and expiring on December 31, 2004 (the “Term”).   Executive’s duties and
responsibilities shall be determined by Company’s Chief Executive Officer
(“CEO”) consistent with Executive’s qualifications and the best interests of
Company.  Executive also shall perform such other or additional duties as may be
assigned to him by the CEO from time to time as are reasonably consistent with
the position of President or such other position as may be mutually agreed upon
by the parties.

 

2.             Duties.  During the term hereof, Executive shall devote his
entire attention and energy to the business and affairs of Company on a
full-time basis during normal business hours, and as reasonably required,
outside normal business hours, and shall not be engaged in any other business
activity, regardless of whether such business activity is pursued for gain,
profit or other

 

--------------------------------------------------------------------------------

 

pecuniary advantage, unless the CEO otherwise consents in writing; but this
shall not be construed as preventing Executive from investing his assets in such
form or manner as will not require any services on the part of the Executive in
the operation of the affairs of the companies in which such investments are made
and will not otherwise conflict with the provisions of this Agreement.

 

3.             Compensation.

 

(a)           Base Salary.  During the first year of this Agreement, Company
shall pay Executive an annual base salary of Five Hundred Thousand Dollars
($500,000) (the “Base Salary”, subject to adjustment as provided in the next
sentence), payable in accordance with Company’s regular payroll procedures. 
Company will review Executive’s Base Salary for possible increases at least
annually.

 

(b)           Incentive Plan.  During the term of this Agreement, Executive
shall be eligible to participate in Company’s annual incentive plan for
executives, which shall have a target performance bonus totaling up to an
additional one hundred percent (100%) of Base Salary for the first year of this
Agreement based on achieving reasonably attainable individual and overall
Company performance goals.  For the first year of this Agreement, the maximum
performance bonus of Five Hundred Thousand Dollars ($500,000) will be
guaranteed, and it will be paid in accordance with the terms of the current
Executive Annual Incentive Plan.  Following the first year of this Agreement and
during the remaining Term, the target performance bonus percentage of Base
Salary shall be no less than the target performance bonus percentage of annual
base salary of the Chief Executive Officer.

 

2

--------------------------------------------------------------------------------

 

(c)           Restricted Stock.  Upon Executive’s execution of the applicable
Restricted Stock Agreement, Executive will receive shares of the Company’s
service-based restricted stock as follows:  twenty thousand (20,000) shares with
a one (1) year restriction period; thirty thousand (30,000) shares with a five
(5) year restriction period.

 

(d)           Long-Term Incentive.  Prior to June 30, 2002, Company expects to
adopt a new long-term incentive plan for officers.  Assuming such a plan is
adopted, Executive will receive a participation valued at Five Million Dollars
($5,000,000), with such value to be determined on the same basis as for other
senior executives.  In the event a new long-term incentive plan has not been
implemented by June 30, 2002, Executive will be granted “phantom” stock options
with a strike price of the fair market value of Company’s stock on June 30,
2002, and/or other equity-linked instruments, valued at Five Million Dollars
($5,000,000).  Executive’s participation in the long-term incentive plan or
ownership of the phantom stock options (or other equity-linked instruments) will
vest ratably over the Initial Term of this Agreement, commencing retroactively
to January 2, 2002.  In the event of a “termination without cause” or a
“resignation for good reason” provided by subparagraphs 7(d) and 7(e) of this
Agreement, Executive will be deemed fully vested in the long-term incentive plan
or ownership of the phantom stock options (or other equity-linked instruments).

 

(e)           Senior Executive Supplemental Plan.  For purposes of calculating
Executive’s benefit under the Senior Executive Supplemental Plan, Company will
credit Executive with seven (7) years of vesting service immediately upon hire. 
Under this plan, Executive will earn five and one-half percent (5.5%) of average
annual base pay plus average annual incentive for each year of service, to a
maximum of fifty-five percent (55%) of pay.  Retirement eligibility under the
Plan is age fifty-five (55) with ten (10) years’ service, or age

 

3

--------------------------------------------------------------------------------

 

sixty-two (62) with five (5) years’ service, and therefore Executive would be
eligible to retire after three (3) years of service with a benefit of sixteen
and one-half percent (16.5%) of pay.

 

4.             Benefits.  Executive shall be entitled to participate in all of
the Company’s benefit plans on the same basis as other senior executives,
including, but not limited to, the Company’s Flexible Benefits Plan (including
health and dental coverage), Pension Equity Pension Plan, and an Employee
Savings Plan with a 401(k) feature.  Executive shall also be provided the
Supplemental Benefits and Perquisites set forth in Appendix A.

 

5.             Business Expenses.  Executive shall be entitled to prompt
reimbursement for all reasonable expenses incurred by him in furtherance of
Company’s business, in accordance with the policies and procedures established
for senior executives of Company.

 

6.             Relocation Expenses.

To assist in Executive’s relocation to the Maryland area, Company will provide
Executive with reimbursement for the following reasonable, documented costs:

 

House-hunting trips for Executive and/or Executive’s family

Settlement expenses for the sale of Executive’s current residence

Movement of Executive’s household goods, using a Company-approved moving company

Settlement expenses for the purchase of Executive’s new home

Reasonable temporary living expenses

Storage of Executive’s household goods for a reasonable period

Reasonable travel expenses from Illinois for Executive and his wife over a
reasonable transition period

Ten Thousand Dollars ($10,000) incidental moving expenses

 

4

--------------------------------------------------------------------------------

 

To the extent that the reimbursement of any of these costs is subject to
federal, state or local tax, 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 on such reimbursements, the Executive retains an
amount of the gross-up payment equal to the tax imposed on the reimbursements.

 

7.             Termination.

 

(a)           Death.  Upon the death of Executive, this Agreement shall
automatically terminate and Executive’s executor, administrator or designated
beneficiary shall be entitled to receive the Executive’s Base Salary which shall
have accrued to the date of such death and a pro rata portion of the performance
bonus earned for that year under Company’s annual incentive plan.  For purposes
of calculating the pro rata performance bonus, Executive will be deemed to have
attained his individual performance goals at target.

 

(b)           Illness or Disability.  If Executive is absent from his employment
for reasons of illness or other physical or mental incapacity for more than one
hundred eighty (180) consecutive days, Company may terminate this Agreement and
Executive’s employment hereunder.  In such event, Company shall be obligated to
pay Executive his salary to the end of the month in which his employment is
terminated, and a pro rata portion of the performance bonus earned for that year
under Company’s annual incentive plan.  For purposes of calculating the pro rata
performance bonus, Executive will be deemed to have attained his individual
performance goals at target.

 

(c)           Termination for Cause.  Company may terminate this Agreement and
Executive’s employment hereunder at any time for Cause.  “Cause” shall be
defined in the same

 

5

--------------------------------------------------------------------------------

 

manner as it is defined by Section 1.7 of the Form of Severance Agreement dated
December   , 2001, and attached hereto as Appendix B (“Severance Agreement”). 
The procedures for effectuating a termination for Cause as set forth in Section
1.7 of the Severance Agreement shall be applicable.

 

In the event of termination for Cause, Company shall pay Executive his Base
Salary up to the effective date of the termination.

 

(d)           Termination without Cause.  Notwithstanding anything contained
herein to the contrary, Company also may terminate this Agreement and
Executive’s employment hereunder for any reason whatsoever, upon thirty (30)
days’ prior written notice to Executive.  In the event that Company terminates
this Agreement other than for Cause, Executive shall be entitled to:  (i) Base
Salary for the remainder of the Term of this Agreement; (ii) a performance bonus
for each year remaining in the Term of this Agreement (prorated for partial
years remaining) as if Executive and Company attained all performance goals at
target; (iii) removal of the restriction for the twenty thousand (20,000) shares
of Company stock with a one (1) year restriction period provided by Section 3(c)
of this Agreement, without regard to whether the one (1) year period has
elapsed; (iv) removal on a pro rated basis of the restriction for the thirty
thousand (30,000) shares of Company stock with a five (5) year restriction
period provided by Section 3(c) of the Agreement (e.g., if Executive is employed
for two (2) full years, the restriction would be removed from 2/5 of the 5 year
restricted stock; (v) immediate vesting of the Long-Term Incentive provided by
Section 3(d) of this Agreement; and (vi) immediate vesting of all benefits under
the Senior Executive Supplemental Plan provided by Section 3(e) of this
Agreement (i.e., Executive will be eligible to retire at age 55 with a benefit
of sixteen and one-half percent (16.5%) of pay (average annual base pay plus
average annual incentive)).  In return

 

6

--------------------------------------------------------------------------------

 

for the separation benefits provided herein, Executive will execute a waiver
releasing the Company and its affiliates from all claims related to his
employment or the termination of his employment.

 

(e)           Resignation for Good Reason.  Executive may terminate this
Agreement and Executive’s employment hereunder for Good Reason.  “Good Reason”
shall be defined in the same manner as it is defined by Section 1.6 of the Form
of Severance Agreement, except that the occurrence of a Change of Control will
not be necessary for Executive to exercise his right to resign for Good Reason. 
A termination of employment by the Executive for Good Reason shall be
effectuated by giving the Company written notice (“Notice of Termination for
Good Reason”) of the termination within six (6) months of the occurrence of the
event constituting Good Reason or, if such event is not immediately recognizable
by the Executive, within six (6) months of the date the Executive became or
reasonably should have become aware of such event (but in no event beyond the
expiration of the Term of this Agreement), setting forth in reasonable detail
the specific conduct of the Company that constitutes Good Reason and the
specific provision(s) of this Agreement on which the Executive relies.  A
termination of employment by the Executive for Good Reason shall be effective on
the thirtieth (30th) day following the date when the Notice of Termination for
Good Reason is given, unless the notice sets forth a later date (which date
shall in no event be later than sixty (60) days after the notice is given);
provided, however, that no event described hereunder shall constitute Good
Reason if such event is a result of an isolated, insubstantial and inadvertent
action that is not taken in bad faith and that is remedied by the Company within
five (5) days after receipt of the Notice of Termination for Good Reason by the
Company from the Executive.  The Executive’s continued employment shall not
constitute consent to, or a waiver of rights with respect to, any act or failure
to act constituting Good

 

7

--------------------------------------------------------------------------------

 

Reason hereunder.  In the event that Executive terminates this Agreement for
Good Reason in accordance with the terms of this Agreement, Executive shall be
entitled to: (i) Base Salary for the remainder of the Term of this Agreement;
(ii) a performance bonus for each year remaining in the Term of this Agreement
(prorated for partial years remaining) as if Executive and Company attained all
performance goals at target; (iii) removal of the restriction for the twenty
thousand (20,000) shares of Company stock with a one (1) year restriction period
provided by Section 3(c) of this Agreement, without regard to whether the one
(1) year period has elapsed; (iv) removal on a pro rated basis of the
restriction for the thirty thousand (30,000) shares of Company stock with a five
(5) year restriction period provided by Section 3(c) of the Agreement (e.g., if
Executive is employed for two (2) full years, the restriction would be removed
from 2/5 of the 5 year restricted stock); (v) immediate vesting of the Long-Term
Incentive provided by Section 3(d) of this Agreement; and (vi) immediate vesting
of all benefits under the Senior Executive Supplemental Plan provided by Section
3(e) of this Agreement (i.e., Executive will be eligible to retire at age 55
with a benefit of sixteen and one-half percent (16.5%) of pay (average annual
base pay plus average annual incentive)).  In return for the separation benefits
provided herein, Executive will execute a waiver releasing the Company and its
affiliates from all claims related his employment or the termination of his
employment.

 

(f)            Change of Control.  In the event of a Change in Control during
the term of this Agreement, Executive shall be entitled to no less than the
severance benefits provided by the Severance Agreement, the form of which is
attached hereto as Exhibit B, regardless of whether said Severance Agreement is
terminated or amended during such Term.  In no event shall the Executive be
entitled to benefits under both this Agreement and the Severance Agreement or
any other Company severance program.

 

8

--------------------------------------------------------------------------------

 

8.             Confidential Information and Discoveries.  Executive acknowledges
that he will, as a result of his duties as an employee of Company, have access
to and be in a position to receive confidential information.  Therefore,
Executive agrees that during his employment by Company and thereafter he will
not divulge to, or use for the benefit of, himself or any other person, any
information concerning any inventions, discoveries, improvements, processes,
methods, trade secrets, research or secret data (including, without limitation,
computer programs, software development or executive systems), or other
confidential matters possessed, owned or used by Company that may be obtained or
learned by the Executive in the course of or as a result of his employment
hereunder unless such disclosure is authorized in writing by the CEO.  The
expiration or termination of employment shall not be deemed to release the
Executive from his duties hereunder not to reveal or convert to his own use or
the use of others the information described herein.

 

9.             Remedy.  Executive understands that Company would not have an
adequate remedy at law for the material breach or threatened breach by Executive
of the covenants set forth in Paragraph 8 of this Agreement and agrees that in
the event of any such material breach or threatened breach, Company may, in
addition to the other remedies which may be available to it, file a suit in
equity to enjoin Executive from the breach or threatened breach of such
covenant.

 

10.           Miscellaneous.

 

(a)           Notices.  Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if sent by registered or
certified mail to Executive or Company at the address set forth below their
signatures at the end of this Agreement or to such other address as they shall
notify each other in writing.

 

9

--------------------------------------------------------------------------------

 

(b)           Assignment.  This Agreement shall be binding upon and inure to the
benefit of Company and its successors and assigns.  This Agreement shall not be
assignable by Executive.

 

(c)           Applicable Law.  This Agreement shall be construed in accordance
with the laws of the State of Maryland in every respect, including, without
limitation, validity, interpretation and performance.

 

(d)           Headings.  Section headings and numbers herein are included for
convenience of reference only and this Agreement is not to be construed with
reference thereto.  If there be any conflict between such numbers and headings
and the text hereof, the text shall control.

 

(e)           Severability.  If for any reason any portion of this Agreement
shall be held invalid or unenforceable, it is agreed that the same shall not
affect the validity or enforceability of the remainder hereof.

 

(f)            Entire Agreement.  This Agreement, including its Appendices,
contains the entire agreement of the parties with respect to its subject matter
and supersedes all previous agreements between the parties.  No modification of
this Agreement shall be valid unless made in writing and signed by the parties
hereto.

 

(g)           Waiver of breach.  The waiver of Company or Executive of a breach
of any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach.

 

10

--------------------------------------------------------------------------------

 

(h)           Counterparts.  This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one agreement.

 

CONSTELLATION ENERGY GROUP, INC.

 

 

MICHAEL J. WALLACE

 

 

 

 

 

By:

/S/

 

/S/

 

 

Its:

V.P., HR

 

 

 

 

Address:

 

 

Address:

 

 

 

 

 

 

 

 

Date:

12/20/01

 

Date:

12/20/01

 

 

 

11

--------------------------------------------------------------------------------

 

Exhibit 10(q)

Attachment 2

 

 

SEVERANCE AGREEMENT

 

 

This Agreement is made the     day of              , 2002, by and between
CONSTELLATION ENERGY GROUP, INC. (the “Company”) and Michael J. Wallace (the
“Executive”), and is effective as of       , 2002].

 

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 maintain a severance benefit for the Executive
covering the period from the date of a Change in Control 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 the Executive’s 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 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 met the eligibility requirements for retirement under any Company or
Affiliate supplemental non-qualified pension plan in which the Executive
participated immediately prior to the occurrence of a Qualifying Termination.

 

1.5           Eligible to Retire.  Eligible to Retire, means an Executive who
has met the eligibility requirements for retirement under any Company or
Affiliate supplemental non-qualified pension plan in which the Executive
participated immediately prior to the occurrence of a Qualifying Termination.

 

                                1.6           Good Reason.  Good Reason means,
without the Executive’s express written consent, the occurrence after the date
of a Change in Control of any one or more of the following:

 

2

--------------------------------------------------------------------------------

 

(a)           The assignment to the Executive of duties materially inconsistent
with the Executive’s authorities, duties, responsibilities, and status
(including offices, title and reporting relationships) as an executive and/or
officer of the Company or an Affiliate immediately prior to the date of the
Change in Control, or a material reduction or alteration in the nature or status
of the Executive’s authorities, duties, or responsibilities from those in effect
immediately prior to the date of the Change in Control, (including as a type of
such reduction or alteration for an Executive who is an officer of a publicly
traded company immediately prior to the date of the Change in Control, the
Executive occupying the same position or title but with a company whose stock is
not publicly traded), 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,
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

 

3

--------------------------------------------------------------------------------

 

(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 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.  A
termination of employment by the Executive for Good Reason for purposes of this
Agreement shall be effectuated by giving the Company written notice (“Notice of
Terminaton for Good Reason”) of the termination within six (6) months of the
occurrence of the event constituting Good Reason or, if such event is not
immediately recognizable by the Executive, within six (6) months of the date the
Executive became or reasonably should have become aware of such event, setting
forth in reasonable detail the specific conduct of the Company that constitutes
Good Reason and the specific provision(s) of this Agreement on which the
Executive relies.  A termination of employment by the Executive for Good Reason
shall be effective on the thirtieth (30th) day following the date when the
Notice of Termination for Good Reason is given, unless the notice sets forth a
later date (which date shall in no event be later than sixty (60) days after the
notice is given); provided, however, that no event described hereunder shall
constitute Good Reason if such event is a result of an isolated, insubstantial
and inadvertent action that is not taken in bad faith and that is remedied by
the Company within five (5) days after receipt of the Notice of Termination for
Good Reason by the Company from the Executive.  If the Company disputes the
existence of Good Reason, the burden of proof is on the Company to establish
that Good Reason does not exist.

 

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

 

4

--------------------------------------------------------------------------------

 

(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 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 annual 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; provided, however, that if the Executive has not
been employed by the Company or an Affiliate for a sufficient length of time to
have been eligible for payment of at least two annual incentive awards, deemed
target award payout shall be used for the one or two years for which the
Executive was not so eligible.

 

5

--------------------------------------------------------------------------------

 

                                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 three 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 a lump sum after the Qualifying Termination, and
within approximately 10 business days after the Company receives the executed
agreement referred to in 2(f) below but in no case prior to the expiration of
any period during which the Executive is permitted to revoke such agreement.

 

                                (b)           Supplemental Retirement Benefits. 
For purposes of determining the Executive’s supplemental retirement benefits
which the Executive is entitled to under the Company’s supplemental
non-qualified retirement plan in which the Executive participated immediately
prior to the Qualifying Termination (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 percentage shall be deemed equal to 40%, and
(iii) any minimum service eligibility requirements for such benefits shall be
waived.

 

                                (c)           Severance Health Benefits.  The
Company shall provide to the Executive the substantially equivalent value of the
medical and dental benefits provided to active employees for three years after
the Qualifying Termination and thereafter to any retiree of the Company or a
successor or an Affiliate (whichever 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 any 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).

 

6

--------------------------------------------------------------------------------

 

(e)           Outplacement.  For a 60-day period commencing on the date of the
Qualifying Termination, the Executive is entitled to receive outplacement
services from one or more organizations that are offered by the Company from
time to time, with such services capped at a Company cost of $50,000.

 

(f)            Release.  The benefits described in this Section 2 are payable by
the Company to the Executive only if after the date of the Qualifying
Termination, the Executive executes (and does not subsequently revoke) in
writing and submits to the Company, in the form, manner, and subject to the
timing established by the Company, an agreement releasing legal claims,
including those against the Company and its Affiliates, including but not
limited to claims arising out of the Executive’s Company or Affiliate employment
or termination of such employment.

 

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 three 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 a lump sum after the Qualifying Termination, and
within approximately 10 business days after the Company receives the executed
agreement referred to in 3(f) below but in no case prior to the expiration of
any period during which the Executive is permitted to revoke such agreement.

 

                                (b)           Supplemental Retirement Benefits. 
For purposes of determining the Executive’s supplemental retirement benefits
which the Executive is entitled to under the Company’s supplemental
non-qualified retirement plan in which the Executive participated immediately
prior to the Qualifying Termination (or the supplemental retirement plan
maintained by a successor company or an Affiliate), the Executive’s service
percentage shall be deemed equal to 40% or the Executive’s actual service
percentage (whichever is greater) and the Executive’s supplemental retirement
benefit shall not be reduced for early receipt.

 

(c)           Severance Health Benefits.  The Company shall provide to the
Executive the substantially equivalent value of the medical and dental benefits
provided to active employees for three years after the Qualifying Termination
and thereafter to 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.

 

7

--------------------------------------------------------------------------------

 

(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)).

 

(e)           Outplacement.  For a 60-day period commencing on the date of the
Qualifying Termination, the Executive is entitled to receive outplacement
services from one or more organizations that are offered by the Company from
time to time, with such services capped at a Company cost of $50,000.

 

(f)            Release.  The benefits described in this Section 3 are payable by
the Company to the Executive only if after the date of the Qualifying
Termination, the Executive executes (and does not subsequently revoke) in
writing and submits to the Company, in the form, manner, and subject to the
timing established by the Company, an agreement releasing legal claims,
including those against the Company and its Affiliates, including but not
limited to claims arising out of the Executive’s Company or Affiliate employment
or termination of such employment.

 

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.  However, if the Executive
receives severance benefits under this Agreement, the Executive is not also
entitled to any benefit under any other severance plan, program, arrangement or
agreement maintained by the Company or an Affiliate.  Vested benefits and other
amounts that the Executive is otherwise entitled to receive under any incentive
compensation (including, but not limited to any restricted stock or stock option
agreements), 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

 

8

--------------------------------------------------------------------------------

 

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 (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 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-

 

9

--------------------------------------------------------------------------------

 

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 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 the Executive 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

 

10

--------------------------------------------------------------------------------

 

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 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

 

11

--------------------------------------------------------------------------------

 

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.

 

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

--------------------------------------------------------------------------------

 

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 the Executive
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.

 

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,

 

13

--------------------------------------------------------------------------------

 

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:

 

 

 

Michael J. Wallace

 

14

--------------------------------------------------------------------------------