Document:

exhibit4_9.htm

    CONFORMED COPY

    
    

    
       

    

    
      

      

    

    

 

    

     

     

    
      

    

     

    New
Jersey Natural Gas Company

     

     

     

     

    $125,000,000
5.60% Senior Notes due May 15, 2018

     

     

     

     

    ______________

     

    Note
Purchase Agreement

     

    _____________

     

     

     

     

    Dated as
of May 15, 2008

     

    
      

    

     

     

     

     

     

     

     

     

     

     

     

    
      

      

    

    

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    Table
of Contents

     

    (Not a
part of the Agreement)

    
      	 
      	
              Section

            	
              Heading

            	
              Page

            
	 
      	 
      	 
      	 
      
	 
      	
              Section
      1.

            	
              Authorization
      of Notes

            	
              1

            
	 
      	 
      	 
      	 
      
	 
      	
              Section
      2.

            	
              Sale
      and Purchase of Notes and Security for the Notes

            	
              1

            
	 
      	
                 Section
      2.1.

            	
              Sale
      and Purchase of Notes

            	
              1

            
	 
      	
                 Section
      2.2.

            	
              Security
      for the Notes; First Mortgage Bonds; Release

            	
              1

            
	 
      	 
      	 
      	 
      
	 
      	
              Section
      3.

            	
              Closing

            	
              3

            
	 
      	 
      	 
      	 
      
	 
      	
              Section
      4.

            	
              Conditions
      to Closing

            	
              3

            
	 
      	
                 Section
      4.1.

            	
              Representations
      and Warranties

            	
              3

            
	 
      	
                 Section
      4.2.

            	
              Performance;
      No Default

            	
              3

            
	 
      	
                 Section
      4.3.

            	
              Compliance
      Certificates

            	
              4

            
	 
      	
                 Section
      4.4.

            	
              Opinions
      of Counsel

            	
              4

            
	 
      	
                 Section
      4.5.

            	
              Purchase
      permitted by Applicable Law, Etc.

            	
              4

            
	 
      	
                 Section
      4.6.

            	
              Related
      Transactions

            	
              4

            
	 
      	
                 Section
      4.7.

            	
              Payment
      of Special Counsel Fees

            	
              4

            
	 
      	
                 Section
      4.8.

            	
              Private
      Placement Number

            	
              5

            
	 
      	
                 Section
      4.9.

            	
              Changes
      in Corporate Structure

            	
              5

            
	 
      	
                 Section
      4.10.

            	
              Funding
      Instructions

            	
              5

            
	 
      	
                 Section
      4.11.

            	
              Board
      Approval

            	
              5

            
	 
      	
                 Section
      4.12.

            	
              First
      Mortgage Bonds and Supplemental Indenture

            	
              5

            
	 
      	
                 Section
      4.13.

            	
              Proceedings
      and Documents

            	
              5

            
	 
      	 
      	 
      	 
      
	 
      	
              Section
      5.

            	
              Representations
      and Warranties of the Company

            	
              6

            
	 
      	
                  Section
      5.1.

            	
              Organization
      Power and Authority

            	
              6

            
	 
      	
                  Section
      5.2.

            	
              Authorization,
      Etc.

            	
              6

            
	 
      	
                  Section
      5.3.

            	
              Disclosure

            	
              6

            
	 
      	
                  Section
      5.4.

            	
              Organization
      and Ownership of Shares of Subsidiaries

            	
              6

            
	 
      	
                  Section
      5.5.

            	
              Financial
      Statements

            	
              7

            
	 
      	
                  Section
      5.6.

            	
              Compliance
      with laws, Other Instruments, Etc.

            	
              7

            
	 
      	
                  Section
      5.7.

            	
              Governmental
      Authorizations, Etc.

            	
              8

            
	 
      	
                  Section
      5.8.

            	
              Litigation;
      Observance of Statutes and Orders

            	
              8

            
	 
      	
                  Section
      5.9.

            	
              Taxes

            	
              8

            
	 
      	
                  Section
      5.10.

            	
              Title
      to property; Leases

            	
              8

            
	 
      	
                  Section
      5.11.

            	
              Licenses,
      Permits, Etc.

            	
              9

            
	 
      	
                  Section
      5.12.

            	
              Compliance
      with ERISA

            	
              9

            
	 
      	
                  Section
      5.13.

            	
              Private
      Offering by the Company

            	
              10

            
	 
      	
                  Section
      5.14.

            	
              Use
      of Proceeds; Margin Regulations

            	
              10

            
	 
      	
                  Section
      5.15.

            	
              Existing
      Debt

            	
              10

            
	 
      	
                  Section
      5.16.

            	
              Foreign
      Assets Control Regulations, Etc.

            	
              11

            
	 
      	
                  Section
      5.17.

            	
              Status
      under Certain Statutes

            	
              11

            
	 
      	
                  Section
      5.18.

            	
              Environmental
      Matters

            	
              11

            
	 
      	
                  Section
      5.19.

            	
              Perfection
      of Liens

            	
              12

            
	 
      	
                  Section
      5.20.

            	
              First
      Mortgage Bonds Pari Passu

            	
              12

            
	 
      	
                  Section
      5.21.

            	
              No
      Event of Default

            	
              12

            
	 
      	 
      	 
      	 
      
	 
      	
              Section
      6.

            	
              Representations
      of the Purchases

            	
              13

            
	 
      	
                  Section
      6.1.

            	
              Purchase
      for Investment

            	
              13

            
	 
      	
                  Section
      6.2.

            	
              Source
      of Funds

            	
              13

            
	 
      	 
      	 
      	 
      
	 
      	
              Section
      7.

            	
               Information
      as to Company

            	
              14

            
	 
      	
                  Section
      7.1.

            	
              Financial
      and Business Information

            	
              14

            
	 
      	
                  Section
      7.2.

            	
              Officer's
      Certificate

            	
              17

            
	 
      	
                  Section
      7.3

            	
              Inspection                                                                                            

            	
              18

            
	 
      	 
      	 
      	 
      
	 
      	
              Section
      8.

            	
              Prepayment
      of the Notes

            	
              18

            
	 
      	
                  Section
      8.1.

            	
              Required
      Prepayments

            	
              18

            
	 
      	
                  Section
      8.2.

            	
              Required
      Prepayment—Condemnation; Required Sale

            	
              18

            
	 
      	
                  Section
      8.3.

            	
              Optional
      Prepayments with make-Whole Amount

            	
              19

            
	 
      	
                  Section
      8.4.

            	
              Allocation
      of Partial Prepayments

            	
              19

            
	 
      	
                  Section
      8.5.

            	
              Maturity;
      Surrender, Etc.

            	
              19

            
	 
      	
                  Section
      8.6.

            	
              Purchase
      of Notes

            	
              20

            
	 
      	
                  Section
      8.7.

            	
              Make-Whole
      Amount for Notes

            	
              20

            
	 
      	
                  Section
      8.8.

            	
              Offer
      to Prepay upon Asset Disposition

            	
              21

            
	 
      	 
      	 
      	 
      
	 
      	
              Section
      9.

            	
              Affirmative
      Covenants

            	
              22

            
	 
      	
                  Section
      9.1.

            	
              Compliance
      with Law

            	
              22

            
	 
      	
                  Section
      9.2.

            	
              Insurance                                                                                            

            	
              23

            
	 
      	
                  Section
      9.3.

            	
              Maintenance
      of Properties

            	
              23

            
	 
      	
                  Section
      9.4.

            	
              Payment
      of Taxes and Claims

            	
              23

            
	 
      	
                  Section
      9.5.

            	
              Corporate
      Existence, Etc.

            	
              23

            
	 
      	
                  Section
      9.6.

            	
              Regulated
      Nature

            	
              23

            
	 
      	
                  Section
      9.7.

            	
              Notes
      to Rank Pari Passu

            	
              23

            
	 
      	 
      	 
      	
               
      

            
	 
      	
              Section
      10.

            	
              Negative
      Covenants

            	
              24

            
	 
      	
                  Section
      10.1.

            	
              Limitations
      on Debt

            	
              24

            
	 
      	
                  Section
      10.2.

            	
              Liens

            	
              24

            
	 
      	
                  Section
      10.3.

            	
              Restricted
      Payments

            	
              26

            
	 
      	
                  Section
      10.4.

            	
              Restrictions
      on Dividends of Subsidiaries, Etc.

            	
              27

            
	 
      	
                  Section
      10.5.

            	
              Sale
      of Assets, Etc.

            	
              27

            
	 
      	
                  Section
      10.6.

            	
              Merger,
      Consolidation, Etc.

            	
              28

            
	 
      	
                  Section
      10.7.

            	
              Disposal
      of Ownership of a Restricted Subsidiary

            	
              28

            
	 
      	
                  Section
      10.8.

            	
              Limitations
      on Subsidiaries, Partnerships and Joint Ventures

            	
              29

            
	 
      	
                  Section
      10.9.

            	
              Limitation
      on Certain Leases

            	
              29

            
	 
      	
                  Section
      10.10.

            	
              Nature
      of Business

            	
              29

            
	 
      	
                  Section
      10.11.

            	
              Transactions
      with Affiliates

            	
              30

            
	 
      	
                  Section
      10.12.

            	
              Designation
      of Restricted and Unrestricted Subsidiaries

            	
              30

            
	 
      	
                  Section
      10.13.

            	
              Terrorism
      Sanctions Regulations

            	
              30

            
	 
      	 
      	 
      	 
      
	 
      	
              Section
      11.

            	
              Events
      of Default

            	
              31

            
	 
      	 
      	 
      	 
      
	 
      	
              Section
      12.

            	
              Remedies
      on Default, Etc.

            	
              33

            
	 
      	
                  Section
      12.1.

            	
              Acceleration                                                                                            

            	
              33

            
	 
      	
                  Section
      12.2.

            	
              Other
      Remedies

            	
              34

            
	 
      	
                  Section
      12.3.

            	
              Rescission                                                                                            

            	
              34

            
	 
      	
                  Section
      12.4.

            	
              No
      Waivers or Election of Remedies, Expenses, Etc.

            	
              35

            
	 
      	 
      	 
      	 
      
	 
      	
              Section
      13.

            	
              Registration;
      Exchange; Substitution of Notes

            	
              35

            
	 
      	
                  Section
      13.1.

            	
              Registration
      of Notes

            	
              35

            
	 
      	
                  Section
      13.2.

            	
              Transfer
      and Exchange of Notes

            	
              35

            
	 
      	
                  Section
      13.3.

            	
              Replacement
      of Notes

            	
              36

            
	 
      	 
      	 
      	 
      
	 
      	
              Section
      14.

            	
              Payments
      on Notes

            	
              36

            
	 
      	
                  Section
      14.1.

            	
              Place
      of Payment

            	
              36

            
	 
      	
                 
      Section 14.2.

            	
              Home
      Office Payment

            	
              36

            
	 
      	 
      	 
      	 
      
	 
      	
              Section
      15.

            	
              Expenses,
      Etc.

            	
              37

            
	 
      	
                  Section
      15.1.

            	
              Transaction
      Expenses

            	
              37

            
	 
      	
                  Section
      15.2.

            	
              Survival                      

            	
              37

            
	 
      	 
      	 
      	 
      
	 
      	
              Section
      16.

            	
              Survival
      of Representations and Warranties; Entire

                 Agreement

            	
              37

            
	 
      	 
      	 
      	 
      
	 
      	
              Section
      17.

            	
              Amendment
      and Waiver

            	
              38

            
	 
      	
                  Section
      17.1.

            	
              Requirements                                                                                            

            	
              38

            
	 
      	
                  Section
      17.2.

            	
              Solicitation
      of Holders of Notes

            	
              38

            
	 
      	
                  Section
      17.3.

            	
              Binding
      Effect, Etc.

            	
              39

            
	 
      	
                  Section
      17.4.

            	
              Notes
      Held by Company, Etc.

            	
              39

            
	 
      	 
      	 
      	 
      
	 
      	
              Section
      18.

            	
              Notices

            	
              39

            
	 
      	 
      	 
      	 
      
	 
      	
              Section
      19.

            	
              Reproduction
      of Documents

            	
              40

            
	 
      	 
      	 
      	 
      
	 
      	
              Section
      20.

            	
              Confidential
      Information

            	
              40

            
	 
      	 
      	 
      	 
      
	 
      	
              Section
      21.

            	
              Substitution
      of purchaser

            	
              41

            
	 
      	 
      	 
      	 
      
	 
      	
              Section
      22.

            	
              Miscellaneous

            	
              41

            
	 
      	
                  Section
      22.1.

            	
              Successors
      and Assigns

            	
              41

            
	 
      	
                  Section
      22.2.

            	
              Submission
      to Jurisdiction; Waiver of jury Trial

            	
              42

            
	 
      	
                  Section
      22.3.

            	
              Payments
      Due on Non-Business Days

            	
              42

            
	 
      	
                  Section
      22.4.

            	
              Accounting
      Terms

            	
              42

            
	 
      	
                  Section
      22.5.

            	
              Severability                                                                                            

            	
              42

            
	 
      	
                  Section
      22.6.

            	
              Construction                                                                                            

            	
              42

            
	 
      	
                  Section
      22.7.

            	
              Counterparts                                                                                            

            	
              43

            
	 
      	
                  Section
      22.8.

            	
              Governing
      Law

            	
              43

            
	 
      	 
      	 
      	 
      
	 
      	
              Section
      23.

            	
              Appointment
      and Direction of Collateral Agent

            	
              43

            
	 
      	
                  Section
      23.1.

            	
              Appointment
      and Authority; Direction

            	
              43

            
	 
      	
                  Section
      23.2.

            	
              Limited
      Agency

            	
              43

            
	 
      	
                  Section
      23.3.

            	
              Delegation
      of Duties

            	
              43

            
	 
      	
                  Section
      23.4.

            	
              Exculpatory
      Provisions                                                                                    

            	
              44

            
	 
      	
                  Section
      23.5.

            	
              Reliance
      by Collateral
      Agent                                                                   

            	
              44

            
	 
      	
                  Section
      23.6.

            	
              Indemnification                                                                                            

            	
              45

            
	 
      	
                  Section
      23.7.

            	
              Duties;
      Obligations                                                                                            

            	
              45

            
	 
      	
                  Section
      23.8.

            	
              Requesting
      Instructions

            	
              45

            
	 
      	
                  Section
      23.9.

            	
              Administrative
      Actions                                                                                 

            	
              45

            
	 
      	
                  Section
      23.10.

            	
              Exercise
      of Remedies

            	
              45

            
	 
      	
                  Section
      23.11.

            	
              Sharing
      and Application of
      Proceeds                                                         

            	
              46

            
	 
      	
                  Section
      23.12.

            	
              Resignation
      or Termination of Collateral Agent

            	
              46

            
	 
      	
                  Section
      23.13.

            	
              Succession
      of Successor Collateral
      Agent                                           
                

            	
              47

            
	 
      	
                  Section
      23.14.

            	
              Eligibility
      of Collateral
      Agent                                                                   
                

            	
              47

            
	 
      	
                  Section
      23.15.

            	
              Successor
      Collateral Agent by Merger

            	
              47

            
	 
      	
                  Section
      23.16.

            	
              Compensation
      and Reimbursement of Collateral Agent

            	
              48

            
	 
      	
                  Section
      23.17.

            	
              Self
      Dealing

            	
              48

            
	 
      	
                  Section
      23.18.

            	
              Third
      Party Beneficiary 

            	
              49

            
	 
      	 
      	 
      	 
      
	 
      	
              Signature

            	 
      	
              50

            

    

    

    
      
        
          
            -iv-

          

           

        

        
           

          
            

          

        

        
           

        

      

    

    

     

    Attachments
to Note Purchase Agreement:

    

      
      

      
        	 
      	
                Schedule A

              	
                —

              	
                Information
      Relating to Purchasers

              
	 
      	
                Schedule B

              	
                —

              	
                Defined
      Terms

              
	 
      	
                Schedule 4.9

              	
                —

              	
                Changes
      in Corporate Structure

              
	 
      	
                Schedule 5.3

              	
                —

              	
                Disclosure
      Materials

              
	 
      	
                Schedule 5.4

              	
                —

              	
                Subsidiaries
      of the Company and Ownership of Subsidiary Stock

              
	 
      	
                Schedule 5.5

              	
                —

              	
                Financials

              
	 
      	
                Schedule 5.8

              	
                —

              	
                Certain
      Litigation

              
	 
      	
                Schedule 5.11

              	
                —

              	
                Patents,
      Etc.

              
	 
      	
                Schedule 5.14

              	
                —

              	
                Use
      of Proceeds

              
	 
      	
                Schedule 5.15

              	
                —

              	
                Existing
      Debt

              
	 
      	
                Exhibit 1

              	
                —

              	
                Form
      of 5.60% Note due May 15, 2018

              
	 
      	
                Exhibit 4.4(a)

              	
                —

              	
                Form
      of Opinion of Special Counsel to the Company

              
	 
      	
                Exhibit 4.4(b)

              	
                —

              	
                Form
      of Opinion of Special Counsel to the
Purchasers

              

      

    

    
      
        
          
            -v-

          

           

        

        
           

          
            

          

        

        
           

        

      

    

    

    New
Jersey Natural Gas Company

    1415
Wyckoff Road

    Wall,
New Jersey  07719

     

    5.60%
Senior Notes due May 15, 2018

     

    Dated as
of May 15, 2008

     

    To
the Purchasers listed in

     the
attached Schedule A:

     

    Ladies
and Gentlemen:

     

    New
Jersey Natural Gas Company, a New Jersey corporation (the “Company”), agrees with the
purchasers listed in the attached Schedule A (each a “Purchaser” and collectively,
the “Purchasers”) as
follows:

     

    
      	
              Section 1.

            	
              Authorization
      of Notes.

            

    

     

    The
Company will authorize the issue and sale of $125,000,000 aggregate principal
amount of its 5.60% Senior Notes due May 15, 2018 (the “Notes,” such term to include
any such notes issued in substitution therefor pursuant to Section 13 of this
Agreement).  The Notes shall be substantially in the form set out in
Exhibit 1, with
such changes therefrom, if any, as may be approved by the Purchasers and the
Company.  Certain capitalized terms used in this Agreement are defined
in Schedule B;
references to a “Schedule” or an “Exhibit” are, unless otherwise specified, to a
Schedule or an Exhibit attached to this Agreement.

     

    
      	
              Section 2.

            	
              Sale
      and Purchase of Notes and Security for the
  Notes.

            

    

     

                              Section 2.1.Sale and Purchase of
Notes.  Subject to the terms and conditions of this Agreement,
the Company will issue and sell to each Purchaser and each Purchaser will
purchase from the Company, at the Closing provided for in Section 3, Notes in the
principal amount specified opposite such Purchaser’s name in Schedule A at the
purchase price of 100% of the principal amount thereof.  Each
Purchaser’s obligations hereunder are several and not joint and no Purchaser
shall have any obligation or liability to any Person for the performance or
nonperformance by any other Purchaser hereunder.

     

                              Section 2.2.Security for the Notes; First
Mortgage Bonds; Release.  (a) Prior to the Release Date, the
Notes shall be secured by an equal principal amount of the First Mortgage Bonds
issued by the Company under the Mortgage Indenture to The Bank of New York, as
collateral agent for the holders of the Notes (the “Collateral
Agent”).  The First Mortgage Bonds will rank pari passu with all other
existing and future first mortgage bonds issued pursuant to the Mortgage
Indenture.

     

                  (b)Terms of First Mortgage
Bonds.  The First Mortgage Bonds will have the same stated
interest rate, interest payment dates, stated maturity and redemption provisions
(including Make-Whole Amount, if any), and will be in the same aggregate
principal amount, as the Notes; provided, however, that the
interest rate on defaulted principal, Make-Whole Amount, if any, and interest on
the First Mortgage Bonds, to the extent permitted by law, is 6% per
annum.  Payments of the principal of, Make-Whole Amount, if any, and
interest on the Notes shall be deemed to satisfy and discharge the Company’s
obligation to make such payments on the First Mortgage
Bonds.  Principal of, Make-Whole Amount, if any, and interest on the
First Mortgage Bonds are payable at the principal office of the Mortgage Trustee
in Chicago, Illinois or at the Company’s option at the principal office of the
Collateral Agent.

     

                  (c)Parallel Payments of Notes and First
Mortgage Bonds.  The First Mortgage Bonds shall contain
optional and mandatory redemption provisions (including Make-Whole Amount, if
any) which correspond to the optional and mandatory prepayment provisions of the
Notes; provided, however,
that the interest rate on defaulted principal, Make-Whole Amount, if any,
and interest on the First Mortgage Bonds, to the extent permitted by law, is 6%
per annum.  In addition, the First Mortgage Bonds shall be subject to
mandatory redemption if the Company or the Mortgage Trustee is notified that an
Event of Default under this Agreement has occurred and is continuing and that
the principal amount of all Notes then outstanding has become due and payable in
accordance with this Agreement.  Prior to the Release
Date:

     

                     (1)In the event the Company elects to or
is required to prepay the Notes, in whole or in part, in accordance with the
provisions of this Agreement, the Company’s obligations with respect to a
principal amount of First Mortgage Bonds equal to the principal amount of such
Notes being prepaid will, upon prepayment of such Notes, be satisfied and
discharged, and the Collateral Agent shall deliver corresponding First Mortgage
Bonds in a principal amount equal to the principal amount of the Notes so
prepaid to the Company for further delivery to the Mortgage Trustee for
cancellation.

     

                     (2)In the event the Company elects to or
is required to redeem First Mortgage Bonds, in whole or in part, in accordance
with the provisions of the Mortgage Indenture, the Company shall prepay a
principal amount of Notes equal to the principal amount of such First Mortgage
Bonds being redeemed in accordance with the provisions of Section 8.2 or Section 8.3, as
applicable, and the Company’s obligation in respect of First Mortgage Bonds
equal to the principal amount of such prepaid Notes will be satisfied and
discharged, and the Collateral Agent shall deliver corresponding First Mortgage
Bonds in a principal amount equal to the principal amount of such Notes so
prepaid to the Company for further delivery to the Mortgage Trustee for
cancellation.

     

                  (d)Release of Security for the
Notes.  Upon the occurrence of the Release Date, the Company
shall promptly furnish the Collateral Agent and each holder of the Notes an
Officer’s Certificate certifying that the conditions precedent to the occurrence
of the Release Date have been satisfied.  From and after the Release
Date, the obligations of the Company with respect to the First Mortgage Bonds
shall be deemed to be satisfied and discharged, the First Mortgage Bonds shall
cease to secure in any manner the Company’s obligations under this Agreement or
the Notes, and the Collateral Agent shall forthwith deliver the First Mortgage
Bonds to the Company which shall then deliver the First Mortgage Bonds to the
Mortgage Trustee for cancellation.  On the Release Date, the Notes
shall become unsecured obligations of the Company and will rank pari passu in right of
repayment with other unsecured Senior Debt of the Company.  Following
the Release Date, the Company shall cause the Mortgage Indenture to be closed
after payment of all first mortgage bonds and the Company shall not issue any
additional first mortgage bonds under the Mortgage Indenture.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    
      	
              Section 3.

            	
              Closing.

            

    

     

    The sale
and purchase of the Notes to be purchased by the Purchasers shall occur at the
offices of Schiff Hardin LLP, 900 Third Avenue, 23rd Floor, New York, New York
10022, at 11:00 a.m., New York, New York time, at a closing (the “Closing”) on May 15,
2008 or on such other Business Day thereafter on or prior to May 30, 2008
as may be agreed upon by the Company and the Purchasers.  At the
Closing, the Company will deliver to each Purchaser the Notes to be purchased by
such Purchaser in the form of a single Note (or such greater number of Notes in
denominations of at least $100,000 as such Purchaser may request) dated the date
of the Closing and registered in such Purchaser’s name (or in the name of its
nominee), against delivery by such Purchaser to the Company or its order of
immediately available funds in the amount of the purchase price therefor by wire
transfer of immediately available funds for the account of the Company in
accordance with the funding instructions provided pursuant to Section 4.10.  If
at the Closing the Company shall fail to tender such Notes to any Purchaser as
provided above in this Section 3, or any of the
conditions specified in Section 4 shall not have
been fulfilled to any Purchaser’s satisfaction, such Purchaser shall, at its
election, be relieved of all further obligations under this Agreement, without
thereby waiving any rights such Purchaser may have by reason of such failure or
such nonfulfillment.

     

    
      	
              Section 4.

            	
              Conditions
      to Closing.

            

    

     

    Each
Purchaser’s obligation to purchase and pay for the Notes to be sold to such
Purchaser at the Closing is subject to the fulfillment to such Purchaser’s
satisfaction, prior to or at the Closing, of the following
conditions:

     

                    Section 4.1.Representations and
Warranties.  The representations and warranties of the Company
in this Agreement, the Mortgage Indenture (including the Supplemental Indenture)
and the First Mortgage Bond Documents to which it is a party shall be correct
when made and at the time of the Closing.

     

                    Section 4.2.Performance; No
Default.  The Company shall have performed and complied with
all agreements and conditions contained in this Agreement, the Mortgage
Indenture (including the Supplemental Indenture) and the First Mortgage Bond
Documents to which it is a party required to be performed or complied with by it
prior to or at the Closing, and after giving effect to the issue and sale of the
Notes (and the application of the proceeds thereof as contemplated by Schedule 5.14) and the
issue of the First Mortgage Bonds, no Default or Event of Default shall have
occurred and be continuing.

     

                    Section 4.3.Compliance
Certificates.

     

                  (a)Officer’s
Certificate.  The Company shall have delivered to such
Purchaser an Officer’s Certificate, dated the date of the Closing, certifying
that the conditions specified in Sections 4.1, 4.2 and
4.9 have been
fulfilled.

     

                  (b)Secretary’s
Certificate.  The Company shall have delivered to such
Purchaser a certificate of its Secretary, dated the date of Closing, certifying
as to the resolutions attached thereto and other corporate proceedings relating
to the authorization, execution and delivery of this Agreement, the Supplemental
Indenture, the First Mortgage Bond Documents to which it is a party, the Notes
and the First Mortgage Bonds.

     

                    Section 4.4.Opinions of
Counsel.  Such Purchaser shall have received opinions in form
and substance satisfactory to such Purchaser, dated the date of the Closing
(a) from Chapman and Cutler LLP, special counsel for the Company, covering
the matters set forth in Exhibit 4.4(a) and
covering such other matters incident to the transactions contemplated hereby as
such Purchaser or special counsel to the Purchasers may reasonably request (and
the Company hereby instructs its counsel to deliver such opinion to such
Purchaser) and (b) from Schiff Hardin LLP, special counsel to the
Purchasers in connection with such transactions, substantially in the form set
forth in Exhibit 4.4(b) and
covering such other matters incident to such transactions as such Purchaser may
reasonably request.

     

                    Section 4.5.Purchase Permitted by Applicable
Law, Etc.  On the date of the Closing, such Purchaser’s
purchase of Notes shall (a) be permitted by the laws and regulations of
each jurisdiction to which such Purchaser is subject, without recourse to
provisions (such as Section 1405(a)(8) of the New York Insurance Law)
permitting limited investments by insurance companies without restriction as to
the character of the particular investment, (b) not violate any applicable
law or regulation (including, without limitation, Regulation T, U or X of the
Board of Governors of the Federal Reserve System) and (c) not subject such
Purchaser to any tax, penalty or liability under or pursuant to any applicable
law or regulation.  If requested by any Purchaser, such Purchaser
shall have received an Officer’s Certificate certifying as to such matters of
fact as such Purchaser may reasonably specify to enable it to determine whether
such purchase is so permitted.

     

                    Section 4.6.Related
Transactions.  The Company shall have consummated the sale of
the entire principal amount of the Notes scheduled to be sold on the date of the
Closing pursuant to this Agreement and delivered the First Mortgage Bonds to the
Collateral Agent pursuant to this Agreement and the Supplemental
Indenture.

     

                    Section 4.7.Payment of Special Counsel Fees.
Without limiting the provisions of Section 15.1, the Company
shall have paid on or before the Closing the reasonable fees, charges and
disbursements of special counsel to the Purchasers referred to in Section 4.4(b) to the
extent reflected in a statement of such counsel rendered to the Company at least
one Business Day prior to the Closing.

     

                    Section 4.8.Private Placement
Number.  A Private Placement Number issued by Standard &
Poor’s CUSIP Service Bureau (in cooperation with the Securities Valuation Office
of the National Association of Insurance Commissioners) shall have been obtained
for the Notes.

     

                    Section 4.9.Changes in Corporate
Structure.  Except as specified in Schedule 4.9, the Company
shall not have changed its jurisdiction of incorporation or been a party to any
merger or consolidation and shall not have succeeded to all or any substantial
part of the liabilities of any other entity, at any time following the date of
the most recent financial statements referred to in Schedule 5.5.

     

        Section 4.10.        Funding
Instructions.  At least three Business Days prior to the date
of the Closing, such Purchaser shall have received written instructions executed
by an authorized financial officer of the Company on letterhead of the Company
directing the manner of the payment of funds and setting forth (a) the name of
the transferee bank, (b) such transferee bank’s ABA number, (c) the account name
and number into which the purchase price for the Notes is to be deposited and
(d) the name and telephone number of the account representative responsible for
verifying receipt of such funds.

     

        Section 4.11.        Board
Approval.  The New Jersey Board of Public Utilities shall have
entered an appropriate order authorizing the issuance and sale of the Notes to
the Purchasers and the delivery of the First Mortgage Bonds to the Collateral
Agent as security for the Notes, upon terms not inconsistent with this
Agreement, the Supplemental Indenture, the Notes and the First Mortgage Bonds
and such order shall not be subject to appeal.

     

    
      
        
        

      

      
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        Section 4.12.      First Mortgage Bonds and
Supplemental Indenture.  (a)  All
conditions precedent set forth in the Mortgage Indenture with respect to the
execution and delivery of the Supplemental Indenture and the issuance of the
First Mortgage Bonds shall have been satisfied.

     

                  (b)The First Mortgage Bonds, the
Supplemental Indenture and the First Mortgage Bond Documents shall have been
duly authorized, executed, authenticated in the case of the First Mortgage Bonds
and delivered by the respective parties thereto, shall constitute legal, valid
and binding contracts and agreements of such parties, and such Purchaser shall
have received true, complete, executed copies thereof and a certified copy of
the Mortgage Indenture.

     

                  (c)The Mortgage Indenture and the
Supplemental Indenture shall have been duly recorded as an indenture on real
property and duly filed, recorded or indexed as a security interest in personal
property so as to constitute a valid, perfected first Lien on all of the
Company’s property covered by the Mortgage Indenture and the Supplemental
Indenture, all in accordance with applicable law, and the Company shall have
caused satisfactory evidence thereof to be furnished to such Purchaser and
special counsel to the Purchasers.

     

        Section 4.13.     Proceedings and
Documents.  All corporate and other proceedings in connection
with the transactions contemplated by this Agreement and all documents and
instruments incident to such transactions shall be satisfactory to such
Purchaser and special counsel to the Purchasers, and such Purchaser and special
counsel to the Purchasers shall have received all such counterpart originals or
certified or other copies of such documents as such Purchaser or special counsel
to the Purchasers may reasonably request.

     

    
      	
              Section 5.

            	
              Representations
      and Warranties of the Company.

            

    

     

    The
Company represents and warrants to each Purchaser that:

     

                Section 5.1.Organization; Power and
Authority.  The Company is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, and is duly qualified as a foreign corporation and is in good
standing in each jurisdiction in which such qualification is required by law,
other than those jurisdictions as to which the failure to be so qualified or in
good standing would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.  The Company has the
corporate power and authority to own or lease the properties it purports to own
or lease, to transact the business it transacts and proposes to transact, to
execute and deliver this Agreement, the Supplemental Indenture and the First
Mortgage Bond Documents to which it is a party, the Notes and the First Mortgage
Bonds and to perform the provisions hereof, thereof and of the Mortgage
Indenture.

     

                Section 5.2.Authorization,
Etc.  This Agreement, the Mortgage Indenture (including the
Supplemental Indenture), the First Mortgage Bond Documents to which the Company
is a party, the Notes, and the First Mortgage Bonds have been duly authorized by
all necessary corporate action on the part of the Company, and this Agreement
and the Mortgage Indenture (including the Supplemental Indenture) and the First
Mortgage Bond Documents to which the Company is a party constitute, and upon
execution and delivery thereof each Note and each First Mortgage Bond will
constitute, a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its respective terms, except as such
enforceability may be limited by (a) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors’ rights generally and (b) general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).

     

               Section 5.3.Disclosure.  The
Company, through its agent, Banc of America Securities LLC, has delivered to
each Purchaser a copy of a Private Placement Memorandum, dated April 2008 (the
“Memorandum”), relating
to the transactions contemplated hereby.  Except as disclosed in Schedule 5.3, this
Agreement, the Supplemental Indenture, the Memorandum, the documents,
certificates or other writings identified in Schedule 5.3 and the
financial statements listed in Schedule 5.5,
(collectively, the “Disclosure
Documents”), taken as a whole, do not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading in light of the circumstances under which they
were made.  Except as disclosed in the Disclosure Documents, since
September 30, 2007, there has been no change in the financial condition,
operations, business or properties of the Company or any of its Restricted
Subsidiaries except changes that, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect.

     

               Section 5.4.Organization and Ownership of Shares
of Subsidiaries.  (a) Schedule 5.4 is (except
as noted therein) a complete and correct list of the Company’s Subsidiaries,
showing, as to each Subsidiary, the correct name thereof, the jurisdiction of
its organization, the percentage of shares of each class of its capital stock or
similar equity interests outstanding owned by the Company and each other
Subsidiary and whether or not such Subsidiary is a Restricted Subsidiary and/or
an Inactive Subsidiary.

     

                  (b)All of the outstanding shares of
capital stock or similar equity interests of each Restricted Subsidiary shown in
Schedule 5.4 as
being owned by the Company and its Subsidiaries have been validly issued, are
fully paid and nonassessable and are owned by the Company or another Subsidiary
free and clear of any Lien (except as otherwise disclosed in Schedule 5.4).

     

                  (c)Each Restricted Subsidiary identified
in Schedule 5.4 is
a corporation or other legal entity duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization, and is duly
qualified as a foreign corporation or other legal entity and is in good standing
in each jurisdiction in which such qualification is required by law, other than
those jurisdictions as to which the failure to be so qualified or in good
standing would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect.  Each such Restricted Subsidiary has
the corporate or other power and authority to own or lease the properties it
purports to own or lease and to transact the business it transacts and proposes
to transact.

     

               Section 5.5.Financial
Statements.  The Company has delivered to each Purchaser copies
of the financial statements of the Company and its Subsidiaries listed on Schedule 5.5.  All
of said financial statements (including in each case the related schedules and
notes) fairly present in all material respects the consolidated financial
position of the Company and its Subsidiaries as of the respective dates
specified in such Schedule and the consolidated results of their operations and
cash flows for the respective periods so specified and have been prepared in
accordance with GAAP consistently applied throughout the periods involved except
as set forth in the notes thereto (subject, in the case of any interim financial
statements, to normal year-end adjustments).  The Company and its
Subsidiaries do not have any Material liabilities that are not disclosed on such
financial statements or otherwise disclosed in the Disclosure
Documents.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

               Section 5.6.Compliance with Laws, Other
Instruments, Etc.  Neither the execution and delivery by the
Company of this Agreement, the Supplemental Indenture, the First Mortgage Bond
Documents to which it is a party, the Notes or the First Mortgage Bonds nor the
performance by the Company of this Agreement, the Mortgage Indenture (including
the Supplemental Indenture), the First Mortgage Bond Documents to which it is a
party, the Notes or the First Mortgage Bonds will (a) contravene, result in
any breach of, or constitute a default under, or result in the creation of any
Lien (other than the Liens contemplated thereby) in respect of any property of
the Company or any Restricted Subsidiary under, any indenture, mortgage, deed of
trust, loan, purchase or credit agreement, lease, corporate charter or by-laws,
or any other Material agreement or instrument to which the Company or any
Restricted Subsidiary is bound or by which the Company or any Restricted
Subsidiary or any of their respective properties may be bound or affected,
(b) conflict with or result in a breach of any of the terms, conditions or
provisions of any order, judgment, decree or ruling of any court, arbitrator or
Governmental Authority applicable to the Company or any Restricted Subsidiary or
(c) violate any provision of any statute or other rule or regulation of any
Governmental Authority applicable to the Company or any Restricted
Subsidiary.

     

               Section 5.7.Governmental Authorizations,
Etc.  No consent, approval or authorization of, or
registration, filing or declaration with, any Governmental Authority is required
in connection with the execution and delivery by the Company of this Agreement,
the Supplemental Indenture, the First Mortgage Bond Documents to which it is a
party, the Notes or the First Mortgage Bonds or the performance by the Company
of this Agreement, the Mortgage Indenture (including the Supplemental
Indenture), the First Mortgage Bond Documents to which it is a party, the Notes
or the First Mortgage Bonds other than such consents, approvals, authorizations,
registrations, filings or declarations that have been obtained or made prior to
the date of the Closing.

     

               Section 5.8.Litigation; Observance of Statutes
and Orders.  (a)  Except as disclosed in Schedule 5.8, there are
no actions, suits or proceedings pending or, to the knowledge of the Company,
threatened against or affecting the Company or any Restricted Subsidiary or any
property of the Company or any Restricted Subsidiary in any court or before any
arbitrator of any kind or before or by any Governmental Authority that,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect.

     

                  (b)Neither the Company nor any
Restricted Subsidiary is in default under any order, judgment, decree or ruling
of any court, arbitrator or Governmental Authority or is in violation of any
applicable law, ordinance, rule or regulation (including, without limitation,
ERISA, Environmental Laws or the USA Patriot Act) of any Governmental Authority,
which default or violation, individually or in the aggregate, would reasonably
be expected to have a Material Adverse Effect.

     

               Section 5.9.Taxes.  The Company
and its Subsidiaries have filed all income tax returns that are required to have
been filed in any jurisdiction, and have paid all taxes shown to be due and
payable on such returns and all other taxes and assessments payable by them, to
the extent such taxes and assessments have become due and payable and before
they have become delinquent, except for any taxes and assessments (a) the
amount of which is not, individually or in the aggregate, Material or
(b) the amount, applicability or validity of which is currently being
contested in good faith by appropriate proceedings and with respect to which the
Company or a Subsidiary, as the case may be, has established adequate reserves
in accordance with GAAP.  The charges, accruals and reserves on the
books of the Company and its Subsidiaries in respect of Federal, state or other
taxes for all fiscal periods are adequate.  The Federal income tax
liabilities of the Company and its Subsidiaries have been determined by the
Internal Revenue Service and paid for all fiscal years up to and including the
fiscal year ended September 30, 2004.

     

              
Section 5.10.       Title to Property;
Leases.  The Company and its Restricted Subsidiaries have good
and sufficient title related to the ownership of their respective Material
properties, including all such properties reflected in the most recent audited
balance sheet referred to in Section 5.5 or purported
to have been acquired by the Company or any Restricted Subsidiary after said
date (except as sold or otherwise disposed of in the ordinary course of
business), in each case free and clear of Liens prohibited by this Agreement or
the Mortgage Indenture (including the Supplemental Indenture), except for those
defects in title and Liens that, individually or in the aggregate, would not
have a Material Adverse Effect.  All Material leases are valid and
subsisting and are in full force and effect in all material
respects.

     

              
Section 5.11.      Licenses, Permits,
Etc.  Except as disclosed in Schedule 5.11, the
Company and its Restricted Subsidiaries own or possess all licenses, permits,
franchises, authorizations, patents, copyrights, proprietary software, service
marks, trademarks, trade names and domain names or rights thereto, that are
Material, without known conflict with the rights of others, except for those
conflicts that, individually or in the aggregate, would not have a Material
Adverse Effect.

     

             
Section 5.12.      Compliance with
ERISA.  (a) The Company and each ERISA Affiliate have
operated and administered each Plan in compliance with all applicable laws
except for such instances of noncompliance as have not resulted in and would not
reasonably be expected to result in a Material Adverse
Effect.  Neither the Company nor any ERISA Affiliate has incurred any
liability pursuant to Title I or IV of ERISA or the penalty or excise tax
provisions of the Code relating to employee benefit plans (as defined in
Section 3 of ERISA), and no event, transaction or condition has occurred or
exists that would reasonably be expected to result in the incurrence of any such
liability by the Company or any ERISA Affiliate, or in the imposition of any
Lien on any of the rights, properties or assets of the Company or any ERISA
Affiliate, in either case pursuant to Title I or IV of ERISA or to such penalty
or excise tax provisions, or to Code Sections 401(a)(29) or 412 (replaced
by Code Sections 436 and 430, respectively, effective January 1, 2008)
or Section 4068 of
ERISA, other than such liabilities or Liens as would not be, individually or in
the aggregate, Material.

     

                  (b)The present value of the aggregate
benefit liabilities under each of the Plans which are subject to Title IV of
ERISA (other than Multiemployer Plans), determined as of the end of such Plan’s
most recently ended plan year on the basis of the actuarial assumptions
specified for funding purposes in such Plan’s most recent actuarial valuation
report, did not exceed the aggregate current value of the assets of such Plan
allocable to such benefit liabilities by more than $1,200,000.  The
term “benefit liabilities” has the meaning specified in Section 4001 of
ERISA and the terms “current value” and “present value” have the meanings
specified in Section 3 of ERISA.

     

                  (c)The Company and its ERISA Affiliates
have not incurred withdrawal liabilities (and are not subject to contingent
withdrawal liabilities) under Section 4201 or 4204 of ERISA in respect of
Multiemployer Plans that, individually or in the aggregate, are
Material.

     

                  (d)The accumulated post-retirement
benefit obligation (determined as of the last day of the Company’s most recently
ended fiscal year in accordance with Financial Accounting Standards Board
Statement No. 106, without regard to liabilities attributable to continuation
coverage mandated by Section 4980B of the Code) of the Company and its
Restricted Subsidiaries did not exceed $11,300,000.

     

                  (e)The execution and delivery of this
Agreement and the issuance and sale of the Notes hereunder will not involve any
transaction that is subject to the prohibitions of Section 406 of ERISA or
in connection with which a tax could be imposed pursuant to
Section 4975(c)(1)(A)-(D) of the Code.  The representation by the
Company in the first sentence of this Section 5.12(e) with
respect to each Purchaser is made in reliance upon and subject to the accuracy
of such Purchaser’s representation in Section 6.2 as to the
sources of the funds used to pay the purchase price of the Notes to be purchased
by such Purchaser.

     

    
      
        
        

      

      
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Section 5.13.     Private Offering by the
Company.  Neither the Company nor anyone authorized to act on
its behalf has offered the Notes, the First Mortgage Bonds or any similar
securities for sale to, or solicited any offer to buy any of the same from, or
otherwise approached or negotiated in respect thereof with, any Person other
than the Purchasers and not more than 28 other Institutional Investors of the
type described in clause (c) of the definition thereof, each of which has been
offered the Notes at a private sale for investment.  Neither the
Company nor anyone acting on its behalf has taken, or will take, any action that
would subject the issuance or sale of the Notes to the registration requirements
of Section 5 of the Securities Act.

     

              Section 5.14.    Use of Proceeds; Margin
Regulations.  The Company will apply the proceeds of the sale
of the Notes as set forth in Schedule 5.14.  No
part of the proceeds from the sale of the Notes hereunder will be used, directly
or indirectly, for the purpose of buying or carrying any margin stock within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System
(12 CFR 221), or for the purpose of buying or carrying or trading in any
securities under such circumstances as to involve the Company in a violation of
Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a
violation of Regulation T of said Board (12 CFR 220).  Margin stock
does not constitute more than 25% of the value of the consolidated assets of the
Company and its Subsidiaries and the Company does not have any present intention
that margin stock will constitute more than 25% of the value of such
assets.  As used in this Section, the terms “margin stock” and
“purpose of buying or carrying” shall have the meanings assigned to them in said
Regulation U.

     

              
Section 5.15.    Existing Debt.  (a)
Except as described therein, Schedule 5.15 sets forth
a complete and correct list of all outstanding Debt of the Company and its
Restricted Subsidiaries as of December 31, 2007, since which date there has
been no Material change in the amounts, interest rates, sinking funds,
installment payments or maturities of the Debt of the Company or its Restricted
Subsidiaries.  Neither the Company nor any Restricted Subsidiary is in
default and no waiver of default is currently in effect, in the payment of any
principal or interest on any Debt of the Company or such Restricted Subsidiary
and no event or condition exists with respect to any Debt of the Company or any
Restricted Subsidiary the outstanding principal amount of which exceeds
$1,000,000 that would permit (or that with notice or the lapse of time, or both,
would permit) one or more Persons to cause such Debt to become due and payable
before its stated maturity or before its regularly scheduled dates of
payment.

     

                  (b)Neither the Company nor any
Subsidiary is a party to, or otherwise subject to any provision contained in,
any instrument evidencing Debt of the Company or such Subsidiary, any agreement
relating thereto or any other agreement (including, but not limited to, its
charter or other organizational document) which limits the amount of, or
otherwise imposes restrictions on the incurring of, Debt of the Company, except
as provided in the Mortgage Indenture, the Bank Credit Agreement and as
otherwise specifically indicated in Schedule 5.15.

     

               
Section 5.16.    Foreign Assets Control Regulations,
Etc.  (a)  Neither the sale of the Notes by the
Company hereunder or the issuance of the First Mortgage Bonds pursuant to the
Supplemental Indenture nor its use of the proceeds of the Notes will violate the
Anti-Terrorism Order, the USA Patriot Act, the Trading with the Enemy Act, as
amended, or any of the foreign assets control regulations of the United States
Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any
enabling legislation or executive order relating thereto.

     

                  (b)Neither the Company nor any
Subsidiary (1) is a Person described or designated in the Specially
Designated Nationals and Blocked Persons List of the Office of Foreign Assets
Control or in Section 1 of the Anti-Terrorism Order or (2) engages in
any dealings or transactions with any such Person.  The Company and
its Subsidiaries are in compliance, in all material respects, with the USA
Patriot Act.

     

                  (c)No part of the proceeds from the sale
of the Notes hereunder will be used, directly or indirectly, for any payments to
any governmental official or employee, political party, official of a political
party, candidate for political office, or anyone else acting in an official
capacity, in order to obtain, retain or direct business or obtain any improper
advantage, in violation of the United States Foreign Corrupt Practices Act of
1977, as amended, assuming in all cases that such Act applies to the
Company.

     

              
Section 5.17.      Status under Certain
Statutes.  Neither the Company nor any Subsidiary is an
“investment company” registered or required to be registered under the
Investment Company Act of 1940 or an “affiliated person” of an “investment
company” or an “affiliated person” of such “affiliated person” or under the
“control” of an “investment company” as such terms are defined in the Investment
Company Act of 1940, as amended, and shall not become such an “investment
company” or such an “affiliated person” or under such
“control.”  Neither the Company nor any Subsidiary is a “holding
company” or a “subsidiary company” of a “holding company,” or an “affiliate” of
a “holding company” or of a “subsidiary company” of a “holding company” within
the meaning of the Public Utility Holding Company Act of 2005, as
amended.  Based upon the immediately preceding sentence, neither the
Company nor the issue and sale of the Notes or the issuance of the First
Mortgage Bonds pursuant to the Supplemental Indenture is subject to regulation
under the Public Utility Holding Company Act of 2005, as
amended.  Neither the Company nor any Subsidiary is subject to the ICC
Termination Act of 1995, as amended, or the Federal Power Act, as
amended.  Neither the Company nor any Subsidiary is subject to any
Federal or state statute or regulation limiting its ability to incur Debt except
for rules and regulations of the New Jersey Board of Public
Utilities.

     

              
Section 5.18.        Environmental
Matters.  Except as disclosed in Schedule 5.8, neither the
Company nor any Restricted Subsidiary has knowledge of any claim or has received
any notice of any claim, and no proceeding has been instituted raising any claim
against the Company or any of its Restricted Subsidiaries or any of their
respective real properties now or formerly owned, leased or operated by any of
them or other assets, alleging any damage to the environment or violation of any
Environmental Laws, except, in each case, such as would not reasonably be
expected to result in a Material Adverse Effect.  Except as otherwise
disclosed to the Purchasers in writing:

     

                     (a)neither the Company nor any Restricted
Subsidiary has knowledge of any facts which would give rise to any claim, public
or private, of violation of Environmental Laws or damage to the environment
emanating from, occurring on or in any way related to real properties now or
formerly owned, leased or operated by any of them or to other assets or their
use, except, in each case, such as would not reasonably be expected to result in
a Material Adverse Effect;

     

                     (b)neither the Company nor any of its
Restricted Subsidiaries has stored any Hazardous Materials on real properties
now or formerly owned, leased or operated by any of them or has disposed of any
Hazardous Materials in a manner contrary to any Environmental Laws in each case
in any manner that would reasonably be expected to result in a Material Adverse
Effect; and

     

                     (c)all buildings on all real properties
now owned, leased or operated by the Company or any of its Restricted
Subsidiaries are in compliance with applicable Environmental Laws, except where
failure to comply would not reasonably be expected to result in a Material
Adverse Effect.

     

    
      
        
        

      

      
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Section 5.19.       Perfection of
Liens.  (a) The Mortgage Indenture has been duly recorded
and filed, and, on the date of the Closing, the Supplemental Indenture will have
been duly recorded and filed, in each place in which such recording or filing is
required to protect and preserve the Lien of the Mortgage Indenture and the
Supplemental Indenture, as the case may be, in and to the Trust Estate and such
Lien constitutes a valid, fully perfected and continuing first priority Lien in
and to, all right, title and interest of the Company in the Trust Estate and all
taxes and recording or filing fees required to be paid in connection with the
execution, recording or filing of the Mortgage Indenture and the Supplemental
Indenture have been or will have been duly paid, as the case may
be.

     

                          
 (b)The Lien of the
Collateral Agent in the First Mortgage Bonds constitutes a valid, fully
perfected and continuing first priority Lien.

     

              
Section 5.20.       First Mortgage Bonds Pari
Passu.  The Company’s obligations under the Supplemental
Indenture and the First Mortgage Bonds rank pari passu in right of
payment, without preference or priority, with it obligations under each other
series of first mortgage bonds issued and outstanding under the Mortgage
Indenture.

     

              
Section 5.21.      No Event of
Default.  No “Event of Default” under the Mortgage Indenture
exists on the date of execution of this Agreement or the Supplemental Indenture,
or will exist immediately after giving effect to the transactions contemplated
by this Agreement or the Supplemental Indenture and the applications of the
proceeds from the issue and sale of the Notes and the issuance of the First
Mortgage Bonds.

     

    
      	
              Section 6.

            	
              Representations
      of the Purchasers.

            

    

     

               Section 6.1.Purchase for
Investment.  Each Purchaser severally represents that it is
purchasing the Notes for its own account or for one or more separate accounts
maintained by such Purchaser or for the account of one or more pension or trust
funds and not with a view to the distribution thereof, provided that the disposition
of such Purchaser’s or such pension or trust fund’s property shall at all times
be within such Purchaser’s or such pension or trust fund’s
control.  Each Purchaser represents that it is an “accredited
investor,” as defined in Rule 501(a)(1), (2), (3) or (7) of
Regulation D under the Securities Act.  Each Purchaser
understands that the Notes have not been registered under the Securities Act and
may be resold only if registered pursuant to the provisions of the Securities
Act or if an exemption from registration is available, except under
circumstances where neither such registration nor such an exemption is required
by law, and that the Company is not required to register the Notes.

     

               Section 6.2.Source of
Funds.  Each Purchaser severally represents that at least one
of the following statements is an accurate representation as to each source of
funds (a “Source”) to
be used by such Purchaser to pay the purchase price of the Notes to be purchased
by such Purchaser hereunder:

     

                     (a)the Source is an “insurance company
general account” (as the term is defined in the United States Department of
Labor’s Prohibited Transaction Exemption (“PTE”) 95-60) in respect of
which the reserves and liabilities (as defined by the annual statement for life
insurance companies approved by the National Association of Insurance
Commissioners (the “NAIC
Annual Statement”)) for the general account contract(s) held by or on
behalf of any employee benefit plan together with the amount of the reserves and
liabilities for the general account contract(s) held by or on behalf of any
other employee benefit plans maintained by the same employer (or affiliate
thereof as defined in PTE 95-60) or by the same employee organization in the
general account do not exceed 10% of the total reserves and liabilities of the
general account (exclusive of separate account liabilities) plus surplus as set
forth in the NAIC Annual Statement filed with such Purchaser’s state of
domicile; or

     

                     (b)the Source is a separate account that
is maintained solely in connection with such Purchaser’s fixed contractual
obligations under which the amounts payable, or credited, to any employee
benefit plan (or its related trust) that has any interest in such separate
account (or to any participant or beneficiary of such plan (including any
annuitant)) are not affected in any manner by the investment performance of the
separate account; or

     

                     (c)the Source is either (1) an
insurance company pooled separate account, within the meaning of PTE 90-1 or
(2) a bank collective investment fund, within the meaning of the PTE 91-38
and, except as disclosed by such Purchaser to the Company in writing pursuant to
this clause (c), no employee benefit plan or group of plans maintained by the
same employer or employee organization beneficially owns more than 10% of all
assets allocated to such pooled separate account or collective investment fund;
or

     

                     (d)the Source constitutes assets of an
“investment fund” (within the meaning of Part V of PTE 84-14 (the
“QPAM Exemption”))
managed by a “qualified professional asset manager” or “QPAM” (within the
meaning of Part V of the QPAM Exemption), no employee benefit plan’s assets
that are included in such investment fund, when combined with the assets of all
other employee benefit plans established or maintained by the same employer or
by an affiliate (within the meaning of Section V(c)(1) of the QPAM
Exemption) of such employer or by the same employee organization and managed by
such QPAM, exceed 20% of the total client assets managed by such QPAM, the
conditions of Part I(c) and (g) of the QPAM Exemption are satisfied, neither the
QPAM nor a Person controlling or controlled by the QPAM (applying the definition
of “control” in Section V(e) of the QPAM Exemption) owns a 5% or more
interest in the Company and (1) the identity of such QPAM and (2) the
names of all employee benefit plans whose assets are included in such investment
fund have been disclosed to the Company in writing pursuant to this clause (d);
or

     

                     (e)the Source constitutes assets of a
“plan(s)” (within the meaning of Section IV of PTE 96-23 (the “INHAM Exemption”)) managed
by an “in-house asset manager” or “INHAM” (within the meaning of Part IV of the
INHAM Exemption), the conditions of Part I(a), (g) and (h) of the INHAM
Exemption are satisfied, neither the INHAM nor a Person controlling or
controlled by the INHAM (applying the definition of “control” in
Section IV(d) of the INHAM Exemption) owns a 5% or more interest in the
Company and (1) the identity of such INHAM and (2) the name(s) of the
employee benefit plan(s) whose assets constitute the Source have been disclosed
to the Company in writing pursuant to this clause (e); or

     

                     (f)the Source is a governmental plan;
or

     

                     (g)the Source is one or more employee
benefit plans, or a separate account or trust fund comprised of one or more
employee benefit plans, each of which has been identified to the Company in
writing pursuant to this clause (g); or

     

                     (h)the Source does not include assets of
any employee benefit plan, other than a plan exempt from the coverage of
ERISA.

     

    As used
in this Section 6.2, the terms
“employee benefit plan,” “governmental plan,” and “separate account” shall have
the respective meanings assigned to such terms in Section 3 of
ERISA.

     

    
      
        
        

      

      
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              Section 7.

            	
              Information
      as to Company.

            

    

     

               
Section 7.1.Financial and Business
Information.  The Company shall deliver to each holder of Notes
that is an Institutional Investor:

     

                     (a)Quarterly Statements — within
55 days after the end of each quarterly fiscal period in each fiscal year of the
Company (other than the last quarterly fiscal period of each such fiscal year),
duplicate copies of:

     

                     (1)a consolidated and consolidating
balance sheet of the Company and its Subsidiaries as at the end of such quarter,
and

     

                     (2)consolidated and consolidating
statements of income, changes in shareholders’ equity and cash flows of the
Company and its Subsidiaries for such quarter and (in the case of the second and
third quarters) for the portion of the fiscal year ending with such
quarter,

    
       

    

    setting
forth in each case in comparative form the figures for the corresponding periods
in the previous fiscal year, all in reasonable detail, prepared in accordance
with GAAP applicable to quarterly financial statements generally, and certified
by a Senior Financial Officer as fairly presenting, in all material respects,
the financial position of the companies being reported on and their results of
operations and cash flows, subject to changes resulting from normal year-end
adjustments, provided
that (i) in the event the Company posts such financial statements on
its home page on the worldwide web (at the date of this Agreement located at
http://njr360.client.shareholder.com/njng-reports.cfm)
within the time period specified above, such posting shall be deemed to satisfy
the requirements of this Section 7.1(a) or
(ii) in the event the Company becomes a reporting company under the
Exchange Act, delivery to the Securities and Exchange Commission within the time
period specified above of copies of the Company’s Quarterly Report on Form 10-Q
prepared in compliance with the requirements therefor and filed with the
Securities and Exchange Commission shall be deemed to satisfy the requirements
of this Section 7.1(a) and provided, further, that the
Company shall be deemed to have made such delivery of  the financial
statements described above or such Form 10-Q if it shall have timely posted such
financial statements on its home page on the worldwide web or timely made such
Form 10-Q available on “EDGAR” and on its home page on the worldwide web, as the
case may be, and shall have given such holder prior notice (such notice to
include the address of its home page) of such availability on its home page or
on EDGAR and on its home page in connection with each delivery (such
availability and notice thereof being referred to as “Electronic
Delivery”);

     

                     (b)Annual Statements — within
100 days after the end of each fiscal year of the Company, duplicate copies
of,

     

                     (1)a consolidated and consolidating
balance sheet of the Company and its Subsidiaries, as at the end of such year,
and

     

                     (2)consolidated and consolidating
statements of income, changes in shareholders’ equity and cash flows of the
Company and its Subsidiaries, for such year,

     

    setting
forth in each case in comparative form the figures for the previous fiscal year,
all in reasonable detail, prepared in accordance with GAAP, and accompanied by
an opinion thereon of independent certified public accountants of recognized
national standing, which opinion shall state that such financial statements
present fairly, in all material respects, the financial position of the
companies being reported upon and their results of operations and cash flows and
have been prepared in conformity with GAAP, and that the examination of such
accountants in connection with such financial statements has been made in
accordance with generally accepted auditing standards, and that such audit
provides a reasonable basis for such opinion in the circumstances, provided that in the event
the Company becomes a reporting company under the Exchange Act, the delivery
within the time period specified above of the Company’s Annual Report on Form
10-K for such fiscal year (together with the Company’s annual report to
shareholders, if any, prepared pursuant to Rule 14a-3 under the Exchange Act)
prepared in accordance with the requirements therefor and filed with the
Securities and Exchange Commission shall be deemed to satisfy the requirements
of this Section 7.1(b), and provided, further, that the
Company shall be deemed to have made such delivery of such Form 10-K if it
shall have timely made Electronic Delivery thereof;

     

                     (c)SEC and Other Reports — with
reasonable promptness, upon their becoming available, one copy of (1) each
financial statement, report, notice or proxy statement sent by the Company or
any Restricted Subsidiary to its principal lending banks as a whole (excluding
information sent to such banks in the ordinary course of administration of a
bank facility, such as information relating to pricing and borrowing
availability) or to its public securities holders generally and (2) each
regular or periodic report, each registration statement that shall have become
effective (without exhibits except as expressly requested by such holder), and
each final prospectus and all amendments thereto filed by the Company or any
Restricted Subsidiary with the Securities and Exchange Commission, provided and to the extent
that the Company’s Quarterly Report on Form 10-Q or Annual Report on Form 10-K
is filed with the Securities and Exchange Commission such filing shall be deemed
to satisfy the requirements of this Section 7.1(c) with
respect to such filings;

     

                     (d)Notice of Default or Event of
Default — with reasonable promptness, and in any event within five days
after a Responsible Officer becoming aware of the existence of any Default or
Event of Default, a written notice specifying the nature and period of existence
thereof and what action the Company is taking or proposes to take with respect
thereto;

     

                     (e)ERISA Matters — with
reasonable promptness, and in any event within five days after a Responsible
Officer becoming aware of any of the following, a written notice setting forth
the nature thereof and the action, if any, that the Company or an ERISA
Affiliate proposes to take with respect thereto:

     

                     (1)with respect to any Plan, any
reportable event, as defined in Section 4043(c) of ERISA and the
regulations thereunder, for which notice thereof has not been waived pursuant to
such regulations as in effect on the date thereof; or

     

                     (2)the taking by the PBGC of steps to
institute, or the threatening by the PBGC of the institution of, proceedings
under Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Plan, or the receipt by the Company or any ERISA
Affiliate of a notice from a Multiemployer Plan that such action has been taken
by the PBGC with respect to such Multiemployer Plan; or

     

                     (3)any event, transaction or condition
that could result in the incurrence of any liability by the Company or any ERISA
Affiliate pursuant to Title I or IV of ERISA or the penalty or excise tax
provisions of the Code relating to employee benefit plans, or in the imposition
of any Lien on any of the rights, properties or assets of the Company or any
ERISA Affiliate pursuant to Title I or IV of ERISA or such penalty or excise tax
provisions, if such liability or Lien, taken together with any other such
liabilities or Liens then existing, would reasonably be expected to have a
Material Adverse Effect;

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

                 (f)Unrestricted Subsidiaries —
at such time as either (1) the aggregate amount of the total assets of all
Unrestricted Subsidiaries exceeds 10% of the consolidated total assets of the
Company and its Subsidiaries determined in accordance with GAAP or (2) one or
more Unrestricted Subsidiaries account for more than 10% of the consolidated
gross revenues of the Company and its Subsidiaries determined in accordance with
GAAP, and within the respective periods provided in paragraphs (a) and (b)
above, financial statements of the character and for the dates and periods as in
said paragraphs (a) and (b) covering each Unrestricted Subsidiary (or groups of
Unrestricted Subsidiaries on a consolidated basis) together with consolidating
statements reflecting eliminations or adjustments required in order to reconcile
such financial statements to the corresponding consolidated financial statements
of the Company and its Subsidiaries delivered pursuant to paragraphs (a) and (b)
above; and

     

               (g)Requested Information — with
reasonable promptness, such other data and information relating to the business,
operations, affairs, financial condition, assets or properties of the Company or
any of its Restricted Subsidiaries or relating to the ability of the Company to
perform its obligations hereunder, under the Notes and, prior to the Release
Date, under the Mortgage Indenture (including the Supplemental Indenture), the
First Mortgage Bond Documents to which the Company is a party, and the First
Mortgage Bonds as from time to time may be reasonably requested by any such
holder of Notes.

     

              
Section 7.2.Officer’s
Certificate.  Each set of financial statements delivered to a
holder of Notes pursuant to Section 7.1(a) or Section 7.1(b) hereof
shall be accompanied by a certificate of a Senior Financial Officer setting
forth (which, in the case of Electronic Delivery of any such financial
statements, shall be by separate concurrent delivery of such certificate to each
holder of Notes):

     

              (a)Covenant Compliance — the
information (including reasonably detailed calculations) required in order to
establish whether the Company was in compliance with the requirements of Section 10.1 through
Section 10.5,
inclusive, and Section 10.9 during the
quarterly or annual period covered by the statements then being furnished
(including with respect to each such Section, where applicable, the calculations
of the maximum or minimum amount, ratio or percentage, as the case may be,
permissible under the terms of such Sections, and the calculation of the amount,
ratio or percentage then in existence); and

     

              (b)Event of Default — a
statement that such Senior Financial Officer has reviewed the relevant terms
hereof and, prior to the Release Date, the Mortgage Indenture (including the
Supplemental Indenture), and the First Mortgage Bond Documents to which the
Company is a party and has made, or caused to be made, under his or her
supervision, a review of the transactions and conditions of the Company and its
Subsidiaries from the beginning of the quarterly or annual period covered by the
statements then being furnished to the date of the certificate and that such
review shall not have disclosed the existence during such period of any
condition or event that constitutes a Default or an Event of Default or, if any
such condition or event existed or exists (including, without limitation, any
such event or condition resulting from the failure of the Company or any
Subsidiary to comply with any Environmental Law), specifying the nature and
period of existence thereof and what action the Company shall have taken or
proposes to take with respect thereto.

     

              Section 7.3.Inspection.  The
Company shall permit the representatives of each holder of Notes that is an
Institutional Investor:

     

              (a)No Default — if no Default or
Event of Default then exists, at the expense of such holder and upon reasonable
prior written notice to the Company, to visit the principal executive office of
the Company, to discuss the affairs, finances and accounts of the Company and
its Restricted Subsidiaries with the Company’s officers, and, with the consent
of the Company (which consent will not be unreasonably withheld) to visit the
other offices and properties of the Company and each Restricted Subsidiary, all
at such reasonable times and as often as may be reasonably requested in writing;
and

     

              (b)Default — if a Default or
Event of Default then exists, at the expense of the Company, to visit and
inspect any of the offices or properties of the Company or any Restricted
Subsidiary, to examine all their respective books of account, records, reports
and other papers, to make copies and extracts therefrom, and to discuss their
respective affairs, finances and accounts with their respective officers and
independent public accountants (and by this provision the Company authorizes
said accountants to discuss the affairs, finances and accounts of the Company
and its Restricted Subsidiaries), all at such times and as often as may be
requested.

     

    
      	
              Section 8.

            	
              Prepayment
      of the Notes.

            

    

     

             Section 8.1.Required
Prepayments.  Subject to Section 8.2, the Notes
shall not be subject to required prepayments.  The entire unpaid
principal balance of the Notes shall be due and payable on the stated maturity
date thereof.

     

             Section 8.2.Required Prepayment—Condemnation;
Required Sale.  Prior to the Release Date, in the event that,
pursuant to the terms of Section 8.08 of the Mortgage Indenture, the First
Mortgage Bonds are called for redemption, in whole or in part, then the Company
shall, (a) at least 30 days and not more than 60 days prior to
the redemption date of the First Mortgage Bonds pursuant to Section 8.08 of
the Mortgage Indenture, give written notice to the Collateral Agent, as the
registered holder of the First Mortgage Bonds, and each holder of Notes, of the
redemption of all or a portion of the First Mortgage Bonds and the corresponding
prepayment of all or a portion of the Notes, and (b) on the redemption date
of the First Mortgage Bonds so called for redemption, prepay the Notes in an
aggregate principal amount equal to the amount of First Mortgage Bonds called
for redemption at a prepayment price equal to 100% of the First Mortgage Bonds
being redeemed, together with interest accrued thereon to the date of such
prepayment.  The notice described in (a) above shall specify the
prepayment date (which shall be a Business Day), the aggregate principal amount
of the Notes to be prepaid on such date, the principal amount of each Note held
by such holder to be prepaid (determined in accordance with Section 8.4), and the
interest to be paid on the prepayment date with respect to such principal amount
being prepaid.

     

             Section 8.3.Optional Prepayments with Make-Whole
Amount.  The Company may, at its option, upon notice as
provided below, prepay at any time all, or from time to time any part of, the
Notes, in an amount not less than $1,000,000 in aggregate principal amount of
the Notes then outstanding in the case of a partial prepayment, at 100% of the
principal amount so prepaid together with interest accrued thereon to the date
of such prepayment and the Make-Whole Amount, if any, determined for the
prepayment date with respect to such principal amount.  The Company
will give each holder of Notes written notice of each optional prepayment under
this Section 8.3
not less than 30 days and not more than 60 days prior to the date fixed for such
prepayment.  Each such notice shall specify such date (which shall be
a Business Day), the aggregate principal amount of the Notes to be prepaid on
such date, the principal amount of each Note held by such holder to be prepaid
(determined in accordance with Section 8.4), and the
interest to be paid on the prepayment date with respect to such principal amount
being prepaid, and shall be accompanied by a certificate of a Senior Financial
Officer as to the estimated Make-Whole Amount due in connection with such
prepayment (calculated as if the date of such notice were the date of the
prepayment), setting forth the details of such computation.  Two
Business Days prior to such prepayment, the Company shall deliver to each holder
of Notes a certificate of a Senior Financial Officer specifying the calculation
of such Make-Whole Amount as of the specified prepayment date.

     

    
      
        
        

      

      
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Section 8.4.Allocation of Partial
Prepayments.  In the case of each partial prepayment of the
Notes pursuant to Section 8.2 or Section 8.3 hereof, the
principal amount of the Notes to be prepaid shall be allocated among all of the
Notes at the time outstanding in proportion, as nearly as reasonably
practicable, to the respective unpaid principal amounts thereof not theretofore
called for prepayment.  All partial prepayments or purchases made
pursuant to Section 8.6(b)
or Section 8.8(a) shall be
applied only to the Notes of the holders who have elected to participate in such
prepayment or purchase.

     

    
                 Section 8.5.Maturity; Surrender,
Etc.  In the case of each prepayment of Notes pursuant to this
Section 8, the
principal amount of each Note to be prepaid shall mature and become due and
payable on the date fixed for such prepayment, together with interest on such
principal amount accrued to such date and the applicable Make-Whole Amount, if
any.  From and after such date, unless the Company shall fail to pay
such principal amount when so due and payable, together with the interest and
Make-Whole Amount, if any, as aforesaid, interest on such principal amount shall
cease to accrue.  Any Note paid or prepaid in full shall be
surrendered to the Company and cancelled and shall not be reissued, and no Note
shall be issued in lieu of any prepaid principal amount of any
Note.

    

     

               Section 8.6.Purchase of
Notes.  The Company will not, and will not permit any Affiliate
to, purchase, redeem, prepay or otherwise acquire, directly or indirectly, any
of the outstanding Notes except (a) upon the payment or prepayment of the
Notes in accordance with the terms of this Agreement and the Notes or
(b) pursuant to an offer to purchase made by the Company or an Affiliate
pro rata to the holders
of all Notes at the time outstanding upon the same terms and
conditions.  Any such offer shall provide each holder with sufficient
information to enable it to make an informed decision with respect to such
offer, and shall remain open for at least 15 Business Days.  If
the holders of more than 50% of the principal amount of the Notes then
outstanding accept such offer, the Company shall promptly notify the remaining
holders of such fact and the expiration date for the acceptance by holders of
Notes of such offer shall be extended by the number of days necessary to give
each such remaining holder at least 10 Business Days from its receipt of
such notice to accept such offer.  The Company will promptly cancel
all Notes acquired by it or any Affiliate pursuant to any payment, prepayment or
purchase of Notes pursuant to any provision of this Agreement and no Notes may
be issued in substitution or exchange for any such Notes.

     

               Section 8.7.Make-Whole Amount for
Notes.  The term “Make-Whole Amount” shall
mean, with respect to any Note, an amount equal to the excess, if any, of the
Discounted Value of the Remaining Scheduled Payments with respect to the Called
Principal of such Note over the amount of such Called Principal, provided that the Make-Whole
Amount may in no event be less than zero.  For the purposes of
determining the Make-Whole Amount, the following terms have the following
meanings:

     

    “Called Principal” shall
mean, with respect to any Note, the principal of such Note that is to be prepaid
pursuant to Section 8.3 or has become
or is declared to be immediately due and payable pursuant to Section 12.1, as the
context requires.

     

    “Discounted Value” shall
mean, with respect to the Called Principal of any Note, the amount obtained by
discounting all Remaining Scheduled Payments with respect to such Called
Principal from their respective scheduled due dates to the Settlement Date with
respect to such Called Principal, in accordance with accepted financial practice
and at a discount factor (applied on the same periodic basis as that on which
interest on the Notes is payable) equal to the Reinvestment Yield with respect
to such Called Principal.

     

    “Reinvestment Yield” shall
mean, with respect to the Called Principal of any Note, 0.50% over the yield to
maturity implied by (a) the yields reported, as of 10:00 a.m. (New York, New
York time) on the second Business Day preceding the Settlement Date with respect
to such Called Principal, on the display designated as “Page PX1” (or such other
display as may replace Page PX1) on the Bloomberg Financial Markets Services
Screen) for the most recently issued actively traded on the run U.S. Treasury
securities having a maturity equal to the Remaining Average Life of such Called
Principal as of such Settlement Date, or (b) if such yields are not reported as
of such time or the yields reported as of such time are not ascertainable
(including by way of interpolation), the Treasury Constant Maturity Series
Yields reported, for the latest day for which such yields have been so reported
as of the second Business Day preceding the Settlement Date with respect to such
Called Principal, in Federal Reserve Statistical Release H.15 (or any comparable
successor publication) for U.S. Treasury securities having a constant maturity
equal to the Remaining Average Life of such Called Principal as of such
Settlement Date.

     

    In the
case of each determination under clause (a) or clause (b), as the case may be,
of the preceding paragraph, such implied yield will be determined, if necessary,
by (1) converting U.S. Treasury bill quotations to bond-equivalent yields
in accordance with accepted financial practice and (2) interpolating linearly
between (i) the applicable U.S. Treasury security with the maturity closest to
and greater than such Remaining Average Life and (ii) the applicable U.S.
Treasury security with the maturity closest to and less than such Remaining
Average Life.  The Reinvestment Yield shall be rounded to the number
of decimal places as appears in the interest rate of the applicable
Note.

     

    “Remaining Average Life”
shall mean, with respect to any Called Principal, the number of years
(calculated to the nearest one-twelfth year) obtained by dividing (a) such
Called Principal into (b) the sum of the products obtained by multiplying (1)
the principal component of each Remaining Scheduled Payment with respect to such
Called Principal by (2) the number of years (calculated to the nearest
one-twelfth year) that will elapse between the Settlement Date with respect to
such Called Principal and the scheduled due date of such Remaining Scheduled
Payment.

     

    “Remaining Scheduled
Payments” shall mean, with respect to the Called Principal of any Note,
all payments of such Called Principal and interest thereon that would be due
after the Settlement Date with respect to such Called Principal if no payment of
such Called Principal were made prior to its scheduled due date, provided that if such
Settlement Date is not a date on which interest payments are due to be made
under the terms of the Notes, then the amount of the next succeeding scheduled
interest payment will be reduced by the amount of interest accrued to such
Settlement Date and required to be paid on such Settlement Date pursuant to
Section 8.3 or
Section 12.1.

     

    “Settlement Date” shall mean,
with respect to the Called Principal of any Note, the date on which such Called
Principal is to be prepaid pursuant to Section 8.3 or has become
or is declared to be immediately due and payable pursuant to Section 12.1, as the
context requires.

     

                Section 8.8.Offer to Prepay upon Asset
Disposition.

     

                     (a)Notice and
Offer.  In the event of a Transfer where the Company has
elected to apply all or a portion of the Net Proceeds Amount of such Transfer
pursuant to Section 10.5(b), the
Company shall, no later than the 305th day
following the date of such Transfer, give written notice of such event (an “Asset Disposition Prepayment
Event”) to each holder of Notes.  Such notice shall contain,
and shall constitute, an irrevocable offer to prepay a Ratable Portion of the
Notes held by such holder on the date (which shall be a Business Day) specified
in such notice (the “Asset
Disposition Prepayment Date”) which date shall be not less than 30 days
and not more than 60 days after such notice.

     

    
      
        
        

      

      
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                  (b)Acceptance and
Payment.  A holder of Notes may accept or reject the offer to
prepay pursuant to this Section 8.8 by causing a
notice of such acceptance or rejection to be delivered to the Company at least
10 days prior to the Asset Disposition Prepayment Date.  A failure by
a holder of the Notes to respond to an offer to prepay made pursuant to this
Section 8.8 shall
be deemed to constitute a rejection of such offer by such holder.  If
so accepted, such offered prepayment in respect of the Ratable Portion of the
Notes of each holder that has accepted such offer shall be due and payable on
the Asset Disposition Prepayment Date.  Such offered prepayment shall
be made at 100% of the aggregate Ratable Portion of the Notes of each holder
that has accepted such offer, together with interest on that portion of the
Notes then being prepaid accrued to the Asset Disposition Prepayment Date, but
without any Make-Whole Amount.  If any holder of a Note rejects or is
deemed to have rejected such offer of prepayment, the Company may use the
Ratable Portion for such Note for general corporate purposes.

     

    
                    (c)Officer’s
Certificate.  Each offer to prepay the Notes pursuant to this
Section 8.8 shall
be accompanied by a certificate, executed by a Senior Financial Officer and
dated the date of such offer, specifying:  (1) the Asset Disposition
Prepayment Date; (2) that such offer is being made pursuant to this Section 8.8 and that the
failure by a holder to respond to such offer by the deadline established in
Section 8.8(b) shall
result in such offer to such holder being deemed rejected; (3) the Ratable
Portion of each such Note offered to be prepaid; (4) the interest that would be
due on the Ratable Portion of each such Note offered to be prepaid, accrued to
the Asset Disposition Prepayment Date; (5) that the conditions of this Section 8.8 have been
satisfied and (6) in reasonable detail, a description of the nature and date of
the Asset Disposition Prepayment Event giving rise to such offer of
prepayment.

    

     

    
      	
              Section 9.

            	
              Affirmative
      Covenants.

            

    

     

    The
Company covenants that so long as any of the Notes are outstanding:

     

              
Section 9.1.Compliance with
Law.  The Company will, and will cause each of its Subsidiaries
to, comply with all laws, ordinances or governmental rules or regulations to
which each of them is subject, including, without limitation, ERISA, the USA
Patriot Act and Environmental Laws, and will obtain and maintain in effect all
licenses, certificates, permits, franchises and other governmental
authorizations necessary to the ownership of their respective properties or to
the conduct of their respective businesses, in each case to the extent necessary
to ensure that non-compliance with such laws, ordinances or governmental rules
or regulations or failures to obtain or maintain in effect such licenses,
certificates, permits, franchises and other governmental authorizations would
not reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect.

     

               Section 9.2.Insurance.  The
Company will, and will cause each of its Restricted Subsidiaries to, maintain,
with financially sound and reputable insurers, insurance with respect to their
respective properties and businesses against such casualties and contingencies,
of such types, on such terms and in such amounts (including deductibles,
co-insurance and self-insurance, if adequate reserves are maintained with
respect thereto) as is customary in the case of entities of established
reputations engaged in the same or a similar business and in the same industry
and similarly situated.

     

               Section 9.3.Maintenance of
Properties.  The Company will, and will cause each of its
Restricted Subsidiaries to, maintain and keep, or cause to be maintained and
kept, their respective properties in good repair, working order and condition
(other than ordinary wear and tear), so that the business carried on in
connection therewith may be properly conducted at all times, provided that this Section
shall not prevent the Company or any Restricted Subsidiary from discontinuing
the operation and the maintenance of any of its properties if such
discontinuance is desirable in the conduct of its business and the Company has
concluded that such discontinuance would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse
Effect.

     

               Section 9.4.Payment of Taxes and
Claims.  The Company will, and will cause each of its
Subsidiaries to, file all income tax or similar tax returns required to be filed
in any jurisdiction and to pay and discharge all taxes shown to be due and
payable on such returns and all other taxes, assessments, governmental charges
or levies payable by any of them, to the extent the same have become due and
payable and before they have become delinquent, provided that neither the
Company nor any Subsidiary need pay any such tax, assessment, governmental
charge or levy if (1) the amount, applicability or validity thereof is
contested by the Company or such Subsidiary on a timely basis in good faith and
in appropriate proceedings, and the Company or a Subsidiary has established
adequate reserves therefor in accordance with GAAP on the books of the Company
or such Subsidiary or (2) the nonpayment of all such taxes, assessments,
governmental charges and levies in the aggregate would not reasonably be
expected, individually or in the aggregate, to have a Material Adverse
Effect.

     

               Section 9.5.Corporate Existence,
Etc.  The Company will at all times preserve and keep in full
force and effect its corporate existence.  Subject to Sections 10.5, 10.6 and 10.7, the Company will at all
times preserve and keep in full force and effect the corporate existence of each
of its Restricted Subsidiaries (unless merged into the Company or a Wholly-Owned
Restricted Subsidiary) and all rights and franchises of the Company and its
Restricted Subsidiaries unless, in the good faith judgment of the Company, the
termination of or failure to preserve and keep in full force and effect such
corporate existence, right or franchise would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse
Effect.

     

                  Section 9.6. Regulated
Nature.  The Company will at all times be and remain a Person
that is subject under law to regulation by a public utility commission or other
governmental regulatory body with oversight responsibilities for
utilities.

     

                  Section 9.7.Notes to Rank Pari
Passu.  After the Release Date, the Company will ensure that
its payment obligations under this Agreement and the Notes will at all times
rank at least pari
passu in right of payment with all other unsecured Senior Debt (actual or
contingent) of the Company.

     

    
      	
              Section 10.

            	
              Negative
      Covenants.

            

    

     

    The
Company covenants that so long as any of the Notes are outstanding:

     

               
Section 10.1.                              Limitations on
Debt.  From and after the Release Date, the Company will not
permit, as of the end of any fiscal quarter of the Company:  (a) the
ratio of Consolidated Total Debt to Consolidated Total Capitalization to exceed
0.65 to 1.00; or (b) Priority Debt to exceed 20% of Consolidated Total
Capitalization.

     

               
Section 10.2.                              Liens.  The Company
will not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly create, incur, assume or permit to exist (upon the happening of a
contingency or otherwise) any Lien on or with respect to any property or asset
(including, without limitation, any document or instrument in respect of goods
or accounts receivable) of the Company or any such Restricted Subsidiary,
whether now owned or held or hereafter acquired, or any income or profits
therefrom, or assign or otherwise convey any right to receive income or profits,
except:

     

                     (a)Liens for taxes, assessments or other
governmental charges which are not yet due and payable or the payment of which
is not at the time required by Section 9.4;

     

    
      
        
        

      

      
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                     (b)statutory Liens of landlords and Liens
of carriers, warehousemen, mechanics, materialmen and other similar Liens, in
each case, incurred in the ordinary course of business for sums not yet due and
payable or the payment of which is not at the time required by Section 9.4;

     

                     (c)Liens (other than any Lien imposed by
ERISA) incurred or deposits made in the ordinary course of business (1) in
connection with workers’ compensation, unemployment insurance and other types of
social security or retirement benefits, or (2) to secure (or to obtain
letters of credit that secure) the performance of tenders, statutory
obligations, surety bonds, appeal bonds, bids, leases (other than Capital
Leases), performance bonds, purchase, construction or sales contracts, and other
similar obligations, in each case not incurred or made in connection with the
borrowing of money, the obtaining of advances or credit or the payment of the
deferred purchase price of property;

     

         (d)      
subject to Section 11(l), any attachment or judgment Lien,
unless the judgment it secures shall not, within 30 days after the entry
thereof, have been discharged or execution thereof stayed pending appeal, or
shall not have been discharged within 30 days after the expiration of any such
stay,

     

                     (e)leases or subleases granted to others,
easements, rights-of-way, restrictions and other similar charges or encumbrances
or minor survey exceptions, in each case incidental to, and not interfering
with, the ordinary conduct of the business of the Company or any of its
Restricted Subsidiaries, provided that such Liens do
not, in the aggregate, materially detract from the value of such
property;

     

                     (f)Liens on property or assets of any
Restricted Subsidiary securing Debt owing to the Company or to a Wholly-Owned
Restricted Subsidiary;

     

                     (g)Liens existing on the date of the
Closing and described on Schedule 5.15 hereto
(other than Liens on “Excepted
Property” of the Company as defined in the Mortgage Indenture as in
effect on the date of the Closing);

     

                     (h)Liens on accounts receivable owned by
Securitization Subsidiaries that are Restricted Subsidiaries and incurred
pursuant to Receivables Securitization Transactions;

     

                     (i)any Lien created to secure all or any
part of the purchase price, or to secure Debt incurred or assumed to pay all or
any part of the purchase price or cost of construction, of property (or any
improvement thereon) acquired or constructed by the Company or a Restricted
Subsidiary after the date of the Closing, provided that:

     

                     (1)any such Lien shall extend solely to
the item or items of such property (or improvement thereon) so acquired or
constructed and, if required by the terms of the instrument originally creating
such Lien, other property (or improvement thereon) which is an improvement to or
is acquired for specific use in connection with such acquired or constructed
property (or improvement thereon) or which is real property being improved by
such acquired or constructed property (or improvement thereon);

     

                     (2)the principal amount of the Debt
secured by any such Lien shall at no time exceed an amount equal to the lesser
of (i) the cost to the Company or such Restricted Subsidiary of the
property (or improvement thereon) so acquired or constructed and (ii) the
Fair Market Value (as determined in good faith by one or more officers of the
Company to whom authority to enter into the subject transaction has been
delegated by the board of directors of the Company) of such property (or
improvement thereon) at the time of such acquisition or
construction;

     

                     (3)any such Lien shall be created
contemporaneously with, or within 180 days after, the acquisition or
construction of such property; and

     

                     (4)after the Release Date, the aggregate
principal amount of all Debt secured by such Liens shall be permitted by the
limitation set forth in Section 10.1(a) if tested
on the date of such Lien is created and not as of the end of the immediately
preceding fiscal quarter of the Company;

     

                     (j)any Lien existing on property of a
Person immediately prior to its being consolidated with or merged into the
Company or a Restricted Subsidiary or its becoming a Subsidiary, or any Lien
existing on any property acquired by the Company or any Restricted Subsidiary at
the time such property is so acquired (whether or not the Debt secured thereby
shall have been assumed), provided that (1) no
such Lien shall have been created or assumed in contemplation of such
consolidation or merger or such Person becoming a Subsidiary or such acquisition
of property, (2) each such Lien shall extend solely to the item or items of
property so acquired and, if required by the terms of the instrument originally
creating such Lien (i) other property which is an improvement to or is
acquired for specific use in connection with such acquired property or
(ii) other property that does not constitute property or assets of the
Company or any of its Restricted Subsidiaries and (3) after the Release Date,
the aggregate amount of all Debt secured by such Liens shall be permitted by the
limitation set forth in Section 10.1(a) if tested
on the date of such event and not as of the end of the immediately preceding
fiscal quarter of the Company;

     

                     (k)Liens on assets of the Company (other
than Liens on “Excepted Property” as defined in the Mortgage Indenture as in
effect on the date of the Closing) which Liens secure Debt outstanding as of the
date of the Closing under the Mortgage Indenture and any additional Debt that is
issued in accordance with Article Two of the Mortgage Indenture (as in effect on
the date of the Closing) and after the Release Date, is otherwise permitted by
the limitation set forth in Section 10.1(a) if tested
on the date of such event and not as of the end of the immediately preceding
fiscal quarter of the Company; provided that such additional
Debt shall not contain covenants, defaults and other terms and conditions more
restrictive than or in addition to those contained in this
Agreement;

     

                     (l)any Lien renewing, extending or
refunding any Lien permitted by paragraphs (g), (i), (j) or (k) of this Section 10.2, provided that (1) the
principal amount of Debt secured by such Lien immediately prior to such
extension, renewal or refunding is not increased or the maturity thereof
reduced, (2) such Lien is not extended to any other property and
(3) immediately after such extension, renewal or refunding no Default or
Event of Default would exist (provided that, after the
Release Date, with respect to the limitations set forth in Section 10.1, calculation
of compliance therewith shall be made as of the date of determination under this
Section 10.2(l) and
not as of the end of the immediately preceding fiscal quarter of the Company);
and

     

                     (m)other Liens not otherwise permitted by
paragraphs (a) through (l), inclusive, of this Section 10.2 securing
Debt, provided that
after the Release Date, the Debt secured by such Liens shall be permitted by the
limitations set forth in Section 10.1 if tested on
the date such Lien is created and not as of the end of the immediately preceding
fiscal quarter of the Company.

     

    
      
        
        

      

      
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Section 10.3.    Restricted
Payments.  (a) The Company will not, and will not permit
any Restricted Subsidiary to, declare or make or incur any liability to declare
or make any Restricted Payment unless immediately after giving effect to such
action no Default or Event of Default would exist (provided that, after the
Release Date, with respect to Section 10.1, calculation
of compliance therewith shall be made as of the date of determination under this
Section 10.3 and
not as of the end of the immediately preceding fiscal quarter of the
Company).

     

                                
 (b)The Company will not,
and will not permit any Restricted Subsidiary to, declare a Restricted Payment
that is not payable within 60 days of such declaration.

     

    
                 
Section 10.4.     Restrictions on Dividends of
Subsidiaries, Etc.  The Company will not, and will not permit
any Subsidiary to, enter into any agreement which would restrict any Restricted
Subsidiary’s ability or right to pay dividends to, or make advances to or
investments in, the Company or, if such Restricted Subsidiary is not directly
owned by the Company, the “parent” Restricted Subsidiary of such Restricted
Subsidiary; provided
that the foregoing shall not apply to restrictions and conditions imposed by law
or this Agreement, the Bank Credit Agreement or the Mortgage Indenture, in each
case, as in effect on the date of Closing.

    

     

    
                
Section 10.5.      Sale of Assets,
Etc.  (a) Except as permitted under Section 10.6 and Section 10.7, the Company
will not, and will not permit any of its Restricted Subsidiaries to, make any
Asset Disposition unless:

    

     

                     (1)in the good faith opinion of the
Company, the Asset Disposition is in the best interest of the Company or such
Restricted Subsidiary;

     

                     (2)immediately after giving effect to the
Asset Disposition, no Default or Event of Default would exist (provided that, after the
Release Date, with respect to Section 10.1, calculation
of compliance therewith shall be made as of the date of determination under this
Section 10.5 and
not as of the end of the immediately preceding fiscal quarter of the Company);
and

     

                     (3)immediately after giving effect to the
Asset Disposition the Disposition Value of all property that was the subject of
any Asset Disposition occurring in the immediately preceding 12 consecutive
month period would not exceed 10% of Consolidated Tangible Assets as of the end
of the then most recently ended fiscal year of the Company.

     

                  (b)If the Net Proceeds Amount for any
Transfer is, within 365 days after such Transfer, (1) applied to a Debt
Prepayment Application, (2) applied to or would otherwise constitute a Property
Reinvestment Application or (3) applied to any combination of the foregoing
clauses (1) and (2), then such Transfer, only for the purpose of determining
compliance with subsection (3) of Section 10.5(a) as of a
date on or after the Net Proceeds Amount is so applied, shall be deemed not to
be an Asset Disposition.

     

                  (c)Notwithstanding the foregoing, the
sale of accounts receivable to a Securitization Subsidiary in connection with a
Receivables Securitization Transaction shall not be considered an Asset
Disposition for purposes of this Section 10.5; provided, that, to the extent
any such sale results in the aggregate amount of Debt of all Securitization
Subsidiaries under all Receivables Securitization Transactions being in excess
of $100,000,000, the Company shall treat that portion of such sale resulting in
the aggregate amount of Debt of all Securitization Subsidiaries under all
Receivables Securitization Transactions being in excess of $100,000,000 as an
Asset Disposition subject to this Section 10.5 without
application of this clause (c).

     

              
Section 10.6.        Merger, Consolidation, Etc.
The Company will not, and will not permit any Restricted Subsidiary to,
consolidate with or merge with any other Person or convey, transfer or lease all
or substantially all of its assets in a single transaction or series of
transactions to any Person (except that a Restricted Subsidiary may (x)
consolidate with or merge with, or convey, transfer or lease all or
substantially all of its assets in a single transaction or series of
transactions to, the Company or another Restricted Subsidiary or any other
Person so long as such Restricted Subsidiary is the surviving Person and
(y) convey, transfer or lease all of its assets in compliance with the
provisions of Section 10.5 or 10.7), provided that the foregoing
restriction does not apply to the consolidation or merger of the Company with,
or the conveyance, transfer or lease of all or substantially all of the assets
of the Company in a single transaction or series of transactions to, any Person
so long as:

     

                     (a)the successor formed by such
consolidation or the survivor of such merger or the Person that acquires by
conveyance, transfer or lease all or substantially all of the assets of the
Company as an entirety, as the case may be (the “Successor Corporation”),
shall be a solvent Person organized and existing under the laws of the United
States or any State thereof (including the District of Columbia);

     

                     (b)if the Company is not the Successor
Corporation, (1) such Person shall have executed and delivered to each
holder of the Notes its assumption of the due and punctual performance and
observance of each covenant and condition of this Agreement and the Notes and,
prior to the Release Date, the Mortgage Indenture (including the Supplemental
Indenture), the First Mortgage Bond Documents to which it is a party and the
First Mortgage Bonds (pursuant to such agreements or instruments as shall be
reasonably satisfactory to the Required Holders) and (2) such Person shall
have caused to be delivered to each holder of the Notes an opinion of nationally
recognized independent counsel, or other independent counsel reasonably
satisfactory to the Required Holders, to the effect that all agreements or
instruments effecting such assumption are enforceable in accordance with their
terms and comply with the terms hereof; and

     

                     (c)immediately after giving effect to such
transaction, no Default or Event of Default would exist (provided that, after the
Release Date with respect to Section 10.1, calculation
of compliance therewith shall be made as of the date of determination under this
Section 10.6 and
not as of the end of the immediately preceding fiscal quarter of the
Company).

     

    No such
conveyance, transfer or lease of all or substantially all of the assets of the
Company shall have the effect of releasing the Company or any Successor
Corporation that shall theretofore have become such in the manner prescribed in
this Section 10.6
from its liability under this Agreement or the Notes or, prior to the Release
Date, the Mortgage Indenture (including the Supplemental Indenture), the First
Mortgage Bond Documents to which it is a party or the First Mortgage
Bonds.

     

              
Section 10.7.      Disposal of Ownership of a
Restricted Subsidiary.  The
Company will not, and will not permit any Restricted Subsidiary to, sell or
otherwise dispose of any shares of Restricted Subsidiary Stock, nor will the
Company permit any such Restricted Subsidiary to issue, sell or otherwise
dispose of any shares of its own Restricted Subsidiary Stock, provided that the foregoing
restrictions do not apply to:

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

                     (a)the issue of directors’ qualifying
shares by any such Restricted Subsidiary;

     

                     (b)any such Transfer of Restricted
Subsidiary Stock constituting a Transfer described in clause (a) of the
definition of “Asset Disposition”; and

     

                     (c)the Transfer of the Restricted
Subsidiary Stock of a Restricted Subsidiary owned by the Company and its other
Subsidiaries; provided
that such Transfer satisfies the requirements of Section 10.5.

     

              
Section 10.8.       Limitations on Subsidiaries,
Partnerships and Joint Ventures.  The Company will not, and
will not permit any of its Restricted Subsidiaries to, own or create directly or
indirectly any Subsidiaries without the prior written consent of the Required
Holders.  The Company shall not, and shall not permit any Subsidiary
to, become or agree to become (a) a general or limited partner in any
general or limited partnership, except that the Company may be a general or
limited partner in any Subsidiary and any Restricted Subsidiary may be a general
or limited partner in any other Subsidiary and except that the Company and its
Restricted Subsidiaries may be a limited partner in a Permitted Related Business
Opportunity, (b) a member or manager of, or hold a limited liability
company interest in, a limited liability company, except that the Company may be
a member or manager of, or hold limited liability company interests in, its
Subsidiaries and Restricted Subsidiaries may be members or managers of, or hold
limited liability company interests in, other Subsidiaries and except that the
Company and its Restricted Subsidiaries may be members or managers of, or hold
limited liability company interests in a Permitted Related Business Opportunity
or (c) a joint venturer or hold a joint venture interest in any joint
venture, except that the Company and its Restricted Subsidiaries may become a
joint venturer in or hold a joint venture interest in any joint venture that is
a Permitted Related Business Opportunity.

     

    
                
Section 10.9.       Limitation on Certain
Leases.  The Company will not, and will not permit any of its
Restricted Subsidiaries to, engage in any off-balance sheet transaction (i.e., the liabilities in
respect of which do not appear on the liability side of the balance sheet, with
such balance sheet prepared in accordance with GAAP) providing the functional
equivalent of borrowed money (including asset securitizations, sale/leasebacks
or Synthetic Leases (other than any sale/leaseback transaction or Synthetic
Lease entered into, in either case, with respect to meter assets and which
transaction is otherwise permitted by this Agreement)) with liabilities in
excess, in the aggregate for the Company and its Restricted Subsidiaries as of
any date of determination, of 5% of the Consolidated Tangible
Assets.

    

     

    For
purposes of this Section 10.9, the amount
of any lease which is not a Capital Lease is the aggregate amount of minimum
lease payments due pursuant to such lease for any non-cancelable portion of its
term.

     

              
Section 10.10.    Nature of
Business.  The Company will not, and will not permit any of its
Restricted Subsidiaries to, engage in any business if, as a result, the general
nature of the business in which the Company and its Restricted Subsidiaries,
taken as a whole, would then be engaged would be substantially and materially
changed from the general nature of the business in which the Company and its
Restricted Subsidiaries are engaged on the date of the Closing.

     

              
Section 10.11.    Transactions with
Affiliates.  Except in the case of a Permitted Related Business
Opportunity, the Company will not, and will not permit any Restricted Subsidiary
to, enter into, directly or indirectly, any Material transaction or group of
related transactions (including, without limitation, the purchase, lease, sale
or exchange of properties of any kind or the rendering of any service) with any
Affiliate (other than the Company or a Restricted Subsidiary), except in the
ordinary course and pursuant to the reasonable requirements of the Company’s or
such Restricted Subsidiary’s business and upon fair and reasonable terms no less
favorable to the Company or such Restricted Subsidiary than would be obtainable
in a comparable arm’s-length transaction with a Person not an
Affiliate.

     

              
Section 10.12.      Designation of Restricted and
Unrestricted Subsidiaries.  The Company may designate any
Subsidiary to be a Restricted Subsidiary and may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary by giving written notice to each
holder of Notes that the Board of Directors of the Company has made such
designation, provided,
however, that no Subsidiary may be designated a Restricted Subsidiary and
no Restricted Subsidiary may be designated an Unrestricted Subsidiary unless, at
the time of such action and after giving effect thereto, (a) solely in the
case of a Restricted Subsidiary being designated an Unrestricted Subsidiary,
such Restricted Subsidiary being designated an Unrestricted Subsidiary shall not
have any continuing Investment in the Company or any other Restricted Subsidiary
and (b) no Default or Event of Default shall have occurred and be
continuing (provided
that, after the Release Date, with respect to Section 10.1, calculation
of compliance therewith shall be made as of the date of determination under this
Section 10.12 and
not as of the end of the immediately preceding fiscal quarter of the
Company).  Any Restricted Subsidiary which has been designated an
Unrestricted Subsidiary and which has then been redesignated a Restricted
Subsidiary, in each case in accordance with the provisions of the first sentence
of this Section 10.12, shall not
at any time thereafter be redesignated an Unrestricted Subsidiary without the
prior written consent of the Required Holders.  Any Unrestricted
Subsidiary which has been designated a Restricted Subsidiary and which has then
been redesignated an Unrestricted Subsidiary, in each case in accordance with
the provisions of the first sentence of this Section 10.12, shall not
at any time thereafter be redesignated a Restricted Subsidiary without the prior
written consent of the Required Holders.

     

              
Section 10.13.    Terrorism Sanctions
Regulations.  The Company will not, and will not permit any
Subsidiary to, (a) become a Person described or designated in the Specially
Designated Nationals and Blocked Persons List of the Office of Foreign Assets
Control or in Section 1 of the Anti-Terrorism Order or (b) engage in
any dealings or transactions with any such Person.

     

    
      	
              Section 11.

            	
              Events
      of Default.

            

    

     

    An “Event of Default” shall
exist if any of the following conditions or events shall occur and be
continuing:

     

                     (a)the Company defaults in the payment of
any principal or Make-Whole Amount on any Note when the same becomes due and
payable, whether at maturity or at a date fixed for prepayment or by declaration
or otherwise; or

     

                     (b)the Company defaults in the payment of
any interest on any Note for more than five (5) Business Days after the same
becomes due and payable; or

     

                     (c)the Company defaults in the performance
of or compliance with any term contained in Section 9.6, Section 10.1
through Section 10.9, inclusive,
or Section 10.13;
or

     

                     (d)the Company defaults in the performance
of or compliance with any term contained herein (other than those referred to in
paragraphs (a), (b) and (c) of this Section 11) and such
default is not remedied within 30 days after the earlier of (1) a
Responsible Officer obtaining actual knowledge of such default and (2) the
Company receiving written notice of such default from any holder of a Note (any
such written notice to be identified as a “notice of default” and to refer
specifically to this paragraph (d) of Section 11);
or

     

    
      
        
        

      

      
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                     (e)any representation or warranty made in
writing by or on behalf of the Company or by any officer of the Company in this
Agreement or prior to the Release Date, the Mortgage Indenture (including the
Supplemental Indenture) or in any writing furnished in connection with the
transactions contemplated hereby or thereby proves to have been false or
incorrect in any material respect on the date as of which made; or

     

                     (f)(1) the Company or any Significant
Subsidiary is in default (as principal or as guarantor or other surety) in the
payment of any principal of or premium or make-whole amount or interest on any
Debt that is outstanding in an aggregate principal amount of at least
$15,000,000 beyond any period of grace provided with respect thereto or
(2) the Company or any Significant Subsidiary is in default in the
performance of or compliance with any term of any evidence of any Debt in an
aggregate outstanding principal amount of at least $15,000,000 or of any
mortgage, indenture or other agreement relating thereto or any other condition
exists, and as a consequence of such default or condition such Debt has become,
or has been declared (or one or more Persons are entitled to declare such Debt
to be), due and payable before its stated maturity or before its regularly
scheduled dates of payment or (3) as a consequence of the occurrence or
continuation of any event or condition (other than the passage of time or the
right of the holder of Debt to convert such Debt into equity interests),
(i) the Company or any Significant Subsidiary has become obligated to
purchase or repay Debt before its regular maturity or before its regularly
scheduled dates of payment in an aggregate outstanding principal amount of at
least $15,000,000 or (ii) one or more Persons have the right to require the
Company or any Significant Subsidiary so to purchase or repay such Debt;
or

     

                     (g)prior to the Release Date, an “Event of
Default” under the Mortgage Indenture shall have occurred and be continuing;
provided, however, that
anything in this Agreement to the contrary notwithstanding, the waiver or cure
of such default under the Mortgage Indenture and the rescission and annulment of
the consequences thereof under the Mortgage Indenture shall constitute a waiver
of the corresponding Event of Default hereunder and a rescission and annulment
of the consequences thereof hereunder; or

     

                     (h)New Jersey Resources Corporation shall
cease to own 100% of the issued and outstanding common stock of the Company and
51% of the Voting Stock of the Company; or

     

                     (i)the Company or any Significant
Subsidiary is in default under the terms of any agreement involving any
off-balance sheet transaction (including any asset securitization,
sale/leaseback transaction or Synthetic Lease) with obligations in the aggregate
thereunder for which the Company or any Significant Subsidiary may be obligated
in an amount in excess of $15,000,000, and such breach, default or event of
default consists of the failure to pay (beyond any period of grace permitted
with respect thereto) any obligation when due (whether at stated maturity, by
acceleration or otherwise) or if such breach or default permits or causes the
acceleration of any obligation or the termination of such agreement;
or

     

                     (j)the Company or any Significant
Subsidiary (1) is generally not paying, or admits in writing its inability
to pay, its debts as they become due, (2) files, or consents by answer or
otherwise to the filing against it of, a petition for relief or reorganization
or arrangement or any other petition in bankruptcy, for liquidation or to take
advantage of any bankruptcy, insolvency, reorganization, moratorium or other
similar law of any jurisdiction, (3) makes an assignment for the benefit of
its creditors, (4) consents to the appointment of a custodian, receiver,
trustee or other officer with similar powers with respect to it or with respect
to any substantial part of its property, (5) is adjudicated as insolvent or
to be liquidated or (6) takes corporate action for the purpose of any of
the foregoing; or

     

                     (k)a court or Governmental Authority of
competent jurisdiction enters an order appointing, without consent by the
Company or any of its Significant Subsidiaries, a custodian, receiver, trustee
or other officer with similar powers with respect to it or with respect to any
substantial part of its property, or constituting an order for relief or
approving a petition for relief or reorganization or any other petition in
bankruptcy or for liquidation or to take advantage of any bankruptcy or
insolvency law of any jurisdiction, or ordering the dissolution, winding-up or
liquidation of the Company or any of its Significant Subsidiaries, or any such
petition shall be filed against the Company or any of its Significant
Subsidiaries and such petition shall not be dismissed within 60 days;
or

     

                     (l)a final judgment or judgments for the
payment of money aggregating in excess of $15,000,000 (exclusive of amounts
fully covered by valid and collectible insurance in respect thereof subject to
customary deductibles) are rendered against one or more of the Company and its
Significant Subsidiaries and which judgments are not, within 45 days after entry
thereof (or such shorter period as judgment creditors are stayed pursuant to
applicable law from executing on such judgment or judgments), bonded, discharged
or stayed pending appeal, or are not discharged within 45 days after the
expiration of such stay (or such shorter period as judgment creditors are stayed
pursuant to applicable law from executing on such judgment or judgments);
or

     

                     (m)if (1) any Plan shall fail to
satisfy the minimum funding standards of Title IV of ERISA or the Code for
any plan year or part thereof or a waiver of such standards is sought or granted
under Section 412 of the Code, (2) a notice of intent to terminate any
Plan on other than a standard basis shall have been or is reasonably expected to
be filed with the PBGC or the PBGC shall have instituted proceedings under
Section 4042 of ERISA to terminate or appoint a trustee to administer any
Plan or the PBGC shall have notified the Company or any ERISA Affiliate that a
Plan may become a subject of any such proceedings, (3) the present value of
the aggregate “amount of unfunded benefit liabilities” within the meaning of
Section 4001(a)(18) of ERISA under all Plans (determined in accordance with
Title IV of ERISA as of the end of the most recent Plan year on the basis
of the actuarial assumptions specified for funding purposes in the most recent
actuarial valuation), shall exceed the aggregate actuarial value of their assets
by an amount equal to 10% of Consolidated Tangible Net Worth, (4) the
Company or any ERISA Affiliate shall have incurred or is reasonably expected to
incur any liability pursuant to Title I or IV of ERISA or the penalty or excise
tax provisions of the Code relating to employee benefit plans, (5) the
Company or any ERISA Affiliate withdraws from any Multiemployer Plan or
(6) the Company or any Subsidiary establishes or amends any employee
welfare benefit plan that provides post-employment welfare benefits in a manner
that would increase the liability of the Company or any Subsidiary thereunder;
and any such event or events described in clauses (1) through (6) above, either
individually or together with any other such event or events, would reasonably
be expected to have a Material Adverse Effect.

     

    As used
in Section 11(m),
the terms “employee benefit plan” and “employee welfare benefit plan” shall have
the respective meanings assigned to such terms in Section 3 of
ERISA.

     

    
      	
              Section 12.

            	
              Remedies
      on Default, Etc.

            

    

     

              
Section 12.1.     Acceleration.  (a) If
an Event of Default with respect to the Company described in paragraph (j) or
(k) of Section 11
(other than an Event of Default described in clause (1) of paragraph (j) or
described in clause (6) of paragraph (j) by virtue of the fact that such clause
encompasses clause (1) of paragraph (j)) has occurred, all the Notes then
outstanding shall automatically become immediately due and payable.

     

                  (b)If any other Event of Default has
occurred and is continuing, the Required Holders may at any time at its or their
option, by notice or notices to the Company, declare all the Notes then
outstanding to be immediately due and payable.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

                  (c)If any Event of Default described in
paragraph (a) or (b) of Section 11 has occurred
and is continuing, any holder or holders of Notes at the time outstanding
affected by such Event of Default may at any time, at its or their option, by
notice or notices to the Company, declare all the Notes held by it or them to be
immediately due and payable.

     

    Upon any
Note becoming due and payable under this Section 12.1, whether
automatically or by declaration, such Note will forthwith mature and the entire
unpaid principal amount of such Note, plus (1) all accrued and unpaid
interest thereon and (2) the Make-Whole Amount, if any, determined in
respect of such principal amount (to the full extent permitted by applicable
law) shall all be immediately due and payable, in each and every case without
presentment, demand, protest or further notice, all of which are hereby
waived.  The Company acknowledges, and the parties hereto agree, that
each holder of a Note has the right to maintain its investment in the Notes free
from repayment by the Company (except as herein specifically provided for), and
that the provision for payment of the Make-Whole Amount by the Company in the
event that the Notes are prepaid or are accelerated as a result of an Event of
Default, is intended to provide compensation for the deprivation of such right
under such circumstances.

     

              
Section 12.2.     Other
Remedies.  (a) If any Default or Event of Default has occurred
and is continuing, and irrespective of whether any Notes have become or have
been declared immediately due and payable under Section 12.1, the holder
of any Note at the time outstanding may proceed to protect and enforce the
rights of such holder by an action at law, suit in equity or other appropriate
proceeding, whether for the specific performance of any agreement contained
herein or in any Note, or for an injunction against a violation of any of the
terms hereof or thereof, or in aid of the exercise of any power granted hereby
or thereby or by law or otherwise.

     

                  (b)If any Event of Default has occurred
and is continuing and the Notes then outstanding have become due and payable
pursuant to Section 12.1, the holders
of the Notes may, prior to the Release Date, immediately proceed to exercise
their rights pursuant to Section 10.87(a) of the Mortgage Indenture (added
by Section 3.1 of
the Supplemental Indenture) to require the redemption of the First Mortgage
Bonds and, upon any failure of the Company to so redeem the First Mortgage
Bonds, to exercise all rights as beneficial owners of the First Mortgage Bonds
under the Mortgage Indenture.

     

              
Section 12.3.    Rescission.  At any
time after any Notes have been declared due and payable pursuant to clause (b)
or (c) of Section 12.1, the
Required Holders, by written notice to the Company, may rescind and annul any
such declaration and its consequences if (a) the Company has paid all
overdue interest on the Notes, all principal of and Make-Whole Amount, if any,
on any Notes that are due and payable and are unpaid other than by reason of
such declaration, and all interest on such overdue principal and Make-Whole
Amount, if any, and (to the extent permitted by applicable law) any overdue
interest in respect of the Notes, at the Default Rate, (b) neither the
Company nor any other Person shall have paid any amounts which have become due
solely by reason of such declaration, (c) all Events of Default and
Defaults, other than non-payment of amounts that have become due solely by
reason of such declaration, have been cured or have been waived pursuant to
Section 17 and
(d) no judgment or decree has been entered for the payment of any monies
due pursuant hereto or to the Notes.  No rescission and annulment
under this Section 12.3 will extend
to or affect any subsequent Event of Default or Default or impair any right
consequent thereon.

     

              
Section 12.4.     No Waivers or Election of Remedies,
Expenses, Etc.  No course of dealing and no delay on the part
of any holder of any Note in exercising any right, power or remedy shall operate
as a waiver thereof or otherwise prejudice such holder’s rights, powers or
remedies.  No right, power or remedy conferred by this Agreement or by
any Note upon any holder thereof shall be exclusive of any other right, power or
remedy referred to herein or therein or now or hereafter available at law, in
equity, by statute or otherwise.  Without limiting the obligations of
the Company under Section 15, the Company
will pay to the holder of each Note on demand such further amount as shall be
sufficient to cover all costs and expenses of such holder incurred in any
enforcement or collection under this Section 12, including,
without limitation, reasonable attorneys’ fees, expenses and
disbursements.

     

    
      	
              Section 13.

            	
              Registration;
      Exchange; Substitution of Notes.

            

    

     

              
Section 13.1.     Registration of
Notes.  The Company shall cause its transfer agent to keep at
its office designated pursuant to Section 13.2 a register
for the registration and registration of transfers of Notes.  The name
and address of each holder of one or more Notes, each transfer thereof and the
name and address of each transferee of one or more Notes shall be registered in
such register.  Prior to due presentment for registration of transfer,
the Person in whose name any Note shall be registered shall be deemed and
treated as the owner and holder thereof for all purposes hereof, and the Company
shall not be affected by any notice or knowledge to the contrary.  The
Company shall give to any holder of a Note that is an Institutional Investor
promptly upon request therefor, a complete and correct copy of the names and
addresses of all registered holders of Notes.

     

              
Section 13.2.      Transfer and Exchange of
Notes.  Upon surrender of any Note at the corporate trust
office of the Company’s transfer agent, The Bank of New York by mail at The Bank
of New York, P.O. Box 396, East Syracuse, New York  13057,
Attention:  Corporate Trust Operations or by hand at The Bank of New
York, 111 Sanders Creek Parkway, East Syracuse, New York  13057,
Attention:  Corporate Trust Operations, or at such other addresses as
may be provided in writing to the holders of the Notes, for registration of
transfer or exchange (and in the case of a surrender for registration of
transfer, duly endorsed or accompanied by a written instrument of transfer duly
executed by the registered holder of such Note or its attorney duly authorized
in writing and accompanied by the address for notices of each transferee of such
Note or part thereof), within 10 Business Days thereafter, the Company
shall execute and deliver, at the Company’s expense (except as provided below),
one or more new Notes (as requested by the holder thereof) in exchange therefor,
in an aggregate principal amount equal to the unpaid principal amount of the
surrendered Note.  Each such new Note shall be payable to such Person
as such holder may request and shall be substantially in the form of Exhibit 1.  Each
such new Note shall be dated and bear interest from the date to which interest
shall have been paid on the surrendered Note or dated the date of the
surrendered Note if no interest shall have been paid thereon.  The
Company may require payment of a sum sufficient to cover any stamp tax or
governmental charge imposed in respect of any such transfer of
Notes.  Notes shall not be transferred in denominations of less than
$100,000, provided that
if necessary to enable the registration of transfer by a holder of its entire
holding of Notes, one Note may be in a denomination of less than
$100,000.  Any transferee, by its acceptance of a Note registered in
its name (or the name of its nominee), shall be deemed to have made the
representation set forth in Section 6.2.

     

              
Section 13.3.     Replacement of
Notes.  Upon receipt by the Company of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of any Note (which evidence shall be, in the case of an Institutional
Investor, notice from such Institutional Investor of such ownership and such
loss, theft, destruction or mutilation), and

     

                     (a)in the case of loss, theft or
destruction, of indemnity reasonably satisfactory to it (provided that if the holder
of such Note is, or is a nominee for, an original Purchaser or another holder of
a Note with a minimum net worth of at least $50,000,000, such Person’s own
unsecured agreement of indemnity shall be deemed to be satisfactory),
or

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

                     (b)in the case of mutilation, upon
surrender and cancellation thereof,

     

    within
10 Business Days thereafter, the Company at its own expense shall execute
and deliver, in lieu thereof, a new Note, dated and bearing interest from the
date to which interest shall have been paid on such lost, stolen, destroyed or
mutilated Note or dated the date of such lost, stolen, destroyed or mutilated
Note if no interest shall have been paid thereon.

     

    
      	
              Section 14.

            	
              Payments
      on Notes.

            

    

     

              
Section 14.1.      Place of
Payment.  Subject to Section 14.2, payments of
principal, Make-Whole Amount, if any, and interest becoming due and payable on
the Notes shall be made in New York, New York at the principal office of The
Bank of New York in such jurisdiction.  The Company may at any time,
by notice to each holder of a Note, change the place of payment of the Notes so
long as such place of payment shall be either the principal office of the
Company in such jurisdiction or the principal office of a bank or trust company
in such jurisdiction.

     

              
Section 14.2.     Home Office
Payment.  So long as any Purchaser or its nominee shall be the
holder of any Note, and notwithstanding anything contained in Section 14.1 or in such
Note to the contrary, the Company will pay all sums becoming due on such Note
for principal, Make-Whole Amount, if any, and interest by the method and at the
address specified for such purpose below such Purchaser’s name in Schedule A, or by such
other method or at such other address as such Purchaser shall have from time to
time specified to the Company in writing for such purpose, without the
presentation or surrender of such Note or the making of any notation thereon,
except that upon written request of the Company made concurrently with or
reasonably promptly after payment or prepayment in full of any Note, such
Purchaser shall surrender such Note for cancellation, reasonably promptly after
any such request, to the Company at its principal executive office or at the
place of payment most recently designated by the Company pursuant to Section 14.1.  Prior
to any sale or other disposition of any Note held by any Purchaser or its
nominee such Purchaser will, at its election, either endorse thereon the amount
of principal paid thereon and the last date to which interest has been paid
thereon or surrender such Note to the Company in exchange for a new Note or
Notes pursuant to Section 13.2.  The
Company will afford the benefits of this Section 14.2 to any
Institutional Investor that is the direct or indirect transferee of any Note
purchased by any Purchaser under this Agreement and that has made the same
agreement relating to such Note as such Purchaser has made in this Section 14.2.

    
       

    

    
      	
              Section 15.

            	
              Expenses,
      Etc.

            

    

     

             
Section 15.1.      Transaction
Expenses.  Whether or not the transactions contemplated hereby
are consummated, the Company will pay the costs and expenses incurred in
connection with the initial filing of this Agreement and all related documents
and financial information, and all subsequent annual and interim filings of
documents and financial information related thereto, with the Securities
Valuation Office of the National Association of Insurance Commissioners or any
successor organization, all costs and expenses (including reasonable attorneys’
fees of a special counsel and, if reasonably required, local or other counsel)
incurred by the Purchasers or any other holder of a Note in connection with such
transactions and in connection with any amendments, waivers or consents under or
in respect of this Agreement, the Notes, the Mortgage Indenture (including the
Supplemental Indenture) or the First Mortgage Bonds (whether or not such
amendment, waiver or consent becomes effective), including, without
limitation:  (a) the costs and expenses incurred in enforcing or
defending (or determining whether or how to enforce or defend) any rights under
this Agreement, the Notes, the Mortgage Indenture (including the Supplemental
Indenture) or the First Mortgage Bonds or in responding to any subpoena or other
legal process or informal investigative demand issued in connection with this
Agreement, the Notes, the Mortgage Indenture (including the Supplemental
Indenture) or the First Mortgage Bonds, or by reason of being a holder of any
Note and (b) the costs and expenses, including financial advisors’ fees,
incurred in connection with the insolvency or bankruptcy of the Company or any
Subsidiary or in connection with any work-out or restructuring of the
transactions contemplated hereby, by the Notes, by the Mortgage Indenture
(including the Supplemental Indenture) or by the First Mortgage
Bonds.  The Company will pay, and will save the Purchasers and each
other holder of a Note harmless from, all claims in respect of any fees, costs
or expenses, if any, of brokers and finders (other than those retained by such
Person).

     

              
Section 15.2.     Survival.  The
obligations of the Company under this Section 15 will survive
the payment or transfer of any Note, the enforcement, amendment or waiver of any
provision of this Agreement or the Notes, and the termination of this
Agreement.

     

    
      	
              Section 16.

            	
              Survival
      of Representations and Warranties; Entire
  Agreement.

            

    

     

    All
representations and warranties contained herein shall survive the execution and
delivery of this Agreement and the Notes, the purchase or transfer by any
Purchaser of any Note or portion thereof or interest therein and the payment of
any Note, and may be relied upon by any subsequent holder of a Note, regardless
of any investigation made at any time by or on behalf of any Purchaser or any
other holder of a Note.  All statements contained in any certificate
or other instrument delivered by or on behalf of the Company pursuant to this
Agreement shall be deemed representations and warranties of the Company under
this Agreement.  Subject to the preceding sentence, this Agreement and
the Notes embody the entire agreement and understanding between the Purchasers
and the Company and supersede all prior agreements and understandings relating
to the subject matter hereof.

     

    
      	
              Section 17.

            	
              Amendment
      and Waiver.

            

    

     

              
Section 17.1.     Requirements.  This
Agreement and the Notes may be amended, and the observance of any term hereof or
of the Notes may be waived (either retroactively or prospectively), with (and
only with) the written consent of the Company and the Required Holders, except
that (a) no amendment or waiver of any of the provisions of Section 1, 2, 3, 4, 5, 6
or 21 hereof, or any
defined term (as it is used therein), will be effective as to any holder of a
Note unless consented to by such holder in writing and (b) no such
amendment or waiver may, without the written consent of the holder of each Note
at the time outstanding affected thereby, (1) subject to the provisions of
Section 12 relating
to acceleration or rescission, change the amount or time of any prepayment or
payment of principal of, or reduce the rate or change the time of payment or
method of computation of interest or of the Make-Whole Amount on, the Notes,
(2) change the percentage of the principal amount of the Notes the holders
of which are required to consent to any such amendment or waiver or
(3) amend any of Sections 8, 11(a), 11(b), 12,
17, 20 or 23.

     

              
Section 17.2.     Solicitation of Holders of
Notes.

     

                     (a)Solicitation.  The
Company will provide each holder of the Notes (irrespective of the amount of
Notes then owned by it) with sufficient information, sufficiently far in advance
of the date a decision is required, to enable such holder to make an informed
and considered decision with respect to any proposed amendment, waiver or
consent in respect of any of the provisions hereof or of the
Notes.  The Company will deliver executed or true and correct copies
of each amendment, waiver or consent effected pursuant to the provisions of this
Section 17 to each
holder of outstanding Notes promptly following the date on which it is executed
and delivered by, or receives the consent or approval of, the requisite holders
of Notes.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

                     (b)Payment.  The
Company will not, directly or indirectly, pay or cause to be paid any
remuneration, whether by way of supplemental or additional interest, fee or
otherwise, or grant any security or provide any other credit support, to any
holder of Notes as consideration for or as an inducement to the entering into by
any holder of Notes of any waiver or amendment of any of the terms and
provisions hereof unless such remuneration is concurrently paid, or security is
concurrently granted or other credit support concurrently provided, on the same
terms, ratably to each holder of Notes then outstanding even if such holder did
not consent to such waiver or amendment.

     

                     (c)Consent in Contemplation of
Transfer.  Any consent made pursuant to this Section 17 by a holder of Notes that
has transferred a portion or has agreed to transfer all or a portion of its
Notes to the Company, any Subsidiary or any Affiliate of the Company and has
provided or has agreed to provide such written consent as a condition to such
transfer shall be void and of no force and effect except solely as to such
holder, and any amendments effected or waivers granted or to be effected or
granted that would not have been or be so effected or granted but for such
consent (and the consents of all other holders of the Notes that were acquired
under the same or similar conditions) shall be void and of no force and effect
except solely as to such holder.

     

              
Section 17.3.      Binding Effect,
Etc.  Any amendment or waiver consented to as provided in this
Section 17 applies
equally to all holders of Notes and is binding upon them and upon each future
holder of any Note and upon the Company without regard to whether such Note has
been marked to indicate such amendment or waiver.  No such amendment
or waiver will extend to or affect any obligation, covenant, agreement, Default
or Event of Default not expressly amended or waived or impair any right
consequent thereon.  No course of dealing between the Company and the
holder of any Note nor any delay in exercising any rights hereunder or under any
Note shall operate as a waiver of any rights of any holder of such
Note.  As used herein, the term “this Agreement” and references
thereto shall mean this Agreement as it may from time to time be amended or
supplemented.

     

              
Section 17.4.    Notes Held by Company,
Etc.  Solely for the purpose of determining whether the holders
of the requisite percentage of the aggregate principal amount of Notes then
outstanding approved or consented to any amendment, waiver or consent to be
given under this Agreement or the Notes, or have directed the taking of any
action provided herein or in the Notes to be taken upon the direction of the
holders of a specified percentage of the aggregate principal amount of Notes
then outstanding, Notes directly or indirectly owned by the Company or any of
its Affiliates shall be deemed not to be outstanding.

     

    
      	
              Section 18.

            	
              Notices.

            

    

     

    All
notices and communications provided for hereunder shall be in writing and sent
(a) by telefacsimile if the sender on the same day sends a confirming copy
of such notice by a recognized overnight delivery service (charges prepaid),
(b) by registered or certified mail with return receipt requested (postage
prepaid) or (c) by a recognized overnight delivery service (charges
prepaid).  Any such notice must be sent:

     

                     (1)if to any Purchaser or its nominee, to
such Purchaser or its nominee at the address specified for such communications
in Schedule A, or
at such other address as such Purchaser or its nominee shall have specified to
the Company in writing,

     

                     (2)if to any other holder of any Note, to
such holder at such address as such other holder shall have specified to the
Company in writing, or

     

                     (3)if to the Company, to the Company at
its address set forth at the beginning hereof to the attention of the Chief
Financial Officer of the Company, or at such other address as the Company shall
have specified to the holder of each Note in writing.

     

    Notices
under this Section 18
will be deemed given only when actually received.

     

    
      	
              Section 19.

            	
              Reproduction
      of Documents.

            

    

     

    This
Agreement, the Mortgage Indenture (including the Supplemental Indenture) and all
documents relating hereto and thereto, including, without limitation,
(a) consents, waivers and modifications that may hereafter be executed,
(b) documents received by the Purchasers at the Closing (except the Notes
themselves) and (c) financial statements, certificates and other
information previously or hereafter furnished to any holder of the Notes, may be
reproduced by such holder by any photographic, photostatic, microfilm,
microcard, miniature photographic or other similar process and such holder may
destroy any original document so reproduced.  The Company agrees and
stipulates that, to the extent permitted by applicable law, any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by any holder of the
Notes in the regular course of business) and any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence.  This Section 19 shall not
prohibit the Company or any other holder of Notes from contesting any such
reproduction to the same extent that it could contest the original, or from
introducing evidence to demonstrate the inaccuracy of any such
reproduction.

     

    
      
        
        

      

      
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              Section 20.

            	
              Confidential
      Information.

            

    

     

    For the
purposes of this Section 20, “Confidential Information”
shall mean information delivered to any Purchaser by or on behalf of the Company
or any Subsidiary in connection with the transactions contemplated by or
otherwise pursuant to this Agreement that is proprietary in nature and that was
clearly marked or labeled or otherwise adequately identified when received by
such Purchaser as being confidential information of the Company or such
Subsidiary, provided
that such term does not include information that (a) was publicly known or
otherwise known to such Purchaser prior to the time of such disclosure (provided, however, that to
such Purchaser’s actual knowledge, the source of such information was not, at
the time of disclosure to such Purchaser, bound by a confidentiality agreement
with the Company or its Subsidiaries relating to such information),
(b) subsequently becomes publicly known through no act or omission by such
Purchaser or any Person acting on such Purchaser’s behalf, (c) otherwise
becomes known to such Purchaser other than through disclosure by the Company or
any Subsidiary (provided,
however, that to such Purchaser’s actual knowledge, the source of such
information was not, at the time of disclosure to such Purchaser, bound by a
confidentiality agreement with the Company or its Subsidiaries relating to such
information) or (d) constitutes financial statements delivered to such
Purchaser under Section 7.1 that are
otherwise publicly available.  Each Purchaser will maintain the
confidentiality of such Confidential Information in accordance with procedures
adopted by such Purchaser in good faith to protect confidential information of
third parties delivered to such Purchaser, provided that such Purchaser
may deliver or disclose Confidential Information to (1) its directors,
officers, trustees, employees, agents, attorneys and affiliates (to the extent
such disclosure reasonably relates to the administration of the investment
represented by its Notes and such individuals are bound by the terms of this
Section 20 or agree
to hold confidential the Confidential Information substantially in accordance
with the terms of this Section 20), (2) its
financial advisors and other professional advisors who agree to hold
confidential the Confidential Information substantially in accordance with the
terms of this Section 20, (3) any
other holder of any Note, (4) any Institutional Investor to which such
Purchaser sells or offers to sell such Note or any part thereof or any
participation therein (if such Person has agreed in writing prior to its receipt
of such Confidential Information to be bound by the provisions of this Section 20), (5) any
Person from which such Purchaser offers to purchase any security of the Company
(if such Person has agreed in writing prior to its receipt of such Confidential
Information to be bound by the provisions of this Section 20), (6) any
Federal or state regulatory authority having jurisdiction over such Purchaser,
(7) the National Association of Insurance Commissioners or any similar
organization, or any nationally recognized rating agency that requires access to
information about such Purchaser’s investment portfolio or (8) any other
Person to which such delivery or disclosure may be necessary or appropriate
(i) to effect compliance with any law, rule, regulation or order applicable
to such Purchaser, (ii) in response to any subpoena or other legal process,
(iii) in connection with any litigation to which such Purchaser is a party
or (iv) if an Event of Default has occurred and is continuing, to the
extent such Purchaser may reasonably determine such delivery and disclosure to
be necessary or appropriate in the enforcement or for the protection of the
rights and remedies under such Purchaser’s Notes and this
Agreement.  Each holder of a Note, by its acceptance of a Note, will
be deemed to have agreed to be bound by and to be entitled to the benefits of
this Section 20 as
though it were a party to this Agreement.  On reasonable request by
the Company in connection with the delivery to any holder of a Note of
information required to be delivered to such holder under this Agreement or
requested by such holder (other than a holder that is a party to this Agreement
or its nominee), such holder will enter into an agreement with the Company
embodying the provisions of this Section 20.

     

    
      	
              Section 21.

            	
              Substitution
      of Purchaser.

            

    

     

    Each
Purchaser shall have the right to substitute any one of its Affiliates as the
purchaser of the Notes that such Purchaser has agreed to purchase hereunder, by
written notice to the Company, which notice shall be signed by both such
Purchaser and such Affiliate, shall contain such Affiliate’s agreement to be
bound by this Agreement and shall contain a confirmation by such Affiliate of
the accuracy with respect to it of the representations set forth in Section 6.  Upon
receipt of such notice, wherever the word “Purchaser” is used in this Agreement
(other than in this Section 21), such word
shall be deemed to refer to such Affiliate in lieu of such
Purchaser.  In the event that such Affiliate is so substituted as a
purchaser hereunder and such Affiliate thereafter transfers to such Purchaser
all of the Notes then held by such Affiliate, upon receipt by the Company of
notice of such transfer, wherever the word “Purchaser” is used in this Agreement
(other than in this Section 21), such word
shall no longer be deemed to refer to such Affiliate, but shall refer to such
Purchaser, and such Purchaser shall have all the rights of an original holder of
the Notes under this Agreement.

     

    
      	
              Section 22.

            	
              Miscellaneous.

            

    

     

              
Section 22.1.    Successors and
Assigns.  All covenants and other agreements contained in this
Agreement by or on behalf of any of the parties hereto bind and inure to the
benefit of their respective successors and assigns (including, without
limitation, any subsequent holder of a Note) whether so expressed or
not.

     

              
Section 22.2.    Submission to Jurisdiction; Waiver
of Jury Trial.  (a) The Company hereby irrevocably submits to
the non-exclusive jurisdiction of any State of New York court or any Federal
court located in New York County, New York, New York for the adjudication of any
matter arising out of or relating to this Agreement, and consents to the service
of all writs, process and summonses by registered or certified mail out of any
such court or by service of process on the Company at its address to which
notices are to be given pursuant to Section 18 hereof and hereby waives
any requirement to have an agent for service of process in the State of New
York.  Nothing contained herein shall affect the right of any holder
of the Notes to serve legal process in any other manner or to bring any
proceeding hereunder in any jurisdiction where the Company may be amenable to
suit.  The Company hereby irrevocably waives any objection to any
suit, action or proceeding in any New York court or Federal court located in New
York County, New York, New York on the grounds of venue and hereby further
irrevocably waives any claim that any such suit, action or proceeding brought in
any such court has been brought in an inconvenient forum.

     

                  (b)The parties hereto hereby waive trial
by jury in any action brought on or with respect to this Agreement, the Notes or
any other document executed in connection herewith or therewith.

     

              
Section 22.3.   Payments Due on Non-Business
Days.  Anything in this Agreement or the Notes to the contrary
notwithstanding (but without limiting the requirement in Section 8.5 that the notice of
any optional prepayment specify a Business Day as the date fixed for such
prepayment), any payment of principal of or Make-Whole Amount, if any, or
interest on any Note that is due on a date other than a Business Day shall be
made on the next succeeding Business Day without including the additional days
elapsed in the computation of the interest payable on such next succeeding
Business Day; provided
that if the maturity date of any Note is a date other than a Business
Day, the payment otherwise due on such maturity date shall be made on the next
succeeding Business Day and shall include the additional days elapsed in the
computation of interest payable on such next succeeding Business
Day.

     

             
Section 22.4.   Accounting
Terms.  All accounting terms used herein which are not
expressly defined in this Agreement have the meanings respectively given to them
in accordance with GAAP.  Except as otherwise specifically provided
herein, (a) all computations made pursuant to this Agreement shall be made in
accordance with GAAP and (b) all financial statements shall be prepared in
accordance with GAAP.

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

              
Section 22.5.    Severability.  Any
provision of this Agreement that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall (to the full extent permitted by law) not invalidate or
render unenforceable such provision in any other jurisdiction.

     

              
Section 22.6.     Construction.  Each covenant
contained herein shall be construed (absent express provision to the contrary)
as being independent of each other covenant contained herein, so that compliance
with any one covenant shall not (absent such an express contrary provision) be
deemed to excuse compliance with any other covenant.  Where any
provision herein refers to action to be taken by any Person, or which such
Person is prohibited from taking, such provision shall be applicable whether
such action is taken directly or indirectly by such Person.

     

                                           
For
the avoidance of doubt, all Schedules and Exhibits attached to this Agreement
shall be deemed to be a part hereof.

     

               Section 22.7.    Counterparts.  This
Agreement may be executed in any number of counterparts, each of which shall be
an original but all of which together shall constitute one
instrument.  Each counterpart may consist of a number of copies
hereof, each signed by less than all, but together signed by all, of the parties
hereto.

     

               Section 22.8.    Governing
Law.  This Agreement shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the law of
the State of New York excluding choice-of-law principles of the law of such
State that would require the application of the laws of a jurisdiction other
than such State.

     

    
      	
              Section 23.

            	
              Appointment
      and Direction of Collateral Agent.

            

    

     

              
Section 23.1.     Appointment and Authority;
Direction.  Each holder of the Notes, by its acceptance
thereof, designates and appoints The Bank of New York to act as Collateral Agent
for it under this Agreement, and authorizes The Bank of New York, as the
Collateral Agent acting on behalf of and for such holder’s benefit, to (a)
accept delivery of the First Mortgage Bonds, issued in the name of the
Collateral Agent, and to hold the First Mortgage Bonds for the benefit of the
holders of the Notes in accordance with this Agreement, (b) execute and deliver
the Collateral Agent Acceptance dated as of May 15, 2008 (the “First Mortgage Bond
Documents”) and (c) enter into each and all other instruments relating to
the security for the Notes and to take such action under the provisions of the
this Agreement, the Mortgage Indenture and all other instruments relating hereto
and thereto, and to exercise such powers and perform such duties as are
expressly delegated to the Collateral Agent by the terms hereof and
thereof.

     

    Each
holder of the Notes hereby directs the Collateral Agent to consent to the
amendments to the Mortgage Indenture made by Section 4.1 of the
Supplemental Indenture.  The holders of the Notes agree that this
direction and the consent shall be irrevocable and shall bind their successors
and assigns.

     

              
Section 23.2.   Limited
Agency.  Notwithstanding any provision to the contrary set
forth elsewhere in this Agreement or any document related hereto, the Collateral
Agent shall not have any duties or responsibilities in its capacity as
Collateral Agent except those expressly set forth herein or therein, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or the First Mortgage Bond
Documents or otherwise exist against the Collateral Agent.

     

              
Section 23.3.   Delegation of
Duties.  The Collateral Agent may exercise its powers and
execute any of its duties under this Agreement and the First Mortgage Bond
Documents by or through employees, agents or attorneys-in-fact and shall be
entitled to take and to rely on advice of counsel concerning all matters
pertaining to such powers and duties.  The Collateral Agent shall not
be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care.  The Collateral
Agent may utilize the services of such Persons as the Collateral Agent in its
sole discretion may determine, and all reasonable fees and expenses of such
Persons shall be borne by the Company.

     

              
Section 23.4.   Exculpatory
Provisions.  (a) The Collateral Agent or any of its
officers, directors, employees, agents, attorneys-in-fact or affiliates shall
not be (1) liable for any action lawfully taken or omitted to be taken by
it or such Person under or in connection with this Agreement or the First
Mortgage Bond Documents (except for its or such Person’s personal liability for
its own or such Person’s own gross negligence or willful misconduct) or
(2) responsible in any manner to any of the holders for any recitals,
statements, representations or warranties made by the Company or any officer
thereof contained herein or in any First Mortgage Bond Document or in any
certificate, report, statement or other document referred to or provided for in,
or received by, the Collateral Agent under or in connection with this Agreement
or any First Mortgage Bond Document, or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of the First Mortgage Bond Documents
or for any failure of the Company to perform its obligations
thereunder.  The Collateral Agent shall not be under any obligation to
the holders to ascertain or to inquire as to the observance or performance of
any of the agreements contained in, or conditions of, the First Mortgage Bond
Documents.

     

                  (b)The Collateral Agent shall be deemed
to have exercised reasonable care in the custody of any First Mortgage Bonds in
its possession if the First Mortgage Bonds are accorded treatment substantially
equal to that which it accords its own property.

     

                  (c)The Collateral Agent shall not be
liable for any action taken, suffered, or omitted to be taken by it in good
faith and reasonably believed by it to be authorized or within the rights or
powers conferred upon it by this Agreement.

     

                  (d)In no event shall the Collateral
Agent be responsible or liable for special, indirect, or consequential loss or
damage of any kind whatsoever (including, but not limited to, loss of
profit).

     

              
Section 23.5.      Reliance by Collateral
Agent.  The Collateral Agent shall be entitled to conclusively
rely, and shall be fully protected in relying, upon any writing, resolution,
notice, consent, certificate, affidavit, letter, telecopy, telex or facsimile
message, statement, order or other document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to the Company), independent accountants and other experts
selected by the Collateral Agent.  The Collateral Agent shall be fully
justified in failing or refusing to take action under this Agreement or the
First Mortgage Bond Documents unless it shall first receive such advice or
concurrence of the Required Holders and it shall first be indemnified to its
reasonable satisfaction by the holders against any and all liability and expense
which may be incurred by it by reason of taking, continuing to take or
refraining from taking any such action.  The Collateral Agent, in all
cases, shall be fully protected in acting, or in refraining from acting, under
this Agreement and the First Mortgage Bond Documents if such acting or
refraining from acting is in accordance with the provisions hereof, and any
action taken or failure to act pursuant hereto shall be binding upon all the
holders.

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

              
Section 23.6.         Indemnification.  Each
holder severally agrees to indemnify the Collateral Agent in its capacity as
such (to the extent not reimbursed by the Company (and without limiting the
Company’s obligation to do so) within 45 days after the Collateral Agent’s
written request therefor), ratably according to its respective share of the
outstanding principal amount of the Notes held thereby, from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind whatsoever which may at any
time (including, without limitation, at any time following the payment of the
Notes) be imposed on, incurred by or asserted against the Collateral Agent in
any way relating to or arising out of actions or omissions of the Collateral
Agent specifically required or permitted by this Agreement or by written
instructions of the Required Holders, delivered pursuant thereto, provided that no holder shall
be liable for the payment of any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements to the extent resulting from the Collateral Agent’s own gross
negligence or willful misconduct.  The agreements in this Section 23.6 shall
survive the payment of the Notes.

     

              
Section 23.7.       Duties;
Obligations.  The only duties and obligations which the
Collateral Agent shall have are those set forth in this Agreement and in the
First Mortgage Bond Documents.

     

              
Section 23.8.      Requesting
Instructions.  The Collateral Agent may at any time request
directions from the holders as to any course of action or other matter relating
to the performance of its duties under this Agreement and the First Mortgage
Bond Documents and the holders shall promptly comply with such
request.  Directions given to the Collateral Agent by the Required
Holders shall be binding on each of the holders.

     

              
Section 23.9.      Administrative
Actions.  The Collateral Agent shall have the right to take
such actions, or omit to take such actions, hereunder and under the First
Mortgage Bond Documents not inconsistent with the written instructions of the
requisite holders or the terms of the First Mortgage Bond Documents and this
Agreement, including without limitation actions the Collateral Agent deems
necessary or appropriate to perfect or continue the perfection of the Liens on
the First Mortgage Bonds for the benefit of the holders or to protect the First
Mortgage Bonds.  Except as provided above and as otherwise provided
pursuant to applicable law, the Collateral Agent shall have no duty as to the
collection or protection of the First Mortgage Bonds or any income thereon, nor
as to the preservation of rights against prior parties, nor as to the
preservation of rights pertaining to the First Mortgage Bonds beyond the safe
custody of any First Mortgage Bonds in the Collateral Agent’s
possession.

     

              
Section 23.10.    Exercise of
Remedies.  Except as otherwise provided in Section 23.9, the
Collateral Agent shall only be authorized to take such actions under the First
Mortgage Bond Documents and to enforce or prepare to enforce the remedies
available under such First Mortgage Bond Documents as are approved in a written
notice by the Required Holders; provided, however, that no
notice to release First Mortgage Bonds (other than on the Release Date) shall be
effective unless signed by all of the holders.  In furtherance of the
foregoing, the Collateral Agent agrees to make such demands and give such
notices under the First Mortgage Bond Documents as may be requested by, and to
take such action to enforce the First Mortgage Bond Documents and to foreclose
upon, collect and dispose of the First Mortgage Bonds or any portion thereof as
may be directed by the Required Holders; provided, however, that the
Collateral Agent shall not be required to take any action that is in its opinion
contrary to law or the terms of this Agreement or the First Mortgage Bond
Documents and the Collateral Agent shall not be required to take any action
unless indemnified in accordance with the provisions of Section 23.6
hereof.

     

              
Section 23.11.     Sharing and Application of
Proceeds.  The holders agree all amounts owing with respect to
the Notes shall be secured pro
rata by the Collateral Agent without distinction.  Upon any
realization upon the First Mortgage Bonds by the Collateral Agent, the holders
agree that the proceeds thereof shall be applied (i) first, to the payment of
expenses incurred by and amounts owed to the Collateral Agent with respect to
maintenance and protection of the First Mortgage Bonds and of expenses incurred
with respect to the sale of or realization upon any of the First Mortgage Bonds
or the perfection, enforcement or protection of the rights of the holders
(including reasonable attorneys’ fees and expenses of every kind, including,
without limitation, reasonable allocated costs of staff counsel);
(ii) second,
equally and ratably to the payment of all amounts of interest on the Notes,
according to the aggregate amounts thereof owing to each holder;
(iii) third,
equally and ratably to the payment of all amounts of principal on the
Notes according to the aggregate amounts thereof owing to each holder;
(iv) equally and ratably to the payment of all Make-Whole Amounts according
to the aggregate amounts thereof owing to each holder; (v) fifth, equally and ratably to
the payment of other amounts then due to the holders under this Agreement
(including but not limited to all fees and expenses) with amounts prorated, if
necessary, based on the aggregate amounts thereof then owing to each holder, and
(vi) sixth, the
balance, if any, shall be returned to the Company.

     

              
Section 23.12.     Resignation or Termination of
Collateral Agent.  The Collateral Agent may resign as
Collateral Agent upon not less than 60 days’ written notice to each of the
holders (with a copy to the Company), such resignation to take effect upon the
acceptance by a successor Collateral Agent of its appointment as the Collateral
Agent hereunder.  In addition, the Required Holders may remove the
Collateral Agent, with or without cause, each at any time by giving written
notice thereof to the Collateral Agent, such resignation to take effect upon the
acceptance by a successor Collateral Agent of its appointment as the Collateral
Agent hereunder.  Upon any such resignation or removal, the Required
Holders shall have the right to appoint a successor Collateral Agent which meets
the eligibility requirements of Section 23.14.  If
no successor Collateral Agent shall have been so appointed and shall have
accepted such appointment in writing within 60 days after the retiring
Collateral Agent’s giving of notice of resignation or its removal, then any
holder or the retiring Collateral Agent (unless the Collateral Agent is being
removed), on behalf of the holders, may petition at the expense of the Company a
court of competent jurisdiction for the appointment of a successor Collateral
Agent.  Such court shall, after such notice as it may deem proper,
appoint a successor Collateral Agent meeting the qualifications specified in
this Section 23.14.  The
holders of the Notes hereby consent to such petition and appointment so long as
such criteria are met.  Upon acceptance of appointment as Collateral
Agent, such successor shall thereupon and forthwith succeed to and become vested
with all the rights, powers and privileges, immunities and duties of the
retiring Collateral Agent, and the retiring Collateral Agent, upon the signing,
transferring and setting over to such successor Collateral Agent all rights,
moneys and other collateral held by it in its capacity as Collateral Agent,
shall be discharged from its duties and obligations hereunder.  After
any retiring Collateral Agent’s resignation or removal as Collateral Agent, the
provisions of this Section 23, shall inure
to its benefit as to any actions taken or omitted to be taken by it while it
acted as Collateral Agent.

     

              
Section 23.13.     Succession of Successor Collateral
Agent.  Any successor Collateral Agent appointed hereunder
shall execute, acknowledge and deliver to the holders and the predecessor
Collateral Agent an instrument accepting such appointment, and thereupon such
successor Collateral Agent, without any further act, deed, conveyance or
transfer, shall become vested with the title to the First Mortgage Bonds, and
with all the rights, powers, duties and obligations of the predecessor
Collateral Agent in the First Mortgage Bonds and the First Mortgage Bond
Documents, with like effect as if originally named as Collateral Agent
herein.

     

    Upon the
request of any such successor Collateral Agent, however, the holders and the
predecessor Collateral Agent shall promptly execute and deliver such instruments
of conveyance and further assurance reflecting terms consistent with the terms
of this Agreement and the First Mortgage Bond Documents then in effect and do
such other things as may reasonably be required for more fully and certainly
vesting and confirming in such successor Collateral Agent its interest in the
First Mortgage Bonds and all such rights, powers, duties and obligations of the
predecessor Collateral Agent hereunder, and the predecessor Collateral Agent
shall also promptly assign and deliver to the successor Collateral Agent any
First Mortgage Bonds which may then be in its possession.  The
Company, to the extent requested by any holder of the Notes or the Collateral
Agent shall procure any and all documents, conveyances or instruments and
execute the same, to the extent required, in order to reflect the transfer to
the successor Collateral Agent.

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

              
Section 23.14.      Eligibility of Collateral
Agent.  Any successor Collateral Agent shall be
(a)  a state or national bank or trust company in good standing,
organized under the laws of the United States of America or of any state, having
capital, surplus and undivided profits aggregating at least $500,000,000 and
subject to supervision or examination by a Federal or state banking authority
and (b) authorized under the laws of the jurisdiction of its incorporation
or organization to assume the functions of the Collateral Agent, if there be
such a bank or trust company willing and able to accept the duties hereunder
upon reasonable and customary terms.

     

              
Section 23.15.     Successor Collateral Agent by
Merger.  Any corporation into which the Collateral Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Collateral Agent shall be a party, or
any state or national bank or trust company in any manner succeeding to the
corporate trust business of the Collateral Agent as a whole or substantially as
a whole, if eligible as provided in Section 23.14, shall be
the successor of the Collateral Agent hereunder without the execution or filing
of any paper or any further act on the part of any of the parties hereto,
anything to the contrary contained herein notwithstanding.

     

              
Section 23.16.      Compensation and Reimbursement of
Collateral Agent.  The Company agrees:

     

                     (a)to pay to the Collateral Agent all of
its out-of-pocket expenses in connection with the preparation, execution and
delivery of this Agreement and the First Mortgage Bond Documents and the
transactions contemplated hereby, including but not limited to the reasonable
charges and disbursements of its special counsel;

     

                     (b)to pay to the Collateral Agent from
time to time reasonable compensation for all services rendered by it
hereunder;

     

                     (c)to reimburse the Collateral Agent upon
its request for all reasonable expenses, disbursements and advances incurred or
made by the Collateral Agent in accordance with any provision of this Agreement
(including the reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance as shall
have been caused by its own gross negligence or willful misconduct;
and

     

                     (d)to indemnify the Collateral Agent for,
and to hold it harmless against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs or disbursements of
any kind whatsoever imposed on, incurred by or asserted against the Collateral
Agent without gross negligence or willful misconduct on its part, at any time
(including without limitation, at any time following the payment of the Notes),
arising out of or in connection with this Agreement or any First Mortgage Bond
Document or any action taken or omitted by it thereunder or in connection
therewith, including, but not limited to, the costs and expenses of defending
itself against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder, and any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs or disbursements of any kind whatsoever or claims arising out of its
possession or control, of the First Mortgage Bonds.

     

    Notwithstanding
any other provision of this Agreement or the First Mortgage Bond Documents, the
Collateral Agent shall in all cases be fully justified in failing or refusing to
act hereunder unless it shall be indemnified to its satisfaction by the Company
or, to the extent it is not satisfactorily indemnified by the Company, the
holders of the Notes against any and all liability and expense that may be
incurred by it by reason of taking or continuing to take any such
action.

     

              
Section 23.17.      Self Dealing.  In
the event that a holder serves as the Collateral Agent, such holder acting in
its capacity as such shall have the same rights and powers under this Agreement
and the Notes as any other holder and may exercise or refrain from exercising
the same as though it were not the Collateral Agent.  Without limiting
the generality of the foregoing, the  Collateral Agent or any holding
company, trust company or corporation in or with which the Collateral Agent or
the Collateral Agent’s stockholders may be interested or affiliated, or any
officer or director of the Collateral Agent, or of any other such entity, or any
agent appointed by the Collateral Agent, may have commercial relations or
otherwise deal with any of the holders, or with any other corporation having
relations with any of the holders, and with any other entity, whether or not
affiliated with the Collateral Agent.

     

              
Section 23.18.      Third Party
Beneficiary.  The Collateral Agent is hereby deemed a third
party beneficiary of Section 23 of this Agreement.

     

    *     *     *     *     *

    

    
      
        
           

        

        
          21

          
            

          

        

        
           

        

      

    

    

     

    The
execution hereof by the Purchasers shall constitute a contract among the Company
and the Purchasers for the uses and purposes hereinabove set forth.

    
    

     

    
      	 	 Very truly
      yours,

    

     

    
    

     

    
      	 	 New
      Jersey Natural Gas Company

    

     

    
    

     

    
      	 	 By     
      /s/ William Foley
	 	 Its
      Treasurer

    

     

     

     

    
    

    

    
      
        
          
             

          

           

        

        
          22

          
            

          

        

        
           

        

      

    The
foregoing is hereby agreed

    to as of
the date thereof.

    

    The
Prudential Insurance Company

       of
America

    

    

    By:           /s/        Timothy
M.
Laczkowski                                                                                                

    Vice
President

    

    

    Prudential
Retirement Insurance and

       Annuity
Company

    

    By:           Prudential
Investment Management, Inc.,

    as investment manager

     

                                                                                                  
By:          /s/        Timothy
M. Laczkowski

                                                                                                                   
Vice
President

    

    

    

    
      
        
          
             

          

           

        

        
          23

          
            

          

        

        
           

        

      

    

    

    The
foregoing is hereby agreed

    to as of
the date thereof.

    

    
    

     

    
      	 	The
      Northwestern Mutual Life Insurance
Company

    

     

     

    
      	 	 By:     
      /s/   Jerome R. Baier   
	 	Title: 
      Authorized Representative

    

     

     

     

    

    

    

    
      
        
          
             

          

           

        

        
          24

          
            

          

        

        
           

        

      

    

    

    The
foregoing is hereby agreed

    to as of
the date thereof.

    

    
      	
               
      

            	
              Thrivent
      Financial for Lutherans

            

    

    

    

    
      	
               
      

            	
              By:        /s/  Patricia
      Eitrheim

            	 

    

    
      	
               
      

            	
              Title:     Director

            

    

    

    

    

    
      
        
          
             

          

           

        

        
          25

          
            

          

        

        
           

        

      

    

    

    The
foregoing is hereby agreed

    to as of
the date thereof.

    

    
      	
               
      

            	
              Champlain
      Life Reinsurance Company

            

    

    
      	
               
      

            	
              Hartford
      Life Insurance Company

            

    

    
      	
               
      

            	
              By:  Hartford
      Investment Management Company,

            

    

    
      	
               
      

            	
                      Their
      Agent and Attorney-in-Fact

            

    

    

    

    

    
      	
               
      

            	
              By:
              /s/    Matthew
      J. Poznar

            	 

    

    
      	
               
      

            	
              Name:   Matthew
      J. Poznar

            

    

    
      	
               
      

            	
              Title:     Vice
      President

            

    

    

    

    

    
      	
               
      

            	
              Physicians
      Life Insurance Company

            

    

    
      	
               
      

            	
              By:  Hartford
      Investment Management Company,

            

    

    
      	
               
      

            	
                      Its
      Investment Manager

            

    

    

    

    

    
      	
               
      

            	
              By:        /s/    Matthew
      J. Poznar

            	 

    

    
      	
               
      

            	
              Name:  Matthew
      J. Poznar

            

    

    
      	
               
      

            	
              Title:    Vice
      President

            

    

    

    

    

    
      
        
          
             

          

           

        

        
          26

          
            

          

        

        
           

        

      

    

    

    The
foregoing is hereby agreed

    to as of
the date thereof.

    

    
      	
               
      

            	
              State
      Farm Life Insurance Company

            

    

    

    

    
      	
               
      

            	
              By:         /s/    Julie
      Pierce

            	 

    

    
      	
               
      

            	
              Title:     Senior
      Investment Officer

            

    

    

    

    
      	
               
      

            	
              By:       /s/    Jeffrey
      T. Attwood

            	 

    

    
      	
               
      

            	
              Title:    Investment
      Officer

            

    

    

    
      
        
          
             

          

           

        

        
          27

          
            

          

        

        
           

        

      

    

    

    

    The
foregoing is hereby agreed

    to as of
the date thereof.

    

    
      	
               
      

            	
              State
      Farm Life and Accident Assurance
Company

            

    

    

    

    
      	
               
      

            	
              By:         /s/    Julie
      Pierce

            	 

    

    
      	
               
      

            	
              Title:     Senior
      Investment Officer

            

    

    

    

    
      	
               
      

            	
              By:       /s/    Jeffrey
      T. Attwood

            	 

    

    
      	
               
      

            	
              Title:    Investment
      Officer

            

    

    

    
      
        
          
             

          

           

        

        
          28

          
            

          

        

        
           

        

      

    

    

    The
foregoing is hereby agreed

    to as of
the date thereof.

    

    
      	
               
      

            	
              AXA
      Equitable Life Insurance Company

            

    

    

    

    
      	
               
      

            	
              By:        /s/      Amy
      Judd

            	 

    

    
      	
               
      

            	
              Title:     Investment
      Officer

            

    

    

    

    
      	
               
      

            	
              MONY
      Life Insurance Company

            

    

    

    

    
      	
               
      

            	
              By:        /s/      Amy
      Judd

            	 

    

    
      	
               
      

            	
              Title:     Investment
      Officer

            

    

    

    
      
        
          
             

          

           

        

        
          29

          
            

          

        

        
           

        

      

    

    

    The
foregoing is hereby agreed

    to as of
the date thereof.

    

    
      	
               
      

            	
              Modern
      Woodmen of America

            

    

    

    

    
      	
               
      

            	
              By:        /s/      Nick
      S. Coin

            	 

    

    
      	
               
      

            	
              Title:     Treasurer
      & Investment Manager

            

    

    

    
      
        
          
             

          

           

        

        
          30

          
            

          

        

        
           

        

      

    

    

    The
foregoing is hereby agreed

    to as of
the date thereof.

    

    
      	
               
      

            	
              Great-West
      Life & Annuity Insurance
Company

            

    

    

    

    
      	
               
      

            	
              By:             /s/    James
      G. Lowery

            

    

    
      	
               
      

            	
              Title:  Assistant
      Vice President

            

    

    
      	
               
      

            	
              Investments

            

    

    

    
      	
               
      

            	
                         
      By:               /s/    Eve
      Hampton

            	 

    

    
      	
               
      

            	
              Title:  Vice
      President

            

    

    
      	
               
      

            	
              Investments

            

    

    

    

    

    
      
        
          
             

          

           

        

        
          31

          
            

          

        

        
           

        

      

    

     

     

    
Information Relating to
Purchasers

     

    
      	
               

              Name
      and Address of Purchaser

              The
      Prudential Insurance Company of

                America

              c/o
      Prudential Capital Group

              2200
      Ross Avenue, Suite 4200E

              Dallas,
      Texas  75201

              Attention:  Managing
      Director

            	
              Principal
      Amount of

              Notes
      to be Purchased

               

              $27,000,000

              Denominations

              $15,000,000

              $12,000,000

            

    

     

     

    Payments

     

    All
payments on or in respect of the Notes to be by bank wire transfer of Federal or
other immediately available funds (identifying each payment as “New Jersey
Natural Gas Company, 5.60% Senior Notes, due May 15, 2018, Security No.
INV05233, PPN 645869 C#3, principal, Make-Whole Amount or interest”)
to:

    

    JPMorgan
Chase Bank

    New York,
New York

    ABA
#021000021

    

    Account
Name:  Prudential Managed Portfolio

    Account
No.: P86188 (Please do not include spaces) (for payments on account of the Note
originally issued in the principal amount of $15,000,000)

    

    Account
Name:  The Prudential – Privest Portfolio

    Account
No.: P86189 (Please do not include spaces) (for payments on account of the Note
originally issued in the principal amount of $12,000,000)

    

     

    Notices

     

    

    All
notices with respect to payments and written confirmation of each such payment,
to be addressed:

    

    The Prudential Insurance Company of
America

    c/o Investment Operations
Group

    Gateway Center Two

    10th
Floor

    100 Mulberry Street

    Newark, New
Jersey  07102-4077

    Attention:  Manager, Billings
and Collections

    

    All
telephonic notices with respect to prepayments, to be addressed:

    

    Manager, Trade Management
Group

    Telephone:  (973)
367-3141

    Facsimile:  (888)
889-3832

     

    All other
notices and communications to be addressed as first provided above.

     

    Name of
Nominee in which Notes are to be issued:  None

     

    Taxpayer
I.D. Number:  22-1211670

    

    
      
        
          
            Schedule
A

            (to Note
Purchase Agreement)

          

           

        

        
          
          

          
            

          

        

        
           

        

      

    

    

    

    
      	
               

              Name
      and Address of Purchaser

              Prudential
      Retirement Insurance and

                Annuity
      Company

              Prudential
      Private Placement Investors, L.P.

              c/o
      Prudential Capital Group

              2200
      Ross Avenue, Suite 4200E

              Dallas,
      Texas  75201

              Attention:  Managing
      Director

            	
              Principal
      Amount of

              Notes
      to be Purchased

               

              $3,000,000

               

            

    

     

    Payments

     

    All
payments on or in respect of the Notes to be by bank wire transfer of Federal or
other immediately available funds (identifying each payment as “New Jersey
Natural Gas Company, 5.60% Senior Notes, due May 15, 2018, PPN 645869 C#3,
principal, Make-Whole Amount or interest”) to:

    

    JPMorgan
Chase Bank

    New York,
New York

    ABA
#021000021

    

    Account
Name:  PRIAC – SA – Prudential America Fund - Privates

    Account
No.: P86351 (Please do not include spaces)

     

    Notices

    

    All
notices with respect to payments and written confirmation of each such payment,
to be addressed:

    

    Prudential Retirement Insurance and
Annuity Company

    c/o Prudential Investment Management,
Inc.

    Private Placement Trade
Management

    PRIAC Administration

    Gateway Center Four

    7th
Floor

    100 Mulberry Street

    Newark, New
Jersey  07102

    Telephone:  (973)
802-8107

    Facsimile:  (888)
889-3832

     

    All other
notices and communications to be addressed as first provided above.

     

    Name of
Nominee in which Notes are to be issued:  None

     

    Taxpayer
I.D. Number:  06-1050034

     

    
      
        
        

      

      
        A-3

        
          

        

      

      
        
        

      

    

    
      	
               

              Name
      and Address of Purchaser

              The
      Northwestern Mutual Life

                 Insurance
      Company

              720
      East Wisconsin Avenue

              Milwaukee,
      Wisconsin  53202

              Attention:  Securities
      Department

              Facsimile:  (414)
      665-7124

            	
              Principal
      Amount of

              Notes
      to be Purchased

               

              $20,000,000

               

            

    

     

    Payments

     

    All
payments on or in respect of the Notes to be by bank wire transfer of Federal or
other immediately available funds (identifying each payment as “New Jersey
Natural Gas Company, 5.60% Senior Notes, due May 15, 2018, PPN 645869 C#3,
principal, Make-Whole Amount or interest”) to:

    

    US
Bank

    777 East
Wisconsin Avenue

    Milwaukee,
Wisconsin  53202

    ABA
#075000022

    

    For the
account of:

    

    Northwestern
Mutual Life

    Account
No.  182380324521

     

    With
sufficient information to identify the source of the transfer, the amount of
interest, principal or Make-Whole Amount, the series of the Notes and the
private placement number.

     

    Notices

    

    All
notices with respect to payments and written confirmation of each such payment,
to be addressed:

    

    The Northwestern Mutual Life Insurance
Company

    720 East Wisconsin Avenue

    Milwaukee,
Wisconsin  53202

    Attention:  Investment
Operations

    Facsimile:  (414)
625-6998

     

    All other
notices and communications to be addressed as first provided above.

     

    Name of
Nominee in which Notes are to be issued:  None

     

    Taxpayer
I.D. Number:  39-0509570

    

    
      
        
          
            A-4

          

           

        

        
          
          

          
            

          

        

        
           

        

      

    

    

    

    
      	
               

              Name
      and Address of Purchaser

              Thrivent
      Financial for Lutherans

              Attention:  Investment
      Division-Private Placements

              625
      Fourth Avenue South

              Minneapolis,
      Minnesota  55415

              Facsimile:  (612)
      844-4027

            	
              Principal
      Amount of

              Notes
      to be Purchased

               

              $20,000,000

              Denominations

              $5,000,000

              $5,000,000

              $5,000,000

              $5,000,000

            

    

     

    Payments

     

    All
payments on or in respect of the Notes to be by bank wire transfer of Federal or
other immediately available funds (identifying each payment as “New Jersey
Natural Gas Company, 5.60% Senior Notes, due May 15, 2018, PPN 645869 C#3,
principal, Make-Whole Amount or interest”) to:

    

    ABA #
011000028

    State
Street Bank & Trust Co.

    DDA # A/C
– 6813-049-1

    Fund
Number:  NCE1

    Fund
Name:  Thrivent Financial for Lutherans

    

    All
payments must include the following information:

    

    Security
Description

    Private
Placement Number

    Reference
Purpose of Payment

    Interest
and/or Principal Breakdown

     

    Notices

    

    All
notices with respect to payments and written confirmation of each such payment,
to be addressed:

    

    Investment Division-Private
Placements

    Attention:  Alan D.
Onstad

    Thrivent Financial for
Lutherans

    625 Fourth Avenue South

    Minneapolis,
Minnesota  55415

    Facsimile:  (612)
844-4027

    

    with a
duplicate copy to:

    

    Thrivent Accounts

    State Street Kansas City

    801 Pennsylvania

    Kansas City,
Missouri  64105

    Attention:  Bart
Woodson

    Facsimile:  (816)
691-3610

     

    All other
notices and communications to be addressed as first provided above.

     

    Name of
Nominee in which Notes are to be issued:  Swanbird &
Co.

     

    Taxpayer
I.D. Number:  39-0123480

    

    
      
        
          
            A-5

          

           

        

        
          
          

          
            

          

        

        
           

        

      

    

    

    

    
      	
               

              Name
      and Address of Purchaser

              Champlain
      Life Reinsurance Company

              Hartford
      Investment Management Company

              c/o
      Investment Department-Private Placements

              Regular
      mailing address:

              P.O.
      Box 1744

              Hartford,
      Connecticut  06144-1744

              Overnight
      mailing address:

              55
      Farmington Avenue

              Hartford,
      Connecticut  06105

              Facsimile:  (860)
      297-8884

            	
              Principal
      Amount of

              Notes
      to be Purchased

               

              $4,000,000

            

    

     

    Payments

     

    All
payments on or in respect of the Notes to be by bank wire transfer of federal or
other immediately available funds (identifying each payment as “New Jersey
Natural Gas Company, 5.60% Senior Notes, due May 15, 2018, PPN 645869 C#3,
principal, Make-Whole Amount or interest”) to:

    

    JPMorgan
Chase

    4 New
York Plaza

    New York,
New York  10004

    Bank ABA
No. 021000021

    Chase
NYC/Cust

    
      	
               
      

            	
              A/C
      # 900-9-000200 for F/C/T G11592-CBM

            

    

    
      	
              Attn:

            	
              Bond
      Interest/Principal – NJNGC First Mortgage Bonds
      BND/Corp 5.60% due May 2018, PPN # 645869 C#3, Prin
      $______________, Int $_____________

            

    

     

    With
sufficient information to identify the source and application of such
funds.

     

    Notices

    

    All
notices with respect to payments and written confirmation of each such payment,
to be addressed:

    

    Hartford
Investment Management Company

    c/o
Portfolio Support

    Regular
mailing address:

    P.O. Box
1744

    Hartford,
Connecticut  06144-1744

    Overnight
mailing address:

    55
Farmington Avenue

    Hartford,
Connecticut  06105

    Facsimile:  (860)
297-8875/8876

     

    All other
notices and communications to be addressed as first provided above.

     

    Name of
Nominee in which Notes are to be issued:  None

     

    Taxpayer
I.D. Number:  32-0181180

    

    
      
        
          
            A-6

          

           

        

        
          
          

          
            

          

        

        
           

        

      

    

    

    

    
      	
               

              Name
      and Address of Purchaser

              Hartford
      Life Insurance Company

              Hartford
      Investment Management Company

              c/o
      Investment Department-Private Placements

              Regular
      mailing address:

              P.O.
      Box 1744

              Hartford,
      Connecticut  06144-1744

              Overnight
      mailing address:

              55
      Farmington Avenue

              Hartford,
      Connecticut  06105

              Facsimile:  (860)
      297-8884

            	
              Principal
      Amount of

              Notes
      to be Purchased

               

              $10,000,000

              Denominations

              $5,000,000

              $5,000,000

            

    

    

     

    Payments

     

    All
payments on or in respect of the Notes to be by bank wire transfer of federal or
other immediately available funds (identifying each payment as “New Jersey
Natural Gas Company, 5.60% Senior Notes, due May 15, 2018, PPN 645869 C#3,
principal, Make-Whole Amount or interest”) to:

    

    JPMorgan
Chase

    4 New
York Plaza

    New York,
New York  10004

    Bank ABA
No. 021000021

    Chase
NYC/Cust

    
      	
               
      

            	
              A/C
      # 900-9-000200 for F/C/T G10331-CRS

            

    

    
      	
              Attn:

            	
              Bond
      Interest/Principal – NJNGC First Mortgage Bonds
      BND/Corp 5.60% due May 2018, PPN 645869 C#3, Prin $______________,
      Int $______________

            

    

     

    With
sufficient information to identify the source and application of such
funds.

     

    Notices

    

    All
notices with respect to payments and written confirmation of each such payment,
to be addressed:

    

    Hartford
Investment Management Company

    c/o
Portfolio Support

    Regular
mailing address:

    P.O. Box
1744

    Hartford,
Connecticut  06144-1744

    Overnight
mailing address:

    55
Farmington Avenue

    Hartford,
Connecticut  06105

    Facsimile:  (860)
297-8875/8876

     

    All other
notices and communications to be addressed as first provided above.

     

    Name of
Nominee in which Notes are to be issued:  None

     

    Taxpayer
I.D. Number:  06-0974148

    

    
      
        
          
            A-7

          

           

        

        
          
          

          
            

          

        

        
           

        

      

    

    

     

    

    
      	
               

              Name
      and Address of Purchaser

              Physicians
      Life Insurance Company

              Hartford
      Investment Management Company

              c/o
      Investment Department-Private Placements

              Regular
      mailing address:

              P.O.
      Box 1744

              Hartford,
      Connecticut  06144-1744

              Overnight
      mailing address:

              55
      Farmington Avenue

              Hartford,
      Connecticut  06105

              Facsimile:  (860)
      297-8884

            	
              Principal
      Amount of

              Notes
      to be Purchased

               

              $2,000,000

            

    

     

    Payments

     

    All
payments on or in respect of the Notes to be by bank wire transfer of federal or
other immediately available funds (identifying each payment as “New Jersey
Natural Gas Company, 5.60% Senior Notes, due May 15, 2018, PPN 645869 C#3,
principal, Make-Whole Amount or interest”) to:

    

    Custodian:  The
Northern Trust Company

    DTC
Number:  2669

    Institutional
I.D.:  26724

    ABA
Number:  071000152

    Agent
Bank I.D.:  20290

    Internal
Account:  26-27103 (PLIC LIFE – Hartford)

    
      	
              Attn:

            	
              Bond
      Interest/Principal – NJNGC First Mortgage Bonds
      BND/Corp 5.60% due May 2018, PPN 645869 C#3, Prin $______________,
      Int $______________

            

    

     

    With
sufficient information to identify the source and application of such
funds.

     

    Notices

    

    All
notices with respect to payments and written confirmation of each such payment,
to be addressed:

    

    Physicians
Life Insurance Company

    Attention:  Steven
Scanlan, Chief Investment Officer

    2600
Dodge Street

    Omaha,
Nebraska  68131

    Facsimile:  (402)
633-1096

     

    All other
notices and communications to be addressed as first provided above.

     

    Name of
Nominee in which Notes are to be issued:  ELL & Co.

     

    Taxpayer
I.D. Number:  47-0529583

    

    
      
        
          
            A-8

          

           

        

        
          
          

          
            

          

        

        
           

        

      

    

    

    

    
      	
               

              Name
      and Address of Purchaser

              State
      Farm Life Insurance Company

              Investment
      Dept. E-8

              One
      State Farm Plaza

              Bloomington,
      Illinois  61710

              E-Mail:  privateplacements@statefarm.com

            	
              Principal
      Amount of

              Notes
      to be Purchased

               

              $15,000,000

            

    

     

    Payments

     

    All
payments on or in respect of the Notes to be by bank wire transfer of federal or
other immediately available funds (identifying each payment as “New Jersey
Natural Gas Company, 5.60% Senior Notes, due May 15, 2018, PPN 645869 C#3,
principal, Make-Whole Amount or interest”) to:

    

    JPMorgan
Chase

    ABA#:  021000021

    Attn:  SSG
Private Income Processing

    A/C#:  900
9 000200

    For
further credit to:  State Farm Life Insurance Company, Custody Account
# G06893

    
      	
               
      

            	
              RE:

            	
              New
      Jersey Natural Gas Company, 5.60% Senior Notes due May 15, 2018; PPN
      645869 C#3; Maturity Date:  May 15,
  2018

            

    

     

    Notices

    

    All
notices, financial statements, officer’s certificates and other correspondence
to be addressed as provided above.

    

    All
confirmations to be addressed:

    

    State
Farm Life Insurance Company

    Investment
Accounting Dept. D-3

    One State
Farm Plaza

    Bloomington,
Illinois  61710

     

    Name of
Nominee in which Notes are to be issued:  None

     

    Taxpayer
I.D. Number:  37-0533090

    

    
      
        
          
            A-9

          

           

        

        
          
          

          
            

          

        

        
           

        

      

    

    

    

    
      	
               

              Name
      and Address of Purchaser

              State
      Farm Life and Accident Assurance

                Company

              Investment
      Dept. E-8

              One
      State Farm Plaza

              Bloomington,
      Illinois  61710

              E-Mail:  privateplacements@statefarm.com

            	
              Principal
      Amount of

              Notes
      to be Purchased

               

              $1,000,000

            

    

     

    Payments

     

    All
payments on or in respect of the Notes to be by bank wire transfer of federal or
other immediately available funds (identifying each payment as “New Jersey
Natural Gas Company, 5.60% Senior Notes, due May 15, 2018, PPN 645869 C#3,
principal, Make-Whole Amount or interest”) to:

    

    JPMorgan
Chase

    ABA#:  021000021

    Attn:  SSG
Private Income Processing

    A/C#:  900
9 000200

    For
further credit to:  State Farm Life and Accident Assurance Company,
Custody Account # G06895

    
      	
               
      

            	
              RE:

            	
              New
      Jersey Natural Gas Company, 5.60% Senior Notes due May 15, 2018; PPN
      645869 C#3; Maturity Date:  May 15,
  2018

            

    

     

    Notices

    

    All
notices, financial statements, officer’s certificates and other correspondence
to be addressed as provided above.

    

    All
confirmations to be addressed:

    

    State
Farm Life and Accident Assurance Company

    Investment
Accounting Dept. D-3

    One State
Farm Plaza

    Bloomington,
Illinois  61710

     

    Name of
Nominee in which Notes are to be issued:  None

     

    Taxpayer
I.D. Number:  37-0805091

    

    
      
        
          
            A-10

          

           

        

        
          
          

          
            

          

        

        
           

        

      

    

    

    

    
      	
              Name
      and Address of Purchaser

               

              AXA
      Equitable Life Insurance Company

              c/o
      AllianceBernstein LP

              1345
      Avenue of the Americas, 37th Floor

              New
      York, New York  10105

              Attention:  Thomas
      Socha

              Telephone:  (212)
      969-6776

              E-mail:  thomas.socha@alliancebernstein.com

            	
              Principal
      Amount of

              Notes
      to be Purchased

               

              $6,000,000

               

               

            

    

     

    Payments

     

    All
payments on or in respect of the Notes to be by bank wire transfer of federal or
other immediately available funds (identifying each payment as “New Jersey
Natural Gas Company, 5.60% Senior Notes, due May 15, 2018, PPN 645869 C#3,
principal, Make-Whole Amount or interest”) to:

     

    JP Morgan Chase

    Account:  AXA
Equitable Life Insurance Company

    4 Chase
Metrotech Center

    Brooklyn,
New York  11245

    ABA
No.:  021-000021

    Bank
Account:  037-2-413336

    Custody
Account:  G04657

    Face Amount of
$6,000,000.00

     

    Each wire
shall show the name of the company, the private placement number, the due date
of the payment being made and if such payment is a final payment.

     

    Notices

     

    All
notices with respect to payments and written confirmations of wire transfers to
be addressed:

    

    AXA
Equitable Life Insurance Company

    c/o AllianceBernstein LP

    1345 Avenue of the
Americas

    38th Floor

    New York, New
York  10105

    Attention:  Cosmo
Valente/Mike Maher/Mei Wong

    Telephone:  (212)
969-6384/(212) 823-2873/(212) 969-2112

    E-mail:  cosmo.valente@alliancebernstein.com

     

    All other
notices and communications to be addressed as first provided above.

     

    Name of
Nominee in which Notes are to be issued:  None

     

    Tax
Identification No.:  13-557-0651

    

    
      
        
          
            A-11

          

           

        

        
          
          

          
            

          

        

        
           

        

      

    

    

    

    
      	
              Name
      and Address of Purchaser

               

              MONY
      Life Insurance Company

              c/o
      AllianceBernstein LP

              1345
      Avenue of the Americas, 37th Floor

              New
      York, New York  10105

              Attention:  Thomas
      Socha

              Telephone:  (212)
      969-6776

              E-mail:  thomas.socha@alliancebernstein.com

            	
              Principal
      Amount of

              Notes
      to be Purchased

               

              $5,000,000

               

            

    

     

    Payments

     

    All
payments on or in respect of the Notes to be by bank wire transfer of federal or
other immediately available funds (identifying each payment as “New Jersey
Natural Gas Company, 5.60% Senior Notes, due May 15, 2018, PPN 645869 C#3,
principal, Make-Whole Amount or interest”) to:

     

    JP Morgan Chase

    ABA
No.:  021-000021

    For credit to MONY Life Insurance
Company

    Bank
Account:  321-023803

    A/C:  MONY Closed Block– G
52963

    Face Amount of
$5,000,000.00

     

    Each wire
shall show the name of the company, the private placement number, the due date
of the payment being made and if such payment is a final payment.

     

    Notices

     

    All
notices with respect to payments and written confirmations of wire transfers to
be addressed:

    

    MONY Life
Insurance Company

    c/o AllianceBernstein LP

    1345 Avenue of the
Americas

    38th Floor

    New York, New
York  10105

    Attention:  Mike
Maher

    Telephone:  (212)
823-2873

    E-mail:  mike.maher@alliancebernstein.com

     

    All other
notices and communications to be addressed as first provided above.

     

    Name of
Nominee in which Notes are to be issued:  None

     

    Tax
Identification No.:  13-1632487

    

    
      
        
          
            A-12

          

           

        

        
          
          

          
            

          

        

        
           

        

      

    

    

    

    
      	
               

              Name
      and Address of Purchaser

              Modern
      Woodmen of America

              1701
      First Avenue

              Rock
      Island, Illinois  61201

              Attention:  Investment
      Department

              Facsimile:  (309)
      793-5574

            	
              Principal
      Amount of

              Notes
      to be Purchased

               

              $6,000,000

               

            

    

     

    Payments

     

    All
payments on or in respect of the Notes to be by bank wire transfer of federal or
other immediately available funds (identifying each payment as “New Jersey
Natural Gas Company, 5.60% Senior Notes, due May 15, 2018, PPN 645869 C#3,
principal, Make-Whole Amount or interest”) to:

    

    The
Northern Trust Company

    50 South
LaSalle Street

    Chicago,
Illinois  60675

    ABA
#071-000-152

    Account
No.:  Modern Woodmen of America

    Account
Number 84352

     

    Each such
wire transfer shall set forth the name of the company, the full title (including
the applicable coupon rate and final maturity date) of the Notes, a reference to
PPN No. 645869 C#3 and the due date and application (as among principal,
Make-Whole Amount and interest) of the payment being made.

     

    Notices

    

    All
notices with respect to payments to be addressed:

    

    Modern Woodmen of America

    1701 First Avenue

    Rock Island,
Illinois  61201

    Attention:  Investment
Accounting Department

    Facsimile:  (309)
793-5688

     

    All other
notices and communications to be addressed as first provided above with a
duplicate copy to investments@modern-woodmen.org.

     

    Name of
Nominee in which Notes are to be issued:  None

     

    Taxpayer
I.D. Number:  36-1493430

    

    
      
        
          
            A-13

          

           

        

        
          
          

          
            

          

        

        
           

        

      

    

    

    

    
      	
               

              Name
      and Address of Purchaser

              Great-West
      Life & Annuity Insurance

                Company

              8515
      East Orchard Road, 3T2

              Greenwood
      Village, Colorado  80111-5002

              Attention:  Investments
      Division

              Facsimile:  (302)
      737-6193

            	
              Principal
      Amount of

              Notes
      to be Purchased

               

              $6,000,000

               

            

    

     

    Payments

     

    All
payments on or in respect of the Notes to be by bank wire transfer of federal or
other immediately available funds (identifying each payment as “New Jersey
Natural Gas Company, 5.60% Senior Notes, due May 15, 2018, PPN 645869 C#3,
principal, Make-Whole Amount or interest”) to:

    

    The Bank
of New York

    ABA
#021-000-018

    BNF
Account No.:  IOC566

    Further
Credit To:  Great-West Life & Annuity Insurance Co. A/C
#640935

    Special
Instructions:                                           1)  Security
Description (PPN);

    2)  Allocation of payment
between principal and interest; and

    3)  Confirmation of principal
balance.

     

    Notices

    

    All
notices with respect to payments to be addressed:

    

    The Bank of New York

    Institutional Custody Department,
14th
Floor

    One Wall Street

    New York, New York 10286

    Facsimile:  (212)
635-8844

     

    All other
notices, communications, financial statements and reports to be addressed as
first provided above.

     

    Name of
Nominee in which Notes are to be issued:  None

     

    Taxpayer
I.D. Number:  84-0467907

    

    
      
        
          
            A-14

          

           

        

        
          
          

          
            

          

        

        
           

        

      

    

    

    Defined
Terms

     

    As used
herein, the following terms have the respective meanings set forth below or set
forth in the Section hereof following such term:

     

    “Affiliate” shall mean,
(a) at any time, and with respect to any Person, any other Person that at
such time directly or indirectly through one or more intermediaries Controls, or
is Controlled by, or is under common Control with, such first Person and
(b) any Person beneficially owning or holding, directly or indirectly, 10%
or more of any class of equity or Voting Stock of the Company or any Subsidiary
or any Person of which the Company and its Subsidiaries beneficially own or
hold, in the aggregate, directly or indirectly, 10% or more of any class of
equity or Voting Stock.  As used in this definition, “Control” means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of Voting Stock, by contract or otherwise.  Unless the
context otherwise clearly requires, any reference to an “Affiliate” is a
reference to an Affiliate of the Company.

     

    “Anti-Terrorism Order” shall
mean Executive Order No. 13,224 of September 24, 2001 (Executive Order Blocking
Property and Prohibiting Transactions with Persons Who Commit, Threaten to
Commit, or Support Terrorism, 66 U.S. Fed. Reg. 49,079 (2001), as
amended).

     

    “Asset Disposition” shall
mean any Transfer except:

     

                     (a)any

     

                     (1)Transfer from a Restricted Subsidiary
to the Company or a Wholly-Owned Restricted Subsidiary; and

     

                     (2)Transfer from the Company to a
Wholly-Owned Restricted Subsidiary;

     

    so long
as immediately before and immediately after the consummation of any such
Transfer and after giving effect thereto, no Default or Event of Default shall
exist (provided that,
after the Release Date, calculation of compliance therewith shall be made as of
any date of determination thereof and not as of the end of the immediately
preceding fiscal quarter of the Company); and

     

                     (b)any Transfer made in the ordinary
course of business and involving only property that is either (1) inventory held
for sale or (2) equipment, fixtures, supplies or materials no longer required in
the operation of the business of the Company or any of its Restricted
Subsidiaries or that is obsolete.

     

    “Asset Disposition Prepayment
Date” is defined in Section 8.8(a).

     

    “Asset Disposition Prepayment
Event” is defined in Section 8.8(a).

     

    “Bank Credit Agreement” shall
mean that certain Revolving Credit Facility Credit Agreement by and among the
Company, PNC Bank, NA as Administrative Agent, the banks party thereto, JPMorgan
Chase Bank, NA and Bank of America, N.A., as Syndication Agents, and Bank of
Tokyo-Mitsubishi Trust Company and Citicorp North America, Inc., as
Documentation Agents, dated as of December 16, 2004, as the same may be
amended, restated, increased, refinanced, replaced or otherwise modified or any
successor thereto.

     

    “Business Day” shall mean
(a) for purposes of Section 8.7 only, any day
other than a Saturday, a Sunday or a day on which commercial banks in New York,
New York are required or authorized to be closed and (b) for the purposes
of any other provision of this Agreement, any day other than a Saturday, a
Sunday or a day on which commercial banks in Wall, New Jersey or New York, New
York are required or authorized to be closed.

     

    “Capital Lease” shall mean,
at any time, a lease with respect to which the lessee is required concurrently
to recognize the acquisition of an asset and the incurrence of a liability in
accordance with GAAP.

     

    “Closing” is defined in Section 3.

     

    “Code” shall mean the
Internal Revenue Code of 1986, as amended from time to time, and the rules and
regulations promulgated thereunder from time to time.

     

    “Collateral Agent” is defined
in Section
2.2.

     

    “Company” shall mean New
Jersey Natural Gas Company, a New Jersey corporation, or any Successor
Corporation.

     

    “Confidential Information” is
defined in Section 20.

     

    “Consolidated Shareholders’
Equity” shall mean, as of any date of determination, the sum of the
amounts under the headings “Common Shareholders’ Equity” and “Preferred
Shareholders’ Equity” on the balance sheet, prepared in accordance with GAAP,
for the Company and its Restricted Subsidiaries on a consolidated
basis.

     

    “Consolidated Tangible
Assets” shall mean, as of any date of determination, the total assets of
the Company and its Restricted Subsidiaries that would be shown as assets on a
consolidated balance sheet of the Company and its Restricted Subsidiaries as of
such time determined on a consolidated basis in accordance with GAAP after
subtracting therefrom the aggregate amount of all intangible assets of the
Company and its Restricted Subsidiaries, including, without limitation, all
goodwill, franchises, licenses, patents, trademarks, trade name, copyrights,
service marks and brand names.

     

    “Consolidated Tangible Net
Worth” shall mean, as of any date of determination, (a) Consolidated
Shareholders’ Equity minus (b) the net book amount
of all assets of the Company and its Restricted Subsidiaries (after deducting
reserves applicable thereto) that would be shown as intangible assets on a
balance sheet, prepared in accordance with GAAP, for the Company and its
Restricted Subsidiaries on a consolidated basis as of such date of
determination.

     

    “Consolidated Total
Capitalization” shall mean, as of any date of determination, the sum of
(a) Consolidated Total Debt and (b) Consolidated Shareholders’
Equity.

     

    
      
        Schedule
B

      

      
        (to Note
Purchase Agreement)

        
          

        

      

      
        
        

      

    

    “Consolidated Total Debt”
shall mean, as of any date of determination, without duplication, the total of
all Debt of the Company and its Restricted Subsidiaries determined on a
consolidated basis in accordance with GAAP.

     

    For
purposes of determining “Consolidated Total Debt,”
there shall be excluded from any such determination Debt of Securitization
Subsidiaries that are Restricted Subsidiaries (but not Debt of the Company or
any other Restricted Subsidiary) incurred pursuant to Receivables Securitization
Transactions in an amount for principal and accrued and unpaid interest not to
exceed $100,000,000 in the aggregate.

     

    “Debt” as to any Person at
any time, shall mean, without duplication, any and all indebtedness, obligations
or liabilities (whether matured or unmatured, liquidated or unliquidated, direct
or indirect, absolute or contingent, or joint or several) of such Person for or
in respect of:  (a) borrowed money, (b) amounts raised under or
liabilities in respect of any note purchase or acceptance credit facility, (c)
reimbursement obligations (contingent or otherwise) under any letter of credit,
currency swap agreement, interest rate swap, cap, collar or floor agreement or
other interest rate or currency exchange rate management device, (d) any other
transaction (including forward sale or purchase agreements, Capital Leases,
Synthetic Leases and conditional sales agreements) having the commercial effect
of a borrowing of money entered into by such Person to finance its operations or
capital requirements (but not including trade payables and accrued expenses
incurred in the ordinary course of business which are not represented by a
promissory note or other evidence of indebtedness and which are not more than 30
days past due), (e) any Hedging Contract, to the extent that any net
indebtedness, obligations or liabilities of such Person in respect thereof
constitutes “indebtedness” as determined in accordance with GAAP, (f) any
Guaranty of any Hedging Contract described in the immediately preceding
clause (e), (g) any Guaranty of Debt for borrowed money, (h) any Hybrid
Security described in clause (a) of the definition of Hybrid Security or
(i) the mandatory repayment obligation of the issuer of any Hybrid Security
described in clause (b) of the definition of Hybrid Security.

     

    “Debt Prepayment Application”
shall mean, with respect to any Transfer of property, the application by the
Company or its Restricted Subsidiaries of cash in an amount equal to the Net
Proceeds Amount with respect to such Transfer to pay Senior Debt of the Company
(other than Senior Debt owing to any of its Subsidiaries or any Affiliate and
Senior Debt in respect of any revolving credit or similar credit facility
providing the Company with the right to obtain loans or other extensions of
credit from time to time, except to the extent that in connection with such
payment of Senior Debt the availability of credit under such credit facility is
permanently reduced by an amount not less than the amount of such proceeds
applied to the payment of such Senior Debt); provided that in the course
of making such application the Company shall offer to prepay each outstanding
Note in accordance with Section 8.8 in a
principal amount that equals the Ratable Portion for such Note.

     

    “Default” shall mean an event
or condition the occurrence or existence of which would, with the lapse of time
or the giving of notice or both, become an Event of Default.

     

    “Default Rate” as of any date
shall mean that rate of interest that is the greater of (a) 7.60% per annum
or (b) 2.0% per annum over the rate of interest publicly announced by Bank
of America, N.A. in New York, New York as its “base” or “prime”
rate.

     

    “Disclosure Documents” is
defined in Section
5.3.

     

    “Disposition Value” shall
mean, at any time, with respect to any property:

     

                     (a)in the case of property that does not
constitute Subsidiary Stock, the book value thereof, valued at the time of such
disposition in good faith by the Company, and

     

                     (b)in the case of property that
constitutes Subsidiary Stock, an amount equal to that percentage of book value
of the assets of the Subsidiary that issued such stock as is equal to the
percentage that the book value of such Subsidiary Stock represents of the book
value of all of the outstanding capital stock of such Subsidiary (assuming, in
making such calculations, that all securities convertible into such capital
stock are so converted and giving full effect to all transactions that would
occur or be required in connection with such conversion) determined at the time
of the disposition thereof, in good faith by the Company.

     

    “Distribution” shall mean, in
respect of any corporation, association or other business entity:  (a)
dividends or other distributions or payments on capital stock or other equity
interests of such corporation, association or other business entity (except
distributions in such stock or other equity interests); and (b) the redemption
or acquisition of such stock or other equity interests (except when solely in
exchange for such stock or other equity interests) unless made,
contemporaneously, from the net proceeds of a sale of such stock or other equity
interests.

     

    “Electronic Delivery” is
defined in Section 7.2(a).

     

    “Environmental Laws” shall
mean any and all Federal, state, local, and foreign statutes, laws, regulations,
ordinances, rules, judgments, orders, decrees, permits, concessions, grants,
franchises, licenses, agreements or governmental restrictions relating to
pollution and the protection of the environment or the release of any materials
into the environment, including but not limited to those related to Hazardous
Materials.

     

    “ERISA” shall mean the
Employee Retirement Income Security Act of 1974, as amended from time to time,
and the rules and regulations promulgated thereunder from time to time in
effect.

     

    “ERISA Affiliate” shall mean
any trade or business (whether or not incorporated) that is treated as a single
employer together with the Company under Section 414 of the
Code.

     

    “Event of Default” is defined
in Section 11.

     

    “Exchange Act” shall mean the
Securities Exchange Act of 1934, as amended.

     

    “Fair Market Value” shall
mean, at any time and with respect to any property, the sale value of such
property that would be realized in an arm’s-length sale at such time between an
informed and willing buyer and an informed and willing seller (neither being
under a compulsion to buy or sell).

     

    
      
        
        

      

      
        B-2

        
          

        

      

      
        
        

      

    

    “First Mortgage Bond
Documents” is defined in Section 23.1.

     

    “First Mortgage Bonds” shall
mean a series of first mortgage bonds designated the “First Mortgage Bonds,
Series LL due 2018,” to be issued by the Company pursuant to the Original
Mortgage Indenture, as security for the Notes prior to the Release
Date.

     

    “GAAP” shall mean generally
accepted accounting principles as in effect from time to time in the United
States of America.

     

    “Gas Business” shall
mean the business
of generating, manufacturing, purchasing, transmitting, distributing, selling
and/or supplying gas and any by-products thereof as a public
utility.

     

    “Governmental Authority”
shall mean

     

                     (a)the government of

     

                     (1)the United States of America or any
State or other political subdivision thereof, or

     

                     (2)any jurisdiction in which the Company
or any Subsidiary conducts all or any part of its business, or which asserts
jurisdiction over any properties of the Company or any Subsidiary,
or

     

                     (b)any entity exercising executive,
legislative, judicial, regulatory or administrative functions of, or pertaining
to, any such government.

     

    “Guaranty” shall mean, with
respect to any Person, any obligation (except the endorsement in the ordinary
course of business of negotiable instruments for deposit or collection) of such
Person guaranteeing or in effect guaranteeing any Debt, dividend or other
obligation of any other Person in any manner, whether directly or indirectly,
including, without limitation, obligations incurred through an agreement,
contingent or otherwise, by such Person:  (a) to purchase such Debt or
obligation or any property constituting security therefor; (b) to advance or
supply funds (1) for the purchase or payment of such Debt or obligation, or (2)
to maintain any working capital or other balance sheet condition or any income
statement condition of any other Person or otherwise to advance or make
available funds for the purchase or payment of such Debt or obligation; (c) to
lease properties or to purchase properties or services primarily for the purpose
of assuring the owner of such Debt or obligation of the ability of any other
Person to make payment of such Debt or obligation; or (d) otherwise to assure
the owner of such Debt or obligation against loss in respect thereof. In any
computation of the Debt or other liabilities of the obligor under any Guaranty,
the Debt obligations that are the subject of such Guaranty shall be assumed to
be direct obligations of such obligor.

     

    “Hazardous Materials” shall
mean any and all pollutants, toxic or hazardous wastes or any other substances
that might pose a hazard to health or safety, the removal of which may be
required or the generation, manufacture, refining, production, processing,
treatment, storage, handling, transportation, transfer, use, disposal, release,
discharge, spillage, seepage or filtration of which is or shall be restricted,
prohibited or penalized by any applicable law (including, without limitation,
asbestos, urea formaldehyde foam insulation and polychlorinated biphenyls,
petroleum, petroleum products, lead based paint, radon gas or similar
restricted, prohibited or penalized substances).

     

    “Hedging Contract” shall mean
any transaction entered into by the Company or any of its Restricted
Subsidiaries with respect to hedging or trading of gas contracts or other
commodity, hedging contracts of any kind, or any derivatives or other similar
financial instruments of the Company and its Restricted
Subsidiaries.

     

    “holder” shall mean, with
respect to any Note, the Person in whose name such Note is registered in the
register maintained by the Company pursuant to Section 13.1.

     

    “Hybrid Security” shall mean
any of the following:  (a) beneficial interests issued by a trust
which constitutes a Subsidiary of the Company or any Restricted Subsidiary
substantially all of the assets of which trust are unsecured Debt of the Company
or any Restricted Subsidiary or any Subsidiary of the Company or any Restricted
Subsidiary or proceeds thereof, and all payments of which Debt are required to
be, and are, distributed to the holders of beneficial interests in such trust
promptly after receipt by such trust, or (b) any shares of capital stock or
other equity interests that, other than solely at the option of the issuer
thereof, by their terms (or by the terms of any security into which they are
convertible or exchangeable) are, or upon the happening of an event or the
passage of time would be, required to be redeemed or repurchased, in whole or in
part, or have, or upon the happening of an event or the passage of time would
have, a redemption or similar payment.

     

    “Inactive Subsidiary” shall
mean, at any time, any Subsidiary of any Person, which Subsidiary (a) does not
conduct any business or have operations and (b) does not have total assets with
a net book value, as of any date of determination, in excess of
$100,000.

     

    “INHAM Exemption” is defined
in Section 6.2(e).

     

    “Institutional Investor”
shall mean (a) any original purchaser of a Note, (b) any holder of a Note
holding (together with one or more of its affiliates) more than $2,000,000 of
the aggregate principal amount of the Notes then outstanding (c) any bank, trust
company, savings and loan association or other financial institution, any
pension plan, any investment company, any insurance company, any broker or
dealer, or any other similar financial institution or entity, regardless of
legal form and (d) any Related Fund of any holder of any Note.

     

    “Investment” shall mean any
investment, made in cash or by delivery of property, by the Company or any of
its Restricted Subsidiaries (a) in any Person, whether by acquisition of stock,
Debt or other obligation or security, or by loan, Guaranty, advance, capital
contribution or otherwise, or (b) in any property.

     

    “Lien” shall mean, with
respect to any Person, any mortgage, lien, pledge, charge, security interest, or
other encumbrance, or any interest or title of any vendor, lessor, lender or
secured party to or of such Person under any conditional sale or other title
retention agreement or Capital Lease or Synthetic Lease, upon or with respect to
any property or asset of such Person (including in the case of stock,
stockholder agreements, voting trust agreements and all similar
arrangements).

     

    “Make-Whole Amount” is
defined in Section
8.7.

     

    
      
        
        

      

      
        B-3

        
          

        

      

      
        
        

      

    

    “Material” shall mean
material in relation to the business, operations, affairs, financial condition,
assets or properties of the Company and its Restricted Subsidiaries, taken as a
whole.

     

    “Material Adverse Effect”
shall mean a material adverse effect on (a) the business, operations, affairs,
financial condition, assets or properties of the Company and its Restricted
Subsidiaries, taken as a whole, or (b) the ability of the Company to perform its
obligations under this Agreement and the Notes, (c) the validity or
enforceability of this Agreement or the Notes, (d) prior to the Release
Date, the ability of the Company to perform its obligations under the Mortgage
Indenture or the First Mortgage Bonds or (e) prior to the Release Date, the
validity or the enforceability of the Mortgage Indenture or the First Mortgage
Bonds.

     

    “Memorandum” is defined in
Section 5.3.

     

    “Moody’s” shall mean Moody’s
Investors Service, Inc.

     

    “Mortgage Indenture” shall
mean the Original
Mortgage Indenture, as supplemented and amended by thirty-one supplemental
indentures, as further supplemented and amended by the Supplemental Indenture,
and as further supplemented and amended from time to time.

     

    “Mortgage Trustee” shall mean
BNY Midwest Trust Company, as successor trustee to Harris Trust and Savings
Bank, under the Mortgage Indenture.

     

    “Multiemployer Plan” shall
mean any Plan that is a “multiemployer plan” (as such term is defined in
Section 4001(a)(3) of ERISA).

     

    “NAIC Annual Statement” is
defined in Section 6.2(a).

     

    “Net Proceeds Amount” shall
mean, with respect to any Transfer of any Property by any Person, an amount
equal to the difference of

     

                     (a)the aggregate amount of the
consideration (valued at the Fair Market Value of such consideration at the time
of the consummation of such Transfer) received by such Person in respect of such
Transfer, minus

     

                     (b)all ordinary and reasonable
out-of-pocket costs and expenses actually incurred by such Person in connection
with such Transfer.

     

    “Net Tangible Assets” shall
mean the amount shown as total assets on the Company’s consolidated balance
sheet, less (a) intangible assets including, but without limitation, such
items as goodwill, trademarks, trade names, patents, unamortized debt discount
and expense and certain regulatory assets, and (b) appropriate adjustments,
if any, on account of minority interests.  Net Tangible Assets shall
be determined in accordance with GAAP and practices applicable to the type of
business in which the Company is engaged and approved by the independent
accountants regularly retained by the Company, and may be determined as of a
date not more than 60 days prior to the happening of the event for which such
determination is being made.

     

    “New Jersey Resources
Corporation” shall mean New Jersey Resources Corporation, a New Jersey
corporation.

     

    “Notes” is defined in Section 1.1.

     

    “Officer’s Certificate” shall
mean a certificate of a Senior Financial Officer or of any other officer of the
Company whose responsibilities extend to the subject matter of such
certificate.

     

    “Original Mortgage Indenture”
shall mean an Indenture of Mortgage and Deed of Trust dated April 1, 1952
between the Company and the Mortgage Trustee.

     

    “PBGC” shall mean the Pension
Benefit Guaranty Corporation referred to and defined in ERISA or any successor
thereto.

     

    “Permitted Related Business
Opportunity” shall mean any transaction with another Person (other than
any Inactive Subsidiary of New Jersey Resources Corporation) involving business
activities or assets reasonably related or complementary to the business of the
Company and its Restricted Subsidiaries as conducted at Closing or as may be
conducted pursuant to Section 10.10, including,
without limitation, the management and marketing of storage, capacity and
transportation of gas and other forms of energy, the generation, transmission or
storage of gas and other forms of energy, or the access to gas and energy
transmission lines, and business initiatives for the conservation and efficiency
of gas and energy.

     

    “Person” shall mean an
individual, partnership, corporation, limited liability company, association,
trust, unincorporated organization or a government or agency or political
subdivision thereof.

     

    “Plan” shall mean an
“employee benefit plan” (as defined in Section 3(3) of ERISA) subject to
Title I of ERISA that is or, within the preceding five years, has been
established or maintained, or to which contributions are or, within the
preceding five years, have been made or required to be made, by the Company or
any ERISA Affiliate or with respect to which the Company or any ERISA Affiliate
may have any liability.

     

    “Priority Debt” shall mean
(without duplication) the sum of (a) unsecured Debt of Restricted Subsidiaries
other than (1) Debt owed to the Company or a Wholly-Owned Restricted Subsidiary
and (2) Debt outstanding at the time such Person became a Subsidiary provided that such Debt shall
not have been incurred in contemplation of such Person becoming a Subsidiary and
(b) Debt of the Company or its Restricted Subsidiaries secured by a Lien
other than those permitted by paragraphs (a) through (l) of Section 10.2.

     

    “property” or “properties” shall mean,
unless otherwise specifically limited, real or personal property of any kind,
tangible or intangible, choate or inchoate.

     

    “Property Reinvestment
Application” shall mean, with respect to any Transfer of property, the
application of an amount equal to the Net Proceeds Amount with respect to such
Transfer to the acquisition by the Company or any Restricted Subsidiary of
operating assets of the Company or any Restricted Subsidiary to be used in the
principal business of such Person.

     

    “PTE” is defined in Section 6.2(a).

     

    “Purchaser” is defined in the
first paragraph of this Agreement.

     

    “QPAM Exemption” is defined
in Section 6.2(d).

    
      
        B-4

        
          

        

      

       

    

    “Ratable Portion” for any
Note shall mean an amount equal to the product of (a) the Net Proceeds
Amount from a Transfer being applied to a Debt Prepayment Application pursuant
to Section 10.5(b)
multiplied by
(b) a fraction, the numerator of which is the aggregate outstanding
principal amount of such Note and the denominator of which is the aggregate
outstanding principal amount of all Senior Debt of the Company (other than
Senior Debt owing to any of its Subsidiaries or any Affiliate).

     

    “Receivables Securitization
Transaction” shall mean any transaction pursuant to which the Company or
any Restricted Subsidiary Transfers accounts receivable to a Securitization
Subsidiary and such Securitization Subsidiary incurs Debt in connection with the
purchase of such accounts receivable and grants a security interest in such
accounts receivable as collateral security for such Debt; provided that such Debt is
non-recourse to the Company and the other Restricted Subsidiaries other than
with respect to representations, warranties and indemnities entered into by the
Company or the applicable Restricted Subsidiary in connection with such
transaction that are customary in non-recourse securitization of receivables
transactions.

     

    “Related Fund” shall mean,
with respect to any holder of any Note, any fund or entity that (a) invests in
securities or bank loans and (b) is advised or managed by such holder, the same
investment advisor as such holder or by an Affiliate of such holder or such
investment advisor.

     

    “Release Capitalization”
shall mean the total of all the following items appearing on, or included in,
the Company’s consolidated balance sheet:  (a) liabilities for
indebtedness maturing more than 12 months from the date of determination;
and (b) common stock, preferred stock, premium on capital stock, capital
surplus, capital in excess of par value, and retained earnings (however the
foregoing may be designated), less, to the extent not otherwise deducted, the
cost of shares of the Company’s capital stock held in its
treasury.  Release Capitalization shall be determined in accordance
with GAAP and practices applicable to the type of business in which the Company
is engaged and approved by independent accountants regularly retained by the
Company, and may be determined as of a date not more than 60 days prior to
the happening of the event for which the determination is being
made.

     

    “Release Date” shall mean, so
long as no Default or Event of Default shall have occurred and be continuing,
the date that the Company has repaid, redeemed or otherwise retired all of its
first mortgage bonds issued under the Mortgage Indenture, excluding (a) the
First Mortgage Bonds, (b) any other first mortgage bonds which are outstanding
on the date of the Closing or may in the future be issued by the Company subject
to substantially similar release provisions and which are concurrently being
released and (c) other first mortgage bonds which do not in aggregate principal
amount exceed the greater of 5% of the Company’s Net Tangible Assets or 5% of
the Company’s Release Capitalization; provided, however, in the
event that on the date that the Release Date would otherwise occur, if after
giving effect to the release of the First Mortgage Bonds and any other first
mortgage bonds which would also be released on such date, a Default or Event of
Default would occur, then the Release Date will be postponed until any such
Default or Event of Default would not occur after giving effect to such release
and the other conditions precedent to the Release Date shall have been
satisfied.  For clarification in determining the existence of a
Default or Event of Default on the Release Date (after giving effect to the
release), calculation of compliance with the limitations set forth in Section 10.1 shall be
made as of the scheduled Release Date and not as of the end of the immediately
preceding fiscal quarter of the Company.

     

     “Required Holders”
shall mean, at any time, the holders of more than 50% in principal amount of the
Notes at the time outstanding (exclusive of Notes then owned by the Company or
any of its Affiliates).

     

    “Responsible Officer” shall
mean any Senior Financial Officer and any other officer of the Company with
responsibility for the administration of the relevant portion of this
Agreement.

     

    “Restricted Payment” shall
mean any Distribution in respect of the Company or any Restricted Subsidiary
(other than on account of capital stock or other equity interests of a
Restricted Subsidiary owned legally and beneficially by the Company or another
Restricted Subsidiary), including, without limitation, any Distribution
resulting in the acquisition by the Company or any Restricted Subsidiary of
securities that would constitute treasury stock. For purposes of this Agreement,
the amount of any Restricted Payment made in property shall be the greater of
(a) the Fair Market Value of such property (determined in good faith by the
Board of Directors (or equivalent governing body) of the Person making such
Restricted Payment) and (b) the net book value thereof on the books of such
Person, in each case determined as of the date on which such Restricted Payment
is made.

     

    “Restricted Subsidiary” shall
mean each Subsidiary that is either (a) designated as a Restricted
Subsidiary on Schedule
5.4 or (b) designated as a Restricted Subsidiary by the Board of
Directors of the Company in accordance with Section 10.12.

     

    “Restricted Subsidiary Stock”
shall mean Subsidiary Stock of any Restricted Subsidiary.

     

    “Securities Act” shall mean
the Securities Act of 1933, as amended from time to time and the rules and
regulations promulgated thereunder from time to time in effect.

     

    “Securitization Subsidiary”
shall mean any Restricted Subsidiary that (a) has been created for the sole
purpose and business of purchasing and owning the accounts receivable of the
Company or any other Restricted Subsidiary, (b) has no Debt outstanding other
than Debt incurred in connection with the purchase of such accounts receivable
and (c) does not, and by the terms of its organizational documents or
contractual obligations to which it or its property is then bound can not, own
or hold any other assets or participate in any other business or incur any other
Debt.

     

    “Senior Debt” shall mean any
Debt of the Company other than Debt that is in any manner subordinated in right
of payment or security in any respect to the Debt evidenced by the
Notes.

     

    “Senior Financial Officer”
shall mean the chief financial officer, principal accounting officer, treasurer
or comptroller of the Company.

     

    “Significant Subsidiary”
shall mean at any time each Restricted Subsidiary that would at such time
constitute a “significant subsidiary” (as such term is defined in Regulation S-X
of the Securities and Exchange Commission as in effect on the date of the
Closing) of the Company.

     

    “Source” is defined in Section 6.2.

     

    “Standard & Poor’s” shall
mean Standard & Poor’s Ratings Group, a division of The McGraw-Hill
Companies, Inc.

     

    “Subsidiary” shall mean, as
to any Person, any corporation, association, or other business entity in which
such Person or one or more of its Subsidiaries or such Person and one or more of
its Subsidiaries owns sufficient Voting Stock to enable it or them (as a group)
ordinarily, in the absence of contingencies, to elect a majority of the
directors (or Persons performing similar functions) of such entity, and any
partnership or joint venture if more than a 50% interest in the profits or
capital thereof is owned by such Person or one or more of its Subsidiaries or
such Person and one or more of its Subsidiaries (unless such partnership or
joint venture can and does ordinarily take major business actions without the
prior approval of such Person or one or more of its
Subsidiaries).  Unless the context otherwise clearly requires, any
reference to a “Subsidiary” is a reference to a Subsidiary of the
Company.

    
      
        B-5

        
          

        

      

       

    

    “Subsidiary Stock” shall
mean, with respect to any Person, the stock (or any options or warrants to
purchase stock or other securities exchangeable for or convertible into stock)
of any Subsidiary of such Person.

     

    “Supplemental Indenture”
shall mean the Thirty-Second Supplemental Indenture to the Mortgage Indenture,
dated as of May 1, 2008, between the Company and the Mortgage Trustee,
pursuant to which the First Mortgage Bonds shall have been issued.

     

    “Synthetic Lease” shall mean
any lease transaction under which the parties intend that (a) the lease
will be treated as an “operating lease” by the lessee pursuant to Statement of
Financial Accounting Standards No. 13, as amended, or appropriate successor
thereto, and (b) the lessee will be entitled to various tax benefits
ordinarily available to owners (as opposed to lessees) of like
property.

     

    “Transfer” shall mean, with
respect to any Person, any transaction in which such Person sells, conveys,
transfers or leases (as lessor) any of its property, including, without
limitation, Subsidiary Stock.  For purposes of determining the
application of the Net Proceeds Amount in respect of any Transfer, the Company
may designate any Transfer as one or more separate Transfers each yielding a
separate Net Proceeds Amount.  In any such case, (a) the
Disposition Value of any property subject to each such separate Transfer and
(b) the amount of Consolidated Tangible Assets attributable to any property
subject to each such separate Transfer shall be determined by ratably allocating
the aggregate Disposition Value of, and the aggregate Consolidated Tangible
Assets attributable to, all property subject to all such separate Transfers to
each such separate Transfer on a proportionate basis.

     

    “Trust Estate” shall
mean substantially
all operating properties and franchises (other than excepted property, such as
cash in hand, chooses in action, securities, rent, and certain materials,
supplies, appliances and vehicles) that the Company currently owns or that it
will acquire in the future, subject to certain permitted encumbrances and any
pre-existing Liens at the time of such acquisition, that serve as collateral
under the Mortgage Indenture.

     

    “Unrestricted Subsidiary”
shall mean each Subsidiary that is either (a) designated as an Unrestricted
Subsidiary on Schedule 5.4 or
(b) designated as an Unrestricted Subsidiary by the Board of Directors of
the Company in accordance with Section 10.12.  Any
Subsidiary which has not been designated as either a Restricted Subsidiary or
Unrestricted Subsidiary shall be deemed to be an Unrestricted
Subsidiary.

     

    “USA Patriot Act” shall mean
United States Public Law 107-56, Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT)
Act of 2001, as amended from time to time, and the rules and regulations
promulgated thereunder from time to time in effect.

     

    “Voting Stock” shall mean any
securities of any class of a Person whose holders are entitled under ordinary
circumstances to vote for the election of directors of such Person (or Persons
performing similar functions) irrespective of whether at the time securities of
any other class shall have or might have voting power by reason of the happening
of any contingency.

     

    “Wholly-Owned Restricted
Subsidiary” shall mean, at any time, any Restricted Subsidiary one
hundred percent (100%) of all of the equity interests (except directors’
qualifying shares) and voting interests of which are owned by any one or more of
the Company and the Company’s other Wholly-Owned Restricted Subsidiaries at such
time.

    

    

    
      
        
          B-6

           

        

        
          
          

          
            

          

        

        
           

        

      

    

    

    Changes
in Corporate Structure

     

    None.

    

    

    
      
        
          
            Schedule
4.9

            (to Note
Purchase Agreement)

          

           

        

        
          
          

          
            

          

        

        
           

        

      

    

    

    Disclosure
Materials

     

    None.

    

    

    
      
        
          
            Schedule
5.3

            (to Note
Purchase Agreement)

          

           

        

        
          
          

          
            

          

        

        
           

        

      

    

    

    Subsidiaries
of the Company and

    Ownership
of Subsidiary Stock

     

    None.

    

    

    
      
        
          
            Schedule
5.4

            (to Note
Purchase Agreement)

          

           

        

        
          
          

          
            

          

        

        
           

        

      

    

    

    Financials

     

    
      	
               
      

            	
              New
      Jersey Natural Gas Company

            

    

     

    Annual
Reports for the each of the Fiscal Years Ended September 30, 2003 through
September 30, 2007

     

    Quarterly
Report for the Quarterly Period Ended December 31, 2007

    

    

    
      
        
          
            Schedule
5.5

            (to Note
Purchase Agreement)

          

           

        

        
          
          

          
            

          

        

        
           

        

      

    

    

    Certain
Litigation

     

    Actions,
suits and proceedings described in Note 12 to New Jersey Resources Corporation’s
Quarterly Report on Form 10-Q for the quarter ended December 31,
2007.

    

    

    
      
        
          
            Schedule
5.8

            (to Note
Purchase Agreement)

          

           

        

        
          
          

          
            

          

        

        
           

        

      

    

    

    Patents,
Etc.

     

    None.

    

    

    
      
        
          
            Schedule
5.11

            (to Note
Purchase Agreement)

          

           

        

        
          
          

          
            

          

        

        
           

        

      

    

    

    Use
of Proceeds

     

    The
Company will apply the proceeds of the sale of the Notes for its general
corporate purposes, including, to refinance or retire short-term debt and to
fund capital expenditure requirements.

    

    

    
      
        
          
            Schedule
5.14

            (to Note
Purchase Agreement)

          

           

        

        
          
          

          
            

          

        

        
           

        

      

    

    

    Existing
Debt

    

    
      	
              December
      31, 2007

              ($000)

            
	 
      	
              Rate

            	
              Maturity

              Date

            	
              Principal

              Amt.

            
	
               

               First
      Mortgage Bonds (Secured)

            	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	
              Series
      X

            	
              6.27%

            	
              11/1/08

            	
              30,000

            
	
              Series
      AA

            	
              Var.

            	
              8/1/30

            	
              25,000

            
	
              Series
      BB

            	
              Var.

            	
              8/1/30

            	
              16,000

            
	
              Series
      CC

            	
              6.88%

            	
              10/1/10

            	
              20,000

            
	
              Series
      DD

            	
              Var.

            	
              9/1/27

            	
              13,500

            
	
              Series
      EE

            	
              Var.

            	
              1/1/28

            	
              9,545

            
	
              Series
      FF

            	
              Var.

            	
              1/1/28

            	
              15,000

            
	
              Series
      GG

            	
              Var.

            	
              4/1/33

            	
              18,000

            
	
              Series
      HH

            	
              5%

            	
              12/1/38

            	
              12,000

            
	
              Series
      II

            	
              4.5%

            	
              8/1/23

            	
              10,300

            
	
              Series
      JJ

            	
              4.6%

            	
              8/1/24

            	
              10,500

            
	
              Series
      KK

            	
              4.9%

            	
              10/1/40

            	
              15,000

            
	
              Sub-total
      First Mortgage Bonds

            	 
      	 
      	
              194,845

            
	
              Unsecured
      Senior Notes

            	
              4.77%

            	
              3/15/14

            	
              60,000

            
	
              Capital
      Lease Obligation – Bldg

            	 
      	 
      	
              27,064

            
	
              Capital
      Lease Obligation – Meters

            	 
      	 
      	
              37,161

            
	
              Commercial
      Paper (Unsecured)

            	 
      	 
      	
              196,426

            
	
              Total

            	 
      	 
      	
              $515,496

            

    

    

    

    
      
        
          
            Schedule
5.15

            (to Note
Purchase Agreement)

          

           

        

        
          
          

          
            

          

        

        
           

        

      

    

    

    Form
of Note

     

    New
Jersey Natural Gas Company

     

    5.60%
Senior Note due May 15, 2018

     

    No.
R-_______                                                                                                     _________
_____, 20___

    $____________                                                                                                                PPN  645869
C#3

     

    For Value
Received, the undersigned, New Jersey Natural Gas Company (herein called the
“Company”), a
corporation organized and existing under the laws of the State of New Jersey,
hereby promises to pay to ________________, or registered assigns, the principal
sum of ________________ Dollars on May 15, 2018, with interest (computed on
the basis of a 360-day year of twelve 30-day months) (a) on the unpaid
balance thereof at the rate of 5.60% per annum from the date hereof, payable
semiannually, on the 15th day of February and August in each year and on
May 15, 2018, commencing with the February 15 or August 15 next succeeding
the date hereof, until the principal hereof shall have become due and payable,
and (b) to the extent permitted by law on any overdue payment (including
any overdue prepayment) of principal, any overdue payment of interest and any
overdue payment of any Make-Whole Amount (as defined in the Note Purchase
Agreement referred to below), payable semiannually as aforesaid (or, at the
option of the registered holder hereof, on demand), at a rate per annum from
time to time equal to the Default Rate (as defined in the Note Purchase
Agreement referred to below).

     

    Payments
of principal of, interest on and any Make-Whole Amount with respect to this Note
are to be made in lawful money of the United States of America at the office of
The Bank of New York designated pursuant to the Note Purchase Agreement or at
such other place as the Company shall have designated by written notice to the
holder of this Note as provided in the Note Purchase Agreement referred to
below.

     

    This Note
is one of a series of 5.60% Senior Notes (herein called the “Notes”) issued pursuant to
that certain Note Purchase Agreement dated as of May 15, 2008 (as from time to
time amended, the “Note
Purchase Agreement”), between the Company and the respective Purchasers
named therein and is entitled to the benefits thereof.  Each holder of
this Note will be deemed, by its acceptance hereof, (1) to have agreed to
the confidentiality provisions set forth in Section 20 of the Note Purchase
Agreement and (2) to have made the representation set forth in
Section 6.2 of the Note Purchase Agreement.

     

    This Note
is a registered Note and, as provided in the Note Purchase Agreement, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder’s attorney duly authorized in writing, a new Note
for a like principal amount will be issued to, and registered in the name of,
the transferee.  Prior to due presentment for registration of
transfer, the Company may treat the person in whose name this Note is registered
as the owner hereof for the purpose of receiving payment and for all other
purposes, and the Company will not be affected by any notice to the
contrary.

     

    This Note
is subject to prepayment, in whole or from time to time in part, at the times
and on the terms specified in the Note Purchase Agreement, but not
otherwise.

     

    If an
Event of Default, as defined in the Note Purchase Agreement, occurs and is
continuing, the principal of this Note may be declared or otherwise become due
and payable in the manner, at the price (including any applicable Make-Whole
Amount) and with the effect provided in the Note Purchase
Agreement.

     

    This Note
shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the laws of the State of New York excluding the
choice of law principles of the law of such State that would require the
application of the laws of a jurisdiction other than such State.

     

    
      	
               
      

            	
              New
      Jersey Natural Gas Company

            

    

     

    
      	
               
      

            	
              By____________________________________

            

    

    
      	
               
      

            	
              Its__________________________________

            

    

    

    
      
        
          
            Exhibit
1

            (to Note
Purchase Agreement)

          

           

        

        
          
          

          
            

          

        

        
           

        

      

    

    

    

     

    Form
of Opinion of Special Counsel

     

    to
the Company

     

    The
closing opinion of Chapman and Cutler, LLP, special counsel for the Company,
which is called for by Section 4.4(a) of the Agreement, shall be dated the
date of the Closing and addressed to each Purchaser, shall be satisfactory in
scope and form to each Purchaser and shall be to the effect that:

     

                     1.The Company is a corporation, duly
incorporated, validly existing and in good standing under the laws of the State
of New Jersey, has the corporate power and the corporate authority to
(a) execute the Note Purchase Agreement, the Supplemental Indenture and the
First Mortgage Bond Documents, (b) issue the Notes and the First Mortgage
Bonds and (c) perform the Note Purchase Agreement, the Supplemental
Indenture, the Notes, the First Mortgage Bonds, the Mortgage Indenture and the
First Mortgage Bond Documents and has the full corporate power and the corporate
authority to conduct the activities in which it is now engaged and is duly
licensed or qualified and, based solely on the attached Officer’s Certificate of
the Company, is in good standing as a foreign corporation in each jurisdiction
in which the character of the properties owned or leased by it or the nature of
the business transacted by it makes such licensing or qualification necessary,
other than those jurisdictions as to which the failure to be so licensed,
qualified or in good standing could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.

     

                     2.The Note Purchase Agreement has been
duly authorized by all necessary corporate action on the part of the Company,
has been duly executed and delivered by the Company and constitutes the legal,
valid and binding contract of the Company enforceable against it in accordance
with its terms.

     

                     3.The Notes have been duly authorized by
all necessary corporate action on the part of the Company, have been duly
executed and delivered by the Company and constitute the legal, valid and
binding obligations of the Company enforceable against it in accordance with
their terms.

     

                     4.Assuming the due authorization,
execution and delivery of the Original Mortgage Indenture and the supplements
thereto (other than the Supplemental Indenture) by the Company and the Mortgage
Trustee, the Mortgage Indenture is valid and legally binding on the Company and
enforceable against it in accordance with its terms.

     

                     5.The Supplemental Indenture has been
duly authorized by all necessary corporate action on the part of the Company,
has been duly executed and delivered by the Company, and constitutes the legal,
valid and binding contract of the Company enforceable against it in accordance
with its terms.

     

                     6.The First Mortgage Bonds delivered on
the date hereof have been authorized by all necessary corporate action on the
part of the Company, have been duly executed by the Company, and assuming the
due authentication thereof by the Mortgage Trustee under the Mortgage Indenture,
have been duly issued, and constitute the legal, valid and binding obligations
of the Company enforceable against it in accordance with their terms and are
entitled to the benefits and security of the Mortgage Indenture, in accordance
with their terms.

     

                     7.The First Mortgage Bond Documents have
been duly authorized by all necessary corporate action on the part of the
Company, have been duly executed and delivered by the Company, and constitute
the legal, valid and binding obligations of the Company enforceable against it
in accordance with their terms.

     

                     8.The offer, issuance and sale of the
Notes and the issuance of the First Mortgage Bonds have been duly authorized and
approved by the New Jersey Board of Public Utilities (the “Board”) and such
authorization and approval is still in full force and effect; no other approval,
consent or withholding of objection on the part of, or filing, registration or
qualification with, any Governmental Authority, Federal or state, is necessary
in connection with (a) the execution or delivery by the Company of the Note
Purchase Agreement, the Supplemental Indenture, the Notes, the First Mortgage
Bonds or the First Mortgage Bond Documents or (b) the performance by the
Company of the Note Purchase Agreement, the Supplemental Indenture, the Notes,
the First Mortgage Bonds, the First Mortgage Bond Documents or the Mortgage
Indenture, except for such approvals of the Board of the Original Mortgage
Indenture and the supplements thereto (other than the Supplemental Indenture
which has been duly authorized and approved by the Board) and for such filings
as may be necessary to perfect or maintain the perfection of the Lien created by
the Mortgage Indenture.

     

                     9.The execution and delivery of the Note
Purchase Agreement, the Supplemental Indenture, the Notes, the First Mortgage
Bonds and the First Mortgage Bond Documents, by the Company do not, and the
performance of the Note Purchase Agreement, the Supplemental Indenture, the
Notes, the First Mortgage Bonds, the First Mortgage Bond Documents and the
Mortgage Indenture as therein contemplated will not (a) violate, any provision
of any applicable law, rule or regulation to which the Company is subject or any
order of any court, or of any other agency of government presently in effect to
which the Company is subject, (b) violate the Certificate of Incorporation or
By-Laws of the Company, (c) result in a breach of, or constitute a default under
any indenture, mortgage, contract or other instrument listed on Exhibit B attached
hereto, to which the Company is a party or by which the Company or any of its
properties and assets are bound, (d) result in the creation or imposition of any
Lien on, or security interest in, any assets of the Company (other than the Lien
of the Mortgage Indenture) or (e) result in a breach of, or constitute a default
under, any order, judgment, decree or ruling of any court binding on the
Company.

     

                     10.To our knowledge, the Company is not an
“investment company,” or a company “controlled” by an “investment company,”
within the meaning of the Investment Company Act of 1940, as
amended.  The issuance of the Notes and the First Mortgage Bonds by
the Company is not subject to regulation under the Public Utility Holding
Company Act of 2005.

     

                     11.Neither the issuance of the Notes and
the First Mortgage Bonds nor the use of the proceeds of the sale of the Notes in
accordance with the provisions of and contemplated by the Note Purchase
Agreement violate Regulation T, U or X of the Board of Governors of the Federal
Reserve System.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

                     12.The issuance, sale and delivery of the
Notes and the issuance of the First Mortgage Bonds under the circumstances
contemplated by the Note Purchase Agreement do not, under existing law, require
the registration of the Notes or the First Mortgage Bonds under the Securities
Act or the qualification of an indenture under the Trust Indenture Act of 1939,
as amended, it being understood that no opinion is expressed as to any
subsequent resale of any Note or the First Mortgage Bonds issued on the date
hereof.

     

                     13.The provisions of the Supplemental
Indenture and the Mortgage Indenture are effective to create, in favor of the
Mortgage Trustee, for the benefit of the holders of the First Mortgage Bonds, a
legal, valid, and enforceable lien and security interest in all right, title,
and interest of the Company in the Trust Estate, entitling such holders to an
equal and ratable share of such Trust Estate with the other holders of bonds
under the Mortgage Indenture (except as otherwise provided in the Mortgage
Indenture and except to the extent that enforcement of such lien may be limited
by the effect of certain laws and judicial decisions upon the remedies provided
for in the Mortgage Indenture, which, however, do not make the remedies afforded
inadequate for the practical realization of the security and benefits provided
by the Mortgage Indenture).

     

                     14.The Mortgage Indenture and any
necessary related financing statements have been duly filed and recorded in all
jurisdictions in which it is necessary for such instruments to be filed and
recorded in order to constitute a lien of record on the property subject
thereto.  No other filing or recordation is presently necessary in
order to perfect the lien of the Mortgage Indenture on such
properties.

     

                     15.To the best of our knowledge, all fees
or taxes in connection with the filing and recording of the Mortgage Indenture
have been paid.

     

    With
respect to matters of fact on which such opinion is based, such counsel shall be
entitled to rely on appropriate certificates of public officials, Banc of
America Securities LLC and officers of the Company and upon representations of
the Company and the Purchasers delivered in connection with the issuance and
sale of the Notes.

    

    
      
        
          
            Exhibit 4.4(a)

            (to Note
Purchase Agreement)

          

           

        

        
          
          

          
            

          

        

        
           

        

      

    

    

    Form
of Opinion of Special Counsel

    to
the Purchasers

     

    The
closing opinion of Schiff Hardin LLP, special counsel to the Purchasers, called
for by Section 4.4(b) of the Agreement, shall be dated the date of the Closing
and addressed to the Purchasers, shall be satisfactory in form and substance to
the Purchasers and shall be to the effect that:

     

                     1.The Company is a corporation validly
existing and in good standing under the laws of the State of New
Jersey.

     

                     2.The Agreement and the Notes being
delivered on the date hereof constitute the legal, valid and binding contracts
of the Company, enforceable against the Company in accordance with their
respective terms.

     

                     3.The issuance, sale and delivery of the
Notes being delivered on the date hereof under the circumstances contemplated by
this Agreement do not, under existing law, require the registration of such
Notes under the Securities Act or the qualification of an indenture under the
Trust Indenture Act of 1939, as amended.

     

    The
opinion of Schiff Hardin LLP shall also state that the opinion of Chapman and
Cutler, LLP, is satisfactory in scope and form to Schiff Hardin LLP and that, in
their opinion, the Purchasers are justified in relying thereon.

     

    In
rendering the opinion set forth in paragraph 1 above, Schiff Hardin LLP may
rely, as to matters referred to in paragraph 1, solely upon an examination of
the Certificate of Incorporation certified by, and a certificate of good
standing of the Company from, the Secretary of State of the State of New
Jersey.  The opinion of Schiff Hardin LLP is limited to the laws of
the State of New York and the Federal laws of the United States.

     

    With
respect to matters of fact upon which such opinion is based, Schiff Hardin LLP
may rely on appropriate certificates of public officials and officers of the
Company and upon representations of the Company and the Purchasers delivered in
connection with the issuance and sale of the Notes.

     

    

    

    
      
        
          
            Exhibit 4.4(b)

            (to Note
Purchase Agreement)exhibit10-1.htm

    Exhibit
10.1

    
 

    

     

    LSI
CORPORATION

    2003
EQUITY INCENTIVE PLAN

     

    SECTION
1

    BACKGROUND
AND PURPOSE

     

    1.1 Background and Effective
Date. The Plan permits the grant of Nonqualified Stock Options, Stock
Appreciation Rights, Incentive Stock Options, Restricted Stock and Restricted
Stock Units. The Plan was last amended on May 14, 2008.

     

    1.2 Purpose of the Plan.
The Plan is intended to attract, motivate, and retain employees of the Company
and its Affiliates and Directors of the Company. The Plan also is designed to
encourage stock ownership by Participants, thereby aligning their interests with
those of the Company’s stockholders and to permit the payment of compensation
that qualifies as performance-based compensation under section 162(m) of the
Code.

     

    SECTION
2

    DEFINITIONS

     

    The
following words and phrases shall have the following meanings:

     

    2.1 “1934 Act” means the
Securities Exchange Act of 1934.  Reference to a specific section of the
1934 Act or regulation thereunder shall include such section or regulation, any
valid regulation promulgated under such section, and any comparable provision of
any future legislation or regulation amending, supplementing or superseding such
section or regulation.

     

    2.2 “Affiliate” means any
corporation or any other entity (including, but not limited to, partnerships and
joint ventures) controlling, controlled by, or under common control with the
Company. 

     

    2.3 “Award” means,
individually or collectively, a grant under the Plan of a Nonqualified Stock
Option, an Incentive Stock Option, a Stock Appreciation Right, Restricted Stock
and/or Restricted Stock Units.

     

    2.4 “Award Agreement”
means a written agreement setting forth the terms and conditions applicable to
an Award. 

     

    2.5 “Board” or “Board of
Directors” means the Board of Directors of the
Company. 

     

    2.6 “Cash Flow” means, as
to any Performance Period, the Company’s or a business unit’s sum of Profit
After Tax plus depreciation and amortization less capital expenditures plus
changes in working capital comprised of accounts receivable, inventories, other
current assets, trade accounts payable, accrued expenses, product warranty,
advance payments from customers and long-term accrued
expenses. 

    
      
        
           

        

         

      

      
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    2.7 “Change in Control”
means the occurrence of any of the following events:

     

    (a)           Change in Ownership of the
Company.  A change in the ownership of the Company which occurs
on the date that any one person, or more than one person acting as a group
(“Person”), acquires beneficial ownership of stock of the Company that, together
with other stock beneficially owned by such Person, constitutes more than 50% of
the total voting power of the stock of the Company; provided, however, that for
purposes of this clause (a), the acquisition of beneficial ownership of
additional stock by any one Person, who is considered to beneficially own more
than 50% of the total voting power of the stock of the Company will not be
considered a Change in Control; or

     

    (b)           Change in Effective Control
of the Company.  A change in the effective control of the
Company which occurs on the date that a majority of members of the Board is
replaced during any twelve (12) month period by Directors whose appointment or
election is not endorsed by a majority of the members of the Board prior to the
date of the appointment or election; provided, however, that for purposes of
this clause (b), if any Person is considered to be in effective control of the
Company, the acquisition of additional control of the Company by the same Person
will not be considered a Change in Control.  or

     

    (c)           Change in Ownership of a
Substantial Portion of the Company’s Assets.  A change in the
ownership of a substantial portion of the Company’s assets which occurs on the
date that any Person acquires (or has acquired during the twelve (12) month
period ending on the date of the most recent acquisition by such person or
persons) assets from the Company that have a total gross fair market value equal
to or more than 50% of the total gross fair market value of all of the assets of
the Company immediately prior to such acquisition or acquisitions; provided,
however, that for purposes of this clause (c), the following will not constitute
a change in the ownership of a substantial portion of the Company’s assets: (A)
a transfer to an entity that is controlled by the Company’s stockholders
immediately after the transfer, or (B) a transfer of assets by the Company to:
(1) a stockholder of the Company (immediately before the asset transfer) in
exchange for or with respect to the Company’s stock, (2) an entity, 50% or more
of the total value or voting power of which is owned, directly or indirectly, by
the Company, (3) a Person that owns, directly or indirectly, 50% or more of the
total value or voting power of all the outstanding stock of the Company, or (4)
an entity, at least 50% of the total value or voting power of which is owned,
directly or indirectly, by a Person described in clause (c)(B)(3); provided,
however, for purposes of this clause (c), gross fair market value means the
value of the assets of the Company, or the value of the assets being disposed
of, determined without regard to any liabilities associated with such
assets.

     

    For
purposes of this Section 2.7, persons will be considered to be acting as a group
if they are owners of a corporation that enters into a merger, consolidation,
purchase or acquisition of stock, or similar business transaction with the
Company.

     

    Notwithstanding
the foregoing, a transaction shall not be deemed a Change in Control unless the
transaction qualifies as a change in control event within the meaning of Section
409A.

    
      
        
           

        

         

      

      
        -2-

        
          

        

      

      
         

      

    

     

    2.8
“Code” means
the Internal Revenue Code of 1986.  Reference to a specific section of the
Code or regulation thereunder shall include such section or regulation, any
valid regulation promulgated under such section, and any comparable provision of
any future legislation or regulation amending, supplementing or superseding such
section or regulation.

     

    2.9 “Committee” means the
committee appointed by the Board to administer the Plan.

     

    2.10 “Company” means LSI
Corporation, a Delaware corporation, or any successor
thereto. 

     

    2.11 “Determination Date”
means the latest possible date that will not jeopardize the qualification of an
Award as “performance-based compensation” under Section 162(m) of the
Code. 

     

    2.12 “Director”  means
any individual who is a member of the Board of Directors of the
Company. 

     

    2.13 “Disability” means a
permanent and total disability determined in accordance with uniform and
nondiscriminatory standards adopted by the Committee, in its discretion, from
time to time. 

     

    2.14 “Earnings Per Share”
means, as to any Performance Period, Profit After Tax, divided by a weighted
average number of common shares and dilutive common equivalent shares deemed
outstanding. 

     

    2.15 “Effective Date” means
the most recent date on which the Plan was approved or amended by the
stockholders of the Company.

     

    2.16 “Employee” means, any
employee of the Company or of an Affiliate. 

     

    2.17 “Exchange/Repricing
Program” means a program established by the Committee under which
outstanding Awards are (a) amended to provide for a lower Exercise Price or
(b) surrendered or cancelled in exchange for (i) Awards with a lower
Exercise Price, (ii) a different type of Award, (iii) cash, or
(iv) a combination of (i), (ii) and/or
(iii).  Notwithstanding the preceding, the term Exchange/Repricing
Program does not include any action described in Sections 4.3, 9 or
10.5.

     

    2.18 “Exercise Price” means
the price at which a Share may be purchased by a Participant pursuant to the
exercise of an Option or SAR.

     

    2.19 “Fair Market Value”
means the closing price per Share on the New York Stock Exchange on the relevant
date, or if the New York Stock Exchange was not open for trading on such date,
the closing price per Share on the nearest day on which the New York Stock
Exchange was open for trading before the relevant date, in either case, as
reported by The Wall Street
Journal or such other service selected in the discretion of the
Committee. Notwithstanding the preceding, for federal, state, and local income
tax reporting purposes, fair market value shall be determined by the Committee
in accordance with uniform and nondiscriminatory standards adopted by it from
time to time.

     

    2.20 “Fiscal Year” means
the fiscal year of the Company.

    
      
        
        

      

      
        -3-

        
          

        

      

      
        
        

      

    

     

    2.21 “Grant Date” means,
with respect to an Award, the date that the Award was granted.  The
Grant Date shall be no earlier than the date the Award is approved by the
Committee.

     

    2.22 “Incentive Stock
Option” means an Option to purchase Shares that is designated as an
Incentive Stock Option and as intended to meet the requirements of
Section 422 of the Code.

     

    2.23 “Nonemployee Director”
means a Director who is an employee of neither the Company nor of any
Affiliate.

     

    2.24 “Nonqualified Stock
Option” means an option to purchase Shares that is not intended to be an
Incentive Stock Option.

     

    2.25 “Option” means an
Incentive Stock Option or a Nonqualified Stock Option.

     

    2.26 “Participant” means an
Employee or Nonemployee Director who has an outstanding Award.

     

    2.27 “Performance Goals”
means the goal(s) (or combined goal(s)) determined by the Committee, in its
discretion, to be applicable to an Award.  As determined by the
Committee, the Performance Goals applicable to an Award may provide for a
targeted level or levels of achievement using one or more of the following
measures: (a) Cash Flow, (b) Earnings per Share, (c) Profit After
Tax, (d) Profit Before Tax, (e) Return on Capital, (f) Return on
Equity, (g) Return on Sales, (h) Revenue, and (i) Total
Shareholder Return.  Any Performance Goals used may be measured, as
applicable (and as determined on or before the Determination Date), (i) in
absolute terms, (ii) in relative terms (including, but not limited to, passage
of time and/or against another company or companies or an index), (iii) on a
per-share basis, (iv) against the performance of the Company as a whole or a
segment or business unit of the Company and/or (v) on a pre-tax or after-tax
basis (if applicable).  In all other respects, Performance Goals will
be calculated in accordance with the Company’s financial statements, generally
accepted accounting principles, or under a methodology established by the
Committee prior to the issuance of an Award, which is consistently
applied.  Performance Goals may differ from Participant to Participant
and from Award to Award.

     

    2.28 “Performance Period”
means the period, determined by the Committee in its sole discretion, during
which any Performance Goals specified by the Committee with respect to an Award
are to be measured.

     

    2.29 “Period of
Restriction” means the period during which the transfer of Shares of
Restricted Stock are subject to restrictions and therefore, the Shares are
subject to a substantial risk of forfeiture.  As provided in
Section 6, such restrictions may be based on the passage of time, the
achievement of specified levels of performance, or the occurrence of other
events or conditions, as determined by the Committee, in its
discretion.

     

    2.30  “Plan” means the LSI
Corporation 2003 Equity Incentive Plan.

     

    2.31 “Profit After Tax”
means, as to any Performance Period, income after taxes.

    
      
        
           

        

         

      

      
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    2.32 “Profit Before Tax”
means, as to any Performance Period, income before taxes.

     

    2.33 “Restricted Stock”
means Shares granted to a Participant pursuant to Section 6.

     

    2.34 “Restricted Stock
Unit” or “RSU” means an Award
granted to a Participant pursuant to Section 7.

     

    2.35 “Retirement” means a
Termination of Service occurring on or after the earlier of (a) age
sixty-five (65), or (b) age fifty-five (55) and the completion of ten
(10) years of service with the Company or an Affiliate.

     

    2.36 “Return on Capital”
means, as to any Performance Period, Profit After Tax divided by average
invested capital.

     

    2.37 “Return on Equity”
means, as to any Performance Period, the percentage equal to Profit After Tax
divided by average stockholders’ equity.

     

    2.38 “Return on Sales”
means, as to any Performance Period, the percentage equal to Profit After Tax,
divided by the Revenue.

     

    2.39 “Revenue” means, as to
any Performance Period, net revenues generated from sales to third
parties.

     

    2.40 “Rule 16b-3”
means Rule 16b-3 promulgated under the 1934 Act, and any future regulation
amending, supplementing or superseding such regulation.

     

    2.41 “Section 16
Person” means a person who, with respect to Shares, is subject to
Section 16 of the 1934 Act.

     

    2.42 “Section 409A” means
Section 409A of the Code, as it has been and may be amended from time to time,
and any proposed or final Treasury Regulations and Internal Revenue Service
guidance that has been promulgated or may be promulgated thereunder from time to
time.

     

    2.43 “Shares” means shares
of common stock of the Company.

     

    2.44 “Stock Appreciation
Right” or “SAR” means an Award,
granted alone or in connection with a related Option, that pursuant to
Section 8 is designated as an SAR.

     

    2.45 “Subsidiary” means any
corporation in an unbroken chain of corporations beginning with the Company as
the corporation at the top of the chain, but only if each of the corporations
below the Company (other than the last corporation in the unbroken chain) then
owns stock possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in such
chain.

     

    2.46 “Tax Obligations”
means tax and social insurance liability obligations and requirements in
connection with Awards, including, without limitation, (a) all federal, state,
and

    
      
        
           

        

         

      

      
        -5-

        
          

        

      

      
         

      

    

     

    local
taxes (including the Participant’s FICA obligation) that are required to be
withheld by the Company or the employing Affiliate, (b) the Participant’s and,
to the extent required by the Company (or the employing Affiliate), the
Company’s (or the employing Affiliate’s) fringe benefit tax liability, if any,
associated with the grant or vesting of an Award, the exercise of an option or a
Stock Appreciation Right or the sale of Shares or, and (c) any other Company (or
employing Affiliate) taxes the responsibility for which the Participant has
agreed to bear with respect to such Award (or exercise thereof or issuance of
Shares thereunder).

     

    2.47 “Termination of
Service” means (a) in the case of an Employee, a cessation of the
employee-employer relationship between the Employee and the Company or an
Affiliate for any reason, including, but not by way of limitation, a termination
by resignation, discharge, death, Disability, Retirement, or the disaffiliation
of an Affiliate, but excluding any such termination where there is a
simultaneous reemployment by the Company or an Affiliate; and (b) in the
case of a Nonemployee Director, a cessation of the Director’s service on the
Board for any reason, including, but not by way of limitation, a termination by
resignation, death, Disability, Retirement or non-reelection to the
Board.

     

    2.48 “Total Shareholder
Return” means, as to any Performance Period, the total return (from
change in share price plus reinvestment of any dividends) of a
Share.

     

    SECTION
3

    ADMINISTRATION

     

    3.1 The Committee. The
Plan shall be administered by the Committee. The Committee shall consist of two
(2) or more Nonemployee Directors.  Unless otherwise determined by the
Board, the “Committee” shall mean the Compensation Committee of the
Board.

     

    3.2 Authority of the
Committee. The Committee shall have all powers and discretion
necessary or desirable to administer the Plan and to control its operation,
including, but not limited to, the power to (a) determine which Employees
and Directors shall be granted Awards, (b) prescribe the terms and
conditions of the Awards, (c) interpret the Plan and the Awards, (d) adopt
such procedures and subplans as are necessary or desirable to permit
participation in the Plan by Employees and Directors who are foreign nationals
or employed outside of the United States, (e) adopt rules for the
administration, interpretation and application of the Plan as are consistent
therewith and (f) interpret, amend or revoke any such rules.
Notwithstanding any contrary provision of the Plan, the Committee shall not have
the authority to implement an Exchange/Repricing Program without the approval of
the Company’s stockholders.

     

    3.3 Delegation by the
Committee.  The Committee, in its sole discretion and on such terms
and conditions as it may provide, may delegate all or any part of its authority,
discretion and powers under the Plan to one or more Directors or employees of
the Company; provided, however, that the Committee may not delegate its
authority, discretion and powers with respect to the granting, amending or
interpreting of Awards granted to Section 16 Persons.

     

    3.4 Decisions
Binding.  All determinations and decisions made by the Committee,
the Board, and any delegate of the Committee shall be final, conclusive, and
binding on all persons, and shall be given the maximum deference permitted by
law.

    
      
        
           

        

         

      

      
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    SECTION
4

    SHARES
SUBJECT TO THE PLAN

     

    4.1 Number of
Shares.  Subject to adjustment as provided in Section 4.3, the
total number of Shares available for grant under the Plan on or after the
Effective Date shall be 45,000,000, no more than 15,000,000 of which may be used
for Awards of Restricted Stock or Restricted Stock Units. Shares granted under
the Plan may be either authorized but unissued Shares or treasury
Shares.

     

    4.2 Lapsed Awards. 
If an Award, including an Award granted prior to the Effective Date, expires,
terminates, is canceled or becomes unexercisable without having been exercised
in full, or, with respect to Restricted Stock or Restricted Stock Units, is
forfeited or repurchased by the Company, the unpurchased Shares (or for Awards
other than Options and Stock Appreciation Rights, the forfeited or repurchased
Shares) which were subject thereto will become available for future grant or
sale under the Plan (unless the Plan has terminated).  If Shares
subject to an Award of Restricted Stock or Restricted Stock Units become
available again under the Plan pursuant to the preceding sentence, then those
Shares will also become available for Awards of Restricted Stock or Restricted
Stock Units. Upon exercise of a Stock Appreciation Right settled in Shares, the
total number of Shares subject to the portion of the Award so exercised, whether
or not actually issued pursuant to such exercise, will cease to be available
under the Plan. 
Shares that have actually been issued under the Plan pursuant to any Award will
not be returned to the Plan and will not become available for future Awards;
provided, however, that if unvested Shares of Restricted Stock or Restricted Stock
Units are repurchased by the Company or are forfeited, such Shares will become
available for future Awards.  Shares used to pay the taxes associated
with, and/or Exercise Price of, an Award will not become available for future
Awards.  To the extent an Award is paid out in cash rather than
Shares, such cash payment will not result in reducing the number of Shares
available for issuance under the Plan.  Notwithstanding the foregoing
provisions of this Section 4.2, and subject to adjustment provided in Section
4.3, the maximum number of Shares that may be issued upon the exercise of
Incentive Stock Options will be 45,000,000 Shares.

     

    4.3 Adjustments in Awards and
Authorized Shares.  In the event of any dividend (excluding any cash
dividend other than an extraordinary dividend) or other distribution (whether in
the form of cash, Shares, other securities, or other property),
recapitalization, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase, or exchange of
Shares or other securities of the Company, or other change in the corporate
structure of the Company affecting the Shares such that an adjustment is
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Committee shall appropriately adjust the number and class of Shares that may be
made subject to Awards, the number, class, and price of Shares (or other
property or cash) subject to outstanding Awards, and the numerical limits of
Sections 5.1, 6.1, 7.1, and 8.1. Notwithstanding the preceding, the number
of Shares subject to any Award always shall be a whole number.

    
      
        
           

        

         

      

      
        -7-

        
          

        

      

      
         

      

    

     

    

     

    SECTION
5

    STOCK
OPTIONS

     

    5.1 Grant of
Options.  Subject to the terms and provisions of the Plan, Options
may be granted to Employees or Directors at any time and from time to time as
determined by the Committee in its sole discretion. The Committee, in its sole
discretion, shall determine the number of Shares subject to each Option,
provided that during any Fiscal Year, no Participant shall be granted Options
covering more than 4,000,000 Shares. The Committee may grant Incentive Stock
Options, Nonqualified Stock Options, or a combination thereof.

     

    5.2 Award
Agreement.  Each Option shall be evidenced by an Award Agreement
that shall specify the Exercise Price, the expiration date of the Option, the
number of Shares to which the Option pertains, any conditions to exercise of the
Option, and such other terms and conditions as the Committee, in its discretion,
shall determine. The Award Agreement shall also specify whether the Option is
intended to be an Incentive Stock Option or a Nonqualified Stock
Option.

     

    5.3 Exercise Price. 
Subject to the provisions of this Section 5.3, the Exercise Price for each
Option shall be determined by the Committee in its sole discretion.

     

    5.3.1 Nonqualified Stock
Options. In the case of a Nonqualified Stock Option, the Exercise Price
shall be not less than the Fair Market Value of a Share on the Grant
Date.

     

    5.3.2 Incentive Stock
Options. In the case of an Incentive Stock Option, the Exercise Price
shall be not less than the Fair Market Value of a Share on the Grant Date;
provided, however, that if on the Grant Date, the Employee (together with
persons whose stock ownership is attributed to the Employee pursuant to Section
424(d) of the Code) owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any of its Subsidiaries,
the Exercise Price shall be not less than one hundred and ten percent (110%) of
the Fair Market Value of a Share on the Grant Date.

     

    5.3.3 Substitute Options.
Notwithstanding the provisions of Sections 5.3.1 and 5.3.2, in the
event that the Company or an Affiliate consummates a transaction described in
Section 424(a) of the Code (e.g., the acquisition of property or stock from an
unrelated corporation), persons who become Employees or Nonemployee Directors on
account of such transaction may be granted Options in substitution for options
granted by their former employer. If such substitute Options are granted, the
Committee, in its sole discretion and consistent with Section 424(a) of the
Code, may determine that such substitute Options shall have an Exercise Price
less than the Fair Market Value of a Share on the Grant Date.

     

    5.4 Expiration of
Options. 

     

    5.4.1 Expiration Dates.
Each Option shall terminate no later than the first to occur of the following
events:

    
      
        
           

        

         

      

      
        -8-

        
          

        

      

      
         

      

    

     

    

     

    (a) The date for termination of
the Option set forth in the Award Agreement; or

     

    (b) The expiration of seven
(7) years from the Grant Date.

     

    5.4.2 Committee Discretion.
Subject to the limits of Sections 5.4.1, the Committee, in its sole
discretion, (a) shall provide in each Award Agreement when each Option
expires and becomes unexercisable, and (b) may, after an Option is granted,
extend the maximum term of the Option (subject to Section 5.8.4 regarding
Incentive Stock Options).

     

    5.5 Exercisability of
Options.  Options granted under the Plan shall be exercisable at
such times and be subject to such restrictions and conditions as the Committee
shall determine in its sole discretion. After an Option is granted, the
Committee, in its sole discretion, may accelerate the exercisability of the
Option.

     

    5.6 Payment. 
Options shall be exercised by the Participant’s delivery of a notice of exercise
to the Company (or its designee), setting forth the number of Shares with
respect to which the Option is to be exercised, accompanied by, or irrevocably
committing to arrangements acceptable to the Company providing for, full payment
for the Shares and following such procedure as the Company may specify from time
to time. The notice shall be given in the form and manner specified by the
Company from time to time.

     

    Upon the
exercise of any Option, the Exercise Price shall be payable to the Company in
full in cash or its equivalent. The Committee, in its sole discretion, also may
permit exercise (a) by tendering previously acquired Shares having an
aggregate Fair Market Value at the time of exercise equal to the total Exercise
Price, or (b) by any other means which the Committee, in its sole
discretion, determines to both provide legal consideration for the Shares, and
to be consistent with the purposes of the Plan. As soon as practicable after
receipt of a notice of exercise and full payment for the Shares purchased, the
Company shall deliver to the Participant (which may be by deposit in an account
maintained for the Participant at the Company’s designated broker), the Shares
purchased.

     

    5.7 Restrictions on Share
Transferability.  The Committee may impose such restrictions on any
Shares acquired pursuant to the exercise of an Option as it may deem advisable,
including, but not limited to, restrictions related to applicable securities
laws in the U.S. or any other country, the requirements of any national
securities exchange or system upon which Shares are then listed or traded, or
any blue sky or state securities laws.

     

    5.8 Certain Additional
Provisions for Incentive Stock Options. 

     

    5.8.1 Exercisability. The
aggregate Fair Market Value (determined on the Grant Date(s)) of the Shares with
respect to which Incentive Stock Options are exercisable for the first time by
any Employee during any calendar year (under all plans of the Company and its
Subsidiaries) shall not exceed $100,000.

    
      
        
           

        

         

      

      
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    5.8.2 Termination of
Service. No Incentive Stock Option may be exercised more than three
(3) months after the Participant’s Termination of Service for any reason
other than Disability or death, unless (a) the Participant dies during such
three-month period, and (b) the Award Agreement or the Committee permits
later exercise. No Incentive Stock Option may be exercised more than one
(1) year after the Participant’s Termination of Service on account of
Disability, unless (a) the Participant dies during such one-year period,
and (b) the Award Agreement or the Committee permit later
exercise.

     

    5.8.3 Eligible Grantees.
Incentive Stock Options may be granted only to persons who are employees of the
Company or a Subsidiary on the Grant Date.

     

    5.8.4 Expiration. No
Incentive Stock Option may be exercised after the expiration of seven
(7) years from the Grant Date; provided, however, that if the Option is
granted to an Employee who, together with persons whose stock ownership is
attributed to the Employee pursuant to Section 424(d) of the Code, owns stock
possessing more than 10% of the total combined voting power of all classes of
the stock of the Company or any of its Subsidiaries, the Option may not be
exercised after the expiration of five (5) years from the Grant
Date.

     

    SECTION
6

    RESTRICTED
STOCK

     

    6.1 Grant of Restricted
Stock.  Subject to the terms and provisions of the Plan, the
Committee, at any time and from time to time, may grant Restricted Stock to
Employees and Directors in such amounts as the Committee, in its sole
discretion, shall determine. The Committee, in its sole discretion, shall
determine the number of Shares to be granted to each Participant as Restricted
Stock, provided that during any Fiscal Year, the sum of the number of Restricted
Stock Units and Shares of Restricted Stock granted to any one Participant shall
not exceed 1,000,000.

     

    6.2 Restricted Stock
Agreement.  Each Award of Restricted Stock shall be evidenced by an
Award Agreement that shall specify the Period of Restriction, the number of
Shares granted, and such other terms and conditions as the Committee, in its
sole discretion, shall determine. Unless the Committee determines otherwise,
shares of Restricted Stock shall be held by the Company as escrow agent until
the restrictions on such Shares have lapsed.

     

    6.3 Transferability. 
Except as provided in this Section 6 or Section 10.5, shares of
Restricted Stock may not be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated until the end of the applicable Period of
Restriction.

     

    6.4 Other
Restrictions.  The Committee, in its sole discretion, may impose
such restrictions on shares of Restricted Stock as it may deem advisable or
appropriate, in accordance with this Section 6.4.

     

    6.4.1 General Restrictions.
The Committee may set restrictions based upon continued employment or service
with the Company and/or its affiliates, the achievement of
specific

    
      
        
           

        

         

      

      
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    performance
objectives (Company-wide, divisional, or individual), applicable federal, state
or country securities laws, or any other basis determined by the Committee in
its discretion.

     

    6.4.2 Section 162(m)
Performance Restrictions. For purposes of qualifying grants of Restricted
Stock as “performance-based compensation” under Section 162(m) of the Code, the
Committee, in its discretion, may set restrictions based upon the achievement of
Performance Goals. The Performance Goals shall be set by the Committee on or
before the Determination Date. In granting Restricted Stock that is intended to
qualify as “performance-based compensation” under Section 162(m) of the Code,
the Committee shall follow any procedures determined by it from time to time to
be necessary or desirable to enable qualification of the Restricted Stock as
“performance-based compensation” under Section 162(m) of the Code (e.g., in
determining the Performance Goals).

     

    6.4.3 Legend on
Certificates. The Committee, in its discretion, may legend the
certificates representing Restricted Stock to give appropriate notice of the
restrictions thereon.

     

    6.5 Removal of
Restrictions.  Except as otherwise provided in this Section 6,
the Shares covered by a Restricted Stock Award shall be released from escrow as
soon as practicable after the last day of the Period of Restriction. The
Committee, in its discretion, may accelerate the time at which any restrictions
shall lapse or be removed. After the restrictions have lapsed, the Participant
shall be entitled to have any legend or legends placed under Section 6.4.3
on certificates representing the Restricted Stock for which the Period of
Restriction has lapsed removed from his or her Share certificate, and the Shares
shall be transferable by the Participant free of any restriction under the Plan.
The Committee (in its discretion) may establish procedures regarding the release
of Shares from escrow and the removal of legends, as necessary or desirable to
minimize administrative burdens on the Company.

     

    6.6 Voting Rights. 
During the Period of Restriction, Participants holding Shares of Restricted
Stock may exercise full voting rights with respect to those Shares, unless the
Committee determines otherwise.

     

    6.7 Dividends and Other
Distributions.  During the Period of Restriction, Participants
holding Shares of Restricted Stock shall be entitled to receive all dividends
and other distributions paid with respect to such Shares unless otherwise
provided in the Award Agreement. If any such dividends or distributions are paid
in Shares, those Shares shall be subject to the same restrictions on
transferability and forfeitability as the Shares of Restricted Stock with
respect to which they were paid.

     

    6.8 Return of Restricted Stock
to Company.  On the date set forth in the Award Agreement, and
subject to Section 4.2, any Restricted Stock for which restrictions have
not lapsed shall revert to the Company and again shall become available for
grant under the Plan.

     

    SECTION
7

    RESTRICTED
STOCK UNITS

     

    7.1 Grant of Restricted Stock
Units.  Subject to the terms and provisions of the Plan, the
Committee, at any time and from time to time, may grant Restricted Stock Units
to Employees and

    
      
        
           

        

         

      

      
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    Directors
in such amounts as the Committee, in its sole discretion, shall determine. The
Committee, in its sole discretion, shall determine the number of Restricted
Stock Units to be granted to each Participant, provided that during any Fiscal
Year, the sum of the number of Restricted Stock Units and Shares of Restricted
Stock granted to any one Participant shall not exceed 1,000,000.

     

    7.2 Value of RSUs. 
Each Restricted Stock Unit shall represent the right to receive one Share (or
the equivalent value thereof) on such date as is specified in the Award
Agreement if the conditions specified in the Award Agreement are
met.

     

    7.3 Restricted Stock Unit
Agreement.  Each Restricted Stock Unit Award shall be evidenced by
an Award Agreement that shall specify the date or dates on which the Restricted
Stock Units granted shall become payable, the number of Restricted Stock Units
granted, and such other terms and conditions as the Committee, in its sole
discretion, shall determine.

     

    7.4 Transferability. 
Except as provided in this Section 7 or Section 10.5, Restricted Stock
Units may not be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated.

     

    7.5 Other
Restrictions.  The Committee, in its sole discretion, may impose
such restrictions on Restricted Stock Units as it may deem advisable or
appropriate.

     

    7.5.1 General Restrictions.
The Committee may set restrictions based upon continued employment or service
with the Company or its Affiliates, the achievement of specific performance
objectives (Company-wide, divisional, or individual), applicable federal or
state securities laws, or any other basis determined by the Committee in its
discretion.

     

    7.5.2 Section 162(m)
Performance Restrictions. For purposes of qualifying grants of Restricted
Stock Units as “performance-based compensation” under Section 162(m) of the
Code, the Committee, in its discretion, may set performance objectives based
upon the achievement of Performance Goals. The Performance Goals shall be set by
the Committee on or before the Determination Date. In granting Restricted Stock
Units that are intended to qualify as “performance-based compensation” under
Section 162(m) of the Code, the Committee shall follow any procedures determined
by it from time to time to be necessary or desirable to enable qualification of
the Restricted Stock Units as “performance-based compensation” under Section
162(m) of the Code (e.g., in determining the Performance Goals).

     

    7.6 Earning Restricted Stock
Units.  After any applicable Performance Period and vesting period
have ended and such Restricted Stock Units have otherwise become payable, the
holder of Restricted Stock Units shall be entitled to receive a payout of the
number of Restricted Stock Units earned by the Participant.  After the
grant of a Restricted Stock Unit, the Committee, in its sole discretion, may
reduce or waive any performance objectives for such Restricted Stock
Unit.

     

    7.7 Form and Timing of
Payment.  Except as otherwise provided in this Section 7, or as
may be required to comply with or avoid additional taxation to the Participant
under Section 409A, payment of earned Restricted Stock Units shall be made
as soon as practicable after vesting (subject to any deferral permitted under
Section 10.1). The Committee, in its sole discretion, may pay such earned
Restricted Stock Units in cash, Shares, or a combination
thereof.

    
      
        
           

        

         

      

      
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    SECTION
8

    STOCK
APPRECIATION RIGHTS

     

    8.1 Grant of SARs. 
Subject to the terms and conditions of the Plan, a SAR may be granted to
Employees and Directors at any time and from time to time as shall be determined
by the Committee, in its sole discretion.

     

    8.1.1 Number of
Shares.  The Committee, in its sole discretion, shall determine
the number of SARs granted to any Participant, provided that during any Fiscal
Year, no Participant shall be granted SARs covering more than a total of
4,000,000 Shares.

     

    8.1.2 Exercise Price and Other
Terms.  The Committee, subject to the provisions of the Plan,
shall have complete discretion to determine the terms and conditions of
SARs.  The Exercise Price of each SAR shall be determined by the
Committee in its discretion but shall not be less than the Fair Market Value of
a Share on the Grant Date.

     

    8.2 SAR Agreement. 
Each SAR grant shall be evidenced by an Award Agreement that shall specify the
Exercise Price, the term of the SAR, the conditions of exercise, and such other
terms and conditions as the Committee, in its sole discretion, shall
determine.

     

    8.3 Expiration of
SARs.  A SAR granted under the Plan shall expire upon the date
determined by the Committee, in its sole discretion, and set forth in the Award
Agreement.  Notwithstanding the foregoing, Section 5.4 also shall
apply to SARs.

     

    8.4 Payment of SAR
Amount.  Upon exercise of an SAR, a Participant shall be entitled to
receive payment from the Company in an amount determined by
multiplying:

     

    (a)           The
Fair Market Value of a Share on the date of exercise (or, if so specified in the
Award Agreement, on the date immediately preceding the date of exercise) minus
the Exercise Price; times

     

    (b)           The
number of Shares with respect to which the SAR is exercised.

     

    At the
discretion of the Committee, the payment upon SAR exercise may be in cash, in
Shares of equal Fair Market Value on the date of exercise, or in some
combination thereof.  The Company shall make such payment as soon as
administratively practicable following the SAR exercise.

     

    SECTION
9

    CHANGE IN
CONTROL

     

    9.1 Change in
Control.  In the event of a merger or Change in Control, each
outstanding Award will be treated as the Committee determines, which may include
that each Award will be assumed or an equivalent option or right substituted by
the successor corporation or a parent or subsidiary of the successor corporation
(the “Successor Corporation”).  The Committee will not be required to
treat all Awards similarly in the transaction.

    
      
        
           

        

         

      

      
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    9.1.1 In the
event that the Successor Corporation does not assume or substitute for a
Participant’s Award, the Participant will fully vest in and have the right to
exercise all of his or her outstanding Options and Stock Appreciation Rights
that are part of the Award, including Shares as to which the Award would not
otherwise be vested or exercisable, all restrictions on Restricted Stock and
Restricted Stock Units that are part of the Award will lapse, and, if the Award
has performance-based vesting, all Performance Goals or other performance-based
vesting criteria will be deemed achieved at target levels and all other terms
and conditions will be deemed met.  In addition, if an Option or Stock
Appreciation Right is not assumed or substituted for in the event of a merger or
Change in Control, the Committee will notify the Participant in writing or
electronically (which notice may be in the form of a notice on the Company’s
Intranet or notice to any e-mail or postal address maintained by the Company’s
Stock Administration Department for the Participant) that the Option or Stock
Appreciation Right will be fully vested and exercisable for a period of time
determined by the Committee in its sole discretion, and the Option or Stock
Appreciation Right will terminate upon the expiration of such
period.

     

    9.1.2 For the
purposes of this Section 9.1, an Award will be considered assumed if, following
the merger or Change in Control, the Award confers the right to purchase or
receive, for each Share subject to the Award immediately prior to the merger or
Change in Control:

     

    (a)           the
consideration (whether stock, cash, or other securities or property) received in
the merger or Change in Control by holders of Common Stock for each Share held
on the effective date of the transaction (and if holders were offered a choice
of consideration, the type of consideration chosen by the holders of a majority
of the outstanding Shares);

     

    (b)           in
the case of (i) an Option, (ii) a Stock Appreciation Right upon the
exercise of which the Committee determines to pay cash, or (iii) a
Restricted Stock Unit which the Committee can determine to pay in cash, the fair
market value of the consideration received in the merger or Change in Control by
the holder of a Share held on the effective date of the transaction (and if
holders were offered a choice of consideration, the type of consideration chosen
by the holders of a majority of the outstanding Shares); or

     

    (c)           in
the case of (i) an Option, (ii) a Stock Appreciation Right, or (iii) a
Restricted Stock Unit, the common stock of the Successor Corporation equal in
fair market value to the per share consideration received by holders of Common
Stock in the merger or Change in Control.

     

    9.2 Impact on Performance
Goals. Notwithstanding anything in this Section 9.1 to the contrary,
an Award that vests, is earned or paid-out upon the satisfaction of one or more
Performance Goals will not be considered assumed if the Company or its successor
modifies any of such Performance Goals without the Participant’s consent;
provided, however, a non-substantive modification to such Performance Goals only
to reflect the Successor Corporation’s post-Change in Control corporate
structure will not be deemed to invalidate an otherwise valid Award
assumption.

    
      
        
           

        

         

      

      
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    SECTION
10

    MISCELLANEOUS

     

    10.1 Deferrals.  The
Committee, in its sole discretion, may permit a Participant to defer receipt of
the payment of cash or the delivery of Shares that would otherwise be due to
such Participant under an Award. Any such deferral elections shall be subject to
such rules and procedures as shall be determined by the Committee in its sole
discretion.

     

    10.2 No Effect on Employment or
Service.  Nothing in the Plan shall interfere with or limit in any
way the right of the Company to terminate any Participant’s employment or
service at any time, with or without cause. For purposes of the Plan, transfer
of employment of a Participant between the Company and any one of its Affiliates
(or between Affiliates) shall not be deemed a Termination of Service. Employment
with the Company and its Affiliates is on an at-will basis only except as may be
provided by contract or applicable law.

     

    10.3 Participation. 
No Employee or Director shall have the right to be selected to receive an Award,
or, having been so selected, to be selected to receive a future
Award.

     

    10.4 Successors.  All
obligations of the Company under the Plan with respect to Awards, shall be
binding on any successor to the Company, whether the existence of such successor
is the result of a direct or indirect purchase, merger, consolidation, or
otherwise, of all or substantially all of the business or assets of the
Company.

     

    10.5 Limited Transferability of
Awards.  No Award granted under the Plan may be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated, other than by will or
by the laws of descent and distribution. All rights with respect to an Award
granted to a Participant shall be available during his or her lifetime only to
the Participant. Notwithstanding the foregoing, the Committee, in its sole
discretion, may determine that a Participant may, in a manner specified by the
Committee, (a) transfer an Award to a Participant’s spouse, former spouse
or dependent pursuant to a court-approved domestic relations order which relates
to the provision of child support, alimony payments or marital property rights,
and (b) transfer an Award by bona fide gift and not for any consideration,
to (i) a member or members of the Participant’s immediate family,
(ii) a trust established for the exclusive benefit of the Participant
and/or member(s) of the Participant’s immediate family, (iii) a
partnership, limited liability company or other entity whose only partners or
members are the Participant and/or member(s) of the Participant’s immediate
family, or (iv) a foundation in which the Participant an/or member(s) of
the Participant’s immediate family control the management of the foundation’s
assets. The transferability provisions provided in the preceding sentence shall
be effective only if expressly determined by the Committee and any transfer
shall be made in accordance with such procedures as the Committee may specify
from time to time.

     

    10.6 Beneficiary
Designations.  Notwithstanding any contrary provisions of
Section 10.5, the Committee, in its sole discretion, may determine that a
Participant may name a beneficiary or beneficiaries to whom any vested but
unpaid Award shall be paid in the event of the Participant’s death. Each such
designation shall revoke all prior designations by the Participant and shall be
effective only if given in a form and manner acceptable to the Committee. In the
absence of any such

    
      
        
           

        

         

      

      
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    designation,
any vested benefits remaining unpaid at the Participant’s death shall be paid to
the Participant’s estate and, subject to the terms of the Plan and of the
applicable Award Agreement, any unexercised vested Award may be exercised by the
administrator or executor of the Participant’s estate. The provisions of this
Section 10.6 shall be effective only if expressly determined by the
Committee.

     

    10.7 No Rights as
Stockholder.  Except to the limited extent provided in
Sections 6.6 and 6.7, no Participant or beneficiary shall have any of the
rights or privileges of a stockholder of the Company with respect to any Shares
issuable pursuant to an Award, unless and until such Shares shall have been
issued, recorded on the records of the Company or its transfer agent or
registrar, and delivered to the Participant, or beneficiary, or its
nominee.

     

    SECTION
11

    AMENDMENT,
TERMINATION, AND DURATION

     

    11.1 Duration of the
Plan.  The Plan shall be remain effective until no further Shares
are available for distribution pursuant to Awards. However, without further
stockholder approval, no Incentive Stock Option may be granted under the Plan
after the date that is ten (10) years from the Effective Date.

     

    11.2 Amendment, Suspension, or
Termination.  Notwithstanding Section 11.1, the Board, in its
sole discretion, may amend, suspend or terminate the Plan, or any part thereof,
at any time and for any reason. The amendment, suspension, or termination of the
Plan shall not, without the consent of a Participant, alter or impair any rights
or obligations under any Award theretofore granted to such Participant. No Award
may be granted during any period of suspension or after termination of the
Plan.

     

    SECTION
12

    TAX
WITHHOLDING

     

    12.1 Withholding
Requirements.  Prior to the delivery of any Shares or cash pursuant
to an Award or the exercise or vesting of an Award, the Company shall have the
power and the right to deduct or withhold, or require a Participant to remit to
the Company, an amount sufficient to satisfy all Tax Obligations with respect to
such Award.

     

    12.2 Withholding
Arrangements.  The Committee, in its sole discretion and pursuant to
such procedures as it may specify from time to time, may permit a Participant to
satisfy Tax Obligations, in whole or in part by (a) electing to have the Company
withhold otherwise deliverable Shares, or (b) delivering to the Company
already-owned Shares having a Fair Market Value equal to the amount required to
be withheld or remitted.  The amount of the Tax Obligations shall be
deemed to include any amount which the Committee agrees may be withheld at the
time the election is made, not to exceed the amount determined by using the
maximum federal, state or local marginal income tax rates applicable to the
Participant or the Company, as applicable, with respect to the Award on the date
that the amount of tax or social insurance liability to be withheld or remitted
is to be determined.  The Fair Market Value of the Shares to be
withheld or delivered shall be determined as of the date that the Tax
Obligations are required to be withheld.

    
      
        
           

        

         

      

      
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    SECTION
13

    LEGAL
CONSTRUCTION

     

    13.1 Gender and
Number.  Except where otherwise indicated by the context, any
masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.

     

    13.2 Severability. 
In the event any provision of the Plan shall be held illegal or invalid for any
reason, the illegality or invalidity shall not affect the remaining parts of the
Plan, and the Plan shall be construed and enforced as if the illegal or invalid
provision had not been included.

     

    13.3 Requirements of
Law.  The granting of Awards and the issuance of Shares under the
Plan shall be subject to all applicable laws, rules, and regulations, and to
such approvals by any governmental agencies or national securities exchanges as
may be required.

     

    13.4 Section 409A. 
Unless otherwise specifically determined by the Committee, the Committee shall
comply with Section 409A in establishing the rules and procedures applicable to
deferrals in accordance with Section 10.1 and in taking or permitting such
other actions under the terms of the Plan that otherwise would result in a
deferral of compensation subject to Section 409A.

     

    13.5 Governing Law. 
The Plan and all Award Agreements shall be construed in accordance with and
governed by the laws of the State of Delaware.

     

    13.6 Captions. 
Captions are provided herein for convenience only, and shall not serve as a
basis for interpretation or construction of the Plan.

    
      
        
           

        

         

      

      
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