Document:

EXHIBIT 10.3

[Loan No. 2342]

          (NOTE: THIS PROMISSORY NOTE MAY REQUIRE A BALLOON PAYMENT AT
                                   MATURITY)

                                PROMISSORY NOTE

$7,350,000 (U.S.)                                                 Houston, Texas
                                                                   July 10, 2002

     FOR VALUE  RECEIVED,  the undersigned  ("Borrower")  promises to pay to the
order of WASHINGTON  MUTUAL BANK,  FA, a federal  association,  at its office at
3200 Southwest Freeway, Suite 1700, Houston, Texas 77027, Attention:  Commercial
Loan Servicing,  or at such other place as the holder of this Note (hereinafter,
"holder") may from time to time  designate in writing,  the sum of SEVEN MILLION
THREE HUNDRED FIFTY THOUSAND DOLLARS  ($7,350,000) in lawful money of the United
States, with interest thereon from the date of this Note until paid at the rates
set forth below,  computed on monthly balances.  Interest for each full calendar
month during the term of this Note shall be calculated on the basis of a 360-day
year and twelve 30-day  months.  Interest for any partial  calendar month at the
beginning or end of the term of this Note shall be  calculated on the basis of a
365- or  366-day  year (as  applicable)  and the  actual  number of days in that
month.

     SECTION 1. Initial Interest Rate.

     The per annum interest rate hereunder (the "Note Rate") shall  initially be
six and ninety-five one hundredths percent (6.95%) (the "Initial Rate").

     SECTION 2. Interest Rate Adjustments.

         (a) Interest Adjustment Date. Beginning on August 1, 2007 (the "Initial
Interest Adjustment Date"), and on the same day of every sixth month thereafter,
the Note Rate shall be adjusted as  provided  below.  Any date on which the Note
Rate is to be  adjusted  as  provided  in this Note is referred to herein as the
"Interest Adjustment Date."

         (b)  The  Adjustable   Index.   Beginning  with  the  Initial  Interest
Adjustment Date, the Note Rate will be based on the Adjustable Index. As used in
this Note, the term  "Adjustable  Index" means the LIBOR Rate, as defined below.
The most recent Adjustable Index figure available as of 11:00 a.m., London Time,
two (2) London Banking Days before each Interest  Adjustment Date is referred to
in this Note as the "Current  Adjustable  Index." If the LTBOR Rate is no longer
available,  holder  shall  choose a new  index  which is based  upon  comparable
information  and which shall then be the  Adjustable  Index.  Holder  shall give
Borrower notice of such choice.

                  (i)  Before  each  Interest   Adjustment  Date,   holder  will
calculate the new Note Rate by adding two and fifty-five  one-hundredths percent
(2.55%) (the "Margin")

                                      -1-
<PAGE>

to the  Current  Adjustable  Index.  Holder  will then  round the result of this
addition to the nearest one-thousandth of one percentage point (0.001%). Subject
to the limits stated in Section 2(b)(ii) below,  this rounded amount will be the
Note Rate until the next Interest  Adjustment  Date. In no event during the term
of this Note shall the Note Rate increase or decrease on any Interest Adjustment
Date by more than one percent (1.00%) per annum.

                  (ii)  Except as set forth in Section  10 below,  the Note Rate
will never be greater  than ten and  one-half  percent  (10.50%)  per annum (the
"Rate Limit").

                  (iii) If for any reason  holder fails to make an adjustment to
the  Note  Rate or the  Monthly  Payment  Amount  as  described  in  this  Note,
regardless  of any  notice  requirement,  holder  may,  upon  discovery  of such
failure,  then make  such  adjustment  as if it had been made on time.  Borrower
agrees not to hold  holder  responsible  for any  damages  which may result from
holder's failure to make the adjustment and to allow holder,  at its option,  to
apply any excess  monies which  Borrower may have paid to partial  prepayment of
the unpaid principal balance of this Note.

         (c)  Definitions.  As used herein,  the following  terms shall have the
meanings set forth below:

     "LIBOR Rate" means the rate,  rounded up to the nearest  one-thousandth  of
one  percentage  point  (0.001%)  for  deposits  in United  States  dollars  for
maturities  of six (6)  months  which  appears on  Telerate  Page 3750 as of the
relevant date and time of determination.

     "London  Banking  Day" means any day (i) which is not a Saturday  or Sunday
and (ii) on which  commercial  banks are generally open for business  (including
dealings in foreign exchange and foreign currency  deposits) in London,  England
and dealings are carried on in the London interbank market.

     "Telerate  Page 3750" means the display page so  designated on the Telerate
Service (or such other page as may replace  that page on such  service,  or such
other service as may be nominated as the  information  vendor for the purpose of
displaying  the  British  Bankers  Association  fixing of the  London  Interbank
Offered Rate).

         (d) Increased Costs; Illegality; Unavailability of LIBOR Rate.

                  (i) If, due to either (A) the  introduction  after the date of
this Note of or any change after the date of this Note  (including any change by
way of imposition or increase of reserve  requirements  or assessments) in or in
the  interpretation  of any law or  regulation  or (B) the  compliance  with any
requirement of any central bank or other governmental authority,  there shall be
any  increase  in the cost to  holder of making  or  maintaining  loans  bearing
interest at rates determined by reference to the LIBOR Rate, then Borrower shall
from time to time, upon demand by holder, pay to holder additional amounts

                                      -2-
<PAGE>

sufficient  to  reimburse  holder  for  all  such  increased   costs.   Holder's
determination  as to the amount of such increased  costs shall be conclusive and
binding absent manifest error.

                  (ii) If in the sole  judgment  of holder  (A) it shall  become
unlawful  for  holder  to  obtain  funds in the  London  interbank  market or to
continue  to fund or  maintain  principal  amounts  bearing  interest  at  rates
determined  by reference to the LIBOR Rate;  or (B) because of conditions in the
relevant money markets,  the LIBOR Rate will not adequately  reflect the cost to
holder of making,  funding or maintaining the principal  amount of this Note; or
(C) the LIBOR Rate is no longer available or is no longer calculated or reported
on a basis  reasonably  comparable  to the basis on which it is  calculated  and
reported on the date of this Note, then, in any such event,  holder shall choose
a new index which reasonably  reflects the cost to holder of making,  funding or
maintaining the principal amount of this Note, which new index shall then be the
Adjustable Index. Holder shall give Borrower notice of such choice.

                  (iii) For purposes of this Note, all determinations  hereunder
may, in the sole discretion of holder,  be made as if holder had actually funded
and  maintained  the principal  balance  hereof through the purchase of deposits
having  successive  terms of six (6) months  each,  extending  from one Interest
Adjustment  Date to the  next,  and  bearing  interest  at a rate  equal  to the
Adjustable Index Rate during each such six (6)-month period.

     SECTION 3. Monthly Payments.

     Beginning  on  September  1,  2002 and on the  first  day of each and every
calendar month thereafter throughout the term of this Note (the "Monthly Payment
Dates"),  Borrower  shall make monthly  payments of principal  and interest (the
"Monthly Payment Amounts") to holder as follows:

        (a) Beginning on September 1, 2002 through and including  August 1, 2007
the Monthly  Payment Amount shall be Fifty-One  Thousand Seven Hundred  Fourteen
and 7/lOOths Dollars ($51,714.07);

        (b) The Monthly Payment Amount shall be adjusted semi-annually beginning
on September 1, 2007 and on the same day of every sixth month thereafter,  to an
amount sufficient to fully repay the unpaid principal balance of this Note as of
the last day of the month  immediately  preceding  the date of such  adjustment,
together with interest at the Note Rate as adjusted on the immediately preceding
Interest  Adjustment  Date,  by the date that is three hundred (300) months from
the first day of the first Monthly Payment Date.

                                      -3-
<PAGE>

     SECTION 4. Maturity.

        Unless sooner repaid by Borrower, the entire unpaid principal balance of
this Note,  plus all accrued but unpaid  interest,  and all other  amounts owing
hereunder or under the Security Documents (as defined in Section 8) shall be due
and payable in full on August 1, 2012 (the "Maturity Date").

     SECTION 5. Application of Payments.

     Payments shall be applied:  (a) first, to the payment of accrued  interest;
(b) second,  at the option of holder,  to the payment of any other amounts owing
under  this Note or  secured  by the  Security  Documents,  other  than  accrued
interest and principal,  including,  but not limited to advances holder may have
made for attorneys' fees or for taxes, assessments, insurance premiums, or other
charges on any  property  given as security  for this Note and late  charges due
hereunder; and (c) third, to the reduction of principal of this Note.

     SECTION 6. Prepayment.

         (a) Prepayment Prior to Initial Interest  Adjustment Date. Prior to the
Initial Interest  Adjustment Date, Borrower may prepay its obligation under this
Note in full upon thirty (30) days' prior written  notice to holder;  or in part
on  any  Monthly  Payment  Date  upon  payment  of  a  prepayment  premium  (the
"Prepayment Premium") as follows: (i) during the first Loan Year (as hereinafter
defined),  the  Prepayment  Premium will be five  percent  (5.00%) of the amount
prepaid;  (ii) during the second Loan Year, the Prepayment  Premium will be four
percent  (4.00%) of the amount  prepaid;  (iii) during the third Loan Year,  the
Prepayment  Premium will be three percent  (3.00%) of the amount  prepaid;  (iv)
during the fourth Loan Year, the Prepayment  Premium will be two percent (2.00%)
of the amount  prepaid;  and (v) during  the fifth  Loan  Year,  the  Prepayment
Premium will be one percent (1.00%) of the amount prepaid. As used herein, "Loan
Year" shall mean each successive  twelve-month  period commencing with the first
day of the calendar month immediately  preceding the calendar month in which the
Initial Monthly Payment Date occurs; provided, however, that the first Loan Year
shall also  include  any period of time  between  the date of this Note and such
day.

         (b) Prepayment On or After the Initial Interest  Adjustment Date. On or
after the Initial Interest  Adjustment Date,  Borrower may prepay its obligation
under this Note in full upon thirty (30) days' prior  written  notice to holder,
or in part on any Monthly Payment Date without payment of a Prepayment Premium.

         (c) Provisions Applicable to All Prepayments. Borrower expressly waives
any right to prepay this Note except as provided in this  Section 6.  Therefore,
if the maturity of this Note is accelerated for any reason,  including,  without
limitation,  the occurrence of any event of default  hereunder or under the Deed
of Trust (as defined in Section 8), including without limitation Section 4.13 of
the Deed of Trust, or any other document that evidences or secures the repayment
of this Note, then any subsequent tender of

                                      -4-
<PAGE>

payment of this Note, including any redemption following foreclosure of the Deed
of Trust,  shall  constitute an evasion of the  restrictions  on prepayment  set
forth herein and shall be deemed a voluntary prepayment. Accordingly, holder may
impose as a condition to accepting any such tender, and may bid at any sheriff's
or trustee's  sale under the Deed of Trust,  and/or include in any complaint for
judicial foreclosure or for any claim in bankruptcy, as part of the indebtedness
evidenced by this Note and secured by the Deed of Trust, the Prepayment  Premium
that would have  otherwise  been payable  hereunder for  prepayment of this Note
occurring on the date of such  acceleration.  The Prepayment Premium will not be
payable for prepayment of this Note occurring as a result of the  application of
insurance and  condemnation  proceeds to the  reduction of the unpaid  principal
balance of this Note.

     Borrower acknowledges that: (i) it is a knowledgeable real estate investor,
(ii) it fully  understands  the effect of the above waiver,  (iii) the making of
the loan  evidenced  by this  Note at the  interest  rates  set  forth  above is
sufficient  consideration  for such  waiver,  and (iv) holder would not make the
loan evidenced by this Note without such waiver.

     Borrower  acknowledges  that any statement made by holder setting forth the
amount of the  Prepayment  Premium  shall  only be binding  upon  holder if such
statement is made in writing and that the amount of the  Prepayment  Premium set
forth in such  statement  is subject to change and is valid only for the date of
such statement.

     Borrower  hereby  expressly  waives any right it may have under  California
Civil Code 2954.10 to prepay this Note, in whole or in part,  without prepayment
charge,  upon acceleration of the Maturity Date of this Note, and agrees that if
for any  reason  a  prepayment  of any or all of  this  Note  is  made,  whether
voluntarily or upon or following any  acceleration  of the Maturity Date of this
Note by holder, Borrower shall pay the Prepayment Premium calculated pursuant to
this Section 6. By signing this provision in the space provided below,  Borrower
hereby declares and agrees that holder's agreement to make the loan evidenced by
this Note at the Note  Rate and for the term set forth in this Note  constitutes
adequate consideration, given individual weight by Borrower, for this waiver and
agreement.

                                  REGAN HOLDING CORP., a California
                                  corporation

                                  By  /s/ G. Steven Taylor
                                      ------------------------------------------
                                      G. Steven Taylor, Chief Financial Officer

     SECTION 7. Late Charge.

     If any amount  payable  hereunder is paid more than ten (10) days after the
due date thereof, Borrower promises to pay a late charge of five percent (5%) of
the  delinquent  amount as liquidated  damages for the extra expense in handling
past due payments.

                                      -5-
<PAGE>

     SECTION 8. Security.

     This Note is secured by a deed of trust,  security agreement, assignment of
leases and rents, and fixture filing (the "Deed of Trust") of even date herewith
and executed by Borrower,  encumbering  real property  located in Sonoma County,
California,  and by an assignment of leases and rents (the "Assignment of Leases
and Rents")  made by Borrower  as assignor in favor of holder as  assignee.  The
Deed of  Trust,  the  Assignment  of  Leases  and  Rents  and any and all  other
documents  securing  this Note are  collectively  referred  to as the  "Security
Documents," provided,  however, that "Security Documents" specifically shall not
mean and shall not include the  certificate  and indemnity  agreement  regarding
hazardous substances being delivered concurrently herewith to holder by Borrower
(the "Indemnity Agreement"). The real property and the other collateral provided
for in the Security Documents are collectively referred to as the "Property."

     SECTION 9. Notice and Opportunity to Cure Defaults.

     Any  provision  of this Note or the  Security  Documents  seemingly  to the
contrary notwithstanding,  holder agrees not to exercise any of the remedies for
default permitted hereunder or under the Security Documents unless and until:

         (a) If the default consists of the violation of a covenant to pay money
(other than the covenant to repay the balance due hereunder at maturity), holder
has given  Borrower at least ten (10) days'  written  notice of such default and
such default has not been cured within such ten (10) day period; or

         (b) If the default  consists  only of a violation  of any  provision of
this Note or the  Security  Documents  other than a  covenant  to pay money or a
covenant  to obtain or renew  insurance  policies or pay  insurance  premiums as
required by the Deed of Trust unless and until holder has given Borrower  thirty
(30) days'  written  notice of such  default and such default has not been cured
within such thirty  (30) day period,  provided  that if the default is one which
can be cured,  but for causes beyond the reasonable  control of Borrower  cannot
with due diligence be cured within such thirty (30) day period, such thirty (30)
day period  shall be deemed  extended  for such time as is necessary to cure the
default  (but in no event  longer than sixty (60) days from the date of default)
if Borrower gives notice of its intent to cure or cause such default to be cured
prior to the expiration of said thirty (30) day period, and thereafter  proceeds
promptly with and prosecutes  with all due diligence all steps necessary to cure
the same.

     Nothing  contained  in this  Section 9 shall be  construed  as imposing any
obligation  on holder  other than to postpone  the  exercise of its remedies for
default until the expiration of the applicable grace period,  if any,  specified
herein.  Failure to give  opportunity  to cure  defaults  in the  manner  herein
provided shall not in any way invalidate or prohibit  holder from exercising any
of the remedies for default permitted  hereunder or under the Security Documents
(other than to prohibit  holder from  proceeding  further  until the  applicable
grace

                                      -6-
<PAGE>

period,  if any,  for the curing of such default has  expired),  or give rise to
liability for damages suffered by Borrower or any other party on account of such
failure.

     The  provisions  of  subparagraph  (a) of this  Section 9 shall not  affect
Borrower's  liability  for late  charges  under  Section 7 with  respect  to any
payment that is more than ten (10) days past due.

     SECTION 10. Default; Remedies.

     If default is made in the payment of any amount payable  hereunder when due
or in the keeping of any covenant of the Security Documents, then, at the option
of holder, the entire indebtedness evidenced hereby shall become immediately due
and payable.  Upon default, and without notice or demand, all amounts owed under
this Note,  including all accrued but unpaid  interest,  shall  thereafier  bear
interest at a variable rate,  adjusted at the times at which the Note Rate would
otherwise  have been  adjusted  pursuant to Section 2, of five  percent (5%) per
annum above the Note Rate which would have been applicable from time to time had
there been no default (the "Default Rate") until such default is cured.  Failure
to exercise any option granted to holder  hereunder shall not waive the right to
exercise  the  same in the  event of any  subsequent  default.  Interest  at the
Default Rate shall  commence to accrue upon default  under this Note,  including
the failure to pay this Note at maturity.

     SECTION 11. Attorneys' Fees.

     In the event of any  default  under  this  Note,  or in the event  that any
dispute arises relating to the  interpretation,  enforcement,  or performance of
this Note,  holder shall be entitled to collect from Borrower on demand all fees
and expenses incurred in connection therewith, including but not limited to fees
of attorneys, accountants,  appraisers,  environmental inspectors,  consultants,
expert witnesses, arbitrators,  mediators, and court reporters. Without limiting
the generality of the foregoing,  Borrower shall pay all such costs and expenses
incurred in  connection  with:  (a)  arbitration  or other  alternative  dispute
resolution  proceedings,  trial court  actions,  and appeals;  (b) bankruptcy or
other  insolvency  proceedings of Borrower,  any guarantor or other party liable
for any of the  obligations of this Note or any party having any interest in any
security for any of those obligations;  (c) judicial or nonjudicial  foreclosure
on, or  appointment  of a receiver  for, any property  securing  this Note;  (d)
postjudgment   collection   proceedings;   (e)   all   claims,    counterclaims,
cross-claims,  and defenses asserted in any of the foregoing whether or not they
arise out of or are related to this Note or any security for this Note;  (f) all
preparation for any of the foregoing;  and (g) all settlement  negotiations with
respect to any of the foregoing.

     SECTION 12. Sale, Transfer or Encumbrance of Property.

        The Deed of Trust contains the following  provision (in such  provision,
the term "Trustor" means Borrower and "Beneficiary" means holder):

                                      -7-
<PAGE>

         4.13 Sale,  Transfer,  or Encumbrance  of Property.  Trustor shall not,
without the prior written  consent of Beneficiary,  sell,  transfer or otherwise
convey the Property or any interest  therein,  further  encumber the Property or
any  interest  therein,  cause or permit any change in the entity,  ownership or
control of Trustor  (including  without limitation the revocation or tennination
of a trust whose trustee(s) are the Trustor hereunder) or agree to do any of the
foregoing  without  first  repaying in full the Note and all other sums  secured
hereby.

     Consent  to any one such  occurrence  shall  not be  deemed a waiver of the
right to require consent to any future occurrences.

     In each  instance  in which a sale,  transfer  or other  conveyance  of the
Property  occurs  without  simultaneous  repayment  in full of all  indebtedness
secured  hereby,  and  regardless of whether  Beneficiary's  consent  thereto is
given,  waived or denied or whether Beneficiary elects to accelerate the matunty
date of the Note,  Trustor and its  successors  shall be jointly  and  severally
liable to Beneficiary  for the payment of a transfer fee (the "Transfer Fee") of
one percent (1.00%) of the unpaid  principal  balance of the Note as of the date
of such sale, transfer or other conveyance. Such fee shall be payable on demand,
shall bear  interest  from ten (10) days after such demand to and  including the
date of  collection  at the Default Rate (as defined in the Note),  and shall be
secured by this Trust Deed. Beneficiary's waiver of such fee in whole or in part
for any one sale, transfer or other conveyance shall not preclude the imposition
thereof in any other transaction.

     Notwithstanding  the  foregoing,  and subject to the further  provisions of
this paragraph,  Beneficiary's consent will not be required, and the one percent
(1.00%) Transfer Fee will not be imposed,  for (a) the transfer of not more than
fifty percent  (50%) in the  aggregate  during the term of the Note of shares of
stock of  Trustor;  provided  that  transfers  of  shares  upon  the  death of a
shareholder and transfers of shares for estate  planning  purposes into and from
trusts shall not be included in the  calculation of the foregoing  fifty percent
(50%) limit;  or (b)  transfers of shares  pursuant to and  following  Trustor's
registration  of any  equity  securities  under  the  Securities  Act of 1933 as
amended;  provided,  in all such cases  described in clauses (a) and (b) of this
paragraph,  that (i) unless Beneficiary otherwise consents,  such consent not to
be  unreasonably  withheld,  Lynda  L.  Regan or her  estate  and/or one or more
trusts to which she may have  transferred  shares of stock in Trustor for estate
planning  purposes shall at all times own at least ten percent of the issued and
outstanding  capital stock of Trustor;  and (ii) none of the persons or entities
liable for the repayment of the Note is released from such liability.

                                      -8-
<PAGE>

     SECTION 13. Miscellaneous.

         (a) Every  person or entity at any time  liable for the  payment of the
indebtedness  evidenced  hereby  waives all taking of formal  collection  steps,
including,  but not limited to,  presentment for payment,  demand, and notice of
nonpayment, protest, dishonor or acceleration of this Note. Every such person or
entity further hereby consents to any extension of the time of payment hereof or
other  modification  of the terms of payment of this Note, the release of all or
any part of the  security  herefor,  or the release of any party  liable for the
payment of the  indebtedness  evidenced hereby at any time and from time to time
at the request of anyone now or hereafter liable therefor. Any such extension or
release  may be made  without  notice to any of such  persons  or  entities  and
without discharging their liability. All payments required to be made under this
Note, the Security  Documents,  the Indemnity Agreement and the other documents,
instruments and agreements entered into in connection  therewith  (collectively,
the "Loan Documents") shall be made without offset or deduction of any kind.

         (b) Each person or entity who signs this Note is jointly and  severally
liable for the full repayment of the entire  indebtedness  evidenced  hereby and
the full  performance  of each and every  obligation  contained  in the Security
Documents.

         (c) The  headings  to the  various  sections  have  been  inserted  for
convenience of reference only and do not define,  limit,  modify,  or expand the
express provisions of this Note.

         (d) Time is of the essence  under this Note and in the  performance  of
every term, covenant, and obligation contained herein.

         (e) This  Note is made  with  reference  to and is to be  construed  in
accordance with the laws of the State of California.

         (f) Each  married  person who executes  this Note as a Borrower  agrees
that recourse  hereunder  can be had to his or her separate  property as well as
the assets of his or her marital community.

         (g)  This  Note and the  other  Loan  Documents  constitute  the  final
expression  of  the  entire  agreement  of  the  parties  with  respect  to  the
transactions  set forth  therein.  No party is relying on any oral  agreement or
other  understanding  not  expressly set forth in the Loan  Documents.  The Loan
Documents may not be amended or modified  except by means of a written  document
executed by the party sought to be charged with such amendment or modification.

         (h) In the  event  holder at any time  discovers  that this Note or the
Security  Instrument or any of the other Loan Documents contains an error caused
by a clerical  mistake,  calculation  error,  computer error,  printing error or
similar error, Borrower shall, upon notice from holder, re-execute any such Loan
Document as necessary to correct any such error(s),

                                      -9-
<PAGE>

and Borrower shall also not hold holder  responsible  for any damage suffered by
Borrower  resulting  from  any  such  error.  In  addition,  if any of the  Loan
Documents are lost, stolen,  mutilated or destroyed,  Borrower shall execute and
deliver  to  holder  on  holder's  request a  duplicate  of such  Loan  Document
identical  in form and  content,  and which will be  identical in effect for all
purposes,  provided holder delivers to Borrower an indemnification  agreement in
favor of  Borrower  protecting  Borrower  from any  damages  arising  from  such
re-execution.

                                 [END OF TEXT]

                                      -10-
<PAGE>

     DATED as of the day and year first above written.

                                  REGAN HOLDING CORP., a California
                                  corporation

                                  By  /s/ G. Steven Taylor
                                      ------------------------------------------
                                      G. Steven Taylor, Chief Financial Officer

                                      -11-Prepared by R.R. Donnelley Financial -- Cosgrove Agreement

  EXHIBIT 10-A  
 NON-COMPETITION, NON-SOLICITATION, AND CONFIDENTIALITY 
  AGREEMENT BY AND BETWEEN CONECTIV AND HOWARD E.
COSGROVE 
  

   NON-COMPETITION, NON-SOLICITATION, 
 AND CONFIDENTIALITY AGREEMENT 
             THIS NON-COMPETITION, NON-SOLICITATION, AND CONFIDENTIALITY AGREEMENT (the “ Agreement ”), is made on this 18TH day of June, 2002 by and between
Conectiv, with its principal place of business at 800 King Street, P.O. Box 231, Wilmington, Delaware, 19899, including, unless the context clearly otherwise requires, its subsidiaries and affiliates (together, “Conectiv”),and Howard E.
Cosgrove (the “Executive”).
             WHEREAS, the Executive is employed by Conectiv as Chairman and Chief Executive Officer and in such
capacity, had, has, and will continue to have access to Conectiv’s employees, customers, vendors, trade secrets, and proprietary information; and
             WHEREAS, Conectiv has entered into a Agreement and Plan of Merger, dated as of February 9, 2001, with Potomac Electric Power Company (“PEPCO”) and New RC, Inc.
by which Conectiv and PEPCO will become wholly-owned subsidiaries of New RC, Inc. (together with its affiliates and subsidiaries, “the Company”); and
             WHEREAS, by virtue of the years of valuable service the Executive has provided to Conectiv in a position in which the Executive has made significant policy decisions and
contributed to the establishment of the strategic direction and compensation policies of Conectiv, the Executive possesses significant knowledge of and experience in connection with the business of Conectiv, including specifics regarding the
compensation and benefits of its key executives that would place him in a position to recruit such executives if he were to engage in a competing or similar business; and
             WHEREAS, Conectiv is prepared to make a substantial cash payment to the Executive in the event the Merger is consummated, as set forth in Section 2 below, provided that
the Executive makes certain assurances that he will not be in a position that is potentially adverse to, or that otherwise would harm, the business interests of Conectiv or the Company; and
             WHEREAS, the Executive desires to enter into this Agreement in exchange for such cash payment.
             NOW THEREFORE, in consideration of these premises and intending to be legally bound hereby, Conectiv and the Executive hereby agree as follows:
 SECTION 1.     Definitions . Capitalized terms used herein will have the meanings set forth in the preamble of this Agreement, or as set forth below:
             1.1.    “ Competing Business ” means (a) any electric or gas energy supplier or distributor located in or servicing the eastern third of
the United States (north of Georgia) and (b) any other corporation, or unincorporated entity, engaged in the same business in which Conectiv or PEPCO (or any affiliate thereof) is engaged at the time of this Agreement or at the time the
Executive
  

   terminates employment with Conectiv or the Company, marketing to the same or similar customers or in the same geographic area.
             1.2.   “ Proprietary Information ” means confidential, proprietary, business and technical information or trade secrets of Conectiv or the
Company. Such Proprietary Information shall include, but shall not be limited to, the following items and information relating to the following items: (a) computer codes or instructions (including source and object code listings, program logic
algorithms, subroutines, modules or other subparts of computer programs and related documentation, including program notation), computer processing systems and techniques, all computer inputs and outputs (regardless of the media on which stored or
located), hardware and software configurations, designs, architecture and interfaces, (b) business research, studies, procedures and costs, (c) financial data, (d) distribution methods, (e) marketing data, methods, plans and efforts, (f) the
identities of Conectiv’s or the Company’s relationship(s) with actual and prospective customers, contractors and suppliers, (g) the terms of contracts and agreements with customers, contractors and suppliers, (h) the needs and requirements
of, and course of dealing with, actual or prospective customers, contractors and suppliers, (i) personnel information, including but not limited to benefit programs, pay scales, and incentive programs, and (j) customer and vendor credit information.
Failure by Conectiv or the Company to mark any of the Proprietary Information as confidential or proprietary shall not affect its status as Proprietary Information under the terms of this Agreement.
             1.4.   “ Restricted Period ” means the entire period of the Executive’s employment by Conectiv or the Company and the 36 calendar
months following the termination of such employment. 
             1.5.   “ Restrictive Covenants ” means the provisions
contained in  Section 3.1  of this Agreement. 
 SECTION 2.    Transaction and Signing Bonus . Within 15 days following the consummation of the Merger, Conectiv will make a single sum
cash payment to the Executive of $7,741,515, less any required tax withholding. 
 SECTION 3.    Non-Compete; Confidentiality; Non-Solicitation . In consideration of the payment described
above in  Section 2 , the Executive agrees to be bound by the Restrictive Covenants set forth in this  Section 3 .
             3.1.    Restrictive Covenants . 
                         (a)   During the Restricted Period, the Executive will not do any of the following,
directly or indirectly, in the eastern third of the United States (north of the state of Georgia) or any other place where Conectiv or the Company has conducted business during the tenure of Executive’s employment with Conectiv or the Company
(except with respect to lines of business in which the Company no longer engages), without the prior written consent of Conectiv or the Company, as applicable: 
  -3- 

                                       (i)  
  Non-Competion . Engage or participate in any Competing Business;
                                      (ii) 
   Restrictions on Ownership . Become interested in (as owner, stockholder, lender, partner, co-venture, director, officer, employee, agent or consultant) any person, firm, corporation, association or other entity engaged in any
Competing Business. Notwithstanding the foregoing, the Executive may hold up to 2% of the outstanding securities of any class of any publicly-traded securities of any company;
                                      (iii)
    Non-Solicitation of Business . Solicit or call on, either directly or indirectly, (A) for purposes of selling goods or products competitive with goods or products sold by Conectiv or the Company, any customer with whom
Conectiv or the Company shall have dealt or any prospective customer that Conectiv or the Company shall have identified and solicited at any time during the Executive’s employment, or engagement as a consultant, by Conectiv or the Company; or
(B) for the purposes of purchasing goods or products competitive with goods or products purchased by Conectiv or the Company for resale by Conectiv or the Company, any supplier with whom Conectiv or the Company shall have dealt at any time during
the Executive’s employment, or engagement as a consultant, by Conectiv or the Company;
                                      (iv) 
   Non-Interference with Business . Influence or attempt to influence any supplier, customer or potential customer of Conectiv or the Company to terminate or modify any written or oral agreement or course of dealing with Conectiv or
the Company; or
                                      (v)  
  Non-Solicitation of Employees . Influence or attempt to influence any person to either (A) terminate or modify any employment, consulting, agency, distributorship or other arrangement with Conectiv or the Company, or (B) employ or
retain, or arrange to have any other person or entity employ or retain, any person who has been employed or retained by Conectiv or the Company as an employee, consultant, agent or distributor of Conectiv or the Company at any time during the
Restricted Period. It is understood that this sub-paragraph (v) does not prevent the Executive from responding truthfully to requests by prospective employers or recruiters for recommendations or information concerning any such person’s
performance as an employee of Conectiv or the Company, provided that Executive did not initiate such request or refer such person for the employment or retention that is the subject of the request, and further provided that Executive shall not
receive any compensation in any form as a result of any hiring or retention of such person.
                         (b)    Confidentiality . The Executive recognizes and acknowledges that the
Proprietary Information is a valuable, special and unique asset of the business of Conectiv or the Company. As a result, both during the period of the Executive’s employment with Conectiv or the Company and thereafter, the Executive shall not,
without the prior written consent of Conectiv or the Company, as applicable, for any reason either directly or indirectly divulge to any third-party or use for his own benefit, or for any purpose other than the exclusive benefit of Conectiv or the
Company, any Proprietary Information revealed, obtained or developed in the course of his employment, or engagement as a consultant, by Conectiv or the Company;  provided, however , that nothing herein contained shall restrict the
Executive’s ability to make 
  -4- 

  such disclosures during the Executive’s period of employment or engagement with Conectiv or the Company as may be necessary or appropriate to the effective and efficient discharge of
his duties as an employee or consultant or as such disclosures may be required by law. If the Executive or any of his representatives becomes legally compelled to disclose any of the Proprietary Information, 
 the Executive will provide Conectiv or the Company with prompt written notice so that the Company may seek a protective order or other appropriate remedy.
                         (c)    Property . All right, title and interest in and to Proprietary
Information shall be and remain the sole and exclusive property of Conectiv or the Company. During the period of employment, and engagement as a consultant, by Conectiv or the Company, the Executive shall not remove from Conectiv or the
Company’s offices or premises any documents, records, notebooks, files, correspondence, reports, memoranda or similar materials of or containing Proprietary Information, or other materials or property of any kind belonging to Conectiv or the
Company unless necessary or appropriate in accordance with the duties and responsibilities required by or appropriate for his position and, in the event that such materials or property are removed, all of the foregoing shall be returned to their
proper files or places of safekeeping as promptly as possible after the removal shall serve its specific purpose. The Executive shall not make, retain, remove and/or distribute any copies of any of the foregoing for any reason whatsoever except as
may be necessary in the discharge of his assigned duties and shall not divulge to any third person the nature of and/or contents of any of the foregoing or of any other oral or written information to which he may have access or with which for any
reason he may become familiar, except as disclosure shall be necessary in the performance of his duties; and upon the termination of his employment with Conectiv or the Company, he shall leave with or return to Conectiv or the Company all originals
and copies of the foregoing then in his possession, whether prepared by the Executive or by others.
                         (d)    Duty to Keep Company Informed . In order to ensure that the Conectiv
and the Company may retain the benefit of the Restrictive Covenants, the Executive agrees to notify Conectiv (or after the Merger, the Company) of any employment or retention as consultant that he may enter into, and to provide specific information
upon request regarding the Executive’s activities. In the event Executive provides such notice and information at least 30 days prior to the commencement of such employment or consultancy, Conectiv or the Company shall respond to such Executive
within 30 days (or if later, within 30 days after additional information has been submitted by the Executive in response to a request for such information) regarding the Company’s initial determination regarding whether such employment or
consultancy falls within the scope of the Restrictive Covenants.
             3.2.    Acknowledgments . The Executive acknowledges
that the Restrictive Covenants are reasonable and necessary to protect the legitimate interests of Conectiv or the Company and its affiliates and that, in the absence of such restrictions, Conectiv would not enter into this Agreement. Therefore, the
Executive acknowledges that the Restrictive Covenants are entered into in order to induce Conectiv to make the payment described in  Section 2 . The Executive further acknowledges that the duration and geographic scope of  Section 3.1(a)
 are reasonable 
  -5- 

  given the nature of Conectiv’s business and the position of authority and responsibility that the Executive holds within Conectiv or may hold within the Company.
             3.3.    Rights and Remedies Upon Breach . 
                         (a)    Specific Enforcement . The Executive acknowledges that any breach by
him, willfully or otherwise, of the Restrictive Covenants will cause continuing and irreparable injury to Conectiv or the Company for which monetary damages would not be an adequate remedy. The Executive shall not, in any action or proceeding to
enforce any of the provisions of this Agreement, assert the claim or defense that such an adequate remedy at law exists. In the event of any such breach by the Executive, Conectiv or the Company shall have the right to enforce the Restrictive
Covenants by seeking injunctive or other relief in any court, without any requirement that a bond or other security be posted, and this Agreement shall not in any way limit remedies of law or in equity otherwise available to Conectiv or the Company.
If an action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to recover, in addition to any other relief, reasonable attorneys’ fees, costs and disbursements.

                         (b)    Extension of Restrictive Period . If
the Executive breaches any of the Restrictive Covenants contained in  Section 3.1(a) , then the Restricted Period shall be extended for a period of time equal to the period of time that the Executive is in breach of such restriction.

                         (c)    Return of Payment and Accounting . If
the Executive engages in a material breach of any of the Restrictive Covenants, the Executive will be required to return the payment described in  Section 2  above, plus interest accruing from the date of payment to the Executive to the date
of such repayment at a rate of 2% above the prime rate, as determined by the Company, to Conectiv or the Company, as applicable, and Conectiv or the Company will have the right and remedy to require the Executive to account for and pay over to the
Company all compensation, profits, monies, accruals, increments or other benefits derived or received by the Executive as the 
 result of any action constituting a breach of the Restrictive Covenants. These
rights and remedies will be in addition to, and not in lieu of, any other rights and remedies available to Conectiv or the Company under law or in equity. Notwithstanding the foregoing, no return of payment will be required unless (i) the damages
caused by the breach are significant and proportionate to the penalty hereunder, or (ii) the Executive fails to cease and remedy the breaching activity within thirty (30) days after receiving notice from Conectiv or the Company indicating the manner
in which the breach has occurred and demanding such cessation and remediation.
             3.4.    Judicial Modification . If any
court determines that the Restrictive Covenants, or any part thereof, is unenforceable because of the duration or geographical scope of such provision, such court shall have the power to modify such provision and, in its modified form, such
provision shall then be enforceable.
             3.5.    Disclosure of Restrictive Covenants . The Executive agrees to disclose
the existence and terms of the restrictive covenants set forth in this  Section 3  to any employer that the Executive may work for during the Restricted Period. 
  -6- 

              3.6.    Enforceability . If any court holds the Restrictive Covenants unenforceable by reason of
their breadth or scope or otherwise, it is the intention of the parties hereto that such determination not bar or in any way affect the right of Conectiv or the Company to the relief provided above in the courts of any other jurisdiction within the
geographical scope of such Restrictive Covenants.
 SECTION 4.    Miscellaneous  
             4.1.    Successors and Assigns . This Agreement shall inure to the benefit of and be binding upon Conectiv, the Company, and the Executive and their
respective successors, executors, administrators, heirs and/or permitted assigns;  provided, however , that neither the Executive nor Conectiv or the Company may make any assignments of this Agreement or any interest herein, by operation of
law or otherwise, without the prior written consent of the other party, except that, without such consent, Conectiv or the Company may assign this Agreement to any successor to all or substantially all of its assets and business by means of
liquidation, dissolution, merger, consolidation, transfer of assets, or otherwise.
             4.2.    Notice . Any notice or
communication required or permitted under this Agreement shall be made in writing and (a) sent by overnight courier, (b) mailed by certified or registered mail, return receipt requested or (c) sent by telecopier, addressed as follows:
                         If to the Executive:
                                      #13 Rockland
Mills
                                      P.O. Box 197

                                     Rockland, DE
19732
                         If to Company: 
                                      Before Merger:

                                      Conectiv

                                     800
King Street
                                      P.O Box 231

                                     Wilmington, DE
19899
                                      Attn: General
Counsel 
                                      After Merger:

                                      PEPCO Holdings
Inc.
                                      Legal Department

                                     701
Ninth St. N.W.
                                      Washington, D.C.
20068
  -7- 

                                       Attn: General
Counsel 
                         with a copy to: 
                                      Pepper Hamilton
LLP
                                      3000 Two Logan
Square
                                      18th & Arch
Streets
                                      Philadelphia, PA
19103
                                      Attention: Susan K.
Hoffman, Esquire
                                      Fax:
215-981-4750
 or to such other address as either party may from time to time duly specify by notice given to the other party in the manner specified above.
             4.3.    Entire Agreement; Amendments . This Agreement contains the entire agreement and understanding of the parties hereto relating to the subject
matter hereof, and merges and supersedes all prior and contemporaneous discussions, agreements and understandings of every nature relating to the subject matter hereof. This Agreement may not be changed or modified, except by an Agreement in writing
signed by each of the parties hereto.
             4.4.    Waiver . Any waiver by either party of any breach of any term or
condition in this Agreement shall not operate as a waiver of any other breach of such term or condition or of any other term or condition, nor shall any failure to enforce any provision hereof operate as a waiver of such provision or of any other
provision hereof or constitute or be deemed a waiver or release of any other rights, in law or in equity.
             4.5.   
Governing Law . This Agreement shall be governed by, and enforced in accordance with, the laws of the State of Delaware without regard to the application of the principles of conflicts of laws.
             4.6.    Severability . Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other
provision or the effectiveness or validity of any provision in any other jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained
herein.
             4.7.    Section Headings . The section headings in this Agreement are for convenience only; they form no part
of this Agreement and shall not affect its interpretation.
             4.8.    Consent to Suit; Fees . Any legal proceeding
arising out of or relating to this Agreement shall be instituted in the United States District Court for the District of Delaware, or if such court does not have jurisdiction or will not accept jurisdiction, in any court of general 

 -8- 

  jurisdiction in Wilmington, Delaware, and the Executive and Conectiv hereby consent to the personal and exclusive jurisdiction of such court and hereby waive any objection that the Executive
or Conectiv or the Company may have to personal jurisdiction, the laying of venue of any such proceeding and any claim or defense of inconvenient forum. In the event of any legal proceeding arising out of or relating to the enforcement or
interpretation of this Agreement, the party prevailing in such proceeding shall be entitled to payment from the other party of all reasonable attorneys’ fees, costs and disbursements incurred by the prevailing party in connection with such
proceeding.
             4.9.    Counterparts and Facsimiles . This Agreement may be executed, including execution by facsimile
signature, in one or more counterparts, each of which shall be deemed an original, and all of which together shall be deemed to be one and the same instrument. 
                         IN WITNESS WHEREOF, Conectiv has caused this Agreement to be executed by its duly authorized
officers, and the Executive has executed this Agreement, in each case as of the date first above written.

	

	 	 CONECTIV 

	 	 	By:  	/s/ Donald E. Cain
		 	 	

	 	 	Title: 	VP-HRPI Conectiv

	

	 	 	 HOWARD E. COSGROVE 

	 	 	   	/s/ Howard E. Cosgrove
		 	 	

	 	 	 	 

  -9-

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