Document:

Exhibit 10.1

 

TELKONET, INC.

 

2020 Stock Option and Incentive Plan

 

		SECTION 1.	GENERAL PURPOSE OF THE PLAN; DEFINITIONS

 

The following sets forth the terms and conditions
of the 2020 Stock Option and Incentive Plan (the “Plan”) adopted by the Board of Directors of Telkonet, Inc., a Utah
corporation (the “Company”) on February 24, 2020, and approved by the stockholders of the Company on May 28, 2020.
The purpose of the Plan is to encourage and enable the officers, employees, Non-Employee Directors and other key persons (including
Consultants and prospective employees) of the Company and its Subsidiaries upon whose judgment, initiative and efforts the Company
largely depends for the successful conduct of its business, to acquire a proprietary interest in the Company. It is anticipated
that providing such persons with a direct stake in the Company’s welfare will assure a closer identification of their interests
with those of the Company and its stockholders, thereby stimulating their efforts on the Company’s behalf and strengthening
their desire to remain with the Company.

 

The following terms shall be defined as
set forth below:

 

“Act” means the Securities Act
of 1933, as amended, and the rules and regulations thereunder.

 

“Administrator” means either
the Board or the compensation committee of the Board or a similar committee performing the functions of the compensation committee
and which is comprised of not less than two Non-Employee Directors who are independent.

 

“Award” or “Awards,”
except where referring to a particular category of grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock
Options, Stock Appreciation Rights, Restricted Stock Units, Restricted Stock Awards, Unrestricted Stock Awards, Cash-Based Awards,
Performance Share Awards and Dividend Equivalent Rights.

 

“Award Certificate” means a
written or electronic document setting forth the terms and provisions applicable to an Award granted under the Plan. Each Award
Certificate is subject to the terms and conditions of the Plan.

 

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

 

“Cash-Based Award” means an
Award entitling the recipient to receive a cash-denominated payment.

 

“Code” means the Internal Revenue
Code of 1986, as amended, and any successor Code, and related rules, regulations and interpretations.

 

“Consultant” means any natural
person that provides bona fide services to the Company, and such services are not in connection with the offer or sale of securities
in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company’s securities.

 

“Dividend Equivalent Right”
means an Award entitling the grantee to receive credits based on cash dividends that would have been paid on the shares of Stock
specified in the Dividend Equivalent Right (or other award to which it relates) if such shares had been issued to and held by the
grantee.

 

“Effective Date” means the date
on which the Plan becomes effective as set forth in Section 20.

 

“Exchange Act” means the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder.

 

 

 

 

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“Fair Market Value” of the Stock
on any given date means the fair market value of the Stock determined in good faith by the Administrator; provided, however, that
if the Stock is quoted on any market system or a national securities exchange, the determination shall be made by reference to
market quotations. If there are no market quotations for such date, the determination shall be made by reference to
the last date preceding such date for which there are market quotations.

 

“Incentive Stock Option” means
any Stock Option designated and qualified as an “incentive stock option” as defined in Section 422 of the Code.

 

“Non-Employee Director” means
a member of the Board who is not also an employee of the Company or any Subsidiary.

 

“Non-Qualified Stock Option”
means any Stock Option that is not an Incentive Stock Option.

 

“Option” or “Stock Option”
means any option to purchase shares of Stock granted pursuant to Section 5.

 

“Performance Criteria” means
the criteria that the Administrator selects for purposes of establishing the Performance Goal or Performance Goals for an individual
for a Performance Cycle. The Performance Criteria (which shall be applicable to the organizational level specified by the Administrator,
including, but not limited to, the Company or a unit, division, group, or Subsidiary of the Company) that will be used to establish
Performance Goals are including, but are not limited to, the following:  earnings before interest, taxes, depreciation
and amortization, net income (loss) (either before or after interest, taxes, depreciation and/or amortization), changes in the
market price of the Stock, economic value-added, funds from operations or similar measure, sales or revenue, acquisitions or strategic
transactions, operating income (loss), cash flow (including, but not limited to, operating cash flow and free cash flow), return
on capital, assets, equity, or investment, stockholder returns, return on sales, gross or net profit levels, productivity, expense,
margins, operating efficiency, customer satisfaction, working capital, earnings (loss) per share of Stock, sales or market shares
and number of customers, any of which may be measured either in absolute terms or as compared to any incremental increase or as
compared to results of a peer group.

 

“Performance Cycle” means one
or more periods of time, which may be of varying and overlapping durations, as the Administrator may select, over which the attainment
of one or more Performance Criteria will be measured for the purpose of determining a grantee’s right to and the payment
of a Restricted Stock Award, Restricted Stock Units, Performance Share Award or Cash-Based Award. Each such period shall not be
less than 12 months.

 

“Performance Goals” means, for
a Performance Cycle, the specific goals established in writing by the Administrator for a Performance Cycle based upon the Performance
Criteria.

 

“Performance Share Award” means
an Award entitling the recipient to acquire shares of Stock upon the attainment of specified Performance Goals.

 

“Restricted Stock Award” means
an Award entitling the recipient to acquire, at such purchase price (which may be zero) as determined by the Administrator, shares
of Stock subject to such restrictions and conditions as the Administrator may determine at the time of grant.

 

“Restricted Stock Units” means
an Award of phantom stock units to a grantee.

 

 

 

 

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“Sale Event” shall mean (i) the
sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (ii) a
merger, reorganization or consolidation pursuant to which the holders of the Company’s outstanding voting power immediately
prior to such transaction do not own a majority of the outstanding voting power of the resulting or successor entity (or its ultimate
parent, if applicable) immediately upon completion of such transaction, or (iii) the sale of all of the Stock of the Company
to an unrelated person or entity.

 

“Sale Price” means the value
as determined by the Administrator of the consideration payable, or otherwise to be received by stockholders, per share of Stock
pursuant to a Sale Event.

 

“Section 409A” means Section 409A
of the Code and the regulations and other guidance promulgated thereunder.

 

“Stock” means the common stock,
par value $0.001 per share, of the Company, subject to adjustments pursuant to Section 3.

 

“Stock Appreciation Right” means
an Award entitling the recipient to receive shares of Stock having a value equal to the excess of the Fair Market Value of the
Stock on the date of exercise over the exercise price of the Stock Appreciation Right multiplied by the number of shares of Stock
with respect to which the Stock Appreciation Right shall have been exercised.

 

“Subsidiary” means any corporation
or other entity (other than the Company) in which the Company has at least a 50 percent interest, either directly or indirectly.

 

“Ten Percent Owner” means an
employee who owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10 percent
of the combined voting power of all classes of stock of the Company or any parent or subsidiary corporation.

 

“Unrestricted Stock Award” means
an Award of shares of Stock free of any restrictions.

 

		SECTION 2.	ADMINISTRATION
OF PLAN; ADMINISTRATOR AUTHORITY TO SELECT GRANTEES AND DETERMINE AWARDS

 

(a)                
Administration of Plan. The Plan shall be administered by the Administrator, provided that the amount, timing and
terms of the grants of Awards to Non-Employee Directors shall be determined by the compensation committee or similar committee
comprised solely of Non-Employee Directors.

 

(b)               
Powers of Administrator. The Administrator shall have the power and authority to grant Awards consistent with the
terms of the Plan, including the power and authority:

 

(i)                
to select the individuals to whom Awards may from time to time be granted;

 

(ii)               
to determine the time or times of grant, and the extent, if any, of Incentive Stock Options, Non-Qualified Stock Options,
Stock Appreciation Rights, Restricted Stock Awards, Restricted Stock Units, Unrestricted Stock Awards, Cash-Based Awards, Performance
Share Awards and Dividend Equivalent Rights, or any combination of the foregoing, granted to any one or more grantees;

 

 

 

 

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(iii)             
to determine the number of shares of Stock to be covered by any Award;

 

(iv)              
to determine and modify from time to time the terms and conditions, including restrictions, not inconsistent with the terms
of the Plan, of any Award, which terms and conditions may differ among individual Awards and grantees, and to approve the forms
of Award Certificates;

 

(v)               
to accelerate at any time the exercisability or vesting of all or any portion of any Award, provided that the Administrator
generally shall not exercise such discretion to accelerate Awards subject to Sections 7 and 8 except in the event of the grantee’s
death, disability or retirement, or a change in control (including a Sale Event);

 

(vi)              
subject to the provisions of Section 5(b), to extend at any time the period in which Stock Options may be exercised;
and

 

(vii)             
at any time to adopt, alter and repeal such rules, guidelines and practices for administration of the Plan and for its own
acts and proceedings as it shall deem advisable; to interpret the terms and provisions of the Plan and any Award (including related
written instruments); to make all determinations it deems advisable for the administration of the Plan; to decide all disputes
arising in connection with the Plan; and to otherwise supervise the administration of the Plan.

 

All decisions and interpretations of the
Administrator shall be binding on all persons, including the Company and Plan grantees.

 

(c)                
Delegation of Authority to Grant Options. Subject to applicable law, the Administrator, in its discretion, may delegate
to the Chief Executive Officer of the Company all or part of the Administrator’s authority and duties with respect to the
granting of Options to individuals who are not subject to the reporting and other provisions of Section 16 of the Exchange
Act.  Any such delegation by the Administrator shall include a limitation as to the amount of Options that may be granted
during the period of the delegation and shall contain guidelines as to the determination of the exercise price and the vesting
criteria. The Administrator may revoke or amend the terms of a delegation at any time but such action shall not invalidate any
prior actions of the Administrator’s delegate or delegates that were consistent with the terms of the Plan.

 

(d)                
Award Certificate. Awards under the Plan shall be evidenced by Award Certificates that set forth the terms, conditions
and limitations for each Award which may include, without limitation, the term of an Award and the provisions applicable in the
event employment or service terminates.

 

(e)                
Indemnification.  Neither the Board nor the Administrator, nor any member of either or any delegate thereof,
shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with the
Plan, and the members of the Board and the Administrator (and any delegate thereof) shall be entitled in all cases to indemnification
and reimbursement by the Company in respect of any claim, loss, damage or expense (including, without limitation, reasonable attorneys’
fees) arising or resulting therefrom to the fullest extent permitted by law and/or under the Company’s articles or bylaws
or any directors’ and officers’ liability insurance coverage which may be in effect from time to time and/or any indemnification
agreement between such individual and the Company.

 

 

 

 

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(f)                 
Foreign Award Recipients. Notwithstanding any provision of the Plan to the contrary, in order to comply with the
laws in other countries in which the Company and its Subsidiaries operate or have employees or other individuals eligible for Awards,
the Administrator, in its sole discretion, shall have the power and authority to: (i) determine which Subsidiaries shall be
covered by the Plan; (ii) determine which individuals outside the United States are eligible to participate in the Plan; (iii) modify
the terms and conditions of any Award granted to individuals outside the United States to comply with applicable foreign laws;
(iv) establish subplans and modify exercise procedures and other terms and procedures, to the extent the Administrator determines
such actions to be necessary or advisable (and such subplans and/or modifications shall be attached to this Plan as appendices);
provided, however, that no such subplans and/or modifications shall increase the share limitations contained in Section 3(a)
hereof; and (v) take any action, before or after an Award is made, that the Administrator determines to be necessary or advisable
to obtain approval or comply with any local governmental regulatory exemptions or approvals.  Notwithstanding the foregoing,
the Administrator may not take any actions hereunder, and no Awards shall be granted, that would violate the Exchange Act or any
other applicable United States securities law, the Code, or any other applicable United States governing statute or law.

 

		SECTION 3.	STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION

 

(a)                
Stock Issuable. The maximum number of shares of Stock reserved and available for issuance under the Plan shall be
10,000,000 shares, subject to adjustment as provided in this Section 3. For purposes of this limitation, the shares of Stock
underlying any Awards that are forfeited, canceled, held back upon exercise of an Option or settlement of an Award to cover the
exercise price or tax withholding, reacquired by the Company prior to vesting, satisfied without the issuance of Stock or otherwise
terminated (other than by exercise) shall be added back to the shares of Stock available for issuance under the Plan. In the event
the Company repurchases shares of Stock on the open market, such shares shall not be added to the shares of Stock available for
issuance under the Plan. Subject to such overall limitations, shares of Stock may be issued up to such maximum number pursuant
to any type or types of Award; provided, however, that no more than 1,500,000 shares of the Stock may be issued in the form of
Incentive Stock Options. The shares available for issuance under the Plan may be authorized but unissued shares of Stock or shares
of Stock reacquired by the Company.

 

(b)               
Effect of Awards. The grant of any full-value Award (i.e., an Award other than an Option or a Stock Appreciation
Right), Option, or Stock Appreciation Right shall be deemed, for purposes of determining the number of shares of Stock available
for issuance under Section 3(a), as an Award for one share of Stock for each such share of Stock actually subject to the Award.  Any
forfeitures, cancellations or other terminations (other than by exercise) of such Awards shall be returned to the reserved pool
of shares of Stock under the Plan in the same manner.

 

 

 

 

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(c)                
Changes in Stock. Subject to Section 3(d) hereof, if, as a result of any reorganization, recapitalization, reclassification,
stock dividend, stock split, reverse stock split or other similar change in the Company’s capital stock, the outstanding
shares of Stock are increased or decreased or are exchanged for a different number or kind of shares or other securities of the
Company, or additional shares or new or different shares or other securities of the Company or other non-cash assets are distributed
with respect to such shares of Stock or other securities, or, if, as a result of any merger or consolidation, sale of all or substantially
all of the assets of the Company, the outstanding shares of Stock are converted into or exchanged for securities of the Company
or any successor entity (or a parent or subsidiary thereof), the Administrator shall make an appropriate or proportionate adjustment
in (i) the maximum number of shares reserved for issuance under the Plan, including the maximum number of shares that may
be issued in the form of Incentive Stock Options, (ii) the number of Stock Options or Stock Appreciation Rights that can be
granted to any one individual grantee, (iii) the number and kind of shares or other securities subject to any then outstanding
Awards under the Plan, (iv) the repurchase price, if any, per share subject to each outstanding Restricted Stock Award or
Unrestricted Stock Award, and (v) the exercise price for each share subject to any then outstanding Stock Options and Stock
Appreciation Rights under the Plan, without changing the aggregate exercise price (i.e., the exercise price multiplied by the number
of Stock Options and Stock Appreciation Rights) as to which such Stock Options and Stock Appreciation Rights remain exercisable.  The
Administrator shall also make equitable or proportionate adjustments in the number of shares subject to outstanding Awards and
the exercise price and the terms of outstanding Awards to take into consideration cash dividends paid other than in the ordinary
course or any other extraordinary corporate event.  The adjustment by the Administrator shall be final, binding and conclusive.  No
fractional shares of Stock shall be issued under the Plan resulting from any such adjustment, but the Administrator in its discretion
may make a cash payment in lieu of fractional shares.

 

(d)               
Mergers and Other Transactions. Except as the Administrator may otherwise specify with respect to particular Awards
in the relevant Award Certificate, in the case of and subject to the consummation of a Sale Event, all Options and Stock Appreciation
Rights that are not exercisable immediately prior to the effective time of the Sale Event shall become fully exercisable as of
the effective time of the Sale Event, all other Awards with time-based vesting, conditions or restrictions shall become fully vested
and nonforfeitable as of the effective time of the Sale Event, and all Awards with conditions and restrictions relating to the
attainment of Performance Goals may become vested and nonforfeitable in connection with a Sale Event in the Administrator’s
discretion, unless, in any case, the parties to the Sale Event agree that Awards will be assumed or continued by the successor
entity. Upon the effective time of the Sale Event, the Plan and all outstanding Awards granted hereunder shall terminate, unless
provision is made in connection with the Sale Event in the sole discretion of the parties thereto for the assumption or continuation
of Awards theretofore granted by the successor entity, or the substitution of such Awards with new Awards of the successor entity
or parent thereof, with appropriate adjustment as to the number and kind of shares and, if appropriate, the per share exercise
prices, as such parties shall agree (after taking into account any acceleration hereunder). In the event of such termination, (i) the
Company shall have the option (in its sole discretion) to make or provide for a cash payment to the grantees holding Options and
Stock Appreciation Rights, in exchange for the cancellation thereof, in an amount equal to the difference between (A) the
Sale Price multiplied by the number of shares of Stock subject to outstanding Options and Stock Appreciation Rights (to the extent
then exercisable (after taking into account any acceleration hereunder) at prices not in excess of the Sale Price) and (B) the
aggregate exercise price of all such outstanding Options and Stock Appreciation Rights; or (ii) each grantee shall be permitted,
within a specified period of time prior to the consummation of the Sale Event as determined by the Administrator, to exercise all
outstanding Options and Stock Appreciation Rights held by such grantee.

 

 

 

 

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(e)                
Substitute Awards. The Administrator may grant Awards under the Plan in substitution for stock and stock based awards
held by employees, directors or other key persons of another corporation in connection with the merger or consolidation of the
employing corporation with the Company or a Subsidiary or the acquisition by the Company or a Subsidiary of property or stock of
the employing corporation. The Administrator may direct that the substitute awards be granted on such terms and conditions as the
Administrator considers appropriate in the circumstances. Any substitute Awards granted under the Plan shall not count against
the share limitation set forth in Section 3(a).

 

		SECTION 4.	ELIGIBILITY

 

Grantees under the Plan will be such full
or part-time officers and other employees, Non-Employee Directors and key persons (including Consultants and prospective employees)
of the Company and its Subsidiaries as are selected from time to time by the Administrator in its sole discretion.

 

		SECTION 5.	STOCK OPTIONS

 

(a)                
Nature of Stock Option Awards. Any Stock Option granted under the Plan shall be in such form as the Administrator
may from time to time approve. Stock Options granted under the Plan may be either Incentive Stock Options or Non-Qualified Stock
Options. Incentive Stock Options may be granted only to employees of the Company or any Subsidiary that is a “subsidiary
corporation” within the meaning of Section 424(f) of the Code. To the extent that any Option does not qualify as an
Incentive Stock Option, it shall be deemed a Non-Qualified Stock Option. Stock Options granted pursuant to this Section 5
shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent
with the terms of the Plan, as the Administrator shall deem desirable.  If the Administrator so determines, Stock Options
may be granted in lieu of cash compensation at the optionee’s election, subject to such terms and conditions as the Administrator
may establish.

 

(b)               
Exercise Price. The exercise price per share for the Stock covered by a Stock Option granted pursuant to this Section 5
shall be determined by the Administrator at the time of grant but shall not be less than 100 percent of the Fair Market Value on
the date of grant.  In the case of an Incentive Stock Option that is granted to a Ten Percent Owner, the exercise price
of such Incentive Stock Option shall be not less than 110 percent of the Fair Market Value on the grant date.

 

(c)                
Option Term. The term of each Stock Option shall be fixed by the Administrator, but no Stock Option shall be exercisable
more than ten years after the date the Stock Option is granted. In the case of an Incentive Stock Option that is granted to a Ten
Percent Owner, the term of such Stock Option shall be no more than five years from the date of grant.

 

 

 

 

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(d)               
Exercisability; Rights of a Stockholder. Stock Options shall become exercisable at such time or times, whether or
not in installments, as shall be determined by the Administrator at or after the grant date. The Administrator may at any time
accelerate the exercisability of all or any portion of any Stock Option. An optionee shall have the rights of a stockholder only
as to shares acquired upon the exercise of a Stock Option and not as to unexercised Stock Options.

 

(e)                
Method of Exercise. Stock Options may be exercised in whole or in part, by giving written or electronic notice of
exercise to the Company, specifying the number of shares to be purchased. Payment of the purchase price may be made by one or more
of the following methods except to the extent otherwise provided in the Option Award Certificate:

 

(i)                 
In cash, by certified or bank check or other instrument acceptable to the Administrator;

 

(ii)               
Through the delivery (or attestation to the ownership) of shares of Stock that have been purchased by the optionee on the
open market or that have been beneficially owned by the optionee for at least six months and that are not then subject to restrictions
under any Company plan. Such surrendered shares shall be valued at Fair Market Value on the exercise date;

 

(iii)              
By the optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to
a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company for the purchase price; provided
that in the event the optionee chooses to pay the purchase price as so provided, the optionee and the broker shall comply with
such procedures and enter into such agreements of indemnity and other agreements as the Administrator shall prescribe as a condition
of such payment procedure; or

 

(iv)              
With respect to Stock Options that are not Incentive Stock Options, by a “net exercise” arrangement pursuant
to which the Company will reduce the number of shares of Stock issuable upon exercise by the largest whole number of shares with
a Fair Market Value that does not exceed the aggregate exercise price.

 

(f)                 
Payment upon Exercise. Payment instruments will be received subject to collection. The transfer to the optionee on
the records of the Company or of the transfer agent of the shares of Stock to be purchased pursuant to the exercise of a Stock
Option will be contingent upon receipt from the optionee (or a purchaser acting in his stead in accordance with the provisions
of the Stock Option) by the Company of the full purchase price for such shares and the fulfillment of any other requirements contained
in the Option Award Certificate or applicable provisions of laws (including the satisfaction of any withholding taxes that the
Company is obligated to withhold with respect to the optionee). In the event an optionee chooses to pay the purchase price by previously-owned
shares of Stock through the attestation method, the number of shares of Stock transferred to the optionee upon the exercise of
the Stock Option shall be net of the number of attested shares.  In the event that the Company establishes, for itself
or using the services of a third party, an automated system for the exercise of Stock Options, such as a system using an internet
website or interactive voice response, then the paperless exercise of Stock Options may be permitted through the use of such an
automated system.

 

 

 

 

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(g)               
Annual Limit on Incentive Stock Options. To the extent required for “incentive stock option” treatment
under Section 422 of the Code, the aggregate Fair Market Value (determined as of the time of grant) of the shares of Stock
with respect to which Incentive Stock Options granted under this Plan and any other plan of the Company or its parent and subsidiary
corporations become exercisable for the first time by an optionee during any calendar year shall not exceed $100,000. To the extent
that any Stock Option exceeds this limit, it shall constitute a Non-Qualified Stock Option.

 

		SECTION 6.	STOCK APPRECIATION
RIGHTS

 

(a)                
Exercise Price of Stock Appreciation Rights. The exercise price of a Stock Appreciation Right shall not be less than
100 percent of the Fair Market Value of the Stock on the date of grant.

 

(b)               
Grant and Exercise of Stock Appreciation Rights. Stock Appreciation Rights may be granted by the Administrator independently
of any Stock Option granted pursuant to Section 5 of the Plan.

 

(c)                
Terms and Conditions of Stock Appreciation Rights. Stock Appreciation Rights shall be subject to such terms and conditions
as shall be determined at the time of grant by the Administrator. The term of a Stock Appreciation Right may not exceed ten years.

 

		SECTION 7.	RESTRICTED STOCK
AWARDS

 

(a)                
Nature of Restricted Stock Awards. The Administrator shall determine the restrictions and conditions applicable to
each Restricted Stock Award at the time of grant. Conditions may be based on continuing employment (or other service relationship)
and/or achievement of Performance Goals. The terms and conditions of each such Award shall be determined by the Administrator and
set forth in an Award Certificate, and such terms and conditions may differ among individual Awards and grantees.

 

(b)               
Rights as a Stockholder. Upon the grant of the Restricted Stock Award and payment of any applicable purchase price,
a grantee shall have the rights of a stockholder with respect to the voting of the Stock, subject to such conditions contained
in the Restricted Stock Award Certificate. Unless the Administrator shall otherwise determine, (i) uncertificated Stock shall
be accompanied by a notation on the records of the Company or the transfer agent to the effect that they are subject to forfeiture
until such Restricted Stock Award is vested as provided in Section 7(d) below, and (ii) certificated Stock shall remain
in the possession of the Company until such Restricted Stock Award is vested as provided in Section 7(d) below, and the grantee
shall be required, as a condition of the grant, to deliver to the Company such instruments of transfer as the Administrator may
prescribe.

 

 

 

 

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(c)                
Restrictions. Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed
of except as specifically provided herein or in the Restricted Stock Award Certificate.  Except as may otherwise be provided
by the Administrator either in the Award Certificate or, subject to Section 17 below, in writing after the Award is issued, if
a grantee’s employment (or other service relationship) with the Company and its Subsidiaries terminates for any reason, any
Restricted Stock Award that has not vested at the time of termination shall automatically and without any requirement of notice
to such grantee from or other action by or on behalf of, the Company be deemed to have been reacquired by the Company at its original
purchase price (if any) from such grantee or such grantee’s legal representative simultaneously with such termination of
employment (or other service relationship), and thereafter shall cease to represent any ownership of the Company by the grantee
or rights of the grantee as a stockholder. Following such deemed reacquisition of unvested Restricted Stock Award that is represented
by physical certificates, a grantee shall surrender such certificates to the Company upon request without consideration.

 

(d)               
Vesting of Restricted Stock. The Administrator at the time of grant shall specify the date or dates and/or the attainment
of Performance Goals, objectives and other conditions on which the non-transferability of the Restricted Stock Award and the Company’s
right of repurchase or forfeiture shall lapse. Notwithstanding the foregoing, in the event that any such Restricted Stock Award
granted to an employee shall be based upon the attainment of a Performance Goal, the restriction period with respect to such shares
shall not be less than one year, and in the event any such Restricted Stock Award granted to employees shall have a time-based
restriction, the total restriction period with respect to such shares shall not be less than three years; provided, however, that
Restricted Stock Awards with a time-based restriction may become vested incrementally over such three-year period. Subsequent to
such date or dates and/or the attainment of such Performance Goals, objectives and other conditions, the shares on which all restrictions
have lapsed shall no longer be Restricted Stock Awards and shall be deemed “vested.” Except as may otherwise be provided
by the Administrator either in the Award Certificate or, subject to Section 17 below, in writing after the Award is issued,
a grantee’s rights in any shares of Restricted Stock Awards that have not vested shall automatically terminate upon the grantee’s
termination of employment (or other service relationship) with the Company and its Subsidiaries, and such shares shall be subject
to the provisions of Section 7(c) above.

 

		SECTION 8.	RESTRICTED STOCK
UNITS

 

(a)                
Nature of Restricted Stock Units. The Administrator shall determine the restrictions and conditions applicable to
each Restricted Stock Unit at the time of grant. Conditions may be based on continuing employment (or other service relationship)
and/or achievement of Performance Goals. The terms and conditions of each such Award shall be determined by the Administrator and
set forth in an Award Certificate, and such terms and conditions may differ among individual Awards and grantees. Notwithstanding
the foregoing, in the event that any such Restricted Stock Units granted to employees shall be based upon the attainment of a Performance
Goal, the restriction period with respect to such Award shall not be less than one year, and in the event any such Restricted Stock
Units granted to employees shall have a time-based restriction, the total restriction period with respect to such Award shall not
be less than three years; provided, however, that any Restricted Stock Units with a time-based restriction may become vested incrementally
over such three-year period. At the end of the deferral period, the Restricted Stock Units, to the extent vested, shall be settled
in the form of shares of Stock. To the extent that an Award of Restricted Stock Units is subject to Section 409A, the Award
may contain such additional terms and conditions as the Administrator shall determine in its sole discretion in order for such
Award to comply with the requirements of Section 409A.

 

 

 

 

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(b)               
Election to Receive Restricted Stock Units in Lieu of Compensation. The Administrator may, in its sole discretion,
permit a grantee to elect to receive a portion of future cash compensation otherwise due to such grantee in the form of an award
of Restricted Stock Units.  Any such election shall be made in writing and shall be delivered to the Company no later
than the date specified by the Administrator and in accordance with Section 409A and such other rules and procedures established
by the Administrator. Any such future cash compensation that the grantee elects to defer shall be converted to a fixed number of
Restricted Stock Units based on the Fair Market Value of Stock on the date the compensation would otherwise have been paid to the
grantee if such payment had not been deferred as provided herein. The Administrator shall have the sole right to determine whether
and under what circumstances to permit such elections and to impose such limitations and other terms and conditions thereon as
the Administrator deems appropriate. Any Restricted Stock Units that are elected to be received in lieu of cash compensation shall
be fully vested, unless otherwise provided in the Award Certificate.

 

(c)                
Rights as a Stockholder. A grantee shall have the rights as a stockholder only as to shares of Stock acquired by
the grantee upon settlement of Restricted Stock Units; provided, however, that the grantee may be credited with Dividend Equivalent
Rights with respect to the phantom stock units underlying his Restricted Stock Units, subject to such terms and conditions as the
Administrator may determine.

 

(d)               
Termination. Except as may otherwise be provided by the Administrator either in the Award Certificate or, subject
to Section 17 below, in writing after the Award is issued, a grantee’s right in all Restricted Stock Units that have
not vested shall automatically terminate upon the grantee’s termination of employment (or cessation of service relationship)
with the Company and its Subsidiaries for any reason.

 

		SECTION 9.	UNRESTRICTED
STOCK AWARDS

 

(a)                
Nature of Unrestricted Stock Awards. The Administrator may, in its sole discretion, grant (or sell at par value or
such higher purchase price determined by the Administrator) an Unrestricted Stock Award under the Plan. Unrestricted Stock Awards
may be granted in respect of past services or other valid consideration, or in lieu of cash compensation due to such grantee.

 

(b)               
Rights as a Stockholder. Upon the grant of the Unrestricted Stock Award and payment of any applicable purchase price,
a grantee shall have the rights of a stockholder with respect to the voting of the Stock underlying the Unrestricted Stock Award.

 

		SECTION 10.	CASH-BASED AWARDS

 

The Administrator may, in its sole discretion,
grant Cash-Based Awards to any grantee in such number and amounts and upon such terms, and subject to such conditions, as the Administrator
shall determine at the time of grant. The Administrator shall determine the maximum duration of the Cash-Based Award, the amount
of cash to which the Cash-Based Award pertains, the conditions upon which the Cash-Based Award shall become vested or payable,
and such other provisions as the Administrator shall determine. Each Cash-Based Award shall specify a cash-denominated payment
amount, formula or payment ranges as determined by the Administrator. Payment, if any, with respect to a Cash-Based Award shall
be made in accordance with the terms of the Award and may be made in cash or in shares of Stock, as the Administrator shall determine.

 

 

 

 

    	 	11	 

     

    

 

		SECTION 11.	PERFORMANCE
SHARE AWARDS

 

(a)                
Nature of Performance Share Awards. The Administrator may, in its sole discretion, grant Performance Share Awards
independent of, or in connection with, the granting of any other Award. The Administrator shall determine whether and to whom Performance
Share Awards shall be granted, the Performance Goals, the Performance Cycle, and such other limitations and conditions as the Administrator
shall determine.

 

(b)               
Rights as a Stockholder. A grantee receiving a Performance Share Award shall have the rights of a stockholder only
as to shares actually received by the grantee under the Plan and not with respect to shares subject to the Award but not actually
received by the grantee. A grantee shall be entitled to receive shares of Stock under a Performance Share Award only upon satisfaction
of all conditions specified in the Performance Share Award Certificate (or in a performance plan adopted by the Administrator).

 

(c)                
Termination. Except as may otherwise be provided by the Administrator either in the Award Certificate or, subject
to Section 17 below, in writing after the Award is issued, a grantee’s rights in all Performance Share Awards shall
automatically terminate upon the grantee’s termination of employment (or cessation of service relationship) with the Company
and its Subsidiaries for any reason.  

 

		SECTION 12.	DIVIDEND EQUIVALENT
RIGHTS

 

(a)                
Dividend Equivalent Rights. A Dividend Equivalent Right may be granted hereunder to any grantee as a component of
an award of Restricted Stock Units, Restricted Stock Award, Performance Share Award or as a freestanding award. The terms and conditions
of Dividend Equivalent Rights shall be specified in the Award Certificate. Dividend equivalents credited to the holder of a Dividend
Equivalent Right may be paid currently or may be deemed to be reinvested in additional shares of Stock, which may thereafter accrue
additional equivalents. Any such reinvestment shall be at Fair Market Value on the date of reinvestment or such other price as
may then apply under a dividend reinvestment plan sponsored by the Company, if any. Dividend Equivalent Rights may be settled in
cash or shares of Stock or a combination thereof, in a single installment or installments. A Dividend Equivalent Right granted
as a component of an award of Restricted Stock Units, Restricted Stock Award or Performance Share Award may provide that such Dividend
Equivalent Right shall be settled upon settlement or payment of, or lapse of restrictions on, such other Award, and that such Dividend
Equivalent Right shall expire or be forfeited or annulled under the same conditions as such other Award. A Dividend Equivalent
Right granted as a component of Restricted Stock Units, a Restricted Stock Award or Performance Share Award may also contain terms
and conditions different from such other Award.

 

 

 

 

    	 	12	 

     

    

 

(b)               
Interest Equivalents. Any Award that is settled in whole or in part in cash on a deferred basis may provide for interest
equivalents to be credited with respect to such cash payment. Interest equivalents may be compounded and shall be paid upon such
terms and conditions as may be specified in the Award Certificate.

 

(c)                
Termination. Except as may otherwise be provided by the Administrator either in the Award Certificate or, subject
to Section 17 below, in writing after the Award is issued, a grantee’s rights in all Dividend Equivalent Rights or interest
equivalents granted as a component of an Award of Restricted Stock Units, Restricted Stock Award or Performance Share Award that
has not vested shall automatically terminate upon the grantee’s termination of employment (or cessation of service relationship)
with the Company and its Subsidiaries for any reason.

 

		SECTION 13.	TRANSFERABILITY
OF AWARDS

 

(a)                
Transferability. Except as provided in Section 13(b) below, during a grantee’s lifetime, his or her Awards
shall be exercisable only by the grantee, or by the grantee’s legal representative or guardian in the event of the grantee’s
incapacity. No Awards shall be sold, assigned, transferred or otherwise encumbered or disposed of by a grantee other than by will
or by the laws of descent and distribution or pursuant to a domestic relations order. No Awards shall be subject, in whole or in
part, to attachment, execution, or levy of any kind, and any purported transfer in violation hereof shall be null and void.

 

(b)               
Administrator Action. Notwithstanding Section 13(a), the Administrator, in its discretion, may provide either
in the Award Certificate or by subsequent written approval that the grantee (who is an employee or director) may transfer his or
her Awards (other than any Incentive Stock Options or Restricted Stock Units) to his or her immediate family members, to trusts
for the benefit of such family members, or to partnerships in which such family members are the only partners, provided that the
transferee agrees in writing with the Company to be bound by all of the terms and conditions of this Plan and the applicable Award.  In
no event may an Award be transferred by a grantee for value.

 

(c)                
Family Member. For purposes of Section 13(b), “family member” shall mean a grantee’s
child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the grantee’s
household (other than a tenant of the grantee), a trust in which these persons (or the grantee) have more than 50 percent of the
beneficial interest, a foundation in which these persons (or the grantee) control the management of assets, and any other entity
in which these persons (or the grantee) own more than 50 percent of the voting interests.

 

(d)               
Designation of Beneficiary. Each grantee to whom an Award has been made under the Plan may designate a beneficiary
or beneficiaries to exercise any Award or receive any payment under any Award payable on or after the grantee’s death. Any
such designation shall be on a form provided for that purpose by the Administrator and shall not be effective until received by
the Administrator. If no beneficiary has been designated by a deceased grantee, or if the designated beneficiaries have predeceased
the grantee, the beneficiary shall be the grantee’s estate.

 

 

 

 

    	 	13	 

     

    

 

		SECTION 14.	TAX WITHHOLDING

 

(a)                
Payment by Grantee. Each grantee shall, no later than the date as of which the value of an Award or of any Stock
or other amounts received thereunder first becomes includable in the gross income of the grantee for Federal income tax purposes,
pay to the Company, or make arrangements satisfactory to the Administrator regarding payment of, any Federal, state, or local taxes
of any kind required by law to be withheld by the Company with respect to such income. The Company and its Subsidiaries shall,
to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the grantee.
The Company’s obligation to deliver evidence of book entry (or stock certificates) to any grantee is subject to and conditioned
on tax withholding obligations being satisfied by the grantee.

 

(b)               
Payment in Stock. Subject to approval by the Administrator, a grantee may elect to have the Company’s minimum
required tax withholding obligation satisfied, in whole or in part, by authorizing the Company to withhold from shares of Stock
to be issued pursuant to any Award a number of shares with an aggregate Fair Market Value (as of the date the withholding is effected)
that would satisfy the withholding amount due.

 

		SECTION 15.	SECTION 409A
AWARDS

 

To the extent that any Award is determined
to constitute “nonqualified deferred compensation” within the meaning of Section 409A (a “409A Award”),
the Award shall be subject to such additional rules and requirements as specified by the Administrator from time to time in order
to comply with Section 409A. In this regard, if any amount under a 409A Award is payable upon a “separation from service”
(within the meaning of Section 409A) to a grantee who is then considered a “specified employee” (within the meaning
of Section 409A), then no such payment shall be made prior to the date that is the earlier of (i) six months and one
day after the grantee’s separation from service, or (ii) the grantee’s death, but only to the extent such delay
is necessary to prevent such payment from being subject to interest, penalties and/or additional tax imposed pursuant to Section 409A.
Further, the settlement of any such Award may not be accelerated except to the extent permitted by Section 409A.

 

		SECTION 16.	TRANSFER, LEAVE
OF ABSENCE, ETC.

 

For purposes of the Plan, the following
events shall not be deemed a termination of employment:

 

(a)                
a transfer to the employment of the Company from a Subsidiary or from the Company to a Subsidiary, or from one Subsidiary
to another; or

 

(b)               
an approved leave of absence for military service or sickness, or for any other purpose approved by the Company, if the
employee’s right to re-employment is guaranteed either by a statute or by contract or under the policy pursuant to which
the leave of absence was granted or if the Administrator otherwise so provides in writing.

 

		SECTION 17.	AMENDMENTS AND
TERMINATION

 

The Board may, at any time, amend or discontinue
the Plan and the Administrator may, at any time, amend or cancel any outstanding Award for the purpose of satisfying changes in
law or for any other lawful purpose, but no such action shall adversely affect rights under any outstanding Award without the holder’s
consent. Except as provided in Section 3(c) or 3(d), without prior stockholder approval, in no event may the Administrator
exercise its discretion to reduce the exercise price of outstanding Stock Options or Stock Appreciation Rights or effect repricing
through cancellation and re-grants or cancellation of Stock Options or Stock Appreciation Rights in exchange for cash. To the extent
required under the rules of any securities exchange or market system on which the Stock is listed or to the extent determined by
the Administrator to be required by the Code to ensure that Incentive Stock Options granted under the Plan are qualified under
Section 422 of the Code, Plan amendments shall be subject to approval by the Company stockholders entitled to vote at a meeting
of stockholders. Nothing in this Section 17 shall limit the Administrator’s authority to take any action permitted pursuant
to Section 3(c) or 3(d).

 

 

 

    	 	14	 

     

    

 

		SECTION 18.	STATUS OF PLAN

 

With respect to the portion of any Award
that has not been exercised and any payments in cash, Stock or other consideration not received by a grantee, a grantee shall have
no rights greater than those of a general creditor of the Company unless the Administrator shall otherwise expressly determine
in connection with any Award or Awards. In its sole discretion, the Administrator may authorize the creation of trusts or other
arrangements to meet the Company’s obligations to deliver Stock or make payments with respect to Awards hereunder, provided
that the existence of such trusts or other arrangements is consistent with the foregoing sentence.

 

		SECTION 19.	GENERAL PROVISIONS

 

(a)                
No Distribution. The Administrator may require each person acquiring Stock pursuant to an Award to represent to and
agree with the Company in writing that such person is acquiring the shares without a view to distribution thereof.

 

(b)               
Delivery of Stock Certificates. Stock certificates to grantees under this Plan shall be deemed delivered for all
purposes when the Company or a stock transfer agent of the Company shall have mailed such certificates in the United States mail,
addressed to the grantee, at the grantee’s last known address on file with the Company. Uncertificated Stock shall be deemed
delivered for all purposes when the Company or a Stock transfer agent of the Company shall have given to the grantee by electronic
mail (with proof of receipt) or by United States mail, addressed to the grantee, at the grantee’s last known address on file
with the Company, notice of issuance and recorded the issuance in its records (which may include electronic “book entry”
records). Notwithstanding anything herein to the contrary, the Company shall not be required to issue or deliver any certificates
evidencing shares of Stock pursuant to the exercise of any Award, unless and until the Administrator has determined, with advice
of counsel (to the extent the Administrator deems such advice necessary or advisable), that the issuance and delivery of such certificates
is in compliance with all applicable laws, regulations of governmental authorities and, if applicable, the requirements of any
exchange on which the shares of Stock are listed, quoted or traded. All Stock certificates delivered pursuant to the Plan shall
be subject to any stop-transfer orders and other restrictions as the Administrator deems necessary or advisable to comply with
federal, state or foreign jurisdiction, securities or other laws, rules and quotation system on which the Stock is listed, quoted
or traded. The Administrator may place legends on any Stock certificate to reference restrictions applicable to the Stock. In addition
to the terms and conditions provided herein, the Administrator may require that an individual make such reasonable covenants, agreements,
and representations as the Administrator, in its discretion, deems necessary or advisable in order to comply with any such laws,
regulations, or requirements. The Administrator shall have the right to require any individual to comply with any timing or other
restrictions with respect to the settlement or exercise of any Award, including a window-period limitation, as may be imposed in
the discretion of the Administrator.

 

 

 

 

    	 	15	 

     

    

 

(c)                
Stockholder Rights. Until Stock is deemed delivered in accordance with Section 19(b), no right to vote or receive
dividends or any other rights of a stockholder will exist with respect to shares of Stock to be issued in connection with an Award,
notwithstanding the exercise of a Stock Option or any other action by the grantee with respect to an Award.

 

(d)               
Other Compensation Arrangements; No Employment Rights. Nothing contained in this Plan shall prevent the Board from
adopting other or additional compensation arrangements, including trusts, and such arrangements may be either generally applicable
or applicable only in specific cases. The adoption of this Plan and the grant of Awards do not confer upon any employee any right
to continued employment with the Company or any Subsidiary.

 

(e)                
Trading Policy Restrictions. Option exercises and other Awards under the Plan shall be subject to the Company’s
insider trading policies and procedures, as in effect from time to time.

 

(f)                 
Forfeiture of Awards under Sarbanes-Oxley Act. If the Company is required to prepare an accounting restatement due
to the material noncompliance of the Company, as a result of misconduct, with any financial reporting requirement under the securities
laws, then any grantee who is one of the individuals subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley
Act of 2002 shall reimburse the Company for the amount of any Award received by such individual under the Plan during the 12-month
period following the first public issuance or filing with the United States Securities and Exchange Commission, as the case may
be, of the financial document embodying such financial reporting requirement.

 

		SECTION 20.	EFFECTIVE DATE
OF PLAN

 

This Plan shall become effective upon stockholder
approval in accordance with applicable state law, the Company’s bylaws and articles of incorporation, and applicable stock
exchange rules. No grants of Stock Options and other Awards may be made hereunder after the tenth anniversary of the Effective
Date and no grants of Incentive Stock Options may be made hereunder after the tenth anniversary of the date the Plan is approved
by the Board.

 

		SECTION 21.	GOVERNING LAW

 

This Plan and all Awards and actions taken
thereunder shall be governed by, and construed in accordance with, the laws of the State of Utah, applied without regard to conflict
of law principles.

 

 

 

 

DATE APPROVED BY BOARD OF DIRECTORS: February 24, 2020

DATE APPROVED BY STOCKHOLDERS: May 28, 2020

 

 

 

 

    	 	16Document

Execution Copy

POLLUTION CONTROL FACILITIES LOAN AGREEMENT

Between

THE POLLUTION CONTROL FINANCING AUTHORITY OF SALEM COUNTY

And

ATLANTIC CITY ELECTRIC COMPANY

relating to

$23,150,000
The Pollution Control Financing Authority of Salem County Pollution Control Revenue Refunding Bonds 
(Atlantic City Electric Company Project)
Series 2020

Dated as of June 1, 2020
DMEAST #39742579 v10

TABLE OF CONTENTS

                                                                                                                         Page
ARTICLE I 
REPRESENTATIONS AND FINDINGS

Section 1.01   Confirmation of Pollution Control Facilities .......................................................... 2
Section 1.02   Company Representations ...................................................................................... 2
Section 1.03   Issuer Findings and Representations....................................................................... 3

ARTICLE II
USE OF PROCEEDS OF BONDS

Section 2.01   Project Facilities...................................................................................................... 4
Section 2.02   Bonds Not to Become Arbitrage Bonds.................................................................. 4
Section 2.03   Restriction on Use of Proceeds of Bonds ............................................................... 4
Section 2.04   Rebate Fund ............................................................................................................ 5

ARTICLE III
LOAN AND REPAYMENT

Section 3.01   Amount and Source of Loan ................................................................................... 5
Section 3.02   Repayment of Loan ................................................................................................. 5
Section 3.03   The First Mortgage Bond........................................................................................ 5
Section 3.04   Redemption of Bonds ............................................................................................. 5
Section 3.05   No Defense or Set-Off ............................................................................................ 6
Section 3.06   Assignment of Issuer’s Rights ................................................................................ 6

ARTICLE IV 
COVENANTS OF THE COMPANY

Section 4.01   Existence ................................................................................................................. 6
Section 4.02   Payment of Issuer’s Fees and Expenses.................................................................. 6
Section 4.03   Payment of Trustee’s Compensation and Expenses ............................................... 7
Section 4.04   Indemnification ....................................................................................................... 7
Section 4.05   Limitation of Liability of the Issuer ........................................................................ 8
Section 4.06   Reserved.................................................................................................................. 9
Section 4.07   Tax Covenants of Company and Issuer .................................................................. 9
Section 4.08   Further Tax Covenants of Company ....................................................................... 9
Section 4.09   Deficiencies in Revenues ...................................................................................... 11

ARTICLE V 
DEFAULTS AND REMEDIES

Section 5.01   Events of Default .................................................................................................. 11
Section 5.02   Acceleration .......................................................................................................... 12
Section 5.03   Specific Performance ............................................................................................ 12

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DMEAST #39742579 v10

Section 5.04   Other Available Remedies .................................................................................... 13
Section 5.05   Bankruptcy Intervention and Filing Proofs of Claim ........................................... 13
Section 5.06   Remedies Not Exclusive ....................................................................................... 13
Section 5.07   Payment of Issuer Expenses of Collection............................................................ 13
Section 5.08   Limitation on Recourse Against Officers, Directors and Stockholders................ 14

ARTICLE VI
MISCELLANEOUS

Section 6.01   Notices .................................................................................................................. 14
Section 6.02   Assignment ........................................................................................................... 14
Section 6.03   Illegal, Etc. Provisions Disregarded...................................................................... 15
Section 6.04   Applicable Law ..................................................................................................... 15
Section 6.05   Amendments ......................................................................................................... 15
Section 6.06   Term of Agreement ............................................................................................... 15
Section 6.07   Counterparts .......................................................................................................... 15
Section 6.08   Further Assurances................................................................................................ 15

SCHEDULE A   -      Description of Project ............................................................................. A-1
SCHEDULE B   -      Form of First Mortgage Bond ..................................................................B-1

ii
DMEAST #39742579 v10

POLLUTION CONTROL FACILITIES LOAN AGREEMENT

This POLLUTION CONTROL FACILITIES LOAN AGREEMENT dated as of June 1, 2020 (this “Agreement”) is made by and between THE POLLUTION CONTROL FINANCING AUTHORITY OF SALEM COUNTY, a public body corporate and politic and a political subdivision of the State of New Jersey (the “Issuer”), and ATLANTIC CITY ELECTRIC COMPANY, a New Jersey Corporation (the “Company”).

Capitalized terms not otherwise defined herein shall be attributed the meanings set forth in the Indenture (as defined herein).

W I T N E S S E T H:

WHEREAS, the Issuer is a public body corporate and politic and political subdivision of the State of New Jersey (the “State”). Pursuant to the New Jersey Pollution Control Financing Law, constituting Chapter 376 of the Pamphlet Laws of 1973 of the State of New Jersey, approved January 9, 1974, as amended, (the “Act”), the Issuer was created by virtue of a resolution duly adopted by the Board of Chosen Freeholders of the County of Salem, New Jersey, and is authorized and empowered to issue its $23,150,000 Pollution Control Revenue Refunding Bonds (Atlantic City Electric Company Project) Series 2020 (the “Bonds”); and

WHEREAS, under the Act, the Issuer may (i) issue bonds to refund outstanding bonds of the Issuer, the proceeds of which were used to carry out the purposes of the Act, including financing the costs of pollution control facilities undertaken and completed after enactment of the Act when the Issuer finds that such financing is in the public interest and (ii) extend credit or make loans to any person in order to pay or provide for the payment of any project costs of pollution control facilities; and

WHEREAS, the Company has requested the Issuer to undertake the financing of the costs of a project (the “Project”) to refinance the cost of certain air and water pollution control and sewage and solid waste disposal facilities. The Issuer has authorized the issuance of the Bonds for the purpose of refunding its Pollution Control Revenue Refunding Bonds (Atlantic City Electric Company Project) Series 2004A (the “2004A Bonds”) in the aggregate principal amount of $23,150,000; and

WHEREAS, the Issuer authorized the issuance of the 2004A Bonds for the purpose of refunding a like principal amount of the Issuer’s 6.15% Pollution Control Revenue Refunding Bonds of 1994, Series A (Atlantic City Electric Company Project) previously issued to refund obligations previously issued by the Issuer (the “Prior Bonds”) to finance the costs of the acquisition, construction, equipping and installation of certain air and water pollution control and sewage and solid waste disposal facilities (collectively, the “Project Facilities”) installed at the Salem Nuclear Generating Station (the “Salem Station”) and the Hope Creek Nuclear Generating Station (the “Hope Creek Station” and, together with the Salem Station, the “Stations”), both located in Lower Alloways Creek Township, Salem County, New Jersey then owned by Company; and

WHEREAS, on October 18, 2001, the Company sold its undivided ownership interests in the Stations, including the Project Facilities to PSEG Nuclear LLC; and
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DMEAST #39742579 v10

WHEREAS, the Bonds are being issued under a Trust Indenture dated as of the date hereof (the “Indenture”) between the Issuer and The Bank of New York Mellon, as trustee (the “Trustee”). The Company and the Issuer are entering into this Agreement in order to provide for the issuance of the Bonds to refund the 2004A Bonds and the loan of the proceeds of the Bonds to the Company.

NOW, THEREFORE, the Issuer and the Trustee, in consideration of the mutual covenants and for due and lawful consideration the receipt of which is hereby acknowledged, and intending to be legally bound, do hereby agree as follows for the benefit of the other and for the benefit of the holders of the Bonds issued pursuant to this Indenture.

ARTICLE I
REPRESENTATIONS AND FINDINGS

Section 1.01  Confirmation of Pollution Control Facilities. The Issuer hereby confirms its prior determination that substantially all of the Project Facilities constitute “pollution control facilities” for purposes of the Act and air and water pollution control facilities for the purposes of the Internal Revenue Code of 1986, as amended (the “Code”), so that interest on the Bonds will not be included in gross income of the holders thereof for federal income tax purposes under the Code (except for holders who are “substantial users” of the Project Facilities or “related persons” as provided in Section 147(a) of the Code).

Section 1.02  Company Representations. The Company represents that:

(a)       It is a corporation duly organized and existing in good standing under the laws of the State, with full power and legal right to enter into this Agreement and perform its obligations hereunder. The Company is duly qualified to do business in the State. The making and performance of this Agreement on the Company’s part have been duly authorized by all necessary corporate action.

(b)     The financing, acquisition, construction, installation and equipping of the Project Facilities contributes to the prevention, avoidance, reduction, control and abatement of air or water pollution or contamination by removing, altering, disposing of or storing pollutants, contaminants, wastes or heat derived from the operation of the Plants.

(c)    The Project Facilities consist of pollution control facilities of the type authorized and permitted by the Act.

(d)     Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will conflict with or constitute a violation or breach of, or a default under, the Company’s articles of incorporation or by-laws, or any indenture, mortgage, deed of trust or other agreement or instrument to which the Company is a party or by which it or any of its property is bound.

(e)       This Agreement and the First Mortgage Bond (as defined below) have been duly authorized, executed and delivered by the Company and each is a valid instrument
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DMEAST #39742579 v10

legally binding upon and enforceable against the Company (except as limited by bankruptcy, insolvency or other laws or equitable principles affecting creditors’ rights generally).

(f)     There is no action, suit, proceeding, inquiry or investigation, at law or in equity, or before or by any court, public board or body, pending or, to the knowledge of the Company, threatened, wherein an unfavorable decision, ruling or finding would materially adversely affect the transactions contemplated by this Agreement.

(g)     The  Company’s  financing  and  refinancing  of  the  Project  Facilities facilitated compliance with federal, state and local laws and regulations governing the control, reduction and abatement of pollution of the environment, and thus (1) protected and enhanced the quality of the natural environment of the State, (2) reduced, abated and prevented environmental pollution in the State through the collection, reduction, treatment and disposal of contaminants  deriving from the operation of public utility facilities, and (3) generally protected the health, welfare and safety of the citizens of the State.

(h)      The Issuer’s issuance, sale and delivery of the Bonds and its lending of the proceeds thereof to the Company will result in realized savings in the effective costs of the Company’s debt service related to the 2004A Bonds, thereby promoting the purposes of the Act.

(i)       All consents, approvals, authorizations, permits or licenses from any federal or state regulatory authority required by the Company have been obtained or will be obtained when required hereunder in connection with the making or performance of this Agreement.

(j)       The Project Facilities will promote the public purposes of the Act and will not cause, directly or indirectly, the removal, either in whole or in part, of a plant, facility or establishment from one area of the State to another.

(k)      The  Project  Facilities  qualify  as  “pollution  control  facilities”  for  the purposes of the Act, and will promote the public purposes of the Act and the health, safety and general welfare of the people of the State by promoting a healthy environment through the reduction, abatement, and prevention within the State of environmental pollutants.

Section 1.03  Issuer  Findings  and  Representations.     The  Issuer  hereby  confirms  its findings and represents that:

(a)              The financing and  refinancing of  the facilities comprising the Project
Facilities will promote the public purposes of the Act.

(b)       The Issuer has the necessary power under the Act, and has duly taken all action required on its part, to execute and deliver this Agreement, to issue the Bonds and to cause the refunding of the 2004A Bonds.  The execution, delivery and performance of this Agreement by the Issuer will not violate or conflict with any instrument to which the Issuer is a party or by which the Issuer or its properties are bound or any law to which the Issuer is subject.
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DMEAST #39742579 v10

(c)       The Issuer is a public body corporate and politic and political subdivision of the State created under and in accordance with the Act.  Under the Act, the Issuer has the power to enter into the Indenture, the Purchase Agreement and this Agreement and to carry out its obligations thereunder and to issue the Bonds to finance the Project Facilities.

(d)       The Issuer has authorized, by all necessary corporate action, the execution, delivery and due performance of this Agreement, the Indenture and the Bonds and any and all such other agreements and documents as may be required to be executed and delivered by the Issuer in order to carry out, give effect to and consummate the transactions contemplated by this Agreement, the Indenture and the Bonds. The Issuer has the necessary power under the Act and has duly taken all action required on its part, to execute and deliver this Agreement, the Indenture and to undertake the financing of the Project Facilities and to issue the Bonds. The execution and performance of this Agreement and the Indenture by the Issuer will not violate or conflict with any instrument to which the Issuer is a party or by which the Issuer or its properties are bound or any law to which the Issuer is subject.

(e)       Neither  this Agreement  nor  any  of  the  Revenues  (as  defined  in  the Indenture) have been pledged or hypothecated in any manner or for any purpose other than as provided in the Indenture as security for the payment of the Bonds.

ARTICLE II
USE OF PROCEEDS OF BONDS

Section 2.01  Project Facilities. The Project Facilities, as described in Schedule A, were heretofore constructed by or on behalf of the Company, and the Company has heretofore conveyed all of its right, title and interest in and to the Project Facilities.  The Issuer shall have no title to the Project Facilities.

Section 2.02  Bonds Not to Become Arbitrage Bonds.   The Issuer and the Company hereby covenant for the benefit of the holders of the Bonds that, notwithstanding any other provision of this Agreement or any other instrument, they will neither make nor instruct the Trustee to make any investment or other use of moneys from the proceeds of the Bonds which would cause the Bonds to be arbitrage bonds under Section 148 of the Code and the regulations thereunder, including Section 148(f) which requires generally a rebate payment to the United States of arbitrage profit from investment of the proceeds of the Bonds, to the extent that the same are applicable at the time of such investment or use, and that they will comply with the requirements of such Section and regulations throughout the term of the Bonds.

Section 2.03  Restriction on Use of Proceeds of Bonds. The Company hereby covenants that it shall not use or direct the use of moneys from the proceeds of the Bonds in any way, or take any other action or omit to take any action, which would cause the interest on the Bonds (other than the Bonds held by a “substantial user” of the Project Facilities or by a “related person” as such terms are defined in Section 147(a) of the Code) to be includable in gross income of the owners thereof for federal income tax purposes under the Code as in effect on the date the Bonds are issued.
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Section 2.04  Rebate Fund.  The Company does not expect to have earnings subject to rebate under the arbitrage rebate requirements of Section 148(f) of the Code.  Notwithstanding the foregoing, the Company hereby covenants to comply with the applicable federal requirements under the Code for rebate to the United States Treasury Department of certain profits, if any, from investment of proceeds of the Bonds.

ARTICLE III
LOAN AND REPAYMENT

Section 3.01  Amount and Source of Loan. Concurrently with the delivery of the Bonds, the Issuer will, upon the terms and conditions of this Agreement, lend to the Company, by deposit of the proceeds thereof in accordance with the provisions of the Indenture, an amount equal to the aggregate principal amount of the Bonds.  To the extent that accrued interest on the Bonds is received by the Issuer upon the sale of the Bonds and is deposited into the Bond Fund established under the Indenture, such accrued interest shall be applied to the first interest payment due on the Bonds with a corresponding credit on the amounts otherwise due under the First Mortgage Bond (hereinafter defined).

Section 3.02  Repayment of Loan.

(a)       The Company agrees to repay the loan made by the Issuer under Section
3.01 in installments which, as to amount, shall correspond to the payments of principal due on the Bonds and, if applicable, any redemption price, and which as to interest, shall accrue interest at the rate or rates, in the interest rate modes and at the times payable on the Bonds, when such principal, redemption price, if applicable, or interest is due in accordance with the terms of the Indenture; provided that such amount shall be reduced to the extent that other moneys on deposit with the Trustee are available for such purpose, and a credit in respect thereof has been granted pursuant to the Indenture. All such repayments made by the Company pursuant to this Agreement shall be made in funds that will be available to the Trustee no later than the corresponding principal or applicable redemption price or interest payment date on the Bonds. To evidence its obligation to pay such amounts, the Company will deliver its First Mortgage Bond, as described under Section 3.03.

(b)       To the extent that on the applicable Purchase Date moneys on deposit in the Remarketing Proceeds Account and the Liquidity Facility Account of the Purchase Fund established under Section 3.03 of the Indenture are insufficient to pay the full purchase price of Bonds to be purchased pursuant to Section 3.01 of the Indenture, the Company shall pay to the Trustee for deposit in the Company Purchase Account of the Purchase Fund established under Section 3.03 of the Indenture amounts sufficient to cover the shortfall.

Section 3.03  The First Mortgage Bond.  Concurrently with the issuance by the Issuer of the Bonds, the Company will execute and deliver to the Trustee its $23,150,000 First Mortgage Bond (The Pollution Control Financing Authority of Salem County) 2020 Series (the “First Mortgage Bond”), substantially in the form, attached hereto as Schedule B.

Section 3.04  Redemption of Bonds.  The Issuer will redeem any or all of the Bonds or portions thereof upon the occurrence of an event which gives rise to redemption specified in the
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Indenture and in accordance with the provisions thereof. Upon any such redemption, the Company shall prepay the First Mortgage Bond in full or in part, as and to the extent that all or a portion of the principal amount of the Bonds is then subject to redemption on such redemption date such partial redemption will preserve the exclusion from gross income for federal income tax purposes of interest on the Bonds remaining outstanding after such redemption).

Section 3.05  No Defense or Set-Off. The obligations of the Company to make payments required under Section 3.02 and the First Mortgage Bond shall be absolute and unconditional without defense or set-off by reason of any default by the Issuer under this Agreement or under any other agreement between the Company and the Issuer, or for any other reason, including, without limitation, any acts or circumstances that may constitute failure of consideration, destruction of or damage to the Project Facilities, commercial impracticability or frustration of purpose, any loss of the proceeds of the Bonds or on any investment thereof, or failure of the Issuer to perform and observe any agreement, whether express or implied, or any duty, liability or obligation arising out of or connected with this Agreement, it being the intention of the parties that the payments required hereunder will be paid in full when due without any delay or diminution whatsoever.

Section 3.06  Assignment of Issuer’s Rights. As the source of payment for the Bonds, the Issuer will assign to the Trustee all the Issuer’s rights under this Agreement, including its rights to receive the First Mortgage Bond and payments thereunder (except rights under Section 4.02, Section 4.04 and Section 4.05 hereof). The Company consents to such assignment, agrees to deliver the First Mortgage Bond to the Trustee and agrees to perform those covenants in the Indenture which either specifically recite that they are to be performed by the Company or which are otherwise, by their terms or by the assignment in this Section, contemplated to be undertaken by the Company.

ARTICLE IV 
COVENANTS OF THE COMPANY

Section 4.01  Existence.  So long as the Bonds are outstanding, the Company agrees to maintain its existence and its qualification to do business as a duly organized and subsisting corporation in the State, except that it may dissolve or otherwise dispose of all or substantially all of its assets and may consolidate with or merge into another corporation or entity or permit one or more corporations or entities to consolidate with or merge into it, (i) if the surviving, resulting or transferee corporation or entity, if other than the Company, is solvent and assumes in writing all of the obligations of the Company hereunder and under the First Mortgage Bond and is a corporation or other entity duly organized under the laws of one of the states of the United States of America and is duly qualified to do business in the State and is not a Disqualified Contractor and (ii) immediately thereafter neither the Company nor its successor will be in default under this Agreement or the First Mortgage Bond.

Section 4.02  Payment of Issuer’s Fees and Expenses. The Company agrees to pay to the Issuer (i) an original administrative fee equal to seven and a half basis points multiplied by the aggregate original principal amount of the Bonds upon delivery of the Bonds and (ii) an annual administrative fee equal to four and a half basis points multiplied by the aggregate principal amount of the Bonds outstanding on the date such payment is due (the “Issuer’s Annual Fee”),
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together with all reasonable expenses, including legal and accounting fees and expenses, incurred by the Issuer in connection with the issuance of the Bonds and the performance by the Issuer of its functions and duties under this Agreement and the Indenture.  The Issuer’s Annual Fee shall be due and payable on the first anniversary of the Closing Date and on each such anniversary thereafter. No refund of the Issuer’s Annual Fee will be made in the event that Bonds mature or are redeemed, accelerated or otherwise paid prior to the end of any 12-month period for which the Issuer’s Annual Fee has been paid.

Section 4.03  Payment of Trustee’s Compensation and Expenses.  So long as any of the
Bonds are outstanding, the Company agrees:

(a)       to pay to the Trustee, the Registrar and any Paying Agent for all services rendered thereby under the Indenture such compensation as has been agreed upon in writing (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); and

(b)       except as otherwise expressly provided in the Indenture, to reimburse the Trustee, the Registrar and any Paying Agent upon its request for all reasonable expenses, disbursements and advances incurred or made thereby in the exercise and performance of its rights, powers and duties under the Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), including but not limited to all Ordinary Expenses and Extraordinary Expenses for which it is entitled to be reimbursed, except any such expense, disbursement or advance as may be attributable to its willful misconduct, gross negligence or bad faith.

Section 4.04  Indemnification. The Company will indemnify and hold harmless the Issuer and each member, director, officer, employee, attorney and agent of the Issuer for and against any and all claims, losses, damages or liabilities (including the costs and expenses of defending against any such claims) to which the Issuer or any member, director, officer, employee or agent of the Issuer may become subject, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise directly or indirectly out of (a) any breach or default on the part of the Company in the performance of any covenant or agreement of the Company under this Agreement or the First Mortgage Bond or any related document, or arising from any act or failure to act by the Company or any of its agents, contractors, servants, employees or licensees; (b) the authorization, issuance and sale of the Bonds, or the provision of any information or certification furnished in connection therewith concerning the Bonds, the Project Facilities or the Company (including, without limitation, any information furnished by the Company for inclusion in any certification made by the Issuer or for inclusion in, or as a basis for preparation of, the information statements furnished by  the  Issuer and any information or certification obtained from  the Company) to assure the exclusion of the interest on the Bonds from the gross income of the holders thereof for federal income tax purposes; (c) the Company’s failure to comply with any requirements of this Agreement pertaining to compliance with the Code to assure such exclusion of the interest or the provisions set forth in Section 4.07; (d) any failure by the Company to comply with the provisions of the Act; and (e) any claim, action or proceeding brought with respect to any matter set forth in clause (a), (b), (c) or (d) above.
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The Company will indemnify and hold the Trustee and its directors, officers, agents, attorneys and employees (collectively, the “Indemnitees”)  harmless from and against any and all claims, liabilities, losses, damages, fines, penalties and expenses, including out-of-pocket expenses, incidental expenses, reasonable legal fees and expenses, and the reasonable costs and expenses of defending against any such claim (collectively, “Losses”) that may be imposed on, incurred by or asserted against, the Indemnitees or any of them for following any instruction or other direction upon which the Trustee is authorized to  rely pursuant to the terms of this Agreement, the Bonds, the First Mortgage Bond or the Indenture.   In addition to and not in limitation of the immediately preceding sentence, the Company also agrees to indemnify and hold the Indemnitees and each of them harmless from and against any and all Losses that may be imposed on, incurred by or asserted against the Indemnitees or any of them in connection with or arising out of the Trustee’s acceptance, administration or performance of the trust or trusts under this Agreement, the Bonds or the Indenture, or in collecting under the First Mortgage Bond, except in any case as a result of the gross negligence or willful misconduct of the Trustee.

In case any action or proceeding is brought against the Issuer or the Trustee in respect of which indemnity may be sought hereunder, the party seeking indemnity promptly shall give notice of that action or proceeding to the Company, and the Company upon receipt of that notice shall have the obligation and the right to assume the defense of the action or proceeding; provided that failure of a party to give that notice shall not relieve the Company from any of its obligations under this Section unless (and then only to the extent) that failure prejudices the defense of the action or proceeding by the Company. At its own expense, an indemnified party may employ separate counsel and participate in the defense provided, however, that an indemnified party may employ separate counsel at the expense of the Company if in the judgement of such indemnified party (i) a conflict of interest exists by reason of common representation or (ii) there are legal defenses available to such indemnified party that are different from or are in addition to those available to the Company or if all parties commonly represented do not agree as to the action (or inaction) of counsel.  The Issuer or the Trustee, as the case may be, will cooperate with the Company, at the Company’s expense, with respect to its assumption of the defense of any such action or proceeding, and will take such reasonable actions as are requested of it by the Company, at the Company’s expense, in connection therewith.  Company shall not be liable for any settlement made without its consent, which shall not be unreasonably withheld. The Company shall not approve any settlement involving the Trustee without the Trustee’s prior written consent, which shall not be unreasonably withheld.

The indemnification set forth above is intended to and shall (i) include the indemnification of all affected directors, officers, agents, attorneys and employees of the Issuer and the Trustee (including in its capacities as Registrar and Paying Agent), respectively, and (ii) be enforceable by the Issuer and the Trustee (including in its capacities as Registrar and Paying Agent), respectively, to the full extent permitted by law.

The provisions of this Section 4.04 shall survive the termination of this Agreement and the Indenture, payment or defeasance of the Bonds and the removal or resignation of the Trustee in accordance with the Indenture for any reason.

Section 4.05 Limitation of Liability of the Issuer. In the event of any default by the Issuer hereunder, under the Indenture or otherwise, the liability of the Issuer to the Company shall be
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enforceable only out of its interest under this Agreement and there shall be no other recourse by the Company against the Issuer, its members, officers, agents and employees, past, present or future, or any of the property now or hereafter owned by it or them. The Bonds shall not be a debt or liability of the State and shall not create or constitute any indebtedness, liability or obligation of the State. The Issuer shall be obligated to pay the principal of or the interest on the Bonds only from the Revenues. Neither the State nor any political subdivisions are obligated to pay the principal of or interest on the Bonds, and neither the faith and credit nor the taxing power of the State nor any political subdivision thereof is pledged to the payment of the principal of or the interest on the Bonds. It is expressly understood that the Issuer shall not otherwise be obligated and that none of its members, officers, agents and employees, past, present or future, shall be in any way obligated for any costs, expenses, fees or other obligations or liabilities incurred or imposed in connection with the Project Facilities. The Issuer makes no warranty or representation, express or implied, as to title, condition, design, quality, durability, merchantability or fitness for use or purpose of the Project Facilities or the suitability of the Project Facilities for the purposes specified in this Agreement or for any other Company purposes or needs.

Section 4.06  Reserved.

Section 4.07  Tax Covenants of Company and Issuer. The Company covenants and represents that it will at all times do and perform all acts and things necessary or desirable and within its reasonable control in order to assure that interest paid on the Bonds shall not be includable in the gross income of any holder thereof for federal income tax purposes, unless such holder is a “substantial user” of the Project Facilities or a “related person” of such a user within the meaning of Section 147(a) of the Code.  The Company also covenants and represents that it shall not take or omit to take, or permit to be taken on its behalf, any actions which, if taken or omitted, would adversely affect the excludability from the gross income of the holder of interest paid on the Bonds for federal income tax purposes. The Issuer and the Company mutually covenant for the benefit of the Bondholders that they will not use the proceeds of the Bonds, any moneys derived, directly or indirectly, from the use or investment thereof or any other moneys on deposit in any fund or account maintained in respect of the Bonds (whether such moneys were derived from the proceeds of the sale of the Bonds or from other sources) in a manner which would cause the Bonds to be treated as “arbitrage bonds” within the meaning of Section 148 of the Code.

Section 4.08  Further Tax Covenants of Company. The Company further represents and covenants as follows:

(a)       Action to Maintain Tax-Exempt Status. The Company will take such actions as shall be necessary or desirable, from time to time and within its reasonable control, to cause all of the representations and warranties in this Section to remain true and correct during such periods as shall be necessary to maintain the exclusion of interest paid on the Bonds from the gross income of the holders thereof for federal income tax purposes (other than a holder who is a “substantial user” of the Project Facilities or a “related person” as those terms are used in Section 147(a) of the Code), pursuant to the requirements of the Code.
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(b)       Operation as Solid Waste Disposal Facilities. As long as the Company (or its lessee or transferee) is required to operate or cause to be operated the Project Facilities under Section 2.01, the Company (or its lessee or transferee) shall operate or cause to be operated the Project Facilities as “solid waste disposal facilities” within the meaning of Section 142(a)(6) of the Code.

(c)       Ninety-five Percent Capital Costs Test.  The Company spent not less than
95% of the net proceeds of the Prior Bonds (taking into account for this purpose the expenditure of proceeds of the Prior Bonds) for capital costs of property of a character subject to allowance for depreciation under Section 167 of the Code and constituting “solid waste disposal facilities” for purposes of Section 142(a)(6) of the Code.

(d)       Land Acquisition Limitation. The  Company did  not  use,  directly or indirectly, 25% or more of the net proceeds of the Prior Bonds for the acquisition of land or an interest therein.

(e)       Existing Facility and Rehabilitation Limitations. The Company did not use any proceeds of the Prior Bonds to acquire any property of which the Company would not be the first user.

(f)       Limitation on Financing Certain Facilities. The Company did not use more than 25% of the net proceeds of the Prior Bonds to provide any portion of the Project Facilities the primary purpose of which was to provide retail food or beverage services (exclusive of grocery stores), automobile sales or services, or the provision of recreation or entertainment.

(g)       Prohibition on Financing Certain Facilities. The Company did not use any portion of the proceeds of the Prior Bonds to provide any portion of the Project Facilities to be used for a private or commercial golf course, country club, massage parlor, tennis club, skating facility (including roller skating, skateboard and ice skating), racquet sports facility (including any handball or racquetball court), hot tub facility, suntan facility or racetrack.  The Company did not use any proceeds of the Prior Bonds to provide any airplane, any sky box or other private luxury box, any health club facility, any facility primarily used for gambling, or any store the principal business of which is the sale of alcoholic beverages for consumption off premises.

At no time will any funds constituting gross proceeds of the Bonds be used to acquire investments at other than fair market value within the meaning of the applicable Treasury Regulations pertaining to, or in any other fashion as would constitute failure of compliance with, Section 148 of the Code. Investments or deposits in certificates of deposit or pursuant to investment contracts shall not be made without compliance, at or prior to such investment or deposit, with the requirements of Treasury Regulations Section 1.148-5(d)(6)(ii) and (iii), respectively, or with any successor provisions thereto.

The terms “proceeds”, “gross proceeds”, and “higher yielding investments” have the meanings assigned to them for purposes of Section 148 of the Code.
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(h)       Notice.   The Company shall provide a written statement signed by its Authorized Representative to the Issuer and the Trustee reasonably promptly upon the Company’s becoming aware of a violation of any of the covenants set forth in this Section
4.08, setting forth in detail the facts, nature and scope of such violation.

(i)        Arbitrage Rebate. As required by Section 2.04, the Company will pay to or for the account of the Issuer all amounts needed to comply with the requirements of Section 148 of the Code, concerning arbitrage bonds, including Section 148(f), which requires generally a rebate payment to the United States of America of arbitrage profit from investment of the proceeds of the Bonds in obligations other than tax-exempt obligations. The obligation of the Company to make such payments is unconditional and is not limited to funds representing the proceeds of the Bonds or income from the investment thereof or any other particular source.

Section 4.09  Deficiencies in Revenues. If for any reason, including the Company being required to withhold or pay any tax imposed by reason of its obligations evidenced by the First Mortgage Bond, amounts paid to the Trustee by the Company on the First Mortgage Bond would not be sufficient to make the payments of the principal of, premium, if any, and interest on the Bonds when such payments become due, the Company will pay the amounts required from time to time to make up any such deficiency.

ARTICLE V 
DEFAULTS AND REMEDIES

Section 5.01  Events of Default.  The occurrence and continuation of one or more of the following shall constitute an Event of Default under this Agreement:

(a)      default in the payment of any installment of principal or redemption price in respect of the First Mortgage Bond as and when the same shall become due and payable; or

(b)      if payment of any interest on the First Mortgage Bond is not made within five days of when it becomes due and payable; or

(c)    failure on the part of the Company duly to perform any other of the covenants on the part of the Company contained in this Agreement or the Mortgage for a period of 60 days after the date on which written notice of such failure, requiring the Company to remedy the same, shall have been given to the Company by the Trustee; provided that, to the extent permitted by this Agreement, the Mortgage and the Indenture, if the prepayment of amounts due under Section 3.02 is made and an extraordinary mandatory redemption of the Bonds is effected as required under the Indenture, a failure by the Company to observe a covenant, agreement or representation in the Agreement, which failure is determined to have resulted in the interest on the Bonds becoming includable for federal income tax purposes in the gross income of any holder of such Bonds, shall not, in and of itself, constitute an “event of default” hereunder or under the Indenture; or

(d)       if the Company shall
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(i)      admit in writing its inability to pay its debts generally as they become due, or

(ii)        file a petition in bankruptcy to be adjudicated a voluntary bankrupt or file a similar petition under any insolvency act, or

(iii)      make an assignment for the benefit of its creditors, or

(iv)     consent to the appointment of a receiver of itself or of the whole or any substantial part of its property; or

(v)     if the Company shall file a petition or answer seeking reorganization or arrangement of the Company under the federal bankruptcy laws or any other applicable law or statute of the United States of America or any state thereof; or

(e)    if the Company shall, on a petition in bankruptcy filed against it, be adjudicated a bankrupt or if a court of competent jurisdiction shall enter an order or decree appointing, without the consent of the Company, a receiver or trustee of the Company or of the whole or substantially all of its property, or approving a petition filed against it seeking reorganization or arrangement of the Company under the federal bankruptcy laws or any other applicable law or statute of the United States of America or any state thereof, and such adjudication, order or decree shall not be vacated or set aside or stayed within 90 days from the date of the entry thereof; or

(f)      acceleration of maturity of the Bonds under Section 7.03 of the Indenture, which acceleration shall not have been rescinded under Section 7.03 of the Indenture, then and in each and every such case and during the continuance thereof, the Trustee, by notice in writing to the Company, may declare the unpaid balance due under Section 3.02 hereof to be due and payable immediately if concurrently with or prior to such notice the unpaid principal amount of the Bonds has been declared due and payable, and upon any such declaration the same shall become and shall be immediately due and payable, anything in this Agreement, the Mortgage or the First Mortgage Bond to the contrary notwithstanding.

Section 5.02  Acceleration.  The Company covenants that, in case default shall be made in the payment of any installment of principal, prepayment price or interest in respect of the First Mortgage Bond or under Section 3.02 hereof, whether at maturity or by acceleration or otherwise, then, upon demand of the Issuer or the Trustee, the Company will pay to the Trustee the whole amount that then shall have become due and payable under Section 3.02 and the First Mortgage Bond for principal, prepayment price and/or interest with interest on the overdue principal and prepayment price, and (to the extent enforceable under applicable law) on the overdue installments of interest at the rate or rates evidenced by such Section 3.02 and the First Mortgage Bond; and, in addition thereto, such further amount as shall be sufficient to cover the reasonable costs and expenses of collection, including a reasonable compensation to the Trustee, its agents, attorney and counsel, and any expenses or liabilities incurred by the Trustee other than through its gross negligence or bad faith.

Section 5.03  Specific Performance.  In addition to all other rights of the Issuer granted herein, in the First Mortgage Bond or otherwise by law, the Issuer shall have the right to
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specifically enforce the performance and observation by the Company of any of its obligations, agreements or covenants under this Agreement or under the First Mortgage Bond and may take any actions at law or in equity to collect any payments due or to obtain other remedies.

Section 5.04  Other Available Remedies. In case the Company shall fail forthwith to pay amounts due under Section 3.02 or the First Mortgage Bond upon such demand, the Trustee shall be entitled and empowered to pursue any and all available remedies and institute any actions or proceedings at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or proceeding to judgment or final decree, and may enforce any such judgment or final decree against the Company and collect in the manner provided by law out of the property of the Company the moneys adjudged or decreed to be payable. Notwithstanding the foregoing, the Trustee shall in no event have any responsibility, obligation or duty to enter upon, or otherwise take possession or control of, the Project Facilities, or take any other action that could constitute taking possession or control of the Project Facilities.

In case the Trustee shall have proceeded to enforce any right under this Agreement or the Mortgage and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Trustee, then and in every such case the Company and the Trustee shall be restored to their respective positions and rights hereunder, and all rights, remedies and powers of the Company and the Trustee shall continue as though no such proceeding had been taken, but subject to the limitations of any such adverse determination.

Section 5.05  Bankruptcy Intervention and Filing Proofs of Claim.  In case there shall be pending proceedings for the bankruptcy or for the reorganization of the Company under the U.S. Bankruptcy Code or any other applicable law, or in case a receiver or trustee shall have been appointed for the property of the Company or in the case of any other similar judicial proceedings relative to the Company, or to the creditors or property of the Company, the Trustee shall be entitled and empowered, by the intervention in such proceedings or otherwise, to file and prove a claim or claims for the whole amount of the First Mortgage Bond and interest owing and unpaid in respect thereof and, in case of any judicial proceedings, to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee allowed in such judicial proceedings relative to the Company, its creditors, or its property, and to collect and receive any moneys or other property payable or deliverable on any such claims, and to distribute the same after the deduction of its charges and expenses; and any receiver, assignee or trustee in bankruptcy or reorganization is hereby authorized to make such payments to the Trustee, and to pay to the Trustee any amount due it for compensation and expenses, including counsel fees incurred by it up to the date of such distribution.

Section 5.06  Remedies Not Exclusive. No remedy herein conferred is intended to be exclusive of any other available remedy or remedies.

Section 5.07  Payment of Issuer Expenses of Collection. If the Company shall default under any provisions of this Agreement or in any payment under the First Mortgage Bond and the Issuer shall employ attorneys or incur other expenses for the collection of payments due or for the enforcement of the performance or observation of any obligation or agreement on the part of  the  Company contained herein,  the  Company will,  on  demand therefor, reimburse the reasonable fees of such attorneys and such reasonable expenses so incurred.
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Section 5.08  Limitation on Recourse Against Officers, Directors and Stockholders.  No recourse shall be had for the payment due under Section 3.02 or the First Mortgage Bond, or for any claim based on this Agreement or the First Mortgage Bond, against any officer, director or stockholder, past, present or future, of the Company as such, either directly or through the Company, under any constitutional provision, statute or rule of law, or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise.

ARTICLE VI
MISCELLANEOUS

Section 6.01  Notices. Notices hereunder shall be given in writing and shall be deemed to have been duly given (a) as of the same day if delivered personally or by Electronic Means; or (b) as of the next business day if sent by nationally recognized express courier service or express mail, addressed as follows:

The Issuer: The Pollution Control Financing Authority of Salem County
P.O. Box 375
Salem, New Jersey 08079
Attention: Chairman

The Company: Atlantic City Electric Company
10 South Dearborn Street – 52nd Floor
 P.O. Box 805398
 Chicago, IL 60680-5398
Attention: Treasurer & Assistant Treasurer

 With a copy to:

Atlantic City Electric Company
701 Ninth Street, NW Washington, DC 20068
Attention: Assistant General Counsel & Assistant Secretary

The Trustee: The Bank of New York Mellon
385 Rifle Camp Road, Third Floor
Woodland Park, New Jersey 07424
Attention: Corporate Trust Administration

or such other addresses as may be filed in writing with the parties to this Agreement.

Section 6.02  Assignment. Except  as  otherwise  provided  in  this  Section  6.02,  the Company shall not assign this Agreement or any interest of the Company herein, either in whole or in part, without the prior written consent of the Trustee, which consent shall be given if the following conditions are fulfilled: (i) the assignee assumes in writing all of the obligations of the Company  hereunder; (ii) the assignee provides the Trustee with an opinion of Counsel satisfactory to the Trustee to the effect that neither the validity nor the enforceability of this
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Agreement shall be adversely affected by such assignment; (iii) the Project Facilities shall continue in the opinion of Bond Counsel to be a “project” as such term is defined in the Act after such assignment; (iv) such assignment shall not, in the opinion of Bond Counsel, have an adverse effect on the exclusion from gross income for federal income tax purposes of interest on the Bonds; (v) the assignee shall not be a Disqualified Contractor and shall provide a written certification to such effect to the Trustee and the Issuer; and (vi) if the assignee is other than an affiliate of the Company, consent by the Issuer, which consent shall not be unreasonably withheld. Subject to the foregoing, the terms “Authority,” “Company,” “Trustee” and “Underwriter” shall, where the context requires, include the respective successors and assigns of such persons.

Section 6.03 Illegal, Etc. Provisions Disregarded. In case any provision of this Agreement shall for any reason be held invalid, illegal or unenforceable in any respect, this Agreement shall be construed as if such provision had never been contained herein.

Section 6.04  Applicable Law. This Agreement shall be governed by, and interpreted under, the laws of the State, without regard to conflict of law principles.

Section 6.05  Amendments. This Agreement  may  not  be  amended  except  by  an instrument in writing signed by all of the parties hereto and, if such amendment occurs after the issuance of the Bonds, in accordance with the terms of the Indenture.

Section 6.06  Term of Agreement. This Agreement shall become effective upon its delivery and shall continue in effect until all Bonds have been paid in full or provision for such payment has been made in accordance with the Indenture.

Section 6.07  Counterparts. This Agreement may be executed in several counterparts, all or any of which shall be regarded for all purposes as one original and shall constitute and be but one and the same instrument.

Section 6.08  Further Assurances. Each of the Company and the Issuer will do all acts and execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, any and all further instruments and documents, as may be necessary, desirable or expedient to more fully effectuate and carry out the intent and purposes of this Agreement and the transactions contemplated hereby.

Section 6.09  Concerning the Trustee. The rights, privileges, protections, immunities and benefits given to the Trustee under the Indenture are hereby incorporated herein, and shall be enforceable by the Trustee hereunder, as if set forth herein in full.
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IN WITNESS WHEREOF, the parties hereto, in consideration of the mutual covenants set forth herein and intending to be legally bound, have caused this Agreement to be executed and delivered as of the date first written above.

												
	[SEAL]	THE POLLUTION CONTROL FINANCING		
		AUTHORITY OF SALEM COUNTY		
				
	Attest:	By:		
			Name:	
			Title:	
				
	Witness			
				
		ATLANTIC CITY ELECTRIC COMPANY		
		By:		
			Name:	
			Title:	
				
				
	[SEAL]			
				
				
	Attest:			
				
				
				
	(Assistant) Secretary			
				
				
				

DMEAST #39742579

SCHEDULE A

DESCRIPTION OF PROJECT FACILITIES

The Project Facilities consist of the 5% undivided interest previously owned by the Company in various systems, equipment and facilities to abate or control air and water pollution and/or to dispose of solid waste at the Hope Creek Generating Station and the 7.41% undivided interest previously owned by the Company in various systems, equipment and facilities to abate or control air and water pollution and/or to dispose of solid waste at the Salem Generating Station.

Hope Creek Generating Station Project Facilities

Such systems and facilities at the Hope Creek Generating Station consist of the following:

1.          Liquid Radwaste System

(a)        Equipment Drain Processing Subsystem

(b)        Floor Drain Processing Subsystem

(c)        Radwaste Demineralizer Regeneration Subsystem

(d)        Regenerant Waste Processing Subsystem (e)        Chemical Waste Processing Subsystem (f)         Detergent Waste Processing Subsystem
2.          Gaseous Radwaste System

(a)        Offgas System

(b)        Filtered Building Vent Systems

3.          Solid Radwaste System

(a)        Spent Fuel Storage Facility

(b)        Wet Solid Waste Processing Subsystem

(c)        Dry Solid Waste Processing Subsystem

4.          Decontamination Facility

5.          Radwaste Laundry

6.          Condensate and Radwaste Demineralizers Resin Regeneration System

7.          Radwaste Building

8.          Oily Waste Treatment System
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9.          Waste Holding Pond Improvements

10.        Makeup Demineralizer Waste Treatment System

11.        Intake Structure Debris Holding

12.        Shielding

13.        A  hyperbolic,  reinforced  concrete,  natural  draft,  cooling  tower  of  counterflow  type, together with ancillary piping and equipment and various related other systems under the National Pollutant Discharge Elimination System

14.        An extended aeration sewage treatment plant

Salem Generating Station Project Facilities

 Such waste treatment systems and facilities at the Salem Station consist of the following:

1.        Spent  Fuel  Storage  Facilities,  including  buildings,  storage  pools,  cooling  systems, accessory mechanical, electrical and control systems, structural supports and related facilities used for on-site storage and handling of spent nuclear fuel

2.        Non-radioactive Solid Waste Handling Facilities, including screen wash debris handling and collection equipment, materials handling facilities, auxiliaries, electrical and control systems, structural supports and enclosures

3.       Resin Regeneration Facility, including tanks, pumps, piping and valves associated with spent resin handling, associated acid and caustic systems, chemical waste/neutralization pumps, associated mechanical, electrical and control systems, structural supports and enclosures

4.      Sanitary Sewage Facility, including drain piping, pumps, lift stations, ejectors, sewage treatment plant and associated mechanical, electrical and control auxiliaries (including some upgrades)

5.        Solid Radwaste Facility, including systems for dry active waste disposal, sludge disposal and spent resin disposal. These systems include boilers, compactors, containers, cranes, hoists, piping, pumps, tanks and associated electrical auxiliaries, accessory mechanical auxiliaries, electrical and control systems, shielding, structural supports and enclosures (including some upgrades)

6.          Auxiliary Building, enclosing systems and equipment associated with the Spent Fuel
Storage Facility and Solid Radwaste Facility

7.      Spent Fuel Upgrades, including high density storage racks, HVAC improvements and service water system modifications

8.      Low Level Radwaste Interim Storage Facility, including storage structure, materials handling equipment, site improvements, monitor, and auxiliaries
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SCHEDULE B

[FORM OF FIRST MORTGAGE BOND]

						
	No. R-1	$23,150,000.00

ATLANTIC CITY ELECTRIC COMPANY
FIRST MORTGAGE BOND
The Pollution Control Financing Authority of Salem County) 2020 Series

ATLANTIC CITY ELECTRIC COMPANY, a corporation of the State of New Jersey (hereinafter called the “Company”), for value received, hereby promises to pay to THE BANK OF NEW YORK MELLON, as trustee (the “Indenture Trustee”) under the Indenture dated as of the date hereof between the Pollution Control Financing Authority of Salem County and the Indenture Trustee , the principal sum of TWENTY-THREE MILLION ONE HUNDRED FIFTY- THOUSAND DOLLARS ($23,150,000) on June 1, 2029, at the office or agency of the Company in the Borough of Manhattan, The City of New York in lawful money of the United States of America, and to pay interest thereon in accordance with terms and conditions of the Pollution Control Facilities Loan Agreement dated as of the date hereof between the Company and the Pollution Control Financing Authority of Salem County (the “Loan Agreement”) , until the Company’s obligation with respect to the payment of such principal shall have been discharged..

This bond shall not become valid or obligatory for any purpose until The Bank of New York Mellon, the Trustee under the Mortgage, or its successor thereunder, shall have signed the form of authentication certificate endorsed hereon.

Reference is made to the further provisions of this bond set forth on the reverse hereof and such further provisions shall for all purposes have the same effect as though fully set forth at this place.

IN WITNESS WHEREOF, ATLANTIC CITY ELECTRIC COMPANY has caused this bond to be executed in its name by the signature or a facsimile thereof of its President or one of its Vice Presidents and its corporate seal, or a facsimile thereof, to be impressed or imprinted hereon and attested by the signature, or a facsimile thereof, of its Secretary or one of its Assistant Secretaries.

															
	Dated,		ATLANTIC CITY ELECTRIC COMPANY		
			By:		
				Wendy E. Stark, SVP, Legal and	
				Regulatory Strategy, and General Counsel	
					
					

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Attest:

_________________________
Brian Buck, Assistant Secretary

This bond is one of an issue of bonds of the Company, issuable in series, and is one of a series known as its “First Mortgage Bond (The Pollution Control Financing Authority of Salem County) 2020 Series” (hereinafter called “Bonds of 2020 Series”), all bonds of all series issued and to be issued under and equally secured (except insofar as any sinking fund, established in accordance with the provisions of the Mortgage hereinafter mentioned, may afford additional security for the bonds of any particular series) by a Mortgage and Deed of Trust (herein, together with any indentures supplemental thereto, called the Mortgage), dated January 15, 1937, executed by the Company to THE BANK OF NEW YORK MELLON (ultimate successor to the Irving Trust Company), as Trustee, to which Mortgage reference is made for a description of the property mortgaged and pledged, the nature and extent of the security, the rights of the holders of the bonds in respect thereof, the duties and immunities of the Trustee, and the terms and conditions upon which the bonds are secured. With the consent of the Company and to the extent permitted by and as provided in the Mortgage, the rights and obligations of the Company and/or of the holders of the bonds and/or coupons and/or the terms and provisions of the Mortgage and/or of  any instruments supplemental thereto may be modified or altered by affirmative vote of the holders of at least seventy-five per centum (75%) in principal amount of the bonds affected by such modification or alteration then outstanding under the Mortgage (excluding bonds disqualified from voting by reason of the Company’s interest therein as provided in the Mortgage); provided that no such modification or alteration shall permit the extension of the maturity of the principal of this bond or the reduction in the rate of interest hereon or any other modification in the terms of payment of such principal or interest without the consent of the holder hereof.

The principal hereof may be declared or may become due prior to the express date of the maturity hereof on the conditions, in the manner and at the time set forth in the Mortgage, upon the occurrence of a completed default as in the Mortgage provided or as provided below.

In addition to the events of default set forth in the Mortgage, an event of default with respect to the Bonds of 2020 Series will include the additional events of default described in Section 5.01 of the Pollution Control Facilities Loan Agreement dated as of the date hereof between the Company and the Pollution Control Financing Authority of Salem County (the “Loan Agreement”).
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The Bonds of 2020 Series mature on June 1, 2029, and are issuable only in registered form without coupons in any denomination authorized by the Company. The Bonds of 2020 Series are being issued solely to provide security for the Company’s obligations under the Loan Agreement.

The Company and the Trustee may deem and treat the person in whose name this bond is registered as the absolute owner hereof for the purpose of receiving payment of or on account of principal or (subject to the provisions of the Mortgage) interest hereon and for all other purposes and the Company and the Trustee shall not be affected by any notice to the contrary.

No recourse shall be had for the payment of the principal of or interest on this bond against any incorporator or any past, present or future subscriber to the capital stock, shareholder, officer or director, as such, of the Company or of any successor corporation, either directly or through the Company or any successor corporation, under any rule of law, statute or constitution or by the enforcement of any assessment or otherwise, all such liability of incorporators, subscribers, shareholders, officers and directors, as such, being released by the holder or owner hereof by the acceptance of this bond and being likewise waived and released by the terms of the Mortgage.

TRUSTEE’S AUTHENTICATION CERTIFICATE

This bond is one of the bonds, of the series herein designated, described in the within- mentioned Mortgage.

																		
	Dated,			THE BANK OF NEW YORK MELLON, Trustee		
			By:			
				Authorized Officer		
						
						
						

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