Performance Based Restricted Stock Award Agreement




 

Exhibit
10.4

 

PUGET
ENERGY, INC.

 

PERFORMANCE-BASED
RESTRICTED STOCK AWARD AGREEMENT




 

TO: Stephen
P. Reynolds




 

We are
pleased to inform you that you have been awarded by Puget Energy, Inc., a
Washington corporation (the "Company"), a performance-based restricted stock
award (the "Restricted Stock Award").

 

The terms
of the Restricted Stock Award are as set forth in this Restricted Stock Award
Agreement (this "Agreement"). The Restricted Stock Award is granted under the
Company's 2005 Long-Term Incentive Compensation Plan (the "Plan") and, except as
expressly provided otherwise herein, is limited by and subject to the express
terms and conditions of the Plan. Capitalized terms that are not defined in this
Agreement but defined in the Plan have the meanings given to them in the Plan.


 

The basic
terms of the Restricted Stock Award are summarized as follows:

 


	
      1.
	
      Number
      of Shares of Puget Energy, Inc. Common Stock:
      40,000




 


	
      2.
	
      Grant
      Date:
      May 10, 2005




 


	
      3.
	
      Fair
      Market Value Per Share:
      $22.00




 


	4.	
      Vesting




 

Except as
otherwise provided in Sections 5 and 6 of this Agreement, the restrictions
on the Shares will lapse and the Shares will no longer be subject to forfeiture
on the last day of the Period of Restriction, provided that both of the
following conditions are met: (i) you have been continuously employed by
the Company as Chief Executive Officer until the last day of the Period of
Restriction and (ii) on or prior to the last day of the Period of
Restriction the Compensation and Leadership Development Committee (the
"Committee") has certified that the performance goals specified in Exhibit A to this
Agreement (the "Performance Goals") have been satisfied and the Shares have been
earned. To the extent the Performance Goals are not satisfied (with the result
that either no Shares or less than all Shares have been earned) by the end of
the Period of Restriction, then the unearned Shares will be forfeited, effective
as of the last day of the Period of Restriction. 

 

Early
lapse of the forfeiture restrictions may occur as described in Sections 6
and 7. Shares that have been earned and with respect to which the Period of
Restriction has lapsed in accordance with the preceding paragraph or Sections 6
or 7 are referred to herein as "Vested Shares." Shares that have not been earned
and with respect to which the Period of Restriction has not lapsed in accordance
with the preceding paragraph or Sections 6 or 7 are referred to herein as
"Unvested Shares." The Unvested Shares will vest (and to the extent so vested
cease to be Unvested Shares remaining subject to forfeiture) in accordance with
the preceding paragraph or Sections 6 or 7. Collectively, the Unvested Shares
and the Vested Shares are referred to herein as the "Shares." All Vested Shares,
including Unvested Shares that are accelerated in accordance with Sections 6 or
7, will be paid in shares of Puget Energy, Inc. common stock.

 


	5.	
      Period
      of Restriction




 

The
"Period of Restriction" shall begin on the Grant Date and lapse, except as
otherwise provided in Sections 6 and 7 of this Agreement, on the date of
the 2008 Annual Shareholders Meeting.

 


	6.	
      Change
      of Control




 

Upon a
Change in Control of the Company, any Unvested Shares which have not been earned
or are subject to the Period of Restriction will be treated as fully earned, the
Period of Restriction will lapse and such Unvested Shares will become Vested
Shares.

 


	7.	
      Termination
      of Employment




 

Except as
provided in this Section 7 and unless otherwise determined by the Committee in
its sole discretion, any Shares that have not been earned and with respect to
which the Period of Restriction has not lapsed, shall be forfeited by you to the
Company effective as of the date of termination of your employment with the
Company for any reason, including, without limitation, termination by the
Company for Cause, voluntary resignation by you or the occurrence of your death
or Disability.

 

Upon
termination of your employment due to termination by the Company without Cause
or termination by you for Good Reason, any Unvested Shares which have not been
earned or are subject to the Period of Restriction will be treated as fully
earned, the Period of Restriction will lapse and such Unvested Shares will
become Vested Shares.

 


	8.	
      Securities
      Law Compliance




 

Notwithstanding
any other provision of this Agreement, you may not sell the Shares unless they
are registered under the Securities Act or, if such Shares are not then so
registered, the Company has determined that such sale would be exempt from the
registration requirements of the Securities Act. The sale of the Shares must
also comply with other applicable laws and regulations governing the Shares, and
you may not sell the Shares if the Company determines that such sale would not
be in material compliance with such laws and regulations.

 


	9.	
      Transfer
      Restrictions




 

Any sale,
transfer, assignment, encumbrance, pledge, hypothecation, conveyance in trust,
gift, transfer by bequest, devise or descent, or other transfer or disposition
of any kind, whether voluntary or by operation of law, directly or indirectly,
of Unvested Shares shall be strictly prohibited and void; however, such
restrictions on transfer will not apply to a gratuitous transfer of the Shares;
provided, that you obtain the Company's prior written consent to such
transfer.

 


	10.	
      Section 83(b)
      Election for Restricted Stock
Award




 

You
understand that under Section 83(a) of the Code, the excess of the fair
market value of the Unvested Shares on the date the forfeiture restrictions
lapse over the amount paid for such Shares on the Grant Date will be taxed, on
the date such forfeiture restrictions lapse, as ordinary income subject to
payroll and withholding tax and tax reporting, as applicable. For this purpose,
the term "forfeiture restrictions" means the right of the Company to receive
back any Unvested Shares upon termination of your employment with the Company if
specified performance goals are not met. You understand that you may elect under
Section 83(b) of the Code to be taxed at ordinary income rates on the fair
market value of the Unvested Shares at the time they are acquired, rather than
when and as the Unvested Shares cease to be subject to the forfeiture
restrictions. Such election (an "83(b) Election") must be filed with the
Internal Revenue Service within
30 days from the
Grant Date of the Restricted Stock Award. You understand that (a) you will
not be entitled to a deduction for any ordinary income previously recognized as
a result of the 83(b) Election if the Unvested Shares are subsequently
forfeited to the Company and (b) the 83(b) Election may cause you to
recognize more compensation income than you would have otherwise recognized if
the value of the Unvested Shares subsequently declines.

 

THE
FORM FOR MAKING AN 83(b) ELECTION IS ATTACHED TO THIS AGREEMENT AS
EXHIBIT C.
YOU UNDERSTAND THAT FAILURE TO FILE SUCH AN ELECTION WITHIN THE 30-DAY PERIOD
MAY RESULT IN THE RECOGNITION OF ORDINARY INCOME BY YOU AS THE FORFEITURE
RESTRICTIONS LAPSE.

 

You
further understand that an additional copy of such election form should be filed
with your federal income tax return for the calendar year in which the date of
this Agreement falls. You acknowledge that the foregoing is only a summary of
the federal income tax laws that apply to the award of the Shares under this
Agreement and does not purport to be complete.

 

YOU
FURTHER ACKNOWLEDGE THAT THE COMPANY HAS DIRECTED YOU TO SEEK INDEPENDENT ADVICE
REGARDING THE APPLICABLE PROVISIONS OF THE CODE, THE INCOME TAX LAWS OF ANY
MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH YOU MAY RESIDE, AND THE TAX
CONSEQUENCES OF YOUR DEATH.

 

You agree
to execute and deliver to the Company with this Agreement a copy of the
Acknowledgment and Statement of Decision Regarding Section 83(b) Election
(the "Acknowledgment") attached hereto as Exhibit B. You
further agree that you will execute and deliver to the Company with this
Agreement a copy of the 83(b) Election attached hereto as Exhibit C if
you choose to make such an election.

 


	11.	
      Assignment
      Separate From Certificate




 

As
security for the faithful performance of this Agreement, you agree, upon
execution of this Agreement, to deliver a stock power in the form attached as
Exhibit D,
executed by you, (with the transferee, certificate number, date and number of
Shares left blank), along with any certificate(s) evidencing shares issued to
you, to the Secretary of the Company or its designee ("Escrow Holder"), who is
hereby appointed to hold such stock power and any such certificate(s) in escrow
and to take all such actions and to effectuate all such transfers and/or
releases of such Shares as are in accordance with the terms of this Agreement.
You and the Company agree that Escrow Holder shall not be liable to any party to
this Agreement (or to any other party) for any actions or omissions unless
Escrow Holder is grossly negligent relative thereto. Escrow Holder may rely on
any letter, notice or other document executed by any signature purported to be
genuine and may rely on advice of counsel and obey any order of any court with
respect to the transactions contemplated in this Agreement. The Shares may be
released from escrow as they cease to be Unvested Shares.

 


	12.	
      Legends




 

You
understand and agree that the Unvested Shares are subject to forfeiture and that
the certificate(s) representing the Unvested Shares will bear a legend in
substantially the following form:

 

"The
securities represented by this certificate are subject to certain restrictions
on transfer and forfeiture restrictions and may not be sold, assigned,
transferred, encumbered or in any way disposed of except as set forth in a
performance-based restricted stock award agreement between the issuer and the
original recipient of these shares, a copy of which may be obtained at the
principal office of the issuer. Such transfer restrictions and forfeiture
restrictions are binding on transferees of these shares."

 


	13.	
      Stop-Transfer
      Notices




 

You
understand and agree that, in order to ensure compliance with the restrictions
referred to in this Agreement, the Company may issue appropriate
"stop-transfer"
instructions to its transfer agent, if any, and that, if the Company transfers
its own securities, it may make appropriate notations to the same effect in its
own records. The Company will not be required to (a) transfer on its books
any Shares that have been sold or transferred in violation of the provisions of
this Agreement or (b) treat as the owner of the Shares, or otherwise accord
voting, dividend or liquidation rights to, any transferee to whom the Shares
have been transferred in contravention of this Agreement.

 


	14.	
      Independent
      Tax Advice




 

You
acknowledge that determining the actual tax consequences to you of receiving or
disposing of the Shares may be complicated. These tax consequences will depend,
in part, on your specific situation and may also depend on the resolution of
currently uncertain tax law and other variables not within the control of the
Company. You are aware that you should consult a competent and independent tax
advisor for a full understanding of the specific tax consequences to you of
receiving or disposing of the Shares. Prior to executing this Agreement, you
either have consulted with a competent tax advisor independent of the Company to
obtain tax advice concerning the Shares in light of your specific situation or
have had the opportunity to consult with such a tax advisor but have chosen not
to do so.

 


	15.	
      Withholding
      and Disposition of Shares




 

You agree
to make arrangements satisfactory to the Company for the payment of any federal,
state, local or foreign withholding tax obligations that arise either upon
receipt of the Shares or as the forfeiture restrictions on any Shares lapse. In
accordance with the Plan, you may use Vested Shares as a means to pay any
applicable tax withholding obligations due hereunder.

 


	16.	
      General
      Provisions




 


	 	
      16.1
	
      Notices




 

Any
notice required in connection with (a) the Company's forfeiture rights or
(b) the disposition of any Shares covered thereby will be given in writing
and will be deemed effective upon personal delivery or upon deposit in the
U.S. mail, registered or certified, postage prepaid and addressed to the
party entitled to such notice at the address indicated in this Agreement or at
such other address as such party may designate by ten days' advance written
notice under this Section 16.1 to all other parties to this
Agreement.

 


	 	
      16.2
	
      No
      Waiver




 

No waiver
of any provision of this Agreement will be valid unless in writing and signed by
the person against whom such waiver is sought to be enforced, nor will failure
to enforce any right hereunder constitute a continuing waiver of the same or a
waiver of any other right hereunder.

 


	 	
      16.3
	
      Undertaking




 

You
hereby agree to take whatever additional action and execute whatever additional
documents the Company may deem necessary or advisable in order to carry out or
effect one or more of the obligations or restrictions imposed on either you or
the Shares pursuant to the express provisions of this Agreement.

 


	 	
      16.4
	
      Entire
      Contract




 

This
Agreement and the Plan constitute the entire contract between the parties hereto
with regard to the subject matter hereof. This Agreement is made pursuant to the
provisions of the Plan and will in all respects be construed in conformity with
the express terms and provisions of the Plan.

 


	 	
      16.5
	
      Successors
      and Assigns




 

The
provisions of this Agreement will inure to the benefit of, and be binding on,
the Company and its successors and assigns and you and your legal
representatives, heirs, legatees, distributees, assigns and transferees by
operation of law, whether or not any such person will have become a party to
this Agreement and agreed in writing to join herein and be bound by the terms
and conditions hereof.

 


	 	
      16.6
	
      Shareholder
      of Record




 

During
the Period of Restriction, you will be recorded as a shareholder of the Company
and will be entitled to receive any cash dividends paid with respect to the
Shares, regardless of whether such Shares have become Vested Shares. All stock
dividends paid with respect to Unvested Shares will be added to the Restricted
Stock Award and will be subject to all the terms and conditions of this
Agreement and the Plan.

 

During
the Period of Restriction, you may exercise all voting rights with respect to
the Unvested Shares as if you were the owner of such Shares.

 


	 	
      16.7
	
      Counterparts




 

This
Agreement may be executed in two or more counterparts, each of which will be
deemed an original, but which, upon execution, will constitute one and the same
instrument.

 


	 	
      16.8
	
      Governing
      Law




 

This
Agreement will be governed by and construed in accordance with the laws of the
State of Washington.

 




 

IN
WITNESS WHEREOF, the parties have executed this Agreement dated May 12,
2005.





	 	 
      PUGET
      ENERGY, INC.

       

      By: /s/
      Phyllis J. Campbell      

	 	
            Phyllis J.
      Campbell

       

      Title:
      Chair, Compensation and Leadership Development Committee, Puget Energy,
      Inc. Board of Directors

       




 





	 	
       EXECUTIVE

       

      /s/
      Stephen P. Reynolds

	 	
          Stephen
      P. Reynolds




 


























 

 

EXHIBIT B

 

ACKNOWLEDGMENT
AND STATEMENT OF DECISION REGARDING SECTION 83(b)
ELECTION

 

The
undersigned, a recipient of 40,000 shares of Common Stock of Puget Energy, Inc.,
a Washington corporation (the "Company"), pursuant to a restricted stock award
granted under the terms of the Company's 2005 Long-Term Incentive Compensation
Plan (the "Plan"), hereby states as follows:

 

1. The
undersigned acknowledges receipt of a copy of the Restricted Stock Award
Agreement and Plan relating to the offering of such shares. The undersigned has
carefully reviewed the Plan and the Restricted Stock Award Agreement pursuant to
which the award was granted.

 

2. The
undersigned either (check
and complete as applicable)

(a)   has
consulted, and has been fully advised by, the undersigned's own tax advisor,
________________________, whose business address is _________________________,
regarding the federal, state and local tax consequences of receiving shares
under the Plan, and particularly regarding the advisability of making an
election pursuant to Section 83(b) of the Internal Revenue Code of 1986, as
amended (the "Code"), and pursuant to the corresponding provisions, if any, of
applicable state law, or

 

(b)   has
knowingly chosen not to consult such a tax advisor.

 

3. The
undersigned hereby states that the undersigned has decided (check
as applicable)

(a)   to make
an election pursuant to Section 83(b) of the Code, and is submitting to the
Company, together with the undersigned's executed Restricted Stock Award
Agreement, an executed form entitled "Election Under Section 83(b) of the
Internal Revenue Code of 1986", or

 

(b)   not to
make an election pursuant to Section 83(b) of the Code.

 

4. Neither
the Company nor any subsidiary or representative of the Company has made any
warranty or representation to the undersigned with respect to the tax
consequences of the undersigned's acquisition of shares under the Plan or of the
making or failure to make an election pursuant to Section 83(b) of the Code
or the corresponding provisions, if any, of applicable state law.





	 	 	 
	Dated:
       
	 	
      Recipient

	 	 	 
	 	 	
      Print
      Name

	 	 	 



 



































 

EXHIBIT C

 

ELECTION
UNDER SECTION 83(b)

OF
THE INTERNAL REVENUE CODE OF 1986 




 

The
undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code, to include in taxpayer's gross income for the current
taxable year the amount of any compensation taxable to taxpayer in connection
with taxpayer's receipt of the property described below:

 


	
      1.
	
      The
      name, address, taxpayer identification number and taxable year of the
      undersigned are as follows:




 

NAME OF
TAXPAYER:  

 

ADDRESS:
 



 

IDENTIFICATION
NO. OF TAXPAYER:  

 

TAXABLE
YEAR: ___________

 


	
      2.
	
      The
      property with respect to which the election is made is described as
      follows: 40,000 shares of the Common Stock of Puget Energy, Inc., a
      Washington corporation (the "Company").




 


	
      3.
	
      The
      date on which the property was transferred is: May __,
      2005.




 


	
      4.
	
      The
      property is subject to the following
restrictions:




 

The
property is subject to a forfeiture right pursuant to which the Company can
reacquire the Shares if for any reason taxpayer's services with the Company are
terminated and specified performance goals are not met. The Company's right to
receive back the shares lapses on the date of the 2008 Annual Shareholders
Meeting, provided specified performance goals have been met on or before that
date.

 


	
      5.
	
      The
      aggregate fair market value at the time of transfer, determined without
      regard to any restriction other than a restriction which by its terms will
      never lapse, of such property is: $_______________ (__________________
      dollars)




 


	
      6.
	
      The
      amount (if any) paid for such property is:
$0.00




 

The
undersigned has submitted a copy of this statement to the person for whom the
services were performed in connection with the undersigned's receipt of the
above-described property. The undersigned is the person performing the services
in connection with the transfer of said property.


 

 


The
undersigned understands that the foregoing election may not be revoked except
with the consent of the Commissioner of Internal Revenue.





	
      Dated:
       
	 	
      

       

	 	 	 Taxpayer



 

DISTRIBUTION
OF COPIES

 


	
      1.
	
      File
      original with the Internal Revenue Service Center where the taxpayer's
      income tax return will be filed. Filing must be made by no later than
      30 days after the date the property was
    transferred.




 


	
      2.
	
      Attach
      one
      copy
      to the taxpayer's income tax return for the taxable year in which the
      property was transferred.




 


	
      3.
	
      Mail
      one copy to the Company at the following
address:




 







 





 






































 

EXHIBIT D

 

STOCK
POWER AND ASSIGNMENT

SEPARATE
FROM CERTIFICATE




 

FOR VALUE
RECEIVED, the undersigned hereby sells, assigns and transfers unto
_____________________, _________ shares of the Common Stock of Puget Energy,
Inc., a Washington corporation, standing in the undersigned's name on the books
of said corporation represented by Certificate No. ___ delivered herewith,
and does hereby irrevocably constitute the Secretary of said corporation as
attorney-in-fact, with full power of substitution, to transfer said stock on the
books of said corporation.





	 	
       Dated: 

	 	 
	 	 Signature:  
	 	 
	 	
      
      Please
      print name:  








 

Please
see Section 11 of the Restricted Stock Award Agreement for information on
completing this form.