Document:

DAL 3.31.2014 EX 10.1

EXHIBIT 10.1

    
DELTA AIR LINES, INC. 2014 LONG-TERM INCENTIVE PROGRAM 
AWARD AGREEMENT

Date of this Agreement:
Grant Date:
[Name]

This Award Agreement[, including Appendix A hereto] (the “Agreement”) describes some of the terms of your award (the “Award”) under the Delta Air Lines, Inc. 2014 Long-Term Incentive Program (which is subject to the Delta Air Lines, Inc. 2007 Performance Compensation Plan (the “2007 Performance Plan”)) (the “2014 LTIP”). Your Award is subject to the terms of the 2014 LTIP and this Agreement. Capitalized terms that are used but not otherwise defined in this Agreement have the meaning set forth in the 2014 LTIP. In order for this Award to remain effective, you must accept the Award in accordance with Section 9 below on or before the date that is 30 calendar days after the date of this Agreement (the “Acceptance Date”). If you do not accept the Award as required, the Award and this Agreement will become void and of no further effect as of 5:00 pm Eastern Time on the Acceptance Date.   

1.Summary of Award.  Your Award will include Restricted Stock, a Performance Award and a Nonqualified Stock Option (the “Option”) as described below.  Terms applicable to your Award, including the lapsing of the Restrictions on your Restricted Stock, the vesting and form of payment, if any, of your Performance Award and the exercisability of your Option, are included in the 2014 LTIP.  [Terms applicable to the vesting, exercisability and payout of your Award upon a Termination of Employment are included in Appendix A to this Agreement.]

(a)    Restricted Stock.  You are hereby awarded, on the Grant Date above (the “Grant Date”), Restricted Stock for [NUMBER] shares of Delta Common Stock, par value $0.0001 per share.

(b)    Performance Award.  You are hereby awarded, on the Grant Date, a Performance Award with a target value of [AMOUNT].    

[(c)    Non-Qualified Stock Option.  You are hereby awarded, on the Grant Date, an Option exercisable for [NUMBER] of shares of Delta Common Stock. The exercise price of the Option will be the closing price of a share of Common Stock on the New York Stock Exchange on the Grant Date.]   

2.    Restrictive Covenants.  In exchange for the Award, you hereby agree as follows:

(a)    Trade Secrets.  You hereby acknowledge that during the term of your employment with Delta Air Lines, Inc., its subsidiaries and affiliates (“Delta”), you have acquired and will continue to acquire knowledge of secret, confidential and proprietary information regarding Delta and its business that fits within the definition of “trade secrets” under the law of the State of Georgia, including, without limitation, information regarding Delta’s present and future operations, its financial operations, marketing plans and strategies, alliance agreements and relationships, its compensation and incentive programs for employees, and the business methods used by Delta and its employees, and other information which derives economic value, actual or potential, from not being generally

known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy (each, a “Trade Secret”).  You hereby agree that for so long as such information remains a Trade Secret as defined by Georgia law, you will hold in a fiduciary capacity for the benefit of Delta and shall not directly or indirectly make use of, on your own behalf or on behalf of others, any Trade Secret, or transmit, reveal or disclose any Trade Secret to any person, concern or entity.  Nothing in this Agreement is intended, or shall be construed, to limit the protections of any applicable law protecting trade secrets.  

(b)    Confidential or Proprietary Information.  You further agree that you will hold in a fiduciary capacity for the benefit of Delta, and, during the term of your employment with Delta and for the two-year period after such employment terminates, shall not directly or indirectly use or disclose, any Confidential or Proprietary Information, as defined hereinafter, that you acquire (whether or not developed or compiled by you and whether or not you were authorized to have access to such Confidential or Proprietary Information) during the term of, in the course of, or as a result of your employment by Delta.  Subject to the provisions set forth below, the term “Confidential or Proprietary Information” as used in this Agreement means the following secret, confidential and proprietary information of Delta not otherwise included in the definition of Trade Secret:  all marketing, alliance, advertising and sales plans and strategies; all pricing information; all financial, advertising and product development plans and strategies; all compensation and incentive programs for employees; all alliance agreements, plans and processes; all plans, strategies, and agreements related to the sale of assets; all third party provider agreements, relationships, and strategies; all business methods and processes used by Delta and its employees; all personally identifiable information regarding Delta employees, contractors, and applicants; and all lists of actual or potential customers or suppliers maintained by Delta.  The term “Confidential or Proprietary Information” does not include information that has become generally available to the public by the act of one who has the right to disclose such information.  Nothing in this Agreement is intended, or shall be construed, to limit the protections of any applicable law protecting confidential or proprietary information.  

(c)    Employee/Customer Non-Solicitation Agreement.  During the term of your employment with Delta and during the [two/one]-year period following the termination of such employment, you will not directly or indirectly (on your own behalf or on behalf of any other person, company, partnership, corporation or other entity), (i) employ or solicit for employment any individual who is a management or professional employee of Delta for employment with any entity or person other than Delta or solicit, encourage or induce any such person to terminate his or her employment with Delta or (ii) induce or attempt to induce any customer, supplier, licensee or other business relation of Delta to cease doing business with Delta, or in any way interfere with the relationship between Delta and any customer, supplier, licensee or other business relation of Delta.  The restrictions set forth in clause (i) above shall be limited to those Delta management or professional employees who: (A) were employed by Delta during your employment in a supervisory or administrative job and (B) with whom you had material professional contact during your employment with Delta.

(d)    Non-Competition Agreement.  

		
	(i)
	You acknowledge and agree the following:

		
	(A)
	Delta competes in a worldwide air transportation market that includes passenger transportation and services, air cargo services, repair and maintenance of aircraft and staffing services for third parties, vacation wholesale, refinery and private jet operations, and Delta’s business plan is increasingly international in scope;

		
	(B)
	the airlines listed below are particular competitors to Delta, and employment or consulting with any of the listed entities would create more harm to Delta than relative to your possible employment or consulting with those other entities; and 

		
	(C)
	the restrictions imposed by this paragraph will not prevent you from earning a livelihood, given the large number of worldwide and domestic passenger and cargo air carriers not included in the list below.  

		
	(ii)
	During the term of your employment with Delta and for the [two/one]-year period following the termination of such employment, you will not on your own behalf or on behalf of any person, firm, partnership, association, corporation or business organization, entity or enterprise, whether as an employee, consultant, partner, or in any other capacity provide services that are the same or similar to the services of the type conducted, authorized, offered, or provided by you on the Grant Date (or within two years prior to your termination of employment), to any of the following entities, or the successors thereto, including any successor by merger or acquisition, which you hereby acknowledge are all competitors of Delta:  American Airlines Group, Inc., American Airlines, Inc., and US Airways, Inc.; United Continental Holdings, Inc., Continental Airlines, Inc., and United Air Lines, Inc.; Southwest Airlines Co., AirTran Holdings, LLC, and AirTran Airways, Inc.; or Jet Blue Airways Corporation.  This restriction will apply to the territory over which you have responsibility on the Grant Date (or had responsibility for at the time of your termination), which territory you acknowledge to be co-extensive with the cities encompassed by Delta’s worldwide route structure, as it exists as of the Grant Date or the date of your termination, as appropriate. 

(e)    Return of Property.  You hereby agree that all property belonging to Delta, including records, files, memoranda, reports, personnel information (including benefit files, training records, customer lists, operating procedure manuals, safety manuals, financial statements, price lists and the like), relating to the business of Delta, with which you come in contact in the course of your employment (hereinafter “Delta’s Materials”) shall, as between the parties hereto, remain the sole property of Delta.  You hereby warrant that you shall promptly return all originals and copies of Delta’s Materials to Delta at the time your employment terminates.

(f)    Cooperation.  You hereby agree that you shall, both during and after your employment with Delta, to the extent requested in writing and reasonable under the circumstances, cooperate with and serve in any capacity requested by Delta in any pending

or future litigation in which Delta has an interest, and regarding which you, by virtue of your employment with Delta, have knowledge or information relevant to the litigation.  

(g)    Clawback.  If you are an officer of Delta at or above the Vice President level, you hereby agree that if the Committee determines that you have engaged in fraud or misconduct that caused, in whole or in part, the need for a required restatement of Delta’s financial statements filed with the Securities and Exchange Commission, the Committee will review all incentive compensation awarded to or earned by you, including, without limitation, your Award, with respect to fiscal periods materially affected by the restatement and may recover from you all such incentive compensation to the extent the Committee deems appropriate after taking into account the relevant facts and circumstances.  Any recoupment hereunder may be in addition to any other remedies that may be available to Delta under applicable law, including, disciplinary action up to and including termination of employment.  

3.    Dispute Resolution.

(a)    Arbitration.  You hereby agree that except as expressly set forth below, all disputes and any claims arising out of or under or relating to the Award or this Agreement, including without limitation any dispute or controversy as to the validity, interpretation, construction, application, performance, breach or enforcement of this Agreement, shall be submitted for, and settled by, mandatory, final and binding arbitration in accordance with the Commercial Arbitration Rules then prevailing of the American Arbitration Association.  Unless an alternative locale is otherwise agreed in writing by the parties to this Agreement, the arbitration shall be conducted in the City of Atlanta, Georgia.  The arbitrator will apply Georgia law to the merits of any dispute or claim without reference to rules of conflicts of law.  Any award rendered by the arbitrator shall provide the full remedies available to the parties under the applicable law and shall be final and binding on each of the parties hereto and their heirs, executors, administrators, successors and assigns and judgment may be entered thereon in any court having jurisdiction.  You hereby consent to the personal jurisdiction of the state and federal courts in the State of Georgia, with venue in Atlanta, for any action or proceeding arising from or relating to any arbitration under this Agreement.  The prevailing party in any such arbitration shall be entitled to an award by the arbitrator of all reasonable attorneys’ fees and expenses incurred in connection with the arbitration.  However, Delta will pay all fees associated with the American Arbitration Association and the arbitrator.  All parties must initial here for this Section 3 to be effective:

       [NAME]    

 Delta Air Lines, Inc.-Robert L. Kight-Senior Vice President-Global HR Services & Labor Relations

(b)    Injunctive Relief in Aid of Arbitration; Forum Selection.  You hereby acknowledge and agree that the provisions contained in Section 2 of this Agreement are reasonably necessary to protect the legitimate business interests of Delta, and that any breach of any of these provisions will result in immediate and irreparable injury to Delta for which monetary damages will not be an adequate remedy.  You further acknowledge that if any such provision is breached or threatened to be breached, Delta will be entitled 

to seek a temporary restraining order, preliminary injunction or other equitable relief in aid of arbitration in any court of competent jurisdiction without the necessity of posting a bond, restraining you from continuing to commit any violation of the covenants, and you hereby irrevocably consent to the jurisdiction of the state and federal courts of the State of Georgia, with venue in Atlanta, which shall have jurisdiction to hear and determine any claim for a temporary restraining order, preliminary injunction or other equitable relief brought against you by Delta in aid of arbitration.  

(c)    Consequences of Breach.  Furthermore, you acknowledge that, in partial consideration for the Award described in the 2014 LTIP and this Agreement, Delta is requiring that you agree to and comply with the terms of Section 2 and you hereby agree that without limiting any of the foregoing, should you violate any of the covenants included in Section 2 above, you will not be entitled to and shall not receive any Awards under the 2014 LTIP and this Agreement and any outstanding Awards will be forfeited.  

     (d)    Tolling.  You further agree that in the event the enforceability of any of the restrictions as set forth in Section 2 of this Agreement are challenged and you are not preliminarily or otherwise enjoined from breaching such restriction(s) pending a final determination of the issues, then, if an arbitrator finds that the challenged restriction(s) is enforceable, any applicable time period related to the challenged restriction set forth in such Section shall be deemed tolled upon the filing of the arbitration or action seeking injunctive or other equitable relief in aid of arbitration, whichever is first in time, until the dispute is finally resolved and all periods of appeal have expired. 

(e)    Governing Law.  Unless governed by federal law, this Agreement shall be governed by and construed in accordance with the laws of the State of Georgia, without regard to principles of conflicts of laws of that State.  

(f)    Waiver of Jury Trial.  TO THE MAXIMUM EXTENT PERMITTED BY LAW, YOU HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN CONNECTION WITH ANY MATTER ARISING OUT OF, UNDER, IN CONNECTION WITH, OR IN ANY WAY RELATED TO THIS AGREEMENT.  THIS INCLUDES, WITHOUT LIMITATION, ANY DISPUTE CONCERNING ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER VERBAL OR WRITTEN), OR ACTION OF DELTA OR YOU, OR ANY EXERCISE BY DELTA OR YOU OF OUR RESPECTIVE RIGHTS UNDER THIS AGREEMENT OR IN ANY WAY RELATING TO THIS AGREEMENT.  YOU FURTHER ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT FOR DELTA TO ISSUE AND ACCEPT THIS AGREEMENT.

4.    Validity; Severability.  In the event that one or more of the provisions contained in this Agreement shall for any reason be held invalid, illegal, or unenforceable in any respect, such holding shall not affect any other provisions in this Agreement, but this Agreement shall be construed as if such invalid, illegal, or unenforceable provisions had never been contained herein.  The invalidity, illegality or unenforceability of any provision or provisions of this Agreement will not affect the validity or enforceability of any other provision of this Agreement, which will remain in full force and effect.

5.    Authority of the Committee.  You acknowledge and agree that the Committee has the sole and complete authority and discretion to construe and interpret the terms of the 2014 

LTIP and this Agreement.  All determinations of the Committee shall be final and binding for all purposes and upon all persons, including, without limitation, you and Delta, and your heirs and successors.  The Committee shall be under no obligation to construe this Agreement or treat the Award in a manner consistent with the treatment provided with respect to other Awards or Participants.
6.        Amendment.  This Agreement may not be amended or modified except by written agreement signed by you and Delta; provided, however, you acknowledge and agree that Delta may unilaterally amend the clawback provision set forth in Section 2(g) of this Agreement to the extent required to be in compliance with any applicable law or regulation or Delta’s internal clawback policy, as it may be amended from time to time.
7.    Acknowledgement.  By signing this Agreement:  (a) you acknowledge that you have had a full and adequate opportunity to read this Agreement and you agree with every term and provision herein, including, without limitation, the terms of Sections 2, 3, 4, 5 and 6; (b) you acknowledge that you have received and had a full and adequate opportunity to read the 2014 LTIP; (c) you agree, on behalf of yourself and on behalf of any designated beneficiary and your heirs, executors, administrators and personal representatives, to all of the terms and conditions contained in this Agreement and the 2014 LTIP; and (d) you consent to receive all material regarding any awards under the 2014 LTIP, including any prospectuses, electronically with an e‐mail notification to your work e‐mail address.
8.     Entire Agreement.  This Agreement, together with the 2014 LTIP (the terms of which are made a part of this Agreement and are incorporated into this Agreement by reference), constitute the entire agreement between you and Delta with respect to the Award. 

 9.    Acceptance of this Award.  If you agree to all of the terms of this Agreement and would like to accept this Award, you must sign and date the Agreement where indicated below and, if you do not accept the Award electronically, return an original signed version of this Agreement to Mary Steele, either by hand or by mail to Department 936, P.O. Box 20706, Atlanta, Georgia 30320, as set forth on page 1 of this Agreement.  If you have any questions regarding how to accept your Award, please contact Ms. Steele at (404) 715-6333.  Delta hereby acknowledges and agrees that its legal obligation to make the Award to you shall become effective when you sign this Agreement.

10.    Electronic Signature.  All references to signatures and delivery of documents in this Agreement can be satisfied by procedures that the Company has established or may establish for an electronic signature system for delivery and acceptance of any such documents, including this Agreement.  Your electronic signature is the same as, and shall have the same force and effect as, your manual signature.  Any such procedures and delivery may be effected by a third party engaged by the Company to provide administrative services related to the 2014 LTIP.

(Signature Page Follows)

You and Delta, each intending to be bound legally, agree to the matters set forth above by signing this Agreement, all as of the date set forth below.

	
			
	DELTA AIR LINES, INC.

	 

	By:
	 

	 
	Name:  Robert L. Kight
Title:  Senior Vice President-Global HR Services & 
Labor Relations

	 
	 

	
	
	PARTICIPANT

	 

	[NAME] 

	Date:

A-4

    

[APPENDIX A  
The terms of this Appendix A shall apply to the Award set forth in the Agreement to which this Appendix is attached.  Capitalized terms that are used but not otherwise defined in the Agreement have the meaning set forth in the 2014 LTIP and the 2007 Performance Plan.   

RESTRICTED STOCK
1.    Lapse of Restrictions/Forfeiture upon Terminations of Employment Occurring prior to October 1, 2014.   Effective for Terminations of Employment that occur prior to October 1, 2014, the Restricted Stock and the Restrictions set forth in the 2014 LTIP are subject to the terms and conditions set forth in Sections 4(a)(v) and (vi) of the 2014 LTIP.
2.    Lapse of Restrictions/Forfeiture upon Terminations of Employment Occurring on or after October 1, 2014.  Effective for Terminations of Employment that occur on or after October 1, 2014, the Restricted Stock and the Restrictions set forth in the 2014 LTIP are subject to the following terms and conditions, which terms and conditions shall supersede and replace Sections 4(a)(v) and (vi) of the 2014 LTIP.   
(a)    Qualifying Termination of Employment.  Upon a Participant’s Qualifying Termination of Employment (as such term is hereinafter defined), with respect to any portion of the Restricted Stock subject to the Restrictions, the Restrictions shall lapse and be of no further force or effect as of the dates set forth in Section 4(a)(iv) of the 2014 LTIP in the same manner and to the same extent as if the Participant’s employment had continued.
(b)    Disqualifying Termination of Employment.  Upon a Participant’s Disqualifying Termination of Employment (as such term is hereinafter defined), any portion of the Restricted Stock subject to the Restrictions shall be immediately forfeited.
(c)    Death or Disability.  Upon a Participant’s Termination of Employment due to death or Disability, the Restrictions shall immediately lapse and be of no further force or effect as of the date of such Termination of Employment.
(d)    Change in Control.  Notwithstanding the foregoing and subject to Section 5 of the 2014 LTIP, upon a Participant’s Termination of Employment by the Company without Cause or by the Participant for Good Reason on or after a Change in Control but prior to the second anniversary of such Change in Control, any Restrictions in effect shall immediately lapse on the date of such Termination of Employment and be of no further force or effect as of such date.
3.    Definitions.
(a)    “Qualifying Termination of Employment” means a Participant’s Termination of Employment (i) by the Company without Cause or (ii) by the Participant with or without Good Reason or by reason of Retirement.
(b)    Disqualifying Termination of Employment” means a Participant’s Termination of Employment by the Company for Cause. 

PERFORMANCE AWARD
1.    Accelerated Vesting/Forfeiture upon Terminations of Employment Occurring Prior to October 1, 2014-Excluding Return on Invested Capital.  Effective for Terminations of Employment that occur prior to October 1, 2014, the portion of the Performance Award attributable to Average Annual Operating Income Margin and Customer Service Performance is subject to the terms and conditions set forth in Section 4(b)(vii) of the 2014 LTIP.
2.    Accelerated Vesting/Forfeiture upon Terminations of Employment Occurring on or after October 1, 2014-Excluding Return on Invested Capital.  Effective for Terminations of Employment that occur on or after October 1, 2014, the portion of the Performance Award attributable to Average Annual Operating Income Margin and Customer Service Performance is subject to the following terms and conditions, which terms and conditions shall supersede and replace Section 4(b)(vii) of the 2014 LTIP.  
(a)    Qualifying Termination of Employment.  Upon a Participant’s Qualifying Termination of Employment, the Participant will remain eligible for any unpaid Performance Award attributable to Average Annual Operating Income Margin and Customer Service Performance, which award will vest and become payable under Section 4(b)(v) of the 2014 LTIP in the same manner and to the same extent as if the Participant’s employment had continued.
(b)    Disqualifying Termination of Employment.  Upon a Participant’s Disqualifying Termination of Employment, the Participant will immediately forfeit any unpaid portion of the Performance Award attributable to Average Annual Operating Income Margin and Customer Service Performance as of the date of such Termination of Employment.
(c)    Death or Disability.  Upon a Participant’s Termination of Employment due to death or Disability, the portion of the Participant’s Performance Award attributable to Average Annual Operating Income Margin and Customer Service Performance will immediately become vested at the target level and such amount will be paid in cash as soon as practicable thereafter to the Participant or the Participant’s estate, as applicable.
3.    Accelerated Vesting/Forfeiture upon Terminations of Employment Occurring Prior to October 1, 2014-Return on Invested Capital.  Effective for Terminations of Employment that occur prior to October 1, 2014, the portion of the Performance Award attributable to Return on Investment Capital is subject to the terms and conditions set forth in Section 4(b)(viii) of the 2014 LTIP.
4.    Accelerated Vesting/Forfeiture upon Terminations of Employment Occurring on or after October 1, 2014-Return on Invested Capital.  Effective for Terminations of Employment that occur on or after October 1, 2014, the portion of the Performance Award attributable to Return on Invested Capital is subject to the following terms and conditions, which terms and conditions shall supersede and replace Section 4(b)(viii) of the 2014 LTIP.  
(a)    Qualifying Termination of Employment.  Upon a Participant’s Qualifying Termination of Employment, the Participant will remain eligible for any unpaid Performance Award attributable to Return on Invested Capital, including any Earned Awards, which award will vest and become payable under Section 4(b)(v) of the 2014 

LTIP in the same manner and to the same extent as if the Participant’s employment had continued. 
(b)    Disqualifying Termination of Employment.  Upon a Participant’s Disqualifying Termination of Employment, the Participant will immediately forfeit any unpaid portion of the Performance Award attributable to Return on Invested Capital, including any Earned Awards, as of the date of such Termination of Employment.
(c)    Death or Disability.  Upon a Participant’s Termination of Employment due to death or Disability, the Participant will be eligible to receive:  (i)    payment of any Earned Awards, which Earned Awards will immediately become vested and such amount will be paid in cash as soon as practicable thereafter to the Participant or the Participant’s estate, as applicable and (ii) with respect to any remaining ROIC Installment(s) outstanding as of the date of the Participant’s Termination of Employment, the Participant’s ROIC Installment(s) will immediately become vested at the target level and such amount will be paid in cash as soon as practicable thereafter to the Participant or the Participant’s estate, as applicable.
 5.    Change in Control.  Notwithstanding the forgoing and subject to Section 5 of the 2014 LTIP, upon a Participant’s Termination of Employment by the Company without Cause or by the Participant for Good Reason on or after a Change in Control (whether prior to or on or after October 1, 2014) but prior to the second anniversary of such Change in Control, the Participant’s outstanding Performance Award shall immediately become vested at the target level (or, with respect to any Earned Award, at the level at which it was earned) and such amount will be paid in cash to the Participant as soon as practicable. With respect to any Participant who incurs a Termination of Employment by the Company without Cause or who resigns for Good Reason prior to a Change in Control, if a Change in Control occurs thereafter during the Performance Period, such Participant’s Performance Award, ROIC Installments and Earned Awards, if any, will immediately become vested and be paid in cash to the Participant as soon as practicable.  This paragraph 3 shall supersede and replace Section 4(b)(ix) of the 2014 LTIP.
[OPTION
1.        Change in Exercisability and Exercise Period upon Terminations of Employment Occurring prior to October 1, 2014.  Effective for Terminations of Employment that occur prior to October 1, 2014, the exercisability of the Option and the exercise period are subject to the terms and conditions set forth in Section 4(d)(v) of the 2014 LTIP.  

2.        Change in Exercisability and Exercise Period upon Terminations of Employment on or after October 1, 2014.  Effective for Terminations of Employment that occur on or after October 1, 2014, the exercisability of the Option and the exercise period set forth in the 2014 LTIP are subject to the following terms and conditions, which terms and conditions shall supersede and replace Section 4(d)(v) of the 2014 LTIP:  
 
(a)    Qualifying Termination of Employment.  Upon a Participant’s Qualifying Termination of Employment, any portion of the Option that is not exercisable at the time of such Qualifying Termination of Employment (i) will vest and become exercisable, if applicable, under Section 4(d)(iv) of the 2014 LTIP in the same manner and to the same extent as if the Participant’s employment had continued and (ii) the entire then exercisable portion of the Option, as applicable, shall be exercisable during the period:  (A) beginning on the applicable Option Installment Vesting Date and (B) ending on the 

earlier of (1) the later of the third anniversary of (I) such Termination of Employment or (II) the applicable Option Installment Vesting Date or (2) the Expiration Date.  

(b)     Disqualifying Termination of Employment.  Upon a Participant’s Disqualifying Termination of Employment, any unexercised portion of the Option shall be immediately forfeited, including any portion that was then exercisable. 

(c)      Death or Disability.  Upon a Participant’s Termination of Employment due to death or Disability, any portion of the Option that is not exercisable at the time of such Termination of Employment shall vest and become exercisable and the then exercisable portion of the Option shall be exercisable during the period:  (i) beginning on the date of such Termination of Employment and (ii) ending on the earlier of (A) the third anniversary of such Termination of Employment or (B) the Expiration Date.

 (d)    Change in Control.  Notwithstanding the foregoing and subject to Section 5 of the 2014 LTIP, upon a Participant’s Termination of Employment by the Company without Cause or by the Participant for Good Reason on or after a Change in Control but prior to the second anniversary of such Change in Control, any portion of the Option that is not exercisable at the time of such Termination of Employment shall vest and become exercisable, and the entire then exercisable portion of the Option shall be exercisable during the period (i) beginning on the date of such Termination of Employment and (ii) ending on the earlier of (A) the third anniversary of such Termination of Employment or (B) the Expiration Date.]]Exhibit 10.1 2014 Annual Incentive Plan

Exhibit 10.1

NORTHWESTERN ENERGY
2014 ANNUAL INCENTIVE PLAN 

I.    Introduction

NorthWestern Energy (NWE) utilizes the 2014 Annual Incentive Plan (Plan) to reward non-represented employees for their contributions toward achieving desired business results.

II.    Plan Objectives

This Plan is designed to achieve the following objectives:

		
	▪
	Align the interests of shareholders, customers and employees.

		
	▪
	Create incentives for employees to achieve financial and operating results.

		
	▪
	Reward employees individually and as a team by providing compensation opportunities consistent with company financial and operating performance.

III.    Plan Administration

The Plan is approved by NWE's Board of Directors (Board) and administered by the NWE Incentive Plan Administration Committee (Administration Committee) consisting of the President and CEO, and CFO.  The Administration Committee is responsible for all aspects of administration of the Plan, and is responsible for resolving any conflicts or discrepancies that arise. The Administration Committee’s decision on any matter associated with this Plan is final, subject to approval by the Board's Human Resources Committee.

IV.    Performance Period and Effective Date

The Plan becomes effective January 1, 2014, and will continue until December 31, 2014, which is the performance period.  The Plan may be suspended and/or terminated by the Administration Committee, subject to approval by the Board, at any time, without prior notice and at its sole discretion.

V.    Other Considerations

All awards are subject to income tax withholding and garnishment requirements. No right or interest in the Plan is transferable or assignable.

Distributions under the Plan are at the discretion of the Administration Committee, subject to approval of the Board's Human Resources Committee. Awards will not be made under the Plan if, in the sole and final judgment of the Board, the overall financial condition of the Company is insufficient to support awards.

Distributions from the Plan do not provide any rights to continued employment. A distribution from the Plan in any one-performance period does not guarantee the participant a distribution or the right to participate in any subsequent performance period.

Exhibit 10.1

VI.    Participation and Eligibility

All non-represented regular full-time, regular part-time, limited part-time and supplemental employees of NWE employed on the last business day of the plan year are eligible to receive payment under the Plan provided they are actively employed by NWE for at least one full quarter of the plan year. To participate in the Plan, employees must have written goals and objectives consistent with NWE’s goals and objectives. These employee goals must target results that meet or exceed the normal requirements of the position and that contribute to meeting the goals and objectives of the company. Goals and objectives can be based on either individual or team performance; however, each employee must have at least one goal that contributes to cost reduction or process improvement. 

Employees must meet acceptable performance standards, as defined and approved by the Administration Committee, to be eligible for an award. Employees who are under an active step of Progressive Discipline or employees whose performance is rated “unsatisfactory” are not eligible for an award. Employees whose performance is rated “partially met expectations” may, at the discretion of their supervisor, be eligible for an award from the discretionary pool.

Employees are eligible for a prorated incentive award based upon the amount of time served in an eligible status with NorthWestern Energy during the performance period if they:
		
	(1)
	Are classified as seasonal supplemental

		
	(2)
	Were under an active step of Progressive Discipline for a portion of the performance period,

		
	(3)
	Work on a part-time basis,

		
	(4)
	Are granted unpaid leave, including military leave, that is nonmedical in nature and that exceeds 80 hours, or

		
	(5)
	Retired, provided they worked at least one full quarter during the performance period even though the retired employee was not employed on the last day of the Plan year.

Temporary and summer employees, as well as independent contractors, are not eligible to participate in the Plan.

VII.      Individual Awards

Awards to plan participants from the Performance Pool (Section IX) will be determined based on individual performance ratings that evaluate achievement against established goals and objectives as well as overall job performance. Supervisors will evaluate individual employee performance during the period covered by the Plan to determine individual awards. 

VIII.    Target Incentives

Target incentive level for each participating employee is set by position and will be expressed as a percentage of base salary. Each participant's target incentive is subject to approval by the Administration Committee and any changes will be communicated in writing to participants.  The Board will approve senior executive target incentive levels.

Exhibit 10.1

IX.    Performance Pool

The Plan is funded through achievement of targeted results on key organizational performance objectives, inclusive of costs associated with the Plan. After implementation, the Plan will be reviewed periodically to ensure that the desired results are being achieved.

The Performance Pool will be created based on four factors: net income, electric and natural gas service reliability, customer satisfaction, and employee safety. Each of these measures will be calculated at the conclusion of the performance period. Periodic accruals will be made to provide for the Performance Pool at year-end. The Performance Pool will be funded in accordance with Table 1; however, no awards will be made unless at least 90% of the net income target is met. Officer awards will be modified based on each officer’s goal performance during the Performance Period.

Table 1 - 2014 Plan Performance Metrics
	
					
	 
	 
	Threshold
	Target
	Maximum

	Incentive Metric
	Weight
	50%
	100%
	150%

	FINANCIALP1
	 
	 
	 
	 

	Net Income
	55%
	-10%
	 Budget 
	+10%

	SAFETYP2
	 
	 
	 
	 

	Lost Time Incident Rate
	7.5%
	1.0
	0.8
	0.6

	Total Recordable Incident Rate
	7.5%
	2.8
	2.5
	2.2

	RELIABILITY
	 
	 
	 
	 

	System Avg Interruption Duration Index (SAIDI excluding MEDs)
	5%
	120
	111
	101

	System Avg Interruption Duration Index (SAIDI including MEDs)
	      5%
	192
	127
	113

	Gas - Damages per 1000 Locates
Gas - Leaks per 100 Mile of Main
	2.5% 2.5%
	3.3
8.0
	2.7
5.6
	2.2
4.7

	CUSTOMER SATISFACTIONP3
	 
	 
	 
	 

	JD Power Residential Electric and Gas Survey Performance
	5%
	629
	640
	645

	Operational Performance - Customer Survey by Flynn Wright
	5%
	39.55
	40.32
	40.47

	Reputational Perceptions - Custom Survey by Flynn Wright
	5%
	39.03
	39.82
	39.98

Footnotes: 1) The financial target is based on Board-approved budget for 2014; 2) If a work-related fatality occurs, the safety portion of the Annual Incentive Plan will be forfeited for all NWE employees unless it is determined by the Human Resources Committee that no actions on the part of the employee or the Company contributed to the incident.  3) Customer satisfaction results are based on independent JD Power residential electric and gas survey results, and data collected by third-party consultant Flynn-Wright via a longitundal Customer Tracking Study.

Funding levels are computed by prorating if actual results lie between Threshold (50%) through Maximum (150%)

In calculating performance against target, adjustments may be made either positively or negatively for one-time events and extraordinary nonbudgeted items as approved by the Board. This plan is subjected to any “clawback” provisions accepted by the Company in the future.
 
As soon as possible after the end of the Performance Period, NWE will calculate the actual performance as compared against the performance targets. Such calculations shall be finally determined in the sole discretion of the Board's Human Resources Committee or an appointed 

Exhibit 10.1

designee. Employees shall have no recourse, appeal or challenge available from this final determination. Summary results will be provided to employees.

X.    Performance Pool Distribution and Incentive Pay Calculation

Individual employee performance is a key consideration in calculating distribution of incentive pay. The Performance Pool will be allocated to each officer using total target incentive dollars at the end of the Performance Period for eligible employees in each functional unit, division or department adjusted based on the performance funding level achieved. The Performance Pool will be divided into two pools: a “Fixed Pool” and a “Discretionary Pool.”   Fifty percent (50%) of the Performance Pool will be allocated to the Fixed Pool; the remaining fifty percent (50%) will be allocated to the Discretionary Pool. Each Eligible Employee that has a performance rating of met or exceeded expectations will receive a distribution from the Fixed Pool calculated as follows:

Employee’s target incentive amount x performance funding level achieved x 50%

Each officer will then allocate the Discretionary Pool to the respective department supervisors, as appropriate, for further distribution based on either attainment of team or individual performance goals.  Supervisors will submit recommended distributions to individual employees subject to the functional officer’s and Administration Committee approval.  In no case will the total payouts in a given Performance Pool exceed the total dollars available for that Performance Pool.

XI.    Payment of Awards

Cash awards will be made in the same manner as each employee’s normal payroll processing, either in the form of Company check or direct deposit. Awards will be paid out to employees in March 2014. Awards are considered ordinary income and subject to all appropriate taxes.

Exhibit 10.1

NORTHWESTERN ENERGY
2014 ANNUAL INCENTIVE PLAN 
ADDENDUM 1

UDefinitions

Financial

The Net Income target is based upon the Board approved budget for the plan year, and is determined by what is reported in the SEC Form 10k filed mid-February of the year following the plan year.

UReliability

Electric System Reliablity

Electric system reliability (MT and SD Electric Distribution System) is calculated by NorthWestern Energy and participating Institute of Electrical and Electronic Engineers, Inc. (IEEE) benchmarking utilities and is determined as follows:

System Average Interruption Duration Index (SAIDI) indicates, in minutes, the total duration of interruption for the average customer during a predefined period of time. 
SAIDI = Usum of the customer interruption durations
                                   total number of customers served

    
Major Event Days (MEDs) is defined as a is a day whose SAIDI value exceeds a statically derived threshold value (Tmed) that nominally represents “stresses beyond that normally expected (such as during severe weather).”

Gas System Reliability
Gas system reliability is calculated by NorthWestern Energy and participating in the American Gas Association benchmarking survey for gas distribution system performance.  

Damages per 1000 Locates is calculated as the total number of 3rd party damages experienced on NorthWestern Energy’s system divided by the total number of locate tickets divided by 1000.

Damages per 1000 Locates = total 3rd party damages to the system
                                                              total locate tickets / 1000

Leaks per 100 miles of main is calculated as the total number of leaks recorded on NorthWestern’s system caused by something other than 3rd party damage divided by the total miles of main divided by 100.

Exhibit 10.1

Leaks per 100 miles of main = total leaks (other than 3rd party damages) 
                                                            total miles of main / 100

USafety Metric

Safety performance is calculated by NorthWestern Energy and participating Edison Electric Institute (EEI) benchmarking utilities as defined by OSHA. OSHA recordable incident rates and lost time incident rates are the most common method of determining relative safety performance. OSHA has specifically defined what injuries and illnesses should be recorded, and of those recorded cases, which must be considered lost time. By utilizing the "total manhours worked" of a specific work group in the denominator, the resulting rate from the calculation can be used to compare different size departments, divisions, companies, etc. The 200,000 number and the total manhours worked number "normalize" the rate so comparisons can be made.

Lost time incident rate is calculated by taking the total number of all OSHA lost time cases, multiplying the number by 200,000, and dividing the number by the total number of manhours worked by a specific group. 

Lost Time Incident Rate = total lost time cases x 200,000
                                                 total manhours worked

Total recordable incident rate is calculated by taking the total number of all OSHA recordable cases, multiplying the number by 200,000, and dividing the number by the total number of manhours worked by a specific group. 

Total Recordable Incident Rate =  total recordable cases x 200,000
                                                     total manhours worked

Customer Satisfaction

Customer satisfaction utilizes operational and reputational inputs designed to provide actional insight into customer sentiment throughout the service terrority. Customer satisfaction is measured by the annual JD Power residential electric and gas survey, and the longitudinal Customer  Tracking Study conducted by a third party consultant.

JD Power is a global marketing information services company providing performance improvement, social media and customer satisfaction insights and solutions. JD Power results are measured against a peer group of 26 combination electric and gas utililies. Results are weighted by residential customer count by energy source utilizing FERC data.

The JD Power model includes the following six components:
		
	1.
	Communications

		
	2.
	Corporate Citizenship

		
	3.
	Billing and Payment

		
	4.
	Price

		
	5.
	Power Quality and Reliability (electric) or Field Services (gas)

		
	6.
	Customer Service

Exhibit 10.1

The Customer Tracking Study is a longitudinal study designed to evaluate customer perception regarding operational and reputational performance. The study is fielded in March and September with a total annual sample size of 1,200. Results are weighted 70 percent Montana and 30 percent South Dakota & Nebraska.

	
		
	Operational Inputs
	Reputational Inputs

	Overal satisfaction with NorthWestern Energy
	Sets the standard of excellence for delivery

	Reliable service
	Prepared

	Responsiveness
	Trustworthy

	Involved in community
	Community-focused

	Visible employees
	Customers first

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