Document:

exhibit1052.htm

Exhibit 10.52

 

PUGET ENERGY, INC.

 

2005 LONG-TERM INCENTIVE PLAN

(The 1995 Long-Term Incentive Compensation Plan as amended and

restated and renamed effective May 10, 2005 and as further amended and restated effective February 9, 2006 and March 4, 2011)

 

SECTION 1.   PURPOSE

 

The purpose of the Puget Energy, Inc. 2005 Long-Term Incentive Plan is to attract, retain and motivate employees, officers, directors, consultants, agents, advisors and independent contractors of the Company and its Related Companies by providing them the opportunity to acquire a proprietary interest in the Company and to align their interests and efforts to the long-term interests of the Company's shareholders.

 

SECTION 2.   DEFINITIONS

 

Certain capitalized terms used in the Plan have the meanings set forth in Appendix A to the Plan.

 

SECTION 3.   ADMINISTRATION

 

	
3.1

	
Administration of the Plan

 

The Plan shall be administered by the Board or the Compensation and Leadership Development Committee, which shall be composed of two or more directors, each of whom is a "non-employee director" within the meaning of Rule 16b-3(b)(3) promulgated under the Exchange Act, or any successor definition adopted by the Securities and Exchange Commission, and an "outside director" within the meaning of Section 162(m) of the Code, or any successor provision thereto.  Notwithstanding the foregoing, the Board may delegate responsibility for administering the Plan with respect to designated classes of Eligible Persons to different committees consisting of two or more members of the Board, subject to such limitations as the Board deems appropriate, except with respect to Awards to Participants who are subject to Section 16 of the Exchange Act or Awards granted pursuant to Section 16 of the Plan.  Members of any committee shall serve for such terms as the Board may determine, subject to removal by the Board at any time.  To the extent consistent with applicable law, the Board may authorize one or more senior executive officers of the Company to grant Awards to designated classes of Eligible Persons, within limits specifically prescribed by the Board; provided, however, that no such officer shall have or obtain authority to grant Awards to himself or herself or to any person subject to Section 16 of the Exchange Act.  All references in the Plan to the "Committee" shall be, as applicable, to the Board, the Compensation and Leadership Development Committee or any other committee or any officer to whom the Board has delegated authority to administer the Plan.

 

	
3.2

	
Administration and Interpretation by Committee

 

(a)           Except for the terms and conditions explicitly set forth in the Plan and to the extent permitted by applicable law, the Committee shall have full power and exclusive authority, subject to such orders or resolutions not inconsistent with the provisions of the Plan as may from time to time be adopted by the Board or a Committee composed of members of the Board, to (i) select the Eligible Persons to whom Awards may from time to time be granted under the Plan; (ii) determine the type or types of Award to be granted to each Participant under the Plan; (iii) determine the number of shares of Common Stock to be covered by each Award granted under the Plan; (iv) determine the terms and conditions of any Award granted under the Plan; (v) approve the forms of notice or agreement for use under the Plan; (vi) determine whether, to what extent and under what circumstances Awards may be settled in cash, shares of Common Stock or other property or canceled or suspended; (vii) determine whether, to what extent and under what circumstances cash, shares of Common Stock, other property and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the Participant, subject to Section 409A of the Code; (viii) interpret and administer the Plan and any instrument evidencing an Award, notice or agreement executed or entered into under the Plan; (ix) establish such rules and regulations as it shall deem appropriate for the proper administration of the Plan; (x) delegate ministerial duties to such of the Company's employees as it so determines; and (xi) make any other determination and take any other action that the Committee deems necessary or desirable for administration of the Plan.

 

(b)           In no event, however, shall the Committee have the right, without shareholder approval, to (i) cancel or amend outstanding Options or SARs for the purpose of repricing, replacing or regranting such Options or SARs with Options or SARs that have a purchase or grant price that is less than the purchase or grant price for the original Options or SARs except in connection with adjustments provided in Section 15, or (ii) issue an Option or SAR or amend an outstanding Option or SAR to provide for the grant or issuance of a new Option or SAR on exercise of the original Option or SAR.

 

(c)           The effect on the vesting of an Award of a Company-approved leave of absence or a Participant's working less than full-time shall be determined by the Company's chief human resources officer or other person performing that function or, with respect to directors or executive officers, by the Committee, whose determination shall be final.

 

(d)           Decisions of the Committee shall be final, conclusive and binding on all persons, including the Company, any Participant, any shareholder and any Eligible Person.  A majority of the members of the Committee may determine its actions.

 

SECTION 4.   SHARES SUBJECT TO THE PLAN

 

	
4.1

	
Authorized Number of Shares

 

Subject to adjustment from time to time as provided in Section 15.1, a maximum of 4,200,000 shares of Common Stock shall be available for issuance under the Plan.  Shares issued under the Plan shall be drawn from authorized and unissued shares.

 

	
4.2

	
Share Usage

 

(a)           Shares of Common Stock covered by an Award shall not be counted as used unless and until they are actually issued and delivered to a Participant.  If any Award lapses, expires, terminates or is canceled prior to the issuance of shares thereunder or if shares of Common Stock are issued under the Plan to a Participant and thereafter are forfeited to or otherwise reacquired by the Company, the shares subject to such Awards and the forfeited or reacquired shares shall again be available for issuance under the Plan.  Any shares of Common Stock (i) tendered by a Participant or retained by the Company as full or partial payment to the Company for the purchase price of an Award or to satisfy tax withholding obligations in connection with an Award, or (ii) covered by an Award that is settled in cash, or in a manner such that some or all of the shares of Common Stock covered by the Award are not issued, shall be available for Awards under the Plan.  The number of shares of Common Stock available for issuance under the Plan shall not be reduced to reflect any dividends or dividend equivalents that are reinvested into additional shares of Common Stock or credited as additional shares of Common Stock subject or paid with respect to an Award.

 

(b)           The Committee shall also, without limitation, have the authority to grant Awards as an alternative to or as the form of payment for grants or rights earned or due under other compensation plans or arrangements of the Company.

 

(c)           Notwithstanding anything in the Plan to the contrary, the Committee may grant Substitute Awards under the Plan.  Substitute Awards shall not reduce the number of shares authorized for issuance under the Plan.  In the event that an Acquired Entity has shares available for awards or grants under one or more preexisting plans not adopted in contemplation of such acquisition or combination, then, to the extent determined by the Board or the Committee, the shares available for grant pursuant to the terms of such preexisting plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to holders of common stock of the entities that are parties to such acquisition or combination) may be used for Awards under the Plan and shall not reduce the number of shares of Common Stock authorized for issuance under the Plan; provided, however, that Awards using such available shares shall not be made after the date awards or grants could have been made under the terms of such preexisting plans, absent the acquisition or combination, and shall only be made to individuals who were not employees or directors of the Company or a Related Company prior to such acquisition or combination.  In the event that a written agreement between the Company and an Acquired Entity pursuant to which a merger, consolidation or statutory share exchange is completed is approved by the Board and said agreement sets forth the terms and conditions of the substitution for or assumption of outstanding awards of the Acquired Entity, said terms and conditions shall be deemed to be the action of the Committee without any further action by the Committee, except as may be required for compliance with Rule 16b-3 promulgated under the Exchange Act, and the persons holding such awards shall be deemed to be Participants.

 

(d)           Notwithstanding the other provisions in this Section 4.2, the maximum number of shares that may be issued upon the exercise of Incentive Stock Options shall equal the aggregate number of shares stated in Section 4.1, subject to adjustment as provided in Section 15.1.

 

	
4.3

	
Limitations

 

Subject to adjustment as provided in Section 15.1, the aggregate number of shares that may be issued pursuant to Awards granted under the Plan that contain no restrictions or restrictions based solely on continuous employment or services for less than three years (except where Termination of Service occurs by reason of death, Retirement or Disability) shall not exceed 1,050,000 of the aggregate number of shares specified in Section 4.1.

 

SECTION 5.   ELIGIBILITY

 

An Award may be granted to any employee, officer or director of the Company or a Related Company whom the Committee from time to time selects.  An Award may also be granted to any consultant, agent, advisor or independent contractor for bona fide services rendered to the Company or any Related Company.

 

SECTION 6.   AWARDS

 

	
6.1

	
Form, Grant and Settlement of Awards

 

The Committee shall have the authority, in its sole discretion, to determine the type or types of Awards to be granted under the Plan.  Such Awards may be granted either alone or in addition to or in tandem with any other type of Award.  Any Award settlement may be subject to such conditions, restrictions and contingencies as the Committee shall determine.

 

	
6.2

	
Evidence of Awards

 

Awards granted under the Plan shall be evidenced by a written, including an electronic, notice or agreement that shall contain such terms, conditions, limitations and restrictions as the Committee shall deem advisable and that are not inconsistent with the Plan.

 

	
6.3

	
Deferrals

 

	
 

    The Committee may permit or require a Participant to defer receipt of the payment of any Award.  If any such deferral election is permitted or required, the Committee, in its sole discretion, shall establish rules and procedures for such payment deferrals, which may include the grant of additional Awards or provisions for the payment or crediting of interest or dividend equivalents, including converting such credits to deferred stock unit equivalents; provided, however, that the terms of any deferrals under this Section 6.3 shall comply with all applicable law, rules and regulations, including, without limitation, Section 409A of the Code.

	
.

	
6.4

	
Dividends and Distributions

 

Participants may, if the Committee so determines, be credited with dividends paid with respect to shares of Common Stock underlying an Award in a manner determined by the Committee in its sole discretion.  The Committee may apply any restrictions to the dividends or dividend equivalents that the Committee deems appropriate.  The Committee, in its sole discretion, may determine the form of payment of dividends or dividend equivalents, including cash, shares of Common Stock, Restricted Stock or Stock Units.

 

SECTION 7.   PERFORMANCE AWARDS

 

	
7.1

	
Performance Shares

 

The Committee may grant Awards of Performance Shares, designate the Participants to whom Performance Shares are to be awarded and determine the number of Performance Shares and the terms and conditions of each such Award.  Performance Shares shall consist of a unit valued by reference to a designated number of shares of Common Stock, the value of which may be paid to the Participant by delivery of shares of Common Stock or, if set forth in the instrument evidencing the Award, of such property as the Committee shall determine, including, without limitation, cash, shares of Common Stock, other property, or any combination thereof, upon the attainment of performance goals, as established by the Committee, and other terms and conditions specified by the Committee.  Notwithstanding the foregoing, the amount to be paid under an Award of Performance Shares may be adjusted on the basis of such further consideration as the Committee shall determine in its sole discretion.

 

	
7.2

	
Performance Units

 

The Committee may grant Awards of Performance Units, designate the Participants to whom Performance Units are to be awarded and determine the number of Performance Units and the terms and conditions of each such Award.  Performance Units shall consist of a unit valued by reference to a designated amount of property other than shares of Common Stock, which value may be paid to the Participant by delivery of such property as the Committee shall determine, including, without limitation, cash, shares of Common Stock, other property, or any combination thereof, upon the attainment of performance goals, as established by the Committee, and other terms and conditions specified by the Committee.  Notwithstanding the foregoing, the amount to be paid under an Award of Performance Units may be adjusted on the basis of such further consideration as the Committee shall determine in its sole discretion.

 

SECTION 8.   OPTIONS

 

	
8.1

	
Grant of Options

 

The Committee may grant Options designated as Incentive Stock Options or Nonqualified Stock Options.

 

	
8.2

	
Option Exercise Price

 

The exercise price for shares purchased under an Option shall be as determined by the Committee, but shall not be less than 100% of the Fair Market Value on the Grant Date, except in the case of Substitute Awards.  Notwithstanding the foregoing, the Committee, in its sole discretion, may establish an exercise price that is equal to the average of 100% of the Fair Market Value over a period of trading days not to exceed 30 days from the Grant Date.

 

	
8.3

	
Term of Options

 

Subject to earlier termination in accordance with the terms of the Plan and the instrument evidencing the Option, the maximum term of a Nonqualified Stock Option shall be as established for that Option by the Committee or, if not so established, shall be ten years from the Grant Date.

 

	
8.4

	
Exercise of Options

 

The Committee shall establish and set forth in each instrument that evidences an Option the time at which, or the installments in which, the Option shall vest and become exercisable, any of which provisions may be waived or modified by the Committee at any time.

 

To the extent an Option has vested and become exercisable, the Option may be exercised in whole or from time to time in part by delivery to or as directed or approved by the Company of a properly executed stock option exercise agreement or notice, in a form and in accordance with procedures established by the Committee, setting forth the number of shares with respect to which the Option is being exercised, the restrictions imposed on the shares purchased under such exercise agreement, if any, and such representations and agreements as may be required by the Committee, accompanied by payment in full as described in Sections 8.5 and 13.  An Option may be exercised only for whole shares and may not be exercised for less than a reasonable number of shares at any one time, as determined by the Committee.

 

	
8.5

	
Payment of Exercise Price

 

The exercise price for shares purchased under an Option shall be paid in full to the Company by delivery of consideration equal to the product of the Option exercise price and the number of shares purchased.  Such consideration must be paid before the Company will issue the shares being purchased and must be in a form or a combination of forms acceptable to the Committee for that purchase, which forms may include:

 

(a)           cash, check or wire transfer;

 

(b)           tendering (either actually or by attestation) shares of Common Stock that on the day prior to the exercise date have an aggregate Fair Market Value equal to the aggregate exercise price of the shares being purchased under the Option;

 

(c)           having the Company withhold a number of shares of Common Stock that would otherwise be issued to the Participant upon exercise of the Option having a Fair Market Value on the day prior to the exercise date equal to the aggregate exercise price of the shares being purchased under the Option;

 

(d)           to the extent permitted by law, delivery of a properly executed exercise notice, together with irrevocable instructions to a brokerage firm designated or approved by the Company to deliver promptly to the Company the aggregate amount of proceeds to pay the Option exercise price and any tax withholding obligations that may arise in connection with the exercise, all in accordance with the regulations of the Federal Reserve Board; or

 

(e)           such other consideration as the Committee may permit.

 

	
8.6

	
Effect of Termination of Service

 

The Committee shall establish and set forth in each instrument that evidences an Option whether the Option shall continue to be exercisable, and the terms and conditions of such exercise, after a Termination of Service, any of which provisions may be waived or modified by the Committee at any time.  If not so established in the instrument evidencing the Option, the Option shall be exercisable according to the following terms and conditions, which may be waived or modified by the Committee at any time:

 

(a)           Any portion of an Option that is not vested and exercisable on the date of a Participant's Termination of Service shall expire on such date.

 

(b)           Any portion of an Option that is vested and exercisable on the date of a Participant's Termination of Service shall expire on the earliest to occur of

 

(i)           if the Participant's Termination of Service occurs for reasons other than Cause, Retirement, Disability or death, the date that is three months after such Termination of Service;

 

(ii)           if the Participant's Termination of Service occurs by reason of Retirement, Disability or death, the one-year anniversary of such Termination of Service; and

 

(iii)           the last day of the maximum term of the Option (the "Option Expiration Date").

 

Notwithstanding the foregoing, if a Participant dies after his or her Termination of Service but while an Option is otherwise exercisable, the portion of the Option that is vested and exercisable on the date of such Termination of Service shall expire upon the earlier to occur of (y) the Option Expiration Date and (z) the one-year anniversary of the date of death, unless the Committee determines otherwise.

 

Also notwithstanding the foregoing, in case a Participant's Termination of Service occurs for Cause, all Options granted to the Participant shall automatically expire upon first notification to the Participant of such termination, unless the Committee determines otherwise.  If a Participant's employment or service relationship with the Company is suspended pending an investigation of whether the Participant shall be terminated for Cause, all the Participant's rights under any Option shall likewise be suspended during the period of investigation.  If any facts that would constitute termination for Cause are discovered after a Participant's Termination of Service, any Option then held by the Participant may be immediately terminated by the Committee, in its sole discretion.

 

(c)           A Participant's change in status from an employee to a consultant, advisor or independent contractor or a change in status from a consultant, advisor or independent contractor to an employee shall not be considered a Termination of Service for purposes of this Section 8.6.

 

SECTION 9.   INCENTIVE STOCK OPTIONS

 

Notwithstanding any other provisions of the Plan, the terms and conditions of any Incentive Stock Options shall in addition comply in all respects with Section 422 of the Code, or any successor provision, and any applicable regulations thereunder.

 

SECTION 10.   STOCK APPRECIATION RIGHTS

 

	
10.1

	
Grant of Stock Appreciation Rights

 

The Committee may grant Stock Appreciation Rights to Participants at any time on such terms and conditions as the Committee shall determine in its sole discretion.  An SAR may be granted in tandem with an Option or alone ("freestanding").  The grant price of a tandem SAR shall be equal to the exercise price of the related Option.  The grant price of a freestanding SAR shall be established in accordance with procedures for Options set forth in Section 8.2.  An SAR may be exercised upon such terms and conditions and for such term as the Committee determines in its sole discretion; provided, however, that, subject to earlier termination in accordance with the terms of the Plan and the instrument evidencing the SAR, the term of a freestanding SAR shall be as established for that SAR by the Committee or, if not so established, shall be ten years, and in the case of a tandem SAR, (a) the term shall not exceed the term of the related Option and (b) the tandem SAR may be exercised for all or part of the shares subject to the related Option upon the surrender of the right to exercise the equivalent portion of the related Option, except that the tandem SAR may be exercised only with respect to the shares for which its related Option is then exercisable.  The Committee shall establish and set forth in each instrument that evidences an SAR whether the SAR shall continue to be exercisable, and the terms and conditions of such exercise, after a Termination of Service, any of which provisions may be waived or modified by the Committee at any time.  If not so established in the instrument evidencing the SAR, the SAR shall be exercisable according to the terms and conditions set forth in Section 8.6 (a)-(c) for Options, which may be waived or modified by the Committee at any time.

 

	
10.2

	
Payment of SAR Amount

 

Upon the exercise of an SAR, a Participant shall be entitled to receive payment in an amount determined by multiplying:  (a) the difference between the Fair Market Value of the Common Stock on the date of exercise over the grant price of the SAR by (b) the number of shares with respect to which the SAR is exercised.  At the discretion of the Committee as set forth in the instrument evidencing the Award, the payment upon exercise of an SAR may be in cash, in shares, in some combination thereof or in any other manner approved by the Committee in its sole discretion.

 

SECTION 11.   STOCK AWARDS, RESTRICTED STOCK AND STOCK UNITS

 

	
11.1

	
Grant of Stock Awards, Restricted Stock and Stock Units

 

The Committee may grant Stock Awards, Restricted Stock and Stock Units on such terms and conditions and subject to such repurchase or forfeiture restrictions, if any, that may be based on continuous service with the Company or a Related Company or the achievement of any performance goals, as the Committee shall determine in its sole discretion, which terms, conditions and restrictions shall be set forth in the instrument evidencing the Award.

 

	
11.2

	
Vesting of Restricted Stock and Stock Units

 

Upon the satisfaction of any terms, conditions and restrictions prescribed with respect to Restricted Stock or Stock Units, or upon a Participant's release from any terms, conditions and restrictions of Restricted Stock or Stock Units, as determined by the Committee, and subject to the provisions of Section 13, (a) the shares of Restricted Stock covered by each Award of Restricted Stock shall become freely transferable by the Participant, and (b) Stock Units shall be paid in shares of Common Stock or, if set forth in the instrument evidencing the Awards, in cash or a combination of cash and shares of Common Stock.  Any fractional shares subject to such Awards shall be paid to the Participant in cash.

 

	
11.3

	
Waiver of Restrictions

 

Notwithstanding any other provisions of the Plan, the Committee, in its sole discretion, may waive the repurchase or forfeiture period and any other terms, conditions or restrictions on any Restricted Stock or Stock Unit under such circumstances and subject to such terms and conditions as the Committee shall deem appropriate.

 

SECTION 12.   OTHER STOCK OR CASH-BASED AWARDS

 

Subject to the terms of the Plan and such other terms and conditions as the Committee deems appropriate, the Committee may grant other incentives payable in cash or in shares of Common Stock under the Plan.

 

SECTION 13.   WITHHOLDING

 

The Company may require the Participant to pay to the Company the amount of (a) any taxes that the Company is required by applicable federal, state, local or foreign law to withhold with respect to the grant, vesting or exercise of an Award ("tax withholding obligations") and (b) any amounts due from the Participant to the Company or any Related Company ("other obligations").  The Company shall not be required to issue any shares of Common Stock or otherwise settle an Award under the Plan until such tax withholding obligations and other obligations are satisfied.

 

The Committee may permit or require a Participant to satisfy all or part of the Participant's tax withholding obligations and other obligations by (a) paying cash to the Company, (b) having the Company withhold an amount from any cash amounts otherwise due or to become due from the Company to the Participant, (c) having the Company withhold a number of shares of Common Stock that would otherwise be issued to the Participant (or become vested, in the case of Restricted Stock) having a Fair Market Value equal to the tax withholding obligations and other obligations, or (d) surrendering a number of shares of Common Stock the Participant already owns having a value equal to the tax withholding obligations and other obligations.  The value of the shares so withheld may not exceed the employer's minimum required tax withholding rate, and the value of the shares so tendered may not exceed such rate to the extent the Participant has owned the tendered shares for less than six months, if such limitations are necessary to avoid adverse accounting consequences to the Company.

 

SECTION 14.   ASSIGNABILITY

 

No Award or interest in an Award may be sold, assigned, pledged (as collateral for a loan or as security for the performance of an obligation or for any other purpose) or transferred by a Participant or made subject to attachment or similar proceedings otherwise than by will or by the applicable laws of descent and distribution, except to the extent the Participant designates one or more beneficiaries on a Company-approved form who may exercise the Award or receive payment under the Award after the Participant's death.  During a Participant's lifetime, an Award may be exercised only by the Participant.  Notwithstanding the foregoing and to the extent permitted by Section 422 of the Code, the Committee, in its sole discretion, may permit a Participant to assign or transfer an Award subject to such terms and conditions as the Committee shall specify.

 

SECTION 15.   ADJUSTMENTS

 

	
15.1

	
Adjustment of Shares

 

In the event, at any time or from time to time, a stock dividend, stock split, spin-off, combination or exchange of shares, recapitalization, merger, consolidation, distribution to shareholders other than a normal cash dividend, or other change in the Company's corporate or capital structure results in (a) the outstanding shares of Common Stock, or any securities exchanged therefor or received in their place, being exchanged for a different number or kind of securities of the Company or (b) new, different or additional securities of the Company or any other company being received by the holders of shares of Common Stock, then the Committee shall make proportional adjustments in (i) the maximum number and kind of securities available for issuance under the Plan and the maximum number and kind of securities that may be made subject to Awards to any Participant as set forth in Section 16.3; (ii) the maximum number and kind of securities issuable as Incentive Stock Options as set forth in Section 4.2; (iii) the maximum number and kind of securities that may be issued pursuant to Awards granted under the Plan that contain no restrictions or restrictions based solely on continuous employment or services for less than three years (except where Termination of Service occurs by reason of death, Retirement or Disability) as set forth in Section 4.3; and (iv) the number and kind of securities that are subject to any outstanding Award and the per share price of such securities, without any change in the aggregate price to be paid therefore.  The determination by the Committee as to the terms of any of the foregoing adjustments shall be conclusive and binding.

 

Notwithstanding the foregoing, the issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, for cash or property, or for labor or services rendered, either upon direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, outstanding Awards.  Also notwithstanding the foregoing, a dissolution or liquidation of the Company or a Change of Control shall not be governed by this Section 15.1 but shall be governed by Sections 15.2 and 15.3, respectively.

 

	
15.2

	
Dissolution or Liquidation

 

To the extent not previously exercised or settled, and unless otherwise determined by the Committee in its sole discretion, Awards shall terminate immediately prior to the dissolution or liquidation of the Company.  To the extent a vesting condition, forfeiture provision or repurchase right applicable to an Award has not been waived by the Committee, the Award shall be forfeited immediately prior to the consummation of the dissolution or liquidation.

 

	
15.3

	
Change of Control

 

Except as otherwise provided in the instrument that evidences a specific Award or in a written employment, services or other agreement between the Participant and the Company or a Related Company, in the event of a Change of Control:

 

(a)           If and to the extent that a Successor Company converts, assumes, substitutes or replaces an Award with a comparable award of equivalent value or an Award is otherwise continued following a Change of Control, the applicable vesting restrictions (including restrictions based on performance criteria), forfeiture provisions and payout provisions for such Award shall not be accelerated or lapse, and all such applicable vesting restrictions, forfeiture provisions and payout provisions shall continue with respect to such Award; provided, however, that if, in connection with or within one year after the effective date of the Change of Control (the "COC Effective Date"), a Participant's employment is terminated by the Company or a Successor Company without Cause or the Participant terminates his or her employment for Good Reason (each, a "COC Termination Event"), such Award shall be cancelled and deemed earned and payable as provided in Section 15.3(b).

 

(b)           If and to the extent that (i) a Successor Company does not convert, assume, substitute or replace an Award or an Award is not otherwise continued following a Change of Control or (ii) a Participant experiences a COC Termination Event, the payout opportunities attainable under an Award with restrictions based on performance criteria shall be pro-rated for the number of full months completed in an outstanding performance cycle, up to and including the COC Effective Date or COC Termination Event, as applicable, and, on such pro-rated basis, shall be deemed to be earned in an amount equal to the product of (x) the most recent per-unit independent valuation for the units subject to such Award and (y) that number of units equal to the greater of (A) the total number of units based on targeted performance for the performance cycle being attained as of the COC Effective Date or COC Termination Event, as applicable, and (B) the number of units based on actual performance attained for the performance cycle, based on the most recent independent evaluation of performance preceding the COC Effective Date or COC Termination Date, as applicable.  Any such Award shall be payable in cash within 30 days after the COC Effective Date or COC Termination Event, as applicable.

 

(c)           The determination of whether an Award shall be considered converted, assumed, substituted, replaced or otherwise continued shall be determined by the Board or Compensation Committee, and its determination shall be conclusive and binding on the Company and Participants.  For the avoidance of doubt, nothing in this Section 15.3 requires all outstanding Awards to be treated similarly.

 

	
15.4

	
Further Adjustment of Awards

 

Subject to Sections 15.2 and 15.3, the Committee shall have the discretion, exercisable at any time before a sale, merger, consolidation, reorganization, liquidation, dissolution or change of control of the Company, as defined by the Committee, to take such further action as it determines to be necessary or advisable with respect to Awards.  Such authorized action may include (but shall not be limited to) establishing, amending or waiving the type, terms, conditions or duration of, or restrictions on, Awards so as to provide for earlier, later, extended or additional time for exercise, lifting restrictions and other modifications, and the Committee may take such actions with respect to all Participants, to certain categories of Participants or only to individual Participants.  The Committee may take such action before or after granting Awards to which the action relates and before or after any public announcement with respect to such sale, merger, consolidation, reorganization, liquidation, dissolution or change of control that is the reason for such action.

 

	
15.5

	
No Limitations

 

The grant of Awards shall in no way affect the Company's right to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.

 

	
15.6

	
Fractional Shares

 

In the event of any adjustment in the number of shares covered by any Award, each such Award shall cover only the number of full shares resulting from such adjustment.

 

	
15.7

	
Section 409A

 

    Notwithstanding any other provision of the Plan to the contrary, (a) any adjustments made pursuant to this Section 15 to Awards that are considered "deferred compensation" within the meaning of Section 409A of the Code shall be made in compliance with the requirements of Section 409A and (b) any adjustments made pursuant to this Section 15 to Awards that are not considered "deferred compensation" subject to Section 409A of the Code shall be made in such a manner as to ensure that after such adjustment the Awards either (i) continue not to be subject to Section 409A of the Code or (ii) comply with the requirements of Section 409A of the Code.

 

SECTION 16.   CODE SECTION 162(m) PROVISIONS

 

Notwithstanding any other provision of the Plan, if the Committee determines, at the time Awards are granted to a Participant who is, or is likely to be as of the end of the tax year in which the Company would claim a tax deduction in connection with such Award, a Covered Employee, then the Committee may provide that this Section 16 is applicable to such Award.

 

	
16.1

	
Performance Criteria

 

If an Award is subject to this Section 16, then the lapsing of restrictions thereon and the distribution of cash, shares of Common Stock or other property pursuant thereto, as applicable, shall be subject to the achievement of one or more objective performance goals established by the Committee, which shall be based on the attainment of specified levels of one or any combination of the following "performance criteria" for the Company as a whole or any business unit of the Company, as reported or calculated by the Company:  cash flows (including, but not limited to, operating cash flow, free cash flow or cash flow return on capital); working capital; earnings per share; book value per share; operating income (including or excluding depreciation, amortization, extraordinary items, restructuring charges or other expenses); revenues; operating margins; return on assets; return on equity; debt; debt plus equity; market or economic value added; stock price appreciation; total shareholder return; cost control; strategic initiatives; market share; net income; return on invested capital; improvements in capital structure; cash management or asset management metrics; customer satisfaction, employee satisfaction, services performance, subscriber, safety or reliability metrics; or Service Quality Indices (together, the "Performance Criteria").  Such performance goals also may be based on the achievement of specified levels of Company performance (or performance of an applicable affiliate or business unit of the Company) under one or more of the Performance Criteria described above relative to the performance of other corporations.  Such performance goals shall be set by the Committee within the time period prescribed by, and shall otherwise comply with the requirements of, Section 162(m) of the Code, or any successor provision thereto, and the regulations thereunder.

 

	
16.2

	
Adjustment of Awards

 

Notwithstanding any provision of the Plan other than Section 15, with respect to any Award that is subject to this Section 16, the Committee may adjust downwards, but not upwards, the amount payable pursuant to such Award, and the Committee may not waive the achievement of the applicable performance goals except in the case of the death or Disability of the Covered Employee.

 

	
16.3

	
Limitations

 

Subject to adjustment from time to time as provided in Section 15.1, no Covered Employee may be granted (i) Options and SARs subject to this Section 16 in any calendar-year period with respect to more than an aggregate of 600,000 shares of Common Stock for such Awards or (ii) Awards other than Options and SARs or Performance Units subject to this Section 16 in any calendar-year period with respect to more than an aggregate of 400,000 shares of Common Stock for such Awards.  The maximum dollar value payable with respect to Performance Units subject to this Section 16 granted to any Covered Employee in any one calendar year is $3,000,000.

 

The Committee shall have the power to impose such other restrictions on Awards subject to this Section 16 as it may deem necessary or appropriate to ensure that such Awards satisfy all requirements for "performance-based compensation" within the meaning of Section 162(m)(4)(C) of the Code, or any successor provision thereto.

 

SECTION 17.   AMENDMENT AND TERMINATION

 

	
17.1

	
Amendment, Suspension or Termination

 

The Board or the Committee may amend, suspend or terminate the Plan or any portion of the Plan at any time and in such respects as it shall deem advisable; provided, however, that, to the extent required by applicable law, regulation or stock exchange rule, shareholder approval shall be required for any amendment to the Plan; and provided, further, that any amendment that requires shareholder approval may be made only by the Board.  Subject to Section 17.3, the Committee may amend the terms of any outstanding Award, prospectively or retroactively.

 

	
17.2

	
Term of the Plan

 

Unless sooner terminated as provided herein, the Plan shall terminate ten years from the Effective Date.  After the Plan is terminated, no future Awards may be granted, but Awards previously granted shall remain outstanding in accordance with their applicable terms and conditions and the Plan's terms and conditions.  Notwithstanding the foregoing, no Incentive Stock Options may be granted more than ten years after the later of (a) the Effective Date and (b) the approval by the shareholders of any amendment to the Plan that constitutes the adoption of a new plan for purposes of Section 422 of the Code.

 

	
17.3

	
Consent of Participant

 

The amendment, suspension or termination of the Plan or a portion thereof or the amendment of an outstanding Award shall not, without the Participant's consent, materially adversely affect any rights under any Award theretofore granted to the Participant under the Plan.  Any change or adjustment to an outstanding Incentive Stock Option shall not, without the consent of the Participant, be made in a manner so as to constitute a "modification" that would cause such Incentive Stock Option to fail to continue to qualify as an Incentive Stock Option.  Notwithstanding the foregoing, any adjustments made pursuant to Section 15 shall not be subject to these restrictions.

 

SECTION 18.   GENERAL

 

	
18.1

	
No Individual Rights

 

No individual or Participant shall have any claim to be granted any Award under the Plan, and the Company has no obligation for uniformity of treatment of Participants under the Plan.

 

Furthermore, nothing in the Plan or any Award granted under the Plan shall be deemed to constitute an employment contract or confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Related Company or limit in any way the right of the Company or any Related Company to terminate a Participant's employment or other relationship at any time, with or without cause.

 

	
18.2

	
Issuance of Shares

 

Notwithstanding any other provision of the Plan, the Company shall have no obligation to issue or deliver any shares of Common Stock under the Plan or make any other distribution of benefits under the Plan unless, in the opinion of the Company's counsel, such issuance, delivery or distribution would comply with all applicable laws (including, without limitation, the requirements of the Securities Act or the laws of any state or foreign jurisdiction) and the applicable requirements of any securities exchange or similar entity.

 

The Company shall be under no obligation to any Participant to register for offering or resale or to qualify for exemption under the Securities Act, or to register or qualify under the laws of any state or foreign jurisdiction, any shares of Common Stock, security or interest in a security paid or issued under, or created by, the Plan, or to continue in effect any such registrations or qualifications if made.  The Company may issue certificates for shares with such legends and subject to such restrictions on transfer and stop-transfer instructions as counsel for the Company deems necessary or desirable for compliance by the Company with federal, state and foreign securities laws.  The Company may also require such other action or agreement by the Participants as may from time to time be necessary to comply with applicable securities laws.

 

To the extent the Plan or any instrument evidencing an Award provides for issuance of stock certificates to reflect the issuance of shares of Common Stock, the issuance may be effected on a noncertificated basis, to the extent not prohibited by applicable law or the applicable rules of any stock exchange.

 

	
18.3

	
Indemnification

 

Each person who is or shall have been a member of the Board, or a committee appointed by the Board, or an officer of the Company to whom authority was delegated in accordance with Section 3, shall be indemnified and held harmless by the Company against and from any loss, cost, liability or expense that may be imposed upon or reasonably incurred by such person in connection with or resulting from any claim, action, suit or proceeding to which such person may be a party or in which such person may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by such person in settlement thereof, with the Company's approval, or paid by such person in satisfaction of any judgment in any such claim, action, suit or proceeding against such person; provided, however, that such person shall give the Company an opportunity, at its own expense, to handle and defend the same before such person undertakes to handle and defend it on such person's own behalf, unless such loss, cost, liability or expense is a result of such person's own willful misconduct or except as expressly provided by statute.

 

The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such person may be entitled under the Company's certificate of incorporation or bylaws, as a matter of law or otherwise, or of any power that the Company may have to indemnify or hold harmless.

 

	
18.4

	
No Rights as a Shareholder

 

Unless otherwise provided by the Committee or in the instrument evidencing the Award or in a written employment, services or other agreement, no Award, other than a Stock Award, shall entitle the Participant to any cash dividend, voting or other right of a shareholder unless and until the date of issuance under the Plan of the shares that are the subject of such Award.

 

	
18.5

	
Compliance With Laws and Regulations

 

(a)           In interpreting and applying the provisions of the Plan, any Option granted as an Incentive Stock Option pursuant to the Plan shall, to the extent permitted by law, be construed as an "incentive stock option" within the meaning of Section 422 of the Code.

 

(b)           The Plan and Awards granted under the Plan are intended to be exempt from the requirements of Section 409A of the Code, including the final regulations and other guidance issued thereunder by the Department of the Treasury and the Internal Revenue Service, to the maximum extent possible, whether pursuant to the short-term deferral exception described in Treasury Regulation Section 1.409A-1(b)(4), the exclusion applicable to stock options, stock appreciation rights and certain other equity-based compensation under Treasury Regulation Section 1.409A-1(b)(5), or otherwise.  To the extent Section 409A of the Code is applicable to the Plan or any Award granted under the Plan, it is intended that the Plan and any Awards granted under the Plan comply with the deferral, payout, plan termination and other limitations and restrictions imposed under Section 409A of the Code.  Notwithstanding any other provision of the Plan or any Award granted under the Plan to the contrary, the Plan and any Award granted under the Plan shall be interpreted, operated and administered in a manner consistent with such intentions; provided, however, that the Company makes no representations that Awards granted under the Plan shall be exempt from or comply with Section 409A of the Code and makes no undertaking to preclude Section 409A of the Code from applying to Awards granted under the Plan.  Without limiting the generality of the foregoing, and notwithstanding any other provision of the Plan or any Award granted under the Plan to the contrary, with respect to any payments and benefits under the Plan or any Award granted under the Plan to which Section 409A of the Code applies, all references in the Plan or any Award granted under the Plan to the termination of the Participant's employment or service are intended to mean the Participant's "separation from service," within the meaning of Section 409A(a)(2)(A)(i) of the Code to the extent necessary to avoid subjecting the Participant to the imposition of any additional tax under Section 409A of the Code.  In addition, if the Participant is a "specified employee," within the meaning of Section 409A of the Code, then to the extent necessary to avoid subjecting the Participant to the imposition of any additional tax under Section 409A of the Code, amounts that would otherwise be payable under the Plan or any Award granted under the Plan during the six-month period immediately following the Participant's "separation from service," within the meaning of Section 409A(a)(2)(A)(i) of the Code, shall not be paid to the Participant during such period, but shall instead be accumulated and paid to the Participant (or, in the event of the Participant's death, the Participant's estate) in a lump sum on the first business day after the earlier of the date that is six months following the Participant's separation from service or the Participant's death. Notwithstanding any other provision of the Plan to the contrary, the Board or the Committee, to the extent it deems necessary or advisable in its sole discretion, reserves the right, but shall not be required, to unilaterally amend or modify the Plan and any Award granted under the Plan so that the Award qualifies for exemption from or complies with Section 409A of the Code.

 

	
18.6

	
Participants in Other Countries or Jurisdictions

 

Without amending the Plan, the Committee may grant Awards to Eligible Persons who are foreign nationals on such terms and conditions different from those specified in the Plan as may, in the judgment of the Committee, be necessary or desirable to foster and promote achievement of the purposes of the Plan and shall have the authority to adopt such modifications, procedures, subplans and the like as may be necessary or desirable to comply with provisions of the laws or regulations of other countries or jurisdictions in which the Company or any Related Company may operate or have employees to ensure the viability of the benefits from Awards granted to Participants employed in such countries or jurisdictions, meet the requirements that permit the Plan to operate in a qualified or tax-efficient manner, comply with applicable foreign laws or regulations and meet the objectives of the Plan.

 

	
18.7

	
No Trust or Fund

 

The Plan is intended to constitute an "unfunded" plan.  Nothing contained herein shall require the Company to segregate any monies or other property, or shares of Common Stock, or to create any trusts, or to make any special deposits for any immediate or deferred amounts payable to any Participant, and no Participant shall have any rights that are greater than those of a general unsecured creditor of the Company.

 

	
18.8

	
Successors

 

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

 

	
18.9

	
Severability

 

If any provision of the Plan or any Award is determined to be invalid, illegal or unenforceable in any jurisdiction, or as to any person, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or, if it cannot be so construed or deemed amended without, in the Committee's determination, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, person or Award, and the remainder of the Plan and any such Award shall remain in full force and effect.

 

	
18.10

	
Choice of Law

 

The Plan, all Awards granted thereunder and all determinations made and actions taken pursuant hereto, to the extent not otherwise governed by the laws of the United States, shall be governed by the laws of the State of Washington without giving effect to principles of conflicts of law.

 

	
18.11

	
Legal Requirements

 

The granting of Awards and the issuance of shares of Common Stock under the Plan are subject to all applicable laws, rules and regulations and to such approvals by any governmental agencies or national securities exchanges as may be required.

 

SECTION 19.   EFFECTIVE DATE

 

The effective date (the "Effective Date") is the date on which the Plan is approved by the shareholders of the Company.

 

  

  

  

  

APPENDIX A (to the 2005 Long-Term Incentive Plan)

 

DEFINITIONS

 

 

As used for purposes of the Plan,

 

"Acquired Entity" means any entity acquired by the Company or a Related Company or with which the Company or a Related Company merges or combines.

 

"Award" means any Option, Stock Appreciation Right, Stock Award, Restricted Stock, Stock Unit, Performance Share, Performance Unit, cash-based award or other incentive payable in cash or in shares of Common Stock as may be designated by the Committee from time to time.

 

"Board" means the Board of Directors of the Company.

 

"Cause," unless otherwise defined in the instrument evidencing an Award or in a written employment, services or other agreement between the Participant and the Company or a Related Company with respect to an Award, means (a) willful and continued failure by the Participant to substantially perform the Participant's duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness), for a period of 30 days after written notice of demand for substantial performance has been delivered to the Participant, which specifically identifies the manner in which the Company believes that the Participant has not substantially performed the Participant's duties, or (b) the willful engaging by the Participant in gross misconduct materially and demonstrably injurious to the Company, after notice to the Participant and an opportunity for a hearing, in each case as determined by the Company's chief human resources officer or other person performing that function or, in the case of directors and executive officers, the Board, whose determination shall be conclusive and binding.  No act or failure to act on the Participant's behalf shall be considered "willful" unless the Participant has acted or failed to act with an absence of good faith and without a reasonable belief that the Participant's action or failure to act was in the best interests of the Company.

 

"Change of Control," unless the Committee determines otherwise with respect to an Award at the time the Award is granted or unless otherwise defined for purposes of an Award in a written employment, services or other agreement between the Participant and the Company or a Related Company, means a change in beneficial ownership or control of the Company effected through a transaction or series of transactions (other than an offering of Common Stock to the general public through a registration statement filed with the Securities and Exchange Commission) whereby any "person" or related "group" of "persons" (as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than the Company, any of its subsidiaries, an employee benefit plan maintained by the Company or any of its subsidiaries, any Member (as defined in that certain Amended and Restated Limited Liability Company Agreement of Puget Holdings LLC, dated as of February 6, 2009) or a "person" that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company or a Member) directly or indirectly acquires (a) beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing more than 55% of the total combined voting power of the Company's securities outstanding immediately after such acquisition or (b) all or substantially all of the assets of the Company.

 

"COC Effective Date" has the meaning set forth in Section 15.3.

 

"COC Termination Date" has the meaning set forth in Section 15.3.

 

"Code" means the Internal Revenue Code of 1986, as amended from time to time.

 

"Committee" has the meaning set forth in Section 3.1.

 

"Common Stock" means the common stock, par value $.01 per share, of the Company.

 

"Company" means Puget Energy, Inc., a Washington corporation.

 

"Compensation Committee" means the Compensation and Leadership Development Committee of the Board.

 

"Covered Employee" means a "covered employee" as that term is defined for purposes of Section 162(m)(3) of the Code or any successor provision.

 

"Disability," unless otherwise defined by the Committee or in the instrument evidencing the Award or in a written employment, services or other agreement between the Participant and the Company or a Related Company, means "disability" as defined in the Company's Investment Plan for Employees or other similar successor plan applicable to salaried employees.

 

"Effective Date" has the meaning set forth in Section 19.

 

"Eligible Person" means any person eligible to receive an Award as set forth in Section 5.

 

"Entity" means any individual, entity or group (within the meaning of Section 13(d)(3) of the Exchange Act).

 

"Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time.

 

"Fair Market Value" means the average of the high and low trading prices for the Common Stock on any given date during regular trading or, if not trading on that date, such price on the last preceding date on which the Common Stock was traded, unless determined otherwise by the Committee using such methods or procedures as it may establish.

 

"Good Reason" means the occurrence of any of the following events or conditions without the Participant's consent:

 

(a)           a change in the Participant's position that represents a material reduction of authority or level of responsibilities as in effect immediately prior thereto;

 

(b)           a material reduction in the Participant's annual base salary;

 

(c)           the Company's requiring the Participant (without the Participant's consent) to be based at any place outside a 35-mile radius of his or her place of employment prior to a Change of Control, except for reasonably required travel on the Company's business that is not materially greater than such travel requirements prior to the Change of Control;

 

(d)           the Company's failure to (i) continue in effect any material compensation or benefit plan (or the substantial equivalent thereof) in which the Participant was participating at the time of a Change of Control, including, but not limited to, the Plan, or (ii) provide the Participant with compensation and benefits at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under each employee benefit plan, program and practice as in effect immediately prior to the Change of Control (or as in effect following the Change of Control, if greater);

 

(e)           any material breach by the Company of any provision of the Plan; or

 

(f)           any purported termination of the Participant's employment for Cause by the Company that does not comply with the terms of the Plan.

 

In order for a termination by a Participant to constitute a termination for Good Reason, (i) the Participant must notify the Company or a Successor Company of the existence of the condition which the Participant believes constitutes Good Reason within thirty (30) days of the initial existence of such condition, (ii) the Company or a Successor Company must fail to remedy such condition within thirty (30) days after the date on which it receives such notice (the "Remedial Period"), and (iii) the Participant must actually terminate employment within ten (10) days after expiration of the Remedial Period.

 

"Grant Date" means the later of (a) the date on which the Committee completes the corporate action authorizing the grant of an Award or such later date specified by the Committee or (b) the date on which all conditions precedent to an Award have been satisfied, provided that conditions to the exercisability or vesting of Awards shall not defer the Grant Date.

 

"Incentive Stock Option" means an Option granted with the intention that it qualify as an "incentive stock option" as that term is defined for purposes of Section 422 of the Code or any successor provision.

 

"Nonqualified Stock Option" means an Option other than an Incentive Stock Option.

 

"Option" means a right to purchase Common Stock granted under Section 8.

 

"Parent Company" means a company or other entity that as a result of a Change of Control owns the Company or all or substantially all the Company's assets either directly or through one or more subsidiaries.

 

"Participant" means any Eligible Person to whom an Award is granted.

 

"Performance Award" means an Award of Performance Shares or Performance Units granted under Section 7.

 

"Performance Criteria" has the meaning set forth in Section 16.1.

 

"Performance Share" means an Award of units denominated in shares of Common Stock granted under Section 7.1.

 

"Performance Unit" means an Award of units denominated in cash or property other than shares of Common Stock granted under Section 7.2.

 

"Plan" means the Puget Energy, Inc. 2005 Long-Term Incentive Plan, as the same may be amended from time to time.

 

"Related Company" means any entity that is directly or indirectly controlled by, in control of or under common control with the Company.

 

"Restricted Stock" means an Award of shares of Common Stock granted under Section 11, the rights of ownership of which are subject to restrictions prescribed by the Committee.

 

"Retirement," unless otherwise defined in the instrument evidencing the Award or in a written employment, services or other agreement between the Participant and the Company or a Related Company, means "Retirement" as defined for purposes of the Plan by the Committee or the Company's chief human resources officer or other person performing that function or, if not so defined, means Termination of Service on or after the date the Participant reaches "normal retirement age," as that term is defined in Section 411(a)(8) of the Code.

 

"Securities Act" means the Securities Act of 1933, as amended from time to time.

 

"Stock Appreciation Right" or "SAR" means a right granted under Section 10.1 to receive the excess of the Fair Market Value of a specified number of shares of Common Stock over the grant price.

 

"Stock Award" means an Award of shares of Common Stock granted under Section 11, the rights of ownership of which are not subject to restrictions prescribed by the Committee.

 

"Stock Unit" means an Award denominated in units of Common Stock granted under Section 11.

 

"Substitute Awards" means Awards granted or shares of Common Stock issued by the Company in substitution or exchange for awards previously granted by an Acquired Entity.

 

"Successor Company" means the surviving company, the continuing company, the successor company or Parent Company, as applicable, in connection with a Change of Control.

 

"Termination of Service" means a termination of employment or service relationship with the Company or a Related Company for any reason, whether voluntary or involuntary, including by reason of death, Disability or Retirement.  Any question as to whether and when there has been a Termination of Service for the purposes of an Award and the cause of such Termination of Service shall be determined by the Company's chief human resources officer or other person performing that function or, with respect to directors and executive officers, by the Committee, whose determination shall be conclusive and binding.  Transfer of a Participant's employment or service relationship between the Company and any Related Company shall not be considered a Termination of Service for purposes of an Award.  Unless the Committee determines otherwise, a Termination of Service shall be deemed to occur if the Participant's employment or service relationship is with an entity that has ceased to be a Related Company.================================================================================

Exhibit 10.1
------------

                         EXECUTIVE EMPLOYMENT AGREEMENT
                         ------------------------------

      THIS EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement") executed and
effective the 1st day of March 2011 (the "Effective Date"), by and between
DYNATRONICS CORPORATION, a Utah corporation having its principal place of
business in Salt Lake City, Utah (the "Company"), and LARRY K. BEARDALL, a
resident of Utah (the "Executive" and, together with the Company, the
"Parties").

                                R E C I T A L S:

      WHEREAS, Executive has been and currently is engaged by the Company to
serve as an executive officer of the Company;

      WHEREAS, Executive is currently employed by the Company pursuant to the
terms of an Employment Agreement between the Company and Executive effective as
of March 1, 2009, which agreement was entered into by the Parties following the
mutual termination of an earlier Employment Agreement between them prior to its
expiration date (collectively, the "Prior Agreements");

      WHEREAS, Executive desires to continue his employment with the Company on
the terms and conditions set forth herein; and

      WHEREAS, the Company desires to continue such employment relationship and
enter into this Agreement, which will supersede the Prior Agreements and set
forth the terms and conditions under which Executive will continue to serve the
Company; and

      WHEREAS, the Company has agreed to employ Executive in exchange for
Executive's compliance with the terms and conditions contained herein.

                               A G R E E M E N T:

      NOW, THEREFORE, in consideration of the covenants contained herein, the
above recitals and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows:

      1. Definitions. For purposes of this Agreement, all initially capitalized
words and phrases used in this Agreement have the following meanings:

      "Affiliate" shall mean, with respect to any individual or entity, any
other individual or entity who, directly or indirectly through one or more
intermediaries, controls, is controlled by or is under common control with such
individual or entity.

            "Agreement" shall have the meaning set forth in the introductory
paragraph above.

            "Application" shall have the meaning set forth in Section 9.

            "Base Salary" shall have the meaning set forth in Section 4(a)

            "Board" shall mean the Board of Directors of the Company.

            "Bonus" shall have the meaning set forth in Section 4(b).

                                       1
<PAGE>

            "Business" shall mean the business of the design, manufacture,
marketing and distribution of physical medicine products and aesthetic products.

            "Cause" shall mean that Executive has (a) continually failed to
substantially perform his duties to the Company, including, without limitation,
failing to increase sales; or (b) been grossly negligent in the discharge of his
duties to the Company (in any case, other than by reason of a Disability,
physical or mental illness or analogous condition); or (c) been convicted of or
pled nolo contendere to a felony or a misdemeanor with respect to which fraud or
dishonesty is a material element; or (d) materially breached any material
Company policy or agreement with the Company.

            "Change of Control" shall mean the first of the following events to
occur after the Effective Date:

            (a) any Person or group of Persons together with its Affiliates, but
excluding (i) the Company or any of its Subsidiaries, (ii) any employee benefit
plans of the Company or (iii) a corporation owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company, is or becomes, directly or indirectly, the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of
securities of the Company representing fifty percent (50%) or more of the
combined voting power of the Company's then outstanding securities (not
including in the securities beneficially owned by such Person any securities
acquired directly from the Company);

            (b) the following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals who, on the
Effective Date, constitute the Board and any new director (other than a director
whose initial assumption of office is in connection with an actual or threatened
election contest, including but not limited to a consent solicitation, relating
to the election of directors of the Company) whose appointment or election by
the Board or nomination for election by the Company's stockholders was approved
or recommended by a vote of at least two-thirds (2/3) of the directors then
still in office who either were directors on the Effective Date or whose
appointment, election or nomination for election was previously so approved or
recommended;

            (c) the consummation of a merger or consolidation of the Company or
any direct or indirect Subsidiary of the Company with any other corporation or
entity regardless of which entity is the survivor, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or being converted into voting securities of the surviving
entity) more than fifty percent (50%) of the combined voting power of the voting
securities of the Company, such surviving entity or any parent thereof
outstanding immediately after such merger or consolidation;

            (d) the stockholders of the Company approve a plan of complete
liquidation or winding-up of the Company or there is consummated an agreement
for the sale or disposition by the Company of all or substantially all of the
Company's assets; or

            (e) the occurrence of any transaction or series of transactions
deemed by the Board to constitute a change in control of the Company.

                                       2
<PAGE>

Notwithstanding the foregoing, (i) a "Change of Control" shall not be deemed to
have occurred by virtue of the consummation of any transaction or series of
integrated transactions immediately following which the holders of the common
stock of the Company immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate ownership in
an entity which owns all or substantially all of the assets of the Company
immediately following such transaction or series of transactions, and (ii) a
"Change of Control" shall not occur for purposes of this Agreement as a result
of any primary or secondary offering of Company common stock to the general
public through a registration statement filed with the Securities and Exchange
Commission.

In addition, notwithstanding the foregoing, to the extent that (i) any payment
under this Agreement is payable solely upon or following the occurrence of a
Change of Control and (ii) such payment is treated as "deferred compensation"
for purposes of Code Section 409A, no event that would not qualify as a "change
in the ownership of the Company," a "change in the effective control of the
Company," or a "change in the ownership of a substantial portion of the assets
of the Company" as such terms are defined in Section 1.409A-3(i)(5) of the
Treasury Regulations, shall be treated as a "Change of Control" under this
Agreement.

            "Code" means the Internal Revenue Code of 1986, as amended.

            "Committee" shall have the meaning set forth in Section 4(a).

            "Company" shall have the meaning set forth in the introductory
paragraph above.

            "Confidential Information" means (a) information of the Company or
any Subsidiary thereof, to the extent not considered a Trade Secret under
applicable law, that (i) relates to the Business of the Company or any
Subsidiary thereof; (ii) possesses an element of value to the Company or any
Subsidiary thereof; (iii) is not generally known to the Company's competitors;
and (iv) would damage the Company, or any Subsidiary thereof, if disclosed, and
(b) information of any third party provided to the Company which the Company is
obligated to treat as confidential. Confidential Information includes, but is
not limited to, future business plans, the composition, description, schematic
or design of products, future products or equipment of the Company or any
Subsidiary thereof, communication systems, audio systems, system designs and
related documentation, advertising or marketing plans, information regarding
independent contractors, Employees, clients and Customers of the Company or any
Subsidiary thereof, and information concerning the Company's financial structure
and methods and procedures of operation. Confidential Information shall not
include any information that is or becomes generally available to the public
other than as a result of an unauthorized disclosure, has been independently
developed and disclosed by others without violating this Agreement or the legal
rights of any Party or otherwise enters the public domain through lawful means.

            "Contact" means any interaction between Executive and a Customer
which (a) takes place in an effort to establish, maintain and/or further a
business relationship on behalf of the Company, or any Subsidiary thereof, and
(b) occurs during the last year of Executive's employment with the Company.

            "Customer" means any person or entity to whom the Company, or any
Subsidiary thereof, has sold or has solicited to sell its products or services.

            "Defense Costs" has the meaning set forth in Section 13.

                                       3
<PAGE>

            "Disability" means a physical or mental condition entitling
Executive to benefits under the applicable long-term disability plan of the
Company or any of its Subsidiaries, or if no such plan exists, a "permanent and
total disability" (within the meaning of Code Section 22(e)(3)) or as determined
by the Company in accordance with applicable laws. Notwithstanding the
foregoing, to the extent that (i) any payment under this Agreement is payable
solely upon the Executive's Disability and (ii) such payment is treated as
"deferred compensation" for purposes of Code Section 409A, Disability shall have
the meaning provided in Section 1.409A-3(i)(4) of the Treasury Regulations.

            "Duties" means, solely for purposes of Section 8 of this Agreement,
functioning as the Company's Executive Vice President of Business Development,
Sales & Marketing. The Executive will exercise the authority and assume the
responsibilities: (i) specified in the Company's Bylaws; (ii) of an Executive
Vice President of a corporation of the size and nature of the Company; and (iii)
prescribed by the Board from time to time, with the current description set
forth in Exhibit A, attached hereto and by reference made a part hereof.

            "Effective Date" shall have the meaning set forth in the
introductory paragraph above.

            "Employee" means any person who (a) is employed by the Company, or
any Subsidiary thereof, at the time Executive's employment with the Company
terminates; (b) was employed by the Company, or any Subsidiary thereof, during
the last year of Executive's employment with the Company; or (c) is employed by
the Company, or any Subsidiary thereof, during the Restricted Period.

            "Employment Period" shall have the meaning set forth in Section 3.

            "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.

            "Executive" shall have the meaning set forth in the introductory
paragraph above.

            "Fiscal Year" shall mean the 12-month period ending June 30 each
year or such other period as the Company may hereafter elect as its Fiscal Year
for financial reporting purposes.

            "Good Reason" means (a) a demotion of Executive, including his
removal as an executive officer of the Company, provided, however, that a change
in title shall not in and of itself constitute a "demotion" for purposes of this
subsection (a); (b) a material diminution in Executive's duties or
responsibilities (provided, however, that the failure of Executive to be elected
to the Company's Board of Directors, or a requirement to utilize skills in
addition to those utilized in Executive's current position, and/or a change in
direct reports to reflect the organizational structure of the Company prior to,
or of any successor entity following a Change of Control, shall not in and of
itself be considered a "material diminution" as contemplated by this subsection
(b)); (c) a reduction of ten percent (10%) or more in Executive's annual Base
Salary; (d) the failure to pay any Bonus earned for any year, including a year
in which a Change of Control occurs pursuant to the terms of any applicable plan
or arrangement in effect prior to such Change of Control; (e) the relocation of
Executive's principal place of employment to a location more than fifty (50)
miles from Executive's principal place of employment, except for required travel
on the Company's business to an extent substantially consistent with Executive's
historical business travel obligations; or (f) an election by Executive within
ninety (90) days following a Change of Control, to resign and terminate his
employment. Executive's continued employment shall not constitute consent to, or
a waiver of rights with respect to, any act or failure to act constituting Good
Reason hereunder, provided that Executive provides the Company with a written
notice of resignation within ninety (90) days following the occurrence of the
event constituting Good Reason and the Company shall have failed to remedy such
act or omission within thirty (30) days following its receipt of such notice.

                                       4
<PAGE>

            "Incentive Plans" means the Company's (i) 1992 Amended and Restated
Stock Option Plan, and (ii) 2005 Equity Incentive Award Plan, as amended from
time to time.

            "Licensed Materials" means any materials that Executive utilizes for
the benefit of the Company (or any Subsidiary thereof), or delivers to the
Company or the Company's Customers, which (a) do not constitute Work Product,
(b) are created by Executive or of which Executive is otherwise in lawful
possession and (c) Executive may lawfully utilize for the benefit of, or
distribute to, the Company or the Company's Customers.

            "Parties" shall have the meaning set forth in the introductory
paragraph above.

            "Person" shall mean a "person" as defined in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except
that such term shall not include (a) the Company (or any Subsidiary thereof),
(b) a trustee or other fiduciary holding securities under an employee benefit
plan of the Company, (c) an underwriter temporarily holding securities pursuant
to an offering of such securities, or (d) a corporation owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company.

            "Prior Agreements" shall have the meaning set forth in the recitals
above.

            "Restricted Period" means the period of time encompassing
Executive's employment with the Company and two (2) years after termination of
Executive's employment with the Company.

            "Separation Conditions" shall have the meaning set forth in Section
6(c).

            "Severance Delay Period" means the period beginning on the date of
the Executive's termination of employment with the Company and ending on the
thirtieth day thereafter. Notwithstanding the foregoing, in the event that the
Executive's termination of employment occurs in connection with an exit
incentive program or other employment termination program offered to a group or
class of employees, as defined under the Older Worker Benefit Protection Act, 29
U.S.C. Section 626, the Severance Delay Period shall mean the period beginning
on the date of the Executive's termination of employment with the Company and
ending on the sixtieth day thereafter.

            "Subsidiary" means a corporation, partnership or other entity of
which a majority of the voting interests of such corporation, partnership or
other entity are at the time owned directly or indirectly through one or more
intermediaries or Subsidiaries, or both, by the Company.

            "Territory" means the continental United States.

            "Trade Secrets" means information of the Company (or any Subsidiary
thereof), and its licensors, suppliers, clients and Customers, without regard to
form, including, but not limited to, technical or non-technical data, a formula,
a pattern, a compilation, a program, a device, a method, a technique, a drawing,
a process, financial data, financial plans, product plans or a list of actual or
potential Customers or suppliers which is not commonly known by or available to
the public and which information (a) 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 (b) is the subject of efforts that are reasonable
under the circumstances to maintain its secrecy.

                                       5
<PAGE>

            "Without Cause" which shall mean any termination of employment by
the Company which is not defined in Section 5(a) through Section 5(g) of this
Agreement.

            "Work Product" means (a) any data, databases, materials,
documentation, computer programs, inventions (whether or not patentable),
designs and/or works of authorship, including but not limited to, discoveries,
ideas, concepts, properties, formulas, compositions, methods, programs,
procedures, systems, techniques, products, improvements, innovations, writings,
pictures, audio, video, images of Executive and artistic works, and (b) any
subject matter protected under patent, copyright, proprietary database,
trademark, trade secret, rights of publicity, confidential information or other
property rights, including all worldwide rights therein, that is or was
conceived, created or developed in whole or in part by Executive while employed
by the Company and that either (i) is created within the scope of Executive's
employment; (ii) is based on, results from or is suggested by any work performed
within the scope of Executive's employment and is directly or indirectly related
to the Business of the Company or a line of business that the Company may
reasonably be interested in pursuing; (iii) has been or will be paid for by the
Company; or (iv) was created or improved in whole or in part by using the
Company's time, resources, data, facilities or equipment.

            2. Employment and Duties.

            (a) The Company shall employ Executive as Executive Vice President
of Business Development, Sales & Marketing. Executive shall perform all duties
that are consistent with Executive's position and that may otherwise be assigned
to Executive by the Company from time to time. Executive shall report directly
to the Chief Executive Officer or any other executive designated by the Board
from time to time.

            (b) Executive agrees to (i) devote all necessary working time
required of Executive's position; (ii) devote Executive's best efforts, skill
and energies to promote and advance the Business and/or interests of the Company
and its Subsidiaries; and (iii) fully perform Executive's obligations under this
Agreement.

            (c) During Executive's employment, Executive shall not render
services to any other entity, regardless of whether Executive receives
compensation, without the prior written consent of the Company. Executive may,
however, (i) engage in community, charitable and educational activities; (ii)
manage Executive's personal investments; and (iii) with the prior written
consent of the Board (or a designated committee thereof), serve on corporate
boards or committees of up to two (2) public companies other than the Company
and a reasonable number of privately held companies including companies operated
or controlled by the Executive or a relative or family member of the Executive,
provided, however, that such activities do not conflict or interfere with the
performance of Executive's obligations under this Agreement or conflict with the
interests of the Company.

            (d) Executive agrees to comply with the policies and procedures of
the Company as may be adopted and changed from time to time, including without
limitation, those described in the Company's employee handbook and Code of
Business Conduct and Ethics. If this Agreement conflicts with such policies or
procedures, this Agreement will control.

                                       6
<PAGE>

            (e) As an officer of the Company, Executive owes a duty of care and
loyalty to the Company as well as a duty to perform such duties in a manner that
is in the best interests of the Company.

      3. Term of Agreement. The term of this Agreement shall be for a period of
five (5) years, commencing on the Effective Date and terminating on the fifth
anniversary of the Effective Date (together with any and all Renewal Terms, as
defined below, the "Employment Period"), provided, however, that the restrictive
covenants applicable to and all post-termination obligations of Executive
contained in Section 8 of this Agreement shall survive termination of this
Agreement; provided, that following the initial five-year Employment Period, the
term of this Agreement shall be automatically renewed for successive one-year
terms (each a "Renewal Term") without action by either Party; and provided,
however, that either Party may terminate its obligations hereunder at the end of
the initial five-year Employment Period and any Renewal Term thereafter by
giving the other Party written notice of termination at least thirty (30) days
and no more than ninety (90) days before the end of the initial five-year term
or the subsequent Renewal Term, as the case may be.

      4. Compensation. During the Employment Period, the compensation of the
Executive shall be as provided by this Section 4.

      (a) Base Salary. Company will pay to the Executive an annual base salary
("Base Salary") as determined from time to time by the Compensation Committee of
the Board (the "Committee"), minus applicable withholdings, payable in
accordance with the Company's normal payroll practices. Executive's Base Salary
will be adjusted annually at the discretion of the Committee based upon the
performance of Executive and the Company. At the Effective Date, Executive's
Base Salary is One Hundred and Sixty Thousand Dollars ($160,000).

      (b) Bonus. During the Employment Period, Executive will be eligible to
receive an annual bonus, if, as determined by the Committee in its sole
discretion, Executive meets certain criteria established from year to year by
the Committee (the "Bonus"). Executive will not receive any Bonus if Executive
does not meet such criteria. The Bonus will be subject to all applicable
withholdings and will be paid (to the extent earned) in quarterly installments
or as otherwise determined by the Committee. The initial Bonus payable under
this Agreement shall be as provided on the attached Exhibit B, by this reference
incorporated in and made a part of this Agreement.

      (c) Incentive Savings and Retirement Plans. The Executive shall be
entitled to participate, during the Employment Period, in all incentive
(including annual and long-term incentive) savings and retirement plans, 401(k),
practices, policies and programs generally available to other senior executives
of the Company.

      (d) Welfare Benefits. Executive and/or the Executive's family, as the case
may be, shall be entitled to participate in, and shall receive all benefits
under, all welfare benefit plans, practices, policies and programs generally
provided by the Company (including without limitation, medical, prescription,
dental, disability, employee life, group life, dependent life, accidental death
and travel accident insurance plans and programs) at a level that is equal to
other senior executives of the Company.

                                       7
<PAGE>

      (e) Fringe Benefits. Executive shall be entitled to participate in all
fringe benefit programs generally provided by the Company to its senior
executives. As of the Effective Date, those fringe benefits include (i) use of a
luxury class Company vehicle ("Company Vehicle") or a corresponding automobile
allowance, including the payment of gas, oil, maintenance and insurance in
connection with such Company Vehicle or allowance, as the case may be, (ii) life
insurance benefit with a minimum face value of $100,000, with premiums paid by
the Company, (iii) disability insurance benefits paid by the Company for the
present UNUM policy or its replacement, and (iv) a term life insurance policy in
the face amount of $750,000 with Executive as owner of the policy and
beneficiaries as designated by Executive. Executive acknowledges that the
payment of benefits under this Section 4 (e), including, without limitation,
Executive's personal use of the Company Vehicle, may be subject in part or full
to withholding and payment of income and other taxes for which Executive shall
be responsible.

      (f) Expenses. Executive shall be entitled to receive prompt reimbursement
for all reasonable employment-related expenses which are incurred by the
Executive. The Executive shall be reimbursed upon the Company's receipt of
accountings in accordance with practices, policies and procedures applicable to
senior executives of the Company. Executive may retain all frequent traveler
benefits accrued, including reimbursements as allowed by Company policy for the
use of such benefits for work-related corporate travel. The Company will also
provide a reasonable allowance to reimburse Executive for travel and lodging
expenses for Executive's spouse to accompany him on a maximum of two (2)
business trips per year made by Executive on Company business within the scope
of his duties under this Agreement.

      (g) Office and Support Staff. Executive shall be entitled to an office,
furnishings, supplies, and other appointments, commensurate with the position
occupied by Executive, all of which shall be adequate for the performance of the
Executive's duties. Executive may hire staff to assist Executive in his duties.
Executive may use furnished supplies and equipment for reasonable and incidental
non-business purposes.

      (h) Paid Time Off. The Executive shall be entitled to up to five (5) weeks
of paid time off ("PTO") per calendar year. Such PTO shall accrue without
cancellation, expiration or forfeiture, subject however to the policy of the
Company that no PTO may be carried over from any prior year.

      (i) Stock Options. Executive holds fully-vested options (the "Options") to
purchase 25,000 shares of the Company's common stock par value $.001 per share
("Common Stock") at $1.42 per share with an expiration date of November 22,
2015, and 40,000 shares of Common Stock at $1.72 per share with an expiration
date of May 24, 2015. Subject to (i) the terms of the Incentive Plans, and (ii)
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), the
Options shall be deemed qualified Incentive Stock Options under Section 422 of
the Code.

      (j) Restricted Stock Award. Executive is granted a restricted stock award
("Restricted Stock Award") of 200,000 shares of the Company's common stock, in
the form attached hereto as Exhibit B, by this reference incorporated in and
made a part of this Agreement. In addition, the Company shall gross up the
Executive's salary to minimize the tax implications related to the vesting of
the Restricted Stock Award made pursuant to this Section 4(j), up to an amount
not to exceed 20 percent (20%) of the taxable value of such award. The gross-up
amount, if any, under this Section 4(j) will not be paid to Executive, but it
will be applied by the Company against payment of any withholding obligation it
may have in connection with the grant or the payments to be made under this
Section 4(j).

                                       8
<PAGE>

      5. Termination. This Agreement and Executive's employment may be
terminated by any of the following events:

      (a) Expiration of the Employment Period;

      (b) Mutual written agreement between Executive and the Company at any
time;

      (c) Executive's death;

      (d) Executive's Disability which renders Executive unable to perform the
essential functions of Executive's job even with reasonable accommodation;

      (e) By the Company for Cause;

      (f) By Executive for Good Reason;

      (g) Resignation by Executive without Good Reason; or (h) Without Cause,
which shall mean any termination of employment by the Company which is not
defined in Section 5(a) through Section 5(g) above.

      6. Company's Post-Termination Obligations.

      (a) Termination under Sections 5(a), 5(b), 5(c), 5(d), 5(e) and 5(g).

                  (1) If Executive's employment terminates for the reasons set
forth in Section 5(c), Section 5(d), Section 5(e) or Section 5(g) above, then
the Company will pay Executive (i) all accrued but unpaid wages, based on
Executive's then current Base Salary, through the termination date; (ii) all
approved, but unreimbursed, business expenses, provided that a request for
reimbursement of business expenses is submitted in accordance with the Company's
policies and submitted within five (5) business days of Executive's termination
date; and (iii) solely in the event this Agreement is terminated pursuant to
either Section 5(c) or Section 5(d) during an annual Bonus period, all earned
and accrued but unpaid Bonuses prorated to the date of Executive's death or
Disability. Amounts payable pursuant to this Section 6(a)(1) above shall be paid
within thirty (30) days of the Executive's termination date.

                  (2) In addition, solely in the event that termination occurs
for the reasons set forth in Section 5(a) (due to a notice given by the Company
pursuant to Section 3) or Section 5(d), if within eighteen (18) months of such
termination a Change of Control takes place, the Company shall make a lump-sum
cash transition payment to Executive in the amount of $400,000, payable at the
date of closing of the Change of Control transaction and the portion, if any, of
the Restricted Stock Award remaining unvested at the original date of
termination shall be restored and delivered to Executive. If Executive's
employment terminates for any of the reasons set forth in Section 5(a) (due to a
notice given by the Company pursuant to Section 3) or in Section 5(b) above,
then the Company will pay Executive (i) all accrued but unpaid wages through the
termination date, based on Executive's then current Base Salary; (ii) a
separation payment equal to twelve (12) months of Executive's then current Base
Salary; (iii) all accrued but unpaid vacation through the termination date,
based on Executive's then current Base Salary; (iv) all approved, but
unreimbursed, business expenses, provided that a request for reimbursement of
business expenses is submitted in accordance with the Company's policies and
submitted within five (5) business days of Executive's termination date; and (v)
all earned and accrued but unpaid Bonuses. Fifty percent (50%) of the amounts or
benefits payable under this Sections 6(a)(2)(i), (ii), (iii) and (v) shall be
paid on the first regularly scheduled payroll period occurring immediately
following the expiration of the Severance Delay Period, with the balance to be
paid ratably according to the scheduled payroll practices of the Company over
the subsequent six (6) months. Payment of amounts or benefits under Section
6(a)(2)(iv) shall be made according to established policy of the Company.

                                       9
<PAGE>

      (b) Termination Under Sections 5(f) and 5(h).

                  (1) If Executive's employment terminates for any of the
reasons set forth in Section 5(f) or Section 5(h) above, then the Company will
pay Executive (i) all accrued but unpaid wages through the termination date,
based on Executive's then current Base Salary; (ii) a separation payment equal
to twelve (12) months of Executive's then current Base Salary; (iii) all accrued
but unpaid vacation through the termination date, based on Executive's then
current Base Salary; (iv) all approved, but unreimbursed, business expenses,
provided that a request for reimbursement of business expenses is submitted in
accordance with the Company's policies and submitted within five (5) business
days of Executive's termination date; and (v) all earned and accrued but unpaid
Bonuses.

                  (2) In addition, (i) the Company shall transfer to the
Executive title, free and clear of all encumbrances, to either (a) the Company
Vehicle used by the Executive at the time the Executive's employment with the
Company terminates, or (b) a vehicle of substantially similar market value as
the market value of the Company Vehicle at the time Executive's employment with
the Company terminates; (ii) the Restricted Stock Award shall immediately vest
to the extent any portion thereof remains unvested at such termination date,
provided, however, no tax bonus as provided in 4(j) shall be paid on the
accelerated vesting portion of the stock, but only on the portion that vests in
the year of termination; and (iii) the Company shall make a cash payment to
Executive in the amount of $400,000.

                  (3) Fifty percent (50%) of the cash amounts or benefits
payable under this Section 6(b) shall be paid on the first regularly scheduled
payroll period occurring immediately following the expiration of the Severance
Delay Period, with the balance to be paid ratably according to the scheduled
payroll practices of the Company over the subsequent six (6) months; provided,
however, that the amount payable under Section 6(b)(2)(iii), above, shall be
payable in equal quarterly installments of $50,000 commencing at the end if the
first calendar quarter from the date of termination and continuing until paid in
full, and the amount payable under Section 6(b)(1)(iv) shall be paid in
accordance with Company policy and practice.

                  (4) Except as set forth in this Section 6(b), the Company
shall have no other obligations to Executive for termination pursuant to
Sections 5(f) and 5(h).

      (c) The Company's obligation to provide the payments set forth in Section
6(a) and Section 6(b) above shall be conditioned upon the following (the
"Separation Conditions"):

                                       10
<PAGE>

                  (i) Executive's (or, in the case of Executive's death or
Disability, Executive's estate or trustee, as applicable) execution (and the
expiration of any applicable revocation period) of a separation agreement in a
form prepared by the Company prior to the expiration of the Severance Delay
Period, which will include a general release from liability so that Executive
will release the Company and its Subsidiaries from any and all liability and
claims of any kind as permitted by law; and

                  (ii) Executive's compliance with the restrictive covenants
(Section 8) and all post-termination obligations, including, but not limited to,
the obligations contained in this Agreement.

      (d) If Executive does not execute (or revokes) an effective separation
agreement as set forth in Section 6(c) above prior to the expiration of the
Severance Delay Period (or if any applicable revocation period has not yet ended
prior to such time), the Company will not provide any payments or benefits to
Executive under Section 6(a) and Section 6(b). The Company's obligation to make
the separation payments set forth in Section 6(a) and Section 6(b) shall
terminate immediately upon any breach by Executive of any post-termination
obligations to which Executive is subject.

      (e) Except as provided in this Section 6, following termination of
Executive's employment pursuant to Section 5, and except as provided in Section
7 in the event of a Change of Control, the Company shall have no other
obligations for compensation of Executive.

      7. Change of Control.

            (a) Notwithstanding anything to the contrary in the Incentive Plans
or any award agreement, upon a Change of Control, (i) all of Executive's
outstanding unvested equity-based awards (including, but not limited to, the
Restricted Stock Award) granted pursuant to the Incentive Plans, shall vest and
become immediately exercisable and unrestricted, without any action by the Board
or any committee thereof, and (ii) Executive shall be paid a one-time lump sum
bonus in the amount of $400,000 in connection with the closing of the Change of
Control transaction.

            (b) The payments and benefits set forth in this Section 7 shall be
provided to Executive in lieu of any benefits to which Executive may be entitled
under Section 6(b)(2)(ii) and (iii) above; provided, however, that Executive's
right to receive the separation payments and benefits set forth in this Section
7 shall be subject to the Separation Conditions set forth in Section 6(c) above.

            8. Executive's Post-Termination Obligations.

            (a) Return of Materials. Upon the termination of Executive's
employment for any reason, Executive shall return to the Company all of the
Company's property, including, but not limited to, keys, passcards, credit
cards, customer lists, rolodexes, tapes, software, computer files, marketing and
sales materials and any other property, record, document or piece of equipment
belonging to the Company.

            (b) Set-Off. If Executive has any outstanding obligations to the
Company upon the termination of Executive's employment for any reason, Executive
hereby authorizes the Company to deduct any amounts owed to the Company from
Executive's final paycheck and/or any amounts that would otherwise be due to
Executive, including under Section 6 or Section 7 above, but only to the extent
such set-off is made in accordance with Treasury Regulation
1.409A-3(j)(4)(xiii). No other set-off shall be permitted under this Agreement.

                                       11
<PAGE>

            (c) Non-Disparagement. During Executive's employment and upon the
termination of Executive's employment with the Company for any reason, Executive
shall not make any disparaging or defamatory statements, whether written or
verbal, regarding the Company.

            (d) Restrictive Covenants. Executive acknowledges that the
restrictions contained in this Section 8 are reasonable and necessary to protect
the legitimate business interests of the Company and will not impair or infringe
upon Executive's right to work or earn a living after Executive's employment
with the Company terminates.

            (e) Trade Secrets and Confidential Information.

                  (i) Executive represents and warrants that Executive (A) is
not subject to any legal or contractual duty or agreement that would prevent or
prohibit Executive from performing the duties contemplated by this Agreement or
otherwise complying with this Agreement, and (B) is not in breach of any legal
or contractual duty or agreement, including any agreement concerning trade
secrets or confidential information owned by any other party.

                  (ii) Executive agrees that Executive will not (A) use,
disclose or reverse engineer Trade Secrets or Confidential Information for any
purpose other than the Company's Business, except as authorized in writing by
the Company; (B) during Executive's employment with the Company, use, disclose
or reverse engineer (1) any confidential information or trade secrets of any
former employer or third party or (2) any works of authorship developed in whole
or in part by Executive during any former employment or for any other party,
unless authorized in writing by the former employer or third party; or (C) upon
Executive's resignation or termination with the Company (1) retain Trade Secrets
or Confidential Information, including any copies existing in any form
(including electronic form), which are in Executive's possession or control or
(2) destroy, delete or alter Trade Secrets or Confidential Information without
the Company's prior written consent.

                  (iii) The obligations under this Section 8 shall remain in
effect as long as Trade Secrets and Confidential Information constitute trade
secrets or confidential information under applicable law. The confidentiality,
property and proprietary rights protections available in this Agreement are in
addition to, and not exclusive of, any and all other rights to which the Company
is entitled under federal and state law, including, but not limited to, rights
provided under copyright laws, trade secret and confidential information laws
and laws concerning fiduciary duties.

            (f) Non-Competition. During the Restricted Period, Executive agrees
that Executive shall not perform services which are substantially similar and/or
equivalent to the Duties, individually or on behalf of any person, firm,
partnership, association, business organization, corporation or entity engaged
in the Business within the Territory. The Parties agree and acknowledge that (i)
the periods of restriction and Territory of restriction contained in this
Agreement are fair and reasonable in that they are reasonably required for the
protection of the Company and that the Territory is the area in which Executive
performs services for the Company and (ii) by having access to information
concerning Employees and actual or prospective Customers of the Company or any
of its Subsidiaries, Executive shall obtain a competitive advantage as to the
Company.

                                       12
<PAGE>

            (g) Non-Solicitation of Customers. During the Restricted Period,
Executive will not, directly or indirectly, solicit any Customer of the Company
for the purpose of providing any goods or services competitive with the Business
within the Territory. The restrictions set forth in this Section 8(g) apply only
to the Customers with whom Executive had Contact.

            (h) Non-Recruitment of Employees. During the Restricted Period,
Executive will not, directly or indirectly, solicit, recruit or induce any
Employee to (i) terminate his or her employment relationship with the Company or
any of its Subsidiaries or (ii) work for any other person or entity engaged in
the Business.

            (i) Post-Employment Disclosure. During the Restricted Period,
Executive shall provide a copy of this Agreement to persons and/or entities for
whom Executive works or consults as an owner, partner, joint venturer, employee
or independent contractor. If, during the Restricted Period, Executive works or
consults for another person or entity as an owner, partner, joint venturer,
employee or independent contractor, Executive shall provide the Company with
such person or entity's name, the nature of such person or entity's business,
Executive's job title and a general description of the services Executive will
provide.

            (j) Resignation. Upon the termination of Executive's employment with
the Company for any reason and upon the request of the Company, Executive shall
deliver to the Company a written resignation from all offices, membership on the
Board and fiduciary positions in which Executive serves for the Company and each
of its Subsidiaries and Affiliates.

      9. Work Product. Executive's employment duties may include creating,
developing and/or inventing in areas directly or indirectly related to the
Business of the Company or to a line of business that the Company may reasonably
be interested in pursuing. If ownership of all right, title and interest to the
legal rights in and to the Work Product will not vest exclusively in the
Company, then, without further consideration, Executive assigns all
presently-existing Work Product to the Company and agrees to assign, and
automatically assigns, all future Work Product to the Company. The Company will
have the right to obtain, and hold in its own name, copyrights, patents, design
registrations, proprietary database rights, trademarks, rights of publicity and
any other protection available in the Work Product. At the Company's request,
Executive agrees to perform, during or after Executive's employment with the
Company, any acts to transfer, perfect and defend the Company's ownership of the
Work Product, including, but not limited to (a) executing all documents
(including a formal assignment to the Company) necessary for filing an
application or registration for protection of the Work Product (an
"Application"); (b) explaining the nature of the Work Product to persons
designated by the Company; (c) reviewing Applications and other related papers;
or (d) providing any other assistance reasonably required for the orderly
prosecution of Applications. Executive agrees to provide the Company with a
written description of any Work Product in which Executive is involved (solely
or jointly with others) and the circumstances attendant to the creation of such
Work Product.

      10. License. During Executive's employment and after Executive's
employment with the Company terminates, Executive grants to the Company an
irrevocable, nonexclusive, worldwide, royalty-free license to (a) make, use,
sell, copy, perform, display, distribute or otherwise utilize copies of the
Licensed Materials; (b) prepare, use and distribute derivative works based upon
the Licensed Materials; and (c) authorize others to do the same. Executive shall
notify the Company in writing of any Licensed Materials Executive delivers to
the Company.

                                       13
<PAGE>

      11. Release. During Executive's employment and after Executive's
employment with the Company terminates, Executive consents to the Company's use
of Executive's image, likeness, voice or other characteristics in the Company's
products or services. Executive releases the Company from any causes of action
that Executive has or may have arising out of the use, distribution, adaptation,
reproduction, broadcast or exhibition of such characteristics.

      12. Injunctive Relief. Executive agrees that, if Executive breaches
Section 8 of this Agreement, (a) the Company would suffer irreparable harm; (b)
damages would be difficult to determine, and money damages alone would be an
inadequate remedy for the injuries suffered by the Company; and (c) if the
Company seeks injunctive relief to enforce this Agreement, Executive hereby
waives and will not (i) assert any defense that the Company has an adequate
remedy at law with respect to the breach; (ii) require that the Company submit
proof of the economic value of any Trade Secret or Confidential Information; or
(iii) require the Company to post a bond or any other security. Nothing
contained in this Agreement shall limit the Company's right to any other
remedies at law or in equity.

      13. Payment of Defense Costs. If Executive is individually named as a
defendant in a lawsuit relating to or arising out of Executive's employment with
the Company, then the Company agrees to pay the reasonable attorneys' fees and
expenses Executive incurs in defending such lawsuit (the "Defense Costs"). The
Company will not pay any damages or any other sums or relief for which Executive
is held personally liable. If Executive is held liable, then Executive agrees to
reimburse the Company for all Defense Costs the Company paid to Executive or on
Executive's behalf. The Company's obligation under this Section 13 shall not
apply to any claim or lawsuit brought by the Company against Executive. Payment
of the Defense Costs shall be the Company's only obligation under this Section
13; provided, however, that nothing in this Section 13 shall be construed to
limit either Party's rights or obligations under any indemnification agreement
or the Company's organizational documents, as applicable

      14. Clawback. Notwithstanding anything contained herein to the contrary,
any amounts paid or payable to Executive pursuant to this Agreement or otherwise
by the Company, including, but not limited to, any equity compensation granted
to Executive, may be subject to forfeiture or repayment to the Company in
accordance with Code Section 409A and pursuant to any clawback policy as adopted
by the Board from time to time, and Executive hereby agrees to be bound by any
such policy.

      15. Severability. The provisions of this Agreement are severable. If any
provision of this Agreement is determined to be unenforceable, in whole or in
part, then such provision shall be modified so as to be enforceable to the
maximum extent permitted by law. If such provision cannot be modified to be
enforceable, the provision shall be severed from this Agreement to the extent
unenforceable. The remaining provisions and any partially enforceable provisions
shall remain in full force and effect.

      16. Attorneys' Fees. In the event of litigation relating to this
Agreement, the prevailing Party shall be entitled to recover attorneys' fees and
costs of litigation in addition to all other remedies available at law or in
equity.

                                       14
<PAGE>

      17. Waiver. Either Party's failure to enforce any provision of this
Agreement shall not act as a waiver of that or any other provision. Either
Party's waiver of any breach of this Agreement shall not act as a waiver of any
other breach.

      18. Entire Agreement. This Agreement constitutes the entire agreement
between the Parties concerning the subject matter of this Agreement. This
Agreement supersedes any prior communications, agreements or understandings,
whether oral or written, between the Parties relating to the subject matter of
this Agreement, including without limitation the Prior Agreements. Other than
the terms of this Agreement, no other representation, promise or agreement has
been made with Executive to cause Executive to sign this Agreement.

      19. Amendments. This Agreement may not be amended or modified except in a
writing signed by both Parties.

      20. Successors and Assigns. This Agreement shall be assignable to, and
shall inure to the benefit of, the Company's successors and assigns, including,
without limitation, successors through merger, name change, consolidation or
sale of a majority of the Company's stock or assets and shall be binding upon
Executive. Executive shall not have the right to assign Executive's rights or
obligations under this Agreement. The covenants contained in Section 8 of this
Agreement shall survive the termination of Executive's employment with the
Company, regardless of which Party causes the termination or the reason for the
termination.

      21. Governing Law. The laws of the State of Utah shall govern this
Agreement. If Utah's conflict of law rules would apply another state's laws, the
Parties agree that Utah law shall still govern.

      22. No Strict Construction. If there is a dispute about the language of
this Agreement, the fact that one Party drafted this Agreement shall not be
considered in its interpretation.

      23. Notices. Whenever any notice is required, it shall be given in writing
addressed as follows:

         If to the Company:        DYNATRONICS CORPORATION
                                   7030 Park Centre Drive
                                   Salt Lake City, Utah 84121

        With a copy                DURHAM JONES & PINEGAR
        (which shall not           Attn: Kevin R. Pinegar, Esq.
        constitute notice) to:     111 East Broadway, Suite 900
                                   Salt Lake City, Utah 84111

        If to the Executive:       Larry K. Beardall
                                   8898 Cobblestone Way
                                   Sandy, UT 84093

Notice shall be deemed given and effective when deposited in the U.S. mail, sent
to the receiving Party by electronic means or when actually received. Either
Party may change the address to which notices shall be delivered or mailed by
notifying the other Party of such change in accordance with this Section.

                                       15
<PAGE>

      24. Consent to Jurisdiction and Venue. Executive agrees that any claim
arising out of or relating to this Agreement shall be brought in a state or
federal court of competent jurisdiction in Utah. Executive consents to the
personal jurisdiction of the state and/or federal courts located in Utah.
Executive waives (a) any objection to jurisdiction or venue, or (b) any defense
claiming lack of jurisdiction or improper venue in any action brought in such
courts.

      25. Affirmation. Executive acknowledges that Executive has carefully read
this Agreement, Executive knows and understands its terms and conditions and
Executive has had the opportunity to ask the Company any questions Executive may
have had prior to signing this Agreement.

      26. Compliance with Code Section 409A and Other Applicable Provisions of
the Code.

            (a) It is intended that (i) each payment or installment of payments
provided under this Agreement is a separate "payment" for purposes of Code
Section 409A, and (ii) that the payments satisfy, to the greatest extent
possible, the exemptions from the application of Code Section 409A, including
those provided under Treasury Regulations 1.409A-1(b)(4) (regarding short-term
deferrals), 1.409A-1(b)(9)(iii) (regarding the two-times, two (2) year
exception) and 1.409A-1(b)(9)(v) (regarding reimbursements and other separation
pay). Notwithstanding anything to the contrary herein, if the Company determines
(i) that on the date of Executive's "separation from service" (as such term is
defined under Treasury Regulation 1.409A-1(h)) or at such other time that the
Company determines to be relevant, Executive is a "specified employee" (as such
term is defined under Treasury Regulation 1.409A-1(i)(1)) of the Company, and
(ii) that any payments to be provided to Executive pursuant to this Agreement
are or may become subject to the additional tax under Code Section 409A(a)(1)(B)
or any other taxes or penalties imposed under Code Section 409A if provided at
the time otherwise required under this Agreement, then such payments shall be
delayed until the date that is six (6) months after the date of Executive's
"separation from service" (as such term is defined under Treasury Regulation
1.409A-1(h)) or, if sooner, the date of Executive's death. Any payments delayed
pursuant to this Section 26 shall be made in a lump sum on the first day of the
seventh month following Executive's "separation from service" (as such term is
defined under Treasury Regulation 1.409A-1(h)) or, if sooner, the date of
Executive's death. It is intended that Agreement shall comply with the
provisions of Code Section 409A and the Treasury Regulations relating thereto so
as not to subject Executive to the payment of additional taxes and interest
under Code Section 409A. In furtherance of this intent, this Agreement shall be
interpreted, operated, and administered in a manner consistent with these
intentions.

            (b) In addition, to the extent that any reimbursement, fringe
benefit or other, similar plan or arrangement in which Executive participates
during the term of Executive's employment under this Agreement or thereafter
provides for a "deferral of compensation" within the meaning of Code Section
409A, (i) the amount eligible for reimbursement or payment under such plan or
arrangement in one calendar year may not affect the amount eligible for
reimbursement or payment in any other calendar year (except that a plan
providing medical or health benefits may impose a generally applicable limit on
the amount that may be reimbursed or paid), (ii) subject to any shorter time
periods provided herein or the applicable plans or arrangements, any
reimbursement or payment of an expense under such plan or arrangement must be
made on or before the last day of the calendar year following the calendar year
in which the expense was incurred, and (iii) the right to any reimbursement or
in-kind benefit is not subject to liquidation or exchange for another benefit.

                                       16
<PAGE>

            (c) Notwithstanding anything herein to the contrary, a termination
of Executive's employment shall not be deemed to have occurred for purposes of
any provision of this Agreement providing for the payment of any amounts or
benefits upon or following a termination of employment unless such termination
is also a "separation from service" within the meaning of Code Section 409A (and
Treasury Regulation 1.409A-1(h)) (which, by definition, includes a separation
from any other entity that would be deemed a single employer together with the
Company for this purpose under Code Section 409A (and Treasury Regulation
1.409A-1(h)), and for purposes of any such provision of this Agreement,
references to a "termination," "termination of employment," "termination date,"
or similar terms shall mean "separation from service."

            (d) For the avoidance of doubt, the Company shall pay any amounts
that are due under this Agreement following Executive's termination of
employment, death, Disability or other event within the periods of time that are
specified in this Agreement, provided, however, that the Company, in its sole
and absolute discretion, shall determine the date or dates on which any such
payment shall be made during such specified period.

            (e) By accepting this Agreement, Executive hereby agrees and
acknowledges that neither the Company nor its Subsidiaries make any
representations with respect to the application of Code Section 409A to any tax,
economic or legal consequences of any payments payable to Executive hereunder.
Further, by the acceptance of this Agreement, Executive acknowledges that (i)
Executive has obtained independent tax advice regarding the application of Code
Section 409A to the payments due to Executive hereunder, (ii) Executive retains
full responsibility for the potential application of Code Section 409A to the
tax and legal consequences of payments payable to Executive hereunder and (iii)
the Company shall not indemnify or otherwise compensate Executive for any
violation of Code Section 409A that my occur in connection with this Agreement.
The Parties agree to cooperate in good faith to amend such documents and to take
such actions as may be necessary or appropriate to comply with Code Section
409A.

                          Signatures on Following Page

                                       17
<PAGE>

      IN WITNESS WHEREOF the Parties have executed this Agreement on the date
first written above.

                                           DYNATRONICS CORPORATION,
                                           a Utah corporation

                                           By: /s/ Kelvyn H. Cullimore, Jr.
                                               --------------------------------
                                           Name:   Kelvyn H. Cullimore, Jr.
                                           Title:  President and CEO

                                           LARRY K. BEARDALL,
                                           an individual

                                            /s/ Larry K. Beardall
                                           ------------------------------------
                                           Larry K. Beardall

                                       18

<PAGE>

                                   EXHIBIT A

Responsibilities and Authority of Executive Vice President of Business
Development, Sales & Marketing

Responsibilities:
-----------------

Manages and directs all Business Development and Marketing functions

Receives reports of General Sales Manager (or equivalent)

Hiring of personnel for his department

Develops and supervises execution of Marketing strategies

Develops product definition for all manufactured products

Drives for improvement of existing products

Evaluates products for distribution

Management Team Member

Receives reports on sales efforts of the Company from appropriate Sales
executives

Authority:
---------

Acts in full stead of President/CEO in the latter's absence

Fully empowered to decide and implement Marketing strategies

Development of Customer Incentive Programs within allowed budgets

Hires needed personnel to meet the Marketing business plan (compensation
packages require advance approval of the President/CEO)

Approves expenditures for marketing travel, trade shows, advertising and other
budget categories within his purview (as approved by the Board)

May grant exceptions to Company policies for employees under his management

Signs Purchase Orders for equipment, supplies, and services for his department:
</= $50,000 (Higher amounts require approval of President/CEO)

Approves non-manufactured products for distribution

                                       19
<PAGE>

                                   EXHIBIT B

                          BONUS PLAN FISCAL YEAR 2011

The Bonus payable to Executive under Section 4(b) of the Executive Employment
Agreement dated February __, 2011, for the fiscal years ending June 30, 2011
("Fiscal Year 2011") and June 30, 2012 ("Fiscal Year 2012"), shall be determined
as provided below, with future period Bonus payments to be determined at the
option of the Compensation Committee of the Company, and paid subject to the
terms and conditions set forth in the Executive Employment Agreement.

The Fiscal Year 2011 and Fiscal Year 2012 Bonuses shall be an amount equal to:

      (1) One and one-half of one percent (0.015 times) the gross profit margin
of the Company in excess of $3,200,000 quarterly; and

      (2) A percentage of quarterly pre-tax profit of the Company as follows:

            (a) four percent (0.04 times) pre-tax profits in excess of $75,000
up to $150,000; and

            (b) five percent (0.05 times) pre-tax profits in excess of $150,000
up to $400,000; and

            (c) six percent (0.06 times) pre-tax profits in excess of $400,000.

                                       20
<PAGE>
                                   EXHIBIT C

            FORM OF RESTRICTED STOCK AWARD CERTIFICATE AND AGREEMENT

                                       21

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