Document:

PSE Deferred Comp Plan for Non-Employee Directors

 

Exhibit
10.57

 

 

 

 

PUGET
SOUND ENERGY, INC.

 

DEFERRED
COMPENSATION PLAN

FOR
NON-EMPLOYEE DIRECTORS

 

 

 

 

 

 

 

 

 

Amended
and Restated

Effective
October 1, 2000

 

 

 

CONTENTS

 

1.    DEFINITIONS

 

1.1.    Account
Balance

 

1.2.    Annual
Company Contribution Amount

 

1.3.    Annual
Deferral Amount

 

1.4.    Beneficiary

 

1.5.    Board

 

1.6.    Change in
Control

 

1.7.    Code

 

1.8.    Committee

 

1.9.    Company

 

1.10.    Company
Contribution Account

 

1.11.    Deferral
Account

 

1.12.    Director

 

1.13.    Directors
Fees

 

1.14.    Disability

 

1.15.    Disability
Benefit

 

1.16.    ERISA

 

1.17.    Exchange
Act

 

1.18.    First
Plan Year

 

1.19.    Interim
Payment

 

1.20.    Measurement
Funds

 

1.21.    Monthly
Installment Method

 

1.22.    Participant

 

1.23.    Plan

 

1.24.    Plan
Year

 

1.25.    Pre-Retirement
Survivor Benefit

 

1.26.    PSP&L
Plan

 

1.27.    PSP&L
Rollover Account

 

1.28.    PSP&L
Rollover Amount

 

1.29.    Retirement
or Retire

 

1.30.    Section
16 Insider

 

1.31.    Stock

 

1.32.    Trust

 

1.33.    Trustee

 

1.34.    Unforeseeable
Financial Emergency

 

1.35.    WECo
Plan

 

1.36.    WECo
Rollover Account

 

1.37.    WECo
Rollover Amount

 

1.38.    WNG
Plan

 

2.   ENROLLMENT,
PARTICIPATION

 

2.1    Enrollment
Requirements

 

2.2    Participation

 

3.   DEFERRAL
ELECTIONS; COMPANY CONTRIBUTIONS

 

3.1    Election
to Defer

 

3.2    Withholding
of Annual Deferral Amounts

 

3.3    Annual
Company Contribution Amount

 

3.4    PSP&L
Rollover Amount

 

3.5    WECo
Rollover Amount

 

4.   VESTING;
CREDITING TAXES

 

4.1    Vesting

 

4.2    Crediting
or Debiting of Account Balances

 

  
(a)    Selection
of Measurement Funds

 

  
(b)    Measurement
Funds

 

  
(c)    Crediting
or Debiting Method; Form of Payment

 

  
(d)    No Actual
Investment

 

4.3    Self-Employment
and Other Taxes

 

4.4    Withholding

 

5.   INTERIM
PAYMENTS; UNFORESEEABLE FINANCIAL EMERGENCIES; WITHDRAWAL ELECTION

 

5.1    Interim
Payments

 

5.2    Other
Benefits Take Precedence over Interim Payments

 

5.3    Payments
and Suspensions for Unforeseeable Financial Emergencies

 

5.4    Withdrawal
Elections

 

6.   RETIREMENT
BENEFIT

 

6.1    Retirement
Benefit

 

6.2    Payment
of Retirement Benefit

 

6.3    Death
Prior to Completion of Retirement Benefit

 

7.   DEATH
PRIOR TO RETIREMENT

 

7.1    Pre-Retirement
Survivor Benefit

 

7.2    Payment
of Pre-Retirement Survivor Benefit

 

8.   DISABILITY

 

8.1    Disability
Waiver

 

8.2    Continued
Eligibility for Benefits

 

9.   BENEFICIARY
DESIGNATION

 

9.1    Beneficiary

 

9.2    Change;
Spousal Consent

 

9.3    No
Beneficiary Designation

 

9.4    Doubt as
to Beneficiary

 

9.5    Discharge
of Obligations

 

10.      
LEAVE OF
ABSENCE

 

11.      
TERMINATION,
AMENDMENT OR MODIFICATION

 

11.1    Termination

 

11.2    Amendment

 

11.3    Effect of
Payment

 

12.      
ADMINISTRATION

 

12.1    Committee
Duties

 

12.2    Administrative
Committee; Agents

 

12.3    Binding
Effect of Decisions

 

12.4    Indemnity
of Committee and Administrative Committee

 

13.      
CLAIMS
PROCEDURES

 

13.1    Presentation
of Claim

 

13.2    Notification
of Decision

 

13.3    Legal
Action

 

14.      
TRUST

 

14.1    Establishment
of the Trust

 

14.2    Relationship
of the Plan and the Trust

 

14.3    Distributions
from the Trust

 

15.      
MISCELLANEOUS

 

15.1    Status of
Plan

 

15.2    Unsecured
General Creditor

 

15.3    Company's
Liability

 

15.4    Nonassignability

 

15.5    Furnishing
Information

 

15.6    Captions

 

15.7    Governing
Law

 

15.8    Notice

 

15.9    Successors

 

15.10    Validity

 

15.11    Incompetence

 

15.12    Court
Order

 

15.13    Distribution
in the Event of Taxation

 

     
(a)    In
General

 

     
(b)    Trust

 

15.14    Insurance

 

 

PUGET
SOUND ENERGY,
INC.

 

DEFERRED
COMPENSATION PLAN FOR NON-EMPLOYEE 

DIRECTORS

 

Amended
and Restated

Effective
October 1, 2000

 

Originally
Effective: June 16, 1997

 

Purpose

 

The
growth and success of Puget Sound Energy, Inc. (the "Company") depends on its
ability to attract and retain the services of Directors of the highest
competence, and to provide incentives that motivate the continued and effective
service and contributions of such Directors. The purpose of this Plan is to
advance the interests of the Company and its shareholders through a deferred
compensation program designed to attract, motivate and retain such non-employee
Directors. This Plan shall be unfunded for tax purposes and for purposes of
Title I of ERISA.

 

1. DEFINITIONS

 

For
purposes of this Plan the following words and phrases shall have the meanings
indicated, unless a different meaning is clearly indicated by the
context:

 

	
      1.1.
	
      Account
      Balance

 

"Account
Balance" shall mean a credit on the records of the Company equal to the sum of
the balances in a Participant's (i) Deferral Account, (ii) Company
Contribution Account, (iii) PSP&L Rollover Account, and (iv) WECo
Rollover Account. The Account Balance, and each other specified account balance,
shall be a bookkeeping entry only and shall be utilized solely for the
determination of the amounts due to a Participant or Beneficiary under this
Plan.

 

	
      1.2.
	
      Annual
      Company Contribution Amount

 

"Annual
Company Contribution Amount" shall mean, for any Plan Year, the amount
determined in accordance with Section 3.3.

 

	
      1.3.
	
      Annual
      Deferral Amount

 

"Annual
Deferral Amount" shall mean that portion of Directors Fees that the Participant
elects to defer, in accordance with Article 3, for any Plan Year. In the
event a Participant dies, Retires, or suffers a Disability (if deferrals cease
in accordance with Section 7.1) during a Plan Year, the Annual Deferral Amount
for the year shall be the amount actually deferred prior to such
event.

 

	
      1.4.
	
      Beneficiary

 

"Beneficiary"
shall mean one or more individuals, trusts, estates or other entities designated
in accordance with Article 8 to receive benefits under this Plan upon the
death of a Participant.

 

	
      1.5.
	
      Board

 

"Board"
shall mean the board of directors of the Company.

 

	
      1.6.
	
      Change
      in Control

 

"Change
in Control" shall mean the first to occur of any of the following
events:

 

(a) Any
"person" (as that term is used in Sections 13 and 14(d)(2) of the
Securities Exchange Act of 1934 ("Exchange Act")) becomes the beneficial owner
(as that term is used in Section 13(d) of the Exchange Act), directly or
indirectly, of 50% or more of the Company's capital stock entitled to vote in
the election of directors;

 

(b) During
any period of not more than two consecutive years, not including any period
prior to the adoption of this Plan, individuals who at the beginning of such
period constitute the board of directors of the Company, and any new director
(other than a director designated by a person who has entered into an agreement
with the Company to effect a transaction described in clause (a), (c), (d) or
(e) of this Section 1.6) whose election by the board of directors or nomination
for election by the Company's stockholders was approved by a vote of at least
three-fourths (3/4ths) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute at least
a majority thereof; 

 

(c) The
shareholders of the Company approve any consolidation or merger of the Company,
other than a consolidation or merger of the Company in which the holders of the
common stock of the Company immediately prior to the consolidation or merger
hold more than 50% of the common stock of the surviving corporation immediately
after the consolidation or merger; 

 

(d) The
shareholders of the Company approve any plan or proposal for the liquidation or
dissolution of the Company; or

 

(e) The
shareholders of the Company approve the sale or transfer of all or substantially
all of the assets of the Company to parties that are not within a "controlled
group of corporations" (as defined in Code Section 1563) in which the
Company is a member.

 

	
      1.7.
	
      Code

 

"Code"
shall mean the Internal Revenue Code of 1986, as it may be amended from time to
time.

 

	
      1.8.
	
      Committee

 

"Committee"
shall mean the committee described in Article 11, and if an Administrative
Committee has been appointed pursuant to Article 11 shall include such
Administrative Committee.

 

	
      1.9.
	
      Company

 

"Company"
shall mean Puget Sound Energy, Inc., a Washington corporation, and any successor
to all or substantially all of the Company’s assets or business.

 

	
      1.10.
	
      Company
      Contribution Account

 

“Company
Contribution Account” shall mean an account on the books of the Company that
reflects (i) the sum of the Participant’s Annual Company Contribution Amounts,
plus (ii) amounts credited to the Participant’s Company Contribution Account in
accordance with the applicable crediting provisions of this Plan, less
(iii) all distributions made to the Participant or the Participant's
Beneficiary from the Participant’s Company Contribution Account.

 

	
      1.11.
	
      Deferral
      Account

 

"Deferral
Account" shall mean an account on the books of the Company that reflects
(i)  the sum of the Participant's Annual Deferral Amounts, plus
(ii) amounts credited to the Participant’s Deferral Account in accordance
with the applicable crediting provisions of this Plan, less (iii) all
distributions made to the Participant or the Participant's Beneficiary from the
Participant's Deferral Account. 

 

	
      1.12.
	
      Director

 

"Director"
shall mean any member of the Board who is not an employee of the
Company.

 

	
      1.13.
	
      Directors
      Fees

 

"Directors
Fees" shall mean amounts paid to a Director as compensation (but not as
reimbursement of expenses) for serving on the Board, including retainer fees and
meeting fees.

 

	
      1.14.
	
      Disability

 

"Disability"
shall mean a period of disability during which a Participant qualifies for
long-term disability benefits under the Company's long-term disability plan, or,
if the Participant does not participate in such plan, a period of disability
during which the Participant would have qualified for long-term disability
benefits under such a plan had the Participant been a participant in such plan,
as determined in the sole discretion of the Committee. If the Company does not
sponsor such a plan, or discontinues sponsorship of such a plan, the Committee
in its sole discretion shall determine Disability. Disability does not include
any period of short-term disability as under any Company plan providing
short-term disability benefits.

 

	
      1.15.
	
      Disability
      Benefit

 

"Disability
Benefit" shall mean the benefit set forth in Article 7.

 

	
      1.16.
	
      ERISA

 

"ERISA"
shall mean the Employee Retirement Income Security Act of 1974, as it may be
amended from time to time.

 

	
      1.17.
	
      Exchange
      Act

 

"Exchange
Act" shall mean the Securities Exchange Act of 1934, as amended.

 

	
      1.18.
	
      First
      Plan Year

 

“First
Plan Year” shall mean the period beginning June 16, 1997 and ending
December 31, 1997.

 

	
      1.19.
	
      Interim
      Payment

 

"Interim
Payment" shall mean the payment described in Section 4.1.

 

	
      1.20.
	
      Measurement
      Funds

 

"Measurement
Funds" shall mean the funds described in Section 4.2.

 

	
      1.21.
	
      Monthly
      Installment Method

 

"Monthly
Installment Method" shall mean a monthly installment payment over the number of
months selected by the Participant in accordance with this Plan, calculated as
provided in this Section. The Account Balance of the Participant shall be
calculated as of the close of business not more than ten (10) business days
prior to the last business day of the month. The monthly installment shall be
calculated by multiplying this balance by a fraction, the numerator of which is
one, and the denominator of which is the remaining number of monthly payments
due the Participant. By way of example, if the Participant elects a 120-month
Monthly Installment Method, the first payment shall be 1/120 of the Account
Balance, calculated as described in this definition. The following month, the
payment shall be 1/119 of the Account Balance, calculated as described in this
definition. Each monthly installment shall be paid on or as soon as practicable
after the last business day of the applicable month.

 

	
      1.22.
	
      Participant

 

"Participant"
shall mean any Director who elects to participate in the Plan. Status as a
Participant shall continue for as long as the individual has an Account Balance
under the Plan, even if he or she is no longer a Director. A spouse or former
spouse of a Participant shall not be treated as a Participant even if such
spouse has an interest in the Participant's benefits under the
Plan.

 

	
      1.23.
	
      Plan

 

"Plan"
shall mean this Deferred Compensation Plan for Directors, as it may be amended
from time to time.

 

	
      1.24.
	
      Plan
      Year

 

"Plan
Year" shall mean, except for the First Plan Year, a period beginning on January
1 of each year and continuing through December 31 of such
year.

 

	
      1.25.
	
      Pre-Retirement
      Survivor Benefit

 

"Pre-Retirement
Survivor Benefit" shall mean the benefit set forth in
Article 6.

 

	
      1.26.
	
      PSP&L
      Plan

 

“PSP&L
Plan” shall mean the Puget Sound Power & Light Company Deferred Compensation
Plan for Directors and Consultants, as amended and restated effective October
31, 1986 and as subsequently amended.

 

	
      1.27.
	
      PSP&L
      Rollover Account

 

"PSP&L
Rollover Account" shall mean an account on the books of the Company that
reflects (i) a Participant's PSP&L Rollover Amount, plus (ii) amounts
credited to the Participant’s PSP&L Rollover Account in accordance with the
applicable crediting provisions of this Plan, less (iii) all distributions made
to the Participant or the Participant's Beneficiary from the Participant’s
PSP&L Rollover Account. 

 

	
      1.28.
	
      PSP&L
      Rollover Amount

 

"PSP&L
Rollover Amount" shall be the amount determined in accordance with
Section 3.4.

 

	
      1.29.
	
      Retirement
      or Retire

 

"Retirement",
"Retire(s)" or "Retired" shall refer to resignation or retirement from the Board
or termination of service as a Director for any reason.

 

	
      1.30.
	
      Section
      16 Insider

 

"Section
16 Insider" shall mean any participant who is, with respect to the Company,
subject to Section 16 of the Exchange Act.

 

	
      1.31.
	
      Stock

 

“Stock”
shall mean Puget Sound Energy, Inc. Common Stock, $10.00 stated value, or any
other equity security of the Company designated by the Committee.

 

	
      1.32.
	
      Trust

 

"Trust"
shall mean one or more trusts established pursuant to that certain Master Trust
Agreement, dated as of June 16, 1997 between the Company and the trustee named
therein, as amended from time to time.

 

	
      1.33.
	
      Trustee

 

"Trustee"
shall mean the financial institution acting at the time as trustee of the
Trust.

 

	
      1.34.
	
      Unforeseeable
      Financial Emergency

 

"Unforeseeable
Financial Emergency" shall mean an unanticipated severe financial hardship to
the Participant resulting from (i) a sudden and unexpected illness or
accident to the Participant or a dependent of the Participant, (ii) a loss
of the Participant's residence or other property due to casualty, or
(iii) other extraordinary and unforeseeable circumstances arising as a
result of events beyond the control of the Participant, all as determined in the
sole discretion of the Committee.

 

	
      1.35.
	
      WECo
      Plan

 

“WECo
Plan” shall mean the Washington Energy Company Deferred Compensation Plan for
Non-Employee Directors, as adopted by Washington Energy Company, a Washington
corporation, and as subsequently amended.

 

	
      1.36.
	
      WECo
      Rollover Account

 

"WECo
Rollover Account" shall mean an account on the books of the Company that
reflects (i) a Participant's WECo Rollover Amount, plus (ii) amounts
credited to the Participant’s WECo Rollover Account in accordance with the
applicable crediting provisions of this Plan, less (iii) all distributions made
to the Participant or the Participant's Beneficiary from the Participant’s WECo
Rollover Account. 

 

	
      1.37.
	
      WECo
      Rollover Amount

 

"WECo
Rollover Amount" shall mean the amount determined in accordance with Section
3.5.

 

	
      1.38.
	
      WNG
      Plan

 

"WNG
Plan" shall mean the Washington Natural Gas Company Deferred Compensation Plan,
as amended and restated effective September 1, 1995, adopted by Washington
Natural Gas Company, a Washington corporation, and as subsequently
amended.

 

2. ENROLLMENT,
PARTICIPATION

 

	
      2.1
	
      Enrollment
      Requirements

 

A
Director wishing to participate in the Plan shall complete and return to the
Committee an election form and a beneficiary designation form, and such other
materials as the Committee may request, within 30 days after election to the
Board.

 

	
      2.2
	
      Participation

 

A
Director shall commence participation in the Plan on the first day of the month
following the month in which the Director completes all enrollment requirements.
A Director who does not meet the requirements within the time specified in
Section 2.1 shall not be eligible to participate in the Plan until the first day
of the Plan Year following delivery to and acceptance by the Committee of the
required forms.

 

3. DEFERRAL
ELECTIONS; COMPANY CONTRIBUTIONS

 

	
      3.1
	
      Election
      to Defer

 

A
Director may annually make an irrevocable election to defer all or a designated
portion of the Directors Fees that may be payable for a Plan Year. The Director
shall deliver the Election Form to the Committee by December 31 of the Plan
Year preceding the Plan Year for which the election is made. If no election form
is timely delivered, the Director's Annual Deferral Amount for that Plan Year
shall be zero.

 

	
      3.2
	
      Withholding
      of Annual Deferral Amounts

 

Directors
Fees deferred under this Plan shall be withheld at the time they otherwise would
be paid to the Participant, whether or not this occurs during the Plan Year
itself.

 

	
      3.3
	
      Annual
      Company Contribution Amount

 

For each
Plan Year, the Company in its sole discretion may credit any amount it
determines to any Participant’s Company Contribution Account under this Plan.
Such amount shall be the Annual Company Contribution Amount for the Participant
for that Plan Year. The Company may credit different amounts for different
Participants. A credit awarded to one Participant shall not bind the Company to
credit any amount to any other Participant. An Annual Company Contribution
Amount shall be credited as of the last day of the Plan Year. If a Participant
is not a Director as of the last day of a Plan Year other than by reason of
Retirement or death, the Annual Company Contribution Amount for that Plan Year
shall be zero.

 

	
      3.4
	
      PSP&L
      Rollover Amount

 

If a
Director has an account balance in the PSP&L Plan on June 16, 1997, that
account balance shall be transferred to the Director’s Account Balance under
this Plan. The balance shall thereafter be governed by the terms and conditions
of this Plan, and shall be referred to as the “PSP&L Rollover Amount.” Any
elections made by the Participant with respect to a balance under the PSP&L
Plan shall apply to the PSP&L Rollover Amount under this Plan until changed
as provided in this Plan.

 

	
      3.5
	
      WECo
      Rollover Amount

 

If a
Director has an account balance as a result of deferrals pursuant to the WECo
Plan or the WNG Plan on June 16, 1997, the Director's aggregate account
balance under such plan or plans shall be transferred to the Director’s Account
Balance under this Plan. It shall thereafter be governed by the terms and
conditions of this Plan, and shall be referred to as the “WECo Rollover Amount.”
Any elections made by the Participant with respect to such account balance shall
apply to the WECo Rollover Amount under this Plan until changed as provided in
this Plan.

 

4. VESTING;
CREDITING TAXES

 

	
      4.1
	
      Vesting

 

A
Participant shall at all times be fully vested in his or her Account
Balance.

 

	
      4.2
	
      Crediting
      or Debiting of Account Balances

 

Amounts
shall be credited or debited to a Participant's Account Balance in accordance
with the following rules and such other rules and procedures as the Committee
may establish in its discretion:

 

	 	
      (a)
	
      Selection
      of Measurement Funds

 

In
connection with an initial deferral election, a Participant shall select one or
more Measurement Funds to be used to determine the amounts to be credited to the
Account Balance. A Participant may change a selection by submitting a new
election to the Committee on a form approved by the Committee. Any such
selection shall take effect in the calendar quarter next succeeding the quarter
in which the election form is received by the Committee, and shall continue in
effect thereafter until changed in accordance with this subsection. The
Participant shall specify, in increments of ten percentage points (10%), the
percentage of the Account Balance to be allocated to any Measurement Fund.
However, if a Participant is in payment status under the Monthly Installment
Method or the Annual Installment Method, he or she shall only be allowed to
reallocate funds to or from the Company Stock Fund account by December 31 of any
Plan Year, to be effective the following January 1. Participants who are Section
16 Insiders may reallocated funds to or from their Company Stock Fund account
only in accordance with Company policies on insider trading and in compliance
with the rules for "Discretionary Transactions" as defined in Rule 16B-3 (or any
successor provision) under the Exchange Act.

 

	 	
      (b)
	
      Measurement
      Funds

 

The
Committee may, in its sole discretion, discontinue, substitute or add any
Measurement Funds, but at least two Measurement Funds will always be available.
Any change in available Measurement Funds will take effect no later than the
first day of the calendar quarter that follows by thirty (30) days the day on
which the Committee gives Participants written notice of such action, unless the
Committee in is sole discretion, designates an alternate change period. With
respect to Participants who are Section 16 Insiders, transfers to or from the
Company Stock Fund will be allowed only pursuant to Company policies on insider
trading and in compliance with the rules for Discretionary Transactions as
defined in Rule 16b-3 (or any successor provisions) under the Exchange Act.

 

	 	
      (c)
	
      Crediting
      or Debiting Method;
      Form of Payment

 

A
Participant's Account Balance, other than amounts allocated to the Company Stock
Fund, shall be credited or debited on a daily basis based on the performance of
each Measurement Fund selected by the Participant. Performance shall be
determined by the Committee in its sole discretion as if (i) the
Participant's Account Balance were invested in the Measurement Fund(s) selected
by the Participant, in the percentages applicable during such calendar quarter,
as of the close of business on the first business day of such calendar quarter,
at the closing price on such date; (ii) the portion of the Annual Deferral
Amount that was actually deferred during any calendar quarter was invested in
the Measurement Funds selected by the Participant, in the percentages applicable
to such calendar quarter, no later than the close of business on the tenth
business day after the day on which such amounts are actually deferred from the
Participant's Directors Fees, at the closing price on such date; and
(iii) any distribution made to a Participant that decreases such
Participant's Account Balance was withdrawn from the Measurement Funds, in the
percentages applicable to such calendar quarter, no earlier than ten business
days prior to the distribution, at the closing price on such date. The
Participant's Annual Company Matching Amount shall be credited to his or her
Account for purposes of this clause (c) as of the close of business on the first
business day in February of the Plan Year following the Plan Year to which they
relate. The Participant’s WECo Rollover Amount or PSP&L Rollover Amount
shall be credited as of June 16, 1997.

 

A
Participant's Account Balance that is allocated to the Company Stock Fund shall
be credited at the time the Participant would have been paid if the shares would
have been held by the Participant, with additional Stock units equal in number
to the number of shares of Company Stock that could be purchased with the amount
of any cash dividends or other distributions that would be payable on the number
of shares of Company Stock that equals the number of Stock units in such Account
Balance. The number of Stock units credited to a Participant's Account Balance
shall be appropriately adjusted to reflect (i) Stock splits, Stock
dividends and other like adjustments in such Account Balance that were allocated
to the Company Stock Fund, and (ii) any distributions made to the
Participant that decrease the portion of such Account Balance allocated to the
Company Stock Fund.

 

A
Participant's Account Balance that is allocated to the Company Stock Fund shall
be payable only in Stock, plus cash for any factional shares.

 

Lump sum
payments are valued as of (i) the Participant's date of Termination,
Retirement, Death or Disability, (ii) as of the first business day for the
appropriate Plan Year for deferrals designated as Interim Payments, or
(iii) when approved by the Committee for Payments due to Unforeseeable
Financial Emergencies as defined in Section 5.3.

 

	 	
      (d)
	
      No
      Actual Investment

 

The
Measurement Funds are to be used for measurement purposes only. A Participant's
selection of a Measurement Fund and the crediting or debiting of amounts to a
Participant's Account Balance based on such selection shall not be considered or
construed as an actual investment in any such Measurement Fund. If the Company
or the Trustee, in their discretion, invests assets in any or all of the
Measurement Funds, no Participant shall have any rights in or to such
investments. Without limiting the foregoing, a Participant's Account Balance
shall at all times be a bookkeeping entry only and shall not represent any
investment made on his or her behalf by the Company or the Trust. With respect
to Account Balances and other rights under this Plan, the Participant shall at
all times be and remain an unsecured general creditor of the
Company.

 

	
      4.3
	
      Self-Employment
      and Other Taxes

 

The
Company shall withhold from a Participant’s Directors Fees or Annual Deferral
Amount, in a manner determined by the Company, the Participant’s share of
self-employment and other taxes that may be required to be
withheld.

 

	
      4.4
	
      Withholding

 

The
Company or the Trustee shall withhold from any payments made to a Participant or
Beneficiary all federal, state and local income, employment and other taxes
required to be withheld from such payments, in amounts and in a manner
determined in the discretion of the Company or the Trustee.

 

5. INTERIM
PAYMENTS; UNFORESEEABLE FINANCIAL EMERGENCIES; WITHDRAWAL
ELECTION

 

	
      5.1
	
      Interim
      Payments

 

A
Participant may irrevocably elect to receive an Interim Payment from the Plan
with respect to any Annual Deferral Amount. The Interim Payment shall be an
amount that is equal to the Annual Deferral Amount plus amounts credited or
debited to that amount in the manner provided in Section 4.2, determined at
the time that the Interim Payment becomes payable. Each Interim Payment shall be
paid in a lump sum within 60 days after the last day of any Plan Year
designated by the Participant that is at least two Plan Years after the Plan
Year in which the Annual Deferral Amount is deferred. For example, if a two-year
Interim Payment is elected for Annual Deferral Amounts that are deferred in the
Plan Year commencing January 1, 1999, the two-year Interim Payment would become
payable during a 60-day period commencing January 1, 2002.

 

	
      5.2
	
      Other
      Benefits Take Precedence over Interim Payments

 

Payments
under Sections 5.3 and 5.4, and Articles 6, 7, 8 and 9 take precedence
over Interim Payments. Payments under those Sections and Articles may be made
from Annual Deferral Amounts that otherwise would be payable as Interim
Payments.

 

	
      5.3
	
      Payments
      and Suspensions for Unforeseeable Financial
      Emergencies

 

If a
Participant experiences an Unforeseeable Financial Emergency, the Participant
may request either or both of (i) suspension of any deferrals then in
effect and (ii) a partial or full payment from the Plan. The payment shall not
exceed the lesser of the Participant's Account Balance or the amount reasonably
needed to satisfy the Unforeseeable Financial Emergency. If the Committee
approves such a request, suspension shall take effect on the date of approval
and any payment shall be made within 60 days of the date of
approval.

 

	
      5.4
	
      Withdrawal
      Elections

 

A
Participant (or, after the Participant’s death, his or her Beneficiary) may
elect to withdraw part or all of the Account Balance, calculated as if the
Participant had Retired as of the day of the election. Any such withdrawal shall
be subject to a penalty equal to 10% of the amount elected. The amount of the
penalty shall be forfeited to the Company. This election may be made at any time
and whether or not the Participant or Beneficiary is being paid pursuant to an
installment payment schedule. No partial withdrawals of less than $25,000 shall
be allowed. The Participant or Beneficiary shall make this election by giving
the Committee written notice in a form determined from time to time by the
Committee. The Participant or Beneficiary shall be paid the withdrawal amount
within 60 days of the election. Once a withdrawal amount is paid, any
deferral election under the Plan shall terminate and the Participant shall not
be eligible to make deferrals of Directors Fees for the remainder of the Plan
Year in which the Withdrawal Amount is paid.

 

6. RETIREMENT
BENEFIT

 

	
      6.1
	
      Retirement
      Benefit

 

A
Participant who Retires shall receive his or her Account Balance as a Retirement
Benefit.

 

	
      6.2
	
      Payment
      of Retirement Benefit

 

A
Participant may elect, in a manner determined by the Committee, to receive
Retirement Benefits in a lump sumor under a Monthly Installment Method of not
more than 240 months; provided, however, that to the extent a Participant
receives Retirement Benefits in Stock from the Company Stock Fund, a Participant
may elect to receive such Retirement Benefits only in a lump sum or under the
Monthly Installment Method for the same period that benefits from the other
Measurement Funds are elected and paid. The election may be changed to an
allowable alternative payment period by submitting a new election to the
Committee, in a form approved by the Committee, provided that any such election
must be submitted and accepted at least one year before the Participant's
Retirement. The Election Form most recently accepted by the Committee shall
govern the payment of the Retirement Benefit. If a Participant does not make any
election with respect to the payment of the Retirement Benefit, then such
benefit shall be payable in a lump sum. The lump sum payment shall be made no
later than 60 days after the
date the Participant Retires. Monthly Installment Method payments shall commence
no later than 60 days after the Participant retires; however, any annual
distributions from the Company Stock Fund shall be distributed each subsequent
year in January.

 

	
      6.3
	
      Death
      Prior to Completion of Retirement
Benefit

 

If a
Participant dies after Retirement but before the Retire-ment Benefit is paid in
full, the unpaid Retirement Benefit payments shall be paid to the Participant's
Beneficiary. Payment shall be made in the same manner and in the same amounts as
the benefit that would have been paid to the Participant had the Participant
survived. If requested by the Beneficiary and allowed in the sole discretion of
the Committee, payment may be made in a lump sum equal to the Participant's
unpaid remaining Account Balance at the time of payment.

 

7. DEATH
PRIOR TO RETIREMENT

 

	
      7.1
	
      Pre-Retirement
      Survivor Benefit

 

The
Participant's Beneficiary shall receive a Pre-Retirement Survivor Benefit equal
to the Participant's Account Balance, if the Participant dies before
Retirement.

 

	
      7.2
	
      Payment
      of Pre-Retirement Survivor Benefit

 

A
Participant may elect, in a manner determined by the Committee, whether the
Pre-Retirement Survivor Benefit shall be paid to his or her Beneficiary in a
lump sum or pursuant to a Monthly Installment Method of no more than 240 months.
The Participant may change this election to any allowable alternative payment
period by submitting a new election to the Committee, in a form approved by the
Committee. The election most recently accepted by the Committee prior to the
Participant's death shall govern the payment of the Participant's Pre-Retirement
Survivor Benefit. If a Participant does not make any election with respect to
the payment of the Pre-Retirement Survivor Benefit, then such benefit shall be
paid in a lump sum unless the Committee in its discretion decides that payment
shall be made in such installments as the Committee determines. A lump sum
payment shall be made, or installment payments shall commence, no later than 60
days after the date of the Participant's death.

 

8. DISABILITY

 

	
      8.1
	
      Disability
      Waiver

 

A
Participant suffering from a Disability shall be excused from deferral of
Directors Fees during the period of Disability and shall not make any additional
deferral elections for as long as the Disability continues. For all other
purposes, the Participant will continue to participate in the Plan. A
Participant who returns to service as a Director after the Disability ceases may
elect an Annual Deferral Amount for the Plan Year following his or her return to
service, in accordance with Section 3.1.

 

	
      8.2
	
      Continued
      Eligibility
      for Benefits

 

A
Participant suffering a Disability shall continue to be eligible for the
benefits provided for in Articles 5, 6 and 7.

 

9. BENEFICIARY
DESIGNATION

 

	
      9.1
	
      Beneficiary

 

Each
Participant shall have the right to designate one or more Beneficiaries
(including primary and contingent Beneficiaries) to receive any benefits payable
under the Plan. The Beneficiary may be the same as or different from the
Beneficiary designated under any other plan in which the Participant
participates.

 

	
      9.2
	
      Change;
      Spousal Consent

 

A
Participant shall have the right to change a Beneficiary by completing a new
beneficiary designation on a form approved by the Committee. If the Participant
designates someone other than his or her spouse as a Beneficiary, the spouse
must consent to the designation in writing on a form approved by the Committee,
and the signed consent form must be returned to the Committee. The Committee
shall be entitled to rely on the last Beneficiary designation filed by the
Participant and accepted by the Committee prior to the Participant's
death.

 

	
      9.3
	
      No
      Beneficiary Designation

 

If a
Participant fails to designate a Beneficiary or if all designated Beneficiaries
predecease the Participant or die prior to complete distribution of the
Participant's benefits, then the Participant's designated Beneficiary shall be
deemed to be his or her surviving spouse. If the Participant has no surviving
spouse, the Participant's benefits remaining under the Plan shall be payable to
the executor or personal representative of the Participant's
estate.

 

	
      9.4
	
      Doubt
      as to Beneficiary

 

If the
Committee has any doubt as to the proper Beneficiary to receive payments
pursuant to the Plan, it shall have the right to withhold payments until the
matter is resolved to its satisfaction.

 

	
      9.5
	
      Discharge
      of Obligations

 

The
payment of benefits under the Plan to a Beneficiary shall fully and completely
discharge the Company and the Committee from all further obligations under the
Plan with respect to the Participant and any other Beneficiary.

 

10. LEAVE
OF ABSENCE

 

If a
Participant is authorized for any reason to take a leave of absence from the
Board, the Participant shall be excused from making deferrals until the earlier
of the date the leave of absence expires or the Participant returns to the
Board. Upon such expiration or return, deferrals shall resume for the remaining
portion of the Plan Year in which the expiration or return occurs, based on the
deferral election, if any, made for that Plan Year.

 

11. TERMINATION,
AMENDMENT OR MODIFICATION

 

	
      11.1
	
      Termination

 

Although
the Company anticipates that it will continue the Plan for an indefinite period
of time, it reserves the right to terminate the Plan at any time. Upon
termination, the Account Balances of the Participants shall be paid as provide
in this Section. Such Account Balances shall be determined as if the affected
Participants had Retired on the date of Plan termination or, if Plan termination
occurs after the date upon which a Participant was eligible to Retire, then as
if that Participant had Retired on such date. 

 

Prior to
a Change in Control, if the Plan is terminated with respect to all Participants,
the Company shall have the right, in its sole discre-tion, and notwith-standing
any elections made by the Participant, to pay such benefits in a lump sum or
pursuant to a Monthly Installment Method of up to 240 months, with amounts
credited and debited during the installment period as provided in
Article 4. If the Plan is terminated with respect to less than all
Participants, the Company shall be required to pay such benefits in a lump sum.
After a Change in Control, the Company shall be required to pay such benefits in
a lump sum. The termination of the Plan shall not adversely affect any
Participant or Beneficiary who has become entitled to the payment of any
benefits under the Plan as of the date of termination; provided , that the
Company shall have the right to accelerate installment payments without a
premium or prepayment penalty by paying the Account Balance in a lump sum or
pursuant to a Monthly Installment Method using fewer months (provided that the
present value of all payments that will have been received by a Participant at
any given point of time under the different payment schedule shall equal or
exceed the present value of all payments that would have been received at that
point in time under the original payment schedule). For these purposes, the
present value shall be determined prior to a Change in Control by the Committee
in its discretion; after a Change in Control, present value shall be determined
by the Trustee in its discretion.

 

	
      11.2
	
      Amendment

 

The
Company may, at any time, amend or modify the Plan in whole or in part;
provided, that no amendment or modification shall decrease or restrict the value
of a Participant's Account Balance in existence at the time the amendment or
modification is made, calculated as if the Participant had Retired on the
effective date of the amendment or modification or, if (i) the amendment or
modification occurs after the date upon which the Participant was eligible to
Retire, or (ii) the Participant is a Consultant, as if the Participant had
Retired as of the date of the amendment or modification. The amendment or
modification of the Plan shall not affect any Participant or Beneficiary who has
become entitled to the payment of benefits under this Plan as of the date of the
amendment or modification; provided, that the Employer shall have the right to
accelerate installment payments by paying the Account Balance in a lump sum or
pursuant to a Monthly Installment Method using fewer months (provided that the
present value of all payments that will have been received by a Participant at
any given point of time under the different payment schedule shall equal or
exceed the present value of all payments that would have been received at that
point in time under the original payment schedule). For this purpose, the
present value shall be determined prior to a Change in Control by the Committee
in its discretion; after a Change in Control, present value shall be determined
by the Trustee in its discretion.

 

	
      11.3
	
      Effect
      of Payment

 

The full
payment of the applicable benefit under Articles 5, 6, 7 or 8 of the Plan
shall completely discharge all obligations of the Company and the Committee to a
Participant and his or her designated Beneficiaries under this
Plan.

 

12. ADMINISTRATION

 

	
      12.1
	
      Committee
      Duties

 

This Plan
shall be administered by a Committee, which shall consist of the Board or such
committee as the Board may appoint. Members of the Committee may be
Participants. The Committee shall have the discretion and authority, subject to
Section 11.2, to make amendments to the Plan or in its discretion it may
recommend amendments to the Board for its action. The Committee shall have the
discretion and authority to make, amend, interpret, and enforce appropriate
rules and regulations for the administration of this Plan and to decide or
resolve, in its discretion, any and all questions involving interpretation of
this Plan. Any individual serving on the Committee who is a Participant shall
not vote or act on any matter relating solely to himself or herself. When making
a determination or calculation, the Committee shall be entitled to rely on
information furnished by a Participant or the Company.

 

	
      12.2
	
      Administrative
      Committee; Agents

 

The
Committee may, from time to time, appoint an administrative Committee and
delegate to the administrative Committee such duties and responsibilities (but
not the authority to amend the Plan) with respect to the Plan as the Committee
may determine. The Committee and the administrative Committee may employ agents
and delegate to them such duties as either Committee sees fit (including acting
through a duly appointed representative) and may from time to time consult with
counsel who may be counsel to the Company.

 

	
      12.3
	
      Binding
      Effect of Decisions

 

The
decisions or actions of the Committee, and of the Administrative Committee, with
respect to the administration, interpretation and application of the Plan and
the rules and regulations hereunder shall be final and conclusive and shall be
binding upon all persons having any interest in the Plan.

 

	
      12.4
	
      Indemnity
      of Committee
      and Administrative Committee

 

The
Company shall indemnify and hold harmless the members of the Committee, the
Administrative Committee, and any agent or employee to whom the duties of the
Committee or the Administrative Committee may be delegated, against any and all
claims, losses, damages, expenses or liabilities arising from any action or
failure to act with respect to this Plan, except in the case of willful
misconduct by the Committee, the Administrative Committee or any of their
members or any such agent or employee.

 

13. CLAIMS
PROCEDURES

 

	
      13.1
	
      Presentation
      of Claim

 

Any
Participant or Beneficiary (such Participant or Beneficiary being referred to in
this Article as a "Claimant") may deliver to the Committee a written claim for a
determination with respect to the amounts distributable to such Claimant from
the Plan. If such a claim relates to the contents of a notice received by the
Claimant, the claim must be made within 60 days after the Claimant received such
notice. All other claims must be made within 180 days of the date on which the
event that caused the claim to arise occurred. The claim must state with
particularity the determination desired by the Claimant.

 

	
      13.2
	
      Notification
      of Decision

 

The
Committee shall consider a Claimant's claim within a reasonable time, and shall
notify the Claimant in writing:

 

	 	
      (a)
	
      That
      the Claimant's requested determination has been made, and that the claim
      has been allowed in full; or

 

	 	
      (b)
	
      That
      the Committee has reached a conclusion contrary, in whole or in part, to
      the Claimant's requested determination. Such notice shall
      state:

 

	 	
      (i)
	
      The
      specific reason(s) for the denial of the claim, or any part of
      it;

 

	 	
      (ii)
	
      Specific
      reference(s) to pertinent provisions of the Plan upon which such denial
      was based.

 

	
      13.3
	
      Legal
      Action

 

Compliance
with the foregoing provisions of this Article 13 is a mandatory prerequisite to
a Claimant's right to commence any legal action with respect to any claim for
benefits under the Plan.

 

14. TRUST

 

	
      14.1
	
      Establishment
      of the Trust

 

The
Company shall at least annually transfer to the Trust such assets as it
determines, in its sole discretion, are necessary to provide, on a present value
basis, for its liabilities with respect to the Annual Deferral Amounts, Annual
Company Contribution Amounts, PSP&L Rollover Amount and WECo Rollover Amount
for all period prior to the transfer, as well as any debits and credits to the
Participants' Account Balances for all periods prior to the transfer, taking
into consideration the value of the assets in the Trust at the time of the
transfer.

 

	
      14.2
	
      Relationship
      of the Plan and the Trust

 

The
provisions of the Plan shall govern the rights of a Participant to receive
distributions pursuant to the Plan. The provisions of the Trust shall govern the
rights of the Company, the Participants and the creditors of the Company to the
assets transferred to the Trust. The Company shall remain liable to carry out
its obligations under the Plan.

 

	
      14.3
	
      Distributions
      from the Trust

 

The
Company's obligations under the Plan may be satisfied with Trust assets
distributed pursuant to the terms of the Trust, and any such distribution shall
reduce pro tanto the Company's obligations under the Plan.

 

15. MISCELLANEOUS

 

	
      15.1
	
      Status
      of Plan

 

The Plan
is intended to be a plan that is not qualified within the meaning of Code
Section 401(a). The Plan shall be administered and interpreted in a manner
consistent with that intent.

 

	
      15.2
	
      Unsecured
      General Creditor

 

Participants
and their Beneficiaries, heirs, successors and assigns shall have no legal or
equitable rights, interests or claims in any property or assets of the Company
or of the Trust. For purposes of the payment of benefits under this Plan, any
and all of the Company's assets including assets of the Trust shall be, and
remain, the general, unpledged unrestricted assets of the Company. The Company's
obligation under the Plan shall consist solely of an unfunded and unsecured
promise to pay money in the future.

 

	
      15.3
	
      Company's
      Liability

 

The
Company's liability for the payment of benefits shall be defined only by the
Plan. The Company shall have no obligation to a Participant under the Plan
except as expressly provided in the Plan.

 

	
      15.4
	
      Nonassignability

 

Neither a
Participant nor a Beneficiary nor any other person shall have any right to
commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise
encumber, transfer, hypothecate, alienate or convey in advance of actual
receipt, the amounts, if any, payable hereunder, or any part thereof. All of
such rights are expressly declared to be, unassignable and non-transferable.
None of the amounts payable under the Plan shall, prior to actual payment, be
subject to seizure, attachment, garnishment or sequestration for the payment of
any debts, judgments, alimony or separate maintenance owed by a Participant or
any other person, or be transferable by operation of law in the event of a
Participant's or any other person's bankruptcy or insolvency, or be transferable
to a spouse as a result of a property settlement or otherwise.

 

	
      15.5
	
      Furnishing
      Information

 

A
Participant or Beneficiary shall cooperate with the Committee by furnishing any
and all information requested by the Committee and shall take such other actions
as may be requested in order to facilitate the administration of the Plan and
the payments of benefits hereunder, including but not limited to taking such
physical examinations as the Committee may deem necessary.

 

	
      15.6
	
      Captions

 

The
captions of the articles, sections and paragraphs of this Plan are for
convenience only and shall not control or affect the meaning or construction of
any of its provisions.

 

	
      15.7
	
      Governing
      Law

 

Subject
to ERISA, the provisions of this Plan shall be construed and interpreted
according to the internal laws of the State of Washington without regard to its
conflicts of laws principles.

 

	
      15.8
	
      Notice

 

Any
notice or filing required or permitted to be given to the Committee under this
Plan shall be sufficient if in writing and hand-delivered, or sent by registered
or certified mail, or by facsimile to the address below: 

 

Director
of Human Resources

 

Puget
Sound Energy, Inc.

 

Post
Office Box 97034

 

Bellevue,
WA 98009-9734

 

Any such
notice shall be deemed given as of the date of delivery or, if delivery is made
by mail, as of the date shown on the postmark on the receipt for registration or
certification.

 

Any
notice or filing required or permitted to be given to a Participant under this
Plan shall be sufficient if in writing and hand-delivered, or sent by mail, to
the last known address of the Participant or Beneficiary.

 

	
      15.9
	
      Successors

 

The
provisions of this Plan shall bind and inure to the benefit of the Company and
its successors and assigns and the Participant and the Participant's designated
Beneficiaries.

 

	
      15.10
	
      Validity

 

If any
provision of this Plan shall be found to be illegal or invalid for any reason,
such illegality or invalidity shall not affect the remaining parts hereof, but
this Plan shall be construed and enforced as if such illegal or invalid
provision had never been inserted herein.

 

	
      15.11
	
      Incompetence

 

If the
Committee determines in its discretion that a benefit under this Plan is to be
paid to a minor, a person declared incompetent or a person incapable of handling
the disposition of that person's property, the Committee may direct payment of
such benefit to the guardian, legal representative or person having the care and
custody of such minor, incompetent or incapable person. The Committee may
require proof of minority, incompetence, incapacity or guardianship, as it may
deem appropriate prior to distribution of the benefit. Any payment of a benefit
shall be a payment for the account of the Participant and the Participant's
Beneficiary, as the case may be, and shall be a complete discharge of any
liability under the Plan for such payment amount.

 

	
      15.12
	
      Court
      Order

 

The
Committee is authorized to make any payments directed by court order. If a court
determines that a spouse or former spouse of a Participant has an interest in
the Participant’s benefits under the Plan in connection with a property
settlement or otherwise, the Committee, in its sole discretion, shall have the
right, notwithstanding any election made by a Participant, to immediately
distribute the spouse's or former spouse's interest in the Participant’s
benefits under the Plan to that spouse or former spouse.

 

	
      15.13
	
      Distribution
      in the Event of Taxation

 

	 	
      (a)
	
      In
      General

 

A
Participant may request the Committee before a Change in Control, or the trustee
of the Trust after a Change in Control, for a distribution of that portion of
any benefit under the Plan that has become taxable prior to its receipt. The
Committee shall not unreasonably withhold its consent to any such request. After
a Change in Control, the Trustee shall consent to any such request upon a proper
showing that the benefits are indeed taxable. Once consent to the request is
granted, the Plan shall distribute to the Participant an amount equal to the
taxable portion of the benefit, but not exceed more than the Participant's
unpaid Account Balance. Distribution shall be made within 90 days of the date
when the request is granted. Such a distribution shall reduce the Account
Balance and the benefits to be paid under this Plan.

 

	 	
      (b)
	
      Trust

 

If the
Trust terminates and benefits are distributed from the Trust to a Participant,
the Participant's benefits under this Plan shall be reduced to the extent of
such distributions.

 

	
      15.14
	
      Insurance

 

The
Company, on its own behalf or on behalf of the trustee of the Trust, and in its
sole discretion may apply for and procure insurance on the life of any
Participant, in such amounts and in such forms as the Company may choose. The
Company or the trustee of the Trust and, , as the case may be, shall be the sole
owner and beneficiary of any such insurance. The Participant shall have no
interest whatsoever in any such policy or policies, and at the request of the
Company shall submit to medical examinations and supply such information and
execute such documents as may be required by the insurance company or companies
to which the Company has applied for insurance.

 

AMENDMENT
TO

 

PUGET
SOUND ENERGY, INC.

 

DEFERRED
COMPENSATION PLAN

 

FOR
NON-EMPLOYEE DIRECTORS

 

This
Amendment is made to the Puget Sound Energy, Inc. Deferred Compensation Plan for
Non-Employee Directors, effective June 16, 1997 (the "Plan"). All terms defined
in the Plan shall have the same meanings when used herein. This Amendment is
effective June 16, 1997. All provisions of the Plan not amended by this
Amendment shall remain in full force and effect.

 

Section
1.6 ("Change in Control") is amended by adding the following provisions at the
end of subsection (a) thereof:

 

provided,
however, that the following acquisitions of beneficial ownership shall not
constitute a Change of Control: (i) an acquisition by the Company or by any
entity related to the Company within the meaning of Code Section 414(b), (c),
(m) or (o), (ii) an acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or by any such related entity, or
(iii) the acquisition of the Company's common stock by Puget Energy, Inc.
pursuant to the plan of exchange effective January 1, 2001;

 

AMENDMENT
TO

 

PUGET
SOUND ENERGY, INC.

 

DEFERRED
COMPENSATION PLAN

 

FOR
NON-EMPLOYEE DIRECTORS

 

This
Amendment is made to the Puget Sound Energy, Inc. Deferred Compensation Plan for
Non-Employee Directors, effective June 16, 1997 and as most recently amended
effective October 1, 2000 (the "Plan"). This Amendment is effective January 1,
2001. All terms defined in the Plan shall have the same meanings when used
herein. All provisions of the Plan not amended by this Amendment shall remain in
full force and effect.

 

1. Section
1.31 ("Stock") shall be amended in its entirety to read as follows:

 

"Stock"
shall mean the common stock of Puget Energy, Inc. that is traded on the New York
Stock Exchange or the common stock of any successor to Puget Energy, Inc. that
is publicly traded. All references in the Plan to "Puget Energy, Inc." shall be
deemed to include its successor. To the extent such successor's stock is traded
on an exchange other than the New York Stock Exchange, all references in the
Plan to "New York Stock Exchange" shall be deemed to include such other
exchange.

 

2. A new
section ("Stock Fund") shall be created immediately after Section 1.31 ("Stock
Fund") to read as set forth below and the subsequent sections of Article 1 shall
be renumbered accordingly:

 

"Stock
Fund" shall mean the Measurement Fund that corresponds to the fair market value
of Stock.EXHIBIT 10(bb)

 

Form
of Aaron Rents, Inc. 2001 Stock Option And Incentive Award Plan

Award Agreement (Options)
for Employees

 

This Award Agreement (the “Agreement”)
is entered into as of the                    ,
by and between Aaron Rents, Inc., a Georgia corporation (the “Company”), and                     
(the “Grantee”).

 

WITTNESSETH:

 

WHEREAS, the
Aaron Rents, Inc. 2001 Stock Option and Incentive Award Plan (the “Plan”) was adopted by the Company, a copy of which is
attached hereto as Exhibit A and
incorporated herein by reference; and

 

WHEREAS, on
the date hereof, the Stock Option Committee of the Board of Directors
authorized the proper officers of the Company to prepare and enter into an
agreement with the Grantee evidencing the grant of the options described
herein;

 

NOW, THEREFORE,
for good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:

 

1.             Grant of Option.  An
option to purchase                       
shares of the Company’s Common Stock, par value $.50 per share (“Common Stock”), is hereby granted to the Grantee pursuant to
the Plan (hereinafter referred to as the “Option”).  The Option is subject in all respects to the
terms and conditions of the Plan.  For
all purposes of the Plan, the date of the Option granted hereunder (the “Grant Date”) shall be the                        .  The Option is a nonqualified stock option and
is not intended to qualify as an incentive stock option within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended.

 

2.             Option Price.  The
option price for all shares subject to the Option is                             
per share.

 

3.             Securities Laws
Restrictions.  The Option may not be exercised at any time
unless, in the opinion of counsel for the Company, the issuance and sale of the
shares issued upon such exercise is exempt from registration under the
Securities Act of 1933, as amended (the “1933 Act”), or
any other applicable securities or “blue sky” laws, or the shares have been
registered under such laws.  The Company
shall not be required to register the shares issuable upon the exercise of the
Option under any such laws.  Unless the
shares have been registered under all such laws, the Grantee shall represent,
warrant and agree, as a condition to the exercise of the Option, that the
shares are being purchased for investment only and without a view to any sale
or distribution of such shares and that such shares shall not be transferred or
disposed of in any manner without registration under such laws, unless it is
the opinion of counsel for the Company that such a disposition is exempt from
such registration.  The Grantee
acknowledges that the

 

 

certificates
evidencing the shares issued upon the exercise of the Option shall bear an
appropriate legend giving notice of the foregoing transfer restrictions.

 

4.             Transfer
Restrictions.  The Option may not be sold, assigned,
pledged, hypothecated, alienated or otherwise disposed of or transferred in any
manner, in whole or in part, otherwise than by will or the laws of descent or
distribution and may be exercised during the lifetime of the Grantee only by
the Grantee.  The terms of this Agreement
and the Plan shall be binding upon the executors, administrators, heirs,
successors and assigns of the Grantee.

 

5.             Duration and
Exercise of Option.

 

(a)           The
Option may be exercised, from time to time, with respect to all or any part of
the total number of shares, beginning on the date reflected on and subject to
the conditions listed on Schedule I
hereto, and subject to earlier termination of the Option as provided in Section
5(b) below.

 

(b)           The
Option may not be exercised with respect to any shares subject hereto after the
earlier of (i) ten (10) years from the Grant Date, (ii) the date the Grantee’s
employment is terminated by the Company or a Subsidiary for
Cause, or the Grantee voluntarily terminates his employment (other than upon
Retirement), or (iii) two (2) months after the Grantee, if an employee of the
Company on the Grant Date, ceases to be an employee of the Company for any
other reason (other than death or Retirement, which occurrences are governed by
the terms and conditions of the Plan) (herein called the “Option
Expiration Date”) and may be exercised until the Option Expiration
Date only in accordance with the terms of this Agreement and the Plan.

 

(c)           This Option may be
exercised in whole or in part by delivering to the Company a written notice of
exercise specifying the number of shares to be purchased together with full payment
of the aggregate option price as provided in the Plan.

 

6.             No
Right to Continued Employment.  Nothing in this Agreement shall
interfere with or limit in any way the right of the Company or an affiliate of
the Company to terminate Grantee’s employment with the Company or an affiliate
of the Company at any time, nor confer upon Grantee any right to continue in
the employ or service of the Company or an affiliate of the Company.

 

7.             Definitions.  Each
capitalized term not defined herein shall have the meaning given to it in the
Plan.

 

	
   

  	
  AARON
  RENTS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   Its Executive Vice President and CFO

  

 

2

 

Grantee
hereby (i) acknowledges that a copy of the Plan is available from the Company’s
intranet site at “            ”,
or upon request, (ii) represents that he is familiar with the terms and
provisions hereof and thereof, and (iii) accepts the Option subject to all the
terms and provisions hereof and thereof. 
Grantee hereby agrees to accept as binding, conclusive and final all
decisions or interpretations of the Stock Option Committee of the Board of
Directors upon any questions arising under the Plan.  Grantee authorizes the Company to withhold
from any compensation payable to him, or Grantee will contribute as a condition
to the exercise of the Option, in accordance with applicable law, any taxes
required to be withheld by federal, state or local law as a result of the
grant, existence or exercise of the Option.

 

	
   

  	
  GRANTEE

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

3

 

SCHEDULE I TO AWARD AGREEMENT

 

 

Grantee:                       

 

 

Vesting Provisions:

 

The
Option shall vest, and may be exercised with respect to the shares subject
thereto, on or after the dates set forth below, subject to earlier termination
of the Option as provided in the Award Agreement or in the Plan:

 

	
  Date

  	
   

  	
  Number
  of Shares

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