Exhibit 10.7
================================================================================
NORTHWESTERN CORPORATION
COMPREHENSIVE
EMPLOYMENT AGREEMENT
AND
EQUITY PARTICIPATION PROGRAM FOR
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
MARCH 1, 2001
================================================================================
AGREEMENT
This COMPREHENSIVE EMPLOYMENT AGREEMENT AND EQUITY PARTICIPATION
PROGRAM ("Agreement"), dated as of March 1, 2001, is entered into by and between
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, an individual ("EXECUTIVE"), and NorthWestern Corporation
("NorthWestern") and supersedes any prior Employment Agreement between Executive
and NorthWestern.
AGREEMENT:
1. EMPLOYMENT BY NORTHWESTERN AND DURATION.
a. FULL TIME AND BEST EFFORTS. Subject to the terms set forth herein,
NorthWestern agrees to employ Executive to provide management services for
NorthWestern as Vice President, General Counsel and Chief Legal Officer, and
Executive hereby accepts such employment. During the term of his employment with
NorthWestern, Executive will devote his best efforts and substantially all of
his business time and attention to the performance of his duties hereunder,
except for vacation periods as set forth herein and reasonable absences due to
injury, illness as permitted by NorthWestern's general policies. Executive may
participate in the affairs of any governmental, educational or other charitable
institution, engage in professional speaking and writing activities and serve as
a member of the board of directors of civic, private or publicly held
corporations or entities, so long as NorthWestern's Chief Executive Officer, in
good faith, does not determine that such activities unreasonably interfere with
Executive's obligations under this Agreement, and Executive shall be entitled to
retain all fees, royalties and other compensation derived from such activities
1
in addition to the compensation and other benefits payable to him under this
Agreement.
b. DUTIES. Executive shall serve as Vice President, General Counsel and
Chief Legal Officer and shall perform such duties as are customarily associated
with his current title, consistent with the By-Laws of NorthWestern and as
required by NorthWestern's Board of Directors (the "Board").
c. NORTHWESTERN POLICIES. The employment relationship between the
parties shall be governed by the general employment policies and practices of
NorthWestern, including without limitation those relating to conduct,
confidential information, avoidance of conflicts, and sexual and other unlawful
harassment (collectively, "NorthWestern Policies") except that when the terms of
this Agreement differ from or are in conflict with NorthWestern's general
employment policies or practices, this Agreement shall control.
d. DURATION. The term of employment hereunder shall commence March 1,
2001, and end on February 28, 2004, and, subject to the termination provisions
hereinafter contained, such termination date shall be automatically extended for
an additional period of one (1) year on each March 1st, unless either
NorthWestern or Executive notifies the other party of the intent not to extend
such termination date, such notice to be given in writing not less than ninety
(90) days prior to the automatic renewal date.
e. LOCATIONS OF PERFORMANCE. Executive shall perform his principal
services for NorthWestern in the vicinity of Sioux Falls, South Dakota. The
parties acknowledge, however, that Executive will be required to undertake
reasonable travel to NorthWestern's market areas in connection with the
performance of his duties hereunder.
2. COMPENSATION AND BENEFITS.
2
a. SALARY. Executive shall receive, for services to be rendered
hereunder, annual base compensation included in Schedule A hereto.
b. BONUS. Executive shall receive such discretionary bonuses, if any,
as the Board in its sole discretion and from time to time may deem appropriate.
c. SHORT-TERM INCENTIVE PLANS. Executive shall be eligible to
participate in the Short-Term Incentive Plans on the terms and conditions set
forth in Schedule B attached hereto.
d. LONG-TERM EQUITY PLANS. Executive shall be eligible to participate
in the Long-Term Equity Plans for NorthWestern on the terms and conditions set
forth in Schedule C attached hereto.
e. PARTICIPATION IN BENEFIT PLANS. During the term hereof, Executive
shall be entitled to participate in the plans and programs as set forth in
Schedule D attached hereto, or those established by NorthWestern hereafter as a
substitute for or alternative to one or more Schedule D plans so long as any
such plan provides Executive (and covered family members or dependants) with
substantially equivalent benefits in all material respects (hereinafter,
"Equivalent Coverage") (all such pensions, plans or programs, including without
limitation, any pension, retirement benefit, supplemental pension, supplemental
income plan, whether qualified, non-qualified, or whether fully, partially or
unfunded, shall be collectively referred to herein as "Benefit Plans").
Executive shall be eligible to participate in only one, not both, of the plans
in question. NorthWestern may, in its sole discretion and from time to time,
establish additional senior management benefit programs as it deems appropriate,
and Executive shall be entitled to participate in such additional senior
management benefit programs on the same basis as other senior executives of
NorthWestern.
3
f. CHANGE IN CONTROL. Executive shall be entitled to certain special
rights under the Change in Control and Major Transaction provisions as set forth
in paragraph 7 of this Agreement.
g. WITHHOLDING. All payments and benefits under this paragraph 2 for
which withholding is required under applicable law will be made subject to the
required withholding.
h. HOLD HARMLESS. NorthWestern shall hold Executive harmless against
any and all losses that he may directly or indirectly incur as a result of (I)
any third party claims brought against Executive (other than by any taxing
authority) with respect to NorthWestern's performance of, or (II) NorthWestern's
failure to perform any commitment made to Executive, in this paragraph 2.
3. REASONABLE BUSINESS EXPENSES AND SUPPORT.
Executive shall be reimbursed for documented and reasonable business
expenses in connection with the performance of his duties hereunder.
4. TERMINATION OF EMPLOYMENT.
The date on which Executive's employment by NorthWestern ceases, under
any of the following circumstances, shall be defined herein as the "Termination
Date."
a. TERMINATION WITHOUT CAUSE.
i. TERMINATION PAYMENT. Upon notice to Executive,
NorthWestern's Board may terminate Executive's employment with NorthWestern at
will at any time for any reason and without "Cause," as defined below. In the
event Executive's employment is terminated by NorthWestern without Cause,
Executive shall receive payment for all accrued salary and vacation time through
the Termination Date, and NorthWestern shall pay to Executive within 90 days of
the Termination Date a lump sum, in cash, equal to the sum of:
4
(1) the "Term Factor" multiplied by the sum of (i) Executive's annual
base salary in effect as of the Termination Date, (ii) the higher of the most
recent annual bonuses and incentive compensation provided under paragraphs 2.b.
and 2.c. and the average of the annual bonuses and incentive compensation
provided to Executive under any annual incentive compensation programs,
including those under paragraph 2.b. and 2.c. with respect to the three calendar
years preceding the calendar year containing the Termination Date, all as if
fully vested, and (iii) an amount equal to the higher of the fair market value,
determined as provided herein, of the sum of the most recent annual stock option
grants and the other long-term incentive awards provided under paragraph 2.d.
and the average of the fair market value of the annual stock option grants
provided under paragraph 2.d. with respect to the three calendar years preceding
the calendar year containing the Termination Date (in each case, subject to
paragraph (3) below, fair market value shall be determined in a manner
consistent with past practice of the Board's Nominating and Compensation
Committee), all as if fully vested; PLUS
(2) an amount equal to the sum of: (i) the "Term Factor" multiplied by
the higher of the fair market value of the most recent acquisition return and
improved return private equity interests provided under paragraph 2.d. and the
average of the fair market value of the acquisition return and improved return
private equity interests provided under paragraph 2.d. with respect to the three
calendar years preceding the calendar year containing the Termination Date
(including for purposes of this calculation amounts allocated to Executive in
respect of annual acquisition returns, annual appreciation from improved returns
or similar items under any private equity investment partnership, limited
liability company or other entity that has invested in NorthWestern or any of
its affiliates (collectively, a "Private Equity Entity")), all as if fully
vested; (ii) an amount equal to the fair market value of all long term private
equity interests provided under
5
paragraph 2.d. (without duplication for long-term private equity interests held
by Executive in any Private Equity Entity) all as if fully vested; and (iii) the
value of Executive's interest in all Benefit Plans under paragraph 2.e. as if
fully vested (and giving effect to the provisions of paragraph 4.f.), payable in
a lump sum (subject to Executive's right to elect a deferral) as set forth in
paragraph 4.g. (without duplication of the value of Executive's interest in any
such plans for which Executive retains his contractual rights to future benefits
in lieu of a current or deferred lump sum payment). Payments will be made
directly from the Benefit Plans only to the extent allowed for by law and
provided for by such Benefit Plans.
(3) for purposes of the foregoing calculations: (i) the "Term Factor" shall
equal the number of full and partial years (prorated to the nearest month) in
the remaining term of this Agreement as specified in paragraph 1.d. plus one
year; (ii) the determination of fair market value of any interest or amount
shall be determined in each case, without a discount for minority interest, lack
of liquidity or other factor by a nationally recognized investment banking firm
reasonably acceptable to NorthWestern and Executive at the cost of NorthWestern,
(iii) the most recent annual amount or the average amount of any item
calculated, as the case may be, shall include the amounts payable in respect of,
or the fair market value of the private equity interests created with respect
to, the acquisitions and investments made in the current year, assuming the
immediate and full vesting thereof, if the inclusion of such amounts or fair
market value would result in a higher payment, or, at Executive's option, any
stock options may continue to be held by Executive; and (iv) any amounts payable
under sub-paragraph (2) above shall be grossed-up to such higher amount that
results in the net amount retained by Executive being equivalent to the amount
that Executive would have retained had such payments
6
been subject to the then applicable income tax rate on long-term capital gains
(an example of the method of calculation of these amounts is set forth on
Schedule E).
ii. FUNDAMENTAL CHANGES. In the event of the occurrence of a
fundamental change as defined herein below, Executive may terminate his
employment at any time after providing NorthWestern with both notice of the
conduct Executive alleges to be a fundamental change and with a reasonable
period of time not to exceed thirty (30) days during which NorthWestern may cure
such fundamental change. "Fundamental Change" shall be defined as any of the
following:
(a) Diminution in Executive's duties, authority, or responsibilities,
or a reduction in compensation and/or benefits as provided herein or a
significant adverse change in the nature of Executive's reporting
responsibilities (including, without limitation, a change in reporting that
would indicate a diminution in Executive's duties, authority and
responsibilities);
(b) NorthWestern moves Executive's primary office more than thirty (30)
miles from its location on the Effective Date or requires Executive to travel
for business to an extent materially greater than Executive's customary travel
obligations, in each case without Executive's consent;
(c) A Change in Control or Major Transaction has occurred; or
(d) A material breach of this Agreement by NorthWestern.
Executive's right to terminate Executive's employment due to a
Fundamental Change shall not be affected by Executive's incapacity due to
physical or mental illness, and Executive's continued employment shall not
constitute consent to, or a waiver of rights with respect to, any Fundamental
Change. A termination by Executive in the event of a Fundamental Change shall be
treated as a NorthWestern
7
termination without Cause, and Executive shall be entitled to the termination
payments as provided in paragraph 4.a.i. of this Agreement.
b. TERMINATION FOR CAUSE.
i. TERMINATION PAYMENTS. NorthWestern's Board may terminate
Executive's employment with NorthWestern at any time for "Cause" as defined
below, upon notice to Executive in the manner set forth below in paragraph
4.b.ii. In the event that Executive's employment is terminated for Cause,
Executive shall receive payment for all accrued salary and vacation time through
the Termination Date, which in this event shall be the date upon which notice of
termination is given. Executive shall also receive any vested compensation
benefits or incentives as provided under the benefit programs provided pursuant
paragraphs 2.c., 2.d. and 2.e. hereof, including NorthWestern Stock Options and
in Private Equities in which Executive has an interest, as included in Schedules
B and C, based on the fair market value of the interest as determined under the
provisions of paragraph 4.a.i.(3). In addition, Executive's interest in all
vested Benefit Plans under paragraph 2.e. shall be payable in either a lump sum
or deferral pursuant to paragraph 4.g. NorthWestern shall pay all amounts due
under this paragraph 4.b.i. within 90 days of the Termination Date and shall
have no further obligation to pay severance of any kind nor to make any payment
in lieu of notice.
ii. DEFINITION OF CAUSE. For purposes of this Agreement, the
termination of Executive's employment shall be deemed to have been for "Cause"
only if termination of his employment shall have been the result of: (i) the
willful engaging by Executive in dishonest or fraudulent conduct intended to
result, directly or indirectly, in demonstrable and material financial or
economic harm to NorthWestern, (ii) gross negligence by Executive in the
performance of Executive's duties with NorthWestern, or (iii) intentional or
grossly negligent failure, on a repeated basis, to adhere in material
8
respects to the terms and provisions of the NorthWestern Policies in such a way
as to have an adverse impact on NorthWestern's reputation. Notwithstanding the
foregoing, for purposes hereof (A) Executive shall not be deemed to have been
terminated for Cause under either clause (i) or (ii) above unless and until (1)
there shall have been delivered to Executive a notice of termination and a
certified copy of a resolution of the Board duly adopted by not less than
three-quarters (3/4) of the entire membership of the Board (other than Executive
if he is a member of the Board at the time) at a meeting called and held for
that purpose and at which Executive, together with Executive's counsel, was
given the opportunity to be heard, finding that, in the good faith opinion of
the Board, Executive was guilty of conduct set forth above based on reasonable
evidence, specifying the particulars thereof in detail, and (2) Executive has
failed to cure, within thirty (30) days of the Board's determination, any
conduct reasonably capable of being cured, and (B) no act, or failure to act, on
Executive's part shall be deemed "willful" unless done, or omitted to be done,
by Executive not in good faith and without reasonable belief that Executive's
act, or failure to act, was in the best interest of NorthWestern.
c. VOLUNTARY TERMINATION PRIOR TO A FUNDAMENTAL CHANGE. Executive may
terminate his employment with NorthWestern at any time prior to the occurrence
of a Fundamental Change upon written notice to NorthWestern in the manner set
forth in paragraph 4.b.ii. In the event of such termination of employment by
Executive, he shall be entitled to the termination payments as provided in
paragraph 4.b.i.
d. TERMINATION UPON DISABILITY. NorthWestern may terminate Executive's
employment in the event Executive suffers a disability ("Disability") that
renders Executive unable to perform the essential functions of his position,
even with reasonable accommodation, for nine (9) months within any twelve (12)
month period
9
and within thirty (30) days after written notice of termination is thereafter
given by NorthWestern Executive shall not have returned to substantially
full-time performance of Executive's duties. Commencing on the Termination Date,
which in this event shall be the date upon which notice of termination is given,
NorthWestern shall pay Executive within 90 days of the Termination Date an
amount that is equal to all compensation, incentive and private equity programs
and other benefit programs of Executive under paragraph 2 of this Agreement for
a period equal to the Term Factor calculated in the same fashion as the
calculation of termination benefits provided under paragraph 4.a.i. (an example
of the method of calculation of these amounts is set forth on Schedule E).
e. TERMINATION UPON DEATH. If Executive dies prior to the expiration of
the term of this Agreement, NorthWestern shall pay Executive's representative
within 90 days of the Termination Date an amount that is equal to the
termination benefits payable to Executive as provided under paragraph 4.d. (an
example of the method of calculation of these amounts is set forth on Schedule
E).
f. BENEFITS UPON TERMINATION.
i. EXTENSION OF BENEFITS. Upon the termination of this
Agreement, (except in the event of a termination for Cause described in
paragraph 4.b.), all benefits provided under paragraph 2.e. hereof shall be
extended, to the extent permitted by NorthWestern's insurance policies and
benefit plans, for, in the case of a termination under paragraph 4.a., 4.d. or
4.e., a period equal to the Term Factor. If NorthWestern is unable to continue
Executive's benefits (including covered family members and dependants) for the
Term Factor as required, NorthWestern will promptly purchase Equivalent Coverage
and will reimburse Executive for any Federal or state income tax liabilities
associated with the benefits received under such Equivalent Coverage. In each
such case, for purposes of determining the amount of benefit payable to
Executive
10
under any such plan, Executive shall be given credit for additional years of
service equal to the Term Factor at the compensation level in effect immediately
prior to the Termination Date. If Executive would have become entitled to
benefits under NorthWestern's post-retirement health care or life insurance
plans had his employment terminated at any time during the Term Factor following
the Termination Date, NorthWestern shall pay such benefits to Executive
commencing on the later of (a) the date that such coverage would have first
become available and (b) the date the benefits described above in this paragraph
terminate.
ii. Additional Benefit Plan Credits.
(A) In addition to the retirement benefits to which Executive is
entitled under each Benefit Plan that is a defined benefit plan or any successor
plan thereto, NorthWestern shall pay Executive a lump sum amount, in cash, equal
to the excess of (x) the actuarial equivalent of any applicable retirement
pension (taking into account any early retirement subsidies associated therewith
and determined as a straight life annuity commencing at Normal Retirement Age or
any earlier date, but in no event earlier than the expiration of the Term Factor
following the Termination Date,
11
whichever annuity the actuarial equivalent of which is greatest) which Executive
would have accrued under the terms of each such Benefit Plan, determined as if
Executive were fully vested thereunder and had accumulated (after the
Termination Date) additional years of service thereunder equal to the Term
Factor and had been credited under each such Benefit Plan during such period
with Executive's compensation during the twelve (12) months immediately
preceding the Termination Date, over (y) the actuarial equivalent of the
retirement pension (taking into account any early retirement subsidies
associated therewith and determined as a straight life annuity commencing at
Normal Retirement Age or any earlier date, but in no event earlier than the
Termination Date, whichever annuity the actuarial equivalent is greatest) which
Executive had accrued pursuant to the provisions of each such Benefit Plan as of
the Termination Date. For purposes hereof, "actuarial equivalent" shall be
determined using the same methods and assumptions utilized under each of the
Benefit Plans, as applicable, immediately prior to the Termination Date (without
regard to any amendment of such methods and assumptions made subsequent thereto,
which amendment would result in a reduction in payments hereunder. To the extent
additional actuarial assumptions are required for the purpose of calculating
benefits under this paragraph, such assumptions shall be as reasonably agreed by
the parties.
(B) In addition to the retirement benefits to which Executive is
entitled under each Benefit Plan that is a defined contribution plan or any
successor plan thereto, NorthWestern shall pay Executive a lump sum amount, in
cash, equal to the excess of (x) any account balance (assuming employer
contributions and investment returns continue at the rate in effect on the
Termination Date) which would have been credited to Executive under the Benefit
Plan, determined as if Executive were fully vested thereunder and had
accumulated (after the Termination Date) additional years of service thereunder
equal to the Term Factor and had been credited under each such Benefit Plan
during such period with Executive's compensation during the twelve (12) months
immediately preceding the Termination Date, over (y) the account balance
credited to Executive under the Benefit Plan as of the Termination Date.
(C) In addition to the retirement benefits to which Executive is
entitled under each Benefit Plan that is not a defined benefit plan or a defined
contribution plan (whether funded by insurance or otherwise), NorthWestern shall
pay Executive a lump sum amount, in cash, equal to the excess of (x) the
retirement benefit (assuming employer contributions and investment returns
continue at the rate in effect on the
12
Termination Date) Executive would have received under the Benefit Plan,
determined as if Executive were fully vested thereunder and had accumulated
(after the Termination Date) additional years of service thereunder equal to the
Term Factor and had been credited under each such Benefit Plan during such
period with Executive's compensation during the twelve (12) months immediately
preceding the Termination Date, over (y) the retirement benefit Executive is
entitled to received under the Benefit Plan as of the Termination Date. To the
extent additional actuarial assumptions are required for the purpose of
calculating benefits under this paragraph, such assumptions shall be as
reasonably agreed to by the parties.
iii. VESTING OF STOCK OPTIONS. Any outstanding options to purchase the
capital stock of NorthWestern held by Executive on the Termination Date shall
immediately become fully vested without change to the remaining term for the
exercise of such options, and all restrictions on any private equity awards
shall lapse.
g. LUMP SUM OR DEFERRAL OPTIONS. In lieu of any compensation, benefit
or other payment of any kind to be made to Executive under this Agreement
(including without limitation any payment payable as a result of a Change in
Control or Major Transaction) that by its respective terms or pursuant to the
provisions of this Agreement would be payable for a period subsequent to the
Termination Date, Executive may elect, by delivery of written notice to
NorthWestern not more than ninety (90) days following the Termination Date, to
cause NorthWestern to pay to Executive a lump sum payment, in cash, equal to the
Present Value of all or a portion of the total amounts that would otherwise be
payable to Executive in respect of such compensation or benefit over time.
Present Value shall be determined using a discount rate equal to the most
recently published yield for ten (10) year United States Treasury Bonds (as
quoted by the Wall Street Journal). In the event that Executive makes such lump
sum election, the
13
Present Value shall be distributed to Executive within thirty (30) days of the
date NorthWestern receives such written notice from Executive. Executive may
also, by delivery of written notice to NorthWestern at least ninety (90) days
before any otherwise scheduled payment date, elect to defer all or any portion
of any payment to be made by NorthWestern to Executive under the terms of this
Agreement. Deferred amounts shall be credited with an investment return equal to
the prime rate of interest (as quoted by The Wall Street Journal), adjusted
quarterly, shall be distributed to Executive or his designated beneficiary in
accordance with a Distribution Election Form, in a form provided by
NorthWestern, and in the absence of a valid distribution election, shall be
distributed to Executive in equal monthly installments over five (5) years
beginning thirty (30) days after the Termination Date. In the event that
Executive makes any such deferral election, NorthWestern shall deposit the
amount deferred and earnings thereon into a grantor trust (the "Trust") having
terms consistent with Revenue Procedure 92-64, and provide the trustee with a
written direction (i) to hold said amount and any investment return thereon in a
segregated account for the benefit of Executive and (ii) to pay the deferred
amounts and earnings thereon to Executive in accordance with Executive's valid
Distribution Election Form and in the absence thereof in accordance with the
terms of this paragraph. Not later than three (3) business days after a Change
in Control, within the meaning of paragraph 7.m.(C), NorthWestern shall deposit
in the Trust an amount that NorthWestern reasonably projects to be sufficient to
fund the payment of all benefits that are or may become payable to Executive
pursuant to this Agreement.
h. SUBSEQUENT CHANGES. Reference herein to the terms or provisions of
any compensation, bonus, incentive, private equity, benefit or other
arrangement, plan or program in which Executive is participating under this
Agreement shall be without
14
regard to any proposed amendment, modification or termination to such
arrangement, plan or program made subsequent to the Termination Date which would
adversely affect Executive's rights thereunder, and the obligations of
NorthWestern hereunder with respect to such arrangement, plan or program shall
continue as to Executive (and covered family members and dependants) in full
force and effect. In all such cases, if NorthWestern is unable to continue
Executive's benefits (including covered family members and dependants) as
required, NorthWestern will promptly purchase Equivalent Coverage.
5. PROPRIETARY INFORMATION OBLIGATIONS. During the duration of employment
under this Agreement, Executive will have access to and become acquainted with
confidential and proprietary information of NorthWestern and its affiliates,
including but not limited to information or plans regarding customer
relationships, personnel, sales, marketing, and financial operations and
methods, trade secrets, formulas, devices, secret inventions, processes, and
other compilations of information, records, and specifications (collectively,
except to the extent it was already known from other sources, or is or becomes
general knowledge, in each case without known violation of any confidentiality
obligation, "Proprietary Information"). Executive shall not disclose any of the
Proprietary Information, directly or indirectly, or use it in any way, either
during the term of this Agreement or at any time thereafter, except as required
in the course of his employment with NorthWestern or as authorized in writing by
NorthWestern or pursuant to order of any court, legislature or government
agency. All files, records, documents, computer-recorded information, drawings,
specifications, intellectual property, equipment and similar items relating to
the business of NorthWestern, whether prepared by Executive or otherwise coming
into his possession, shall remain the exclusive property of NorthWestern,
respectively, and shall not be removed under any circumstances
15
whatsoever without the prior written consent of NorthWestern, except when (and
only for the period) necessary to carry out Executive's duties hereunder, and if
removed shall be immediately returned to NorthWestern upon any termination of
his employment and no copies thereof shall be kept by Executive; provided,
however, that Executive shall be entitled to retain documents that were
personally owned or that reflect personal notes that do not contain Proprietary
Information. Executive shall disclose promptly to NorthWestern any and all
significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by
Executive, solely or jointly with another, during the period of employment or
within one (1) year thereafter, and which are related to the business or
activities of NorthWestern, and which Executive conceives as a result of or in
connection with his employment with NorthWestern. Executive hereby assigns and
agrees to assign all his interests therein to NorthWestern or its nominee.
Whenever requested to do so by NorthWestern, Executive shall execute any and all
applications, assignments or other instruments that NorthWestern shall deem
necessary to apply for and obtain Letters Patent of the United States or any
foreign country or to otherwise protect NorthWestern's interest therein.
6. COVENANT NOT TO COMPETE AND NON-SOLICITATION.
a. During the term of Executive's employment with NorthWestern and for
a period of two years thereafter (provided NorthWestern has complied with each
of its obligations under this Agreement and Executive has been fully compensated
pursuant to all provisions of this Agreement, including those related to
compensation and incentive programs, equity interests, and Benefit Plans),
Executive will not in any manner, directly or indirectly:
16
i. manage, be employed by, operate, join, control or participate
in the business of any individual, firm, corporation, institution or company
engaged in the Same or Similar Activities (as defined below) carried on by
NorthWestern or its affiliates or any of their predecessors in its market areas;
or
ii. own or have any ownership interest exceeding 10% in any
privately-held corporation, firm, institution or company, or exceeding 5% of the
publicly-traded securities of any public corporation, firm, institution or
company engaged in the Same or Similar Activities carried on by NorthWestern or
its affiliates or any of their predecessors in its market areas.
For purposes of this Agreement, Same or Similar Activities shall mean,
to the extent such activities are then being conducted by NorthWestern or its
affiliates in its market areas, the operation of electric, natural gas and
propane distribution; steel fabrication; energy distribution services; heating,
ventilation, air conditioning, plumbing and related services; and integrated
communication and data services to small and medium sized businesses.
b. During the term of Executive's employment with NorthWestern and
for a period of two years thereafter, Executive will not in any manner, directly
or indirectly, cause, persuade, solicit, induce or attempt to do any of the
foregoing in order to;
i. cause any person, business or entity which is a supplier or
customer of NorthWestern or its affiliates at any time during the term of his
employment to terminate any written or oral agreement or understanding with
NorthWestern or its affiliates; or
ii. cause any person employed by NorthWestern or its affiliates
at any time during the term of his employment to terminate their employment with
NorthWestern or its affiliates to terminate their employment in order to work
for any individual, firm,
17
corporation, institution or company engaged in the Same or Similar Activities
carried on by NorthWestern or its affiliates in the United States.
c. If any provision contained in this paragraph 6 shall for any reason
be held invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provisions of this
paragraph 6, rather this paragraph 6 shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein. It is the
intention of the parties that if any of the restrictions or covenants contained
herein is held to cover a geographic area or to be of a duration of time which
is not permitted by applicable law, or in any way construed to be too broad or
to any extent invalid, such provisions shall not be construed to be null, void
or of no effect, but, to the extent such provision would be valid or enforceable
under applicable law if limited in scope or duration, a court of competent
jurisdiction shall construe and interpret or reform this paragraph 6 to provide
for a covenant consistent with the original intent of the parties that is
reasonable in scope as to geographic area, time period and other provisions (not
greater than those contained herein) which shall be valid and enforceable under
such applicable law.
d. Executive acknowledges that NorthWestern and its affiliates have a
legitimate interest which the provisions of this paragraph 6 are reasonably
necessary to protect, that the restrictions on competition contained in this
paragraph 6 are reasonable and that the consideration set forth in this
Agreement is sufficient for purposes of this paragraph 6.
e. Executive acknowledges that NorthWestern would be irreparably harmed
by any breach of this paragraph 6 and that there would be no adequate remedy at
law or in damages to compensate NorthWestern for any such breach. Accordingly,
NorthWestern will be entitled, in addition to any other rights or remedies it
may have at
18
law or in equity, to apply for an injunction enjoining and restraining Executive
from doing or continuing to do any such act or any other violations or
threatened violations of paragraph 6.
7. CHANGE IN CONTROL OR MAJOR TRANSACTION
a. Executive's employment under this Agreement may be terminated by
Executive for Good Reason (as defined herein) on written notice to NorthWestern.
NorthWestern agrees, under the conditions described herein, to pay Executive the
compensation and the "Severance Payments" described in this paragraph 7 and the
other payments and benefits described herein in the event Executive's employment
with NorthWestern is terminated by NorthWestern without Cause or by Executive
for Good Reason (determined by treating a Potential Change in Control or
Potential Major Transaction as a Change in Control or a Major Transaction, as
applicable, in applying the definition of Good Reason) following a Change in
Control or a Major Transaction and during the term of this Agreement. Executive
may elect to give written notice and terminate his employment within thirty (30)
days after the occurrence of a Change in Control or Major Transaction, and such
termination shall be deemed a termination for Good Reason. Unless Executive
gives such written notice to NorthWestern and terminates employment within
thirty (30) days after the occurrence of a Change in Control or Major
Transaction, no amount or benefit shall be payable under this paragraph 7 unless
there shall have been (or, under the terms hereof, there shall be deemed to have
been) a termination of Executive's employment by NorthWestern without Cause or
by Executive for Good Reason following a Change in Control or a Major
Transaction.
b. In the event of a Potential Change in Control or a Potential Major
Transaction during the term of this Agreement, Executive agrees to remain in the
19
employ of NorthWestern until the earliest of (i) a date which is six (6) months
from the date of such Potential Change in Control or Potential Major
Transaction, (ii) the date of a Change in Control or a Major Transaction, (iii)
the date of termination by Executive of Executive's employment for Good Reason
(determined by treating the Potential Change in Control or Potential Major
Transaction as a Change in Control or a Major Transaction, as applicable, in
applying the definition of Good Reason), or by reason of death or Disability or
Retirement, or (iv) the termination by NorthWestern of Executive's employment.
c. If Executive's employment with NorthWestern shall be terminated
without Cause or by Executive for Good Reason (determined by treating a
Potential Change in Control or Potential Major Transaction as a Change in
Control or a Major Transaction, as applicable, in applying the definition of
Good Reason) following a Change in Control or a Major Transaction and during the
term of this Agreement, Executive shall be entitled to receive from NorthWestern
(or its successor) the termination payments described in paragraphs 4.a. and
4.f, and subject to Executive's additional rights under paragraphs 4.g. and 4.h.
d. Tax Treatment
i. In the event that any payment or benefit received or to be
received by Executive in connection with a Change in Control or Major
Transaction or the termination of Executive's employment (all such payments and
benefits being hereinafter called "Total Payments") will be subject (in whole or
part) to the Excise Tax, then, subject to the provisions of this paragraph 7.d.,
NorthWestern shall pay to Executive an additional amount (the "Gross-Up
Payment") such that the net amount retained by Executive, after deduction of any
Excise Tax on the Total Payments and any federal, state and local income tax and
Excise Tax upon the payment provided for
20
by this paragraph 7.d., shall be equal to the Total Payments. For purposes of
determining the amount of the Gross-Up Payment, Executive shall be deemed to pay
federal income taxes at the highest marginal rate of federal income taxation in
the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in the state and
locality of Executive's residence on the Date of Termination, net of the maximum
reduction in federal income taxes which could be obtained from deduction of such
state and local taxes.
ii. In the event that, after giving effect to any
redeterminations described in paragraph 7.d.iv. below, a reduction in the
Severance Payments, to the largest amount that would result in no portion of the
Total Payments being subject to the Excise Tax (after taking into account any
reduction in the Total Payments provided by reason of section 28OG of the Code
in such other plan, arrangement or agreement), would produce a net amount (after
deduction of the net amount of federal, state and local income tax on such
reduced Total Payments) that would be greater than the net amount of unreduced
Total Payments (after deduction of the net amount of federal, state and local
income tax and the amount of Excise Tax to which Executive would be subject in
respect of such Total Payments), then paragraph 7.d.i. shall not apply, and the
Severance Payments shall be so reduced.
iii. For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amount of such Excise Tax,
(a) all of the Total Payments shall be treated as "parachute payments" within
the meaning of section 28OG(b)(2) of the Code, unless in the opinion of tax
counsel selected by NorthWestern's independent auditors and reasonably
acceptable to Executive ("Tax Counsel"), such other payments or benefits (in
whole or in part) do not constitute parachute payments, including by reason of
section 28OG(b)(4)(A) of the Code, (b) all
21
"excess parachute payments" within the meaning of section 28OG(b)(1) of the Code
shall be treated as subject to the Excise Tax, unless in the opinion of Tax
Counsel such excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered, within the meaning of
section 28OG(b)(4)(B) of the Code, in excess of the Base Amount allocable to
such reasonable compensation, or are otherwise not subject to the Excise Tax,
and (c) the value of any non-cash benefits or any deferred payment or benefit
shall be determined by NorthWestern's independent auditors in accordance with
the principles of sections 28OG(d)(3) and (4) of the Code. Prior to the payment
date for any payment subject to the provisions of paragraph 7.d., NorthWestern
shall provide Executive with its calculation of the amounts referred to here and
such supporting materials as are reasonably necessary for Executive to evaluate
NorthWestern's calculations. If Executive disputes NorthWestern's calculations
(in whole or in part), the reasonable opinion of Tax Counsel with respect to the
matter in dispute shall prevail.
iv. In the event that (a) the Excise Tax is subsequently
determined to be less than the amount taken into account hereunder at the time
of termination of Executive's employment and (b) after giving effect to such
redetermination, the Severance Payments are not reduced pursuant to paragraph
7.d., Executive shall repay to NorthWestern, at the time that the amount of such
reduction in Excise Tax is finally determined, the portion of the Gross-Up
Payment attributable to such reduction (plus that portion of the Gross-Up
Payment attributable to the Excise Tax and federal, state and local income tax
imposed on the Gross-Up Payment being repaid by Executive to the extent that
such repayment results in a reduction in the Excise Tax and/or a federal, state
or local income tax deduction) plus interest on the amount of such repayment at
the rate provided in section 1274(b)(2)(B) of the Code. In the event that (x)
the Excise
22
Tax is determined to exceed the amount taken into account hereunder at the time
of the termination of Executive's employment (including by reason of any payment
the existence or amount of which cannot be determined at the time of the
Gross-Up Payment) and (y) after giving effect to such redetermination, the
Severance Payments are not reduced pursuant to paragraph 7.d., NorthWestern
shall make an additional Gross-Up Payment in respect of such excess (plus any
interest, penalties or additions payable by Executive with respect to such
excess) at the time that the amount of such excess is finally determined.
▇. ▇▇▇▇▇▇▇▇▇ Payments provided for in this paragraph 7 shall be made
not later than the fifth day following the Termination Date, provided, however,
that if the amounts of such payments, and the limitation on such payments set
forth in paragraph 7.d. hereof, cannot be finally determined on or before such
day, NorthWestern shall pay to Executive on such day an estimate, as determined
in good faith by NorthWestern with the consent of Executive, of the minimum
amount of such payments to which Executive is clearly entitled and shall pay the
remainder of such payments (together with interest at the rate provided in
section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be
determined but in no event later than the thirtieth (30th) day after the
Termination Date. In the event that the amount of the estimated payments exceeds
the amount subsequently determined to have been due, such excess shall
constitute a loan by NorthWestern to Executive, payable on the fifth (5th)
business day after demand by NorthWestern (together with interest at the rate
provided in section 1274(b)(2)(B) of the Code).
f. NorthWestern also shall pay to Executive all legal and accounting
fees and expenses incurred by Executive in disputing in good faith the
application of paragraph 7 to any termination of his employment, in seeking in
good faith to dispute
23
any valuation conducted or payment made with respect to such termination, to
obtain or enforce any benefit or right provided by this Agreement with respect
to such termination or in connection with any tax audit or proceeding to the
extent attributable to the application of section 4999 of the Code to any
payment or benefit provided hereunder. Such payments shall be made within five
(5) business days after delivery of Executive's written requests for payment
accompanied with such evidence of fees and expenses incurred as NorthWestern
reasonably may require.
g. After a Change in Control or a Major Transaction (or the deemed
occurrence of such event pursuant to the provisions of this Agreement) and
during the term of this Agreement, any purported termination of Executive's
employment (other than by reason of death) shall be communicated by written
Notice of Termination from one party hereto to the other party hereto in
accordance with this paragraph. "Notice of Termination" shall mean a notice,
delivered in accordance with paragraph 10.a., which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated. Further,
a Notice of Termination for Cause shall comply with the provisions of paragraph
4.b.ii.
h. "Termination Date", with respect to any purported termination of
Executive's employment after a Change in Control or a Major Transaction (or the
deemed occurrence of such event pursuant to the provisions of this Agreement)
and during the term of this Agreement, shall mean (i) if Executive's employment
is terminated for Disability, thirty (30) days after Notice of Termination is
given (provided that Executive shall not have returned to the substantially
full-time performance of Executive's duties during such thirty (30) day period),
and (ii) if Executive's employment is terminated for any other reason, the date
specified in the Notice of Termination
24
(which, in the case of a termination by NorthWestern, shall not be less than
thirty (30) days (except in the case of a termination for Cause) and, in the
case of a termination by Executive, shall not be less than fifteen (15) days nor
more than sixty (60) days, respectively, from the date such Notice of
Termination is given).
i. If within fifteen (15) days after any Notice of Termination is
given, or, if later, prior to the Termination Date (as determined without regard
to this paragraph 7.i.), the party receiving such Notice of Termination notifies
the other party that a dispute exists concerning the termination, the
Termination Date shall be the date on which the dispute is finally resolved,
either by mutual written agreement of the parties or by a final and binding
arbitration as set forth in this Agreement; provided further that the Date of
Termination shall be extended by a notice of dispute only if such notice is
given in good faith and the party giving such notice pursues the resolution of
such dispute with reasonable diligence.
j. If a purported termination occurs following a Change in Control or a
Major Transaction (or, under the terms hereof, the deemed occurrence of such
event) and during the term of this Agreement, and such termination is disputed
in accordance with this paragraph, NorthWestern shall pay Executive the full
compensation in effect and continue Executive on an equivalent basis as a
participant in all Benefit Plans (including, but not limited to, compensation,
incentive, private equity and benefits under paragraph 2 hereof) in which
Executive was participating when the notice giving rise to the dispute was
given, until the dispute is finally resolved in accordance with this Agreement.
Amounts paid under this paragraph are in addition to all other amounts otherwise
payable under this Agreement for termination following a Change in Control or a
Major Transaction (or, under the terms hereof, the deemed occurrence of such
event) and shall not be offset against or reduce any other amounts due under
this
25
Agreement. NorthWestern agrees that it shall not assert any breach or alleged
breach by Executive of any provision of this Agreement or any other agreement
between NorthWestern and Executive as a defense or off-set to NorthWestern's
obligation to make any payment under this Agreement, but shall be required to
assert any such action it chooses to pursue in one or more separate proceedings.
k. NorthWestern agrees that, if Executive's employment with
NorthWestern terminates during the term of this Agreement, following a Change in
Control or a Major Transaction (or, under the terms hereof, the deemed
occurrence of such event), Executive is not required to seek other employment or
to attempt in any way to reduce any amounts payable to Executive by NorthWestern
pursuant to this Agreement. Further, the amount of any payment or benefit
provided for in this Agreement shall not be reduced by any compensation earned
by Executive as the result of employment by another employer, by retirement
benefits, by offset against any amount claimed to be owed by Executive to
NorthWestern, or otherwise.
l. In addition to any obligations imposed by law upon any successor to
NorthWestern, NorthWestern will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of NorthWestern to expressly
assume and agree in writing to perform the responsibilities of NorthWestern
under this Agreement in the same manner and to the same extent that NorthWestern
would be required to perform it if no such succession had taken place. Failure
of NorthWestern to obtain such assumption and agreement on terms reasonable
acceptable to Executive and deliver same to Executive prior to the effectiveness
of any such succession shall be a breach of this Agreement and shall entitle
Executive to compensation from NorthWestern in the same amount and on the same
terms as Executive would be entitled to hereunder if Executive were to terminate
26
Executive's employment for Good Reason after a Change in Control or a Major
Transaction (or, under the terms hereof, the deemed occurrence of such event),
except that, for purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the Termination Date.
m. Definitions. Terms not otherwise defined in this Agreement shall
have the meanings indicated below:
(A) "Base Amount" shall have the meaning defined in section
28OG(b)(3) of the Code.
(B) "Beneficial Owner" shall have the meaning defined in Rule
13d-3 under the Securities and Exchange Act of 1934, as amended
("Exchange Act") (except that a Person shall be deemed the beneficial
owner of all securities which such Person may have the right to
acquire, whether or not such right is presently exercisable or is
subject to a contingency).
(C) A "Change in Control" shall be deemed to have occurred if
the conditions set forth in any one of the following paragraphs shall
have been satisfied:
(I) any Person is or becomes the Beneficial Owner,
directly or indirectly, of securities of NorthWestern (not
including in the securities beneficially owned by such Person
any securities acquired directly from NorthWestern or its
affiliates) representing 20% or more of the combined voting
power of NorthWestern's then outstanding securities;
(II) there occurs within any 12-month period any
change in the directors of NorthWestern such that the members
of the Board prior to such change do not constitute a majority
of the directors after giving effect to all changes during
such 12-month period, unless the election, or the
27
nomination for election by NorthWestern's stockholders, of
each new director was approved by a vote of two-thirds (2/3)
of the directors then in office who were directors at the
beginning of the period; or
(III) the occurrence of any other event that would be
required to be reported in response to Item 6(e) of Schedule
14A of Regulation 14A of the Exchange Act.
(D) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(E) "Excise Tax" shall mean any excise tax imposed under
section 4999 of the Code.
(F) "Good Reason" for termination by Executive of Executive's
employment shall mean the occurrence (without Executive's express
written consent) of any one of the following acts by NorthWestern, or
failures by NorthWestern to act, unless, in the case of any act or
failure to act described in paragraph (III) or (IV) below, such act or
failure to act is corrected prior to the Termination Date specified in
the Notice of Termination given in respect thereof:
(I) the occurrence of any of the events set forth in
paragraph 4.a.ii.(a) or (b) hereof;
(II) the failure by NorthWestern to make any payment
to Executive within seven (7) days of the date such payment is
due or the breach by NorthWestern of any other material
provision of this Agreement;
(III) the failure by NorthWestern to continue in
effect any compensation plan, private equity plan, arrangement
or benefit in which Executive participates under this
Agreement immediately prior to the Change in Control or the
Major Transaction (or deemed occurrence of
28
such event), unless an equitable arrangement satisfactory to
Executive (embodied in an ongoing substitute or alternative
plan) has been made with respect to such plan, or the failure
by NorthWestern to continue Executive's participation therein
(or in such substitute or alternative plan) on a basis not
substantially less favorable, including but not limited to the
nature, amount, vesting and duration of benefits provided and
the level of Executive's participation relative to other
participants, as existed at the time of the Change in Control
or Major Transaction (or deemed occurrence of such event); or
(IV) the failure by NorthWestern to continue to
provide Executive (and any covered family member or
dependants) with benefits substantially similar in all
material respects to those which Executive is receiving
immediately prior to the Change in Control or Major
Transaction (or deemed occurrence of such event), including,
without limitation the benefit plans and arrangements set
forth on Schedule D of this Agreement; the taking of any
action by NorthWestern which would directly or indirectly
materially reduce any of such benefits or deprive Executive of
any material fringe benefit enjoyed by Executive at the time
of the Change in Control or Major Transaction (or deemed
occurrence of such event), or the failure by NorthWestern to
provide Executive with the number of paid vacation days to
which Executive is entitled on the basis of years of service
with NorthWestern in accordance with NorthWestern's normal
vacation policy in effect at the time of the Change in Control
or Major Transaction (or deemed occurrence of such event).
29
Executive's employment shall be deemed to have been terminated by
Executive for Good Reason following a Change in Control or a Major
Transaction if: (i) Executive's employment is terminated by
NorthWestern prior to a Change in Control or a Major Transaction
without Cause at the direction of a Person who has entered into an
agreement, arrangement or understanding with NorthWestern or another
Person the consummation of which would constitute (or which is
contingent upon or entered into in connection with) a Change in Control
or a Major Transaction, (ii) Executive terminates his employment for
Good Reason prior to a Change in Control or a Major Transaction
(determined by treating a Potential Change in Control or Potential
Major Transaction as a Change in Control or a Major Transaction, as
applicable, in applying the definition of Good Reason) if the
circumstance or event which constitutes Good Reason occurs at the
direction of the Person(s) referred to in clause (i), or (iii)
Executive's employment is terminated without Cause or for a Fundamental
Change (as defined in this Agreement) that follows or is followed
within six months by a Change in Control or Major Transaction (or
Potential Change in Control or Potential Major Transaction).
Executive's right to terminate Executive's employment for Good Reason
shall not be affected by Executive's incapacity due to physical or
mental illness. 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.
(G) A "Gross-up Payment" shall have the meaning given in
paragraph 7.d. hereof.
30
(H) A "Major Transaction" shall be deemed to have occurred if
the conditions set forth in any one of the following paragraphs shall
have been satisfied:
(I) the Board or the shareholders of NorthWestern
approve a merger or consolidation of NorthWestern with any
corporation or other entity, other than (i) a merger or
consolidation which would result in the individuals who prior
to such merger or consolidation constitute the Board
constituting at least two-thirds (2/3) of the board of
directors of NorthWestern or the surviving or succeeding
entity immediately after such merger or consolidation, or (ii)
a merger or consolidation effected to implement a
recapitalization of NorthWestern (or similar transaction) in
which no Person acquires more than 20% of the combined voting
power of NorthWestern's then outstanding securities; or
(II) the Board or the shareholders of NorthWestern
approve a plan of complete liquidation of NorthWestern; or
(III) the Board or the shareholders of NorthWestern
approve an agreement or transaction (or series of agreements
or transactions) for the sale or disposition by NorthWestern
of all or substantially all of NorthWestern's assets (meaning
assets representing thirty percent (30%) or more of the net
tangible assets of NorthWestern or generating thirty percent
(30%) or more of the operating income or operating cash flow
of NorthWestern), other than a sale or disposition which would
result in the individuals who prior to such sale or
disposition constitute the Board constituting at least
two-thirds (2/3) of the board of directors of the Person
purchasing such assets immediately after such sale or
disposition.
31
(I) "Normal Retirement Age" shall mean the earliest age at
which Executive may commence Retirement and become entitled to an
unreduced pension under the IRS qualified Pension Plan.
(J) "Person" shall have the meaning given in Section 3(a)(9)
of the Exchange Act, as modified and used in Sections 13(d) and 14(d)
thereof; however, a Person shall not include (i) NorthWestern, (ii) a
trustee or other fiduciary holding securities under an employee benefit
plan of NorthWestern (so long as such employee benefit plan is not
being utilized, directly or indirectly, to effect, assist or contribute
to a Change in Control or Major Transaction), (iii) an underwriter
temporarily holding securities pursuant to an offering of such
securities, or (iv) a corporation owned, directly or indirectly, by the
shareholders of NorthWestern in substantially the same proportions as
their ownership of shares of NorthWestern prior to the Change in
Control or Major Transaction.
(K) "Potential Change in Control" shall be deemed to have
occurred if the conditions set forth in any one of the following
paragraphs shall have been satisfied:
(I) NorthWestern enters into an agreement, the
consummation of which would result in the occurrence of a
Change in Control;
(II) any Person publicly announces a solicitation of
proxies or a tender offer (within the meaning of the Exchange
Act) to seek control or acquire 20% or more of North Western's
outstanding common stock, respectively;
(III) any Person who is or becomes the Beneficial
Owner, directly or indirectly, of securities of NorthWestern
representing 10% or more of the combined voting power of
NorthWestern's then outstanding securities,
32
increases such Person's beneficial ownership of such
securities by an additional 5% or more of such outstanding
securities, unless such Person has reported or is required to
report such ownership (but less than 20%) on Schedule 13G
under the Exchange Act (or any comparable or successor report)
or on Schedule 13D under the Exchange Act (or any comparable
or successor report) which Schedule 13D does not state any
intention to or reserve the right to control or influence the
management or policies of NorthWestern or engage in any of the
actions specified in Item 4 of such Schedule (other than the
disposition of the common shares) and, within 10 business days
of being requested by NorthWestern to advise it regarding the
same (and Executive may cause NorthWestern to so request),
certifies to NorthWestern that such Person acquired such
securities of NorthWestern in excess of 14.9% inadvertently
and who, together with its affiliates, shall promptly reduce
its Beneficial Ownership below 15%; provided, however, that if
the Person requested to so certify fails to do so within 10
business days, or amends such filing, publicly announces or
otherwise manifests its intention to seek to control or
influence the management or policies of NorthWestern, then
such occurrence shall be deemed a Potential Change in Control;
or
(IV) the Board adopts a resolution to the effect
that, for purposes of this Agreement, a Potential Change in
Control has occurred.
(L) "Potential Major Transaction" shall be deemed to have
occurred if the conditions set forth in any one of the following
paragraphs shall have been satisfied:
33
(I) NorthWestern enters into an agreement, the
consummation of which would result in the occurrence of a
Major Transaction; or
(II) the Board adopts a resolution to the effect
that, for purposes of this Agreement, a Potential Major
Transaction has occurred.
(M) "Retirement" shall be deemed the reason for the
termination by NorthWestern or Executive of Executive's employment if
such employment is terminated in accordance with NorthWestern's written
mandatory retirement policy, if any, as in effect immediately prior to
the Change in Control or Major Transaction (or deemed occurrence of
such event), or in accordance with any retirement arrangement
established with Executive's written consent with respect to Executive.
8. ARBITRATION OF DISPUTES. Any disputes of any kind regarding this Agreement,
including, but not limited to, its termination shall be subject to final and
binding arbitration, to the extent permitted by law, pursuant to the Employment
Dispute Resolution Rules and Regulations of the American Arbitration
Association. Such disputes shall include, but are not limited to, claims for
breach of contract (express or implied), tort claims, claims for discrimination,
and claims for violation of any federal or state law or regulation. Any request
for arbitration must be made in writing within 365 calendar days of the
occurrence giving rise to the dispute. The arbitrator shall apply the
substantive law (and the law of remedies, if applicable) of the State of
Delaware, or federal law, or both, as applicable to the claim or claims
asserted. The arbitration shall be final and binding upon all of the parities
and shall be enforceable to the extent permitted by law. Judgment may be entered
on the arbitrator's award in any court having jurisdiction, and Executive
(subject to the provisions of paragraph 7.f) shall be entitled to reimbursement
of attorney fees if substantially successful on the merits.
34
Executive shall be entitled to seek specific performance of Executive's right to
be paid any amounts payable under this Agreement during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
9. INDEMNIFICATION. NorthWestern shall, to the fullest extent to which it is
empowered to do so by the General Corporation Law of Delaware, or any other
applicable laws, as from time to time in effect, and in the manner therein
provided, indemnify and hold harmless Executive, through the duration of all
statutory periods during which any such claim may be brought or asserted, from
and against any actual, threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, investigative or otherwise,
to which Executive is or is threatened to be made a party by reason of the fact
that he is or was a director, officer, employee or agent of NorthWestern, or is
or was serving at the request of NorthWestern as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against all expenses (including attorney's fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding. Expenses incurred by Executive
in defending a civil, criminal, administrative, investigative or other action,
suit or proceeding shall be paid by NorthWestern in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of Executive to repay such amount if it is ultimately determined
that NorthWestern is entitled to recover such expenses. The indemnification and
advancement provisions set forth in this Agreement shall not be deemed exclusive
but shall be cumulative with all other rights to indemnification or expense
advancement to which Executive may be entitled, including his rights under
paragraph 7.f. of this Agreement.
10. MISCELLANEOUS.
35
a. NOTICES. Any notices provided hereunder must be in writing and shall
be deemed effective on the date of delivery if delivered by hand (receipt
requested), mailed by registered mail, return receipt requested, or delivered by
nationally recognized overnight courier (regularly providing proof of delivery),
to the recipient at the address indicated below:
To Executive:
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
To NorthWestern:
Corporate Secretary
NorthWestern Corporation
▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇.
▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
or to such other address or to the attention of such other person as the
recipient party shall have specified by prior written notice to the sending
party.
b. SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceablility will not affect
any other provision or any other jurisdiction, and the parties shall endeavor in
good faith negotiations to replace such invalid, illegal or unenforceable
provision with one or more provisions that faithfully reflect the original
economic intent of the parties as manifested in the invalid, illegal or
unenforceable provision.
36
c. ENTIRE AGREEMENT. This document constitutes the final, complete, and
exclusive embodiment of the entire agreement and understanding between the
parties related to the subject matter hereof and supersedes and preempts any
prior or contemporaneous understandings, agreements, or representations by or
between the parties, written or oral. The schedules, appendices and agreements
attached hereto or referenced herein are hereby incorporated by this reference
into this Agreement and made a part hereof as though the terms thereof were
fully set forth herein.
d. COUNTERPARTS. This Agreement may be executed on separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
agreement.
e. SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and inure
to the benefit of and be enforceable by Executive and NorthWestern, and their
respective successors and assigns, except that Executive may not assign any of
his duties hereunder, and he may not assign any of his rights hereunder without
the written consent of NorthWestern, which shall not be withheld unreasonably.
In the event of Executive's death after termination of employment, his heirs,
legal representative or other designated representative shall be entitled to any
payments due him under this Agreement.
f. ATTORNEYS' FEES. Except as expressly provided herein to the contrary
(including, without limitation, paragraph 7.f.), if any proceeding is necessary
to enforce or interpret the terms of this Agreement, or to recover damages for
breach hereof, Executive shall, if substantially successful on the merits, be
entitled to recover reasonable legal and accounting fees, as well as costs and
disbursements, in addition to any other relief to which he or it may be
entitled.
37
g. AMENDMENTS. No amendments or other modifications to this Agreement
may be made except by a writing signed by both parties. Nothing in this
Agreement, express or implied, is intended to confer upon any third person any
rights or remedies under or by reason of this Agreement. No amendment or waiver
of this Agreement
h. CHOICE OF LAW. All questions concerning the construction, validity
and interpretation of this Agreement will be governed by the internal law, and
not the law of conflicts, of the State of Delaware.
i. REFERENCES. The words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole, including the
schedules, appendices and agreements attached hereto. Wherever from the context
it appears appropriate, each term stated in either the singular or plural shall
include the other, and pronouns stated in the masculine, feminine or neuter
gender shall include the others.
11. EFFECTIVE DATE. Except as otherwise expressly provided, this Agreement
shall be effective for the term referred to in paragraph 1.d. hereof.
NORTHWESTERN CORPORATION "EXECUTIVE"
By /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇ /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------ ---------------------------------
Chairman & Chief Executive Officer ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
38
SCHEDULE A
SALARY. Executive shall receive for services to be rendered hereunder annual
base compensation as follows:
Year Ended February 28, 2002 $285,000
Years Ended February 28, Base compensation for the years ended February 28,
2003-2004 2003 and 2004 shall be set within a range around the
median of comparable companies as determined by ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇ Incorporated or other qualified consultant selected by
the NOR Board Nominating and Compensation Committee (but not
less than the base compensation for the year ended February 28,
2002).
39
SCHEDULE B
SHORT-TERM INCENTIVE PLANS. Executive shall be eligible to participate in the
following Short-Term Incentive Plans of NorthWestern:
SHORT-TERM INCENTIVE 2001 ANNUAL INCENTIVE AT TARGET PERFORMANCE
-------------------- -------------------------------------------
NOR ST Performance Plan $175,000 61.3% of base salary
40
SCHEDULE C
LONG-TERM EQUITY PLANS - Executive shall be eligible to participate in the
following Long-Term Incentive Plans of NorthWestern:
NOR Stock Options 2001 Grant of 28,000 shares
Implied Face Amount of $203,000 (71.2% of base salary)
OTHER LONG-TERM INCENTIVE 2001 INCENTIVE AT TARGET PERFORMANCE
------------------------- ------------------------------------
NOR LT Performance Plan $64,000 22.5% of base salary
PRIVATE EQUITY INCENTIVE PLANS. Executive shall participate in the Private
Equity Incentive Plans for NorthWestern Growth Corporation and other entities as
provided below. It is understood and agreed by NorthWestern and Executive that,
subject to their mutual consent, Executive's participation in one or more of the
private equity plans referred to above may be effected through equity ownership
interests (or securities exercisable for, convertible into or exchangeable for
such interests) in one or more private equity entities either now existing or to
be formed by NorthWestern for such purposes.
Executive's member interest in NorthWestern Capital Partners, LLC (NCP), a
Delaware limited liability company, through Executive's initial personal
investment, entitles Executive to receive the value allocated to his Targeted
Capital Account (TCA) corresponding to the following components:
Executive's LLC Improved Return element target for 2001 is set at $60,000 or
21.1% of base salary.
Executive's LLC Acquisition Return element target for 2001 is set at $100,000
or 35.1% of base salary.
Executive's LLC Equity Return element target for 2001 is set at $88,000 or 30.9%
of base salary.
COMPONENT MECHANISM/INVESTMENT PERFORMANCE CRITERIA(1) SHARE AMOUNT(2)(3)
--------- ----------------------------------------- ------------
ACQUISITION RETURN Credit to TCA of Share Amount of the appreciation in the (See attached table)
Fair Market Value (FMV) realized from each acquisition
measured by multiplying the total transaction
value; assumes meeting pro forma EBITDA
performance for each transaction
ANNUAL APPRECIATION Credit to TCA of Share Amount of annual appreciation in FMV in
investment strategies attibutable to the actual after tax return
on invested capital (after hurdle rate),based on following schedule:
6.5% - less than 10%
10% - less than 13%
13% or greater
EQUITY OWNERSHIP Credit to TCA of Share Amount of `improved equity value' of new Investment
strategies attributable to actual gain in equity value (after hurdle rate),
based on following schedule (vesting 25% on each of the
41
2nd, 3rd, 4th, and 5th anniversaries of the commencement of
the particular strategy):
6.5% - less than 10%
10% - less than 13%
13% or greater
--------------------------------
NOTE (1): The Managing and Non-managing Members of NCP are parties to that
certain Limited Liability Company Agreement, dated as of
September 30, 1999.
NOTE (2): See attached Targeted Capital Account Summary, Schedule C.
NOTE (3): All interests shall be determined without duplication for other
payments or interests held by Executive in any other private equity
investment partnership, limited liability company or other entity
sponsored by
NorthWestern Corporation or its affiliates.
42
SCHEDULE D
PARTICIPATION IN BENEFIT PLANS - During the term hereof, Executive shall be
entitled to participate in the plans and programs of NorthWestern available to
employees of Executive's level as generally listed below (copies or summaries of
the plans are incorporated by reference and are available to Executive upon
request):
o Health Plans
o 401(K) and Supplemental 401(K) Plan
o ESOP Plan
o Pension Plan (and related Supplemental Pension)
o Family Protector Plan
o Supplemental Income Security Plan
o Short-Term and Long-Term Disability Plans
o Standard Life Insurance Plan
o Standard Vacation Plan
o Standard Executive Reimbursement Program for Business Expenses
o Association Dues, Automobile Allowance (including insurance, gas &
maintenance costs), Country Club and Service Club Dues