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EXHIBIT 10.4
 
 
 
 
 
NorthWestern Corporation Amended and Restated
2005 Long-Term Incentive Plan
 
Effective March 10, 2005
Amended October 31, 2007
Amended and Restated February 23, 2011
Amended and Restated April 8, 2011

 
 
 
 
 
 
 
 
 
 
 
 
 

 

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As approved by the Board of Directors
on April 8, 2011
NorthWestern Corporation Amended and Restated
2005 Long-Term Incentive Plan
1.
Establishment, Purpose, and Types of Awards

NorthWestern Corporation (the “Company”) previously established this
equity-based incentive compensation plan to be known as the “NorthWestern
Corporation 2005 Long-Term Incentive Plan” (hereinafter referred to as the
“Plan”), in order to provide incentives and awards to select Employees,
Directors and Advisors of the Company and its Affiliates. This plan was
developed in accordance with the “New Incentive Plan” provided for in the Second
Amended and Restated Plan of Reorganization (“POR”) and bankruptcy court order
confirming the POR (“Order”) and, as such, does not require shareholder
approval. This amends and restates the Plan effective April 8, 2011.
The Plan permits the granting of the following types of awards (“Awards”)
according to the Sections of the Plan listed here:
Section 6    Options
Section 7    Share Appreciation Rights
Section 8    Restricted and Unrestricted Share Awards
Section 9    Deferred Share Units
Section 10    Performance Awards    
The Plan is not intended to affect and shall not affect any stock options,
equity-based compensation, or other benefits that the Company or its Affiliates
may have provided, or may separately provide in the future pursuant to any
agreement, plan, or program that is independent of this Plan.
2.
Defined Terms

Terms in the Plan that begin with an initial capital letter have the defined
meaning set forth in Appendix A, unless defined elsewhere in this Plan or the
context of their use clearly indicates a different meaning.
3.
Shares Subject to the Plan

Subject to the provisions of Section 13 of the Plan, the number of Shares that
the Company may issue for all Awards is the number of shares approved by the
Committee to fund the Plan as set forth by approval date on Schedule 1. For all
Awards, the Shares issued pursuant to the Plan shall be issued and outstanding
Shares.
SCHEDULE 1
Pursuant to Section 3 of the Plan, this Schedule 1 provides the number of
restricted shares that the Human Resources Committee has approved by resolution
to fund the Plan.
Number of Shares    Resolution Date
700,000    March 9, 2005
600,000    October 31, 2007
737,637    February 23, 2011
 
Shares that are subject to an Award that for any reason expires, is forfeited,
is cancelled, or becomes

 

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unexercisable, and Shares that are for any other reason not paid or delivered
under the Plan shall again, except to the extent prohibited by Applicable Law,
be available for subsequent Awards under the Plan. Notwithstanding anything to
the contrary contained in the Plan, (a) any Shares that the Company retains from
otherwise delivering pursuant to an Award either (i) as payment of the exercise
price of an Award, or (ii) in order to satisfy the withholding or employment
taxes due upon the grant, exercise, vesting, or distribution of an Award will
not be available for subsequent Awards under the Plan, (b) the number of Shares
subject to an SAR, to the extent that it is exercised and settled in Shares, and
whether or not all such Shares are actually issued to the Participant upon
exercise of the SAR, shall be considered issued or transferred pursuant to the
Plan, and (c) in the event that the Company repurchases Shares with Option
proceeds, those Shares will not be available for subsequent Awards under the
Plan. Notwithstanding the foregoing, but subject to adjustments pursuant to
Section 13 below, the number of Shares that are available for Incentive Share
Options (“ISO”) Awards shall be determined, to the extent required under
applicable tax laws, by reducing the number of Shares designated in the
preceding paragraph by the number of Shares granted pursuant to Awards (whether
or not Shares are issued pursuant to such Awards); provided that any Shares that
are purchased under the Plan and forfeited back to the Plan shall be available
for issuance pursuant to ISO Awards.
4.
Administration

(a)General. The Committee shall administer the Plan in accordance with its
terms, provided that the Board may act in lieu of the Committee on any matter.
The Committee shall hold meetings at such times and places as it may determine
and shall make such rules and regulations for the conduct of its business as it
deems advisable. In the absence of a duly appointed Committee or if the Board
otherwise chooses to act in lieu of the Committee, the Board shall function as
the Committee for all purposes of the Plan.
(b)Committee Composition. The Committee shall initially consist of the Human
Resources Committee of the Board of Directors. If and to the extent permitted by
Applicable Law, the Committee may authorize one or more Reporting Persons (or
other officers) to make Awards to Eligible Persons who are not Reporting Persons
(or other officers whom the Committee has specifically authorized to make
Awards). The Board may at any time appoint additional members to the Committee,
remove and replace members of the Committee with or without Cause, and fill
vacancies on the Committee however caused.
(c)Powers of the Committee. Subject to the provisions of the Plan, the Committee
shall have the authority, in its sole discretion:
(i)to determine Eligible Persons to whom Awards shall be granted from time to
time and the number of Shares, units, or SARs to be covered by each Award;
(ii)to determine, from time to time, the Fair Market Value of Shares;
(iii)to determine, and to set forth in Award Agreements, the terms and
conditions of all Awards, including any applicable exercise or purchase price,
the installments and conditions under which an Award shall become vested (which
may be based on performance), terminated, expired, cancelled, or replaced, and
the circumstances for vesting acceleration or waiver of forfeiture restrictions,
and other restrictions and limitations;
(iv)to approve the forms of Award Agreements and all other documents, notices
and certificates in connection therewith which need not be identical either as
to type of Award or among Participants;
(v)to construe and interpret the terms of the Plan and any Award Agreement, to
determine the meaning of their terms, and to prescribe, amend, and rescind rules
and procedures relating to the Plan and its administration; and
(vi)in order to fulfill the purposes of the Plan and without amending the Plan,
modify, cancel, or waive the Company's rights with respect to any Awards, to
adjust or to modify Award Agreements for changes in Applicable Law, and to
recognize differences in foreign law, tax policies, or customs; and
(vii)to make all other interpretations and to take all other actions that the
Committee may consider necessary or advisable to administer the Plan or to
effectuate its purposes.
Subject to Applicable Law and the restrictions set forth in the Plan, the
Committee may delegate administrative functions to individuals who are Reporting
Persons, officers, or Employees of the Company or its Affiliates.
(d)Deference to Committee Determinations. The Committee shall have the
discretion to interpret or construe ambiguous, unclear, or implied (but omitted)
terms in any fashion it deems to be appropriate in its sole discretion, and to
make any findings of fact needed in the administration of the Plan or Award
Agreements. The Committee's prior exercise of its discretionary authority shall
not obligate it to exercise its authority in a like fashion thereafter. The
Committee's interpretation and construction of any provision of the Plan, or of
any Award or Award Agreement, shall be final, binding, and conclusive. The
validity of any such interpretation, construction, decision or finding of fact
shall not be given de novo review if challenged in

 

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court, by arbitration, or in any other forum, and shall be upheld unless clearly
arbitrary or capricious.
(e)No Liability; Indemnification. Neither the Board nor any Committee member,
nor any Person acting at the direction of the Board or the Committee, shall be
liable for any act, omission, interpretation, construction or determination made
in good faith with respect to the Plan, any Award or any Award Agreement. The
Company and its Affiliates shall pay or reimburse any member of the Committee,
as well as any Director, Employee, or Advisor who takes action in connection
with the Plan, for all expenses incurred with respect to the Plan, and to the
full extent allowable under Applicable Law shall indemnify each and every one of
them for any claims, liabilities, and costs (including reasonable attorney's
fees) arising out of their good faith performance of duties under the Plan. The
Company and its Affiliates may obtain liability insurance for this purpose.
(f)Installments. The right to a series of installment payments upon the
distribution of an amount deferred pursuant to the Plan shall be treated as a
right to a series of separate payments.
(g)Compliance with Code Section 409A. The provisions of the Plan dealing with
amounts subject to Code Section 409A shall be interpreted and administered in
accordance with Section 409A and the applicable guidance issued by the
Department of the Treasury with respect to the application of Section 409A.
Notwithstanding any provision of the Plan to the contrary, no payment subject to
Code Section 409A, payable on account of a break in Continuous Service shall be
made to a Participant who is a specified employee (within the meaning of Code
Section 409A and the applicable guidance issued by the Department of the
Treasury with respect to the application of Section 409A), as of the date of
such Participant's break in Continuous Service, within the six-month period
following such Participant's break in Continuous Service. Amounts to which such
Participant would otherwise be entitled under the Plan during the first six
months following the break in Continuous Service will be accumulated and paid on
the first day of the seventh month following the Participant's break in
Continuous Service.
5.
Eligibility

(h)General Rule. The Committee may grant all Awards other than ISOs to any
Eligible Person. The Committee may grant ISOs only to Employees (including
officers who are Employees) of the Company or an Affiliate that is a “parent
corporation” or “subsidiary corporation” within the meaning of Section 424 of
the Code. A Participant who has been granted an Award may be granted an
additional Award or Awards if the Committee shall so determine, if such person
is otherwise an Eligible Person and if otherwise in accordance with the terms of
the Plan.
(i)Grant of Awards. Subject to the express provisions of the Plan, the Committee
shall determine from the class of Eligible Persons those individuals to whom
Awards under the Plan may be granted, the number of Shares subject to each
Award, the price (if any) to be paid for the Shares or the Award and, in the
case of Performance Awards, in addition to the matters addressed in Section 10
below, the specific objectives, goals and performance criteria that further
define the Performance Award. Each Award shall be evidenced by an Award
Agreement signed by the Company and, if required by the Committee, by the
Participant. The Award Agreement shall set forth the material terms and
conditions of the Award established by the Committee.
(j)Limits on Awards. During the term of the Plan, no Participant may receive
Options and SARs that relate to more than 200,000 Shares. The Committee will
adjust these limitations pursuant to Section 13 below.
(k)Replacement Awards. Subject to Applicable Laws (including any associated
shareholder approval requirements) and Section 15(c) of the Plan, the Committee
may, in its sole discretion and upon such terms as it deems appropriate, require
as a condition of the grant of an Award to a Participant that the Participant
surrender for cancellation some or all of the Awards that have previously been
granted to the Participant under this Plan or otherwise. An Award that is
conditioned upon such surrender may or may not be the same type of Award, may
cover the same (or a lesser or greater) number of Shares as such surrendered
Award, may have other terms that are determined without regard to the terms or
conditions of such surrendered Award, and may contain any other terms that the
Committee deems appropriate. In the case of Options, these other terms may not
involve an Exercise Price that is lower than the Exercise Price of the
surrendered Option unless the Company's shareholders approve the grant itself or
the program under which the grant is made pursuant to the Plan.
6.
Option Awards

(l)Types; Documentation. The Committee may in its discretion grant ISOs to any
Employee and Non-ISOs to any Eligible Person, and shall evidence any such grants
in an Award Agreement that is delivered to the Participant. Each Option shall be
designated in the Award Agreement as an ISO or a Non-ISO, and the same Award
Agreement may grant both types of Options. At the sole discretion of the
Committee, any Option may be exercisable, in whole or in part, immediately upon
the grant thereof, or only after the occurrence of a specified event, or only in
installments, which installments may vary. Options granted under the Plan may
contain such terms and provisions not inconsistent with the Plan that the
Committee shall deem advisable in its sole and absolute discretion.
(m)ISO $100,000 Limitation. To the extent that the aggregate Fair Market Value
of Shares with respect to

 

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which Options designated as ISOs first become exercisable by a Participant in
any calendar year (under this Plan and any other plan of the Company or any
Affiliate) exceeds $100,000, such excess Options shall be treated as Non-ISOs.
For purposes of determining whether the $100,000 limit is exceeded, the Fair
Market Value of the Shares subject to an ISO shall be determined as of the Grant
Date. In reducing the number of Options treated as ISOs to meet the $100,000
limit, the most recently granted Options shall be reduced first. In the event
that Section 422 of the Code is amended to alter the limitation set forth
therein, the limitation of this Section 6(b) shall be automatically adjusted
accordingly.
(n)Term of Options. Each Award Agreement shall specify a term at the end of
which the Option automatically expires, subject to earlier termination
provisions contained in Section 6(h) hereof; provided, that, the term of any
Option may not exceed ten years from the Grant Date. In the case of an ISO
granted to an Employee who is a Ten Percent Holder on the Grant Date, the term
of the ISO shall not exceed five years from the Grant Date.
(o)Exercise Price. The exercise price of an Option shall be determined by the
Committee in its discretion and shall be set forth in the Award Agreement,
provided that (i) if an ISO is granted to an Employee who on the Grant Date is a
Ten Percent Holder, the per Share exercise price shall not be less than 110% of
the Fair Market Value per Share on the Grant Date, and (ii) for all other
Options, such per Share exercise price shall not be less than 100% of the Fair
Market Value per Share on the Grant Date.
(p)Exercise of Option. The Committee shall in its sole discretion determine the
times, circumstances, and conditions under which an Option shall be exercisable,
and shall set them forth in the Award Agreement. The Committee shall have the
discretion to determine whether and to what extent the vesting of Options shall
be tolled during any unpaid leave of absence; provided, however, that in the
absence of such determination, vesting of Options shall be tolled during any
such leave approved by the Company.
(q)Minimum Exercise Requirements. An Option may not be exercised for a fraction
of a Share. The Committee may require in an Award Agreement that an Option be
exercised as to a minimum number of Shares, provided that such requirement shall
not prevent a Participant from purchasing the full number of Shares as to which
the Option is then exercisable.
(r)Methods of Exercise. Prior to its expiration pursuant to the terms of the
applicable Award Agreement, and subject to the times, circumstances and
conditions for exercise contained with the applicable Award Agreement, each
Option may be exercised, in whole or in part (provided that the Company shall
not be required to issue fractional shares), by delivery of written notice of
exercise to the secretary of the Company accompanied by the full exercise price
of the Shares being purchased. In the case of an ISO, the Committee shall
determine the acceptable methods of payment on the Grant Date and it shall be
included in the applicable Award Agreement. The methods of payment that the
Committee may in its discretion accept or commit to accept in an Award Agreement
include:
(viii)cash or check payable to the Company (in U.S. dollars);
(ix)other Shares that (A) are owned by the Participant who is purchasing Shares
pursuant to an Option, (B) have a Fair Market Value on the date of surrender
equal to the aggregate exercise price of the Shares as to which the Option is
being exercised, (C) were not acquired by such Participant pursuant to the
exercise of an Option, unless such Shares have been owned by such Participant
for at least six months or such other period as the Committee may determine, (D)
are all, at the time of such surrender, free and clear of any and all claims,
pledges, liens and encumbrances, or any restrictions which would in any manner
restrict the transfer of such shares to or by the Company (other than such
restrictions as may have existed prior to an issuance of such Shares by the
Company to such Participant), and (E) are duly endorsed for transfer to the
Company;
(x)a cashless exercise program that the Committee may approve, from time to time
in its discretion, pursuant to which a Participant may concurrently provide
irrevocable instructions (A) to such Participant's broker or dealer to effect
the immediate sale of the purchased Shares and remit to the Company, out of the
sale proceeds available on the settlement date, sufficient funds to cover the
exercise price of the Option plus all applicable taxes required to be withheld
by the Company by reason of such exercise, and (B) to the Company to deliver the
certificates for the purchased Shares directly to such broker or dealer in order
to complete the sale; or
(xi)any combination of the foregoing methods of payment.
The Company shall not be required to deliver Shares pursuant to the exercise of
an Option until payment of the full exercise price therefore is received by the
Company.
(s)Termination of Continuous Service. The Committee may establish and set forth
in the applicable Award Agreement the terms and conditions on which an Option
shall remain exercisable, if at all, following termination of a Participant's
Continuous Service. Subject to Section 15 hereof, the Committee may waive or
modify these provisions at any time. To the extent that a Participant is not
entitled to exercise an Option at the date of his or her termination of
Continuous Service, or if the Participant (or other person entitled to exercise
the Option) does not exercise the Option to the extent so entitled within the
time specified in the

 

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Award Agreement or below in sub-paragraphs (i) through (v), as applicable, the
Option shall terminate and the Shares underlying the unexercised portion of the
Option shall revert to the Plan and become available for future Awards. In no
event may any Option be exercised after the expiration of the Option term as set
forth in the Award Agreement.
The following provisions shall apply to the extent an Award Agreement does not
specify the terms and conditions upon which an Option shall terminate when there
is a termination of a Participant's Continuous Service:
i.Termination other than Upon Disability or Death or for Cause. In the event of
termination of a Participant's Continuous Service (other than as a result of
Participant's death, disability, retirement or termination for Cause), the
Participant shall have the right to exercise an Option at any time within 90
days following such termination to the extent the Participant was entitled to
exercise such Option at the date of such termination.
ii.Disability. In the event of termination of a Participant's Continuous Service
as a result of his or her being Disabled, the Participant shall have the right
to exercise an Option at any time within one year following such termination to
the extent the Participant was entitled to exercise such Option at the date of
such termination.
iii.Retirement. In the event of termination of a Participant's Continuous
Service as a result of Participant's retirement, the Participant shall have the
right to exercise the Option at any time within six months following such
termination to the extent the Participant was entitled to exercise such Option
at the date of such termination.
iv.Death. In the event of the death of a Participant during the period of
Continuous Service since the Grant Date of an Option, or within 30 days
following termination of the Participant's Continuous Service, the Option may be
exercised, at any time within one year following the date of the Participant's
death, by the Participant's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent the right
to exercise the Option had vested at the date of death or, if earlier, the date
the Participant's Continuous Service terminated.
v.Cause. If the Committee determines that a Participant's Continuous Service
terminated due to Cause, the Participant shall immediately forfeit the right to
exercise any Option, and it shall be considered immediately null and void.
(t)Reverse Vesting. The Committee in its sole and absolute discretion may allow
a Participant to exercise unvested Options, in which case the Shares then issued
shall be Restricted Shares having analogous vesting restrictions to the unvested
Options.
(u)Buyout Provisions. Subject to Section 15(c) of the Plan, the Committee may at
any time offer to buy out an Option, in exchange for a payment in cash or
Shares, based on such terms and conditions as the Committee shall establish and
communicate to the Participant at the time that such offer is made.
7.
Share Appreciate Rights (SARs)

(v)Grants. The Committee may in its discretion grant Share Appreciation Rights
to any Eligible Person, in any of the following forms:
(xii)SARs Related to Options. The Committee may grant SARs either concurrently
with the grant of an Option or with respect to an outstanding Option, in which
case the SAR shall extend to all or a portion of the Shares covered by the
related Option. An SAR shall entitle the Participant who holds the related
Option, upon exercise of the SAR and surrender of the related Option, or portion
thereof, to the extent the SAR and related Option each were previously
unexercised, to receive payment of an amount determined pursuant to Section 7(e)
below. Any SAR granted in connection with an ISO will contain such terms as may
be required to comply with the provisions of Section 422 of the Code and the
regulations promulgated thereunder.
(xiii)SARs Independent of Options. The Committee may grant SARs which are
independent of any Option subject to such conditions as the Committee may in its
discretion determine, which conditions will be set forth in the applicable Award
Agreement.
(xiv)Limited SARs. The Committee may grant SARs exercisable only upon or in
respect of a Change in Control or any other specified event, and such limited
SARs may relate to or operate in tandem or combination with or substitution for
Options or other SARs, or on a stand-alone basis, and may be payable in cash or
Shares based on the spread between the exercise price of the SAR, and (A) a
price based upon or equal to the Fair Market Value of the Shares during a
specified period, at a specified time within a specified period before, after or
including the date of such event, or (B) a price related to consideration
payable to the Company's shareholders generally in connection with the event.
(w)Exercise Price. The per Share exercise price of an SAR shall be determined in
the sole discretion of the Committee, shall be set forth in the applicable Award
Agreement, and shall be no less than 100% of the Fair Market Value of one Share.
The exercise price of an SAR related to an Option shall be the same as the
exercise price of the related Option. The exercise price of an SAR shall be
subject to the special rules

 

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on pricing contained in Sections 6(d) and 6(j) hereof.
(x)Exercise of SARs. Unless the Award Agreement otherwise provides, an SAR
related to an Option will be exercisable at such time or times, and to the
extent, that the related Option will be exercisable; provided that the Award
Agreement shall not, without the approval of the shareholders of the Company,
provide for a vesting period for the exercise of the SAR that is more favorable
to the Participant than the exercise period for the related Option. An SAR may
not have a term exceeding 10 years from its Grant Date. An SAR granted
independently of any other Award will be exercisable pursuant to the terms of
the Award Agreement, but shall not, without the approval of the shareholders of
the Company, provide for a vesting period for the exercise of the SAR that is
more favorable to the Participant than the exercise period for the related
Option. Whether an SAR is related to an Option or is granted independently, the
SAR may only be exercised when the Fair Market Value of the Shares underlying
the SAR exceeds the exercise price of the SAR.
(y)Effect on Available Shares. The number of Shares subject to an SAR, to the
extent that the SAR is exercised and settled in Shares, and whether or not all
such Shares are actually issued to the Participant upon exercise of the SAR,
shall be charged against the maximum number of Shares that may be delivered
pursuant to Awards under this Plan. The number of Shares subject to the SAR and
the related Option of the Participant will also be reduced by the number of
underlying Shares as to which the exercise relates.
(z)Payment. Upon exercise of an SAR related to an Option and the attendant
surrender of an exercisable portion of any related Award, the Participant will
be entitled to receive payment of an amount determined by multiplying -
(xv)the excess of the Fair Market Value of a Share on the date of exercise of
the SAR over the exercise price per Share of the SAR, by
(xvi)the number of Shares with respect to which the SAR has been exercised.
Notwithstanding the foregoing, an SAR granted independently of an Option (i) may
limit the amount payable to the Participant to a percentage, specified in the
Award Agreement but not exceeding one-hundred percent (100%), of the amount
determined pursuant to the preceding sentence, and (ii) shall be subject to any
payment or other restrictions that the Committee may at any time impose in its
discretion, including restrictions intended to conform the SARs with Section
409A of the Code.
(aa)Form and Terms of Payment. Subject to Applicable Law, the Committee may, in
its sole discretion, settle the amount determined under Section 7(e) above
solely in cash, solely in Shares (valued at their Fair Market Value on the date
of exercise of the SAR), or partly in cash and partly in Shares. In any event,
cash shall be paid in lieu of fractional Shares. Absent a contrary determination
by the Committee, all SARs shall be settled in cash as soon as practicable after
exercise. Notwithstanding the foregoing, the Committee may, in an Award
Agreement, determine the maximum amount of cash or Shares or combination thereof
that may be delivered upon exercise of an SAR.
(ab)Termination of Employment or Consulting Relationship. The Committee shall
establish and set forth in the applicable Award Agreement the terms and
conditions on which an SAR shall remain exercisable, if at all, following
termination of a Participant's Continuous Service. The provisions of Section
6(h) above shall apply to the extent an Award Agreement does not specify the
terms and conditions upon which an SAR shall terminate when there is a
termination of a Participant's Continuous Service.
(ac)Buy-out. Subject to Section 15(c) of the Plan, the Committee has the same
discretion to buy-out SARs as it has to take such actions pursuant to Section
6(j) above with respect to Options.
8.
Restricted Shares, Restricted Share Units and Unrestricted Shares

(ad)Grants. The Committee may in its discretion grant restricted shares
(“Restricted Shares”) to any Eligible Person and shall evidence such grant in an
Award Agreement that is delivered to the Participant and that sets forth the
number of Restricted Shares, the purchase price for such Restricted Shares (if
any) and the terms upon which the Restricted Shares may become vested. In
addition, the Company may in its discretion grant the right to receive Shares
after certain vesting requirements are met (“Restricted Share Units”) to any
Eligible Person and shall evidence such grant in an Award Agreement that is
delivered to the Participant which sets forth the number of Shares (or formula,
that may be based on future performance or conditions, for determining the
number of Shares) that the Participant shall be entitled to receive upon vesting
and the terms upon which the Shares subject to a Restricted Share Unit may
become vested. The Committee may condition any Award of Restricted Shares or
Restricted Share Units to a Participant on receiving from the Participant such
further assurances and documents as the Committee may require to enforce the
restrictions. In addition, the Committee may grant Awards hereunder in the form
of unrestricted shares (“Unrestricted Shares”), which shall vest in full upon
the date of grant or such other date as the Committee may determine or which the
Committee may issue pursuant to any program under which one or more Eligible
Persons (selected by the Committee in its discretion) elect to receive
Unrestricted Shares in lieu of cash bonuses that would otherwise be paid.

 

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(ae)Vesting and Forfeiture. The Committee shall set forth in an Award Agreement
granting Restricted Shares or Restricted Share Units, the terms and conditions
under which the Participant's interest in the Restricted Shares or the Shares
subject to Restricted Share Units will become vested and non-forfeitable. Except
as set forth in the applicable Award Agreement or the Committee otherwise
determines, upon termination of a Participant's Continuous Service for any other
reason, the Participant shall forfeit his or her Restricted Shares and
Restricted Share Units; provided that if a Participant purchases the Restricted
Shares and forfeits them for any reason, the Company shall return the purchase
price to the Participant only if and to the extent set forth in an Award
Agreement.
(af)Issuance of Restricted Shares Prior to Vesting. The Company shall issue
stock certificates that evidence Restricted Shares pending the lapse of
applicable restrictions, and that bear a legend making appropriate reference to
such restrictions. Except as set forth in the applicable Award Agreement or the
Committee otherwise determines, the Company or a third party that the Company
designates shall hold such Restricted Shares and any dividends that accrue with
respect to Restricted Shares pursuant to Section 8(e) below.
(ag)Issuance of Shares upon Vesting. As soon as practicable after vesting of a
Participant's Restricted Shares (or Shares underlying Restricted Share Units)
and the Participant's satisfaction of applicable tax withholding requirements,
the Company shall release to the Participant, free from the vesting
restrictions, one Share for each vested Restricted Share (or issue one Share
free of the vesting restriction for each vested Restricted Share Unit), unless
an Award Agreement provides otherwise. No fractional shares shall be
distributed, and cash shall be paid in lieu thereof.
(ah)Dividends Payable on Vesting. Whenever Shares are released to a Participant
or duly-authorized transferee pursuant to Section 8(d) above as a result of the
vesting of Restricted Shares or the Shares underlying Restricted Share Units are
issued to a Participant pursuant to Section 8(d) above, such Participant or
duly-authorized transferee shall also be entitled to receive (unless otherwise
provided in the Award Agreement), with respect to each Share released or issued,
an amount equal to any cash dividends (plus, in the discretion of the Committee,
simple interest at a rate as the Committee may determine) and a number of Shares
equal to any stock dividends, which were declared and paid to the holders of
Shares between the Grant Date and the date such Share is released from the
vesting restrictions in the case of Restricted Shares or issued in the case of
Restricted Share Units.
(ai)Section 83(b) Elections. A Participant may make an election under Section
83(b) of the Code (the “Section 83(b) Election”) with respect to Restricted
Shares. If a Participant who has received Restricted Share Units provides the
Committee with written notice of his or her intention to make a Section 83(b)
Election with respect to the Shares subject to such Restricted Share Units, the
Committee may in its discretion convert the Participant's Restricted Share Units
into Restricted Shares, on a one-for-one basis, in full satisfaction of the
Participant's Restricted Share Unit Award. The Participant may then make a
Section 83(b) Election with respect to those Restricted Shares. Shares with
respect to which a Participant makes a Section 83(b) Election shall not be
eligible for deferral pursuant to Section 9 below.
(aj)Deferral Elections. The Committee may permit a Participant who is a member
of a select group of management or highly compensated employees (within the
meaning of Title I of ERISA) to irrevocably elect to defer all or a percentage
of the Shares that would otherwise be transferred to the Participant upon the
vesting of such Award in accordance with this Section 8(g). Except as otherwise
provided in this Section 8(g), an Award of Restricted Shares or Restricted Share
Units awarded with respect to services to be performed by a Participant during a
calendar year may be deferred at the election of the Participant only if the
election to defer such Award is made and becomes irrevocable not later than the
last day of the calendar year immediately preceding the calendar year during
which services are to be performed.
In the case of the first year in which an Eligible Person becomes eligible to
participate in the Plan (as defined in section 1.409A-1(c) of the final Treasury
Regulations or the corresponding provision in subsequent guidance issued by the
Department of the Treasury to include any other plan that would be considered
together with this Plan as the same plan), as permitted by the Committee, the
Eligible Person may make an initial deferral election within thirty (30) days
after the date the Eligible Person becomes eligible to participate in the Plan,
with respect to an Award of Restricted Shares or Restricted Share Units awarded
with respect to services to be performed by the Eligible Person subsequent to
the election.
In the case of an Award of Restricted Shares or Restricted Share Units that is
subject to a vesting condition requiring the Participant to continue to provide
services for a period of at least 12 months from the date of the Award, as
permitted by the Committee, the Participant may make a deferral election within
30 days of receiving the Award provided that the election is made at least 12
months in advance of the date that the Award could first become vested
(disregarding vesting on death or disability).
Any election to defer Awards pursuant to this Section 8(g) shall be on a form
provided by and acceptable to

 

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the Committee. If a Participant makes an election to defer under this Section
8(g), the Shares subject to the election, and any associated dividends and
interest, shall be credited to an account established pursuant to Section 9
hereof on the date such Shares would otherwise have been released or issued to
the Participant pursuant to Section 8(d) above.
9.
Deferred Share Units

(ak)Elections to Defer. The Committee may permit any Eligible Person who is a
Director, Advisor or member of a select group of management or highly
compensated employees (within the meaning of Title I of ERISA) to irrevocably
elect, on a form provided by and acceptable to the Committee (the “Election
Form”), to forego the receipt of cash or other compensation (including the
Shares deliverable pursuant to any Award other than Restricted Shares for which
a Section 83(b) Election has been made), and in lieu thereof to have the Company
credit to an internal Plan account (the “Account”) a number of deferred share
units (“Deferred Share Units”) having a Fair Market Value equal to the Shares
and other compensation deferred. These credits will be made at the end of each
calendar month during which compensation is deferred. Each Election Form shall
take effect on the first day of the next calendar year (or on the first day of
the next calendar month in the case of an initial election by a Participant who
is first eligible to defer hereunder) after its delivery to the Company, subject
to Section 8(g) regarding deferral of Restricted Shares and Restricted Share
Units and to Section 10(e) regarding deferral of Performance Awards, unless the
Company sends the Participant a written notice explaining why the Election Form
is invalid within five business days after the Company receives it.
Notwithstanding the foregoing sentence: (i) Election Forms shall be ineffective
with respect to any compensation that a Participant earns before the date on
which the Company receives the Election Form, and (ii) the Committee may
unilaterally make awards in the form of Deferred Share Units, regardless of
whether or not the Participant foregoes other compensation.
(al)Vesting. Unless an Award Agreement expressly provides otherwise, each
Participant shall be 100% vested at all times in any Shares subject to Deferred
Share Units.
(am)Issuances of Shares. The Company shall provide a Participant with one Share
for each Deferred Share Unit in five substantially equal annual installments
that shall begin within 90 days of the date on which the Participant's
Continuous Service terminates and are distributable on each of the first four
anniversaries thereof, unless -
(xvii)the Participant has properly elected a different form of distribution, on
a form approved by the Committee, that permits the Participant to select any
combination of a lump sum and annual installments that are completed within ten
years following termination of the Participant's Continuous Service, and
(xviii)the Company received the Participant's distribution election form at the
time the Participant elects to defer the receipt of cash or other compensation
pursuant to Section 9(a), provided that such election may be changed through any
subsequent election that (A) is delivered to the Administrator at least twelve
months before the date on which distributions are otherwise scheduled to
commence pursuant to the Participant's election and does not take effect for at
least twelve months, and (B) defers the commencement of distributions by at
least five years from the originally scheduled commencement date.
Fractional shares shall not be issued, and instead shall be paid out in cash.
(an)Crediting of Dividends. Whenever Shares are issued to a Participant pursuant
to Section 9(c) above, such Participant shall also be entitled to receive, with
respect to each Share issued, a cash amount equal to any cash dividends (plus
simple interest at a rate of five percent per annum, or such other reasonable
rate as the Committee may determine), and a number of Shares equal to any stock
dividends which were declared and paid to the holders of Shares between the
Grant Date and the date such Share is issued.
(ao)Hardship Distributions from Accounts. In the event a Participant suffers a
Hardship, the Participant may apply to the Committee for an immediate
distribution of all or a portion of the Participant's Account. The amount of any
distribution hereunder shall be limited to the amount necessary to relieve the
Participant's Hardship, plus amounts necessary to pay taxes reasonably
anticipated as a result of the distribution, after taking into account the
extent to which the Hardship is or may be relieved through reimbursement or
compensation by insurance or otherwise, by liquidation of the Participant's
assets (to the extent the liquidation of such assets would not itself cause
severe financial hardship), or by cessation of the Participant's deferrals under
the Plan. The Committee shall determine whether a Participant has a qualifying
Hardship and the amount which qualifies for distribution, if any. The Committee
may require evidence of the purpose and amount of the need, and may establish
such application or other procedures as it deems appropriate. Notwithstanding
the foregoing, a financial need shall not constitute a Hardship unless it is for
at least $100,000 for all Participants (or the entire vested principal amount of
the Participant's Accounts, if less). Hardship” means an unforeseeable emergency
resulting in financial hardship of the Participant or beneficiary due to an
illness or accident of the Participant or beneficiary, a spouse of the
Participant

 

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or beneficiary or of a dependent (as defined in Code Section 152(a)) of a
Participant or beneficiary; loss of the Participant's or the beneficiary's
property due to casualty, or other similar or extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of the
Participant or beneficiary. Whether a Participant or beneficiary is faced with
an unforeseeable emergency permitting a distribution under the Plan shall be
determined based upon the relevant facts and circumstances of each case, but in
any case, its distribution shall not be allowed to the extent that such hardship
is or may be relieved through reimbursement or compensation from insurance or
otherwise, by liquidation of the Participant's assets to the extent liquidation
of such assets would not cause a severe financial hardship or be cessation of
deferrals under the Plan. The amount of a distribution on account of a hardship
shall be limited to the amount reasonably necessary to satisfy the emergency
need plus amounts necessary to pay any federal, state or local income taxes or
penalties reasonably anticipated to result from the distribution.
(ap)Unsecured Rights to Deferred Compensation. A Participant's right to Deferred
Share Units shall at all times constitute an unsecured promise of the Company to
pay benefits as they come due. The right of the Participant or the Participant's
duly-authorized transferee to receive benefits hereunder shall be solely an
unsecured claim against the general assets of the Company. Neither the
Participant nor the Participant's duly-authorized transferee shall have any
claim against or rights in any specific assets, shares, or other funds of the
Company.
10.
Performance Awards

(aq)Performance Units. Subject to the limitations set forth in paragraph (c)
hereof, the Committee may in its discretion grant Performance Units to any
Eligible Person and shall evidence such grant in an Award Agreement that is
delivered to the Participant which sets forth the terms and conditions of the
Award. A Performance Unit is an Award which is based on the achievement of
specific goals with respect to the Company or any Affiliate or individual
performance of the Participant, or a combination thereof, over a specified
period of time.
(ar)Performance Compensation Awards. Subject to the limitations set forth in
paragraph (c) hereof, the Committee may, at the time of grant of a Performance
Unit, designate such Award as a “Performance Compensation Award” in order that
such Award constitutes “qualified performance-based compensation” under Code
Section 162(m), in which event the Committee shall have the power to grant such
Performance Compensation Award upon terms and conditions that qualify it as
“qualified performance-based compensation” within the meaning of Code Section
162(m). With respect to each such Performance Compensation Award, the Committee
shall establish, in writing within the time required under Code Section 162(m),
a “Performance Period,” “Performance Measure(s)”, and “Performance Formula(e)”
(each such term being hereinafter defined). Once established for a Performance
Period, the Performance Measure(s) and Performance Formula(e) shall not be
amended or otherwise modified to the extent such amendment or modification would
cause the compensation payable pursuant to the Award to fail to constitute
qualified performance-based compensation under Code Section 162(m).
A Participant shall be eligible to receive payment in respect of a Performance
Compensation Award only to the extent that the Performance Measure(s) for such
Award is achieved and the Performance Formula(e) as applied against such
Performance Measure(s) determines that all or some portion of such Participant's
Award has been earned for the Performance Period. As soon as practicable after
the close of each Performance Period, the Committee shall review and certify in
writing whether, and to what extent, the Performance Measure(s) for the
Performance Period have been achieved and, if so, determine and certify in
writing the amount of the Performance Compensation Award to be paid to the
Participant and, in so doing, may use negative discretion to decrease, but not
increase, the amount of the Award otherwise payable to the Participant based
upon such performance.
(as)Limitations on Awards. The maximum Performance Unit Award and the maximum
Performance Compensation Award that any one Participant may receive for any one
Performance Period shall not together exceed 200,000 Shares and $1,000,000 in
cash. The Committee shall have the discretion to provide in any Award Agreement
that any amounts earned in excess of these limitations will either be credited
as Deferred Share Units, or as deferred cash compensation under a separate plan
of the Company (provided in the latter case that such deferred compensation
either bears a reasonable rate of interest or has a value based on one or more
predetermined actual investments). Any amounts for which payment to the
Participant is deferred pursuant to the preceding sentence shall be paid to the
Participant in a future year or years not earlier than, and only to the extent
that, the Participant is either not receiving compensation in excess of these
limits for a Performance Period, or is not subject to the restrictions set forth
under Section 162(b) of the Code.
(at)
Definitions.

(xix)“Performance Formula” means, for a Performance Period, one or more
objective formulas or standards established by the Committee for purposes of
determining whether or the extent to which an Award has been earned based on the
level of performance attained or to be attained with respect to one or

 

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more Performance Measure(s). Performance Formulae may vary from Performance
Period to Performance Period and from Participant to Participant and may be
established on a stand-alone basis, in tandem or in the alternative.
(xx)“Performance Measure” means one or more of the following selected by the
Committee to measure Company, Affiliate, and/or business unit performance for a
Performance Period, whether in absolute or relative terms (including, without
limitation, terms relative to a peer group or index): basic, diluted, or
adjusted earnings per share; sales or revenue; earnings before interest, taxes,
and other adjustments (in total or on a per share basis); basic or adjusted net
income; returns on equity, assets, capital, revenue or similar measure; economic
value added; working capital; total shareholder return; and product development,
product market share, research, licensing, litigation, human resources,
information services, mergers, acquisitions, sales of assets of Affiliates or
business units. Each such measure shall be, to the extent applicable, determined
in accordance with generally accepted accounting principles as consistently
applied by the Company (or such other standard applied by the Committee) and, if
so determined by the Committee, and in the case of a Performance Compensation
Award, to the extent permitted under Code Section 162(m), adjusted to omit the
effects of extraordinary items, gain or loss on the disposal of a business
segment, unusual or infrequently occurring events and transactions and
cumulative effects of changes in accounting principles. Performance Measures may
vary from Performance Period to Performance Period and from Participant to
Participant, and may be established on a stand-alone basis, in tandem or in the
alternative.
(xxi)“Performance Period” means one or more periods of time (of not less than
one fiscal year of the Company), as the Committee may designate, over which the
attainment of one or more Performance Measure(s) will be measured for the
purpose of determining a Participant's rights in respect of an Award.
(au)Deferral Elections. At any time prior to the date that is at least six
months before the close of a Performance Period (or any shorter period within
such window that the Committee selects) with respect to an Award of either
Performance Units or Performance Compensation, the Committee may permit a
Participant who is a member of a select group of management or highly
compensated employees (within the meaning of Title I of ERISA) to irrevocably
elect, on a form provided by an acceptable to the Committee, to defer the
receipt of all or a percentage of the cash or Shares that would otherwise be
transferred to the Participant upon the vesting of such Award, provided that the
following criteria are met:
(xxii)the Participant performs services continuously from a date no later than
the date upon which the performance criteria are established through a date no
earlier than the date upon which the Participant makes an initial deferral
election;
(xxiii)the performance criteria must established in writing no later than ninety
(90) days after the commencement of the Performance Period; and
(xxiv)in no event may an election to defer Performance Units or Performance
Compensation be made after such compensation has become both substantially
certain to be paid and readily ascertainable.
If the Participant makes this election, the cash or Shares subject to the
election, and any associated interest and dividends, shall be credited to an
account established pursuant to Section 9 hereof on the date such cash or Shares
would otherwise have been released or issued to the Participant pursuant to
Section 10(a) or Section 10(b) above.
11.
Taxes

(av)General. As a condition to the issuance or distribution of Shares pursuant
to the Plan, the Participant (or in the case of the Participant's death, the
person who succeeds to the Participant's rights) shall make such arrangements as
the Company may require for the satisfaction of any applicable federal, state,
local or foreign withholding tax obligations that may arise in connection with
the Award and the issuance of Shares. The Company shall not be required to issue
any Shares until such obligations are satisfied. If the Committee allows the
withholding or surrender of Shares to satisfy a Participant's tax withholding
obligations, the Committee shall not allow Shares to be withheld in an amount
that exceeds the minimum statutory withholding rates for federal and state tax
purposes, including payroll taxes.
(aw)Default Rule for Employees. In the absence of any other arrangement, an
Employee shall be deemed to have directed the Company to withhold whole shares
and collect from his or her cash compensation an amount sufficient to satisfy
the fractional share amounts for such tax obligations from the next payroll
payment otherwise payable after the date of the exercise of an Award.
(ax)Special Rules. In the case of an Employee where the next payroll payment is
not sufficient to satisfy such tax obligations, with respect to any remaining
tax obligations, in the absence of any other arrangement and to the extent
permitted under the Applicable Law, the Employee shall be deemed to have elected
to have the Company withhold from the Shares or cash to be issued pursuant to an
Award that number of Shares having a Fair Market Value determined as of the
applicable Tax Date (as defined below) equal to the amount required to be
withheld. For

 

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purposes of this Section, the Fair Market Value of the Shares to be withheld
shall be determined on the date that the amount of tax to be withheld is to be
determined under the Applicable Law (the “Tax Date”).
(ay)Surrender of Shares. If permitted by the Committee, in its discretion, a
Participant may satisfy the minimum applicable tax withholding and employment
tax obligations associated with an Award by surrendering Shares to the Company
(including Shares that would otherwise be issued pursuant to the Award) that
have a Fair Market Value determined as of the applicable Tax Date equal to the
amount required to be withheld. In the case of Shares previously acquired from
the Company that are surrendered under this Section, such Shares must have been
owned by the Participant for more than six months on the date of surrender (or
such longer period of time the Company may in its discretion require).
(az)Income Taxes and Deferred Compensation. Participants are solely responsible
and liable for the satisfaction of all taxes and penalties that may arise in
connection with Awards (including any taxes arising under Section 409A of the
Code), and the Company shall not have any obligation to indemnify or otherwise
hold any Participant harmless from any or all of such taxes. The Administrator
shall have the discretion to organize any deferral program, to require deferral
election forms, and to grant or to unilaterally modify any Award in a manner
that (i) conforms with the requirements of Section 409A of the Code with respect
to compensation that is deferred and that vests after December 31, 2004, (ii)
voids any Participant election to the extent it would violate Section 409A of
the Code, and (iii) causes the issuance of the Shares subject to the Award
(provided that the Committee has determined that issuance of such Shares at the
time of vesting is not a “permissible distribution event” within the meaning of
Section 409A of the Code) to be automatically deferred until the earliest date
on which issuance of the Shares in unrestricted form will constitute a
permissible distribution event pursuant to paragraphs (i), (ii), (iii), (v), or
(iv) of Section 409A(a)(2)(A) of the Code. The Administrator shall have the sole
discretion to interpret the requirements of the Code, including Section 409A,
for purposes of the Plan and all Awards.
12.
Non-Transferability of Awards

(ba)General. Except as set forth in this Section 12, or as otherwise approved by
the Committee for a select group of management or highly compensated Employees,
Awards may not be sold, pledged, assigned, hypothecated, transferred or disposed
of in any manner other than by will or by the laws of descent or distribution.
The designation of a beneficiary by a Participant will not constitute a
transfer. An Award may be exercised, during the lifetime of the holder of an
Award, only by such holder, the duly-authorized legal representative of a
Participant who is Disabled, or a transferee permitted by this Section 12.
(bb)Limited Transferability Rights. Notwithstanding anything else in this
Section 12, the Committee may in its discretion provide that an Award other than
an ISO may be transferred, on such terms and conditions as the Committee deems
appropriate, either (i) by instrument to the Participant's “Immediate Family”
(as defined below), (ii) by instrument to an inter vivos or testamentary trust
(or other entity) in which the Award is to be passed to the Participant's
designated beneficiaries, or (iii) by gift to charitable institutions.
“Immediate Family” means any child, stepchild, grandchild, parent, stepparent,
grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law,
and shall include adoptive relationships. Any transferee of a Participant's
rights shall succeed to and be subject to all of the terms of the Plan and the
Award Agreement (and any amendments thereto) granting the transferred Award.
13.
Adjustments Upon Changes in Capitalization, Merger or Certain Other Transactions

(bc)Changes in Capitalization. The Committee shall equitably adjust the number
of Shares covered by each outstanding Award, and the number of Shares that have
been authorized for issuance under the Plan but as to which no Awards have yet
been granted or that have been returned to the Plan upon cancellation,
forfeiture, or expiration of an Award, as well as the price per Share covered by
each such outstanding Award, to reflect any increase or decrease in the number
of issued Shares resulting from a stock-split, reverse stock-split, stock
dividend, combination, recapitalization or reclassification of the Shares, or
any other increase or decrease in the number of issued Shares effected without
receipt of consideration by the Company. In the event of any such transaction or
event, the Committee may provide in substitution for any or all outstanding
Options under the Plan such alternative consideration (including securities of
any surviving entity) as it may in good faith determine to be equitable under
the circumstances and may require in connection therewith the surrender of all
Options so replaced. In any case, such substitution of securities shall not
require the consent of any person who is granted Options pursuant to the Plan.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be required to be made
with respect to, the number or price of Shares subject to any Award.
(bd)Dissolution or Liquidation. In the event of the dissolution or liquidation
of the Company other than as part of a Change in Control, each Award will
terminate immediately prior to the consummation of such action, subject to the
ability of the Committee to exercise any discretion authorized in the case of a
Change in Control.
(be)Change in Control. In the event of a Change in Control, the following shall
occur:

 

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(xxv)the vesting of Awards shall accelerate so that Awards shall vest (and, to
the extent applicable, become exercisable) as to the Shares that otherwise would
have been unvested and provide that repurchase rights of the Company with
respect to Shares issued upon exercise of an Grant shall lapse as to the Shares
subject to such repurchase right; or
(xxvi)The Committee shall arrange or otherwise provide for the payment of cash
or other consideration to Participants in exchange for the satisfaction and
cancellation of outstanding Awards.
Notwithstanding the above, in the event a Participant holding an Grant assumed
or substituted by the Successor Corporation in a Change in Control is
Involuntarily Terminated by the Successor Corporation in connection with, or
within 12 months following consummation of, the Change in Control, then any
assumed or substituted Grant held by the terminated Participant at the time of
termination shall accelerate and become fully vested, and any repurchase right
applicable to any Shares shall lapse in full. The acceleration of vesting and
lapse of repurchase rights provided for in the previous sentence shall occur
immediately prior to the effective date of the Participant's termination.
(bf)Certain Distributions. In the event of any distribution to the Company's
shareholders of securities of any other entity or other assets (other than
dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Committee may, in its discretion,
appropriately adjust the price per Share covered by each outstanding Award to
reflect the effect of such distribution.
14.
Time of Granting Awards.

The date of grant (“Grant Date”) of an Award shall be the date on which the
Committee makes the determination granting such Award or such other date as is
determined by the Committee, provided that in the case of an ISO, the Grant Date
shall be the later of the date on which the Committee makes the determination
granting such ISO or the date of commencement of the Participant's employment
relationship with the Company.
15.
Modification of Awards and Substitution of Options.

(bg)Modification, Extension, and Renewal of Awards. Within the limitations of
the Plan, the Committee may modify an Award to accelerate the rate at which an
Option or SAR may be exercised (including without limitation permitting an
Option or SAR to be exercised in full without regard to the installment or
vesting provisions of the applicable Award Agreement or whether the Option or
SAR is at the time exercisable, to the extent it has not previously been
exercised), to accelerate the vesting of any Award, to extend or renew
outstanding Awards, or, subject to Section 15(c) of the Plan, to accept the
cancellation of outstanding Awards to the extent not previously exercised either
for the granting of new Awards or for other consideration in substitution or
replacement thereof. Notwithstanding the foregoing provision, no modification of
an outstanding Award shall materially and adversely affect such Participant's
rights thereunder, unless either the Participant provides written consent or
there is an express Plan provision permitting the Committee to act unilaterally
to make the modification.
(bh)Substitution of Options. Notwithstanding any inconsistent provisions or
limits under the Plan, in the event the Company or an Affiliate acquires
(whether by purchase, merger or otherwise) all or substantially all of
outstanding capital stock or assets of another corporation or in the event of
any reorganization or other transaction qualifying under Section 424 of the
Code, the Committee may, in accordance with the provisions of that Section,
substitute Options for options under the plan of the acquired company provided
(i) the excess of the aggregate fair market value of the shares subject to an
option immediately after the substitution over the aggregate option price of
such shares is not more than the similar excess immediately before such
substitution and (ii) the new option does not give persons additional benefits,
including any extension of the exercise period.
(bi)No Repricing or Replacement Without Shareholder Approval. Except in
connection with a corporate transaction or event described in Section 13 of the
Plan, the terms of outstanding Awards may not be amended to reduce the exercise
price of outstanding Options or SARs, and outstanding Options or SARs may not be
cancelled, exchanged, bought-out, replaced or surrendered in exchange for cash,
other Awards or Options or SARs with an exercise price that is less than the
exercise price of the original Options or SARs without shareholder approval.
This Section 15(c) is intended to prohibit the repricing of “underwater” Options
and SARs without shareholder approval and will not be construed to prohibit the
adjustments provided for in Section 13 of the Plan. Notwithstanding any
provision of the Plan to the contrary, this Section 15(c) may not be amended
without approval by the Company's shareholders.
16.
Term of Plan.

The Plan shall continue in effect for a term of ten (10) years from its
effective date as determined under Section 20 below, unless the Plan is sooner
terminated under Section 17 below.
17.
Amendment and Termination of the Plan.

(bj)Authority to Amend or Terminate. Subject to Applicable Laws, the Board may
from time to time

 

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amend, alter, suspend, discontinue, or terminate the Plan.
(bk)Effect of Amendment or Termination. No amendment, suspension, or termination
of the Plan shall materially and adversely affect Awards already granted unless
either it relates to an adjustment pursuant to Section 13 above, or it is
otherwise mutually agreed between the Participant and the Committee, which
agreement must be in writing and signed by the Participant and the Company.
Notwithstanding the foregoing, the Committee may amend the Plan to eliminate
provisions which are no longer necessary as a result of changes in tax or
securities laws or regulations, or in the interpretation thereof.
18.
Conditions Upon Issuance of Shares.

Notwithstanding any other provision of the Plan or any agreement entered into by
the Company pursuant to the Plan, the Company shall not be obligated, and shall
have no liability for failure, to issue or deliver any Shares under the Plan
unless such issuance or delivery would comply with Applicable Law, with such
compliance determined by the Company in consultation with its legal counsel.
19.
Reservation of Shares.

The Company, during the term of this Plan, will at all times reserve and keep
available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.
20.
Effective Date.

This Plan shall become effective on the date of its approval by the Board;
provided that this Plan shall not be submitted to the Company's shareholders for
approval pursuant to Section 1145 of the U.S. Bankruptcy Code.
21.
Controlling Law.

All disputes relating to or arising from the Plan shall be governed by the
internal substantive laws (and not the laws of conflicts of laws) of the State
of Delaware, to the extent not preempted by United States federal law. If any
provision of this Plan is held by a court of competent jurisdiction to be
invalid and unenforceable, the remaining provisions shall continue to be fully
effective.
22.
Laws And Regulations.

(bl)U.S. Securities Laws. This Plan, the grant of Awards, and the exercise of
Options and SARs under this Plan, and the obligation of the Company to sell or
deliver any of its securities (including, without limitation, Options,
Restricted Shares, Restricted Share Units, Deferred Share Units, and Shares)
under this Plan shall be subject to all Applicable Law. In the event that the
Shares are not registered under the Securities Act of 1933, as amended (the
“Act”), or any applicable state securities laws prior to the delivery of such
Shares, the Company may require, as a condition to the issuance thereof, that
the persons to whom Shares are to be issued represent and warrant in writing to
the Company that such Shares are being acquired by him or her for investment for
his or her own account and not with a view to, for resale in connection with, or
with an intent of participating directly or indirectly in, any distribution of
such Shares within the meaning of the Act, and a legend to that effect may be
placed on the certificates representing the Shares.
(bm)Other Jurisdictions. The Company may adopt rules and procedures relating to
the operation and administration of this Plan to accommodate the specific
requirements of local laws.
23.
No Shareholder Rights.

Neither a Participant nor any transferee of a Participant shall have any rights
as a shareholder of the Company with respect to any Shares underlying any Award
until the date of issuance of a share certificate to a Participant or a
transferee of a Participant for such Shares in accordance with the Company's
governing instruments and Applicable Law. Prior to the issuance of Shares
pursuant to an Award, a Participant shall not have the right to vote or to
receive dividends or any other rights as a shareholder with respect to the
Shares underlying the Award, notwithstanding its exercise in the case of Options
and SARs. No adjustment will be made for a dividend or other right that is
determined based on a record date prior to the date the stock certificate is
issued, except as otherwise specifically provided for in this Plan.
24.
No Employment Rights.

The Plan shall not confer upon any Participant any right to continue an
employment, service or consulting relationship with the Company, nor shall it
affect in any way a Participant's right or the Company's right to terminate the
Participant's employment, service, or consulting relationship at any time, with
or without Cause.
NorthWestern Corporation Amended and Restated

 

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2005 Long-Term Incentive Plan
__________
Appendix A: Definitions
__________
 
As used in the Plan, the following definitions shall apply:
“Advisor” means any person, including an advisor, who is engaged by the Company
or any Affiliate to render services and is compensated for such services.
“Affiliate” means, with respect to any Person (as defined below), any other
Person that directly or indirectly controls or is controlled by or under common
control with such Person. For the purposes of this definition, “control,” when
used with respect to any Person, means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of
such Person or the power to elect directors, whether through the ownership of
voting securities, by contract or otherwise; and the terms “affiliated,”
“controlling” and “controlled” have meanings correlative to the foregoing.
“Applicable Law” means the legal requirements relating to the administration of
options and share-based plans under applicable U.S. federal and state laws, the
Code, any applicable stock exchange or automated quotation system rules or
regulations, and the applicable laws of any other country or jurisdiction where
Awards are granted, as such laws, rules, regulations and requirements shall be
in place from time to time.
“Award” means any award made pursuant to the Plan, including awards made in the
form of an Option, an SAR, a Restricted Share, a Restricted Share Unit, an
Unrestricted Share, a Deferred Share Unit and a Performance Award, or any
combination thereof, whether alternative or cumulative, authorized by and
granted under this Plan.
“Award Agreement” means any written document setting forth the terms of an Award
that has been authorized by the Committee. The Committee shall determine the
form or forms of documents to be used, and may change them from time to time for
any reason.
“Board” means the Board of Directors of the Company.
“Cause” for termination of a Participant's Continuous Service will exist if the
Participant is terminated from employment or other service with the Company or
an Affiliate for any of the following reasons: (i) the Participant's willful
failure to substantially perform his or her duties and responsibilities to the
Company or deliberate violation of a material Company policy; (ii) the
Participant's commission of any material act or acts of fraud, embezzlement,
dishonesty, or other willful misconduct; (iii) the Participant's material
unauthorized use or disclosure of any proprietary information or trade secrets
of the Company or any other party to whom the Participant owes an obligation of
nondisclosure as a result of his or her relationship with the Company; or (iv)
Participant's willful and material breach of any of his or her obligations under
any written agreement or covenant with the Company.
The Committee shall in its discretion determine whether or not a Participant is
being terminated for Cause. The Committee's determination shall, unless
arbitrary and capricious, be final and binding on the Participant, the Company,
and all other affected persons. The foregoing definition does not in any way
limit the Company's ability to terminate a Participant's employment or
consulting relationship at any time, and the term “Company” will be interpreted
herein to include any Affiliate or successor thereto, if appropriate.
“Change in Control” means, for purposes of the interpretation of this Plan in
conformance with Section 409A of the Code and the applicable guidance issued by
the Department of the Treasury with respect to the application of Section 409A,
with respect to a Plan Participant, a Change in Control event must relate to:
(i) the corporation for which the Participant is performing services at the time
of the Change in Control event, (ii) the corporation that is liable for the
payment of the deferred compensation (or all corporations liable for the payment
if more than one corporation is liable), or (iii) a corporation that is a
majority shareholder of a corporation identified in part (i) or part (ii) above,
or any corporation in a chain of corporations in which each corporation is a
majority

 

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shareholder of another corporation in the chain, ending in a corporation
identified in part (i) or part (ii) above. For purposes of this provision, a
majority shareholder is a shareholder owning more than fifty percent (50%) of
the total fair market value and total voting power of such corporation. Also,
for purposes of this provision, section 318(a) of the Code applies to determine
stock ownership. Additionally, for purposes of this provision and in conformance
with Section 409A and the applicable guidance issued by the Department of the
Treasury with respect to the application of Section 409A, a change in the
ownership of a corporation or a change in the effective control of a corporation
is determined in accordance with the provisions described below in this
definition.
(i)A change in the ownership of a corporation shall occur on the date that any
one person, or more than one person acting as a group, in one transaction or a
series of transactions, directly or indirectly, acquires ownership of stock of
the corporation that, together with stock held by such person or group,
constitutes more than fifty percent (50%) of the total fair market value or
total voting power of the stock of the corporation. However, if any one person
or more than one person acting as a group, is considered to own more than fifty
percent (50%) of the total fair market value or total voting power of the stock
of the corporation, the acquisition of additional stock by the same person or
persons shall not be considered to cause a change in the ownership of the
corporation (or to cause a change in the effective control of the corporation).
An increase in the percentage of stock owned by any one person, or persons
acting as a group, as a result of a transaction, in one transaction or a series
of transactions, directly or indirectly, in which the corporation acquires its
stock in exchange for property shall be treated as an acquisition of stock for
purposes of this provision.
(ii)For purposes of paragraph (i) above, persons will not be considered to be
acting as a group solely because they purchase or own stock of the same
corporation at the same time, or as a result of the same public offering.
However, persons will be considered to be acting as a group if they are owners
of a corporation that enters into a merger, consolidation, purchase or
acquisition of stock, or similar business transaction with the corporation. If a
person, including an entity, owns stock in both corporations that enter into a
merger, consolidation, purchase or acquisition of stock, or similar transaction,
such shareholder is considered to be acting as a group with other shareholders
in a corporation prior to the transaction giving rise to the change and not with
respect to the ownership interest in the other corporation.
(iii)A change in the effective control of a corporation shall occur on the date
that either:
(A)
any one person, or more than one person acting as a group, in one transaction or
a series of transactions, directly or indirectly, acquires (or has acquired
during the 12‑month period ending on the date of the most recent acquisition by
such person or persons) ownership of stock of the corporation possessing
thirty-five percent (35%) or more of the total voting power of the stock of the
corporation; or

(B)
a majority of members of the board of directors of the corporation is replaced
during any 12-month period by directors whose appointment or election is not
endorsed by a majority of the members of the board of directors of the
corporation prior to the date of the appointment or election, provided that for
purposes of this subparagraph (B) the term “corporation” shall be determined in
accordance with the requirements of Section 409A of the Code and the applicable
guidance issued by the Department of the Treasury with respect to the
application of Section 409A of the Code.

(iv)A change in the ownership of a substantial portion of the assets of a
corporation shall occur on the date that any one person, or more than one person
acting as a group acquires (or has acquired during the 12-month period ending on
the date of the most recent acquisition by such person or persons) assets from
the corporation that have a total gross fair market value equal to or more than
forty percent (40%) of the total gross fair market value of all of the assets of
the corporation immediately prior to such acquisition or acquisitions. For this
purpose, gross fair market value means the value of the assets of the
corporation, or the value of the assets being disposed of, determined without
regard to any liabilities associated with such assets.
The provisions of this Appendix regarding the definition of the term “Change in
Control,” shall be determined and administered in accordance with Section 409A
and the applicable guidance issued by the Department of the Treasury with
respect to the application of Section 409A.”
“Code” means the U.S. Internal Revenue Code of 1986, as amended.
“Committee” means the Human Resources Committee of the Board of Directors or one
or more committees or subcommittees of the Board appointed by the Board to
administer the Plan in accordance with Section 4 above. With respect to any
decision involving an Award intended to satisfy the requirements of Section
162(m) of the Code, the Committee shall consist of two or more Directors of the
Company who are “outside

 

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directors” within the meaning of Section 162(m) of the Code. With respect to any
decision relating to a Reporting Person, the Committee shall consist of two or
more Directors who are disinterested within the meaning of Rule 16b-3.
“Company” means NorthWestern Corporation, a Delaware corporation; provided,
however, that in the event the Company reincorporates to another jurisdiction,
all references to the term “Company” shall refer to the Company in such new
jurisdiction.
“Continuous Service” means the absence of any interruption or termination of
service as an Employee, Director or Advisor. Continuous Service shall not be
considered interrupted in the case of: (i) sick leave; (ii) military leave;
(iii) any other leave of absence approved by the Committee, provided that such
leave is for a period of not more than 90 days, unless reemployment upon the
expiration of such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to Company policy adopted from time to time; (iv)
changes in status from Director to advisory director or emeritus status; or (iv)
in the case of transfers between locations of the Company or between the
Company, its Affiliates, or their respective successors. A change in status
between service as an Employee, Director, and an Advisor may not, in and of
itself, mandate a determination that an interruption of Continuous Service has
occurred. Whether an interruption in Continuous Service has occurred which shall
constitute an event triggering payment under the Plan shall be determined and
administered in accordance with Section 409A and the applicable guidance issued
by the Department of the Treasury with respect to the application of
Section 409A.
“Deferred Share Units” mean Awards pursuant to Section 9 of the Plan.
“Director” means a member of the Board, or a member of the board of directors of
an Affiliate.
“Disability” means, with respect to a Participant, the Participant is: (i)
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment that can be expected to result in
death or can be expected to last for a continuous period of not less than twelve
(12) months; (ii) by reason of any medically determinable physical or mental
impairment that can be expected to result in death or can be expected to last
for a continuous period of not less than twelve (12) months, receiving income
replacement benefits for a period of not less than three (3) months under an
accident and health plan covering employees of the Company; or (iii) determined
to be totally disabled by the Social Security Administration.”
“Eligible Person” means any Advisor, Director or Employee and includes
non-Employees to whom an offer of employment has been extended.
“Employee” means any person whom the Company or any Affiliate classifies as an
employee (including an officer) for employment tax purposes. The payment by the
Company of a director's fee to a Director shall not be sufficient to constitute
“employment” of such Director by the Company.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Fair Market Value” means, as of any date (the “Determination Date”) means: (i)
the closing price of a Share on the New York Stock Exchange or the American
Stock Exchange (collectively, the “Exchange”), on the Determination Date, or, if
shares were not traded on the Determination Date, then on the nearest preceding
trading day during which a sale occurred; or (ii) if such stock is not traded on
the Exchange but is quoted on NASDAQ or a successor quotation system, (A) the
last sales price (if the stock is then listed as a National Market Issue under
The Nasdaq National Market System) or (B) the mean between the closing
representative bid and asked prices (in all other cases) for the stock on the
Determination Date as reported by NASDAQ or such successor quotation system; or
(iii) if such stock is not traded on the Exchange or quoted on NASDAQ but is
otherwise traded in the over-the-counter, the mean between the representative
bid and asked prices on the Determination Date; or (iv) if subsections (i)-(iii)
do not apply, the fair market value established in good faith by the Board.
“Grant Date” has the meaning set forth in Section 14 of the Plan.
“Incentive Share Option or ISO” hereinafter means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code, as
designated in the applicable Award Agreement.
“Involuntary Termination” means termination of a Participant's Continuous
Service under the following

 

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circumstances occurring on or after a Change in Control: (i) termination without
Cause by the Company or an Affiliate or successor thereto, as appropriate; or
(ii) voluntary termination by the Participant within 60 days following (A) a
material reduction in the Participant's job responsibilities, provided that
neither a mere change in title alone nor reassignment to a substantially similar
position shall constitute a material reduction in job responsibilities; (B) an
involuntary relocation of the Participant's work site to a facility or location
more than 50 miles from the Participant's principal work site at the time of the
Change in Control; or (C) a material reduction in Participant's total
compensation other than as part of an reduction by the same percentage amount in
the compensation of all other similarly-situated Employees, Directors or
Advisors.
“Non-ISO” means an Option not intended to qualify as an ISO, as designated in
the applicable Award Agreement.
“Option” means any stock option granted pursuant to Section 6 of the Plan.
“Participant” means any holder of one or more Awards, or the Shares issuable or
issued upon exercise of such Awards, under the Plan.
“Performance Awards” mean Performance Units and Performance Compensation Awards
granted pursuant to Section 10.
“Performance Compensation Awards” mean Awards granted pursuant to Section 10(b)
of the Plan.
“Performance Unit” means Awards granted pursuant to Section 10(a) of the Plan
which may be paid in cash, in Shares, or such combination of cash and Shares as
the Committee in its sole discretion shall determine.
“Person” means any natural person, association, trust, business trust,
cooperative, corporation, general partnership, joint venture, joint-stock
company, limited partnership, limited liability company, real estate investment
trust, regulatory body, governmental agency or instrumentality, unincorporated
organization or organizational entity.
“Plan” means this NorthWestern Corporation 2005 Long-Term Incentive Plan.
“Reporting Person” means an officer, Director, or greater than ten percent
shareholder of the Company within the meaning of Rule 16a-2 under the Exchange
Act, who is required to file reports pursuant to Rule 16a-3 under the Exchange
Act.
“Restricted Shares” mean Shares subject to restrictions imposed pursuant to
Section 8 of the Plan.
“Restricted Share Units” mean Awards pursuant to Section 8 of the Plan.
“Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act, as amended
from time to time, or any successor provision.
“SAR” or “Share Appreciation Right” means Awards granted pursuant to Section 7
of the Plan.
“Share” means a share of common stock of the Company, as adjusted in accordance
with Section 13 of the Plan.
“Ten Percent Holder” means a person who owns stock representing more than ten
percent (10%) of the combined voting power of all classes of stock of the
Company or any Affiliate.
“Unrestricted Shares” mean Shares awarded pursuant to Section 8 of the Plan.