Exhibit 10.1(R)


 


NorthWestern
Corporation


 


Incentive Compensation and Severance Plan


and


Summary Plan Description


 


It is of utmost
importance to NorthWestern Corporation and its affiliates (collectively,  “NorthWestern”)
to motivate and to retain employees who support its continued, successful
operation of and who will lead NorthWestern through a successful Chapter 11
reorganization (the “Chapter 11 Case”). 
Accordingly, NorthWestern has adopted this Incentive Compensation and
Severance Plan (the “Plan”) to
determine both –


 


•                  the
incentive compensation that participating employees will receive pursuant to
Section 3 of the Plan for calendar years 2003 and 2004 (“Incentive Payments”);
and


 


•                  the
severance benefits that participating employees will receive pursuant to
Section 4 of the Plan in the event their employment with the Company terminates
for any reason.


 


Throughout this
Plan, the term “Company” is used
when NorthWestern is acting, through its employees and Directors, in its
corporate interest as employer, as Plan sponsor, or as settlor with respect to
the Plan and any successor-in-interest to NorthWestern in such capacity.  The Plan uses the term “Plan
Administrator” whenever the Company is acting in the limited
capacity of making determinations, decisions, and interpretations associated
with administering the Plan.


 


This Plan modifies
and supersedes any and all prior incentive compensation and severance policies,
plans and programs with respect to the Company’s employees.  To the extent any of such incentive
compensation and severance policies, plans and programs conflict or differ in
any way with this Plan, the provisions of this Plan governs except with respect
to the severance provisions of the UPA. 
The Plan is an “employee welfare benefit plan” as defined in Section
3(1) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), is not intended to be a “pension plan” as defined
in Section 3(2)(A) of ERISA, and shall be administered so as not to be an ERISA
pension plan.


 


1.               Plan Eligibility


 


You will be
eligible to collect incentive compensation and severance benefits pursuant to
Sections 3 and 4 of the Plan only if (i) the Company makes the discretionary
decision in writing to include you in the Plan, and (ii) if required by the Company,
you enroll in the Plan through execution of an agreement (the “Enrollment Agreement”) substantially in the
form attached and made a part of this Plan.


 

















 


2.              Ineligibility for
Plan Benefits


 


(a)                               Incentive
Compensation.  You will become
ineligible to receive incentive compensation pursuant to Section 3 of the Plan
immediately upon terminating your employment with the Company for any
reason.  This means that to qualify to
collect Incentive Payments, you must remain an employee of the Company through
the respective performance dates provided in the Plan.


 


(b)                               Severance
Benefits.  You will be ineligible to
receive severance benefits pursuant to Section 4 of the Plan if at the time
your employment terminates, you are either ineligible pursuant to subsection
(c) of this Section or classified by the Company as being in one or more of the
following ineligible categories:


 


i.                  Foreign Employees, i.e., persons
who are not on a U.S. payroll of the Company.


ii.               Leased Employees, i.e., persons who
are the Company’s leased employees, within the meaning of Internal Revenue Code
Section 414(n).


iii.            Persons Waiving Participation, i.e.,
persons to whom the Company did not extend the opportunity of participating in
this Plan.


iv.           Persons on Indefinite Unpaid Leaves of Absence,
i.e., persons who are absent from work on indefinite unpaid leaves of
absence expected to exceed thirty days, except leaves during which regular pay
continues or to the extent eligibility is required by applicable law.


v.              Employees with Individual Agreements,
i.e., persons who have a right to collect severance benefits pursuant to a
separate written agreement entered into with the Company after the date on
which NorthWestern adopts this Plan, unless such an agreement provides
expressly to the contrary.


vi.           Employees who Resign, etc., i.e.,
persons whose employment terminates voluntarily, or due to Cause, retirement,
death, or disability.


vii.        Persons Discharged for Cause, i.e.,
persons whose employment is terminated for Cause, as
determined by the Plan Administrator in its sole discretion based on the
following types of misconduct:


1.                                           willful
failure to comply with written policies or lawful directives on material
business matters;


 


2.                                           willful
statements or conduct adversely affecting the Company or causing (or being
reasonably likely to cause) injury to the reputation, business or business
relationships of the Company; or


 


3.                                          illegal
conduct, gross misconduct or, dishonesty, in each case which is willful and
results (or is reasonably likely to result) in material damage to the Company.


 


viii.     Changed Decisions, i.e., persons for whom
NorthWestern cancels a pending termination of employment at any time before
employment actually terminates.


 


(c)                                Successor Employment, and Comparable
Employment.  You will not be
entitled to severance benefits under this Plan, if the Plan Administrator
determines that a Successor Employer has offered you an Equivalent or Better
Position to commence promptly


 

















 


following your termination of
employment with NorthWestern, whether you accept the position or not.  A “Successor Employer”
is:


i.                  any entity that assumes operations or
functions formerly carried out by the Company (such as the buyer of a facility
or any entity to which a Company operation or function has been outsourced);


ii.               any affiliate of the Company; or


iii.            any entity making the job offer at the
request of the Company (such as a joint venture of which the Company or an
affiliate is a member).


“Equivalent or Better Position” means employment that does
not involve either a material reduction in compensation or benefits, a material
reduction in responsibilities, duties or support, or relocation to a primary
place of employment of greater than fifty (50) miles from the current primary
place of employment.


3.              Eligible
Employees Incentive Payments


 


In general,
Incentive Payments will be approximately 60% of normal, total targeted
cumulative incentives for all participants for each of Plan Years 2003 and
2004.


 


(a)                               Officers


 


An Incentive
Payment will be provided to each Officer equal to a fixed multiple of the
Officer’s targeted, annual incentive. 
The following amounts are payable upon the Company’s determination that
the associated performance-based milestones have been achieved while the
Officer is an active employee of the Company:


 


i.                  One-third
of the total amount listed in the Plan with respect to the Officer shall be
paid as soon as practicable following the entry of any order by the Court
approving a disclosure statement.


 


ii.               The
second one-third of the total amount listed in the Plan with respect to the
Officer shall be paid as soon as practicable following the effective date of
the Debtor’s confirmed reorganization plan.


 


iii.            The
final one-third of the total amount listed in the Plan with respect to the
Officer shall be paid as of January 31, 2005.


 


If an Officer
voluntarily resigns from employment with the Company before the effective date
of the Company’s reorganization plan, the Officer will both forfeit any future
right to collect benefits pursuant to the Plan, and will promptly return to the
Company the full amount of any benefits previously paid to the Officer pursuant
to the Plan.


 


(b)                               Group
1 Employees


 


An Incentive
Payment will be provided to each employee eligible for Group 1 Incentive
Payments as described in the Plan. 
Incentive Payments will vest on June 1, 2004 and will be paid on or
after September 30, 2004 with respect to 2003 incentives.  Incentive Payments with respect to 2004
incentives will vest on January 1, 2005 and will be paid not later than January
31, 2005.


 


(c)                                Group
2 Employees – All Other Employees


 

















 


An Incentive
Payment will be provided for all employees (other than Officers and Group 1
Employees), for calendar years 2003 and 2004, and will be funded at 40% of the
cumulative, targeted annual incentive level for all such participants for each
year.  Individual Incentive Payments
will be based on individual performance and will be made not later than June
30, 2004 with respect to 2003 incentives and not later than January 31, 2005
with respect to 2004 incentives.(1)


 


4.                                      Severance
Benefits


 


If the Company
terminates the employment of an eligible employee without Cause (as defined in
Section 2) directly in connection with NorthWestern’s post-petition corporate
restructuring process, the Company, upon a properly executed release of claims,
shall –


•                  make a lump sum cash severance
payment to the employee in an amount determined pursuant to the guidelines set
forth in the remainder of this Section; and


•                  provide the employee with healthcare
and similar Company-provided group insurance, at no cost to the employee, for
the number of months that serves as the multiple for calculating the employee’s
cash severance payment.


 


Unless otherwise
set forth in the release of claims, any cash payment due under this Section
will be made within seven (7) business days from the date of an employee’s
termination of employment.


 


(a)                               Officers


 


If an employee is
an officer and qualifies for severance benefits under this Section, the Company
will provide the employee with severance benefits.  The Company, without the mutual, written consent of the qualified
officer, may not reduce the right to and amount of such severance benefits.


 


(b)                               Group
1 Employees


 


If an employee
qualifies for severance benefits under this Section, the Company will provide
the employee with severance benefits determined under the Plan.  The Company, without the mutual, written
consent of the qualified employee, may not reduce the right to and amount of such
severance benefits.


 


(c)                                Group
2 (All other employee)


 












(1) The right to these Incentive Payments shall be in addition to any
pre-petition contractual rights that a Group 2 Employee may have to collect
cash-based payments (which the Company shall pay in the ordinary course of
business during the post-petition corporate restructuring process)


 

















 


If an employee
qualifies for severance benefits under this Section due to a termination of
employment without Cause, the Company will provide such employees with
severance benefits equal to the greater of –


 


i.                  1-week
of salary for every full year of service with the Company, with a minimum of 4
weeks and a maximum of 26 weeks, or


 


ii.               if
applicable, the severance benefits that such employee would be entitled to
receive pursuant to the terms of UPA.(2)


 


5.                                      Reemployment


If you are
re-employed by NorthWestern or a Successor Employer while severance benefits
are still payable under the Plan, all such benefits will cease, except as
otherwise specified by NorthWestern or the Successor Employer, as the case may
be.  If you receive severance benefits
after your eligibility ceases under the Plan due to reemployment, you must
promptly repay any such severance benefits.


 


6.                                      Taxes


Taxes will be
withheld from benefits under the Plan to the extent required by law.


 


7.                                      Relation
to Other Plans


Any prior
incentive compensation, severance, or similar plan of the Company that might
apply to you is hereby modified as to you while you are eligible for Plan
benefits.  Severance benefits under this
Plan will not be counted as “compensation” for purposes of determining benefits
under any other benefit plan, pension plan, or similar arrangement.  All such plans or similar arrangements, to
the extent inconsistent with this Plan, are hereby so amended except the
severance provisions of the UPA.


 


8.                                      Amendment
or Termination


Acting through its
Board of Directors, NorthWestern Corporation or any successor-in-interest to
NorthWestern Corporation has the right, in its nonfiduciary settlor capacity,
to amend the Plan or to terminate it at any time, prospectively, for any
reason, without notice, including to discontinue or eliminate benefits; provided,
however, any vested right to Incentive Payments under this Plan may not
be eliminated.  No person has any right
to Incentive Payments under this Plan until those Incentive Payments vest in
accordance with the terms of the Plan. 
Unless expressly provided otherwise herein, the Company may amend the
Plan to provide greater or lesser benefits to particular employees by sending
affected employees a letter or other notice setting forth the applicable
benefit modification.


 


9.                                      Claims
Procedures


(a)                               Claims
Normally Not Required


Normally, you do
not need to present a formal claim to receive benefits payable under this Plan.


 












(2) The severance benefits portion of the Unit Purchase Agreement
between Touch America Holdings, Inc., Montana Power Company and NorthWestern
dated September 29, 2000 as amended (“UPA”) applies until it expires on
February 15, 2004, at which time those employees covered by the UPA will be
eligible for severance benefits only under the Plan.


 

















 


(b)                               Disputes


If any person
(Claimant) believes that benefits are being denied improperly, that the Plan is
not being operated properly, that fiduciaries of the Plan have breached their duties,
or that the Claimant’s legal rights are being violated with respect to the
Plan, the Claimant must file a formal claim with the Plan Administrator.  This requirement applies to all claims that
any Claimant has with respect to the Plan, including claims against fiduciaries
and former fiduciaries, except to the extent the Plan Administrator determines,
in its sole discretion, that it does not have the power to grant all relief
reasonably being sought by the Claimant.


 


(c)                                Time
for Filing Claims


A formal claim
must be filed within 90 days after the date the Claimant first knew or should
have known of the facts on which the claim is based, unless the Plan
Administrator in writing consents otherwise.


 


(d)                               Procedures


The Plan
Administrator has adopted the procedures for considering claims, which it may
amend from time to time, as it sees fit. 
These procedures shall comply with all applicable legal
requirements.  The right to receive
benefits under this Plan is contingent on a Claimant using the prescribed claims
procedures to resolve any claim. 
Therefore, if a Claimant (or his or her successor or assign) seeks to
resolve any claim by any means other than the prescribed claims provisions, he
or she must repay all benefits received under this Plan and shall not be
entitled to any further Plan benefits.


 


10.                               Plan
Administration


(a)                               Discretion


The Plan
Administrator is responsible for the general administration and management of
the Plan and shall have all powers and duties necessary to fulfill its
responsibilities, including, but not limited to, the discretion to interpret
and apply the Plan and to determine all questions relating to eligibility for
benefits.  The Plan shall be interpreted
in accordance with its terms and their intended meanings.  However, the Plan Administrator and all Plan
fiduciaries shall have the discretion to interpret or construe ambiguous,
unclear, or implied (but omitted) terms in any fashion they deem to be
appropriate in their sole discretion, and to make any findings of fact needed in
the administration of the Plan.  The
validity of any such interpretation, construction, decision, or finding of fact
shall not be given de novo review if challenged in court, by arbitration, or in
any other forum, and shall be upheld unless clearly arbitrary or capricious.


 


(b)                               Finality
of Determinations


All actions taken
and all determinations made in good faith by the Plan Administrator or by Plan
fiduciaries will be final and binding on all persons claiming any interest in
or under the Plan.  To the extent the
Plan Administrator or any Plan fiduciary has been granted discretionary
authority under the Plan, the Plan Administrator’s or Plan fiduciary’s prior
exercise of such authority shall not obligate it to exercise its authority in a
like fashion thereafter.


 


(c)                                Drafting
Errors


If, due to errors
in drafting, any Plan provision does not accurately reflect its intended
meaning, as demonstrated by consistent interpretations or other evidence of
intent,


 

















 


or as determined by the Plan Administrator in its sole discretion, the
provision shall be considered ambiguous and shall be interpreted by the Plan
Administrator and all Plan fiduciaries in a fashion consistent with its intent,
as determined in the sole discretion of the Plan Administrator.  The Plan Administrator shall amend the Plan
retroactively to cure any such ambiguity.


 


(d)                               Fiduciary
Disclosure Authority


No Plan
fiduciary shall have the authority to answer questions about any pending or
final business decision of the Company or any affiliate that has not been
officially announced, to make disclosures about such matters, or even to
discuss them, and no person shall rely on any unauthorized, unofficial
disclosure. Thus, before a decision is officially announced, no fiduciary is
authorized to tell any person, for example, that he or she will or will not be
terminated or that the Company will or will not offer severance benefits in the
future. Nothing in this subsection shall preclude any fiduciary from fully
participating in the consideration, making, or official announcement of any
business decision.


 


(e)                                Scope


This Section
may not be invoked by any person to require the Plan to be interpreted in a
manner inconsistent with its interpretation by the Plan Administrator or other
Plan fiduciaries.


 


11.                               Costs
and Indemnification


All costs of
administering the Plan and providing Plan benefits will be paid by the Company,
with one exception: Any expenses (other than arbitrator fees) incurred in
resolving disputes with multiple Claimants concerning their entitlement to the
same benefit may be charged against the benefit, which will be reduced
accordingly, to the extent permitted by law. 
To the extent permitted by applicable law and in addition to any other
indemnities or insurance provided by the Company, the Company shall indemnify
and hold harmless its (and its affiliates’) current and former officers,
Directors, and employees against all expenses, liabilities, and claims
(including legal fees incurred to defend against such liabilities and claims)
arising out of their discharge in good faith of their administrative and
fiduciary responsibilities with respect to the Plan.  Expenses and liabilities arising out of willful misconduct will
not be covered under this indemnity.


 


12.                               Limitation
on Employee Rights


This Plan shall
not give any employee the right to be retained in the service of the Company or
interfere with or restrict the right of the Company to discharge or retire the
employee.


 


13.                               Governing
Law


This Plan is a
welfare plan subject to ERISA, and it shall be interpreted, administered, and
enforced in accordance with that law. 
To the extent that state law is applicable, the statutes and common law
of the State of South Dakota (excluding any that mandate the use of another
jurisdiction’s laws) shall apply.


 


14.                               Miscellaneous


Where the context
so indicates, the singular will include the plural and vice versa.  Titles are provided herein for convenience
only and are not to serve as a basis for interpretation or construction of the
Plan.  Unless the context clearly
indicates to the


 

















 


contrary, a reference to a statute or document shall be construed as
referring to any subsequently enacted, adopted, or executed counterpart.


 


15.                               Statement
of ERISA Rights


The following
information required by ERISA is furnished by the Plan Administrator.


 


(a)                               General
Plan Information


 


	
  Name of
  Plan:

  	
   

  	
  NorthWestern
  Corporation Incentive

  Compensation and Severance Plan

  
	
  Plan
  Administrator’s Name:

  	
   

  	
  NorthWestern
  Corporation 

  
	
  Address and
  Phone Number:

  	
   

  	
  125 South
  Dakota Avenue

  Sioux Falls, South Dakota 57104

  Telephone: 605-978-2835

  
	
  Employer
  Identification Number assigned by IRS:

  	
   

  	
  46-0172280

  
	
  Plan Number
  of the Plan:

  	
   

  	
  <ASSIGN PLAN NUMBER>

  
	
  Type of
  Plan:

  	
   

  	
  Incentive
  Compensation and Severance Pay Plan

  
	
  Type of
  Administration:

  	
   

  	
  Employer Administration

  
	
  Name and
  Address of Registered Agent for Service of Legal Process

  	
   

  	
  Plan
  Administrator

  
	
  Source of
  Contribution to the Plan:

  	
   

  	
  General
  assets of NorthWestern Corporation

  
	
  Funding
  Medium:

  	
   

  	
  General
  assets of NorthWestern Corporation

  
	
  Plan Fiscal Year
  Ends On:

  	
   

  	
  December 31st

  



 


(b)                               Plan
Modification, Amendment, And Termination


 


The Plan Administrator has the right to amend or terminate the Plan at
any time in accordance with Section 8 above, with or without notice.  The consent of any employee is not required
to terminate, modify, amend, or change the plan.


 


(c)                                Your
Rights under ERISA


 


As a
participant in the plan, you are entitled to certain rights and protections
under ERISA.  Your rights include the
following:


 


1.                                       Right
to Examine Plan Documents:


 


 

















 


You
have the right to examine all plan documents, including the annual reports and
plan descriptions filed with the U.S. Department of Labor.  The Plan Administrator will tell you where
the plan documents are available for examination.  There will be no charge for examining plan documents.


 


2.                                       Right
to Obtain Copies of Plan Documents:


 


You
have the right to obtain copies of all plan documents.  You should make your request in writing to
the Plan Administrator.  There may be a
reasonable charge for the copies.


 


3.                                       Right
to Written Explanation of Denial:


 


If
your claim for benefits under the plan is denied in whole or in part, you must
be given a written explanation of the reason for denial.


 


4.                                       Right
to Review:


 


You
have the right to request a review and reconsideration of any denial of your
claim for plan benefits.


 


5.                                       Other
ERISA Rights:


 


You
can protect your rights under ERISA. 
For example, ERISA gives you the right to file suit in a state or
federal court if your claim for benefits under the plan is denied or
ignored.  You can also file suit in a
federal court if you request plan documents and do not receive them within 30
days.  In such a case, the court will
require the Plan Administrator to give you the plan documents you
requested.  In some cases, the court
could also require the Plan Administrator to pay you up to $110 a day until you
receive the requested materials.


 


ERISA
gives you rights and protections.  ERISA
also imposes special obligations on the people (called “fiduciaries”) who
operate this employee benefit plan.  The
fiduciaries have a duty to protect the plan’s money and the interests of plan
participants.  The named fiduciary is
NorthWestern Corporation.  ERISA
prohibits anyone from discriminating against you in any way to prevent you from
receiving a plan benefit or from exercising your rights under ERISA.


 


If you
believe that the fiduciaries have misused the plan’s money, or that you have
been discriminated against for asserting your rights, you can ask for help from
the U.S. Department of Labor.  You can
also file suit in a federal court.  If
you file a suit, the court will decide who must pay the court costs and legal
fees.  If your suit is successful, the
court may require the fiduciary to pay those costs and fees.


 


If you
have any questions about your plan, you should contact the Plan Administrator.


 


If you have any
questions about this statement of your rights under ERISA, you should contact
the nearest office of the Employee Benefits Security Administration, U.S.
Department of Labor, listed in your telephone directory or the Division of
Technical Assistance and Inquiries, Employee Benefits Security Administration,
U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C.
20210.  You may also obtain certain
publications about your rights and responsibilities under ERISA by calling the
publications hotline of the Employee Benefits Security Administration.


 

















 


Adopted and Approved


 


NorthWestern
Corporation


 


	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
  Signature

  	
  Date

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  
	
   

  	
  Chairman and
  Chief Executive Officer