Document:

Exhibit 10.1

 

SEPARATION AND CONSULTING AGREEMENT

 

This Separation and Consulting Agreement (“the
Agreement”) is entered into effective June 1, 2005, between NorthWestern
Corporation (“the Company”) and Gary Drook (“Drook”).

 

RECITALS

 

WHEREAS, Drook was employed by the Company;
and

 

WHEREAS, Drook has resigned and the Company
has accepted his resignation on and subject to the terms set forth herein;

 

NOW THEREFORE, Drook and the Company agree as
follows:

 

1.0                               Termination
of Employment

 

1.1                                 Drook
resigned his employment as President and Chief Executive Officer of the Company
and in all other related positions he held with the Company and its affiliates,
including his position as a member of the Company’s Board of Directors,
effective March 29, 2005.

 

1.2                                 Drook
shall remain on the Company payroll to and including June 1, 2005, at his
current salary to assist with the transition and thereafter as a consultant.

 

1.3                                 Beginning
June 1, 2005, Drook will be a consultant providing any services reasonably
requested of him by the Board of Directors or the Chief Executive Officer
(hereinafter “Consulting Services”).  It
is the intent of this Agreement and it is understood and agreed that, in the
performance of such Consulting Services under the terms of this Agreement and
any amendments to this Agreement, Drook shall perform such Consulting Services
as an independent contractor with respect to NorthWestern and not as an
employee of NorthWestern, it being specifically agreed that the relationship is
and shall remain that of independent parties to a contractual relationship as
set forth in this Agreement.

 

2.0                               Final
Compensation

 

2.1                                 Drook’s final paycheck
shall include Drook’s normal pay through June 1, 2005, plus or minus any
time for personal vacation days accrued but not used or used but not accrued.

 

2.2                                 Drook
will receive reimbursement for the legitimate business expenses incurred by him
on or before June 1, 2005, which he submits to the Company not later than July 1,
2005, and which are approved by the Company. 
Reimbursement will be made within two (2) weeks after documentation
of expenses is received.

 

3.0                               Severance

 

3.1                                 In
lieu of any other severance due Drook, and in consideration of Drook’s
covenants and the

 

1

 

releases provided herein and
other good and valuable consideration, the sufficiency of which is hereby
acknowledged, the Company agrees to pay Drook the sum of $1,130,000.00 (One
Million One Hundred Thirty Thousand Dollars and No Cents) as severance.

 

3.2                                 The
Company shall make the payment set forth in paragraph 3.1 to Drook in equal
bi-weekly installments for the twenty-four (24) month period commencing June 1,
2005, and ending June 1, 2007, provided however that the initial payment
shall be made eight days following execution of this Agreement.  Payment shall be made by electronic deposit
bi-weekly pursuant to the normal NorthWestern payroll cycle.  NorthWestern is not responsible for payroll
withholdings, and shall not withhold FICA or taxes of any kind from any
payments that it owes Drook.  Drook shall
be solely responsible for paying any and all taxes, FICA, workers’
compensation, unemployment compensation, health insurance and life insurance
(except as set forth in section 4 below), paid vacations, paid holidays,
pension, profit sharing, and other similar benefits for himself.  Drook will indemnify and hold harmless
NorthWestern from any and all loss or liability, including attorney’s fees,
arising from his failure to make any of these payments or withholdings or
failure to provide these benefits, if any.

 

3.3                                 The
payment provided in paragraph 3.1 shall become due and payable (less any sums
already paid) within 14 days in the event of (a) Drook’s disability or
death, or (b) a Change of Control. 
For purposes of this paragraph 3.3, Change of Control shall mean:

 

(i)                                     any
Person is or becomes the Beneficial Owner, directly or indirectly, of
securities of the Company representing 50% or more of the combined voting power
of the Company’s then outstanding securities, excluding any Person who becomes
such a Beneficial Owner in connection with a transaction described in paragraph
(iii)(B) below;

 

(ii)                                  the
following individuals cease for any reason to constitute a majority of the
number of directors then serving:  individuals
who, on the date hereof, constitute the Board and any new director (other than
a director whose initial assumption of office is in connection with an actual
or threatened election contest, including but not limited to a consent
solicitation, relating to the election of directors of the Company) whose
appointment or election by the Board or nomination for election by the Company’s
shareholders was approved or recommended by the affirmative vote of a majority
of the directors then still in office who either were directors on the date
hereof or whose appointment, election or nomination for election was previously
so approved or recommended (“Continuing Directors”);

 

(iii)                               there
is consummated a merger or consolidation of the Company or any direct or indirect
subsidiary of the Company with any other corporation, other than a merger or
consolidation in which (A) the Company’s shareholders receive or retain
voting common stock in the Company or the surviving or resulting corporation in
such transaction on the same pro rata basis as their relative percentage
ownership of Company common stock immediately preceding such transaction and a
majority of the entire Board of the Company are or continue to be Continuing
Directors following such transaction, or (B) the Company’s shareholders
receive voting common stock in the corporation which becomes the public parent
of the Company or its successor in such transaction on the same pro rata basis
as their relative percentage ownership of Company common stock immediately preceding
such transaction and a majority of the entire Board of such parent corporation
are Continuing Directors immediately following such transaction;

 

2

 

(iv)                              the
sale of any one or more Company subsidiaries, businesses or assets not in the
ordinary course of business and pursuant to a shareholder approved plan for the
complete liquidation or dissolution of the Company; or

 

(v)                                 there
is consummated any sale of assets, businesses or subsidiaries of the Company which,
at the time of the consummation of the sale, (A) together represent 50% or
more of the total book value of the Company’s assets on a consolidated basis or
(B) generated 50% or more of the Company’s pre-tax income on a
consolidated basis in either of the two fully completed fiscal years of the
Company immediately preceding the year in which the Change in Control occurs;
provided, however, that, in either case, any such sale shall not constitute a
Change in Control if such sale constitutes a Rule 13e-3 transaction and at
least 60% of the combined voting power of the voting securities of the
purchasing entity are owned by shareholders of the Company in substantially the
same proportions as their ownership of the Company immediately prior to such
sale.

 

Notwithstanding
the foregoing, a “Change of Control” shall not be deemed to have occurred by
virtue of the consummation of any transaction or series of integrated
transactions immediately following which the record holders of the common stock
of the Company immediately prior to such transaction or series of transactions
continue to have substantially the same proportionate ownership in an entity
which owns all or substantially all of the assets of the Company immediately
following such transaction or series of transactions.

 

4.0                               Benefits
Continuation

 

For the period
June 2, 2005, to and including June 1, 2007, (“Benefits Continuation
Period”), the Company shall pay to Drook and/or his eligible dependants
compensation in an amount equal to what it would cost Drook to purchase
continuing medical, dental, and vision benefits provided to executives of the
Company or substantially equivalent to such benefits provided to executives of
the Company (“Benefits Continuation Compensation”), plus an additional amount such
that the net amount retained by Drook after taxes on the Benefits Continuation
Compensation shall equal the pretax Benefits Continuation Compensation.  For the Benefits Continuation Period, the
Company will self-fund a life insurance benefit on a term basis in the amount
of $1 million.  The Company’s obligations
hereunder shall continue for the Benefits Continuation Period regardless of
whether Drook purchases all or any of the benefits referred to herein.

 

5.0                               Special
Recognition Grant

 

The Company acknowledges that Drook has
received a Special Recognition Grant of 102,960 shares of stock and that Drook’s
ownership rights in 51,480 of those have vested.  The Company hereby agrees that the remaining
51,480 unvested shares in the Special Recognition Grant shall vest effective June 1,
2005, without further action by the Company.

 

6.0                               Relocation

 

6.1                                 The
Company agrees to pay the following reasonable out-of-pocket expenses incurred
by Drook in connection with the sale of his residence located at 3529 Spencer
Boulevard, Sioux Falls, South Dakota 57103 (“the Residence”) and his
relocation: (1) costs incurred to ready the house for sale up to a

 

3

 

maximum of $5,000.00; (2) real
estate broker fees; (3) closing costs; (4) moving costs; and (5) travel
expenses incurred by Drook and/or his wife not to exceed $3,000.00 in
connection with the round trips to and from Sioux Falls to ready the Residence
for sale and to move.  In order to obtain
reimbursement from the Company, Drook shall give the Company at least five days
written notice before incurring any such costs in excess of $5,000.

 

6.2                                 Drook
will list the Residence for sale on or by July 1, 2005.  If Drook does not reach an agreement for
purchase with a bona fide purchaser within 120 days, i.e., on or by November 1,
2005, Drook shall have the right to sell to the Company, and the Company agrees
to purchase, the Residence for an amount (the “Purchase Price”) established
under paragraph 6.2.1 upon exercise of his right in accordance with paragraph
6.2.2.

 

6.2.1                        No earlier
than November 1, 2005, Drook shall have the right to request in writing
from the Company two appraisals on the Residence.  Within fifteen (15) days of the request
provided herein, the Company shall order two appraisals on the Residence, one
of which shall be prepared by an appraiser selected by Drook.  The Purchase Price of the Residence shall be
the average of these two appraisals, provided that the lower appraisal is not
less than 95% of the higher.  If the
lower is less than 95% of the higher, the Company shall order a third appraisal
by an appraiser mutually agreeable to the Company and Drook.  The Purchase Price shall then be the average
of the two highest appraisals.  The
Company shall pay for all appraisals provided for hereunder.

 

6.2.2                        Drook
shall exercise his right to sell the Residence to the Company at the Purchase
Price determined pursuant to paragraph 6.2.1 by giving the Company written
notice of his intent to sell within one hundred twenty (120) days of receipt of
the last appraisal (“Notice of Intent to Sell”).  If Drook so exercises his right to sell the
Residence to the Company, the Company shall purchase the Residence at the
Purchase Price and the sale shall close within 30 days of the Company’s receipt
of the Notice of Intent to Sell.

 

7.0                               Technology

 

7.1                                 The
Company agrees that Drook shall retain possession of the following equipment
and services:

 

i.                                          2
IBM ThinkPad lap top computers with base stations

ii.                                       1
IBM Personal Computer/LCD Display/Keyboard

iii.                                    2
HP Laser Printer/Copier/Fax

iv.                                   2
Wireless connection systems

v.                                      2
High Speed Internet Cable Modems and monthly service

vi.                                   1
Verizon Cell Phone and monthly service with phone #605-321-0795

vii.                                Access
to the NorthWestern File Server and retention of Internet address
gary.drook@northwestern.com

 

7.2                                 Drook
shall be responsible for payment of service fees on this equipment incurred
after June 1, 2007.

 

7.3                                 In
order to retain possession of the items listed in 7.1(i) and 7.1(ii) above
after June 1, 2007, Drook shall then provide remote access to the Company
(or shall ship these items to the Company at the

 

4

 

Company’s expense) so that it
may eliminate and delete from these computers Company proprietary information
stored on them.  In addition, the Company
shall, if possible, transfer any licensed software to Drook consistent with the
Company’s software licenses, or if such transfer is not permissible under the
license, shall then be given access to eliminate and delete such software from
the equipment.

 

8.0                               Retirement
Claim in Bankruptcy

 

8.1                                 The
Company acknowledges that Drook has filed a claim for $83,682.00 (Eighty-Three Thousand
Six Hundred Eighty-Two Dollars and No Cents) under the Supplemental Income
Security Plan (“SISP”) with the bankruptcy court in the NorthWestern
Corporation chapter 11 proceedings, Case No. 03-12872 in the United States
District Court for Delaware (“the Retirement Claim”).

 

8.2                                 The
Company agrees that neither the fact nor the terms and conditions of this
Agreement will have any effect on Drook’s Retirement Claim.

 

9.0                               Additional
Expenses

 

The Company
shall reimburse Drook’s reasonable attorney’s fees incurred in connection with
his termination and preparation of this Agreement in an amount not to exceed
$25,000.00 (Twenty-Five Thousand Dollars).

 

10.0                        Cooperation
with Litigation

 

10.1                           In
consideration of the payment of severance and benefits continuation set forth
herein, Drook agrees that he will make himself available to respond to the
Company’s reasonable requests for information or assistance on matters arising
after Drook’s termination regarding matters related to the Company’s business
and legal affairs.  Drook agrees to
cooperate fully with the Company in defense or prosecution of any matter in
which Drook was involved during his employment with the Company and to make
himself reasonably available as required by the Company or its counsel.  Such cooperation shall include, without
limitation, making himself available for interviews by counsel for the Company,
assisting in responding to discovery, making himself available as a witness for
deposition, trial or hearing testimony, or such other assistance as the Company
may reasonably require.  The Company will
reimburse Drook for his reasonable out-of-pocket expenses incurred in
connection with responding to any such requests.

 

10.2                           Drook
will not voluntarily assist any person in bringing or pursuing any claims or
legal action against the Company or any Released Party.

 

11.0                        Releases

 

11.1                           In
exchange for the consideration set forth herein, which Drook acknowledges and
agrees as being adequate, Drook, on behalf of himself and his heirs,
successors, and assigns, hereby releases and forever convents not to sue, the
Company, and any past, present and/or future parent corporations, subsidiaries,
partnerships, joint ventures, insurers, pension plans, pension plan and benefit
plan trustees, affiliates and other related entities of them, and the past,
present and future directors, officers, shareholders, employees, trustees,
fiduciaries, representatives, successors, predecessors, agents, and assigns of
any of the foregoing (all referred to hereinafter as the “Released Parties”)
from and on any action, suit, injury, damage,

 

5

 

claim, demand, expense, debt,
agreement, promise, account, covenant, contract, judgment, execution, costs,
expenses, attorney’s fees and/or liability or obligation of any kind, name, and
nature whatsoever (all hereinafter referred to as “claims”) whether at law or
in equity, and whether known or unknown, which Drook has, or ever had, against
the Released Parties as of the date of this Agreement.

 

11.1.1                  By way of
example only and without limiting the above, Drook waives and releases any
rights or claims Drook might have to file a lawsuit or assert any claims
arising out of or relating to Drook’s employment with or separation from the
Company, all claims of alleged wrongful, bad faith, constructive and/or
retaliatory discharge, all claims of any form of alleged unlawful employment
discrimination under federal, state, or local law, including without limitation
all claims based upon Title VII of the Civil Rights Act of 1964, as amended,
the Americans with Disabilities Act, as amended, the Age Discrimination in
Employment Act, as amended, the Older Workers Benefit Protection Act, as
amended, the Equal Pay Act, as amended, the Civil Rights Act of 1991, as
amended, the Family Medical Leave Act, as amended, and/or any federal, state,
or local law, act, or ordinance, as amended, all claims arising under any other
federal, state, or local law relating in any way to employees or employment,
including without limitation the South Dakota Human Relations Act of 1972, SPCL
20-13, as amended, the Sioux Falls City Ordinance Chapter 21 1⁄2, as amended, the
Employment Retirement Income Security Act and the Fair Labor Standards Act, all
claims of breach of either express or implied, written or oral, contract or
agreement, all claims of intentional or negligent infliction of emotional
distress, all claims of tortious interference with contract or prospective
business relationship, all claims of libel, slander, or defamation, all claims
of invasion of privacy, all personal injury or other tort claims, all claims
based on any public policy, all claims based on any policy, procedure, and/or
practice of the Company, all claims for wages, back pay, front pay, vacation
pay, separation pay, relocation assistance, or any other form of compensation, all
claims for compensatory or punitive damages, all claims for costs, expenses, or
attorney’s fees, all claims for reinstatement of employment with the Company,
all claims to file a class action or participate as a class member in any
lawsuit against any Released Party, and/or any common law claim, whether based
in law or equity.

 

11.1.2                  Nothing herein
shall constitute a release by Drook of any claims for benefits under the
Company benefits plans, or any rights to indemnification whether under this
Agreement or otherwise, or of rights under any policies of directors and
officers liability insurance, or of any rights to seek enforcement of this
Agreement.

 

11.2                           The
Company hereby releases and forever covenants not to sue Drook and his heirs,
successors or assigns, of from and on any action, suit, injury, damage, claim,
demand, expense, debt, agreement, promise, account, covenant, contract,
judgment, execution, costs, expenses, attorney’s fees and/or liability or
obligations of any kind, name, and nature whatsoever (all hereinafter referred
to as “claims”) whether at law or in equity, and whether known or unknown,
which the Company has, or ever had, against Drook as of the date of this
Agreement.

 

12.0                        Nondisparagement

 

Drook and the
Company each agree that they will not criticize, denigrate or disparage the
other concerning any issue arising out of or in relation to Drook’s employment
with the Company or for any other reason. 
This provision shall be binding upon the officers, directors and
attorneys of the Company.

 

6

 

13.0                        Confidentiality

 

Drook
acknowledges that during the course of his employment the Company has entrusted
him with various confidential documents and information relating to the
Company, including but not limited to its financial affairs, operations,
customers and business plans (“Confidential Information”).  Drook acknowledges that such Confidential
Information is secret and proprietary to the Company.  Drook agrees to maintain confidentially of all
such Confidential Information revealed to or known by him.  In the event that Drook receives a subpoena
or other request for Confidential Information in connection with any judicial,
administrative proceedings, or arbitration, Drook shall notify the Company as
soon as possible of any such subpoena or request for information, and, unless
ordered to do otherwise by a Court, administrative law judge, or arbitrator,
shall not produce any Confidential Information without first giving the Company
an opportunity to respond to such subpoena or request.

 

14.0                        Indemnification
and Liability Insurance Coverage

 

14.1                           To the
extent permitted by law, the Company shall indemnify Drook on the same terms available
to then current executive officers.

 

14.2                           The
Company shall take steps necessary to assure that Drook is afforded coverage
under the Company’s current and future directors and officers liability
insurance polices to the extent that such policies otherwise purchased by the
Company afford coverage to former officers and directors.

 

15.0                        Entire
Agreement

 

This Agreement
contains the entire agreement between Drook and the Company.  This Agreement supersedes all prior
correspondence, communications, negotiations and/or agreements, which are
merged herein, including but not limited to the employment contract between
Drook and the Company.  There are no
additional or prior promises, representations, terms or provisions other than
those contained herein.  Drook and the
Company agree that this Agreement may only be modified by a written instrument
signed by both parties and that neither will assert any claim against the other
based on any alleged agreement affecting or related to the terms of this
Agreement not in writing and signed by both. 
Drook and the Company acknowledge that reliance on any such agreement
not in writing would be unreasonable.

 

16.0                        Construction
of Agreement

 

16.1                           This
Agreement shall be interpreted under the substantive laws of the State of South
Dakota, without regard to its law of conflicts.

 

16.2                           This
Agreement shall not be construed more strictly against one party than the other
by virtue of the fact that it may have been prepared by one of the parties or
counsel for one of the parties.

 

16.3                           Drook
acknowledges and agrees that by entering into this Agreement, the Company
admits no liability to Drook of any nature.

 

16.4                           If any
portion of this Agreement is declared invalid or unenforceable, the remaining
terms of this Agreement shall continue in force and not be affected.

 

7

 

17.0                        Acknowledgment

 

Drook
acknowledges and represents that he has carefully read and fully understands
all of the provisions of the Agreement. 
Drook’s execution of this Agreement and waiver of rights herein is
knowing and voluntary and free of duress or coercion.  This Agreement releases rights and claims
arising under federal and state law, including without limitation the federal
Age Discrimination in Employment Act, 29 U.S.C chapter 14, as amended.  This Agreement does not waive rights or
claims that may arise after the date of execution of this Agreement.  This Agreement waives rights and claims in
exchange for valuable consideration to which Drook is not otherwise entitled.  Drook has been given the opportunity, if so
desired, to consult with an attorney at his own expense and to consider this
Agreement for twenty-one (21) days before deciding whether to sign it.  If Drook signs this Agreement before the
expiration of that twenty-one (21) day period, Drook acknowledges that such decision
was entirely voluntary and constitutes a waiver of any time remaining in the
consideration period.  Drook understands
that he has seven (7) days after he signs this Agreement (including the
releases in this Agreement) to revoke this Agreement (including the releases in
this Agreement).  If Drook chooses to
revoke this Agreement (including the releases in this Agreement), Drook shall
provide such revocation by (1) sending his revocation in writing (by fax
or certified mail return receipt requested) and also (2) returning to the
Company any sums Drook has received pursuant to this Agreement (including the
releases in this Agreement), and shall send such written revocation ands such
sums to the Company’s General Counsel Thomas J. Knapp by the end of the seven (7) day
period.  This Agreement (including the
releases in this Agreement) shall become effective and enforceable on the
eighth (8th ) day following Drook’s execution of this Agreement.

 

	
  AGREED:

  
	
   

  
	
  NORTHWESTERN
  CORPORATION

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
  Date:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
  GARY A. DROOK

  
	
   

  	
   

  
	
  Date:

  	
   

  	
   

  
				

 

8Exhibit 10.1

 

Summary
of Non-Employee Director Compensation(1)

 

	
  Annual
  Retainer

  	
   

  	
  $

  	
  25,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Committee
  Chair Annual Retainer

  	
   

  	
   

  	
   

  
	
  Audit
  Committee

  	
   

  	
  $

  	
  15,000

  	
   

  
	
  All Other
  Committees

  	
   

  	
  $

  	
  5,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Attendance
  at Board Meetings

  	
   

  	
   

  	
   

  
	
  In-Person
  Meetings

  	
   

  	
  $

  	
  5,000

  	
   

  
	
  Telephonic
  Meetings

  	
   

  	
  $

  	
  1,000

  	
   

  
	
  Committee
  Meetings

  	
   

  	
  $

  	
  2,500

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Independent
  Director Annual Equity Equivalent Grant

  	
   

  	
  $

  	
  100,000

  	
   

  

 

(1)          Employee directors are
compensated based on negotiated compensation packages.

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