Document:

Exhibit 10.1(a)

 

NORTHWESTERN
ENERGY

2005 EMPLOYEE
INCENTIVE PLAN

 

I.                                         Introduction

 

NorthWestern Energy
utilizes this Incentive Plan (Plan) to communicate desired business results and
to reward employees for their contributions toward achieving those business
results.

 

II.                                     Plan
Objectives

 

This Plan is designed to
achieve the following objectives:

 

•            Align the interests of shareholders,
customers and employees.

•            Create incentives for employees to maximize
stakeholder value.

•            Reward employees individually and as a team
by providing compensation opportunities consistent with company financial and
operating performance.

 

The Plan is funded
through improvements in consolidated operating income and consolidated cash
flow.  After implementation, the Plan
will be reviewed periodically to ensure that the desired results are being
achieved.

 

III.                                 Plan
Administration

 

The Plan is approved by
the Company’s Board of Directors (Board) and administered by the NorthWestern
Energy Incentive Plan Administration Committee (Committee) consisting of the
NorthWestern Energy President and CEO, COO, CFO and Vice President - Human
Resources and Communications.  The
Committee is responsible for all aspects of administration of the Plan, and is
responsible for resolving any conflicts or discrepancies that arise.  The Committee’s decision on any matter
associated with this Plan is final, subject to approval by the Board’s Human
Resources Committee.

 

IV.                                Performance
Period and Effective Date

 

The Plan’s performance
period is for the calendar year 2005. The Plan becomes effective January 1,
2005, and will continue until December 31, 2005, subject to suspension
and/or termination by the Company, at any time, without prior notice and at its
sole discretion, subject to approval by the Board’s Human Resources Committee.

 

V.                                    Participation
and Eligibility

 

All nonunion full-time,
regular part-time, and supplemental employees of NorthWestern Energy actively
employed on the last day of the calendar year are eligible to receive payments
under the Plan provided they have been employed by the Company for one full
calendar quarter.  Eligibility for
represented employees is subject to the terms of their respective collective
bargaining agreements.  To participate in
the plan, employees must have written goals and objectives consistent with
NorthWestern Energy’s goals and objectives.  These employee goals must target

 

 

results that meet or
exceed the normal requirements of the position and that contribute to meeting
the goals and objectives of the company.  Goals and objectives can be based on either
individual or group performance; however, each employee must have at least one
goal that contributes to cost reduction or process improvement.

 

VI.                                Individual
Awards

 

Awards to plan
participants from the Performance Pool will be determined based on individual
performance ratings that evaluate achievement against established goals and
objectives as well as overall job performance.  Leaders will evaluate individual employee’s
overall performance during the period covered by the plan to determine
individual awards.  Participating
employees must fully meet acceptable performance standards to be eligible for
an award.  For nonrepresented employees,
this is defined as receiving a performance rating of “3” or above during the
most recent performance evaluation process.  Employees are not eligible to participate
while under an active step of Progressive Discipline.  Employees whose performance is not at an
acceptable level or who have received a performance rating of “2” or below are
not eligible for an award.

 

Employees are eligible for a prorated incentive award based
upon the amount of time served in an eligible status with NorthWestern Energy
during the performance period if they:

 

(1)          are classified as seasonal supplemental (except first-year),

 

(2)          had previously been under an active step of Progressive Discipline for
a portion of the performance period,

 

(3)          work on a part-time basis, or

 

(4)          are granted unpaid leave, including military leave, that is nonmedical
in nature and that exceeds 80 hours.

 

Temporary, first-year seasonal supplemental and summer employees, as
well as independent contractors, are not eligible to participate.

 

Distributions under the Plan are at the discretion of the Incentive
Plan Administration Committee, subject to approval of the Board’s Human
Resources Committee.

 

Distributions from the
Plan do not guarantee any right to continued employment and management reserves
the right to terminate participants.  A
distribution from the Plan in any one performance period does not guarantee the
participant the right to participate in any subsequent performance period.

 

VII.                            Target
Incentives

 

Target incentives for
each participating employee is set by their position and will be expressed as a
percentage of base salary.  Each
participant’s target incentive is subject to approval by the Human Resources
Department and any changes will be communicated in writing to
participants.  Senior executive incentive
targets will be approved by the Board’s Human Resources Committee.

 

2

 

VIII.                        Performance
Pool

 

The Performance Pool will
be created based on five factors including consolidated operating income,
consolidated cash flow, electric service reliability, customer satisfaction and
employee safety.  Each of these measures
will be calculated at the conclusion of the performance period.  Periodic accruals will be made to provide for
the Performance Pool at year-end.  The
Performance Pool will be funded in accordance with Table 1.

 

Table 1

 

	
   

  	
   

  	
   

  	
   

  	
  Target

  	
   

  	
  Target

  	
   

  
	
  Incentive Item

  	
   

  	
  Weight

  	
   

  	
  Incentive

  	
   

  	
  0%

  	
   

  	
  50%

  	
   

  	
  100%

  	
   

  	
  150%

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  ($ millions)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  < 90

  	
  %

  	
  90

  	
  %

  	
  100

  	
  %

  	
  110

  	
  %

  
	
  Consolidated

  	
   

  	
  40

  	
  %

  	
  $2.60

  	
   

  	
  < $129

  	
   

  	
  $129

  	
   

  	
  $143

  	
   

  	
  $157

  	
   

  
	
  Operating Income

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   $0.00

  	
   

  	
  $1.30

  	
   

  	
  $2.60

  	
   

  	
  $3.90

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  < 90

  	
  %

  	
  90

  	
  %

  	
  100

  	
  %

  	
  110

  	
  %

  
	
  Consolidated Cash Flow

  	
   

  	
  25

  	
  %

  	
  $1.63

  	
   

  	
  < $142

  	
   

  	
  $142

  	
   

  	
  $158

  	
   

  	
  $174

  	
   

  
	
  from Operations

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   $0.00

  	
   

  	
  $0.81

  	
   

  	
  $1.63

  	
   

  	
  $2.44

  	
   

  
	
  Reliability
(SAIDI, CAIDI, SAIFI

  	
   

  	
  15

  	
  %

  	
  $0.98

  	
   

  	
  < 1

  	
   

  	
  1 indicies 

  	
   

  	
  2 indicies 

  	
   

  	
  3 indicies

  	
   

  
	
  Improvement over NW prior 3-yr
  avg)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   $0.00

  	
   

  	
  $0.49

  	
   

  	
  $0.98

  	
   

  	
  $1.46

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Below

  	
   

  	
   

  	
   

  	
  2 pts above

  	
   

  	
  4 pts above

  	
   

  
	
  Customer Satisfaction Index

  	
   

  	
  15

  	
  %

  	
  $0.98

  	
   

  	
  Region Avg.

  	
   

  	
  Region Avg.

  	
   

  	
  Region Avg.

  	
   

  	
  Region Avg.

  	
   

  
	
  (JD Powers Index - Western
  Region)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $0.00

  	
   

  	
  $0.49

  	
   

  	
  $0.98

  	
   

  	
  $1.46

  	
   

  
	
  Safety

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (2005 OSHA

  	
   

  	
  5

  	
  %

  	
  $0.33

  	
   

  	
  > 5.57

  	
   

  	
  5.57

  	
   

  	
  5.25

  	
   

  	
  5.00

  	
   

  
	
  Recordable Target Rate)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   $0.00

  	
   

  	
  $0.16

  	
   

  	
  $0.33

  	
   

  	
  $0.49

  	
   

  
	
  TOTAL

  	
   

  	
  100

  	
  %

  	
  $6.50

  	
   

  	
   $0.00

  	
   

  	
  $3.25

  	
   

  	
  $6.50

  	
   

  	
  $9.75

  	
   

  

 

The
minimum funding of the pool is 50% of the target amount.  Performance must be at 90% of target to
achieve 50% funding of the pool.  The
maximum payout is 150% of the target amount and will be based on achieving 110%
of targeted performance.

 

In
calculating performance against target, adjustments will be made either
positively or negatively for one-time events and extraordinary nonbudgeted
items as approved by the Board’s Human Resources Committee.

 

As soon as possible after the end of the performance period,
NorthWestern Energy will calculate the actual performance and compare it to the
performance targets.  Such calculations
shall be finally determined in the sole discretion of Board’s Human Resources
Committee or an appointed designee.  Employees
shall have no recourse, appeal or challenge available from this final
determination.  Summary results will be
provided to employees.

 

3

 

IX.                                Performance
Pool Distribution and Incentive Pay Calculation

 

Individual employee performance is a key consideration in calculating
distribution of incentive pay.  The
Performance Pool will be allocated to each functional officer using total
target incentive dollars at the end of the Performance Period for eligible
employees in each functional unit, division or department.  The functional officer will then allocate the
pool to his or her leaders as appropriate based on either obtaining
department/division performance goals or individual employee performance.  The following guidelines will be followed in
calculating individual target payouts based on either obtaining
department/division performance goals or individual performance.

 

Guidelines for Individual Target
Payout

 

	
  Performance Rating

  	
   

  	
  Incentive target multiplier

  
	
  Performance Code 1

  	
   

  	
  No incentive Paid

  
	
  Performance Code 2

  	
   

  	
  No incentive paid

  
	
  Performance Code 3 or 999

  	
   

  	
  0.75 – 1.10

  
	
  Performance Code 4

  	
   

  	
  1.10 – 1.30

  
	
  Performance Code 5

  	
   

  	
  1.30 – 1.50

  

 

These guidelines may be modified at the discretion of the Board’s Human
Resources Committee in the event of payout other than at target level.  In no case will the total payouts in a given
pool exceed the total dollars available for that pool.

 

X.                                    Payment
of Awards

 

Awards will be included
with and in the same manner as each employee’s normal payroll processing,
either in the form of Company check or direct deposit.  Awards will be paid out to employees as soon
as practicable, generally within 60 days of the end of the performance period.  At the Company’s discretion, awards may be
spread over a time period not to exceed the remainder of the calendar year or
made in an alternative manner.

 

Awards may not be made
under the Plan if, in the sole and final judgment of the Board’s Human
Resources Committee, the overall financial condition of the Company is insufficient
to support awards.

 

XI.                                Other
Considerations

 

All awards are subject to
income tax withholding and garnishment requirements.  No right or interest in the Plan is
transferable or assignable.

 

Approved by the Board of
Directors as of

 

4Exhibit 10.1(c)

 

 

 

`NORTHWESTERN CORPORATION

2005 DEFERRED COMPENSATION PLAN

FOR NON-EMPLOYEE DIRECTORS

 

 

Effective February 1, 2005

 

 

 

TABLE OF CONTENTS

 

	
  ARTICLE
  1

  	
   

  	
  DEFINITIONS

  	
  1

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  2

  	
   

  	
  ELIGIBILITY

  	
  4

  
	
   

  	
   

  	
   

  	
   

  
	
  2.1

  	
  Requirements for
  Participation

  	
  4

  
	
   

  	
   

  	
   

  
	
  2.2

  	
  Enrollment Procedure

  	
  4

  
	
   

  	
   

  	
   

  
	
  ARTICLE 3

  	
   

  	
  PARTICIPANTS’ DEFERRALS

  	
  4

  
	
   

  	
   

  	
   

  	
   

  
	
  3.1

  	
  Deferral of
  Qualified Compensation

  	
  4

  
	
   

  	
   

  	
   

  
	
  3.2

  	
  Modification of
  Deferral Elections

  	
  4

  
	
   

  	
   

  	
   

  
	
  ARTICLE 4

  	
   

  	
  DEFERRED
  COMPENSATION ACCOUNTS

  	
  4

  
	
   

  	
   

  	
   

  	
   

  
	
  4.1

  	
  Deferred
  Compensation Accounts

  	
  4

  
	
   

  	
   

  	
   

  
	
  4.2

  	
  Account Elections

  	
  5

  
	
   

  	
   

  	
   

  
	
  4.3

  	
  Crediting of
  Deferred Compensation

  	
  5

  
	
   

  	
   

  	
   

  
	
  4.4

  	
  Crediting of Earnings

  	
  5

  
	
   

  	
   

  	
   

  
	
  4.5

  	
  Applicability of
  Account Values

  	
  5

  
	
   

  	
   

  	
   

  
	
  4.6

  	
  Vesting
  of Deferred Compensation Accounts

  	
  5

  
	
   

  	
   

  	
   

  
	
  4.7

  	
  Assignments, Etc.
  Prohibited

  	
  5

  
	
   

  	
   

  	
   

  
	
  ARTICLE 5

  	
   

  	
  DISTRIBUTION OF
  ACCOUNTS

  	
  6

  
	
   

  	
   

  	
   

  	
   

  
	
  5.1

  	
  Distributions
  upon a Participant’s Separation from Service

  	
  6

  
	
   

  	
   

  	
   

  
	
  5.2

  	
  Distributions
  upon a Participant’s Death

  	
  6

  
	
   

  	
   

  	
   

  
	
  5.3

  	
  Election
  of Manner and Time of Distribution

  	
  7

  
	
   

  	
   

  	
   

  
	
  5.4

  	
  Applicable
  Taxes

  	
  7

  
	
   

  	
   

  	
   

  
	
  5.5

  	
  Nature and
  Sources of Benefit Payments

  	
  7

  
	
   

  	
   

  	
   

  
	
  ARTICLE 6

  	
   

  	
  WITHDRAWALS FROM
  ACCOUNTS

  	
  8

  
	
   

  	
   

  	
   

  	
   

  
	
  6.1

  	
  Hardship
  Distributions from Accounts

  	
  8

  
	
   

  	
   

  	
   

  
	
  6.2

  	
  Payment of Withdrawals

  	
  8

  
	
   

  	
   

  	
   

  
	
  6.3

  	
  Effect of Withdrawals

  	
  8

  
	
   

  	
   

  	
   

  
	
  6.4

  	
  Applicable
  Taxes

  	
  8

  
	
   

  	
   

  	
   

  
	
  ARTICLE 7

  	
   

  	
  ADMINISTRATIVE
  PROVISIONS

  	
  8

  
	
   

  	
   

  	
   

  	
   

  
	
  7.1

  	
  Administrator’s
  Duties and Powers

  	
  8

  
	
   

  	
   

  	
   

  
	
  7.2

  	
  Limitations Upon Powers

  	
  9

  
	
   

  	
   

  	
   

  
	
  7.3

  	
  Final Effect
  of Administrator Action

  	
  9

  
	
   

  	
   

  	
   

  
	
  7.4

  	
  Delegation by
  Administrator

  	
  9

  
	
   

  	
   

  	
   

  
	
  7.5

  	
  Indemnification by
  the Company; Liability Insurance

  	
  10

  

 

 

	
  7.6

  	
  Recordkeeping

  	
  10

  
	
   

  	
   

  	
   

  
	
  7.7

  	
  Statement to Participants

  	
  10

  
	
   

  	
   

  	
   

  
	
  7.8

  	
  Inspection of Records

  	
  10

  
	
   

  	
   

  	
   

  
	
  7.9

  	
  Identification of
  Fiduciaries

  	
  10

  
	
   

  	
   

  	
   

  
	
  7.10

  	
  Procedure
  for Allocation of Fiduciary Responsibilities

  	
  10

  
	
   

  	
   

  	
   

  
	
  7.11

  	
  Claims Procedure

  	
  11

  
	
   

  	
   

  	
   

  
	
  7.12

  	
  Conflicting Claims

  	
  13

  
	
   

  	
   

  	
   

  
	
  7.13

  	
  Service of Process

  	
  13

  
	
   

  	
   

  	
   

  
	
  7.14

  	
  Fees

  	
  13

  
	
   

  	
   

  	
   

  
	
  ARTICLE 8

  	
   

  	
  MISCELLANEOUS
  PROVISIONS

  	
  13

  
	
   

  	
   

  	
   

  	
   

  
	
  8.1

  	
  Termination of the Plan

  	
  13

  
	
   

  	
   

  	
   

  
	
  8.2

  	
  Limitation on
  Rights of Participants

  	
  13

  
	
   

  	
   

  	
   

  
	
  8.3

  	
  Consolidation
  or Merger; Adoption of Plan by Other Companies

  	
  14

  
	
   

  	
   

  	
   

  
	
  8.4

  	
  Errors and Misstatements

  	
  14

  
	
   

  	
   

  	
   

  
	
  8.5

  	
  Payment on Behalf
  of Minor, Etc

  	
  14

  
	
   

  	
   

  	
   

  
	
  8.6

  	
  Amendment
  of Plan

  	
  14

  
	
   

  	
   

  	
   

  
	
  8.7

  	
  Governing
  Law

  	
  14

  
	
   

  	
   

  	
   

  
	
  8.8

  	
  Pronouns and Plurality

  	
  15

  
	
   

  	
   

  	
   

  
	
  8.9

  	
  Titles

  	
  15

  
	
   

  	
   

  	
   

  
	
  8.10

  	
  References

  	
  15

  
	
   

  	
   

  	
   

  
	
  Exhibit A

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Exhibit B

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Exhibit C

  	
   

  	
   

  	
   

  

 

2

 

NORTHWESTERN CORPORATION

2005 DEFERRED COMPENSATION PLAN

FOR NON-EMPLOYEE DIRECTORS

 

Effective February 1, 2005

 

PREAMBLE

 

NorthWestern Corporation (the “Company”),
a Delaware corporation, by resolution of its Board of Directors dated January        ,
2005, has adopted this NorthWestern Corporation 2005 Deferred Compensation Plan
for Non-Employee Directors (the “Plan”),
effective as of February 1, 2005, for the benefit of non-employee members of
its Board of Directors.

 

The Plan is a nonqualified deferred compensation plan
which is unfunded and is maintained primarily for the purpose of providing
deferred compensation for non-employee directors of the Company.

 

ARTICLE 1

Definitions

 

Whenever
the following terms are used in the Plan with the first letter capitalized,
they shall have the meaning specified below unless the context clearly
indicates to the contrary.

 

1.1                                 “Account” of a Participant shall mean the
Participant’s individual deferred compensation account established for his or
her benefit pursuant to Section 4.1 hereof that is credited with amounts equal
to (a) the portion of the Participant’s Qualified Compensation that he or she
elects to defer pursuant to Section 3.1, and (b) earnings and losses pursuant
to Section 4.5.

 

1.2                                 “Administrator” shall mean NorthWestern
Corporation, acting through the Board and any committee that the Board has
appointed to act at its pleasure to administer the Plan.  If the Board or a committee of the Board appoints
any Delegate under Section 7.4 hereof, the term “Administrator” shall mean the
Delegate as to those duties, powers and responsibilities specifically conferred
upon the Delegate.  Notwithstanding any
delegation of authority, the Board shall, with respect to any matter arising
under this Plan, have the authority to act in lieu of the Administrator, any
Delegate, any sub-committee, or any other person.

 

1.3                                 “Board” shall mean the Board of Directors
of NorthWestern Corporation.  The Board
may delegate any power or duty otherwise allocated to the Administrator to any
other person or persons, including a sub-committee or sub-committees, appointed
under Section 7.4 hereof.

 

1.4                                 “Change in Control” shall
mean any of the following:

 

(a)                                  the
acquisition by any person, entity or group of persons, within the meaning of
Treas. Reg. § 1.280G-1, Q/A 27(b), of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of stock of the Company that,
together with Company stock held by such person, entity or group, constitutes
at least fifty percent (50%) of either the total fair market value or total
voting power of the Company’s then outstanding stock, or

 

 

(b)                                 the
acquisition (or series of acquisitions over the twelve (12)-month period ending
on the date of the most recent acquisition) by any person, entity or group of
persons, within the meaning of Treas. Reg. § 1.280G-1, Q/A 27(b), of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of stock of the Company that that constitutes thirty-five percent (35%) or more
of the total voting power of the stock of the Company, or

 

(c)                                  the
replacement during any twelve (12)-month period of a majority of the members of
the Board by directors whose appointment or election is not endorsed by a
majority of the Board prior to their appointment or election, or

 

(d)                                 the
acquisition (or series of acquisitions over the twelve (12)-month period ending
on the date of the most recent acquisition) by any person, entity or group of
persons, within the meaning of Treas. Reg. § 1.280G-1, Q/A 27(b), of ownership
of forty percent (40%) or more of the total gross fair market value of the
Company’s assets immediately prior to such acquisition or series of
acquisitions.

 

1.5                                 “Code” shall mean the Internal Revenue
Code of 1986, as amended from time to time, together with regulations there
under.

 

1.6                                 “Company” shall mean NorthWestern
Corporation and all of its affiliates, and any entity which is a successor in
interest to the Company.

 

1.7                                 “Deferred Share Units” shall have the meaning set forth in
Section 9 of the Company’s 2004 Employee Incentive Plan.

 

1.8                                 “Delegate” shall mean each Delegate
appointed in accordance with Section 7.4.

 

1.9                                 “Disability” shall mean a Participant’s
condition such that he or she is (a) unable to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or can be expected to last
for a continuous period of not less than twelve (12) months, or (b) is, by
reason of any medically determinable physical or mental impairment which 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 or health plan covering employees of the participant’s
employer.

 

1.10                           “Eligible Person” shall mean all
non-employee members of the Board.

 

1.11                           “Enrollment Documents” shall mean the
Deferral Election Form, the Investment Election Form, and the Distribution
Election Form in the form attached hereto as Exhibits A, B, and C,
respectively.  The Administrator shall have the discretion to change the terms and
conditions of any Enrollment Document at any time prior to the date on which it
becomes a legally binding agreement pursuant to the terms of Section 3.1 below.

 

1.12                           “ERISA” shall
mean the Employee Retirement Income Security Act of 1974, as amended from time
to time, together with regulations there under.

 

1.13                           “Exchange Act” shall mean the Securities
Exchange Act of 1934, as amended.

 

2

 

1.14                           “Hardship” of a Participant, shall mean an
unforeseeable emergency that is caused by an event beyond the control of the
Participant that would result in severe financial hardship resulting from any
one or more of the following:

 

(a)                                  a
sudden and unexpected illness or accident of the Participant, the Participant’s
spouse, or a dependent (as defined in Code Section 152(a)) of the Participant;

 

(b)                                 a
loss of the Participant’s property due to casualty; or

 

(c)                                  other
such extraordinary and unforeseeable circumstances arising as a result of
events beyond the Participant’s control.

 

Examples
of purposes that are not considered to be a Hardship include post-secondary
school expenses or the desire to purchase a residence.  Whether a Participant has incurred a Hardship
shall be determined by the Administrator in its discretion on the basis of all
relevant facts and circumstances and in accordance with nondiscriminatory and
objective standards, uniformly interpreted and consistently applied.

 

1.15                           “Investment Fund” shall mean any of the
investment funds that the Administrator so designates as available investment
vehicles for measuring the return on Accounts under the Plan.

 

1.16                           “Participant” shall mean each Eligible
Person who elects to participate in the Plan as provided in Article 2 and who
defers Qualified Compensation pursuant to Article 3 of the Plan.  Each of such persons shall continue to be a “Participant”
until they have received all benefits due under the Plan.

 

1.17                           “Plan” shall mean the NorthWestern Corporation
2005 Deferred Compensation Plan for Non-Employee Directors.

 

1.18                           “Plan Year” shall mean the 12-month period
beginning on January 1st and ending on December 31st.

 

1.19                           “Qualified Compensation” shall mean any
compensation which may be payable to a Participant that may be designated on an
Deferral Election Form.

 

1.20                           “Separation from Service” shall mean a
Participant’s termination of service as a member of the Board of the Company
for any reason, including the Participant’s involuntary termination,
resignation, death, Disability, or retirement.

 

1.21                           “Trust” shall mean the trust established
by the NorthWestern Corporation Grantor Trust Agreement.

 

1.22                           “Trustee” shall mean the trustee of the Trust, and shall refer to the
successor of any trustee who resigns or is removed in accordance with the terms
of the Trust.

 

3

 

ARTICLE 2

Eligibility

 

2.1                                 Requirements for Participation.  Any
Eligible Person who executes the Enrollment Documents shall become a
Participant on the date on which the Administrator receives and accepts such
documents.

 

2.2                                 Enrollment Procedure.  The
Company will be deemed to have accepted an Eligible Person’s Enrollment
Documents as of the date of their delivery to the Company’s Corporate Secretary
or Delegate, unless the Administrator sends the Eligible Person a written
notice of rejection within ten (10) business days after receiving the
Enrollment Documents.

 

ARTICLE 3

Participant Deferrals

 

3.1                                 Deferral of Qualified Compensation.  To the extent allowed by the Administrator,
each Eligible Person may elect to defer into his or her Account up to
100% of any Qualified Compensation that would otherwise be payable to him or
her for any Plan Year, subject to any conditions or limitations that the
Administrator may implement for a Plan Year through a written notice delivered
to Eligible Persons at least thirty (30) days before the Plan Year begins.

 

An
Eligible Person shall make any election pursuant to this Section 3.1 by
completing and delivering his or her Enrollment Documents to the Administrator
no later than the December 15th preceding the Plan Year to which they
relate.  Notwithstanding the foregoing,
with respect to the Plan Year beginning in 2005 or to individuals who first
become eligible for the Plan during the course of an ongoing Plan year,
Eligible Persons may complete and deliver to the Administrator his or her
Enrollment Documents within thirty (30) days of the date they become eligible
for Plan participation, in which event the Enrollment Documents shall apply
only to Qualified Compensation that would otherwise be payable for services
performed after such deferral election is made.

 

3.2                                 Modification
of Deferral Elections. 
A Participant’s election to defer Qualified Compensation is irrevocable
for the Plan Year to which it relates, subject to the right of the Participant
to terminate future deferrals during a Plan Year by written notice to the
Administrator, in which event the Administrator shall as soon as
administratively practical apply such termination to Qualified Compensation
which has not yet been earned or deferred by the Participant.

 

ARTICLE
4

Deferred Compensation Accounts

 

4.1                                 Deferred Compensation Accounts.  The
Administrator shall establish and maintain for each Participant an Account to
which shall be credited pursuant to Section 4.3 hereof, and from which shall be
debited the Participant’s distributions and withdrawals under Articles 5 and
6.  Such Account may be a simple account
payable in the Company’s financial records.

 

4

 

4.2                                 Account Elections.

 

(a)                                  At
the time of making the deferral elections described in Section 3.1, the
Administrator may in its discretion permit one or more Participants to
designate whether such deferral shall be irrevocably credited to his or her
Account in cash or DSUs, or some combination of the two.  Notwithstanding the foregoing, to the extent
a Participant defers Qualified Compensation that would otherwise be paid in
shares of the Company’s common stock, those shares (and any earnings thereon)
shall be credited to the Participant’s Account and shall be used to settle that
portion of the Participant’s Account.

 

(b)                                 With
respect to deferrals credited in cash to a Participant’s Account, the
Participant must designate, on the investment election form provided by the
Administrator as part of the Enrollment Documents, the Investment Funds in
which the Participant’s Account will be deemed to be invested for purposes of
determining the amount of earnings to be credited to his or her Account.  In making the designation pursuant to this
Section 4.2(b), the Participant may specify that all or any fraction of his or
her Account be deemed to be invested, in whole percentage increments, in one or
more of the Investment Funds provided under the Plan as communicated from time
to time by the Administrator.  Effective
as of the end of any calendar month, a Participant may change the designation
made under this Section 4.2(b) by filing a superseding investment election form
by the 25th day of such month.

 

4.3                                 Crediting of Deferred Compensation.  As
of the first day of each calendar month that begins after the Plan takes
effect, each Participant’s Account shall be credited with an amount that is
equal to the amount of the Participant’s Qualified Compensation which such
Participant has elected to defer under Article 3 and which would otherwise have
been paid in cash to the Participant during the preceding month.

 

4.4                                 Crediting of Earnings.  With respect to each Participant’s
Account, beginning with the first day of the month after the Plan takes effect,
earnings, if any, shall be credited at a rate equal to the earnings experience
of the Investment Fund(s) selected by the Participant on his or her Investment
Election Form for that percentage of the Participant’s Accounts that are
invested in each selected Investment Fund. 
Earnings shall be credited on such valuation dates as the Administrator
shall determine, but not less frequently than once per calendar year.

 

4.5                                 Applicability of Account Values.  The
value of each Participant’s Account as determined as of a given date under this
Article, plus any amounts subsequently allocated thereto under this Article,
and less any amounts distributed or withdrawn under Articles 5 or 6 shall
remain the value thereof for all purposes of the Plan until the Account is
revalued hereunder.

 

4.6                                 Vesting of Deferred Compensation Accounts.  Each
Participant’s interest in his or her Account shall be 100% vested and
non-forfeitable at all times.

 

4.7                                 Assignments, Etc. Prohibited.  No
part of any Participant’s Account shall be liable to anyone other than the
Company for the debts, contracts or engagements of the Participant, or the
Participant’s beneficiaries or successors in interest, or be taken in execution
by levy, attachment or garnishment or by any other legal or equitable
proceeding, nor shall any such person have any rights to alienate, anticipate,
commute, pledge, encumber or assign any benefits or payments hereunder in any
manner whatsoever except to designate a beneficiary as provided in Section 5.3.

 

5

 

ARTICLE 5

Distribution of Accounts

 

5.1                                 Distributions upon a Participant’s Separation from
Service.  The Account of a Participant who
incurs a Separation from Service other than on account of death shall be paid
to the Participant as elected in accordance with Section 5.3.  The Participant may choose from among the
following forms of distribution:

 

(a)                                  A
lump sum distribution payable within thirty (30) days following his or her
Separation from Service.

 

(b)                                 Approximately
equal annual installments over any designated number of years (not to exceed
ten (10)) from the date the payments commence, which shall commence —

 

(1)                                  a
date that is within thirty (30) days following the date of the Participant’s
Separation from Service;

 

(2)                                  on
the January 1st that next follows a specified number of years after the date of
such Separation from Service;

 

(3)                                  on
a specified anniversary of the date of such Separation of Service;

 

(4)                                  on
a specified date, such as the Participant attaining a specified age (but not an
occurrence such as a child commencing college); or

 

(5)                                  on
a Change in Control of the Company, in accordance with Section 409A of the Code and its associated regulations.

 

A
Participant may elect a distribution pursuant to this Section 5.1 in such other
forms, or payable upon such other commencement dates, as are specified by the
Administrator in the Enrollment Documents; provided, however, that no such
election shall provide for payments to be made more than ten (10) years after
such Participant’s Separation from Service.

 

5.2                                 Distributions upon a Participant’s Death. 
Notwithstanding anything to the contrary in the Plan, the remaining
balance of the Account of a Participant who dies (i) shall be paid to the
persons and entities designated by the Participant as his or her beneficiaries
for such purpose and (ii) shall be paid in the manner set forth in this Section
5.2.  Upon a Participant’s death, such
balance shall be paid as specified by the Participant in an election made
pursuant to Section 5.3.  Such election
shall specify whether payment shall be made –

 

(a)                                  in
a lump-sum distribution within thirty (30) days following the Participant’s
death, which shall be the default form of distribution absent a clear election;
or

 

(b)                                 in
accordance with the distribution election made pursuant to Section 5.1 hereof
(in which case such Participant’s death shall be considered the date of such
Participant’s Separation from Service for purposes of determining the date of
commencement of distribution under such election).

 

6

 

If the
Participant fails to make a beneficiary election pursuant to Section 5.3, his
or her spouse shall be deemed to be the beneficiary of his or her Account,
provided that if the Participant does not have a spouse at the time of his or
her death, the Participant’s estate shall be deemed to be the beneficiary of
his or her Account.

 

5.3                                 Election of Manner and Time of Distribution. 
At the time a Participant elects to defer Qualified Compensation under
Article 3, he or she shall make distribution elections on the Enrollment
Documents and deliver such forms to the Administrator.  Such elections shall apply to the portion of
the Participant’s Account that is attributable to Qualified Compensation
deferred under the applicable Enrollment Documents while such Enrollment
Documents are in effect.  A Participant
may change such elections through one or more subsequent elections that in each
case (i) do not take effect until at least twelve (12) months after the date on
which such election is made, (ii) are delivered to the Administrator at least
one (1) year before the date on which distributions are otherwise scheduled to
commence pursuant to the Participant’s election from the choices set forth in
Section 5.1(b)(2) through 5.1(b)(5) hereof, and (iii) defer the commencement of
distributions by at least five (5) years from the originally scheduled
commencement date (except for distributions that commence because of the
Participant’s death, Disability, or Hardship).

 

5.4                                 Applicable Taxes.  All
distributions under the Plan shall be subject to withholding for all amounts
that the Company is required to withhold under federal, state or local tax law.

 

5.5                                 Nature and Sources of Benefit Payments.

 

(a)                                  The
Company shall make distributions of Accounts in cash, except to the extent a
Participant has elected pursuant to Sections 3.1 and 4.2 above either (i) to
defer compensation into Deferred Share Units (as defined in the Company’s 2005
Long-Term Incentive Plan (the “LTIP”) that shall be issued pursuant to the
LTIP, in which event that distribution shall occur in shares of the Company’s
common stock, or (ii) to defer Qualified Compensation that would otherwise be
paid in shares of the Company’s common stock.

 

(b)                                 The
Company shall make cash distributions to Participants and their beneficiaries
only from its general assets, provided that the Company may at any time create
a Trust with a Trustee.  If the Company
creates a Trust, the Company shall cause the Trust to be funded as soon as
practicable after the end of each calendar month.  The Company shall contribute liquid assets to
the Trust in an amount equal to (1) the amount deferred and elected to be
credited in cash by each Participant; and (2) net of any distributions paid
pursuant to Article 6.  Notwithstanding
the creation of a Trust, Participants shall at all times have the status of
general unsecured creditors with respect to their rights under the Plan.

 

(c)                                  Notwithstanding
the foregoing, as soon as practicable following a Change in Control, the
Company shall create a Trust with the Trustee. 
The Company shall contribute liquid assets to the Trust in an amount
equal to the sum of (i) the aggregate Account balances of all Participants at
the time the Change in Control occurred, and (ii) the reasonable costs expected
to be necessary in order for the Trust proceeds to pay for the Trust’s
administration until its final termination.

 

(d)                                 Although
the principal of the Trust and any earnings thereon shall be held separate and
apart from other funds of the Company and shall be used exclusively for the
uses and

 

7

 

purposes of Participants and beneficiaries as set
forth therein, neither the Participants nor their beneficiaries shall have any
preferred claim on, or any beneficial ownership in, any assets of the Trust
prior to the time such assets are paid to the Participants or beneficiaries as
benefits and all rights created under this Plan shall be unsecured contractual
rights of Participants and beneficiaries against the Company.  Any assets held in the Trust will be subject
to the claims of Company’s general creditors under federal and state law in the
event of insolvency as defined in the Trust.

 

ARTICLE 6

Withdrawals From Accounts

 

6.1                                 Hardship
Distributions from Accounts.  In the event a Participant suffers
a Hardship, the Participant may apply to the Administrator 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 Administrator shall determine whether a
Participant has a qualifying Hardship and the amount which qualifies for
distribution, if any.  The Administrator
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 $175,000 for the
Chairman of the Board or $100,000 for all other Participants (or the entire
vested principal amount of the Participant’s Accounts, if less).

 

6.2                                 Payment of Withdrawals.  All
withdrawals under this Article 6 shall be paid within thirty (30) days after a
valid election to withdraw is delivered to the Administrator.  The Administrator shall give prompt notice to
the Participant if an election is invalid and is therefore rejected,
identifying the reason(s) for the invalidity. 
If the Administrator has not paid but has not affirmatively rejected an
election within the thirty (30) day deadline, then the election shall be deemed
rejected on the thirtieth (30th) day.  If a withdrawal election is rejected, the
Participant may bring a claim for benefits under Section 7.11.

 

6.3                                 Effect of Withdrawals.  If
a Participant receives a withdrawal under this Article 6 after payments have
commenced under Section 5.1, the remaining payments shall be recalculated, by
reamortizing the remaining payments over the remaining term and applying the
method used to credit earnings under Section 4.3.

 

6.4                                 Applicable Taxes.  All
withdrawals under the Plan shall be subject to withholding for all amounts
which the Company is required to withhold under federal, state or local tax
law.

 

ARTICLE 7

Administrative Provisions

 

7.1                                 Administrator’s Duties and Powers.  The
Administrator shall conduct the general administration of the Plan in
accordance with the Plan and shall have all the necessary power, authority and
discretion to carry out that function. Among its necessary powers and duties
are the following:

 

8

 

(a)                                  To
delegate all or part of its function as Administrator to others and to revoke
any such delegation.

 

(b)                                 To
determine questions of eligibility of Participants and their entitlement to
benefits, subject to the provisions of Section 7.11.

 

(c)                                  To
select and engage attorneys, accountants, actuaries, trustees, appraisers,
brokers, consultants, administrators, physicians, or other persons to render
service or advice with regard to any responsibility the Administrator or the
Board has under the Plan, or otherwise, to designate such persons to carry out
fiduciary responsibilities under the Plan, and (together with the
Administrator, the Company, the Board and the officers and Employees of the
Company) to rely upon the advice, opinions or valuations of any such persons,
to the extent permitted by law, being fully protected in acting or relying
thereon in good faith.

 

(d)                                 To
interpret the Plan and any relevant facts for purpose of the administration and
application of the Plan, in a manner not inconsistent with the Plan or
applicable law and to amend or revoke any such interpretation.

 

(e)                                  To
conduct claims procedures as provided in Section 7.11.

 

7.2                                 Limitations Upon Powers.  The
Plan shall be uniformly and consistently administered, interpreted and applied
with regard to all Participants in similar circumstances.  The Plan shall be administered, interpreted
and applied fairly and equitably and in accordance with the specified purposes
of the Plan.  Notwithstanding the
foregoing, the distribution forms and commencement dates specified in Section
5.1 shall apply to such Participants, and in such manner, as the Administrator
determines in its sole discretion.

 

7.3                                 Final Effect of Administrator Action.  Except
as provided in Section 7.11, all actions taken and all determinations made by
the Administrator shall, unless arbitrary and capricious, be final and binding
upon all Participants, the Company, and any person interested in the Plan.

 

7.4                                 Delegation by Administrator.

 

(a)                                  The
Administrator may, but need not, appoint a Delegate which may be a single
individual or a sub-committee or sub-committees consisting of two or more
members, to hold office during the pleasure of the Administrator. The Delegate
shall have such powers and duties as are delegated to it by the Administrator.
The Delegate and/or sub-committee members shall not receive payment for their
services as such.

 

(b)                                 Appointment
of the Delegate and/or sub-committee members shall be effective upon the filing
of written acceptance of appointment with the Administrator.

 

(c)                                  The
Delegate and/or sub-committee member may resign at any time by delivering
written notice to the Administrator.

 

(d)                                 Vacancies
in the Delegate and/or sub-committee shall be filled by the Administrator.

 

9

 

(e)                                  If
there is a sub-committee, the sub-committee shall act by a majority of its
members in office; provided, however, that the sub-committee may appoint one of
its members or a delegate to act on behalf of the sub-committee on matters
arising in the ordinary course of administration of the Plan or on specific
matters.

 

7.5                                 Indemnification by the Company; Liability Insurance.  The Company shall pay or reimburse
any of the Company’s officers, directors, Administrator, sub-committee members,
Delegates, or Employees who are fiduciaries with respect to the Plan for all
expenses incurred by such persons with respect to, and shall indemnify and hold
them harmless from, all claims, liability and costs (including reasonable attorneys’
fees) arising out of the performance of their duties under the Plan, provided
that such persons do not act negligently in the performance of such duties. The
Company may obtain and provide for any such person, at the Company’s expense,
liability insurance against liabilities imposed on such person by law.

 

7.6                                 Recordkeeping

 

(a)                                  The
Administrator shall maintain suitable records of each Participant’s Account
which, among other things, shall show separately deferrals and the earnings
and/or dividends credited thereon, as well as distributions and withdrawals
therefrom and records of its deliberations and decisions.

 

(b)                                 The
Administrator shall appoint a secretary, and at its discretion, an assistant
secretary, to keep the record of proceedings, to transmit its decisions,
instructions, consents or directions to any interested party, to execute and
file, on behalf of the Administrator, such documents, reports or other matters
as may be necessary or appropriate under ERISA and to perform ministerial acts.

 

(c)                                  The
Administrator shall not be required to maintain any records or accounts which
duplicate any records or accounts maintained by the Company.

 

7.7                                 Statement to Participants.  By
March 15 of each year, the Administrator shall furnish to each Participant a
statement setting forth the value of the Participant’s Account as of the
preceding December 31 and such other information as the Administrator shall
deem advisable to furnish.

 

7.8                                 Inspection of Records.  Copies
of the Plan and records of a Participant’s Account shall be open to inspection
by the Participant or the Participant’s duly authorized representative at the
office of the Administrator at any reasonable business hour.

 

7.9                                 Identification of Fiduciaries.  The
Administrator shall be the named fiduciary of the Plan and, as permitted or
required by law, shall have exclusive authority and discretion to operate and
administer the Plan.

 

7.10                           Procedure for Allocation of Fiduciary Responsibilities.  Fiduciary responsibilities under the Plan are
allocated as follows:

 

(i)                                     The
sole duties, responsibilities and powers allocated to the Board, any
Administrator and any fiduciary shall be those expressly provided in the
relevant Sections of the Plan.

 

10

 

(ii)                                  All
fiduciary duties, responsibilities, and powers not allocated to the Board, any
Administrator or any fiduciary, are hereby allocated to the Administrator,
subject to delegation.

 

Fiduciary duties,
responsibilities and powers under the Plan may be reallocated among fiduciaries
by amending the Plan in the manner prescribed in Section 8.6, followed by the
fiduciaries’ acceptance of, or operation under, such amended Plan.

 

7.11                           Claims Procedure

 

(a)                                  Any
Participant or beneficiary has the right to make a written claim for benefits
under the Plan. If such a written claim is made, and the Administrator wholly
or partially denies the claim, the Administrator shall provide the claimant
with written notice of such denial, setting forth, in a manner calculated to be
understood by the claimant:

 

(i)                                     the
specific reason or reasons for such denial;

 

(ii)                                  specific
reference to pertinent Plan provisions on which the denial is based;

 

(iii)                               a description of any
additional material or information necessary for the claimant to perfect the
claim and an explanation of why such material or information is necessary; and
an

 

(iv)                              explanation
of the Plan’s claims review procedure and time limits applicable to those
procedures, including a statement of the claimant’s right to bring a civil
action under ERISA Section 502(a) if the claim is denied on appeal.

 

(b)                                 The
written notice of any claim denial pursuant to Section 7.11(a) shall be given
not later than ninety (90) days after receipt of the claim by the
Administrator, unless the Administrator determines that special circumstances
require an extension of time for processing the claim, in which event:

 

(i)                                     written
notice of the extension shall be given by the Administrator to the claimant
prior to ninety (90) days after receipt of the claim;

 

(ii)                                  the
extension shall not exceed a period of ninety (90) days from the end of the
initial ninety (90) day period for giving notice of a claim denial; and

 

(iii)                               the extension notice
shall indicate (A) the special circumstances requiring an extension of time and
(B) the date by which the Administrator expects to render the benefit
determination.

 

(c)                                  The
decision of the Administrator shall be final unless the claimant, within sixty
(60) days after receipt of notice of the claims denial from the Administrator,
submits a written request to the Board, or its delegate, for an appeal of the
denial. During that sixty (60) day period, the claimant shall be provided, upon
request and free of charge, reasonable access to, and copies of, all documents,
records and other information relevant to the claim for benefits. The claimant
shall be provided the opportunity to submit written comments, documents,
records, and other

 

11

 

information
relating to the claim for benefits as part of the claimant’s appeal. The
claimant may act in these matters individually, or through his or her
authorized representative.

 

(d)                                 After
receiving the written appeal, if the Board, or its delegate, shall issue a
written decision notifying the claimant of its decision on review, not later
than sixty (60) days after receipt of the written appeal, unless the Board or
its delegate determines that special circumstances require an extension of time
for reviewing the appeal, in which event:

 

(i)                                     written
notice of the extension shall be given by the Board or its delegate prior to
sixty (60) days after receipt of the written appeal;

 

(ii)                                  the
extension shall not exceed a period of sixty (60) days from the end of the
initial sixty (60) day review period; and

 

(iii)                               the extension notice
shall indicate (A) the special circumstances requiring an extension of time and
(B) the date by which the Board or its delegate expects to render the appeal
decision.

 

The
period of time within which a benefit determination on review is required to be
made shall begin at the time an appeal is received by the Board or its
delegate, without regard to whether all the information necessary to make a
benefit determination on review accompanies the filing of the appeal. If the period
of time for reviewing the appeal is extended as permitted above, due to a
claimant’s failure to submit information necessary to decide the claim on
appeal, then the period for making the benefit determination on review shall be
tolled from the date on which the notification of the extension is sent to the
claimant until the date on which the claimant responds to the request for
additional information.

 

(e)                                  In
conducting the review on appeal, the Board or its delegate shall take into
account all comments, documents, records, and other information submitted by
the claimant relating to the claim, without regard to whether such information
was submitted or considered in the initial benefit determination. If the Board
or its delegate upholds the denial, the written notice of decision from the
Board or its delegate shall set forth, in a manner calculated to be understood
by the claimant:

 

(i)                                     the
specific reason or reasons for the denial;

 

(ii)                                  specific
reference to pertinent Plan provisions on which the denial is based;

 

(iii)                               a statement that the
claimant is entitled to receive, upon request and free of charge, reasonable
access to, and copies of, all documents, records and other information relevant
to the claim for benefits; and

 

(iv)                              statement
of the claimant’s right to bring a civil action under ERISA 502(a).

 

(f)                                    If
the Plan or any of its representatives fail to follow any of the above claims
procedures, the claimant shall be deemed to have duly exhausted the
administrative remedies

 

12

 

available under
the Plan and shall be entitled to pursue any available remedies under ERISA
Section 502(a), including but not limited to the filing of an action for
immediate declaratory relief regarding benefits due under the Plan.

 

7.12                           Conflicting Claims.  If
the Administrator is confronted with conflicting claims concerning a
Participant’s Account, the Administrator may interplead the claimants in an
action at law, or in an arbitration conducted in accordance with the rules of
the American Arbitration Association, as the Administrator shall elect in its
sole discretion, and in either case, the attorneys’ fees, expenses and costs
reasonably incurred by the Administrator in such proceeding shall be paid from
the Participant’s Account.

 

7.13                           Service of Process.  The
Corporate Secretary of NorthWestern Corporation is hereby designated as agent
of the Plan for the service of legal process.

 

7.14                           Fees.  Any fees associated
with ongoing plan administration shall be paid by the Company.

 

ARTICLE 8

Miscellaneous Provisions

 

8.1                                 Termination of the Plan

 

(a)                                  While
the Plan is intended as a permanent program, the Board shall have the right at
any time to declare the Plan terminated completely as to the Company or as to
any group, division or other operational unit thereof or as to any affiliate
thereof.

 

(b)                                 The
Separation from Service of any Eligible Person without such a declaration shall
not result in a termination of the Plan.

 

(c)                                  In
the event of any termination, the Board, in its sole and absolute discretion
may elect:

 

(i)                                     to
maintain Participants’ Accounts, payment of which shall be made in accordance
with Articles 5 and 6; or

 

(ii)                                  to
the extent the Administrator determines that such action would not violate
Section 409A of the Code, liquidate the portion of the Plan attributable to
each Participant as to whom the Plan is terminated and distribute each such
Participant’s Account in a lump sum or pursuant to any method which is at least
as rapid as the distribution method elected by the Participant under Section
5.1.

 

8.2                                 Limitation on Rights of Participants.  The
Plan is strictly a voluntary undertaking on the part of the Company and shall
not constitute a contract between the Company and any Eligible Person.  Inclusion under the Plan will not give any
Eligible Person any right or claim to any benefit hereunder except to the
extent such right has specifically become fixed under the terms of the
Plan.  The doctrine of substantial
performance shall have no application to Eligible Persons, Participants or any
other persons entitled to payments under the Plan.

 

13

 

8.3                                 Consolidation or Merger; Adoption of Plan by Other
Companies.

 

(a)                                  In
the event of the consolidation or merger of the Company with or into any other
entity, or the sale by the Company of substantially all of its assets, the
resulting successor may continue the Plan by adopting it in a resolution of its
Board of Directors.  If within ninety
(90) days from the effective date of such consolidation, merger or sale of
assets, such successor corporation does not adopt the Plan, the Plan shall be
terminated in accordance with Section 8.1.

 

(b)                                 There
shall be no merger or consolidation with, or transfer of the liabilities of the
Plan to, any other plan unless each Participant in the Plan would have, if the
combined or successor plans were terminated immediately after the merger,
consolidation, or transfer, an account which is equal to or greater than his or
her corresponding Account under the Plan had the Plan been terminated
immediately before the merger, consolidation or transfer.

 

8.4                                 Errors and Misstatements.  In
the event of any misstatement or omission of fact by a Participant to the
Administrator or any clerical error resulting in payment of benefits in an
incorrect amount, the Administrator shall promptly cause the amount of future
payments to be corrected upon discovery of the facts and shall cause the
Company to pay the Participant or any other person entitled to payment under the
Plan any underpayment in cash or Company stock (whichever shall be applicable
to the situation) in a lump sum, or to recoup any overpayment from future
payments to the Participant or any other person entitled to payment under the
Plan in such amounts as the Administrator shall direct, or to proceed against
the Participant or any other person entitled to payment under the Plan for
recovery of any such overpayment.

 

8.5                                 Payment on Behalf of Minor, Etc.  In the event any amount becomes payable under
the Plan to a minor or a person who, in the sole judgment of the Administrator,
is considered by reason of physical or mental condition to be unable to give a
valid receipt therefor, the Administrator may direct that such payment be made
to any person found by the Administrator in its sole judgment, to have assumed
the care of such minor or other person. 
Any payment made pursuant to such determination shall constitute a full
release and discharge of the Company, the Board, the Administrator, the
Administrator and their officers, directors and employees.

 

8.6                                 Amendment of Plan.  The
Plan may be wholly or partially amended by the Board from time to time, in its
sole and absolute discretion, including prospective amendments which apply to
amounts held in a Participant’s Account as of the effective date of such
amendment and including retroactive amendments necessary to conform the Plan to
the provisions and requirements of ERISA or the Code; provided, however, that
no amendment shall decrease the amount of any Participant’s Account as of the
effective date of such amendment. 
Notwithstanding the foregoing, this Section 8.6 shall not be amended in
any respect on or after a Change in Control and no amendment to this Plan shall
reduce, limit or eliminate any rights of a Participant to withdrawals pursuant
to Article 6 for deferrals for which elections under Section 3.1 occurred prior
to the effective date of the amendment, without the Participant’s prior written
consent, except for amendments necessary to conform to the provisions and
requirements of ERISA or the Code.

 

8.7                                 Governing Law.  All
disputes relating to or arising from the Plan shall be governed by ERISA and to
the extent applicable 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

 

14

 

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.

 

8.8                                 Pronouns and Plurality.  The
masculine pronoun shall include the feminine pronoun, and the singular the
plural where the context so indicates.

 

8.9                                 Titles.  Titles are provided
herein for convenience only and are not to serve as a basis for interpretation
or construction of the Plan.

 

8.10                           References.  Unless
the context clearly indicates to the contrary, a reference to a statute,
regulation or document shall be construed as referring to any subsequently
enacted, adopted or executed statute, regulation or document.

 

15

 

Exhibit A

 

NORTHWESTERN CORPORATION

2005 DEFERRED COMPENSATION PLAN

FOR NON-EMPLOYEE DIRECTORS

 

 

Deferral Election Form

 

 

AGREEMENT,
made this _____ day of _________ 20____, by and between me, as a participant in
the NorthWestern Corporation 2005 Deferred Compensation Plan for Non-Employee
Directors (the “Plan”), and NorthWestern Corporation (the “Company”).

 

WHEREAS,
the Company has established and maintains the Plan and the NorthWestern
Corporation 2005 Long-Term Incentive Plan (the “LTIP”), and I am eligible to
participate in the Plan and the LTIP on the terms and conditions set forth
therein; and

 

WHEREAS,
I understand that terms herein that begin with initial capital letters will
have the defined meaning set forth in the Plan (unless the context clearly
indicates a different meaning).

 

NOW
THEREFORE, it is mutually agreed as follows:

 

1.                                       By
the execution hereof, I agree to participate in the Plan upon the terms and
conditions set forth therein, and, in accordance therewith, make the elections
set forth herein effective –

 

	
  _____

  	
   

  	
  on the January
  1st that follows the Administrator’s acceptance of my Enrollment Documents.

  
	
   

  	
   

  	
   

  
	
  _____

  	
   

  	
  on the first day
  of the next calendar month, but only if this election occurs within the
  30-day period after I first become eligible for Plan participation. (NOTE:
  applicable only to elections made with respect to the 2005 Plan Year or in
  subsequent Plan Years by newly elected directors).

  

 

2.                                       For
the duration of this election (as determined under paragraph 4 below), I hereby
elect to defer the receipt of the following percentage(s) of Qualified
Compensation that the Company will withhold and credit to my Deferral Account
pursuant to the Plan:

 

	
  _____%

  	
   

  	
  of my annual
  cash retainer (up to 100%).

  
	
   

  	
   

  	
   

  
	
  _____%

  	
   

  	
  of my cash-based
  director fees (up to 100%).

  
	
   

  	
   

  	
   

  
	
  _____%

  	
   

  	
  of my director
  fees (up to 100%) otherwise payable in shares of the Company’s common stock.

  
	
   

  	
   

  	
   

  

 

3.                                       I
hereby elect to have any cash-based Qualified Compensation that I defer
pursuant to paragraph 2 above credited to my Account for future distribution,
in accordance with Section 5.5 of the Plan, in the form of –

 

 

___%                cash
to be credited with earnings determined in accordance with Section 4.4 of the
Plan.

 

___%                shares
of common stock of the Company, which shall be credited, prior to their
distribution, in the form of deferred share units (“DSUs”) granted under the
LTIP.

 

Note
that any DSUs or stock-based Qualified Compensation will be settled in common
stock of the Company issued pursuant to the LTIP or other arrangement
identified by the Administrator.

 

4.                                       I
recognize and agree that this election will remain in effect indefinitely,
until the earliest of (a) the date on which my service as a member of the Board
terminates, (b) the date on which the Administrator receives a written notice
in which I terminate this election, and (c) the effective date of a superseding
election made using Enrollment Documents acceptable to the Administrator.

 

5.                                       By
the execution hereof, I further recognize and agree to participate in the Plan
upon the terms and conditions set forth therein, including but not limited to
the following terms:

 

(a)                                  This
election is irrevocable with respect to any Qualified Compensation that is deferred
during the term of this election.

 

(b)                                 I
may change this election effective on the next following January 1st by filing
a superseding election using Enrollment Documents accepted by the
Administrator.

 

(c)                                  Unless
arbitrary and capricious, any decisions of the Administrator with respect to
the operation, interpretation, or administration of the Plan or my Account will
be final and binding on me and all other interested parties.

 

 

IN
WITNESS WHEREOF, the parties hereto have hereunto set their
hands the day and year first above-written.

 

	
  Witnessed by:

  	
   

  	
  PARTICIPANT

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Witnessed by:

  	
   

  	
  NORTHWESTERN
  CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By

  	
   

  	
   

  
							

 

2

 

Exhibit B

 

NORTHWESTERN CORPORATION

2005 DEFERRED COMPENSATION PLAN

FOR NON-EMPLOYEE DIRECTORS

 

 

Investment Election Form

 

 

WHEREAS, NorthWestern
Corporation (the “Company”) has established the NorthWestern Corporation 2005
Deferred Compensation Plan for Non-Employee Directors (the “Plan”), and I am
eligible to make an investment election pursuant to Section 4.2(b) of the Plan.

 

NOW
THEREFORE, I hereby elect as follows:

 

1.                                       I
direct that any amounts credited in cash to my Account under the Plan will
appreciate or depreciate from the effective date hereof, as though they were
invested as follows:

 

	
  ____%

  	
   

  	
  ________________________.

  
	
   

  	
   

  	
   

  
	
  ____%

  	
   

  	
  ________________________.

  
	
   

  	
   

  	
   

  
	
  ____%

  	
   

  	
  ________________________.

  
	
   

  	
   

  	
   

  
	
  ____%

  	
   

  	
  ________________________.

  
	
   

  	
   

  	
   

  
	
  ____%

  	
   

  	
  ________________________.

  
	
   

  	
   

  	
   

  
	
  ____%

  	
   

  	
  ________________________.

  
	
   

  	
   

  	
   

  
	
  ____%

  	
   

  	
  ________________________.

  
	
   

  	
   

  	
   

  
	
  ____%

  	
   

  	
  ________________________.

  
	
   

  	
   

  	
   

  
	
  ____

  	
   

  	
   

  
	
  100%

  	
   

  	
   

  

 

2.                                       The
investment election I made in the prior paragraph shall be effective on the
first day of the month next following the effective date of this Investment
Election Form (or such earlier date as determined by the Administrator), and
shall remain in effect until the effective date of a properly executed
superseding investment election form.

 

IN
WITNESS WHEREOF, I have executed this form on the ______ day
of_____________________________ 20____.

 

	
  Witnessed by:

  	
   

  	
  PARTICIPANT

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  A member of the
  Board of Directors

  
						

 

 

Exhibit C

 

NORTHWESTERN CORPORATION

2005 DEFERRED COMPENSATION PLAN

FOR NON-EMPLOYEE DIRECTORS

 

 

Distribution Election Form

 

 

AGREEMENT,
made this _____ day of ________________________ 20_____, by and between me, a
participant in the NorthWestern Corporation 2005 Deferred Compensation Plan for
Non-Employee Directors (the “Plan”), and NorthWestern Corporation (the “Company”).  The parties agree that any term that begins
herein with initial capital letters shall have the special meaning defined in
the Plan, unless the context clearly requires otherwise.

 

NOW
THEREFORE, it is mutually agreed as follows:

 

1.                                       Form
of Payment Generally.  By the
execution hereof, I agree to participate in the Plan, upon the terms and
conditions set forth therein, and, in accordance therewith, elect to have my
Account distributed in cash as follows:

 

o                                    in
a lump sum payable within thirty (30) days from the date my service with the
Company terminates.

 

o                                    in
substantially equal annual payments over a period of ____ years (not to exceed
10 years from the date my service with the Company terminates).

 

2.                                       Timing
of Payment.  If I elected to receive
my Account in substantially equal annual payments in paragraph 1 hereof, I
direct that my Account begin to be distributed to me as follows:

 

o                                    within
thirty (30) days following my Separation from Service with the Company.

 

o                                    on
the January 1st that next follows the date that is _____ years (not more than
10 years) after my Separation from Service on the Board.

 

o                                    on
the ______ (not more than 10th) anniversary of my Separation from Service on
the Board.

 

o                                    on
the ______ anniversary of the effective date of this Distribution Election
Form.

 

o                                    on
the first date of the month next following my _____ birthday.

 

3.                                       Payment
Upon a Change in Control.  __________  By initialing in the preceding space, I
direct that upon a Change in Control of the Company my entire Account be
distributed to me in one lump sum payable as soon as practicable following the
Change in Control.

 

4.                                       Form
of Payment to Beneficiary.  In the
event of my death, my Account shall be distributed —

 

 

o                                    in
one lump sum payment within thirty (30) days following my death.

 

o                                    in
accordance with the payment schedule selected in paragraphs 1, 2, and 3 hereof
(with payments made as though I survived to collect all benefits, and as though
I terminated service on the date of my death, if payments had not already
begun).

 

5.                                       Designation
of Beneficiary. In the event of my death before I have collected all of the
benefits payable under the Plan, I hereby direct that any remaining benefits
payable under the Plan be distributed to the beneficiary or beneficiaries designated
under subparagraphs a and b of this paragraph 4 in the manner elected pursuant
to paragraph 4 above:

 

a.                                       Primary
Beneficiary.  I hereby designate the
person(s) named below to be my primary beneficiary and to receive the balance
of any unpaid benefits under the Plan.

 

	
  Name of

  Primary Beneficiary

  	
   

  	
  Social Security

  Number

  	
   

  	
  Mailing Address

  	
   

  	
  Percentage of

  Death Benefit

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  %

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  %

  	
   

  

 

b.                                      Contingent
Beneficiary.  In the event that the
primary beneficiary or beneficiaries named above are not living at the time of
my death, I hereby designate the following person(s) to be my contingent
beneficiary for purposes of the Plan:

 

	
  Name of

  Contingent Beneficiary

  	
   

  	
  Social Security

  Number

  	
   

  	
  Mailing Address

  	
   

  	
  Percentage of

  Death Benefit

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  %

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  %

  	
   

  

 

6.                                       Effect
of Election.  The elections made in
paragraphs 1 and 2 hereof shall apply –

 

o                                    to
any deferred compensation that is deferred pursuant to the deferral election to
which this Distribution Election Form relates.

 

o                                    to
the entire value of my Account, provided that these elections may only be
changed at least one year in advance of the earliest date on which payments
would otherwise commence pursuant to paragraphs 1 or 2 hereof, and may only be
changed pursuant to an election that conforms with the requirements set forth
in Section 5.3 of the Plan.

 

With
respect to the elections in paragraphs 4 and 5 hereof, I may, by submitting an
effective superseding Distribution Election Form at any time and from time to
time, prospectively change the

 

2

 

beneficiary designation
and the manner of payment to a Beneficiary. 
Such elections shall, however, become irrevocable upon my death.

 

7.                                       Mutual
Commitments.  The Company agrees to
make payment of all amounts due to me in accordance with the terms of the Plan
and the elections I make herein.  I agree
to be bound by the terms of the Plan, as in effect on the date hereof or
properly amended hereafter. 

 

8.                                       Tax
Consequences to Participant.  I
acknowledge that I am solely responsible for the satisfaction of any taxes that
may arise under the Plan (including any taxes arising under Sections 409A or
4999 of the Code).  I understand that neither the Company nor the Administrator
shall have any obligation whatsoever to pay such taxes or to prevent me from
incurring them.

 

 

IN
WITNESS WHEREOF, the parties hereto have hereunto set their
hands the day and year first above-written.

 

	
  Witnessed by:

  	
  PARTICIPANT

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Witnessed by:

  	
  NORTHWESTERN
  CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By

  	
   

  	
   

  

 

3

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