<PAGE>
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant ( X )
Filed by a Party other than the Registrant ( )
Check the appropriate box:
( ) Preliminary Proxy Statement
( ) Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
(X) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
NORTHWESTERN CORPORATION
-----------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------
(Name of Person(s) Filing Proxy Statement
if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
(X) No fee required.
( ) Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and O-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule O-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
( ) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by Exchange
Act Rule O-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the
date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration State No.:
3) Filing Party:
4) Date Filed:
NORTHWESTERN CORPORATION
Corporate Office
125 S. Dakota Ave., Suite 1100
Sioux Falls, South Dakota 57104
</PAGE>
<PAGE>
Annual Meeting
of Shareholders
May 5, 1999
March 9, 1999
Dear Shareholder:
You are invited to attend the Annual Meeting of Shareholders of
NorthWestern Corporation, which will be held at the Best Western Ramkota
Inn, Junction of I-29 and Highway 38, Sioux Falls, South Dakota, on
Wednesday, May 5, 1999, at 11:00 a.m., local time.
We discuss the matters to be acted upon at the meeting in more detail in
the attached Notice of Annual Meeting and Proxy Statement. In addition to
the election of three Directors, you are being asked to approve two very
important tools to assist NorthWestern in its drive to empower and motivate
our team members to build America's premier services and solutions company
- - the establishment of a broad-based stock purchase plan and amendments to
the NorthWestern Stock Option and Incentive Plan, including an increase in
the number of shares available under the Plan. Your Board of Directors
recommends that you vote in favor of each proposal.
You can vote by calling toll-free 1-800-240-6326 (identifying that you are
a shareholder of NorthWestern by the company number 250, and using the
control number shown on your proxy card) and following the simple
instructions that you will hear or by signing, dating, and returning the
enclosed proxy card (in the postage prepaid envelope).
We hope that you can attend the Annual Meeting. Whether or not you plan to
attend, you can be sure that your shares are represented at the meeting by
promptly voting by telephone or by returning your completed proxy. Your
vote is important, whether you own a few shares or many.
Thank you for your continued support of NorthWestern Corporation.
Very truly yours,
Merle D. Lewis
Chairman and
Chief Executive Officer
</PAGE>
<PAGE>
NORTHWESTERN CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Corporate Office
125 S. Dakota Ave., Suite 1100
Sioux Falls, South Dakota 57104
March 9, 1999
To the Holders of Common Stock of
NORTHWESTERN CORPORATION:
The Annual Meeting of Shareholders of NorthWestern Corporation
(`NorthWestern') will be held at the Best Western Ramkota Inn, Junction of
I-29 and Highway 38, Sioux Falls, South Dakota, on Wednesday, May 5, 1999,
at 11:00 a.m., local time for the following purposes:
(1) To elect three members of Class II of the Board of Directors of
NorthWestern to hold office until the Annual Meeting of
Shareholders in 2002, and until their successors are duly elected
and qualified;
(2) To act upon a proposal to approve the NorthWestern Team Member
Stock Purchase Plan;
(3) To act upon a proposal to amend the NorthWestern Stock Option and
Incentive Plan; and
(4) To transact such other business as may properly come before the
meeting and any adjournment or postponement thereof.
Shareholders of record at the close of business on March 6, 1999, will be
entitled to vote at the meeting and any adjournments.
Your Board of Directors recommends that you vote `FOR' each of the
proposals.
You are encouraged to vote by calling toll free 1-800-240-6326 (identifying
that you are a shareholder of NorthWestern by the company number 250, and
using the control number shown on your proxy card) and following the simple
instructions that you will hear or by signing, dating and returning your
proxy card in the enclosed self-addressed envelope. If you are able to
attend the Annual Meeting and wish to vote in person, you may do so whether
or not you have returned your proxy.
BY ORDER OF THE BOARD OF DIRECTORS
ALAN D. DIETRICH
Corporate Secretary
</PAGE>
<PAGE>
YOUR VOTE IS IMPORTANT, WHETHER YOU OWN A FEW SHARES OR MANY
NORTHWESTERN CORPORATION
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
To be held May 5, 1999
TABLE OF CONTENTS
PAGE
General Information . . . . . . . . . . . . . . . . . 1
Date of Meeting & Solicitation of Proxies . . . . . . . . 1
Outstanding Shares & Voting Rights . . . . . . . . . . 1
Proposal One: Election of Directors . . . . . . . . . . . . 1
Nominees . . . . . . . . . . . . . . . . . . . 2
Continuing Directors . . . . . . . . . . . . . . . 3
Meetings of the Board of Directors & Committees . . . . . . . . 4
Audit Committee . . . . . . . . . . . . . . . . . 4
Nominating & Compensation Committee . . . . . . . . . . 4
Corporate Governance Committee . . . . . . . . . . . . 4
Security Ownership by Certain Beneficial Owners & by Management. . . 5
Compensation of Executive Officers & Directors . . . . . . . . 6
Report on Executive Compensation . . . . . . . . . . . 6
Summary Compensation Table . . . . . . . . . . . . . 9
Information on Options . . . . . . . . . . . . . . 10
Employment Contracts . . . . . . . . . . . . . . . 11
Pension Plan . . . . . . . . . . . . . . . . . . 11
Director Compensation . . . . . . . . . . . . . . . 12
Salary Continuation Plan . . . . . . . . . . . . . . 13
Nominating & Compensation Committee Interlocks & Insider Participation 13
Section 16(a) Beneficial Ownership Reporting Compliance . . . . . 13
Performance Graph . . . . . . . . . . . . . . . . . . 14
Proposal Two: Adoption of NorthWestern Team Member Stock Purchase Plan 15
Proposal Three: Amendment to NorthWestern Stock Option & Incentive Plan 15
Annual Report . . . . . . . . . . . . . . . . . . . 18
Independent Public Accountants . . . . . . . . . . . . . 18
Submission of Shareholder Proposals . . . . . . . . . . . . 19
Other Matters . . . . . . . . . . . . . . . . . . . 19
</PAGE>
<PAGE>
GENERAL INFORMATION
Date of Meeting and Solicitation of Proxies
This proxy statement is being mailed to shareholders on or about March
9, 1999, and is furnished in connection with the solicitation by the Board
of Directors of NorthWestern of proxies to be voted at the Annual Meeting
of Shareholders to be held on Wednesday, May 5, 1999 (the `Meeting').
NorthWestern will bear all costs of the solicitation. In addition to
solicitation by mail, officers and team members of NorthWestern may solicit
proxies by telephone, facsimile, or in person. NorthWestern has retained
Kissel-Blake, a division of Shareholder Communications Corporation, to
assist in the solicitation of proxies at an anticipated cost to
NorthWestern of approximately $10,000, plus reasonable out-of-pocket
expenses. Also, NorthWestern will, upon request, reimburse brokers or
other persons holding stock in their names or in the names of their
nominees for reasonable expenses in forwarding proxies and proxy material
to the beneficial owners of stock.
Outstanding Shares and Voting Rights
Holders of Common Stock of record at the close of business on March 6,
1999 (the `Record Date'), will be entitled to one vote for each share of
Common Stock held by them on all matters to be voted upon at the Meeting.
As of the Record Date, there were outstanding 23,060,111 shares of Common
Stock.
Shareholders who execute proxies may revoke them at any time before it
is voted at the Meeting by giving written notice of such revocation to the
Corporate Secretary of NorthWestern, by filing another proxy with him, or
by voting in person at the Meeting. Valid proxies will be voted in
accordance with the instructions given. In the absence of any
instruction, proxies will be voted `FOR' election of the nominees and `FOR'
approval of the two other proposals set forth herein. The form of proxy
confers discretionary authority with respect to any modifications of the
proposals or other business which properly may be brought before the
Meeting.
Directors will be elected by a plurality of the votes cast at the
Meeting, meaning that the three nominees receiving the most votes will be
elected Directors. The approval of the NorthWestern Team Member Stock
Purchase Plan and the Amendment to the NorthWestern Stock Option and
Incentive Plan requires the affirmative vote of a majority of the Common
Stock present in person or by proxy and entitled to vote at the Meeting.
Abstentions will be counted as present for quorum purposes, and will have
the effect of a vote against a proposal. If a broker which is the record
holder of certain shares indicates on a proxy that it does not have
discretionary authority to vote on a particular matter as to such shares,
or if shares are not voted in other circumstances in which proxy authority
is defective, those non-voted shares will be counted for quorum purposes
but will not be deemed to be present for purposes of determining whether
shareholder approval of that matter has been obtained.
PROPOSAL ONE
ELECTION OF DIRECTORS
In accordance with NorthWestern's Restated Certificate of
Incorporation and By-Laws, NorthWestern's directors are elected to
staggered terms on a classified Board of Directors. At the Meeting, three
directors will be elected to Class II of the Board of Directors, to hold
office for a term of three years, until the Annual Meeting of Shareholders
in 2002, and until their successors are duly elected and qualified.
In the event a nominee is unable to serve as a director at the time of
the Meeting, the shares represented by the proxies may (in the discretion
of the holders of said proxies) be voted for other nominees not named
herein. Each of the nominees has consented to be named and to serve if
elected. Management is not aware that any of the nominees will be unable
to serve.
All of the nominees as directors in Class II are presently serving as
directors.
Nominees
The following information is furnished with respect to the nominees to
Class II of the Board of Directors for three-year terms expiring in 2002:
Age on
Principal Occupation Director March 1,
Nominee or Employment Since 1999
- ------------------ ------------------------- ----------- ------
Richard R. Hylland President and Chief Operating 1995 38
Officer of NorthWestern since
May 1998; Vice Chairman
of NorthWestern Growth
Corporation since January
1998; formerly held the
following offices with
NorthWestern: Executive Vice
President (1995-1998),
Vice President (1991-1995),
Treasurer (1990-1994); and
for NGC: Chief Executive
Officer (Jan-May 1998),
President & Chief Operating
Officer (1994-1998).
Jerry W. Johnson Dean of the School of 1994 58
Business, University of
South Dakota, since 1990;
Member of the Boards of
Directors of Citibank (S.D.),
N.A. and Citibank FSB.
Larry F. Ness Chairman and Chief 1991 53
Executive Officer of
First Dakota Financial
Corp., a bank holding
company, and Chairman
and Chief Executive Officer
of First Dakota National
Bank since 1996, formerly
Vice Chairman and Chief
Executive Officer of that
bank (1993-1995).
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE `FOR'
THE ELECTION OF THESE NOMINEES.
Continuing Directors
The following information is furnished with respect to directors in
Class III whose terms expire in 2000:
Age on
Principal Occupation Director March 1,
Director or Employment Since 1999
- ------------------ ------------------------- ----------- --------
Aelred J. Kurtenbach President, Chief 1994 65
Executive Officer
and Director of
Daktronics, Inc.
(NASDAQ: `DAKT'), a
manufacturer of large
computer programmable
displays, since
1968.
Merle D. Lewis Chairman of NorthWestern 1993 51
since May 1997; Chief
Executive Officer since
February 1994; formerly
President(1994-1998);
Chairman of NorthWestern
Growth Corporation since
1994.
Gary Olson Retired President and 1997 58
Chief Executive Officer of
Norwest Bank South Dakota,
Regional President of Norwest
Corporation (NYSE: `WFC'),
and Director & Chairman of
various Norwest credit
& insurance subsidiaries
(Served in those capacities
1988-1999).
The following information is furnished with respect to directors in
Class I whose terms expire in 2001:
Age on
Principal Occupation Director March 1,
Nominee or Employment Since 1999
- ------------------ ------------------------- ----------- --------
Randy G. Darcy Senior Vice President, 1998 48
Operations of General
Mills, Inc. (NYSE: `GIS')
a consumer foods company,
since 1987.
Gary G. Drook President and Chief 1998 54
Executive Officer and
Director of AFFINA, The
Customer Relationship
Company (formerly Ruppman
Marketing Technologies,
Inc.) a communications
service company, since 1996;
formerly President of
Network Services (1994-1995)
for Ameritech Corporation
(NYSE: `AIT').
Raymond M. Schutz* Attorney and partner in 1990 69
the law firm of Siegel,
Barnett & Schutz since
1963.
Bruce I. Smith Attorney and partner in 1989 57
the law firm of Luebs,
Leininger, Smith, Busick
& Johnson since 1978.
* Mr. Schutz has indicated his intention to resign from the Board of
Directors, effective May 1, 1999. At that time, the number of members of
the Board of Directors will be reduced to nine.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMMITTEES
The Board of Directors held four regular meetings and one special
meeting during 1998. Each director attended more than 75 percent of the
aggregate of the meetings of the Board of Directors and of each committee
on which he served.
Audit Committee
The Board of Directors has a standing Audit Committee composed of not
less than three non-employee directors. The present members of the Audit
Committee are Chairman Raymond M. Schutz, Gary Olson, Randy G. Darcy, and
Aelred J. Kurtenbach. The Audit Committee held two meetings during 1998.
The principal functions of the Audit Committee are to recommend to the
Board of Directors the appointment of independent public accountants to
conduct the annual audit of NorthWestern's financial statements, to review
the scope of the annual audit, to approve services performed by the
independent public accountants (considering the possible effect thereof on
their independence), to review the report of the independent public
accountants relating to the annual audit, and to review NorthWestern's
internal financial and accounting controls.
Nominating and Compensation Committee
The Board of Directors also has a standing Nominating and Compensation
Committee composed of not less than three non-employee directors. The
present members of the Nominating and Compensation Committee are Chairman
Bruce I. Smith, Gary G. Drook, Jerry W. Johnson, and Larry F. Ness. The
Nominating and Compensation Committee held five meetings during 1998. The
function of the Nominating and Compensation Committee is to recommend to
the Board of Directors the nominees to be presented by the Board of Direc
tors to the shareholders for election to NorthWestern's Board of Directors,
to recommend to the Board of Directors the persons to be elected as
officers of NorthWestern, to recommend compensation of directors and
officers of NorthWestern, and to determine awards, if any, to the executive
officers of NorthWestern under incentive compensation plans.
The Nominating and Compensation Committee will consider nominees for
directors properly recommended by shareholders. A shareholder who wishes to
submit a candidate for consideration at the Annual Meeting of Shareholders
to be held in 2000 must notify the Corporate Secretary of NorthWestern in
writing not less than ninety days nor more than 120 days prior to the
meeting. The shareholder's written notice must include information about
each proposed nominee, including name, age, business address, principal
occupation, shares beneficially owned and other information required in
proxy solicitations. The nomination notice must also include the
nominating shareholder's name and address, the number of shares of the
Common Stock beneficially owned by the shareholders, and any arrangements
or understandings between the nominee and the shareholder. The shareholder
must also furnish a statement from the candidate indicating that the
candidate wishes and is able to serve as a director.
Corporate Governance Committee
The Board of Directors also has a standing Corporate Governance
Committee composed of the NorthWestern Chief Executive Officer and not less
than three non-employee directors. The present members of the Corporate
Governance Committee are Chairman Jerry W. Johnson, Aelred J. Kurtenbach,
Merle D. Lewis and Gary Olson. The Corporate Governance Committee held one
meeting in 1998. The function of the Corporate Governance Committee is to
make recommendations to the Board of Directors concerning Board policies, a
chief executive officer performance appraisal procedure, director
qualifications, and Board evaluation and to provide overall counsel and
oversight for the Board.
SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND BY MANAGEMENT
The following table sets forth information, as of January 1, 1999,
with respect to shares of the Common Stock owned by the directors, nominees
for director, certain executive officers of NorthWestern, by all directors
and executive officers of NorthWestern as a group, and by persons known to
NorthWestern to own more than 5% of the outstanding shares of Common Stock:
Amount & Nature
of Beneficial Ownership (1)
---------------------------
Name of Shares of Common Stock Percent of
Beneficial Owner Beneficially Owned Common Stock
- ---------------------- ------------------------ ------------
Randy G. Darcy 2,030 *
Gary G. Drook 2,010 *
Richard R. Hylland (2) 20,025(3) *
Jerry W. Johnson 5,371 *
Aelred J. Kurtenbach 5,803 *
Merle D. Lewis (2) 60,732 *
Larry F. Ness 6,228 *
Gary Olson 4,755 *
Raymond M. Schutz (2) 8,581 *
Bruce I. Smith 8,734 *
Rodney F. Leyendecker 29,945 *
Daniel K. Newell (2) 10,145 *
Thomas A. Gulbranson (2) 18,491 *
All directors &
executive officers 247,709 1%
Franklin Fund 1,412,800 6.1%
777 Mariners Island Blvd.
San Mateo, California 94404
NorthWestern Employee Stock 1,483,793 6.5%
Ownership Plan and Trust (4)
* Less than 1%.
(1) Shares shown represent both record and beneficial ownership, including
shares held in the team member's account with the Trustees of
NorthWestern's Employee Stock Ownership Plan (`ESOP') and in the team
member savings plans. With the exception of Mr. Gulbranson, none of
the directors, nominees or executive officers of NorthWestern
beneficially owns any of NorthWestern's Cumulative Preferred Stock
($100 par value). Mr. Gulbranson, together with other family members,
jointly owns 13 shares (0.0005%) of NorthWestern's 4 1/2% Cumulative
Preferred Stock. Unless otherwise indicated, each person listed has
sole voting and sole investment power with respect to the shares shown
in the table, and the address of each person is 125 S. Dakota Ave.,
Suite 1100, Sioux Falls, SD 57104.
(2) Messrs. Hylland, Lewis, Schutz, Newell and Gulbranson own,
respectively, 361, 4,250, 238, 1,360 and 500 common units, for a total
of 6,709 common units, representing limited partner interests in
Cornerstone Propane Partners, L.P., a NorthWestern partner entity, and
Messrs. Hylland, Lewis and Newell own, respectively, 17,276, 23,035,
and 11,518 restricted common units, for a total of 51,829 restricted
units held by directors and executive officers of NorthWestern. None
of the foregoing amounts exceeds 1% of the outstanding common units.
(3) Included are 724 shares that Mr. Hylland holds as custodian for his
children and 5,914 shares held by his wife.
(4) The Common Stock owned by the ESOP is held in trust for the benefit of
participants in the ESOP, and the Trustees have sole investment power
over the Common Stock held in trust. Team member participants are
entitled to instruct the Trustees on how to vote all NorthWestern
Common Stock allocated to their accounts and will receive a separate
Proxy for voting such shares. All shares allocated to the participants
for which no voting instructions are received and all unallocated
shares held by the ESOP will be voted by the Trustees in the same
proportion that the allocated shares have been voted by participants,
unless inconsistent with the Trustee's fiduciary responsibilities.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
Report on Executive Compensation
The Nominating and Compensation Committee (the `Committee') of the
Board of Directors has furnished the following report on executive
compensation to the shareholders of NorthWestern.
Procedures and Policies
The Committee, which is comprised entirely of non-employee directors,
has overall responsibility to nominate persons to serve as executive
officers of NorthWestern and to review and to recommend compensation for
the members of the Board of Directors and for the executive officers. The
Committee also reviews and recommends to the full Board of Directors any
benefit plans for officers and team members and approves any executive
officer or director awards made under NorthWestern's incentive compensation
plans.
The Committee engaged William M. Mercer, Incorporated to assess the
current executive compensation program for NorthWestern and to offer
recommendations that would support NorthWestern's short and long-term
business strategy. Mercer representatives have interviewed the members of
the Board of Directors, annually compared the compensation of
NorthWestern's executive officers and directors to comparable companies,
and annually presented their findings to the Committee. The Board of
Directors has implemented various recommendations from the Mercer study
which are designed to create and sustain an entepreneurial mindset
throughout the organization; to reward executives for NorthWestern,
business segment, and individual performance; to focus on long-term
performance and shareholder value; and to attract and retain key executives
and managers.
The Committee considered the effect of the limitations on the
deductibility of executive compensation under Section 162(m) of the
Internal Revenue Code on NorthWestern's compensation policies and practices
and has determined not to make any changes in such policies and practices.
In 1998 all compensation was deductible by NorthWestern except that
compensation deferred pursuant to the team member savings plans.
Base Salary
The Mercer study recommended, and the Board of Directors approved, a
compensation program which positions total direct executive compensation at
the median for comparable industry markets when performance is consistent
with that comparative group; manages base salary through a narrow range
around the median for the comparative group with adjustments primarily as
the market median moves; leverages the program through annual incentives
and equity-related long-term plans; and introduces stock ownership
guidelines. The comparative group is a broader group of service companies
and includes some of the utilities in the peer group used in the
performance graph.
In determining Mr. Lewis' salary for 1998 as Chairman and Chief
Executive Officer, the Committee considered the recommendations of the
Mercer study, Mr. Lewis' individual performance as leader of NorthWestern,
and his contributions to the long-term success of the organization. The
Committee also utilized, throughout 1998, the formal chief executive
officer evaluation process first initiated in 1996. In particular, the
Committee considered the success in expanding the propane business which
has grown to become the nation's fourth largest retail propane distribution
company, in creating heating, ventilation and air conditioning and
telecommunications services partner entities, and in increasing earnings
during the year. Mr. Lewis' base annual salary was established at the
median for the comparative group. Similar factors were used to determine
the base annual salary of the other named executive officers whose base
salaries were established at or near the median for the comparative group.
Annual Incentive Compensation
The philosophy for all incentive compensation plans of NorthWestern is
to provide rewards when financial objectives are achieved, and to provide
reduced or no benefits when the objectives are not achieved. These
objectives are designed to further NorthWestern goals and to increase
shareholder value.
In February 1989, the Board of Directors adopted a Performance
Incentive Plan (now known as the NorthSTAR Plan), an incentive compensation
plan which, with later amendments, has been broadened to include team
members at many levels of NorthWestern. The purpose of the plan is to
motivate and reward outstanding performance by NorthWestern team members in
meeting short-term goals which support long-term objectives important to
NorthWestern's success. Awards under the plan are based upon four factors
measuring annual performance: (1) NorthWestern's achievement of its
budgeted earnings per share, as proposed by the Board of Directors, (2)
NorthWestern's achievement of its operating and maintenance expense savings
target, (3) NorthWestern's achievement of pre-established customer
satisfaction goals, and (4) an individual team member's achievement of
management-established individual, team, or department goals. At the end
of the year, a percentage is computed and totaled for each eligible team
member for each of the factors, with each factor carrying 25% of the
weight. If the eligible team member's composite level is 25% or greater, a
cash incentive award will be paid to the team member, unless employment
with NorthWestern has been terminated for any reason other than death,
disability or retirement. Awards to executive officers under the NorthSTAR
Plan are determined by the Committee.
In August 1994, the Board of Directors adopted an annual Incentive
Compensation Plan for the officers and directors of NorthWestern Growth
Corporation (`NGC'), NorthWestern's wholly owned subsidiary which manages
its unregulated strategic investments. Under the plan, these NGC officers
and directors may receive incentive compensation awards based upon
improvements in the after-tax investment returns realized by NorthWestern
meeting or exceeding benchmark returns established by the Committee. Awards
made in 1998 were consistent with this philosophy and were based on NGC's
investment performance. In May 1997, following the recommendations of the
Mercer study, the Board of Directors adopted business segment annual
incentive plans for the NorthWestern Public Service, NorthWestern Services
Corporation (`NSC') and NorthWestern Energy Corporation (`NEC') business
segments of NorthWestern. A portion of the annual incentive compensation
of Mr. Lewis and Mr. Hylland is determined by the success of all of these
plans, while other executive officers and other key managers are involved
in those business segment annual incentive plans which relate to their
activities. Awards under such plans for 1998 performance were determined
by the Committee in February 1999.
Long Term Incentive Compensation
As a complement to NorthWestern's annual incentive plans, the Board of
Directors has determined that a long-term incentive compensation plan which
ties executive compensation to increases in shareholder value is important.
The Mercer study recommended, and the Board of Directors and the
shareholders of NorthWestern in 1998 adopted the NorthWestern Stock Option
and Incentive Plan (the `Plan') to assist in accomplishing this goal by
strengthening the link between compensation and the market value of
NorthWestern's stock. The Plan is intended to recognize the contributions
made to NorthWestern by its team members, to provide such persons with
additional incentive to devote themselves to the future success of
NorthWestern, and to improve the ability of NorthWestern to attract, retain
and motivate individuals upon whom NorthWestern's future growth and
financial success depend, by providing such persons with an opportunity to
acquire or increase their proprietary interest in NorthWestern through
receipt of options to acquire NorthWestern's Common Stock. Similarly, the
Plan is intended as an additional incentive to directors who are not team
members of NorthWestern to serve on the Board of Directors and to devote
themselves to the future success of NorthWestern. Options granted under
the Plan to team members may be `incentive stock options' (`ISOs') within
the meaning of Section 422(b) of the Internal Revenue Code, or may be
options not intended to be ISOs (`nonqualified stock options') (ISO and
nonqualified stock options being hereinafter collectively referred to as
`Options'). Options granted to directors who are not team members of
NorthWestern will be nonqualified stock options.
If benchmark goals established by the Board of Directors are met or
exceeded, certain key NGC, NSC and NEC executives have opportunities,
through long-term incentive compensation programs for those entities, to
receive equity ownership incentives in connection with acquisition or
investment activities (NGC) or improved operations (NSC and NEC). In
addition, the five named executive officers and other NGC, NEC and NSC team
members are eligible to receive an acquisition fee equal to a total of 2%
of certain of the acquisition and investment transactions of those entities
if the investments meet performance criteria established for each
transaction for periods following the dates of such transactions. Mr.
Lewis' long-term incentive compensation in 1998 was determined in
accordance with the terms of the equity ownership incentive plans discussed
above and the award made by the Committee under the Plan.
In 1998, following the shareholder adoption of the Plan, the Board
terminated the long-term incentive compensation plan it adopted in 1989,
the Phantom Stock Unit Plan. The Board of Directors has established stock
ownership guidelines for all executive officers which require each officer
to purchase and obtain a significant equity ownership interest in
NorthWestern within eight years. The guidelines require equity purchase
and ownership levels of 100,000 shares for the Chief Executive Officer,
50,000 shares for the President, 25,000 shares for the Chief Financial
Officer, and similar levels for the other named executive officers.
This report is submitted on behalf of the Committee:
Bruce I. Smith, Chairman
Gary G. Drook
Jerry W. Johnson
Larry F. Ness
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation earned during the
fiscal years indicated for services in all capacities by the chief
executive officer and by the four other most highly compensated
NorthWestern executive officers in 1998:
<TABLE>
<CAPTION>
Long Term Compensation All
Annual Compensation ----------------------
Other
---------------------- Awards Payouts (2) Compen-
Name and Salary Bonus(1) (Securities ($) sation(3)
Position Year ($) ($) Underlying ($)
- --------------- ---- --------- ----------- Options) ----------- ----------
-----------
<S> <C> <C> <C> <C> <C> <C>
Merle D. Lewis 1998 532,667 705,241 104,200 51,475 34,909
Chairman & Chief 1997 365,971 629,245 0 24,897 25,085
Executive Officer1996 207,388 484,625 0 17,765 15,358
Richard R. Hylland1998 354,542 371,395 37,900 25,738 17,499
President & 1997 246,417 486,233 0 24,897 10,480
Chief Operating 1996 137,906 726,908 0 17,765 7,359
Officer
Daniel K. Newell 1998 236,583 235,135 12,000 0 17,703
VP - Finance & 1997 168,333 332,039 0 0 9,920
Chief Financial 1996 106,500 487,001 0 0 3,415
Officer; Managing
Director & CEO of
NorthWestern
Growth Corporation
Rodney F. Leyendecker
President & CEO 1998 127,708 133,638 2,500 25,738 17,108
Of NorthWestern 1997 122,708 152,381 0 24,897 15,740
Energy Corporation1996 114,208 109,180 0 17,765 11,453
Thomas A. Gulbranson
President & CEO 1998 128,125 63,770 8,000 25,738 14,113
of NorthWestern 1997 115,508 71,504 0 24,897
12,620
Services 1996 98,617 102,504 0 17,470 11,453
Corporation
</TABLE>
(1) The amounts in the bonus column are cash awards pursuant to
NorthWestern's annual incentive plans, which are described under the
`Report on Executive Compensation.' For 1996 those plans included the
NorthSTAR Plan and the NorthWestern Growth Corporation Incentive
Compensation Plan (NGC Plan), and for 1997 and 1998 the amounts
include awards pursuant to the NorthSTAR Plan, the NGC Plan, business
segment and acquisition annual incentive plans.
(2) The amounts in this column represent the cash payouts from
NorthWestern's former phantom stock long-term incentive compensation
plan at the end of the five-year periods following the dates of the
awards.
(3) The amounts in this column include NorthWestern's contributions on
behalf of the named executive officers to the Team Member Savings Plan
and to the ESOP as well as the amounts paid by NorthWestern with
respect to term life insurance for the benefit of the executives. For
the executives named in this table, for 1998 such amounts under the
Team Member Savings Plan, ESOP, and life insurance, respectively, were
as follows: Mr. Lewis: $15,980, $7,329, and $11,600; Mr. Hylland:
$10,636, $3,338, and $3,525; Mr. Newell: $11,183, $3,145, and $3,375;
Mr. Leyendecker: $3,831, $7,227, and $6,050; and Mr. Gulbranson:
$3,844, $5,169, and $5,100.
INFORMATION ON OPTIONS
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value
Individual Grants At Assumed Annual Rates of
Percent Stock Price Appreciation
No. o of Total for Option Term (3)
Securities Options
Underlying Granted to Exercise At 5% At 10%
Options Team Members Or Base ($37.49 ($59.57
Granted (#) in Fiscal Price Expir. At 0% stock stock
Name (1) Year ($/Sh)(2) Date Growth price) price)
- ---- --- ---- ---------- ---- ------- ------ ------
M. D. Lewis 104,200 46 23.00 5/6/08 0 1,509,858 3,810,594
R. R. Hylland 37,900 17 23.00 5/6/08 0 549,171 1,386,003
D. K. Newell 12,000 5 23.00 5/6/08 0 173,880 438,840
R. F. Leyendecker 2,500 1 23.00 5/6/08 0 36,225 91,425
T. A. Gulbranson 8,000 4 23.00 5/6/08 0 115,920 292,560
(1) All options granted in 1998 become exercisable in annual cumulative
installments of 20%, commencing one year from date of grant, with full
vesting occurring on the sixth anniversary date of the grant. Vesting is
accelerated in the event of a change in control of NorthWestern.
(2) All options were granted at market value (the closing price of the
Common Stock on the New York Stock Exchange as reported in the Midwest
Edition of The Wall Street Journal) on the date of grant.
(3) The hypothetical potential gains (reported net of exercise price) are
based entirely on assumed annual growth rates of 5% and 10% in the value of
NorthWestern's stock price over the ten-year life of the options (which
would equal a total increase in stock price of 63% and 159%, respectively).
These assumed rates of growth are mandated by rules of the Securities and
Exchange Commission for illustration purposes only and are not intended to
predict future stock price. Any gain to the executives resulting from
common stock price appreciation would benefit all shareholders, as follows:
Appreciation Level Price Per Share Additional Shareholder
Value Created
------------------ --------------- ------------------------
5% $37.49 $333,514,040
10% $59.57 $841,725,912
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Number of Securities Value of
Underlying Unexercised Unexercised
Shares Value Options at Fiscal Year-End In-the-Money Options
Acquired on Realized (#) At Fiscal Year-End ($)(1)
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ----- ------------ ---- ----------- ------------- ----------- -------------
Merle D. Lewis 0 0 0 104,200 0 358,187
Richard R. Hylland 0 0 0 37,900 0 130,281
Daniel K. Newell 0 0 0 12,000 0 41,250
Rodney F. Leyendecker 0 0 0 2,500 0 8,594
Thomas A. Gulbranson 0 0 0 8,000 0 27,500
(1) Represents the difference between $26.4375 (the closing price of the
Common Stock on the New York Stock Exchange as reported in the Midwest
Edition of The Wall Street Journal for the close on December 31, 1998) and
the option exercise price.
Employment Contracts
The Board of Directors has adopted a program of comprehensive
employment agreements with Mr. Lewis, Mr. Hylland, Mr. Newell, Mr.
Leyendecker, and Mr. Gulbranson, which agreements have specific terms of
from two to five years and contain non-compete, confidentiality, and change
of control provisions. The agreements also generally include base salary
amounts for the current year, annual incentive plan and long-term incentive
plan provisions tied to the success of the team members' business segments.
The agreements provide termination benefits if employment by NorthWestern
terminates for any reason (other than death, disability, retirement at age
65 or such earlier age that the Board of Directors approves, or discharge
for gross misconduct in the performance of employment duties that
materially injures NorthWestern) within thirty-six months after a `change
in control' or `major transaction' event. A change in control event occurs
if a person acquires 20% or more of the voting power of NorthWestern's
securities. A major transaction event occurs if the shareholders of
NorthWestern approve a merger or consolidation in which less that two-
thirds of the Board of Directors of NorthWestern continue to serve, a plan
of liquidation of NorthWestern, or a sale or disposition of all or
substantially all of NorthWestern's assets. As part of the termination
benefits, NorthWestern must pay the executive officer a lump sum payment
equal to three times base salary and average annual incentive compensation
plan payment. NorthWestern must also provide the officer with health,
disability and life insurance coverages in amounts substantially equal to
those he or she was receiving at the time of the termination. Also, on the
officer's normal retirement date, NorthWestern must pay the officer, or his
or her estate in the event of death, a lump sum amount equal to the
actuarial equivalent of the additional retirement benefits that would have
been due under NorthWestern's pension plans, if employment had continued
for the period for which the benefits referred to in the preceding sentence
are payable. To the extent that such benefits are subject to the excise
tax imposed by Section 4999 of the Internal Revenue Code of 1954, as
amended, with respect to excess `parachute payments' under Section 180G of
such Code, NorthWestern will be responsible for such tax. The termination
benefits under each of the agreements are to be provided regardless of
whether the team member is able to obtain other employment.
Pension Plan
NorthWestern has a Pension Plan in which all team members 21 years of
age and over are eligible to participate after one year of service.
Directors who are not team members are not eligible to participate in the
Pension Plan. The Pension Plan is a non-contributory funded plan providing
an annual pension benefit upon normal retirement at age 62 or early
retirement to those team members meeting the eligibility requirements under
the Pension Plan. The amount of the annual pension is based upon average
annual earnings for the five consecutive highest paid calendar years during
the 10 years immediately preceding retirement. Upon retirement on the
normal retirement date, the annual pension to which an eligible team member
becomes entitled under the present Pension Plan amounts to 1.34% of average
annual earnings up to the Covered Compensation base plus 1.75% of such
earnings in excess of the Covered Compensation base, multiplied by all
years of credited service. Covered Compensation is determined for each
team member as the average of the taxable wage bases for Social Security
tax purposes in each of the calendar years during the period beginning with
the later of the year in which the team member reached 30 or 1961 and
ending with the calendar year in which the team member reaches age 64. The
annual pension benefit is not subject to any deduction for Social Security
benefits or other offset amounts.
Based upon average annual compensation and years of credited service
as illustrated in the table below, the annual pension commencing at normal
retirement for retirements processed in 1999 based on the provisions of the
Pension Plan as it existed on December 31, 1998, would be:
Average Years of Service
Annual ----------------------------------------------------------
Earnings 15 20 25 30 35 40
- -------- ------- ------- ------- -------- -------- --------
$ 25,000 $4,529 $5,039 $7,549 $9,059 $10,568 $12,076
50,000 11,092 14,789 18,486 22,184 25,881 29,578
75,000 17,654 23,539 29,424 35,309 41,193 47,078
100,000 24,217 32,289 40,361 48,434 56,506 64,578
125,000 30,779 41,039 51,299 61,559 71,818 82,078
150,000 37,342 49,789 62,236 74,684 87,131 99,578
175,000 43,904 58,539 73,174 87,809 102,443 117,078
200,000 50,467 67,289 84,111 100,934 117,756 134,576
225,000 57,029 76,039 95,049 114,059 133,068 152,078
250,000 63,592 84,789 105,986 127,184 148,381 169,578
275,000 70,154 93,539 116,924 140,309 163,693 187,078
300,000 76,717 102,289 127,861 153,434 179,006 204,578
325,000 83,279 111,039 138,799 166,659 194,318 222,078
350,000 89,842 119,789 149,736 179,684 209,631 239,578
375,000 96,404 128,539 160,674 192,809 224,943 257,078
400,000 102,967 137,289 171,611 205,934 240,258 274,678
425,000 109,529 146,039 182,549 219,059 255,568 292,078
450,000 116,092 154,789 193,486 232,184 270,881 309,578
475,000 122,654 163,539 204,424 245,309 286,193 327,078
500,000 129,217 172,289 215,361 258,434 301,506 344,578
525,000 135,779 181,039 226,299 271,559 316,818 362,078
550,000 142,342 189,789 237,236 284,684 332,131 379,578
575,000 148,904 198,539 248,174 297,809 347,443 397,078
600,000 155,467 207,289 259,111 310,934 362,756 414,578
The years of credited service under the Pension Plan for the executive
officers shown in the preceding summary compensation table are as follows:
Merle D. Lewis, 23 years; Richard R. Hylland, 9 years; Daniel K. Newell, 3
years; Rodney F. Leyendecker, 24 years; and Thomas A. Gulbranson, 25 years.
The Employee Retirement Income Security Act of 1974 (`ERISA'), as
amended, places limitations on the amount of the annual pension which can
be paid from a tax-qualified pension plan. Under certain circumstances,
the pension benefit to which a team member of NorthWestern is entitled
under NorthWestern's Pension Plan may exceed the limitations under ERISA.
In 1987, the Board of Directors adopted a Pension Equalization Plan, as
permitted by ERISA, which provides for payment to retired team members of
the amount by which the normal pension benefit determined in accordance
with the formula provided in the Pension Plan exceeds the ERISA
limitations. In this manner, all team members are treated equally in
accordance with the terms of the Pension Plan.
Director Compensation
Directors who are not officers of NorthWestern annually receive 1000
shares of Common Stock of NorthWestern and are paid $1,500 each quarter for
serving on the Board of Directors and an attendance fee of $1,500 for
attendance at each regular or special meeting of the Board of Directors.
Directors are also paid $1000 for each meeting of a committee on which such
director serves and $500 for each quarter during which they serve as
chairman of a committee of the Board of Directors. Directors receive one-
half of the meeting fee for telephonic conference board or committee
meetings. In addition, non-team member Directors received stock options for
1,500 shares of Common Stock in 1998. Directors who are also officers are
not separately compensated for services as a director on NorthWestern's
Board.
Directors may elect to defer receipt of their compensation as
directors until they cease to be directors. The deferred compensation may
be invested in (i) an account which earns interest at the same rate as
accounts in the team member savings plan or (ii) a deferred compensation
unit account in which the deferred compensation is converted into deferred
compensation units on the basis that each unit is at the time of investment
equal in value to the fair market value of one share of NorthWestern's
Common Stock, sometimes referred to as `phantom stock units.' Additional
units based on the dividends paid on NorthWestern's Common Stock are added
to the directors' deferred compensation unit account. Following the
director's retirement, the value of the deferred compensation units is paid
in cash in an amount determined by multiplying the accumulated deferred
compensation units by the average of the closing prices of NorthWestern's
Common Stock for the ten days preceding such event.
Mr. Lewis, Mr. Hylland, and Mr. Newell were paid $60,000, $23,000, and
$21,000, respectively, as director fees for service on the board of
Cornerstone Propane GP, Inc., a NorthWestern partner entity.
Salary Continuation Plan
In 1983, NorthWestern implemented a non-qualified salary continuation
plan for directors and selected management team members. In 1998 a total
of 85 eligible persons participated in this plan. The plan provides for
certain amounts of salary continuation in the event of death before or
after retirement, or in the alternative, certain supplemental retirement
benefits in lieu of any death benefits after age 65. Generally, death
benefits will vary from 45% to 75% of salary for up to 15 years, and
supplemental retirement benefits from 25% to 40% of current salary. Life
insurance is carried on each plan participant in favor of NorthWestern to
indirectly fund future benefit payments. Part of the cost of the life
insurance carried by NorthWestern is paid by team member participants in
the plan. The program is designed so that if assumptions made as to
mortality experience, policy dividends or credits, and other actuarial
factors are realized, NorthWestern will more than recover its cost of this
program. Consequently, the cost of any one individual participant cannot
be properly allocated or determined because of the overall actuarial plan
assumptions and the cost recovery feature of the plan. Therefore, no
amount attributable to this plan has been included in the summary
compensation table above.
NOMINATING AND COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
None of the current members of the Nominating and Compensation
Committee of the Board of Directors are team members or former team members
of NorthWestern.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based soley upon a review of Reports on Forms 3, 4 and 5 and any
amendments thereto furnished to NorthWestern pursuant to Section 16 of the
Securities Exchange Act of 1934, as amended, and written representations
from the executive officers and directors that no other Reports were
required, NorthWestern believes that all of such Reports were filed on a
timely basis by executive officers and directors during 1998.
PERFORMANCE GRAPH
The following Stock Price Performance Graph compares the cumulative
total return* on NorthWestern's Common Stock (`NOR'), the S&P Stock Index
and an Edison Electric Institute peer group index of 46 combination gas and
electric utility companies** for a five year period:
(GRAPH)
NOR S&P 500 EEI Peer
----- ------- --------
Base 12/31/93 $100 $100 $100
1994 98.08 101 87.12
1995 109.44 139 110.96
1996 141.88 171 110.27
1997 199.64 229 142.54
1998 238.93 294 165.62
*Cumulative total return assumes quarterly reinvestment of dividends.
**AMEREN; Avista Corp.; Baltimore Gas & Electric Co.; Central Hudson Gas &
Elec. Corp.; CILCORP Inc.; CINERGY Corp.; CMS Energy Corp.; Commonwealth
Energy System; CONNECTIV; Consolidated Edison Co. of N.Y.; DPL, Inc.;
Duke Energy; East Energy Corp.; Houston Industries, Inc.; Illinova
Corp.; Interstate Energy Corp.; Keyspan Corp.; LG&E Energy Corp.;
Madison Gas & Electric Co.; MDU Resources Group; MidAmerican Energy Co.;
Montana Power Co.; New Centuries Energy; Niagara Mohawk Power Corp.;
NIPSCO Industries, Inc.; Northern States Power Co.; NorthWestern
Corporation; Orange & Rockland Utilities, Inc.; PG&E Corp.; PECO Energy;
Public Service Co. of New Mexico; Public Service Enterprise Group; Puget
Sound Energy; Rochester Gas & Electric Corp.; Scana Corp.; Sempra
Energy; Sierra Pacific Resources; SIGCORP; St. Joseph Light & Power Co.;
Texas Utilities Co.; Utilicorp United, Inc.; Western Resources, Inc.;
Wisconsin Energy Corp.; and WPS Resources.
PROPOSAL TWO
ADOPTION OF NORTHWESTERN TEAM MEMBER STOCK PURCHASE PLAN
The Board of Directors of NorthWestern has approved, subject to the
approval of the shareholders, the creation of the NorthWestern Team Member
Stock Purchase Plan (`NTMSPP'). The NTMSPP is intended to align the
interests of all of NorthWestern's team members with those of shareholders,
by encouraging team members of NorthWestern and its partner entities to
become shareholders and to increase their share ownership. Your Board of
Directors believes that encouraging stock ownership growth among all its
team members is an important tool to assist NorthWestern in its drive to
empower and motivate its team members to build America's premier services
and solutions company.
Pursuant to Section 423 of the Internal Revenue Code, participating
team members in the NTMSPP are able to enjoy favorable tax treatment with
regard to the shares purchased, including the deferral of tax liability
until the shares are sold and the taxing of any gain at favorable capital
gains rates. The NTMSPP permits permanent, full time team members to invest
up to 10% of their salary (or such lesser amount as established by the
Nominating and Compensation Committee, `Committee') in Common Stock of
NorthWestern at a discount to be determined by the Committee, but not more
than 15%. The stock will be acquired either through open market purchases
by an independent administrator or through issuance of new shares.
Under the NTMSPP, an eligible team member may elect to purchase shares
of Common Stock by paying at least 85% of the fair market value of the
Common Stock on the date of purchase through payroll deduction and/or lump
sum payments. The remaining percentage of fair market value (if open market
purchases) will be paid by NorthWestern. The aggregate amount of payroll
deductions and lump sum payments made by a participant cannot exceed 10% of
his or her salary for any calendar year. Participants incur no brokerage
commissions or service charges for purchases or sales of Common Stock under
the NTMSPP. However, certain administrative fees may be charged to
participants. A participant must continue employment with NorthWestern or
its partner entities for two years to retain the 15% discount, and, during
that period, the shares will be held by the NTMSPP's administrator. If the
team member withdraws shares or directs the sale of shares within two
years, the discount must be repaid in cash or relinquished shares. No such
repayment is required in the event of death, retirement, disability or
change of control of NorthWestern.
A participant may elect to receive cash dividends or to reinvest
dividends for shares in the NTMSPP in additional shares of NorthWestern. A
participant has the right to direct the vote of his or her shares.
NorthWestern has the right to amend or terminate the NTMSPP at any
time. In the event of termination, all stock and cash will be distributed
to participants.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE `FOR' APPROVAL
OF THE NORTHWESTERN TEAM MEMBER STOCK PURCHASE PLAN
PROPOSAL THREE
AMENDMENT TO THE NORTHWESTERN STOCK OPTION AND INCENTIVE PLAN
The Board of Directors of NorthWestern has approved, subject to
the approval of the shareholders, an amendment to the NorthWestern Stock
Option and Incentive Plan (the `Plan'). The purpose of the Plan is to
advance the interests of NorthWestern and its shareholders, through grants
of options and other awards relating to the acquisition of NorthWestern's
Common Stock. Such grants help NorthWestern attract, retain and motivate
team members upon whom its future growth and financial success depend.
They also provide such persons with additional incentive to devote
themselves to the future success of NorthWestern. Stock options and other
securities-related awards are a particularly effective incentive because
the economic benefit to holders is dependent upon increased market value of
NorthWestern's Common Stock, precisely the same interest as shareholders
have.
The proposed amendment would increase the percentage of the
outstanding shares of Common Stock of NorthWestern for which stock options
or other awards can be granted under the Plan from 7.5% to 12.5%. The
Board of Directors believes that the increase in the number of shares
available for grant under the Plan is necessary in light of the substantial
growth in the number of team members at NorthWestern and its partner
entities over the past year (when over 5,000 new team members were added,
increasing to approximately 6,500 the total number of team members eligible
for awards) and the continued growth in new team members anticipated to
occur as NorthWestern executes its growth strategies. For example, the
grant of awards related to only 175 shares of Common Stock to each existing
team member would nearly exhaust NorthWestern's available shares under the
Plan without adequate provision for NorthWestern's continued growth.
Further, in connection with future acquisitions, NorthWestern may find it
desirable to have the flexibility to substitute options to purchase its
Common Stock for the existing options of the acquired entity. Your Board
of Directors believes that encouraging stock ownership growth among all its
team members is an important tool to assist NorthWestern in its drive to
empower and motivate its team members to build America's premier services
and solutions company.
The Nominating and Compensation Committee of the Board of Directors
(the `Committee') administers the Plan. The Committee has authority to
interpret the Plan, establish rules and regulations for its operation,
select officers and other key employees to receive awards, and determine
the form, amount and other terms and conditions of awards. The Committee
has delegated to the Chief Executive Officer the authority, subject to
review, to make grants of ISOs to key team members. Information on grants
provided to the named executive officers in 1998 is contained in the
summary compensation table and option tables above and on grants to non-
employee directors in 1998 is contained in Directors Compensation
discussion above. Other team members received grants totaling 48,863
shares in 1998. Grants for 1999 and future years have not been determined.
The proposed amendment would also establish a limit on the maximum
number of shares for issuance as Incentive Stock Options (`ISOs') under the
Plan within the meaning of Section 422 of the Internal Revenue Code. In
addition, the proposed amendment also addresses certain requirements of
Section 162(m) of the Code, which deals with the limit on the deductibility
of annual compensation paid to certain executives and qualified performance-
based compensation not subject to the limit. In order to ensure compliance
with Section 162(m) and the regulations thereunder, the proposed amendment
also establishes a limit on the maximum number of shares subject to options
and stock appreciation rights within the Plan which could be granted to any
team member in a calendar year. The proposed amendment further specifies
the business criteria to be used by the Committee for qualified performance-
based awards under the proposed restricted stock and phantom stock units
discussed below.
The proposed maximum number of ISOs is 2,750,000 shares, and the
proposed maximum annual grant of options and stock appreciation rights for
any team member is 500,000 shares. In addition, the proposed amendment
would allow the Committee, in its discretion, to provide that awards
contain the right to receive dividends or dividend equivalents, which may
be either paid currently or credited to a participant's Plan account, and
which may be subject to conditions, restrictions and contingencies
established by the Committee, including the achievement of performance and
employment goals.
The proposed amendment would broaden the types of awards under
the Plan to include grants of restricted stock, stock appreciation rights,
limited stock appreciation rights exercisable only in the event of a change
in control, and phantom stock units. This broadening would provide
NorthWestern with additional flexibility to create and grant the type of
award which most appropriately provides the proper incentive under the
Plan. A stock option represents a right to purchase a specified number of
shares at a price per share determined at the time of grant of the award.
Stock options may be either ISOs or in a form that does not qualify for the
federal income tax treatment that ISOs enjoy. The proposed amendment would
require shareholder approval with respect to any Plan amendment approved by
the Committee to the extent required by law or the rules of the New York
Stock Exchange, but would allow other amendments in the discretion of the
Committee. Finally, the proposed amendment would also include technical
changes deemed appropriate for administration of the Plan.
A stock appreciation right (`SAR') is a right to receive a
payment in cash or shares of stock or a combination of both equal to the
appreciation in market value of a stated number of shares of Common Stock
subject to a stock option over the option exercise price. A limited SAR is
a SAR that only becomes exercisable in the event of a change of control of
NorthWestern.
A restricted stock award is a right to receive authorized but
unissued shares of Common Stock, subject to certain vesting conditions
determined by the Committee, related to the performance of NorthWestern and
of the participant or certain employment requirements of the participant. A
phantom stock award is an award of performance units whose value is
established by reference to the fair market value of NorthWestern's Common
Stock. Generally, phantom stock awards are held in an account for a
participant for a period of time, at the end of which the value of the
account is paid in cash to the recipient, provided certain vesting
requirements related to the performance of NorthWestern or the employment
of a participant are met. Under the Plan, restricted stock or phantom
stock unit awards may require that certain performance targets, established
by the Committee, are met or exceeded during a performance period. The
performance targets established by the Committee shall relate to corporate
or business segment performance and may be established in terms of growth
in gross revenue, cash flow, earnings per share, return on assets, or
return on investment or utilization of assets. Multiple targets may be
used and may have the same or different weighting, and they may relate to
absolute performance or relative performance as measured against comparable
companies. For purposes of Section 162(m), the proposed amendment would
establish a limit on the maximum number of restricted stock and phantom
stock unit awards under the Plan at 2,750,000 shares or units and a limit
on the maximum annual award for any participant at 500,000 shares or units.
The following discussion is intended to summarize briefly the
general principles of Federal income tax law applicable to options or other
awards.
Generally under present law, when an option qualifies as an ISO
under Section 422 of the Code: (i) an optionee will not realize taxable
income either upon the grant or the exercise of the option, (ii)any gain or
loss upon a qualifying disposition of the shares acquired by the exercise
of the option will be treated as capital gain or loss, and (iii) no
deduction will be allowed to the Company for Federal income tax purposes
inconnection with the grant or exercise of an ISO or a qualifying
disposition of the shares. A disposition by an optionee of stock acquired
upon exercise of an ISO will constitute a qualifying disposition if it
occurs more than two years after the grant of the option, and one year
after the transfer of the shares to the optionee. If such stock is disposed
of by the optionee before the expiration of those time limits, the transfer
would be a `disqualifying disposition,' and the optionee will recognize
ordinary income equal to the lesser of (i) the aggregate fair market value
of the shares as of the date of exerciseless the option price, or (ii) the
amount realized on the disqualifying disposition less the option price.
NorthWestern would become entitled to a corresponding deduction. Ordinary
income from a disqualifying disposition will constitute ordinary
compensation income. Any gain in addition to the amount reportable as
ordinary income on a disqualifying disposition generally will be capital
gain. Upon the exercise of an ISO, the difference between the fair market
value of stock on the date of exercise and the option price generally is
treated as an adjustment to taxable income in that taxable year for
alternative minimum tax purposes, as are a number of other items specified
by the Code. Such adjustments (along with tax preference items) form the
basis for the alternative minimum tax (presently at a graduated rate for
individuals), which may apply depending on the amount of the computed
`regular tax' of the team member for that year.
In the case of nonqualified stock options (`NSOs'), no income
generally is recognized by the optionee at the time of grant. Under present
law the optionee generally will recognize ordinary income at the time the
NSO is exercised equal to the aggregate fair market value of the shares
acquired less the option price. Ordinary income from an NSO will constitute
compensation income. Subject to special rules applicable when an optionee
uses stock of the Company to exercise an option, shares acquired upon
exercise of an NSO will have a tax basis equal to their fair market value
on the exercise date or other relevant date on which ordinary income is
recognized and the holding period for the shares generally will begin on
the date of exercise or such other relevant date. Upon subsequent
disposition of the shares, the optionee generally will recognize capital
gain or loss. Provided the shares are held by the optionee for more than
one year prior to disposition, such gain or loss will generally be long-
term capital gain or loss. NorthWestern will generally be entitled to a
deduction equal to the ordinary income (i.e., compensation) recognized by
the optionee in connection with the exercise of an NSO provided
NorthWestern complies with any withholding requirements of Federal law.
The grant of a SAR will produce no Federal tax consequences for
the participant or for NorthWestern. The exercise of a SAR results in
taxable ordinary income to the participant, equal to the difference between
the exercise price of the shares and the market price of the shares on the
date of exercise, and a corresponding tax deduction to NorthWestern.
A participant who has been granted an award of restricted stock
will not realize taxable ordinary income at the time of the grant, and
NorthWestern will not be entitled to a tax deduction at the time of the
grant, unless the participant makes an election to be taxed at the time of
the award. When the restrictions lapse, the participant will recognize
taxable ordinary income in an amount equal to the excess of the fair market
value of the shares at such time over the amount, if any, paid for such
shares. NorthWestern will be entitled to a corresponding tax deduction.
A phantom stock award results in ordinary income equal to the
value of the grant at the time of payment of the award to the recipient.
NorthWestern will receive a corresponding tax deduction.
Not every amount paid as compensation for services is currently
deductible. For example, depending upon the services rendered, some
compensation payments must be capitalized or added to inventory costs. Two
other restrictions under the Code potentially applicable to deductions for
executive compensation payments are the restriction on the deduction of so-
called `excess parachute payments' (and the imposition of a 20% excise tax
on the recipient thereof) and the deduction limit of $1,000,000 per year
for certain executive compensation. Whether any such restrictions will
apply to specific payments of compensation by NorthWestern cannot be
predicted at this time.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE `FOR' APPROVAL
OF THE PROPOSED AMENDMENT TO THE
NORTHWESTERN STOCK OPTION AND INCENTIVE PLAN
ANNUAL REPORT
A copy of NorthWestern's Annual Report for the year ended December 31,
1998, is being sent to all shareholders of record as of the Record Date.
Your attention is directed to the financial statements and Management's
Discussion and Analysis in such Annual Report which provide additional
important information concerning NorthWestern.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP has served as NorthWestern's independent public
accountants continuously since 1932. Upon the recommendation of the Audit
Committee, the Board of Directors has selected Arthur Andersen LLP to serve
as NorthWestern's independent public accountants during the current year.
One or more representatives of Arthur Andersen LLP will attend the Meeting
and will be available to respond to questions from shareholders.
During 1998, NorthWestern also engaged Arthur Andersen LLP to render
certain non-audit professional services. The Audit Committee of the Board
of Directors approved the audit and non-audit services and considered the
possible effect of the non-audit services on the independence of the
accountants prior to the time the services were rendered.
SUBMISSION OF SHAREHOLDER PROPOSALS
Shareholders who wish to present proposals for consideration at the
2000 Annual Meeting of Shareholders should submit their proposals, together
with any supporting statements, to the Corporate Secretary of NorthWestern
in order to be eligible for inclusion in the NorthWestern proxy materials
for that meeting. To be considered, a shareholder must meet certain
eligibility qualifications, and for the proposal to be timely submitted, it
must be received by the Corporate Secretary by November 12, 1999. A
shareholder presenting a proposal must appear in person or through a
qualified representative at the 2000 Annual Meeting to present the
proposal.
Other proposals that are not included in the proxy material will be
considered timely and may be eligible for presentation at the 2000 Annual
Meeting if they are received by the Corporate Secretary not later than
January 25, 2000.
OTHER MATTERS
The management does not know of any matter to be brought before the
Meeting, other than the matters described in the Notice of Annual Meeting
accompanying this Proxy Statement. The persons named in the form of proxy
solicited by the Board of Directors will vote all proxies which have been
properly executed, and if any matters not set forth in the Notice of Annual
Meeting are properly brought before the meeting, such persons will vote
thereon in accordance with their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS
ALAN D. DIETRICH
Corporate Secretary
NorthWestern Corporation
March 9, 1999
PLEASE COMPLETE, SIGN, AND RETURN PROMPTLY THE ENCLOSED PROXY SO THAT
YOUR STOCK MAY BE REPRESENTED AND VOTED AT THE ANNUAL MEETING.
MANAGEMENT WILL PROVIDE TO EACH SHAREHOLDER WHOSE PROXY IS SOLICITED FOR
THE 1999 ANNUAL MEETING, UPON WRITTEN REQUEST AND WITHOUT CHARGE, A COPY OF
NORTHWESTERN'S 1998 ANNUAL REPORT (FORM 10-K) TO THE SECURITIES AND
EXCHANGE COMMISSION. REQUESTS SHOULD BE DIRECTED TO JANE RAMSELL, DIRECTOR
- - SHAREHOLDER SERVICES, NORTHWESTERN CORPORATION, 33 THIRD STREET S.E.,
HURON, SOUTH DAKOTA 57350-1605.
(PROXY CARD) Company No. 250
NORTHWESTERN CORPORATION
Sioux Falls, South Dakota 57104
PROXY FOR 1999 ANNUAL MEETING OF SHAREHOLDERS
Solicited on behalf of the Board of Directors
You can vote by calling toll-free 1-800-240-6326 (identifying that you
are a shareholder of NorthWestern by the company number 250 shown in the
upper right hand corner of this proxy card, and using the control number
shown below the signature line on your proxy card) and following the simple
instructions that you will hear or by completing, signing and returning
this card (in the postage prepaid envelope).
The undersigned hereby appoints Merle D. Lewis and Richard R. Hylland,
or either of them, proxies of the undersigned, each with the power of
substitution, to represent and vote all shares of Common Stock of
NorthWestern Corporation held of record by the undersigned on March 6,
1999, at the Annual Meeting of the Shareholders of NorthWestern to be held
on May 5, 1999, and at any adjournments thereof, in accordance with the
Notice and Proxy Statement received, as follows:
1. ELECTION OF CLASS II DIRECTORS
(Mark only one box) ( ) FOR all nominees listed below
(except as marked to the contrary)
( ) WITHHOLD AUTHORITY
to vote for all nominees listed below
Nominees: Richard R. Hylland
Jerry W. Johnson
Larry F. Ness
(Instruction: To withhold authority to vote for any individual
nominee, print that nominee's name on the line provided below.)
2. APPROVAL OF NORTHWESTERN TEAM MEMBER STOCK PURCHASE PLAN
( ) FOR ( ) AGAINST ( ) ABSTAIN ( ) NO AUTHORITY
3. APPROVAL OF AMENDMENT TO NORTHWESTERN STOCK OPTION AND INCENTIVE
PLAN
( ) FOR ( ) AGAINST ( ) ABSTAIN ( ) NO AUTHORITY
4. Upon such other matters as may come before said meeting or any
adjournments thereof, in the discretion of the proxyholders.
(continued from other side)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY
THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED `FOR' ALL NOMINEES NAMED IN ITEM 1 AND `FOR' ITEMS 2 AND 3.
Dated , 1999
- ------------------------------ -----------------------------
(Signature) (Signature)
Company No. 250
Control No.
Please sign above exactly as your name appears on this card. Joint owners
should each sign personally. Corporation proxies should be signed by
authorized officer. Executors, administrators, trustees, etc., should so
indicate when signing.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY, USING THE
ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED.
