SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
[No fee required]
For the transition period from _______________ to _______________
Commission File No. 0-692
NORTHWESTERN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 46-0172280
(State of Incorporation) (IRS Employer Identification No.)
125 South Dakota Avenue
Sioux Falls, South Dakota 57104
(Address of principal office) (Zip Code)
605-978-2908
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $1.75 par value and
related Common Stock Purchase Rights All listed on
Company Obligated Mandatorily Redeemable New York Stock Exchange
Security of Trust Holding Solely Parent
Debentures, $25.00 liquidation amount
Common Stock Purchase Rights
(Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
Preferred Stock, Par Value $100
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [ X ] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by nonaffiliates
of the registrant.
$462,382,000 as of March 24, 2000
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date:
Common Stock, Par Value $1.75
23,108,893 shares outstanding at March 24, 2000
DOCUMENTS INCORPORATED BY REFERENCE:
1999 Annual Report to Shareholders . . . . .Parts I and II
Proxy Statement for 2000 Annual Meeting . . . . .Part III
REPORT CONTENTS
Page
Part I: Business
Special Note Regarding Forward-Looking Statements 3
Items 1 Business
General Overview of Business 3
Financial Information about Industry Segments 4
Communication Network Services and Data Solutions 4
Electricity and Natural Gas Distribution 7
Propane 12
HVAC, Plumbing and Related Services 18
Additional Business Information 21
Item 2 Properties 25
Item 3. Legal Proceedings 26
Item 4. Submission of Matters to Vote of Security Holders 26
Identification of Executive Officers 26
Part II.
Item 5. Market for Registrant's Equity 29
Item 6. Selected Financial Data 29
Item 7. Management's Discussion and Analysis 29
Item 7A. Quantitative and Qualitative Disclosures about
Market Risk 30
Item 8. Financial Statements 30
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 30
Part III
Item 10. Directors 30
Item 11. Executive Compensation 30
Item 12. Security Ownership of Certain Beneficial Owners and
Management 30
Item 13. Certain Relationships and Related Transactions 30
Part IV
Item 14. Exhibits 31
Signatures 32
Exhibit Index 33
Exhibits 36
PART I: BUSINESS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-K, including, without limitation,
statements in ITEM 1, under the headings 'GENERAL OVERVIEW OF BUSINESS';
'INDUSTRY OVERVIEW'; 'PRODUCTS AND SERVICES'; 'COMPETITION'; 'SEASONALITY';
'SOURCES OF SUPPLY'; 'ADDITIONAL BUSINESS INFORMATION' including 'BUSINESS
RISK', 'ENVIRONMENTAL' and 'REGULATION'; in ITEM 3 under the heading 'LEGAL
PROCEEDINGS'; and in ITEM 7 under the heading 'MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS'; including
statements relating to expectations of future financial performance,
continued growth and dividend policy, constitute `forward-looking
statements' within the meaning of the Private Securities Litigation Reform
Act of 1995. When used in this Form 10-K, the words 'expects',
'anticipates', 'estimates', 'believes', 'no assurance' and similar
expressions and statements made in the future tense are intended to
identify such forward-looking statements that involve risks and
uncertainties. A number of important factors which are difficult to predict
and many of which are beyond the control of the Company could cause actual
results to differ materially from those implied by the forward-looking
statements. These factors include, but are not limited to, the adverse
impact of unseasonal weather; developments in the federal and state
regulatory environment; the rate of growth in the service territories
served by the Company and its subsidiaries and affiliates; the speed and
degree to which competition enters the Company's industries; the timing and
extent of changes in commodity prices; risks associated with acquisitions
and integration of acquired companies, including acquired companies not
performing to expectations, greater than anticipated difficulties in
achieving cost savings and synergies, difficulties in integrating
operations of acquired companies and the loss of key management personnel;
changes in customer usage patterns and preferences; as well as changing
conditions in the economy, capital markets and other factors.
ITEM 1. BUSINESS
General Overview of Business. NorthWestern Corporation and its partner
entities are leading providers of value-added services and solutions to
residential and business customers nationwide. Our strategic focus is on
direct customer relationships where we can provide value-added service
integration, which we believe offers us the opportunity to achieve higher
sustainable operating results and build greater shareholder value over
time. Through the commitment and initiative of our team members, we are
reinventing customer service, redefining business solutions, and sharing
core values and strategic vision with the aim to be 'America's Best Service
and Solutions Experience'-SM-. NorthWestern and its partner entities
discussed herein include:
* Expanets, Inc. ('Expanets'), a Delaware corporation, a leading provider
of integrated communication and data solutions and network services to small
and medium-sized businesses, with operations in 73 locations in 32 states;
* NorthWestern Public Service ('NPS'), a division of the Company, provides
competitive, reliable electric and natural gas service and other value-added
services to over 125,000 customers in the upper Midwest.
* CornerStone Propane Partners, L.P. ('CornerStone'), a publicly traded
master limited partnership (NYSE: CNO), the nation's fourth largest and
fastest growing publicly held retail propane distributor, serving more than
460,000 residential, commercial, industrial and agricultural customers
from 298 customer service centers in 34 states; and
* Blue Dot Services, Inc. ('Blue Dot'), a Delaware corporation, one of
America's leading providers of air conditioning, heating, plumbing and
related services, with operations at 62 locations in 23 states;
NorthWestern Growth Corporation ('NorthWestern Growth'), a wholly-owned
subsidiary of the Company, is the strategic development and investment
capital arm of NorthWestern. Its mission is to implement development,
investment, acquisition and operations initiatives on behalf of
NorthWestern and its partner entities to achieve long-term value creation.
To accomplish these objectives, NorthWestern Growth seeks to: (i) acquire,
develop and expand into new businesses to complement our existing
operations and expand our customer base; (ii) partner with premier, growth-
oriented and entrepreneurial management teams in each sector of our
business operations; (iii) integrate additional products, services and
solutions into our growing customer base; and (iv) maximize growth and
financial performance of investments and acquired businesses.
Since its formation in 1994, NorthWestern Growth has implemented a dynamic
acquisition and investment program (including the formation and initiation
of the Blue Dot, CornerStone, and Expanets investment strategies) to
support NorthWestern's plan of becoming the premier provider of value-added
services and solutions across America. NorthWestern Growth intends to
continue building NorthWestern and its partner entities by expanding into
additional industries and markets offering high growth potential consistent
with NorthWestern's strategic vision.
NorthWestern was incorporated under the laws of the state of Delaware in
1923. Our executive offices are located at 125 S. Dakota Avenue, Sioux
Falls, South Dakota 57104, our telephone number is 605-978-2908, and our
Web site is located at www.northwestern.com, and the Web sites for the
partner entities are located at www.expanets.com, www.cornerstonepropane.com,
and www.bluedotservices.com.
In this report, the terms 'Company' and 'NorthWestern' as well as the terms
'our,' 'we,' and 'its,' are sometimes used as abbreviated references to
NorthWestern Corporation, individual partner entities or, collectively,
NorthWestern Corporation and its partner entities.
Financial Information about Industry Segments. Financial information about
industry segments is incorporated by reference to Note 14 of the 'Notes to
Consolidated Financial Statements' of the Company's 1999 Annual Report,
filed as Exhibit 13 hereto.
COMMUNICATIONS, NETWORK SERVICES AND DATA SOLUTIONS
EXPANETS, INC.
Expanets is a leading provider of integrated communications, network
services and data solutions to small and medium-sized business
customers nationwide. We design, procure, implement, maintain and monitor
voice, video and data systems which provide connectivity for our customers.
Expanets' areas of expertise include voice networking, data networking,
internet connectivity, messaging systems, advanced call processing
applications, computer telephony, network management, carrier services and
e-Business enablement. During 1999, Expanets completed the acquisition of
eight companies representing approximately $37.8 million in revenues ($76
million on a pro forma annualized basis), and currently operates in 73
locations in 32 states.
Expanets was formed by NorthWestern Growth in late 1997 under the name of
Communication Systems USA, Inc., and in February 1999 changed its name to
Expanets. Acquisitions by Expanets are effected utilizing a combination of
cash and Expanets stock. Through the use of different classes of capital
stock, NorthWestern Growth controls approximately 95.8% of the voting
common and preferred stock (as of December 31, 1999). Additional
information relating to the investment in Expanets is incorporated by
reference to Note 2 of 'Notes to Consolidated Financial Statements' of
NorthWestern's 1999 Annual Report, filed as Exhibit 13 hereto.
INDUSTRY OVERVIEW
In the current environment of rapid development of the Internet and
accelerating technological change, businesses increasingly depend upon
technology-based solutions to enhance their competitive position and
improve the products and services they provide to their customers. The
network services market is growing rapidly because of the increase in the
number, size and complexity of networks, resulting from the use of the
Internet and e-business, the convergence of voice and data, and the need to
integrate new and evolving technologies. This situation has made it
challenging for businesses to integrate and deploy the most reliable and
responsive communications and data networks, customized to their needs in a
cost-effective manner.
The growth in data networking and anticipated continued convergence of data
networking and established voice networking into a single network using
internet protocol ('IP') technology are expected to equal and then surpass
the voice networking market segment. Factors driving this growth are:
rapid development globally of the use of the Internet; use of corporate
Intranets; remote access by mobile workers; networks linking companies with
their strategic partners, vendors, other enterprises, and customers; use of
video conferencing; and reliance on client/server based applications and
local area computing structures. The large numbers of users and the
increased amount of data generated by these applications has increased
traffic and placed higher demand on networks. Thus, the technology
underlying networks has become very complex. The implementation of these
technologies requires significant expertise. Faced with a shortage of
qualified technical resources and great demands to implement the latest
technology while ensuring the reliability, performance and security of
these systems, customers are increasingly relying on outside vendors to
provide the necessary resources. Because of the rapid technological
changes in communications networking, and as companies focus on their core
competencies, businesses are increasingly looking to third parties for
access to specialized technical skills and rapid implementation of
communications and data networking solutions.
According to the Gartner Group, business-to-business ('B2B') e-commerce
will grow at aggressive rates through 2004. It is forecast to grow from
$145 billion in 1999 to $7.29 trillion in 2004. Projections show that the
worldwide B2B market will reach $403 billion in 2000 followed by $953
billion in 2001. Key drivers of growth are rapid technological change,
converging networks and a trend toward outsourcing due to the complex
nature of communications networks.
PRODUCTS AND SERVICES
Expanets is poised to be one of the nation's premier sources of networked
communications solutions to small and mid-sized business customers. From
call centers and messaging, voice, data and video integration, and Web-
enablement to voice and data network design and engineering, system
installation and support, Expanets is a single, total-solution resource for
its customers. The following products and services are included in the
suite of customer solutions Expanets offers:
* Voice, data and video integration
* Network integration and support
* Premise switching equipment
* Interactive voice response (IVR) equipment
* Voice message systems (VMS) design and engineering
* Data networking systems design and engineering
* Call center design and system installation and support
* Local and long distance voice telephony services
* Data services
* Internet services
* Web-enablement
We believe that Expanets' relationships with a wide range of leading
technology companies position it to deliver the most appropriate solutions
to each customer. Because Expanets is a distributor and not a
manufacturer, we are able to design the best solution and select the best
products to meet a customer's unique requirements. Expanets goes beyond
the usual service expectations by uniquely providing a Maintenance
Guarantee that guarantees on-site response time, a Price Protection
Guarantee on the price of component parts, an Obsolescence Guarantee, and a
Guarantee of Maintenance Agreement Continuity.
Expanets' strategic initiatives in fiscal 2000 include delivering a broad
portfolio of voice and data network design and consulting services;
implementing internal best practices, synergies and economies of scale;
building strategic alliances to expand growth opportunities; developing
Internet and e-business applications to take advantage of converging voice
and data technologies, network design, integration and management services;
and attracting, developing and training a highly professional team.
COMPETITION
The market served by Expanets in the communications, data services and
network solutions industry is a highly competitive market and subject to
rapid change. The principal competitive factors include (i) market
acceptance of the products, services and technology solutions Expanets
provides, (ii) pending and future legislation affecting the communications
and data industry, (iii) name recognition and market share, and (iv) our
ability to provide integrated communications and data solutions for
customers in a dynamic industry. Many of Expanets' competitors in the
communications business are generally small, owner-operated companies
typically located and operating in a single geographic area. Certain of
these smaller competitors may have lower overhead cost structures and,
consequently, may be able to charge lower rates for their services. There
are a number of large, integrated national and multi-national companies
engaged in providing commercial services in the service lines in which we
focus, some of which also manufacture and sell directly the products that
Expanets services and sells. Future competition may be encountered from
other newly formed or existing public or private service companies with
aggressive acquisition and marketing programs. Certain of Expanets'
competitors may have greater financial resources to finance acquisition and
internal growth opportunities and may be willing to pay higher prices than
Expanets for acquisition opportunities. Certain products and services
offered by Expanets are manufactured or supplied by others and involve the
risk of partial reliance upon third party systems and services, as well as
risks associated with the need to integrate services and solutions across
networks, platforms and equipment manufactured or supplied by various
companies.
Expanets competes on the basis of the depth and breadth of services and
products offered; our ability to provide innovative solutions to customers'
needs; our ability to integrate communications and data networking systems
as the related technologies continue to converge; and our reputation for
providing a high level of customer service.
TEAM MEMBERS
As of December 31, 1999, Expanets employed approximately 2000 team members,
whom it calls 'associates.' We consider Expanets' relations with team
members to be good. Approximately 106 team members are covered by
collective bargaining agreements.
ELECTRICITY AND NATURAL GAS DISTRIBUTION BUSINESS
NORTHWESTERN PUBLIC SERVICE
NPS, a division of NorthWestern, provides competitive, reliable electric
and natural gas service and value-added services to customers in the upper
Midwest. As of December 31, 1999, we provided electricity to 57,035
customers in South Dakota and natural gas to 80,882 customers in South
Dakota and Nebraska. Electric and natural gas revenues accounted for 5.1%
of all revenues for NorthWestern in 1999.
NPS is qualified to conduct its electric and natural gas business in the
states of South Dakota, Nebraska, Iowa and North Dakota. We currently
serve no electric customers in Nebraska, North Dakota or Iowa.
ELECTRIC OPERATIONS. Pursuant to the South Dakota Public Utilities Act,
the South Dakota Public Utilities Commission ('PUC') assigned as NPS'
electric service territory certain communities and adjacent rural areas in
which we provide electric service in South Dakota. This gives NPS the
right to provide fully bundled services to each present and future electric
customer within that assigned territory for so long as the service provided
is adequate. As of December 31, 1999, NPS provided retail electricity to
108 communities in South Dakota with a combined population of approximately
98,403 people. That service territory spans more than 26 counties in South
Dakota, where economic growth is believed to be modest. Electric energy
sales constituted 2.8% of all revenue of NorthWestern for 1999, as compared
to 6.6% in 1998 and 8.4% in 1997. NPS' electric revenues during the past
three years have grown from $76,700,000 to $83,900,000. Residential
customer sales and commercial and industrial customer sales have
constituted approximately 40% and 50% of such sales, respectively, during
this period. Sales for resale primarily include power pool sales to other
utilities. Power pool sales fluctuate from year to year depending on a
number of factors, including the availability of excess short-term
generation and the ability to sell the excess power to the other utilities
in the power pool. NPS also sells and energy at wholesale to the cities of
Miller, Langford and Bryant, South Dakota, for resale, and power to various
governmental agencies such as the State Correctional Facility at
Springfield, the Human Services Center at Yankton and the State
Developmental Facility in Redfield, all in South Dakota.
NPS shares with Otter Tail Power Company ('Otter Tail') and Montana-Dakota
Utilities Co. ('MDU') in the ownership of the Big Stone Generating Plant
('Big Stone'), located near Big Stone City in northeastern South Dakota.
In North Dakota, NPS maintains transmission facilities to interconnect with
electric transmission lines of other utilities and shares in the ownership
of the Coyote I Electric Generating Plant ('Coyote'), located near Beulah,
North Dakota with MDU, Otter Tail and the Northern Municipal Power Agency.
In Iowa, NPS shares in the ownership of Neal Electric Generating Unit No. 4
('Neal') located near Sioux City, Iowa, with MidAmerican Energy Company,
Aliant Power, Cornbelt Power Cooperative, Northeastern Iowa Power
Cooperative, and nine other companies. Big Stone and Neal are fueled by
sub-bituminous coal, while Coyote is fueled by lignite coal. The fuel is
provided through various length contracts with several coal companies.
Additionally, NorthWestern owns peaking/standby generating units, fueled by
natural gas and/or fuel oil, installed at eight locations through the
service territory.
NPS contracts with the Western Area Power Administration (WAPA) for
transmission of electricity from Big Stone and Neal to its service area
through 7 points of interconnection on WAPA's system. The 20-year term of
that contract ends on December 31, 2000 and WAPA has chosen not to extend
or renew the contract. Therefore, NPS will likely be required to take
service under WAPA's Open Access Transmission Tariff (OATT) after December
31, 2000. The rate terms of WAPA's OATT indicate that NPS' customers will
incur a cost increase compared to the former contract; however, the extent
of that increase is not known at this time. NPS is pursuing the details of
the rate application with WAPA, including credits for NPS' network
resources that are integrated with and provide enhancements to WAPA's
system. Further discussion of FERC-mandated OATT's can be found in the
'Regulation' section below.
In order to provide for forecasted load growth during the next few years,
the evaluation of additional generating capacity requirements is ongoing.
The 1999 evaluation resulted in a contract for purchased capacity to
provide for adequate generating reserves through the year 2003. Because
the availability of existing capacity that can be purchased in the region
is falling and costs are rising, we will continue to evaluate all
available options, including installing new units, to meet future
requirements.
As of December 31, 1999, the aggregate net summer peaking capacity of all
NPS-owned electric generating units was 311,220 kw, consisting of 106,830
kw from Big Stone (23.4% share), 42,700 kw from Coyote (10.0% share),
54,690 kw from Neal (8.7% share), and 107,000 kw from combustion turbine
units and small diesel units, used primarily for providing electric power
during peak demand periods. In addition to those plant facilities, NPS has
entered into agreements to purchase up to 28,750 kw of firm summer
capacity from other Midcontinent Area Power Pool (MAPP) utilities to assist
in meeting peak demands during the summers of 2000-2003.
NPS is a summer peaking utility. The 1999 peak demand of 292,938 kw
occurred on July 29, 1999. Total system capability at the time of peak was
335,370 kw resulting in a reserve margin for 1999 of 14.5%. The minimum
reserve margin requirement as determined by the members of the MAPP, of
which NPS is a member, is 15%. This shortfall in capacity will likely
result in a MAPP Schedule 'B' After-the-Fact allocation of approximately
1,500 kw of capacity from other MAPP resources. While this allocation is
subject to MAPP audit, the estimated cost of this allocation is $140,000
likely to occur during 2000.
MAPP is an area power pool arrangement consisting of utilities and power
suppliers having transmission interconnections located in a 9-state area in
the north central region of the United States and in two Canadian
provinces. The objective of MAPP is to accomplish coordination of planning
and operation of generation and interconnecting transmission facilities to
provide reliable and economical electric service to members' customers,
consistent with reasonable utilization of natural resources and protection
of the environment. While benefiting from the advantages of the planning,
coordination, and operations of MAPP, each member has the right and
obligation to own or otherwise provide the facilities to meet its own
requirements. The terms and conditions of the MAPP agreement and
transactions between MAPP members are subject to the jurisdiction of the
Federal Energy Regulatory Commission ('FERC'). NPS also has
interconnections with the transmission facilities of Otter Tail, MDU,
Northern States Power Company, and WAPA and has emergency interconnections
with transmission facilities of East River Electric Cooperative, Inc. and
West Central Electric Cooperative. These interconnections and pooling
arrangements enable us to arrange purchases or sales of substantial
quantities of electric power and energy with other pool members and to
participate in the benefits of pool arrangements.
NPS is in the process of updating the load forecast portion of its
integrated resource plan to identify how to meet the future electric energy
needs of its customers. The plan includes estimates of customer usage and
programs to provide for economic, reliable, and timely supplies of energy.
Lignite and sub-bituminous coal were utilized as fuel for virtually all of
the electric energy generated during 1999. NPS' fuel costs have remained
relatively stable. The average cost by type of fuel burned is shown below
for the periods indicated:
% of 1999
Cost Per Million BTU Megawatt
Year Ended December 31 Hours
------------------------- Generated
Fuel Type 1997 1998 1999 ------------
------- ------- -------
Sub-bituminous - Big Stone $.93 $.96 $.95 53.1%
Lignite - Coyote** .91 .89 .82 19.3%
Sub-bituminous - Neal .71 .73 .74 27.0%
Natural Gas 2.33 2.57 2.78 *
Oil 4.64 4.17 4.23 *
*Combined for approximately 0.5 percent.
**Includes pollution control reagent.
During 1999, the average delivered costs per ton of fuel for NPS' base load
plants were $10.75 at Coyote, $16.43 at Big Stone and $12.54 at Neal. Such
amounts include severance taxes imposed by the states of North Dakota and
Montana and a production tax imposed by the state of Wyoming. While the
effect on NPS fuel costs of future changes in severance or production taxes
cannot be predicted, any changes in fuel costs are passed on to customers
through the operation of NPS' adjustment clause.
The continued delivery of lignite and sub-bituminous coal to the three base
load plants is reasonably assured by contracts covering various periods of
the operating lives of these units. The contract for delivery of Montana
sub-bituminous coal to Big Stone expired at the end of 1999 and has been
replaced with a 3-year contract for Wyoming sub-bituminous coal. The
contract for delivery of lignite to Coyote, which expires in 2016,
provides for an adequate fuel supply for the estimated economic life of
that plant. Neal receives Wyoming sub-bituminous coal under multiple firm
and spot contracts with terms up to several years in duration.
Following test burns at various times during the 1990's, the Big Stone
owners received approval from the South Dakota Department of Environment
and Natural Resources to burn a variety of alternative fuels including tire
derived fuel and refuse derived fuel. The quantity of alternative fuels
that was burned in 1999 was approximately 5.8% of the total fuel
consumption at the plant.
The fossil fuel supplies for Big Stone and Neal are delivered via unit
trains belonging to the respective plants' owners and locomotives of the
Burlington Northern/Santa Fe Railroad and the Union Pacific Railroad,
respectively. The lignite supply for Coyote is delivered via conveyor at
this 'mine-mouth' plant. While NPS has no firm contract for diesel fuel
for its other electric generating plants, it has been able to purchase
diesel fuel requirements in recent years from local suppliers and currently
have in storage an amount adequate to satisfy its normal requirements for
such fuel.
Additional information relating to jointly owned plants is incorporated by
reference to Note 7 of the 'Notes to Consolidated Statements' of the
Company's 1999 Annual Report to Shareholders filed as an Exhibit 13 hereto.
NATURAL GAS OPERATIONS. NPS has nonexclusive municipal franchises to
provide natural gas service in four Nebraska and 57 South Dakota
communities. The maximum term permitted under Nebraska law for such
franchises is 25 years while the maximum term permitted under South Dakota
law is 20 years. Our policy is to seek renewal of a franchise in the last
year of its term. We have never been denied the renewal of any of these
franchises, and do not anticipate that any future renewals will be denied.
Natural gas service generally consists of fully bundled services, although
certain large commercial and industrial customers, as well as wholesale
customers, may buy the natural gas commodity from another provider and
utilize the distribution utility's transportation service to their
facility. NPS transports natural gas for its unregulated affiliate,
NorthWestern Energy Corporation ('NEC'), and for other gas suppliers and
marketers.
The total population in the communities served, according to the 1990
census, was 193,229. Purchase adjustment clauses contained in South Dakota
and Nebraska tariffs allow us to reflect increases or decreases in gas
supply and interstate transportation costs on a timely basis. During the
past two years, natural gas revenues have been approximately $68,000,000,
with 55% coming from sales to residential customers and 44% coming from
sales to commercial and industrial customers. The mild winter weather in
NPS' service areas during the past two years has resulted in decreased
sales, as compared to the $77,000,000 in revenues in 1997, which reflected
a more normal winter period.
NPS owns and operates natural gas distribution systems serving 40,425
customers in eastern South Dakota. In 1996, it completed construction of a
new natural gas pipeline in northern South Dakota which increased capacity
to 15,000 MMBTU per day. In 1999, NPS executed a service agreement with
Coast Energy Group ('CEG', the wholesale division of Cornerstone),
whereby CEG coordinates supply and transportation services for NPS'
South Dakota gas systems and provides product hedging services for NPS and
NEC. Pipeline and storage capacity services are provided under service
agreements with Northern Natural Gas Company. These
agreements provide for firm deliverable pipeline capacity of approximately
61,805 MMBTU per day in South Dakota, effective November 1, 1999. In
Nebraska, NPS owns and operates natural gas distribution systems serving
40,457 retail customers. It purchases all of its natural gas for these
systems through KN Gas Marketing, Inc. ('KN') under a service agreement
entered in 1995 with all supply and transportation services coordinated
through NEC. These agreements provide for firm deliverable pipeline
capacity of approximately 57,429 MMBTU per day in Nebraska.
A 1992 order of the FERC, Order 636, requires that all companies with
interstate natural gas pipelines separate natural gas supply and production
services from interstate transportation service and underground storage
services. This allows natural gas distribution companies, such as NPS, and
individual customers, to purchase natural gas directly from producers,
third parties, and various gas marketing entities and transport it through
the interstate pipelines. Transportation rates on NPS' distribution
systems have been designed to make NPS economically indifferent as to
whether it sells and transports natural gas or merely transports natural
gas.
To supplement firm gas supplies, NPS' service agreements with CEG and KN
also provide for underground natural gas storage services to meet the
heating season and peak day requirements of its gas customers. In
addition, NPS also owns and operates five propane-air plants with a total
rated capacity of 14,000 MMBTU per day, or approximately 10% of peak day
requirements. The propane-air plants provide an economic alternative to
pipeline transportation charges to meet the peaks caused by customer demand
on extremely cold days.
Effective June 1, 1999, NPS filed an application with the cities of Grand
Island, Kearney and North Platte and the Village of Alda to raise natural
gas rates to its customers in Nebraska. On November 2, 1999, we entered
into an agreement with these four communities for an overall increase in
natural gas rates of $1,146,414.00. The new rates were effective October
2, 1999. Also on June 1, 1999, NPS filed an application with the South
Dakota PUC for an increase in revenues to its South Dakota natural gas
customers. On October 20, 1999, the PUC approved a settlement agreement
between the Staff of the Public Utilities Commission (Staff) and NPS for an
overall increase in its natural gas revenues of $1,279,025.00. The
increase was effective for all customer billings rendered on or after
December 1, 1999. The settlement resolved all issues except the regulatory
treatment of NPS' purchase of transportation capacity from NorthWestern
subsidiary Nekota Resources, Inc., upon which issue a hearing was held in
October 1999, and for which a decision is anticipated in the near future.
COMPETITION
Direct competition does not presently exist within NPS' assigned electric
territory for the supply and delivery of electricity. Providers of
electricity compete with each other to some extent to attract and retain
customers to their assigned service areas. In addition, some degree of
competition exists with the ability of some customers to self-generate or
by-pass parts of the electric system.
Competition for various aspects of electric services is being introduced
throughout the country that will open utility markets to new providers of
some or all the traditional utility services. It is unclear if and when
such competition will begin to affect NPS' territory. Should this occur,
we expect competition will emerge first for the commodity of electricity.
Potential competitors include various surrounding providers as well as
national providers of electricity. Competition in the utility industry is
likely to result in the unbundling of utility services. Separate markets
may emerge for generation, transmission, distribution, meter reading,
billing and other services currently provided by utilities as a bundled
service. At present it is unclear when or to what extent unbundling of
utility services will occur. We are monitoring the trends in the industry
and formulating a strategy to meet the changes in the industry in the years
ahead.
There are no assigned service territories for NPS' natural gas business,
and therefore competition in this industry may come from a number of
sources. Competition currently exists for commodity sales to large volume
customers. In South Dakota, NEC is the principal other entity transporting
natural gas on NPS' distribution system. Competition for delivery exists
in the form of system by-pass, alternative fuel sources, (propane or fuel
oil) and, in some cases, duplicate providers. The key to our continued
success is to maximize efficiency, reliability, service quality and
customer satisfaction.
Competition in the natural gas industry is likely to result in the further
unbundling of natural gas services. Separate markets may emerge for the
natural gas commodity, transmission, distribution, meter reading, billing
and other services currently provided by utilities. At present it is
unclear when or to what extent further unbundling of utility services will
occur. It is clear, however, that to remain the consumer's provider of
choice, we must provide top quality services at reasonable prices. To
prepare for the future, we must ensure that all aspects of this business
are efficient, reliable, economical and customer focused.
SEASONALITY
Seasonal temperatures can have a large impact on sales and corresponding
revenues in the electric utility industry. The past two winters have been
relatively mild in South Dakota, which has had an adverse effect on NPS
electric revenues. However, favorable sales of electricity during the
summer and fall seasons have offset this effect. We have sought to
counteract seasonal revenue variations by becoming more efficient and
reducing expenditures whenever possible.
One of the predominant factors affecting NPS' natural gas operations is
weather patterns during the winter heating season. Because natural gas is
heavily used for residential and commercial heating, the demand for this
product depends upon weather conditions. In 1999, the .5% increase in
natural gas revenues from 1998 primarily reflects the negative impact from
continued significantly warmer than normal weather in NPS' natural gas
service areas. During the first quarter of 1999, weather was approximately
2.5% warmer than 1998, while weather during the last quarter of 1999 was
also colder than the prior year by approximately 5%.
TEAM MEMBERS
As of December 31, 1999, NPS had 349 full time and 23 part time team
members. System Council U-26 of the International Brotherhood of
Electrical Workers ('IBEW') is the bargaining entity for 199 team members,
and we consider NPS' relations with team members to be good.
PROPANE BUSINESS
CORNERSTONE PROPANE PARTNERS, L.P.
CornerStone is the fourth largest and fastest-growing publicly traded
(NYSE: CNO) retail propane distributor in the United States. As of December
31, 1999, CornerStone served more than 460,000 residential, commercial,
industrial and agricultural customers from 298 customer service centers in
34 states. Our operations are concentrated in the east coast, south-
central and west coast regions of the United States. For the 12 months
ended December 31, 1999 (CornerStone's fiscal year ends June 30),
CornerStone had retail propane sales of approximately 335 million gallons.
The retail propane sales produce substantially higher gross margins than
wholesale operations. CornerStone attributes its dynamic growth to a
balanced strategy of internal growth, new customer service start-ups and
acquisitions.
CornerStone, and its subsidiary, CornerStone Propane, L.P. ('the Operating
Partnership'), were organized in October 1996 and November 1996,
respectively. CornerStone Propane GP, Inc. and SYN Inc. are the general
partners of CornerStone and the Operating Partnership. The general partners
own an aggregate 2% interest as general partners, and the Unitholders
(including the General Partners as holders of Subordinated Units) own a 98%
interest as limited partners, in CornerStone and the Operating Partnership
on a combined basis. Through NorthWestern Growth, NorthWestern owns
approximately 30% of CornerStone and is the Managing General Partner.
CornerStone, the Operating Partnership and its corporate subsidiaries are
referred to collectively herein as the 'Partnership' or 'CornerStone'.
The Partnership was formed to acquire, own and operate the propane
businesses and assets of SYN, Inc. and its subsidiaries ('Synergy'), Empire
Energy Corporation and its subsidiaries ('Empire Energy') and CGI Holdings,
Inc. and its subsidiaries ('Coast'). To capitalize on the growth and
consolidation opportunities in the propane distribution market, in August
1995, Northwestern Growth acquired the predecessor of Synergy, then the
sixth largest retail marketer of propane in the United States and, in
October 1996, it acquired Empire Energy, then the eighth largest retail
marketer of propane in the United States. Immediately prior to the
Partnership's initial public offering ('IPO') of Common Units in December
1996, Northwestern Growth acquired Coast, then the 18th largest retail
marketer of propane in the United States. The Partnership commenced
operation on December 17, 1996, concurrently with the closing of the IPO,
when substantially all of the assets and liabilities of Synergy, Empire
Energy and Coast were contributed to the Operating Partnership. In 1999, 15
new companies joined CornerStone. Additional information relating to the
investment in CornerStone is incorporated by reference to Note 2 of 'Notes
to Consolidated Financial Statements' on page 27 of the Company's 1999
Annual Report, filed as Exhibit 13 hereto.
CornerStone is principally engaged in (i) the retail distribution of
propane for residential, commercial, industrial, agricultural and other
retail uses; (ii) the wholesale marketing and distribution of propane,
natural gas liquids and crude oil to the retail propane industry, the
chemical and petrochemical industries and other commercial and agricultural
markets; (iii) the repair and maintenance of propane heating systems and
appliances; and (iv) the sale of propane-related supplies, appliances and
other equipment.
The retail propane business is a 'margin-based' business in which gross
profits depend on the excess of sales prices over propane supply costs.
Sales of propane to residential and commercial customers, which account for
the vast majority of CornerStone's revenue, have provided a relatively
stable source of revenue for CornerStone. Based on fiscal 1999 retail
propane gallons sold, the customer base consisted of 60% residential, 23%
commercial and industrial and 17% agricultural and other customers. Sales
to residential customers have generally provided higher gross margins than
other retail propane sales. While commercial propane sales are generally
less profitable than residential retail sales, we have traditionally relied
on this customer base to provide a steady, noncyclical source of revenues.
No single customer accounted for more than 1% of total revenues.
Through CEG, CornerStone engages in the marketing and distribution of
propane to independent dealers, major interstate marketers and the chemical
and petrochemical industries in addition to procurement and distribution of
propane for the retail segment. CEG also participates in the marketing of
other natural gas liquids, the processing and marketing of natural gas and the
marketing of crude oil. CornerStone either owns or has contractual rights to
use transshipment terminals, rail cars, long-haul tanker trucks, pipelines and
storage capacity. We believe that the CEG marketing and processing
activities position CornerStone to achieve product cost advantages and to
avoid shortages during periods of tight supply to an extent not generally
available to other retail propane distributors.
The principal elements of CornerStone's business strategy are to (i) extend
and refine our existing service orientation; (ii) continue to pursue
balanced growth through small and large acquisitions, internal growth at
our existing customer service centers and start-ups of new customer service
centers; (iii) enhance the profitability of our existing operations by
improving delivery efficiencies, using entrepreneurially oriented local
manager incentive programs, pricing decisions by the local manager and
increased emphasis in non-propane activities to reduce weather dependency;
(iv) further enhance the profitability of operations by expanding into
related home-service initiatives that are less dependent on winter weather
patterns; and (v) capitalize on the CEG marketing, supply and logistics
business.
CornerStone has organized its operations in a manner that it believes
enables it to provide excellent service to customers and to achieve maximum
operating efficiencies. CornerStone's retail propane distribution business
is organized into divisions, which are each comprised of regions. Each
regions is comprised of a number of customer service centers. Each
division and region is supervised by a manager. Team members located at
the customer service centers in the various regions are primarily
responsible for customer service, sales and delivery of product to the
customer.
A number of functions are centralized at CornerStone's support locations in
order to achieve certain operating efficiencies as well as to enable the
team members located in the customer service centers to focus on customer
service and sales. A computer system links each of the customer service
centers to the central management information system at the corporate
headquarters. This computer network system provides team members with
accurate and timely information on supply cost, inventory and customer
accounts. CornerStone makes centralized purchases of propane through CEG
for resale to the customer service centers which allows it to achieve
certain advantages, including price advantages, because of its status as a
large volume buyer. The functions of cash management, accounting, taxes,
payroll, permits, licensing, team member benefits, human resources, and
strategic planning are also performed on a centralized basis.
INDUSTRY OVERVIEW
Based upon information provided by the Energy Information Administration,
propane accounts for approximately 3-4% of household energy consumption in
the United States. Propane competes primarily with natural gas, electricity
and fuel oil as an energy source, principally on the basis of price,
availability and portability. Propane is more expensive than natural gas on
an equivalent BTU basis in locations served by natural gas, but serves as a
substitute for natural gas in rural and suburban areas where natural gas is
unavailable, or where portability of product is required. Historically, the
expansion of natural gas into traditional propane markets has been
inhibited by the capital costs required to expand pipeline and retail
distribution systems. Although the extension of natural gas pipelines tends
to displace propane distribution in areas affected, CornerStone believes
that new opportunities for propane sales arise as more geographically
remote neighborhoods are developed. Propane is generally less expensive to
use than electricity for space heating, water heating, clothes drying and
cooking. Although propane is similar to fuel oil in certain applications
and market demand, propane and fuel oil compete to a lesser extent
primarily because of the cost of converting from one to the other.
PRODUCTS AND SERVICES
Propane, a by-product of natural gas processing and petroleum refining, is
a clean-burning energy source recognized for its transportability and ease
of use relative to alternative stand-alone energy sources. Our retail
propane business consists principally of transporting propane to our retail
distribution outlets and then to tanks located on our customers' premises.
Retail propane use falls into four broad categories: (i) residential, (ii)
industrial and commercial, (iii) agricultural and (iv) other applications,
including motor fuel sales. Residential customers use propane primarily for
space and water heating. Industrial customers use propane primarily as fuel
for forklifts and stationary engines, to fire furnaces, as a cutting gas,
in mining operations and in other process applications. Commercial
customers, such as restaurants, motels, laundries and commercial buildings,
use propane in a variety of applications, including cooking, heating and
drying. In the agricultural market, propane is primarily used for tobacco
curing, crop drying, poultry brooding and weed control. Other retail uses
include motor fuel for cars and trucks, outdoor cooking and other
recreational purposes, propane resales and sales to state and local
governments. CEG sells propane principally to large industrial customers
and other propane distributors.
Propane is extracted from natural gas or oil wellhead gas at processing
plants or separated from crude oil during the refining process. Propane is
normally transported and stored in a liquid state under moderate pressure
or refrigeration for ease of handling in shipping and distribution. When
the pressure is released or the temperature is increased, it is usable as a
flammable gas.
SOURCES OF SUPPLY
CornerStone's propane supply is purchased from oil companies and natural
gas processors at numerous supply points located in the United States and
Canada. During 1999, virtually all of our propane supply was purchased
pursuant to agreements with terms of less than one year, but the percentage
of contract purchases may vary from year to year. Supply contracts
generally provide for pricing in accordance with posted prices at the time
of delivery or the current prices established at major delivery points.
Most of these agreements provide maximum and minimum seasonal purchase
guidelines. In addition, purchases on the spot market are made from time to
time to take advantage of favorable pricing. CornerStone receives its
supply of propane predominantly through railroad tank cars and common
carrier transport.
Supplies of propane from our sources historically have been readily
available. In 1999, Dynegy was CornerStone's largest supplier providing
approximately 8% of its total propane supply for retail and CEG operations
(excluding propane obtained from CEG's natural gas processing operations).
CornerStone believes that if supplies from Dynegy were interrupted, it
would be able to secure adequate propane supplies from other sources
without a material disruption of operations. No single supplier provided
more than 10% of CornerStone's domestic propane supply in the year.
Although no assurance can be given that supplies of propane will be readily
available in the future, we expect a sufficient supply to continue to be
available. CornerStone has not experienced a shortage that has prevented
it from satisfying its customers' needs, and we do not foresee any
significant shortage in the supply of propane.
CEG engages in hedging of product cost and supply through common hedging
practices. These practices are monitored and maintained by CornerStone
management on a daily basis. Hedging of product cost and supply does not
always result in increased margins.
The market price of propane is subject to volatile changes as a result of
supply or other market conditions over which CornerStone has no control.
Since it may not be possible to pass rapid increases in the wholesale cost
of propane on to customers immediately, such increases could reduce
CornerStone's gross profits. Consequently, CornerStone's profitability will
be sensitive to changes in wholesale propane prices. CEG engages in the
trading of propane, natural gas, crude oil and other commodities in amounts
that have not had and are not expected to have a material effect on
CornerStone's financial condition or results of operations.
CornerStone has from time to time leased space in storage facilities to
take advantage of supply purchasing opportunities as they occur, and we
believe that CornerStone will have adequate third party storage to take
advantage of such opportunities in the future. Access to storage facilities
will allow CornerStone, to the extent it may deem it desirable, to buy and
store large quantities of propane during periods of low demand, which
generally occur during the summer months, thereby helping to ensure a more
secure supply of propane during periods of intense demand or price
instability.
COMPETITION
In addition to competing with alternative energy sources, CornerStone
competes with other companies engaged in the retail propane distribution
business. Competition in the propane industry is highly fragmented and
generally occurs on a local basis with other large full-service multi-state
propane marketers, thousands of smaller local independent marketers and a
number of farm cooperatives. Based on industry publications, the domestic
retail market for propane is approximately 8.6 billion gallons annually,
with the 10 largest retailers, including CornerStone, accounting for
approximately 37% of the total retail sales of propane in the United
States, and with no single marketer having a greater than 10% share of the
total retail market. Most of CornerStone's customer service centers compete
with five or more marketers or distributors. Each customer service center
operates in its own competitive environment, because retail marketers tend
to locate in close proximity to customers. CornerStone's customer service
centers generally have an effective marketing radius of approximately 25 to
50 miles, although in certain rural areas the marketing radius may be
extended by a satellite storage location.
The ability to compete effectively further depends on the reliability of
service, responsiveness to customers and the ability to maintain
competitive prices. CornerStone believes that its service capabilities and
customer responsiveness differentiate it from many of these smaller
competitors. Its team members are on call 24 hours a day and seven days a
week for emergency repairs and deliveries.
CEG's operations compete in the wholesale liquefied petroleum gas (LPG)
business, which includes propane, is highly competitive. CEG also provides
marketing and risk management services in the natural gas and crude oil
markets, which are highly competitive. CEG's operations constitute 77% of
CornerStone's total revenue but less than 16% of the gross profit. The CEG
operations provide CornerStone with a national presence and a reasonably
secure, efficient supply base, and position CornerStone well for expansion
through acquisitions or start-up operations in new markets.
SEASONALITY
Because a substantial amount of propane is sold for heating purposes, the
severity of winter and resulting residential and commercial heating usage
have an important impact on CornerStone's earnings. Approximately two-
thirds of CornerStone's retail propane sales usually occur during the six-
month heating season from October through March. As a result of this
seasonality, its sales and operating profits are concentrated in its second
and third fiscal quarters. Cash flows from operations, however, are
greatest from November through April when customers pay for propane
purchased during the six-month peak season. To the extent NorthWestern
Growth, as Managing General Partner deems appropriate, CornerStone may
reserve cash from these periods for distribution to Unitholders during
periods with lower cash flows from operations. Sales and profits are
subject to variation from month to month and from year to year, depending
on temperature fluctuations.
Weather in 1999 averaged 12% warmer than normal in CornerStone's market
areas. While weather factors generally measure the directional impact of
temperatures on the business, other factors such as product prices,
geographic mix, magnitude and duration of temperature and weather
conditions can also impact sales.
TEAM MEMBERS
As of December 31, 1999, CornerStone had 2,665 full-time team members, and
none of its team members were represented by labor unions. We believe that
CornerStone's relations with its employees are satisfactory. CornerStone
generally hires seasonal workers to meet peak winter demand.
HVAC, PLUMBING AND RELATED SERVICES
BLUE DOT SERVICES, INC.
Blue Dot is a leading, national provider of comprehensive repair,
replacement and maintenance services and products for heating, ventilation
and air conditioning ('HVAC'), plumbing and related systems in homes and
light commercial businesses. Our differentiating strategy offers a broad
range of value-added products and services for full-service convenience and
a marketing program to promote brand recognition. As of December 31, 1999,
Blue Dot had completed acquisitions of 62 companies with 3,300 total team
members serving over 600,000 customers in 23 states. Our emphasis is on
companies with an established reputation and experience, a strong residential
and light commercial repair, replacement and maintenance mix, with firms more
heavily involved in new construction focused primarily in areas with high new
residential and commercial growth. We also look for companies with
superior management teams. Residential repair, replacement and maintenance
and new construction constitute approximately 60% of the business of
companies acquired by Blue Dot, with the other 40% involved in commercial
service.
Blue Dot was formed by NorthWestern Growth in July 1997 under the name
ServiCenter USA, Inc. and changed its name to Blue Dot in 1998.
Acquisitions by Blue Dot are effected utilizing cash, notes and stock in
Blue Dot or a combination. Through the use of different classes of capital
stock, NorthWestern controls approximately 96.9% of the voting common and
preferred stock (as of December 31, 1999). Additional information relating
to the investment in Blue Dot is incorporated by reference to Note 2 of
'Notes to Consolidated Financial Statements' on page 28 of the Company's
1999 Annual Report, filed as Exhibit 13 hereto.
Once we have entered a market, we seek to expand our market share through
internal growth and by acquisition of other well-established HVAC, plumbing
and related services businesses operating within that region and also other
potential service partners with complementary products and services that
present opportunities to reduce overhead or otherwise leverage our
infrastructure. Over time, the operations of such businesses are
integrated into the operations of existing platform Blue Dot companies in
the region, enabling Blue Dot to become the dominant market player.
We believe there are significant opportunities to increase our
profitability and that of subsequently acquired businesses. The key
elements of Blue Dot's operating strategy are: (i) providing superior,
high quality service in a professional manner; (ii) increasing revenue at
locations through sales of maintenance agreements, cross-marketing of
products and services and customer financing packages; (iii) offering
complementary non-traditional products and services; (iv) achieving
operating efficiencies through increased purchasing power to gain volume
discounts, national advertising and local marketing support; (v) `best
practices' integration; and (vi) attracting and retaining quality team
members. Blue Dot plans to transform the individual acquired businesses
into an integrated organization through common business formats, common
employee benefits, common information systems, national brand identity and
financial system integration. We believe it will take several years to
achieve this goal.
INDUSTRY OVERVIEW
The HVAC and plumbing industry consists of the installation, replacement,
maintenance, service and repair of systems at existing and new residences
and commercial businesses. According to industry sources, annual revenues
for these market segments in the United States are approximately $60
billion for HVAC services, $20 billion for plumbing services and $16
billion for electrical services. The industry can be broadly divided into
the new construction market (estimated 30% of annual revenues) and the
repair, replacement and maintenance market (estimated 70% of annual
revenues). Based on available industry data, there are currently over
50,000 businesses, consisting predominantly of small, owner-operated
companies focusing on a single local geographic area and providing a
limited range of services. Because of this market fragmentation and a
lower capability of smaller firms to raise the capital necessary to expand
their businesses, a number of firms have been consolidating the smaller
businesses.
PRODUCTS AND SERVICES
Repair, Replacement and Maintenance: These services include preventive
maintenance (periodic checkups, cleaning and filter change-outs), emergency
repairs, and the replacement (in conjunction with the retrofitting or
remodeling of a residence or commercial building, or as a result of an
emergency repair request) of air conditioning, heating and plumbing
systems. The repair, replacement and maintenance segment offers more
attractive pricing because of customers' demands for immediate, convenient
and reliable service. Blue Dot focuses on this segment of the industry
rather than the new construction segment because we believe that it offers
higher margins, less cyclicality and seasonality, and exposes Blue Dot to
less credit and interest rate risk, while allowing the establishment of a
national service reputation among customers. Growth in this segment is
driven by a number of factors, particularly: the aging of the installed
base; the increasing energy efficiency, sophistication and complexity of
air conditioning and heating systems; the upgrading of existing homes to
central air conditioning; and the increasing restrictions on the use of
refrigerants commonly used in older systems. The energy efficiency and
sophistication of new systems are encouraging owners of buildings to
upgrade and reconfigure their current systems. We also pursue maintenance
agreements which lead to better utilization of personnel, develop customer
loyalty, provide the opportunity for cross-marketing of Blue Dot's other
services and products, link the customer with Blue Dot should a major
repair or replacement be needed, and result in recurring revenues.
New Construction: These services in the residential market often begin
with a homebuilder providing architectural plans or mechanical drawings for
the particular type or types of residences to be developed and requesting a
bid or contract proposal. Blue Dot team members analyze the plans and
drawings and estimate the equipment, materials and parts and the direct and
supervisory labor required for the project and deliver a written bid or
negotiate the written agreement for the job. Working with the builder's
construction supervisors, Blue Dot team members coordinate and supervise
the installation. Commercial new installation work often begins with a
design request from the owner or general contractor, followed by
preliminary and then more detailed design specifications, engineering
drawings and cost estimates. Actual field work (ordering of equipment and
materials, fabrication or assembly of certain components, delivery of such
materials and components to the job site, scheduling of work crews with the
necessary skills, inspection and quality control) is coordinated by Blue
Dot team members.
COMPETITION
The market for HVAC, plumbing and related services is highly competitive.
The principal competitive factors in the residential and commercial repair,
replacement and maintenance segment of the industry are timeliness,
reliability and quality of services provided. In order to be successful as
a national provider of comprehensive services, we must employ, train and
retain highly motivated, professional service technicians. Blue Dot
believes that it does so through training programs, team member
compensation, team member health and savings benefit plans, career
opportunities and team building. Competitive pricing is possible through
purchasing economies and other cost saving opportunities that exist across
each of the service lines offered and from productivity improvements.
The largest number of Blue Dot's competitors are small, owner-operated
companies that typically operate in a single market. Many of these smaller
competitors may have lower overhead cost structures and may be able to
provide their services at lower rates. Moreover, many homeowners have
traditionally relied on individual persons or small repair service firms
with whom they have long-established relationships for a variety of home
repairs. In addition, there are a limited number of companies focused on
providing comprehensive residential and/or commercial services, on a multi-
state or national basis, in some of the same business lines provided by
Blue Dot. There also are a number of national retail chains that sell a
variety of plumbing fixtures and equipment and air conditioning and heating
equipment for residential use and offer, either directly or through various
subcontractors, installation, warranty and repair services.
Future competition may be encountered from, among others, newly formed or
existing public or private service companies with aggressive acquisition
programs, HVAC equipment manufacturers, the unregulated business segments
of regulated gas and electric utilities, or from newly deregulated
utilities entering into various residential or commercial service areas.
The principal methods of meeting competition employed by Blue Dot are
assurance of customer satisfaction, a history of providing quality service
and name recognition. We intend to expand our marketing program to
capitalize on brand recognition. In addition, we have forged national
alliances with the Air Conditioning Contractors of America (a national
trade association presenting more than 9,000 air conditioning and heating
contractors nationwide) and Honeywell (a manufacturer of home comfort
accessories). Blue Dot uses these alliances for training, information, and
co-marketing purposes. Blue Dot plans to continue efforts to build
strategic alliances.
SEASONALITY
Blue Dot's installation, repair, replacement and maintenance operations are
subject to seasonal variations in the different lines of service. Except in
certain regions, the demand for new installations can be substantially
lower during the winter months. Demand for HVAC services generally varies
with the weather; demand generally is higher during periods of extremely
cold or hot weather and lower in the spring and fall months. Blue Dot
expects its revenues and operating results generally will be lower in the
first and fourth quarters. Weather cycles, such as unseasonably mild
winters or summers can also affect revenues and operating results.
TEAM MEMBERS
As of December 31, 1999, Blue Dot employed 3,300 team members. Blue Dot
considers its relations with team members to be good. No team members are
covered by collective bargaining agreements.
ADDITIONAL NORTHWESTERN BUSINESS INFORMATION
BUSINESS RISK. Competition and Business Risk Information is incorporated
by reference to Management's Discussion and Analysis of the Company's 1999
Annual Report, on pages 18 through 20, and filed as Exhibit 13 hereto.
ENVIRONMENTAL. By virtue of the nature of our operations in electricity,
natural gas, propane and other areas, NorthWestern and its partner entities
are subject to numerous environmental laws and regulations in the ordinary
course of day-to-day operations, and such laws and regulations may require
us to incur certain costs, which could be substantial, to operate existing
facilities, construct and operate new facilities and mitigate or remove the
effect of past operations on the environment. We regularly monitor
operations to prevent adverse environmental impacts. When we become aware
of an environmental issue, we investigate the situation to gain facts as to
the nature and magnitude of environmental impact, and the extent, if any,
that we may be held responsible for contributing to any costs incurred for
taking action at such sites. We also attempt to gain information to
reasonably estimate potential costs attributable to any environmental
issue. NorthWestern does not believe any pending environmental liabilities
known to us will have a significant impact on the results of operations or
financial position of the Company. It is not possible for us to predict
the scope, enforceability or financial impact of other environmental laws
or regulations which may be established in the future.
NPS is subject to regulation with regard to air and water quality, solid
waste disposal, and other environmental considerations by Federal, state,
and local governmental authorities. The application of governmental
requirements to protect the environment involves or may involve review,
certification, issuance of permits, or similar action by government
agencies or authorities, including the United States Environmental
Protection Agency (EPA), the South Dakota Department of Environment and
Natural Resources (DENR), the North Dakota State Department of Health, and
the Iowa Department of Environmental Quality, as well as compliance with
decisions of the courts.
The Clean Air Act Amendments of 1990 (the 'Clean Air Act') stipulate
limitations on sulfur dioxide and nitrogen oxide emissions from coal-fired
power plants will require the purchase of additional emission allowances or
a reduction in sulfur dioxide emissions beginning in the year 2000 from the
Big Stone Plant. NPS believes it can economically meet the sulfur dioxide
emission requirements of the Clean Air Act by the required compliance
dates. With regard to the Clean Air Act's nitrogen oxide emission
requirements, the Neal wall-fired boiler is expected to meet the emission
limitations for such boilers. The Clean Air Act does not yet specify
nitrogen oxide limitations for boilers with cyclone burners such as those
used at Big Stone and Coyote because practical low-nitrogen oxide cyclone
burner technology does not exist. The Clean Air Act requires the EPA to
establish nitrogen oxide emission limitations for cyclone boilers including
taking into account that the cost to accomplish such limits be comparable
to retrofitting low-nitrogen oxide burner technology to other types of
boilers. In addition, the Clean Air Act also requires future studies to
determine what controls, if any, should be imposed on coal-fired boilers to
control emissions of certain air toxics other than sulfur and nitrogen
oxides. Because of the uncertain nature of cyclone boiler nitrogen oxide
and air toxic emission limits, NPS cannot now determine the additional
costs, if any, it may incur due to these provisions of the Clean Air Act.
In addition to the Clean Air Act, NPS is also subject to other
environmental regulations.
The states of South Dakota, North Dakota, and Iowa have enacted laws with
respect to the siting of large electric generating plants and transmission
lines. The South Dakota PUC, the North Dakota Public Service Commission,
and the Iowa Utilities Board have been granted authority in their
respective states to issue site permits for nonexempt facilities.
NPS did not incur any significant environmental expenditures in 1999 and
does not expect to incur any significant capital expenditures through 2001.
However, it keeps current on existing state and federal environmental
regulations and takes reasonable precautions to prevent any incidents that
would violate any of these rules. NPS believes that it is in compliance
with all presently applicable environmental protection requirements and
regulations, however it is unable to forecast the effect which future
environmental regulations may ultimately have upon the cost of its utility-
related facilities and operations. No administrative or judicial
proceedings involving NPS are now pending or known to be contemplated under
presently effective environmental protection requirements. NPS has met or
exceeded the removal and disposal requirements of equipment containing
polychlorinated biphenyls (PCBs) as required by state and Federal
regulations. It will use some PCB-contaminated equipment for its remaining
useful life and dispose of the equipment according to pertinent regulations
that govern that use and disposal of this equipment. PCB-contaminated oil
is burned for energy recovery at a permitted facility. The South Dakota
DENR and the EPA adopted regulations imposing requirements upon the owners
and operators of above ground and underground storage tanks. NPS' fuel oil
storage facilities at its generating plants in South Dakota are affected by
the above ground tank regulations, and NPS has instituted procedures for
compliance.
Blue Dot's operations are also subject to the Clean Air Act -- Title VI of
which governs air emissions and imposes specific requirements on the use
and handling of substances known or suspected to cause or contribute
significantly to harmful effects on the stratospherical ozone layer, such
as chlorofluorocarbons and certain other refrigerants ('CFCs'). Clean Air
Act regulations require the certification of service technicians involved
in the service or repair of systems, equipment and appliances containing
these refrigerants and also regulate the containment and recycling of these
refrigerants. These requirements have increased Blue Dot's training
expenses and expenditures for containment and recycling equipment. The
Clean Air Act is intended ultimately to eliminate the use of CFCs in the
United States and require alternative refrigerants to be used in
replacement HVAC systems. The implementation of the Clean Air Act
restrictions has also increased the cost of CFCs in recent years and is
expected to continue to increase such costs in the future. As a result, the
number of conversions of existing HVAC systems that use CFCs to systems
using alternative refrigerants is expected to increase. Capital
expenditures related to environmental matters during fiscal 1999 were not
material. Blue Dot does not currently anticipate any material adverse
effect on its business or consolidated financial position as a result of
future compliance with existing environmental laws and regulations
controlling the discharge of materials into the environment. Future events,
however, such as changes in existing laws and regulations or their
interpretation, more vigorous enforcement policies of regulatory agencies
or stricter or different interpretations of existing laws and regulations
may require additional expenditures by Blue Dot which may be material.
Governmental regulations establishing environmental protection standards
are continually evolving, and, therefore, the character, scope, cost and
availability of the measures we may be required to take to ensure
compliance with evolving laws or regulations, cannot not be accurately
predicted. Additional information relating to 'Environmental Matters' is
incorporated by reference to Note 12 of 'Notes to Consolidated Financial
Statements' on page 33, of the Company's 1999 Annual Report, filed as
Exhibit 13 hereto.
OTHER REGULATION. The operations of NorthWestern and the individual
partner entities are subject to various federal, state and local laws and
regulations affecting businesses generally such as laws and regulations
concerning employment, occupational health and safety and other matters.
We believe we are in substantial compliance with applicable regulatory
requirements relating to those operations.
Expanets' operations are subject to various federal, state and local laws
and regulations affecting businesses generally, such as laws and
regulations concerning employment, occupational health and safety,
protection of the environment and other matters. Expanets believes it is
in substantial compliance with all applicable regulatory requirements
relating to its operations. One Expanets entity is required to file
tariffs for long distance telecommunications services with the State of
Oklahoma Corporations Commission. Expanets has not initiated any material
capital expenditures regarding environmental protection in the past year.
However, it is aware of existing state and federal environmental
regulations and takes reasonable precautions to prevent any incidents that
would violate any of these rules. Future events, however, such as changes
in existing laws and regulations or their interpretation, more vigorous
enforcement policies of regulatory agencies or stricter or different
interpretations of existing laws and regulations may require additional
expenditures by Expanets which may be material.
NPS is a 'public utility' within the meaning of the Federal Power Act and
the South Dakota Public Utilities Act. As such, we are subject to the
jurisdiction of, and regulation by, FERC with respect to issuance of
securities and wholesale electric rates. We are also subject to the PUC
with respect to electric service territorial issues, rates, terms and
conditions of service, accounting records, and in other aspects of our
operations. Neither NorthWestern nor NPS is a 'holding company' under the
Public Utility Holding Company Act. The state of Nebraska has no
centralized regulatory agency which has jurisdiction over natural gas
operations in that state, however, natural gas rates are subject to
regulation by the municipalities in which gas utilities operate.
Under the South Dakota Public Utilities Act, a requested rate increase may
be implemented 30 days after the date of its filing unless its
effectiveness is suspended by the PUC and, in such event, can be
implemented subject to refund with interest six months after the date of
filing, unless sooner authorized by the PUC. NPS' electric rate schedules
provide that it may pass along to all classes of customers qualified
increases or decreases in costs related to fuel used in electric
generation, purchased power, energy delivery costs, and ad valorem taxes.
A purchased natural gas adjustment provision in NPS' natural gas rate
schedules permits the adjustment of charges to customers to reflect
increases or decreases in purchased gas, gas transportation, and ad valorem
taxes.
In 1996, the FERC issued its final rule (Order No. 888) on wholesale
electric transmission open access and recovery of stranded costs. NPS and
other jurisdictional utilities, filed tariffs with FERC in compliance with
Order 888. NPS included an Open Access Transmission Tariff ('OATT') in its
filing which conforms to the 'Pro Forma' tariff in Order 888 in which
eligible transmission service customers can choose to purchase transmission
services from a variety of options ranging from full use of the
transmission network on a firm long-term basis to a fully interruptible
service available on an hourly basis. These tariffs also include a full
range of ancillary services necessary to support the transmission of energy
while maintaining reliable operations of our transmission system. FERC has
approved NPS' Request for Waiver of the requirements of FERC Order No. 888
as it relates to the Standards of Conduct, exempting NPS as a small public
utility. Without the Waiver, the Standards of Conduct would have required
NPS to physically separate their transmission operations/reliability
functions from its marketing/merchant functions.
CornerStone's operations are subject to various federal, state and local
laws governing the transportation, storage and distribution of propane,
occupational health and safety, and other matters. All states in which
CornerStone operates have adopted fire safety codes that regulate the
storage and distribution of propane. In some states these laws are
administered by state agencies, and in others they are administered on a
municipal level. Certain municipalities prohibit the below ground
installation of propane furnaces and appliances, and certain states are
considering the adoption of similar regulations. CornerStone cannot predict
the extent to which any such regulations might affect it, but it does not
believe that any such effect would be material. It is not anticipated that
CornerStone will be required to expend material amounts by reason of
environmental and safety laws and regulations, but inasmuch as such laws
and regulations are periodically being changed, it are unable to predict
the ultimate cost of complying with environmental and safety laws and
regulations.
CornerStone believes that it currently meets and exceeds federal regulations
requiring that all team members employed in the handling of propane gas be
trained in proper handling and operating procedures. All team members have
participated or will participate within 90 days of their employment date,
in hazardous materials training. CornerStone has established ongoing
training programs in all phases of product knowledge and safety including
participation in the National Propane Gas Association's ('NPGA') Certified
Employee Training Program.
Blue Dot's operations are subject to various federal, state and local laws
and regulations, including, among others: permitting and licensing
requirements applicable to service technicians in their respective trades;
building, air conditioning, heating, plumbing and electrical codes and
zoning ordinances; laws and regulations relating to consumer protection,
including laws and regulations governing service contracts for residential
services; and laws and regulations relating to occupational health and
safety and protection of the environment. Blue Dot believes it has all
permits and licenses necessary to conduct its operations and is in
substantial compliance with applicable regulatory requirements relating to
its operations. A large number of state and local regulations governing
the residential services trades require various permits and licenses to be
held by individual technicians. In some cases, a required permit or license
held by a single individual may be sufficient to authorize specified
activities for all the service technicians who work in the geographic area
covered by the permit or license.
OTHER BUSINESSES. NorthWestern also provides other value-added energy and
service solutions through the following non-regulated partners, each of
which is a South Dakota corporation and wholly-owned subsidiary of
NorthWestern:
* NorthWestern Growth Corporation is the strategic development and private
investment arm of NorthWestern, charged with investing NorthWestern's
capital in businesses that will complement its operations and provide new
opportunities to offer additional products, services and solutions.
* NorthWestern Energy Corporation provides customized energy-related
solutions and energy management and consultation services primarily to
large business customers and other energy providers in South Dakota and
Nebraska.
* NorthWestern Services Corporation provides energy-related turn-key
capital improvement project solutions to business customers in the United
States and electrical and HVAC services and solutions to residential
customers within South Dakota, Nebraska, North Dakota, Iowa, and
Indiana.
* NorCom Advanced Technologies, Inc. provides a comprehensive variety of
voice, video and data products and services to customers primarily in
North Dakota, South Dakota and Nebraska.
ITEM 2. PROPERTIES
NorthWestern's executive offices are located at 125 S. Dakota Avenue, Sioux
Falls, South Dakota, where we lease approximately 24,000 square feet of
office space, pursuant to a long-term lease.
Expanets' executive offices are located at 2 Oak Way, Berkeley Heights,
New Jersey 07936, where Expanets leases office space. Substantially all
of Expanets' facilities are leased. It serves customers in 73 locations
and 32 states. Other principal properties include our vehicle fleet, which
predominantly consists of owned vehicles, and our inventory and equipment.
NPS' principal corporate office is owned and located at 600 Market Street
West, Huron, SD 57350. Substantially all of NPS' facilities are owned.
NPS co-owns three coal-fired generating plants and nine diesel and
combustion turbine plants, fueled by natural gas and/or fuel oil. Its base-
load plant interests are 23.4% of Big Stone, a 440 mw sub-bituminous fueled
plant in northeastern South Dakota, a 8.7% share of Neal, a 630 mw sub-
bituminous fueled plant near Sioux City, Iowa, and 10% of Coyote, a 425 mw
plant in central North Dakota. It also has 120 electric substations and
over 3,000 pole miles of electric lines. It has five propane-air gas
peaking units with a daily capacity of 17,853 mcf and has with 1,906 miles
of distribution gas mains.
CornerStone's principal executive offices are located at 432 Westridge
Drive, Watsonville, California 95076. These offices are leased through
2002. The accounting and the day-to-day operations are centralized in
Lebanon, Missouri. These offices are leased through 2006. CornerStone
leases retail service centers and administrative office space under
noncancelable operating leases expiring at various times through 2008. As
of December 31, 1999, customers are served from 298 customer service
centers with operations in 34 states.
CornerStone owns and operates a fleet of over-the-road tractors, transport
trailers, bobtail trucks and delivery and service vehicles to deliver
propane and customer tanks to its customers. It relies on common carriers
to deliver propane to its retail service centers. CornerStone owns
approximately 450,000 propane storage tanks that are leased, rented or
loaned to customers. Additionally in 1999, CornerStone operated bulk
storage facilities with total propane storage capacity of approximately 15
million gallons, of which 3 million gallons are owned and 12 million
gallons are leased. CornerStone does not own, operate or lease any
underground propane storage facilities (excluding customer and local
distribution tanks) or pipeline transportation assets (excluding local
delivery systems).
The executive offices of Blue Dot are located at 13680 NW 5th Street, Suite
200, Sunrise, Florida 33325 where Blue Dot leases approximately 18,500
square feet of office space, pursuant to a long-term lease. Blue Dot
generally leases the office and service facilities for its operations. We
serve customers from 62 locations in 23 states. Other principal properties
include our vehicle fleet, which predominantly consists of owned vehicles,
and our inventory and equipment.
INTELLECTUAL PROPERTY. NorthWestern and each of its partner entities
utilize a variety of registered and unregistered trademarks and
servicemarks for its products and services. Unregistered marks are
governed by common law and state unfair competition laws. We regard our
trademarks and servicemarks and other proprietary rights as valuable assets
and believe that they are associated with a high level of quality and have
significant value in the marketing of our products. Our policy is to
vigorously protect our intellectual property and oppose any infringement of
our trademarks and servicemarks. NorthWestern's success is also dependent
in part on its trade secrets and information technology, some of which is
proprietary to NorthWestern, and other intellectual property rights. We
rely on a combination of nondisclosure and other contractual arrangements,
technical measures, and trade secret and trademark laws to protect our
proprietary rights. Where appropriate, we enter into confidentiality
agreements with our team members and attempt to limit access to and
distribution of proprietary information.
ITEM 3. LEGAL PROCEEDINGS
NorthWestern and its partner entities are parties to various pending
proceedings and lawsuits, but in the judgment of management, after
consultation with counsel for NorthWestern, the nature of such proceedings
and suits and the amounts involved do not depart from the routine
litigation and proceedings incident to the kinds of businesses conducted by
NorthWestern, and management believes that such proceedings will not result
in any material adverse impact on NorthWestern.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No issues were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
IDENTIFICATION OF EXECUTIVE OFFICERS
The executive officers of the Company are as follows (ages as of March 20,
2000):
Merle D. Lewis, Chairman and Chief Executive Officer, age 52
Chairman since May 1, 1997; Chief Executive Officer since February
1994; formerly President (1994-1998), Executive Vice President (1992-
93), and Vice President-Corporate Services (1987-1992). Mr. Lewis
also serves as Chairman of Northwestern Growth Corporation,
CornerStone Propane GP, Inc., Blue Dot Services, Inc. and Expanets,
Inc.
Richard R. Hylland, President and Chief Operating Officer, age 39
President and Chief Operating Officer since May 1998; formerly
Executive Vice President (1995-1998), Vice President-Strategic
Development (1995), Vice President Corporate Development (1993-1995),
Vice President-Finance (1991-1995), and Treasurer (1990-1994). Mr.
Hylland also serves as Vice Chairman of Northwestern Growth
Corporation since January, 1998; formerly Chief Executive Officer from
January 1998-May 1998; President and Chief Operating Officer September
1994-January 1998. Mr. Hylland is also a member of the board of
directors of Northwestern Growth Corporation, Blue Dot Services, Inc.,
CornerStone Propane GP, Inc., Expanets, Inc. and LodgeNet
Entertainment Corporation (NASD: LNET), (serving as Vice Chairman for
Blue Dot Services, Inc., CornerStone Propane GP, Inc. and Expanets,
Inc.).
Daniel K. Newell, Senior Vice President - Finance and Chief Financial
Officer, age 43
Senior Vice President - Finance since May 1999; Chief Financial
Officer since July 1996; formerly Vice President - Finance (1995-
1999). Mr. Newell also serves as Managing Director and Chief Executive
Officer of NorthWestern Growth Corporation since May 1998; formerly
President (1998), Executive Vice President (1995-1998). Mr. Newell
also is a member of the board of directors of Northwestern Growth
Corporation, CornerStone Propane Partners, Blue Dot Services, Inc, and
Expanets, Inc. and is a Vice President of Expanets, Inc. Prior to
joining the Company, Mr. Newell served as CFO, Vice President -
Finance and Treasurer with Energy Fuels Corporation.
Walter A. (Trey) Bradley, III Vice President & Chief Information Officer,
age 41
Vice President & Chief Information Officer since April 1998. Mr.
Bradley serves as a member of the Board of Directors of NorthWestern
Growth Corporation. Prior to joining the Company, Mr. Bradley was
Senior Vice President - Chief Information Officer of Mary Kay, Inc. in
Dallas Texas (1994-1998).
Michael L. Childers, Vice President - Customer Strategies, age 41
Vice President - Customer Strategies since June 1999. Prior to
joining the Company, Mr. Childers was Senior Vice President -
Corporate Marketing and Communications (1998-1999) and Vice President
- Corporate Marketing and Communications (1997-1998) of J. A. Jones
Construction Company in Charlotte, North Carolina. Previously Mr.
Childers was President of GE Service Management (1996-1997) and
General Manager - Marketing and Business Development, Power Delivery
Group (1993-1996) with General Electric Company.
Michael J. Hanson, President & Chief Executive Officer, NorthWestern Public
Service division, age 41
President & Chief Executive Officer of NorthWestern Public Service
division since June 1998. Prior to joining the Company, Mr. Hanson
was General Manager & Chief Executive of Northern States Power Company
South Dakota & North Dakota in Sioux Falls, South Dakota (1994-1998).
Eric R. Jacobsen, Vice President - General Counsel & Chief Legal Officer,
age 43
Vice President - General Counsel & Chief Legal Officer since February
1999; Principal and General Counsel of NorthWestern Growth Corporation
since November 1998. Mr. Jacobsen also serves as Principal and
General Counsel and is a member of the Board of Directors of
NorthWestern Growth Corporation. Prior to joining the Company, Mr.
Jacobson was Vice President - General Counsel and Secretary of
LodgeNet Entertainment Corporation in Sioux Falls, South Dakota (1995-
1998). Previously Mr. Jacobson was a partner (1988-1995) with the law
firm Manatt, Phelps & Phillips in Los Angeles, California.
John R. Van Camp, Vice President - Human Resources, age 37
Vice President - Human Resources since October 1999. Prior to joining
the Company, Mr. Van Camp was Human Resources Manager of GE Medical
Systems in Milwaukee, Wisconsin (1997-1999), Human Resources Manager
of GE Industrial Systems (1995-1997), Human Resources Manager of
United Technologies Pratt & Whitney (1993-1995), and Manager -
Industrial Relations of United Technologies Corporation (1992-1993).
Alan D. Dietrich, Vice President - Legal Administration & Corporate
Secretary, age 49
Vice President - Legal Administration since February 1999; Corporate
Secretary since October 1989; formerly Vice President - Law (1998-
1999), Vice President - Administration (1996-1998), Vice President -
Corporate Services (1994-1996). Mr. Dietrich also serves as Secretary
for NorthWestern Growth Corporation and Expanets, Inc. and as
Assistant Secretary for CornerStone Propane Partners and Blue Dot
Services, Inc.
Kipp D. Orme, Vice President - Finance, age 41
Vice President - Finance since February 2000; Vice President and Chief
Financial Officer of NorthWestern Growth Corporation since May 1999.
Prior to joining the Company, Mr. Orme was Vice President - Rental
Business Finance of Thorn Americas, Inc. in Wichita, Kansas (1997-
1998), Chief Financial Officer of Thorn Asia-Pacific in Sydney,
Australia 1994-1997), and Director - Corporate Planning & Analysis of
Thorn Americas, Inc. (1992-1994).
Rogene A. Thaden, Vice President - Communications, age 48
Vice President-Communications since February 1997; formerly Treasurer
(1994-1997) and Manager-Corporate Accounting (1987-1994), and formerly
Vice President (1995-1998) and Treasurer (1995-1997) of Northwestern
Growth Corporation.
David A. Monaghan, Controller and Treasurer, age 32
Controller since November 1996; Treasurer since June 1997. Prior to
joining the Company, Mr. Monaghan was an audit and consulting manager
with regional public accounting firm Baird, Kurtz & Dobson (1990-
1996), Springfield, Missouri. Mr. Monaghan also serves as Treasurer of
Northwestern Growth Corporation and Expanets, Inc. and as Assistant
Treasurer of CornerStone Propane GP, Inc.
All of the above executive officers of the registrant serve at the
discretion of the Board, and are elected annually by the Board of Directors
at the time of the Annual Meeting of Shareholders. No family relationships
exist between any officers of the Company.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's common stock, which is traded under the ticker symbol NOR, is
listed on the New York Stock Exchange. The following are the high and low
sale prices for the common stock for each full quarterly period in the two
most recent years and the dividends paid per share during each period:
QUARTERLY COMMON STOCK DATA
Prices Cash
------ Dividends
High Low Declared
---------- --------- ------------
1999
First Quarter $ 27.13 $ 23.73 $ .2575
Second Quarter 27.06 24.19 .2575
Third Quarter 26.00 22.44 .2575
Fourth Quarter 24.19 20.63 .2775
1998
First Quarter $ 24.00 $ 21.31 $ .2425
Second Quarter 25.31 20.25 .2425
Third Quarter 27.38 23.94 .2425
Fourth Quarter 26.50 22.75 .2575
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item 6 is incorporated by reference to '11-
Year Financial Summary' of the financial section of the Company's 1999
Annual Report to Shareholders, at page 37, filed as Exhibit 13 hereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The information required by this Item 7 is incorporated by reference to
'Management's Discussion and Analysis' of the Company's 1999 Annual Report
to Shareholders, at page 14, et seq., filed as Exhibit 13 hereto.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this Item 7A is incorporated by reference to
the Company's 1999 Annual Report to Shareholders, at page 18, et seq.,
filed as an Exhibit 13 hereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item 8 is incorporated by reference to the
Company's financial statements and related footnotes in the Company's 1999
Annual Report to Shareholders, at page 22, filed as Exhibit 13 hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in accountants or disagreements on accounting
principles or practices or financial statement disclosures.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Identification of Directors. The information regarding directors required
by this Item 10 is incorporated by reference to the information under
'Election of Directors' and 'Reports to the Securities and Exchange
Commission' in the Company's definitive Proxy Statement, dated March 10,
2000, at page 2, et seq., filed with the Commission pursuant to Regulation
14A under the Securities Exchange Act of 1934.
Reports to the Securities and Exchange Commission. The information
required by Item 405 of Regulation S-K is incorporated by reference to the
information under 'Compensation of Directors and Executive Officers' in the
Company's definitive Proxy Statement, dated March 10, 2000, at page 13,
filed with the Commission pursuant to Regulation 14A under the Securities
Exchange Act of 1934.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated by reference to
the information under 'Section 16(a) Beneficial Ownership Reporting
Compliance' in the Company's definitive Proxy Statement, dated March 10,
2000, at page 6, et seq., filed with the Commission pursuant to Regulation
14A under the Securities Exchange Act of 1934.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is incorporated by reference to
the information under 'Securities Ownership by Directors and Officers' in
the Company's definitive Proxy Statement, dated March 10, 2000, at page 5,
filed with the Commission pursuant to Regulation 14A under the Securities
Exchange Act of 1934.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is incorporated by reference
to the information describing NorthWestern's private equity investment
company in the Company's definitive Proxy Statement, dated March 10, 2000,
at page 8, and in the notes to the summary compensation table on page 9, with
such loans at an annual interest rate of 7%, due December 31, 2003, filed
with the Commission pursuant to Regulation 14A under the Securities Exchange
Act of 1934 .
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT
1. Financial Statements
The following items are included in this annual report by reference to the
registrant's Annual Report to Shareholders for the year ended December 31,
1999:
Page in financial
section of Annual
Report to Shareholders
----------------------------
FINANCIAL STATEMENTS:
Report of Independent Public Accountants 21
Consolidated Statements of Income for the Three
Years Ended December 31, 1999 22
Consolidated Statements of Cash Flows for the
Three Years Ended December 31, 1999 23
Consolidated Balance Sheets,
December 31, 1999 and 1998 24
Consolidated Statement of Shareholders' Equity
For The Three Years Ended December 31,1999 25
Notes to Consolidated Financial Statements 26-35
Quarterly Unaudited Financial Data for the
Two Years Ended December 31, 1999 35
2. Financial Statement Schedules
Opinion of Independent Public Accountants:
We have audited in accordance with generally accepted auditing standards,
the financial statements included in NorthWestern Corporation's 1999 Annual
Report to Shareholders incorporated by reference in this Form 10-K, and have
issued outr reports thereon dated February 4, 2000. Our audit was made for the
purpose of forming an opinion on those financial statements taken as a whole.
The financial data schedule listed in Exhibit 27 is the responsibility of
management of NorthWesterm Corporation and is presented for purposes of
complying with Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
Arthur Andersen, LLP
Minneapolis, Minnesota
February 4, 2000
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
NORTHWESTERN CORPORATION AND SUBSIDIARIES
Column A Column B Column C Column D Column E
Additions
- --------------------------------------------------------------------------
Balance
Beginning Charged to Charged Balance
of Period Costs and to Other Deductions End
Description Expenses Accounts (2) of Period
(1)
- --------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1999
(In Thousands)
RESERVES DEDUCTED
FROM APPLICABLE
ASSETS:
Uncollectible
accounts $ 6,062 $ 3,895 $ 864(3) $(3,526) $7,295
======= ======= ======== ======= ======
OTHER DEFERRED CREDITS:
Reserve for
decommissioning
costs $ 9,326 $ 551 $ - $ - 9,877
======= ======= ======== ======= ======
Reorganization/
restructuring
liabilities of
acquired businesses $27,812 $ - $ 2,873 $(15,961) $ 14,724
======= ======= ======= ======== ========
FOR THE YEAR ENDED DECEMBER 31, 1998
(In Thousands)
RESERVES DEDUCTED
FROM APPLICABLE
ASSETS:
Uncollectible
accounts $ 3,583 $ 3,509 $ - $(1,030) $ 6,062
====== ======= ====== ======== =======
OTHER DEFERRED CREDITS:
Reserve for
decommissioning
costs $ 8,813 $ 513 $ - $ - $ 9,326
======= ======= ====== ======= =======
Reorganization/
restructuring
liabilities of
acquired businesses $ 2,388 $ - $26,313 $ (889) $27,812
======= ======= ======= ======== =======
FOR THE YEAR ENDED DECEMBER 31, 1997
(In Thousands)
RESERVES DEDUCTED
FROM APPLICABLE
ASSETS:
Uncollectible
accounts $ 5,369 $ 1,522 $ - $(3,308) $ 3,583
======= ======= ====== ======== =======
OTHER DEFERRED CREDITS:
Reserve for
decommissioning
costs $ 8,300 $ 513 $ - $ - $ 8,813
======= ====== ====== ======= =======
Reorganization/
restructuring
liabilities of acquired
businesses $ 12,500 $ - $ - $(10,112) $ 2,388
======== ===== ===== ========= =======
(FN)
(F1) Recorded via allocation of purchase price to fair value of assets and
liabilities of acquired businesses.
(F2) Utilization of previously recorded balances.
(F3) Reserve for purchased receivables.
3. Exhibits
The exhibits listed on the Exhibit Index of this Annual Report on Form 10-K
are filed herewith or are incorporated herein by reference to other
filings.
(b) REPORTS ON FORM 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
NorthWestern Corporation
March 30, 2000 /s/ M. D. Lewis
--------------------------
M. D. Lewis, Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
March 30, 2000 /s/ M. D. Lewis
-------------------------
M. D. Lewis, Chairman of the Board of Directors
and Chief Executive Officer
March 30, 2000 /s/ R. R. Hylland
--------------------------
R. R. Hylland, Director,
President and Chief Operating Officer
March 30, 2000 /s/ D. K Newell
--------------------------
D. K. Newell, Senior Vice President - Finance
and Chief Financial Officer
(Principal Financial Officer)
March 30, 2000 /s/ David A. Monaghan
--------------------------
David A. Monaghan, Controller and Treasurer
(Principal Accounting Officer)
March 30, 2000 /s/ John C. Charters
---------------------------
John C. Charters, Director
March 30, 2000 /s/ Randy G. Darcy
---------------------------
Randy G. Darcy, Director
March 30, 2000 /s/ Gary G. Drook
---------------------------
Gary G. Drook, Director
March 30, 2000 /s/ Aelred J. Kurtenbach
---------------------------
Aelred J. Kurtenbach, Director
March 30, 2000 /s/ Jerry W. Johnson
----------------------------
Jerry W. Johnson, Director
March 30, 2000 /s/ Larry F. Ness
----------------------------
Larry F. Ness, Director
March 30, 2000 /s/ Gary Olson
----------------------------
Gary Olson, Director
March 30, 2000 /s/ Marilyn R. Seymann
-----------------------------
Marilyn R. Seymann, Director
March 30, 2000 /s/ Bruce I. Smith
-----------------------------
Bruce I. Smith, Director
EXHIBIT INDEX
- ----------------------
(3) ARTICLES OF INCORPORATION AND BY-LAWS
(3)(a)(1) Registrant's Restated Certificate of Incorporation, dated
February 7, 1990, is incorporated by reference to Exhibit 3(a)(1)
to Form 10-K for the year ended December 31, 1989, Commission
File No. 0-692.
3(a)(2) Certificate of Retirement of Preferred Stocks, dated January 13,
1992, is incorporated by reference to Exhibit 3(a)(2) to Form 10-
K for the year ended December 31, 1991, Commission File No. 0-
692.
3(a)(3) Certificate of Amendment of Restated Certificate of
Incorporation, dated May 16, 1996, is incorporated by reference
to Exhibit 3(a)(3) to Form 10-K for the year ended December 31,
1996, Commission File No. 0-692.
3(a)(4) Certificate of Retirement of Preferred Stocks, dated June 20,
1996, is incorporated by reference to Exhibit 3(a)(4) to Form 10-
K for the year ended December 31, 1996, Commission File No. 0-
692.
3(a)(5) Certificate of Amendment of Restated Certificate of
Incorporation, dated May 7, 1997, is incorporated by reference to
Exhibit 3 to Form 10-Q for the quarter ended March 31, 1997,
Commission File No. 0-692.
3(a)(6) Certificate of Amendment of Restated Certificate of
Incorporation, dated May 6, 1998, is incorporated by reference to
Exhibit 3 to Form 10-Q for the quarter ended March 31, 1998,
Commission File No. 0-692.
3(b) Registrant's By-Laws, as amended, dated May 6, 1998.
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES
4(a)(1) General Mortgage Indenture and Deed of Trust, dated as of August
1, 1993, from the Company to The Chase Manhattan Bank (National
Association), as Trustee, is incorporated by reference to Exhibit
4(a) of Form 8-K, dated August 16, 1993, Commission File No. 0-
692.
4(a)(2) Supplemental Indenture, dated August 15, 1993, from the Company
to The Chase Manhattan Bank (National Association), as Trustee,
is incorporated by reference to Exhibit 4(b) of Form 8-K, dated
August 16, 1993, Commission File No. 0-692.
4(a)(4) Supplemental Indenture, dated August 1, 1995, from the Company to
The Chase Manhattan Bank (National Association), as Trustee, is
incorporated by reference to Exhibit 4(b) of Form 8-K, dated
August 30, 1995, Commission File No. 0-692.
4(a)(5) Supplemental Indenture, dated September 1, 1995, from the Company
to The Chase Manhattan Bank (National Association), as Trustee,
concerning the New Mortgage Bonds, 6.99% Series due 2002, is
incorporated by reference to Exhibit (4)(a)(5) to Form 10-K for
the year ended December 31, 1995, Commission File No. 0-692.
4(b)(1) Preferred Securities Guarantee Agreement, dated August 3, 1995,
between the Company and Wilmington Trust Company is incorporated
by reference to Exhibit 1(d) of Form 8-K, dated August 30, 1995,
Commission File No. 0-692.
4(b)(2) Declaration of Trust of NWPS Capital Financing I is incorporated
by reference to Exhibit 4(d) of Form 8-K, dated August 30, 1995,
Commission File No. 0-692.
4(b)(3) Amended and Restated Declaration of Trust of NWPS Capital
Financing I is incorporated by reference to Exhibit 4(e) of Form
8-K, dated August 30, 1995, Commission File No. 0-692.
4(b)(4) Subordinated Debt Securities Indenture, dated August 1, 1995,
between the Company and The Chase Manhattan Bank (National
Association), as Trustee, is incorporated by reference to Exhibit
4(f) of Form 8-K, dated August 30, 1995, Commission File No. 0-
692.
4(b)(5) First Supplemental Indenture, dated August 1, 1995, to the
Subordinated Debt Securities Indenture is incorporated by
reference to Exhibit 4(g) of Form 8-K, dated August 30, 1995,
Commission File No. 0-692.
4(c)(1) Copy of Sale Agreement between Company and Mercer County, North
Dakota, dated June 1, 1993, related to issuance of Pollution
Control Refunding Revenue Bonds (Northwestern Public Service
Company Project) Series 1993, is incorporated by reference to
Exhibit 4(b)(1) of Registrant's report on Form 10-Q for the
quarter ending June 30, 1993, Commission File No. 0-692.
4(c)(2) Copy of Loan Agreement between Company and Grant County, South
Dakota, dated June 1, 1993, related to issuance of Pollution
Control Refunding Revenue Bonds (Northwestern Public Service
Company Project) Series 1993A, is incorporated by reference to
Exhibit 4(b)(2) of Registrant's report on Form 10-Q for the
quarter ending June 30, 1993, Commission File No. 0-692.
4(c)(3) Copy of Loan Agreement between Company and Grant County, South
Dakota, dated June 1, 1993, related to issuance of Pollution
Control Refunding Revenue Bonds (Northwestern Public Service
Company Project) Series 1993B, is incorporated by reference to
Exhibit 4(b)(3) of Registrant's report on Form 10-Q for the
quarter ending June 30, 1993, Commission File No. 0-692.
4(c)(4) Copy of Loan Agreement between Company and City of Salix, Iowa,
dated June 1, 1993, related to issuance of Pollution Control
Refunding Revenue Bonds (Northwestern Public Service Company
Project) Series 1993, is incorporated by reference to Exhibit
4(b)(4) of Registrant's report on Form 10-Q for the quarter
ending June 30, 1993, Commission File No. 0-692.
4(c)(5) Copy of Rights Agreement, dated as of December 11, 1996, between
Loan Agreement between Company and Norwest Bank Minnesota, N.A.
as Rights Agent, is incorporated by reference to Exhibit I, to
Form 8-A, dated December 13, 1996, Commission File No. 0-692.
4(d) Copy of Credit Agreement, dated as of June 10, 1999, among
Company, several lenders and Canadian Imperial Bank of Commerce
as Agent.
(10) MATERIAL CONTRACTS
10(a)(1) * NorthWestern Pension Plan, as amended and restated effective
January 1, 2000.
10(a)(2) * NorthWestern Corporation Traditional Pension Equalization
Plan, as amended and restated effective January 1, 2000.
10(a)(3) * NorthWestern Corporation Cash Balance Supplemental Executive
Retirement Plan, effective January 1, 2000.
10(a)(4) * NorthStar Annual Incentive Plan, for all eligible employees,
as amended May 4, 1999.
10(a)(5) * NorthWestern Stock Option and Incentive Plan, as amended May
4, 1999.
10(a)(6) * Form of Employment Agreement for Executive Officers,
including Change of Control and Noncompetition Agreement, is
incorporated by reference to Exhibit 10(ii) to Form 10-Q for the
quarter ended March 31, 1997, Commission File No. 0-692.
10(a)(7) * Supplemental Income Security (Retirement) Plan for
Directors, Officers and Managers, as amended January 1, 1997, is
incorporated by reference to Exhibit 10(a)(1) to Form 10-K for
the year ended December 31, 1996, Commission File No. 0-692.
10(a)(8) * Deferred Compensation Plan for Non-employee Directors
adopted November 6, 1985, is incorporated by reference to
Exhibit 10(g)(2) to Form 10-K for the year ended December 31,
1988, Commission File No. 0-692.
(13) REPORT FURNISHED TO SECURITY HOLDERS - Annual Report for Fiscal Year
ended December 31, 1999, furnished to shareholders of record on March 10,
2000.
(21) SUBSIDIARIES OF THE REGISTRANT - List of NorthWestern subsidiaries as
of December 31, 1999.
(27) FINANCIAL DATA SCHDEDULES - Financial Data Schedules for
NorthWestern as of December 31, 1999.
- ----------------------------------------------------------
* Management contract or compensatory plan or arrangement.
- ----------------------------------------------------------
NORTHWESTERN CORPORATION
BY-LAWS
(As Amended to and Including May 6, 1998)
ARTICLE I
Section 1. Principal Office. The principal office of
the Company shall be located in the City of Wilmington, County of
New Castle, and State of Delaware, and the name of the agent
therein and in charge thereof, and upon whom legal process
against the corporation may be served (until otherwise determined
by the Board of Directors) is the CORPORATION TRUST COMPANY OF
AMERICA.
Section 2. Other Offices. Offices of the Company
where meetings of the stockholders and directors may be held,
shall be and are hereby, established in the City of Huron, Beadle
County, South Dakota, or such other places within or without the
State of Delaware, as may from time to time be established by the
Board of Directors.
ARTICLE II
Section 1. Annual Meeting. The annual meeting of
stockholders for the election of directors and for such other
business as may properly be conducted at such meeting shall be
held at such time and date as the Board of Directors shall
designate from time to time and set forth in the notice of the
meeting. Such meeting shall be held at the office of the
corporation in the City of Wilmington, Delaware, or at the office
of the corporation in the City of Huron, South Dakota, or at such
other place within or without the State of Delaware, as may be
designated in the notice of the meeting.
Section 2. Special Meetings. Special meetings of the
stockholders may be called by the Chairman of the Board, the
President or any Vice President, or by order of the Board of
Directors whenever they deem it necessary, and it shall be their
duty to order and call such meetings whenever persons holding a
majority of the outstanding capital stock of the corporation
entitled to be voted at such meeting, shall in writing request
the same. Such special meetings shall be held at the office of
the corporation in the City of Wilmington, Delaware, or at the
office of the corporation in the City of Huron, South Dakota, or
at such other place within or without the State of Delaware, as
may be designated in the notice of the meeting, and the business
of such special meeting shall be confined to the objects stated
in the notice thereof.
Section 3. Notice of Meetings. Notice of the time and
place of the annual, and of any special meeting of the
stockholders, shall be given by the Corporate Secretary to each
of the stockholders entitled to vote at such meetings by posting
the same in postage prepaid letters, addressed to each such
stockholder at the address left with the Corporate Secretary of
the Corporation, or at his last known address, or by delivering
same personally, at least ten days prior to such meeting. The
notice of a special meeting shall also set forth the objects of
the meeting. Any or all of the stockholders may waive notice of
the annual or any special meeting, and the presence of a
stockholder at any meeting, in person or by proxy, shall be
deemed a waiver of notice thereof by him. Meetings of the
stockholders may be held at any time and place and for any
purpose without notice, when all of the stockholders entitled to
vote at such meetings are present in person or by proxy, or when
all of such stockholders waive notice and consent to the holding
of such meeting.
Section 4. Voting at Stockholders' Meetings. At all
meetings of stockholders each holder of stock having voting power
or entitled to vote at such meetings shall be entitled to one
vote for each share of stock held by him at the time of the
closing of the transfer books for said meeting, or on the record
date fixed by the Board of Directors for that purpose as provided
in Section 2 of Article VI of these By-laws, and if such transfer
books shall not have been closed or any record date fixed, then
for each share of stock standing registered in his name at the
time of the meeting; provided, always, that except when the
transfer books have been closed or a record date fixed, as
aforesaid, no share of stock shall be voted at any election which
has been transferred on the books of the corporation within
twenty days next preceding such election. Such vote may be given
personally or by proxy authorized in writing. Only the persons
in whose names shares of stock shall stand on the books of the
corporation at the time aforesaid shall be entitled to vote in
person or by proxy upon the shares of stock standing in their
name. No proxy shall be voted on after three years from its
date.
Section 5. Quorum. The holders for the time being of
a majority of the total number of shares of stock issued and
outstanding and entitled to be voted at any meetings represented
in person or by proxy, shall constitute a quorum for the
transaction of business at such meetings unless the
representation of a larger number shall be required by law. In
the absence of a quorum, the stockholders attending or
represented at the time and place at which a meeting shall have
been called, may adjourn the meeting from time to time until a
quorum shall be present. At any such adjourned meeting at which
a quorum shall be present, any business may be transacted which
might have been transacted by a quorum of the stockholders at the
meeting as originally convened.
Section 6. Presiding Officer and Secretary. The
Chairman of the Board, or in the Chairman's absence the
President, or in the President's absence a Vice President, shall
call meetings of the stockholders to order and shall act as
chairman of such meetings. The Board of Directors may appoint any
stockholder to act as chairman at any meeting in the absence of
the Chairman of the Board, the President and Vice Presidents,
and, in default of any appointment by the Board of Directors of a
chairman, the stockholders may elect a chairman to preside at the
meeting. The Corporate Secretary, or an Assistant Corporate
Secretary, of the corporation shall act as Secretary at all
meetings of the stockholders, but in their absence the
stockholders or presiding officer may appoint any person to act
as Secretary of the meeting.
Section 7. Business at Annual Meeting. No business
may be transacted at an annual meeting of stockholders, other
than business that is either (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction
of the Board of Directors (or any duly authorized committee
thereof), (b) otherwise properly brought before the annual
meeting by or at the direction of the Board of Directors (or any
duly authorized committee thereof) or (c) otherwise properly
brought before the annual meeting by any stockholder of the
corporation (i) who is a stockholder of record on the date of the
giving of the notice provided for in this Section 7 of this
Article and on the record date for the determination of
stockholders entitled to vote at such annual meeting and (ii) who
complies with the notice procedure set forth in this Section 7.
In addition to any other applicable requirements, for
business to be properly brought before an annual meeting by a
stockholder, such stockholder must have given timely notice
thereof in proper written form to the Corporate Secretary.
To be timely, a stockholder's notice to the Corporate
Secretary must be delivered to or mailed and received at the
principal office of the Company not less than 90 days nor more
than 120 days prior to the date of the annual meeting of
stockholders, provided, however, that in the event that less than
100 days' notice or prior public disclosure of the date of the
meeting is given to stockholders, notice by the stockholder to be
timely must be so received not later than the close of business
on the tenth (10th) day following the day on which such notice of
the date of the annual meeting was mailed or such public
disclosure of the date of the annual meeting was made, whichever
first occurs.
To be in proper written form, a stockholder's notice to
the Corporate Secretary must set forth as to each matter such
stockholder proposes to bring before the annual meeting (i) a
brief description of the business desired to be brought before
the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and record address of such
stockholder, (iii) the class or series and number of shares of
capital stock of the Company that are owned beneficially or of
record by such stockholder, (iv) a description of all
arrangements or understandings between such stockholder and any
other person or persons (including their names) in connection
with the proposal of such business by such stockholder and any
material interest of such stockholder in such business and (v) a
representation that such stockholder intends to appear in person
or by proxy at the annual meeting to bring such business before
the meeting.
No business shall be conducted at the annual meeting of
stockholders except business brought before the annual meeting in
accordance with the procedures set forth in this Section 7,
provided, however, that, once business has been properly brought
before the annual meeting in accordance with such procedures,
nothing in this Section 7 shall be deemed to preclude discussion
by any stockholder of any such business. If the chairman of an
annual meeting determines that business was not properly brought
before the annual meeting in accordance with the foregoing
procedures, the chairman of the meeting shall declare to the
meeting that the business was not properly brought before the
meeting and such business shall not be transacted.
ARTICLE III
BOARD OF DIRECTORS
Section 1. Election, Qualification and Filling of
Vacancies. The business and affairs of the Company shall be
managed by or under the direction of a Board of Directors. The
number of Directors shall be no less than nine (9) and no greater
than twelve (12). Within the limits specified above, the number
of Directors constituting the Board of Directors of the Company
shall be fixed from time to time by or pursuant to a resolution
passed by the Board of Directors. However, no decrease in the
number of Directors shall have the effect of shortening the term
of any incumbent Director. The number of Directors of the
Company may exceed twelve (12) when and to the extent needed to
permit the holders of shares of the New Preferred Stock to elect
a majority of Directors under subdivision 5 of Division A of
Article Fourth of the Company's Restated Certificate of
Incorporation.
The Board of Directors shall be and is divided into
three classes, Class I, Class II and Class III, which shall be as
nearly equal in number as possible. Each Director shall serve
for a term ending on the date of the third annual meeting of
stockholders following the annual meeting of stockholders at
which such Director was elected; provided, however, that each
initial Director in Class I shall hold office until the annual
meeting of stockholders in 1986; each initial Director in Class
II shall hold office until the annual meeting of stockholders in
1987; and each initial Director in Class III shall hold office
until the annual meeting of stockholders in 1988. Directors
elected at the annual meeting of stockholders shall be elected by
a plurality of the votes cast for election of Directors. In the
event of any increase or decrease in the number of Directors, (i)
each Director then serving as such shall nevertheless continue as
a Director of the class of which he is a member until the
expiration of his current term, or his prior death, retirement,
resignation, or removal, and (ii) the newly created or eliminated
directorships resulting from such increase or decrease shall be
apportioned by the Board of Directors among the three classes of
Directors so as to maintain such classes as nearly equal in
number as possible.
Notwithstanding any of the foregoing provisions of this
Section, each Director shall serve until his successor is elected
and qualified or until his death, resignation or removal. Should
a vacancy occur or be created, whether arising through death,
resignation or removal of a Director or through an increase in
the number of Directors, such vacancy shall be filled by a
majority vote of the remaining Directors of all classes though
less than a quorum of the Board of Directors. A Director so
elected to fill a vacancy shall serve for the remainder of the
then present term of office of the class to which he was elected.
Any Director or the entire Board of Directors may be
removed; however, such removal must be for cause and must be
approved as set forth in this paragraph. Removal for cause must
be approved by at least a majority of the total number of
Directors or by at least a majority vote of the shares of the
corporation then entitled to be voted at an election for that
Director. For purposes of this paragraph, the total number of
Directors will not include the Director who is the subject of the
removal determination, nor will such Director be entitled to vote
thereon.
Section 2. Place of Meeting. Any meetings of the
Board of Directors may be held either within or without the State
of Delaware.
Section 3. Annual, Regular and Special Meetings. The
annual meeting of the Board of Directors shall be held in each
year immediately following and at the same place as the annual
meeting of stockholders, for the election of officers and the
transaction of such other business as may come before the Board;
and regular meetings of the Board shall be held on the first
Wednesday in the months of February, August and November in each
year at the hour of 10 o'clock a.m. at the office of the Company
in the City of Huron, South Dakota, or at such other time of day
or such other place as may from time to time be established by
resolution of the Board or as may be specified by the Chairman of
the Board or the President with respect to each such meeting.
Special meetings of the Board may be called by the Chairman of
the Board, the President, or any two Directors, and shall be held
at such time and place as may be specified by the officer or
Directors calling the meeting, or in the absence of such
specification as to place, at the office of the Company in the
City of Huron, South Dakota. Notice stating the place, date, and
hour of each meeting of the Board (other than the annual meeting,
as to which no notice need be given) shall be given to each
Director either by mail to his residence or place of business not
less than forty-eight (48) hours before the date of the meeting,
or personally by telephone, telegram, telecopy, electronic mail,
or similar means of communication on twenty-four (24) hours'
notice. All or any of the Directors may waive notice of any
meeting, and the presence of a Director at any meeting of the
Board shall be deemed a waiver of notice thereof by him.
Section 3A. Action on Written Consent Without
Meetings. Unless otherwise restricted by the Certificate of
Incorporation or these By-laws, any action required or permitted
to be taken at any meeting of the Board of Directors may be taken
without a meeting, if prior to such action a written consent
thereto is signed by all members of the Board and such written
consent is filed with the minutes of proceedings of the Board.
Section 4. Quorum and Adjournment. A majority of the
Directors in office at a meeting regularly called, shall
constitute a quorum. In the absence of a quorum, the Directors
present at the time and place at which a meeting shall have been
duly called, may adjourn the meeting from time to time and place
to place until a quorum shall be present.
Section 5. Submission of Acts to Approval of
Stockholders. The Board of Directors, in its discretion, may
submit any contract or act for approval or ratification at any
annual meeting of the stockholders, or at any special meeting of
the stockholders called for that purpose, and any contract or act
that shall be approved or ratified by the vote of the holders of
a majority of the capital stock of the Company which is
represented in person or by proxy at such meeting, provided that
a lawful quorum of stockholders be there represented in person or
by proxy, shall be as valid and binding upon the corporation and
upon all the stockholders as if it had been approved or ratified
by every stockholder of the Company.
Section 6. Compensation. Directors shall be entitled
to receive such fees and expenses, if any, for attendance at
meetings of the Board of Directors, and/or such fixed salaries
for services as Directors, as may be fixed from time to time by
resolution of the Board. Nothing herein contained shall be
construed to preclude any Director from serving the Company in
any other capacity as an officer, committee member, agent or
otherwise, and receiving compensation therefor.
Section 7. Nomination of Directors. Only persons who
are nominated in accordance with the following procedures shall
be eligible for election as Directors of the Company except as
may be otherwise expressly provided in the Restated Certificate
of Incorporation of the Company with respect to the right of the
holders of New Preferred Stock and Preference Stock to nominate
and elect a specified number of directors in certain
circumstances. Nominations of persons for election to the Board
of Directors may be made at any annual meeting of stockholders
(a) by or at the direction of the Board of Directors (or any duly
authorized committee thereof) or (b) by any stockholder of the
Company (i) who is a stockholder of record on the date of the
giving of the notice provided for in this Section 7 and on the
record date for the determination of stockholders entitled to
vote at such annual meeting and (ii) who complies with the notice
procedures set forth in this Section 7.
In addition to any other applicable requirements, for a
nomination to be made by a stockholder, such stockholder must
have given timely notice thereof in proper written form to the
Corporate Secretary.
To be timely, a stockholder's notice to the Corporate
Secretary must be delivered to or mailed and received at the
principal office of the Company not less than 90 days nor more
than 120 days prior to the date of the annual meeting of
stockholders; provided, however, that in the event that less than
100 days' notice or prior public disclosure of the date of the
meeting is given to stockholders, notice by the stockholder to be
timely must be so received not later than the close of business
on the tenth (10th) day following the day on which such notice of
the date of the annual meeting was mailed or such public
disclosure of the date of the annual meeting was made, whichever
first occurs.
To be in proper written form, a stockholder's notice to
the Corporate Secretary must set forth (a) as to each person whom
the stockholder proposes to nominate for election as a Director
(i) the name, age, business address and residence address of the
person, (ii) the principal occupation or employment of the
person, (iii) the class or series and number of shares of capital
stock of the Company that are owned beneficially or of record by
the person and (iv) any other information relating to the person
that would be required to be disclosed in a proxy statement or
other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to
Section 14 of the Securities and Exchange Act of 1934, as amended
(the 'Exchange Act'), and the rules and regulations promulgated
thereunder; and (b) as to the stockholder giving this notice (i)
the name and record address of such stockholder, (ii) the class
or series and number of shares of capital stock of the Company
that are owned beneficially or of record by such stockholder,
(iii) a description of all arrangements or understandings between
such stockholder and each proposed nominee and any other persons
(including their names) pursuant to which the nomination(s) are
to be made by such stockholder, (iv) a representation that such
stockholder intends to appear in person or by proxy at the
meeting to nominate the persons named in its notice and (v) any
other information relating to such stockholder that would be
required to be disclosed in a proxy statement or other filings
required to be made in connection with the solicitations of
proxies for election of Directors pursuant to Section 14 of the
Exchange Act and the rules and regulations promulgated
thereunder. Such notice must be accompanied by a written consent
of each proposed nominee to being named as a nominee and to serve
as a director if elected.
No person shall be eligible for election as a Director
of the Company unless nominated in accordance with the procedures
set forth in this Section 7. If the chairman of the meeting
determines that a nomination was not made in accordance with the
foregoing procedures, the chairman shall declare to the meeting
that the nomination was defective and such defective nomination
shall be disregarded.
ARTICLE IV
OFFICERS
Section 1. Designation, Term and Vacancies. The
officers of the corporation shall be a Chairman of the Board, a
President, one or more Vice Presidents, a Corporate Secretary and
a Treasurer, all of whom shall be elected by the Board of
Directors. The Board of Directors may elect one or more Executive
Vice Presidents or Assistant Vice Presidents, who shall have such
authority and shall perform such duties as may from time to time
be prescribed by the Board. The Board of Directors may appoint
one or more Assistant Corporate Secretaries and one or more
Assistant Treasurers, and such other officers as may be deemed
necessary, who shall have such authority and shall perform such
duties as may from time to time be prescribed by the Board.
Vacancies occurring among the officers of the corporation shall
be filled by the Board of Directors. Officers elected by the
Board shall hold office until the next annual meeting of the
Directors and until their successors are elected and qualified,
provided that any officer may be removed at any time by the
affirmative vote of a majority of the whole Board. All other
officers, agents and employees shall hold office during the
pleasure of the Board or the officer appointing them. Any two or
more offices may be held by the same person, with the exception
that the Chairman of the Board of Directors and President shall
not also hold the office of Secretary or Treasurer.
Section 1A. Chairman of the Board. The Chairman of
the Board shall be the chief executive officer of the Company.
He shall preside at all meetings of stockholders and of the Board
of Directors. Except as otherwise provided in these By-laws or
ordered by the Board of Directors, he shall appoint all
committees of the Board of Directors. Subject to the control and
direction of the Board, he shall have general charge of the
affairs and business of the Company and general charge and
supervision of all the officers, agents, and employees of the
Company. He may sign, with the Corporate Secretary or an
Assistant Corporate Secretary, any or all certificates for shares
of stock of the Company. He may sign and execute in the name of
the Company all deeds, mortgages, bonds, contracts, powers of
attorney, or other instruments authorized by the Board, except in
cases where the signing and execution thereof shall be expressly
delegated by the Board or by these By-laws to some other officer
or agent of the Company, and he may, without previous authority
of the Board, make, in the name of the Company, such contracts,
leases, and other agreements as the ordinary conduct of the
Company's business requires. He may sign and endorse notes,
drafts, and checks. He shall have power to select and appoint
all necessary officers and servants, except those elected or
appointed or required to be elected or appointed by the Board,
and he shall also have power to remove all such officers and
servants and to make appointments to fill the vacancies. In
general, he shall exercise all powers and perform all duties
incident to the principal executive office of the Company and
such other powers and duties as may from time to time be assigned
to him by the Board or be prescribed by these By-laws. He may
delegate any of his powers to the President of the Company.
Section 2. President. The President shall be chosen
from among the Directors and shall be the chief operating officer
of the Company. In the absence or inability of the Chairman of
the Board to act, he shall be the chief executive officer of the
Company. Also in the absence or inability of the Chairman to
act, he shall preside at all meetings of stockholders and of the
Board of Directors. He shall have general and active management
of and exercise general supervision over the business and
property of the Company and shall have such other power and
duties as usually appertain to the office of the President and as
may be assigned to him by the Board of Directors. He may
delegate any of his powers to any Vice President of the Company.
Section 3. Vice Presidents. Each Vice President shall
exercise such powers and perform such duties as may from time to
time be assigned to him by the Board of Directors or the
President. In the absence or disability of the President a Vice
President shall exercise the powers and perform the duties of the
President.
Section 4. Treasurer. The Treasurer shall have
custody of such funds and securities of the Company as may come
to his hands or be committed to his care by the Board of
Directors. When necessary or proper, he shall endorse on behalf
of the Company, for collection, checks, notes, or other
obligations, and shall deposit the same to the credit of the
Company, in such bank or banks or depositories as the Board of
Directors, or the President, may designate. He may sign receipts
or vouchers for payments made to the Company, and the Board of
Directors may require that such receipts or vouchers shall also
be signed by some other officer to be designated by them.
Whenever required by the Board of Directors, he shall render a
statement of his cash accounts and such other statements
respecting the affairs of the Company as may be requested. He
shall keep proper and accurate accounts of receipts and
disbursements and other matters pertaining to his office. He
shall perform all acts incident to the office of Treasurer,
subject to the control of the Board. In the discretion of the
Board of Directors, he may be required to give a bond in such
amount and containing such conditions as the Board of Directors
may approve, and such bond may be the undertaking of a surety
company, and the premium therefor may be paid by the Company.
Section 5. Corporate Secretary. The Corporate
Secretary shall be sworn to the faithful discharge of his duties.
He shall record the votes and proceedings of the stockholders and
of the Board of Directors in a book or books kept for that
purpose, and shall attend all meetings of the Directors and
stockholders. He shall keep in safe custody the seal of the
Company, and, when required by the Board of Directors, or when
any instrument shall have been signed by the President, or any
other officer duly authorized to sign the same, or when necessary
to attest any proceedings of the stockholders or Directors, shall
affix it to any instrument requiring the same, and shall attest
the same with his signature. He shall attend to the giving and
serving of notices of meetings. He shall have charge of such
books and papers as properly belong to his office or as may be
committed to his care by the Board of Directors. He shall
perform such other duties as appertain to his office or as may be
required by the Board of Directors. In the absence of the
Corporate Secretary, or an Assistant Corporate Secretary, from
any meeting of the Board, the proceedings of such meeting shall
be recorded by such other person as may be appointed at the
meeting for that purpose.
Section 5A. Assistant Vice President. Each Assistant
Vice President shall exercise such powers and perform such duties
as may be assigned to him by the Board of Directors.
Section 6. Assistant Corporate Secretary. Each
Assistant Corporate Secretary shall be vested with the same
powers and duties as the Corporate Secretary, and any act may be
done or duty performed by an Assistant Corporate Secretary with
like effect as though done or performed by the Corporate
Secretary. He shall have such other powers and perform such
other duties as may be assigned to him by the Board of Directors.
Section 7. Assistant Treasurer. Each Assistant
Treasurer shall be vested with the same powers and duties as the
Treasurer, and any act may be done or duty performed by an
Assistant Treasurer with like effect as though done or performed
by the Treasurer. He shall have such other powers and perform
such other duties as may be assigned to him by the Board of
Directors.
Section 8. Execution of Checks, etc. The funds of the
Company shall be deposited in such banks or trust companies as
the Board of Directors from time to time shall designate and
shall be withdrawn only on checks or drafts of the Company for
the purposes of the Company. All checks, drafts, notes,
acceptances and endorsements of the Company shall be signed in
such manner and by such officer or officers or such individual or
individuals as the Board of Directors from time to time by
resolution shall determine. If and to the extent so authorized
by the Board of Directors, such signature or signatures may be
facsimile. Only checks, drafts, notes, acceptances and
endorsements signed in accordance with such resolution or
resolutions shall be the valid checks, drafts, notes, acceptances
or endorsements of the Company.
ARTICLE V
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
The corporation shall, to the fullest extent to which
it is empowered to do so by the General Corporation Law of
Delaware, or any other applicable laws, as from time to time in
effect, and in the manner therein provided, indemnify any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was a director or officer of the
corporation, or is or was serving at the request of the
corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, against
all expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by
him in connection with such action, suit or proceeding.
Expenses incurred by an officer or director of the
corporation in defending a civil or criminal action, suit or
proceeding shall be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director or officer to
repay such amount of it shall ultimately be determined that he or
she is not entitled to be indemnified as authorized by the
General Corporation Law of the State of Delaware. Expenses
incurred in defending a civil or criminal action, suit or
proceeding by any other person entitled to claim indemnification
under the preceding paragraph may be paid by the corporation in
advance of the final disposition of such action, suit or
proceeding upon such terms and conditions as the Board of
Directors of the corporation deems appropriate.
The provisions of this Article shall be deemed to be a
contract between the corporation and each director or officer who
serves in any such capacity at any time while this Article and
the relevant provisions of the General Corporation Law of
Delaware, or other applicable law, if any, are in effect, and any
repeal or modification of any such law shall not affect any
rights or obligations then existing with respect to any state of
facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought or threatened based
in whole or in part upon any such state of facts.
Persons who are not covered by the foregoing provisions
of this Article and who are employees or agents of the
corporation, or are serving at the request of the corporation as
employees or agents of another corporation, partnership, joint
venture, trust or other enterprise, may be indemnified to the
extent authorized at any time or from time to time by the Board
of Directors of the corporation.
The indemnification and advancement of expenses
provided or permitted by this Article shall not be deemed
exclusive of any other rights to which those indemnified or
entitled to advancement of expenses may be entitled under any
other by-law or any agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators
of such a person.
The corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity or
arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability
under the provisions of this Article.
ARTICLE VI
SHARES OF STOCK
Section 1. Certificates of Stock. All certificates
for shares of the capital stock of the Company shall be in such
form, not inconsistent with the Certificate of Incorporation of
the Company, as shall be approved by the Board of Directors, and
shall be signed by the Chairman of the Board of Directors, the
President, or a Vice President, and Treasurer or an Assistant
Treasurer, or the Corporate Secretary or an Assistant Corporate
Secretary of the Company, and shall not be valid unless so
signed; provided, however, that where such certificate is signed
(1) by a transfer agent or an assistant transfer agent or (2) by
a transfer clerk acting on behalf of the Company and a registrar,
the signature of any such Chairman of the Board of Directors,
President, Vice President, Treasurer, Assistant Treasurer,
Corporate Secretary or Assistant Corporate Secretary, may be
facsimile. In case any officer or officers who shall have
signed, or whose facsimile signature or signatures shall have
been used on, any such certificate or certificates, shall cease
to be such officer or officers of the Company, whether because of
death, resignation, or otherwise, before such certificate or
certificates shall have been delivered by the Company, such
certificate or certificates may nevertheless be adopted by the
Company and be issued and delivered as though the person or
persons who signed such certificate or certificates or whose
facsimile signature or signatures shall have been used thereon
had not ceased to be such officer or officers of the Company.
All certificates shall be consecutively numbered and the name of
the person owning the shares represented thereby, with the number
of such shares, and the date of issue, shall be entered on the
Company's books. All certificates surrendered shall be
cancelled, and no new certificates issued until the former
certificates for the same number of shares shall have been
surrendered and cancelled, except in cases provided for in
Section 4 of this Article.
Section 2. Transfer of Shares. (a) Transfers of stock
shall be made upon the books of the Company by the holder in
person or by attorney, upon the surrender and cancellation of the
certificate or certificates for such shares. But the Board of
Directors may appoint one or more suitable banks and/or trust
companies as transfer agents and/or registrars of transfers, for
facilitating transfers of any class of stock of the Company by
the holders thereof under such regulations as the Board of
Directors may from time to time prescribe. Upon such appointment
being made, all certificates of stock of such class thereafter
issued shall be countersigned by one of such transfer agents
and/or one of such registrars of transfer, and shall not be valid
unless so countersigned. (b) The stock transfer books may be
closed, by order of the Board of Directors, for a period not
exceeding fifty (50) days preceding the date of any meeting of
stockholders or the date for the payment of any dividend or the
date for the allotment of rights or the date when any change or
conversion or exchange of capital stock shall go into effect or
for a period of not exceeding fifty (50) days in connection with
obtaining the consent of stockholders for any purpose; provided,
however, that, in lieu of closing the stock transfer books as
aforesaid, the Board of Directors, in its discretion, may fix and
is hereby authorized to fix in advance a date, not exceeding
sixty (60) days preceding the date of any meeting of stockholders
or the date for the payment of any dividend or the date for the
allotment of rights or the date when any change or conversion or
exchange of capital stock shall go into effect or a date in
connection with obtaining such consent, as a record date, for the
determination of the stockholders entitled to notice of and to
vote at any such meeting and any adjournment thereof, or entitled
to receive payment of any such dividend, or to any such allotment
of rights, or to exercise the rights in respect of any such
change, conversion or exchange of capital stock, or to give such
consent, and in such case such stockholders and only such
stockholders as shall be stockholders of record on the date so
fixed shall be entitled to such notice of and to vote at such
meeting and any adjournment thereof, or to receive payment of
such dividend, or to receive such allotment of rights, or to
exercise such rights, or to give such consent, as the case may
be, notwithstanding any transfer of any stock on the books of the
corporation after any such record date fixed as aforesaid.
Section 3. Addresses of Stockholders. Every
stockholder shall furnish the Corporate Secretary with an address
to which notices of meetings and all other notices may be served
upon or mailed to him, and in default thereof notices may be
addressed to him at his last known address or at the office of
the Company in Huron, South Dakota.
Section 4. Lost and Destroyed Certificates. The Board
of Directors may direct that a new certificate or certificates
may be issued in place of any certificate or certificates
theretofore issued by the Company, alleged to have been lost or
destroyed, and the Board of Directors, when authorizing the
issuance of such new certificate or certificates, may, in their
discretion, and as a condition precedent thereto, require the
owner of such lost or destroyed certificate or certificates or
his legal representatives to give to the Company a bond in such
sum as they may direct, as indemnity against any claim that may
be made against the Company.
Section 5. Regulations. The Board of Directors shall
have power and authority to make all such rules and regulations
as they may deem expedient concerning the issue, transfer and
registration of certificates for shares of the capital stock of
the Company.
ARTICLE VII
DIVIDENDS AND WORKING CAPITAL
The Board of Directors may declare dividends from the
surplus or net profits of the corporation over and above the
amount which from time to time may be fixed by the Board of
Directors as the amount to be reserved as a working capital, as
they may in their discretion, from time to time determine. Such
dividends may be declared by the Board at any meeting, either
regular or special, at which a quorum is present. The dividends
upon the preferred stock, if and when declared, shall be payable
quarterly on the first days of December, March, June and
September in each year. Any dividends so declared upon the common
stock shall be payable upon such dates as may from time to time
be fixed by the Board. The power to fix the working capital of
the corporation shall be, and is hereby conferred upon the Board
of Directors, and the Board of Directors may from time to time
fix the sum which shall be set aside or reserved, over and above
the corporation's capital stock paid in, as a working capital for
the corporation, and from time to time may increase, diminish and
vary the same in their absolute discretion.
ARTICLE VIII
SEAL
The common corporate seal is, and until otherwise
ordered, and directed by the Board of Directors shall be, an
impression upon paper or wax, bearing the name of the corporation
and the words 'Corporate Seal - Delaware.' One or more duplicate
dies for impressing such seal may be kept and used.
ARTICLE IX
AMENDMENT TO BY-LAWS
These By-laws may be altered, amended or repealed by a
vote of a majority of all the Directors at any regular or special
meeting of the Board, provided notice of such proposed
alteration, amendment or repeal shall have been included in the
notice of such meeting or shall have been waived by all the
Directors. These By-laws may also be altered, amended or
repealed at any annual meeting of the stockholders, or at any
special meeting of the stockholders, provided notice of the
proposed alteration, amendment or repeal shall have been included
in the notice of such special meeting or shall have been waived
by all the stockholders.
CREDIT AGREEMENT
among
NORTHWESTERN CORPORATION,
as Borrower
The Several Lenders from Time to Time Parties Hereto
and
CANADIAN IMPERIAL BANK OF COMMERCE
as Agent
Dated as of June 10, 1999
- -----------------------------------------------------------------
TABLE OF CONTENTS
Page
ARTICLE 1. DEFINITIONS 1
1.1 Defined Terms 1
1.2 Other Definitional Provisions 17
ARTICLE 2. AMOUNT AND TERMS OF COMMITMENTS 18
2.1 Commitment 18
2.2 Notes 18
2.3 Procedure for Borrowing 19
2.4 Commitment Fee; Administrative Fee 19
2.5 Optional and Mandatory Termination or Reduction 19
2.6 Optional and Mandatory Prepayments 20
2.7 Conversion and Continuation Options 21
2.8 Maximum Amounts of Tranches 21
2.9 Interest Rates; Default Rate Payment Dates 21
2.10 Computation of Interest and Fees 22
2.11 Inability to Determine Interest Rate 22
2.12 Pro Rata Treatment and Payments; Funding Reliance 23
2.13 Illegality 24
2.14 Requirements of Law 24
2.15 Taxes 25
2.16 Indemnity 27
2.17 Discretion of Lender as to Manner of Funding 28
2.18 Change of Lending Office; Replacement Lender 28
2.19 Extension Election 28
2.20 Expansion Facility 30
ARTICLE 3. REPRESENTATIONS AND WARRANTIES 30
3.1 Financial Condition 30
3.2 No Change 31
3.3 Corporate Existence; Compliance with Law 31
3.4 Corporate Power; Authorization; Enforceable
Obligations 31
3.5 No Legal Bar 32
3.6 No Material Litigation 32
3.7 No Default 32
3.8 Ownership of Property; Liens 32
3.9 Intellectual Property 32
3.10 No Burdensome Restrictions 32
3.11 Taxes 32
3.12 Margin Stock 33
3.13 ERISA 33
3.14 Holding Company; Investment Company Act; Other
Regulations 33
3.15 Purpose of Loans 34
3.16 Environmental Matters 34
3.17 Insurance 34
3.18 Accuracy and Completeness of Information 34
3.19 Leaseholds, Permits, etc 35
3.20 Year 2000 35
ARTICLE 4. CONDITIONS PRECEDENT 36
4.1 Conditions to Initial Loans 36
4.2 Conditions to Each Loan 37
ARTICLE 5. AFFIRMATIVE COVENANTS 38
5.1 Financial Statements 38
5.2 Certificates; Other Information 39
5.3 Payment of Obligations 39
5.4 Maintenance of Existence 40
5.5 Maintenance of Property; Insurance 40
5.6 Inspection of Property; Books and Records;
Discussions 40
5.7 Notices 40
5.8 Environmental Laws 41
5.9 ERISA 41
5.10 Use of Proceeds 41
5.11 Year 2000 41
5.12 Margin Stock 42
ARTICLE 6. NEGATIVE COVENANTS 42
6.1 Financial Covenants 42
6.2 Limitation on Fundamental Changes 42
6.3 Limitation on Transactions with Affiliates 42
6.4 Limitation on Liens 43
ARTICLE 7. EVENTS OF DEFAULT 43
7.1 Events of Default 43
ARTICLE 8. THE AGENT 45
8.1 Appointment 45
8.2 Delegation of Duties 46
8.3 Exculpatory Provisions 46
8.4 Reliance by Agent 46
8.5 Notice of Default 46
8.6 Non-Reliance on Agent and Other Lenders 47
8.7 Indemnification 47
8.8 Agent in Its Individual Capacity 48
8.9 Successor Agent 48
ARTICLE 9. MISCELLANEOUS 48
9.1 Amendments and Waivers 48
9.2 Notices 49
9.3 No Waiver; Cumulative Remedies 49
9.4 Survival of Representations and Warranties 50
9.5 Payment of Expenses and Taxes; Indemnification 50
9.6 Successors and Assigns; Participations and
Assignments 50
9.7 Adjustments; Setoff 52
9.8 Confidentiality 53
9.9 Effectiveness 53
9.10 Counterparts 53
9.11 Severability 54
9.12 Integration 54
9.13 GOVERNING LAW 54
9.14 Submission To Jurisdiction; Waivers 54
9.15 Acknowledgments 55
9.16 Waivers of Jury Trial 55
EXHIBITS AND SCHEDULES
Exhibit A Form of Note
Exhibit B-1 Form of Notice of Borrowing
Exhibit B-2 Form of Notice of Conversion
Exhibit C Form of Closing Certificate
Exhibit D Form of Commitment Transfer Supplement
Exhibit E Form of Compliance Certificate
Exhibit F Form of Opinion
Schedule I Lending Offices of Lender
Schedule 3.4 Required Consents of Governmental Authorities
Schedule 3.6 Litigation
Schedule 3.8 Exceptions to Title to Borrower's Properties
Schedule 3.11 Taxes
Schedule 3.13 ERISA
Schedule 3.14 Regulations Limiting Indebtedness
Schedule 6.3 Transactions with Affiliates
CREDIT AGREEMENT, dated as of June 10, 1999, between
NORTHWESTERN CORPORATION, a Delaware corporation (the
'Borrower'), the several banks and other financial institutions
from time to time party hereto (the 'Lenders') and CANADIAN
IMPERIAL BANK OF COMMERCE, as agent for the Lenders hereunder
(the 'Agent').
PRELIMINARY STATEMENT
The Borrower desires that the Lenders make revolving
credit loans in an aggregate principal amount not to exceed
$250,000,000, subject to the satisfaction of the conditions set
forth herein, which loans will be used for general corporate
purposes including, without limitation, (a) for working capital,
(b) to provide liquidity and credit support for commercial paper
to be issued by the Borrower, (c) to repay outstanding
Indebtedness, (d) to fund capital expenditures and (e) to fund
acquisitions. The Lenders are willing to provide such loans,
subject to the terms and conditions set forth herein.
In consideration of the foregoing premises and the
mutual covenants herein contained and for other good and valuable
consideration the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound,
hereby agree as follows:
ARTICLE 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
'Acceptable Order' shall mean an order of the FERC in
form and substance reasonably acceptable to the Agent
granting the application of the Borrower encaptioned
'Application for Authorization of the Issuance of Securities
and Authorization for Exemption from Competitive Bidding and
Negotiated Offer Requirements', which application was
submitted to the FERC on June 8, 1999 under Docket No. ES99-
41-000.
'Affected Lender' shall have the meaning ascribed
thereto in Section 2.18.
'Affiliate' shall mean, as to any Person, any other
Person which, directly or indirectly, is in control of
(including all directors and officers of such Person), is
controlled by, or is under common control with, such Person.
For purposes of this definition, 'control' of a Person shall
mean the power, directly or indirectly, to direct or cause
the direction of the management and policies of such Person,
whether by ownership of voting securities, by contract or
otherwise.
'Agent' shall have the meaning ascribed thereto in the
heading hereto and shall include such other Lender or finan
cial institution as shall have subsequently been appointed
as the successor Agent pursuant to Section 8.9.
'Agreement' shall mean this Credit Agreement, as
amended, supplemented or otherwise modified from time to
time.
'Alternate Base Rate' shall mean, on any particular
date, a rate of interest per annum equal to the higher of:
(a) the rate of interest most recently announced by
CIBC-Bank at its Domestic Lending Office as its
prime rate (which rate is not necessarily intended
to be the lowest rate of interest charged by CIBC-
Bank in connection with extensions of credit); and
(b) the Federal Funds Rate for such date plus 0.50%.
'Alternate Base Rate Loans' shall mean Loans the rate
of interest applicable to which is based upon the Alternate
Base Rate.
'Applicable Margin' (a) for each loan that bears
interest at the Eurodollar Rate, the basis points (1 basis
point equaling 0.01%) per annum set forth below in the
columns identified as Level I, Level II, Level III or Level
IV below, opposite the rate applicable to such Loan based on
the percentage of the Commitment that, after giving effect
to such Loans, has been drawn.
Level I Level II Level III Level IV
S&P A- or above BBB+ BBB BBB- or
below
Moody's A3 or above Baa1 Baa2 Baa3 or
below
Eurodollar 50 bp 60 bp 70 bp 80 bp
Rate
< 33.3% of
Commitment
Drawn
> 33.3% of 60 bp 70 bp 80 bp 90 bp
the
Commitment
Drawn but <
66.6% drawn
> 66.6% of 70 bp 80 bp 90 bp 100 bp
the
Commitment
Drawn
The applicable Level shall be determined based upon the
rating on the Borrower's long-term unsecured indebtedness for
borrowed money as determined by S&P and Moody's (or any generally
recognized successor to S&P and Moody's); provided that (i) if
the ratings of S&P and Moody's on such indebtedness are at
different levels, the Applicable Margin shall be determined on
the basis of the lower of the two ratings and (ii) if neither S&P
nor Moody's (or any generally recognized successor to S&P and
Moody's) is then rating such indebtedness the Applicable Margin
shall be that corresponding to Level IV.
(b) for each Loan that bears interest at the Alternate Base
Rate, 0 basis points.
The Applicable Margin shall be increased or decreased in
accordance with the definition upon any change in the applicable
ratings, and such increased or decreased Applicable Margin shall
be effective from the date of announcement of such new ratings by
S&P or Moody's, as applicable.
'Assignee' shall have the meaning ascribed thereto in
Section 9.6(c).
'Available Commitment' means, on any date, the excess
of (a) the Commitment as of such date, over (b) the
aggregate principal amount of all Loans outstanding as of
such date.
'Borrower' shall have the meaning ascribed thereto in
the heading hereto.
'Borrowing Date' shall mean any Business Day specified
in a notice pursuant to Section 2.3 as a date on which the
Borrower requests that the Lenders make Loans hereunder.
'Business' shall have the meaning ascribed thereto in
Section 3.16(b).
'Business Day' shall mean (a) a day other than a
Saturday, Sunday or other day on which commercial banks in
New York City are authorized or required by law to close and
(b) with respect to the date of
(i) making or continuing any Loans as, or
converting any Loans from or into, Eurodollar Loans,
(ii) making any payment or prepayment or principal
of or payment of interest on any portion of the
principal amount of any Loans being maintained as
Eurodollar Loans, or
(iii) the Borrower giving any notice (or the
number of Business Days to elapse prior to the
effectiveness thereof) in connection with any matter
referred to in the immediately preceding clause (b)(i)
or (b)(ii),
any such day on which dealings in Dollars are also carried
on in the interbank market in London, England.
'Capital Stock' shall mean any and all shares,
interests, participations or other equivalents (however
designated) of capital stock of a corporation, any and all
equivalent ownership interests in a Person (other than a
corporation) and any and all warrants or options to purchase
any of the foregoing.
'Change of Control' shall mean the occurrence of any of
the following:
(a) any Person or 'group' (within the meaning of
Section 13(d) or 14(d) of the Securities Exchange Act of
1934) (i) shall have acquired beneficial ownership of 40% or
more of the aggregate outstanding classes of Capital Stock
having voting power in the election of directors of the
Borrower or (ii) shall obtain the power (whether or not
exercised) to elect a majority of the Borrower's directors;
(b) a majority of the persons who comprised the Board
of Directors of the Borrower on the Closing Date shall be
replaced, unless such replacement shall have been approved
by at least two-thirds of the Board of Directors of the
Borrower then still in office who either were members of
such Board of Directors on the Closing Date or whose
election as a member of such Board of Directors was
previously so approved; or
(c) the Borrower shall be liquidated or dissolved.
'CIBC-Bank' shall mean Canadian Imperial Bank of
Commerce, a Canadian chartered bank, or one or more of its
agencies, branches or affiliates it its or their respective
capacity or capacities, as the case may be, as a Lender or
Lenders hereunder.
'Closing Date' shall mean the date on which the
conditions precedent set forth in Section 4.1 shall be
satisfied or waived.
'Code' shall mean the Internal Revenue Code of 1986, as
amended from time to time.
'Commitment' shall mean, as to any Lender, the
obligation of such Lender to make Loans to the Borrower in
an aggregate principal amount at any one time outstanding
not to exceed the amount set forth opposite such Lender's
name on Schedule I, as such amount may be reduced from time
to time pursuant to this Agreement. As of the Closing Date,
the aggregate amount of the Commitments shall be equal to
$170,000,000.
'Commitment Fee' shall mean with respect to any Lender,
a fee that shall be payable on the average daily Available
Commitment from time to time at the basis points per annum
(1 basis point equaling 0.01%) set forth below in the
columns identified as Level I, Level II, Level III or Level
IV.
Level I Level II Level III Level IV
S&P A- or BBB+ BBB BBB- or
above below
Moody's A3 or Baa1 Baa2 Baa3 or
above below
Commitment 10 bp 15 bp 20 bp 25 bp
Fee
The applicable Level shall be determined based upon the
ratings on the Borrower's long-term unsecured indebtedness for
borrowed money as determined by S&P and Moody's (or any generally
recognized successor to S&P and Moody's); provided that (i) if
the ratings of S&P and Moody's on such indebtedness are at
different levels, the Commitment Fee shall be determined on the
basis of the lower of the two ratings and (ii) if neither S&P nor
Moody's (or any generally recognized successor to S&P and
Moody's) is then rating such indebtedness, then the Applicable
Margin shall be determined on the basis of the lower of the two
ratings and (iii) if neither S&P nor Moody's (or any generally
recognized successor to S&P and Moody's) is then rating such
indebtedness, then the Commitment Fee shall be that corresponding
to Level IV.
The Commitment Fee shall be increased or decreased in
accordance with this definition upon any change in the applicable
ratings, and such increased and decreased ratings shall be
effective from the date of the announcement of such new ratings
by S&P and Moody's, as applicable.
'Commitment Percentage' shall mean, as to any Lender,
at any time, the percentage which such Lender's Commitment
then constitutes of the aggregate Commitment.
'Commitment Period' shall mean the period from and
including the Closing Date to, but not including, the
Termination Date, or such earlier date on which the
Commitment shall terminate as provided herein.
'Commitment Termination Date' shall mean June 10,
2000; provided that upon receipt of an Acceptable Order (a)
the Borrower may elect to extend such date to June 10, 2002,
or (b) the Borrower may elect to further extend such date
pursuant to Section 2.19.
'Commitment Transfer Supplement' shall have the meaning
ascribed thereto in Section 9.6(c).
'Commonly Controlled Entity' shall mean an entity,
whether or not incorporated, which is under common control
with the Borrower within the meaning of Section 4001(a)(14)
of ERISA or is part of a group which includes the Borrower
and which is treated as a single employer under Section 414
of the Code.
'Compliance Certificate' shall have the meaning
ascribed thereto in Section 5.2(b).
'Consolidated Subsidiary' shall mean, at any time, any
Subsidiary or other Person the accounts of which are
consolidated with the Borrower in its consolidated financial
statements as of such time.
'Contractual Obligation' shall mean as to the Borrower
or any Subsidiary, any provision of any security issued by
the Borrower or any Subsidiary or of any agreement,
instrument or other undertaking to which the Borrower or any
Subsidiary is a party or by which it or any of its property
is bound.
'Default' shall mean any of the events specified in
Section 7.1, whether or not any requirement for the giving
of notice, the lapse of time, or both, or any other
condition, has been satisfied.
'Dollars' and '$' shall mean dollars in lawful currency
of the United States of America.
'Domestic Lending Office' shall mean, initially, the
office of each Lender designated as such in Schedule I (or
designated pursuant to a Commitment Transfer Supplement),
and thereafter, such other office of such Lender, if any,
which shall be making or maintaining Alternate Base Rate
Loans as may be designated from time to time by notice from
such Lender to the Borrower and the Agent.
'Environmental Laws' shall mean any and all foreign,
Federal, state, local or municipal laws, rules, orders,
regulations, statutes, ordinances, codes, decrees,
requirements of any Governmental Authority or other
Requirements of Law (including common law) regulating,
relating to or imposing liability or standards of conduct
concerning public health, public and workplace safety or
protection of the environment, as now or may at any time
hereafter be in effect.
'ERISA' shall mean the Employee Retirement Income
Security Act of 1974, as amended from time to time.
'Eurodollar Base Rate' shall mean with respect to each
day during each Interest Period pertaining to a Eurodollar
Loan, the rate per annum determined on the basis of the rate
for deposits in Dollars for a period equal to such Interest
Period commencing on the first day of such Interest Period
and appearing on Page 3750 of the Telerate screen at or
about 11:00 a.m., London time, two Business Days prior to
the commencement of such Interest Period or, if such rate
does not appear on such page or otherwise on such service,
such rate shall be determined by reference to such other
publicly available service for displaying Eurodollar rates
as may be agreed between the Agent and the Borrower or, in
the absence of such agreement, the 'Eurodollar Base Rate'
shall be the rate of interest per annum equal to the average
(rounded upwards, if necessary, to the nearest 1/100 of 1%)
of the rates per annum at which Dollar deposits in
immediately available funds are offered by CIBC-Bank to
prime international banks in the offshore dollar market at
or about 11:00 a.m., New York time, two Business Days prior
to the beginning of such Interest Period for delivery on the
first day of such Interest Period, and in an amount
approximately equal to the amount of the CIBC-Bank
Eurodollar Loan and for a period approximately equal to such
Interest Period.
'Eurodollar Loans' shall mean Loans the rate of
interest applicable to which is based upon the Eurodollar
Rate.
'Eurodollar Office' shall mean, initially, the office
of each Lender designated as such in Schedule I (or
designated pursuant to a Commitment Transfer Supplement),
and thereafter, such other office of such Lender, if any,
which shall be making or maintaining Eurodollar Loans as may
be designated from time to time by notice from such Lender
to the Borrower and the Agent.
'Eurodollar Rate' shall mean with respect to each day
during each Interest Period pertaining to a Eurodollar Loan,
a rate per annum determined for such day in accordance with
the following formula (rounded upward to the nearest 1/100th
of 1%):
Eurodollar Base Rate
1.00 - Eurodollar Reserve Requirements
'Eurodollar Reserve Requirements' shall mean, for any
day as applied to a Eurodollar Loan, the aggregate (without
duplication) of the rates (expressed as a decimal fraction)
of reserve requirements in effect on such day (including,
without limitation, basic, supplemental, marginal and
emergency reserves) under any regulations of the Board of
Governors of the Federal Reserve System or other
Governmental Authority having jurisdiction with respect
thereto) dealing with reserve requirements prescribed for
eurocurrency funding (currently referred to as 'Eurocurrency
Liabilities' in Regulation D of such Board) maintained by a
member bank of such System.
'Event of Default' shall mean any of the events
specified in Section 7.1; provided that any requirement for
the giving of notice, the lapse of time, or both, or any
other condition, has been satisfied.
'Expansion Commitments' shall have the meaning ascribed
thereto in Section 2.20.
'Expansion Facility Amendment' shall have the meaning
ascribed thereto in Section 2.20.
'Expansion Loans' shall have the meaning ascribed
thereto in Section 2.20.
'Extending Lender' shall have the meaning ascribed
thereto in Section 2.19.
'Extension Election' shall have the meaning ascribed
thereto in Section 2.19.
'FDIC' shall mean the Federal Deposit Insurance
Corporation or any successor thereto.
'Federal Funds Rate' shall mean for any particular
date, an interest rate per annum equal to the interest rate
offered in the interbank market to the Lenders as the
overnight Federal Funds Rate at or about 10:00 a.m., New
York City time, on such day (or, if such day is not a
Business Day, on the next preceding Business Day).
'Fee Letter' shall mean the letter from the Agent to
the Borrower dated March 16, 1999.
'FERC' shall mean the Federal Energy Regulatory
Committee.
'Financing Lease' shall mean any lease of property,
real or personal, the obligations of the lessee in respect
of which are required in accordance with GAAP to be
capitalized on a balance sheet of the lessee.
'Funded Debt' shall mean, as of any date of
determination, the sum of all Indebtedness of the Borrower
and each of its Consolidated Subsidiaries (without
duplication) other than (i) Indebtedness of the type
described in clause (f) of the definition thereof and (ii)
Non-recourse Debt.
'GAAP' shall mean generally accepted accounting
principles in the United States of America as in effect from
time to time consistent with those utilized in preparing the
audited financial statements referred to in Section 3.1;
provided that in the event that any change in accounting
principles required by the promulgation of any rule,
regulation, pronouncement or opinion by the Financial
Accounting Standards Board of the American Institute of
Certified Public Accountants (or successor thereto or any
agency with similar functions) results in a change in the
calculation of any of the financial covenants hereunder, the
Required Lenders and the Borrower will in good faith enter
into negotiations in order to reevaluate such financial
covenants in light of such change; and provided further that
this provision shall not operate as a waiver of any right,
remedy, power or privilege available to any Lender under any
provision of any Loan Document or pursuant to any applicable
law.
'Governmental Authority' shall mean any national
government (United States or foreign), any state or other
political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
'Guarantee Obligation' shall mean as to any Person (the
'guaranteeing person'), any obligation of the guaranteeing
person (including, without limitation, any reimbursement,
counter-indemnity or similar obligation), guaranteeing or in
effect guaranteeing any Indebtedness, lease, dividend or
other similar obligation (the 'primary obligation') of any
other third Person (other than any Consolidated Subsidiary)
(the 'primary obligor') in any manner, whether directly or
indirectly, including, without limitation, any obligation of
the guaranteeing person, whether or not contingent, (i) to
purchase any such primary obligation or any property
constituting direct or indirect security therefor, (ii) to
advance or supply funds (x) for the purchase or payment of
any such primary obligation or (y) to maintain working
capital or equity capital of the primary obligor or
otherwise to maintain the net worth, liquidity or solvency
of the primary obligor, (iii) to purchase property,
securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary
obligation or (iv) otherwise to assure or hold harmless the
owner of any such primary obligation against loss in respect
thereof; provided that the term Guarantee Obligation shall
not include (x) obligations payable by their terms solely in
Capital Stock of the Borrower, and (y) endorsements of
instruments for deposit or collection in the ordinary course
of business. The amount of any Guarantee Obligation of any
guaranteeing person shall be deemed to be the lower of (a)
an amount equal to the stated or determinable amount of the
primary obligation in respect of which such Guarantee
Obligation is made and (b) the maximum amount for which such
guaranteeing person may be liable pursuant to the terms of
the instrument embodying such Guarantee Obligation, unless
such primary obligation and the maximum amount for which
such guaranteeing person may be liable are not stated or
determinable, in which case the amount of such Guarantee
Obligation shall be such guaranteeing person's maximum
reasonably anticipated liability in respect thereof as
determined by the Borrower in good faith.
'Hedging Agreements' shall mean (a) any interest rate
protection agreement, interest rate future, interest rate
option, interest rate swap, interest rate cap or other
interest rate hedge or arrangement under which the Borrower
is a party or a beneficiary and (b) any other agreement or
arrangement designed to limit or eliminate the risk and/or
exposure of the Borrower to fluctuations in currency
exchange rates.
'Indebtedness' of any Person at any date shall mean,
(a) all indebtedness of such Person for borrowed money or
for the deferred purchase price of property or services
(other than current trade liabilities incurred in the
ordinary course of business and payable in accordance with
customary practices), (b) any other indebtedness of such
Person which is evidenced by a note, bond, debenture or
similar instrument, (c) all obligations of such Person under
Financing Leases, (d) all outstanding reimbursement
obligations of such Person in respect of outstanding letters
of credit, acceptances and similar obligations issued or
created for the account of such Person, (e) all liabilities
secured by any Lien on any property owned by such Person
even though such Person has not assumed or otherwise become
liable for the payment thereof, (f) liabilities arising
under Hedging Agreements (other than interest rate caps) of
such Person and (g) all Guarantee Obligations of such
Person.
'Indenture' shall mean the General Mortgage Indenture
and Deed of Trust dated as of August 1, 1993 between the
Borrower and The Chase Manhattan Bank, as trustee.
'Insolvency' shall mean with respect to any
Multiemployer Plan, the condition that such Plan is
insolvent within the meaning of Section 4245 of ERISA.
'Insolvent' shall mean pertaining to a condition of
Insolvency.
'Intellectual Property' shall have the meaning set
ascribed thereto in Section 3.9.
'Interest Payment Date' shall mean (a) as to any
Alternate Base Rate Loan, the last day of each March, June,
September and December to occur while such Loan is
outstanding, (b) as to any Eurodollar Loan having an
Interest Period of three months or less, the last day of
such Interest Period, and (c) as to any Eurodollar Loan
having an Interest Period longer than three months, each day
which is three months, or a whole multiple thereof, after
the first day of such Interest Period and the last day of
such Interest Period.
'Interest Period' with respect to any Eurodollar Loan
shall mean:
(a) initially, the period commencing on the
borrowing or conversion date, as the case may be, with
respect to such Eurodollar Loan and ending one, two,
three or six months thereafter, as selected by the
Borrower in its Notice of Borrowing or Notice of
Conversion, as the case may be, given with respect
thereto; and
(b) thereafter, each period commencing on the
last day of the next preceding Interest Period
applicable to such Eurodollar Loan and ending one, two,
three or six months thereafter, as selected by the
Borrower by irrevocable notice to the Agent not less
than three Business Days prior to the last day of the
then current Interest Period with respect thereto;
provided that, the foregoing provisions relating to Interest
Periods are subject to the following:
(i) if any Interest Period pertaining to a
Eurodollar Loan would otherwise end on a day that is
not a Business Day, such Interest Period shall be
extended to the next succeeding Business Day unless the
result of such extension would be to carry such
Interest Period into another calendar month in which
event such Interest Period shall end on the immediately
preceding Business Day;
(ii) any Interest Period that would otherwise
extend beyond the Termination Date, shall end on the
Termination Date or such date of final payment, as the
case may be;
(iii) any Interest Period pertaining to a
Eurodollar Loan that begins on the last Business Day of
a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at
the end of such Interest Period) shall end on the last
Business Day of a calendar month; and
(iv) the Borrower shall select Interest Periods so
as not to require a payment or prepayment of any
Eurodollar Loan during an Interest Period for such
Loan.
'Lien' shall mean any mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien
(statutory or other), charge or other security interest or
any preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever
(including, without limitation, any conditional sale or
other title retention agreement and any Financing Lease
having substantially the same economic effect as any of the
foregoing and the filing of any financing statement under
the Uniform Commercial Code or comparable law of any
jurisdiction, other than any such filing in connection with
any true lease or operating lease).
'Loan Documents' shall mean this Agreement and each
other agreement, instrument or certificate executed and
delivered to the Lenders pursuant hereto including, without
limitation, the Notes, and the Fee Letter.
'Loans' shall have the meaning ascribed thereto in
Section 2.1.
'Material Adverse Effect' shall mean (a) (i) in all
instances other than Section 4.1(k) a material adverse
effect on the business, operations, property, or condition
(financial or otherwise) of the Borrower and its
Consolidated Subsidiaries (taken as a whole) and (ii) solely
in the case of Section 4.1(k) a material adverse effect on
the business, operations, property or condition (financial
or otherwise) of the Borrower or any Material Subsidiary or
(b) any adverse effect on the validity or enforceability of
this Agreement, any of the Notes or any of the other Loan
Documents, or the rights or remedies of the Agent or the
Lenders hereunder or thereunder.
'Mandatory Redeemable Stock' shall mean, with respect
to any Person, any share of such Person's Capital Stock, to
the extent that it is (a) redeemable, payable or required to
be purchased or otherwise retired or extinguished, or
convertible into any Indebtedness or other liability,
obligation, covenant or duty of or binding upon, or any term
or condition to be observed by or binding upon such Person
or any of its assets, (i) at a fixed or determinable date,
whether by operation of a sinking fund or otherwise, (ii) at
the option of any other Person or (iii) upon the occurrence
of a condition not solely within the control of such Person
such as a redemption required to be made utilizing future
earnings or (b) convertible into Capital Stock which has the
features set forth in clause (a).
'Material Subsidiary' shall mean, as at any time of
determination, each present or future Subsidiary of the
Borrower other than any Subsidiary which as at the end of
the fiscal quarter immediately preceding such time of
determination, shall have a net worth (calculated as the
stockholder's equity of such Subsidiary less any Mandatory
Redeemable Stock and disregarding any liabilities of such
Subsidiary to an Affiliate) equal to or less than 10% of the
Net Worth of the Borrower and its Consolidated Subsidiaries
as at the end of such fiscal quarter, or net income equal to
or less than 10% of the Net Income of the Borrower and its
Consolidated Subsidiaries for the four fiscal quarter period
ending at the end of such fiscal quarter.
'Materials of Environmental Concern' shall mean any
gasoline or petroleum (including crude oil or any fraction
thereof) or petroleum products or any hazardous or toxic
substances, materials or wastes, defined or regulated as
such in or under any Environmental Law, including, without
limitation, asbestos, polychlorinated biphenyls and urea-
formaldehyde insulation.
'Moody's' shall mean Moody's Investors Service, Inc.
'Multiemployer Plan' shall mean a Plan which is a
multiemployer plan as defined in Section 4001(a)(3) of
ERISA.
'Net Income' for any period shall mean, net income (or
deficit) of the Borrower and its Consolidated Subsidiaries
for such period determined on a consolidated basis in
accordance with GAAP.
'Net Worth' shall mean for any date the sum of
shareholders' equity and preferred stock, preference stock
and preferred securities of the Borrower and its
Consolidated Subsidiaries on such date, in each case as
described in the consolidated financial statements of the
Borrower.
'Non-Approving Lender' shall have the meaning ascribed
thereto in Section 2.19.
'Non-Excluded Taxes' shall have the meaning ascribed
thereto in Section 2.15.
'Non-Recourse Debt' shall mean any Indebtedness as to
which the Borrower does not have any direct or indirect
liability whether as primary obligor, guarantor, surety,
provider of collateral security or through any other right
or arrangement of any nature (including any election by the
holder of such indebtedness) providing direct or indirect
assurance of payment or performance of any such obligations
in whole or in part (other than direct or indirect liability
which by its terms may be payable solely in Capital Stock of
the Borrower).
'Note' shall have the meaning ascribed thereto in
Section 2.2.
'Notice of Borrowing' shall have the meaning ascribed
thereto in Section 2.3.
'Notice of Conversion' shall have the meaning ascribed
thereto in Section 2.7.
'Obligations' shall mean the unpaid principal of and
interest on (including, without limitation, interest
accruing after the maturity of the Loans and interest
accruing after the filing of any petition in bankruptcy, or
the commencement of any insolvency, reorganization or like
proceeding, relating to the Borrower or any Subsidiary, as
applicable, whether or not a claim for post-filing or post-
petition interest is allowed in such proceeding and whether
the Agent, for the benefit of the Lenders, is oversecured or
undersecured with respect to such Loans) the Notes and all
other obligations and liabilities of the Borrower to the
Agent and the Lenders, whether direct or indirect, absolute
or contingent, due or to become due, now existing or
hereafter incurred, which may arise under, out of, or in
connection with, the Credit Agreement, the Notes, the other
Loan Documents or any other document made, delivered or
given in connection therewith or herewith, whether on
account of principal, interest, fees, indemnities, costs,
expenses (including, without limitation, all fees and
disbursements of counsel to the Agent or the Lenders that
are required to be paid by the Borrower pursuant to the
terms of the Credit Agreement, any other Loan Document) or
otherwise.
'Participant' shall have the meaning ascribed thereto
in Section 9.6(b).
'PBGC' shall mean the Pension Benefit Guaranty
Corporation established pursuant to Subtitle A of Title IV
of ERISA or any successor thereto.
'Permitted Liens' shall mean
(a) inchoate Liens for taxes, assessments or
governmental charges or levies or Liens for taxes,
assessments, governmental charges or levies not
yet due or which are being contested in good faith
by appropriate proceedings; provided that adequate
reserves with respect thereto are maintained on
the books of the Borrower or its Consolidated
Subsidiaries, as the case may be, in conformity
with GAAP;
(b) statutory Liens of carriers', warehousemen's,
mechanics', materialmen's, repairmen's or other
similar Liens arising in the ordinary course of
business which are not overdue for a period of
more than 60 days or which are being contested in
good faith by appropriate proceedings;
(c) pledges or deposits in connection with workers'
compensation, unemployment insurance and other
social security legislation;
(d) deposits securing liability to insurance carriers
under insurance or self-insurance arrangements,
and deposits to secure true leases in the ordinary
course;
(e) easements, rights-of-way, restrictions and other
similar encumbrances incurred in the ordinary
course of business and landlords' Liens which, in
the aggregate, do not in any case materially
detract from the value of the property subject
thereto or materially interfere with the ordinary
conduct of the business of the Borrower;
(f) any attachment or judgment Lien not constituting
an Event of Default under Section 7.1(h);
(g) Liens to secure Non-Recourse Debt of the Borrower
or any Consolidated Subsidiary;
(h) Liens under the Indenture, as such Indenture may
be amended or supplemented from time to time;
(i) Liens created in connection with the acquisition
by the Borrower or any Consolidated Subsidiary of
assets and the continuation of such Liens in
connection with any refinancing of the
Indebtedness secured by such Liens; provided that
such Liens are limited to the assets so acquired;
(j) Liens on the assets and/or rights to receive
income of any Person that exist at the time such
Person becomes a Consolidated Subsidiary and the
continuation of such Liens in connection with any
refinancing or restructuring of the obligations
secured by such Liens;
(k) any Lien vested in any licensor or permitter for
obligations or acts to be performed, the
performance of which obligations or acts is
required under licenses or permits, so long as the
performance of such obligations or acts is not
delinquent or is being contested in good faith and
by appropriate proceedings;
(l) any controls, restrictions, obligations, duties or
other burdens imposed by any federal, state,
municipal or other law, or by any rule, regulation
or order of any Governmental Authority, upon any
property of the Borrower or the operation or use
thereof or upon the Borrower with respect to any
of its property or the operation or use thereof or
with respect to any franchise, grant, license,
permit or public purpose requirement, or any
rights reserved to or otherwise vested in any
Governmental Authority to impose any such
controls, restrictions, obligations, duties or
other burdens;
(m) Liens granted on air or water pollution control,
sewage or solid waste disposal, or other similar
facilities of the Borrower in connection with the
issuance of pollution control revenue bonds, in
connection with financing the cost of, or the
construction or acquisition of, such facilities;
(n) any right which any Governmental Authority may
have by virtue of any franchise, license, contract
or statute to purchase, or designate a purchaser
of or order the sale of, any property of the
Borrower upon payment of cash or reasonable
compensation therefor or to terminate any
franchise, license or other rights or to regulate
the property and business of the Borrower.
(o) party-wall agreements and agreements for and
obligations relating to the joint or common use of
property owned solely by the Borrower or owned by
the Borrower in common or jointly with one or more
parties;
(p) liens securing indebtedness incurred by a Person,
other than the Borrower which indebtedness has
been neither assumed nor guaranteed by the
Borrower nor on which it customarily pays
interest, existing on property which the Borrower
owns jointly or in common with such Person or such
Person and others, if there is a bar against
partition of such property which would preclude
the sale of such property by such other Person or
the holder of such lien without the consent of the
Borrower.
(q) Prepaid Liens; and
(r) Liens existing on the date hereof.
'Person' shall mean an individual, partnership,
corporation, limited liability company, business trust,
joint stock company, trust, unincorporated association,
joint venture, Governmental Authority or other entity of
whatever nature.
'Plan' shall mean at a particular time, any employee
benefit plan which is defined in Section 3(2) of ERISA and
in respect of which the Borrower or any Subsidiary is, an
'employer' as defined in Section 3(5) of ERISA, other than a
Multiemployer Plan.
'Prepaid Lien' shall mean any Lien securing
Indebtedness for the payment of which money in the necessary
amount (taking into consideration the amount of income
reasonably projected to be earned on such amount) shall have
been irrevocably deposited in trust with a trustee or other
holder of such Lien; provided, however, that if such
Indebtedness is to be redeemed or otherwise prepaid prior to
the stated maturity thereof, any notice requisite to such
redemption or prepayment shall have been given in accordance
with the mortgage or other instrument creating such Lien or
irrevocable instructions to give such notice shall have been
given to such trustee or other holder.
'Properties' shall have the meaning ascribed thereto in
Section 3.16(a).
'Register' shall have the meaning ascribed thereto in
Section 9.6(d).
'Regulation U' shall mean Regulation U of the Board of
Governors of the Federal Reserve System as in effect from
time to time, or any successor regulation.
'Reorganization' shall mean with respect to any
Multiemployer Plan, the condition that such plan is in
reorganization within the meaning of Section 4241 of ERISA.
'Replacement Extending Lender' shall have the meaning
ascribed thereto in Section 2.19.
'Replacement Lender' shall have the meaning ascribed
thereto in Section 2.18.
'Reportable Event' shall mean any of the events set
forth in section 4043(c) of ERISA other than those events
for which the notice requirement has been waived under
applicable regulations.
'Required Lenders' shall mean Lenders whose Commitment
Percentages aggregate at least 51% of the Commitments then
outstanding.
'Requirement of Law' as to any Person shall mean the
articles of organization and by-laws or other organizational
or governing documents of such Person, and any law, treaty,
rule or regulation or determination of an arbitrator or a
court or other Governmental Authority, in each case,
applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is
subject.
'Responsible Officer' shall mean, with respect to a
Person, the chairman of the board of directors, the chief
executive officer or the president of such Person or, with
respect to financial matters, the chief financial officer of
such Person.
'S&P' shall mean Standard & Poor's Rating Group, a
division of The McGraw-Hill Companies, Inc.
'SEC' shall mean the Securities and Exchange
Commission.
'SEC Reports' shall mean the reports filed by the
Borrower with the SEC on Form 10-K, Form 10-Q or Form 8-K or
any successor Form.
'Single Employer Plan' shall mean any Plan which is
covered by Title IV of ERISA, but which is not a
Multiemployer Plan.
'Special Purpose Subsidiary' shall mean a direct or
indirect Subsidiary of the Borrower, formed solely for the
purpose of acquiring and owning certain assets and issuing
Indebtedness which is secured solely by such assets and as
to which the Borrower and each other Subsidiary has no
Guarantee Obligation or other liability or obligation to
contribute additional equity or for which the Borrower or
any other Subsidiary has general partner liability or other
derivative liability by operation of law or contract. The
term 'Special Purpose Subsidiary' shall also include any
Subsidiary whose assets consist solely of equity interests
in another Special Purpose Subsidiary.
'Subsidiary' shall mean a corporation, partnership or
other entity of which shares of stock or other ownership
interests having ordinary voting power (other than stock or
such other ownership interests having such power only by
reason of the occurrence of a contingency) to elect a
majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time
owned, or the management of which is otherwise controlled,
directly or indirectly through one or more intermediaries,
or both, by such Person. Unless otherwise expressly stated
herein all references to any Subsidiary are to direct or
indirect subsidiaries of the Borrower.
'Super Majority Lenders' shall mean Lenders whose
Commitment Percentages aggregate at least 66 _% of the
Commitments then outstanding.
'Tangible Net Worth' shall mean the excess of (a) the
assets of the Borrower and its Consolidated Subsidiaries
(excluding intercompany items) which, in accordance with
GAAP, are tangible assets, after deducting adequate reserves
in each case where, in accordance with GAAP, a reserve is
proper, over (b) all liability of the Borrower and its
Consolidated Subsidiaries (excluding intercompany items as
determined in accordance with GAAP); provided that in no
event shall there be included as tangible assets patents,
trademarks, trade names, copyrights, licenses, goodwill,
deferred charges (other than assets classified as deferred
charges under FAS 71) or treasury stock or any securities
issued by or any liabilities of the Borrower or any
Subsidiary.
'Termination Date' shall mean June 10, 2000; provided
that upon receipt of an Acceptable Order (a) the Borrower
may elect to extend such date to June 10, 2002, or (b) the
Borrower may elect to further extend such date pursuant to
Section 2.19.
'Total Capital' shall mean on any date (a) Funded Debt
on such date plus (b) the sum of (i) stockholders' equity
and (ii) preferred stock, preference stock and preferred
securities of the Borrower and its Consolidated Subsidiaries
on such date, in each case as described in the consolidated
financial statements of the Borrower.
'Tranche' shall mean the collective reference to
Eurodollar Loans, the then current Interest Periods with
respect to all of which begin on the same date and end on
the same later date (whether or not such Loans shall
originally have been made on the same day).
'Transferee' shall have the meaning ascribed thereto in
Section 9.6(f).
'Type' shall mean as to any Loan, its nature as an
Alternate Base Rate Loan or a Eurodollar Loan.
'Year 2000 Problem' shall mean the risk that computer
application used by the Borrower or its Subsidiaries (and in each
case its material service suppliers, key vendors and significant
customers) may be unable to recognize and perform properly date-
sensitive functions involving certain data prior to, and any date
after, December 31, 1999.
1.2 Other Definitional Provisions. (a) Unless
otherwise specified therein, all terms defined in this Agreement
shall have their respective defined meanings when used in the
Notes or any certificate or other document made or delivered
pursuant hereto.
(b) As used herein, in the Notes and in any
certificate or other document made or delivered pursuant hereto,
accounting terms relating to the Borrower or any Subsidiary not
defined in Section 1.1 and accounting terms partly defined in
Section 1.1, to the extent not defined, shall have the respective
meanings given to them under GAAP.
(c) The words 'hereof', 'herein' and 'hereunder' and
words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision
of this Agreement, and Article, Section, Schedule and Exhibit
references are to this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein shall
be equally applicable to both the singular and plural forms of
such terms.
ARTICLE 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Commitment. (a) Subject to the terms and
conditions hereof, each Lender agrees to make (i) revolving
credit loans ('Loans') to the Borrower from time to time during
the Commitment Period in an aggregate principal amount at any one
time outstanding not to exceed such Lender's Commitment;
provided, that no Lender shall be permitted or required to make
any Loan if after giving effect thereto
(x) the aggregate outstanding principal amount of
Loans made by such Lender would exceed such Lender's
Commitment; or
(y) the aggregate outstanding principal amount of
the Loans made by all the Lenders would exceed the
Commitment.
Subject to the foregoing, during the Commitment Period, the
Borrower may use the Commitment by borrowing, prepaying the Loans
in whole or in part, and reborrowing, all in accordance with the
terms and conditions hereof. Subject to Section 2.19, the
Commitment shall terminate on the Commitment Termination Date.
(b) The Loans may from time to time be (i) Eurodollar
Loans, (ii) Alternate Base Rate Loans or (iii) a combination
thereof, as determined by the Borrower and notified to the Agent
in accordance with Section 2.3; provided that no Loan shall be
made as a Eurodollar Loan (i) prior to the date an Acceptable
Order is delivered by the Borrower to the Agent or (ii) after the
day that is one month prior to the Termination Date.
2.2 Notes. The Loans made by each Lender shall be
evidenced by one or more promissory notes of the Borrower, each
substantially in the form of Exhibit A, with appropriate
insertions as to payee, date and principal amount (a 'Note'),
payable to the order of such Lender and in a principal amount
equal to the lesser of (i) the amount of the initial Commitment
of such Lender and (ii) the aggregate unpaid principal amount of
all Loans made by such Lender. Each Lender is hereby authorized
to record the date, Type and amount of each Loan made by it, each
continuation thereof, each conversion of all or a portion thereof
to another Type, the date and amount of each payment or
prepayment of principal thereof and, in the case of Eurodollar
Loans, the length of each Interest Period with respect thereto,
on the schedule annexed to and constituting a part of its Note,
and any such recordation shall constitute prima facie evidence of
the accuracy of the information so recorded absent manifest
error. Each Note shall (i) be dated the Closing Date, (ii) be
stated to mature on the Termination Date and (iii) provide for
the payment of interest in accordance with Section 2.9.
2.3 Procedure for Borrowing. The Borrower may borrow
under the Commitment during the Commitment Period on any Business
Day; provided that the Borrower shall give the Agent an
irrevocable notice substantially in the form of Exhibit B-1 (a
'Notice of Borrowing') (which notice must be received by the
Agent prior to 10:00 a.m., New York City time, (a) three Business
Days prior to the requested Borrowing Date, if all or any part of
the requested Loans are to be Eurodollar Loans, or (b) two
Business Days prior to the requested Borrowing Date, if none of
the requested Loans are to be Eurodollar Loans), specifying (i)
the amount to be borrowed, (ii) the requested Borrowing Date,
(iii) whether the borrowing is to be of Eurodollar Loans,
Alternate Base Rate Loans or a combination thereof and (iv) if
the borrowing is to be entirely or partly of Eurodollar Loans,
the amounts of such Eurodollar Loans and the lengths of the
initial Interest Periods therefor. Each borrowing under the
Commitment shall be in an amount equal to (x) in the case of
Alternate Base Rate Loans, $5,000,000 or a whole multiple of
$1,000,000 in excess thereof (or, if the then Available
Commitment is less than $5,000,000, such lesser amount) and (y)
in the case of Eurodollar Loans, $5,000,000 or a whole multiple
of $1,000,000 in excess thereof. Upon receipt of any such notice
from the Borrower, the Agent shall promptly notify each Lender
thereof. Each Lender will make the amount of its pro rata share
of each borrowing available to the Agent for the account of the
Borrower at the office of the Agent specified in Section 9.2
prior to 11:00 a.m., New York City time, on the Borrowing Date
requested by the Borrower in funds immediately available to the
Agent. Such borrowing will then be made available to the
Borrower by the Agent in the manner specified by the Borrower in
such Notice of Borrowing in the aggregate of the amounts made
available to the Agent by the Lenders and in like funds as
received by the Agent.
2.4 Commitment Fee; Administrative Fee. (a) The
Borrower agrees to pay to the Agent for the Account of each
Lender the Commitment Fee for the period from and including the
first day of the Commitment Period to the Termination Date,
quarterly in arrears on the last day of each March, June,
September and December and on the Termination Date or such
earlier date as the Commitments shall terminate as provided
herein, commencing on the first of such dates to occur after the
date hereof.
(a) The Borrower agrees to pay to the Agent, for its
own account for services rendered by the Agent, concurrent with
signing of this Agreement, the fees set forth in the Fee Letter.
2.5 Optional and Mandatory Termination or Reduction.
(a) The Borrower shall have the right, upon not less than three
Business Days' notice (if any Eurodollar Loans are outstanding at
such time) or two Business Days' notice (otherwise) to the Agent,
to terminate the Commitments or, from time to time, to reduce the
amount of the Commitments. Any such reduction shall be in an
amount equal to $1,000,000 or a whole multiple thereof and shall
reduce permanently the Commitments then in effect; provided that
no such termination or reduction shall be permitted if, after
giving effect thereto and to any prepayments of the Loans made on
the effective date thereof, the aggregate principal amount of the
Loans then outstanding would exceed the Commitments then in
effect. Any reduction of the Commitments shall be accompanied by
payment in full of all accrued Commitment Fees on the amount so
reduced to and including the date of such reduction. The Agent
agrees promptly to notify the Lenders of any notice of reduction
or termination received by the Agent.
(b) Subject to Section 2.19(b), in the event the
Borrower makes an Extension Election and at least the Required
Lenders but fewer than all the Lenders consent to such Extension
Election, then on the Termination Date (as in effect without
giving effect to such Extension Election), the Commitments shall
be reduced to an amount equal to the aggregate Commitments of the
Lenders that shall have consented to such Extension Election.
(c) The Commitments shall be reduced to zero on the
Termination Date.
2.6 Optional and Mandatory Prepayments. (a) Subject
to Section 2.16, the Borrower may, at any time and from time to
time prepay the Loans, in whole or in part, without premium or
penalty, upon at least three Business Days' irrevocable written
notice to the Agent, specifying the date and amount of prepayment
and whether the prepayment is of Eurodollar Loans, Alternate
Base Rate Loans or a combination thereof, and, if of a
combination thereof, the amount allocable to each. If any such
notice is given, the amount specified in such notice shall be due
and payable on the date specified therein, together with any
amounts payable pursuant to Section 2.16, accrued interest to
such date on the amount prepaid and any outstanding fees and
expenses then due and owing. Partial prepayments and optional
prepayments of the Loans shall be applied to the Loans but shall
not reduce the Commitments unless the Borrower so specifies in
its written notice to the Agent. Partial prepayments shall be in
an aggregate principal amount of $1,000,000 or a whole multiple
of $100,000 in excess thereof.
(b) If at any time
(i) the aggregate outstanding principal amount of
the Loans made by any Lender exceeds such Lender's
Commitment; or
(ii) the outstanding aggregate principal amount of
the Loans made by all Lenders exceeds the Commitments;
then the Borrower, will promptly and, in any event, within one
Business Day, make a mandatory prepayment of the Loans to the
Agent for the benefit of the Lenders in an aggregate amount equal
to such excess.
(c) Each prepayment of the Loans pursuant to this
Section 2.6 shall be accompanied by payment in full of all
accrued interest thereon, to and including the date of such
prepayment, together with any additional amounts owing pursuant
to Section 2.16 and any outstanding fees and expenses due and
owing.
2.7 Conversion and Continuation Options. (a) The
Borrower may elect from time to time to convert Eurodollar Loans
to Alternate Base Rate Loans by giving the Agent prior
irrevocable notice of such election substantially in the form of
Exhibit B-2 (a 'Notice of Conversion') (which notice must be
received by the Agent by at least 10:00 a.m., New York City time,
three Business Days prior to such election); provided that any
such conversion of Eurodollar Loans may be made only on the last
day of an Interest Period with respect thereto. The Borrower may
elect from time to time to convert Alternate Base Rate Loans to
Eurodollar Loans by giving the Agent prior irrevocable notice of
such election (which notice must be received by the Agent by at
least 10:00 a.m., New York City time, three Business Days prior
to such election). Any such Notice of Conversion to Eurodollar
Loans shall specify the length of the initial Interest Period or
Interest Periods therefor. Upon receipt of any such notice, the
Agent shall promptly notify each Lender thereof. All or any part
of the outstanding Eurodollar Loans and Alternate Base Rate Loans
may be converted as provided herein; provided that (i) no Loan
may be converted into a Eurodollar Loan when any Default has
occurred and is continuing and (ii) no Loan may be converted into
a Eurodollar Loan (x) prior to the date that the Borrower
delivers an Acceptable Order to the Agent or (y) after the date
that is one month prior to the Termination Date.
(b) Any Eurodollar Loans may be continued as such upon
the expiration of the then current Interest Period with respect
thereto by the Borrower giving notice to the Agent, in accordance
with the applicable provisions of the term 'Interest Period' set
forth in Section 1.1 of the length of the next Interest Period to
be applicable to such Loans; provided that no Eurodollar Loan may
be continued as such (i) when any Default has occurred and is
continuing or (ii) after the date that is one month prior to the
Termination Date; provided, further, that if the Borrower shall
fail to give any required notice as described above in this
paragraph, or if such continuation is not permitted pursuant to
the preceding proviso, such Loans shall be automatically
converted to Alternate Base Rate Loans on the last day of such
then expiring Interest Period. The Agent agrees to notify the
Lenders of any notice of continuation referred to herein received
by the Agent.
2.8 Maximum Amounts of Tranches. All borrowings,
conversions and continuations of Loans hereunder and all
selections of Interest Periods hereunder shall be in such amounts
and shall be made pursuant to such elections so that, after
giving effect thereto, the aggregate principal amount of the
Loans comprising each Tranche shall be equal to $10,000,000 or a
whole multiple of $1,000,000 in excess thereof. There shall not
be more than ten Tranches at any one time outstanding.
2.9 Interest Rates; Default Rate Payment Dates. (a)
Each Eurodollar Loan shall bear interest for each day during each
Interest Period with respect thereto at a rate per annum equal to
the Eurodollar Rate determined for the first day of such Interest
Period (subject to daily adjustments, if any, required by changes
in the Eurocurrency Reserve Requirements) plus the Applicable
Margin.
(b0 Each Alternate Base Rate Loan shall bear interest
at a rate per annum equal to the Alternate Base Rate plus the
Applicable Margin.
(c0 If an Event of Default has occurred and is
continuing, the Loans shall bear interest at a rate per annum
equal to the rate that would otherwise be applicable thereto
pursuant to the foregoing provisions of this Section plus 2% from
the date of occurrence of such Event of Default until the date
such Event of Default is cured or waived (after as well as before
judgment). In addition, should any interest on such Loans or any
Commitment Fees or other amount (other than principal) payable
hereunder not be paid when due (whether at the stated maturity,
by acceleration or otherwise), such overdue amount shall bear
interest (to the extent permitted by law in the case of interest
on interest) at a rate per annum as determined pursuant to the
preceding sentence, in each case, from the date of such non-
payment until such amount is paid in full (after as well as
before judgment).
(d0 Interest shall be payable in arrears on each
Interest Payment Date; provided that interest accruing pursuant
to Section 2.9(c) shall be payable from time to time on demand.
2.10 Computation of Interest and Fees. (a) Commitment
Fees and the Alternate Base Rate interest shall be calculated on
the basis of a 365/366 day year and the Eurodollar Rate interest
shall be calculated on the basis of a 360-day year for the actual
days elapsed. The Agent shall as soon as practicable notify the
Borrower and the Lenders of each determination of a Eurodollar
Rate. Any change in the interest rate on a Loan resulting from a
change in the Alternate Base Rate, the Eurodollar Reserve
Requirements or the Applicable Margin shall become effective as
of the opening of business on the day on which such change
becomes effective. The Agent shall, as soon as practicable,
notify the Borrower and the Lenders of the effective date and the
amount of each such change in interest rate.
(b0 Each determination of an interest rate by the
Agent pursuant to any provision of this Agreement shall be
conclusive and binding on the Borrower and the Lenders in the
absence of manifest error. The Agent, at the request of the
Borrower, shall deliver to the Borrower a statement showing the
quotations used by the Agent in determining any interest rate
pursuant to Section 2.9(a).
2.11 Inability to Determine Interest Rate. If prior to
the first day of any Interest Period:
(a0 the Agent shall have reasonably determined (which
determination shall be conclusive and binding upon the
Borrower) that, by reason of circumstances affecting the
relevant market, adequate and reasonable means do not exist
for ascertaining the Eurodollar Rate for such Interest
Period, or
(b0 the Agent shall have received notice from the
Required Lenders that the Eurodollar Rate determined or to
be determined for such Interest Period will not adequately
and fairly reflect the cost to such Lenders (as conclusively
certified by such Lenders) of making or maintaining its
affected Loans during such Interest Period,
the Agent shall give telecopy or telephonic notice thereof to the
Borrower and the Lenders as soon as practicable thereafter. If
such notice is given, (x) any Eurodollar Loans requested to be
made on the first day of such Interest Period shall be made as
Alternate Base Rate Loans, (y) any Loans that were to have been
converted on the first day of such Interest Period to Eurodollar
Loans shall be continued as Alternate Base Rate Loans and (z) any
outstanding Eurodollar Loans shall be converted, on the first day
of such Interest Period, to Alternate Base Rate Loans. Until
such notice has been withdrawn by the Agent, no further
Eurodollar Loans shall be made or continued as such, nor shall
the Borrower have the right to convert Base Rate Loans to
Eurodollar Loans.
2.12 Pro Rata Treatment and Payments; Funding Reliance.
(a) Each borrowing by the Borrower of Loans from the Lenders
hereunder, each payment by the Borrower on account of any
Commitment Fee hereunder and any reduction of the Commitments of
the Lenders shall be made pro rata according to the respective
Commitment Percentages of the Lenders. Each payment (including
each prepayment) by the Borrower on account of principal of and
interest on the Loans shall (except as may be required as a
result of Section 2.16) be made pro rata according to the
respective outstanding principal amounts of the Loans then held
by the Lenders. All payments (including prepayments) to be made
by the Borrower hereunder and under the Notes, whether on account
of principal, interest, fees or otherwise, shall be made without
setoff or counterclaim and shall be made prior to 12:00 noon, New
York City time, on the due date thereof to the Agent, for the
account of the Lenders, at the Agent's office specified in
Section 9.2, in Dollars and in immediately available funds. The
Agent shall distribute such payments to the Lenders promptly upon
receipt in like funds as received. If any payment hereunder
(other than payments on the Eurodollar Loans) becomes due and
payable on a day other than a Business Day, such payment shall be
extended to the next succeeding Business Day, and, with respect
to payments of principal and interest thereon, shall be payable
at the then applicable rate during such extension. If any
payment on a Eurodollar Loan becomes due and payable on a day
other than a Business Day, the maturity thereof shall be extended
to the next succeeding Business Day (and, with respect to
payments of principal and interest thereon, shall be payable at
the then applicable rate during such extension) unless the result
of such extension would be to extend such payment into another
calendar month, in which event such payment shall be made on the
immediately preceding Business Day.
(b) Unless the Agent shall have been notified in
writing by any Lender prior to a borrowing that such Lender will
not make available to the Agent the amount that would constitute
its Commitment Percentage of such borrowing, the Agent may assume
that such Lender is making such amount available to the Agent,
and the Agent may, in reliance upon such assumption, make
available to the Borrower a corresponding amount. If such amount
is not made available to the Agent by the required time on the
Borrowing Date therefor, such Lender shall pay to the Agent, on
demand, such amount with interest thereon at a rate equal to the
daily average Federal Funds Rate for the period until such Lender
makes such amount immediately available to the Agent. A
certificate of the Agent submitted to any Lender with respect to
any amounts owing under this Section shall be conclusive in the
absence of manifest error. If such Lender's Commitment
Percentage of such borrowing is not made available to the Agent
by such Lender within three Business Days of such Borrowing Date,
the Agent shall also be entitled to recover such amount with
interest thereon at the rate per annum applicable to the
applicable Loan, on demand, from the Borrower.
2.13 Illegality. Notwithstanding any other provision
herein, if the adoption of or any change in any Requirement of
Law after the date hereof or in the interpretation or application
thereof shall make it unlawful for any Lender to make or maintain
Eurodollar Loans as contemplated by this Agreement, (a) the
Commitment of such Lender hereunder to make Eurodollar Loans,
continue Eurodollar Loans as such and convert Alternate Base Rate
Loans to Eurodollar Loans shall forthwith be suspended until such
condition shall cease to exist and (b) such Lender's Loans then
outstanding as Eurodollar Loans, if any, shall be converted
automatically to Alternate Base Rate Loans on the respective last
days of the then current Interest Periods with respect to such
Loans or within such earlier period as required by law. If any
such conversion of a Eurodollar Loan occurs on a day which is not
the last day of the then current Interest Period with respect
thereto, the Borrower, shall pay to such Lender such amounts, if
any, as may be required pursuant to Section 2.16.
2.14 Requirements of Law. (a) If the adoption of or
any change in any Requirement of Law or in the interpretation or
application thereof or compliance by any Lender with any request
or directive (whether or not having the force of law) from any
central bank or other Governmental Authority made subsequent to
the date hereof:
(i) shall subject any Lender to any tax of any
kind whatsoever with respect to this Agreement, any Note or
any Eurodollar Loan made by it, or change the basis of
taxation of payments to such Lender in respect thereof
(except for Non-Excluded Taxes covered by Section 2.15 and
changes in the rate of tax on the overall net income of such
Lender);
(ii) shall impose, modify or hold applicable any
reserve, special deposit, compulsory loan or similar
requirement against assets held by, deposits or other
liabilities in or for the account of, advances, loans or
other extensions of credit by, or any other acquisition of
funds by, any office of such Lender which is not otherwise
included in the determination of the Eurodollar Rate
hereunder; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to
such Lender, by an amount which such Lender reasonably deems to
be material, of making, converting into, continuing or
maintaining Eurodollar Loans, or to reduce any amount receivable
hereunder in respect thereof, then, in any such case, the
Borrower shall promptly pay such Lender, upon its demand, any
additional amounts necessary to compensate such Lender for such
increased cost or reduced amount receivable. If any Lender
becomes entitled to claim any additional amounts pursuant to this
Section, it shall promptly notify the Borrower through the Agent,
of the event by reason of which it has become so entitled. A
certificate as to any additional amounts payable pursuant to this
Section submitted by such Lender through the Agent to the
Borrower shall be conclusive in the absence of manifest error.
This covenant shall survive the termination of this Agreement and
the payment of the Obligations hereunder.
(b0 If any Lender shall have determined that the
adoption of or any change in any Requirement of Law regarding
capital adequacy or in the interpretation or application thereof
or compliance by such Lender or any corporation controlling such
Lender with any request or directive regarding capital adequacy
(whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof has or shall have
the effect of reducing the rate of return on such Lender's or the
corporation's capital as a consequence of its obligations
hereunder to a level below that which such Lender or such
corporation could have achieved but for such change or compliance
(taking into consideration such Lender's or such corporation's
policies with respect to capital adequacy) by an amount deemed by
such Lender to be material, then from time to time, after
submission by such Lender to the Borrower (with a copy to the
Agent) of a written request therefor, the Borrower shall pay to
such Lender the additional amount or amounts as will compensate
such Lender for such reduction. This covenant shall survive the
termination of this Agreement and the payment of the Obligations
hereunder.
2.15 Taxes. (a) All payments made by the Borrower
under this Agreement and the Notes shall be made free and clear
of, and without deduction or withholding for or on account of,
any present or future income, stamp or other taxes, levies,
imposts, duties, charges, fees, deductions or withholdings, now
or hereafter imposed, levied, collected, withheld or assessed by
any Governmental Authority, excluding net income taxes and
franchise taxes (imposed in lieu of net income taxes) imposed on
the Agent or any Lender as a result of a present or former
connection between the Agent or such Lender and the jurisdiction
of the Governmental Authority imposing such tax or any political
subdivision or taxing authority thereof or therein (other than
any such connection arising solely from the Agent or such Lender
having executed, delivered or performed its obligations or
received a payment under, or enforced, this Agreement or the
Notes). If any such non-excluded taxes, levies, imposts, duties,
charges, fees, deductions or withholdings ('Non-Excluded Taxes')
are required to be withheld from any amounts payable to the Agent
or any Lender hereunder or under the Notes, the amounts so
payable to the Agent or such Lender shall be increased to the
extent necessary to yield to the Agent or such Lender (after
payment of all Non-Excluded Taxes) interest or any such other
amounts payable hereunder at the rates or in the amounts
specified in this Agreement and the Notes; provided that the
Borrower shall not be required to increase any such amounts
payable to any Lender if such Lender fails to comply with the
requirements of paragraph (b) of this Section. Whenever any Non-
Excluded Taxes are payable by the Borrower, as promptly as
possible thereafter, the Borrower shall send to the Agent for its
own account or for the Account of such Lender, as the case may
be, a certified copy of an original official receipt received by
the Borrower showing payment thereof. If the Borrower fails to
pay any Non-Excluded Taxes when due to the appropriate taxing
authority or fails to remit to the Agent the required receipts or
other required documentary evidence, the Borrower shall indemnify
the Agent and the Lenders for any incremental taxes, interest or
penalties that may become payable by the Lenders as a result of
any such failure. The covenants in this Section shall survive
the termination of this Agreement and the payment of the Notes
and payment of the Obligations hereunder.
(b0 Each Lender shall:
(i) deliver to the Borrower and the Agent (A) in
the case of a Lender that is not incorporated under the laws
of the United States or any state thereof, either (x) two
duly completed copies of United States Internal Revenue
Service Form 1001 or 4224, or successor applicable form, as
the case may be, or, (y) if such Lender is not a 'bank'
within the meaning of Section 881(c)(3)(A) of the Code and
intends to claim exemption from U.S. Federal withholding tax
under Section 871(h) or Section 881(c) of the Code with
respect to payments of 'portfolio interest', a Form W-8, or
any subsequent versions thereof or successors thereto
together with a certificate executed by such Lender
representing that (1) such Lender is not a bank for purposes
of Section 881(c) of the Code, is not a 10 percent
shareholder (within the meaning of Section 871(h)(3)(B) of
the Code) of the Borrower and is not a controlled foreign
corporation related to the Borrower (within the meaning of
Section 864(d)(4) of the Code), claiming complete exemption
from U.S. Federal withholding tax on payments of interest by
the Borrower under this Agreement and the other Loan
Documents and (2) that the Lender has received in
replacement of any Note held by or assigned to it, a QFL
Note in accordance with this Section 2.15, and (B) in the
case of any other Lender, an Internal Revenue Service Form W-
8 or W-9, as applicable, or successor applicable form, as
the case may be;
(ii) deliver to the Borrower and the Agent two
further copies of any such form or certification on or
before the date that any such form or certification expires
or becomes obsolete and after the occurrence of any event
requiring a change in the most recent form previously
delivered by it to the Borrower; and
(iii) obtain such extensions of time for filing
and complete such forms or certifications as may reasonably
be requested by the Borrower or the Agent;
unless in any such case an event (including, without limitation,
any change in treaty, law or regulation) has occurred prior to
the date on which any such delivery would otherwise be required
which renders all such forms inapplicable or which would prevent
such Lender from duly completing and delivering any such form
with respect to it and such Lender so advises the Borrower and
the Agent. Such Lender shall certify (i) in the case of a Form
1001 or 4224, that it is entitled to receive payments under this
Agreement without deduction or withholding of any United States
federal income taxes and (ii) in the case of a Form W-8 or W-9,
that it is entitled to an exemption from United States backup
withholding tax. Each Person that shall become a Lender or a
Participant pursuant to Section 9.6 shall, upon the effectiveness
of the related transfer, be required to provide all the forms and
statements required pursuant to this Section; provided that, in
the case of a Participant, such Participant shall furnish all
such required forms and statements to the Lenders from which the
related participation shall have been purchased.
(c0 Any Lender that is not a 'bank' within the meaning
of Section 881(c)(3)(A) of the Code and satisfies the
requirements of Section 2.15(b)(i)(A)(y) (a 'Qualified Foreign
Lender') shall upon receipt of the written request of the Agent
or the Borrower and may, upon its own written request to the
Agent, exchange any Note held by or assigned to it for a
qualified foreign lender Note ( a 'QFL Note'). A QFL Note shall
be in the form of Note, as applicable, but shall contain the
following legend,'This Note is a QFL Note, and as such, ownership
of the obligation represented by such QFL Note may be transferred
only in accordance with Section 2.15 of the Credit Agreement.'
Any QFL Note issued in replacement of any existing Note pursuant
to this Section shall be (i) dated the Closing Date, (ii) issued
in the name of the entity in whose name such existing Note was
issued and (iii) issued in the same principal amount as such
existing Note. Any Note replaced pursuant to this Section is
sometimes referred to herein as a 'Replaced Note'.
(d0 The Borrower agrees that, upon the request of or
delivery of a request to a Qualified Foreign Lender pursuant to
paragraph (c) of this Section, it shall execute and deliver a QFL
Note to the Agent in replacement of the Replaced Note surrendered
in connection with such request conforming to the requirements of
this paragraph. Each Qualified Foreign Lender shall surrender
its Note in connection with any replacement pursuant to this
Section 2.15. Upon receipt by the Agent, in connection with any
replacement, of a QFL Note and the existing Note to be replaced
by such QFL Note in accordance with this paragraph, the Agent
shall forward the QFL Note to the Lender which has surrendered
its Note for replacement by such QFL Note and shall forward the
surrendered Note to the Company marked 'canceled'. Once issued,
QFL Notes (i) shall be deemed to and shall be 'Notes' for all
purposes under the Loan Documents, (ii) may not be exchanged for
Notes which are not QFL Notes, notwithstanding anything to the
contrary in the Loan Documents and (iii) shall at all times
thereafter be QFL Notes, including, without limitation, following
any transfer or assignment thereof.
(e0 Notwithstanding anything to the contrary in the
Loan Documents, the QFL Notes are registered obligations as to
both principal and interest with the Borrower and transfer of the
obligations underlying such QFL Note may be effected only by
surrender of the QFL Note to the Borrower and either reissuance
by the Borrower of such QFL Note to the transferee or issuance by
the Borrower of a new QFL Note to the transferee. A QFL Note
shall only evidence the Lender's or an assignee's right, title
and interest in and to the related obligation, and in no event is
a QFL Note to be considered a bearer instrument or obligation.
This Section 2.15 shall be construed so that the obligations
underlying the QFL Notes are at all times maintained in
'registered form' within the meaning of Sections 871(h)(2) and
881(c)(3) of the Code.
2.16 Indemnity. The Borrower agrees to indemnify each
Lender and to hold each Lender harmless from any loss or expense
which such Lender may sustain or incur as a consequence of (a)
default by the Borrower in payment when due of the principal
amount of or interest on any Eurodollar Loan, (b) default by the
Borrower in making a borrowing of, conversion into or
continuation of Eurodollar Loans after the Borrower has given a
notice requesting the same, (c) default by the Borrower in making
any prepayment after the Borrower has given a notice thereof or
(d) the making of a prepayment or conversion of Eurodollar Loans
on a day which is not the last day of an Interest Period with
respect thereto including, without limitation, in each case, any
such loss or expense arising from the redeployment of funds
obtained by it or from fees payable to terminate the deposits
from which such funds were obtained. This covenant shall survive
the termination of this Agreement and the payment of the
Obligations hereunder.
2.17 Discretion of Lender as to Manner of Funding.
Notwithstanding any other provisions of this Agreement (but
subject to Section 2.18), each Lender shall be entitled to fund
and maintain its funding of all or any part of its Loans in any
manner it sees fit, it being understood that for the purposes of
this Agreement all determinations hereunder shall be made
assuming each Lender had actually funded and maintained each
Eurodollar Loan through the purchase of deposits of Dollars in
the London interbank market having a maturity corresponding to
each Loan's Interest Period and bearing an interest rate equal to
the Eurodollar Rate for such Interest Period.
2.18 Change of Lending Office; Replacement Lender. (a)
Each Lender agrees that if it makes any demand for payment under
Section 2.14 or Section 2.15 or if any adoption or change of the
type described in Section 2.13 shall occur with respect to it,
such Lender will use reasonable efforts (consistent with its
internal policy and legal and regulatory restrictions and so long
as such efforts would not be disadvantageous to it as determined
in its sole discretion) to designate a different lending office
if the making of such a designation would reduce or obviate the
need for the Borrower to make payments under Section 2.14 or
Section 2.15, or would eliminate or reduce the effect of any
adoption or change described in Section 2.13.
(b) In determining the amount of any claim for
reimbursement or compensation hereunder, each Lender will use
reasonable methods of calculation consistent with such methods
customarily employed by such Lender in similar situations.
(c) Each Lender will notify the Borrower either
directly or through the Agent of any event giving rise to a claim
under Sections 2.13, 2.14, 2.15 or 2.16 promptly after the
occurrence thereof, which notice shall be accompanied by a
certificate of such Lender setting forth in reasonable detail the
circumstances of such claim.
(d) If any Lender, other than (in its capacity as a
Lender) the Agent (an 'Affected Lender'), seeks payment or
indemnification from the Borrower pursuant to Section 2.14 or
Section 2.15(a) (without prejudice to any amounts then due to
such Lender under such Sections) that are not applicable to all
Lenders then the Borrower may designate another Lender or another
bank or financial institution acceptable to the Agent to assume,
in accordance with Section 9.6, all (but not less than all) the
Commitments, Loans and other rights and obligations of such
Affected Lender hereunder (a 'Replacement Lender'), in each case,
on a date mutually acceptable to the Replacement Lender, the
Affected Lender, the Borrower and the Agent, without recourse
upon, warranty by, or expense to, such Affected Lender or the
Agent, for a purchase price equal to the outstanding principal
amount of the Loans of such Affected Lender plus all interest
accrued thereon and all other amounts owing to such Affected
Lender hereunder, and, upon such assumption and purchase by the
Replacement Lender, such Replacement Lender shall be deemed a
'Lender' for purposes of this Agreement and the other Loan
Documents and such Affected Lender shall cease to be a 'Lender'
for such purposes and shall no longer have any obligations
hereunder.
2.19 Extension Election. (a) Provided that the
Borrower shall have received all necessary consents and approvals
of all applicable Governmental Authorities, at least 60 but not
more than 90 days prior to the first annual anniversary of the
Closing Date and each such annual anniversary thereafter, the
Borrower, by delivering a written notice to the Agent (which
notice shall be irrevocable), may request that the Commitment
Termination Date and the Termination Date be extended for an
additional one year period. The Agent shall notify each Lender
that the Borrower has made such request promptly upon its receipt
of such notice. Each Lender, within 30 days after receipt of
such notice from the Agent, shall advise the Agent as to whether
it elects to extend its Commitment (such election to be in the
sole and absolute discretion of each Lender). Any Lender that
fails to respond to within such 30-day period shall be deemed to
have elected not to extend its Commitment. Any notice by a
Lender of its willingness to extend its Commitment shall be
revocable (upon written notice to the Agent) until 30 days prior
to such first annual anniversary or subsequent annual
anniversary, as applicable. The Agent shall notify the Borrower
no later than such first annual anniversary or subsequent annual
anniversary, as applicable, of each Lender's decision.
(b) The Borrower's extension request shall be approved
if not fewer than the Required Lenders agree to extend their
Commitments. If at least the Required Lenders but fewer than all
the Lenders shall consent to an Extension Election, the
Commitments shall be reduced to an amount equal to the aggregate
Commitments of the Lenders that shall have consented to such
Extension Notice; provided that the Borrower shall have the right
to accept Commitments from third-party financial institutions
acceptable to the Agent exercising reasonable discretion (each, a
'Replacement Extending Lender') in an aggregate amount up to the
pre-termination Commitments of the Lenders who elect not to
extend (each, a 'Non-Approving Lender') (it being understood that
any Lenders who elect to extend their Commitments (each, an
'Extending Lender') shall have the right to increase their
Commitments up to the aggregate amount of the pre-termination
Commitments of the Non-Approving Lenders before the Borrower
shall be permitted to substitute any Replacement Extending
Lender).
(c) Each Non-Approving Lender shall transfer its Loans
and Commitment (or any portion of such Loans and Commitment
designated by the Borrower) and its other rights and obligations
under this Agreement to an Extending Lender and/or Replacement
Extending Lender without recourse, warranty by, or expense to
such Non-Approving Lender or the Agent for a purchase price equal
to the outstanding principal amount of the Loans of such Non-
Approving Lender plus all accrued interest therein and all other
amounts owing to such Non-Approving Lender at a time mutually
acceptable to each of the Borrower, the Non-Approving Lender,
such Extending Lender and/or Replacement Extending Lender, as
applicable, and, in any event within 30 days after such Extending
Lender agrees to increase its Loans and Commitment or such
Replacement Extending Lender, if any, is approved by the Agent.
Upon transfer of all the Non-Approving Lender's Loans and
Commitment, the Non-Approving Lender shall cease to be deemed a
'Lender' for purposes of this Agreement, the Loans and
Commitments of the Extending Lender shall be deemed to have
increased by the amount of the Loans and Commitments acquired, if
any, and the Replacement Extending Lender, if any, shall be
deemed a Lender for all purposes of the Agreement.
(d) Notwithstanding the foregoing, any request so
approved (an 'Extension Election') shall be effective on the
Termination Date then in effect (without giving effect to such
extension), if and only if on such Termination Date no Default or
Event of Default shall have occurred and be continuing or would
occur as a result of such extension.
2.20 Expansion Facility. At any time prior to the
Termination Date, (a) any Lender may, by notice to the Agent
(which shall promptly deliver a copy to each of the Lenders),
request to increase its Commitment or (b) the Borrower may
propose third-party financial institutions acceptable to the
Agent exercising reasonable discretion (each an 'Additional
Lender') that wish to acquire Commitments (all such increased
Commitments under either clause (a) or clause (b), collectively,
the 'Expansion Commitments'), provided, that both at the time of
any such request or proposal and after giving effect to any Loans
provided to the Borrower under such Expansion Commitments
(collectively, the 'Expansion Loans'), no Default shall exist and
the Borrower shall be in pro forma compliance with each financial
covenant. The Expansion Commitments (i) shall be in an aggregate
principal amount not in excess of $80,000,000, (ii) shall rank
pari passu in right of payment with the Loans, (iii) shall mature
on the Termination Date, (iv) shall otherwise be treated
hereunder no more favorably than the Loans, and (v) shall be
acceptable to the Agent. Such notice shall set forth the
requested amount of Expansion Commitment (which amount shall be
in a minimum amount equal to $10,000,000 or a whole multiple of
$5,000,000 in excess thereof and which amount, together with the
amount of all previous Expansion Commitments, shall not exceed
$80,000,000); provided that in no event shall the aggregate
Commitments together with the aggregate Expansion Commitments
exceed $250,000,000. Expansion Commitments shall become
Commitments under this Agreement pursuant to an amendment (an
'Expansion Facility Amendment') executed by each of the Borrower,
each Lender requesting such Expansion Commitment or Additional
Lender, as applicable, and the Agent. The effectiveness of any
Expansion Facility Amendment shall be subject to the satisfaction
on the date thereof and, if different, on the date on which the
Expansion Loans are made, of each of the conditions set forth in
Section 4.2. Upon the effectiveness of such Amendment, any
Additional Lender shall become a Lender for all purposes under
this Agreement.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES
To induce the Agent and the Lenders to enter into this
Agreement and to make the Loans, the Borrower hereby represents
and warrants to the Agent and each Lender:
3.1 Financial Condition. (a) The consolidated balance
sheets of the Borrower as of December 31, 1996, December 31, 1997
and December 31, 1998 and the related consolidated statements of
income, retained earnings and cash flows for the fiscal year
ended on such date, reported on by Arthur Andersen LLP, copies of
which have heretofore been furnished to the Lenders, present
fairly the consolidated financial condition of the Borrower and
its Consolidated Subsidiaries as at such date, and the results of
their operations and their retained earnings and cash flows for
each of the fiscal years then ended. All such financial
statements, including the related schedules and notes thereto
relating to the audited financials, have been prepared in
accordance with GAAP applied consistently throughout the periods
involved.
(b0 All balance sheets, all statements of income and
shareholders equity and of cash flows and all other financial
information which shall hereafter be furnished by or on behalf of
or the Borrower to the Agent for the purposes of, or in
connection with, this Agreement or any transaction contemplated
hereby have been or will be prepared in accordance with GAAP
consistently applied throughout the periods involved (except as
disclosed therein) and do or will present fairly (subject to
normal year-end adjustment in the case of financial statements
for any fiscal quarter) the financial condition of the Borrower
and its Consolidated Subsidiaries, as the case may be, as at the
dates thereof and the results of their operations and their
shareholders equity and cash flows for the periods then ended.
3.2 No Change. Since December 31, 1998 there has been
no development or event which has had a Material Adverse Effect.
3.3 Corporate Existence; Compliance with Law. Each of
the Borrower and its Subsidiaries (a) is duly organized, validly
existing and in good standing under the laws of the jurisdiction
of its organization, (b) has the corporate power and authority,
and the legal right to own and operate its property, to lease the
property it operates as lessee and to conduct the business in
which it is currently engaged, (c) is duly qualified as a foreign
corporation and in good standing under the laws of each
jurisdiction where its ownership, lease or operation of property
or the conduct of its business requires such qualification except
to the extent that the failure to comply therewith could not, in
the aggregate, reasonably be expected to have a Material Adverse
Effect and (d) is in compliance with all Requirements of Law,
except to the extent that the failure to comply therewith could
not reasonably be expected to have a Material Adverse Effect.
3.4 Corporate Power; Authorization; Enforceable
Obligations. The Borrower has the corporate power and authority,
and the legal right, to make, deliver and perform the Loan
Documents to which it is a party and to authorize the execution,
delivery and performance of the Loan Documents, and to borrow
hereunder. The Borrower has taken all necessary corporate action
to authorize the borrowings on the terms and conditions set forth
in this Agreement and in the Notes. Except as set forth in
Schedule 3.4, no consent or authorization of, filing with, notice
to or other act by or in respect of, any Governmental Authority
or any other Person is required in connection with the borrowings
hereunder or with the execution, delivery, performance, validity
or enforceability of the Loan Documents to which the Borrower is
a party other than any of the foregoing that, if not obtained,
could not reasonably be expected to have a Material Adverse
Effect. On the Closing Date, the Agent and each Lender shall
have received complete and current copies of all consents,
authorizations and filings listed on Schedule 3.4. This
Agreement has been, and each other Loan Document will be, duly
executed and delivered on behalf of the Borrower. This Agreement
constitutes, and each other Loan Document when executed and
delivered will constitute, a legal, valid and binding obligation
of the Borrower enforceable against the Borrower, in accordance
with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
3.5 No Legal Bar. The execution, delivery and
performance of the Loan Documents, the borrowings hereunder and
the use of the proceeds thereof will not violate any Requirement
of Law or Contractual Obligation of the Borrower or any
Subsidiary which violation could reasonably be expected to have a
Material Adverse Effect, will not accelerate or result in the
acceleration of any payment obligations of the Borrower or such
Subsidiary and will not result in, or require, the creation or
imposition of any Lien on any of the respective properties or
revenues of the Borrower or any such Subsidiary pursuant to any
such Requirement of Law or Contractual Obligation.
3.6 No Material Litigation. Except as set forth in
Schedule 3.6, no litigation, investigation or proceeding of or
before any arbitrator or Governmental Authority is pending or, to
the knowledge of the Borrower, threatened by or against the
Borrower or any Subsidiary or against any of the respective
properties or revenues of the Borrower or any Subsidiary (a) with
respect to any of the Loan Documents or any of the transactions
contemplated hereby or thereby, or (b) which could reasonably be
expected to have a Material Adverse Effect.
3.7 No Default. No Default or Event of Default has
occurred and is continuing.
3.8 Ownership of Property; Liens. Except as set forth
in Schedule 3.8, each of the Borrower and its Material
Subsidiaries has good record and marketable title in fee simple
to, or a valid leasehold interest in, all its material real
property, and good title to, or a valid leasehold interest in,
all its other material property. None of such property is
subject to any Lien other than Permitted Liens.
3.9 Intellectual Property. Each of the Borrower and
its Subsidiaries owns, or is licensed to use, all patents,
trademarks, trade names, copyrights, technology, know-how,
processes, logos and insignia necessary for the conduct of its
business as currently conducted except for those which the
failure to own or license could not reasonably be expected to
have a Material Adverse Effect (the 'Intellectual Property'). No
claim has been asserted and is pending by any Person challenging
or questioning the use of any such Intellectual Property or the
validity or effectiveness of any such Intellectual Property which
could reasonably be expected to have a Material Adverse Effect,
nor does the Borrower or any Consolidated Subsidiary know of any
valid basis for any such claim. The use of such Intellectual
Property by the Borrower or any Subsidiary does not infringe on
the rights of any Person, except for such claims and
infringements that, in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
3.10 No Burdensome Restrictions. No Requirement of Law
or Contractual Obligation of the Borrower or any Subsidiary could
reasonably be expected to have a Material Adverse Effect.
3.11 Taxes. Except as set forth in Schedule 3.11, each
of the Borrower and the Subsidiaries has filed or caused to be
filed all federal, state and other material tax returns which are
required to be filed and has paid all taxes shown to be due and
payable on said returns or on any assessments made against it or
any of its property and all other taxes, fees or other charges
imposed on it or any of its property by any Governmental
Authority (other than any tax, fee or other charge the amount or
validity of which is currently being contested in good faith by
appropriate proceedings and with respect to which reserves in
conformity with GAAP have been provided on the books of the
Borrower or such Subsidiary, as the case may be); and no tax Lien
has been filed, and, to the knowledge of the Borrower, no claim
is being asserted, with respect to any such tax, fee or other
charge.
3.12 Margin Stock. (a) The Borrower is not engaged in
the business of extending credit for the purpose of purchasing or
carrying margin stock (within the meaning of Regulation U), and
no proceeds of any Loan will be used to purchase or carry any
margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock, except in compliance
with applicable law and regulations.
(b) Following application of the proceeds of each
Loan, not more than 25% of the value of the consolidated assets
of the Borrower and its Consolidated Subsidiaries that are
subject to the provisions of Section 6.4 will be comprised of
margin stock.
3.13 ERISA. Neither the Borrower nor any Subsidiary
maintains, contributes to or has material obligation with respect
to, any welfare plan (as defined in Section(3)(1) of ERISA) which
provides benefits to employees after termination of employment
other than as required by Part 6 of Title I of ERISA or similar
state laws regarding continuation of benefits. Each Plan has
complied and is in compliance in all respects with the applicable
provisions of ERISA and the Code except where failure to do so
could not reasonably be expected to have a Material Adverse
Effect. The Borrower and each Subsidiary have not breached any
of the responsibilities, obligations or duties imposed on it by
ERISA, the Code, or regulations promulgated thereunder with
respect to any Plan, which breach could reasonably be expected to
have a Material Adverse Effect. Neither the Borrower nor any
Subsidiary nor any fiduciary of any Plan who is an officer or an
employee of the Borrower or any Subsidiary has engaged in a
nonexempt prohibited transaction described in Section 406 of
ERISA or 4975 of the Code with respect to a Plan which could
reasonably be expected to have a Material Adverse Effect. With
respect to any employee benefit plan (as defined in Section 3(3)
of ERISA) currently or formerly maintained or contributed to by
any Commonly Controlled Entity, no liability exists and no event
has occurred which could subject the Borrower or any Subsidiary
to any liability which could reasonably be expected to have a
Material Adverse Effect. Except as disclosed in Schedule 3.13,
none of the Borrower or any Subsidiary has any liability, direct
or indirect, contingent or otherwise, under Section 4201 or 4204
or 4212(c) of ERISA which could reasonably be expected to have a
Material Adverse Effect. Neither the Borrower nor any Subsidiary
has any outstanding liability in respect of (i) a failure to make
a required contribution or payment to a Multiemployer Plan or
(ii) a complete or partial withdrawal under Section 4203 or 4205
of ERISA from such a Plan, which in either case could reasonably
be expected to have a Material Adverse Effect.
3.14 Holding Company; Investment Company Act; Other
Regulations. The Borrower is not (a) a 'holding company', a
'subsidiary company' of a 'holding company', or an 'affiliate' of
a 'holding company', as such terms are defined in the Public
Utility Holding Company Act of 1935, as amended, (b) an
'investment company' or a company 'controlled' by an 'investment
company', within the meaning of the Investment Company Act of
1940, as amended, or (c) except as described on Schedule 3.14,
subject to regulation under any Federal or state statute,
regulation, decree or order which limits its ability to incur
Indebtedness or conditions such ability upon any act, approval or
consent of any Governmental Authority.
3.15 Purpose of Loans. The proceeds of the Loans shall
be used for general corporate purposes, including, without
limitation, (a) to repay existing Indebtedness, (b) to finance
working capital requirements, (c) to finance capital
expenditures, (d) to provide liquidity and credit support for
commercial paper and (e) to finance acquisitions.
3.16 Environmental Matters.
(a0 The facilities and properties owned, leased or
operated by the Borrower and its Subsidiaries (the
'Properties') and all operations at the Properties are in
compliance in all material respects with all applicable
Environmental Laws, and there is no contamination at, under
or about the Properties or violation of any Environmental
Law with respect to the Properties or the business operated
by the Borrower and its Subsidiaries (the 'Business') which
could reasonably be expected to have a Material Adverse
Effect.
(b0 Neither the Borrower nor any Subsidiary has
received any notice of violation, alleged violation, non-
compliance, liability or potential liability regarding
environmental matters or compliance with Environmental Laws
with regard to any of the Properties or the Business, nor do
the Borrower or any Subsidiary have knowledge or reason to
believe that any such notice will be received or is being
threatened, in each case which could reasonably be expected
to have a Material Adverse Effect.
(c0 There has been no release or threat of release of
Materials of Environmental Concern at or from any of the
Properties, or arising from or related to the operations of
the Borrower or any Subsidiary in connection with any of
the Properties or otherwise in connection with the Business,
in violation of or in amounts or in a manner that could
reasonably be expected to have a Material Adverse Effect.
3.17 Insurance. All policies of insurance of any kind
or nature maintained by or issued to the Borrower or any
Subsidiary, including, without limitation, policies of life,
fire, theft, product liability, public liability, property
damage, other casualty, employee fidelity, worker's compensation,
employee health and welfare, title, property and liability
insurance, are in full force and effect in all material respects
and are of a nature and provide such coverage as is sufficient
and as is customarily carried by companies of similar size and
character.
3.18 Accuracy and Completeness of Information. All
information, reports and other papers and data (other than
projections) with respect to the Borrower or any Consolidated
Subsidiary, or, to the knowledge of the Borrower, any Subsidiary
furnished to the Lenders by the Borrower, or on behalf of the
Borrower, and all SEC Reports were, at the time furnished,
complete and correct in all material respects, or have been
subsequently supplemented by other information, reports or other
papers or data, to the extent necessary to give the Lenders a
true and accurate knowledge of the subject matter in all material
respects. All projections with respect to the Borrower or any
Consolidated Subsidiary, or, to the knowledge of the Borrower,
any Subsidiary, furnished by the Borrower, were prepared and
presented in good faith by the Borrower based upon facts and
assumptions that the Borrower believed to be reasonable in light
of current and foreseeable conditions, it being understood that
projections are subject to significant uncertainties and
contingencies, many of which are beyond the control of the
Borrower and that no assurance can be given that the financial
results set forth in such projections will actually be realized.
No document furnished or statement made in writing to the Lenders
by or on behalf of the Borrower in connection with the
negotiation, preparation or execution of this Agreement and no
SEC Report contains any untrue statement of a material fact, or
omits to state any such material fact necessary in order to make
the statements contained therein not misleading, in either case
which has not been corrected, supplemented or remedied by
subsequent documents furnished or statements made in writing to
the Lenders. There is no fact known to the Borrower or any of
its Subsidiaries which has a Material Adverse Effect.
3.19 Leaseholds, Permits, etc. The Borrower possesses
or has the right to use, all leaseholds, easements, franchises
and permits and all authorizations and other rights which are
material to and necessary for the conduct of its business. All
the foregoing are in full force and effect, and each of the
Borrower and the Subsidiaries is in substantial compliance with
the foregoing without any known conflict with the valid rights of
others, except for such noncompliance with the foregoing which
could not reasonably be expected to have a Material Adverse
Effect. No event has occurred which permits, or after notice or
lapse of time or both would permit, the revocation or termination
of any such leasehold, easement, franchise, license or other
right, which termination or revocation, considered as a whole,
could reasonably be expected to have a Material Adverse Effect.
3.20 Year 2000. The Borrower has (a) initiated a
review and assessment of all areas within its business and
operations and the business and operations of its Subsidiaries
(including, in each case, those areas affected by material
service suppliers, key vendors and significant customers) that
could be adversely affected by a Year 2000 Problem, (b) developed
an approach intended to address such Year 2000 Problem on a
timely basis (and in any event prior to December 31, 1999) and
(c) to date, implemented such approach in all material respects
on a timely basis. Based on the foregoing, the Borrower believes
that all computer applications (including those of its material
service suppliers, key vendors and significant customers) that
are material to the business and operations of the Borrower and
its Subsidiaries are reasonably expected on a timely basis to be
able to perform properly date-sensitive functions for all dates
before and after January 1, 2000, except to the extent that a
failure to do so could not reasonably be expected to have a
Material Adverse Effect.
ARTICLE 4. CONDITIONS PRECEDENT
4.1 Conditions to Initial Loans. The agreement of
each Lender to make the Loan requested to be made by it on the
Closing Date is subject to the satisfaction, immediately prior to
or concurrently with the making of such Loan on the Closing Date,
of the following conditions precedent:
(a0 Loan Documents. The Agent shall have received
(i) this Agreement, executed and delivered by a duly
authorized officer of the Borrower, with a counterpart for
each Lender and (ii) for the account of each Lender, one or
more Notes conforming to the requirements hereof and
executed by a duly authorized officer of the Borrower.
(b0 Corporate Proceedings of the Borrower. The Agent
shall have received with a counterpart for each Lender, a
copy of the resolutions, in form and substance satisfactory
to the Agent, of the Board of Directors of the Borrower
authorizing (i) the execution, delivery and performance of
this Agreement, the Notes and the other Loan Documents to
which it is a party and (ii) the borrowings contemplated
hereunder connection therewith, certified by the Secretary
or an Assistant Secretary of the Borrower as of the Closing
Date, which certificate shall state that the resolutions
thereby certified have not been amended, modified, revoked
or rescinded and shall be in form and substance satisfactory
to the Agent. The Agent also shall have received, with a
counterpart for each Lender, a certificate of the Borrower,
dated the Closing Date, as to the incumbency and signature
of the officers of the Borrower executing any Loan Document,
satisfactory in form and substance to the Agent, executed by
the Chief Executive Officer, Treasurer or any Vice President
and the Assistant Treasurer, Secretary or any Assistant
Secretary of the Borrower.
(c0 Corporate Documents. The Agent shall have
received, with a counterpart for each Lender, true and
complete copies of the charter documents of the Borrower,
certified as of the Closing Date as complete and correct
copies thereof by the Secretary or an Assistant Secretary of
the Borrower.
(d0 Consents, Licenses and Approvals. The Agent shall
have received, with a counterpart for each Lender, a
certificate of a Responsible Officer of the Borrower (i)
attaching copies of all consents, authorizations and filings
referred to in Schedule 3.4, and (ii) stating that such
consents, licenses and filings are in full force and effect,
and each such consent, authorization and filing shall be in
form and substance satisfactory to the Agent.
(e0 Closing Fees and Expenses. The Agent previously
shall have received the fees to be received on the Closing
Date referred to in the Fee Letter and shall have received
reimbursement of all costs and expenses (including the fees
and expenses of counsel to the Agent).
(f0 Legal Opinions. The Agent shall have received,
with a counterpart for each Lender, the executed legal
opinions of counsel to the Borrower, which opinions shall be
satisfactory in form and substance to the Agent.
(g0 Closing Certificate. The Agent shall have
received, with a counterpart for each Lender, a closing
certificate of the Borrower, dated as of the Closing Date
satisfactory in form and substance to the Agent.
(h0 Insurance. The Agent shall have received evidence
satisfactory to it of the existence of the insurance
required hereunder.
(i0 Financial Information. The Agent shall have
received, with a copy for each Lender, a copy of each of the
financial statements referred to in Section 3.1 in form and
substance satisfactory to the Agent.
(j0 Compliance Certificate. The Agent shall have
received, with a counterpart for each Lender, a Compliance
Certificate substantially in the form of Exhibit F executed
by a chief financial officer or treasurer of the Borrower,
dated as of the Closing Date and satisfactory in form and
substance to the Agent.
(k0 No Material Adverse Effect. Since December 31,
1998, no Material Adverse Effect shall have occurred to the
Borrower or any Material Subsidiary.
4.2 Conditions to Each Loan. The agreement of each
Lender to make any Loan other than Loans constituting a
conversion, continuation or rollover of a pre-existing Loan
requested to be made by it on any date (including, without
limitation, its initial Loan) is subject to the satisfaction of
the following conditions precedent:
(a) Representations and Warranties. Each of the
representations and warranties made by the Borrower in or
pursuant to the Loan Documents shall be true and correct in
all material respects on and as of such date as if made on
and as of such date (both before and after giving effect to
such Loan).
(b) No Default. No Default or Event of Default shall
have occurred and be continuing on such date or after giving
effect to the Loans requested to be made on such date.
(c) Aggregate Amount. Immediately before and
immediately after giving effect to such Loan,
(i) the aggregate outstanding principal amount of
Loans made by such Lender shall not exceed such
Lender's Commitment; and
(ii) the aggregate outstanding principal amount of
the Loans made by all the Lenders shall not exceed the
Commitment.
(d) Additional Matters. All corporate and other
proceedings, and all documents, instruments and other legal
matters in connection with the transactions contemplated by
this Agreement and the other Loan Documents shall be
reasonably satisfactory in form and substance to the Agent,
and the Agent shall have received such other documents,
instruments and legal opinions in respect of any aspect or
consequence of the transactions contemplated hereby or
thereby as it shall reasonably request.
Each borrowing by the Borrower hereunder shall constitute a
representation and warranty by the Borrower as of the date of
such Loan that the statement in any document delivered by the
Borrower in connection with such borrowing are true and correct
and that the conditions contained in this Section 4.2 have been
satisfied.
ARTICLE 5. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the
Commitment remains in effect, any Note remains outstanding and
unpaid or any Obligation is owing to any Lender or the Agent
hereunder, the Borrower shall:
5.1 Financial Statements. Furnish to each Lender:
(a) as soon as available, but in any event within 90
days after the end of each fiscal year of the Borrower, a
copy of the consolidated balance sheet of the Borrower and
the Consolidated Subsidiaries as at the end of such year and
the related consolidated and consolidating statements of
income, retained earnings and cash flows for such year,
setting forth in each case in comparative form the figures
as of the end of and for the previous year, reported on
without a 'going concern' or like qualification or
exception, or qualification arising out of the scope of the
audit, by Arthur Andersen LLP or other independent certified
public accountants of nationally recognized standing;
provided that the submission of the Borrower's report on
Form 10-K shall satisfy the foregoing requirements;
(b) as soon as available, but in any event not later
than 45 days after the end of each quarterly period for each
of the fiscal quarters of each fiscal year of the Borrower,
the unaudited consolidated balance sheet of the Borrower and
the Consolidated Subsidiaries as at the end of such quarter
and the related unaudited consolidated statements of income,
retained earnings and cash flows of the Borrower and the
Subsidiaries for such quarter and the portion of the fiscal
year through the end of such quarter and setting forth the
actual figures for the corresponding date or period in the
previous year, certified by the chief financial officer or
treasurer of the Borrower as being fairly stated in all
material respects (subject to normal year-end audit
adjustments); provided that the submission of the Borrower's
report on Form 10-Q shall satisfy the foregoing
requirements;
all such financial statements shall be complete and correct in
all material respects and shall be prepared in reasonable detail
and in accordance with GAAP applied consistently throughout the
periods reflected therein and with prior periods (except as
approved by such accountants or officer, as the case may be, and
disclosed therein).
5.2 Certificates; Other Information. Furnish to each Lender:
(a) concurrently with the delivery of the financial
statements referred to in Section 5.1(a), a certificate of
the independent certified public accountants reporting on
such financial statements stating that in making the
examination necessary therefor no knowledge was obtained of
any Default or Event of Default, except as specified in such
certificate;
(b) concurrently with the delivery of the financial
statements referred to in Section 5.1(a), a compliance
certificate substantially in the form of Exhibit F of the
chief financial officer or treasurer of the Borrower (the
'Compliance Certificate'), in form and substance
satisfactory to the Agent, showing compliance by the
Borrower and the Subsidiaries with the covenants contained
in Section 6.1;
(c) promptly after the sending or filing thereof, and
on, any event within 5 Business Days after the filing
thereof, copies of all reports which the Borrower sends to
any of its stockholders, and copies of all registration
statements, reports on Form 10-K, Form 10-Q or Form 8-K (or,
in each case, any successor form) and other material reports
which the Borrower or any Subsidiary files with the SEC or
any successor or analogous Governmental Authority (other
than public offerings of securities under employee benefit
plans or dividend reinvestment plans);
(d) promptly and in event within five days after
either of Moody's or S&P has raised or lowered its credit
rating of any of the Borrower's long-term unsecured
indebtedness for borrowed money a notice to the Agent as to
such effect;
(e) promptly, such additional financial and other
information as the Agent and the Lenders may from time to
time reasonably request.
5.3 Payment of Obligations. Pay, discharge or
otherwise satisfy at or before maturity or before they become
delinquent, as the case may be, all taxes, fees or other charges
imposed on it or on any of its properties by any Governmental
Authority and all its other material obligations of whatever
nature, except, in each case, where the amount or validity
thereof is currently being diligently contested in good faith and
reserves in conformity with GAAP with respect thereto have been
provided on the books of the Borrower or any of its Subsidiaries,
as the case may be.
5.4 Maintenance of Existence. Renew and keep in full
force and effect its corporate existence, take all reasonable
action to maintain all rights, privileges and franchises
necessary or desirable in the normal conduct of its business
except to the extent such failure to maintain could not, in the
aggregate, reasonably be expected to have a Material Adverse
Effect and comply with all Contractual Obligations and
Requirements of Law except to the extent that failure to comply
therewith could not, in the aggregate, be reasonably expected to
have a Material Adverse Effect.
5.5 Maintenance of Property; Insurance. Keep all
property useful and necessary in its business in good working
order and condition (ordinary wear and tear, and casualties,
excepted) maintain with financially sound and reputable insurance
companies insurance on all its property in at least such amounts
and against at least such risks as are usually insured against in
the same general area by companies engaged in the same or a
similar business, and furnish to each Lender, upon request, full
information as to the insurance carried including certified
copies of policies and certificates of insurance from a
recognized insurance broker reasonably acceptable to the Required
Lenders.
5.6 Inspection of Property; Books and Records;
Discussions. Keep proper books of records and account, in which
full, true and correct entries in conformity with GAAP and all
Requirements of Law shall be made of all dealings and
transactions in relation to its business and activities; and
permit after reasonable notice representatives of the Agent to
visit and inspect any of its properties and examine and make
abstracts from any of its books and records at any reasonable
time and as often as may reasonably be desired, and to discuss
the business, operations, properties and financial and other
condition of the Borrower and each Material Subsidiary with
officers and employees of the Borrower and such Material
Subsidiary and with their independent certified public
accountants.
5.7 Notices. Promptly after the Borrower knows and,
in any event, within 5 days after the Borrower knows with respect
to any notice under clause (a) or 10 days with respect to any
other notice under this Section, give notice to the Agent and
each Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any
Contractual Obligation of the Borrower or any Subsidiary, or
(ii) litigation, investigation or proceeding which may exist
at any time between the Borrower or any such Subsidiary and
any Governmental Authority, which in either case, if not
cured or if adversely determined, as the case may be, could
reasonably be expected to have a Material Adverse Effect;
and
(c) any material labor dispute to which the Borrower
or any Subsidiary may become a party and which involves any
group of employees, any strikes or walkouts relating to any
of its plants or facilities and the expiration or
termination of any labor contract to which the Borrower or
such Subsidiary is a party or by which the Borrower or such
Subsidiary is bound and which dispute could reasonably be
expected to materially disrupt the operations of the
Borrower or such Subsidiary.
Each notice pursuant to this Section shall be accompanied by a
statement of a Responsible Officer setting forth details of the
occurrence referred to therein and stating what action the
Borrower proposes to take with respect thereto. For the purposes
of this Section 5.7 the Borrower shall be deemed to have
knowledge when any officer of the Borrower charged with
responsibility for any matter that is the subject of such notice
requirement knows or should have known that such notice was
required.
5.8 Environmental Laws. (a) Comply and cause its
Subsidiaries to comply in all material respects with all
applicable Environmental Laws and obtain and comply and cause its
Subsidiaries to obtain and comply in all material respects with
and maintain and cause its Subsidiaries to maintain any and all
licenses, approvals, notifications, registrations or permits
required by applicable Environmental Laws except to the extent
that failure to do so could not be reasonably expected to have a
Material Adverse Effect.
(b) Conduct and complete all investigations, studies,
sampling and testing, and all remedial, removal and other actions
required under Environmental Laws and promptly comply in all
material respects with all lawful orders and directives of all
Governmental Authorities regarding Environmental Laws except to
the extent that the same are being contested in good faith by
appropriate proceedings and the pendency of such proceedings
could not be reasonably expected to have a Material Adverse
Effect.
(c) Defend, indemnify and hold harmless the Agent and
the Lenders, and their respective parents, subsidiaries,
affiliates, employees, agents, officers and directors, from and
against any claims, demands, penalties, fines, liabilities,
settlements, damages, costs and expenses of whatever kind or
nature known or unknown, contingent or otherwise, arising out of,
or in any way relating to the violation of, noncompliance with or
liability under any Environmental Laws applicable to the
operations of the Borrower, any Subsidiary or the Properties, or
any orders, requirements or demands of Governmental Authorities
related thereto, including, without limitation, reasonable
attorney's and consultant's fees, investigation and laboratory
fees, response costs, court costs and litigation expenses, except
to the extent that any of the foregoing arise out of the gross
negligence or willful misconduct of the party seeking
indemnification therefor. This indemnity shall continue in full
force and effect regardless of the termination of this Agreement.
5.9 ERISA. Establish, maintain and operate and cause
each of its Subsidiaries to establish, maintains and operate all
Plans to comply in all material respects with the applicable
provisions of ERISA, the Code, and all other applicable laws, and
the regulations and interpretations thereunder and the respective
requirements of the governing documents for such Plans except to
the extent that failure to do so could not reasonably be expected
to have a Material Adverse Effect.
5.10 Use of Proceeds. Use the proceeds of each Loan
solely for the purposes set forth in Section 3.15.
5.11 Year 2000. Take all actions reasonably necessary
to ensure that the computers and computer based systems of the
Borrower and its Subsidiaries are able to operate and effectively
process data, including dates, on and after January 1, 2000
except to the extent that failure to do so could not reasonably
be expected to materially adversely affect the ability of the
Borrower and its Subsidiaries to continue their respective
operations in the manner presently conducted without material
disruption. The Borrower shall promptly notify the Agent in the
event the Borrower discovers or determines that any computer
application (including those of its material service suppliers,
key vendors and significant customers) that is material to the
business and operations of the Borrower or any Material
Subsidiary will not be able to perform properly date-sensitive
functions for all dates after January 1, 2000, except to the
extent that such inability could not reasonably be expected to
have a Material Adverse Effect.
5.12 Margin Stock. The aggregate value of margin stock
(as defined in Regulation U) at any time owned or held by the
Borrower or any of its Subsidiaries shall not exceed an amount
equal to 25% of the value of all consolidated assets subject at
such time to any 'arrangement' (as such term is used in the
definition of 'indirectly secured' in Section 221.2 of Regulation
U).
ARTICLE 6. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the
Commitments remain in effect, any Note remains outstanding and
unpaid or any Obligation is owing to any Lender or the Agent
hereunder, the Borrower shall not:
6.1 Financial Covenants.
(a) Minimum Net Worth. Permit Net Worth on the last
day of any fiscal quarter of the Borrower to be less than
$250,000,000; and
(b) Total Capitalization. Permit the ratio of Funded
Debt to Total Capital on the last day of any fiscal quarter
of the Borrower to exceed 58%.
6.2 Limitation on Fundamental Changes. Enter into any
merger, consolidation or amalgamation, or liquidate, wind up or
dissolve itself (or suffer any liquidation or dissolution), or
convey, sell, lease, assign, transfer or otherwise dispose of,
all or substantially all its property, business or assets, except
any Person may be merged or consolidated with or into the
Borrower provided that (a) the Borrower shall be the continuing
or surviving corporation and (b) as of the consummation of, and
after giving effect to, such merger or consolidation, (i) the
Tangible Net Worth of the Borrower shall be greater than the
Tangible Net Worth of the Borrower immediately prior to such
merger or consolidation; and (ii) S&P and Moody's, or any
successor agency providing ratings on the long-term unsecured
debt obligations of the Borrower, shall either (x) have affirmed
their respective ratings on such Indebtedness or (y) not have
placed the Borrower on 'credit watch' as a result of or with
respect to such merger or consolidation.
6.3 Limitation on Transactions with Affiliates.
Except as described on Schedule 6.3, enter into any transaction,
including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any
Affiliate unless such transaction is upon fair and reasonable
terms no less favorable to the Borrower than it would obtain in a
comparable arm's length transaction with a Person which is not an
Affiliate.
6.4 Limitation on Liens. Create, incur, assume or
suffer to exist any Lien upon any of its properties, assets or
revenues, whether now owned or hereafter acquired, except for
Permitted Liens. In the event that any assets of the Borrower
that are subject to any 'arrangement' (as such term is used in
the definition of 'indirectly secured' in Section 221.2 of
Regulation U) hereunder constitute 'margin stock' ( as defined in
Regulation U), such arrangement shall not apply to such margin
stock to the extent that the value of such margin stock exceeds
25% of the value of all assets subject to such arrangement.
ARTICLE 7. EVENTS OF DEFAULT
7.1 Events of Default. If any of the following events
shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of
any Note when due in accordance with the terms thereof or
hereof; or the Borrower shall fail to pay any interest on
any Note, or any other amount payable hereunder, within
three days after any such interest or other amount becomes
due in accordance with the terms thereof or hereof; or
(b) Any representation or warranty made or deemed made
by the Borrower herein or in any other Loan Document or
which is contained in any certificate, document or financial
or other statement furnished by it at any time under or in
connection with this Agreement or any such other Loan
Document shall prove to have been incorrect in any material
respect on or as of the date made or deemed made; or
(c) The Borrower shall default in the observance or
performance of any agreement contained in Article 6 or
Section 5.7; or
(d) The Borrower shall default in the observance or
performance of any other agreement contained in this
Agreement or any other Loan Document, and such default shall
continue unremedied for a period of 30 days; or
(e) The Borrower or any Material Subsidiary shall
(i) default in any payment (regardless of amount) of
principal of or interest on any Indebtedness having an
aggregate principal amount in excess of $25,000,000 (other
than the Notes) beyond the period of grace (not to exceed 30
days), if any, provided in the instrument or agreement under
which such Indebtedness or (ii) default in the observance or
performance of any other agreement or condition relating to
any such Indebtedness or contained in any instrument or
agreement evidencing, securing or relating thereto, or any
other event shall occur or condition exist, the effect of
which default or other event or condition is to cause, or to
permit the holder or holders of such Indebtedness (or a
trustee or agent on behalf of such holder or holders or
beneficiary or beneficiaries) to cause, with the giving of
notice, if required, such Indebtedness to become due prior
to its stated maturity; provided that (x) solely with
respect to the Indebtedness of any Material Subsidiary, no
Event of Default shall be deemed to have occurred if, prior
to the Agent receiving a direction from the Super Majority
Lenders to take any action permitted under this Section 7.1,
such default shall have been cured or waived; and (y) any
such default by the Borrower or any Material Subsidiary
under Non-Recourse Debt will not constitute an Event of
Default unless such default also constitutes a default under
other recourse Indebtedness of the Borrower or such
Subsidiary in an aggregate outstanding principal amount of
$25,000,000 or more; or
(f) (i) The Borrower or any Material Subsidiary shall
commence any case, proceeding or other action (A) under any
existing or future law of any jurisdiction, domestic or
foreign, relating to bankruptcy, insolvency, reorganization
or relief of debtors, seeking to have an order for relief
entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it
or its debts, or (B) seeking appointment of a receiver,
trustee, custodian, conservator or other similar official
for it or for all or any substantial part of its assets, or
the Borrower or any such Subsidiary shall make a general
assignment for the benefit of its creditors; or (ii) there
shall be commenced against the Borrower or any such
Subsidiary any case, proceeding or other action of a nature
referred to in clause (i) above which (A) results in the
entry of an order for relief or any such adjudication or
appointment or (B) remains undismissed, undischarged or
unbonded for a period of 60 days; or (iii) there shall be
commenced against the Borrower or any such Subsidiary any
case, proceeding or other action seeking issuance of a
warrant of attachment, execution, distraint or similar
process against all or any substantial part of its assets
which results in the entry of an order for any such relief
which shall not have been vacated, discharged, or stayed or
bonded pending appeal within 60 days from the entry thereof;
or (iv) the Borrower or any such Subsidiary shall take any
action in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the acts set forth
in clause (i), (ii), or (iii) above; or (v) the Borrower or
any such Subsidiary shall generally not, or shall be unable
to, or shall admit in writing its inability to, pay its
debts as they become due; or
(g) (i) Any Person shall engage in any 'prohibited
transaction' (as defined in Section 406 of ERISA or Section
4975 of the Code) involving any Plan, (ii) any 'accumulated
funding deficiency' (as defined in Section 302 of ERISA),
whether or not waived, shall exist with respect to any
Single Employer Plan or any Lien in favor of the PBGC or a
Plan shall arise on the assets of the Borrower, any
Subsidiary or any Commonly Controlled Entity, (iii) a
Reportable Event shall occur with respect to, or proceedings
shall commence to have a trustee appointed, or a trustee
shall be appointed, to administer or to terminate, any
Single Employer Plan, which Reportable Event or commencement
of proceedings or appointment of a trustee is, in the
reasonable opinion of the Required Lenders, likely to result
in the termination of such Plan for purposes of Title IV of
ERISA, (iv) any Single Employer Plan shall terminate for
purposes of Title IV of ERISA, (v) the Borrower or any
Commonly Controlled Entity shall, or in the reasonable
opinion of the Required Lenders is likely to, incur any
liability in connection with a withdrawal from, or the
Insolvency or Reorganization of, a Multiemployer Plan or
(vi) any other event or condition shall occur or exist with
respect to a Plan; and in each case in clauses (i) through
(vi) above, such event or condition, together with all other
such events or conditions, if any, could reasonably be
expected to have a Material Adverse Effect; or
(h) One or more judgments or decrees shall be entered
against the Borrower or any Subsidiary involving in the
aggregate a liability (to the extent not covered by third-
party insurance as to which the insurer has acknowledged
coverage) of $25,000,000 or more and all such judgments or
decrees shall not have been vacated, discharged, stayed or
bonded pending appeal within 30 days from the entry thereof;
or
(i) A Change of Control shall occur;
then, and in any such event, (A) if such event is an Event of
Default specified in clause (i) or (ii) of paragraph (f) above
with respect to the Borrower, automatically the Commitment shall
immediately terminate and the Loans hereunder (with accrued
interest thereon) and all other amounts owing under this
Agreement and the Notes shall immediately become due and payable,
and (B) if such event is any other Event of Default, either or
both of the following actions may be taken: (i) with the consent
of the Required Lenders, the Agent may, by notice to the
Borrower, declare the Commitment to be terminated forthwith,
whereupon the Commitment shall immediately terminate; and (ii)
with the consent of the Required Lenders, the Agent may, or upon
the request of the Required Lenders the Agent shall, by notice to
the Borrower, declare the Loans hereunder (with accrued interest
thereon) and all other amounts owing under this Agreement and the
Notes to be due and payable forthwith, whereupon the same shall
immediately become due and payable. Except as expressly provided
above in this Section, presentment, demand, protest and all other
notices of any kind are hereby expressly waived.
ARTICLE 8. THE AGENT
8.1 Appointment. Each Lender hereby irrevocably
designates and appoints Canadian Imperial Bank of Commerce as
Agent of such Lender under this Agreement and the other Loan
Documents. Each such Lender irrevocably authorizes Canadian
Imperial Bank of Commerce, as the Agent for such Lender, to take
such action on its behalf under the provisions of this Agreement
and the other Loan Documents and to exercise such powers and
perform such duties as are expressly delegated to the Agent by
the terms of this Agreement and the other Loan Documents,
together with such other powers as are reasonably incidental
thereto. Notwithstanding any provision to the contrary elsewhere
in this Agreement, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any
fiduciary relationship with any Lender, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities
shall be read into this Agreement or any other Loan Document or
otherwise exist against the Agent.
8.2 Delegation of Duties. The Agent may execute any
of its duties under this Agreement and the other Loan Documents
by or through agents or attorneys-in-fact and shall be entitled
to advice of counsel concerning all matters pertaining to such
duties. The Agent shall not be responsible for the negligence or
misconduct of any agents or attorneys-in-fact selected by it with
reasonable care.
8.3 Exculpatory Provisions. Neither the Agent nor any
of its officers, directors, employees, agents, attorneys-in-fact
or Affiliates shall be (i) liable for any action lawfully taken
or omitted to be taken by it or such Person under or in
connection with this Agreement or any other Loan Document (except
for its own gross negligence or willful misconduct) or (ii)
responsible in any manner to any of the Lenders for any recitals,
statements, representations or warranties made by the Borrower or
any officer or any of them contained in this Agreement or any
other Loan Document or in any certificate, report, statement or
other document referred to or provided for in, or received by the
Agent under or in connection with, this Agreement or any other
Loan Document or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or
the Notes or any other Loan Document or for any failure of the
Borrower to perform its obligations hereunder or thereunder. The
Agent shall not be under any obligation to any Lender to
ascertain or to inquire as to the observance or performance of
any of the agreements contained in, or conditions of, this
Agreement or any other Loan Document, or to inspect the
properties, books or records of the Borrower or any Subsidiary.
8.4 Reliance by Agent. The Agent shall be entitled to
rely, and shall be fully protected in relying, upon any Note,
writing, resolution, notice, consent, certificate, affidavit,
letter, telecopy, telex or teletype message, statement, order or
other document or conversation believed by it to be genuine and
correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel
(including, without limitation, counsel to the Borrower),
independent accountants and other experts selected by the Agent.
The Agent may deem and treat the payee of any Note as the owner
thereof for all purposes unless a written notice of assignment,
negotiation or transfer thereof shall have been filed with the
Agent. The Agent shall be fully justified in failing or refusing
to take any action under this Agreement or any other Loan
Document unless it shall first receive such advice or concurrence
of the Required Lenders as it deems appropriate or it shall first
be indemnified to its satisfaction by the Lenders against any and
all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Agent shall
in all cases be fully protected in acting, or in refraining from
acting, under this Agreement and the Notes and the other Loan
Documents in accordance with a request of the Required Lenders,
and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Lenders and all future
holders of the Notes.
8.5 Notice of Default. The Agent shall not be deemed
to have knowledge or notice of the occurrence of any Default or
Event of Default unless the Agent has received notice from a
Lender or the Borrower referring to this Agreement, describing
such Default or Event of Default and stating that such notice is
a 'notice of default'. In the event that the Agent receives such
a notice, the Agent shall give notice thereof to the Lenders.
The Agent shall take such action with respect to such Default or
Event of Default as shall be reasonably directed by the Required
Lenders; provided that unless and until the Agent shall have
received such directions, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such
action, with respect to such Default or Event of Default as it
shall deem advisable in the best interests of the Lenders.
8.6 Non-Reliance on Agent and Other Lenders. Each
Lender expressly acknowledges that neither the Agent nor any of
its officers, directors, employees, agents, attorneys-in-fact or
Affiliates has made any representations or warranties to it and
that no act by the Agent hereafter taken, including any review of
the affairs of the Borrower, shall be deemed to constitute any
representation or warranty by the Agent to any Lender. Each
Lender represents to the Agent that it has, independently and
without reliance upon the Agent or any other Lender, and based on
such documents and information as it has deemed appropriate, made
its own appraisal of and investigation into the business,
operations, property, financial and other condition and
creditworthiness of the Borrower and made its own decision to
make its Loans hereunder and enter into this Agreement. Each
Lender also represents that it will, independently and without
reliance upon the Agent or any other Lender, and based on such
documents and information as it shall deem appropriate at the
time, continue to make its own credit analysis, appraisals and
decisions in taking or not taking action under this Agreement and
the other Loan Documents, and to make such investigation as it
deems necessary to inform itself as to the business, operations,
property, financial and other condition and creditworthiness of
the Borrower. Except for notices, reports and other documents
expressly required to be furnished to the Lenders by the Agent
hereunder or furnished to the Agent for the account of, or with a
counterpart or copy for, each Lender, the Agent shall not have
any duty or responsibility to provide any Lender with any credit
or other information concerning the business, operations,
property, condition (financial or otherwise), prospects or
creditworthiness of the Borrower which may come into the
possession of the Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates.
8.7 Indemnification. The Lenders agree to indemnify
the Agent in its capacity as such (to the extent not reimbursed
by the Borrower and without limiting the joint and several
obligation of the Borrower to do so), ratably according to their
respective Commitment Percentages in effect on the date on which
indemnification is sought under this Section (or, if
indemnification is sought after the date upon which the
Commitments shall have terminated and the Loans shall have been
paid in full, ratably in accordance with their Commitment
Percentages immediately prior to such date), from and against any
and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of
any kind whatsoever which may at any time (including, without
limitation, at any time following the payment of the Notes) be
imposed on, incurred by or asserted against the Agent in any way
relating to or arising out of this Agreement, any of the other
Loan Documents or any documents contemplated by or referred to
herein or therein or the transactions contemplated hereby or
thereby or any action taken or omitted by the Agent under or in
connection with any of the foregoing; provided that no Lender
shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting
solely from the Agent's gross negligence or willful misconduct.
The agreements in this Section shall survive the payment of the
Obligations hereunder.
8.8 Agent in Its Individual Capacity. The Agent and
its Affiliates may make loans to, accept deposits from and
generally engage in any kind of business with the Borrower and
any Subsidiary as though the Agent were not an Agent hereunder
and under the other Loan Documents. With respect to Loans made
or renewed by it and any Note issued to it, the Agent shall have
the same rights and powers under this Agreement and the other
Loan Documents as any Lender and may exercise the same as though
it were not the Agent, and the terms 'Lender' and 'Lenders' shall
include the Agent in its individual capacity.
8.9 Successor Agent. The Agent may resign as Agent
upon ten days' notice to the Lenders and the Borrower. If the
Agent shall resign or be terminated, as the case may be, as Agent
under this Agreement and the other Loan Documents, then the
Required Lenders shall, with the consent of the Borrower (which
consent shall not be unreasonably withheld and shall not be
required if an Event of Default shall have occurred that is
continuing) appoint a successor agent, whereupon such successor
agent shall succeed to the rights, powers and duties of the
Agent, and the term 'Agent' shall mean such successor agent
effective upon such appointment and approval, and the former
Agent's rights, powers and duties as Agent shall be terminated,
without any other or further act or deed on the part of such
former Agent or any of the parties to this Agreement or any
holders of the Notes. After any retiring or terminated Agent's
resignation or termination, as the case may be, as Agent, the
provisions of this Section shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent
under this Agreement and the other Loan Documents.
ARTICLE 9. MISCELLANEOUS
9.1 Amendments and Waivers. Neither this Agreement,
any Note or any other Loan Document, nor any terms hereof or
thereof may be amended, supplemented or modified except in
accordance with the provisions of this Section. The Required
Lenders may, or, with the written consent of the Required
Lenders, the Agent may, from time to time, (a) enter into with
the Borrower written amendments, supplements or modifications
hereto for the purpose of adding any provisions to this Agreement
or changing in any manner the rights of the Lenders or of the
Borrower hereunder; (b) enter into with the Borrower written
amendments, supplements or modifications to the Note and the
other Loan Documents for the purpose of adding provisions to the
Notes or such other Loan Documents or changing in any manner the
rights of the Lenders or the Borrower thereunder or (c) waive, on
such terms and conditions as the Required Lenders or the Agent,
as the case may be, may specify in such instrument, any of the
requirements of this Agreement, the Notes or the other Loan
Documents or any Default or Event of Default and its
consequences; provided that no such waiver and no such amendment,
supplement or modification (i) shall reduce the amount or extend
the scheduled date of maturity of any Note or of any installment
thereof, or reduce the stated rate of any interest or fee payable
hereunder or extend the scheduled date of any payment thereof or
increase the amount or extend the expiration date of any Lender's
Commitments, in each case, without the consent of all the
Lenders, or (ii) shall amend, modify or waive any provision of
this Section, or vary any provision of this Agreement or any
other Loan Document which specifically by its terms requires the
approval or consent of all the Lenders or reduce the percentage
specified in the definition of Required Lenders, or consent to
the assignment or transfer by the Borrower of any of its rights
and obligations under this Agreement, the Notes and the other
Loan Documents, in each case, without the written consent of all
the Lenders, or (iii) shall amend, modify or waive any provision
of Article 8 without the written consent of the then Agent. Any
such waiver and any such amendment, supplement or modification
shall apply equally to each of the Lenders and shall be binding
upon the Borrower, the Lenders, the Agent and all future holders
of the Notes. In the case of any waiver, the Borrower, the
Lenders and the Agent shall be restored to their former position
and rights hereunder and under the outstanding Notes and any
other Loan Documents, and any Default or Event of Default waived
shall be deemed to be cured and not continuing, but no such
waiver shall extend to any subsequent or other Default or Event
of Default or impair any right consequent thereon.
9.2 Notices. All notices, requests and demands to or
upon the respective parties hereto to be effective shall be in
writing (including by telecopy), and, unless otherwise expressly
provided herein, shall be deemed to have been duly given or made
when delivered by hand, or, in the case of notice by mail, when
received, or, in the case of telecopy notice, when received,
addressed as follows or to such other address as may be hereafter
notified by the respective parties hereto and any future holders
of the Notes:
The Borrower: Northwestern Corporation
125 S. Dakota Avenue, Suite 1100
Sioux Falls, South Dakota 57104
Attention: David A. Monaghan, Controller and Treasurer
With a Copy to:Northwestern Corporation
125 S. Dakota Avenue, Suite 1100
Sioux Falls, South Dakota 57104
Attention: Eric R. Jacobsen, Vice President
and General Counsel
The Agent: CIBC Inc.
425 Lexington Avenue
New York, NY 10017
Attention: John Burke
provided that any notice, request or demand to or upon the Agent
or the Lenders pursuant to Section 2.3, Section 2.5, Section 2.8,
Section 2.9, Section 2.10 or Section 2.15 shall not be effective
until received.
9.3 No Waiver; Cumulative Remedies. No failure to
exercise and no delay in exercising, on the part of the Agent or
any Lender, any right, remedy, power or privilege hereunder or
under the other Loan Documents shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights, remedies, powers and privileges
herein provided are cumulative and not exclusive of any rights,
remedies, powers and privileges provided by law.
9.4 Survival of Representations and Warranties. All
representations and warranties made hereunder, in the other Loan
Documents and in any document, certificate or statement delivered
pursuant hereto or in connection herewith shall survive the
execution and delivery of this Agreement and the Notes and the
making of the Loans hereunder.
9.5 Payment of Expenses and Taxes; Indemnification.
The Borrower agrees (a) to pay or reimburse the Agent for all its
reasonable out-of-pocket costs and expenses incurred in
connection with the development, preparation and execution of,
and any amendment, supplement or modification to, this Agreement,
the Notes and the other Loan Documents and any other documents
prepared in connection herewith or therewith, and the
consummation and administration of the transactions contemplated
hereby and thereby, including, without limitation, the reasonable
fees and disbursements of counsel to the Agent, (b) to pay or
reimburse the Agent and each Lender for all its costs and
expenses incurred in connection with the enforcement or
preservation of any rights under this Agreement, the Notes, the
other Loan Documents and any such other documents, including,
without limitation, the fees and disbursements of counsel to the
Agent and each Lender, and (c) to pay, and indemnify and hold
harmless the Agent and each Lender from, any and all recording
and filing fees and any and all liabilities with respect to, or
resulting from any delay in paying, stamp, excise and other
taxes, if any, which may be payable or determined to be payable
in connection with the execution and delivery of, or consummation
or administration of any of the transactions contemplated by, or
any amendment, supplement or modification of, or any waiver or
consent under or in respect of, this Agreement, the Notes, the
other Loan Documents and any such other documents, and (d) to
pay, and indemnify and hold harmless the Agent and each Lender
(including each of their respective parents, subsidiaries,
officers, directors, employees, agent and affiliates) from and
against, any and all other claims, demands, liabilities,
obligations, losses, damages, penalties, actions, judgments,
suits, costs, settlements, expenses or disbursements of whatever
kind or nature arising from, in connection with or with respect
to the execution, delivery, enforcement, performance and
administration of this Agreement, the Notes, the other Loan
Documents, or any other documents or the use of the proceeds of
the Loans or any other purpose (all the foregoing in this clause
(d), collectively, the 'indemnified liabilities'); provided that
the Borrower shall not have any obligation hereunder to the
Lenders with respect to indemnified liabilities arising from the
gross negligence or willful misconduct of the Agent or such
Lender. The agreements in this Section 9.5 shall survive
repayment of the Obligations hereunder.
9.6 Successors and Assigns; Participations and
Assignments. (a) This Agreement shall be binding upon and inure
to the benefit of the Borrower, the Lenders, the Agent, all
future holders of the Notes and their respective successors and
assigns, except that the Borrower may not assign or transfer any
of its rights or obligations under this Agreement without the
prior written consent of each Lender.
(b) Any Lender may, in the ordinary course of its
commercial banking business and in accordance with applicable
law, at any time sell to one or more banks or other entities
('Participants') participating interests in any Loan owing to
such Lender, any Note held by such Lender, any Commitment of such
Lender or any other interest hereunder and under the other Loan
Documents. In the event of any such sale by a Lender of a
participating interest to a Participant, such Lender's
obligations under this Agreement to the other parties to this
Agreement shall remain unchanged, such Lender shall remain solely
responsible for the performance thereof, such Lender shall remain
the holder of any such Note for all purposes under this Agreement
and the other Loan Documents, and the Borrower and the Agent
shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this
Agreement and the other Loan Documents. The Borrower agrees that
if amounts outstanding under this Agreement and the Notes are due
or unpaid, or shall have been declared or shall have become due
and payable upon the occurrence of an Event of Default, each
Participant shall be deemed to have the right of setoff in
respect of its participating interest in amounts owing under this
Agreement and any Note to the same extent as if the amount of its
participating interest were owing directly to it as a Lender
under this Agreement or any Note; provided that, in purchasing
such participating interest, such Participant shall be deemed to
have agreed to share with the Lenders the proceeds thereof as
provided in Section 9.7(a) as fully as if it were a Lender
hereunder. The Borrower also agrees that each Participant shall
be entitled to the benefits of Section 2.14, Section 2.15 and
Section 2.16 with respect to its participation in the Commitments
and the Loans outstanding from time to time as if it were a
Lender; provided that, in the case of Section 2.15, such
Participant shall have complied with the requirements of said
Section and provided, further, that no Participant shall be
entitled to receive any greater amount pursuant to any such
Section than the transferor Lender would have been entitled to
receive in respect of the amount of the participation transferred
by such transferor Lender to such Participant had no such
transfer occurred.
(c) Any Lender, in the ordinary course of its
commercial banking business and in accordance with applicable
law, at any time and from time to time may assign to any Lender
or any affiliate thereof with the consent of the Agent, or, with
the consent of the Borrower (so long as no Event of Default shall
have occurred which is continuing) and the Agent (which consent,
in the case of either the Borrower or the Agent, shall not be
unreasonably withheld), to an additional bank or financial
institution (an 'Assignee') all or any part of its rights and
obligations under this Agreement and the Notes pursuant to a
'Commitment Transfer Supplement', substantially in the form of
Exhibit D, executed by such Assignee, such assigning Lender and,
in the case of an Assignee that is not then a Lender or an
affiliate thereof, by the Borrower and the Agent and delivered to
the Agent for its acceptance and recording in the Register;
provided that (i) any such assignment must be in a minimum amount
equal to the lesser of (x) $5,000,000 and (y) the aggregate
Commitment and outstanding Loans of such Lender then in effect,
and (ii) after giving effect to any such assignment, such Lender
shall have either (x) sold all its rights and obligations
hereunder and under the Notes or (y) retained at least $5,000,000
of the aggregate Commitment. Upon such execution, delivery,
acceptance and recording, from and after the effective date
determined pursuant to such Commitment Transfer Supplement, (1)
the Assignee thereunder shall be a party hereto and, to the
extent provided in such Commitment Transfer Supplement, have the
rights and obligations of a Lender hereunder with a Commitment as
set forth therein and (2) the assigning Lender thereunder, to the
extent provided in such Commitment Transfer Supplement, shall be
released from its obligations under this Agreement (and, in the
case of a Commitment Transfer Supplement covering all or the
remaining portion of an assigning Lender's rights and obligations
under this Agreement, such assigning Lender shall cease to be a
party hereto; provided that the provisions of Section 2.14,
Section 2.15, Section 2.16 and Section 9.5 shall continue to
benefit such assigning Lender to the extent required by such
Sections).
(d) The Agent shall maintain, at its address referred
to in Section 9.2, a copy of each Commitment Transfer Supplement
delivered to it and a register (the 'Register') for the
recordation of the names and addresses of any Assignees and the
Commitment of, and principal amount of the Loans owing to, any
Assignees from time to time. The entries in the Register shall
be conclusive, in the absence of manifest error, and the Borrower
and the Agent may treat each Person whose name is recorded in the
Register as the owner of the Loan recorded therein for all
purposes of this Agreement. The Register shall be available for
inspection by the Borrower at any reasonable time and from time
to time upon reasonable prior notice.
(e) Upon its receipt of a Commitment Transfer
Supplement executed by the assigning Lender, an Assignee (and, in
the case of an Assignee that is not then a Lender or an affiliate
thereof, by the Borrower and the Agent) and the Borrower together
with payment by the assigning Lender or by the Assignee to the
Agent of a registration and processing fee of $3,500, the Agent
shall promptly accept such Commitment Transfer Supplement and, on
the effective date determined pursuant thereto, shall record the
information contained therein in the Register and give notice of
such acceptance and recordation to the Borrower. On or prior to
such effective date, the Borrower, at its own expense, shall
execute and deliver to the Agent (in exchange for the Note of the
assigning Lender) a new Note to the order of such Assignee in an
amount equal to the Commitment, assumed by such Assignee pursuant
to such Commitment Transfer Supplement and, if the assigning
Lender has retained a Commitment, a new Note to the order of the
assigning Lender in an amount equal to the Commitment retained by
it hereunder. Such new Notes shall be dated the Closing Date and
shall otherwise be in the form of the Notes replaced thereby.
(f) The Borrower authorizes the Lenders to disclose to
any Participant or Assignee (each, a 'Transferee') and any
prospective Transferee, any and all financial information in the
Lenders' possession concerning the Borrower and its respective
Affiliates which has been delivered to the Agent or the Lenders
by or on behalf of the Borrower pursuant to this Agreement or
which has been delivered to the Agent or the Lenders by or on
behalf of the Borrower in connection with the Lender's credit
evaluation of the Borrower and its respective Affiliates prior to
becoming a party to this Agreement; provided that each such
Transferee and prospective Transferee agrees in writing to be
bound by the provisions of Section 9.8.
(g) Nothing herein shall prohibit any Lender from
pledging or assigning any Note to any Federal Reserve Bank in
accordance with applicable law.
9.7 Adjustments; Setoff. (a) If any Lender (a
'Benefitted Lender') shall at any time receive any payment of all
or part of its Loans, or interest thereon, or receive any
collateral in respect thereof (whether voluntarily or
involuntarily, by setoff, pursuant to events or proceedings of
the nature referred to in Section 7.1(f), or otherwise), in a
greater proportion than any such payment to or collateral
received by any other Lender, if any, in respect of such other
Lender's Loans, or interest thereon, such benefitted Lender shall
purchase for cash from the other Lenders a participating interest
in such portion of each such other Lender's Loans, or shall
provide such other Lenders with the benefits of any such
collateral, or the proceeds thereof, as shall be necessary to
cause such benefitted Lender to share the excess payment or
benefits of such collateral or proceeds ratably with each of the
Lenders; provided that if all or any portion of such excess
payment or benefits is thereafter recovered from such benefitted
Lender, such purchase shall be rescinded, and the purchase price
and benefits returned, to the extent of such recovery, but
without interest.
(b) In addition to any rights and remedies of the
Lenders provided by law, each Lender shall have the right,
(without prior notice to the Borrower any such notice being
expressly waived by the Borrower to the extent permitted by
applicable law), upon any amount becoming due and payable by the
Borrower hereunder or under the Notes (whether at the stated
maturity, by acceleration or otherwise) to setoff and appropriate
and apply against such amount any and all deposits (general or
special, time or demand, provisional or final), in any currency,
and any other credits, indebtedness or claims, in any currency,
in each case whether direct or indirect, absolute or contingent,
matured or unmatured, at any time held or owing by such Lender or
any branch or agency thereof to or for the credit or the account
of the Borrower. Each Lender agrees promptly to notify the
Borrower and the Agent after any such setoff and application made
by such Lender; provided that the failure to give such notice
shall not affect the validity of such setoff and application.
9.8 Confidentiality. Each Lender agrees to exercise
all reasonable efforts (consistent with its customary methods for
keeping information confidential) to keep any information
delivered or made available by the Borrower confidential from
anyone other than persons employed or retained by such Lender who
are or are expected to become engaged in evaluating, approving,
structuring or administering the Loans; provided that nothing
herein shall prevent any Lender from disclosing such information
(a) to any Affiliate of such Lender or to any other Lender, (b)
upon the order of any court or administrative agency, (c) upon
the request or demand of any regulatory agency or authority
having jurisdiction over such Lender, (d) that has been publicly
disclosed, (e) in connection with any litigation relating to the
Loans, this Agreement or any transaction contemplated hereby to
which any Lender or the Agent may be a party, (f) to the extent
reasonably required in connection with the exercise of any remedy
hereunder, (g) to such Lender's legal counsel and independent
auditors, and (h) to any actual or proposed participant or
assignee of all or any part of its Loans hereunder, if such other
Person, prior to such disclosure, agrees, in writing, for the
benefit of the Borrower to comply with the provisions of this
Section 9.8.
9.9 Effectiveness. This Agreement shall become
effective on the date when counterparts hereof executed on behalf
of the Borrower, the Agent and each Lender shall have been
received by the Agent and notice thereof shall have been given by
the Agent to the Borrower.
9.10 Counterparts. This Agreement may be executed by
one or more of the parties to this Agreement on any number of
separate counterparts (including by telecopy), and all said
counterparts taken together shall be deemed to constitute one and
the same instrument. A set of the copies of this Agreement
signed by all the parties shall be lodged with each of the
Borrower and the Agent.
9.11 Severability. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
9.12 Integration. This Agreement and the other Loan
Documents represent the agreement of the Borrower, the Agent and
the Lenders with respect to the subject matter hereof and
thereof, and there are no promises, undertakings, representations
or warranties by the Agent or any Lender relative to subject
matter hereof or thereof not expressly set forth or referred to
herein or in the other Loan Documents.
9.13 GOVERNING LAW. THIS AGREEMENT AND THE NOTES AND
THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT
AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF OTHER THAN
SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW
YORK.
9.14 Submission To Jurisdiction; Waivers. The Borrower
hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal
action or proceeding relating to this Agreement and the other
Loan Documents to which it is a party, or for recognition and
enforcement of any judgment in respect thereof, to the non-
exclusive general jurisdiction of the Courts of the State of New
York, the courts of the United States of America for the Southern
District of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be
brought in such courts and waives any objection that it may now
or hereafter have to the venue of any such action or proceeding
in any such court or that such action or proceeding was brought
in an inconvenient court and agrees not to plead or claim the
same;
(c) agrees that service of process in any such action
or proceeding may be effected by mailing a copy thereof by
registered or certified mail (or any substantially similar form
of mail), postage prepaid, to the Borrower, as the case may be,
at its address set forth in Section 8.2 or at such other address
of which the Agent shall have been notified pursuant thereto;
(d) agrees that nothing contained herein shall affect
the right to effect service of process in any other manner
permitted by law or shall limit the right to sue in any other
jurisdiction; and
(e) waives, to the maximum extent not prohibited by
law, any right it may have to claim or recover in any legal
action or proceeding referred to in this Section any special,
exemplary, punitive or consequential damages.
9.15 Acknowledgments. The Borrower hereby acknowledges
that:
(a) Neither the Agent nor any Lender has any fiduciary
relationship with or duty to or the Borrower arising out of or in
connection with this Agreement or any of the other Loan
Documents, and the relationship between the Agent and the
Lenders, on the one hand, and the Borrower, on the other hand, in
connection herewith or therewith is solely that of creditor and
debtor; and
(b) no joint venture is created hereby or by the other
Loan Documents or otherwise exists by virtue of the transactions
contemplated hereby between the Agent, the Lenders and the
Borrower.
9.16 Waivers of Jury Trial. THE BORROWER, THE AGENT
AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE
TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS
AGREEMENT OR THE NOTES OR ANY OTHER LOAN DOCUMENT AND FOR ANY
COUNTERCLAIM THEREIN.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their proper and
duly authorized officers as of the day and year first above
written.
BORROWER:
NORTHWESTERN CORPORATION
By:________________________________
Name:
Title:
By:________________________________
Name:
Title:
AGENT:
CANADIAN IMPERIAL BANK OF COMMERCE
By:________________________________
Name:
Title:
LENDERS:
CIBC INC.
By:________________________________
Name:
Title:
BANCO SANTANDER CENTRAL HISPANO, S.A.
By:________________________________
Name:
Title:
BARCLAYS BANK PLC
By:________________________________
Name:
Title:
COBANK, ACB
By:________________________________
Name:
Title:
FIFTH THIRD BANK
By:________________________________
Name:
Title:
UNION PLANTERS BANK
By:________________________________
Name:
Title:
NORTHWESTERN PENSION PLAN
(Amended and Restated Effective as of January 1, 2000)
Northwestern Pension Plan
(Amended and Restated Effective as of January 1, 2000)
Contents
Section Page
Article I. The Plan 1
1.1 Establishment and Amendment of the Plan 1
1.2 Applicability of the Plan 1
1.3 Purpose of the Plan 1
Article II. Definitions 2
2.1 'Accrued Benefit' 2
2.2 'Actuarial Equivalent' 2
2.3 'Affiliate' 2
2.4 'Annuity Starting Date' 3
2.5 'Applicable Interest Rate' 3
2.6 'Applicable Mortality Table' 3
2.7 'Beneficiary' 3
2.8 'Attained Age' 3
2.9 'Cash Balance Participant' 3
2.10 'Code' 3
2.11 'Company' 3
2.12 'Compensation' 3
2.13 'Contract' 4
2.14 'Covered Compensation' 4
2.15 'Employee' 4
2.16 'Employer' 4
2.17 'ERISA' 4
2.18 'Final Average Compensation' 4
2.19 'Highly Compensated Employee' 4
2.20 'Hour of Service' 5
2.21 'Independent Contractor' 7
2.22 'Insurer' 7
2.23 'Normal Retirement Age' 7
2.24 'Nonresident Alien' 7
2.25 'One-Year Break in Service' 8
2.26 'Participant' 8
2.27 'Pension Benefit' 8
2.28 'Plan' 8
2.29 'Plan Year' 8
2.30 'Retirement Annuity' 8
2.31 'Retirement Date' 8
2.32 'Service' 8
2.33 'Service Break' 9
2.34 'Social Security Retirement Age' 10
2.35 'Spouse' 10
2.36 'Supervisory Committee' 10
2.37 'Taxable Wage Base' 11
2.38 'Termination Date' 11
2.39 'Traditional Participant' 11
2.40 'Trust' 11
2.41 'Trust Fund' 11
2.42 'Trustee' 11
2.43 'Vested Benefit Percentage' 11
2.44 'Year of Service' 12
Article III. Participation in the Plan 13
3.1 Traditional Participant 13
3.2 Cash Balance Participant 13
3.3 Eligibility Requirements For New Hires 13
3.4 Participation Following Service Break 14
3.5 Leased Employees 14
Article IV. Former Contributions of Participants 15
4.1 Former Contributions of Participants 15
Article V. Retirement Dates 16
5.1 Normal Retirement Date 16
5.2 Early Retirement Date 16
5.3 Late Retirement Date 16
5.4 Disability Retirement Date 16
Article VI. Traditional Pension Benefit 17
6.1 Traditional Accrued Benefit 17
6.2 Traditional Pension Benefit 17
6.3 Traditional Disability Benefit 20
6.4 Traditional Vested Benefit 21
6.5 Forfeiture of Traditional Benefits 22
6.6 Traditional Preretirement Survivor Annuity 23
Article VII. Cash Balance Pension Benefit 25
7.1 Cash Balance Accrued Benefit 25
7.2 Opening Balance 25
7.3 Pay Credits 26
7.4 Interest Credits 29
7.5 Normal Cash Balance Pension Benefit 30
7.6 Early Retirement Cash Balance Pension Benefit 30
7.7 Postponed Retirement Cash Balance Pension Benefit 30
7.8 Disability Cash Balance Pension Benefit 31
7.9 Termination of Vested Cash Balance Participant 32
7.10 Death Benefits 33
Article VIII. Maximum Plan Benefits 35
8.1 General Limitation 35
8.2 Early Commencement 35
8.3 Less than Ten Years of Service 35
8.4 Non-Single Life Annuity 36
8.5 Non-Applicability 36
Article IX. Payment of Benefits 37
9.1 Normal and Optional Forms of Benefit 37
9.2 Cashout 40
9.3 Direct Rollovers of Eligible Distributions 41
9.4 Distribution Rules 42
Article X. Administration 45
10.1 Misstatement 45
10.2 Determinations by the Supervisory Committee 45
10.3 Participant's Responsibilities 45
10.4 Claims Procedure 45
10.5 Claims Review Procedure 46
10.6 Plan Qualification 46
10.7 Indemnity of Supervisory Committee Members 46
Article XI. Financing the Plan 47
11.1 Financing the Plan 47
11.2 Nonreversion 47
Article XII. Amendment and Termination 48
12.1 Amendment to the Plan 48
12.2 Termination of the Plan 48
12.3 Restriction on Benefits on Early Termination 49
Article XIII. Facility of Payment 52
13.1 Facility of Payment 52
Article XIV. Assignment of Benefits 53
14.1 Assignment of Benefits 53
Article XV. Beneficiary 54
15.1 Designating a Beneficiary 54
15.2 Nonspouse Beneficiary 54
15.3 Plan Designations 54
15.4 Interpretations 54
Article XVI. Miscellaneous 56
16.1 Gender 56
16.2 Titles 56
16.3 Governing Law 56
Article XVII. Top-Heavy Provisions 57
17.1 Application of Top-Heavy Provisions 57
17.2 Definitions 57
17.3 Vesting Requirements 59
17.4 Minimum Accrual Formula 59
17.5 Collective Bargaining Agreements 60
Article XVIII. USERRA 61
Article I. The Plan
1.1 Establishment and Amendment of the Plan
NorthWestern Corporation (the 'Company') presently maintains a defined
benefit pension plan known as the 'NorthWestern Pension Plan' (the
'Plan') for the benefit of its eligible Employees and the eligible
Employees of its participating Affiliates. The Plan was established
effective as of October 1, 1940 and has been amended and restated from
time to time. The Plan is hereby amended and restated as set forth
herein, effective as of January 1, 2000.
1.2 Applicability of the Plan
The provisions of the Plan as set forth herein are applicable only to
the eligible Employees of an Employer in current employment on or
after January 1, 2000, except as specifically provided herein. Except
as so provided, the rights of any person whose employment terminated
prior to January 1, 2000, to receive benefits, if any, under the Plan,
and the amount of and conditions under which such benefits shall be
payable, shall be determined in accordance with the provisions of the
Plan as may have been applicable to such former Employee as in effect
on the date of his termination of employment.
1.3 Purpose of the Plan
The purpose of the Plan is to provide retirement income for
Participants.
Article II. Definitions
2.1 'Accrued Benefit' means a Traditional Participant's Accrued
Benefit as defined in section 6.1, and a Cash Balance
Participant's Accrued Benefit as defined in Section 7.1.
Notwithstanding any other provisions in the Plan, the Accrued
Benefit of each section 401(a)(17) Employee on any determination
date after December 31, 1993 shall be not less than the greater
of -
(1) the sum of -
(A) the Employee's Accrued Benefit as of December
31, 1993, frozen in accordance with the Treasury
regulations Section 1.401(a)(4)-13, and
(B) the Employee's Accrued Benefit determined
under the benefit formula applicable on such
determination date, as applied to Years of Service
credited to the Employee for Plan Years beginning on or
after January 1, 1994 for purposes of benefit accruals;
or
(2) the Employee's Accrued Benefit determined under the
benefit formula applicable on such determination date, as
applied to all Years of Service credited to the Employee for
purposes of benefit accruals.
A Section 401(a)(17) Employee means an Employee whose current
Accrued Benefit on or after January 1, 1994 is based on
Compensation for a Plan Year beginning prior to January 1, 1994,
that exceed $150,000.
2.2 'Actuarial Equivalent' shall mean any one of two or more
benefits of equivalent value as determined actuarially on the
basis of the Applicable Interest Rate and Applicable Mortality
Table.
2.3 'Affiliate' means-
(A) any corporation while it is a member of the same 'controlled
group' of corporations (within the meaning of Code Section
414(b)) as the Company;
(B) any other trade or business (whether or not incorporated)
while it is under 'common control' (within the meaning of
Code Section 414(c)) with the Company;
(C) any organization during any period in which it (along with
the Company) is a member of an 'affiliated service group'
(within the meaning of Code Section 414(m)); or
(D) any other entity during any period in which it is required
to be aggregated with the Company under Code Section 414(o).
2.4 'Annuity Starting Date' means the first day of the first month
for which a Plan benefit is paid or commences under Section 9.4.
2.5 'Applicable Interest Rate' for each Plan Year means the annual
rate of interest on 30-year Treasury securities for the month of
November immediately preceding the first day of such Plan Year.
2.6 'Applicable Mortality Table' means the mortality table defined
in Code Section 417(e)(3)(A)(ii)(I) or any successor Section and
regulations and rulings issued thereunder.
2.7 'Beneficiary' means any person designated by a Participant
pursuant to Article XIV to receive a benefit under the Plan in
the event of the Participant's death.
2.8 'Attained Age' means, at the time any determination is being
made, a Cash Balance Participant's age in whole years and a
fractional year as of the date such determination is made. The
fractional year shall be calculated by using the number of days
in such fractional year as the numerator and 365 as the
denominator.
2.9 'Cash Balance Participant' means a Participant deemed to be a
Cash Balance Participant pursuant to Section 3.2.
2.10 'Code' means the Internal Revenue Code of 1986, as amended.
2.11 'Company' means NorthWestern Corporation, a Delaware
corporation.
2.12 'Compensation' means compensation for Service rendered,
excluding overtime pay, shift differentials, commissions and
bonuses.
In addition to other applicable limitations which may be set
forth in the Plan and notwithstanding any other contrary
provision of the Plan, compensation taken into account under the
Plan shall not exceed $200,000 adjusted for changes in the cost
of living as provided in Section 415(d) of the Internal Revenue
Code for any Plan Year commencing after December 31, 1988.
However, the Accrued Benefit determined in accordance with this
provision shall not be less than the Accrued Benefit determined
on January 1, 1989 without regard to this provision.
With respect to all benefits accruing on or after January 1,
1994, the Compensation of each Participant that may be taken into
account under the Plan shall not exceed the first $150,000 of a
Participant's Compensation (as adjusted in accordance with Code
section 401(a)(17) and Regulations thereunder). However, a
Participant's Accrued Benefit determined in accordance with this
limitation shall not be less than the Accrued Benefit determined
as of December 31, 1993.
In determining the Compensation of a Participant for purposes of
this limitation, the rules of Code Section 414(q)(6)) shall
apply, except in applying such rules, the term 'family' shall
include only the Participant's spouse and any lineal descendants
of the Participant who have not attained age 19 before the close
of the Plan Year. For Plan Years commencing on or after January
1, 1997, the family aggregation provisions of Section 414(q)(6)
of the Code shall cease to be applicable to the determination of
this limitation.
2.13 'Contract' means Group Annuity Contract No. 15 GAC issued by the
Insurer to the Employer. The Contract was terminated, and
effective May 5, 1993, the Trust was established.
2.14 'Covered Compensation' means for each Participant the average of
the taxable wage base in effect under the Social Security Act for
each calendar year during the 35-year period ending with the last
day of the calendar year in which the Participant attains Social
Security Retirement Age. In the case of a Participant who
continues employment with an Employer in a Plan Year commencing
after the calendar year in which the Participant attains Social
Security Retirement Age, the Participant's Covered Compensation
for such Plan Year shall be equal to the Participant's Covered
Compensation for the Plan Year in which the Participant attains
Social Security Retirement Age. A Participant's Covered
Compensation shall be automatically adjusted for each Plan Year.
2.15 'Employee' means an individual employed by the Employer;
provided, however, that 'Employee' does not include any Leased
Employees, Independent Contractors, or Nonresident Aliens.
2.16 'Employer' means the Company and any Affiliate which has adopted
the Plan.
2.17 'ERISA' means the Employee Retirement Income Security Act of
1974 as it may be amended from time to time.
2.18 'Final Average Compensation' means the average of a
Participant's Compensation in the 60 consecutive calendar months
in which he received his highest Compensation during the 120-
month period immediately preceding the earlier of (i) his
Termination Date, or (ii) his Retirement Date. Notwithstanding
the foregoing, for purposes of determining an Opening Balance
Benefit under Section 7.2, the 120-month period shall end on
December 31, 1999. If a Participant has not earned Compensation
for 60 consecutive months, 'Final Average Compensation' means the
average of the Participant's monthly Compensation for the longest
consecutive period during which he earned Compensation.
2.19 'Highly Compensated Employee' means any Employee who (a) during
the current Plan Year or the preceding Plan Year was at any time
a five percent (5%) owner of the Company, as defined in Section
416(i)(1)(B)(i) of the Code; or (b) during the preceding Plan
Year received Compensation from the Company in excess of $85,000
(or such greater amount provided by the Secretary of the Treasury
pursuant to Section 414(q) of the Code), and was in the top paid
group of Employees for such Plan Year. An Employee is in the 'top
paid group' for a Plan Year if he is in the group consisting of
the top 20 percent of the Employees when ranked on the basis of
Compensation paid during such Plan Year.
In determining who is a Highly Compensated Employee, the
following rules shall apply:
(A) For purposes of determining the number of Employees in the
top paid group, the following Employees are excluded:
(1) Employees who have not completed six months of Service;
(2) Employees who normally work less than 17-1/2 hours per
week;
(3) Employees who normally work not more than 6 months
during any Plan Year;
(4) Employees who have not attained age 21; and
(5) to the extent allowable under Treasury Regulation
Section 1.414(q)-1T, Employees covered by a collective
bargaining agreement between employee representatives
and the Company.
(B) As required by Section 414(q)(6) of the Code and the
regulations thereunder, a Highly Compensated Employee shall
include a former Employee if (i) such Employee was a Highly
Compensated Employee when such Employee separated from
service, or (ii) such Employee was a Highly Compensated
Employee at any time after attaining age 55.
(C) The provisions of Section 414(q) of the Code shall apply in
determining whether an Employee is a Highly Compensated
Employee. The Company for any Plan Year may elect to
identify Highly Compensated Employees based upon the current
Plan Year to the extent permitted by Section 414(q) of the
Code and Regulations issued thereunder.
2.20 'Hour of Service' means-
(A) Each hour for which an Employee is paid, or entitled to
payment, by the Employer for the performance of duties.
Such hours shall be credited to the Employee for the
computation period, or periods in which the duties are
performed; and
(B) Each hour for which an Employee is paid, or entitled to
payment, by the Employer on account of a period of time
during which no duties are performed (irrespective of
whether the employment relationship has terminated) due to
vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty or leave of
absence, subject to a maximum of 501 hours on account of any
single continuous period during which the Employee performs
no duties, whether or not such period occurs in a single
computation period. Such hours shall be determined in
accordance with regulations issued by the Secretary of
Labor, and shall be credited to the Employee for the
computation period or periods in which payment is made or
amounts payable to the Employee become due; and
(C) Each other hour not included in (1) or (2) above for which
back pay, irrespective of mitigation of damages, is either
awarded or agreed to by the Employer. Such hours shall be
credited to the Employee for the computation period or
periods to which the award or agreement pertains and not
that in which the award, agreement or payment is made.
(D) Solely for purposes of determining whether a One-Year Break
in Service for participation and vesting purposes has
occurred in a computation period, an Employee who is absent
from work for maternity or paternity reasons shall receive
credit for the Hours of Service which would otherwise have
been credited to such Employee but for such absence, or in
any case in which such hours cannot be determined, 8 hours
of service per day of such absence. No more than 501 Hours
of Service shall be credited under this paragraph for any
such absence.
The Hours of Service credited under this paragraph shall be
credited in the computation period in which the absence
begins if the crediting is necessary to prevent a One-Year
Break in Service in that period, or in all other cases, in
the following computation period as defined in Code Sections
410 and 411.
For purposes of this paragraph, an absence from work by
reason of maternity or paternity means an absence-
(1) by reason of pregnancy of the individual,
(2) by reason of the birth of a child of the individual,
(3) by reason of the placement of a child with the
individual in connection with the adoption of such
child by such individual, or
(4) for purposes of caring for such child for a period
beginning immediately following such birth or
placement.
This paragraph shall not apply to an Employee unless such
individual furnishes the Supervisory Committee such timely
information as the Supervisory Committee may require to
establish that an absence is by reason of maternity or
paternity and to verify the length of the period for such
absence.
(E) Pursuant to Article XVIII, any period of absence from active
employment with the Company prior to the Employee's Normal
Retirement Date due to his service in the uniformed services
(as that term is defined in the Uniformed Services
Employment and Reemployment Rights Act of 1994 (`USERRA'))
for a period during which the Employee's reemployment rights
are guaranteed by USERRA, shall not count as a Break in
Service and shall be considered as Service for vesting
purposes, provided the Employee is reemployed by the Company
under the terms of Section 4312 of USERRA.
2.21 'Independent Contractor' means any person who is engaged as an
independent contractor pursuant to a contract or agreement
between such person and an Employer that designates him as an
independent contractor, or otherwise contemplates or implies that
he will function as an independent contractor. Only individuals
who are paid as Employees from the payroll of an Employer and
treated by an Employer at all times as Employees shall be deemed
Employees for purposes of the Plan, and no independent contractor
shall be treated as an Employee under the Plan during the period
he renders services to an Employer as an independent contractor.
Any person retroactively or in any other way held or found to be
a 'common law employee' shall not be eligible to participate in
the Plan for any period during which he was not treated as an
Employee by an Employer.
2.22 'Insurer' means John Hancock Mutual Life Insurance Company,
Boston, Massachusetts, its successors and assigns.
2.23 'Normal Retirement Age' means the date a Participant attains age
65. For Plan Years beginning on and after January 1, 1988, if an
Employee becomes a Participant after age 60, his Normal
Retirement Age means the date which is five years subsequent to
the date he first became a Participant.
Upon attaining his Normal Retirement Age, a Traditional
Participant shall have a nonforfeitable right to his Accrued
Benefit if his Termination Date has not occurred and a Service
Break is not then in effect with respect to him. The
nonforfeitable rights, if any, of a Traditional Participant whose
Termination Date has occurred or with respect to whom a Service
Break is in effect, shall be determined in accordance with
Section 6.4 of the Plan.
2.24 'Nonresident Alien' means any person who is a nonresident alien
and who receives no earned income (within the meaning of Code
Section 911(d)(2)) from an Employer that constitutes income from
sources within the United States (within the meaning of Code
Section 861(a)(3)).
2.25 'One-Year Break in Service' for purposes of eligibility and
vesting means a Plan Year during which a Participant fails to
complete more than 500 Hours of Service. For purposes of benefit
accrual and calculation of Service as defined in Section 2.33, a
One-Year Break in Service means a Period of Severance of at least
twelve consecutive months. A One-Year Break in Service shall be
deemed to commence on the first day of the Period of Severance
and shall be deemed to end on the day in which the Employee again
performs an Hour of Service for an Employer. A 'Period of
Severance' means a continuous period of time during which an
Employee is not employed by an Employer. Such a period shall
begin on the earlier of: (i) the day on which the Employee
quits, retires, is discharged or dies; or (ii) the first
anniversary of the date on which the Employee separates from
service with all Employers for any reason other than the reasons
set forth in clause (i) above, such as vacation, holiday,
sickness, disability, leave of absence or layoff. A Period of
Severance shall end on the date on which an Employee again
performs an Hour of Service for the Company.
2.26 'Participant' means each Employee who satisfies the eligibility
requirements for participation in the Plan. The term
'Participant' encompasses each Traditional Participant and each
Cash Balance Participant. A person shall continue to be a
Participant after his employment ceases, for any reason, as long
as benefits may become payable to him under the Plan.
2.27 'Pension Benefit' means the benefit available to a Cash Balance
Participant and a Traditional Participant under the Plan.
2.28 'Plan' means the NorthWestern Pension Plan, as amended and
restated effective January 1, 2000, and as further amended from
time to time.
2.29 'Plan Year' means the 12-month period commencing on each January
1, and ending on the following December 31.
2.30 'Retirement Annuity' means the monthly annuity amount of Pension
Benefit payable to a Participant or his Beneficiary.
2.31 'Retirement Date' means the date a Participant terminates
employment with an Employer in accordance with Article V.
2.32 'Service' means the period of employment of a Participant,
expressed in whole years and a fractional year. The fractional
year shall be calculated by using the number of days in the
fractional year as the numerator and 365 as the denominator.
Service for purposes of this Section shall be calculated to
include or exclude the following:
(a) Service shall include any period for which a Past
Service Annuity was purchased with respect to the
Participant prior to December 31, 1973;
(b) If a Participant's employment with an Employer
terminates and he is reemployed by an Employer before he
incurs a One-Year Break in Service, his Service shall
include the period of absence from employment, as if such
absence had not occurred;
(c) If a Participant's employment with an Employer
terminates and he is not reemployed by an Employer before he
incurs a One-Year Break in Service, his Service shall not
include the period of One-Year Break in Service;
(d) If a Participant is reemployed by an Employer, his
Service shall not include Years of Service completed prior
to the One-Year Break in Service until he has completed one
Year of Service commencing on his date of reemployment and
unless he meets the conditions described in paragraphs (f)
and (g) next below;
(e) If a Participant has a One-Year Break in Service and is
reemployed by an Employer, his Service shall include the
years of Service to his credit at the time the One-Year
Break in Service began, unless he did not have any
nonforfeitable right to the Accrued Benefit derived from
Employer contributions prior to such One-Year Break in
Service and if the number of consecutive One-Year Breaks in
Service in such period equals or exceeds the greater of (i)
five or (ii) the number of years of Service to his credit at
the beginning of such a One-Year Break in Service. Such
aggregate number of years of Service will not include any
years of Service disregarded under the preceding sentence by
reason of prior One-Year Breaks in Service;
(f) If a Participant has a One-Year Break in Service,
receives a distribution from the Plan as a result of his
termination from employment with an Employer, and is later
reemployed by an Employer, his years of Service with respect
to which he received a distribution will not be included in
the calculation of his Accrued Benefit. Notwithstanding the
foregoing, years of Service for which a Participant received
a distribution shall be included in the calculation of his
Traditional or Cash Balance Normal Retirement Benefit, if
the Participant repays to the Plan the full amount of the
distribution received pursuant to Section 411(a)(7)(C) of
the Code and interest on such amount calculated pursuant to
Section 411(c)(2)(C) of the Code.
2.33 'Service Break' means a period which begins on the first day of
any One-Year Break in Service and continues until the day, if
ever, on which the Participant resumes active participation in
the Plan in accordance with Article III of the Plan.
2.34 'Social Security Retirement Age' means the age used as the
retirement age for the Participant under Section 216(1) of the
Social Security Act, except that such Section shall be applied
without regard to the age increase factor, and as if the early
retirement age under Section 216(l)(2) of such Act were 62.
The following schedule will apply to determine the Social
Security Retirement Age of any Plan Participant:
(A) Age 65 for Plan Participants born prior to 1938.
(B) Age 66 for Plan Participants born between 1938 and 1954
inclusive.
(C) Age 67 for Plan Participants born after 1954.
2.35 'Spouse' means the person who is legally married to a
Participant throughout the one-year period ending on the earlier
of the date on which Pension Benefit payments to the Participant
commence or the date of such Participant's death. For purposes
of the preceding sentence, if a Participant marries a person
within the one-year period preceding the date on which Pension
Benefit payments to him commence, and the Participant remains
married to such person for at least one-year period ending on or
before the date of the Participant's death, then the Participant
and such person will be treated as having been married throughout
the one-year period ending on the date Pension Benefit payments
to the Participant commence.
2.36 'Supervisory Committee' means the committee responsible for the
general administration and operation of the Plan and the
performance of other fiduciary responsibilities of the Company
under the Plan. The Supervisory Committee shall be the 'named
fiduciary' within the meaning of Section 402(a) of ERISA. The
Supervisory Committee shall consist of such members as may be
determined and appointed from time to time by the Chief Executive
Officer of the Company, and who shall serve at the pleasure of
said Chief Executive Officer. Members of the Committee shall
serve without compensation, but their reasonable expenses shall
be an expense of the administration of the Plan. The Committee
may elect such officers as the Committee may decide upon. If a
Secretary of the Committee is elected, such Secretary need not be
a member of the Committee. The Committee shall, subject to the
provisions of Article VIII-
(A) establish rules for the functioning of the Committee
including the times and place for holding meetings, the
notices to be given in respect of such meetings, and the
number of members who shall constitute a quorum for the
transaction of business;
(B) determine from the records of the Employer the compensation,
service records, status and other facts regarding
Participants and other Employees;
(C) prescribe forms to be used for applications for
participation, distributions, withdrawals, notifications,
etc., as may be required in the administration of the Plan;
(D) set up such rules, applicable to all Participants similarly
situated, as are deemed necessary to carry out the terms of
the Plan;
(E) perform all other acts reasonably necessary for
administering the Plan and carrying out its provisions and
performing the duties imposed on it by the Employer;
(F) resolve all questions of administration of the Plan not
specifically referred to in this Section; and
(G) dispose of claims arising under this Plan.
The Committee may delegate or redelegate to one or more persons,
jointly or severally, and whether or not such persons are members
of the Committee or Employees, such functions assigned to the
Committee hereunder as it may from time to time deem advisable.
2.37 'Taxable Wage Base' means the taxable wage base for a Cash
Balance Participant in effect for the Plan Year ending on or
including the Contribution Date applicable to such Participant
for purposes of the federal Social Security Act as in effect for
that Year.
2.38 'Termination Date' means the date on which a Participant's
employment with the Employer is terminated other than by death or
attainment of a Retirement Date, provided that a One-Year Break
in Service will not be deemed to have occurred until the end of
the Plan Year in which the Participant fails to complete more
than 500 Hours of Service.
2.39 'Traditional Participant' means a Participant deemed to be a
Traditional Participant pursuant to Section 3.1.
2.40 'Trust' means the agreement entered into between the Company and
the Trustee to hold and administer the Trust Fund.
2.41 'Trust Fund' means the cash and other properties held and
administered in accordance with the provisions of the Trust.
2.42 'Trustee' means the individual, individuals or corporation
appointed by the Board to administer the Trust, and any duly
appointed successor thereto.
2.43 'Vested Benefit Percentage' means the percentage determined
pursuant to Section 6.4 or subsection 7.9(f), as applicable.
2.44 'Year of Service' means any Plan Year in which a Participant
completes at least 1000 Hours of Service.
In the case of a Participant who does not have any nonforfeitable
right to an Accrued Benefit derived from employer contributions,
Years of Service before a period of consecutive One-Year Breaks
in Service will not be taken into account in computing Service
for the purposes of determining eligibility to participate in the
Plan under Section 3.3 or determining a Traditional
Participant's Vested Benefit Percentage under Section 6.4, if the
number of consecutive One-Year Breaks in Service in such period
equals or exceeds the greater of five or the aggregate number of
Years of Service. Such aggregate number of Years of Service will
not include any Years of Service disregarded under the preceding
sentence by reason of prior Breaks in Service.
Article III. Participation in the Plan
3.1 Traditional Participant
Each Participant who is an Employee on December 31, 1999, shall become
a Traditional Participant on the later to occur of (i) January 1,
2000, and (ii) the date he satisfies the eligibility requirements set
forth in Section 3.3, if (i) he affirmatively and irrevocably elected
to become a Traditional Participant on or before December 31, 1999, in
accordance with election procedures established by the Company, or
(ii) he did not affirmatively and irrevocably elect to become either a
Traditional Participant or a Cash Balance Participant on or before
December 31, 1999.
3.2 Cash Balance Participant
A Participant shall become a Cash Balance Participant as follows:
(a) Each person who is an Employee on December 31, 1999, shall
become a Cash Balance Participant on the later to occur of
(i) January 1, 2000, and (ii) the date he satisfies the
eligibility requirements set forth in Section 3.3, if he
affirmatively and irrevocably elected to become a Cash
Balance Participant on or before December 31, 1999, in
accordance with election procedures established by the
Company.
(b) Each Employee hired or rehired after December 31, 1999,
shall become a Cash Balance Participant upon satisfying the
applicable eligibility requirements set forth in Sections
3.3 or 3.4.
3.3 Eligibility Requirements For New Hires
An Employee who was not employed by an Employer on December 31, 1999,
shall become a Cash Balance Participant in the Plan on the first day
of the month coincident with or next following the date the following
eligibility requirements are met:
(a) He must have completed at least 1000 Hours of Service during an
eligibility computation period.
The initial eligibility computation period for such an Employee
is the twelve-month period commencing on the day he first
performs an Hour of Service. Subsequent eligibility computation
periods are the successive Plan Years commencing with the Plan
Year which begins during the initial eligibility computation
period.
(b) He must have attained his twenty-first birthday.
3.4 Participation Following Service Break
(a) Subject to the provisions of Section 6.2(e) or
Section 7.7, as applicable, if any Participant or former
Participant shall be reemployed by an Employer before a One-
Year Break in Service occurs, he shall be a Participant from
the date of his first hour of Service following his
reemployment;
(b) Subject to the provisions of Section 6.2(e) or Section 7.7,
as applicable, if any Participant or former Participant
completes one Year of Service for eligibility purposes
following his reemployment by an Employer after incurring a
One-Year Break in Service, he shall participate in the Plan
retroactively from the date of his first Hour of Service
following such reemployment; and
(c) Subject to the provisions of Section 6.2(e) or Section 7.7,
as applicable, if a Participant or former Participant
completes a Year of Service after incurring a One-Year Break
in Service but not terminating his employment, he shall
participate in the Plan retroactively to the date he again
becomes an Employee once he completes one Year of Service
following the date he again became an Eligible Employee.
3.5 Leased Employees
A person who is not an Employee of an Employer or nonparticipating
Affiliate but who performs services for an Employer or a
nonparticipating Affiliate pursuant to an agreement between an
Employer or a nonparticipating Affiliate and a leasing organization
shall be considered a 'Leased Employee' after such person performs
such services on a substantially full-time basis for at least 12
months and the services are performed under the primary direction or
control of an Employer. A person who is considered a Leased Employee
of an Employer or a nonparticipating Affiliate shall not be considered
an Employee for purposes of participating in the Plan or receiving any
contribution or benefit under the Plan. If a Leased Employee
subsequently becomes an Employee, and thereafter participates in the
Plan, he shall be given credit for Hours of Service and Years of
Service for his period of employment as a Leased Employee, except to
the extent that the requirements of Section 414(n)(5) of the Code were
satisfied with respect to such Employee while he was a Leased
Employee. Notwithstanding the preceding provisions of this Section, a
Leased Employee shall be treated as an Employee for purposes of
applying the requirements described in Section 414(n)(3) of the Code
and for purposes of determining the number and identity of Highly
Compensated Employees.
Article IV. Former Contributions of Participants
4.1 Former Contributions of Participants
Effective December 31, 1986 the accumulated employee contributions
with interest credited under the Plan as in effect prior to 1987 (the
'Prior Plan') through December 31, 1986 were refunded to each
Participant who had not commenced receiving annuity payments on or
prior to December 31, 1986. The refunds of employee contributions
were in lieu of all other benefits otherwise payable under the Prior
Plan which were solely derived from such employee contributions,
including any death benefit or cash surrender value. However, the
refund event does not operate to diminish, reduce, or modify in any
way Participants' Accrued Benefits which were derived from both
Employer and Employee Contributions prior to the beginning of the 1987
Plan year and which subsequent thereto are derived solely from
Employer contributions.
Article V. Retirement Dates
5.1 Normal Retirement Date
A Participant's Normal Retirement Date is the first day of the month
coincident with or next following his Normal Retirement Age.
5.2 Early Retirement Date
A Participant's Early Retirement Date is the first day of any month,
within the ten year period immediately preceding the Participant's
Normal Retirement Age, specified by the Participant in a written
notice to the Supervisory Committee. Such notice is to be filed with
the Supervisory Committee at least 60 days prior to the Early
Retirement Date specified in the notice.
5.3 Late Retirement Date
A Participant's Late Retirement Date is the first day of the month
coincident with or next following the Participant's actual date of
retirement after having reached his Normal Retirement Date, as
specified by the Participant in a written notice to the Supervisory
Committee.
5.4 Disability Retirement Date
A Participant's Disability Retirement Date is the first day of any
month following the date that a Participant satisfies the following
requirements, as determined by the Supervisory Committee:
(a) He must have been Totally Disabled as defined in Section 6.3
or subsection 7.8(f), as applicable, for a period of six
months and must be eligible to receive total disability
benefit payments under the Social Security Act;
(b) He must have attained his thirty-fifth birthday; and
(c) He must have completed at least ten Years of Service
(as defined in subsection 2.44).
Article VI. Traditional Pension Benefit
The provisions of this Article VI shall apply only to Traditional
Participants.
6.1 Traditional Accrued Benefit
The Accrued Benefit of a Traditional Participant is a yearly amount of
benefit in the form of a Life and Ten Year Period Certain Retirement
Annuity commencing on his Annuity Starting Date and ceasing with the
last payment due on the later of his date of death or the expiration
of the guaranteed period, if applicable.
The yearly amount of Accrued Benefit applicable to a Traditional
Participant is equal to the product of (1) and (2) below:
(1) the sum of 1.34 percent of (A) and 1.75 percent of (B)
where-
(A) is the Final Average Compensation up to the Covered
Compensation base of the Traditional Participant, and
(B) is the Final Average Compensation in excess of the
Covered Compensation base of the Traditional
Participant.
(2) The number of years and months of Service completed by the
Traditional Participant. Service for purposes of this
Section 6.1 shall be calculated as provided in Section 2.32.
Notwithstanding any provision to the contrary, in no event shall the
Traditional Accrued Benefit under this Section 6.1 be less than the
largest Early Retirement benefit the Traditional Participant would
have been entitled to receive under subsection 6.2(c) below by
retiring on an Early Retirement Date.
6.2 Traditional Pension Benefit
(a) General. The Pension Benefit for a Traditional Participant whose
Termination Date has not occurred, and with respect to whom a
Service Break is not in effect, is in the form of a ten years
certain and continuous Retirement Annuity payable for the
lifetime of the Traditional Participant and the remaining
guaranteed period, if applicable, commencing on his Retirement
Date and ceasing with the last payment due on or prior to his
date of death, unless the Qualified Joint and Survivor Annuity
described in subsection 8.1(a) of the Plan or one of the other
Optional Forms of Benefit described in subsection 9.1(c) is in
effect with respect to him.
(1) This Section is not applicable to a Traditional Participant
who was receiving Retirement Annuity payments immediately
prior to December 31, 1973 under the provisions of the
Contract as it existed on December 30, 1973, or to a
Traditional Participant whose Termination Date occurred
prior to December 31, 1973.
(2) The Accrued Benefit for a Traditional Participant who was
covered under the Contract prior to December 31, 1973 shall
not be less than the Cancelled Annuity described in
paragraphs 3 and 4 below, multiplied by the appropriate
Vested Benefit Percentage in the event his Termination Date
occurs subsequent to December 31, 1973.
(3) The Cancelled Annuity with respect to a Traditional
Participant or Contingent Annuitant covered under the
Contract immediately prior to December 31, 1973 to whom
Retirement Annuity payments were then being made is a yearly
annuity equal to twelve times the monthly amount of
Retirement Annuity then being paid to him.
(4) The Cancelled Annuity with respect to a Traditional
Participant covered under the Contract immediately prior to
December 31, 1973 to whom Retirement Annuity payments were
not then being made is a yearly annuity equal to the yearly
amount of annuity previously purchased and in effect with
respect to him on December 30, 1973.
(b) Traditional Normal Retirement Benefit. The yearly amount of
Pension Benefit commencing on the Normal Retirement Date of a
Traditional Participant who retires on his Normal Retirement Date
is his Traditional Accrued Benefit.
(c) Traditional Early Retirement Benefit.
(1) A Traditional Participant who retires on or after his Early
Retirement Date and prior to his Normal Retirement Date
shall be entitled to receive a Traditional Pension Benefit,
commencing on his Normal Retirement Date. The annual amount
of such Traditional Pension Benefit shall be equal to the
Traditional Participant's Accrued Benefit.
A Traditional Participant eligible for an Early Retirement
Traditional Pension Benefit may elect to have his
Traditional Pension Benefit commence prior to his Normal
Retirement Date on an Annuity Starting Date that is the
first day of any month coincident with or following his
Early Retirement Date.
(2) A Traditional Participant who wishes to commence receiving
his Traditional Pension Benefit prior to his Normal
Retirement Date must file an application therefor with the
Supervisory Committee not later than thirty (30) days prior
to his Annuity Starting Date. Such application shall specify
the Annuity Starting Date on which such Traditional Pension
Benefit shall first be payable.
(3) Nothing contained in the Plan shall be construed to require
the payment of any Traditional Pension Benefit to any
Traditional Participant for any month prior to the earlier
of the month in which a Normal Retirement benefit would
commence pursuant to subsection 6.2(b), or thirty (30) days
subsequent to the receipt of an application for a
Traditional Pension Benefit filed pursuant hereto.
(4) The yearly amount of Pension Benefit applicable to a
Traditional Participant whose Annuity Starting Date is an
Early Retirement Date is an amount equal to his Traditional
Accrued Benefit determined as of his Annuity Starting Date,
reduced by 5/12 of one percent for each month that his
Annuity Starting Date precedes the first day of the month
coinciding with or next following the date he attains age
62.
(d) Traditional Late Retirement Benefit. The yearly amount of
Pension Benefit applicable to a Traditional Participant whose
retirement date is his late Retirement Date is an amount equal to
the greater of (1) or (2) below:
(1) A yearly amount of Pension Benefit which is determined in
the same manner as the Traditional Participant's Accrued
Benefit pursuant to Section 6.1 hereof and based on
Compensation and Service applicable to the Traditional
Participant through his Late Retirement Date.
(2) A yearly amount of Pension Benefit which is the actuarial
equivalent value of the amount of Pension Benefit accrued by
the Traditional Participant through his Normal Retirement
Date, when computed on the basis of the actuarial methods,
factors and assumptions utilized under the Plan.
A former Traditional Participant who is reemployed by the
Employer or an Affiliate following an Early, Normal or Late
Retirement Date and commencement of a Retirement Annuity, shall
continue to receive payment of such Retirement Annuity for the
duration of his period of reemployment and thereafter as provided
by the terms of the Plan. In no event shall such former
Participant receive benefits attributable to Service prior to his
initial Retirement Date in an amount, or for a duration, less
than the amount or duration that such former Traditional
Participant would have received if he were not reemployed by the
Employer or an Affiliate. Notwithstanding the above, if a
Traditional Participant has, as of the end of any Plan Year,
attained an Early, Normal or Late Retirement Date, and if
distribution of benefits has commenced to the Traditional
Participant as of the end of such Plan Year, any benefit accrual
for such Plan Year required under this subsection 6.2(d) shall be
reduced (but not below zero) by the actuarial equivalent of the
total Retirement Annuity payments made to the Traditional
Participant by the close of the Plan Year, in accordance with
regulations prescribed by the Secretary of the Treasury.
(e) Traditional Deferred Vested Annuitant Benefit. Notwithstanding
anything to the contrary in the foregoing provisions of this
Article VI, effective as of January 1,1987, the Pension Benefit
of each Participant whose Termination Date was prior to January
1, 1974, and who has a deferred Vested Benefit under the Plan as
of December 31, 1986 shall be increased, commencing on the Normal
Retirement Date of such Participant and shall be equal to the
product of (1) and (2) below:
(1) The sum of 1.25 percent of (A) and 1.75 percent of (B)
where-
(A) is the Final Average Compensation up to the Covered
Compensation base of the Participant, and
(B) is the Final Average Compensation in excess of the
Covered Compensation base of the Participant;
provided, however, that for purposes of this paragraph,
Final Average Compensation shall not include Compensation
received after the Participant's Normal Retirement Date.
(2) The number of years and months of Service completed by the
Participant up to his Normal Retirement Date, and during the
period from the date on which he became an Employee until he
became covered hereunder, counting each full month as one-
twelfth of a year, and also including as Service any period
for which a Past Service Annuity was purchased with respect
to the Participant prior to December 31, 1973. Service for
purposes of this Section shall be calculated as provided in
Section 2.32.
In no event shall such increased benefit be less than $10 per
month.
(f) Additional Annuity for Certain Retirees Effective March 1, 1994.
On March 1, 1994, Retirement Annuity payments for each
Participant who was receiving such payments as of December 31,
1992 shall be increased by an amount equal to .8 percent (.008)
of the monthly payment in effect for such Participant immediately
prior to March 1, 1994 multiplied by the number of completed and
partial years from such Participant's Retirement Date until
January 1, 1994. In no event shall any increase in benefit
pursuant to this provision be less than (1) $20 per month for a
Participant who retired prior to January 1, 1983 or (2) $10 per
month for a Participant who retired prior to January 1, 1993.
6.3 Traditional Disability Benefit
The Disability Benefit for a Traditional Participant who has incurred
a Disability Retirement Date is an amount of Pension Benefit which
shall be determined by the application of the imputed Compensation and
Service established below, and which shall be payable to the
Traditional Participant commencing on his Normal Retirement Date;
provided, however, a Traditional Participant may elect to commence
receipt of a Pension Benefit pursuant to this Section prior to his
Normal Retirement Date on any date following the date he attains age
55.
The Final Average Compensation to be used in determining the Pension
Benefit for a Traditional Participant will be computed as if the
Traditional Participant had continued to receive Compensation after
the date he became Totally Disabled, at the same rate of Compensation
he was receiving on such date, and continuing to the earliest of (i)
his Normal Retirement Date, (ii) the date he ceased to be Totally
Disabled, or (iii) the date he elects to commence receipt of his
Pension Benefit, if he elects to commence receipt of his Pension
Benefit prior to his Normal Retirement Date.
The completed Service to be used in determining the Pension Benefit
for the Traditional Participant on the date that such Benefit
commences will be computed to include the period during which the
Traditional Participant was Totally Disabled prior to such
commencement date, as determined by the Supervisory Committee.
The words 'Totally Disabled' as used in this subsection mean that the
Traditional Participant has incurred a 'Total Disability' as defined
under the long-term disability plan maintained by the Company at the
time of the determination. Determinations as to Total Disability
shall be made by the Supervisory Committee, in its sole discretion.
If the Traditional Participant is still living upon attainment of his
Normal Retirement Date or his earlier elected Annuity Starting Date,
he will be entitled to commence receipt of a Traditional Normal
Retirement Benefit. Such Benefit will be payable in a form provided
under Article IX.
If a Totally Disabled Traditional Participant dies on or after his
Disability Date but prior to his Normal Retirement Date, the
Traditional Participant's surviving Spouse shall be entitled to
receive the Traditional Preretirement Survivor Annuity described in
Section 6.6 if the requirements of Section 6.6(a) are satisfied.
If a Traditional Participant does not incur a Disability Date, no
benefit shall be payable under this Section.
6.4 Traditional Vested Benefit
If a Traditional Participant's Termination Date has occurred or if a
Service Break is in effect with respect to a Traditional Participant
who has completed five or more Years of Service, such Traditional
Participant shall have a Vested Benefit Percentage of 100% and shall
be eligible to retire under the Plan and receive a Traditional Vested
Benefit which shall equal his Traditional Accrued Benefit commencing
on his Normal Retirement Date. A Traditional Participant may elect to
have his Traditional Vested Benefit commence prior to his Normal
Retirement Date on an Annuity Starting Date that is the first day of
any month coincident with or following his Early Retirement Date. To
elect such early commencement, a Traditional Participant must file an
application therefor with the Supervisory Committee not later than
thirty (30) days prior to his Annuity Starting Date. Such application
shall specify the Annuity Starting Date on which such Traditional
Vested Benefit shall first be payable.
The yearly amount of Traditional Vested Benefit applicable to a
Traditional Participant whose Annuity Starting Date is an Early
Retirement Date is an amount equal to his Traditional Accrued Benefit
determined as of his Annuity Starting Date and reduced in accordance
with Section 6.2(c) of the Plan. A Traditional Participant who has
completed less than five Years of Service prior to his Termination
Date shall have a Vested Benefit Percentage of zero and forfeit all of
his benefits under the Plan as provided under Section 6.5.
The yearly amount of Traditional Vested Benefit applicable to a
Traditional Participant on his Annuity Starting Date shall in no event
be less than the yearly amount which would have been applicable to him
if his Annuity Starting Date had occurred on any prior date on which
he was eligible to retire in accordance with the Plan.
Notwithstanding the foregoing, a Traditional Participant shall be
fully vested in his Traditional Accrued Benefit if a Termination Date
or Service Break occurs on or after the date the Plan is terminated,
or if the Plan is terminated with respect to a certain class or
classes of Traditional Participants and the Traditional Participant is
a member of the class of Traditional Participants to which the partial
termination is applicable.
6.5 Forfeiture of Traditional Benefits
(a) A Traditional Participant will forfeit all his benefits under the
Plan if-
(1) his Termination Date occurs or a Service Break becomes
effective with respect to him before he has completed five
Years of Service, or
(2) his death occurs before both his Retirement Date and his
Normal Retirement Date and a Traditional Preretirement
Survivor Annuity (under Section 6.6) is not payable with
respect to him in accordance with the Plan, or
(3) his death occurs on or after his Normal Retirement Date and
before his actual Retirement Date has occurred and neither a
Traditional Preretirement Survivor Annuity nor any form of
benefit which provides for post-death benefit payments to a
beneficiary or contingent annuitant is payable with respect
to him in accordance with the Plan.
(b) Notwithstanding subsection (a)-
(1) a Traditional Participant's eligibility service and
Vested Benefit Percentage shall be reinstated to the extent
required by Section 2.44; and
(2) a Traditional Participant's right to the Normal Retirement
Benefit described in Section 6.2 will be considered
nonforfeitable upon attainment of Normal Retirement Age
provided he is an Employee on his Normal Retirement Age.
6.6 Traditional Preretirement Survivor Annuity
(a) If a Participant is vested in his Traditional Accrued Benefit and
has a Spouse on the date of his death, then a 'Traditional
Preretirement Survivor Annuity' shall be provided to the
surviving Spouse of the Participant if he dies while in the
employment of the Company or after termination of his employment
but before his Annuity Starting Date. If the Participant dies
before attaining his Early Retirement Date, the Traditional
Preretirement Survivor Annuity payable to his surviving Spouse
shall be a survivor annuity payable for the life of the Spouse
under which the payments to the Spouse are equal to the amount
that would have been payable to the Spouse as a survivor annuity
if the Participant had terminated employment with the Company on
the date he died, attained his Early Retirement Date, retired
with an immediate 50% Joint and Survivor Annuity (as described in
subsection 9.1(c)(1)(C) with the Spouse as Beneficiary, and died
the next day. In the case of a Participant who dies after
terminating his employment with the Company, the preceding
sentence shall be applied without regard to the requirement that
the Participant be treated as though he had terminated employment
with the Company on the day he died. If the Participant dies
after attaining his Early Retirement Date, then the Traditional
Preretirement Survivor Annuity payable to his surviving Spouse
shall be a survivor annuity payable for the life of the Spouse
under which the payments to the Spouse are equal to the amount
that would have been payable to the Spouse as a survivor annuity
if the Participant had retired with an immediate 50% Joint and
Survivor Annuity with the Spouse as Beneficiary on the day before
his death. The Traditional Preretirement Survivor Annuity shall
be reduced to reflect the early commencement of benefit payment
as provided in Section 6.2(c). The Traditional Preretirement
Survivor Annuity shall be payable to the surviving Spouse in
equal monthly installments commencing on the later to occur of
(i) the first day of the month following the date of death of the
Traditional Participant and (ii) the first day of the month in
which the Traditional Participant would have attained his Early
Retirement Date, and shall terminate on the first day of the
month in which the surviving Spouse dies. The surviving Spouse
may elect to defer the commencement of payment of the Traditional
Preretirement Survivor Annuity to an Annuity Starting Date not
later than the date that the Traditional Participant would have
attained his Normal Retirement Date, and if such deferral is
elected, the amount of payments shall be reduced based on the
elected Annuity Starting Date pursuant to Section 6.2(c), to
reflect the early commencement of benefit payments.
(b) Notwithstanding the above, in no event will a Traditional
Preretirement Survivor Annuity be less than the Pension Benefit
or Traditional Vested Benefit accrued to December 31, 1999 and
adjusted by the appropriate Traditional Early Retirement and
Traditional Spouse's Benefit factors in effect on December 31,
1999.
(c) If a Traditional Participant shall die on or after the first to
occur of his sixty-fifth birthday or the date of commencement of
a Pension Benefit to him, payment shall be made to his surviving
Spouse or Beneficiary in accordance with the form of payment
elected by the Participant pursuant to Article IX (with the
consent of the surviving Spouse if applicable), or if no such
election is then in effect, to his surviving Spouse, if any, in
the form of the survivor portion of a 50% Joint and Survivor
Annuity pursuant to the terms of subsection 9.1(c)(1)(C).
Article VII. Cash Balance Pension Benefit
7.1 Cash Balance Accrued Benefit
(a) Accrued Benefit. The Accrued Benefit of a Cash Balance
Participant is a Single Life Annuity, commencing on the Cash
Balance Participant's Normal Retirement Date, which is the
Actuarial Equivalent of the Cash Balance Participant's Cash
Account Balance as of the date of determination, increased by
interest to the Cash Balance Participant's Normal Retirement
Date, using the Applicable Interest Rate. The present value of a
Cash Balance Participant's Accrued Benefit as of any
determination date shall always equal the Cash Balance
Participant's Cash Account Balance as of such date.
(b) Cash Account Balance. A Cash Balance Participant's Cash Account
Balance shall consist of the sum of his (i) Opening Balance (as
determined under Section 7.2), (ii) allocated Pay Credits (as
determined under Section 7.3), and (iii) allocated Interest
Credits (as determined under Section 7.4).
(c) Minimum Cash Balance Accrued Benefit. Notwithstanding anything
to the contrary, the Accrued Benefit of a Cash Balance
Participant shall not be less than the Accrued Benefit of such
Participant under the Northwestern Pension Plan as in effect on
December 31, 1999.
7.2 Opening Balance
(a) Calculation. 'Opening Balance' means the Actuarial Equivalent as
of December 31, 1999, based on the Cash Balance Participant's
then Attained Age and Service (as defined in Section 2.32) as of
December 31, 1999, of a Cash Balance Participant's Opening
Balance Benefit calculated based on (i) the Applicable Mortality
Table on December 31, 1999 and (ii) an interest rate of 6.0%.
(b) Opening Balance Benefit 'Opening Balance Benefit' means, with
respect to each Cash Balance Participant, an amount payable as a
Life and Ten Year Period Certain Retirement Annuity commencing
according to paragraph (c) below, where such amount, when
expressed as a yearly benefit, equals the product of (1) and (2)
below:
(1) the sum of 1.34 percent of (A) and 1.75 percent of (B) where
-
(A) is the Final Average Compensation up to the Covered
Compensation base of the Cash Balance Participant,
determined as of December 31, 1999, and
(B) is the Final Average Compensation in excess of the
Covered Compensation base of the Cash Balance
Participant, as determined as of December 31, 1999.
(2) The number of years and months of Service completed by the
Cash Balance Participant as of December 31, 1999.
(c) Actuarial Equivalent. The Actuarial Equivalent of the Opening
Balance Benefit determined pursuant to paragraphs (a) and (b)
shall be determined as follows:
(1) With respect to a Cash Balance Participant whose Attained
Age and Service total less than 45 as of December 31, 1999,
the Opening Balance Benefit shall be deemed to commence as
of the later of (i) January 1, 2000, or (ii) the Cash
Balance Participant's Normal Retirement Date.
(2) With respect to a Cash Balance Participant whose Attained
Age and Service total at least 45 but less than 80 on
December 31, 1999, the Opening Balance Benefit shall be
deemed to commence as of the later of (i) January 1, 2000,
or (ii) the first day of the month coincident with or next
following the date the Cash Balance Participant will attain
age 62.
(3) With respect to a Cash Balance Participant whose Attained
Age and Service total more than 80 on December 31, 1999, the
Opening Balance Benefit shall be deemed to commence on the
later of (i) January 1, 2000, or (ii) the first day of the
month coincident or next following the date the Cash Balance
Participant will attain age 55; provided, however, that such
Opening Balance Benefit shall be reduced by 5/12 of one
percent for each month that such deemed commencement date
precedes the first day of the month coinciding with or next
following the date he will attain age 62.
(d) Minimum Opening Balance. Notwithstanding the foregoing, a Cash
Balance Participant's Opening Balance shall not be less than the
product of (i) four percent (4%), times (ii) his Compensation for
the 1999 Plan Year, times (iii) his Service as of December 31,
1999.
In the case of a Cash Balance Participant who terminated
employment prior to January 1, 2000, and was rehired by an
Employer after that date, the Opening Balance Benefit shall be
based on (i) his Accrued Benefit under the Plan as of his
Termination Date, (ii) his Attained Age as of his date of re-
employment, and (iii) the actuarial assumptions set forth in
subsection 7.2(a).
7.3 Pay Credits
(a) General. Pay Credits shall mean for each Contribution Date, a
contribution allocated to the Cash Account of a Cash Balance
Participant. Pursuant to the table set forth below, Pay Credits
shall be credited to a Cash Balance Participant's Cash Account as
of each Contribution Date based on a Cash Balance Participant's
aggregate Attained Age and Service on December 31, 1999, and such
Participant's Compensation paid with respect to the Plan Year
that includes such Contribution Date. For purposes of applying
the following table, any person who is not considered to be an
Employee on December 31, 1999, but who is later hired or rehired
by an Employer after such date, shall be deemed to have an
aggregate Attained Age and Service totaling less than 45. Any
Participant on or after January 1, 2000, who incurs a One-Year
Break in Service, and who subsequently again becomes eligible to
participate in the Plan, shall be deemed to have an aggregate
Attained Age and Service equal to his aggregate Attained Age and
Service on the date his One-Year Break in Service commenced.
Aggregate of Contribution as a Percent Contribution as a Percent
Attained Age and of Compensation Below of Compensation Over
Service on 12/31/99 the Taxable Wage Base the Taxable Wage Base
- -------------------- ------------------------- -------------------------
less than 45 3.0% 6.0%
more than 45 but less than 46 3.5% 7.0%
more than 46 but less than 47 3.6% 7.2%
more than 47 but less than 48 3.7% 7.4%
more than 48 but less than 49 3.8% 7.6%
more than 49 but less than 50 3.9% 7.8%
more than 50 but less than 51 4.0% 8.0%
more than 51 but less than 52 4.1% 8.2%
more than 52 but less than 53 4.2% 8.4%
more than 53 but less than 54 4.3% 8.6%
more than 54 but less than 55 4.4% 8.8%
more than 55 but less than 56 4.5% 9.0%
more than 56 but less than 57 4.6% 9.2%
more than 57 but less than 58 4.7% 9.4%
more than 58 but less than 59 4.8% 9.6%
more than 59 but less than 60 4.9% 9.8%
more than 60 but less than 61 5.0% 10.0%
more than 61 but less than 62 5.1% 10.2%
more than 62 but less than 63 5.2% 10.4%
more than 63 but less than 64 5.3% 10.6%
more than 64 but less than 65 5.4% 10.8%
more than 65 but less than 66 5.5% 11.0%
more than 66 but less than 67 5.6% 11.2%
more than 67 but less than 68 5.7% 11.4%
more than 68 but less than 69 5.8% 11.6%
more than 69 but less than 70 5.9% 11.8%
more than 70 but less than 71 6.0% 12.0%
more than 71 but less than 72 6.1% 12.2%
more than 72 but less than 73 6.2% 12.4%
more than 73 but less than 74 6.3% 12.6%
more than 74 but less than 75 6.4% 12.8%
more than 75 but less than 76 6.5% 13.0%
more than 76 but less than 77 6.6% 13.2%
more than 77 but less than 78 6.7% 13.4%
more than 78 but less than 79 6.8% 13.6%
more than 79 but less than 80 6.9% 13.8%
more than 80 but less than 81 7.0% 14.0%
more than 81 but less than 82 7.1% 14.2%
more than 82 but less than 83 7.2% 14.4%
more than 83 but less than 84 7.3% 14.6%
more than 84 but less than 85 7.4% 14.8%
more than 85 7.5% 15.0%
(b) Contribution Date. A Cash Balance Participant's
Contribution Date shall be determined as follows:
(1) Active Participants. The Contribution Date for each
Cash Balance Participant who is (i) actively employed
on the last day of the Plan Year or (ii) Totally
Disabled pursuant to subsection 7.8(f), shall be the
last day of the Plan Year.
(2) Retired, Terminated Vested and Deceased Participants.
The Contribution Date for each Cash Balance Participant
who terminates employment during the Plan Year for any
reason, including death, shall be such Participant's
Retirement Date, his Termination Date, or his date of
death, as the case may be.
(3) Hours of Service Requirement. Notwithstanding the
foregoing, no Cash Balance Participant who has not
completed at least 1,000 Hours of Service during a Plan
Year shall have a Contribution Date for such Plan Year,
unless his employment terminates during such Plan Year
because of death, Total Disability or attainment of a
Retirement Date.
(c) Contribution Date for First Year of Eligibility.
Notwithstanding any other provision of the Plan to the
contrary, if a Cash Balance Participant does not have a
Contribution Date during any Plan Year of employment because
of his failure to meet the eligibility criteria for Plan
participation set forth in Section 3.3, such Cash Balance
Participant shall, if he is eligible for a Contribution Date
during the first Plan Year of eligibility, receive a Pay
Credit for such first Plan Year that is based on his
Compensation for all of his Plan Years of employment.
7.4 Interest Credits
(a) General. As of the last day of each Plan Year, the Cash
Account of each Participant shall be credited with an
Interest Credit . 'Interest Credit' means the product of
the Cash Balance Participant's Cash Account balance as of
the close of the immediately preceding Plan Year, and the
Investment Credit Percentage for that Plan Year.
(b) Investment Credit Percentage. 'Investment Credit
Percentage' means the Applicable Interest Rate. In the case
of a Cash Balance Participant who terminates employment and
defers distribution of his Pension Benefit, the Investment
Credit Percentage shall continue to be credited to the Cash
Balance Participant's Cash Account Balance until his Annuity
Starting Date. 'Applicable Interest Rate' for a partial
Plan Year shall mean the annual rate of interest on 30-year
Treasury securities for the month of November immediately
preceding such partial Plan Year, multiplied by a fraction,
the numerator of which is the number of completed months in
such partial Plan Year, and the denominator of which is 12.
7.5 Normal Cash Balance Pension Benefit
A Cash Balance Participant who retires on his Normal Retirement
Date shall be entitled to a Cash Balance Pension Benefit. The
annual amount of such Cash Balance Pension Benefit shall be equal
to the Cash Balance Participant's Accrued Benefit as determined
on his Normal Retirement Date.
7.6 Early Retirement Cash Balance Pension Benefit
(a) A Cash Balance Participant who retires on or after his Early
Retirement Date and prior to his Normal Retirement Date
shall be entitled to receive a Cash Balance Pension Benefit,
commencing on his Normal Retirement Date. The annual amount
of such Cash Balance Pension Benefit shall be equal to the
Cash Balance Participant's Accrued Benefit determined on his
Normal Retirement Date.
A Cash Balance Participant eligible for an Early Retirement
Cash Balance Pension Benefit under this Section 7.6 may
elect to have his Cash Balance Pension Benefit commence
prior to his Normal Retirement Date on an Annuity Starting
Date that is the first day of any month coincident with or
following his Early Retirement Date. In that event, the Cash
Balance Pension Benefit payable shall be equal to an
immediate annuity that is the Actuarial Equivalent of the
Cash Balance Participant's Cash Account Balance on his
Annuity Starting Date.
(b) A Cash Balance Participant who wishes to commence receiving
a monthly Cash Balance Pension Benefit prior to his Normal
Retirement Date must file an application therefor with the
Supervisory Committee not later than thirty (30) days prior
to his Annuity Starting Date. Such application shall specify
the Annuity Starting Date on which such Cash Balance Pension
Benefit shall first be payable.
(c) Nothing contained in the Plan shall be construed to require
the payment of any monthly Cash Balance Pension Benefit to
any Cash Balance Participant for any month prior to the
earlier of the month in which a Normal Retirement Income
would commence pursuant to Section 7.5, or thirty (30) days
subsequent to the receipt of an application for a Cash
Balance Pension Benefit filed pursuant hereto.
7.7 Postponed Retirement Cash Balance Pension Benefit
A Cash Balance Participant may continue as a Cash Balance
Participant after his Normal Retirement Date. A Cash Balance
Participant who retires on a Late Retirement Date shall be
entitled to a Cash Balance Pension Benefit, commencing on the
date that is the first day of the month on or after his Late
Retirement Date, in an amount equal to his Accrued Benefit as
determined on his Late Retirement Date. Pay Credits and Interest
Credits shall continue to accrue until the Cash Balance
Participant Retires.
A former Cash Balance Participant who is reemployed by the
Company or an Affiliate following an Early, Normal or Late
Retirement Date and commencement of a Retirement Annuity, shall
continue to receive payment of such Retirement Annuity for the
duration of his period of reemployment and thereafter as provided
by the terms of the Plan. In no event shall such former Cash
Balance Participant receive benefits attributable to Service
prior to his initial Retirement Date in an amount, or for a
duration, less than the amount or duration that such former Cash
Balance Participant would have received if he were not reemployed
by the Company or an Affiliate. A former Cash Balance
Participant who is re-employed by the Company following a
distribution to him pursuant to subsection 9.1(c)(1)(E), shall
have a Cash Account Balance of zero on his re-employment date.
7.8 Disability Cash Balance Pension Benefit
(a) Eligibility. Any Cash Balance Participant who has incurred a
Disability Retirement Date shall be eligible for a
Disability Cash Balance Pension Benefit for life, payable in
equal monthly installments, commencing on his Normal
Retirement Date; provided, however, a Cash Balance
Participant may elect to commence receipt of a Cash Balance
Pension Benefit pursuant to this Section prior to his Normal
Retirement Date on any date following the date he attains
age 55.
(b) Amount. The amount of a Cash Balance Participant's monthly
Disability Cash Balance Pension Benefit shall be equal to
the amount of his Normal Retirement Cash Balance Pension
Benefit determined under Section 7.5 and based upon Interest
Credits and Pay Credits determined under this Section. A
Cash Balance Participant whose employment has terminated as
provided in Section 7.8(a) will be credited with the
Interest Credits and Pay Credits he would have earned had he
continued to be employed by an Employer as a Cash Balance
Participant, based upon the annual rate of Compensation in
effect for the calendar year in which he incurs his
Disability Retirement Date, until the first to occur of (1)
his Normal Retirement Date, (2) the date he recovers from
his Total Disability, or refuses to provide proof of
continued Disability, (3) the date the Plan is terminated,
(4) the date future benefit accruals under the Plan cease
for all Cash Balance Participants, or (5) the date he elects
to commence receipt of his Cash Balance Pension Benefit, if
he elects to commence receipt of such Benefit prior to his
Normal Retirement Date.
For purposes of determining the Cash Balance Participant's
total Pay Credits for the Plan Year in which the Cash
Balance Participant's employment terminates due to a
Disability Retirement Date, the Cash Balance Participant's
Compensation shall include his actual Compensation earned
for the portion of the Plan Year prior to his Disability
Retirement Date, plus an amount equal to his annual rate of
Compensation prorated for the portion of the Plan Year
remaining after his termination of employment.
(c) Proof of Disability. The Supervisory Committee, before
approving the payment of any Disability Cash Balance Pension
Benefit, may require proof in such form as the Supervisory
Committee deems appropriate, including the certificate of a
duly licensed physician that the Participant has had,
currently has, and will continue to have, a Total
Disability. The Supervisory Committee may, in its discretion
exercised in a non-discriminatory manner, require proof of
the continued Disability of the Cash Balance Participant.
(d) Cause of Disability. A Cash Balance Participant will not be
entitled to receive a Disability Cash Balance Pension
Benefit if his Disability is the result of an injury
intentionally self-inflicted for the purpose of collecting a
benefit hereunder.
(e) Recovery from Disability. If the Supervisory Committee finds
that a Cash Balance Participant has recovered from his
Disability at any time prior to his Normal Retirement Date,
or if a Cash Balance Participant refuses to provide the
proof of continued Disability required by the Supervisory
Committee pursuant to the last sentence of subsection (c)
hereof, then, as set forth in subsection (b) hereof,
additional crediting of Interest Credits and Pay Credits
shall be discontinued. In making such finding, the
Supervisory Committee shall accord all Participants like
treatment under the same or similar circumstances
(f) Disability Defined. For purposes of this Article VII only,
'Total Disability' means 'Total Disability' as that term is
defined under the long-term disability plan maintained by
the Company at the time of the determination.
Determinations as to Total Disability shall be made by the
Supervisory Committee, in its sole discretion.
(g) Re-employment. If a Cash Balance Participant recovers from
a Disability and is re-employed by an Employer, he shall be
deemed to have accrued Pay Credits and Interest Credits
through the end of the month in which such Disability
recovery occurs, and no One-Year Break(s) in Service shall
be deemed to have occurred during such period. For
calculations under this Section 7.8(g), the Cash Balance
Participant's Accrued Benefit shall not be less than if it
were based on his Cash Account Balance determined as of the
date his Disability commenced.
7.9 Termination of Vested Cash Balance Participant
(a) A Cash Balance Participant who has incurred a Termination
Date, other than by reason of a Retirement Date, shall be
entitled to receive a Cash Balance Pension Benefit,
commencing on his Normal Retirement Date. The annual amount
of such Cash Balance Pension Benefit shall be equal to his
Accrued Benefit on his Normal Retirement Date.
(b) A terminated Cash Balance Participant eligible for a Cash
Balance Pension Benefit under this Section may elect to have
his Cash Balance Pension Benefit commence prior to his
Normal Retirement Date on an Annuity Starting Date that is
the first day of any month coincident with or following his
Termination Date. In that event, the Cash Balance Pension
Benefit payable shall be equal to an immediate annuity that
is the Actuarial Equivalent of the Cash Balance
Participant's Cash Account Balance on his Annuity Starting
Date.
(c) A Cash Balance Participant who wishes to commence receiving
his Cash Balance Pension Benefit prior to his Normal
Retirement Date must file an application therefor with the
Supervisory Committee not later than thirty (30) days prior
to his Annuity Starting Date. Such application shall
specify the Annuity Starting Date on which such Cash Balance
Pension Benefit shall first be payable.
(d) Nothing contained in the Plan shall be construed to require
the payment of any Cash Balance Pension Benefit to any Cash
Balance Participant for any month prior to the earlier of
the month in which a Cash Balance Pension Benefit would
commence pursuant to Section 7.5 or thirty (30) days
subsequent to the receipt of an application for a Cash
Balance Pension Benefit filed pursuant hereto.
(e) A Cash Balance Participant shall at all times be fully
vested in his Cash Balance Pension Benefit.
7.10 Death Benefits
If a Cash Balance Participant dies prior to his Annuity Starting
Date, a benefit shall be paid to the Cash Balance Participant's
Beneficiary. If such Beneficiary is not the Cash Balance
Participant's Spouse, the Beneficiary shall receive, as soon as
practicable after the Cash Balance Participant's death, a single-
sum payment equal to the Cash Balance Participant's Cash Account
Balance as of the Cash Balance Participant's date of death.
If such Beneficiary is the Cash Balance Participant's Spouse,
payment of the Accrued Benefit as of the date of death shall be
made in the form of a Preretirement Survivor Annuity based on the
Attained Age of the Spouse at the Annuity Starting Date. The
Preretirement Survivor Annuity shall be payable to the surviving
Spouse in equal monthly installments commencing on an Annuity
Starting Date elected by the Spouse that is the first day of any
month (as elected by the surviving Spouse) following the Cash
Balance Participant's death and terminating on the first day of
the month in which the surviving Spouse dies; provided, however,
in lieu of the Preretirement Survivor Annuity, the spouse may
elect to receive, as soon as practicable after the Cash Balance
Participant's death, a single-sum payment equal to the Cash
Balance Participant's Cash Account Balance determined as of the
Cash Balance Participant's date of death.
In no event may the Spouse elect an Annuity Starting Date that is
later than the later of (1) what would have been the
Participant's Normal Retirement Date and (2) the first day of the
first month following the Participant's death. If the Spouse
does not elect an Annuity Starting Date, then the Spouse's
Annuity Starting Date shall be the later of the dates set forth
in the immediately preceding sentence.
'Preretirement Survivor Annuity' shall mean, with respect to the
Spouse of a deceased Cash Balance Participant, an amount payable
to such Spouse for the life of the Spouse, based upon the Cash
Balance Participant's Accrued Benefit at the date of his death.
The Preretirement Survivor Annuity shall be a Single Life Annuity
that is the Actuarial Equivalent of the Participant's Cash
Account Balance at the Participant's death, based on the Spouse's
Attained Age as of the Annuity Starting Date. In no event shall
the Preretirement Survivor Annuity be less than the amount
required by Sections 401(a)(11) and 417 of the Code.
Article VIII. Maximum Plan Benefits
8.1 General Limitation .
Notwithstanding any other provision of this Plan to the contrary,
the annual Pension Benefit provided under this Plan (together
with that provided by all other defined benefit plans of the
Company and any Affiliate) for any Participant for a limitation
year, which shall be the Plan Year, may not exceed the lesser of-
(a) $135,000 (indexed under rules issued by the Secretary
of the Treasury to reflect increases in the cost of
living), or
(b) 100 percent of the Participant's average compensation
(as defined in Treasury Regulation Section 1.415-2(d))
during his three consecutive years of participation
that produce the highest average, or during all years
he was a Participant if less than three.
In no event however, will this limitation reduce the Pension
Benefit earned by a Participant prior to the effective date of
the Tax Reform Act of 1986, Deficit Reduction Act of 1984, or the
Tax Equity and Fiscal Responsibility Act of 1982. Further, the
maximum annual benefit for any individual who is a Participant as
of the first day of any limitation year beginning after December
31, 1986, shall not be less than the Participant's current
Accrued Benefit as of December 31, 1986.
8.2 Early Commencement .
If a Participant's Pension Benefit begins before his Social
Security Retirement Age, the $135,000 figure in subsection (a)(1)
will be adjusted as required by Code Section 415(b). If a
Participant's benefit begins after his Social Security Retirement
Age, the $135,000 figure in Subsection (a)(1) shall be adjusted
to the maximum extent permitted by Code Section 415(b). The
adjustments shall be made in such manner as the Secretary of the
Treasury may prescribe in order to comply with Code Section 415.
8.3 Less than Ten Years of Service .
If a Cash Balance Participant has less than ten Years of Service,
the percentage limitation in subsection 8.1(a) will be reduced by
multiplying the limitation amount by his Years of Service and
dividing the results by ten years. If a Participant's years of
participation in this Plan is less than ten years, the $135,000
limitation will be reduced by multiplying the limitation amount
by his years of participation in this Plan and dividing the
results by ten years.
8.4 Non-Single Life Annuity .
If the annual benefit is payable in the form of a benefit other
than a single life annuity, the limitations of Section 8.1 shall
be adjusted in accordance with Treasury Regulations to be the
actuarial equivalent of a single life annuity. For the purpose
of the preceding sentence, a benefit payable in the form of a
qualified joint and survivor annuity as defined in Code Section
417 shall not be taken into account.
8.5 Non-Applicability .
The limitations of this Article will not apply to a Participant
if-
(1) the total annual retirement benefits payable to the
Participant under the Plan and under all other defined
benefit plans of the Company and any Affiliate do not
exceed $10,000 for the Plan Year or for any prior Plan
Year, multiplied by the ratio of the Participant's
total Years of Service to ten (such ratio not to be
greater than one), and
(2) the Participant has not participated at any time in any
defined contribution plan which the Company or any
Affiliate may have maintained.
Article IX. Payment of Benefits
9.1 Normal and Optional Forms of Benefit
(a) Normal Form of Payment
(1) Married Participant. The Pension Benefit payable to a
Participant who has a Spouse at his Annuity Starting
Date shall be payable as a Qualified Joint and Survivor
Annuity, unless the Participant makes a timely election
to receive payments pursuant to one of the optional
forms of payment described in subsection 9.1(c) below.
The Qualified Joint and Survivor Annuity shall be the
Actuarial Equivalent of the Accrued Benefit otherwise
payable to the Participant pursuant to Article VI or
Article VII, as applicable. An election by a
Participant to receive payments pursuant to subsection
9.1(c) shall only be effective if such Participant's
Spouse has consented to such election as provided in
subsection 9.1(b). A 'Qualified Joint and Survivor
Annuity' means an annuity payable to the Participant
for his life, with a survivor annuity payable to his
Spouse for the life of such Spouse in an amount equal
to 50% of the amount payable during the life of the
Participant.
(2) Unmarried Traditional Participant. The Pension Benefit
payable to a Traditional Participant who does not have
a Spouse at his Annuity Starting Date shall be payable
as a Life and Ten Year Period Certain Annuity unless
the Traditional Participant makes a timely election to
receive payments pursuant to one of the optional forms
of payment described in subsection 9.1(c) below.
(3) Unmarried Cash Balance Participant. The Pension
Benefit payable to a Cash Balance Participant who does
not have a Spouse at his Annuity Starting Date shall be
payable as a Single Life Annuity unless the Cash
Balance Participant makes a timely election to receive
payments pursuant to one of the optional forms of
payment described in subsection 9.1(c) below.
(b) Election of an Optional Form of Benefits.
(1) At least thirty (30) and no more than ninety (90) days
prior to a Participant's Annuity Starting Date, the
Supervisory Committee shall give such Participant a
written notice, in nontechnical terms, of his right to
elect not to receive his Pension Benefit pursuant to
subsection 9.1(a) and of his right to make an election
of an optional form of payment of his Pension Benefit
pursuant to Subsection 9.1(c). Such notice shall
include a description of (i) the terms and conditions
of the normal form of payment under subsection 9.1(a),
(ii) the Participant's right to make and the effect of
an election to waive such form, (iii) the rights of the
Participant's Spouse not to consent to such election,
(iv) the right to make, and the effect of a revocation
of such an election, and (v) the optional forms of
payment available under subsection 9.1(c).
(2) The election provided for above may be made by the
Participant by giving a written notice of election to
the Supervisory Committee at any time during the ninety
(90) day election period ending on the Participant's
Annuity Starting Date. Any such election may be
modified or revoked during such election period and
shall be automatically revoked if the Participant dies
before commencement of payment of his Pension Benefit
to him, or if he has no Spouse on his Annuity Starting
Date (because of divorce or the Spouse's death).
(3) Any election by a Participant not to receive payment in
the normal form set forth in subsection 9.1(a) shall
not take effect unless such Participant's Spouse
consents in writing to such election, such consent
acknowledges the effect of such election and such
consent is witnessed by a representative of the Plan or
a notary public, unless the Participant establishes to
the satisfaction of the Supervisory Committee that such
consent cannot be obtained because the Spouse cannot be
located or because of such other conditions as the
Secretary of the Treasury by regulation may prescribe.
Any consent by a Spouse (or establishment that the
consent cannot be obtained) shall only be effective
with respect to that Spouse. Any consent by a Spouse
hereunder shall be irrevocable. Any consent by a Spouse
hereunder shall be in favor of a specific alternate
Beneficiary and/or form of benefit.
(4) Any election of an optional form of benefit pursuant to
subsection 9.1(c), and any designation of a contingent
annuitant shall be irrevocable from and after a
Participant's Annuity Starting Date.
(c) Optional Forms of Payment.
(1) Each of the optional forms of payment described under
this subsection 9.1(c) shall be the Actuarial
Equivalent of the Participant's Accrued Benefit.
Subject to subsection 9.1(b)(3), a Participant may
elect the following forms of payment of benefits as
provided below:
(A) Life and Ten Year Period Certain. A
Participant may receive a Pension Benefit payable
monthly during his lifetime and, in the event of
his death within a period of ten (10) years after
the commencement of payments, the same amount
shall be payable monthly for the remainder of such
ten (10) year period to his Beneficiary or
Beneficiaries.
(B) Single Life Annuity. A Participant may
receive a Pension Benefit payable monthly during
his life, ending on the first day of the month
during which the death of the Participant occurs.
(C) Joint and Survivor Annuity. A
Participant may receive a Pension Benefit payable
to the Participant for his life with a survivor
annuity payable to his Spouse for the life of such
Spouse in an amount equal to 50%, 66 2/3 or 100%
(as selected by the Participant) of the amount
payable during the life of the Participant.
(D) Social Security Adjustment.
(1) Purpose. This option provides for larger
payments to the Participant from his
Retirement Date to the date Social Security
benefits are expected to commence and reduced
payments thereafter during the Participant's
lifetime. The amount of reduction is equal
to the Primary Social Security Insurance
Benefit to which the Participant is entitled.
The amount of the Primary Social Security
Insurance Benefit is the primary insurance
amount of the Old Age Insurance Benefits
payable to the Participant under the Social
Security Act as estimated by the Plan
Administrator.
The date Social Security benefits are
expected to commence is the first day of the
month next following the Participant's
attainment of his sixty-fifth birthday.
(2) Amount of Benefit. The increased yearly
amount of Pension Benefit payable under this
option to the Participant until the
attainment of his sixty-fifth birthday shall
be equal to the sum of-
(A) the yearly amount of Pension
Benefit otherwise payable to the
Participant if the Single Life Annuity
option were in effect with respect to
him, and
(B) the amount of the
Participant's expected yearly Primary
Social Security Insurance Benefit.
The reduced yearly amount of Pension Benefit
payable under this option to the Participant
during his lifetime after the attainment of
his sixty-fifth birthday shall be equal to
the excess of-
(i) the increased yearly amount of
Pension Benefit payable to the
Participant until the attainment of
his sixty-fifth birthday, over
(ii) the amount of the Participant's
expected yearly Primary Social
Security Insurance Benefit.
In the event the Qualified Joint and Survivor
Annuity is in effect on the Participant's
Early Retirement Date, the yearly amount of
Pension Benefit applicable to the Participant
in the form of a temporary annuity is as
described above, and the yearly amount
applicable in the form of a life annuity, is
equal to the excess of the Pension Benefit
which is applicable to the Participant when
the Qualified Joint and Survivor Annuity is
in effect over the product of the
Participant's expected yearly Primary Social
Security Insurance Benefit and the applicable
Social Security Factor. The monthly amount
of the Pension Benefit payable to the
Participant's Spouse following the
Participant's death will be determined as if
the Social Security Adjustment Option were
not in effect.
(3) Not Available for Employees Hired
on or after January 1, 2000. This Option
shall be available only to Participants hired
prior to January 1, 2000.
(E) Cash Balance Lump Sum. A Cash Balance
Participant may receive the Actuarial Equivalent
of his Accrued Benefit in a single sum as soon as
practicable following his Retirement Date or
Termination Date.
(2) Notwithstanding paragraph (a) above, in no
event will a Participant's Pension Benefit upon Early
Retirement or in an optional form of payment be less
than the Pension Benefit accrued to December 31, 1999
and adjusted by the appropriate Early Retirement and/or
Optional Form of Benefit factors in effect on
December 31, 1999.
9.2 Cashout
(a) Notwithstanding any other provision of the Plan, if the
present value of a Participant's Accrued Benefit at his
Retirement Date or Termination Date is less than or equal to
$5,000, or such higher amount as may be permitted under
applicable law, the Supervisory Committee shall direct that
the present value of his Accrued Benefit be paid in a single
sum. The single sum payment will be a full discharge of the
Plan's liability to him and any nonvested portion will be
treated as a forfeiture.
(b) If a Participant does not have any vested interest in his
Accrued Benefit under this Plan on the Termination Date or
Retirement Date, the Participant shall be deemed to have
received a distribution of his vested Accrued Benefit on
such date. Such individual shall cease to be a
'Participant' under the Plan and shall not be a
'Participant' under the Plan for purposes of Section 4006 of
ERISA. If an individual who was deemed to have received a
distribution under this subsection is rehired, he shall be
treated as having repaid such Accrued Benefit on his date of
rehire.
(c) If the present value of the benefits payable to an alternate
payee under a qualified domestic relations order is less
than or equal to $5,000 on the date upon which the alternate
payee is entitled to benefits, the alternate payee shall be
paid such amount in a single sum regardless of the
provisions of the qualified domestic relations order.
9.3 Direct Rollovers of Eligible Distributions
(a) General. Notwithstanding any provision of the Plan to the
contrary that would otherwise limit a distributee's election
under this Section, a distributee may elect, at the time and
in the manner prescribed by the Supervisory Committee, to
have any portion of an Eligible rollover distribution paid
directly to an Eligible retirement plan specified by the
distributee in a direct rollover, provided that the Eligible
rollover distribution is not less than $200.
(b) Definitions.
(1) Eligible rollover distribution. An Eligible rollover
distribution is any distribution of all or any portion
of the balance to the credit of the distributee, except
that an Eligible rollover distribution does not
include: any distribution that is one of a series of
substantially equal periodic payments (not less
frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or
joint life expectancies) of the distributee and the
distributee's designated beneficiary, or for a
specified period of ten years or more; any distribution
to the extent such distribution is required under Code
Section 401(a)(9); and the portion of any distribution
that is not includible in gross income (determined
without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
(2) Eligible retirement plan. An Eligible retirement plan
is an individual retirement account described in Code
Section 408(a), an individual retirement annuity
described in Code Section 408(b), an annuity plan
described in Code Section 403(a), or a qualified trust
described in Code Section 401(a), that accepts the
distributee's Eligible rollover distribution. However,
in the case of an Eligible rollover distribution to the
surviving Spouse, an Eligible retirement plan is an
individual retirement account or individual retirement
annuity.
(3) Distributee. A distributee includes an Employee or
former Employee. In addition, the Employee's or former
Employee's surviving Spouse and the Employee's or
former Employee's spouse or former spouse who is the
alternate payee under a qualified domestic relations
order, as defined in Code Section are distributees with
regard to the interest of the spouse or former spouse.
(4) Direct rollover. A direct rollover is a payment by the
Plan to the Eligible retirement plan specified by the
distributee.
9.4 Distribution Rules
(a) Commencement of Benefits. Benefit payments shall commence
or be paid:
(1) to a Participant who retires under the Plan on his
Retirement Date;
(2) to a Participant who has a Vested Benefit under the
Plan on his Normal Retirement Date or Early Retirement
Date;
(3) to a Cash Balance Participant who elects the Cash
Balance Lump Sum Option as soon as practicable
following his Retirement or Termination Date;
(4) to a Surviving Spouse of a Traditional Participant
entitled to a Traditional Preretirement Survivor
Annuity as of the date specified in Section 6.6(c); or
(5) to a Beneficiary of a Cash Balance Participant entitled
to a death benefit as of the date specified in
Section 7.10.
Retirement Annuity payments shall be payable for the
lifetime of the Participant or Surviving Spouse and, except
as may otherwise be provided under the Plan, shall cease
with the last payment due on or prior to his date of death.
(b) Minimum Distributions. Notwithstanding anything to the
contrary contained in this Article VII-
(1) All distributions under this Plan shall comply with the
requirements of subsections (c) and (d).
(2) All distributions under this Plan shall be made in
accordance with Code Section 401(a)(9) and the
regulations thereunder. Provisions of the Plan
regarding payment of distributions shall be interpreted
and applied in accordance with Code Section 401(a)(9)
and the regulations thereunder.
(c) Required Distributions. Despite any other provision of the
Plan, a Participant may only elect to receive an optional
form of benefit that meets the distribution requirements of
this Section.
(1) A Participant not currently receiving benefits under
this Plan who attains age 70-1/2 shall commence
receiving benefits on April 1 of the calendar year
following the later of:
(A) the calendar year in which the
Participant attains age 70-1/2, and
(B) the calendar year in which he leaves the
employ of the Employer and all
Affiliates unless he is a five percent
owner (as defined in Section 416 of the
Code) of the Employer at any time during
the five-Plan Year period ending in the
calendar year in which the Participant
attains age 70-1/2, in which case this
clause (B) shall not apply.
Notwithstanding the preceding provisions
of this subsection, the preceding
provisions of this subsection will not
apply to a Participant who reaches age
70-1/2 on or after January 1, 1996 and
prior to January 1, 1999, unless he
elects to have such provisions apply to
him. This election shall not be
available to any Participant who is a 5%
owner (as defined in Section 416 of the
Code) of the Employer at any time during
the five-Plan Year period ending in the
calendar year in which the Participant
attains age 70-1/2. The Supervisory
Committee shall notify any such
Participant of his right to make such an
election. Such election shall be made in
writing in the manner and at the time
prescribed by the Supervisory Committee.
If such election is not made by any such
Participant, his required distribution
date will be April 1 of the calendar
year following the calendar year in
which he attains age 70-1/2.
(2) A Participant's benefits will be distributed, beginning
not later than the date required pursuant to paragraph
(1), over the life of the Participant or over the lives
of such Participant and his designated Beneficiary, or
over a period not extending beyond the life expectancy
of such Participant or the joint life expectancy of
such Participant and Beneficiary.
(3) If the distribution of a Participant's benefits have
begun in accordance with paragraph (1), and the
Participant dies prior to the required commencement
date under paragraph (1) but before his entire interest
has been distributed to him, the remaining portion of
the Participant's benefits will be distributed at least
as rapidly as under the method of distribution in
effect at the date of his death.
(4) If a Participant dies prior to the required
commencement date and prior to commencement of the
payment of benefits, the Participant's benefits will be
distributed within five years after the end of the year
in which the Participant's death occurs, except as
permitted under paragraphs (5) and (6).
(5) If-
(A) any portion of a Participant's benefits are
payable to a designated beneficiary;
(B) such portion will be distributed over the life of
such beneficiary or over a period not extending
beyond the life expectancy of the beneficiary; and
(C) such distributions begin not later than the last
day of the calendar year following the year of the
Participant's death;
then the portion referred to in subparagraph (5)(C)
shall be treated as having been distributed within the
time required under paragraph (4).
(6) If the beneficiary referred to in paragraph (5)(C) is
the surviving Spouse of the Participant the date on
which distributions are required to begin under
paragraph (5)(C) shall not be earlier than the date on
which the Participant would have attained age 70-1/2.
(7) If the distribution of a Participant's benefits begin
in accordance with paragraph (1) while the Participant
is an Employee, the Participant's required minimum
distribution under subsection (b) above shall be paid
as a single sum in each calendar year during which the
Participant is an Employee, unless in such year the
Participant has a Retirement Date and his benefits have
commenced in accordance with subsection (b).
(d) Incidental Death Benefit. If a Participant's benefit under
this Plan is distributed as an annuity, such annuity may
only be payable for a period not to exceed the lifetime of
the Participant or the lifetimes of the Participant and his
designated beneficiary. If the Participant's beneficiary is
not his Spouse, the periodic annuity payments payable to the
designated beneficiary may not exceed the 'applicable
percentage' of the annuity payments payable to the
Participant. The 'applicable percentage' shall be
determined pursuant to regulations issued under Code Section
401(a)(9).
(e) Calculation of Life Expectancies. Life expectancies of
Participants and Beneficiaries under this Section 9.4 shall
not be subject to recalculation.
Article X. Administration
10.1 Misstatement
If the age, sex, or any other relevant fact with respect to a
Participant or other payee to whom a benefit is payable is
misstated, an equitable adjustment shall be made in the benefits
paid or to be paid in the future to a Participant or other payee
so as to provide the benefits which would have been payable had
the correct information been provided initially.
10.2 Determinations by the Supervisory Committee
The Supervisory Committee shall from time to time establish rules
for the administration of the Plan. The Supervisory Committee
shall have the exclusive right to interpret the terms and
provisions of the Plan and to determine any and all questions
arising under the Plan or in connection with its administration,
including, without limitation, the right to remedy or resolve
possible ambiguities, inconsistencies, or omissions, by general
rule or particular decision, all in its sole and absolute
discretion. The Supervisory Committee shall make all such
determinations in a consistent and nondiscriminatory manner. All
such determinations shall be conclusive for the purposes of the
Plan, subject to the provisions of Section 10.4, and shall be
given the maximum possible deference allowed by law.
The Supervisory Committee shall also make, or cause to be made,
all reports or other filings necessary to meet the reporting,
disclosure, and other filing requirements of ERISA.
10.3 Participant's Responsibilities
The Participant and any other person having rights under the Plan
shall provide all information, prescribed forms and proofs which
may reasonably be required of him in the administration of the
Plan. The Supervisory Committee may require evidence that a
payee is living on the date any benefit is due the payee.
10.4 Claims Procedure
Claims for benefits under the Plan may be filed with the
Supervisory Committee on forms supplied by the Employer. Written
notice of the disposition of a claim shall be furnished to the
claimant within 90 days after the application is filed. In the
event the claim is denied, the reasons for the denial shall be
specifically set forth in the notice in language calculated to be
understood by the claimant pertinent provisions of the Plan shall
be cited, and, where appropriate, an explanation as to how the-
claimant can perfect the claim will be provided. In addition,
the claimant shall be furnished with an explanation of the Plan's
claims review procedure.
10.5 Claims Review Procedure
Any Employee, former Employee, or Beneficiary of either, who has
been denied a benefit by a decision of the Supervisory Committee
pursuant to Section 9.4 shall be entitled to request the
Supervisory Committee to give further consideration to his claim
by filing with the Supervisory Committee (on a form which may be
obtained from the Supervisory Committee) a request for a hearing.
Such request together with a written statement of the reasons why
the claimant believes his claim should be allowed, shall be filed
with the Supervisory Committee no later than 60 days after
receipt of the written notification provided for in Section 10.4.
The Supervisory Committee shall then conduct a hearing within the
next 60 days, at which the claimant may be represented by an
attorney or any other representative of his choosing and at which
the claimant shall have an opportunity to submit written and oral
evidence and arguments in support of his claim. At the hearing
(or prior thereto upon five business days written notice to the
Supervisory Committee) the claimant or his representative shall
have an opportunity to review all documents in the possession of
the Supervisory Committee which are pertinent to the claim at
issue and its disallowance. Either the claimant or the
Supervisory Committee may cause a court reporter to attend the
hearing and record the proceedings. In such event a complete
written transcript of the proceedings shall be furnished to both
pates by the court reporter. The full expense of any such court
reporter and such transcripts shall be borne by the party causing
the court reporter to attend the hearing. A final decision as to
the allowance of the claim shall be made by the Supervisory
Committee within 60 days of receipt of the appeal (unless there
has been an extension of 60 days due to special circumstances,
provided the delay and the special circumstances occasioning it
are communicated to the claimant within the 60-day period). Such
communication shall be written in a manner calculated to be
understood by the claimant and shall include specific reasons for
the decision and specific references to the pertinent Plan
provisions on which the decision is based.
10.6 Plan Qualification
It is intended that the Plan in design and operation will meet
the requirements of Code Section 401(a) and of acts amending such
Section. If it is determined that such requirements are not
being met, the Plan and benefits thereunder may be modified,
retroactively if necessary, to satisfy such requirements.
10.7 Indemnity of Supervisory Committee Members
The Company shall indemnify and defend each member of the
Supervisory Committee and each of its other employees against any
and all claims, loss, damages, expenses (including reasonable
attorney's fees), and liability arising in connection with the
administration of the Plan, except when the same is judicially
determined to be due to the gross negligence or willful
misconduct of such member or other employee.
Article XI. Financing the Plan
11.1 Financing the Plan
(a) Funding. The Plan is funded through the Trust Fund. The
Company or other appropriate Employer will make
contributions to the Trust in amounts which it determines,
after consultation with the actuary for the Plan, are
necessary to maintain funding at a level sufficient to
provide all benefits under the Plan as they become due.
(b) Credits. Any credits arising from the forfeiture of
benefits will not be applied to increase the benefits to
which any Participant would otherwise be entitled under the
Plan but will be applied to reduce the amount of the
contributions which the Company or other appropriate
Employer would otherwise make to the Plan.
(c) Contributions. Contributions will be paid to the Trust to
be held by the Trustee pursuant to the terms of the Trust.
The Trustee shall be the custodian of all of the assets and
funds of the Trust, shall accept and receive all sums of
money paid to it from time to time by the Company pursuant
to the terms of the Trust, and shall hold, invest, reinvest,
manage and administer those funds and the increment,
earnings and income thereof as the Trust Fund for the
exclusive benefit of Participants and their Beneficiaries,
all pursuant to the Trust. The Trustee shall pay benefits
to such persons, at such times, and in such amounts as shall
be provided under the Trust. In no event shall the Trustee
be under any obligation to make any payment other than from
the Trust Fund.
11.2 Nonreversion
(1) Except as provided in Section 12.2, no Employer shall
have any right title, or interest in the contributions
made to the Plan, and no part of the Plan assets shall
revert to any Employer. However, if a contribution is
made to the Plan by any Employer by a mistake of fact
then such contribution shall be returned to such
Employer within one year after the payment of the
contribution.
(2) All contributions to the Plan are contingent on the
deductibility of such contributions. If any part or
all of a contribution is disallowed as a deduction
under Code Section 404, then to the extent such
contribution is disallowed as a deduction it shall be
returned to such Employer within one year after the
disallowance.
Article XII. Amendment and Termination
12.1 Amendment to the Plan
The Company shall have the right to amend the Plan in any respect
at any time by an instrument in writing duly executed by the
Company; provided however, no such amendment shall have any
retroactive effect which would reduce a Participant's Accrued
Benefit or Vested Benefit as of the date immediately prior to
such amendment or otherwise adversely affect benefits already
purchased or established for a Participant or other payee except
as may be required by applicable provisions of the Code or ERISA
or the rules and regulations thereunder.
12.2 Termination of the Plan
The Company shall have the right to terminate the Plan at any
time, provided that in the event of such Termination, the benefit
of any highly compensated employee (as defined in Code Section
414(q)) and former highly compensated employee shall be limited
to a benefit that is nondiscriminatory under Code Section
401(a)(4). Upon Termination, the Supervisory Committee shall
allocate the assets of the Plan, after first providing for the
expenses of the Plan, in the following order:
(a) In the case of benefits payable as a retirement annuity, to-
(1) the smallest benefit payable to each retired
Participant or Beneficiary of the Plan which was in pay
status at least three years before the Termination of
the Plan, based on the Plan provisions in effect five
years prior to the Termination of the Plan; and
(2) the smallest benefit which would have been in pay
status to each Participant or Beneficiary of the Plan,
not included in (1), if the Participant had retired at
least three years before Termination of the Plan, based
on the plan provisions in effect five years prior to
the Termination of the Plan.
(b) To all other benefits not included in (a) and (b) which are
payable under the Plan and which are guaranteed under Title
IV of ERISA.
(c) To all other benefits not included in (a), (b) or (c) which
are payable under the Plan and in which Participants are
vested.
(d) To all other benefits which are payable under the Plan.
If the assets available for allocation are insufficient to cover
all benefits within a priority class, such assets will be
allocated pro rata within that class to the exclusion of
succeeding classes.
If the Plan is terminated with respect to a specified class or
classes of Participants only, the Supervisory Committee shall
determine the portion of the assets of the Plan which is
attributable to such class or classes of Participants. The
Supervisory Committee shall then allocate such portion of the
assets of the Plan to the Participants who are members of the
class or classes to which such partial Termination is applicable
in the same manner as if the Plan had been terminated with
respect to all Participants, after first providing for the
expenses applicable to the discontinued portion of the Plan.
Upon Termination or partial Termination of the Plan, the Accrued
Benefit of each affected Participant determined as of the date of
such Termination or partial Termination, shall be nonforfeitable
to the extent it is then funded.
All assets of the Plan shall be used for the exclusive benefit of
Participants and their Beneficiaries and for defraying the
reasonable expenses of administering the Plan; provided, however,
if and when all liabilities of the Plan have been satisfied, any
remaining assets may revert to the Employer.
There shall be no merger or consolidation with, or transfer of
assets or liabilities to, any other plan, unless each Participant
would, if such other plan then terminated, receive a benefit
immediately after the merger, consolidation, or transfer, which
is equal to or greater than the benefit he would have been
entitled to receive immediately before the merger, consolidation
or transfer if the Plan had then terminated.
12.3 Restriction on Benefits on Early Termination
(a) Restrictions Prior to January 1, 1994. Notwithstanding any
other provisions in the Plan to the contrary, for Plan Years
beginning before January 1,1994, the Pension Benefits
provided under the Plan for Participants (including
subsequently retired Participants) of the Plan who are among
the 25 most highly-compensated Employees of the Employer as
of the effective date of the Plan, or as of any later date
as of which any amendment of the Plan shall increase the
retirement benefits hereunder for such Participant (each of
which dates shall hereinafter be referred to as a
'Restricted Date'), and whose anticipated annual benefits
exceed $1,500, shall be subject to the following
restrictions:
(1) If, on any date prior to ten years after any Restricted
Date, the Plan is terminated as respects the Employer,
the benefits payable to any Participant in this group
from Employer contributions shall not exceed the
benefit which can be provided from the greater of the
following:
(A) the Employer contributions (or funds attributable
thereto) which would have been applied to provide
benefits for the Participant under the Plan as in
effect on the day before such applicable
Restricted Date had it continued in effect
unchanged to such date of termination of the Plan;
(B) $20,000;
(C) the sum of-
(i) the Employer contributions (or funds
attributable thereto) which would have been
applied to provide benefits for the
Participant under the Plan as in effect on
the day before such applicable Restricted
Date if it had been terminated on the day
before such applicable Restricted Date; and
(ii) an amount computed by multiplying (I) 20
percent of the Participant's average annual
earnings, or (II) $10,000, whichever is the
lesser, by the number of years elapsing
between the applicable Restricted Date and
such date of Termination of the Plan; or
(D) the present value of the benefit guaranteed for
such Employees under Section 4022(b) of ERISA.
(2) If any Participant in this group leaves the employ of
the Employer when the full current costs have not been
met the funds or benefits from Employer contributions
which any Participant in such group may receive
(including any funds or benefits from Employer
contributions he has already received) shall not, at
any time prior to ten years after an applicable
Restricted Date, exceed the funds or benefits from
Employer contributions which he could receive in
accordance with paragraph (1) above if the Plan were
terminated at the time he receives such funds or
benefits; provided, however, that neither paragraph (2)
nor paragraph (1) of this Section 12.3(a) shall
restrict the current payment of the full monthly
retirement benefits called for by the Plan for any
Participant in such group while the Plan is in full
effect and its full current costs have been met.
(b) Restrictions on and after January 1, 1994.
(1) Restriction. Notwithstanding any other Plan provision
to the contrary, for Plan Years beginning on or after
January 1, 1994, the payment of Pension Benefits
provided under the Plan to or on behalf of a
Participant described in paragraph (2) below will be
restricted to an amount equal to the payments that
would be made on the Participant's behalf under a
single life annuity that is the Actuarial Equivalent of
the sum of the Participant's Accrued Benefit and the
Participant's other benefits (if any) under the Plan
and a social security supplement if any, that the
Participant is entitled to receive.
(2) Restricted Participants. The Participants subject to
the restrictions set forth in subsection (a) are those
Participants who are the 25 Highly Compensated
Employees (as defined in Code Section 414(q)) and
former Highly Compensated Employees with the greatest
Compensation (as defined in Code Section 414(s)) in the
current or any prior year.
(3) Nonapplicability. The restrictions in this Section
12.3(b) will not apply, however, if-
(A) After taking into account payment to or on behalf
of such a Participant of all the existing Pension
Benefits payable to or on behalf of the
Participant under the Plan, the value of Plan
assets equals or exceeds 110 percent of the value
of Current Liabilities as defined in Code Section
412(l)(7);
(B) The value of the benefits payable to or on behalf
of the Participant under the Plan is less than 1
percent of the value of Current Liabilities before
distribution.
(C) The value of the Pension Benefit payable to the
Participant under the Plan does not exceed $5,000
(or such greater amount as may be permitted under
Code Section 411(a)(11)(A)); or
(D) The Commissioner of Internal Revenue determines
that such restrictions are not necessary to
prevent the prohibited discrimination that may
occur in the event of an early termination of the
Plan.
(c) Definitions. For purposes of this Section 12.3, the
following terms shall have the meaning set forth below:
(1) 'Accrued Benefit' shall have the meaning set forth
in Section 2.1.
(2) 'Actuarial Equivalent' shall have the meaning set
forth in Section 2.2.
(3) 'Benefit' or 'Pension Benefit' shall include among
other benefits under the Plan, loans in excess of the
amounts set forth in Section 72(p)(2)(A) of the Code,
any periodic income, any withdrawal values payable to a
living or former Employee, and any death benefits under
the Plan not provided for by insurance on the
Employee's or former Employee's life.
Article XIII. Facility of Payment
13.1 Facility of Payment
If any payee under this Plan is considered by the Supervisory
Committee to be legally, physically or mentally incapable of
giving a valid release for any payment due, payment of the
amounts payable may be made to any person or institution who is
then found to be maintaining or have custody of such payee, until
claim is made by the duly appointed guardian or other legal
representative of such payee. Any payment made in good faith in
accordance with this provision shall, to the extent of such
payment, constitute a full discharge of any liability to make
such payment.
Article XIV. Assignment of Benefits
14.1 Assignment of Benefits
Except as otherwise prescribed by law or pursuant to a qualified
domestic relations order as defined in Code Section 414(p), no
payee under the Plan shall have the right to assign, alienate,
encumber, or commute any payments hereunder, nor shall any
payments hereunder be subject to the debts, contracts, or
engagements of any payee or to any judicial process to levy upon
or attach the same for the payment of any claim against the
payee.
The Supervisory Committee shall be responsible for any
determination relating to the qualification, interpretation or
administration of a domestic relations order assigning benefits
payable under the Plan. The Supervisory Committee shall
establish reasonable procedures to determine the qualified status
of domestic relations orders and to administer distributions
under these orders.
Notwithstanding the provisions contained herein, the benefits
payable under the Plan may be offset by an amount set forth in a
court order or requirement to pay that arises from (1) a judgment
of conviction for a crime involving the Plan, (2) a civil
judgment (or consent order or decree) that is entered by a court
in an action brought in connection with a breach (or alleged
breach) of a fiduciary duty under ERISA, or (3) a settlement
agreement entered into by the Participant with the Secretary of
Labor in connection with a breach of fiduciary duty under ERISA
by a fiduciary or any other person, provided that such judgment
or agreement is issued or entered into on or after August 5,
1997.
Article XV. Beneficiary
15.1 Designating a Beneficiary
Upon becoming a Participant or any time thereafter prior to his
Termination of service, a Participant may, by notice to the
Employer, designate a Beneficiary or Beneficiaries to receive
such payments or Distributions as may be provided for under the
Plan. Such designation may be changed from time to time or
revoked, without the consent of any previously designated
Beneficiary, by notice to the Employer. No such designation,
change or revocation shall be effective unless executed by the
Participant and acknowledged by the Employer.
15.2 Nonspouse Beneficiary
The designation of a nonspouse Beneficiary by a married
Participant must be consented to in writing by the Participant's
Spouse in accordance with subsection 9.1(b)(3). In the absence
of spousal consent, a married Participant shall be deemed to have
designated his Spouse as Beneficiary.
15.3 Plan Designations
If there is no designated Beneficiary to receive any amount that
becomes payable to a Beneficiary, or in the event a designated
Beneficiary has predeceased the Participant such payments or
distributions shall be paid in equal shares to the person or
persons in the first surviving class of the following classes of
preference beneficiaries-
(a) Participant's widow or widower,
(b) Participant's surviving issue per stirpes and not per capita,
(c) Participant's surviving parents,
(d) Participant's surviving brothers and sisters,
(e) Representative of Participant's estate.
15.4 Interpretations
When used herein and, unless the Participant has otherwise
specified in his Beneficiary designation, when used in a
Beneficiary designation, 'per stirpes' means in equal shares
amount living children and the issue, taken collectively, of each
deceased child, with such issue taking by right of
representation; 'children' means issue of the first generation
and 'issue' means all persons who are descended from the person
referred to, either by legitimate birth to or legal adoption by
him or any of his legitimately born or legally adopted
descendants.
Unless the Participant is survived by Beneficiaries designated by
him at the time of his death, the automatic Beneficiaries
specified above shall become fixed as of the Participant's death
so that if a beneficiary survives the Participant but dies before
the receipt of all payments due such Beneficiary hereunder, such
remaining payments shall be given effect without regard to
whether the relationship to the Participant exists either then or
at the Participant's death. Any designation of a Beneficiary by
name that is accompanied by a description of relationship to the
Participant shall be given effect without regard to whether the
relationship to the Participant exists either then or at the
Participant's death. Any designation of a Beneficiary only by
statement of relationship to the Participant shall be effective
only to designate the person or persons standing in such
relationship to the Participant at the Participant's death.
Article XVI. Miscellaneous
16.1 Gender
Words of the masculine gender include the feminine unless the
context indicates otherwise.
16.2 Titles
The titles given to the various Sections of the Plan are inserted
for convenience of reference only. They are not part of the Plan
and shall not be considered in determining the purpose, meaning
or intent of any provision thereof.
16.3 Governing Law
Except to the extent preempted by ERISA, the laws of the State of
South Dakota shall govern the construction and administration of
the Plan.
Article XVII. Top-Heavy Provisions
17.1 Application of Top-Heavy Provisions
(a) Single Plan Determination. Except as provided in subsection
(b)(2), if as of a Determination Date, the sum of the amount
of the Section 416 Benefits of Key Employees and the
beneficiaries of deceased Key Employees exceeds 60 percent
of the amount of the Section 416 Benefits of all Employees
and beneficiaries (excluding former Key Employees), the Plan
is top-heavy and the Provisions of this Article shall become
applicable.
(b) Aggregation Group Determination.
(1) If as of a Determination Date this Plan is part of an
Aggregation Group which is top-heavy, the Provisions of
this Article shall become applicable. Top-heaviness
for the purpose of this subsection shall be determined
with respect to the Aggregation Group in the same
manner as described in subsection (a) above.
(2) If this Plan is top-heavy under subsection (a), but the
Aggregation Group is not top-heavy, the Plan shall not
be top- heavy and this Article shall not be applicable.
(3) The Supervisory Committee shall have responsibility to
make all calculations to determine whether this Plan is
top-heavy.
17.2 Definitions
(a) 'Aggregation Group' means this Plan and all other plans
maintained by the Employers and Affiliates which cover a Key
Employee and any other plan which enables a plan covering a
Key Employee to meet the requirements of Code Section
401(a)(4) or Section 410. In addition, at the election of
the Supervisory Committee, the Aggregation Group may be
expanded to include any other qualified plan maintained by
an Employer or an Affiliate if such expanded Aggregation
Group meets the requirements of Code Sections 401(a)(4) and
410.
(b) 'Determination Date' means the last day of the Plan Year
immediately preceding the Plan Year for which top-heaviness
is to be determined or, in the case of the first Plan Year
of a new plan, the last day of such Plan Year.
(c) 'Key Employee' means a Participant who is a 'key employee'
as defined in Code Section 416(i). Any Employee who is not
a key employee shall be a 'non-key employee' for purposes of
applying this Article XV.
(d) 'Section 416 Benefit' means-
(1) the present value of the accrued benefit credited as of
a Determination Date to a Participant or beneficiary
under the Plan and under any other qualified defined
benefit plan which is part of an Aggregation Group;
(2) the amount credited to a Participant's or beneficiary's
account under a qualified defined contribution plan
which is part of an Aggregation Group (including
amounts to be credited as of the Determination Date but
which have not yet been contributed); and
(3) the amount of Distributions to the Participant or
beneficiary during the five-year period ending on the
Determination Date other than a distribution which is a
tax-free rollover contribution (or similar transfer)
that is not initiated by the Participant or that is
contributed to a plan which is maintained by an
Employer or an Affiliate;
reduced by-
(4) the amount of rollover contributions (or similar
transfers) and earnings thereon credited as of a
Determination Date under the Plan or a plan forming
part of an Aggregation Group which is attributable to a
rollover contribution (or similar transfer) initiated
by the Participant and derived from a plan not
maintained by an Employer or an Affiliate.
The present value of the accrued Benefits shall be
determined as of the most recent valuation date used for the
purposes of Code Section 412 which is within the 12-month
period ending on the Determination Date. The accrued
benefit of a current Participant shall be determined as if
the Participant terminated service as of such valuation
date. The funding assumptions to be used in any calculation
to determine top- heavy status of the Plan are as follows:
Interest 5 percent per annum; Post Retirement Mortality: the
1971 Group Annuity Mortality Table set back two years for,
Males and eight years for Females.
The accrued benefit or account of a Participant who was a
Key Employee and who subsequently meets none of the
conditions of subsection (c) for the Plan Year containing
the Determination Date is not a Section 416 Benefit and
shall be excluded from all computations under this Article.
Furthermore, if a Participant has not performed any services
for an Employer or an Affiliate during the five-year period
ending on the Determination Date, any accrued benefit of
such - Participant (and any account for such Participant)
shall not be taken into account in computing top-heaviness
under this Article.
17.3 Vesting Requirements
If the Plan is determined to be top-heavy with respect to a Plan
Year under the Provisions of Section 16.1, then a Traditional
Participant's interest in his accrued benefit shall vest in
accordance with the following schedule:
Years of Vesting Service Vesting Percentage
------------------------- ------------------
Less than 2 0%
2 or more but less than 3 20%
3 or more but less than 4 40%
4 or more but less than 5 60%
5 or more 100%
The vesting Provisions described in this Section shall not apply
to a Traditional Participant who does not have an Hour of Service
after the Plan becomes top-heavy. If in a subsequent Plan Year
the Plan is no longer top-heavy, the vesting provisions that were
in effect prior to the time the Plan became top-heavy shall be
reinstated; provided, however, that any portion of a Traditional
Participant's accrued benefit which was vested prior to the time
the Plan was no longer top-heavy shall remain vested, and
provided further that a Traditional Participant who has at least
three years of vesting Service at the start of such Plan Year
shall have the option of remaining under the vesting schedule in
effect while the Plan was top-heavy.
17.4 Minimum Accrual Formula
(a) Amount. If the Plan is determined to be top-heavy under the
provisions of Section 17.1 with respect to a Plan Year, the
accrued benefit when expressed as an Annual Retirement
Benefit (as defined below), of a Participant who is not a
Key Employee shall not be less than the difference between
(1) and (2) where-
(1) is the product of-
(A) the number of years of Top-Heavy Service (as
defined below); and
(B) 2 percent of the Participant's average Wages
during the period of the five consecutive years of
Top-Heavy Service during which the Participant had
the greatest aggregate Wages;
but such product shall not exceed 20 percent of the
average Wages; and
(2) is the amount of the Annual Retirement Benefit that
would be provided by the Participant's account balance
attributable to Employer contributions under a defined
contribution plan which is included in an Aggregation
Group.
(b) Definitions.
(1) Annual Retirement Benefit means a benefit payable
annually in the form of a single life annuity and which
commences at age 65. If the benefit is payable in
another form or commences at another time, the amount
described in subsection (a) above shall be adjusted on
an actuarial equivalent basis. Preretirement death
benefits shall not cause a reduction in the amount of
the benefit.
The accrued benefit of any Employee other than a Key
Employee shall be determined-
(A) under the method which is used for accrual
purposes for all plans of the Company and
Affiliates, or
(B) if there is no method described in (A), as if such
benefit accrued not more rapidly than the slowest
accrual rate permitted under Code Section
411(b)(1)(C).
(2) Top-Heavy Service means the Years of Service credited
to the Participant under the Plan, but determined under
the rules of paragraphs (4), (5), and (6) of Code
Section 411(a) and excluding any Year of Service for
any Plan Year ending during such Year of Service during
which the Plan was not top-heavy and excluding any Year
of Service completed in a Plan Year beginning before
January 1, 1984.
(3) Wages means the Participant's remuneration, as
described in Treasury regulation Section 1.415-2(d)(2),
received for personal services rendered in the course
of employment with Employers and Affiliates, excluding
those items described in Treasury regulation Section
1.415-2(d)(3) and without regard to Code Section 125 or
402(e)(3). Wages shall be limited by the limit on
compensation imposed under Code Section 401(a)(17) in
accordance with the provisions of Section 2.12.
17.5 Collective Bargaining Agreements
The requirements of Sections 17.3 and 17.4 shall not apply with
respect to any Employee included in a unit of Employees covered
by a Collective bargaining agreement between Employee
representatives and an Employer or an Affiliate if retirement
Benefits were the subject of good faith bargaining between such
Employee representatives and such Employer or Affiliate.
Article XVIII. USERRA
The following special provisions of this Article shall apply to
an Employee or Participant who is reemployed in accordance with
the reemployment provisions of the Uniformed Services Employment
and Reemployment Rights Act of 1994 (`USERRA') following a period
of qualifying military service (as determined under USERRA):
(a) Each period of qualifying military service served by an
Employee or Participant shall, upon such reemployment, be
counted toward determining the Employee's or Participant's
Service for all purposes of the Plan, including determining
the amount of and eligibility for a pension or a death
benefit.
(b) For all purposes under the Plan, the Participant shall be
treated as having received Compensation from the Employer or
an Affiliate based on the rate of Compensation the
Participant would have received during the period of
qualifying military service, or if that rate is not
reasonably certain, on the basis of the Participant's
average rate of Compensation during the 12-month period
immediately preceding such period.
(c) If the Plan is amended at any time to allow voluntary
contributions by the Participant, the Participant shall be
permitted to make up any such voluntary contributions missed
during the period of qualifying military service. The
Participant shall have a period of time beginning on the
date of the Participant's reemployment with the Employer or
an Affiliate following his period of qualifying military
service and extending over the lesser of (i) the product of
three and the Participant's period of qualifying military
service, and (ii) five years, to make up such missed
voluntary contributions. Compensation shall not be credited
to a Participant's voluntary contribution account with
respect to any voluntary contribution before such
contribution (if permitted) actually is made.
(d) With respect to any contribution made by the Employer or an
Affiliate or an Employee in accordance with the foregoing
provisions of this Article XVIII:
(i) such contributions shall not be subject to any
otherwise applicable limitation under Code Section
404(a) or 415, and shall not be taken into account in
applying such limitations to other Employee or Employer
or Affiliate contributions under the Plan or any other
plan, with respect to the year in which such
contributions are made, and such contributions shall be
subject to these limitations only with respect to the
year to which such contributions relate and only in
accordance with regulations prescribed by the Internal
Revenue Service; and
(ii) the Plan shall not be treated as failing to meet the
requirements of Code Section 401(a)(4), 401(a)(26),
401(m), 410(b) or 416 by reason of such contributions.
IN WITNESS WHEREOF, this Amended and Restated Plan has been
executed on behalf of Northwestern Corporation by its duly
authorized officer, on this _____ day of ______________, 2000,
effective as of January 1, 2000.
NORTHWESTERN CORPORATION
By:
NORTHWESTERN CORPORATION
TRADITIONAL PENSION EQUALIZATION PLAN
Amended and Restated Effective January 1, 2000
The Northwestern Public Service Company Pension Equalization
Plan, now known as the Northwestern Corporation Traditional
Pension Equalization Plan (the 'Plan'), was adopted by
Northwestern Public Service Company, now known as Northwestern
Corporation, effective August 5, 1987. Northwestern Corporation
now amends and restates the Plan, effective January 1, 2000, as
hereinafter set forth:
ARTICLE I
DEFINITIONS
Wherever used herein the following terms shall have the
meanings hereinafter set forth:
1.1 'Affiliate' means (i) any corporation while it is a
member of the same 'controlled group' of corporations (within the
meaning of Code Section 414(b)) as the Company; (ii) any other
trade or business (whether or not incorporated) while it is under
'common control' (within the meaning of Code Section 414(c)) with
the Company; (iii) any organization during any period in which it
(along with the Company) is a member of an 'affiliated service
group' (within the meaning of Code Section 414(m)); or (iv) any
other entity during any period in which it is required to be
aggregated with the Company under Code Section 414(o).
1.2. 'Beneficiary' means a person or entity designated by a
Participant under the Qualified Plan to receive benefits
thereunder following his death.
1.3. 'Board' means the Board of Directors of the Company.
1.4 'Code' means the Internal Revenue Code of 1986, as
amended from time to time, and any regulations relating thereto.
1.5. 'Company' means Northwestern Corporation, a Delaware
corporation, or, to the extent provided in Section 7.9 below, any
successor corporation or other entity resulting from a merger or
consolidation into or with the Company or a transfer or sale of
substantially all of the assets of the Company.
1.6. 'Normal Retirement Date' means the first day of the
month coinciding with or next following a Participant's 65th
birthday.
1.7. 'Participant' means an Employee of the Company who is
designated by name on the attached Schedule A. No other Employee
shall be or become a Participant in the Plan.
1.8. 'Plan' means the Northwestern Corporation Traditional
Pension Equalization Plan.
1.9. 'Qualified Plan' means the Northwestern Pension Plan as
amended and restated effective January 1, 2000 and as further
amended from time to time.
1.10. 'Qualified Plan Death Benefit' means the aggregate
benefit payable to the Surviving Spouse or Beneficiary of a
Participant pursuant to the Qualified Plan and all annuities
purchased for the Participant under the Qualified Plan (whether
or not terminated) in the event of the death of the Participant
at any time prior to commencement of payment of his Qualified
Plan Retirement Benefit.
1.11. 'Qualified Plan Retirement Benefit' means the
aggregate benefit payable to a Participant pursuant to the
Qualified Plan and all annuities purchased for the Participant
under the Qualified Plan (whether or not terminated) by reason of
his termination of employment with the Company and all Affiliates
for any reason other than death.
1.12. 'Supplemental Death Benefit' means the benefit payable
to a Surviving Spouse or Beneficiary pursuant to the Plan.
1.13. 'Supplemental Retirement Benefit' means the
benefit payable to a Participant pursuant to the Plan by reason
of his termination of employment with the Company and all
affiliates for any reason other than death.
1.14. 'Surviving Spouse' means a person who is married
to a Participant at the date of his death and for at least one
year prior thereto.
1.15. Words in the masculine gender shall include the
feminine and the singular shall include the plural, and vice
versa, unless qualified by the context. Any headings used herein
are included for ease of reference only, and are not to be
construed so as to alter the terms hereof.
ARTICLE II
ELIGIBILITY
A Participant who is designated on Schedule A shall be
eligible to receive a Supplemental Retirement Benefit. The
Surviving Spouse or Beneficiary of a Participant designated on
Schedule A who dies prior to commencement of payment of his
Qualified Plan Retirement Benefit shall be eligible to receive a
Supplemental Death Benefit.
ARTICLE III
SUPPLEMENTAL RETIREMENT BENEFIT
3.1. Amount. The Supplemental Retirement Benefit payable to
a Participant in the form of a straight life annuity over the
lifetime of the Participant only, commencing on his Normal
Retirement Date, shall be a monthly amount equal to the
difference between (a) and (b) below:
(a) the monthly amount of the Qualified Plan
Retirement Benefit to which the Participant would have been
entitled under the Qualified Plan if such Benefit were
computed (i) without giving effect to any limitations on
benefits imposed by any provisions of the Code;
LESS
(b) the monthly amount of the Qualified Plan
Retirement Benefit actually payable to the Participant under
the Qualified Plan.
The amounts described in (a) and (b) shall be computed as of
the date of termination of employment of the Participant with the
Company and all affiliates in the form of a straight life annuity
payable over the lifetime of the Participant only commencing on
his Normal Retirement Date.
3.2. Form of Benefit. The Supplemental Retirement Benefit
payable to a Participant shall be paid in the same form under
which the Qualified Plan Retirement Benefit is payable to the
Participant. Subject to Section 3.4, the Participant's election
under the Qualified Plan of any optional form of payment of his
Qualified Plan Retirement Benefit (with the valid consent of his
Surviving Spouse where required under the Qualified Plan) shall
also be applicable to the payment of his Supplemental Retirement
Benefit. In the case of a form of payment selected by the
Participant under the Qualified Plan that provides for payments
to his Surviving Spouse or other Beneficiary following his death,
the Supplemental Retirement Benefit shall likewise be paid
following his death to the Surviving Spouse or other Beneficiary
in accordance with the terms of such form of payment selected
under the Qualified Plan.
3.3. Commencement of Benefit. Payment of the Supplemental
Retirement Benefit to a Participant shall commence on the same
date as payment of the Qualified Plan Retirement Benefit to the
Participant commences. Subject to Section 3.4, any election
under the Qualified Plan made by the Participant with respect to
the commencement of payment of his Qualified Plan Retirement
Benefit shall also be applicable with respect to the commencement
of payment of his Supplemental Retirement Benefit.
3.4. Approval of Company. Notwithstanding the provisions of
Sections 3.2 and 3.3 above, an election made by the Participant
under the Qualified Plan with respect to the form of payment of
his Qualified Plan Retirement Benefit (with the valid consent of
his Surviving Spouse where required under the Qualified Plan), or
the date for commencement of payment thereof, shall not be
effective with respect to the form of payment or date for
commencement of payment of his Supplemental Retirement Benefit
hereunder unless such election is expressly approved in writing
by the Company with respect to his Supplemental Retirement
Benefit. If the Company shall not approve such election in
writing, then the form of payment or date for commencement of
payment of the Participant's Supplemental Retirement Benefit
shall be selected by the Company in its sole discretion.
3.5. Actuarial Equivalent. A Supplemental Retirement
Benefit which is payable in any form other than a straight life
annuity over the lifetime of the Participant, or that commences
at any time prior to the Participant's Normal Retirement Date,
shall be the actuarial equivalent of the Supplemental Retirement
Benefit set forth in Section 3.1 above as determined by the same
actuarial adjustments as those specified in the Qualified Plan
with respect to determination of the amount of the Qualified Plan
Retirement Benefit on the date for commencement of payment
hereunder.
ARTICLE IV
SUPPLEMENTAL DEATH BENEFIT
4.1. Amount. If a Participant dies prior to commencement of
payment of his Qualified Plan Retirement Benefit under
circumstances in which a Qualified Plan Death Benefit is payable
to his Surviving Spouse or Beneficiary (if the Participant has
designated a Beneficiary other than his Surviving Spouse in
accordance with the terms of the Qualified Plan), a Supplemental
Death Benefit is payable to his Surviving Spouse or Beneficiary
as hereinafter provided. The monthly amount of the Supplemental
Death Benefit payable to a Surviving Spouse or Beneficiary shall
be equal to the difference between (a) and (b) below:
(a) the monthly amount of the Qualified Plan Death
Benefit to which the Surviving Spouse or Beneficiary would
have been entitled under the Qualified Plan if such Benefit
were computed without giving effect to any limitations on
benefits imposed by the Code;
LESS
(b) the monthly amount of the Qualified Plan Death
Benefit actually payable to the Surviving Spouse or
Beneficiary under the Qualified Plan.
4.2. Form and Commencement of Benefit. A Supplemental Death
Benefit shall be payable over the lifetime of the Surviving
Spouse or Beneficiary only, in monthly installments commencing on
the date for commencement of payment of the Qualified Plan Death
Benefit to the Surviving Spouse or Beneficiary and terminating on
the date of the last payment of the Qualified Plan Death Benefit
made before the Surviving Spouse's or Beneficiary's death.
ARTICLE V
ADMINISTRATION OF THE PLAN
5.1. Administration by the Company. The Company shall be
responsible for the general operation and administration of the
Plan and for carrying out the provisions thereof.
5.2. General Powers of Administration. All provisions set
forth in the Qualified Plan with respect to the administrative
powers and duties of the Company, expenses of administration, and
procedures for filing claims shall also be applicable with
respect to the Plan. The Company shall be entitled to rely
conclusively upon all tables, valuations, certificates, opinions
and reports furnished by any actuary, accountant, controller,
counsel, or other person employed or engaged by the Company with
respect to the Plan.
ARTICLE VI
AMENDMENT OR TERMINATION
6.1. Amendment or Termination. The Company intends the Plan
to be permanent but reserves the right to amend or terminate the
Plan when, in the sole opinion of the Company, such amendment or
termination is advisable. Any such amendment or termination
shall be made pursuant to a resolution of the Board and shall be
effective as of the date of such resolution.
6.2. Effect of Amendment or Termination. No amendment or
termination of the Plan shall directly or indirectly deprive any
current or former Participant, Surviving Spouse or Beneficiary of
all or any portion of any Supplemental Retirement Benefit or
Supplemental Death Benefit payment which has commenced prior to
the effective date of such amendment or termination or which
would be payable if the Participant terminated employment for any
reason, including death, on such effective date.
ARTICLE VII
GENERAL PROVISIONS
7.1. Funding. The Plan at all times shall be entirely
unfunded and no provision shall at any time be made with respect
to segregating any assets of the Company for payment of any
benefits hereunder. No Participant, Surviving Spouse,
Beneficiary, or any other person shall have any interest in any
particular assets of the Company by reason of the right to
receive a benefit under the Plan and any such Participant,
Surviving Spouse, Beneficiary, or other person shall have only
the rights of a general unsecured creditor of the Company with
respect to any rights under the Plan.
7.2. General Conditions. Except as otherwise expressly
provided herein, all terms and conditions of the Qualified Plan
applicable to a Qualified Plan Retirement Benefit or a Qualified
Plan Death Benefit shall also be applicable to a Supplemental
Retirement Benefit or a Supplemental Death Benefit payable
hereunder. Any Qualified Plan Retirement Benefit or Qualified
Plan Death Benefit, or any other benefit payable under the
Qualified Plan, shall be paid solely in accordance with the terms
and conditions of the Qualified Plan and nothing in this Plan
shall operate or be construed in any way to modify, amend or
affect the terms and provisions of the Qualified Plan.
7.3. No Guaranty of Benefits. Nothing contained in the Plan
shall constitute a guaranty by the Company or any other entity or
person that the assets of the Company will be sufficient to pay
any benefit hereunder.
7.4. No Enlargement of Employee Rights. No Participant,
Surviving Spouse or Beneficiary shall have any right to a benefit
under the Plan except in accordance with the terms of the Plan.
Establishment of the Plan shall not be construed to give any
Participant the right to be retained in the service of the
Company or any affiliate thereof.
7.5. Spendthrift Provision. No interest of any person or
entity in, or right to receive a benefit under, the Plan shall be
subject in any manner to sale, transfer, assignment, pledge,
attachment, garnishment, or other alienation or encumbrance of
any kind; nor may such interest or right to receive a benefit be
taken, either voluntarily or involuntarily, for the satisfaction
of the debts of, or other obligations or claims against, such
person or entity, including claims for alimony, support, separate
maintenance, and claims in bankruptcy proceedings.
The benefit of any Participant may be offset by an amount
set forth in a court order or requirement to pay that arises from
(1) a judgment of conviction for a crime involving the Plan, (2)
a civil judgment (or consent, order or decree) that is entered by
a court in an action brought in connection with a breach (or
alleged breach) of a fiduciary duty under the Employee Retirement
Income Security Act of 1974, as amended ('ERISA'), or (3) a
settlement agreement entered into by the Participant with either
the Secretary of Labor or the Pension Benefit Guaranty
Corporation in connection with a breach of fiduciary duty under
ERISA by a fiduciary or any other person.
7.6. Applicable Law. The Plan shall be construed and
administered under the laws of the State of South Dakota, except
to the extent preempted by applicable federal law.
7.7. Small Benefits. If the actuarial value of any
Supplemental Retirement Benefit or Supplemental Surviving Spouse
Benefit is less than $5,000, the Company may pay the actuarial
value of such Benefit to the Participant, Surviving Spouse or
Beneficiary in a single lump sum in lieu of any further benefit
payments hereunder.
7.8. Incapacity of Recipient. If any person entitled to a
benefit payment under the Plan is deemed by the Company to be
incapable of personally receiving and giving a valid receipt for
such payment, then, unless and until claim therefor shall have
been made by a duly appointed guardian or other legal
representative of such person, the Company may provide for such
payment or any part thereof to be made to any other person or
institution then contributing toward or providing for the care
and maintenance of such person. Any such payment shall be a
payment for the account of such person and a complete discharge
of any liability of the Company and the Plan therefor.
7.9. Corporate Successors. The Plan shall not be
automatically terminated by a transfer or sale of assets of the
Company or by the merger or consolidation of the Company into or
with any other corporation or other entity, but the Plan shall be
continued after such sale, merger or consolidation only if and to
the extent that the transferee, purchaser or successor entity
agrees to continue the Plan. In the event that the Plan is not
continued by the transferee, purchaser or successor entity, then
the Plan shall terminate subject to the provisions of Section
6.2.
7.10. Unclaimed Benefit. Each Participant shall keep
the Company informed of his current address and the current
address of his spouse and Beneficiaries. The Company shall not
be obligated to search for the whereabouts of any person. If the
location of a Participant is not made known to the Company within
three (3) years after the date on which payment of the
Participant's Supplemental Retirement Benefit may first be made,
payment may be made as though the Participant had died at the end
of the three-year period. If, within one additional year after
such three-year period has elapsed, or, within three years after
the actual death of a Participant, the Company is unable to
locate any Surviving Spouse or Beneficiary of the Participant,
then the Company shall have no further obligation to pay any
benefit hereunder to such Participant, Surviving Spouse,
Beneficiary, or any other person and such benefit shall be
irrevocably forfeited.
7.11. Limitations on Liability. Notwithstanding any of
the preceding provisions of the Plan, neither the Company nor any
individual acting as an employee or agent of the Company shall be
liable to any Participant, former Participant, Surviving Spouse,
Beneficiary, or any other person for any claim, loss, liability
or expense incurred in connection with the Plan.
7.12. Taxable Distribution. The Company shall determine
the manner and amount of payments to be made to the Participant,
Surviving Spouse or Beneficiary, and shall make such payments, in
accordance with the terms of the Plan. Notwithstanding anything
to the contrary contained herein or in the Qualified Plan, (a) in
the event that the Internal Revenue Service prevails in its claim
that the amount of any benefit accrued under the Plan constitutes
taxable income to a Participant, Surviving Spouse or Beneficiary
for any taxable year, prior to the taxable year in which such
benefit is distributed, or (b) in the event that legal counsel,
satisfactory to the Company and the applicable Participant,
Surviving Spouse or Beneficiary, renders an opinion that the
Internal Revenue Service would likely prevail in such a claim,
such benefits under the Plan, to the extent constituting taxable
income, shall be immediately distributed to the Participant,
Surviving Spouse or Beneficiary. For purposes of this Section,
the Internal Revenue Service shall be deemed to have prevailed in
a claim if such claim is upheld by a court of final jurisdiction,
or if the Company, based upon an opinion of legal counsel
satisfactory to the Company and the Participant, Surviving Spouse
or Beneficiary, fails to appeal a decision of the Internal
Revenue Service, or a court of applicable jurisdiction, with
respect to such claim, to an appropriate Internal Revenue Service
appeals authority or to a court of higher jurisdiction within the
appropriate time period.
IN WITNESS WHEREOF, Northwestern Corporation has caused this
amendment and restatement of the Plan to be executed in its name,
by its duly authorized officer, on this day of
, 2000, effective as of January 1, 2000.
NORTHWESTERN CORPORATION
By:
SCHEDULE A
PLAN PARTICIPANTS
1. Merle D. Lewis
NORTHWESTERN CORPORATION
CASH BALANCE SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Effective January 1, 2000
The Northwestern Corporation Cash Balance Supplemental
Executive Retirement Plan (the 'Plan') is hereby established and
shall be maintained by Northwestern Corporation solely for the
purpose of providing benefits in excess of the limitations on
benefits imposed by certain sections of the Internal Revenue Code
for certain of its employees who participate in the Northwestern
Pension Plan.
Accordingly, Northwestern Corporation hereby adopts the
Plan, effective January 1, 2000, as hereinafter set forth:
ARTICLE I
DEFINITIONS
Wherever used herein the following terms shall have the
meanings hereinafter set forth:
1.1 'Affiliate' means (i) any corporation while it is
a member of the same 'controlled group' of corporations (within
the meaning of Code Section 414(b)) as the Company; (ii) any
trade or business (whether or not incorporated) while it is under
'common control' (within the meaning of Code Section 414(c)) with
the Company; (iii) any organization during any period in which it
(along with the Company) is a member of an 'affiliated service
group' (within the meaning of Code Section 414(m)); or (iv) any
other entity during any period in which it is required to be
aggregated with the Company under Code Section 414(o).
1.2 'Annuity Starting Date' means the date that a Plan
benefit is paid or commences under Section 3.7.
1.3 'Applicable Interest Rate' for each Plan Year
shall mean the annual rate of interest on 30-year Treasury
securities for the month of November immediately preceding the
first day of such Plan Year.
1.4. 'Attained Age' means, at the time any
determination is being made, a Participant's age in whole years
and a fractional year as of the date such determination is made.
The fractional year shall be calculated by using the number of
days in the applicable partial year as the numerator and 365 as
the denominator.
1.5. 'Beneficiary' means a person or entity designated
by a Participant under the Qualified Plan to receive benefits
thereunder following his death.
1.6. 'Board' means the Board of Directors of the Company.
1.7. 'Code' means the Internal Revenue Code of 1986, as
amended from time to time, and any regulations relating thereto.
1.8. 'Company' means Northwestern Corporation, a
Delaware corporation, or, to the extent provided in Section 7.9
below, any successor corporation or other entity resulting from a
merger or consolidation into or with the Company or a transfer or
sale of substantially all of the assets of the Company.
1.9. 'Compensation' means Compensation for service
rendered to an Employer excluding overtime pay, shift
differentials, commissions and bonuses.
1.10. 'Compensation Limit' means $170,000 or, if
greater, the compensation limit applicable to qualified
retirement plans as set forth pursuant to Code Section 401(a)(17)
or any successor section.
1.11. 'Employee' means an individual employed by an
Employer. Only an individual who is paid as an employee by an
Employer and treated by an Employer at all times as an Employee
shall be deemed an Employee for purposes of the Plan, and no
independent contractor shall be treated as an Employee under the
Plan during the period that he renders services to an Employer as
an independent contractor. Any person retroactively or in any
other way held or found to be a 'common law employee' shall not
be eligible to participate in the Plan for any period during
which he was not treated as an Employee by an Employer.
1.12. 'Employer' means the Company and any
Affiliate that adopts the Plan with the approval of the Company.
1.13. 'Normal Retirement Date' means the first day
of the month coinciding with or next following a Participant's
65th birthday.
1.14. Participant' means each Employee who (i) is
a participant in the Qualified Plan, and (ii) at any time earns
annual Supplemental Compensation, other than each Employee who is
designated by name as a participant in the Northwestern
Corporation Traditional Pension Equalization Plan.
1.15. 'Plan' means the Northwestern Corporation
Cash Balance Supplemental Executive Retirement Plan.
1.16. 'Plan Year' means the calendar year.
1.17. 'Prior Service Credit' means Service credited
to a Participant for employment, prior to his date of employment
or reemployment by the Company or an Affiliate, as determined by
the Chief Executive Officer of the Company. Prior Service Credit
applicable to a Participant shall be set forth opposite such
Participant's name on Schedule A hereto.
1.18. 'Qualified Plan' means the Northwestern
Pension Plan, as amended and restated effective January 1, 2000,
and as further amended from time to time.
1.19. 'Qualified Plan Death Benefit' means the
aggregate benefit payable to the Surviving Spouse or Beneficiary
of a Participant pursuant to the Qualified Plan and all annuities
purchased for the Participant under the Qualified Plan (whether
or not terminated) in the event of the death of the Participant
at any time prior to commencement of payment of his Qualified
Plan Retirement Benefit.
1.20. 'Qualified Plan Retirement Benefit' means the
aggregate benefit payable to a Participant pursuant to the
Qualified Plan and all annuities purchased for the Participant
under the Qualified Plan (whether or not terminated) by reason of
his termination of employment with the Company and all Affiliates
for any reason other than death.
1.21. 'Service' means the sum of (i) Service as
defined in the Qualified Plan, and (ii) the Prior Service Credit,
if any, applicable to a Participant and set forth opposite his
name on Schedule A hereto.
1.22. 'Supplemental Cash Account Balance' means the
balance of the hypothetical account that is established for each
Participant pursuant to subsection 3.1(b).
1.23. 'Supplemental Compensation' means Compensation in excess
of the Compensation Limit.
1.24. 'Supplemental Death Benefit' means the benefit payable
to a Surviving Spouse or Beneficiary pursuant to the Plan.
1.25. 'Supplemental Retirement Benefit' means the
benefit payable to a Participant pursuant to the Plan by reason
of his termination of employment with the Company and all
Affiliates for any reason other than death. The amount of such
benefit shall be the Actuarial Equivalent (determined pursuant to
subsection 3.1(c)) of a Participant's Supplemental Cash Account
Balance at the date of termination.
1.26. 'Surviving Spouse' means a person who is married to
a Participant at the date of his death and for at least one year prior
thereto.
1.27. Words in the masculine gender shall include
the feminine and the singular shall include the plural, and vice
versa, unless qualified by the context. Any headings used herein
are included for ease of reference only, and are not to be
construed so as to alter the terms hereof.
1.28 Any defined term not specifically defined herein
shall have the meaning set forth in the Qualified Plan.
ARTICLE II
ELIGIBILITY
A Participant shall be eligible to receive a
Supplemental Retirement Benefit. The Surviving Spouse or
Beneficiary of a Participant who dies prior to commencement of
payment of a Participant's Qualified Plan Retirement Benefit
shall be eligible to receive a Supplemental Death Benefit.
ARTICLE III
SUPPLEMENTAL RETIREMENT BENEFIT
3.1. General.
(a) The Supplemental Retirement Benefit of a
Participant is equal to the balance of his Supplemental Cash
Account Balance as of the date of determination.
(b) A Participant's Supplemental Cash
Account Balance shall consist of the sum of his
(i) Supplemental Opening Balance (as determined pursuant to
Section 3.2), (ii) allocated Supplemental Pay Credits (as
determined pursuant to Section 3.3), (iii) allocated
Supplemental Interest Credits (as determined pursuant to
Section 3.4), and (iv) allocated Other Supplemental Cash
Account Contributions (as determined pursuant to
Section 3.5).
(c) A Supplemental Retirement Benefit that
is payable in any form other than a Lump Sum, or that
commences at any time prior to the Participant's Normal
Retirement Date, shall be the Actuarial Equivalent of the
Supplemental Retirement Benefit set forth in subsection
3.1(a) as determined by the same actuarial adjustments as
those specified in the Qualified Plan.
3.2. Supplemental Opening Balance.
A Participant's 'Supplemental Opening Balance' means an
amount equal to the difference between (a) and (b) below:
(a) The Opening Balance to which the
Participant would have been entitled under the Qualified
Plan if such Opening Balance were computed (i) without
giving effect to any limitation on benefits imposed by any
provision of the Code, and (ii) after including the
Participant's Prior Service Credit, if any, as set forth
opposite his name on Schedule A hereto;
LESS
(b) The Opening Balance, if any, actually
computed for such Participant under the Qualified Plan.
3.3 Supplemental Pay Credits.
(a) Supplemental Pay Credits shall mean for
each Contribution Date (as determined by subsection 3.3(b))
a contribution allocated to the Supplemental Cash Account of
a Participant. Pursuant to the table set forth below,
Supplemental Pay Credits shall be credited to a
Participant's Supplemental Cash Account as of each
Contribution Date based on a Participant's aggregate
Attained Age and Service on December 31, 1999, and such
Participant's Supplemental Compensation paid with respect to
the Plan Year that includes such Contribution Date. For
purposes of applying the following table, any person who is
not considered to be an Employee on December 31, 1999, but
who is later hired or rehired by an Employer after such
date, shall be deemed to have an aggregate Attained Age and
Service as determined by the Chief Executive Officer of the
Company. If no such determination is made, such Employee
shall be deemed to have an aggregate Attained Age and
Service totaling less than 45.
Aggregate of
Attained Age and Contribution as a Percent
Service on 12/31/99 of Supplemental Compensation
------------------- -----------------------------
Less than 45 6.0%
More than 45 but less than 46 7.0%
More than 46 but less than 47 7.2%
More than 47 but less than 48 7.4%
More than 48 but less than 49 7.6%
More than 49 but less than 50 7.8%
More than 50 but less than 51 8.0%
More than 51 but less than 52 8.2%
More than 52 but less than 53 8.4%
More than 53 but less than 54 8.6%
More than 54 but less than 55 8.8%
More than 55 but less than 56 9.0%
More than 56 but less than 57 9.2%
More than 57 but less than 58 9.4%
More than 58 but less than 59 9.6%
More than 59 but less than 60 9.8%
More than 60 but less than 61 10.0%
More than 61 but less than 62 10.2%
More than 62 but less than 63 10.4%
More than 63 but less than 64 10.6%
More than 64 but less than 65 10.8%
More than 65 but less than 66 11.0%
More than 66 but less than 67 11.2%
More than 67 but less than 68 11.4%
More than 68 but less than 69 11.6%
More than 69 but less than 70 11.8%
More than 70 but less than 71 12.0%
More than 71 but less than 72 12.2%
More than 72 but less than 73 12.4%
More than 73 but less than 74 12.6%
More than 74 but less than 75 12.8%
More than 75 but less than 76 13.0%
More than 76 but less than 77 13.2%
More than 77 but less than 78 13.4%
More than 78 but less than 79 13.6%
More than 79 but less than 80 13.8%
More than 80 but less than 81 14.0%
More than 81 but less than 82 14.2%
More than 82 but less than 83 14.4%
More than 83 but less than 84 14.6%
More than 84 but less than 85 14.8%
85 or more 15.0%
(b) A Participant's Contribution Date shall be
determined as follows:
(i) The Contribution Date for each Participant who is
(i) actively employed on the last day of the Plan Year
or (ii) Totally Disabled, shall be the last day of the
Plan Year.
(ii) The Contribution Date for each Participant who
terminates employment during the Plan Year for any
reason, including death, shall be such Participant's
Retirement Date, his Termination Date, or his date of
death, as the case may be.
(iii) Notwithstanding the foregoing, no Participant who has
not completed at least 1,000 Hours of Service during a Plan Year
shall have a Contribution Date for such Plan Year, unless his
employment terminates during such Plan Year because of death,
Total Disability or attainment of a Retirement Date.
(c) Notwithstanding any other provision of the
Plan to the contrary, if a Participant does not have a Contribution Date
during any Plan Year of employment because of his failure to meet the
eligibility criteria for Plan participation set forth in Article II,
such Participant shall, if he is eligible for a Contribution Date during
the first Plan Year of his eligibility, receive a Supplemental Pay Credit
for such first Plan Year that is based on his Supplemental Compensation
for all of the Plan Years of his employment.
3.4 Supplemental Interest Credits.
(a) As of the last day of each Plan Year, the
Supplemental Cash Account of each Participant shall be
credited with a Supplemental Interest Credit. 'Supplemental
Interest Credit' means the product of the Participant's
Supplemental Cash Account Balance as of the close of the
immediately preceding Plan Year, and the Investment Credit
Percentage for that Plan Year.
(b) 'Investment Credit Percentage' means the
Applicable Interest Rate. In the case of a Participant who
terminates employment and defers distribution of his
Supplemental Retirement Benefit, the Investment Credit
Percentage shall continue to be credited to the
Participant's Supplemental Cash Account Balance until his
Annuity Starting Date. 'Applicable Interest Rate' for a
partial Plan Year shall mean the annual rate of interest on
30-year Treasury securities for the month of November
immediately preceding such partial Plan Year, multiplied by
a fraction, the numerator of which is the number of
completed months in such partial Plan Year, and the
denominator of which is 12.
3.5. Other Supplemental Cash Account Contribution. The
Company may allocate an additional contribution to the
Supplemental Cash Account of a Participant at such times, in such
manner and in such amount as may be determined by the Chief
Executive Officer of the Company. Such contribution may be made
for any reason, including, but not limited to, offsetting any
reduction in a Participant's Qualified Plan Retirement Benefit
caused by Code Section 415 or any other provision of the Code, or
to reflect an additional Prior Service Credit for any
Participant.
3.6. Form of Benefit. Subject to Section 7.7, the
Supplemental Retirement Benefit payable to a Participant shall be
paid in one of the following forms as elected by him as a
condition of participation in the Plan:
(a) Life and Ten Year Period Certain. A Participant
may receive a Supplemental Retirement Benefit payable
monthly during his lifetime and, in the event of his death
within a period of ten (10) years after the commencement of
payments, the same amount shall be payable monthly for the
remainder of such ten (10) year period to his Beneficiary or
Beneficiaries.
(b) Single Life Annuity. A Participant may receive a
Supplemental Retirement Benefit payable monthly during his
life, ending on the first day of the month during which the
death of the Participant occurs.
(c) Joint and Survivor Annuity. A Participant may
receive a Supplemental Retirement Benefit payable to the
Participant for his life with a survivor annuity payable to
his Spouse for the life of such Spouse in an amount equal to
50%, 66-2/3% or 100% (as selected by the Participant) of the
amount payable during the life of the Participant.
(d) Lump Sum. A Participant may receive the entire
amount of his Supplemental Cash Account Balance in a single
sum.
(e) Installments. A Participant may receive a
Supplemental Retirement Benefit in monthly installments over
a period selected by the Participant which shall be not less
than five years nor more than 20 years. In the event of the
death of the Participant prior to receipt of his entire
Supplemental Retirement Benefit, the remaining installments
shall be paid to his Beneficiary.
(f) Social Security Adjustment. A Participant may
receive a Supplemental Retirement Benefit in a form that
provides for larger payments to the Participant from his
Retirement Date to the date Social Security benefits are
expected to commence and reduced payments thereafter during
the Participant's lifetime. The amount of reduction is
equal to the Primary Social Security Insurance Benefit to
which the Participant is entitled. The amount of the
Primary Social Security Insurance Benefit is the primary
insurance amount of the Old Age Insurance Benefits payable
to the Participant under the Social Security Act as
estimated by the Company. The date Social Security benefits
are expected to commence is the first day of the month next
following the Participant's attainment of his sixty-fifth
birthday.
Amount of Benefit. The increased yearly amount of
Supplemental Retirement Benefit payable under this option
to the Participant until the attainment of his sixty-fifth
birthday shall be equal to the sum of-
(A) the yearly amount of Supplemental Retirement
Benefit otherwise payable to the Participant if
the Single Life Annuity option were in effect with
respect to him, and
(B) the amount of the Participant's expected
yearly Primary Social Security Insurance Benefit.
The reduced yearly amount of Supplemental Retirement Benefit
payable under this option to the Participant during his
lifetime after the attainment of his sixty-fifth birthday
shall be equal to the excess of-
(i) the increased yearly amount of
Supplemental Retirement Benefit payable to
the Participant until the attainment of his
sixty-fifth birthday, over
(ii) the amount of the Participant's expected
yearly Primary Social Security Insurance
Benefit.
(g) Other Form. A Participant may receive a
Supplemental Retirement Benefit in such other optional form
as is selected by the Participant and approved by the
Company.
3.7. Commencement of Benefit. Payment of the
Supplemental Retirement Benefit to a Participant shall commence
on any date following his termination of employment as elected by
him as a condition of participation in the Plan.
3.8. Election Modification. A Participant may modify
his election as to the form or commencement of payment of his
Supplemental Retirement Benefit by writing filed with the Company
at any time prior to his Annuity Starting Date. A Participant's
modification of his election as to form or commencement of
payment will be ineffective, unless (1) the modification is made
more than six months prior to his Annuity Starting Date and the
modification is filed in a calendar year prior to the calendar
year in which payment of the Benefit is made or commences, or
(2) the Participant elects by written instrument delivered to the
Company prior to his Annuity Starting Date to have his
Supplemental Retirement Benefit reduced by 10%. This reduction
will be forfeited and used by the Plan to reduce expenses of
administration. This reduction is intended to discourage a
Participant from modifying his election as to form of payment and
commencement within the periods set forth in clause (1) above and
prevent him from being deemed in constructive receipt of his
Supplemental Retirement Benefit prior to its actual payment to
him.
ARTICLE IV
SUPPLEMENTAL DEATH BENEFIT
If a Participant dies prior to his Annuity Starting
Date, a Supplemental Death Benefit shall be paid to the
Participant's Beneficiary. If such Beneficiary is not the
Participant's Spouse, the Beneficiary shall receive, as soon as
practicable after the Participant's date of death, a single-sum
payment equal to the Participant's Supplemental Cash Account
Balance determined as of the Participant's date of death.
If such Beneficiary is the Participant's Spouse,
payment of the Participant's Supplemental Retirement Benefit
shall be made in the form of a Supplemental Preretirement
Survivor Annuity based on the Attained Age of the Spouse at the
Annuity Starting Date. The Supplemental Preretirement Survivor
Annuity shall be payable to the Surviving Spouse in equal monthly
installments commencing on an Annuity Starting Date elected by
the Spouse that is the first day of any month (as elected by the
surviving Spouse) following the Participant's death and
terminating on the first day of the month in which the Surviving
Spouse dies; provided, however, in lieu of the Supplemental
Preretirement Survivor Annuity, the Surviving Spouse may elect to
receive, as soon as practicable after the Participant's death, a
single-sum payment equal to the Participant's Supplemental Cash
Account Balance determined as of the Participant's date of death.
no event may the Spouse elect an Annuity Starting Date
that is later than the later of (1) what would have been the
Participant's Normal Retirement Date and (2) the first day of the
first month following the Participant's death. If the Spouse
does not elect an Annuity Starting Date, then the Spouse's
Annuity Starting Date shall be the later of the dates set forth
in the immediately preceding sentence.
'Supplemental Preretirement Survivor Annuity' shall mean,
with respect to the Spouse of a deceased Participant, an amount
payable to such Spouse for the life of the Spouse, based upon the
Participant's Supplemental Retirement Benefit at the date of his
death. The Supplemental Preretirement Survivor Annuity shall be
a Single Life Annuity that is the Actuarial Equivalent
(determined pursuant to subsection 3.1(c)) of the Participant's
Supplemental Cash Account Balance at the Participant's death,
based on the Spouse's Attained Age as of the Annuity Starting
Date.
ARTICLE V
ADMINISTRATION OF THE PLAN
5.1. Administration by the Company. The Company shall be
responsible for the general operation and administration of the
Plan and for carrying out the provisions thereof.
5.2. General Powers of Administration. All provisions set
forth in the Qualified Plan with respect to the administrative
powers and duties of the Company and the Supervisory Committee,
expenses of administration, and procedures for filing claims
shall also be applicable with respect to the Company in its role
as administrator of the Plan. The Company shall be entitled to
rely conclusively upon all tables, valuations, certificates,
opinions and reports furnished by any actuary, accountant,
controller, counsel, or other person employed or engaged by the
Company with respect to the Plan.
ARTICLE VI
AMENDMENT OR TERMINATION
6.1. Amendment or Termination. The Company intends the Plan
to be permanent but reserves the right to amend or terminate the
Plan when, in the sole opinion of the Company, such amendment or
termination is advisable. Any such amendment or termination
shall be made pursuant to a resolution of the Board and shall be
effective as of the date of such resolution.
6.2. Effect of Amendment or Termination. No amendment or
termination of the Plan shall directly or indirectly deprive any
current or former Participant, Surviving Spouse or Beneficiary of
all or any portion of any Supplemental Retirement Benefit or
Supplemental Death Benefit payment which has commenced prior to
the effective date of such amendment or termination or which
would be payable if the Participant terminated employment for any
reason, including death, on such effective date.
ARTICLE VII
GENERAL PROVISIONS
7.1. Funding. The Plan at all times shall be entirely
unfunded and no provision shall at any time be made with respect
to segregating any assets of any Employer for payment of any
benefits hereunder. No Participant, Surviving Spouse,
Beneficiary, or any other person shall have any interest in any
particular assets of any Employer by reason of the right to
receive a benefit under the Plan and any such Participant,
Surviving Spouse, Beneficiary, or other person shall have only
the rights of a general unsecured creditor with respect to any
rights under the Plan.
7.2. General Conditions. Except as otherwise expressly
provided herein, all terms and conditions of the Qualified Plan
applicable to a Qualified Plan Retirement Benefit or a Qualified
Plan Death Benefit shall also be applicable to a Supplemental
Retirement Benefit or a Supplemental Death Benefit payable
hereunder. Any Qualified Plan Retirement Benefit or Qualified
Plan Death Benefit, or any other benefit payable under the
Qualified Plan, shall be paid solely in accordance with the terms
and conditions of the Qualified Plan and nothing in this Plan
shall operate or be construed in any way to modify, amend or
affect the terms and provisions of the Qualified Plan.
7.3. No Guaranty of Benefits. Nothing contained in the Plan
shall constitute a guaranty by any Employer or any other entity
or person that the assets of any Employer will be sufficient to
pay any benefit hereunder.
7.4. No Enlargement of Employee Rights. No Participant,
Surviving Spouse or Beneficiary shall have any right to a benefit
under the Plan except in accordance with the terms of the Plan.
Establishment of the Plan shall not be construed to give any
Participant the right to be retained in the service of any
Employer.
7.5. Spendthrift Provision. No interest of any person or
entity in, or right to receive a benefit under, the Plan shall be
subject in any manner to sale, transfer, assignment, pledge,
attachment, garnishment, or other alienation or encumbrance of
any kind; nor may such interest or right to receive a benefit be
taken, either voluntarily or involuntarily, for the satisfaction
of the debts of, or other obligations or claims against, such
person or entity, including claims for alimony, support, separate
maintenance, and claims in bankruptcy proceedings.
Notwithstanding the foregoing, the Supplemental Retirement
Benefit of any Participant may be offset by an amount set forth
in a court order or requirement to pay that arises from (i) a
judgment of conviction for a crime involving the Plan, (ii) a
civil judgment (or consent order or decree) that is entered by a
court in an action brought in connection with a breach (or
alleged breach) of a fiduciary duty or any obligation that arises
under the Employee Retirement Income Security Act of 1974, as
amended ('ERISA'), or (iii) a settlement agreement entered into
by the Participant with the Secretary or Labor in connection with
a breach of any obligation that arises under ERISA.
7.6. Applicable Law. The Plan shall be construed and
administered under the laws of the State of South Dakota, except
to the extent preempted by applicable federal law.
7.7. Small Benefits. If the Actuarial Equivalent
(determined pursuant to subsection 3.1(c)) of any Supplemental
Retirement Benefit or Supplemental Death Benefit is less than
$5,000, the Company may pay the Actuarial Equivalent of such
Benefit to the Participant, Surviving Spouse or Beneficiary in a
single lump sum in lieu of any further benefit payments
hereunder.
7.8. Incapacity of Recipient. If any person entitled to a
benefit payment under the Plan is deemed by the Company to be
incapable of personally receiving and giving a valid receipt for
such payment, then, unless and until claim therefor shall have
been made by a duly appointed guardian or other legal
representative of such person, the Company may provide for such
payment or any part thereof to be made to any other person or
institution then contributing toward or providing for the care
and maintenance of such person. Any such payment shall be a
payment for the account of such person and a complete discharge
of any liability of the Company and the Plan therefor.
7.9. Corporate Successors. The Plan shall not be
automatically terminated by a transfer or sale of assets of the
Company or by the merger or consolidation of the Company into or
with any other corporation or other entity, but the Plan shall be
continued after such sale, merger or consolidation only if and to
the extent that the transferee, purchaser or successor entity
agrees to continue the Plan. In the event that the Plan is not
continued by the transferee, purchaser or successor entity, then
the Plan shall terminate subject to the provisions of Section
6.2.
7.10. Unclaimed Benefit. Each Participant shall keep
the Company informed of his current address and the current
address of his spouse and Beneficiaries. The Company shall not
be obligated to search for the whereabouts of any person. If the
location of a Participant is not made known to the Company within
three (3) years after the date on which payment of the
Participant's Supplemental Retirement Benefit may first be made,
payment may be made as though the Participant had died at the end
of the three-year period. If, within one additional year after
such three-year period has elapsed, or, within three years after
the actual death of a Participant, the Company is unable to
locate any Surviving Spouse or Beneficiary of the Participant,
then the Company shall have no further obligation to pay any
benefit hereunder to such Participant, Surviving Spouse,
Beneficiary, or any other person and such benefit shall be
irrevocably forfeited.
7.11. Limitations on Liability. Notwithstanding any of
the preceding provisions of the Plan, no Employer or any
individual acting as an employee or agent of any Employer shall
be liable to any Participant, former Participant, Surviving
Spouse, Beneficiary, or any other person for any claim, loss,
liability or expense incurred in connection with the Plan.
7.12. Taxable Distribution. The Company shall determine
the manner and amount of payments to be made to the Participant,
Surviving Spouse or Beneficiary, and shall make such payments, in
accordance with the terms of the Plan. Notwithstanding anything
to the contrary contained herein or in the Qualified Plan, (a) in
the event that the Internal Revenue Service prevails in its claim
that the amount of any benefit accrued under the Plan constitutes
taxable income to a Participant, Surviving Spouse or Beneficiary
for any taxable year, prior to the taxable year in which such
benefit is distributed, or (b) in the event that legal counsel,
satisfactory to the Company and the applicable Participant,
Surviving Spouse or Beneficiary, renders an opinion that the
Internal Revenue Service would likely prevail in such a claim,
such benefits under the Plan, to the extent constituting taxable
income, shall be immediately distributed to the Participant,
Surviving Spouse or Beneficiary. For purposes of this Section,
the Internal Revenue Service shall be deemed to have prevailed in
a claim if such claim is upheld by a court of final jurisdiction,
or if the Company, based upon an opinion of legal counsel
satisfactory to the Company and the Participant, Surviving Spouse
or Beneficiary, fails to appeal a decision of the Internal
Revenue Service, or a court of applicable jurisdiction, with
respect to such claim, to an appropriate Internal Revenue Service
appeals authority or to a court of higher jurisdiction within the
appropriate time period.
IN WITNESS WHEREOF, Northwestern Corporation has caused this
Plan to be executed in its name, by its duly authorized officer,
on this ____ day of __________, 2000, effective as of January 1,
2000.
NORTHWESTERN CORPORATION
By: _______________________
SCHEDULE A
Name of Participant Social Security Number Prior Service Credit
- -------------------- ---------------------- -------------- -----
Michael J. Hanson ###-##-#### 17.0000
Glen R. Herr ###-##-#### 17.3333
Gregory G. Trandem ###-##-#### 23.1667
NORTHWESTERN NorthSTAR PLAN
I. Objective
The Northwestern NorthSTAR Plan ('Plan') is established to accomplish
the following objectives: (1) to motivate and reward outstanding
performance by Northwestern Corporation (the 'Company') and its employees
by providing additional compensation to eligible employees who influence
the profitability of the Company; (2) to compare the Company's performance
to established annual objectives; (3) to compare individual performance to
established annual objectives; (4) to focus on stockholder and ratepayer
interests and (5) to support long-term objectives by achieving short-term
goals.
II. Administration
The Plan shall be administered by the Company. The Nominating and
Compensation Committee ('Committee') of the Company's Board of Directors
('Board'), shall have responsibility and authority with respect to the
Plan, including the following: (1) approving performance measures and the
measurement scale used; (2) reviewing eligibility for Plan participation;
(3) approving the size of the performance fund ('Performance Fund'); and
(4) reviewing and approving awards for all Executive Officers.
III. Eligibility for Participation
Employees eligible to participate in the Plan are those full-time
employees who have completed one year of service with the Company and who
have been selected for participation by Company management. To be eligible
for an award, an employee must be employed with the Company on December
31st of the year for which the award is based, except as hereafter provided
in Subsection (b).
All Participants will be eligible to participate in the Plan for that
calendar year unless any of the following circumstances occur:
(a) The Participant at any time is discharged from employment with
the Company for cause ('Cause'). 'Cause' shall mean (i) a Participant's
conviction of any criminal violation involving dishonesty, fraud, or breach
of trust, or (ii) a Participant's willful engagement in any misconduct in
the performance of his duty that materially injures the Company, or (iii)
failure to adequately perform his duties; or
(b) The Participant's employment with the Company has terminated for
any reason other than death, permanent disability, or retirement on or
after the age of sixty- two (62) years or such earlier date as the Board,
in its discretion, shall designate. For the purposes of this Section, a
Participant will be considered to terminate employment by reason of
'permanent disability' if, in the determination of the Board, he is subject
to a physical or mental condition which is expected to render the
Participant unable to perform his usual duties or any comparable duties for
the Company.
IV. Determination of Performance Award Amounts
(a) A Performance Award ('Award') shall be awarded under the Plan to
each Participant based on performance for the applicable calendar year
which shall be determined by reference to the measures of performance for
that year. Company management will develop schedules for translating
results of objectives (i), (ii), and (iii) into threshold, target, and
maximum achievement levels. These schedules must be approved by the
Committee.
(i) Company Performance as Measured by Customer Satisfaction
(25% weight)
The Company will measure customer satisfaction through the
use of transaction surveys conducted during the year.
(ii) Performance vs. Operating Budget (25% Weight)
The Company will measure the net income of the electric and
gas operations, as compared to the operating budget. This
criterion will be applicable to the eligible employees of
NorthWestern Public Service, NorthWestern Energy Corporation,
NorthWestern Services Corporation, and NorCom Advanced
Technologies, Inc., but not to the employees of NorthWestern
Corporation.
(iii) Company Performance vs. Annual Objective (25% or 50% Weight)
Under this objective, Earnings Per Share, will be the
primary earnings per share of the Company as it appears in the
approved budget for the Company. For the eligible employees of
NorthWestern Public Service, NorthWestern Energy Corporation,
NorthWestern Services Corporation, and NorCom Advanced
Technologies, Inc., this criterion will have 25% of the weight of
their total award under the Plan. For NorthWestern Corporation
employees, this criterion will have 50% of the weight of their
total award under the Plan.
(iv) Performance vs. Individual Objectives (25% Weight)
Each year, Participants will establish several major
individual and department goals for review and approval by their
supervisor and by the Manager - Human Resources. At the end of
each year, Participants will provide to their supervisor and to
the Manager - Human Resources an explanation regarding the degree
to which each goal has been achieved. The supervisor and the
Manager - Human Resources will review the Participant's
explanations and will then recommend the achievement level for
each Participant to the Chief Executive Officer, who will
determine the achievement level eligible for an Award.
(b) At the end of each calendar year, percentages will be computed
and totaled for each Participant for each of the Measures of Performance.
Each Participant will receive an Award for the applicable calendar year
equal to a percentage of his base salary on December 31st, less any
applicable taxes. Threshold is defined as a composite twenty-five
percentage level, Target as a composite fifty percentage level, and Maximum
as a composite one hundred percentage level.
The total amount of all awards made to Participants shall not exceed
seven percent (7%) of the Company's net after tax income for that year.
(c) All Executive Officer Awards shall be reviewed, and must be
approved, by the Committee. All Awards for other Company employees shall
be reviewed, and must be approved, by the Chief Executive Officer of the
Company.
(d) Annual base salary adjustments, as appropriate, will continue to
be made by the Company to individual employees predicated on merit,
performance, cost-of-living and such other factors as the Company normally
has considered without regard to Awards awarded under the Plan.
(e) Awards shall be paid to each Participant in a single sum as
promptly as practicable after approved.
V. Participant's Death
(a) In the event of the death of the Participant, any unpaid Award
held for the Participant shall be paid as promptly as practicable in a
single sum to the Participant's designated Beneficiary.
(b) In the event the Participant has not designated a Beneficiary, or
if no designated Beneficiary is living at the date of death of the
Participant, the unpaid Award shall be paid as promptly as practicable in a
single sum to the duly appointed executor or administrator of the
Participant's estate.
(c) For purposes of this Section, 'Beneficiary' shall mean any
individual, corporation, partnership, association, trust or unincorporated
organization designated by a Participant in writing filed with the Company
as the recipient of the Participant's Award in the event of the
Participant's death prior to its payment. Such designation may be changed
by the Participant at any time in writing filed with the Company without
the consent of or notice to any Beneficiary previously designated.
VI. Continuity of the Plan
Although it is the present intention of the Company to continue the
Plan in effect for an indefinite period of time, the Board reserves the
right to terminate the Plan in its entirety as of the end of any calendar
year or other fiscal year of the Company or to modify the Plan as it exists
from time to time, provided that no such action shall adversely affect any
Awards previously awarded under the Plan.
VII. Miscellaneous Provisions
(a) No Award payable under the Plan shall be subject in any manner to
transfer, assignment, pledge, or hypothecation in any manner by operation
of law or otherwise, other than by will or by the laws of descent and
distribution nor be subject to execution, attachment or similar process.
(b) Neither the Plan nor any action taken hereunder shall be
construed as giving any Participant any right to be retained in the employ
of the Company.
(c) The Plan shall at all times be entirely unfunded and no provision
shall at any time be made with respect to segregating assets of the Company
for payment of any Awards hereunder. No Participant or any other person
shall have any interest in any particular assets of the Company by reason
of the right to receive an Award under the Plan and any such Participant or
any other person shall have only the rights of a general unsecured creditor
of the Company with respect to any rights under the Plan.
(d) Except when otherwise required by the context, any masculine
terminology in this document shall include the feminine, and any singular
terminology shall include the plural.
(e) This Plan shall be governed by the laws of the State of South
Dakota.
IN WITNESS WHEREOF, the Company has executed this revised NorthSTAR
Plan as of the 4th day of May, 1999.
NORTHWESTERN CORPORATION
By______________________________________
M. D. Lewis
Chairman, President & CEO
By______________________________________
Chairman, Nominating and Compensation Committee
NORTHWESTERN
STOCK OPTION AND INCENTIVE PLAN
(As Amended and Restated by the Board of Directors on May 4, 1999)
Introduction
NorthWestern Corporation ('NorthWestern'), formerly
Northwestern Public Service Company, established the Northwestern
Public Service Company Stock Option and Incentive Plan effective
May 6, 1998. The Plan, now known as the NorthWestern Stock
Option and Incentive Plan (the 'Plan') set forth below is an
amendment and restatement of the Plan.
Section 1. Purpose.
The purpose of the Plan is to benefit NorthWestern
Corporation and its Affiliates (as defined in Section 2) by
recognizing the contributions made to NorthWestern by officers
and other key Team Members (including Directors of NorthWestern
who are also Team Members) of NorthWestern and its Affiliates, 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, by providing such persons with a favorable
opportunity to acquire or increase their proprietary interest in
NorthWestern over a period of years through receipt of options
and other awards relating to the common stock of NorthWestern.
In addition, the Plan is intended as an additional incentive to
members of the Board of Directors of NorthWestern ('Board') who
are not Team Members of NorthWestern ('Non-Employee Directors')
to serve on the Board and to devote themselves to the future
success of NorthWestern by providing them with a favorable
opportunity to acquire or increase their proprietary interest in
NorthWestern through receipt of options to acquire common stock
of NorthWestern.
NorthWestern may grant stock options that constitute
'incentive stock options' ('ISOs') within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the
'Code'), stock options that do not constitute ISOs ('NSOs') (ISOs
and NSOs being hereinafter collectively referred to as
'Options'), Restricted Stock Awards, Stock Appreciation Rights
('SARs'), Limited Stock Appreciation Rights and Phantom Stock
Units (Options and other types of specified grants being
hereinafter collectively referred to as 'Awards').
Section 2. Eligibility.
Non-Employee Directors shall participate in the Plan only in
accordance with the provisions of Sections 5 and 9 of the Plan.
The Committee (as defined in Section 3) shall initially, and from
time to time thereafter, select those officers and other key Team
Members (including Directors of NorthWestern who are also Team
Members) (collectively referred to herein as 'Key Team Members')
of NorthWestern or any affiliated entity of NorthWestern, as
shown on the attached Exhibit 1 to the Plan, as it may be amended
from time to time by action of the Committee ('Affiliate'), to
participate in the Plan on the basis of the special importance of
their services in the management, development and operations of
NorthWestern or its Affiliates (each such Director and Key Team
Member receiving Awards granted under the Plan is referred to
herein as a 'Participant'); provided, however, that the Committee
may delegate, in writing and subject to terms and conditions
which it deems appropriate, to the Chief Executive Officer of
NorthWestern the ability to make Awards to Key Team Members who
are not officers of NorthWestern or its Affiliates.
Section 3. Administration.
3.1 The Committee. The Plan shall be administered by the
Nominating and Compensation Committee of the Board (the
'Committee'). The Committee is comprised solely of 'nonemployee
directors' within the meaning of Rule 16b-3 of the Securities
Exchange Act of 1934 ('Exchange Act') and 'outside directors'
within the meaning of Section 162(m) of the Code.
3.2 Authority of the Committee. Except as provided in
Section 2, no person, other than members of the Committee, shall
have any authority concerning decisions regarding the Plan.
Subject to the express provisions of the Plan, including but not
limited to Sections 5 and 9, the Committee (or the Chief
Executive Officer, to the extent the Committee delegates
authority to him pursuant to Section 2) shall have sole
discretion concerning all matters relating to the Plan and Awards
granted hereunder. The Committee (or the Chief Executive
Officer, to the extent the Committee delegates authority to him
pursuant to Section 2) in its sole discretion, shall determine
the Key Team Members of NorthWestern and its Affiliates to whom,
and the time or times at which, Awards will be granted, the type
of Award to be granted, the number of shares to be subject to
each Award, the expiration date of each Award, the time or times
within which the Award may be exercised, the cancellation of the
Award (with the consent of the holder thereof), and the other
terms and conditions of the grant of the Award. The terms and
conditions of the Awards need not be the same with respect to
each Participant or with respect to each Award.
The Committee may, subject to the provisions of the Plan,
establish such rules and regulations as it deems necessary or
advisable for the proper administration of the Plan, and may make
determinations and may take such other action in connection with
or in relation to the Plan as it deems necessary or advisable.
Each determination or other action made or taken pursuant to the
Plan, including interpretation of the Plan and the specific terms
and conditions of the Awards granted hereunder by the Committee
(or the Chief Executive Officer, to the extent the Committee
delegates authority to him pursuant to Section 2) shall be final
and conclusive for all purposes and upon all persons including,
but without limitation, NorthWestern, its Affiliates, the
Committee, the Board, officers and the affected Team Members of
NorthWestern and/or its Affiliates and their respective
successors in interest.
No member of the Committee shall, in the absence of bad
faith, be liable for any act or omission with respect to service
on the Committee. Service on the Committee shall constitute
service as a Director of NorthWestern so that members of the
Committee shall be entitled to indemnification pursuant to
NorthWestern's Certificate of Incorporation and By-Laws.
Section 4. Shares of Common Stock Subject to Plan.
4.1 The total number of shares of common stock, par value
$1.75 per share, of NorthWestern (the 'Common Stock'), that may
be issued and sold under the Plan initially shall be 2,750,000.
The total number of shares of Common Stock that may be available
for ISOs under the Plan shall be 2,750,000 and the total number
of shares of Common Stock and units subject to Restricted Stock
Awards and Phantom Stock Unit Awards shall be 2,750,000. The
total number of shares of Common Stock that may be available for
Awards (other than ISOs) under the Plan shall be adjusted on
January 1 of each calendar year, within the Applicable Period (as
defined below), so that the total number of shares of Common
Stock that may be issued and sold under the Plan for Awards
(other than ISOs) as of January 1 of each calendar year within
the Applicable Period shall be equal to, on an aggregate basis
from the inception of the Plan, twelve and one-half percent
(12.5%) of the outstanding shares of Common Stock of NorthWestern
on such date; provided, however, that no such adjustment shall
reduce the total number of shares of Common Stock that may be
issued and sold under the Plan below 2,750,000. For purposes of
the preceding sentence, Applicable Period shall be the ten-year
period commencing on May 6, 1998 and ending May 5, 2008. The
aforementioned total number of shares of Common Stock shall be
adjusted in accordance with the provisions of Section 4.2 hereof.
Any shares of Common Stock subject to issuance upon exercise of
Awards but which are not issued because of a surrender (other
than pursuant to Sections 7.2 or 16 of the Plan), forfeiture,
expiration, termination or cancellation of any such Award, shall
once again be available for issuance pursuant to subsequent
Awards. If either the purchase price of the shares of Common
Stock upon exercise of any Award or the tax withholding
requirement is satisfied by tendering or withholding of shares of
Common Stock or by tendering exercisable Awards, only the number
of shares of Common Stock issued net of the shares of Common
Stock tendered or withheld shall be deemed delivered for purposes
of determining the number of shares of Common Stock available for
Awards under the Plan.
4.2 The number of shares of Common Stock and Phantom Stock
Units subject to the Plan and to Awards granted under the Plan,
the exercise price with respect to Options, Tandem SARs and
Tandem Limited SARs, and the base price with respect to Nontandem
SARs and Nontandem Limited SARS shall be adjusted as follows:
(a) in the event that the number of outstanding shares of Common
Stock is changed by any stock dividend, stock split or
combination of shares, the number of shares subject to the Plan
and to Awards previously granted thereunder shall be
proportionately adjusted; (b) in the event of any merger,
consolidation or reorganization of NorthWestern with any other
corporation or corporations, there shall be substituted on an
equitable basis as determined by the Board, in its sole
discretion, for each share of Common Stock then subject to the
Plan and for each share of Common Stock then subject to an Award
granted under the Plan, the number and kind of shares of stock,
other securities, cash or other property to which the holders of
Common Stock of NorthWestern are entitled pursuant to the
transaction; and (c) in the event of any other change in the
capitalization of NorthWestern, the Committee, in its sole
discretion, shall provide for an equitable adjustment in the
number of shares of Common Stock then subject to the Plan and to
each share of Common Stock then subject to an Award granted under
the Plan. In the event of any such adjustment, the exercise
price per share shall be proportionately adjusted. Adjustments
to this Section 4.2 shall be made by the Committee whose decision
as to the amount and timing of any such adjustment shall be
conclusive and binding on all persons.
4.3 Subject to Section 4.2, the maximum number of Options
and SARs granted to any Key Team Member shall be 500,000 Options
and SARs with respect to Common Stock per year. The maximum
number of shares of Common Stock subject to Restricted Stock
Awards granted to any Key Team Member shall be 500,000 shares of
Common Stock per year, and the maximum number of Phantom Stock
Units granted to any Team Member shall be 500,000 Units per year.
Section 5. Grant of Options to Non-Employee Directors.
5.1 Grants. Each individual who is a Non-Employee Director
on the effective date of the Plan was granted automatically a NSO
to purchase 1200 shares of Common Stock on May 6, 1998, the
effective date of the Plan. Non-Employee Directors shall also be
eligible to receive discretionary grants of NSOs as determined by
the Committee from time to time.
5.2 Exercise Price and Period. The per share exercise
price of each NSO granted to a Non-Employee Director shall be the
'Fair Market Value,' on the date on which the NSO is granted, of
the Common Stock subject to the NSO. For purposes of the Plan,
'Fair Market Value' shall mean the average of the closing price
for Common Stock as reported on the New York Stock Exchange for
the 10 business days ending on the third business day preceding
the date with respect to which such Common Stock is being valued,
for which trades in Common Stock were reported on the New York
Stock Exchange. If no trades occur on a certain day, the closing
price for the last preceding day on which trading occurred will
be used as the closing price for that day. Notwithstanding any
provision of the Plan to the contrary, no determination made with
respect to the Fair Market Value of Common Stock subject to an
ISO shall be inconsistent with Section 422 of the Code or
regulations issued thereunder.
In addition to the terms and conditions set forth in this
Section 5, NSOs also shall be subject to such terms and
conditions applicable to Options according to Sections 6.2, 6.3,
6.4, 6.5 and 7, provided, however, such additional terms and
conditions are not inconsistent with the terms and conditions set
forth in this Section 5.
Section 6. Grants of Options to Employees.
6.1 Grant. Subject to the terms of the Plan, the Committee
(or the Chief Executive Officer, to the extent the Committee
delegates authority to him pursuant to Section 2) may from time
to time grant Options, which may be ISOs or NSOs, to Key Team
Members of NorthWestern or any of its Affiliates. Unless
otherwise expressly provided at the time of the grant, Options
granted under the Plan to Key Team Members will be ISOs.
6.2 Option Agreement. Each Option shall be evidenced by a
written Option Agreement specifying the type of Option granted,
the exercise price, the terms for payment of the exercise price,
the expiration date of the Option, the number of shares of Common
Stock to be subject to each Option, the time frame in which an
Option shall become vested and exercisable, the circumstances
under which an Option which has not become vested and exercisable
can be forfeited, the circumstances under which an Option which
has not become vested and exercisable can become immediately
vested and exercisable, the effect on any outstanding Options of
a Key Team Member's termination of employment with NorthWestern
and all Affiliates, and such other terms and conditions
established by the Committee, in its sole discretion, not
inconsistent with the Plan.
6.3 Expiration. Except to the extent otherwise provided in
an Option Agreement, each Option shall expire, and all rights to
purchase shares of Common Stock shall expire, on the tenth
anniversary of the date on which the Option was granted.
6.4 Required Terms and Conditions of ISOs. Each ISO
granted to a Key Team Member shall be in such form and subject to
such restrictions and other terms and conditions as the Committee
(or the Chief Executive Officer, to the extent the Committee
delegates authority to him pursuant to Section 2) may determine,
in its sole discretion, at the time of grant, subject to the
general provisions of the Plan, the applicable Option Agreement,
and the following specific rules:
(a) Except as provided in Section 6.4(d), the per
share exercise price of each ISO shall be the Fair
Market Value of the shares of Common Stock on the date
such ISO is granted.
(b) The aggregate Fair Market Value (determined
with respect to each ISO at the time such Option is
granted) of the shares of Common Stock with respect to
which ISOs are exercisable for the first time by an
individual during any calendar year (under all
incentive stock option plans of NorthWestern and its
parent and subsidiary corporations) shall not exceed
$100,000. If the aggregate Fair Market Value
(determined at the time of grant) of the Common Stock
subject to an Option, which first becomes exercisable
in any calendar year exceeds the limitation of this
Section 6.4(b), so much of the Option that does not
exceed the applicable dollar limit shall be an ISO and
the remainder shall be a NSO; but in all other
respects, the original Option Agreement shall remain in
full force and effect.
(c) As used in this Section 6, the words 'parent'
and 'subsidiary' shall have the meanings given to them
in Section 424(e) and 424(f) of the Code.
(d) Notwithstanding anything herein to the
contrary, if an ISO is granted to an individual who
owns stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock
of NorthWestern or of its parent or subsidiary
corporations, within the meaning of Section 422(b)(6)
of the Code, (i) the exercise price of each share of
Common Stock subject to the ISO shall be not less than
one hundred ten percent (110%) of the Fair Market Value
of the Common Stock on the date the ISO is granted, and
(ii) the ISO shall expire and all rights to purchase
shares thereunder shall cease no later than the fifth
anniversary of the date the ISO was granted.
(e) No ISOs may be granted under the Plan after
May 5, 2008.
6.5 Required Terms and Conditions of NSOs. Each NSO
granted to a Key Team Member shall be in such form and subject to
such restrictions and other terms and conditions as the Committee
(or the Chief Executive Officer, to the extent the Committee
delegates authority to him pursuant to Section 2) may determine,
in its sole discretion, at the time of grant, subject to the
general provisions of the Plan and the applicable Option
Agreement; provided, however, that the per share exercise price
of each NSO shall be the Fair Market Value of the shares of
Common Stock on the date such NSO is granted.
Section 7. Exercise of Options.
7.1 Notice. A person entitled to exercise an Option may do
so by delivery of a written notice to that effect specifying the
number of shares of Common Stock with respect to which the Option
is being exercised and any other information the Committee may
prescribe. The notice shall be accompanied by payment as
described in Section 7.2. The notice of exercise shall be
accompanied by the Optionee's copy of the writing or writings
evidencing the grant of the Option. All notices or requests
provided for herein shall be delivered to the Corporate Secretary
of NorthWestern.
7.2 Exercise Price. Except as otherwise provided in the
Plan or in any Option Agreement, the Participant shall pay the
exercise price of the shares of Common Stock upon exercise of any
Option: (a) in cash; (b) in cash received from a broker-dealer
to whom the Participant has submitted an exercise notice
consisting of a fully endorsed Option (however, in the case of an
Participant subject to Section 16 of the 1934 Act, this payment
option shall only be available to the extent such person complies
with Regulation T issued by the Federal Reserve Board); (c) by
delivering (either actual delivery or by attestation procedures
established by NorthWestern) previously owned shares of Common
Stock (which the Participant has held for at least six months
prior to the delivery of such shares or which the Participant
purchased on the open market and in each case for which the
Participant has good title, free and clear of all liens and
encumbrances) having an aggregate Fair Market Value on the date
of exercise equal to the exercise price; (d) by directing
NorthWestern to withhold such number of shares of Common Stock
otherwise issuable upon exercise of such Option having an
aggregate Fair Market Value on the date of exercise equal to the
exercise price; (e) by agreeing to surrender Options then
exercisable valued at the excess of the aggregate Fair Market
Value of the shares of Common Stock subject to such Options on
the date of exercise over the aggregate exercise price of such
shares; (f) by such other medium of payment as the Committee, in
its discretion, shall authorize at the time of grant; or (g) by
any combination of (a), (b), (c), (d) (e) and (f). In the case
of an election pursuant to (a) or (b) above, cash shall mean cash
or a check issued by a federally insured bank or savings and
loan, and made payable to NorthWestern. NorthWestern shall
issue, in the name of the Participant, stock certificates
representing the total number of shares of Common Stock issuable
pursuant to the exercise of any Option as soon as reasonably
practicable after such exercise, provided that any shares of
Common Stock purchased by an Participant through a broker-dealer
pursuant to clause (b) above shall be delivered to such
broker-dealer in accordance with 12 C.F.R. 220.3(e)(4) or other
applicable provision of law.
Section 8. Stock Appreciation Rights.
If deemed by the Committee (or the Chief Executive Officer,
to the extent the Committee delegates authority to him pursuant
to Section 2) to be in the best interests of NorthWestern, a Key
Team Member who receives an Option may also be granted an SAR.
Each SAR shall be granted subject to such restrictions and
conditions and other terms as the Committee may specify in the
Option Agreement at the time the Option is granted, or as the
Committee may determine at the time of grant, subject to the
general provisions of the Plan, and the following specific rules:
8.1 Grant of SARs. SARs will be granted, if at all, at the
time of granting of an Option and may be granted either in
addition to the related Option ('Nontandem SAR') or in tandem
with the related Option ('Tandem SAR'). At the time of grant of
a Nontandem SAR, the Committee shall specify the base price of
Common Stock to be used in connection with the calculation
described in Section 8.3(a) below. The base price of a Nontandem
SAR shall be 100% of the Fair Market Value of a share of Common
Stock on the date of grant. The number of shares of Common Stock
subject to a Tandem SAR shall be one for each share of Common
Stock subject to the Option. The number of shares of Common
Stock subject to a Nontandem SAR shall be one for each share of
Common Stock subject to the Option. No Tandem SAR may be granted
to a Key Team Member in connection with an ISO in a manner that
will disqualify the ISO under Section 422 of the Code unless the
Key Team Member consents thereto.
8.2 Grant of Limited SARs. (a) A 'Limited SAR' is an SAR
that becomes exercisable only following the occurrence of any of
the events provided in paragraph (b) next below. Limited SARs
will be granted, if at all, at the time of granting of an Option
and may be granted either in addition to the related Option
('Nontandem Limited SAR') or in tandem with the related Option
('Tandem Limited SAR'). At the time of grant of a Nontandem
Limited SAR, the Committee shall specify the base price of Common
Stock to be used in connection with the calculation described in
Section 8.3(a) below. The base price of a Nontandem Limited SAR
shall be 100% of the Fair Market Value of a share of Common Stock
on the date of grant. The number of shares of Common Stock
subject to a Tandem Limited SAR shall be one for each share of
Common Stock subject to the Option. The number of shares of
Common Stock subject to a Nontandem Limited SAR shall be one for
each share of Common Stock subject to the Option. No Tandem
Limited SAR may be granted to a Key Team Member in connection
with an ISO in a manner that will disqualify the ISO under
Section 422 of the Code unless the Key Team Member consents
thereto.
(b) Change in Control. The events required for
purposes of Section 8.2 include the following:
(i) any Person is or becomes the Beneficial
Owner, directly or indirectly, of securities of
NorthWestern (not including in the securities
beneficially owned by such Person any securities
acquired directly from NorthWestern or any Subsidiary
or Affiliate) representing 20% or more of the combined
voting power of NorthWestern's then outstanding Common
Stock;
(ii) during any period of not more than two
consecutive years (not including any period prior to
the effective date of the Plan), individuals who at the
beginning of such period constitute the Board and any
new director (other than a director whose original
assumption of office is in connection with an actual or
threatened election of directors, as such terms are
used in Rule 14(a)-11 of Regulation 14A under the
Exchange Act) whose election by the Board or nomination
for election by NorthWestern's shareholders was
approved or recommended by a vote of at least two-
thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or
whose election or nomination for election was
previously so approved or recommended, cease for any
reason to constitute a majority thereof;
(iii) the shareholders of NorthWestern approve
a merger or consolidation of NorthWestern with any
corporation or business trust, other than (i) a merger
or consolidation which would result in the individuals
who prior to such merger or consolidation constitute
the Board constituting at least two-thirds (2/3) of the
board of directors of NorthWestern or the surviving or
succeeding entity immediately after such merger or
consolidation, or (ii) a merger or consolidation
effected to implement a recapitalization of
NorthWestern (or similar transaction) in which no
Person acquires more than 20% of the combined voting
power of NorthWestern's then outstanding Common Stock;
(iv) the shareholders of NorthWestern approve a
plan of complete liquidation of NorthWestern; or
(v) the shareholders of NorthWestern approve an
agreement for the sale or disposition of all or
substantially all NorthWestern's assets, other than a
sale or disposition which would result in the
individuals who prior to such sale or disposition
constitute the Board constituting at least two-thirds
(2/3) of the board of directors of the Person
purchasing such assets immediately after such sale or
disposition.
For purposes of this paragraph: Person shall have the
meaning given in Section 3(a)(9) of the Exchange Act, as
modified and used in Sections 13(d) and 14(d) thereof;
however, a Person shall not include (i) NorthWestern, (ii) a
trustee or other fiduciary holding securities under an
employee benefit plan of NorthWestern, (iii) an underwriter
temporarily holding securities pursuant to an offering of
such securities, or (iv) a corporation owned, directly or
indirectly, by the shareholders of NorthWestern in
substantially the same proportions as their ownership of
shares of NorthWestern and Beneficial Owner shall have the
meaning defined in Rule 13d-3 under the Exchange Act.
On the basis of information known to NorthWestern, the
Committee shall make all determinations relating to the
applicability and interpretation of this Section 8.2(b) and
all such determinations shall be conclusive and binding.
8.3 Value of SARs and Limited SARs. Upon exercise, an SAR
or Limited SAR shall entitle the Key Team Member to receive from
NorthWestern the number of shares of Common Stock having an
aggregate Fair Market Value equal to the following:
(a) in the case of a Nontandem SAR or Nontandem
Limited SAR, the excess of the Fair Market Value of one
share of Common Stock as of the date on which the SAR or
Limited SAR is exercised over the base price specified in
such SAR or Limited SAR, multiplied by the number of shares
of Common Stock then subject to the SAR or Limited SAR, or
the portion thereof being exercised.
(b) in the case of a Tandem SAR or Tandem Limited SAR,
the excess of the Fair Market Value of one share of Common
Stock as of the date on which the SAR or Limited SAR is
exercised over the exercise price per share specified in
such Option, multiplied by the number of shares then subject
to the Option, or the portion thereof as to which the SAR or
Limited SAR is being exercised.
Cash shall be delivered in lieu of any fractional shares.
The Committee, in its discretion, shall be entitled to cause
NorthWestern to elect to settle any part or all of its obligation
arising out of the exercise of an SAR by the payment of cash in
lieu of all or part of the shares of Common Stock it would
otherwise be obligated to deliver in an amount equal to the Fair
Market Value of such shares on the date of exercise.
8.4 Exercise of Tandem SARs. A Tandem SAR shall be
exercisable during such time, and be subject to such restrictions
and conditions and other terms, as the Committee shall specify in
the applicable Option Agreement at the time such Tandem SAR is
granted. Notwithstanding the preceding sentence, the Tandem SAR
shall be exercisable only at such time as the Option to which it
relates is exercisable and shall be subject to the restrictions
and conditions and other terms applicable to such Option. Upon
the exercise of a Tandem SAR, the unexercised Option, or the
portion thereof to which the exercised portion of the Tandem SAR
is related, shall expire. The exercise of any Option shall cause
the expiration of the Tandem SAR related to such Option, or
portion thereof, that is exercised.
8.5 Exercise of Tandem Limited SARs. A Tandem Limited SAR
shall be exercisable following the occurrence of any of the
events described in paragraph (b) of Section 8.2, and be subject
to such restrictions and conditions and other terms, as the
Committee shall specify in the applicable Option Agreement at the
time such Tandem Limited SAR is granted. Notwithstanding the
preceding sentence, the Tandem Limited SAR shall be exercisable
only at such time as the Option to which it relates is
exercisable and shall be subject to the restrictions and
conditions and other terms applicable to such Option. Upon the
exercise of a Tandem Limited SAR, the unexercised Option, or the
portion thereof to which the exercised portion of the Tandem
Limited SAR is related, shall expire. The exercise of any Option
shall cause the expiration of the Tandem Limited SAR related to
such Option, or portion thereof, that is exercised.
8.6 Exercise of Nontandem SARs.
(a) A Nontandem SAR granted under the Plan shall be
exercisable during such time, and be subject to such
restrictions and conditions and other terms, as the
Committee shall specify in the Option Agreement at the time
the Nontandem SAR is granted, which restrictions and
conditions and other terms need not be the same for all Key
Team Members. Without limiting the generality of the
foregoing, the Committee may specify a minimum number of
full shares with respect to which any exercise of a
Nontandem SAR must be made.
(b) A Nontandem SAR granted under the Plan shall
expire on the date specified by the Committee in the Option
Agreement, provided that such date shall not be more than
ten years after the date of grant. The Committee shall
specify in the Option Agreement at the time each Nontandem
SAR is granted, the time during which the Nontandem SAR may
be exercised prior to its expiration and other provisions
relevant to the SAR. The Committee, in its discretion,
shall have the power to accelerate the dates for exercise of
any or all Nontandem SARs or any part thereof, granted under
the Plan.
8.7 Exercise of Nontandem Limited SARs.
(a) A Nontandem Limited SAR granted under the Plan
shall be exercisable following the occurrence of any of the
events described in paragraph (b) of Section 8.2, and be
subject to such restrictions and conditions and other terms,
as the Committee shall specify in the Option Agreement at
the time the Nontandem Limited SAR is granted, which
restrictions and conditions and other terms need not be the
same for all Key Team Members. Without limiting the
generality of the foregoing, the Committee may specify a
minimum number of full shares with respect to which any
exercise of a Nontandem Limited SAR must be made.
(b) A Nontandem Limited SAR granted under the Plan
shall expire on the date specified by the Committee in the
Option Agreement, provided that such date shall not be more
than ten years after the date of grant. The Committee shall
specify in the Option Agreement at the time each Nontandem
Limited SAR is granted, the time during which the Nontandem
Limited SAR may be exercised prior to its expiration and
other provisions relevant to the Limited SAR. The
Committee, in its discretion, shall have the power to
accelerate the dates for exercise of any or all Nontandem
Limited SARs or any part thereof, granted under the Plan
pursuant to Section 4.3.
8.8 Parties Entitled to Exercise SARs and Limited SARs. An
SAR or Limited SAR may be exercised only by the Key Team Member
(or by a legatee or legatees of such SAR under his last will, by
his executors, personal representatives or distributees, or by an
assignee or assignees pursuant to Section 12 below).
8.9 Settlement of SARs and Limited SARs. As soon as is
reasonably practicable after the exercise of an SAR or a Limited
SAR, NorthWestern shall (i) issue, in the name of the Key Team
Member, stock certificates representing the total number of full
shares of Common Stock to which the Key Team Member is entitled
pursuant to Section 8.3 hereof and cash in an amount equal to the
Fair Market Value, as of the date of exercise, of any resulting
fractional shares, and (ii) if the Committee causes NorthWestern
to elect to settle all or part of its obligations arising out of
the exercise of the SAR or Limited SAR in cash, deliver to the
Key Team Member an amount in cash equal to the Fair Market Value,
as of the date of exercise, of the shares of Common Stock it
would otherwise be obligated to deliver.
Section 9. Restricted Stock Awards To Key Team Members and
Non-Employee Directors.
The Committee (or the Chief Executive Officer, to the extent
the Committee delegates authority to him pursuant to Section 2)
may from time to time cause NorthWestern to grant shares of
Restricted Stock under the Plan to such Key Team Members and Non-
Employee Directors, and subject to such restrictions and
conditions and other terms, as the Committee may determine at the
time of grant, subject to the general provisions of the Plan, the
applicable Restricted Stock Agreement, and the following specific
rules:
9.1 Performance or Employment Standards. The restrictions
applicable to Restricted Stock may be based either on performance
or employment or Board service standards. If the restrictions
are based upon the performance of NorthWestern, the performance
standards shall relate to corporate or business segment
performance and may be established in terms of growth and gross
revenue, cash flow, earnings per share, return on assets, or
return on investment or utilization of assets. Multiple
standards may be used and may have the same or different
weighting and may relate to absolute performance or relative
performance as measured against comparable companies.
9.2 Restricted Stock Agreements. Shares of Restricted
Stock issued to a Key Team Member or Non-Employee Director under
the Plan shall be governed by a Restricted Stock Agreement which
shall set forth the restrictions applicable to the Award of
Restricted Stock and such other provisions as the Committee shall
determine.
9.3 Issuance of Restricted Stock. NorthWestern shall
issue, in the name of the Key Team Member or Non-Employee
Director, stock certificates representing the total number of
shares of Restricted Stock granted to the Key Team Member or Non-
Employee Director, as soon as may be reasonably practicable after
such grant, which shall be held by the Corporate Secretary of
NorthWestern as provided in Section 9.7 hereof.
9.4 Rights of Stockholders. Subject to the provisions of
Sections 9.3 and 9.5 hereof and Section 12.2, and the
restrictions set forth in the related Restricted Stock Agreement,
the Key Team Member or Non-Employee Director receiving a grant
shall thereupon be a stockholder with respect to all of the
shares represented by such certificate or certificates and shall
have the rights of a stockholder with respect to such shares,
including the right to vote such shares and to receive dividends
and other distributions paid with respect to such shares.
9.5 Restrictions; Forfeiture. Any share of Restricted
Stock granted to a Key Team Member or Non-Employee Director
pursuant to the Plan shall be forfeited, and such shares shall
revert to NorthWestern, if (i) the Key Team Member or Non-
Employee Director violates a non-competition or confidentiality
agreement or other condition set forth in the Restricted Stock
Agreement, (ii) the Key Team Member's employment with
NorthWestern or its Affiliates, or the service of the Non-
Employee Director on the Board, terminates prior to a date or
dates for expiration of the forfeiture, (iii) the date on which
performance standards set forth in the Restricted Stock Agreement
fail to be satisfied, or (iv) the date there occurs a violation
of any provision of the Restricted Stock Agreement. NorthWestern
shall require a forfeiture of Restricted Stock pursuant to this
Section 9.5, by giving notice to the Key Team Member or Non-
Employee Director at any time within the 30-day period following
the applicable date of forfeiture. Upon receipt of such notice,
the Corporate Secretary of NorthWestern shall promptly cancel
shares of Restricted Stock that are forfeited to NorthWestern.
9.6 Acceleration. The Committee, in its discretion, shall
have the power to accelerate the date on which the restrictions
of this Section 9 or contained in any Restricted Stock Agreements
shall lapse with respect to any or all shares of Restricted Stock
granted under the Plan.
9.7 Restricted Stock Certificates. The Corporate Secretary
of NorthWestern shall hold the certificate or certificates
representing shares of Restricted Stock issued under the Plan on
behalf of each Participant who holds such shares until such time
as the Restricted Stock is forfeited or the restrictions lapse.
9.8 Terms and Conditions. The Committee may prescribe such
other restrictions and conditions and other terms applicable to
the shares of Restricted Stock issued to a Key Team Member or Non-
Employee Director under the Plan that are neither inconsistent
with nor prohibited by the Plan or any Restricted Stock
Agreement, including, without limitation, terms providing for a
lapse of the restrictions of this Section 9 or in any Restricted
Stock Agreement, in installments.
Section 10. Phantom Stock Units.
10.1 Grant of Phantom Stock Units. If deemed by the
Committee (or the Chief Executive Officer, to the extent the
Committee delegates authority to him pursuant to Section 2) to be
in the best interests of NorthWestern, Phantom Stock Units, the
value of which is related to the appreciation in the value of the
Common Stock, may be granted to such Key Team Members of
NorthWestern as the Committee shall determine. If any Phantom
Stock Units awarded under the Plan shall be forfeited or
canceled, such Phantom Stock Units may again be awarded under the
Plan. Phantom Stock Units shall be granted at such time or times
and shall be subject to such terms and conditions, in addition to
the terms and conditions set forth in the Plan, as the Committee
shall determine.
The receipt of the value of Phantom Stock Units may be
contingent upon either performance or employment standards. If
the Phantom Stock Units are contingent upon the performance of
NorthWestern, the performance standards shall relate to corporate
or business segment performance and may be established in terms
of growth and gross revenue, cash flow, earnings per share,
return on assets, or return on investment or utilization of
assets. Multiple standards may be used and may have the same or
different weighting and may relate to absolute performance or
relative performance as measured against comparable companies.
10.2 Phantom Stock Unit Agreements. Phantom Stock Units
issued to a Key Team Member under the Plan shall be governed by a
Phantom Stock Unit Agreement that shall set forth the performance
or employment standards applicable to the award of Phantom Stock
Units and such other provisions as the Committee shall determine.
10.3 Payment for Phantom Stock Units. Except as otherwise
set forth in a Phantom Stock Unit Agreement, upon termination of
employment of a Key Team Member with NorthWestern and all
Affiliates for any reason, the Key Team Member shall be entitled
to receive an amount in a lump sum cash payment equal to the
number of Phantom Stock Units granted to him with respect to
which the applicable employment and/or performance standards have
been satisfied, multiplied by the Fair Market Value of a share of
Common Stock of NorthWestern determined pursuant to the
provisions of Section 5.2.
Section 11. Terms and Conditions of Awards.
11.1 Each Participant shall agree to such restrictions and
conditions and other terms in connection with the grant and
exercise of an Award, including restrictions and conditions on
the disposition of the Common Stock acquired upon the exercise,
grant or sale thereof, as the Committee may deem appropriate and
as is set forth in the applicable Award Agreement. The
certificates delivered to a Participant or to the Corporate
Secretary of NorthWestern evidencing the shares of Common Stock
acquired upon exercise of an Award may, and upon the grant of
Restricted Stock to a Key Team Member or Non-Employee Director
shall, bear a legend referring to the restrictions and conditions
and other terms contained in the respective Award Agreement and
the Plan, and NorthWestern may place a stop transfer order with
its transfer agent against the transfer of such shares. If
requested to do so by the Committee at the time of exercise of an
Option or sale of Restricted Stock, each Participant shall
execute a written instrument stating that he is purchasing the
Common Stock for investment and not with any present intention to
sell the same.
11.2 The obligation of NorthWestern to sell and deliver
Common Stock under the Plan shall be subject to all applicable
laws, regulations, rules and approvals, including, but not by way
of limitation, the effectiveness of a registration statement
under the Securities Act of 1933, if deemed necessary or
appropriate by the Committee, of the Common Stock, Options, SARs,
Limited SARs, Restricted Stock, and other securities reserved for
issuance or that may be offered under the Plan.
Section 12. Nontransferability.
12.1 Except as provided in Section 12.2 next below, or in
connection with unrestricted Common Stock issued pursuant to an
Award, Awards granted under the Plan and any rights and
privileges pertaining thereto, may not be transferred, assigned,
pledged or hypothecated in any manner, by operation of law or
otherwise, other than by will or by the laws of descent and
distribution and shall not be subject to execution, attachment or
similar process. The granting of an Award shall impose no
obligation upon the applicable Participant to exercise such
Award.
12.2 Notwithstanding the provisions of subsection (a) above,
a Participant, at any time prior to his death, may assign all or
any portion of a NSO granted to him and a related Tandem SAR, if
applicable, to (i) his spouse or lineal descendant, (ii) the
trustee of a trust for the primary benefit of his spouse or
lineal descendant, (iii) a partnership of which his spouse and
lineal descendants are the only partners, or (iv) a tax exempt
organization as described in Section 501(c)(3) of the Code. In
such event, the spouse, lineal descendant, trustee, partnership
or tax exempt organization will be entitled to all of the rights
of the Participant with respect to the assigned portion of such
NSO and SAR, and such portion of the NSO and SAR will continue to
be subject to all of the terms, conditions and restrictions
applicable to the NSO and SAR, as set forth herein and in the
related Option Agreement immediately prior to the effective date
of the assignment. Any such assignment will be permitted only if
(i) the Participant does not receive any consideration therefore,
and (ii) the assignment is expressly permitted by the applicable
Option Agreement as approved by the Committee. Any such
assignment shall be evidenced by an appropriate written document
executed by the Participant, and a copy thereof shall be
delivered to NorthWestern on or prior to the effective date of
the assignment.
Section 13. Rights as Shareholder.
A Participant or an assignee of a Participant pursuant to
Section 12 shall have no rights as a shareholder with respect to
any Common Stock covered by an Award or receivable upon the
exercise of an Award until the Participant or transferee shall
have become the holder of record of such Common Stock, and,
except as provided in Section 14, no adjustments shall be made
for dividends in cash or other property or other distributions or
rights in respect to such Common Stock for which the record date
is prior to the date on which the Participant shall have in fact
become the holder of record of the shares of Common Stock
acquired pursuant to the Award.
Section 14. Dividends and Dividend Equivalents.
An Award under the Plan, other than a Restricted Stock
Award, may, at the discretion of the Committee, contain the right
to receive dividends or dividend equivalents, which may be either
paid currently or credited to a Participant's account under the
Plan and which may be subject to conditions, restrictions and
contingencies established by the Committee, including the
achievement of performance goals as described in Section 10.1.
Section 15. Postponement of Exercise.
The Committee may postpone any exercise of an Award for such
time as the Committee in its sole discretion may deem necessary
in order to permit NorthWestern (a) to effect, amend or maintain
any necessary registration of the Plan or the shares of Common
Stock issuable upon the exercise of an Award under the Securities
Act of 1933, as amended, or the securities laws of any applicable
jurisdiction, (b) to permit any action to be taken in order to
(i) list such shares of Common Stock on a stock exchange if
shares of Common Stock are then listed on such exchange or (ii)
comply with restrictions or regulations incident to the
maintenance of a public market for shares of Common Stock,
including any rules or regulations of any stock exchange on which
the shares of Common Stock are listed, or (c) to determine that
such shares of Common Stock and the Plan are exempt from such
registration or that no action of the kind referred to in (b)(ii)
above needs to be taken; and NorthWestern shall not be obligated
by virtue of any terms and conditions of any Award or any
provision of the Plan to recognize the exercise of an Award or to
sell or issue shares of Common Stock in violation of the
Securities Act of 1933 or the law of any government having
jurisdiction thereof. Any such postponement shall not extend the
term of an Award and neither NorthWestern nor its directors or
officers shall have any obligation or liability to an
Participant, to the Participant's successor or assignee, or any
other person, with respect to any shares of Common Stock as to
which the Award shall lapse because of such postponement.
Section 16. Withholding Taxes.
Whenever NorthWestern proposes or is required to issue or
transfer shares of Common Stock to a Participant under the Plan,
NorthWestern shall have the right to require the Participant to
remit to NorthWestern an amount sufficient to satisfy all
federal, state and local withholding tax requirements prior to
the delivery of any certificate or certificates for such shares.
If such certificates have been delivered prior to the time a
withholding obligation arises, NorthWestern shall have the right
to require the Participant to remit to NorthWestern an amount
sufficient to satisfy all federal, state or local withholding tax
requirements at the time such obligation arises and to withhold
from other amounts payable to the Participant, as compensation or
otherwise, as necessary. Whenever payments under the Plan are to
be made to a Participant in cash, such payments shall be net of
any amounts sufficient to satisfy all federal, state and local
withholding tax requirements. In connection with an Award in the
form of shares of Common Stock, a Participant may elect to
satisfy his tax withholding obligation incurred with respect to
the Taxable Date of the Award by (a) directing NorthWestern to
withhold a portion of the shares of Common Stock otherwise
distributable to the Participant, or (b) by transferring to
NorthWestern a certain number of shares (either subject to a
Restricted Stock Award or previously owned), such shares being
valued at the Fair Market Value thereof on the Taxable Date.
Notwithstanding any provisions of the Plan to the contrary, a
Participant's election pursuant to the preceding sentence (a)
must be made on or prior to the Taxable Date with respect to such
Award, and (b) must be irrevocable. In lieu of a separate
election on each Taxable Date of an Award, a Participant may make
a blanket election with the Committee that shall govern all
future Taxable Dates until revoked by the Participant. If the
holder of shares of Common Stock purchased in connection with the
exercise of an ISO disposes of such shares within two years of
the date such an ISO was granted or within one year of such
exercise, he shall notify NorthWestern of such disposition and
remit an amount necessary to satisfy applicable [minimum]
withholding requirements including those arising under federal
income tax laws. If such holder does not remit such amount,
NorthWestern may withhold all or a portion of any salary or other
amounts then or in the future owed to such holder as necessary to
satisfy such [minimum] requirements. Taxable Date means the date
a Participant recognizes income with respect to an Award under
the Code or any applicable state or local income tax law.
Section 17. Leave of Absence.
The Committee shall be entitled to make such rules,
regulations and determinations as it deems appropriate under the
Plan in respect of any leave of absence taken by any Participant.
Without limiting the generality of the foregoing, the Committee
shall be entitled to determine (i) whether or not any such leave
of absence shall constitute a termination of employment or
service on the Board within the meaning of the Plan, and (ii) the
impact, if any, of any such leave of absence on Awards under the
Plan theretofore granted to any Participant who takes such leave
of absence.
Section 18. Trust Agreement.
NorthWestern may enter into a trust agreement ('Trust
Agreement') whereby NorthWestern shall agree to contribute to a
trust ('Trust) for the purpose of accumulating shares of Common
Stock to assist NorthWestern in fulfilling its obligations to
Participants hereunder. Such Trust Agreement shall be
substantially in the form of the model trust agreement set forth
in Internal Revenue Service Revenue Procedure 92-64, or any
subsequent Internal Revenue Service Revenue Procedure, and shall
include provisions required in such model trust agreement that
all assets of the Trust shall be subject to the creditors of
NorthWestern in the event of insolvency.
Section 19. Termination or Amendment of Plan.
The Committee may correct any defect or supply an omission
or reconcile any inconsistency in the Plan or in any Award
granted hereunder in the manner and to the extent it shall deem
desirable, in its sole discretion, to effectuate the Plan. The
Board, without further action on the part of the shareholders of
NorthWestern to the extent permitted by law, regulation and stock
exchange requirements, may from time to time alter, amend or
suspend the Plan or any Award granted hereunder or may at any
time terminate the Plan; provided that with respect to ISOs, the
Board may not effect a change inconsistent with Section 422 of
the Code or regulations issued thereunder.
No amendment or termination of the Plan shall in any manner
affect any Award theretofore granted without the consent of the
Participant, except that the Committee may amend the Plan in a
manner that does affect Awards theretofore granted upon a finding
by the Committee that such amendment is in the best interest of
holders of outstanding Awards affected thereby.
Section 20. Effective Date.
The Plan shall be effective upon the date of approval of the
Plan by an affirmative vote of a majority of the shares of the
voting stock of NorthWestern entitled to be voted by the holders
of stock represented at a duly held shareholders' meeting, within
12 months after the date of adoption of the Plan by the Board.
Section 21. Requirements of Law.
The granting of Awards under the Plan shall be subject to
all applicable laws, rules, and regulations, and to such
approvals by any governmental agencies or national securities
exchanges as may be required.
Section 22. Governing Law.
The Plan and all agreements hereunder shall be construed in
accordance with and governed by the laws of the State of South
Dakota, to the extent not inconsistent with Section 422 of the
Code and regulations thereunder.
Section 23. Notice.
Every direction, revocation or notice authorized or required
by the Plan shall be deemed delivered to NorthWestern (a) on the
date it is personally delivered to the Corporate Secretary of
NorthWestern at its principal executive offices or (b) three
business days after it is sent by registered or certified mail;
postage prepaid, addressed to the Corporate Secretary at such
offices; and shall be deemed delivered to a Participant or
assignee (a) on the date it is personally delivered to him or (b)
three business days after it is sent by registered or certified
mail, postage prepaid, addressed to him at the last address shown
on the records of NorthWestern or of any Subsidiary.
Section 24. Successors.
In the event of a sale of substantially all of the assets of
NorthWestern, or a merger, consolidation or share exchange
involving NorthWestern, all obligations of NorthWestern under the
Plan with respect to Awards granted hereunder shall be binding on
the successor of the transaction. Employment of a Participant
with such a successor shall be considered employment of the
Participant with NorthWestern for purposes of the Plan.
Section 25. Indemnification of the Committee.
In addition to such other rights of indemnification as they
may have as members of the Board, or as members of the Committee,
or as its delegatees, the members of the Committee and its
delegatees shall be indemnified by NorthWestern against (a) the
reasonable expenses (as such expenses are incurred), including
attorneys' fees actually and necessarily incurred in connection
with the defense of any action, suit or proceeding (or in
connection with any appeal therein), to which they or any of them
may be a party by reason of any action taken or failure to act
under or in connection with the Plan, or any Award granted
hereunder; and (b) against all amounts paid by them in settlement
thereof (provided such settlement is approved by independent
legal counsel selected by NorthWestern) or paid by them in
satisfaction of a judgment in such action, suit or proceeding,
except in relation to matters as to which it shall be adjudged in
such action, suit or proceeding that such Committee member or
delegatee is liable for gross negligence or misconduct in the
performance of his duties; provided that within 60 days after
institution of such action, suit or proceeding a Committee member
or delegatee shall in writing offer NorthWestern the opportunity,
at its own expense, to handle and defend the same.
Section 26. No Contract of Employment or Service on the Board.
Neither the adoption of the Plan, nor the amendment and the
restatement of the Plan, nor the grant of any Award shall be
deemed to obligate NorthWestern or any Subsidiary to continue the
employment or service on the Board of any Participant for any
particular period, nor shall the granting of an Award constitute
a request or consent to postpone the retirement date of any
Participant.
Section 27. Gender.
Except when otherwise required by the context, any masculine
terminology in this document shall include the feminine, and any
singular terminology shall include the plural.
IN WITNESS WHEREOF, NorthWestern has caused the Plan to be
executed on its behalf by its duly authorized officer on May 4,
1999.
NORTHWESTERN CORPORATION
By: ____________________________
Its: Chairman & Chief Executive Officer
Exhibit 1
Affiliates
Blue Dot Services Inc.
CornerStone Propane Partners, LLP
Expanets, Inc.
NorCom Advanced Technologies, Inc.
NorthWestern Energy Corporation
NorthWestern Growth Corporation
NorthWestern Services Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS
NORTHWESTERN CORPORATION
NorthWestern Corporation ('Corporation') is a provider of services and
solutions to customers across North America. The Corporation provides
electric and natural gas service to Midwestern customers through our energy
division, NorthWestern Public Service. In addition, the Corporation holds
interests in Blue Dot Services Inc. ('Blue Dot'), a national provider of
heating, ventilation, air conditioning, plumbing and related services
('HVAC'); CornerStone Propane Partners, L.P. (NYSE:CNO) ('CornerStone'),
the nation's fourth largest retail propane distributor and also is a
wholesale distributor of energy-related commodities; and Expanets, Inc.
('Expanets'), a national provider of networked communications and data
solutions to mid-sized business customers. The Corporation is also engaged
in other service and nonenergy-related businesses.
RESULTS OF OPERATIONS
EARNINGS AND DIVIDENDS
Consolidated earnings for 1999 on common shares were $37.9 million, an
increase of $10.8 million or 40% over 1998 earnings of $27.1 million. The
diluted earnings per share increased 13% from $1.44 in 1998 to $1.62,
primarily from the additional investments in the HVAC and communications
business segments in 1999 along with the full year impact of acquisitions
made during 1998. Earnings per share is reflective of the aforementioned
40% consolidated earnings improvement, after allowing for the 24% increase
in average shares outstanding from 1998 to 1999. Consolidated earnings for
1998 were $3.7 million more than 1997 earnings of $23.4 million, reflecting
the initiation of our investments in the HVAC and communications segments
in 1998. Diluted earnings per share in 1998 of $1.44 increased 10% over
1997 diluted earnings per share of $1.31 due to the increased earnings
offset partially by the 5% increase in average shares outstanding in 1998.
Dividends increased from an annual rate of $1.03 per share to $1.11 per
share in November 1999, a 7.8% increase. Dividends were increased by 6.2%
in 1998 to $1.03 per share from $.97 per share in 1997. Future dividend
policy will be contingent upon the Board's evaluation of the Corporation's
financial condition and competitive changes in the industries in which the
Corporation operates.
CONSOLIDATED OPERATING RESULTS
In reviewing the consolidated operating results, the reader is reminded
that there is disparity in financial operating relationships amongst the
segments, particularly as it relates to the wholesale propane operations.
Furthermore, the propane, HVAC and communications segments experienced
significant acquisition growth during 1998 and 1999, along with related
infrastructure development. Accordingly, a meaningful understanding of the
operating results must include a thorough review of the segment information
discussion which follows.
Operating revenues in 1999 rose to $3.0 billion compared to 1998 revenues
of $1.2 billion, representing an increase of 153%.
The majority of the increase, approximately $1.5 billion, was due to the
increase in revenues generated by the propane segment, both through
internal growth and acquisitions, of which approximately 95% of the
increase was from the wholesale operations. The
propane growth was combined with continued growth in HVAC and
communications segments, both internal and through acquisitions, and
improved performance in the natural gas and electric segments. HVAC and
communications acquisitions contributed to the increase with a full year
impact of operations from acquisitions completed in 1998 and partial year
impact of new acquisitions in 1999. Revenues for 1998 increased $269.1
million over 1997 to $1.2 billion. HVAC and communications segments
acquisitions combined contributed to 93% of the increase.
Cost of sales in 1999 of $2.5 billion increased $1.6 billion over 1998,
primarily due to the propane segment. The $1.4 billion increase in propane
reflects principally the increased wholesale activity in that segment
(wholesale sales experience lower gross margins than retail sales), which
contributed substantially all of the segment increase. Expansions through
internal growth and continued acquisitions in the HVAC and communications
segments contributed to the remainder of the increase as the other segments
remained relatively stable. Cost of sales for 1998 increased $144.7 million
over 1997 costs of $695.0 million. The acquisitions in the communications
and HVAC segments added $70.0 million and $75.8 million, respectively,
offsetting the decline in electric and natural gas costs resulting from
weather fluctuations.
Gross margins in 1999 increased, rising from $347.4 million or 29% (50%
excluding wholesale propane) in 1998 to $536.6 million or 18% (47%
excluding wholesale propane) in 1999, principally due to growth in the
HVAC, communications and propane segments, which caused the increase in
absolute terms while the aforementioned increase in wholesale revenues was
the primary cause of the decreased gross margin percentage. Gross margins
in 1998 of $347.4 million increased $124.4 million over 1997 margins. The
growth from the HVAC and communications segments contributed a combined
$105.5 million to gross margins. The propane segment provided the remainder
of the increase as the other segments remained relatively constant.
Operating expenses reflect the growth in the segments and the costs
associated with business expansion. Expenses rose 63% from $279.9 million
in 1998 to $457.0 million in 1999. Operating expenses during 1999 rose at a
rate less than the increase in revenues due principally to the
aforementioned increase in wholesale propane revenues. Selling, general and
administrative expenses account for the majority of operating expenses and
increased $152.5 million over 1998. The HVAC and communications segments
were the principal components of the increase as their expenses increased a
combined $114.0 million. This was due to a full year of expenses for 1998
acquisitions, the partial year impact of 1999 acquisitions and incurrence
of additional infrastructure costs to support the increased size of
business operations. Depreciation and amortization expense rose $24.7
million to $68.3 million in 1999. This increase is reflective of the full
year of depreciation and amortization expense from acquisitions made in
1998, along with the partial year impact of 1999 acquisitions in the HVAC,
communications and propane segments. Operating expenses rose 71% over 1997
expenses of $164.0 million to $279.9 million in 1998. Selling, general and
administrative expenses grew $103.4 million in 1998 primarily from the
growth in the HVAC and communications segments. Propane segment growth was
responsible for the remainder of the increase. Depreciation and
amortization increased $12.4 million from $31.2 million in 1997 as a result
of the growth in HVAC, communications and propane segments.
Consolidated operating income improved 18% over 1998 to $79.6 million for
1999. The increase is a result of the aforementioned propane,
communications and HVAC business segments growth in both gross and
operating margins. Operating income in 1998 increased $8.5 million over
1997 income of $59.0 million and is attributable to the HVAC and
communications segments offset by decreases in the propane, electric and
natural gas segments due mainly from adverse weather patterns in 1998.
Propane
CornerStone provides retail propane to business and residential customers
in the U.S. and wholesale energy-related commodities to businesses in the
U.S. and Canada. The Corporation owned an effective combined 30% interest
of CornerStone, comprised of general partner interests and subordinated
units, as of December 31, 1999.
Retail propane is mainly sold for heating purposes and, as a result, sales
are extremely sensitive to weather. The coldest months are during the first
and fourth quarters of the year, and are, therefore, the largest revenue
and profit generating months. The weather for 1999 averaged 12% warmer than
normal in CornerStone's main market areas, negatively impacting sales
volumes and revenues. While weather factors generally measure the
directional impact of temperatures on the business, other factors such as
product prices and geographic mix can also impact sales.
Revenues for 1999 increased $1.5 billion over 1998 revenues of $767.7
million, primarily due to expansion of the wholesale business, which
accounted for 95% of the increase in revenues. This expansion is
attributable to internal growth and the acquisitions of Propane
Continental, Inc. ('PCI'), which had retail and wholesale operations, and
two wholesale companies. These acquisitions, which were completed in late
1998 and during 1999, combined with organic growth, contributed to more
than tripling the size of the wholesale operations. Retail sales increased
30% from $234.6 million in 1998 to $303.9 million in 1999. Of the $69.3
million increase, approximately 79% was due to 1998 and 1999 acquisitions
and the remainder to internal growth. Retail volumes increased accordingly
with retail gallons rising from 231.4 million to 281.6 million or a 22%
increase. Total revenues in 1998 showed a modest increase of $24.7 million
over 1997, reflecting the warmer than normal weather and the low growth in
wholesale activity. Retail revenues in 1998 decreased $9.0 million versus
1997 as a result of lower product costs combined with warmer than normal
weather partially offset by increased volumes to a larger customer base.
Retail volumes increased from 220.1 million gallons in 1997 to 231.4
million gallons in 1998. Wholesale revenues increased $33.7 million or 7%
in 1998 due to internal growth.
Cost of sales increased from $618.8 million in 1998 to $2.0 billion in
1999. These statistics reflect the increased wholesale activity as well as
the impact of retail and wholesale acquisitions closed in
1998 and 1999. As noted above, wholesale revenues increased dramatically,
but there are substantially higher costs associated with wholesale sales.
Cost of sales for wholesale business in 1999 increased $1.4 billion to $1.9
billion, a rise of 270% versus the related sales increase of 264%. High
crude oil prices increased the price of energy-related commodities in 1999
which caused the cost of sales to increase at a slightly higher pace than
revenues. Retail costs grew $29.5 million from $103.6 million in 1998 to
$133.1 million in 1999. This increase of 28% is due to the increased volume
of business from new acquisitions and internal growth in 1999 and reflects
margin improvement relative to the 30% increase in retail revenues. Total
cost of sales in 1998 increased $6.4 million over 1997 to $618.8 million,
reflecting costs associated with the increased wholesale activity in 1998
partially offset by the lower product prices for retail and wholesale
sales.
Gross margins in 1999 increased $58.7 million over 1998. Although wholesale
activity contributed the majority of the increase in revenues and cost of
sales, the retail business accounts for approximately 82% of the total
gross margins and for 68% of the increase as a result of the higher
inherent margins in retail sales. Conversely, the significant increase in
the relatively lower margin wholesale business has reduced overall margin
percentages. Wholesale margins grew $18.8 million, more than doubling 1998
margins, a reflection of the wholesale acquisitions and internal growth
noted above. Gross margins in 1998 increased $18.2 million over 1997 to
$149.0 million. This 14% increase was caused by a larger decline in retail
cost of sales over revenues offsetting warm weather and acquisitions.
Operating expenses for 1999 increased approximately 37% or $46.0 million
from 1998. Selling, general and administrative expenses for 1999 were
$137.9 million, an increase of $32.4 million or 31% over 1998. This
increase resulted from acquisitions, which added $23.5 million in expenses,
along with additional costs incurred necessary to support the internal
growth. Depreciation and amortization increased from 1998 expenses of $20.2
million to $33.8 million. 1999 expenses reflect a full year of expense
associated with the 1998 acquisitions as well as some additional costs from
1999 acquisitions. Selling, general and administrative expenses in 1998
were $15.2 million higher than 1997 expenses of $90.3 million. This
increase was due to internal growth as well as the impact of acquisitions.
Depreciation and amortization expense increased $3.4 million due to the
depreciation and amortization of established operations as well as some
additional expense from acquisitions.
Operating income in 1999 of $36.0 million is a $12.7 million or 55%
increase over 1998, reflecting revenue growth that outpaced directly
related cost of sales and the added expense from expanding operations,
however, overall profitability was negatively impacted by weather.
Operating income in 1998 decreased $300,000 from 1997 operating income of
$23.6 million. The decrease was attributable mainly to warmer than normal
weather and normal fluctuations in overall operating expenses.
Electric
Electricity is generated, transmitted and distributed to over 56,000
customers in South Dakota by NorthWestern Public Service, a division of the
Corporation. Electricity is used year round by individuals and businesses,
but use is dependent upon the weather as overall demand is higher during
the summer months for air conditioning.
Electric revenues increased 7% in 1999 from $78.4 million in 1998 to $83.9
million for 1999. Retail electric revenues reflected a modest growth
despite a 1% decline in total mwh usage and a slightly cooler summer
season. The growth is a result of slight increases in power costs and a
customer base increase of 2% in 1999. Wholesale revenues helped to minimize
the effects of cooler summer weather with sales increasing $2.5 million
over 1998 to reach $6.8 million. Wholesale mwh were 61% higher in 1999 as a
result of higher off-system sales. 1998 revenues increased $1.7 million
over 1997 revenues to $78.4 million. This increase was caused primarily by
increased wholesale activity as retail revenues increased only $.6 million
while wholesale revenues increased $1.1 million.
Cost of sales for 1999 grew $3.1 million to $18.5 million. As noted above,
wholesale activity was up substantially in 1999 and is reflected in the
increased costs. Cost of sales for wholesale electricity increased $1.0
million over 1998 costs of $2.3 million. Retail cost of sales grew by 15%
due to increased sales activity and power costs adjustments from prior
years. 1998 cost of sales of $15.4 million were reflective of a 6% increase
over 1997 cost of sales of $14.6 million. This increase was due almost
entirely to the increased wholesale activity in 1998. Retail cost of sales
remained relatively flat with only a 2% increase.
Gross margins in 1999 of $65.5 million reflect a 4% growth over 1998 gross
margins of $63.0 million. The 4% growth in gross margins is slightly less
than the aforementioned 7% revenue increase due to the increase in
wholesale revenues, which carry a lower gross margin. Gross margins for
1998 grew by $800,000 over 1997. Both increased wholesale activity and a
proportional increase in retail revenues and cost of sales caused the rise.
Operating expenses decreased slightly for the electric segment from 1998
expenses of $37.4 million to $36.7 million due to efficiency improvements.
Expenses in 1998 were $2.4 million higher than 1997 expenses. The change
was due to slight increases in administrative expenses for salaries and
benefits.
Operating income for 1999 of $28.8 million reflects a 12% increase over
1998 operating income. This increase resulted from an increase in gross
margins (excess of revenues over cost of sales) due to price adjustments,
increased customer base, increased wholesale revenues and the slight
decrease in operating expenses. 1998 operating income declined $1.6 million
from 1997 operating income of $27.2 million. The decline reflected the
effects of the increased operating expenses over gross margins that
experienced lower growth.
Natural Gas
Natural gas revenues for the Corporation are predominately derived from
residential and commercial sales for heating purposes to approximately
80,000 customers in South Dakota and Nebraska. This reliance upon heating
as a primary use makes the segment extremely sensitive to weather patterns
during the winter heating season.
Revenues in 1999 increased $1.0 million or 2% over 1998 revenues, a
reflection of the comparable heating seasons between the years, stable
natural gas supply prices, and a static customer base. Heating degree-days
and average temperatures during the heating seasons for 1999 and 1998 were
virtually unchanged, being approximately 13% below normal in both years.
Revenues in 1998 were $67.2 million, a decrease of $10.3 million or 13%
from 1997 revenues. The decline was due to a warmer than average heating
season. First quarter 1998 temperatures were 18% warmer than 1997 and
fourth quarter temperatures were 14% warmer.
Cost of sales also remained stable in 1999, with a slight decrease of
$150,000 from 1998 to $47.1 million. This stability is a reflection of the
comparable weather patterns between the years and the absence of market
price fluctuations for natural gas supply. In 1998, natural gas cost of
sales decreased $7.8 million or 14% from 1997. This decrease was due to
unusually warm temperatures and resulting decreased revenues, as noted
above.
Gross margins for 1999 were $21.2 million, an increase of $1.2 million or
6% over 1998. The increase is a product of slightly lower cost of sales and
an increase in revenues over 1998. As noted above, weather patterns were
comparable between the years, resulting in little change in cost of sales
or revenues. 1998 gross margins were 11% lower than 1997, falling to $20.0
million from $22.5 million in 1997. This decline was a reflection of the
impact of warmer weather in 1998, which decreased both revenues and the
associated costs, as noted above.
Operating expenses in 1999 increased slightly from $14.8 million to $15.2
million as a result of normal business fluctuations. Operating expenses in
1998 were $500,000 less than 1997 expenses of $15.3 million, reflective of
the stable business operations.
Natural gas operating income increased 14% over 1998 to $6.0 million. This
increase is due to the slight rise in gross margins, which exceeded the
increase in expenses. The effects of warm weather adversely impacted 1998
operating income. 1998 operating income decreased $2.0 million from 1997 to
$5.2 million. The weather caused lower revenues and cost of sales,
partially offset by a decrease in administrative and other overhead costs,
the net of which resulted in lower income.
Communications
Expanets was formed in 1998 to provide integrated communications, data and
network services to business customers. As of December 31, 1999, the
Corporation has invested $152.0 million in Expanets to acquire 26
companies. During 1999, the Corporation invested $43.3 million in Expanets
in connection with the acquisition of eight companies representing
approximately $37.8 million in revenues ($76 million on a pro forma
annualized basis).
Revenues in 1999 were $294.9 million, representing an increase of $168.4
million or 133% over 1998 revenues. The inclusion of a full year of
revenues for companies acquired during 1998 was the principal driver of the
increase combined with internal growth and the partial year impact of
companies acquired in 1999.
Cost of sales for 1999 increased $98.9 million or 141% over 1998 costs of
$70.0 million. A full year of operations for companies acquired in 1998,
combined with internal growth, accounted for $72.1 million of the increase.
Companies acquired in 1999 accounted for the remaining increase.
Gross margins for 1999 increased to $126.0 million, an increase of $70.0
million or 123% as compared to 1998. This increase is primarily due to a
full year of operations for companies acquired in 1998 combined with
internal growth and is in line with the revenue growth. The partial year
impact of 1999 acquisitions accounted for $11.0 million of the increase in
gross margins.
Selling, general and administrative expenses of $102.5 million in 1999
increased $56.8 million or 124% as compared to 1998 expenses of $45.7
million. The full year of operations for companies acquired in 1998
combined with internal growth were the primary contributors of the increase
and is slightly less than the growth in revenues. Corporate expenses
increased in 1999 as compared to 1998 to build infrastructure in supporting
the high growth of communications operations. The partial year impact of
companies acquired in 1999 accounted for $9.2 million of the increase.
Depreciation and amortization expense increased to $10.5 million in 1999 as
compared to $4.9 million in 1998. The increase is due principally to the
full year of expense for companies acquired in 1998, with 1999 acquisitions
for the period owned contributing $1.0 million of the increase.
Operating income in 1999 increased $7.1 million or 121% over 1998 operating
income of $5.9 million. The increase represents a full year of operations
for the companies acquired in 1998 combined with internal growth and the
partial year impact of new acquisitions in 1999 partially offset by
increased infrastructure building at the corporate level.
HVAC
Blue Dot, established in late 1997, provides heating, ventilation, air
conditioning, plumbing and related services to residential and business
customers. As of December 31, 1999, the Corporation has invested $155.4
million for the acquisition of 62 companies. During 1999, $68.0 million was
invested for the acquisition of 34 companies representing approximately
$68.2 million in revenues ($136 million on a pro forma annualized basis).
Operating revenues increased $168.9 million or 135% over 1998 revenues of
$124.9 million, resulting primarily from the inclusion of a full year of
revenues for companies acquired in 1998 combined with internal growth and
the partial year impact of companies acquired in 1999.
Cost of sales for 1999 increased $105.4 million or 139% to $181.3 million,
primarily due to a full year of operations for companies acquired in 1998
combined with internal growth. The partial year impact of companies
acquired in 1999 accounted for $41.2 million of the increase in cost of
sales.
Gross margins in 1999 grew to $112.5 million, an increase of $63.4 million
or 129% over 1998. The full year of activity for 1998 acquisitions and
internal growth were the primary contributors of the growth. The partial
year impact of 1999 acquisitions accounted for $27.0 million of the
increase in gross margins.
Selling, general and administrative expenses increased $57.2 million or
146% as compared to 1998 expenses of $39.3 million, primarily due to the
full year of operations from companies acquired in 1998 combined with
internal growth and increases in corporate resource infrastructure to
support the rapidly growing HVAC organization. The addition of 34 companies
during 1999 and the additional corporate resources necessary to handle the
continual expansion of the business accounted for 32% of the expenses in
1999. Depreciation and amortization expense increased $5.0 million as
compared to 1998 due primarily to a full year of depreciation and
amortization expense for companies acquired in 1998 combined with
additional partial year expense from 1999 acquisitions.
Operating income of $7.3 million for 1999 increased $1.1 million or 18% as
compared to 1998 operating income of $6.2 million, principally due to a
full year of operations for companies acquired in 1998 combined with
internal growth and the partial year impact of 1999 acquisitions offset in
part by the increased corporate infrastructure costs.
Other
This segment consists of the financial results of other service and
nonenergy-related business activities of the Corporation along with the
unallocated corporate costs of the Corporation.
Revenues decreased $5.3 million from 1998 revenues of $22.5 million,
principally due to the sale of the Corporation's ownership interest in
Lucht Inc. ('Lucht') in November 1998, offset partially by a full year of
operations from an acquisition combined with internal growth. Revenues in
1998 were $1.7 million higher than 1997 revenues. This increase was due to
internal growth within the businesses.
Cost of sales increased in 1999 to $13.4 million, an increase of $800,000
over 1998. Costs increased due to a different product and service mix
combined with internal growth partially offset by the sale of Lucht. Cost
of sales in 1998 were $12.6 million or $500,000 less than 1997. This
decrease resulted partially from the sale of Lucht in November 1998 offset
by internal growth.
Gross margins were $6.1 million less in 1999 as compared to 1998 due to the
different mix of service lines provided, of which Lucht was not a part of
in 1999. 1998 gross margins were $9.9 million or $2.3 million higher than
1997 gross margins. The increase was a result of internal growth.
Total operating expenses increased $6.7 million to $15.2 million in 1999 as
compared to $8.5 million in 1998. The increase is a result of additional
personnel and associated costs principally for the corporate office, to
better support and leverage current and potential growth strategies,
combined with a different mix of service businesses. 1998 expenses were
$8.5 million compared to $6.6 million in 1997. The $1.9 million increase
was a result of higher costs principally at Lucht.
Operating income decreased $12.8 million as compared to 1998. This is a
reflection of the aforementioned infrastructure growth of the corporate
office combined with the sale of the Lucht. Operating income for 1998 was
$1.3 million, which was an increase of $.3 million over 1997. The increase
was due to the slight growth in gross margins offset by the increase in
operating expenses principally from Lucht.
Other Income Statement Items
Interest expense rose in 1999 to $53.2 million, a 48% increase over 1998,
due to additional expense incurred in 1999 as a result of the November 1998
debt offering of $105 million by the Corporation and increased expense from
propane's additional nonrecourse borrowings in 1998 and 1999 to fund
acquisitions and general corporate purposes. 1998 interest expense of $35.9
million was an increase of $4.4 million over 1997 expense. Nonrecourse
propane working capital and acquisition borrowings were the primary reasons
for the increase.
Investment income and other increased from $5.7 million in 1998 to $9.8
million in 1999. Investment of excess proceeds from the November 1998
equity and debt offerings was the primary contributor to the increase. 1998
investment income and other was $5.9 million less than 1997 investment
income and other of $11.6 million. The decrease was principally due to
utilization of funds for Expanets and Blue Dot acquisitions rather than
investments.
Income taxes in 1999 of $14.5 million are $3.3 million or 29% greater than
1998 tax expense of $11.2 million. This is directly related to the growth
in HVAC and communications segments and the consequential increase in
taxable income and nondeductible goodwill amortization. Income taxes
between 1997 and 1998 remained relatively stable with an increase of only
$.1 million over 1997 to $11.2 million.
Changes in minority interest are a direct result of the performance of the
HVAC, communications and propane segments and represents the portion of the
net income or loss after preferred dividends related to the Corporation's
investments in Blue Dot and Expanets and earnings attributable to the
CornerStone public common unitholders, which are allocable to other equity
holders of the applicable minority interests. Minority interest losses were
$22.9 million in 1999 compared to $4.2 million in 1998. The HVAC and
communications segments are principally responsible for the increase, as
net losses after preferred dividends were $10.4 million and $14.4 million,
respectively, offset partially by the propane segment minority interests.
Minority interest losses of $4.2 million in 1998 increased by $5.9 million
over 1997, which is directly attributable to the formation of the HVAC and
communications segments offset in part by the propane segment minority
interests.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
Cash flows from operating activities increased to $71.7 million in 1999
versus $69.9 million in 1998. The increase is due to growing operations at
all of the Corporation's businesses, partially offset by increased working
capital needs of the Blue Dot and Expanets operations. Cash flows from
operations, combined with proceeds from long-term debt offerings, short-
term borrowings and excess cash from 1998 financing transactions provided
the funds necessary for general business purposes and the continued
acquisition, growth and maintenance activities in 1999. The Corporation
held $125.7 million in cash, cash equivalents and marketable securities at
December 31, 1999, and $157.3 million and $108.6 million at December 31,
1998 and 1997, respectively. These cash and investment balances, combined
with available lines of credit, provide the resources necessary to support
continued business operations.
INVESTING AND FINANCING ACTIVITIES
The main focus of the Corporation's investment activities for 1999 was the
continued strategic growth and development of Blue Dot and Expanets. To
enable the Corporation to continue these investment strategies and help
provide funding for general business purposes, $11.0 million of commercial
paper and $58.0 million of the line of credit were drawn and outstanding at
December 31, 1999. The Corporation retired $5.0 million of 6.99% series
general mortgage bonds in 1999. The Corporation's unused lines of credit
are $125.5 million at December 31, 1999.
CornerStone issued $45.0 million of Senior Notes in June 1999 to help fund
acquisitions and provide funds for general business use. In addition,
CornerStone had $9.2 million outstanding from their working capital portion
of the Bank Credit Facility and no outstanding borrowings on the
acquisitions portion at December 31, 1999. The CornerStone Bank Credit
Facility provides for combined working capital and acquisition borrowings
of up to $110 million. This Facility is subject to certain covenants and
other limitations. CornerStone's combined outstanding working capital and
acquisition borrowings at December 31, 1998, were $1.7 million. Blue Dot's
Credit Facility provides for up to $135.0 million to fund acquisitions and
for general business purposes. The Facility is subject to certain covenants
and various other limitations. Blue Dot had $28.2 million outstanding at
December 31, 1999, and no borrowings outstanding as of December 31, 1998.
Expanets has $14.7 million outstanding at December 31, 1999, from their
$15.0 million line of credit. The funds have been used for general business
use and to help fund acquisitions. At December 31, 1998, $8.5 million was
outstanding. All debt of Blue Dot, CornerStone and Expanets is nonrecourse
to the Corporation.
CAPITAL REQUIREMENTS
The Corporation's primary capital requirements include funding the growth
of its business segments, maintenance and expansion programs; the funding
of debt and preferred stock retirements; sinking fund requirements; the
funding of its corporate development and investment activities; payment of
common dividends; and the distributions to propane common unitholders.
Maintenance capital expenditure plans are subject to continual review and
may be revised as a result of changing economic conditions, variation in
sales, investment opportunities and other factors. Expenditures for
maintenance capital activities for 1999, 1998 and 1997 were $32.6 million,
$22.6 million and $22.4 million, respectively. Consolidated maintenance
capital expenditures for 2000 and 2001 are estimated to be $36.9 million
and $38.0 million, respectively.
Capital requirements for the mandatory retirement of long-term debt totaled
$12.3 million, $7.8 million and $1.2 million for the years ended 1999, 1998
and 1997, respectively. It is expected that such mandatory retirements for
the recourse debt will be $5.0 million in 2000, $5.0 million in 2001 and
$63.0 million in 2002. Future retirements of nonrecourse debt will be $19.2
million in 2000, $18.0 million in 2001, $33.4 million in 2002, $45.7
million in 2003 and $44.2 million in 2004. The Corporation anticipates that
existing investment and marketable securities, internally generated cash
flows and available external financing will be sufficient to meet future
capital requirements.
The Corporation will continue to review the economics of retiring or
refunding remaining long-term debt and preferred stock to minimize long-
term financing costs. The Corporation may continue to make investments in
Blue Dot and Expanets. Also, the Corporation may make other significant
acquisition investments in related industries that might require the
Corporation to raise additional equity and/or incur debt financings, which
are therefore subject to certain risks and uncertainties.
COMPETITION and BUSINESS RISK
NorthWestern and its partner entities are leading providers of value-added,
integrated services and solutions to over one million residential and
business customers nationwide. Our strategy will continue to focus on the
expansion of our existing growth initiatives, both through internal growth
and acquisitions and through the integration of other value-added services.
We also intend to seek investment opportunities in other existing or
emerging growth industries within the service and solutions sector. While
these strategic development and acquisition activities can involve
increased risk, we believe they offer the potential for enhanced investment
returns. The Corporation's growth strategy will be subject to certain risks
and uncertainties, including the future availability of market capital to
fund development and acquisitions, our ability to develop new growth
initiatives, our responses to increased competition, our ability to
attract, retain and train skilled team members, our ability to develop
national service brands in our business sectors, governmental regulations
and general economic conditions, some of which factors are discussed in
further detail below. Our acquisition activities involve the risks of
identifying suitable acquisition candidates, successfully integrating and
managing acquired companies, including addressing the adequacy and
efficiency of information systems, business processes and related support
functions and retaining acquired customer bases. Our ability to generate
internal growth in our businesses will depend in part on our ability to
retain and expand our customer base through effective marketing and
promotional activities and the introduction of expanded service offerings.
The Corporation has taken and continues to take steps to address and
mitigate such risks. There are no assurances that such efforts will be
sufficient to meet the future needs of the Corporation. Future changes in
accounting rules and regulations, particularly those related to purchase
accounting, could also have a material impact upon the Corporation's future
financial statement presentation, results from operations and financial
position.
PROPANE
The retail propane business is a margin-based business in which gross
profits depend on the excess of sales prices over propane supply costs.
Consequently, CornerStone's profitability will be sensitive to changes in
wholesale propane prices. Propane is a commodity, the market price of which
can be subject to volatile changes in response to changes in supply or
other market conditions. In both the retail and wholesale businesses,
CornerStone engages in hedging of product cost and supply through common
hedging practices pursuant to risk management policies monitored by
management. As it may not be possible to immediately pass on to customers
rapid increases in the wholesale cost of propane, such increases could
reduce CornerStone's gross profits.
Weather conditions have a significant impact on propane demand for both
heating and agricultural purposes. The majority of CornerStone's customers
rely heavily on propane as a heating fuel. Actual weather conditions can
vary substantially from year to year, significantly affecting CornerStone's
financial performance. Furthermore, variations in weather in one or more
regions in which CornerStone operates can significantly affect the total
volumes sold by CornerStone and the margins realized on such sales and,
consequently, CornerStone's results of operations. These conditions may
also impact CornerStone's ability to meet various debt covenant
requirements, which could adversely affect CornerStone's ability to pay
common and subordinated unit distributions and fund future growth and
acquisitions.
Propane competes with other sources of energy, some of which are less
costly for equivalent energy value. Propane distributors compete for
customers against suppliers of electricity, fuel oil and natural gas,
principally on the basis of price, service, availability and portability.
Electricity is a competitor of propane, but propane generally enjoys a
competitive price advantage over electricity for space heating, water
heating and cooking. Propane serves as an alternative to natural gas in
rural and suburban areas where natural gas is unavailable or portability of
product is required. Natural gas is generally a less expensive source of
energy than propane, although in areas where natural gas is available,
propane is used for certain industrial and commercial applications. The
gradual expansion of the nation's natural gas distribution systems has
resulted in the availability of natural gas in some areas that previously
depended upon propane. However, natural gas pipelines are not present in
many regions of the country where propane is sold for heating and cooking
purposes.
CornerStone's profitability is affected by the competition for customers
among all participants in the retail propane business. Some of
CornerStone's competitors are larger or have greater financial resources
than CornerStone. Should a competitor attempt to increase market share by
reducing prices, CornerStone's financial condition and results of
operations could be materially adversely affected.
In addition, propane competes with other sources of energy, some of which
may be less costly per equivalent energy value.
ELECTRIC AND NATURAL GAS
The electric and natural gas industries continue to undergo numerous
transformations, and the Corporation is operating in an increasingly
competitive marketplace. The Federal Energy Regulatory Commission ('FERC'),
which regulates interstate and wholesale electric transmissions, has issued
final rules designed to open up transmission grids and mandate owners of
transmission assets to allow others equal access to utility transmission
systems and prompts the formation of regional transmission organizations
('RTOs') to control and operate interstate transmission facilities. Various
state regulatory bodies are supporting initiatives to redefine the electric
energy market and are experimenting with retail wheeling, which gives some
retail customers the ability to choose their supplier of electricity. These
and other developments are expected to increase competition in the
wholesale and retail electricity markets. The potential for continued
unbundling of customer services exists, allowing customers to buy their own
electricity and natural gas on the open market and having it delivered by
the local utility.
The Corporation's future financial performance will be dependent on the
effective execution of operating strategies to address a more competitive
and changing energy marketplace. The Corporation is exploring new energy
products and services, utilizing new technologies, centralizing activities
to improve efficiency and customer responsiveness and business processes
are being reengineered to apply best-practices methodologies.
Weather conditions have a significant impact on electric and natural gas
demand for heating and cooling purposes. Actual weather conditions can vary
substantially from year to year, significantly affecting the Corporation's
financial performance.
Natural gas is a commodity that can be subject to volatile changes in
price. The Corporation engages in hedging of product cost and supply
through common hedging practices pursuant to risk management policies
monitored by management.
As described in Note 1 to the consolidated financial statements, the
Corporation complies with the provisions of Statement of Financial
Accounting Standards No. 71 ('SFAS 71'), 'Accounting for the Effects of
Certain Types of Regulation.' SFAS 71 provides for the financial reporting
requirements of the Corporation's regulated electric and natural gas
operations, which requires specific accounting treatment of certain costs
and expenses that are related to the Corporation's regulated operations.
Criteria that could give rise to the discontinuance of SFAS 71 include 1)
increasing competition that restricts the Corporation's ability to
establish prices to recover specific costs and 2) a significant change in
the manner in which rates are set by regulators from cost-based regulation
to another form of regulation. The Corporation periodically reviews these
criteria to ensure the continuing application of SFAS 71 is appropriate.
Based on a current evaluation of the various factors and conditions that
are expected to impact future cost recovery, the Corporation believes that
its regulatory assets, including those related to generation, are probable
of future recovery. This evaluation of recovery must be updated for any
change which might occur in the Corporation's current regulatory
environment.
HVAC
The markets served by Blue Dot for residential and commercial heating,
ventilation, air conditioning, plumbing and related services are highly
competitive. The principal competitive factors in these segments of the
industry are 1) the timeliness, reliability and quality of services
provided, 2) the range of products and services provided, 3) name
recognition and market share and 4) pricing. Many of
Blue Dot's competitors in the HVAC business are small, owner-operated
companies typically located and operated in a single geographic area.
Certain of these smaller competitors may have lower overhead cost
structures and, consequently, may be able to charge lower rates for their
services. There are a small number of larger national companies engaged in
providing residential and commercial services in the service lines in which
Blue Dot intends to focus. Future competition in both the residential and
commercial service lines may be encountered from other newly formed or
existing public or private service companies with aggressive acquisition
and marketing programs, from HVAC equipment manufacturers, the unregulated
business segments of regulated gas and electric utilities, or newly
deregulated utilities in those industries entering into various service
areas. Certain of Blue Dot's competitors may have greater financial
resources to finance acquisition and internal growth opportunities and may
be willing to pay higher prices than Blue Dot for acquisition
opportunities. Blue Dot's business is subject to seasonal variations in
certain areas of its service lines, with demand for residential HVAC
services generally higher in the second and third quarters. HVAC systems
are subject to various environmental regulations, and certain local, state
or federal laws may impose licensing standards on technicians. There can be
no assurance that the regulatory environment in which Blue Dot operates
will not change significantly in the future.
COMMUNICATIONS
The market served by Expanets in the communications, data services and
network solutions industry is a highly competitive market. The principal
competitive factors include 1) market accept-ance of the products, services
and technology solutions Expanets provides, 2) pending and future
legislation affecting the communications and data industry, 3) name
recognition and market share, and 4) Expanets' ability to provide
integrated communications and data solutions for customers in a dynamic
industry. Many of Expanets' competitors in the communications business are
generally small, owner-operated companies typically located and operated in
a single geographic area. Certain of these smaller competitors may have
lower overhead cost structures and, consequently, may be able to charge
lower rates for their services. There are a number of large, integrated
national companies engaged in providing commercial services in the service
lines in which Expanets intends to focus, some of which also manufacture
and sell directly the products that Expanets services and sells. Future
competition may be encountered from other newly formed or existing public
or private service companies with aggressive acquisition and marketing
programs. Certain of Expanets' competitors may have greater financial
resources to finance acquisition and internal growth opportunities and may
be willing to pay higher prices than Expanets for acquisition
opportunities. Certain products and services offered by Expanets are
manufactured or supplied by others and involve the risk of partial reliance
upon third party systems and services, as well as risks associated with the
need to integrate services and solutions across networks, platforms and
equipment manufactured or supplied by various companies.
YEAR 2000 READINESS
The year 2000 issue is a result of computer programs, which were written
using two digits (rather than the actual four) to identify the year in the
date field. This old approach was intended to save processing time and
storage space within computers and was continued in use until the mid
1990s. If not corrected, affected systems and devices containing computer
chips or clocks may roll back to 1900 instead of moving forward to 2000.
Some systems and devices may continue to function even if this occurs.
Others may experience interruptions in service, processes or obtain
erroneous results.
The Corporation assembled a diverse oversight and advisory team from all
businesses with experienced information systems, legal, communications and
operating leadership to work on our enterprise-wide year 2000 program. The
initiative covered not only the Corporation's information technology
systems and computer applications, but also considered hardware, embedded
systems and components internal and external to our organizations. The
Corporation's program considered not only our businesses and technology
areas but also those of our customers and suppliers. The Corporation spent
approximately $2 million in 1999 related to the year 2000 issue which was
expensed as incurred or capitalized in accordance with our accounting
policy for software development costs.
As a result of year 2000 readiness efforts, the Corporation's mission
critical information technology systems did not experience any material
adverse application failures on January 1, 2000, and we are not aware of
any material adverse impacts to our suppliers or customers. We do not
believe that year 2000 issues have had any material impact on customer
spending patterns for our services and solutions. The Corporation will
continue to monitor its mission critical computer applications throughout
the year 2000 to ensure that any potential year 2000 issues that may arise
are addressed promptly. The Corporation cannot provide assurance that our
suppliers or customers have not been affected by a year 2000 issue in a
manner that is not yet apparent.
Statements made in this Annual Report, including the letter to shareholders
and Management's Discussion and Analysis, such as those relating to
expectation of future financial performance, continued growth, dividend
policy, liquidity, absence of year 2000 problems and the impact of changes
in interest rates and commodity prices, are forward-looking statements that
involve inherent risks and uncertainties. A number of important factors
which are difficult to predict and many of which are beyond the control of
the Corporation, could cause actual results to differ materially from those
implied by the forward-looking statements. These factors include, but are
not limited to, the adverse impact of unseasonal weather, developments in
the federal and state regulatory environment, the rate of growth in the
service territories of the Corporation and its subsidiaries, the speed and
degree to which competition enters the Corporation's businesses, the timing
and extent of changes in interest rates, commodity prices and currency
exchange rates, risks associated with acquisitions and integration of
acquired companies, changes in customer usage patterns and preferences,
changes in technology, reliance on strategic partners, uncertainty of
litigation, as well as changing conditions in the economy, capital markets
and other factors identified from time to time in the Corporation's filings
with the Securities and Exchange Commission. This Annual Report should be
read in conjunction with the consolidated financial statements and notes
thereto included elsewhere herein.
<PAGE>
REPORT OF MANAGEMENT
The management of NorthWestern is responsible for the integrity and
objectivity of the financial information contained in this Annual Report.
The consolidated financial statements, which necessarily include some
amounts which are based on informed judgments and estimates of management,
have been prepared in conformity with generally accepted accounting
principles.
In meeting this responsibility, management maintains a system of
internal accounting controls, which is designed to provide reasonable
assurance that the assets of the Corporation are safeguarded and that
transactions are executed in accordance with management's authorization and
are recorded properly for the preparation of financial statements. This
system is supported by written policies, selection and training of
qualified personnel, an appropriate segregation of responsibilities within
the organization, other internal accounting controls, and direct management
monitoring and review. The Board of Directors, through its Audit Committee,
which is comprised entirely of outside directors, oversees management's
responsibilities for financial reporting. The Audit Committee meets
regularly with management and the independent public accountants to make
inquiries as to the manner in which each is performing its
responsibilities. The independent public accountants have unrestricted
access to the Audit Committee, without management's presence, to discuss
auditing, internal accounting controls and financial reporting matters.
Arthur Andersen LLP, an independent public accounting firm, has been
engaged annually to perform an audit of the Corporation's financial
statements. Their audit is conducted in accordance with generally accepted
auditing standards and includes examining, on a test basis, supporting
evidence, assessing the Corporation's accounting principles and significant
estimates made by management, reviewing financial controls and evaluating
the overall financial statement presentation to the extent necessary to
allow them to report on the fairness, in all material respects, of the
operating results and financial condition of the Corporation.
Merle D. Lewis
Chairman and
Chief Executive Officer
Richard R. Hylland
President and
Chief Operating Officer
Daniel K. Newell
Senior Vice President - Finance and
Chief Financial Officer
</PAGE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
of NorthWestern Corporation:
We have audited the accompanying consolidated balance sheets of
NORTHWESTERN CORPORATION (a Delaware corporation) AND SUBSIDIARIES as of
December 31, 1999 and 1998, and the related consolidated statements of
income, cash flows and shareholders' equity for each of the three years in
the period ended December 31, 1999. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of NorthWestern
Corporation and Subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Minneapolis, Minnesota
February 4, 2000
</PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31 1999 1998 1997
(In thousands except per share amounts)
Operating Revenues $3,004,340 $1,187,187 $918,070
Cost of Sales 2,467,765 839,787 695,045
---------- ---------- --------
Gross Margins 536,575 347,400 223,025
---------- ---------- --------
Operating Expenses:
Selling, general and administrative
expenses 388,717 236,222 132,793
Depreciation and other amortization 49,204 31,078 25,748
Goodwill amortization 19,098 12,558 5,487
---------- ---------- --------
Total operating expenses 457,019 279,858 164,028
---------- ---------- --------
Operating Income 79,556 67,542 58,997
Interest Expense (53,154) (35,867) (31,476)
Investment Income and Other 9,800 5,700 11,564
--------- ---------- --------
Income Before Income Taxes and Minority
Interests 36,202 37,375 39,085
Provision for Income Taxes (14,466) (11,222) (11,111)
--------- ---------- --------
Income Before Minority Interests 21,736 26,153 27,974
Minority Interests 22,927 4,238 (1,710)
--------- ---------- --------
Net Income 44,663 30,391 26,264
Minority Interests on Preferred Securities
of Subsidiary Trusts (6,601) (3,114) (2,641)
Dividends on Cumulative Preferred Stock (191) (191) (212)
--------- ----------- ---------
Earnings on Common Stock $37,871 $27,086 $23,411
======= ======= =======
Average Common Shares Outstanding 23,094 18,660 17,843
Earnings Per Average Common Share
Basic $1.64 $1.45 $1.31
Diluted $1.62 $1.44 $1.31
Dividends Declared Per Average Common
Share $1.050 $0.985 $0.933
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31 1999 1998 1997
(In thousands)
Operating Activities:
Net income $44,663 $30,391 $26,264
Items not affecting cash:
Depreciation 42,968 29,547 25,438
Amortization 25,334 14,089 5,797
Deferred income taxes (9,518) 1,548 4,439
Minority interests in net income
(loss)of consolidated
subsidiaries (22,927) (4,238) 1,710
Investment tax credits (563) (562) (559)
Changes in current assets and
liabilities, net of acquisitions:
Accounts receivable (27,193) 26,388 (363)
Inventories (34,704) 24,715 8,325
Other current assets 6,071 (8,682) -
Accounts payable 33,113 (19,484) (11,364)
Accrued expenses 15,848 (30,427) 6,945
Other, net (1,369) 6,605 (3,965)
-------- -------- --------
Cash flows provided by operating
activities 71,723 9,890 62,667
-------- -------- -------
Investment Activities:
Property, plant and equipment
additions (32,599) (22,625) (22,400)
Sale (purchase) of noncurrent
investments, net 34,198 (60,990) 36,621
Acquisitions and growth
expenditures (209,122) (326,097) (58,936)
--------- -------- --------
Cash flows used in investing
activities (207,523) (409,712) (44,715)
--------- -------- --------
Financing Activities:
Dividends on common and preferred
stock (24,447) (19,092) (16,852)
Minority interests on preferred
securities of subsidiary trusts (6,601) (3,114) (2,641)
Subsidiary payment of common unit
distributions (37,003) (29,145) (17,708)
Proceeds from issuance of common units (971) 95,592 -
Issuance of nonrecourse subsidiary
debt 148,308 84,723 29,499
Repayment of nonrecourse subsidiary
debt (7,267) (37,107) (7,544)
Issuance of long-term debt - 97,161 -
Repayment of long-term debt (5,000) (5,000) (22,500)
Issuance of preferred securities of
subsidiary trusts - 49,816 -
Issuance of common stock - 107,813 -
Repurchase of minority interests (6,210) - -
Proceeds from exercise of warrants 1,657 3,177 -
Line of credit borrowings 58,000 - -
Short-term borrowings - nonrecourse 3,146 11,554 -
Retirement of subsidiary preferred stock - - (2,687)
Short-term borrowings 11,000 - -
-------- -------- -------
Cash flows provided by (used in)
financing activities 134,612 356,378 (40,433)
-------- -------- -------
Increase (Decrease) in Cash and Cash
Equivalents (1,188) 16,556 (22,481)
Cash and Cash Equivalents, beginning of
year 30,865 14,309 36,790
-------- -------- ------
Cash and Cash Equivalents, end of year $29,677 $30,865 $14,309
======= ======= =======
See Notes to Consolidated Financial Statements
CONSOLIDATED BALANCE SHEETS
Years Ended December 31 1999 1998
(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents $29,677 $30,865
Accounts receivable, net 205,378 131,541
Inventories 104,099 72,805
Other 44,444 31,957
------- -------
Total current assets 383,598 267,168
------- -------
Property, Plant and Equipment, Net 681,663 629,278
Goodwill and Other Intangible Assets, Net 742,010 618,251
------- -------
Other Assets:
Investments 96,056 152,470
Other 53,434 61,307
------- -------
Total other assets 149,490 213,777
======= =======
Total assets $1,956,761 $1,728,474
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $24,170 $20,060
Short-term debt 11,000 -
Short-term debt - nonrecourse 14,700 11,554
Accounts payable 157,959 113,036
Accrued expenses 61,218 64,779
------- -------
Total current liabilities 269,047 209,429
------- -------
Long-term Debt 309,350 256,350
Long-term Debt of Subsidiaries
- nonrecourse 473,757 332,525
Deferred Income Taxes 64,855 74,072
Other Noncurrent Liabilities 86,797 94,795
------- -------
Commitments and Contingencies
(Notes 2, 6, 7, 12)
Minority Interests 361,549 387,952
------- -------
Preferred Stock, Preference Stock and
Preferred Securities:
Preferred stock - 4 1/2% series 2,600 2,600
Redeemable preferred stock-6 1/2% series 1,150 1,150
Preference stock - -
Corporation obligated mandatorily
Redeemable preferred securities of
subsidiary trusts 87,500 87,500
------- -------
91,250 91,250
------- -------
Shareholders' Equity:
Common stock 40,438 40,279
Paid-in capital 160,028 158,530
Retained earnings 94,715 81,100
Accumulated other comprehensive income 4,975 2,192
------- -------
300,156 282,101
------- -------
Total liabilities and shareholders'
Equity $1,956,761 $1,728,474
========== ==========
See Notes to Consolidated Financial Statements
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Accumulated
Number of Other Total
Common Common Paid-in Retained Comprehensive Shareholders'
Shares Stock Capital Earnings Income Equity
(In thousands)
<C> <S> <S> <S> <S> <S> <S>
Balance at December 31, 1996 17,840 $31,220 $56,595 $66,144 $9,846 $163,805
Comprehensive income:
Net income - - - 26,264 - 26,264
Other comprehensive income,
net of tax: Unrealized
loss on marketable
securities net of
reclassification adjustment - - - - (3,984) (3,984)
-------
22,280
Common stock issued 3 4 - - - 4
Distributions declared on
minority interests in
preferred securities of
subsidiary trusts - - - (2,641) - (2,641)
Dividends declared on preferred
stock - - - (212) - (212)
Dividends declared on common
stock - - - (16,640) - (16,640)
----- ------ ------ ------- ----- --------
Balance at December 31, 1997 17,843 31,224 56,595 72,915 5,862 166,596
Comprehensive income:
Net income - - - 30,391 - 30,391
Other comprehensive income,
net of tax:
Unrealized loss on
marketable securities
net of reclassification
adjustment - - - - (3,670) (3,670)
-------
26,721
Common stock issued 5,000 8,750 99,063 - - 107,813
Proceeds from exercise of
warrants 174 305 2,872 - - 3,177
Distributions declared on
minority interests in
preferred securities of
subsidiary trusts - - - (3,114) - (3,114)
Dividends declared on
preferred stock - - - (191) - (191)
Dividends declared on common
stock - - - (18,901) - (18,901)
------ ----- ----- ------- ----- --------
Balance at December 31, 1998 23,017 40,279 158,530 81,100 2,192 282,101
Comprehensive income:
Net income - - - 44,663 - 44,663
Other comprehensive income,
net of tax:
Foreign currency translation
adjustments - - - - (78) (78)
Unrealized gain on
marketable securities
net of reclassification
adjustment - - - - 2,861 2,861
------
47,446
Proceeds from exercise of
warrants 92 159 1,498 - - 1,657
Distributions declared on
minority interests
in preferred securities of
subsidiary trusts - - - (6,601) - (6,601)
Dividends declared on
preferred stock - - - (191) - (191)
Dividends declared on
common stock - - - (24,256) - (24,256)
----- ----- ----- ------- ----- ---------
Balance at December 31,
1999 23,109 $40,438 $160,028 $94,715 $4,975 $300,156
====== ======= ======== ======= ====== ========
</TABLE>
See Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies
Nature of Operations
NorthWestern Corporation ('Corporation') is a service and solutions company
providing integrated energy, communications, air conditioning, heating,
ventilating, plumbing and related services and solutions to residential and
business customers throughout North America. A division of the Corporation
is engaged in the regulated energy business of production, purchase,
transmission, distribution and sale of electricity and the delivery of
natural gas to Midwestern customers. Through CornerStone Propane Partners,
L.P. ('CornerStone'), the Corporation is engaged in the retail propane and
wholesale energy-related commodities distribution business throughout North
America. CornerStone is a publicly traded Delaware master limited
partnership, formed to acquire and operate propane businesses and assets. A
wholly owned subsidiary of the Corporation serves as the general partner of
CornerStone and manages and operates CornerStone's business. At December
31, 1999, the Corporation owns a combined 30% effective interest in
CornerStone. Through Blue Dot Services Inc. ('Blue Dot'), the Corporation
is becoming a national provider of heating, ventilating, air conditioning,
plumbing and related services ('HVAC') through internal growth and by
acquiring existing companies throughout the U.S. Through Expanets, Inc.
('Expanets'), the Corporation is becoming a national provider of integrated
communications, data solutions and network services to business customers
through internal growth and by acquiring companies throughout the U.S.
Basis of Consolidation
The accompanying consolidated financial statements include the accounts of
the Corporation and all wholly and majority-owned or controlled
subsidiaries, including CornerStone, Blue Dot and Expanets. All significant
intercompany balances and transactions have been eliminated from the
consolidated financial statements. The public unitholders' interest in
CornerStone's net assets subsequent to CornerStone's formation is reflected
as a minority interest in the consolidated financial statements. Equity
interests of the former owners of companies acquired by Blue Dot and
Expanets who continue to hold an interest in Blue Dot and Expanets are
reflected as minority interests in the consolidated financial statements.
Losses allocable to minority interests in the future may increase or
decrease depending upon the level of losses in these business segments, the
amount of preferred dividends and the remaining minority interest basis
available to absorb losses.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash Equivalents
The Corporation generally considers all highly liquid investments purchased
with a maturity of three months or less to be cash equivalents.
Accounts Receivable, net
Accounts receivable is stated net of allowance for doubtful accounts of
$7.3 million and $6.1 million at December 31, 1999 and 1998, respectively.
Investments and Fair Value of Financial Instruments
The Corporation's investments consist primarily of short-maturity, fixed-
income securities and corporate preferred and common stocks. In addition,
the Corporation has investments in privately held entities and ventures,
safe harbor leases and various money market and tax exempt investment
programs. These investments are accounted for in accordance with Statement
of Financial Accounting Standards No. 115 ('SFAS 115'), 'Accounting for
Certain Investments in Debt and Equity Securities.' SFAS 115 requires that
certain investments in debt and equity securities be reported at fair
value.
The Corporation's available for sale securities are classified under the
provisions of SFAS 115 as follows:
Unrealized
(In thousands) Fair Value Cost Gain
December 31, 1999
Preferred stocks $35,482 $38,662 $(3,180)
Marketable securities 41,358 30,405 10,953
December 31, 1998
Preferred stocks $41,547 $39,560 $1,987
Marketable securities 30,045 27,376 2,669
The combined unrealized gain, net of tax, at December 31, 1999 and 1998,
was $5.1 million and $2.2 million. Held to maturity securities are reported
at cost, which approximated fair value and at December 31, 1999 and 1998,
was $17.4 million and $80.9 million.
The Corporation uses the specific identification method for determining the
cost basis of its investments in available for sale securities. Gross
proceeds and realized gains and losses on sales of its available for sale
securities were not material in 1999, 1998 and 1997.
Based on current market rates for debt of similar credit quality and
remaining maturities or quoted market prices for certain issues, the face
value of the Corporation's long-term debt approximates its market value.
CornerStone routinely uses commodity futures contracts to reduce the risk
of future price fluctuations for natural gas and liquefied petroleum gas
('LPG') inventories and contracts. Gains and losses on futures contracts
purchased as hedges are deferred and recognized in cost of sales as a
component of the product cost for the related hedged transaction. Net
realized gains and losses on these contracts are generally not material.
Revenue Recognition
Electric and natural gas revenues are based on billings rendered to
customers rather than on meters read or energy delivered. Customers are
billed monthly on a cycle basis. Revenues from propane sales are recognized
principally when fuel products are shipped or delivered to customers. HVAC
and communications revenues are recognized as goods are delivered to
customers or services are performed.
Property, Plant and Equipment
Property, plant and equipment are stated at cost of acquisition less
depreciation. Depreciation is computed using the straight-line method based
on the estimated useful lives of the various classes of property.
Depreciable property has estimated useful lives, which range from three to
40 years.
Depreciation rates include a provision for the Corporation's share of the
estimated costs to decommission three coal-fired generating plants at the
end of the useful life of each plant. The annual provision for such costs
is included in depreciation expense, while the accumulated provisions are
included in other noncurrent assets.
When property for the propane, HVAC or communications interests are retired
or otherwise disposed, the cost and related accumulated depreciation is
removed from the accounts, and the resulting gain or loss is credited or
charged to operations. No profit or loss is recognized in connection with
ordinary retirements of depreciable electric and natural gas property.
Maintenance and repairs are expensed as incurred, while replacements and
betterments that extend estimated useful lives are capitalized. Property,
plant and equipment at December 31 consisted of the following:
(In thousands) 1999 1998
Land and improvements $17,260 $19,871
Building and improvements 69,064 66,941
Storage, distribution,
transmission and generation 667,823 611,052
Other equipment 163,964 128,002
Less accumulated depreciation (236,448) (196,588)
-------- --------
$681,663 $629,278
======== ========
Computer Software Costs
The Corporation includes in property, plant and equipment external and
incremental internal costs associated with computer software we develop for
use in our businesses. Capitalization begins when the costs of the
preliminary stage of the project is completed. These costs are amortized on
a straight-line basis over an estimated useful life once the installed
software is ready for its intended use.
Goodwill and Other Intangibles
The excess of the cost of businesses acquired over the fair value of all
tangible and intangible assets acquired, net of liabilities assumed, has
been recorded as goodwill. Other intangibles consist principally of costs
of covenants not to compete and deferred financing costs. Intangibles and
goodwill are being amortized over the estimated periods benefited, which
range from three to 40 years. Financing costs are amortized over the term
of the applicable debt.
The Corporation's policy is to review property, goodwill and other
intangible assets for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable. If such review indicates that the carrying amount is not
recoverable, the Corporation's policy is to reduce the carrying amount of
these assets to fair value.
(In thousands) 1999 1998
Goodwill $725,124 $597,561
Noncompete agreements 26,534 17,585
Financing costs 20,506 21,936
Other intangibles 9,591 1,508
------- -------
781,755 638,590
Less accumulated amortization (39,745) (20,339)
------- -------
$742,010 $618,251
======== ========
Income Taxes
Deferred income taxes relate primarily to the difference between book and
tax methods of depreciating property, the difference in the recognition of
revenues for book and tax purposes, and certain natural gas costs, which
are deferred for book purposes but expensed currently for tax purposes.
For book purposes, deferred investment tax credits are being amortized as a
reduction of income tax expense over the useful lives of the property which
generated the credits.
Regulatory Assets and Liabilities
The regulated operations of the Corporation are subject to the provisions
of Statement of Financial Accounting Standards No. 71 ('SFAS 71'),
'Accounting for the Effects of Certain Types of Regulations.' Regulatory
assets represent probable future revenue to the Corporation associated with
certain costs, which will be recovered from customers through the
ratemaking process. Regulatory liabilities represent probable future
reductions in revenues associated with amounts that are to be credited to
customers through the ratemaking process.
If all or a separable portion of the Corporation's operations becomes no
longer subject to the provisions of SFAS 71, an evaluation of future
recovery-related regulatory assets and liabilities would be necessary. In
addition, the Corporation would determine any impairment to the carrying
costs of deregulated plant and inventory assets.
New Accounting Standards
Statement of Financial Accounting Standards No. 133 ('SFAS 133'),
'Accounting for Derivative Instruments and Hedging Activities', establishes
accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments imbedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS 133 requires changes in the derivative's
fair value be recognized currently in earnings unless specific hedge
accounting criteria are met. SFAS 133, as amended, is effective for fiscal
years beginning after June 15, 2000. The Corporation is evaluating the
impacts of adopting SFAS 133 on its financial statements. The impact of
SFAS 133 will depend upon the extent of use of derivative instruments and
their designation and effectiveness as hedges of market risk.
Reclassifications
Certain 1997 and 1998 amounts have been reclassified
to conform to the 1999 presentation. Such reclassifications had no impact
on net income or shareholders' equity as previously reported.
supplemental Cash Flow Information
(In thousands) 1999 1998 1997
Cash paid during the year for
Income taxes $24,020 $17,629 $8,940
Interest 49,591 35,162 30,090
Noncash transactions
during the year for
Assumption of debt as
part of acquisitions 25,506 28,572 1,551
2. Business Combinations and Acquisitions
Master Limited Partnership Offering and Acquisitions
On December 11, 1998, CornerStone acquired the operations of Propane
Continental, Inc. ('PCI'), a retail propane and wholesale energy-related
commodities distributor for approximately $121 million, including assumed
debt. The acquisition was financed with Common Unit equity and long-term
debt. The acquisition was accounted for under the purchase method of
accounting. PCI operated 34 retail propane customer service centers in 11
states. Through Tri Power Fuels, PCI's wholesale business, PCI distributed
propane and other natural gas liquids to independent dealers, resellers and
end users predominately in the West, Midwest and Northeast sections of the
country.
At December 31, 1999, CornerStone's capital consisted of 16,788,894 Common
Units, 6,597,619 Subordinated Units representing limited partner interests
and a 2% aggregate general partner interest. At December 31, 1999, the
Corporation's wholly and majority-owned subsidiaries owned all 6,597,619
Subordinated Units and an aggregate 2% general partner interest in
CornerStone, or a combined 30% effective interest.
Blue Dot Services Inc.
In 1997, the Corporation formed Blue Dot to acquire and operate HVAC
companies in the U.S. At December 31, 1999,
Blue Dot had acquired 62 companies in 23 states with a total investment by
the Corporation of $155.4 million. At December 31, 1999, the Corporation
owned a 96.9% voting interest in Blue Dot through preferred and common
stock ownership.
Expanets, Inc.
In 1998, the Corporation formed Expanets to acquire and operate
communications companies in the U.S. At December 31, 1999, Expanets had
acquired 26 companies in 32 states with a total investment by the
Corporation of $152.0 million. At December 31, 1999, the Corporation owned
a 95.8% voting interest in Expanets through preferred and common stock
ownership.
During 1999, the Corporation formed a private equity investment limited
liability company in which certain members of management were provided the
opportunity to make personal investments. The limited liability company is
controlled and substantially owned by the Corporation and enables
management investors to participate in long-term value creation in selected
growth initiatives, including increases in the value of the Corporation's
interests in CornerStone, Blue Dot and Expanets. The Corporation has the
right to acquire the limited liability company interests of the investors
under specified circumstances.
The acquisitions made by Blue Dot and Expanets were effected utilizing a
combination of cash and stock (of Blue Dot or Expanets) and generally with
a combination of both. In connection with certain acquisitions, both Blue
Dot and Expanets entered into exchange agreements with the sellers that
typically do not exceed two years. Under such agreements, the seller can
elect to exchange the stock of Blue Dot or Expanets that they received in
connection with the acquisition back to the Corporation for, at the
Corporation's option, either stock of the Corporation or cash at a
predetermined exchange rate.
The acquisitions made by CornerStone, Blue Dot and Expanets have been
accounted for using the purchase method of accounting and, accordingly, the
assets acquired and liabilities assumed have been recorded at their fair
values as of the dates of acquisitions. The excess of the purchase price
over the fair value of the assets acquired and liabilities assumed has been
recorded as goodwill. The assets acquired and liabilities assumed in the
current year acquisitions have been recorded based upon preliminary
estimates of fair value as of the dates of acquisition. The Corporation
does not believe the final allocation of purchase price will be materially
different from preliminary allocations. Any changes to the preliminary
estimates will be reflected as an adjustment to goodwill. At December 31,
1999, liabilities for approximately $12.7 million for costs associated with
the shutdown and consolidation of certain acquired facilities and $3.8
million in severance costs are recorded on the consolidated balance sheet.
At December 31, 1998, liabilities for approximately $19.7 million for costs
associated with the shutdown and consolidation of certain acquired
facilities and $12.5 million in severance costs are recorded on the
consolidated balance sheet. Results of operations for these acquisitions
have been included in the accompanying consolidated financial statements
since the dates of acquisition. The accompanying unaudited consolidated pro
forma results of operations for the years ended December 31, 1998 and 1999
give effect to the acquisitions as if such transactions had occurred at the
beginning of the period:
(In thousands except per share amounts) 1999 1998
Revenues $3,113,396 $2,009,436
Net income 45,376 41,113
Diluted earnings per share $1.65 $1.48
The unaudited pro forma consolidated financial information does not purport
to represent what the Corporation's financial position or results of
operations would actually have been if these transactions had occurred at
such dates or to project the Corporation's future results of operations.
3. Short-Term Borrowings
The Corporation may issue short-term debt in the form of bank loans and
commercial paper as interim financing for general corporate purposes. The
bank loans may be obtained under short-term lines of credit. At December
31, 1999, the Corporation's aggregate lines of credit available were $24.5
million. The Corporation pays an annual fee generally equivalent to .1% to
.25% of the unused lines. At December 31, 1999, there were $11.0 million of
commercial paper borrowings outstanding. No line of credit borrowings or
commercial paper was outstand-ing at December 31, 1998.
Expanets entered into a Bank Credit Facility in June 1998 with a commercial
bank. Expanets' Bank Credit Facility consists of a $15 million Working
Capital Facility. There were $14.7 million and $8.5 million of borrowings
outstanding under Expanets' Facility at December 31, 1999 and 1998.
Expanets' Credit Facility bears interest at a variable rate tied to the
Eurodollar or prime rate plus a stated margin for each rate. Expanets'
Credit Facility matured on December 31, 1999. Expanets has received an
extension on this facility while it negotiates an increase and certain
other changes to the Facility. The Facility is not secured, however,
Expanets is subject to restrictive covenants which include a) restrictions
on other indebtedness, b) limits on mergers, acquisitions and dispositions,
and c) minimum investment in Expanets by the Corporation. The Expanets'
Facility is nonrecourse to the Corporation.
4. Long-Term Debt
Substantially all of the Corporation's electric and natural gas utility
plant is subject to the lien of the indentures securing its general
mortgage bonds and pollution control obligations. General mortgage bonds of
the Corporation may be issued in amounts limited by property, earnings and
other provisions of the mortgage indenture. As part of a financing
transaction in November 1998, the Corporation issued $105 million of
6.95%, 30-year senior unsecured debt. The proceeds were used to repay short-
term indebtedness and for general corporate purposes. The Corporation
entered into an unsecured Bank Credit Facility with a group of commercial
banks in June 1999. The Bank Credit Facility is used for general corporate
purposes including acquisitions. There were $58 million of borrowings
outstanding and $112 million available under the Bank Credit Facility at
December 31, 1999. The Bank Credit Facility bears interest at a variable
rate tied to certain Eurodollar index or prime rate plus a variable margin,
which depends upon the total borrowings outstanding on the facility. The
Bank Credit Facility matures in June 2002. The Bank Credit Facility
contains restrictive covenants, which require the Corporation to maintain a
minimum net worth and a maximum debt to equity ratio. The following table
summarizes the Corporation's long-term obligations at December 31:
(In thousands) Due 1999 1998
Long-Term Debt
Senior unsecured debt - 6.95% 2028 $105,000 $105,000
General mortgage bonds -
6.99% 2002 15,000 20,000
7.10% 2005 60,000 60,000
7% 2023 55,000 55,000
Pollution control obligations -
5.85%, Mercer Co., ND 2023 7,550 7,550
5.90%, Salix, IA 2023 4,000 4,000
5.90%, Grant Co., SD 2023 9,800 9,800
Bank credit facility 2002 58,000 -
Less current maturities (5,000) (5,000)
---------- ---------
$309,350 $256,350
========== =========
The CornerStone First Mortgage Notes ('Mortgage Notes') are collateralized
by substantially all of the assets of CornerStone and rank pari passu with
the Bank Credit Facility. The Mortgage Notes mature in the year 2010 with
eight equal annual installments beginning in the year 2003. CornerStone
may, at its option and under certain circumstances following the
disposition of assets, be required to offer to prepay the Mortgage Notes in
whole or in part. The Mortgage Notes agreement contains restrictive
covenants applicable to CornerStone including a) restrictions on the
incurrence of additional indebtedness, b) restrictions on the ratio of
consolidated cash flow to consolidated interest expense of CornerStone, as
defined, and c) restrictions on certain liens, loans and investments,
payments, mergers, consolidations, sales of assets and other transactions.
Generally, as long as no default exists or would result, CornerStone is
permitted to make cash distributions not more frequently than quarterly in
an amount not to exceed available cash, as defined, for the immediately
preceding calendar quarter.
CornerStone also has a Bank Credit Facility with a group of commercial
banks. The Bank Credit Facility consists of a combined $110 million Working
Capital and Acquisition Facilities to finance propane business
acquisitions. There were $9.2 million and $1.7 million of combined
borrowings outstanding under the Working Capital and Acquisition Facilities
at December 31, 1999 and 1998. Total available under the Bank Credit
Facility is $81.8 million as an additional $19.0 million is required to be
held as collateral for the Bank Credit Facility borrowings. The Bank Credit
Facility bears interest at a variable rate tied to a certain Eurodollar
index or prime rate plus a variable margin for either rate, which depends
upon the Partnership's ratio of consolidated debt to consolidated cash
flow. The Bank Credit Facility matures in November 2001. The Bank Credit
Facility is collateralized by substantially all the assets of the
Partnership and ranks pari passu with the Mortgage Notes. The Bank Credit
Facility contains restrictive covenants similar to those under the Mortgage
Notes and also requires that CornerStone maintain a ratio of total funded
indebtedness to consolidated cash flow, as defined. Generally, as long as
no default exists or would result, CornerStone is permitted to make cash
quarterly distributions in an amount not to exceed Available Cash, as
defined.
Blue Dot entered into a Bank Credit Facility with a group of commercial
banks in February 1999 providing for advances up to $135.0 million. The
Bank Credit Facility is used for working capital and to finance business
acquisitions. There were $28.2 million of borrowings outstanding and $106.8
million available under the Bank Credit Facility at December 31, 1999. The
Bank Credit Facility bears interest at a variable rate tied to certain
Eurodollar rates or prime rate plus a variable margin, which depends upon
Blue Dot's interest coverage rates. The Bank Credit Facility matures in
February 2002 and is collateralized by substantially all the assets of Blue
Dot. The Bank Credit Facility contains restrictive covenants which require
Blue Dot to a) maintain a minimum net worth, b) maintaining certain EBITDA
and capitalization ratios when compared to total indebtedness, c) maintain
certain fixed charge ratios, d) limit the size of acquisitions and volume
of acquisitions, and e) limit annual capital expenditures. Blue Dot is in
compliance with the covenants as amended.
The balance of other nonrecourse debt is generally comprised of the debt
assumed and issued in conjunction with acquisitions of $36.3 million and
$40.9 million at December 31, 1999 and 1998.
Annual scheduled consolidated retirements of long-term debt during the next
five years are $24.2 million in 2000, $23.0 million in 2001, $96.4 million
in 2002, $45.7 million in 2003 and $44.2 million in 2004.
The following table summarizes the long-term nonrecourse obligations of
subsidiaries:
(In thousands) Due 1999 1998
Long-Term Debt of Subsidiaries-nonrecourse
First mortgage notes -
7.33% to 7.53% 2010 $419,200 $305,000
Bank credit facility (CornerStone) 2001 9,220 1,700
Bank credit facility (Blue Dot) 2002 28,176 -
Other term debt 36,331 40,885
Less current maturities (19,170) (15,060)
--------- --------
$473,757 $332,525
========= ========
5. Income Taxes
Income tax expense is comprised of the following:
(In thousands) 1999 1998 1997
Federal income
Current tax expense $22,079 $11,233 $4,620
Deferred tax expense (benefit) (9,179) (1,069) 6,512
Investment tax credit (benefit) (562) (562) (559)
State income 2,128 1,620 538
------- ------ ------
$14,466 $11,222 $11,111
======= ======= =======
The following table reconciles the Corporation's effective income tax rate
to the federal statutory rate:
1999 1998 1997
Federal statutory rate 35% 35% 35%
State income,
net of federal benefit 4 3 1
Amortization of
investment tax credit (1) (1) (2)
Dividends received deduction (2) (6) (2)
Other, net 4 (1) 1
40% 30% 33%
The components of the net deferred income tax liability recognized in the
Corporation's Consolidated Balance Sheets are related to the following
temporary differences at December 31:
(In thousands) 1999 1998
Excess tax depreciation $(78,402) $(80,556)
Safe harbor leases (929) (4,192)
Property basis and life differences (11,120) (11,027)
Asset sales (3,567) (3,967)
Regulatory assets (2,407) (2,732)
Regulatory liabilities 3,738 4,125
Unbilled revenue 6,323 2,360
Unamortized investment tax credit 3,279 3,385
Unrealized gain on investments (2,794) (3,308)
Other, net 21,024 21,840
$(64,855) $(74,072)
6. Team Member Benefit Plans
The Corporation maintains a noncontributory defined benefit pension plan
for team members of corporate and the regulated utility division. The
benefits to which a team member is entitled under the plan are derived
using a formula based on the number of years of service and compensation
levels, as defined. The Corporation determines the annual funding for its
plan using the frozen initial liability cost method. The Corporation's
annual contribution is funded in accordance with the requirements of ERISA.
Assets of the plan consist primarily of debt and equity securities.
Following is a reconciliation of the changes in the plan's benefit
obligations and fair value of assets over the two-year period ending
December 31, 1999, and a statement of the funded status as of December 31,
of both years:
(In thousands) 1999 1998
Reconciliation of Benefit Obligation
Obligation at January 1 $56,717 $54,656
Service cost 1,149 1,012
Interest cost 3,682 3,689
Actuarial (gain) loss (254) 1,009
Benefits paid (3,745) (3,649)
Benefit obligation at end of year 57,549 56,717
Reconciliation of Fair Value of Plan Assets
Fair value of plan assets at January 1 73,447 64,389
Actual return on plan assets 14,433 12,707
Benefits paid (3,745) (3,649)
Fair value of plan assets at end of year 84,135 73,447
Funded Status
Funded status at December 31 26,587 16,730
Unrecognized transition amount 928 1,083
Unrecognized net actuarial gain (24,711) (16,755)
Unrecognized prior service cost 2,819 3,320
Prepaid (accrued) benefit cost $5,623 $4,378
The following table provides the components of net periodic benefit cost
for the plans for 1999, 1998 and 1997:
in thousands 1999 1998 1997
Service cost $1,149 $1,012 $981
Interest cost 3,682 3,689 3,499
Expected return on plan assets (6,059) (5,307) (4,681)
Amortization of
transition obligation 155 155 155
Amortization of prior service cost 501 500 278
Amortization of net gain (672) (302) (106)
Net periodic
benefit (income) cost $(1,244) $(253) $126
The prior service costs are amortized on a straight-line basis over the
average remaining service period of active participants. Gains and losses
in excess of 10% of the greater of the benefit obligation and the market-
related value of assets are amortized over the average remaining service
period of active participants.
The assumptions used in calculating the projected benefit obligation for
1999, 1998 and 1997 were as follows:
1999 1998 1997
Discount rate 6.75% 6.75% 7.00%
Expected rate of return on assets 8.50% 8.50% 8.50%
Long-term rate of increase in
compensation levels 3.00% 3.00% 3.00%
During 1999, the Corporation made available to eligible
team members the option to convert their pension plan benefit to a cash
balance plan. All elections were made prior to December 31, 1999, and are
effective January 1, 2000. Eligible new team members hired after December
31, 1999, will automatically be enrolled in the cash balance plan as there
will be no new participants in the pension plan after December 31, 1999.
The result of team members choosing the cash balance plan will not
materially impact the Corporation's 2000 financial statements. The pension
plan will continue for those eligible team members who did not elect the
cash balance plan.
The Corporation also provides an Employee Stock Ownership Plan ('ESOP') for
full-time team members of corporate and the regulated utility division. The
ESOP is funded primarily with federal income tax savings, which arise from
tax laws applicable to such team member benefit plans. Certain Corporation
contributions and shares of stock acquired by the ESOP are allocated to
participants' accounts in proportion to the compensation of team members
during the particular year for which allocation is made. Costs incurred
under the plan were $1.0 million, $1.0 million and $.9 million in 1999,
1998 and 1997.
The Corporation also has various supplemental retirement plans for outside
directors and selected management team members. The plans are nonqualified
defined benefit plans that provide for certain amounts of salary
continuation in the event of death before or after retirement or certain
supplemental retirement benefits in lieu of any death benefits. In
addition, the Corporation provides life insurance benefits to beneficiaries
of eligible team members who represent a reasonable insurable risk. To
minimize the overall cost of plans providing life insurance benefits, the
Corporation has obtained life insurance coverage that is sufficient to fund
benefit obligations. Costs incurred under the plans were $1.3 million,
$1.5 million and $1.2 million in 1999, 1998 and 1997.
CornerStone has a Restricted Unit Plan ('Restricted Unit Plan'), which
authorizes the issuance of Common Units with an aggregate value of $17.5
million to directors, executives, managers and selected supervisors of the
Partnership. The value of the Restricted Common Unit is established by the
market price of the Common Unit at the date of grant. As of December 31,
1999, Restricted Common Units with a face value of $16.1 million have been
awarded.
The Corporation, CornerStone, Blue Dot and Expanets provide various team
member savings plans, which permit team members to defer receipt of
compensation as provided in Section 401(k) of the Internal Revenue Code.
Under the plans, the team member may elect to direct a percentage of their
gross compensation to be contributed to the plans. The Corporation
contributes 50 cents for every one dollar contributed by the team member,
up to a maximum Corporation contribution of 3% of the team member's gross
compensation. CornerStone, Blue Dot and Expanets match a portion of the
team member contributions. Costs incurred under all of these plans were
$3.0 million, $1.5 million and $.7 million in 1999, 1998 and 1997,
respectively.
7. Jointly Owned Plants
The Corporation has an ownership interest in three electric generating
plants, all of which are coal fueled and operated by other utility
companies. The Corporation has an undivided interest in these facilities
and is responsible for its proportionate share of the capital and operating
costs while being entitled to its proportionate share of the power
generated. The Corporation's interest in each plant is reflected in the
Consolidated Balance Sheets on a pro rata basis, and its share of operating
expenses is reflected in the Consolidated Statements of Income. The
participants each finance their own investment.
Information relating to the Corporation's ownership interest in these
facilities at December 31, 1999, is as follows:
Big Stone Neal #4 Coyote I
(In thousands) (South Dakota) (Iowa) (North Dakota)
Plant in service $48,348 $34,182 $47,097
Accumulated depreciation $27,266 $19,310 $22,794
8. Operating Leases
The Corporation leases office, office equipment and warehouse facilities
under various long-term operating leases. At December 31, 1999, future
minimum lease payments under noncancelable lease agreements are as follows
in thousands:
2000 $13,919
2001 11,880
2002 10,101
2003 7,475
2004 5,095
Thereafter 3,533
Lease and rental expense incurred were $13.8 million, $6.6 million and $6.1
million in 1999, 1998 and 1997, respectively.
9. Stock Options and Warrants
In May 1998, the Corporation adopted the NorthWestern Stock Option and
Incentive Plan ('Plan'). Under the Plan, the Corporation has reserved
2,750,000 shares for issuance to officers, key team members and directors
as either incentive-based options or nonqualified options. The Nominating
and Compensation Committee of the Corporation's Board of Directors
administers the Plan. Unless established differently by the Committee, the
per share option exercise price shall be the fair market value of the
Corporation's common stock at the grant date. The options are outstanding
for 10 years following the date of grant. In addition, the Corporation
issued 1,279,476 warrants to purchase shares of NorthWestern common stock
in connection with a previous acquisition. A summary of the activity of
stock options and warrants are as follows:
Stock Options
Shares Range Weighted
Balance December 31, 1997 - - -
Issued 225,463 23.00-24.88 23.11
Balance December 31, 1998 225,463 23.00-24.88 23.11
Issued 403,453 23.13-26.13 25.16
Canceled (11,000) 26.13 26.13
Balance December 31, 1999 617,916 23.00-26.13 24.39
Stock Warrants
Exercise
Shares Price
Balance December 31, 1997 - -
Issued 1,279,476 $18.225
Exercised 174,318 18.225
Balance December 31, 1998 1,105,158 18.225
Exercised 90,896 18.225
Balance December 31, 1999 1,014,262 $18.225
The Corporation follows Accounting Principles Board Opinion 25,
'Accounting for Stock Issued to Employees,' to account for stock option
plans. No compensation cost is recognized because the option exercise price
is equal to the market price of the underlying stock on the date of grant.
An alternative method of accounting for stock options is SFAS 123,
'Accounting for Stock-Based Compensation.' Under SFAS 123, team member
stock options are valued at grant date using the Black-Scholes valuation
model and compensation cost is recognized ratably over the vesting period.
Had compensation cost for the Corporation's stock option plan been
determined based on the Black-Scholes value at the grant dates for awards
as prescribed by SFAS 123, the pro forma information for 1999 and 1998
would have been as follows:
in thousands except per share amounts 1999 1998
Earnings on common stock
As reported $37,871 $27,086
Pro forma $36,750 $26,607
Diluted earnings per share
As reported $ 1.62 $ 1.44
Pro forma $ 1.57 $ 1.41
The weighted average Black-Scholes value of options granted under the stock
option plan during 1999 and 1998 was $4.39 and $3.91. The 1999 value was
estimated using an expected life of eight years, 3.8% dividend yield,
volatility of 16.9% and risk-free interest rate of 5.08%.
10. Earnings Per Share
Basic earnings per share is computed on the basis of the weighted average
number of common shares outstanding. Diluted earnings per share is computed
on the basis of the weighted average number of common shares outstanding
plus the effect of the outstanding stock options and warrants. The
following table presents the shares used in computing the basic and diluted
earnings per share for 1999, 1998 and 1997:
1999 1998 1997
Average common
shares outstanding for
basic computation 23,094 18,660 17,843
Dilutive effect of
Stock options 14 5 -
Stock warrants 264 151 -
Average common
shares outstanding for
diluted computation 23,372 18,816 17,843
11. CornerStone Distributions
CornerStone makes distributions to its partners with respect to each fiscal
quarter of the Partnership in an aggregate amount equal to its Available
Cash, as defined in its partnership agreement. Distributions will generally
be made 98% to the Common and Subordinated Unitholders and 2% to the
general partner. To the extent there is sufficient Available Cash, the
holders of Common Units have the right to receive the Minimum Quarterly
Distribution, plus any arrearages, prior to the distribution of Available
Cash to holders of Subordinated Units. Common Units will not accrue
arrearages for any quarter after the Subordination Period (as defined
below), and Subordinated Units will not accrue any arrearages with respect
to distributions for any quarter.
The Subordination Period will generally extend until the first day of any
quarter beginning on or after December 31, 2001, in respect of which a)
distributions of Available Cash from operating surplus equal or exceed the
Minimum Quarterly Distribution on each of the outstanding Common and
Subordinated Units for each of the three consecutive four-quarter periods
immediately preceding such date, b) the adjusted operating surplus
generated during each of the three consecutive four-quarter periods
immediately preceding such date equals or exceeds the Minimum Quarterly
Distribution on each of the Common and Subordinated Units and the related
distribution on the general partner interests in the Partnership during
such periods, and c) there are no outstanding Common Unit arrearages.
In addition, 1,649,405 Subordinated Units may convert into Common Units for
any quarter ending on or after December 31, 1999, and an additional
1,649,405 Subordinated Units may convert into Common Units for any quarter
ending on or after December 31, 2000, if a) distributions of Available Cash
from operating surplus on each of the outstanding Common and Subordinated
Units equal or exceed the Minimum Quarterly Distribution for each of the
three consecutive four-quarter periods immediately preceding such date, b)
the adjusted operating surplus generated during the immediately preceding
two consecutive four-quarter periods equals or exceeds the Minimum
Quarterly Distribution on all of the Common and Subordinated Units
outstanding during that period and c) there are no arrearages on the Common
Units.
The Partnership will make distributions of its Available Cash approximately
45 days after the end of each quarter ending March, June, September and
December to holders of record on the applicable record dates. For all
quarters ended after December 31, 1997, CornerStone and the Corporation
have elected to forgo the Subordinated Unit distributions, continuing the
support for the Common Unitholders.
12. Environmental Matters
The Corporation is subject to numerous state and federal environmental
regulations. The Clean Air Act Amendments of 1990 (the Act) stipulate
limitations on sulfur dioxide and nitrogen oxide emissions from coal-fired
power plants. The Corporation believes it can economically meet such sulfur
dioxide emission requirements at its generating plants and that it is in
compliance with all presently applicable environmental protection
requirements and regulations. The Corporation is also subject to other
environmental statues and regulations including matters related to former
manufactured gas plant sites. No administrative or judicial proceedings
involving the Corporation are now pending or known by the Corporation to be
contemplated under present environmental protection requirements.
13. Capital Stock
In December 1996, the Corporation's Board of Directors declared, pursuant
to a shareholders' rights plan, a dividend distribution of one Right on
each outstanding share of the Corporation's common stock. Each Right
becomes exercisable, upon the occurrence of certain events, at an exercise
price of $50 per share, subject to adjustment. The Rights are currently not
exercisable and will be exercisable only if a person or group of affiliated
or associated persons ('Acquiring Person') either acquires ownership of 15%
or more of the Corporation's common stock or commences a tender or exchange
offer that would result in ownership of 15% or more. In the event the
Corporation is acquired in a merger or other business combination
transaction or 50% or more of its consolidated assets or earnings power are
sold, each Right entitles the holder to receive such number of shares of
common stock of the Acquiring Person having a market value of two times the
then current exercise price of the Right. The Rights, which expire in
December 2006, are redeemable in whole, but not in part, at a price of
$.005 per Right, at the Corporation's option at any time until any
Acquiring Person has acquired 15% or more of the Corporation's common
stock.
The Corporation is authorized to issue 1,000,000 shares of $100 par
cumulative preferred stock. As of December 31, 1999 and 1998, there were
37,500 shares outstanding of which 26,000 were 4 1/2% Series and 11,500
were 6 1/2% Series. The provisions of the 6 1/2% Series stock contain a
five-year put option exercisable by the holders of the securities and a 10-
year redemption option exercisable by the Corporation. In any event,
redemption will occur at par value. The 4 1/2% Series may be redeemed in
whole or in part at the option of the Board of Directors at any time upon
at least 30 days notice at $110.00 per share plus accrued dividends.
In the event of involuntary dissolution, all Corporation preferred stock
outstanding would have a preferential interest of $100 per share, plus
accumulated dividends, before any distribution to common shareholders.
The Corporation is authorized to issue a maximum of 1,000,000 shares of
preference stock at a par value of $50 per share. No preference shares have
ever been issued.
As of December 31, 1999 and 1998, the Corporation had 3,500,000 shares of
preferred securities outstanding.
1,300,000 shares outstanding were issued in 1995 at 8 1/8%
with a $25 par value. An additional 2,200,000 shares were issued as part of
a financing transaction in November 1998
when the Corporation sold $55,000,000 of its 7.2% preferred capital
securities at $25 par value. The proceeds were used for general corporate
purposes.
14. Segment and Related Information
In 1998, the Corporation adopted Statement of Financial Accounting
Standards No. 131 ('SFAS 131'), 'Disclosures About Segments of an
Enterprise and Related Information,' which requires the reporting of
certain financial information by business segment. For the purpose of
providing segment information, the Corporation's six principal business
segments are its electric, natural gas, retail propane, wholesale propane,
HVAC and communications operations. The 'All Other' segment includes the
results of service and other nonenergy-related operations, manufacturing
operations (1998 only), activities and assets of the corporate office, as
well as any reconciling or eliminating amounts.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies except that the
parent allocates some of its operating expenses and interest expense to the
operating segments according to a methodology designed by management for
internal reporting purposes and involves estimates and assumptions.
Financial data for the business segments are as follows:
<TABLE>
Total
Electric and Total Communi- All
(In thousands) Natural Gas Propane HVAC cations Other Total
<C> <S> <S> <S> <S> <S> <S>
1999
Operating revenues $152,166 $2,246,400 $293,736 $294,878 $17,160 $3,004,340
Cost of sales 65,511 2,038,714 181,275 168,888 13,377 2,467,765
Gross margins 86,655 207,686 112,461 125,990 3,783 536,575
Selling, general and
administrative 37,016 137,859 96,580 102,507 14,755 388,717
Depreciation and amortization14,920 25,583 4,934 3,257 510 49,204
Goodwill amortization - 8,219 3,637 7,211 31 19,098
Operating income 34,719 36,025 7,310 13,015 (11,513) 79,556
Interest expense (8,790) (32,176 (1,043) (1,384) (9,761) (53,154)
Investment income and other 366 - 796 (1,016) 9,654 9,800
Income before taxes and minority
interests 26,295 3,849 7,063 10,615 (11,620) 36,202
Provision for taxes (8,816) (693) (3,990) (7,129) 6,162 (14,466)
Income before minority
interests $17,479 $3,156 $3,073 $3,486 $(5,458) $21,736
Total assets $364,673 $861,813 $279,140 $324,489 $126,646$ 1,956,761
Maintenance capital
expenditures $12,813 $7,735 $7,763 $3,589 $699 $32,599
1998
Operating revenues $145,645 $767,735 $124,880 $126,457 $22,470$1,187,187
Cost of sales 62,595 618,754 75,843 69,982 12,613 839,787
Gross margins 83,050 148,981 49,037 56,475 9,857 347,400
Selling, general and
administrative 37,445 105,520 39,334 45,709 8,214 236,222
Depreciation and amortization14,759 12,574 1,764 1,680 301 31,078
Goodwill amortization - 7,580 1,765 3,208 5 12,558
Operating income 30,846 23,307 6,174 5,878 1,337 67,542
Interest expense (12,059) (20,321) (52) (669) (2,766) (35,867)
Investment income and other 1,261 - 296 87 4,056 5,700
Income before taxes and minority
interests 20,048 2,986 6,418 5,296 2,627 37,375
Provision for taxes (7,379) (999) (3,043) (2,807) 3,006 (11,222)
Income before minority
interests $12,669 $1,987 $3,375 $2,489 $5,633 $26,153
Total assets $321,847 $759,232 $57,035 $77,418 $512,942$1,728,474
Maintenance capital
expenditures $14,366 $2,898 $2,641 $2,161 $559 $22,625
1997
Operating revenues $154,288 $743,038 - - $20,744 $918,070
Cost of sales 69,595 612,305 - - 13,145 695,045
Gross margins 84,693 130,733 - - 7,599 223,025
Selling, general and
administrative 36,384 90,344 - - 6,065 132,793
Depreciation and amortization 13,901 11,297 - - 550 25,748
Goodwill amortization - 5,487 - - - 5,487
Operating income 34,408 23,605 - - 984 58,997
Interest expense (12,186) (18,980) - - (310) (31,476)
Investment income and other 689 - - - 10,875 11,564
Income before taxes and minority
interests 22,911 4,625 - - 11,549 39,085
Provision for taxes (8,334) (1,283) - - (1,494) (11,111)
Income before minority
interests $14,577 $3,342 - - $10,055 $27,974
Total assets $306,930 $622,077 - - $177,116$1,106,123
Maintenance capital
expenditures $18,210 $4,056 - - $134 $22,400
1999 1998 1997
(In thousands) Electric Natural Gas Electric Natural Gas Electric Natural Gas
Operating
revenues $83,943 $68,223 $78,401 $67,244 $76,727 $77,561
Cost of sales 18,456 47,055 15,390 47,205 14,560 55,035
Gross margins 65,487 21,168 63,011 20,039 62,167 22,526
Selling, general and
Administrative 24,722 12,294 25,534 11,911 23,685 12,699
Depreciation 11,355 2,763 11,239 2,742 11,066 2,541
Amortization 651 151 631 147 239 55
Operating income$28,759 $5,960 $25,607 $5,239 $27,177 $7,231
1999 1998 1997
Retail Wholesale Retail Wholesale Retail Wholesale
(In thousands) Propane Propane Propane Propane Propane Propane
Operating revenues $303,947 $1,942,453 $234,612 $533,123 $243,589 $499,449
Cost of sales 133,084 1,905,630 103,645 515,109 127,529 484,776
Gross margins $170,863 $36,823 $130,967 $18,014 $116,060 $14,673
15. Quarterly Financial Data (Unaudited)
(In thousands except per share amounts) First Second Third Fourth
1999
Operating revenues $509,354 $595,850 $753,443 $1,145,693
Operating income $42,134 $11,599 $9,665 $16,158
Net income $14,880 $6,837 $8,838 $14,108
Average common shares outstanding 23,051 23,108 23,109 23,109
Basic earnings per average common share $.57 $.22 $.31 $ .54
Diluted earnings per average common share $.56 $.22 $.31 $ .53
Dividends per share $.2575 $.2575 $.2575 $.2775
Stock price:
High $27.13 $27.06 $26.00 $24.19
Low $23.75 $24.19 $22.44 $20.63
Quarter-end close $25.94 $24.19 $22.75 $22.00
1998
Operating revenues $298,964 $233,145 $276,896 $378,182
Operating income $29,836 $6,938 $7,954 $22,814
Net income $11,004 $3,355 $4,582 $11,450
Average common shares outstanding 17,843 17,843 17,860 21,068
Basic earnings per average common share* $.58 $.15 $.21 $ .49
Diluted earnings per average common share* $.58 $.15 $.20 $ .48
Dividends per share $.2425 $.2425 $.2425 $.2575
Stock price:
High $24.00 $25.31 $27.38 $26.50
Low $21.31 $20.25 $23.94 $22.75
Quarter-end close $22.94 $25.00 $26.00 $26.44
* The 1998 quarterly earnings per average common share do not total to
the 1998 annual earnings per average common share due to the effect of
common stock issuances during the year.
</TABLE>
ELEVEN-YEAR FINANCIAL SUMMARY
(In thousands except per share data)1999 1998 1997 1996 1995 1994 1993
1992 1991 1990 1989
Financial Results
Operating revenues $3,004,340 $1,187,187 $918,070 $344,009
$204,970 $157,266 $153,257 $119,197 $122,900 $115,980 $117,671
Gross margins 536,575 347,400 223,025 163,583 108,545 82,366
80,259 67,275 69,509 64,940 66,166
Operating expenses 457,019 279,858 164,028 113,165 70,448
51,830 52,986 42,466 42,061 40,744 41,171
Operating income 79,556 67,542 58,997 50,418 38,097
30,536 27,273 24,809 27,448 24,196 24,995
Interest expense (53,154) (35,867) (31,476) (18,668) (11,694)
(9,670) (8,945) (8,105) (7,244) (6,804) (6,886)
Investment income and other 9,800 5,700 11,564 9,719
3,029 2,444 4,431 2,690 1,834 6,890 4,314
Income before income taxes and
minority interests 36,202 37,375 39,085 41,469 29,432
23,310 22,759 19,394 22,038 24,282 22,423
Provision for income taxes (14,466) (11,222) (11,111) (15,415)
(10,126) (7,869) (7,568) (5,673) (7,223) (6,776) (6,300)
Income before minority interests 21,736 26,153 27,974 26,054
19,306 15,441 15,191 13,721 14,815 17,506 16,123
Minority interests 22,927 4,238 (1,710) - - - - -
- - - -
Net income $ 44,663 $ 30,391 $ 26,264 $ 26,054 $
19,306 $ 15,441 $ 15,191 $ 13,721 $ 14,815 $ 17,506
$ 16,123
Common Stock Data
Basic earnings per share* $1.64 $1.45 $1.31 $1.28
$1.11 $1.00 $.98 $.88 $.94 $1.12 $1.02
Diluted earnings per share* $1.62 $1.44 $1.31 $1.28
$1.11 $1.00 $.98 $.88 $.94 $1.12 $1.02
Basic and diluted earnings per share
(excluding one time gains)* - - - $1.19 - - -
- - - $.89 $.88
Average shares outstanding*:
Basic 23,094 18,660 17,843 17,840 16,261 15,354
15,354 15,354 15,354 15,354 15,354
Diluted 23,372 18,816 17,843 17,840 16,261 15,354
15,354 15,354 15,354 15,354 15,354
Dividends paid per common share* $1.050 $.985 $.933 $.890
$.873 $.835 $.815 $.795 $.768 $.738 $.708
Annual dividend rate at year end* $1.11 $1.03 $.97 $.92
$.88 $.85 $.83 $.81 $.79 $.76 $.73
Book value per share at year end* $12.99 $12.26 $9.34 $9.18
$8.56 $7.47 $7.14 $6.98 $6.89 $6.72 $6.34
Common stock price range*:
High $27.125 $27.375 $23.500 $18.250 $14.188 $14.813
$16.750 $14.375 $13.438 $10.250 $10.125
Low $20.625 $20.250 $16.938 $13.375 $12.125 $12.250
$13.125 $11.750 $10.125 $8.375 $8.250
Close $22.000 $26.438 $23.000 $17.130 $14.000 $13.380
$14.380 $14.000 $12.940 $10.250 $10.000
Price earnings ratio 13.6x 18.4x 17.6x 13.4x 12.7x
13.4x 14.7x 15.8x 13.8x 9.2x 9.8x
Dividend payout ratio
(from ongoing operations) 64.8% 68.4% 71.2% 74.8% 79.0%
83.5% 83.2% 89.8% 81.6% 66.1% 69.4%
Return on average common equity 12.9% 14.6% 14.1% 14.4%
13.7% 13.1% 13.7% 12.8% 13.7% 17.0% 16.2%
Common shareholders at year end 10,475 10,116 8,845 8,750
8,738 8,132 8,231 8,279 8,262 8,014 8,246
Financial Position (as of December 31)
Total assets $1,956,761 $1,728,474 $1,106,123 $1,113,716
$558,721 $359,066 $343,574 $308,194 $297,761 $283,073 $272,260
Working capital 114,551 57,739 11,844 44,922 31,859
(3,033) 6,121 5,774 (4,010) (4,599) 678
Long-term debt, excluding current portion 309,350 256,350 156,350
183,850 183,850 127,053 126,600 106,422 92,003 78,236
79,469
Total debt (including subsidiaries) 807,277 608,935 433,095
425,657 213,410 127,623 127,200 106,572 93,236 79,469
80,702
Shareholders' equity 300,156 282,101 166,596 163,805 152,678
114,705 109,667 107,111 105,780 103,120 97,322
Other equity 452,799 479,202 235,972 225,464 38,760 2,640
2,670 2,700 5,590 5,785 5,980
Total equity $ 752,955 $ 761,303 $ 402,568 $ 389,269
$191,438 $117,345 $112,337 $109,811 $111,370 $108,905 $103,302
Capitalization Ratios (as of December 31)**
Long-term recourse debt 44.1% 40.7% 43.5% 47.9% 49.3%
51.3% 52.4% 49.0% 45.2% 41.8% 43.5%
Preferred stock and securities 13.0% 14.5% 10.1% 9.4% 9.7%
1.1% 1.1% 1.3% 2.7% 3.1% 3.3%
Shareholders' equity 42.9% 44.8% 46.4% 42.7% 41.0%`
47.6% 46.5% 49.7% 52.1% 55.1% 53.2%
* Adjusted for the two-for-one split in May 1997.
** Ratios are exclusive of nonrecourse debt, current debt and minority
interests.
EXHIBIT 21-SUBSIDIARIES OF THE REGISTRANT
State of Jurisdiction
of Incorporation
Name or Limited Partnership
- ----------------------------- -------------------------------------
NorthWestern Corporation Delaware
Grant, Inc. South Dakota
NorCom Advanced Technologies, Inc. South Dakota
NorthWestern Energy Corporation South Dakota
Nekota Resources Inc. South Dakota
NorthWestern Growth Corporation South Dakota
Blue Dot Services, Inc. Delaware
Coast Energy Capital Corporation Delaware
CornerStone Propane GP, Inc. California
CornerStone Propane Partners, L.P. Delaware Limited Partnership
CornerStone Propane, L.P. Delaware Limited Partnership
Expanets, Inc. Delaware
NorthWestern Capital Corporation Delaware
NorthWestern Networks, Inc. South Dakota
NorthWestern Systems, Inc. South Dakota
Lucht Inc. Delaware
SYN Inc. Delaware
NorthWestern Services Corporation South Dakota
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