UNITED STATES |
SECURITIES AND EXCHANGE COMMISSION |
Washington, D.C. 20549 |
SCHEDULE 14A |
Proxy Statement Pursuant to Section 14(a) of |
the Securities Exchange Act of 1934 (Amendment No. ) |
Filed by the Registrant x |
Filed by a Party other than the Registrant o |
Check the appropriate box:
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[ | ] | Preliminary Proxy Statement |
[ | ] | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
[ X ] | Definitive Proxy Statement |
[ | ] | Definitive Additional Materials |
[ | ] | Soliciting Material Pursuant to §240.14a-12 |
NorthWestern Corporation |
(Name of Registrant as Specified In Its Charter) |
(Name of Person(s) Filing Proxy Statement, if other than the Registrant) |
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x | No fee required. | ||
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(2) | Aggregate number of securities to which transaction applies: | ||
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): | ||
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2007
Notice of Annual Meeting
and
Proxy Statement
( ) Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
(X) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
NORTHWESTERN CORPORATION
-----------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
(X) No fee required.
( ) Fee computed on table below per Exchange Act Rules 14a-6(i) and O-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule O-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
( ) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by Exchange Act
Rule O-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration State No.:
3) Filing Party:
4) Date Filed:
[GRAPHIC OMITTED]
NorthWestern Corporation
d/b/a NorthWestern Energy
125 S. Dakota Ave.
Sioux Falls, S.D.SD 57104
www.northwesternenergy.com
June 1, 2005
+
July 9, 2007
Dear Stockholder:
You are cordially invited to attend the Annual Meeting2007 annual meeting of Stockholders of NorthWestern
Corporation which willstockholders to be held at the Holiday Inn City Centre, 100 West 8th Street, Sioux Falls, South Dakota, on Thursday, July 14, 2005,Wednesday, August 8, 2007, at 2:10:00 p.m.
Central Daylight Time).
The matters to be acted upon ata.m. local time.
At the meeting, are discussed in more detail in the
attached Notice of Annual Meeting and Proxy Statement. There are two specific
items for which you are being asked to vote: (1)stockholders will be voting on the election of a full slate of
six (6) Directors to the Board of Directors of the Corporation,directors and (2) the ratification of our independent registered public accounting firm for 2007. The proxy statement included with this letter provides you with information about the Company's independent auditor for 2005. annual meeting and the business to be conducted.
Your Board of
Directors recommends that you vote "FOR"is very important. Please consider the six individuals nominatedissues presented and "FOR"
ratification ofvote your shares as promptly as possible by following the independent auditor.
Stockholders of record can vote by signing and returning the enclosedinstructions on your proxy card
in the postage prepaid envelope provided.card. If your shares are held in the name ofan account at a brokerage firm, bank broker or other holder of record,nominee, please follow the instructions you will receive instructions from the
holder of record that you must followthem to vote your shares.
We hope that you can attend the Annual Meeting. The admission ticket enclosed
with this Proxy Statement will be required for admission, and you will be
required to present photo identification to gain admission to the Annual
Meeting. If you cannot attend in person, you can listen to our webcast of the
Annual Meeting at www.northwesternenergy.com. Whether or not you plan to attend,
you can be sure that your shares are represented at the meeting by promptly
voting. Any stockholder attending the Annual Meeting may vote in person, even if
that stockholder has returned a proxy. Your vote is important, whether you own a
few shares or many.
Thank you for your continued support of NorthWestern Corporation.
Very truly yours,
/s/
Michael J. Hanson
Michael J. Hanson
President and Chief Executive Officer
NORTHWESTERN CORPORATION
NorthWestern Corporation
d/b/a NorthWestern Energy
125 S. Dakota Ave. oAvenue, Sioux Falls, S.D.South Dakota 57104
www.northwesternenergy.com
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Date and Time: July 14, 2005,
Notice of Annual Meeting of Stockholders
August 8, 2007
To Our Stockholders:
The 2007 annual meeting of stockholders of NorthWestern Corporation will be held on August 8, 2007, beginning at 2:10:00 p.m.a.m. Central Daylight Time Place:at the Holiday Inn City Centre, 100 West 8th Street, Sioux Falls, South Dakota
Items of Business: 1) Elect six (6) membersDakota.
The purpose of the Board of
Directorsannual meeting is to hold office untilconsider and vote upon the Annual
Meeting of Stockholdersfollowing matters:
1. | Election of seven (7) members of our Board of Directors to hold office until the earlier of: (a) the merger with Babcock & Brown Infrastructure Limited (“BBI”) is completed; or (b) the annual meeting of stockholders in 2008 and until their successors are duly elected and qualified; |
2. | Ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the year ending December 31, 2007; and |
3. | Transact any other business as may properly come before the annual meeting and any adjournment or postponement of the annual meeting. |
The above business matters are described in 2006, and until their
successors are duly elected and qualified;
2) Ratifydetail in the selection by the Audit Committee
of the Board of Directors of Deloitte & Touche
LLP as the Company's independent auditor for the
year ending December 31, 2005;
3) Transact such other business as may properly
come before the meeting and any adjournment or
postponement thereof.
Record Date: accompanying proxy statement.
The Board of Directors has fixedrecommends a vote “FOR” each of the closedirector nominees and the ratification of business on May 16, 2005, as the independent registered public accounting firm.
The record date for determining the stockholders entitled to receive notice of and to attend and vote at the Annual Meetingannual meeting and any adjournments thereof. A complete listor postponements of suchthe annual meeting is June 29, 2007. This notice and proxy statement, voting instructions, NorthWestern’s Annual Report on Form 10-K and Quarterly Report on Form 10-Q are being mailed to stockholders will be available at the
Company's executive offices at 125 S. Dakota
Ave., Sioux Falls, South Dakota 57104, for 10
days before the Annual Meeting.
Annual Meeting Admission: An admission ticket is
enclosed with this proxy statement. on or about July 9, 2007.
The Annual
Meetingannual meeting is open to shareholdersstockholders and those guests invited by the Company. Stockholdersus. The admission ticket enclosed with this proxy statement will be asked to provide photo identification, such as a
driver's license, in order to gainrequired for admittance to the Annual Meeting.
Voting by Proxy: You are encouraged to vote by signing, dating
and returning your proxy card in the enclosed
envelope.meeting. If you wish to attend the annual meeting and your shares are held in an account at a brokerage firm, bank or other nominee (i.e., in “street name”), you will need to bring a copy of your brokerage statement or other documentation reflecting your stock ownership as of the record date. Additional information about attendance at the annual meeting is located in the Annual Meeting and
wish to vote in person, you may do so whether or
not you have returned your proxy. Your BoardGuidelines on the last page of Directors recommends that you vote "FOR" the
nominees for the Board and "FOR" ratification of
Deloitte & Touche LLP as the Company's auditors.
THIS DOCUMENT IS BEING DISTRIBUTED TO STOCKHOLDERS OF NORTHWESTERN CORPORATION
ON OR ABOUT JUNE 15, 2005.
this proxy statement.
By Order of the Board of Directors,
Alan D. Dietrich
Thomas J. Knapp
Vice President, General Counsel and Corporate Secretary
YOUR VOTE IS IMPORTANT, WHETHER YOU OWN A FEW SHARES OR MANY.
NORTHWESTERN CORPORATION
d/b/a NORTHWESTERN ENERGY
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 14, 2005
July 9, 2007
TABLE OF CONTENTS
Page
Information Concerning Solicitation of Proxies and Voting....................1
Proposal 1: Election of Directors............................................3
Proposal 2: Ratification of Independent Auditor..............................4
Meetings of the Board of Directors and Committees............................5
Executive Officers...........................................................6
Security Ownership by Certain Beneficial Owners and Management...............7
Reorganization of the Company................................................7
Compensation of Directors and Executive Officers.............................8
Report of Human Resources Committee on Executive Compensation...............12
Audit Committee Report......................................................14
Section 16(a) Beneficial Ownership Reporting Compliance.....................15
Performance Graph...........................................................15
Other Matters...............................................................15
APPENDIX A: Audit Committee Charter........................................16
APPENDIX B: Governance Committee Charter...................................18
NORTHWESTERN CORPORATION
d/b/a NORTHWESTERN ENERGY
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 14, 2005
INFORMATION CONCERNING SOLICITATION OF PROXIES AND VOTING
GENERAL
This Proxy Statement is furnished in connection withproxy statement contains information related to the solicitation of proxies by the Board of Directors (the "Board"“Board”) of NorthWestern Corporation (the
"Company," "we"(“NorthWestern,” the “Company,” “we,” “us,” or "our"“our”) for use atin connection with the Annual Meetingannual meeting of Stockholders of the
Company (the "Annual Meeting")stockholders to be held on Thursday, July 14, 2005, orWednesday, August 8, 2007, at any
adjournment of the Annual Meeting, for the purposes set forth herein and in the
foregoing Notice of Annual Meeting of Stockholders. The Annual Meeting will be
held10:00 a.m. Central Daylight Time at the Holiday Inn City Centre, 100 West 8th Street, Sioux Falls, South Dakota.
Q: | When and where is the annual meeting? |
A: | The annual meeting of our stockholders will be held on Wednesday, August 8, 2007, at 10:00 a.m. Central Daylight Time at the Holiday Inn City Centre, 100 West 8th Street, Sioux Falls, South Dakota. |
Q: | Will the annual meeting be webcast? |
The Company's 2004 Annual Report, Annual Report on Form 10-K forannual meeting will be webcast (audio and slides) simultaneously with the year ended December 31, 2004, and Quarterly Report on Form 10-Q forlive meeting. You may access the quarter
ended March 31, 2005, are included with this Proxy Statement to stockholders of
record as of May 16, 2005. Your attention is directed to the Financial
Statements and Management's Discussion and Analysis in such reports, which
provide important information concerning NorthWestern Corporation.
RECORD DATE; OUTSTANDING SECURITIES
The voting securitieswebcast from our Web site at http://www.northwesternenergy.com. A replay of the Company entitledwebcast also will be available on our Web site through September 8, 2007.
Q: | What matters will be voted on at the annual meeting? |
A: | The following matters will be voted on at the annual meeting: |
Election of seven (7) directors to vote at the Annual Meeting
consist only of shares of common stock. Only stockholders of record at the close
of businessserve on May 16, 2005 (the "Record Date") are entitled to notice of and to
vote at the Annual Meeting. Asour Board;
Ratification of the Record Date, there were 35,589,490 sharesappointment of NorthWestern's common stock, par value $0.01 per share, issuedDeloitte & Touche LLP as our independent registered public accounting firm for 2007; and
outstanding.
REVOCABILITY OF PROXIES
A stockholder who signs
Transaction of any other matters and returns a proxy will havebusiness as may properly come before the power to revoke it atannual meeting or any time before it is voted. A proxy may be revoked by (i) filing with the
Company (Attention: Alan D. Dietrich, Corporate Secretary) a written revocation,
(ii) submitting a duly executed proxy bearing a later date,postponement or (iii) by
appearing at the Annual Meeting and electing to vote in person.
VOTING
Each stockholder is entitled to one vote for each share of common stock held.
SOLICITATION OF PROXIES
This solicitation of proxies is made by the Company, and all related costs,
including expenses in connection with preparing and mailing this proxy, will be
borne by the Company. In addition, the Company will reimburse brokerage firms
and other persons representing beneficial owners of shares for their expenses in
forwarding solicitation material to such beneficial owners. In order to obtain
the necessary quorum at the meeting, additional solicitation may be made by
mail, telephone, telegraph, facsimile or personal interview by representativesadjournment of the Company, the Company's transfer agent, or by brokers or their
representatives. Any costs associated with such additional solicitation are not
anticipated to be significant.
QUORUMS; ABSTENTIONS; BROKER NON-VOTES
The Company's current Amendedannual meeting.
Q: | What will happen to the directors if the merger is completed? |
A: | If the merger is completed, each of the directors elected at the annual meeting will serve only until the merger is completed. If the merger agreement is not completed, each director elected at the annual meeting is expected to serve until the 2008 annual meeting and until their successors have been duly elected and qualified. |
Q: | Who can vote and attend the annual meeting? |
A: | All stockholders of record as of the close of business on June 29, 2007, are entitled to receive notice of and to attend and vote at the annual meeting, or any postponement or adjournment of the annual meeting. If you wish to attend the annual meeting and your shares are held in an account at a brokerage firm, bank or other nominee (i.e., in “street name”), you will need to bring a copy of your brokerage statement or other documentation reflecting your stock ownership as of the record date. “Street name” holders who wish to vote at the annual meeting will need to obtain a proxy authorizing them to vote at the annual meeting from the broker, bank or other nominee that holds their shares. |
Q: | What is a quorum of stockholders? |
A: | A quorum is necessary to hold a valid annual meeting. A quorum will be present at the annual meeting if the holders of a majority of the shares of our common stock outstanding and entitled to vote on the record date are present in person or represented by proxy. If a quorum is not present at the annual meeting, we expect that the annual meeting will be adjourned to solicit additional proxies. |
Abstentions and Restated Bylaws (the "Bylaws") provide that a
majority of all the shares of the common stock entitled to vote, whether“broker non-votes” count as present in person or by proxy, shall constitutefor establishing a quorum for the transaction of business
at the Annual Meeting. If a quorum is not present or represented, then either
the chairmanall business. Since there were 36,081,433 shares of the Annual Meeting or the stockholderscommon stock issued and outstanding and entitled to vote at the Annual Meeting, present in person or represented by proxy, will haveannual meeting as of the power
to adjourn the Annual Meeting from time to time, without notice other than an
announcement at the Annual Meeting, until a quorum is present. At any adjourned
Annual Meeting at which a quorum is present, any business may be transacted that
might have been transacted at the Annual Meeting as originally noticed. If the
adjournment is for more than 30 days, or if after that adjournment a new record date, is fixed for the adjourned Annual Meeting,presence of holders of 18,040,717 shares will constitute a noticequorum.
Q: | What vote is required for each proposal at the annual meeting? |
A: | The election of directors requires a plurality of the votes cast by the shares of common stock present in person or represented by proxy at the annual meeting. “Plurality” means that the nominees receiving the largest number of votes cast “FOR” are elected as directors up to the maximum number of directors to be chosen at the meeting. A properly executed proxy marked “WITHHOLD AUTHORITY” with respect to the election of one or more directors will not be voted with respect to the director or directors indicated, although it will be counted for purposes of determining whether there is a quorum. Stockholders do not have the right to cumulate their votes for directors. In August 2006, the Board adopted a Majority Vote Policy for the election of directors. The policy provides that, in an uncontested election, any nominee for director who receives a greater number of votes “WITHHOLD AUTHORITY” from his or her election than votes “FOR” such election (a “Majority Withheld Vote”) shall promptly tender his or her resignation following certification of the shareholder vote. The Majority Vote Policy is explained in detail on page 8. |
The ratification of the adjourned Annual
Meeting shall be given to each stockholderappointment of record entitled to vote at the
adjourned Annual Meeting.
All shares represented by valid proxies received prior to the Annual Meeting
will be voted and, where a stockholder specifies by means of the proxy a choice
with respect to any matter to be acted upon, the shares will be voted in
accordance with the specification so made.
1
Votes cast by proxy or in person at the Annual Meeting will be tabulated by the
Inspector of Elections (the "Inspector") who will be an employee of the Company
or of the Company's transfer agent. The Inspector will also determine whether or
not a quorum is present. Other thanDeloitte & Touche LLP as our independent registered public accounting firm for the election of Directors,2007 requires the affirmative vote of the holders of a majority in voting power of the shares of our common stock present in person or represented by proxy at a duly held Annual Meeting at which a quorum is present is required for
approvalthe annual meeting and entitled to vote thereon.
Q: | How does our Board recommend that I vote? |
A: | Our Board recommends that you vote: |
“FOR” the election of each of the matters to be acted on at the Annual Meeting. For the
election of Directors, the six nominees receiving the highest number of votes
"FOR" will be elected as Directors. This number is called a plurality.
The Inspector will treat shares that are voted "WITHHELD" or "ABSTAIN" as being
present and entitled to vote for purposes of determining the presence of a
quorum, but such shares will be counted neither as votes for, nor the
withholding of authority for, the election of directors, but will have the
effect of a vote against all other matters submitted to a vote of stockholders.
When proxies are properly dated, executed and returned, the shares represented
by such proxies will be voted at the Annual Meeting in accordance with the
instructions of the stockholder. If no specific instructions are given, the
shares will be voted (i) FOR the election of the six nominees for Directors set
forth herein,director; and (ii) FOR the
“FOR” ratification of the selection by the Boardappointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2007.
Q: | What methods may I use to cast my vote? |
A: | Voting by Proxy or in Person at the Annual Meeting.Holders of record may vote by completing, signing, dating and mailing the enclosed proxy card in the enclosed postage-paid envelope. If your shares are held in an account at a brokerage firm, bank or other nominee, please follow the instructions you receive from them to vote your shares. Submitting your vote by proxy will not affect your right to attend the annual meeting and to vote in person. If you attend the annual meeting and wish to vote in person, you will be given a ballot at the annual meeting. Please note, however, that if your shares are held in “street name” by a broker, bank or other nominee and you wish to vote at the annual meeting, you must bring to the annual meeting a proxy from the recordholder of the shares authorizing you to vote at the annual meeting. |
Electronic Voting.Many stockholders who hold their shares through a broker, bank or other nominee will have the Company's independent auditor foroption to submit their proxy cards or voting instruction cards electronically by using the year ending
December 31, 2005. The formInternet or telephone. If you hold your shares through a broker, bank or other nominee, you should check your voting instruction card forwarded by your broker, bank or other nominee to see which voting options are available. Our holders of proxy also confers discretionary authority with
respectrecord will not have the option to vote via the Internet or telephone.
We do not expect that any other business properlymatters will be brought before the Annual Meeting.
Shares heldannual meeting; however, by nominees for beneficial owners will be counted for purposes of
determining whether a quorum is present if the nominee has the discretion to
vote on at least one of the matters presented at the 2005 annual meeting, even
if the nominee may not exercise discretionary voting power with respect to other
matters and voting instructions have not been received from the beneficial owner
(a "broker non-vote"). Broker non-votes will not be counted as votes for, nor
the withholding of authority for, the election of directors (Proposal One), but
will have the effect of a vote against all other matters submitted to a vote of
stockholders. The Company believes that the tabulation procedure to be followed
by the Inspector is permitted by the general statutory requirements in Delaware
concerning voting of shares and determination of a quorum.
MULTIPLE STOCKHOLDERS SHARING THE SAME ADDRESS
In accordance with notices we previously sent to street-name shareholders who
share a single address, we are sending only one Annual Report and Proxy
Statement to that address unless we received contrary instructions from any
stockholders at that address. This practice, known as "householding," is
designed to reduce our printing and postage costs. However, if any stockholder
residing at such an address wishes to receive a separate Annual Report or Proxy
Statement in the future, he or she may contact the Company's Corporate
Secretary. Ifgiving your proxy, you are receiving multiple copies of our Annual Report and Proxy
Statement, you can request householding by contacting the Company's Corporate
Secretary Alan D. Dietrich, NorthWestern Corporation, 125 S. Dakota Avenue,
Sioux Falls, South Dakota 57104.
STOCKHOLDER COMMUNICATIONS
Stockholders may send communications to the Board of Directors. Communications
should be addressed to the Corporate Secretary of the Company at its principal
offices at 125 S. Dakota Avenue, Sioux Falls, South Dakota 57104. The Corporate
Secretary will forward any communications received directly to the Board of
Directors. While the Company does not have a policy with regard to Board
attendance at annual meetings, the Company expects all the members of its Board
to attend.
SUBMISSION OF STOCKHOLDER PROPOSALS FOR 2006 ANNUAL MEETING
The Company's Bylaws provide that in order for a stockholder to nominate a
candidate for election as a Director at an annual meeting of stockholders or
propose business for consideration at such meeting, written notice containing
the information required by the Bylaws generally must be delivered to the
Secretary of the Company at 125 S. Dakota Avenue, South Dakota 57104, not later
than 5:00 p.m. (Pacific Time) on the 90th day, and not earlier than the 120th
day, prior to the first anniversary of the mailing of the notice for the
preceding year's annual meeting. Accordingly, stockholder proposals intended to
be presented in our proxy materials for the 2006 Annual Meeting must be received
by the Secretary of the Company on or after January 26, 2006, and prior to 5:00
p.m. (Central Time) on February 25, 2006, and must satisfy the requirements of
our Bylaws and the proxy rules promulgated by the Securities and Exchange
Commission.
A stockholder who wishes to make a proposal at the next Annual Meeting without
including the proposal in our proxy statement must notify us by February 25,
2006. If a stockholder fails to give notice by this date, thenappoint the persons named as proxies as your representatives at the annual meeting. If an issue should arise for vote at the annual meeting that is not included in the proxies we solicit forproxy material, the next Annual Meetingproxy holders will vote your shares in accordance with their best judgment.
Read and follow the instructions on your proxy or voting instruction card carefully.
Q: | How are votes counted? |
A: | For the election of directors, you may vote “FOR” all of the nominees or you may “WITHHOLD AUTHORITY” for one or more of the nominees. Withheld votes will not count as votes cast for the nominee, but will count for the purpose of determining whether a quorum is present. As a result, if you withhold your vote, it has no effect on the outcome of the vote to elect directors; however, under our Majority Vote Policy, if a nominee for director receives more “WITHHOLD AUTHORITY” votes than “FOR” votes, such nominee shall immediately tender his/her resignation. |
For the proposal relating to ratification of our independent registered public accounting firm, you may vote “FOR,” “AGAINST” or “ABSTAIN.” The failure to vote, either by not returning a properly executed proxy card or not voting in person at the annual meeting, will have discretionary authority to voteno effect on the outcome of the voting on the ratification proposal. 2
If you sign your proxy card without indicating your vote, your shares will be voted “FOR” each of the nominees for director, “FOR” ratification of Deloitte & Touche LLP as our independent registered public accounting firm and in accordance with the recommendations of our Board on any other matters properly brought before the annual meeting for a vote.
Q: | What is a “broker non-vote”? |
A: | A “broker non-vote” generally occurs when a broker, bank or other nominee holding shares in “street name” on your behalf does not vote on a proposal because the broker, bank or other nominee has not received your voting instructions and lacks discretionary power to vote the shares. Generally, brokers, banks and other nominees have the discretion to vote for directors and the ratification of the appointment of our independent registered public accounting firm, unless you instruct otherwise. “Broker non-votes” will be treated as shares that are present and entitled to vote for the purpose of determining whether a quorum exists. |
Q: | Can I change my vote after I have delivered my proxy? |
A: | Yes. If you are a recordholder of our common stock, you can change your vote at any time before your proxy is voted at the annual meeting by properly delivering a later-dated proxy either by mail or attending the annual meeting in person and voting. You also may revoke your proxy by delivering a notice of revocation to our corporate secretary prior to the vote at the annual meeting. If your shares are held in “street name,” you must contact your broker, bank or other nominee to revoke your proxy. |
Q: | What should I do if I receive more than one set of voting materials? |
A: | You may receive more than one set of voting materials, including multiple copies of this proxy statement and multiple proxy or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a holder of record and your shares are |
registered in more than one name, you will receive more than one proxy card. Please vote each proxy and voting instruction card that you receive.
Q: | Who pays for the solicitation of proxies? |
A: | NorthWestern will pay the cost of the solicitation, which will be made primarily by mail. Proxies also may be solicited in person, by telephone, facsimile or similar means, by our directors, officers or employees without additional compensation. |
We will, on request, reimburse stockholders who are brokers, banks or other nominees for their reasonable expenses in sending proxy materials and annual reports to the beneficial owners of the shares they hold of record.
ELECTION OF DIRECTORS
In accordance with NorthWestern'sour current Amendedcertificate of incorporation and Restated Certificate of
Incorporation (the "Charter") and NorthWestern'sour current Amended and Restated
Bylaws (the "Bylaws"),bylaws, all members of the NorthWesternour Board of Directors are elected annually, to serve until the next Annual Meetingannual meeting of Stockholders. The
Company's Bylawsstockholders. Our bylaws currently authorize a Board consisting of not fewer than five (5) nor more than eleven (11) persons. The number of Directors of the Company,
as set by the Company's Second Amended and Restated Plan of Reorganization,
dated as of August 18, 2004 (the "Plan of Reorganization"), duly confirmed by
the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy
Court") in Jointly Administered Case No. 03-12872 (CGC), was seven, however,Our Board has determined that, with the retirementexception of former Director, President and Chief Executive Officer
Gary G. Drook as an executive officer of the Company, his term as a member of
the Board of Directors also ended immediately, and at a meeting following such
retirement, the Board, by resolution, reduced the number of Directors to six
(6). On May 20, 2005, Corbin A. McNeill, Jr. resigned from the Board, due to his
decision to remain as Chairman of the Board of Directors of Portland General
Electric. NorthWestern's Board named Michael J. Hanson, all of the director nominees are independent as President, Chief
Executive Officer and Director on May 20, 2005, to filldefined by the vacancy created by
Mr. McNeill's resignation.
NASDAQ Marketplace Rules.
The nominees for election to the sixseven positions on theour Board, selected by theour Governance Committee of the Board and proposed by theour Board to be voted upon at the Annual Meeting,annual meeting, are
Stephen P. Adik, Dr. E. Linn Draper, Jr., Jon S. Fossel, Michael J. Hanson, Julia L. Johnson, and Philip L. Maslowe. Each of the Director
nominees, except Mr. Hanson, were appointed to the Board by the Bankruptcy Court
pursuant to the Company's Plan of Reorganization, which became effective on
November 1, 2004.
Director nominees Adik, Draper, Fossel, JohnsonMaslowe and Maslowe are not employed by,
or affiliated with, the Company other than by virtue of serving as directors of
the Company. Mr. Hanson is President and Chief Executive Officer of
NorthWestern.
D. Louis Peoples.
Unless authority to vote for the election of directors has been specifically withheld, the persons named in the accompanying proxy intend to vote FOR“FOR” the election of Directordirector nominees Adik, Draper, Fossel, Hanson, Johnson, Maslowe and MaslowePeoples to hold office as directors for a termuntil the next annual meeting of one yearstockholders in 2008 and until their successors are elected and qualifyqualified. If the merger is completed, each of our directors will no longer be directors of the surviving corporation in the merger. The current directors, including those elected at the next Annual Meetingannual meeting, will serve only until the merger is completed. If the merger agreement is not completed, each of Stockholders.our directors is expected to serve a one-year term as described above. All nominees have advised the Board that they are able and willing to serve as directors.
If any nominee becomes unavailable for any reason (which is not anticipated), the shares represented by the proxies may be voted for such other person or persons as may be determined by the holders of the proxies (unless a proxy contains instructions to the contrary). In no event will the proxy be voted for more than six (6)seven nominees. Directors will be elected by a favorable vote of a plurality of the shares of voting stock present and entitled to vote, in person or by proxy, at the Annual Meeting.annual meeting. Accordingly, abstentions or broker non-votes“broker non-votes” as to the election of directors will not affect the election of the candidates receiving the plurality of votes.votes; however, under our Majority Vote Policy, if a nominee for director receives more “WITHHOLD AUTHORITY” votes than “FOR” votes, such nominee shall immediately tender his/her resignation. Unless instructed to the contrary in the proxy, the shares represented by the proxies will be voted FOR“FOR” the election of the six (6)seven nominees named above as directors.
NOMINEES
Nominees
Stephen P. Adik, age 62,64, director since Nov.November 1, 2004, is the retired Vice Chairman (2001-2003) of NiSource Inc. (NYSE: NI), an electric and natural gas production, transmission and distribution company; formerly Senior Executive Vice President and Chief Financial Officer and Treasurer (1998-2001), and Executive Vice President and Chief Financial Officer and Treasurer (1996-1998), and Vice
President and General Manager-Corporate Support Group (1987-1996) of NiSource. Mr. Adik serves on the boardBoards of Beacon Power (NASDAQ: BCON), a development stage
technology company providing frequencydesigner and voltage regulation equipment tomanufacturer of power conversion and sustainable energy storage systems for the electricdistributed generation, renewable energy, and backup power industry;markets; and the Chicago SouthShore and SouthBendSouth Bend Railroad, a privately held regional rail carrier serving northwest Indiana.
Dr.
E. Linn Draper, Jr., age 63,65, director since Nov.November 1, 2004, is the retired Chairman, President and Chief Executive Officer of American Electric Power Company (NYSE: AEP), a public utility holding company (1993-2004); formerly AEP
President and Chief Operating Officer (1992-1993)(1992-2004), Chairman, President and Chief
Executive Officer (1987-1992) of Gulf States Utilities Company, a natural gas
and electric utility. Dr.Mr. Draper serves on the boardsBoards of directors of Sprint
Corporation (NYSE: FON), a telecommunications services company; Temple-Inland
Inc. (NYSE: TIN), a corrugated packing, forest products and financial services
business; Alliance Data Systems Corporation (NYSE: ADS), a provider of transaction services, credit services and marketing services; and Alpha Natural Resources Inc. (NYSE: ANR), a coal producer.
3
Jon S. Fossel, age 63,65, director since Nov.November 1, 2004, is the retired Chairman, President and Chief Executive Officer of Oppenheimer Management Corporation, a mutual fund investment company ("Oppenheimer"(“Oppenheimer”) (1989-1996), formerly President
and Chief Operating Officer (1989) and Executive Vice President and Chief
Operating Officer (1987-1988) of Oppenheimer.. Mr. Fossel serves onas nonexecutive chairman of the board of
directorsBoard of UnumProvident Corporation (NYSE: UNM), a disability and life insurance provider, and serves as a trustee of 41 of Oppenheimer Funds' mutual
funds.
provider.
Michael J. Hanson, age 46,48, director since May 20, 2005; is President and Chief Executive Officer of NorthWestern Corporation since May 20, 2005; formerly President since March 2005; Chief Operating Officer since August 2003; formerly President and Chief Executive Officer of NorthWestern Energy divisionNorthWestern’s utility operations (1998-2003). Prior to joining NorthWestern, Mr. Hanson was General Manager and Chief Executive of Northern States Power Company of South Dakota and North Dakota in Sioux Falls, S.D. (1994-1998). Mr. Hanson serves as Chairman and Chief
Executive Officeron the Board of NorthWestern Services Corporation, a NorthWestern subsidiary.
Julia L. Johnson, age 42,44, director since Nov.November 1, 2004, is the President and
Founder of NetCommunications, LLC, a strategy consulting firm specializing in the energy, telecommunications and information technology public policy arenas, since 2000. Formerly2000; formerly Sr. Vice President-Communications & Marketing for Military Commercial Technologies, Inc.; (MILCOM). Ms. Johnson served as Commission Chairman (1997-1999) and Commissioner (1992-1997) for the Florida Public Service Commission, the state agency
responsible for the economic regulation of Florida's utility companies,
including the intrastate operations of telecommunications, electric, gas, water
and wastewater.Commission. Ms. Johnson serves on the boards of directorsBoards of Allegheny Energy Inc. (NYSE: AYE), an electric utility holding company,company; and MasTec, Inc. (NYSE: MTZ), a company which designs, constructsleading end-to-end voice, video, data and maintains
telecommunications and cable television networks.
energy infrastructure solution provider.
Philip L. Maslowe, age 58,60, director since Nov.November 1, 2004, was formerly
nonexecutive Chairman of the Board (2002-2004) for AMF Bowling Worldwide, Inc.,
operators of bowling centers and providers of sporting goods; Executive Vice President and Chief Financial Officer (1997-2002) of The Wackenhut Corporation, a security, staffing and privatized prisons corporation; andformerly Executive Vice President and Chief Financial Officer (1993-1997) of Kindercare Learning Centers, a provider of learning programs for preschoolers. Mr. Maslowe serves on the Board of Delek US Holdings, Inc. (NYSE: DK), a diversified energy business focused on petroleum refining and supply and on retail marketing.
D. Louis Peoples, age 66, director since January 14, 2006, is President and Founder of Nyack Management Company, Inc., a nationwide general business consulting firm, since 2004; retired Chief Executive Officer and Vice Chairman of the Board of Orange and Rockland Utilities, Inc. (1994-1999). Mr. Peoples serves on the Boards of the Center for Clean Air Policy and the Nevada Area Council, Boy Scouts of America.
THE MEMBERS OF YOUR BOARD OF DIRECTORS RECOMMENDRECOMMENDS A VOTE "FOR" “FOR”
THE ELECTION OF THESE SIX (6)SEVEN NOMINEES.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth certain information as of June 29, 2007, with respect to the beneficial ownership of shares of our common stock owned by stockholders holding more than 5% of our common stock, nominees for director, the Named Executive Officers, and by all of our directors and executive officers as a group. Except under special circumstances, our common stock is the only class of voting securities. Such information (other than with respect to our directors and executive officers) is based on a review of statements filed with the Security and Exchange Commission (“SEC”) pursuant to Sections 13(d), 13(f) and 13(g) of the Exchange Act.
|
| Amount and Nature of |
| Percent of |
|
Name of Beneficial Owner |
| Shares of Common Stock |
| Common |
|
Lehman Brothers, Inc. |
| 2,574,992 |
| 7.1 | % |
399 Park Avenue 11th floor New York, NY 10022 |
|
|
|
|
|
Franklin Mutual Advisors, LLC |
| 2,216,116 | (2) | 6.1 | % |
100 John F. Kennedy Parkway Short Hills, NJ 07078 |
|
|
|
|
|
Angelo, Gordon & Co. |
| 1,957,843 |
| 5.4 | % |
245 Park Avenue 26th floor New York, NY 10167 |
|
|
|
|
|
Deutsche Bank Investment Management, Inc |
| 1,774,833 | (3) | 5.0 | % |
280 Park Avenue New York, NY 10017 |
|
|
|
|
|
Stephen P. Adik |
| 17,357 | (4) | * |
|
E. Linn Draper, Jr. |
| 28,100 | (5) | * |
|
Jon S. Fossel |
| 14,500 | (6) | * |
|
Michael J. Hanson |
| 61,381 | (7) | * |
|
Julia L. Johnson |
| 21,752 | (8) | * |
|
Philip L. Maslowe |
| 23,453 | (9) | * |
|
D. Louis Peoples. |
| 13,896 | (10) | * |
|
Brian B. Bird |
| 30,472 | (11) | * |
|
Thomas J. Knapp |
| 13,672 | (12) | * |
|
David G. Gates |
| 8,370 | (13) | * |
|
Gregory G. A. Trandem |
| 9,378 | (14) | * |
|
All directors and executive officers |
| 270,137 |
| * |
|
* | Less than 1%. |
(1) | The number of shares noted are those beneficially owned, as determined under the rules of the SEC, and such information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which a person has sole or shared voting power or investment power and any shares which the person has the right to acquire within 60 days through the exercise of option, warrant or right. |
(2) | Includes warrants to purchase 117,550 shares of our common stock. |
(3) | Includes warrants to purchase 14,830 shares of our common stock. |
(4) | Includes 9,857 deferred stock units and 7,500 shares of unvested restricted stock. |
(5) | Includes 20,600 deferred stock units and 7,500 shares of unvested restricted stock. |
(6) | Includes 7,500 shares of unvested restricted stock. |
(7) | Includes 36,006 shares of unvested restricted stock. |
(8) | Includes 14,252 deferred stock units and 7,500 shares of unvested restricted stock. |
(9) | Includes 15,953 deferred stock units and 7,500 shares of unvested restricted stock. |
(10) | Includes 3,395 deferred stock units and 7,500 shares of unvested restricted stock. |
(11) | Includes 17,856 shares of unvested restricted stock. |
(12) | Includes 10,889 shares of unvested restricted stock. |
(13) | Includes 6,450 shares of unvested restricted stock. |
(14) | Includes 8,502 shares of unvested restricted stock |
Our Board oversees the business of NorthWestern. It establishes overall policies and standards for us and reviews the performance of our management. In addition, our Board has established an Audit Committee, a Governance Committee, a Human Resources Committee and a Mergers and Acquisitions Committee, whose functions are briefly described below.
Our Board has adopted a policy, in which attendance and participation by directors is considered during the Board’s self-evaluation, in determining continued service on the Board. The Board held 24 regular and special meetings in 2006. Each current director attended more than 75 percent of the aggregate of the meetings of the Board and of each committee on which he/she served. At our last annual meeting of stockholders in August 2006, six of the seven directors then serving were in attendance at the meeting.
Executive sessions without management in attendance are provided for at each regularly scheduled Board meeting and are chaired by our non-executive Chairman of the Board.
A majority of NorthWestern’s directors are required to be independent in accordance with the criteria set forth in NASDAQ Marketplace Rule 4200(a)(15) and IM-4200. As a part of its independence assessment, the Board considers whether any non-employee director or member of his or her immediately family has a material relationship with the Company that would impair the director’s independence. The Board’s determination of independence is based upon a review of the questionnaires submitted by each director, the Company’s relevant business records, publicly available information and the applicable SEC and NASDAQ requirements.
Based on its review, the Board determined that Messrs. Adik, Draper, Fossel, Maslowe, Peoples and Ms. Johnson, being all of the non-employee directors, are independent as defined by the NASDAQ Marketplace Rules.
In August 2006, the Board adopted a Majority Vote Policy for the election of directors. The policy provides that, in an uncontested election, any nominee for director who receives a greater number of votes “WITHHELD AUTHORITY” from his or her election than votes “FOR” such election (a "Majority Withheld Vote") shall promptly tender his or her resignation following certification of the shareholder vote.
The Governance Committee shall promptly consider the resignation offer, and a range of possible responses based on the circumstances that led to the Majority Withheld Vote, if known, and make a recommendation to the Board. The Board will act on the Governance Committee’s recommendation within 90 days following certification of the shareholder vote. Thereafter, the Board will promptly disclose its decision-making process and decision regarding whether to accept the director’s resignation offer (or the reason(s) for rejecting the resignation offer, if applicable) in a Form 8-K furnished to the Securities and Exchange Commission.
Any director who tenders his or her resignation pursuant to this provision shall not participate in the Governance Committee recommendation or Board action regarding whether to accept the resignation offer. However, if each member of the Governance Committee received a Majority Withheld Vote at the same election, then the independent directors who did not receive a Majority Withheld Vote shall appoint a committee amongst themselves to consider the resignation offers and recommend to the Board whether to accept them. If the only directors who did not receive a Majority Withheld Vote in the same election
constitute three or fewer directors, all directors may participate in the action regarding whether to accept the resignation offers.
Our Board adopted our revised Code of Business Conduct and Ethics (“Code of Conduct”) on January 26, 2005, and reviews it annually. Our Code of Conduct sets forth standards of conduct for all of our officers, directors and employees and our subsidiary companies, including all full- and part-time employees and certain persons that provide services on our behalf, such as agents. Our Code of Conduct is available on our Web site athttp://www.northwesternenergy.com. We intend to post on our Web site any amendments to, or waivers from, our Code of Conduct. In addition, on August 26, 2003, our former Board adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, which provides for a complaint procedure that specifically applies to this code. This code of ethics along with the complaint procedures are also reviewed annually and are available on our Web site.
Audit Committee
Our Audit Committee provides oversight of (i) the financial reporting process, the system of internal controls and the audit process of NorthWestern, and (ii) our independent auditor. Our Audit Committee also recommends to the Board the appointment of our independent registered public accounting firm. As required by the Audit Committee Charter, each of the members of our Audit Committee is an independent director as defined by NASD Rule 4200(a)(15).
Our Audit Committee is composed of four nonemployee directors who are financially literate in financial and auditing matters and are “independent” as defined by the SEC. The members of the Audit Committee are Chairman Stephen P. Adik, Jon S. Fossel, Philip L. Maslowe and D. Louis Peoples. Audit Committee Chairman Adik has been identified as the Audit Committee’s financial expert, as defined in Item 401(h)(2) of Regulation S-K. Our Audit Committee held seven meetings during 2006.
Human Resources Committee
Our Human Resources Committee (“HR Committee”) sets general compensation policy for NorthWestern and has final approval power over compensation of our executive officers. The HR Committee also has final approval power over guidelines and criteria for officers’ bonuses and administers our incentive compensation and long-term equity plans. Our HR Committee is composed of not less than three nonemployee directors. Each of the members of our HR Committee is an independent director as defined by NASD Rule 4200(a)(15). The members of our HR Committee are Chairman Philip L. Maslowe, Stephen P. Adik and Julia L. Johnson. Our HR Committee held nine meetings during 2006.
Governance Committee
Our Governance Committee is responsible for identifying individuals to fill vacancies on our Board, recommending nominees to be voted upon at the annual meeting of stockholders, recommending to the Board appointees to serve on committees of our Board, and overseeing the development and implementation of our corporate governance policies and code of ethics for employees and the Board itself, including Board and committee self-evaluation. The Governance Committee is composed of not less than three nonemployee directors. Each of the members of the Governance Committee is an independent director as defined by NASD Rule 4200(a)(15). The members of our Governance Committee are Chairman
Jon S. Fossel, Julia L. Johnson and D. Louis Peoples. Our Governance Committee held seven meetings during 2006.
Our Governance Committee will consider nominees for directors properly recommended by stockholders. A stockholder who wishes to submit a candidate for consideration at the annual meeting of stockholders must notify our Corporate Secretary in writing not less than 90 days nor more than 120 days prior to the first anniversary date of the preceding year’s annual meeting. The stockholder’s written notice must include information about each proposed nominee, including name, age, business address, principal occupation, and other information required in proxy solicitations. The nomination notice must also include the nominating stockholder’s name and address, the number of shares of our common stock beneficially owned by the stockholder, and any arrangements or understandings between the nominee and the stockholder. The stockholder must also furnish a statement from the nominee indicating that the nominee wishes and is able to serve as a director.
The Governance Committee will evaluate each director candidate to determine whether such candidate should be recommended to the Board as a director nominee. In considering director candidates, the Governance Committee will take into account whether a candidate has skills, experience and background that add to and complement the range of skills, experience and background of existing directors, based on the following: integrity, accomplishments, business judgment, experience and education, commitment, representation of stockholders, industry knowledge, independence and financial literacy.
Mergers and Acquisitions Committee
Our Mergers and Acquisitions Committee, or M&A Committee, was appointed by our Board on March 17, 2006, to review and assess, and assist the Board in reviewing and assessing, potential acquisitions, strategic investments, divestitures and the sale of control of NorthWestern. The M&A Committee has the authority to take all actions on behalf of the Board as is set forth in its charter. The M&A Committee consists of not less than three nonemployee members of the Board. Each of the members of the M&A Committee is an independent director as defined by NASD Rule 4200(a)(15). The members of the M&A Committee are Chairman D. Louis Peoples, Stephen P. Adik and Philip L. Maslowe. Our M&A Committee held 12 meetings during 2006.
The Company maintains on its Web site, http://www.northwesternenergy.com, copies of the charters of each of the committees of the Board, as well as the Code of Conduct.
Stockholders may send communications to our Board. Communications should be addressed to our Corporate Secretary at our principal offices at 125 S. Dakota Avenue, Sioux Falls, South Dakota 57104. The Corporate Secretary will forward directly to the Board any communications received.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely on information furnished to us and contained in reports filed with the SEC, as well as written representations that no other reports were required, NorthWestern believes that during 2006 all SEC filings of its directors and executive officers complied with the requirements of Section 16 of the Securities Exchange Act of 1934, as amended.
Transactions with Related Persons
The Audit Committee, in conjunction with the Vice President, General Counsel and Corporate Secretary, review and approve or ratify, when necessary, transactions involving related parties. Our
executive officers and directors annually complete a questionnaire that includes questions about related party transactions. To the extent described in the questionnaire, these transactions are brought to the attention of the Audit Committee for review and approval or ratification. Because the questionnaire alerts those individuals to seek approval of related party transactions, we expect such transactions will be brought to our attention.
A review of the director and officer questionnaires revealed no material related party transactions during 2006.
COMPENSATION DISCUSSION AND ANALYSIS
Our compensation philosophy is designed to provide a total compensation package to our executive officers that is competitive within the utility industry to enable us to attract, retain and motivate the appropriate talent for long-term success. We believe that total compensation should be reflective of individual performance, should vary with our performance in achieving financial and non-financial objectives, and that any long-term incentive compensation should be closely aligned with shareholder interests. Depending upon officer responsibilities, between 30% and 60% of total targeted compensation is provided through annual and long-term incentives that are based on performance measures that benefit our shareholders. Salary, annual cash incentive awards and long-term equity grants are consistent with our overall compensation philosophy and are determined through review of market data provided by third party executive compensation consultants and include industry surveys and evaluation of proxy data from other utility companies.
We engage Towers Perrin, an executive compensation consultant, to assist us in establishing competitive compensation levels. Towers Perrin analyzes published survey data from several sources, focusing on the energy and utility industry and using data regressed for our revenues for appropriate market comparison. The revenue-regressed data is the primary market reference for determining appropriate base pay and annual incentive targets. Towers Perrin also provides proxy data for the five most highly compensated executives from 20 publicly traded utility companies. The proxy data is used as a reference to confirm the validity of the revenue-regressed survey data and is considered a secondary source for evaluating executive compensation levels. For long-term incentive purposes, Towers Perrin analyzes expected values using the Towers Perrin Compensation DataBank, focusing on companies across industries and the energy services industry specifically with annual revenues less than $3 billion. This data is utilized by the Human Resources Committee (HR Committee) of our Board and management to determine an appropriate blend of base salary and annual and long-term incentives based on comparable positions in the industry. Following are the companies included in the proxy data review:
Publicly Traded Utility Companies | |
ALLETE Inc. | MDU Resources Group Inc. |
Aquila Inc. | Otter Tail Corp. |
Avista Corp. | PNM Resources Inc. |
Black Hills Corp. | Puget Energy Inc. |
CH Energy Group Inc. | Sierra Pacific Resources |
Cleco Corp. | UIL Holdings Corp. |
DPL Inc. | UniSource Energy Corp. |
Duquesne Light Holdings Inc. | Vectren Corp. |
El Paso Electric Co. | Westar Energy Inc. |
IDACORP Inc. | WPS Resources Corp. |
The components of total compensation for our executive officers are as follows:
Base salary
Annual cash incentive awards
Long-term equity grants
Retirement benefits
Perquisites and other benefits.
Base Salary --Base salary is used to recognize experience, skills and knowledge that individuals bring to their roles. Salary levels, for all executive officers, including the CEO, are generally targeted
within a range around the median of the regressed survey data provided by Towers Perrin, with adjustments based on individual performance and internal equity considerations. NorthWestern has established five officer market ranges for internal equity valuations. Positions are assigned to a market range by the CEO with consideration for additional roles the officer may have that are not typical of the market, how those roles relate to other officer roles within NorthWestern, and the individual characteristics that the officer brings to the organization, such as experience and educational background.
Annual Cash Incentive Awards --Annual cash incentive awards reflect the performance of NorthWestern, using both financial and non-financial measures, and the individual performance of the employee. Overall target metrics are reviewed and approved annually by the HR Committee, based on a review of data provided by our compensation consultants, various benchmarks and organizational goals. The HR Committee reviews data submitted by management as to company performance against each of the targets and determines the final funding amount for each metric. The HR Committee may use discretion in adjusting the final funding amounts from actual performance due to specific facts and circumstances.
Each employee, including the CEO and executive officers, is assigned a performance rating based on individual performance against established goals for the year. Individual target incentive opportunities are expressed as a percentage of base salary in accordance with market data provided by Towers Perrin. To determine individual payouts, the achieved funding percentage is multiplied by the individual's target incentive opportunity, and then by a multiple based on the individual's performance for the year. This formula provides for individual payouts ranging from 85 to130 percent of the individual’s target incentive opportunity. Total annual cash incentive distributions cannot exceed the plan funding for the year.
The incentive metrics and targets established for 2006 include both financial and operational measures. The financial measures are targeted at budgeted operating income and cash flow from operations. The operational measures are targeted indices or averages for safety, reliability and customer satisfaction. The following table shows the associated weighting and final funding percentage for 2006 for each of the incentive metrics:
Incentive Metric |
| Weight |
| Final Discretionary Funding (1) |
|
|
|
| |||
Operating Income |
| 35% |
| 26.2% |
|
Cash Flow from Operations |
| 20% |
| 19.1% |
|
Safety |
| 15% |
| — |
|
Reliability |
| 15% |
| — |
|
Customer Satisfaction |
| 15% |
| — |
|
|
|
|
| 45.3% |
|
(1) The HR Committee reviewed 2006 performance against plan targets and made discretionary adjustments to fund at 45.3%. The impact on current operating income of the Ammondson verdict, BBI transaction related costs and certain litigation costs were considered in determining these adjustments. In addition, the HR Committee considered the previous items noted and the year over year timing impact of certain transactions on cash flow from operations.
Long-term Equity Grants --Equity grants are a key element of our total compensation package for executive officers. In November 2004, pursuant to the bankruptcy court’s confirmation order, restricted stock awards were granted to our executive officers and certain other management employees under the NorthWestern Corporation 2004 Special Recognition Grant Restricted Stock Plan (2004 Plan). These grants were awarded at emergence from bankruptcy to provide an immediate stake in the reorganized NorthWestern and linkage to shareholder interests. The grants under the 2004 Plan are subject to a Board established service-based vesting schedule over a period of four years.
In March 2005, the Board established the NorthWestern Corporation 2005 Long-Term Incentive
Plan (2005 LTIP), an equity-based plan, which provides for grants of stock options, share appreciation rights, restricted and unrestricted share awards, deferred share units and performance awards. There was a total of 700,000 shares designated for use under the 2005 LTIP, and all employees are eligible to receive grants.
We have elected to provide all long-term incentive awards for employees in the form of restricted stock.
Retirement Benefits --Retirement benefits are offered to all employees through tax-qualified plans, including company-funded pension plans and 401(k) defined contribution plan. Executive officers, including the CEO, participate in these plans, and the terms governing the retirement benefits under these plans are the same as those available for other employees. These plans do not involve any guaranteed minimum returns or above-market returns; the investment returns are dependent upon actual investment results.
Perquisites and Other Benefits --The primary perquisites included in compensation for executive officers are vehicle allowances or personal use of company-provided vehicles, subject to eligibility and terms that apply to all employees as defined by policy. Our healthcare, insurance, and other welfare and employee-benefit programs are the same for all eligible employees, including the CEO and executive officers. We share the cost of health and welfare benefits with our employees, which is dependent on the benefits coverage option that each employee elects.
Description of the Human Resources Committee and Responsibilities
The HR Committee performs functions similar to that of a compensation committee. The HR Committee has overall responsibility to nominate persons to serve as executive officers and to review and recommend annual and long-term compensation plans and awards for the members of the Board and for the executive officers. HR Committee recommendations are subject to approval by the Board. The HR Committee also reviews and recommends to the Board any welfare benefit and retirement plans for officers and employees. The HR Committee Charter is available on the Company's Web site at http://www.northwesternenergy.com. The HR Committee met nine times during 2006.
The HR Committee conducts an annual performance assessment of the CEO and recommends for Board approval total compensation for the CEO. The HR Committee has authorized the CEO to establish total compensation for the remaining executive officers subject to HR Committee review. The HR Committee recommends Board approval of restricted stock grants for all equity-based compensation.
Human Resources Committee Interlocks and Insider Participation
The HR Committee is composed of Chairman Philip L. Maslowe, Stephen P. Adik and Julia L. Johnson. Each is an independent member as defined by NASD rule 4200(a)(15). None of the persons who served as members of our HR Committee during 2006 are officers or employees or former employees of NorthWestern or any of our subsidiaries. In addition, no executive officer of NorthWestern or any of its subsidiaries served as a member of the Board or compensation committee of any other entity.
HUMAN RESOURCES COMMITTEE REPORT
The HR Committee reviewed and discussed the Compensation Discussion and Analysis with management. Based on this review and discussion, the HR Committee recommended to the Board that the Compensation Discussion and Analysis be included in NorthWestern's Proxy Statement.
Human Resources Committee
Philip L. Maslowe, Chairman
Stephen P. Adik
Julia L. Johnson
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
We are required to disclose compensation earned during 2006 for our Chief Executive Officer, Chief Financial Officer, and each of the three most highly compensated persons who were executive officers as of December 31, 2006. In addition, we are required to disclose compensation for up to two additional individuals that we would have provided information on if not for the fact that they no longer were serving as an executive officer at the end of fiscal 2006. Collectively, these officers are referred to in Named Executive Officers (“NEOs”).
The following table sets forth the compensation earned during 2006 for services in all capacities by the NEOs:
|
| Salary |
| Bonus ($) |
| Stock Awards ($) (1) |
| Option Awards |
| Non-Equity Incentive Plan Compensation ($) (2) |
| Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) (3) |
| All Other Compen- sation ($) (4) |
| Total ($) |
|
Michael J. Hanson President & Chief Executive Officer |
| $494,231 |
| $— |
| $175,625 |
| $— |
| $169,014 |
| $10,901 |
| $46,972 |
| $896,743 |
|
Brian B. Bird Vice President and Chief Financial Officer |
| 287,500 |
| — |
| 96,505 |
| — |
| 69,537 |
| 10,722 |
| 32,646 |
| 496,910 |
|
Thomas J. Knapp Vice President, General Counsel & Corporate Secretary |
| 254,808 |
| — |
| 39,216 |
| — |
| 48,978 |
| 11,131 |
| 41,384 |
| 395,517 |
|
Gregory G. A. Trandem Vice President – Administrative Services |
| 199,588 |
| — |
| 31,205 |
| — |
| 36,240 |
| 10,327 |
| 34,874 |
| 312,234 |
|
David G. Gates Vice President – Wholesale Operations |
| 189,712 |
| — |
| 24,266 |
| — |
| 30,283 |
| 32,765 |
| 41,045 |
| 318,071 |
|
(1) | These values reflect the 2006 compensation expense recognized for restricted stock awards under the 2004 Plan and 2005 LTIP and are calculated utilizing the provisions of SFAS No. 123R,Share-Based Payments. |
(2) | These amounts reflect cash incentive awards as previously described. These awards are earned during the year reflected, and paid in the following fiscal year. |
(3) | These amounts are attributable to an increase in the value of each NEO’s defined benefit pension. We do not provide any nonqualified deferred compensation arrangements to officers. |
(4) | All Other Compensation includes employer contributions, as applicable, for medical, dental, vision, employee assistance plan, group term life, and 401(k), which are generally available to all employees on a nondiscriminatory basis. Also included are car allowances or personal use of a company vehicle, which totaled $13,920 for Mr. Hanson; $3,000 for Mr. Bird; $9,300 for Mr. Knapp; $0 for Mr. Trandem; and $8,300 for Mr. Gates. Mr. Gates’ amount also includes $9,440 received under a paid time off sell back program, which is available to all employees. |
Non-equity Incentive Plan Compensation includes amounts earned under the NorthWestern Energy 2006 Employee Incentive Plan. The HR Committee reviewed 2006 performance against plan targets and made discretionary adjustments to fund at 45.3%. In determining the discretionary adjustments, the HR Committee considered the impact of the Ammondson verdict, BBI related transaction costs and certain litigation costs on operating income. In addition, the HR Committee considered the previous items noted and the year over year timing impact of certain transactions on cash flow from operations. Officer awards varied from funded level based on guidelines applicable to all employees to reflect individual performance, as noted in the Compensation Discussion and Analysis.
| Grant Date |
| Estimated Future Payouts Under Non-Equity Incentive Plan Awards |
| Estimated Future Payouts Under Equity Incentive Plan Awards |
| All Other Stock Awards: Number of Shares of Stock or Units | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise or Base Price of Option Awards ($/Sh) | Grant Date Fair Value of Stock and Option Awards ($) | ||||
| Thres-hold | Target | Max-imum |
| Thres-hold | Target | Max-imum |
| ||||||
Michael J. Hanson | 11/6/2006 |
| — | — | — |
| — | — | — |
| — | 28,862 | — | $999,202 |
Brian B. Bird | 11/6/2006 |
| — | — | — |
| — | — | — |
| — | 13,568 | — | $469,724 |
Thomas J. Knapp | 11/6/2006 |
| — | — | — |
| — | — | — |
| — | 9,829 | — | $340,280 |
Gregory G. A. Trandem | 11/6/2006 |
| — | — | — |
| — | — | — |
| — | 7,628 | — | $264,081 |
David G. Gates | 11/6/2006 |
| — | — | — |
| — | — | — |
| — | 5,740 | — | $198,719 |
Pursuant to the terms of the Merger Agreement with BBI, which provides that all of the shares available under the 2005 LTIP may be awarded before completion of the transaction, the Board approved granting in November the remaining shares available under the 2005 LTIP in the form of restricted stock. The awards granted to directors, executive officers and certain other employees were based on the survey data provided by Towers Perrin, which was used to establish long-term incentive targets (expressed as a percentage of base salary). The resulting value was converted to a number of shares using a share price of $37 based on the expected value that would be realized upon successful completion of the BBI transaction. The Board established a service-based vesting schedule over a period of five years for these awards as noted below; however, the 2005 LTIP provides for accelerated vesting and cash settlement in the event of a change in control. These awards vest as follows:
One-ninth on November 1, 2007;
Two-ninths on November 1, 2008;
Three-ninths on November 1, 2009;
Two-ninths on November 1, 2010; and
One-ninth on November 1, 2011.
Outstanding Equity Awards at Fiscal Year-End
This table contains information regarding outstanding equity-based awards, including the potential dollar amounts realizable with respect to each award, and requires separate disclosure of option exercise prices and expiration dates for each award, as applicable.
Option Awards | Stock Awards | ||||||||||||||||||||
Grant Date | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexercisable (#) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested | Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | ||||||||||||
Michael J. Hanson | 11/6/06 11/1/04 | — | — | — | — | — | 28,862 7,144 | 1,021,138 252,755 | — | — | |||||||||||
Brian B. Bird | 11/6/06 11/1/04 | — | — | — | — | — | 13,568 4,288 | 480,036 151,709 | — | — | |||||||||||
Thomas J. Knapp | 11/6/06 11/1/04 | — | — | — | — | — | 9,829 1,060 | 347,750 37,503 | — | — | |||||||||||
Gregory G. A. Trandem | 11/6/06 11/1/04 | — | — | — | — | — | 7,628 874 | 269,879 30,922 | — | — | |||||||||||
David G. Gates | 11/6/06 11/1/04 | — | — | — | — | — | 5,740 710 | 203,081 25,120 | — | — | |||||||||||
The vesting schedule for the 2006 grants is noted above. The vesting schedule for awards granted under the 2004 Plan is as follows: 50% on November 1, 2004; 10% on November 1, 2005; 20% on November 1, 2006; and 20% on November 1, 2007. The market value is as of December 31, 2006, and was determined utilizing the closing stock price. Dividends are not paid on any unvested shares under either plan.
Option Exercises and Stock Vests
This table shows the dollar amounts realized pursuant to the vesting or exercise of equity-based awards during the last fiscal year.
|
| Option Awards |
| Stock Awards |
| ||||
|
| Number of Shares Acquired On Exercise |
| Value Realized On Exercise |
| Number of Shares Acquired on Vesting |
| Value Realized on Vesting |
|
Michael J. Hanson |
| — |
| $— |
| 7,144 |
| $252,969 |
|
Brian B. Bird |
| — |
| — |
| 4,288 |
| 151,838 |
|
Thomas J. Knapp |
| — |
| — |
| 1,060 |
| 37,535 |
|
Gregory G. A. Trandem |
| — |
| — |
| 874 |
| 30,948 |
|
David G. Gates |
| — |
| — |
| 710 |
| 25,141 |
|
Shares vested during 2006 represent restricted shares granted on November 1, 2004 under the 2004 Plan. The value realized is determined by the fair market value of our common stock on the date of vesting. This value is taxable compensation to the NEOs on the date vested pursuant to Internal Revenue Code (“Code”) Section 83(a).
Pension Benefits
|
| Plan Name |
| Number of Years Credited Service |
| Present Value of Accumulated Benefit |
| Payment During Last Fiscal Year |
|
Michael J. Hanson |
| NorthWestern Pension Plan |
| 8.58 |
| $ 92,378 |
| $— |
|
Brian B. Bird |
| NorthWestern Pension Plan |
| 3.08 |
| 33,481 |
| — |
|
Thomas J. Knapp |
| NorthWestern Pension Plan |
| 3.84 |
| 41,227 |
| — |
|
Gregory G. A. Trandem |
| NorthWestern Pension Plan |
| 7.42 |
| 62,730 |
| — |
|
David G. Gates |
| NorthWestern Energy Pension Plan |
| 28.00 |
| 462,625 |
| — |
|
We have two defined benefit retirement plans, one applicable to our Montana employees and one applicable to our South Dakota and Nebraska employees. Mr. Hanson, Mr. Bird, Mr. Knapp and Mr. Trandem are participants in the retirement plan applicable to South Dakota and Nebraska employees. Mr. Gates participates in the Montana plan.
Under the cash balance formula of the South Dakota and Nebraska plan, a participant's account grows based upon (1) contributions by NorthWestern made once per year, and (2) annual interest credits based on the average Federal 30-year Treasury Bill rate for November of the preceding year. Contribution rates range from 3% to 7.5% (3% for all new employees) for compensation below the taxable wage base and are doubled for compensation above the taxable wage base. Upon termination of employment, an employee, or if deceased, his or her beneficiary, may elect to receive a lump sum equal to the cash balance in the account, a monthly annuity if age 55 or greater, or defer receiving benefits until they are required to take a minimum distribution.
Under the defined benefit retirement plan applicable to Montana employees, a participant's account grows based upon (1) contributions by NorthWestern made once per year, and (2) interest credits at the rate of 6% per year. Contribution rates range from 3% to 12% for compensation below the taxable wage base and from 1.5% to 6% for compensation above one half of the taxable wage base. Upon termination of employment, an employee who is at least 50 years of age with 5 years of service may begin receiving a monthly annuity or defer receiving benefits until they are required to take a minimum distribution.
To be eligible for these retirement plans, an employee must be 21 years of age and have worked at least one year for NorthWestern, working at least 1,000 hours in that year. Non-employee directors are not eligible to participate. The present value of accumulated benefits was calculated by Mercer Human Resources Consulting, the administrator for our pension plans, using participant data provided by us.
Termination or Change In Control Arrangements
Severance Agreements
Each of our NEOs are participants in our 2006 Officer Severance Plan (Officer Plan). The Officer Plan was reviewed by the HR Committee with recommendations from advisors and approved by the Board. The Officer Plan provides for the payment of severance benefits in the event an officer is involuntarily terminated without “cause.” “Cause” generally is defined in the Officer Plan as (i) any form of illegal conduct or gross misconduct that results in substantial damage to NorthWestern, (ii) failure to comply with our Code of Conduct, (iii) willful failure to perform duties or (iv) willful and continued conduct injurious to us. For this purpose, involuntary termination does not include a termination resulting from a participant’s death or disability. The severance benefits payable under the Officer Plan include:
(i) a lump-sum cash payment equal to 1 times annual base pay, (ii) a pro-rata short-term incentive bonus, (iii) reimbursement of COBRA premiums paid by the participant during the 12-month period following the participant’s termination date, and (iv) $12,000 of outplacement services during the 12-month period following the participant’s termination date.
The Officer Plan also provides for change of control severance benefits in the event an eligible officer is terminated within 18 months after a change of control of NorthWestern. Change of control is generally defined in the Officer Plan as (i) an acquisition of more than 50% of the combined voting power of our securities, (ii) a change in the majority of our Board in any 12-month period, (iii) a merger, or (iv) the sale or disposition of all or substantially all of our assets. Under the change of control provisions, severance benefits are payable in the event an eligible officer is involuntarily terminated by us without cause or in the event of a voluntary termination by the participant with "good reason," within 18 months after a change of control. "Good reason" is generally defined in the Officer Plan as (i) a reduction in annual compensation in excess of 15% or $10,000, whichever is greater, (ii) relocation of more than 50 miles, (iii) the failure to provide an equivalent or better position with the successor organization or (iv) the failure to obtain satisfactory agreement from the successor to assume and agree to perform the Officer Plan. The change of control benefits include: (i) a lump-sum cash payment equal to 2 times Compensation to the Chief Executive Officer and Chief Financial Officer and 1.5 times Compensation to all other eligible officers (where Compensation is defined under Section 1.7 of the Officer Plan as annual base salary plus target annual short-term incentive pay), (ii) a pro-rata short-term incentive bonus, (iii) reimbursement of COBRA premiums paid by the participant during the 18-month period following the participant's termination date, and (iv) $12,000 in outplacement services during the 12-month period following the participant's termination date.
In the event any benefits payable under the Officer Plan result in an excess parachute payment under section 280G of the Internal Revenue Code of 1986, as amended, such change of control severance benefits is limited to the greater of: (i) the largest amount which may be paid without any portion of such amount being
subject to excise tax imposed by Code Section 4999, or (ii) the change of control benefits payable under the Officer Plan without regard to such limitation, less any excise tax imposed under Code Section 4999.
The following table shows the amount of potential cash severance payable to our NEOs including the amount that each executive officer would be entitled to be reimbursed for outplacement expenses and reimbursement of costs for continuing coverage and other benefits under our group health, dental and life insurance plans to each executive officer. The Officer Plan does not provide tax gross up payments. Severance benefits are not provided for terminations with cause. The amounts are based on an assumed termination date of December 31, 2006.
|
| Amount of Potential Severance Benefit |
| Amount of Potential Change in Control Benefit |
|
Michael J. Hanson |
| $878,800 |
| $2,087,200 |
|
Brian B. Bird (1) |
| 460,800 |
| 1,045,200 |
|
Thomas J. Knapp |
| 385,800 |
| 674,700 |
|
Gregory G. A. Trandem |
| 308,800 |
| 537,200 |
|
David G. Gates |
| 286,650 |
| 490,825 |
|
(1) | Mr. Bird also has equity protection for his residence should he be terminated within a year of a change in control event. This benefit provides that if the selling price of his residence after termination is less than the purchase price, he would be entitled to receive a cash payment for the difference. We have not reflected a value for this benefit. |
Nonqualified Deferred Compensation
We do not provide any nonqualified defined contribution or other deferred compensation plans.
Employment Agreements
No member of our Board or management has entered into an employment agreement with our subsidiaries or us.
The following table sets forth the compensation earned by our nonemployee directors for service on our Board during 2006. Employee directors are not compensated for service on the Board.
|
| Fees Earned Or Paid in Cash ($) |
| Stock Awards ($) (1) |
| Option Awards |
| Non-Equity Incentive Plan Compensation ($) (2) |
| Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) |
| All Other Compen- sation ($) |
| Total ($) |
| |
E. Linn Draper, Jr., Chairman |
| $— |
| $299,836 |
|
| $— |
| $61,866 |
| $— |
| $— |
| $361,702 |
|
Stephen P. Adik |
| 127,500 |
| 113,171 |
| — |
| 35,573 |
| — |
| — |
| 276,244 |
| |
Jon S. Fossel |
| 106,000 |
| 81,991 |
| — |
| — |
| — |
| — |
| 187,991 |
| |
Julia L. Johnson |
| — |
| 205,171 |
| — |
| 49,074 |
| — |
| — |
| 254,245 |
| |
Philip L. Maslowe |
| — |
| 238,671 |
| — |
| 53,345 |
| — |
| — |
| 292,016 |
| |
D. Louis Peoples |
| 148,808 |
| 114,091 |
| — |
| — |
| — |
| — |
| 262,899 |
| |
(1) | These values reflect the compensation expense recognized for restricted stock awards and are calculated utilizing the provisions of SFAS No. 123R,Share-Based Payments. In addition, for those directors who defer their compensation as described below, the meeting fee or retainer, as applicable, is the value utilized to determine the amount of deferred compensation. |
(2) | These amounts reflect the earnings on compensation deferred, which is tied to changes in the market value of our common stock. |
Compensation to our nonemployee directors consists of an annual cash retainer, an annual unrestricted stock award, an annual cash retainer for the chair of each committee of the Board, and meeting attendance fees. Our Chairman of the Board received an annual cash retainer of $100,000 and an annual stock award of 3,000 shares. The other non-employee Board members received an annual cash retainer of $25,000 and an annual stock award of 2,000 shares of our common stock. In addition, Mr. Peoples received a stock award of 1,000 shares of our common stock upon beginning service on the Board in January 2006. Annual cash retainers for the chairs of committees of the Board are as follows: Audit Committee - $8,000; Governance Committee - $6,000; Human Resources Committee - $6,000; and Mergers & Acquisitions Committee - $8,000. Meeting fees were $2,500 for each Board and committee meeting attended, with the exception of the Chairman of the Board, who does not receive meeting fees. Due to the significant Board meeting activity that occurred during 2006 associated with our strategic review process and substantial litigation activity, the Chairman of the Board was granted an additional 2,500 shares on November 1, 2006 to be issued on January 2, 2007, which is reflected in the Stock Awards column as the compensation was earned and recognized during 2006. In addition, each director was awarded 7,500 shares in November 2006 under the 2005 LTIP. These shares vest over the same period as those granted to the NEOs as discussed above.
Nonemployee directors may elect to defer up to 100% of any qualified cash or equity-based compensation that would be otherwise payable to him or her, subject to compliance with NorthWestern's 2005 Deferred Compensation Plan for Nonemployee Directors and Section 409A of the Internal Revenue Code. The deferred compensation may be invested in deferred stock units (DSUs) or designated investment funds. Based on the election of the nonemployee director, following separation from service on the Board, other than on account of death, he or she shall receive a distribution equal to one share of common stock for each deferred stock unit either in a lump sum or in approximately equal installments over a designated number years (not to exceed 10 years). The value of the deferred compensation is adjusted based on increases or decreases in our common stock market value, which is included in the Non-Equity Incentive Plan Compensation column. Mr. Adik, Mr. Draper, Ms. Johnson and Mr. Maslowe elected to defer all or a portion of their 2006 director compensation into DSUs of our common stock.
Each member must retain at least one times his or her annual Board and committee chair retainer(s) in common stock or deferred stock units.
NorthWestern also reimburses nonemployee directors for the cost of participation in certain continuing education programs and travel costs to meetings.
The following report is submitted on behalf of the Audit Committee of the Board. The purpose of the Audit Committee is to assist the Board in its general oversight of NorthWestern related to: (i) the accounting and financial reporting processes; (ii) the audits and integrity of the financial statements; (iii) compliance with legal and regulatory requirements; (iv) the independent auditor’s qualifications and independence; and (v) the performance of the internal audit function and independent auditors. We operate pursuant to a charter that was last amended in February 2007, a copy of which is available on NorthWestern’s website athttp://www.northwesternenergy.com.
In the performance of the Audit Committee’s oversight function, and in connection with the December 31, 2006, financial statements, the Audit Committee reviewed and discussed the audited financial statements with management, discussed with Deloitte & Touche LLP, or Deloitte, our independent registered public accounting firm, the matters required by Statement on Auditing Standards No. 61, as amended, and SEC Rule 2-07 of Regulation S-X, and received and discussed with the auditor the matters required by Independence Standards Board Statement No. 1 and considered the compatibility of nonaudit services with the auditor’s independence.
Based on its review of the consolidated financial statements and discussions with and representations from management and Deloitte referred to above, the Audit Committee recommended to the Board that the audited financial statements be included in NorthWestern Energy’s Form 10-K for the year ended December 31, 2006 filed with the SEC.
Audit Committee
Stephen P. Adik, Chairman
Jon S. Fossel
Philip L. Maslowe
D. Louis Peoples
RATIFICATION OF INDEPENDENT AUDITOR
The
REGISTERED PUBLIC ACCOUNTING FIRM
Our Board has selected Deloitte & Touche LLP ("Deloitte"), as our independent auditor,registered public accounting firm to audit theour financial statements of the Company for the year ending December 31, 2005,2007, and recommends that stockholders vote for ratification of such appointment. Although action by stockholders is not required by law, the Board has determined that it is desirable to request approval of this selection by the stockholders. Notwithstanding the selection, the Board, in its discretion, may direct the appointment of a new independent auditorregistered public accounting firm at any time during the year if the Board feels that such a change would be in the best interest of the Company and its stockholders. In the event of a negative vote on ratification, the Board will reconsider its selection. The aggregate fees billed
for services rendered by Deloitte during the years ended December 31, 2004 and
2003, are described below under the caption "Principal Accountant Fees and
Services."
Representatives of Deloitte will be present at the Annual Meetingannual meeting and will be given the opportunity to make a statement if they so desire and to respond to appropriate questions.
The affirmative vote of a majority of the votes cast regarding the proposal is
required to ratify the selection of Deloitte. Accordingly, abstentions or broker
non-votes will not affect the outcome of the vote on the proposal. Unless
instructed to the contrary in the proxy, the shares represented by the proxies
will be voted FOR the proposal to ratify the selection of Deloitte to serve as
the independent registered public accounting firm for the Company for the fiscal
year ending December 31, 2005.
THE BOARD UNANIMOUSLY RECOMMENDS VOTING "FOR" THE RATIFICATION
OF DELOITTE & TOUCHE LLP AS THE COMPANY'S INDEPENDENT AUDITOR.
4
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
The Board oversees the business of the Company. It establishes overall policies
and standards for the Company and reviews the performance of management. In
addition, the Board has established an Audit Committee, a Human Resources
Committee, and a Governance Committee whose functions are briefly described
below.
The current Board, which began service upon the Company's emergence from
Bankruptcy on November 1, 2004, held one meeting during 2004, at which meeting
all the directors were in attendance. Committee members and chairs of committees
were appointed on November 1, 2004, and they are normally appointed annually at
the Board's regularly scheduled May meeting. The prior Board held nine meetings
through October 31, 2004.
Each current director attended more than 75 percent of the aggregate of the
meetings of the Board and of each committee on which he/she served. The
Company's Board of Directors has adopted a policy, in which attendance and
participation by directors is considered, during the Board's self-evaluation, in
determining continued service on the Board. At the Company's last annual meeting
of stockholders, in August 2003, all of the directors then serving were in
attendance.
CODE OF ETHICS
Our Board of Directors adopted our revised Code of Business Conduct and Ethics
("Code of Ethics") on January 26, 2005, and reviews it annually. Our Code of
Ethics sets forth standards of conduct for all officers, directors and employees
of NorthWestern and its subsidiary companies, including all full- and part-time
employees and certain persons that provide services on our behalf, such as
agents. Our Code of Ethics is available on NorthWestern's Web site at
http://www.northwesternenergy.com. We intend to post on our Web site any
amendments to, or waivers from, our Code of Ethics. In addition, on August 26,
2003, our former Board of Directors adopted a code of ethics that applies to our
principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions ("CEO and CFO
Code of Ethics"), which provides for a complaint procedure that specifically
applies to this code. The CEO and CFO Code of Ethics along with the complaint
procedures are also available on NorthWestern's Web site.
AUDIT COMMITTEE
The Audit Committee provides oversight of (i) the financial reporting process,
the system of internal controls and the audit process of NorthWestern, and (ii)
NorthWestern's independent auditor. The Audit Committee also recommends to the
Board the appointment of NorthWestern's independent auditor. On November 1,
2004, the Board adopted a revised Audit Committee Charter (the "Audit Charter").
As required by the Audit Charter, each of the members of the Audit Committee is
an independent director as defined by NASD Rule 4200(a)(15).
The Audit Committee is composed of three nonemployee directors who are
financially literate in financial and auditing matters and are "independent" as
defined by the Securities and Exchange Commission (the "SEC"). The members of
the Audit Committee are Chairman Stephen P. Adik, Jon S. Fossel and Philip L.
Maslowe. The Company's Board has determined that the Company has identified
Committee Chairman Adik as the Committee's financial expert, as defined in Item
401(h)(2) of Regulation S-K, serving on its Audit Committee. The Audit Committee
held two meetings during the months of November and December 2004, and the
former Board's Audit Committee held 11 meetings through October 31, 2004. The
Audit Committee has adopted a governing charter, which is included as Appendix A
to this proxy and will be included at least every third year.
HUMAN RESOURCES COMMITTEE
The Human Resources Committee, which consists of Chairman Philip L. Maslowe, Dr.
E. Linn Draper, Jr. and Julia L. Johnson, sets general compensation policy for
NorthWestern and has final approval power over compensation of executive
officers. The Human Resources Committee also has final approval power over
guidelines and criteria for officers' bonuses and administers NorthWestern's
incentive compensation and long-term equity plans. The Human Resources Committee
held two meetings during the months of November and December 2004, and the
former Board's Human Resources Committee held two meetings through October 31,
2004.
GOVERNANCE COMMITTEE
The Governance Committee is responsible for identifying individuals to fill
vacancies on the Board, recommending nominees to be voted upon at the annual
meeting of stockholders, recommending to the Board appointees to serve on
committees of the Board, and overseeing the development and implementation of
NorthWestern's corporate governance policies and code of ethics for employees
and the Board itself, including Board and Committee self-evaluation. The
Governance
5
Committee is composed of not less than three nonemployee directors.
Each of the members of the Governance Committee is an independent director as
defined by NASD Rule 4200(a)(15). The members of the Governance Committee are
Chairman Jon S. Fossel, Stephen P. Adik and Julia L. Johnson. The Governance
Committee held one meeting during the month of December 2004. The Governance
Committee has adopted a governing charter, which is included as Appendix B to
this proxy and will be included at least every third year.
The Governance Committee will consider nominees for directors properly
recommended by stockholders. A stockholder who wishes to submit a candidate for
consideration at the Annual Meeting of Stockholders to be held in 2006 must
notify NorthWestern's Corporate Secretary in writing not less than 90 days nor
more than 120 days prior to the meeting. The stockholder's written notice must
include information about each proposed nominee, including name, age, business
address, principal occupation, and other information required in proxy
solicitations. The nomination notice must also include the nominating
stockholder's name and address, the number of shares of common stock
beneficially owned by the stockholder, and any arrangements or understandings
between the nominee and the stockholder. The stockholder must also furnish a
statement from the nominee indicating that the nominee wishes and is able to
serve as a director.
HUMAN RESOURCES COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the persons who served as members of the Human Resources Committee of
the Board during fiscal year 2004 are officers or employees or former employees
of NorthWestern or any of its subsidiaries. No member of the Human Resources
Committee serves as a member of the Board or compensation committee of any
entity that has one or more executive officers serving as a member of the
Company's Board or Human Resources Committee.
OTHER DIRECTORS DURING 2004
In addition to the Directors nominated for reelection, the following persons
served as members of the Board during 2004, all of whom resigned at the time of
the Company's emergence from Bankruptcy: Marilyn R. Seymann, Randy G. Darcy,
Jerry W. Johnson, Larry F. Ness, Lawrence J. Ramaekers, and Bruce I. Smith.
Former President and Chief Executive Officer Gary G. Drook also served as a
member of the Board during 2004. Ms. Seymann served as Chairman of the Board in
2004 until October 31, 2004. Corbin A. McNeill, Jr. also served as a member of
the Board from November 1, 2004 to May 20, 2005. None of these individuals has
any continuing relationship with the Company.
EXECUTIVE OFFICERS
The following information is furnished as of May 31, 2005, with respect to the
executive officers of NorthWestern:
Michael J. Hanson, age 46, President and Chief Executive Officer since May 20,
2005; formerly President since March 2005; Chief Operating Officer since August
2003; formerly President and Chief Executive Officer of NorthWestern Energy
division (1998-2003). Prior to joining NorthWestern, Mr. Hanson was General
Manager and Chief Executive of Northern States Power Company South Dakota and
North Dakota in Sioux Falls, S.D. (1994-1998). Mr. Hanson serves as Chairman and
Chief Executive Officer of NorthWestern Services Corporation, a NorthWestern
subsidiary.
Brian B. Bird, age 42, Chief Financial Officer since December 2003. Prior to
joining the Company, Mr. Bird was Chief Financial Officer and Principal of
Insight Energy, Inc., a Chicago-based independent power generation development
company (2002-2003). Previously, he was Vice President and Treasurer of NRG
Energy, Inc., in Minneapolis (1997-2002). Mr. Bird also serves as a member on
the board of directors of Netexit, Inc. and NorthWestern Services Corporation,
subsidiaries of NorthWestern.
Thomas J. Knapp, age 52, General Counsel since November 2004; formerly Vice
President and Deputy General Counsel since March 2003. Prior to joining the
Company, Mr. Knapp was Of Counsel at Paul, Hastings, Janofsky & Walker
(1996-1998 and 2000-2003). Previously, he was Assistant General Counsel at The
Boeing Company (1998-2000).
Roger P. Schrum, age 50, Vice President-Human Resources and Communications since
December 2003; formerly Vice President-External Communications (2001-2003).
Prior to joining NorthWestern, Mr. Schrum was General Manager, Marketing
Communications and Public Affairs of SCANA Corporation, a Columbia, South
Carolina-based utility company (1993-2001).
The executive officers of the Company are elected annually by the Board of
Directors. Other officers may be elected or appointed by the Board of Directors
at any meeting but are generally elected annually by the Board. All officers
serve at the pleasure of the Board of Directors. In addition, Mr. Hanson was
serving as an executive officer at the time NorthWestern Corporation filed for
bankruptcy, and Mr. Bird was serving as an executive officer of Netexit, Inc. at
the time such entity filed for bankruptcy.
6
SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of May 31, 2005, with
respect to the beneficial ownership of shares of NorthWestern's Common Stock
owned by the stockholders holding more than 5% of the Common Stock, the
nominated directors, the current four executive officers of the Company (the
"Named Executive Officers"), and by the directors and executive officers as a
group. NorthWestern's Common Stock is its only class of voting securities. Such
information (other than with respect to our directors and executive officers) is
based on a review of statements filed with the SEC pursuant to Sections 13(d),
13(f) and 13(g) of the Securities Exchange Act of 1934.
Amount and Nature of
Beneficial Ownership (1)
------------------------ Percent of
Shares of Common Stock Common
Name of Beneficial Owner Beneficially Owned Stock
- ------------------------ ------------------------ ----------
Harbert Distressed Investment Master Fund Ltd. 8,831,762 21.2%
c/o International Fund Services
Third Fl Bishop Square Redmonds Hill
Dublin, Ireland
Fortress Investments Group LLC 1,923,664 5.4%
1251 Avenue of the Americas, Suite 1600
New York, NY 10020
Franklin Mutual Advisors, LLC 1,904,643 5.4%
51 John F. Kennedy Parkway
Short Hills, NJ 07078
MSD Capital Management LLC 1,870,267 5.3%
645 Fifth Avenue, 21st Floor
New York, NY 10022
Stephen P. Adik 2,000 *
Dr. E. Linn Draper, Jr. 3,000 *
Jon S. Fossel 2,000 *
Julia L. Johnson 2,000 *
Philip L. Maslowe 2,000 *
Michael J. Hanson 11,351 *
Brian B. Bird 7,885 *
Roger P. Schrum 3,972 *
Thomas J. Knapp 1,739 *
All directors and executive officers 35,947 *
- -------------------------
*Less than 1%
(1) The number of shares are those beneficially owned, as determined under the
rules of the SEC, and such information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rules, beneficial
ownership includes any shares as to which a person has sole or shared voting
power or investment power and any shares which the person has the right to
acquire within 60 days through the exercise of option, warrant or right.
REORGANIZATION OF THE COMPANY
In 2002, our financial condition was significantly and negatively affected by
the poor performance of our nonenergy businesses, in combination with our
significant indebtedness. In early 2003, we unsuccessfully attempted to
refinance, reduce and extend the maturities of our debt. On September 14, 2003
(the "Petition Date"), we filed a voluntary petition for relief under the
provisions of Chapter 11 of the U.S. Bankruptcy Code (the "Bankruptcy Code") in
the Bankruptcy Court. On October 19, 2004, the Bankruptcy Court entered an order
confirming our Plan of Reorganization, and the Plan of Reorganization became
effective on November 1, 2004.
The consummation of the Plan of Reorganization resulted in, among other things,
a new capital structure, a change of control of the Company, and the
establishment of a new board of directors. In general, the terms of our Plan of
Reorganization provided for the following:
7
o Holders of our senior unsecured notes (Class 7 claimants) received 28.3
million shares of new common stock in exchange for $898.3 million in allowed
claims;
o Holders of our Trust Originated Preferred Securities ("TOPrS") (Class 8(a)
claimants) received 2.3 million shares of new common stock and warrants for an
additional 4.4 million shares of common stock in exchange for $321.1 million in
allowed claims. The warrants may be exercised for a period of three years from
the effective date;
o Holders of our Quarterly Income Preferred Securities ("QUIPs") (Class 8(b)
claimants), were allowed to select either of the following: (i) receive a pro
rata share of 0.5 million shares of new common stock, plus warrants with the
same terms as the warrants distributed to the TOPrS, in exchange for their
claims, including any litigation claims, or (ii) continue the litigation against
us generally referred to as the QUIPs Litigation and receive a distribution
based on a Class 9 claim, if any, based only upon final resolution of the QUIPs
Litigation;
o We established a reserve of approximately 4.4 million shares of common stock
from the shares allocated to holders of our trade vendor claims in excess of
$20,000 (Class 9 claimants) and holders of senior unsecured notes. The shares
held in this reserve will be distributed pro rata to holders of allowed trade
vendor and general unsecured claims in excess of $20,000, and may be used to
resolve various outstanding litigation matters, such as the QUIPs Litigation,
certain litigation with PPL Montana and other unliquidated litigation claims;
o Secured debt was not impaired and has been assumed; and
o Common stock existing prior to November 1, 2004, was cancelled, with no
distributions to former shareholders.
As noted above, a portion of the common shares issued upon emergence were set
aside to fund a disputed claims reserve for the satisfaction of certain general
unsecured claims that were disputed claims as of the effective date of the Plan
of Reorganization. Under the terms of the Plan of Reorganization, to the extent
such claims are resolved postemergence, the claimants will receive shares from
the reserve on the same basis as if the claim had been settled upon emergence,
therefore the allowed claim will be reduced to the same recovery percentage as
other creditors in the same class. If excess shares remain in the reserve after
satisfaction of all obligations, such amounts would be reallocated pro rata to
the Class 7 and Class 9 claimants. We have surrendered control over the common
stock provided and the shares reserve is administered by our transfer agent,
therefore we recognized the issuance of the common stock upon emergence.
We filed several motions to terminate various nonqualified benefit plans and
individual supplemental retirement contracts with estimated allowed claims of
approximately $17 million. All liabilities associated with these plans have been
removed from our balance sheet based on our expectation that these claims will
be settled through the shares from the reserve established for Class 9
claimants. Some of the participants in those plans and individual supplemental
retirement contracts have objected to the Bankruptcy Court's jurisdiction to
terminate such plans and/or contracts. While we expect the Bankruptcy Court to
approve termination of these plans, the status is currently uncertain. If the
Bankruptcy Court were to determine that it does not have jurisdiction to
terminate such plans and/or contracts, we may then have to reestablish the
liabilities on our balance sheet and recognize a loss in the current company's
operations if we decide to not appeal such decision.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
We are required to disclose compensation earned during fiscal years 2004, 2003
and 2002 for our Chief Executive Officer and each of the four most highly
compensated persons who were executive officers as of December 31, 2004. In
addition, we are required to disclose compensation for up to two additional
individuals that we would have provided information on if not for the fact that
they no longer were serving as an executive officer at the end of fiscal 2004.
All of these officers are referred to as the "Named Executive Officers."
8
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation earned during the fiscal years
indicated for services in all capacities by the Named Executive Officers in
2004:
Restricted Awards
Stock (Securities LTIP All Other
Name and Salary Bonus (1) Awards (2) Underlying Payouts Compensation
Principal Position Year $ $ ($) Options)(2)(#) ($) ($)
- ----------------------- ---- -------- --------- --------- -------------- ------- ------------
Michael J. Hanson 2004 $350,000 $ 233,334 $ 714,400 -- $ -- $ 31,539
President and 2003 355,609 -- -- -- -- 27,916
Chief Executive Officer 2002 345,833 540,000 -- 29,000 -- 25,817
Brian B. Bird 2004 275,000 350,000 428,800 -- -- 43,081
Chief Financial Officer 2003 15,865 75,000 -- -- -- 37
2002 NA NA NA NA NA NA
Roger P. Schrum 2004 175,000 93,334 216,000 -- -- 26,711
Vice President - 2003 160,980 33,000 -- -- -- 11,423
Human Resources and 2002 152,375 -- -- 3,500 -- 7,443
Communications
Thomas J. Knapp 2004 224,038 66,000 106,000 -- -- 23,526
General Counsel 2003 177,692 35,000 -- 15,000 -- 5,751
2002 NA NA NA NA NA NA
Gary G. Drook 2004 565,000 565,000 2,059,200 -- -- 98,189
Former President and 2003 544,355 600,000 1,143,332 335,643 -- 216,744
Chief Executive Officer 2002 NA NA NA NA NA NA
William M. Austin (4) 2004 284,615 1,200,000 -- -- -- 43,474
Former Chief 2003 284,615 -- 102,500 119,980 -- 16,280
Restructuring Officer 2002 NA NA NA NA NA NA
Eric R. Jacobsen (5) 2004 310,000 302,400 -- -- -- 368,612
Former Senior 2003 314,967 -- -- -- 41,960 31,261
Vice President, 2002 304,791 400,000 -- 44,000 -- 28,829
General Counsel and
Chief Legal Officer
- -------------------------
(1) Bonuses for 2004 were paid in accordance with the court-approved Incentive
Compensation and Severance Plan and, unless noted, were earned and paid in the
year shown. Bonuses for 2003 were related to a bonus at the start of employment
(Mr. Drook), an employment agreement (Mr. Bird) and retention agreements (Mr.
Schrum and Mr. Knapp) which were earned and paid in the year shown. Bonuses for
2002 were earned in the year shown and paid in the following year.
(2) All options and restricted stock granted prior to October 31, 2004, were
cancelled upon emergence from bankruptcy. Restricted stock was awarded on
November 1, 2004, as part of a bankruptcy emergence Special Recognition Grant.
The amounts listed above represent the value at the date of issuance. Mr. Drook
was awarded 102,960 shares, which had a market value of $2,882,880 at December
31, 2004. Mr. Hanson was awarded 35,720 shares, which had a market value
$1,000,160 at December 31, 2004. Mr. Bird was awarded 21,440 shares, which had a
market value of $600,320 at December 31, 2004. Mr. Schrum was awarded 10,800
shares, which had a market value of $302,400 at December 31, 2004. Mr. Knapp was
awarded 5,300 shares, which had a market value of $148,400 at December 31, 2004.
These amounts do not reflect taxable income in 2004. Pursuant to the plan of
reorganization, for these officers, 50% of the Special Recognition Grants vested
on November 1, 2004, and the remaining grants will vest according to the
following schedule: 10% on November 1, 2005; 20% on November 1, 2006; and 20% on
November 1, 2007.
(3) The amounts include employer contributions, as applicable, for medical,
dental, vision, employee assistance program (EAP), term life, group term life,
401(k), supplemental 401(k), and employer contributions to other postretirement
plans, vehicle lease or car allowance, relocation expenses, and tax gross up
payments (where provided) as well as an airplane allowance (available to all
senior executives pursuant to the board approved guidelines) for Mr. Drook
($60,950) and Mr. Hanson ($7,533). On March 10, 2005, the Board amended the
company's Aircraft Use Policy to no longer allow personal use of the company
aircraft. Mr. Austin and Mr. Jacobsen were the only executives to receive
country club dues, which policy was terminated in February 2004.
(4) Mr. Austin served as Chief Restructuring Officer for NorthWestern until
September 4, 2004. His 2004 bonus amount includes a $133,333 incentive earned in
2004, to be paid March 15, 2005, as part of the Bankruptcy Court approved
incentive payments.
(5) Mr. Jacobsen served as Chief Legal Counsel for NorthWestern until November
1, 2004, at which time he served as Director - Strategic Development until
January 3, 2005. Mr. Jacobsen's 2004 bonus includes a $100,800 incentive payment
made on January 31, 2005. His other compensation includes a severance payment of
$350,000 paid on January 7, 2005. The severance includes a $10,000 benefit
offset and $20,000 consideration for a convenience claim related to a
supplemental executive retirement plan. Both the incentive and severance
payments were required as part of a November 1, 2004, agreement with Mr.
Jacobsen and are in accordance with the Bankruptcy Court approved Incentive
Compensation and Severance Plan.
9
INFORMATION ON OPTIONS
All options and restricted stock awards granted to the Named Executive Officers
prior to October 31, 2004, were cancelled upon emergence from bankruptcy.
EMPLOYMENT CONTRACT
We have an Employment Agreement with Chief Financial Officer Brian B. Bird,
which, as amended and approved by the Bankruptcy Court in its Order dated
January 13, 2004, provides for him to serve as Chief Financial Officer,
commencing December 1, 2003, and extends until the earlier of his termination of
employment or December 1, 2005. For the first year of Mr. Bird's compensation
package, he received a sign-on bonus of $150,000, a base salary of $275,000,
performance-based incentive of up to 100% of his annual salary, and a housing
and commuting allowance. Mr. Bird's future incentive compensation is to be
determined by the Board. Mr. Bird is also entitled to participate in our benefit
plans available to executives, including, among other things, health,
retirement, disability and life insurance benefits. The agreement also provides
for severance if Mr. Bird is terminated involuntarily or otherwise as a result
of the bankruptcy proceedings. In addition, the agreement provides for
indemnification of Mr. Bird against losses, claims, damages or liabilities and
reimbursement of expenses in connection with his engagement as Chief Financial
Officer, except for losses, claims, damages, liabilities or expenses that are
determined by a court to have resulted primarily from Mr. Bird's gross
negligence or willful misconduct.
No other Named Executive Officers have employment agreements.
RETIREMENT PLANS
NorthWestern has two retirement plans, with one applicable to its Montana
employees and one applicable to its South Dakota and Nebraska employees. As of
December 31, 2004, Mr. Hanson, Mr. Bird, Mr. Schrum, Mr. Knapp, Mr. Drook and
Mr. Jacobsen were participants in the retirement plan applicable to South Dakota
and Nebraska employees. Mr. Austin terminated his employment with the Company on
September 4, 2004, and is no longer a participant in the retirement plan
applicable to South Dakota and Nebraska employees. For that plan, effective
January 1, 2000, NorthWestern offered its employees two alternatives with regard
to its retirement plan. An employee could convert his or her existing accrued
benefit from the existing plan into an opening balance in a hypothetical account
under a new cash balance formula, or that employee could continue under the
existing defined benefit formula. All employees hired after January 1, 2000,
participate in the cash balance formula. The beginning balance in the cash
balance account for a converting employee was determined based upon the
employee's accrued benefit, age and years of service as of January 1, 2000,
eligible pay for the year 2000, and a conversion interest rate of 6%. Under the
cash balance formula, a participant's account grows based upon (1) contributions
by NorthWestern made once per year, and (2) by annual interest credits based on
the average Federal 30-year Treasury Bill rate for November of the preceding
year. Contribution rates were determined on January 1, 2000, based on the
participant's age and years of service on that date. They range from 3% to 7.5%
(3% for all new employees) for compensation below the taxable wage base and are
doubled for compensation above the taxable wage base. Upon termination of
employment with NorthWestern, an employee, or if deceased, his or her
beneficiary, receives the cash balance in the account paid in a lump sum or in
other permitted annuity forms of payment.
To be eligible for the retirement plan, an employee must be 21 years of age and
have worked at least one year for NorthWestern, working at least 1,000 hours in
that year. Nonemployee directors are not eligible to participate. Benefits for
employees who chose not to convert to the cash balance formula will continue to
be part of the defined benefit formula, which provides an annual pension benefit
upon normal retirement at age 65 or earlier (subject to benefit reduction).
Under this formula, the amount of the annual pension is based upon average
annual earnings for the 60 consecutive highest paid months during the 10 years
immediately preceding retirement. Upon retirement on the normal retirement date,
the annual pension to which an eligible employee becomes entitled under the
formula amounts to 1.34% of average annual earnings up to the covered
compensation base, plus 1.75% of such earning in excess of the covered
compensation base, multiplied by all years of credited service.
Assuming the Named Executive Officers reach the normal retirement age of 65, the
projected life annuity benefits would be: Mr. Hanson, $66,060; Mr. Bird,
$36,103; Mr. Knapp, $16,832; Mr. Schrum, $19,109; Mr. Drook, $6,919; and Mr.
Jacobsen, $33,696. In 2004, NorthWestern contributed the following amounts for
the Named Executive Officers, through interest credits and pay credits under the
retirement plan: Mr. Hanson, $12,207; Mr. Bird, $9,663; Mr. Knapp, $9,663; Mr.
Schrum, $8,762; Mr. Drook, $9,663; and Mr. Jacobsen, $12,108. As of December 31,
2004, the cash balance for the Named Executive Officers were as follows: Mr.
Hanson, $61,902; Mr. Bird, $10,139; Mr. Knapp, $17,715; Mr. Schrum, $26,324; Mr.
Drook, $19,053; and Mr. Jacobsen, $59,869. Mr. Austin terminated his employment
with the Company on September 4, 2004, and received a cash balance payment of
$19,053.
10
In accordance with our emergence from bankruptcy and the Plan of Reorganization,
the Board of Directors terminated a supplemental excess retirement plan, which
provided benefits based on both pension formulas with respect to compensation
that exceeds the limits under the Code. Mr. Hanson and Mr. Jacobsen were
participants in the supplemental excess retirement plan. We made no
contributions to the supplemental plans for Mr. Hanson and Mr. Jacobsen in 2004.
They will receive Class 9 (general unsecured claim) status for their allowed
claims, which were $334,038 for Mr. Hanson and $26,873 for Mr. Jacobsen. Mr.
Jacobsen has agreed to receive a convenience claim of $20,000 in lieu of his
allowed claim.
OTHER BENEFITS
NorthWestern currently maintains a variety of benefit plans and programs, which
are generally available to all NorthWestern employees, including executive
officers, such as the 401(k) Retirement Plan under which an employee may
contribute up to 20% of his or her salary subject to the IRS contribution limits
(with NorthWestern matching up to 4% contributed by the employee), term life and
supplemental life insurance coverage, short-term and long-term disability, and
other general employee benefits such as paid time off and educational
assistance.
SALARY CONTINUATION PLAN
In 2004, the Board of Directors terminated a nonqualified salary continuation
plan for directors and selected management employees (the Supplemental Income
Security Plan). In 2003, the Board had amended the plan to terminate any new
participation and to authorize the payment to plan participants, other than
nonemployee directors, of the discounted present value of the future benefits
under the plan, or the refund of an employee's personal contributions to the
plan for those employees whose interest in the plan had not become vested, based
on the participant's election.
DIRECTOR COMPENSATION
Nonemployee directors are paid a $25,000 annual retainer, except for the
nonemployee Chairman of the Board who is paid an annual retainer of $100,000. In
addition, the Chairman of the Audit Committee receives an $8,000 supplemental
annual retainer, and the Chairman of the Human Resources Committee and the
Chairman of the Governance Committee receive a $6,000 supplemental annual
retainer. The annual retainers are paid quarterly in equal installments.
Nonemployee directors, other than the Chairman of the Board, receive $1,250 for
each board and committee meeting in which such director participates.
NorthWestern also reimburses nonemployee directors for the cost of participation
in certain continuing education programs and travel costs to board meetings.
Employee directors are not compensated for service on the Board.
Following adoption of our proposed 2005 Long-Term Incentive Plan by the Board of
Directors, each nonemployee director was paid the equivalent of 1,000 shares of
common stock related to compensation for 2004. In addition, the nonemployee
Chairman of the Board receives a fully vested annual award of 3,000 shares of
common stock or deferred stock units, and each nonemployee director receives a
fully vested annual award of 2,000 shares of common stock or deferred stock
units. Each board member must retain at least one times his or her total board
compensation (retainers and committee fees) in common stock or deferred stock
units.
Nonemployee directors may elect to defer up to 100% of any qualified
compensation that would be otherwise payable to him or her, subject to
compliance with the Company's 2005 Deferred Compensation Plan for Nonemployee
Directors and Section 409A of the Code. Directors may elect to receive a rate of
return on deferred compensation that is based on NorthWestern stock or
designated investment funds. Based on the election of the nonemployee director,
following separation from service on the Board, other than on account of death,
he or she shall be paid a distribution either in a lump sum or in approximately
equal installments over a designated number years (not to exceed 10 years).
11
REPORT OF HUMAN RESOURCES COMMITTEE ON EXECUTIVE COMPENSATION
The Human Resources Committee (the "Committee") of the Board furnishes the
following report on executive compensation.
DESCRIPTION OF THE COMMITTEE AND RESPONSIBILITIES
The Human Resources Committee of the Board of Directors was appointed on
November 1, 2004, upon the effective date of our emergence from bankruptcy. It
is composed of Chairman Philip L. Maslowe, Dr. E. Linn Draper, Jr., and Julia L.
Johnson. Each is an independent member. The Committee has overall responsibility
to nominate persons to serve as executive officers and to review and recommend
annual and long-term compensation plans and awards for the members of the Board
and for the executive officers, which is subject to approval by the independent
members of the Board. The Committee also reviews and recommends to the full
Board any welfare benefit and retirement plans for officers and employees. The
Human Resources Committee Charter was reviewed and modified in 2004. The
Committee met twice in 2004 following its November 1, 2004, appointment.
OBJECTIVES OF NORTHWESTERN'S EXECUTIVE COMPENSATION PROGRAM
The historical objective of NorthWestern's executive compensation program is to
provide total compensation opportunities that are comparable to the
opportunities provided by a group of similar-sized electric and natural gas
utility companies. The executive compensation program is performance-oriented,
with more than 50% of the maximum potential executive compensation historically
being provided by annual and long-term incentives that are based on performance
measures that benefit NorthWestern's shareholders. Total compensation includes
three primary components: (1) base salary, (2) annual incentive bonus, and (3)
long-term incentives which may consist of restricted stock, stock appreciation
rights, performance shares/units or stock options. Currently, the Human
Resources Committee is reviewing compensation programs and proposed long-term
incentive alternatives. At present, no long-term incentive program is in effect.
Section 162(m) of the Internal Revenue Code of 1986 generally disallows a tax
deduction to public companies for compensation of more than $1,000,000 paid to
their chief executive officer and the four other most highly compensated
executive officers unless certain tests are met. The Committee's general
objective is to design and administer NorthWestern's compensation programs in a
manner that will preserve the deductibility of compensation payments to
executive officers, but also to consider such programs in light of the
importance of achieving NorthWestern's compensation objectives.
BASE SALARY
Base salary levels for the Named Executive Officers are reviewed annually and
generally are targeted within a range around the median of a comparative group
of utility companies with adjustments based on individual officer performance
and market data.
ANNUAL INCENTIVE BONUS
The Committee's philosophy for all of our incentive compensation plans is to
provide rewards when financial, operational and other objectives are achieved,
and to provide reduced or no benefits when the objectives are not achieved. The
objectives are designed to further our goals and to increase shareholder value.
In February 2004, the Bankruptcy Court approved an Incentive Compensation and
Severance Plan to motivate and retain officers and key employees who supported
NorthWestern's continued successful operation and who were responsible for
leading the Company through a successful reorganization. This plan modified and
superseded any and all prior incentive compensation and severance policies,
plans and programs. Under the plan, for which funding was established at
approximately 50% of historic total targeted annual incentives, participants,
including the Named Executive Officers, became eligible to receive incentive
compensation upon determination that the associated performance-based milestones
approved by the Bankruptcy Court were achieved. For the Named Executive
Officers, such milestones included the Bankruptcy Court approval of the
disclosure statement, the effective date of the Plan of Reorganization and a
time-based incentive established for January 31, 2005. The plan further provided
that participants are eligible to receive certain specified severance benefits
if their employment terminates, except under specified circumstances, including
resignation and discharge for cause.
In January 2005, the Board of Directors approved the 2005 Employee Incentive
Plan, which provides performance-based annual incentive bonuses to all
employees, including the Named Executive Officers, for the performance period
covering calendar year 2005. The plan is designed to (1) align the interests of
shareholders, customers and employees, (2) create incentives for employees to
maximize stakeholder value, and (3) to reward employees individually and as a
team by providing compensation opportunities consistent with NorthWestern's
financial and operating performance. Target incentives (expressed as a
percentage of base salary) are set by the Board for the Named Executive
Officers.
12
LONG-TERM INCENTIVE COMPENSATION
As a complement to the annual incentive bonus plan, the Committee is reviewing
proposed long-term incentive alternatives that will further tie executive
compensation to increasing shareholder value.
Article 9.3 of NorthWestern's Plan of Reorganization provides for the
implementation of a New Incentive Plan to be established by the Board and may
cover the Named Executive Officers, employees and directors. A total of
2,265,957 shares of New Common Stock, representing 6% on a fully diluted basis
of the shares issued and outstanding of the Company, were reserved for any New
Incentive Plan. 228,320 shares of the reserved shares were designated as
restricted stock for Special Recognition Grants as discussed below. The Board
has approved the establishment of the 2005 Long-Term Incentive Plan, which will
contain a total of 700,000 shares for employees and nonemployee directors. The
order confirming the Company's Plan of Reorganization provides that
implementation of the New Incentive Plan "shall be deemed to have occurred, be
authorized and be in effect from and after the effective date ... without
further action under applicable law, regulation, order or rule, including,
without limitation, any action of the stockholder of the Reorganized Debtor
(NorthWestern)." As such, no stockholder vote is required with respect of the
New Incentive Plan.
SPECIAL RECOGNITION GRANTS
Pursuant to Article 9.3(b) of NorthWestern's Plan of Reorganization, 228,315
shares of reserved New Common Stock were allocated to the Named Executive
Officers and other management employees as restricted stock through Special
Recognition Grants ("Grants"). The Grants were awarded to participating
employees at emergence from bankruptcy to provide an immediate stake in
NorthWestern and linkage to shareholder interests. Pursuant to the Plan of
Reorganization, 50% of the Grants vested on November 1, 2004, and the remaining
restricted stock will vest over a three-year period based upon a vesting
scheduled approved by the Board. The remaining 50% of the Grants vest for the
Named Executive Officers according to the following schedule: 10% on November 1,
2005; 20% on November 1, 2006; and 20% on November 1, 2007. Grants not yet
vested shall vest immediately upon a "change of control" as determined by the
Board. Alternatively, the committee that administers the plan will arrange or
otherwise provide for the payment of cash or other consideration to participants
in exchange for the satisfaction and cancellation of outstanding Grants. In
addition, any Grant not yet vested shall vest immediately upon the termination
of any participating employee, unless the employee is terminated for cause or
resigns.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Mr. Hanson's compensation includes a base salary of $350,000. In 2004, he also
received incentive bonus payments totaling $233,334, in accordance with the
Bankruptcy Court approved Incentive Compensation and Severance Plan. In
addition, Mr. Hanson was granted 35,720 shares of new restricted stock in the
reorganized NorthWestern as part of the Bankruptcy Court approved Special
Recognition Grants. As of December 31, 2004, the restricted shares were valued
at $1,000,160.
In 2004, Mr. Drook's compensation included a base salary of $565,000. He also
received incentive bonus payments totaling $565,000, in accordance with the
Bankruptcy Court approved Incentive Compensation and Severance Plan. In
addition, Mr. Drook was granted 102,960 shares of new restricted stock in the
reorganized NorthWestern as part of the Bankruptcy Court approved Special
Recognition Grants. As of December 31, 2004, the restricted shares were valued
at $2,882,880. Mr. Drook retired from the company on March 23, 2005.
Mr. Drook resigned his employment with the Company and its subsidiaries as
President and Chief Executive Officer and all other related positions including
his position as a member of the Company's Board of Directors, effective March
29, 2005. In connection with his resignation, Mr. Drook entered into a
separation and consulting agreement in which the Company agreed to pay Mr. Drook
the sum of $1,130,000 to be paid in equal bi-weekly installments for the
24-month period commencing approximately June 1, 2005, and ending June 1, 2007.
The payment shall become due and payable, less any sums already paid, in the
event of Mr. Drook's disability or death or a change of control of the Company.
In addition, the Company shall pay to Mr. Drook and/or his eligible dependents
compensation in an amount equal to what it would cost Mr. Drook to purchase
continuing medical, dental and vision benefits provided to executives of the
Company. For the benefit continuation period, the Company will self-fund a life
insurance benefit on a term basis in the amount of $1 million. The Company
acknowledges that Mr. Drook has received a Special Recognition Grant of 102,960
shares of stock and that Drook's ownership rights in 51,480 of those shares have
vested. The Company agrees that the remaining 51,480 unvested shares in the
Special Recognition Grant shall vest effective June 1, 2005. The Company also
agrees to pay the following expenses incurred by Mr. Drook in connection with
the sale of his Sioux Falls residence: costs incurred to ready the house for
sale up to a maximum of $5,000; real estate broker fees; closing costs; moving
costs and travel expenses. If Mr. Drook does not reach an agreement for purchase
of his
13
residence within 120 days, he has the right to sell it to the Company at the
average price of two appraisals ordered and paid for by the Company. Mr. Drook
shall exercise his right to sell his residence to the Company within 120 days of
receipt of the last appraisal, and the Company shall close at the purchase price
within 30 days of receipt of a notice to sell. Mr. Drook will receive use of
computer equipment and cell phone. The Company acknowledges that Mr. Drook has
filed a claim for $83,682 under the Supplemental Income Security Plan with the
Bankruptcy Court in NorthWestern's Chapter 11 proceedings. The Company also will
reimburse Mr. Drook's reasonable attorney's fees. In consideration of the
payment of severance and benefits, Mr. Drook agrees that he will make himself
available to respond to the Company's reasonable requests for information or
assistance on matters arising after his termination regarding matters related to
the Company's business and legal affairs. The Company will reimburse Mr. Drook
for his reasonable out-of-pocket expenses incurred in connection with responding
to any such requests. To the extent permitted by law, the Company shall
indemnify Mr. Drook on the same terms available to then current executive
officers, and the Company shall take steps necessary to assure that Mr. Drook is
afforded coverage under the Company's current and future directors and officers
liability insurance policies to the extent that such policies otherwise
purchased by the Company afford cover to former officers and directors.
HUMAN RESOURCES COMMITTEE
Philip L. Maslowe, Chairman
Dr. E. Linn Draper, Jr.
Julia L. Johnson
AUDIT COMMITTEE REPORT
The following report is submitted on behalf of the Audit Committee of the Board
of Directors. In connection with the December 31, 2004, financial statements,
the Audit Committee reviewed and discussed the audited financial statements with
management, discussed with Deloitte & Touche, LLP ("Deloitte"), NorthWestern's
auditor, the matters required by Statement on Auditing Standards No. 61, and
received and discussed with the auditor the matters required by Independence
Standards Board Statement No. 1 and considered the compatibility of nonaudit
services with the auditor's independence. The Audit Committee has recommended,
and the Board of Directors has adopted, an Audit Charter to guide the Committee.
The Audit Charter, which is reviewed at least annually, is attached to this
Proxy as Exhibit A. The following table is a summary of the fees billed to us by Deloitte for professional services for the fiscal years ended December 31, 20042006 and December 31, 2003:
Fiscal 2004 Fiscal 20032005:
Fee Category |
| Fiscal 2006 |
| Fiscal 2005 |
Audit fees |
| $1,755,000 |
| $1,825,000 |
Audit-related fees |
| 93,500 |
| 124,000 |
Tax fees |
| 834,000 |
| 1,226,000 |
All other fees |
| — |
| — |
Total fees |
| $2,682,500 |
| $3,175,000 |
Audit Fees Fees
----------- -----------
Audit fees $2,736,000 $2,300,000
Audit-related fees 101,000 101,000
Tax fees 2,216,000 1,987,000
All other fees -- --
---------- ----------
Total fees $5,053,000 $4,388,000
========== ==========
AUDIT FEES
Consistsconsist of fees billed for professional services rendered for the audit of our financial statements, internal control over financial reporting and review of the interim financial statements included in quarterly reports and services that are normally provided by Deloitte in connection with statutory and regulatory filings or engagements.
AUDIT-RELATED FEES
Consists
Audit-related Fees
Audit-related fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported under "Audit“Audit Fees."” These services include employee benefit plan audits, attest services that are not required by statute or regulation, and consultations concerning financial accounting and reporting standards.
TAX FEES
Consistsstandards.
Tax Fees
Tax fees consist of fees billed for professional services for tax compliance tax adviceof $0.3 million and $0.2 million for the years ended December 31, 2006 and 2005, respectively, and tax planning.consulting of $0.5 million and $1.0 million for the years ended December 31, 2006 and 2005, respectively. These services include assistance regarding federal and state tax compliance, tax audit defense and bankruptcy tax planning.
14
ALL OTHER FEES
Consistsplanning
All Other Fees
All other fees consist of fees for products and services other than the services reported above. In fiscal 20042006 and 2003,2005, there were no other fees.
PREAPPROVAL POLICIES AND PROCEDURES
Preapproval Policies and Procedures
Pursuant to the provisions of the Audit Committee Charter, and a specific
implementing policy adopted by the Audit Committee in March 2005, before Deloitte is engaged to render audit or nonaudit services, the Audit Committee must preapprove such engagement. In 2004,2006, the Audit Committee approved all such services undertaken by Deloitte before engagement for such services.
The Audit
Committee has considered the nature and amountaffirmative vote of the fees billed by Deloitte
and believes that the provisionholders of a majority in voting power of the services for activities unrelatedshares of our common stock which are present in person or represented by proxy and entitled to vote thereon is required to ratify the selection of Deloitte. Accordingly, “broker non-votes” will not affect the outcome of the vote on the proposal, although abstentions will have the same effect as a vote against the proposal. Unless instructed to the auditcontrary in the proxy, the shares represented by the proxies will be voted “FOR” the proposal to ratify the selection of Deloitte to serve as the independent registered public accounting firm for NorthWestern for the fiscal year ending December 31, 2006.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR”
THE RATIFICATION OF DELOITTE & TOUCHE LLP
AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.
If the merger is compatible with maintaining Deloitte's independence.
AUDIT COMMITTEE
Stephen P. Adik, Chairman
Joncompleted, we will no longer be a publicly held company and there will be no public participation in any future meetings of our stockholders. However, if the merger is not completed, our stockholders will continue to be entitled to attend and participate in our stockholders’ meetings.
Our bylaws provide that in order for a stockholder to nominate a candidate for election as a director at an annual meeting of stockholders or propose business for consideration at such meeting, written notice containing the information required by the bylaws generally must be delivered to our Corporate Secretary at 125 S. Fossel
Philip L. Maslowe
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a)Dakota Avenue, South Dakota 57104, not later than the 90th day, and not earlier than the 120th day, prior to the first anniversary date of the Securities Exchange Act of 1934 requirespreceding year’s annual meeting. Accordingly, if the Company's
directors and officers, investment adviser, affiliated persons of the investment
advisor and persons who own more than 10% of a registered class of the Company's
equity securities to file forms reporting their affiliation with the Company and
reports of ownership and changes in ownership of the Company's shares with the
SEC. Those persons and entities are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file. Based solely upon a
review of reports on Forms 3, 4 and 5, and any amendments thereto furnished to
NorthWestern pursuant to Section 16 of the Securities Exchange Act of 1934, as
amended, and written representations from the executive officers and directors
that no other reports were required, NorthWestern believes that all of such
reports were filed on a timely basis by executive officers and directors during
2004.
PERFORMANCE GRAPH
Because the Company's new Common Stock was issued in November 2004, the Companymerger is not completed, stockholder proposals intended to be presented in our proxy materials for the 2007 annual meeting must be received by our Corporate Secretary on or after April 10, 2008, and prior to May 10, 2008, and must satisfy the requirements of our bylaws and the proxy rules promulgated by the SEC.
If the merger is not completed and you wish to make a proposal at the next annual meeting without including a Stock Price Performance Graph comparing the cumulative total
returnproposal in our proxy statement, you must notify us by March 8, 2008, and must satisfy the requirements of our bylaws. If you fail to give notice by this date, then the persons named as proxies in the proxies we solicit for the next annual meeting will have discretionary authority to vote on NorthWestern's common stock ("NWEC") with a peer group and with a
broad index.
the proposal.
Other Business at the 2007 Annual Meeting – Discretionary Voting Authority
Management doesis not knowaware of any matter to be brought before the Annual Meeting,annual meeting, other than the matters described in the Notice of Annual Meeting accompanying this Proxy Statement.proxy statement. The persons named in the form of proxy solicited by theour Board will vote all proxies, which have been properly executed, and if any matters not set forth in the Notice of Annual Meeting are properly brought before the meeting, such persons will vote thereon in accordance with their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS
Alan D. Dietrich
Multiple Stockholders Sharing the Same Address
In accordance with notices we previously sent to “street name” stockholders who share a single address, we are sending only one Annual Report and Form 10-K, Form 10-Q and Proxy Statement to that address unless we received contrary instructions from any stockholders at that address. This practice, known as “householding,” is designed to reduce our printing and postage costs. However, if any stockholder residing at such an address wishes to receive a separate Annual Report or Proxy Statement in the future, he or she may contact our Corporate Secretary. If you are receiving multiple copies of our annual report and proxy statement, you can request householding by contacting our Corporate Secretary NorthWestern Corporation
June 1, 2005
PLEASE VOTE YOUR SHARES SO THAT YOUR STOCK
MAY BE REPRESENTED AND VOTED AT THE ANNUAL MEETING.
15
APPENDIX A
NORTHWESTERN CORPORATION
AUDIT COMMITTEE CHARTER
PURPOSE
The Audit Committee (the "Committee") of the Board of Directors (the "Board") of
NorthWestern Corporation (the "Corporation") assists the Board in fulfilling its
responsibilities for oversight of (a)(i) the Corporation's accounting and
financial reporting processes, (ii) the audits and integrity of the
Corporation's financial statements, (iii) the Corporation's compliance with
legal and regulatory requirements, (iv) the independent auditor's qualifications
and independence, and (v) the performance of the Corporation's internal audit
function and independent auditor; (b) preparation of the reports that the rules
of the Securities and Exchange Commission (the "SEC") require be included in the
Corporation's annual proxy statement; and (c) such other duties as directed by
the Board.
ORGANIZATION AND MEETINGS
The membership of the Committee shall consist of not less than three nonemployee
members of the Board who are "independent" and are able to read and understand
financial statements and are financially literate. To be "independent," a
Committee member may not (a) accept any consulting, advisory or other
compensatory fee, directly or indirectly, from the Corporation (except for Board
or Committee fees); or (b) be an affiliate of the Corporation or any of its
subsidiaries (except in the capacity as a member of the Board or the Committee),
as determined in accordance with the rules of the SEC. In addition, each member
shall be free of any relationship that, in the opinion of the Board, would
interfere with his or her individual exercise of independent judgment, as
determined in accordance with the NASDAQ Marketplace Rules. The Committee shall
have at least one member who has past employment experience in finance or
accounting, requisite professional certification in accounting, or any other
comparable experience or background that results in financial sophistication.
The Committee shall also seek to have at least one member who is an "audit
committee financial expert" as determined in accordance with the SEC rules,
provided that the Committee will not be in violation of its charter if it fails
to have a member who is an audit committee financial expert. In discharging this
oversight role, the Committee is expected to maintain free and open
communication (including private executive sessions at least annually) with the
Corporation's independent auditor (the "Accountant"), and the management of the
Corporation and shall be empowered to investigate any matter brought to its
attention, with full power to retain independent counsel, accountants or others
to assist in the conduct of any investigation, at the Corporation's expense.
RESPONSIBILITIES
The Committee's primary responsibilities are:
o Appointment, compensation, retention and oversight of the Accountant engaged
for the purpose of preparing or issuing an audit report or performing other
audit, review or attest services for the Corporation. In the process, the
Committee will discuss and consider the Accountant's written affirmation that
the Accountant is in fact independent pursuant to SEC rules, discuss the nature
and rigor of the audit process, receive and review all reports, and provide to
the Accountant full access to the Committee (and the Board) to report on any and
all appropriate matters. The Committee shall make it clear to the Accountant
that the Accountant shall report and be accountable to the Committee.
o At least annually, obtain and review a formal written statement by the
Accountant describing (a) the Accountant's internal quality-control procedures;
(b) any material issues raised by the most recent internal quality-control
review, or peer review, of the Accountant, or by any inquiry or investigation by
governmental or professional authorities, within the preceding five years,
respecting one or more independent audits carried out by the Accountant, and any
steps taken to deal with any such issues; and (c) all relationships between the
Accountant and the Corporation consistent with Independence Standards Board
Standard 1. The Committee shall actively engage in dialogue with the Accountant
regarding any disclosed relationships or services that may impact the
independence of the Accountant.
o Provide oversight and review the adequacy of management's assessment of the
effectiveness of the Company's internal control over financial reporting.
16
o Review and discuss annual and quarterly financial statements with management
and the Accountant. Such discussions may include, as deemed appropriate, quality
of earnings, review of reserves and accruals, consideration of the suitability
of accounting principles, review of highly judgmental areas, audit adjustments
whether or not recorded, and such other inquiries as the Committee determines.
o Review and evaluate from time to time and provide guidance to management as to
the form and substance of earnings press releases and financial information and
earnings guidance provided to analysts and rating agencies, and report any
issues with respect thereto to the Board.
o Review and discuss the Accountant's required communications relating to the
audit.
o Consider appropriateness of nonaudit services provided by the Accountant to
the Corporation.
o Preapprove all permissible nonaudit services and all audit, review or attest
engagements. The Committee may adopt a preapproval policy setting forth the
procedures by which such preapprovals shall be made.
o Consider the appropriateness of, and approve, all "related party
transactions," as defined in the NASDAQ Marketplace Rules.
o Take, or recommend that the Board take, such other actions as the Committee
determines are appropriate to oversee the independence of the Accountant.
o Risk assessment and management - monitoring company processes for management's
identification and control of key business, financial and regulatory risks.
o Discussion with management of the status of pending litigation, taxation
matters, and other areas of legal and compliance oversight as may be
appropriate.
o Review with management and the Accountant any significant risks and exposures
of the Corporation and management's steps to minimize them.
o As appropriate, obtain advice and assistance from outside legal, accounting or
other advisors.
o Determine the funding necessary to compensate the Accountant and other outside
advisors engaged by the Committee, and advise the Corporation that it must make
such funding available to the Committee.
o Meet separately, periodically, with management, with internal auditors (or
other personnel responsible for the internal audit function) and with the
Accountant.
o Review with the Accountant any audit problems or difficulties and management's
response.
o Review of any significant findings and recommendations made by the Accountant,
and management's responses to them.
o Establish complaint procedures for the receipt, retention and treatment of
complaints received by the Corporation regarding accounting, internal accounting
controls or auditing matters.
o Establish complaint procedures for the confidential, anonymous submission by
employees of the Corporation of concerns regarding questionable accounting or
auditing matters.
o Set clear hiring policies for employees or former employees of the Accountant.
o Annually review this Charter and the Corporation's Code of Conduct.
o Report regularly on Committee activities to the full Board.
While the Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Committee to plan or conduct audits or to
determine that the Corporation's financial statements are complete and accurate
and are in accordance with generally accepted accounting principles. This is the
responsibility of management and the Accountant. Nor is it the duty of the
Committee to conduct investigations or to assure compliance with laws and
regulations.
17
APPENDIX B
NORTHWESTERN CORPORATION
GOVERNANCE COMMITTEE CHARTER
ROLE
The Governance Committee (the "Committee") acts on behalf of and with the
concurrence of the Board of Directors with respect to matters relating to the
composition, membership, structure and effectiveness of the Board and the
Board's governance responsibilities.
RESPONSIBILITIES
The Committee's primary responsibilities are:
o In conjunction with the CEO, review policies, procedures and practices on an
annual basis and recommend to the Board of Directors revisions as required.
o Consider and review with the Board on an annual basis the appropriate skills
and characteristics required of prospective Board members in light of the
current composition of the Board, the competitive environment and strategic
direction of NorthWestern.
o Lead the process to screen, identify and recommend potential Board candidates,
recommending qualified candidates to the full Board for approval and, in
conjunction with the Chairman, extend offers to join the Board.
o Lead an annual self-assessment of the Board and its Committees and report
thereon to the Board.
o Regularly assess the effectiveness of Board agendas. Subsequently prepare
recommendations to the Chairman of the Board regarding suggested modifications
in the schedule of Board meetings and suggested topics to be covered at future
meetings.
o Annually review committee structure, assignments and appointment of Committee
Chairmen to ensure the maximum utilization of Board member's skills, interest,
experience and expertise.
o In collaboration with the CEO, prepare and distribute to all members of the
Board a calendar of activities that will occur throughout the year to achieve
the Board's goals.
o Champion the goal of continuous learning for the Board beginning the day an
individual agrees to join the organization.
DIRECTOR QUALIFICATION STANDARDS AND NOMINATIONS PROCESS
Identifying Nominees. The Committee shall identify candidates for election to
the Board at the annual meeting of the shareholders using a variety of means as
it determines are necessary or appropriate, including recommendations of
shareholders made in accordance with this process. The Committee may also
solicit recommendations from current directors, management or others who may be
familiar with qualified candidates, and may consider current directors for
renomination. The Committee may, in its sole discretion, retain and terminate
any search firm (and approve such search firm's fees and other retention terms)
to assist in the identification of candidates.
Shareholder Recommendations. The Committee will consider candidates recommended
for nomination to the Board by shareholders of NorthWestern who hold at least
one percent (1%) of NorthWestern's outstanding stock ("Qualified Shareholders").
Qualified Shareholders may make such a recommendation by submitting a completed
Director Nomination Form, attached as Schedule A hereto, at least 120 days prior
to the one-year anniversary of the date the proxy statement for the preceding
annual meeting. Completed Director Nomination Forms shall be sent to:
Governance Committee
% Corporate SecretaryThomas J. Knapp, NorthWestern Corporation, 125 S. Dakota Ave.Avenue, Sioux Falls, South Dakota 57104-6403
Skills57104.
Where You Can Find Additional Information
We file annual, quarterly and Qualifications. The Committee believes there are certain minimum
skillscurrent reports, proxy statements and qualifications that each director nominee must possess or satisfy,other information with the SEC. You may read and certain other skills and qualifications that at least one or more directors
must possess or satisfy. In considering candidates for director nominee, the
Committee will take into account whether a candidate has skills, experience and
background that add to and complement the range of skills, experience and
background of existing directors.
Integrity. Each director nominee must be an individual of high personal and
professional integrity and ethical character.
18
Accomplishments. Each director nominee shall have demonstrated significant
achievement in business, finance, government, education, law, technologycopy any reports, proxy statements or other fields importantinformation that we file with the SEC at the following location of the SEC:
Public Reference Room
100 F Street, N.E.
Room 1580
Washington, D.C. 20549
Please call the SEC at (800) SEC-0330 for further information on the public reference room. You may also obtain copies of this information by mail from the Public Reference Section of the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549, at prescribed rates. Our public filings are also available to the operation of NorthWestern.
Business Judgment. Each director nominee must possesspublic from document retrieval services and the ability to exercise
sound business judgment on a broad range of issues.
Experience and Education. Each director nominee shall have sufficiently broad
experience and professional and educational background to have a general
appreciationInternet Web site maintained by the SEC atwww.sec.gov.
Reports, proxy statements or other information concerning us may also be inspected at the offices of the major issues facing public companiesNASDAQ National Market at:
One Liberty Plaza
165 Broadway
New York, NY 10006
Assistance
If you need assistance in completing your proxy card or have questions regarding our annual meeting, please contact:
Dan Rausch Director – Investor Relations |
| Tammy Lydic Assistant Corporate Secretary |
Any person, including any beneficial owner, to whom this proxy statement is delivered may request copies of a sizereports, proxy statements or other information concerning us, without charge, by written or telephonic request directed to us at NorthWestern Corporation, 125 S. Dakota Avenue, Sioux Falls, South Dakota 57104, Attention: Investor Relations. If you would like to request documents, please do so by July 25, 2007, in order to receive them before the annual meeting.
No persons have been authorized to give any information or to make any representations other than those contained in this proxy statement and, scope
similarif given or made, such information or representations must not be relied upon as having been authorized by us or any other person. This proxy statement is dated July 9, 2007. You should not assume that the information contained in this proxy statement is accurate as of any date other than that date, and the mailing of this proxy statement to NorthWestern. Such issues include corporate governance issues,
regulatory obligations of a public issuer and strategic business planning.
Commitment. Each director nomineestockholders shall have the willingness and ability to
devote the necessary time to Board duties, including preparing for and attending
meetings of the Board and its Committees.
Representing Shareholders. Each director nominee must be prepared to represent
the best interests of NorthWestern and its shareholders, giving considerationnot create any implication to the interests of NorthWestern's customers.
Industry Knowledge. At least some of the directors shall have experience and
knowledge of the industry sector in which NorthWestern operates its business.
Independence. A majority of the directors shall be "independent" directors in
accordance with the NASDAQ Marketplace Rules. In addition, at least three (3)
directors must meet the additional independence requirements for members of the
Audit Committee of the Board in accordance with the applicable rules of the
Securities and Exchange Commission. Director nominees shall be independent to
the extent necessary to satisfy such requirements.
Financial Literacy. At least three (3) directors who are eligible to serve on
the Audit Committee of the Board shall be capable of reading and understanding
financial statements. In addition, at least one (1) director who is eligible to
serve on the Audit Committee of the Board shall be an "audit committee financial
expert" in accordance with applicable rules of the Securities and Exchange
Commission, and have experience or background resulting in "financial
sophistication" as determined by the Board in its business judgment. Director
nominees shall be "independent" to the extent necessary to satisfy such
requirement.
Evaluation. The Committee shall evaluate each candidate to determine whether
such candidate should be recommended to the Board as a director nominee.
Qualifications. The Committee shall assemble all information regarding a
candidate's background and qualifications to determine if the candidate
possesses or satisfies the minimum skills and qualifications that a director
nominee must possess or satisfy or that one or more members of the Board must
possess or satisfy.
Board Contribution. The Committee shall evaluate a candidate's mix of skills and
qualifications and determine the contribution the candidate could be expected to
make to the overall functioning of the Board.
Board Composition. The Committee shall give due consideration to the overall
Board balance of diversity of perspectives, backgrounds and experiences.
Past Performance. With respect to current directors, the Committee shall
consider past attendance at meetings and assess the participation in and
contributions to the activities of the Board.
Interviews and Other Input. The Committee, in its discretion, may designate one
or more of its members to interview any candidate. In addition, the Committee
may seek input from NorthWestern's Chief Executive Officer or other members of
NorthWestern's management or the Board, who may, in their discretion, interview
any candidate.
Shareholder Recommendations. The manner in which the Committee evaluates
candidates recommended by Qualified Shareholders is generally the same as
candidates from other sources. However, the Committee will also seek and
consider information concerning the relationship between the Qualified
Shareholder and the candidate to determine if the candidate can represent the
interests of all of the shareholders. The Committee will not evaluate a
candidate recommended by a Qualified Shareholder unless the Director Nomination
Form provides that the potential candidate has indicated a willingness to serve
as a director, to comply with the expectations and requirements for Board
service publicly disclosed by NorthWestern and to provide all of the information
required to conduct an evaluation.
Recommending Nominees. The Committee shall recommend director nominees to the
Board based on its assessment of overall suitability to serve on the Board in
accordance with this process.
19
Schedule A
DIRECTOR NOMINATION FORM
Name and Address of Shareholder submitting a
Candidate to be considered for Director Nomination
Number and Class of Shares Held by the Shareholder
(Note: If the shares are not held in the shareholder's name, evidence that the
shareholder is the beneficial owner of the shares must be provided.)
Name and Address of Candidate to be
considered by the Governance Committee
Candidate's E-mail Address
Candidate's Phone Number
Candidate's Fax Number
Has the Candidate agreed to have his/her name submitted for consideration and to
provide the Governance Committee all information needed to conduct its
evaluation?
o Yes o No
Has the Candidate agreed to abide by all of the requirements for membership on
the Board of Directors as set forth in the Governance Charter?
o Yes o No
Please attach a recent and current biography/resume of the Candidate, outlining
(at a minimum) the Candidate's educational history, work history, awards and
accomplishments, past experience as a board member, leadership experience,
business experience, any financial training or experience, current boards on
which the Candidate serves (include public and private boards of directors as
well as charitable organizations), the Candidate's date of birth, current place
of residence, and citizenship.
Please describe why the Shareholder believes the Candidate should be elected as
a director of NorthWestern.
Please describe in detail all past and current relationships between the
Candidate and the Shareholder, including any family relationship, any business
relationship, any employment relationship, any charitable relationship, any
investment relationship, etc.
Signature of Shareholder
Date Submitted
20
In the interest of an orderly and constructive meeting, the following guidelines will apply to NorthWestern Corporation's 2005 Annual Meeting of Stockholders:
o NorthWestern’s annual meeting:
The Annual Meeting of Stockholdersannual meeting is open only to NorthWestern Corporation's
shareholdersour stockholders and NorthWestern Corporation'sour invited guests. ShareholdersStockholders attending the Annual Meetingannual meeting should present an admittance ticket or evidence of NorthWestern Corporation (NASDAQ: NWEC) stock ownership to gain entrance. You willmay be asked to provide photo identification, such as a driver'sdriver’s license, in order to gain admittance to the Annual Meeting.
o annual meeting.
The business of the meeting will follow as set forth in the agenda, which you will receive at the meeting entrance. If you wish to change your vote or have not voted, ballots will be distributed to you to cast your votes.
o Shareholder
Stockholder questions and comments related to theour business of the Company will be addressed only during the question and answer portion of the agenda at the end of the Annual Meeting.
o annual meeting.
Stockholders will be recognized on a rotation basis, and their questions or remarks must be relevant to the meeting, pertinent to matters properly before the meeting, and briefly stated with a time limit of three minutes.
Although personal grievances, claims and political statements are not appropriate subjects for the Annual Meeting,annual meeting, you may submit in writing any of these to an usher or company representative, and the Companywe will respond in writing.
o
The use of cameras or sound recording equipment is prohibited, except by those employed by the company to provide a record of the proceedings. The use of cell phones and other personal communication devices also is prohibited during the Annual Meeting.
o annual meeting.
No firearms or weapons will be allowed in the meeting room.
o
No banners or signs will be allowed in the meeting room.
o NorthWestern Corporation reserves
We reserve the right to inspect all items entering the meeting room. Handbags, briefcases and packages may be inspected.
IMPORTANT:
VOTE YOUR SHARES BY SIGNING AND
RETURNING THE ENCLOSED CARD PROMPTLY
[PROXY VOTING CARD - front side]
NORTHWESTERN CORPORATION
125 S. DAKOTA AVE., SIOUX FALLS, SD 57104
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints E. Linn Draper Jr. and Michael J. Hanson, and
each of them, with full power of substitution, attorneys and proxies to
represent the undersigned at the 2005 Annual Meeting of Stockholders of
NORTHWESTERN CORPORATION (the "Company") to be held at the Holiday Inn City
Centre, 100 West 8th Street, Sioux Falls, South Dakota at 2:00 p.m. Central
Daylight Time, on Thursday, July 14, 2005, or at any adjournment thereof, with
all power which the undersigned would possess if personally present, and to vote
all shares of stock of the Company which the undersigned may be entitled to vote
at said Meeting as follows:
PLEASE COMPLETE, DATE, SIGN AND RETURN THIS PROXY CARD
PROMPTLY IN THE ENVELOPE PROVIDED.
(continued and to be signed on the reverse side)
[PROXY VOTING CARD - back side]
NORTHWESTERN CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
1. ELECTION OF DIRECTORS
For: Stephen P. Adik, E. Linn Draper, Jr., Jon S. Fossel, Michael J. Hanson,
Julia L. Johnson, Philip L. Maslowe
For All __
Withhold All __
For All Except __
- -------------------------------------------------
For all nominees except as noted above.
2. Ratification of selection of Deloitte & Touche LLP as independent auditor for
fiscal year ended December 31, 2005.
For __ Against __ Abstain __
3. Upon such other matters as may come before said meeting or any adjournments
thereof, in the discretion of the Proxyholders.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
"FOR" THE NOMINEES NAMED IN ITEM 1, AND FOR RATIFICATION OF DELOITTE & TOUCHE
LLP AS INDEPENDENT AUDITOR IN ITEM 2.
Date: ____________________________________________________________________
__________________________________________________________________________
Signature
__________________________________________________________________________
Signature
Please sign exactly as name(s) appear on this Proxy. Joint owners should each
sign personally. Corporation Proxies should be signed by authorized officer.
When signing as executors, administrators, trustees, etc., give full title.
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT!
PLEASE COMPLETE, DATE, SIGN AND RETURN THIS PROXY CARD
IN THE ENVELOPE PROVIDED.
|
