NORTHWESTERN
STOCK OPTION AND INCENTIVE PLAN
Section 1. Purpose.
The purpose of the Northwestern Public Service Company Stock Option
and Incentive Plan (the 'Plan') is to benefit Northwestern Public Service
Company (the 'Company') and its Subsidiaries (as defined in Section 2) by
recognizing the contributions made to the Company by officers and other
key employees (including Directors of the Company who are also employees)
of the Company and its Subsidiaries, to provide such persons with
additional incentive to devote themselves to the future success of the
Company, and to improve the ability of the Company to attract, retain and
motivate individuals, by providing such persons with a favorable
opportunity to acquire or increase their proprietary interest in the
Company over a period of years through receipt of options to acquire
common stock of the Company. In addition, the Plan is intended as an
additional incentive to members of the Board of Directors of the Company
who are not employees of the Company ('Non-Employee Directors) to serve
on the Board of Directors of the Company (the 'Board') and to devote
themselves to the future success of the Company by providing them with a
favorable opportunity to acquire or increase their proprietary interest
in the Company through receipt of options to acquire common stock of the
Company.
The Company may grant stock options that constitute 'incentive stock
options' ('ISOs') within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the 'Code'), or stock options that do
not constitute ISOs ('NSOs') (ISOs and NSOs being hereinafter
collectively referred to as 'Options').
Section 2. Eligibility.
Non-Employee Directors shall participate in the Plan only in
accordance with the provisions of Section 5 of the Plan. The Committee
(as defined in Section 3) shall initially, and from time to time
thereafter, select those officers and other key employees (including
Directors of the Company who are also employees) (collectively referred
to herein as 'Key Employees') of the Company or any other entity of
which the Company is the direct or indirect beneficial owner of not less
than thirty-three and onethird percent (33-1/3%) of all issued and
outstanding equity interests ('Subsidiaries'), to participate in the Plan
on the basis of the special importance of their services in the
management, development and operations of the Company or its Subsidiaries
(each such Director and Key Employee receiving Options granted under the
Plan is referred to herein as an 'Optionee'); provided, however, that the
Committee may delegate, in writing and subject to terms and conditions
which it deems appropriate, to the Chief Executive Officer of the Company
the ability to award Options to Key Employees who are not officers of the
Company or its Subsidiaries.
Section 3. Administration.
3.1 The Committee. The Plan shall be administered by the
Nominating and Compensation Committee of the Board (the 'Committee').
3.2 Authority of the Committee. Except as provided in Section 2,
no person, other than members of the Committee, shall have any authority
concerning decisions regarding the Plan. Subject to the express
provisions of the Plan, including but not limited to Section 5, the
Committee (or the Chief Executive Officer, to the extent the Committee
delegates authority to him pursuant to Section 2) shall have sole
discretion concerning all matters relating to the Plan and Options
granted hereunder. The Committee (or the Chief Executive Officer, to the
extent the Committee delegates authority to him pursuant to Section 2) in
its sole discretion, shall determine the Key Employees of the Company and
its Subsidiaries to whom, and the time or times at which Options will be
granted, the number of shares to be subject to each Option, the expiration date
of each Option, the time or times within which the Option may be exercised, the
cancellation of the Option (with the consent of the holder thereof), and
the other terms and conditions of the grant of the Option. The terms and
conditions of the Options need not be the same with respect to each
Optionee or with respect to each Option.
The Committee may, subject to the provisions of the Plan, establish
such rules and regulations as it deems necessary or advisable for the
proper administration of the Plan, and may make determinations and may
take such other action in connection with or in relation to the Plan as
it deems necessary or advisable. Each determination or other action made
or taken pursuant to the Plan, including interpretation of the Plan and
the specific terms and conditions of the Options granted hereunder by the
Committee (or the Chief Executive Officer, to the extent the Committee
delegates authority to him pursuant to Section 2) shall be final and
conclusive for all purposes and upon all persons including, but without
limitation, the Company, its Subsidiaries, the Committee, the Board,
officers and the affected employees of the Company and/or its
Subsidiaries and their respective successors in interest.
No member of the Committee shall, in the absence of bad faith, be
liable for any act or omission with respect to service on the Committee.
Service on the Committee shall constitute service as a Director of the
Company so that members of the Committee shall be entitled to
indemnification pursuant to the Company's Certificate of Incorporation
and By-Laws.
Section 4. Shares of Common Stock Subject to Plan.
4.1 The total number of shares of common stock, par value $1.75 per
share, of the Company (the 'Common Stock'), that may be issued and sold
under the Plan initially shall be 1,338,189. The total number of shares
of Common Stock that may be available for Options under the Plan shall be
adjusted on January 1 of each calendar year, within the Applicable Period
(as defined below), so that the total number of shares of Common Stock
that may be issued and sold under the Plan as of January 1 of each
calendar year within the Applicable Period shall be equal to seven and
one-half percent (7.5%) of the outstanding shares of Common Stock of the
Company on such date; provided, however, that no such adjustment shall
reduce the total number of shares of Common Stock that may be issued and
sold under the Plan below 1,338,189. For purposes of the preceding
sentence, Applicable Period shall be the ten-year period commencing on
May 6, 1998 and ending May 5, 2008. The aforementioned total number of
shares of Common Stock shall be adjusted in accordance with the
provisions of Section 4.2 hereof. Any shares of Common Stock subject to
issuance upon exercise of Options but which are not issued because of a
surrender (other than pursuant to Section 7.2 or 7.3 of the Plan),
forfeiture, expiration, termination or cancellation of any such Option,
shall once again be available for issuance pursuant to subsequent
Options. If either the purchase price of the shares of Common Stock upon
exercise of any Option or the tax withholding requirement is satisfied by
tendering or withholding of shares of Common Stock or by tendering
exercisable Options, only the number of shares of Common Stock issued net
of the shares of Common Stock tendered or withheld shall be deemed
delivered for purposes of determining the number of shares of Common
Stock available for Options under the Plan.
4.2 The number of shares of Common Stock subject to the Plan and to
Options granted under the Plan shall be adjusted as follows: (a) in the
event that the number of outstanding shares of Common Stock is changed by
any stock dividend, stock split or combination of shares, the number of
shares subject to the Plan and to Options previously granted thereunder
shall be proportionately adjusted; (b) in the event of any merger,
consolidation or reorganization of the Company with any other corporation
or corporations, there shall be substituted on an equitable basis as
determined by the Board of Directors, in its sole discretion, for each
share of Common Stock then subject to the Plan and for each share of
Common Stock then subject to an Option granted under the Plan, the number
and kind of shares of stock, other securities, cash or other property to
which the holders of Common Stock of the Company are entitled pursuant to
the transaction; and (c) in the event of any other change in the
capitalization of the Company, the Committee, in its sole discretion,
shall provide for an equitable adjustment in the number of shares of
Common Stock then subject to the Plan and to each share of Common Stock
then subject to an Option granted under the Plan. In the event of any
such adjustment, the exercise price per share shall be proportionately
adjusted.
Section 5. Grant of Options to Non-Employee Directors.
5.1 Grants. Each individual who is a Non-Employee Director on the
effective date of the Plan shall be granted automatically a NSO to
purchase 1200 shares of Common Stock on the effective date on the Plan.
NonEmployee Directors shall also be eligible to receive discretionary
grants of NSOs as determined by the Committee from time to time.
5.2 Exercise Price and Period. Except as provided for in the next
sentence, the per share Option exercise price of each such NSO granted to
a Non-Employee Director shall be the 'Fair Market Value,' on the date on
which the Option is granted, of the Common Stock subject to the Option.
The Committee shall, in its sole discretion, have the right to establish
(in the Option Agreement described in Section 6.2) a per share Option
exercise price for each such NSO granted to a Non-Employee Director which
is more or less than Fair Market Value. For purposes of this Agreement,
'Fair Market Value' shall mean the average of the closing price for
Company Stock as reported on the New York Stock Exchange for the 20
business days ending on the third business day preceding the date with
respect to which such Company Stock is being valued, for which trades in
Company Stock were reported on the New York Stock Exchange. If no trades
occur on a certain day, the closing price for the last preceding day on
which trading occurred will be used as the closing price for that day.
In addition to the terms and conditions set forth in this Section 5,
NSOs also shall be subject to such terms and conditions applicable to
ISOs according to Sections 6.2, 6.3, 6.4 and 6.5, provided, however, such
additional terms and conditions are not inconsistent with the terms and
conditions set forth in Section 5 of this Plan.
Section 6. Grants of Options to Employees.
6.1 Grant. Subject to the terms of the Plan, the Committee (or the
Chief Executive Officer, to the extent the Committee delegates authority
to him pursuant to Section 2) may from time to time grant Options, which
may be ISOs or NSOs, to Key Employees of the Company or any of its
Subsidiaries. Unless otherwise expressly provided at the time of the
grant, Options granted under the Plan to Key Employees will be ISOs.
6.2 Option Agreement. Each Option shall be evidenced by a written
Option Agreement specifying the type of Option granted, the Option
exercise price, the terms for payment of the exercise price, the
expiration date of the Option, the number of shares of Common Stock to be
subject to each Option, the time frame in which an Option shall become
vested and exercisable, the circumstances under which an Option which has
not become vested and exercisable can be forfeited, the circumstances
under which an Option which has not become vested and exercisable can
become immediately vested and exercisable, and such other terms and
conditions established by the Committee, in its sole discretion, not
inconsistent with the Plan.
6.3 Expiration. Except to the extent otherwise provided in or
pursuant to Section 7, each Option shall expire, and all rights to
purchase shares of Common Stock shall expire, on the tenth anniversary of
the date on which the Option was granted.
6.4 Required Terms and Conditions of ISOs. Each ISO granted to a
Key Employee shall be in such form and subject to such restrictions and
other terms and conditions as the Committee (or the Chief Executive
Officer, to the extent the Committee delegates authority to him pursuant
to Section 2) may determine, in its sole discretion, at the time of
grant, subject to the general provisions of the Plan, the applicable
Option Agreement, and the following specific rules:
(a) Except as provided in Section 6.4(d), the per share
exercise price of each ISO shall be the Fair Market Value of the
shares of Common Stock on the date such ISO is granted.
(b) The aggregate Fair Market Value (determined with
respect to each ISO at the time such Option is granted) of the
shares of Common Stock with respect to which ISOs are
exercisable for the first time by an individual during any
calendar year (under all incentive stock option plans of the
Company and its parent and subsidiary corporations) shall not
exceed $100,000. If the aggregate Fair Market Value (determined
at the time of grant) of the Common Stock subject to an Option,
which first becomes exercisable in any calendar year exceeds
the limitation of this Section 6.4(b), so much of the Option
that does not exceed the applicable dollar limit shall be an
ISO and the remainder shall be a NSO; but in all other
respects, the original Option Agreement shall remain in full
force and effect.
(c) As used in this Section 6, the words `parent' and
'subsidiary' shall have the meanings given to them in Section
424(e) and 424(f) of the Code.
(d) Notwithstanding anything herein to the contrary, if
an ISO is granted to an individual who owns stock possessing
more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or of its parent or
subsidiary corporations, within the meaning of Section
422(b)(6) of the Code, (i) the purchase price of each share of
Common Stock subject to the ISO shall be not less than one
hundred ten percent (110%) of the Fair Market Value of the
Common Stock on the date the ISO is granted, and (ii) the ISO
shall expire and all rights to purchase shares thereunder shall
cease no later than the fifth anniversary of the date the ISO
was granted.
(e) No ISOs may be granted under the Plan after May 5,
2008.
6.5 Required Terms and Conditions of NSOs. Each NSO granted to Key
Employees shall be in such form and subject to such restrictions and
other terms and conditions as the Committee (or the Chief Executive
Officer, to the extent the Committee delegates authority to him pursuant
to Section 2) may determine, in its sole discretion, at the time of
grant, subject to the general provisions of the Plan and the applicable
Option Agreement; provided, however, that the per share exercise price of
each NSO shall be the Fair Market Value of the shares of Common Stock on
the date such NSO is granted.
Section 7. Exercise of Options.
7.1 Notice. A person entitled to exercise an Option may do so by
delivery of a written notice to that effect specifying the number of
shares of Common Stock with respect to which the Option is being
exercised and any other information the Committee may prescribe. The
notice shall be accompanied by payment as described in Section 7.2. The
notice of exercise shall be accompanied by the Optionee's copy of the
writing or writings evidencing the grant of the Option. All notices or
requests provided for herein shall be delivered to the Corporate
Secretary of the Company.
7.2 Exercise Price. Except as otherwise provided in the Plan or in
any Option Agreement, the Optionee shall pay the purchase price of the
shares of Common Stock upon exercise of any Option: (a) in cash; (b) in
cash received from a broker-dealer to whom the Optionee has submitted an
exercise notice consisting of a fully endorsed Option (however, in the
case of an Optionee subject to Section 16 of the 1934 Act, this payment
option shall only be available to the extent such insider complies with
Regulation T issued by the Federal Reserve Board); (c) by delivering
(either actual delivery or by attestation procedures established by the
Company) previously owned shares of Common Stock (which the Optionee has
held for at least six months prior to the delivery of such shares or
which the Optionee purchased on the open market and in each case for
which the Optionee has good title, free and clear of all liens and
encumbrances) having an aggregate Fair Market Value on the date of
exercise equal to the Option exercise price; (d) by directing the Company
to withhold such number of shares of Common Stock otherwise issuable upon
exercise of such Option having an aggregate Fair Market Value on the date
of exercise equal to the Option exercise price; (e) by agreeing to
surrender Options then exercisable valued at the excess of the aggregate
Fair Market Value of the shares of Common Stock subject to such Options
on the date of exercise over the aggregate option price of such shares;
(f) in the case of a Key Employee, by such other medium of payment as the
Committee, in its discretion, shall authorize at the time of grant; or
(g) by any combination of (a), (b), (c), (d) (e) and (f). In the case of
an election pursuant to (a) or (b) above, cash shall mean cash or a check
issued by a federally insured bank or savings and loan, and made payable
to the Company. The Company shall issue, in the name of the Optionee,
stock certificates representing the total number of shares of Common
Stock issuable pursuant to the exercise of any Option as soon as
reasonably practicable after such exercise, provided that any shares of
Common Stock purchased by an Optionee through a broker-dealer pursuant to
clause (b) above shall be delivered to such broker-dealer in accordance
with 12 C.F.R. 220.3(e)(4) or other applicable provision of law.
7.3 Taxes Generally. At the time of the exercise of any Option, as
a condition of the exercise of such Option, the Company may require the
Optionee to pay the Company an amount equal to the amount of the tax the
Company or any Subsidiary may be required to withhold to obtain a
deduction for federal and state income tax purposes as a result of the
exercise of such Option by the Optionee or to comply with applicable law.
7.4 Payment of Taxes. At any time when an Optionee is required to
pay an amount required to be withheld under applicable income tax or
other laws in connection with the exercise of an Option, the Optionee may
satisfy this obligation in whole or in part by: (a) directing the
Company to withhold such number of shares of Common Stock otherwise
issuable upon exercise of such Option having an aggregate Fair Market
Value on the date of exercise equal to the amount of tax required to be
withheld; or (b) delivering (either actual delivery or by attestation
procedures established by the Company) previously owned shares of Common
Stock (which the Optionee has held for at least six months prior to the
delivery of such shares or which the Optionee purchased on the open
market and in each case for which the Optionee has good title, free and
clear of all liens and encumbrances) having an aggregate Fair Market
Value equal to the amount of tax required to be withheld. The Committee
may disapprove any election or delivery or may suspend or terminate the
right to make elections or deliveries.
Section 8. Transferability of Options.
No Option granted pursuant to the Plan shall be transferable
otherwise than by will or by the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Code.
Notwithstanding the preceding sentence, an Option Agreement for NSOs may
provide that the Optionee, at any time prior to his death, may assign all
or any portion of an Option granted to him to (i) his spouse or lineal
descendant, (ii) the trustee of a trust for the primary benefit of his spouse
or lineal descendant, (iii) a partnership of which his spouse and lineal
descendants are the only partners, or (iv) a tax exempt organization as
described in Code Section 501(c)(3). In such event, the spouse, lineal
descendant, trustee, partnership or tax exempt organization will be
entitled to all of the rights of the Optionee with respect to the
assigned portion of such Option, and such portion of the Option will
continue to be subject to all of the terms, conditions and restrictions
applicable to the Option, as set forth herein and in the related Option
Agreement immediately prior to the effective date of the assignment. Any
such assignment will be permitted only if: (i) the Optionee does not
receive any consideration therefore; and (ii) the assignment is expressly
permitted by the applicable Agreement as approved by the Committee. Any
such assignment shall be evidenced by an appropriate written document
executed by the Optionee, and a copy thereof shall be delivered to the
Company on or prior to the executive date of the assignment.
Section 9. Rights as Shareholder.
An Optionee or a transferee of an Optionee pursuant to Section 8
shall have no rights as a shareholder with respect to any Common Stock
covered by an Option or receivable upon the exercise of an Option until
the Optionee or transferee shall have become the holder of record of such
Common Stock, and no adjustments shall be made for dividends in cash or
other property or other distributions or rights in respect to such Common
Stock for which the record date is prior to the date on which the
Optionee shall have in fact become the holder of record of the shares of
Common Stock acquired pursuant to the Option.
Section 10. Postponement of Exercise.
The Committee may postpone any exercise of an Option for such time
as the Committee in its sole discretion may deem necessary in order to
permit the Company (a) to effect, amend or maintain any necessary
registration of the Plan or the shares of Common Stock issuable upon the
exercise of an Option under the Securities Act of 1933, as amended, or
the securities laws of any applicable jurisdiction, (b) to permit any
action to be taken in order to (i) list such shares of Common Stock on a
stock exchange if shares of Common Stock are then listed on such exchange
or (ii) comply with restrictions or regulations incident to the
maintenance of a public market for its shares of Common Stock, including
any rules or regulations of any stock exchange on which the shares of
Common Stock are listed, or (c) to determine that such shares of Common
Stock and the Plan are exempt from such registration or that no action of
the kind referred to in (b)(ii) above needs to be taken; and the Company
shall not be obligated by virtue of any terms and conditions of any
Option or any provision of the Plan to recognize the exercise of an
Option or to sell or issue shares of Common Stock in violation of the
Securities Act of 1933 or the law of any government having jurisdiction
thereof. Any such postponement shall not extend the term of an Option
and neither the Company nor its directors or officers shall have any
obligation or liability to an Optionee, to the Optionee's successor or to
any other person with respect to any shares of Common Stock as to which
the Option shall lapse because of such postponement.
Section 11. Trust Agreement.
The Company may enter into a trust agreement ('Trust Agreement')
whereby the Company shall agree to contribute to a trust ('Trust') for the
purpose of accumulating shares of Common Stock to assist the Company in
fulfilling its obligations to Optionee hereunder. Such Trust Agreement
shall be substantially in the form of the model trust agreement set forth
in Internal Revenue Service Revenue Procedure 92-64, or any subsequent
Internal Revenue Service Revenue Procedure, and shall include provisions
required in such model trust agreement that all assets of the Trust shall
be subject to the creditors of the Company in the event of insolvency.
Section 12. Termination or Amendment of Plan.
The Committee may correct any defect or supply an omission or
reconcile any inconsistency in the Plan or in any Option granted
hereunder in the manner and to the extent it shall deem desirable, in its
sole discretion, to effectuate the Plan.
No amendment or termination of the Plan shall in any manner affect
any Option theretofore granted without the consent of the Optionee,
except that the Committee may amend the Plan in a manner that does affect
Options theretofore granted upon a finding by the Committee that such
amendments is in the best interest of holders of outstanding Options
affected thereby.
Section 13. Effective Date.
The Plan shall be effective upon the date of approval of the Plan by
an affirmative vote of a majority of the shares of the voting stock of
the Company entitled to be voted by the holders of stock represented at a
duly held shareholders' meeting, within 12 months after the date of
adoption of the Plan by the Board.