UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549 Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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| o | | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
xo | | Definitive Proxy Statement |
| o | | Definitive Additional Materials |
| o | | Soliciting Material Pursuant to § 240.14a-12 |
MDU Resources Group, Inc.
(Name of Registrant as Specified
In Itsin its Charter)
(Name of Person(s) Filing Proxy Statement, if other thanOther Than the Registrant)
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YourVOTE is important
MDU Resources Group, Inc. Proxy Statement
2008 Notice of Annual Meeting
and Proxy Statement
Table of Contents
| |
| 1200 West Century Avenue |
Terry D. Hildestad
President and
Chief Executive Officer |
Mailing Address:
P.O. Box 5650
Bismarck, ND 58506-5650
Please join us for the
20082010 Annual Meeting of Stockholders. The meeting will be held on Tuesday, April
22, 2008,27, 2010, at 11:00 a.m., Central Daylight
SavingsSaving Time, at 909 Airport Road, Bismarck, North Dakota.
The formal matters are described in the accompanying Notice of Annual Meeting of Stockholders and Proxy Statement. We also will have a brief report on current matters of interest. Lunch will be served following the meeting.
We were pleased with the stockholder response for the
20072009 Annual Meeting at which
90.3188.77 percent of the common stock was represented in person or by proxy. We hope for an even greater representation at the
20082010 meeting.
You may vote your shares by telephone, by the Internet, or by returning the enclosed
letter proxy.proxy card. Representation of your shares at the meeting is very important. We urge you to submit your proxy promptly.
I hope you will find it possible to attend the meeting.
Sincerely yours,
Terry D. Hildestad
Table of Contents
MDU RESOURCES GROUP, INC.
1200 West Century Avenue
Mailing Address:
P.O. Box 5650
Bismarck, ND 58506-5650
(701) 530-1000
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 22, 2008
Important Notice Regarding the Availability of Proxy Materials for the
Stockholder Meeting to Be Held on April 22, 2008
The 2008 Notice of Annual Meeting and Proxy Statement and 2007 Annual Report
to Stockholders are available atwww.mdu.com/proxymaterials.
March 7, 2008
NOTICE IS HEREBY GIVEN
Please note that the Annual Meeting of Stockholders of MDU Resources Group, Inc. will be held at 909 Airport Road, Bismarck, North Dakota,New York Stock Exchange rules have changed. Brokers may not vote your shares on Tuesday, April 22, 2008, at 11:00 a.m., Central Daylight Savings Time, for the following purposes: | (1) | To elect three directors to one year terms; |
| (2) | To ratify the appointment of Deloitte & Touche LLP as our independent auditors for 2008; and |
| (3) | To transact any other business that may properly come before the meeting or any adjournment or adjournments thereof. |
The boardelection of directors has set the close of business on February 26, 2008if you have not given your broker specific instructions as the record date for the determination of common stockholders who willto how to vote. Please be entitledsure to notice of, andgive specific voting instructions to your broker so that your vote at, the meeting.
can be counted.
All stockholders who find it convenient to do so are cordially invited and urged to attend the meeting in person. Registered stockholders will receive a request for admission ticket(s) with their letter proxy card that can be completed and returned to us postage-free. Stockholders whose shares are held in the name of a bank or broker will not receive a request for admission ticket(s). They should, instead, (1) call (701) 530-1000 to request an admission ticket(s), (2) bring a statement from their bank or broker showing proof of stock ownership as of February 26, 2008[ • ] to the annual meeting, and (3) present their admission ticket(s) and photo identification, such as a driver’s license. Directions to the meeting will be included with your admission ticket.
I hope you will find it possible to attend the meeting.
| Sincerely yours, |
|  |
| Terry D. Hildestad |
MDU RESOURCES GROUP, INC.
1200 West Century Avenue
Mailing Address:
P.O. Box 5650
Bismarck, ND 58506-5650
(701) 530-1000
| NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD APRIL 27, 2010 |
Important Notice Regarding the Availability of Proxy Materials for the
Stockholder Meeting to Be Held on April 27, 2010
The 2010 Notice of Annual Meeting and Proxy Statement and 2009 Annual Report
to Stockholders are available at www.mdu.com/proxymaterials.
March 12, 2010
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of MDU Resources Group, Inc. will be held at 909 Airport Road, Bismarck, North Dakota, on Tuesday, April 27, 2010, at 11:00 a.m., Central Daylight Saving Time, for the following purposes:
| (1) | To elect ten directors nominated by the board of directors to one-year terms; |
| (2) | To repeal Article TWELFTH of our Restated Certificate of Incorporation, which contains provisions relating to business combinations with interested stockholders, and make related amendments to Articles THIRTEENTH and FOURTEENTH; |
| (3) | To repeal Article FIFTEENTH of our Restated Certificate of Incorporation, which contains supermajority vote requirements for amendments to certain articles of our Restated Certificate of Incorporation; |
| (4) | To repeal section (c) of Article THIRTEENTH of our Restated Certificate of Incorporation, which provides that directors may be removed by stockholders only for cause, and make technical amendments to section (a) of Article THIRTEENTH; |
| (5) | To ratify the appointment of Deloitte & Touche LLP as our independent auditors for 2010; |
| (6) | To act upon a stockholder proposal requesting a report on coal combustion waste; and |
| (7) | To transact any other business that may properly come before the meeting or any adjournment or adjournments thereof. |
The board of directors has set the close of business on [ • ] as the record date for the determination of common stockholders who will be entitled to notice of, and to vote at, the meeting.
All stockholders who find it convenient to do so are cordially invited and urged to attend the meeting in person. Registered stockholders will receive a request for admission ticket(s) with their proxy card that can be completed and returned to us postage-free. Stockholders whose shares are held in the name of a bank or broker will not receive a request for admission ticket(s). They should, instead, (1) call (701) 530-1000 to request an admission ticket(s), (2) bring a statement from their bank or broker showing proof of stock ownership as of [ • ] to the annual meeting, and (3) present their admission ticket(s) and photo identification, such as a driver’s license. Directions to the meeting will be included with your admission ticket. We look forward to seeing you.
By order of the Board of Directors,
Paul K. Sandness
Secretary
TABLE OF CONTENTS
| | | Page | | By order of the Board of Directors, |
|---|
| Paul K. SandnessSecretary |
The board of directors of MDU Resources Group, Inc. is furnishing this proxy statement beginning March
7, 200812, 2010 to solicit your proxy for use at our annual meeting of stockholders on April
22, 2008.27, 2010.
We will pay the cost of soliciting your proxy and reimburse brokers and others for forwarding proxy material to you. Georgeson Inc. additionally will solicit proxies for approximately
$7,500$8,000 plus out-of-pocket expenses.
The Securities and Exchange
Commission has adopted newCommission’s e-proxy rules
that allow companies to post their proxy materials on the Internet and provide only a Notice of Internet Availability of Proxy Materials to
stockholders.stockholders as an alternative to mailing full sets of proxy materials except upon request. For
2008,2010, we have
optedelected to
followuse the Securities and Exchange Commission’s full set delivery option, which means that while we are posting our proxy materials online, we are also mailing a full set of our proxy materials to our stockholders. We believe that mailing a full set of proxy materials will help ensure that a majority of outstanding shares of our common stock are present in person or represented by proxy at our meeting. We also hope to help maximize stockholder participation. Therefore, even if you previously consented to receiving your proxy materials electronically, you will receive a full set of proxy materials in the mail for this year’s annual meeting. However, we will continue to evaluate the option of providing only a Notice of Internet Availability of Proxy Materials to some or all of our stockholders in the future.
VOTING INFORMATION
Who may vote? You may vote if you owned shares of our common stock at the close of business on February 26, 2008.[ • ]. You may vote each share that you owned on that date on each matter presented at the meeting. As of February 26, 2008,[ • ], we had 182,771,430[ • ] shares of common stock outstanding entitled to one vote per share.
What am I voting on? You are voting on:
| •· | the election of threeten directors nominated by the board of directors for one yearone-year terms |
| · | •the repeal of article TWELFTH of our restated certificate of incorporation, which contains provisions relating to business combinations with interested stockholders, and related amendments to articles THIRTEENTH and FOURTEENTH |
| · | the repeal of article FIFTEENTH of our restated certificate of incorporation, which contains supermajority vote requirements for amendments to certain articles of our restated certificate of incorporation |
| · | the repeal of section (c) of article THIRTEENTH of our restated certificate of incorporation, which provides that directors may be removed by stockholders only for cause, and technical amendments to section (a) of article THIRTEENTH |
| · | the ratification of the appointment of Deloitte & Touche LLP as our independent auditors for 20082010 |
| · | a stockholder proposal requesting a report on coal combustion waste and |
| •· | any other business a stockholderthat is properly bringsbrought before the meeting. |
What vote is required to pass an item of business? A majority of our outstanding shares of common stock entitled to vote must be present in person or represented by proxy to hold the meeting. If you hold shares through an account with a bank or broker, the bank or broker may vote your shares on certainsome matters even if you do not provide voting instructions. Brokerage firms have the authority under the New York Stock Exchange rules to vote shares on routinecertain matters for whichwhen their customers do not provide voting instructions. The election of directors and the ratification of Deloitte & Touche LLP as our independent auditors for 2008 are considered routine matters. When a proposal is not routine andHowever, on other matters, when the brokerage firm has not received voting instructions from its customers, the brokerage firm cannot vote the shares on that proposal. Thosematter and a “broker non-vote” occurs. Please note that the New York Stock Exchange rules have changed and an uncontested election of directors is no longer considered a routine matter. This means that brokers
may not vote your shares
are considered “broker non-votes.”1
Tableon the election of Contents
directors if you have not given your broker specific instructions as to how to vote. Please be sure to give specific voting instructions to your broker so that your vote can be counted.
Item 1—Election of Directors
A pluralitymajority of votes of the common stock entitled to vote and present in person or represented by proxycast is required to elect a director.director in an uncontested election. A majority of votes cast means the number of votes cast “for” a director’s election must exceed the number of votes cast “against” the director’s election. “Abstentions” and “broker non-votes” do not count as votes cast “for” or “against” the director’s election. In a contested election, which is an election in which the electionnumber of nominees for director exceeds the number of directors you may vote for the director or withhold your vote. Withheld votesto be elected, directors will be excluded fromelected by a plurality of the vote and will have no effect on the outcome.votes cast. If anya nominee becomes unavailable for any reason or if a vacancy should occur before the election, which we do not anticipate, the proxies will vote your shares in their discretion for another person in their discretion.In an uncontested election ofnominated by the board.
Our policy on majority voting for directors and our corporate governance guidelines require any nominee for re-election as a director who receives a greater number of votes “withheld” fromto tender to the board, prior to nomination, his or her election than votes “for” his or her election to promptly tender his or herirrevocable resignation to the chairman offrom the board followingthat will be effective, in an uncontested election of directors only, upon
| · | receipt of a greater number of votes “against” than votes “for” election at our annual meeting of stockholders and |
| · | acceptance of such resignation by the board of directors. |
Following certification of the stockholder vote. Thevote, the nominating and governance committee will thenpromptly recommend to the board of directors whether or not to accept or reject the tendered resignation. The board will act on the nominating and governance committee’s recommendation no later than 90 days following the date of the annual meeting.
Item 2—RatificationRepeal of Deloitte & Touche LLPArticle TWELFTH of our Restated Certificate of Incorporation, which Contains Provisions Relating to Business Combinations with Interested Stockholders, and Related Amendments to Articles THIRTEENTH and FOURTEENTH
Approval of Item 2 requires the affirmative vote of a majority of the outstanding shares of common stock. Abstentions will count as Independent Auditorsvotes “against” the proposal.
Item 3—Repeal of Article FIFTEENTH of our Restated Certificate of Incorporation, which Contains Supermajority Vote Requirements for
2008Amendments to Certain Articles of our Restated Certificate of Incorporation
Approval of Item 3 requires the affirmative vote of a majority of the outstanding shares of common stock. Abstentions will count as votes “against” the proposal.
Item 4—Repeal of Section (c) of Article THIRTEENTH of our Restated Certificate of Incorporation, which Provides That Directors May Be Removed by Stockholders Only for Cause, and Technical Amendments to Section (a) of Article THIRTEENTH
Approval of Item 4 requires the affirmative vote of a majority of the outstanding shares of common stock. Abstentions will count as votes “against” the proposal.
Item 5—Ratification of the appointmentAppointment of Deloitte & Touche LLP as our independent auditorsIndependent Auditors for 20082010
Approval of Item 5 requires the affirmative vote of a majority of our common stock present in person or represented by proxy at the meeting and entitled to vote on the proposal. Abstentions will count as votes “against” the proposal.
Item 6—Stockholder Proposal Requesting a Report on Coal Combustion Waste
Approval of Item 6 requires the affirmative vote of a majority of our common stock present in person or represented by proxy at the meeting and entitled to vote on the proposal. Abstentions will count as votes “against” the proposal. Broker non-votes are not counted as voting power present and, therefore, are not counted in the vote.
Unless you specify otherwise when you submit your proxy, the proxies will vote your shares of common stock “for”
all directors nominated by the board of directors, “for” proposals
12, 3, 4 and
2.5 and “against” proposal 6.
How do I vote? There are three ways to vote by proxy:
| •· | by calling the toll free telephone number on the enclosed proxy card |
| •· | by using the Internet as described inon the enclosed proxy card or |
| •· | by returning the enclosed letter proxy card in the envelope provided. |
You may be able to vote by telephone or the Internet if your shares are held in the name of a bank or broker. Follow their instructions.
Can I revoke my proxy? Yes. You can revoke your proxy by:
| •· | filing written revocation with the corporate secretary before the meeting |
| •· | filing a proxy bearing a later date with the corporate secretary before the meeting or |
| •· | revoking your proxy at the meeting and voting in person. |
ITEM 1. ELECTION OF DIRECTORS
| ITEM 1. ELECTION OF DIRECTORS |
At
theour 2007 annual meeting of stockholders,
a majorityour board of
directors proposed and our stockholders
voted in favorapproved the declassification of
declassifying our board of directors. The
directorsdeclassification was phased in over a three-year period from 2008 - 2010. Directors elected at
the 2006 andour 2007 annual
meetingsmeeting comprise the last class elected to serve a three-year term, and their terms will expire at this year’s annual meeting. As a result, commencing with this year’s annual meeting, our board will be completely declassified. All nominees for director are nominated to serve one-year terms, until the annual meeting of stockholders
will continue to serve their full three-year terms through 2009in 2011 and
2010, respectively. However, directors whose terms expire this year are nominated for one-year terms.You will be voting on three directors to serve for a term of one year each until 2009 or until their respective successors are elected. Allelected and qualified, or until their earlier resignation, removal from office, or death. Effective as of the date of this year’s annual meeting, the board of directors has set the number of directors at ten.
The board of directors expresses its thanks to John L. Olson and Sister Thomas Welder, O.S.B. Mr. Olson retired from the board effective August 13, 2009 after reaching the mandatory retirement age of 70 for outside directors. Mr. Olson served on the board for 24 years and on the audit committee for 23 years. He also served on the compensation and nominating and governance committees during his tenure. Sister Welder chose not to seek re-election at this annual meeting because, pursuant to our bylaws’ mandatory retirement policy, she would be required to retire on May 13, 2010, which is the first regular meeting of the board after she attains the mandatory retirement age. Sister Welder served on the board for 22 years and on the nominating and governance committee for 21 years. She also served on the finance and audit committees during her tenure. Their dedicated service and expertise will be missed.
We have provided information below about our nominees, all of whom are incumbent directors, including their ages, years of service as directors, business experience, and nominated for reelection. Your proxy holder will vote your shares forservice on other boards of directors, including any other directorships held during the board’s nominees unless you instruct otherwise. If a nominee is unablepast five years. We have also included information about each nominee’s specific experience, qualifications, attributes, or skills that led the board to conclude that he or she should serve as a director yourof MDU Resources Group, Inc. at the time we file our proxy holder may vote for any substitute nominee proposed by the board.statement, in light of our business and structure. Unless we specifically note below, no corporation or organization namedreferred to below is a subsidiary or other affiliate of ours. Information concerning the
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nominees, including their ages, years of service as directors and business experience, which each nominee has furnished to us, is as follows:
DIRECTOR NOMINEES FOR ONE YEAR TERM
 | | Thomas Everist
Age 5860 | | Director Since 1995
Nominated for Term Expiring in 2009 Compensation Committee |
Mr. Everist has served as Presidentpresident and Chairmanchairman of The Everist Company, Sioux Falls, South Dakota, an aggregate, concrete, and asphalt production company, since April 15, 2002. He was previously was Presidentpresident and Chairmanchairman of L.G. Everist, Inc., Sioux Falls, South Dakota, an aggregate production company, from 1987 to April 15, 2002. He also is Managing Memberheld a number of South Maryland Creek Ranch, LLC, a land development company,positions in the aggregate and President of SMCR, Inc., an investment company.construction industries prior to assuming his current position with The Everist Company. He is a Directordirector of Showplace Wood Products, Sioux Falls, South Dakota, a custom cabinets manufacturer, and has been a Directordirector of Raven Industries, Inc., Sioux Falls, South Dakota, a general manufacturer of electronics, flow controls, and engineered films.films since 1996, and its chairman of the board since April 1, 2009. Mr. Everist attended Stanford University where he received a bachelor’s degree in mechanical engineering and a master’s degree in construction management. He is active in the Sioux Falls community and currently serves as a director on the Compensation CommitteeSanford Health Foundation, a non-profit charitable health services organization. From July 2001 to June 2006, he served on the South Dakota Investment Council, the state agency responsible for prudently investing state funds. For the following reasons, the board concluded that Mr. Everist should serve as a director of MDU Resources Group, Inc., in light of our business and structure, at the time we file our proxy statement. A significant portion of MDU Resources Group, Inc.’s earnings is derived from its construction services and aggregate mining businesses. Mr. Everist has considerable business experience in this area, with more than 36 years in the aggregate and construction materials industry. He has also demonstrated success in his business and leadership skills, serving as president and chairman of his companies for over 22 years. We value other public company board service. Mr. Everist has experience serving as a director and now chairman of another public company, which enhances his contributions to our board. His leadership skills and experience with his own companies and on other boards enable him to be an effective board member and compensation committee chairman. With the retirement of John L. Olson and Sister Thomas Welder, Mr. Everist becomes our longest serving board member, providing 15 years of board experience as well as extensive knowledge of our business. |
 | | Karen B. Fagg
Age 5456 | | Director Since 2005
Nominated for Term Expiring in 2009 Nominating and Governance Committee Compensation Committee |
Ms. Fagg has been Presidentserved as vice president of DOWL LLC, d/b/a DOWL HKM, an engineering and design firm, since April 2008. Ms. Fagg was president from April 1, 1995 through March 2008, and Chairmanchairman and majority owner sincefrom June 2000 through March 2008 of HKM Engineering, Inc., Billings, Montana, an engineering and physical science services firm. SheHKM Engineering, Inc. merged with DOWL LLC on April 1, 2008. Ms. Fagg was employed with MSE, Inc., Butte, Montana, an environmental technologyenergy research and development company, as Business Development Director and Vice President of Operations from 1976 through 1988.1988 and served as vice president of operations and corporate development director. Ms. Fagg also served a four-year term as Directordirector of the Montana Department of Natural Resources and Conservation, Helena, Montana, the state agency charged with promoting stewardship of Montana’s water, soil, energy, and rangeland resources; regulating oil and gas exploration and production; and administering several grant and loan programs from 1989 through 1992. From 1993 through 1995, she Ms. Fagg has a bachelor’s degree in mathematics from Carroll College in Helena, Montana. She served on the board for St. Vincent’s Healthcare from October 2003 until October 2009, including a term as Corporate Development Director for MSE, Inc. Ms. Faggboard chair and on the board of Deaconess Billings Clinic Health System from 1994 to 2003. She is a member of the Board of Trustees forof Carroll College, the Board of Advisors of the Charles M. Bair Family Trust, and a member of the Board of Directors of the Billings Chamber of Commerce. She is also a member of the Montana State University Engineering Advisory Council, whose responsibilities include evaluating the mission and goals of the College of Engineering and assisting in the development and implementation of the college’s strategic plan. From 2002 through 2006, she served on the Montana Board of Investments, the state agency responsible for St. Vincent’s Healthcare.prudently investing state funds. From 2001 to 2005, she served on the board of Montana State University’s Advanced Technology Park. From 2000 to 2007, she served on the ZooMontana Board and as vice chair from 2006 to 2007. |
| | For the following reasons, the board concluded that Ms. Fagg currently serves on the Compensation and Nominating and Governance Committeesshould serve as a director of MDU Resources Group, Inc., in light of our business and structure, at the time we file our proxy statement. Construction and engineering, energy, and the responsible development of natural resources are all important aspects of our business. Ms. Fagg has business experience in all these areas, including 15 years of construction and engineering experience at DOWL, HKM and its predecessor, HKM Engineering, Inc., where she has served as vice president, president, and chairman. Ms. Fagg has also had 12 years of experience in energy research and development at MSE, Inc., where she served as vice president of operations and corporate development director, and four years focusing on stewardship of natural resources as director of the Montana Department of Natural Resources and Conservation. In addition to her industry experience, Ms. Fagg brings to our board 12 years of business leadership and management experience as president and chairman of her own company, as well as knowledge and experience acquired through her service on a number of Montana state and community boards. |
 | | Patricia L. Moss
Terry D. Hildestad Age 5460 | | Director Since 2003
Nominated for Term Expiring in 2009 |
Ms. Moss has been President, Chief Executive Officer and a Director of Cascade Bancorp, a financial holding company, and Bank of the Cascades, Bend, Oregon, since 1998. She also serves as a Director of the Oregon Business Council, whose mission is to mobilize business leaders to contribute to Oregon’s quality of life and economic prosperity, a Director of the Oregon Investment Fund Advisory Council, a state sponsored program to encourage the growth of small businesses within Oregon, and a Director of Clear Choice Health Plans Inc., a multi-state insurance company. She currently serves on the Compensation Committee of MDU Resources Group, Inc. |
2006The board of directors recommends a vote “for” each nominee.
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A plurality of votes of the common stock entitled to vote and present in person or represented by proxy is required to elect a director. “Withheld” votes do not count in determining whether a director nominee receives a plurality of votes.
In an uncontested election, any nominee for director who receives a greater number of votes “withheld” from his or her election than votes “for” his or her election is required to promptly tender his or her resignation to the chairman of the board following certification of the stockholder vote. The nominating and governance committee will then recommend to the board of directors whether to accept or reject the tendered resignation.
CONTINUING INCUMBENT DIRECTORS
Information concerning our continuing incumbent directors, whose terms expire in 2009 or 2010, including their ages, years of service as directors and business experience which each director has furnished to us, is as follows:
DIRECTOR TERMS EXPIRING IN 2009
 | | Richard H. Lewis
Age 58 | | Director Since 2005
Term Expires in 2009 |
Mr. Lewis has been the Managing General Partner of Brakemaka LLLP, a private investment partnership for managing family investments, and President of the Lewis Family Foundation since August 2004. He founded Prima Energy Corporation, a natural gas and oil exploration and production company, in 1980 and served as Chairman, President and Chief Executive Officer of the company until its sale in July 2004. Mr. Lewis serves as Chairman of the Board of Entre Pure Industries, Inc., a privately held company involved in the purified water and ice business. He is past President and a current Board member of the Colorado Oil and Gas Association and serves as a Director of Colorado State Bank and Trust. He is a Director of Colorado UpLift, a non-profit organization, whose mission is to build long-term, life-changing relationships with urban youth. Mr. Lewis also serves on the Board of Trustees of the Metro Denver YMCA, which strives to build strong kids, strong families and strong communities, and the Alliance for Choice in Education, which provides scholarships to inner city youth. He currently serves on the Audit and Nominating and Governance Committees for MDU Resources Group, Inc. |
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 | | Harry J. Pearce
Age 65 | | Director Since 1997
Term Expires in 2009 |
Mr. Pearce was elected Chairman of the Board of the Company on August 17, 2006. Prior to that, he served as Lead Director effective February 15, 2001 and was Vice Chairman of the Board from November 16, 2000 until February 15, 2001. Mr. Pearce was named Chairman of the Board of Nortel Networks Corporation, a global telecommunications company, on June 29, 2005. He retired on December 19, 2003, as Chairman of Hughes Electronics Corporation, a General Motors Corporation subsidiary and provider of digital television entertainment, broadband satellite network, and global video and data broadcasting. He had served as Chairman since June 1, 2001. Mr. Pearce formerly was Vice Chairman and a Director of General Motors Corporation, the world’s largest vehicle manufacturer, from January 1, 1996 to May 31, 2001. He is a Director of Marriott International, Inc., a major hotel chain, and is Chairman of The Marrow Foundation. He is a Director of the Leukemia & Lymphoma Society Research Foundation, a Fellow of the American College of Trial Lawyers, and a member of the International Society of Barristers. He also serves on the Board of Trustees of Northwestern University. |
 | | Sister Thomas Welder, O.S.B.
Age 67 | | Director Since 1988
Term Expires in 2009 |
Sister Welder has been the President of the University of Mary, Bismarck, North Dakota since 1978. She is a Director of St. Alexius Medical Center of Bismarck, the Bismarck-Mandan Development Association and the Missouri Slope Areawide United Way. She also is a member of the North Dakota Higher Education Roundtable and the Theodore Roosevelt Medora Founder’s Society and is a past member of the Bismarck-Mandan Area Chamber of Commerce Board and the Consultant-Evaluator Corps for the North Central Association of Colleges and Schools. She currently serves on the Nominating and Governance Committee for MDU Resources Group, Inc. |
DIRECTOR TERMS EXPIRING IN 2010
 | | Terry D. Hildestad
Age 58 | | Director Since 2006
Term Expires in 2010 |
Mr. Hildestad was elected Presidentpresident and Chief Executive Officerchief executive officer and a Directordirector of the Companycompany effective August 17, 2006. He had served as Presidentpresident and Chief Operating Officerchief operating officer from May 1, 2005 until August 17, 2006. Prior to that, he served as Presidentpresident and Chief Executive Officerchief executive officer of our subsidiary, Knife River Corporation, from 1993 until May 1, 2005. He began his career with the company in 1974 at Knife River, where he served in several operating positions before becoming its president. He additionally serves as an executive officer and as chairman of the Company’scompany’s principal subsidiaries and of the Managing Committeesmanaging committees of Montana-Dakota Utilities Co. and Great Plains Natural Gas Co.Mr. Hildestad serves on the Foundation Board athas a bachelor’s degree from Dickinson State University and has completed the Advanced Management Program at Harvard School of Business. Mr. Hildestad is a member of the U.S. Bancorp Western North Dakota Advisory Board of Directors. For the following reasons, the board concluded that Mr. Hildestad should serve as a director of MDU Resources Group, Inc., in Dickinson, North Dakota.light of our business and structure, at the time we file our proxy statement. As chief executive officer of MDU Resources Group, Inc., Mr. Hildestad is the only officer of the company to sit on our board, consistent with our past practice. With over 35 years of experience at our company, Mr. Hildestad has a deep knowledge and understanding of MDU Resources Group, Inc., its operating companies and its lines of business. Mr. Hildestad has demonstrated his leadership abilities and his commitment to our company since he was elected president and chief executive officer and a director in 2006 and prior to that time through his long service as chief operating officer of the company and as president and chief executive officer at Knife River, our construction materials and contracting subsidiary. The board also believes that Mr. Hildestad’s integrity, values, and good judgment make him well-suited to serve on our board. |
 | | A. Bart Holaday Age 67 | | Director Since 2008 Audit Committee |
Mr. Holaday headed the Private Markets Group of UBS Asset Management and its predecessor entities for 15 years prior to his retirement in 2001, during which time he managed more than $19 billion in investments. Prior to that he was vice president and principal of the InnoVen Venture Capital Group. He was founder and president of Tenax Oil and Gas Corporation, an onshore Gulf Coast exploration and production company, from 1980 through 1982. He has four years of senior management experience with Gulf Oil Corporation, a global energy and petrochemical company, and eight years of senior management with the federal government, including the Department of Defense, Department of the Interior, and the Federal Energy Administration. He is currently the president and owner of Dakota Renewable Energy Fund, LLC, which invests in small companies in North Dakota. He is a member of the investment advisory board of Commons Capital LLC, a venture capital firm; a member of the board of directors of Adams Street Partners, LLC, a private equity investment firm; Alerus Financial, a financial services company; Jamestown College; the United States Air Force Academy Endowment (chairman); the Falcon Foundation (vice president), which provides scholarships to Air Force Academy applicants; the Center for Innovation Foundation at the University of North Dakota (chairman and trustee) and the University of North Dakota Foundation; and is chairman and CEO of the Dakota Foundation. He is a past member of the board of directors of the National Venture Capital Association, Walden University, and the U.S. Securities and Exchange Commission advisory committee on the regulation of capital markets. |
| | Mr. Holaday has a bachelor’s degree in engineering sciences from the U.S. Air Force Academy. He was a Rhodes Scholar, earning a bachelor’s degree and a master’s degree in politics, philosophy, and economics from Oxford University. He also earned a law degree from George Washington Law School and is a Chartered Financial Analyst. In 2005, he was awarded an honorary Doctor of Letters from the University of North Dakota. For the following reasons, the board concluded that Mr. Holaday should serve as a director of MDU Resources Group, Inc., in light of our business and structure, at the time we file our proxy statement. MDU Resources Group, Inc. has significant operations in the natural gas and oil industry. Mr. Holaday has knowledge and experience in this industry. He founded and served as president of Tenax Oil and Gas Corporation. He has four years experience in senior management with Gulf Oil Corporation and 15 years of experience managing private equity investments, including investments in oil and gas, as the head of the Private Markets Group of UBS Asset Management and its predecessor organizations. This business experience demonstrates his leadership skills and success in the oil and gas industry. Mr. Holaday brings to the board his extensive finance and investment experience as well as his business development skills acquired through his work at UBS Asset Management, Tenax Oil and Gas Corporation, Gulf Oil Corporation, and several private equity investment firms. This will enhance the knowledge of the board and provide useful insights to management in connection not only with our natural gas and oil business, but with all of our businesses. |
| | Dennis W. Johnson
Age 5860 | | Director Since 2001
Term Expires in 2010 Audit Committee |
Mr. Johnson is Chairman, Chief Executive Officerchairman, chief executive officer and Presidentpresident of TMI Corporation, and Chairmanchairman and Chief Executive Officerchief executive officer of TMI Systems Design Corporation, TMI Transport Corporation and TMI Storage Systems Corporation, all of Dickinson, North Dakota, manufacturers of casework and architectural woodwork. He has been employed at TMI since 1974 serving as Presidentpresident or Chief Executive Officerchief executive officer since 1982 and has been the majority stockholder since 1985. Mr. Johnson servesis serving his ninth year as Presidentpresident of the Dickinson City Commission. He previously was a Directordirector of the Federal Reserve Bank of Minneapolis. He currentlyis a past member and chairman of the Theodore Roosevelt Medora Foundation. Mr. Johnson has a bachelor of science degree in electrical and electronics engineering as well as a master of science degree in industrial engineering from North Dakota State University. He has served on numerous industry, state, and community boards, including the North Dakota Workforce Development Council (chairperson), the Decorative Laminate Products Association, the North Dakota Technology Corporation, St. Joseph Hospital Life Care Foundation, St. John Evangelical Lutheran Church, Dickinson State University, the executive operations committee of the University of Mary Harold Shafer Leadership Center, and the Dickinson United Way. He also served on North Dakota Governor Sinner’s Education Action Commission, the North Dakota Job Service Advisory Council, the North Dakota State University President’s Advisory Council, North Dakota Governor Schafer’s Transition Team, and chaired North Dakota Governor Hoeven’s Transition Team. He has received numerous awards including the 1991 Regional Small Business Person of the Year Award and the Greater North Dakotan Award. |
| | For the following reasons, the board concluded that Mr. Johnson should serve as a director of MDU Resources Group, Inc., in light of our business and structure, at the time we file our proxy statement. Mr. Johnson has over 27 years of experience in business management, manufacturing, and finance, and has demonstrated his success in these areas, through his positions as chairman, president, and CEO of TMI, as well as through his prior service as a director of the Federal Reserve Bank of Minneapolis. His finance experience and leadership skills enable him to make valuable contributions to our audit committee, which he has chaired for six years. As a result of his service on a number of state and local organizations in North Dakota, Mr. Johnson has significant knowledge of local, state, and regional issues involving North Dakota, a state where we have significant operations and assets. |
| | Thomas C. Knudson Age 63 | | Director Since 2008 Compensation Committee |
Mr. Knudson has been president of Tom Knudson Interests, LLC, since its formation on January 14, 2004. Tom Knudson Interests, LLC, provides consulting services in energy, sustainable development, and leadership. Mr. Knudson began employment with Conoco Oil Company (Conoco) in May 1975 and retired in 2004 from Conoco’s successor, ConocoPhillips, as senior vice president of human resources, government affairs and communications, and information technology. Mr. Knudson served as a member of ConocoPhillips’ management committee. His diverse career at Conoco and ConocoPhillips included engineering, operations, business development, and commercial assignments. He was the founding chairman of the Business Council for Sustainable Development in both the United States and the United Kingdom. He has been a director of Bristow Group Inc. since June 2004 and its chairman of the board of directors since August 2006, and was a director of Natco Group Inc. from April 2005 to November 2009 and Williams Partners LP from November 2005 to September 2007. Bristow Group Inc. is a leading provider of helicopter services to the offshore oil industry. Natco Group Inc. is a leading manufacturer of oil and gas processing equipment. Williams Partners LP owns natural gas gathering, transportation, processing, and treating assets, and also has natural gas liquids fractionating and storage assets. Mr. Knudson has a bachelor’s degree in aerospace engineering from the U.S. Naval Academy and a master’s degree in aerospace engineering from the U.S. Naval Postgraduate School. He served as a naval aviator, flying combat missions in Vietnam, and was a lieutenant commander in 1974 when he was honorably discharged. Mr. Knudson has served on the boards of a number of petroleum industry associations, Covenant House Texas, The Houston Museum of Natural Science, and Alpha USA/Houston. He has served as an adjunct professor at the Jones Graduate School of Management at Rice University. For the following reasons, the board concluded that Mr. Knudson should serve as a director of MDU Resources Group, Inc., in light of our business and structure, at the time we file our proxy statement. A significant portion of our earnings is derived from natural gas and oil production and the transportation, storage, and gathering of natural gas. Mr. Knudson has extensive knowledge and experience in this industry as a result of his prior employment with Conoco, as well as through his service on the boards of Natco Group, Inc. and Williams Partners LP. Mr. Knudson has a broad background in engineering, operations, and business development, as well as service on the management committee at Conoco and ConocoPhillips, which bring additional experience and perspective to our board. His service as senior vice president of human resources at ConocoPhillips makes him an excellent fit for our compensation committee. Sustainable business development is also an important aspect of our business, and Mr. Knudson, as the founding chairman of the Business Council for Sustainable Development, brings to our board significant experience and knowledge in this area. Mr. Knudson also has significant knowledge of local, state, and regional issues involving Texas, a state where we have important operations and assets. |
| | Richard H. Lewis Age 60 | | Director Since 2005 Audit Committee Nominating and Governance Committee |
Mr. Lewis has been the managing general partner of Brakemaka LLLP, a private investment partnership for managing family investments, and president of the Lewis Family Foundation since August 2004. Mr. Lewis serves as chairman of the board of Entre Pure Industries, Inc., a privately held company involved in the purified water and ice business. He serves as a director of Colorado State Bank and Trust and on the senior advisory board of TPH Partners, L.P., a private equity fund with an energy-only focus. Mr. Lewis founded Prima Energy Corporation, a natural gas and oil exploration and production company in 1980, and served as chairman and chief executive officer of the company until its sale in July 2004. During his tenure, Prima Energy was named to Forbes Magazine’s 200 Best Small Companies in America list seven times and was ranked the No. 1 Colorado public company for the decade of the 1990’s in terms of market return. Mr. Lewis represented natural gas producers on a panel that studied electric restructuring in Colorado and has testified before Congressional committees on industry matters. He worked in private practice as a certified public accountant for eight years prior to founding Prima Energy. Mr. Lewis has a bachelor’s degree in finance and accounting from the University of Colorado. He served as a board member on the Colorado Oil and Gas Association from November 1999 to November 2009, including a term as its president. In 2000, Mr. Lewis was inducted into the Ernst & Young Entrepreneur of the Year Hall of Fame and in 2004 was inducted into the Rocky Mountain Oil and Gas Hall of Fame. Mr. Lewis serves as the chairman of the Development Board of Colorado Uplift, a non-profit organization whose mission is to build long-term, life-changing relationships with urban youth. He also serves on the Audit CommitteeBoard of Trustees of Alliance for Choice in Education, which provides scholarships to inner city youth. He has also served on the Board of Trustees of the Metro Denver YMCA, the Advisory Council to the Leeds School of Business at the University of Colorado, and as a director for the Partnership for the West. For the following reasons, the board concluded that Mr. Lewis should serve as a director of MDU Resources Group, Inc., in light of our business and structure, at the time we file our proxy statement. MDU Resources Group, Inc. derives a significant portion of its earnings from natural gas and oil production, one of our business segments. Mr. Lewis has extensive business experience, recognized excellence, and demonstrated success in this industry through almost 25 years at his company, Prima Energy Corporation, and ten years on the board of the Colorado Oil and Gas Association. In addition to his industry experience, he brings investment experience to our board through his service on the senior advisory board of an energy-only private equity fund. As a certified public accountant and a director of Colorado State Bank and Trust, Mr. Lewis also contributes significant finance and accounting knowledge to our board and audit committee. Mr. Lewis also brings to the board his knowledge of local, state, and regional issues involving Colorado and the Rocky Mountain region, where we have important operations. |
 | | JohnPatricia L. Olson
Moss Age 6856 | | Director Since 1985
Term Expires in 20102003 Compensation Committee |
Ms. Moss has served as the president and chief executive officer of Cascade Bancorp, a financial holding company in Bend, Oregon, since 1998, chief executive officer of Cascade Bancorp’s principal subsidiary, Bank of the Cascades, since 1993, serving also as president from 1993 to 2003, and a director of Cascade Bancorp since 1993. She also serves as a director of the Oregon Investment Fund Advisory Council, a state-sponsored program to encourage the growth of small businesses within Oregon, and a director of Clear Choice Health Plans Inc., a multi-state insurance company. Ms. Moss graduated magna cum laude with a bachelor of science degree in business administration from Linfield College in Oregon and did master’s studies at Portland State University. She received commercial banking school certification at the ABA Commercial Banking School at the University of Oklahoma. She served as a director of the Oregon Business Council, whose mission is to mobilize business leaders to contribute to Oregon’s quality of life and economic prosperity; the Cascades Campus Advisory Board of the Oregon State University; the North Pacific Group, Inc., a wholesale distributor of building materials, industrial and hardwood products, and other specialty products; the Aquila Tax Free Trust of Oregon, a mutual fund created especially for the benefit of Oregon residents; and as a director and chair of the St. Charles Medical Center. In August 2009, the Federal Deposit Insurance Corporation and the Oregon Division of Finance and Corporate Securities entered into a consent agreement with Bank of the Cascades that requires the bank to develop and adopt a plan to maintain the capital necessary for it to be “well-capitalized,” to improve its lending policies and its allowance for loan losses, to increase its liquidity, to retain qualified management, and to increase the participation of its board of directors in the affairs of the bank. In October 2009, the bank’s parent, Cascade Bancorp, entered into a written agreement with the Federal Reserve Bank of San Francisco and the Oregon Division relating largely to improving the financial condition of Cascade Bancorp and the bank. For the following reasons, the board concluded that Ms. Moss should serve as a director of MDU Resources Group, Inc., in light of our business and structure, at the time we file our proxy statement. A significant portion of MDU Resources Group, Inc.’s utility, construction services, and contracting operations are located in the Pacific Northwest. Ms. Moss has first-hand business experience and knowledge of the Pacific Northwest economy and local, state, and regional issues through her position as president, chief executive officer, and a director at Cascade Bancorp and Bank of the Cascades, where she has over 28 years of experience. Ms. Moss provides to our board her experience in finance and banking as well as her experience in business development through her work at Cascade Bancorp and on the Oregon Investment Advisory Council and the Oregon Business Council. Ms. Moss is also certified as a Senior Professional in Human Resources, which makes her well-suited for our compensation committee. In deciding that Ms. Moss should be renominated as a director, the board was mindful of the consent agreement with Bank of the Cascades, but concluded that Ms. Moss brought the many skills and experiences discussed above to our board and had proved herself to be a dedicated and hard-working director. |
| | Harry J. Pearce Age 67 | | Director Since 1997 Chairman of the Board |
Mr. OlsonPearce was elected chairman of the board of the company on August 17, 2006. Prior to that, he served as lead director effective February 15, 2001 and was vice chairman of the board from November 16, 2000 until February 15, 2001. Mr. Pearce has been Presidenta director of Marriott International, Inc., a major hotel chain, since 1995. He was a director of Nortel Networks Corporation, a global telecommunications company, from January 11, 2005 to August 10, 2009, serving as chairman of the board from June 29, 2005. He retired on December 19, 2003, as chairman of Hughes Electronics Corporation, a General Motors Corporation subsidiary and Chief Executive Officerprovider of Blue Rock Products Companydigital television entertainment, broadband satellite network, and of Blue Rock Distributing Company, a beverage bottling companyglobal video and data broadcasting. He had served as chairman since June 1, 2001. Mr. Pearce was vice chairman and a distributing company, respectively, in Sidney, Montana since 1965. He also is Chairmandirector of Admiral BeverageGeneral Motors Corporation, Worland, Wyoming, and Ogden, Utah, former Chairman and Directorone of the Foundation for Community Care, Sidney, Montana, past Chairmanworld’s largest automakers, from January 1, 1996 to May 31, 2001. He served on the President’s Council on Sustainable Development and co-chaired the President’s Commission on the United States Postal Service. Prior to joining General Motors, he was a senior partner in the Pearce & Durick law firm in Bismarck, ND. Mr. Pearce is a director of the United States Air Force Academy Endowment, and a member of the Executive CommitteeAdvisory Board of the University of MontanaMichigan Cancer Center. He is a Fellow of the American College of Trial Lawyers and a member of the International Society of Barristers. He also serves on the Board of Trustees of Northwestern University. He has served as a chairman or director on the boards of numerous nonprofit organizations, including as chairman of the board of Visitors of the U.S. Air Force Academy, chairman of the National Defense University Foundation, a Directorand chairman of BlueCross BlueShield of Montana, and President of Liquid Assets of Montana, Inc.the Marrow Foundation. He currently serves onas a director of the AuditNational Bone Marrow Transplant Link and NominatingNew York Marrow Foundation. Mr. Pearce received a bachelor’s degree in engineering sciences from the U.S. Air Force Academy and Governance Committees forhis law degree from Northwestern University’s School of Law. For the following reasons, the board concluded that Mr. Pearce should serve as a director of MDU Resources Group, Inc., in light of our business and structure, at the time we file our proxy statement. MDU Resources Group, Inc. values public company leadership and the experience directors gain through such leadership. Mr. Pearce is recognized nationally as well as in the State of North Dakota as a business leader and for his business acumen. He has multinational business management experience and proven leadership skills through his position as vice chairman at General Motors, as well as through his extensive service on the boards of large public companies, including Marriott International; Hughes Electronics, where he was chairman; and Nortel Networks, where he also was chairman. He also brings to our board his long experience as a practicing attorney. In addition, Mr. Pearce is focused on corporate governance issues and is the founding chair of the Chairmen’s Forum, an organization comprised of non-executive chairmen of publicly-traded companies. Participants in the Chairmen’s Forum discuss ways to enhance the accountability of corporations to owners and promote a deeper understanding of independent board leadership and effective practices of board chairmanship. The board also believes that Mr. Pearce’s values and commitment to excellence make him well-suited to serve as chairman of our board. |
 | | John K. Wilson
Age 5355 | | Director Since 2003
Term Expires in 2010 Audit Committee |
Mr. Wilson has been Presidentwas president of Durham Resources, LLC, a privately held financial management company, in Omaha, Nebraska, since 1994. He also serves as President of the Durham Foundation and is a Director of Bridges Investment Fund, a mutual fund, the Greater Omaha Chamber of Commerce and the Durham Western Heritage Museum, all in Omaha. He additionally serves on the community relations board of US Bank NA Omaha and is a governor of the Joslyn Art Museum in Omaha.from 1994 to December 31, 2008. He previously was Presidentpresident of Great Plains Energy Corp., a public utility holding company and an affiliate of Durham Resources, LLC, from 1994 to July 1, 2000. He also was Vice Presidentvice president of Great Plains Natural Gas Co., an affiliate company of Durham Resources, LLC, until July 1, 2000. The Companycompany bought Great Plains Energy Corp. and Great Plains Natural Gas Co. on July 1, 2000. Mr. Wilson also served as president of the Durham Foundation and was a director of Bridges Investment Fund, a mutual fund, and the Greater Omaha Chamber of Commerce. He currentlyis presently a director of HDR, Inc., an international architecture and engineering firm based in Omaha, and serves on the Audit Committeeadvisory boards of US Bank NA Omaha and Duncan Aviation, an aircraft service provider, headquartered in Lincoln, Nebraska. He also serves as deputy director of the Robert B. Daugherty Charitable Foundation. Mr. Wilson is a certified public accountant. He received his bachelor’s degree in business administration, cum laude, from the University of Nebraska – Omaha. During his career, he was a member of the audit staff and an audit manager at Peat, Marwick, Mitchell (now known as KPMG), controller for Great Plains Natural Gas Co., and chief financial officer and treasurer for all Durham Resources entities. For the following reasons, the board concluded that Mr. Wilson should serve as a director of MDU Resources Group, Inc., in light of our business and structure, at the time we file our proxy statement. Mr. Wilson has an extensive background in finance and accounting as well as extensive experience with mergers and acquisitions through his education and work experience at a major accounting firm and his later positions as controller and vice president of Great Plains Natural Gas Co.; president of Great Plains Energy Corp.; and president, chief financial officer, and treasurer for Durham Resources, LLC and all Durham Resources entities. The electric and natural gas utility business was our core business when our company was founded in 1924. That business now operates through four utilities: Montana-Dakota Utilities Co., Great Plains Natural Gas Co., Cascade Natural Gas Corporation, and Intermountain Gas Company. Mr. Wilson is our only non-employee director with direct experience in this area through his prior positions at Great Plains Natural Gas Co. and Great Plains Energy. In addition, Mr. Wilson’s extensive finance and accounting experience make him well-suited for our audit committee. |
The board of directors recommends a vote “for” each nominee.
A majority of votes cast is required to elect a director in an uncontested election. A majority of votes cast means the number of votes cast ��for” a director’s election must exceed the number of votes cast “against” the director’s election. “Abstentions” and “broker non-votes” do not count as votes cast “for” or “against” the director’s election. In a contested election, which is an election in which the number of nominees for director exceeds the number of directors to be elected and which we do not anticipate, directors will be elected by a plurality of the votes cast.
Unless you specify otherwise when you submit your proxy, the proxies will vote your shares of common stock “for” all directors nominated by the board of directors. If a nominee becomes unavailable for any reason or if a vacancy should occur before the election, which we do not anticipate, the proxies will vote your shares in their discretion for another person nominated by the board.
Our policy on majority voting for directors and our corporate governance guidelines require any nominee for re-election as a director to tender to the board, prior to nomination, his or her irrevocable resignation from the board that will be effective, in an uncontested election of directors only, upon:
| · | receipt of a greater number of votes “against” than votes “for” election at our annual meeting of stockholders and |
| · | acceptance of such resignation by the board of directors. |
Following certification of the stockholder vote, the nominating and governance committee will promptly recommend to the board whether or not to accept the tendered resignation. The board will act on the nominating and governance committee’s recommendation no later than 90 days following the date of the annual meeting.
Please note that the New York Stock Exchange rules have changed. Brokers may not vote your shares on the election of directors if you have not given your broker specific instructions as to how to vote. Please be sure to give specific voting instructions to your broker so that your vote can be counted.
ITEM 2. REPEAL OF ARTICLE TWELFTH OF OUR RESTATED CERTIFICATE OF INCORPORATION,
WHICH CONTAINS PROVISIONS RELATING TO BUSINESS COMBINATIONS WITH INTERESTED
STOCKHOLDERS, AND RELATED AMENDMENTS TO ARTICLES THIRTEENTH AND FOURTEENTH |
6
Table
In November 2009, we received a stockholder proposal requesting that the board of
ContentsITEM 2. RATIFICATION OF INDEPENDENT AUDITORS
directors take the steps necessary to change the stockholder vote requirements that call for a greater than simple majority vote in our restated certificate of incorporation, as amended, and bylaws to a majority of votes cast for or against any proposal.
Article TWELFTH of our restated certificate of incorporation, which has “fair price” provisions relating to business combinations with interested stockholders, contains a supermajority vote requirement. Article TWELFTH provides that, unless the transaction is approved by two-thirds of the continuing directors, the fair price and procedural requirements of article TWELFTH will apply to the business combination, and the business combination must be approved by at least 80% of the voting power of the outstanding voting stock. In this proxy statement, we sometimes refer to the provisions of article TWELFTH as the “fair price” provisions.
Article TWELFTH requires the affirmative vote of at least 80% of the voting power of our outstanding voting stock to approve certain transactions involving an “interested stockholder,” which is a person or group that beneficially owns more than 10% of our outstanding voting stock.
The supermajority vote requirement applies to the following transactions:
| · | a merger or consolidation with an interested stockholder |
| · | a sale, lease, exchange or other disposition of assets of the company with an aggregate fair market value of $5 million or more to an interested stockholder |
| · | the issuance of securities by the company with an aggregate fair market value of $5 million or more to an interested stockholder |
| · | a voluntary plan of liquidation or dissolution proposed by an interested stockholder and |
| · | a reclassification, recapitalization, merger or any other transaction that increases the proportionate share of outstanding shares of the company owned by an interested stockholder. |
The supermajority vote requirement does not apply to transactions that have been approved by two-thirds of the continuing directors. Continuing directors are members of the board who are unaffiliated with, and not nominees of, an interested stockholder and who were members of the board prior to the time the interested stockholder became an interested stockholder. Continuing directors also include directors designated to succeed continuing directors.
We added article TWELFTH to our restated certificate of incorporation in 1985. As we discussed in our proxy statement at that time, there had been a number of instances in which an unsolicited bidder had acquired control of a company over the objections of management and, after acquiring control, had compelled a merger, consolidation or sale of assets without an arm’s length negotiation of the terms. While tender offers or other takeover attempts could be made at a price substantially above the market price of a company’s common stock, they frequently were made for less than all of the outstanding shares of a target company. Such partial offers could present stockholders with the alternative of either partially liquidating their investment at a time when that may be disadvantageous or retaining an investment in an enterprise under new management whose objectives may differ from those of the remaining stockholders. Article TWELFTH was designed to deal with then recently-developed takeover strategies such as two-tiered transactions that often resulted in inequitable treatment of long-term stockholders. Article TWELFTH was designed to encourage a person making an unsolicited bid for the company to negotiate with our board of directors to reach terms that were fair and in the best interests of the stockholders.
In more recent years, however, some investors have viewed fair price provisions as inconsistent with principles of good corporate governance and believe that these provisions make it more difficult for stockholders to effect change and participate in important decisions affecting the company. These investors believe that the supermajority vote requirement that is part of the fair price provisions limits the ability of a majority of stockholders to effect change by providing a veto right to a large minority stockholder or group of stockholders. They also assert that supermajority vote provisions cause boards and management to be less responsive or accountable to stockholders. Others have argued that supermajority vote requirements not only offer little, if any, protection to minority stockholders, but also have the effect of discouraging legitimate offers for a company by making them more expensive.
After receiving the stockholder proposal, the board of directors reviewed the advantages and disadvantages of the provisions contained in article TWELFTH and after this review decided to propose the repeal of article TWELFTH to further our goal of ensuring that our corporate governance policies maximize our accountability to stockholders.
The company will continue to be subject to Section 203 of the Delaware General Corporation Law, whether or not the proposed amendments are approved. With some exceptions, Section 203 provides that a business combination, as defined in Section 203, with an interested stockholder, which is a person owning 15% or more of a company’s outstanding voting stock, cannot be completed for a three-year period after the date the person became an interested stockholder, unless
| · | prior to the time the person became an interested stockholder, the board of directors approved either the business combination or the transaction that resulted in the person becoming an interested stockholder |
| · | upon consummation of the transaction that resulted in the person becoming an interested stockholder, that person owned at least 85% of the outstanding voting stock, excluding certain shares or |
| · | the business combination was approved by the board of directors and by at least two-thirds of the outstanding voting stock not owned by the interested stockholder. |
In addition to the deletion of article TWELFTH, the board of directors has proposed related amendments to articles THIRTEENTH and FOURTEENTH of our restated certificate of incorporation. These amendments add to article THIRTEENTH some definitions of terms currently included in article TWELFTH that are relevant to other articles of our restated certificate of incorporation. These definitions of terms have been modified to reflect the repeal of article
TWELFTH. In addition, in article FOURTEENTH, the amendments substitute the term “business combination” that was previously defined in article TWELFTH with a description of the term’s meaning, which is no longer limited to transactions with “interested stockholders.”
The board of directors has approved the proposed amendments to our restated certificate of incorporation described above. The board resolution setting forth the proposed amendments to our restated certificate of incorporation is included in exhibit A to this proxy statement and shows the changes that would result from the amendments. If approved by our stockholders, the amendments will become effective upon filing with the Secretary of State of the State of Delaware, which filing we would make promptly after the annual meeting.
The board of directors recommends a vote “for” the proposal to repeal article TWELFTH of our restated certificate of incorporation, which contains provisions relating to business combinations with interested stockholders, and related amendments to articles THIRTEENTH and FOURTEENTH.
Approval requires the affirmative vote of a majority of the outstanding shares of common stock. Abstentions will count as votes against this proposal.
ITEM 3. REPEAL OF ARTICLE FIFTEENTH OF OUR RESTATED CERTIFICATE OF INCORPORATION,
WHICH CONTAINS SUPERMAJORITY VOTE REQUIREMENTS FOR AMENDMENTS TO CERTAIN
ARTICLES OF OUR RESTATED CERTIFICATE OF INCORPORATION |
As discussed above under Item 2, in November 2009, we received a stockholder proposal requesting that the board of directors take the steps necessary to change the stockholder vote requirements that call for a greater than simple majority vote in our restated certificate of incorporation and bylaws to a majority of votes cast for or against any proposal.
Article FIFTEENTH of our restated certificate of incorporation, as amended, requires the affirmative vote of at least 80% of the voting power of the outstanding voting stock to amend, alter, change or repeal, or to adopt any provision inconsistent with, the following provisions of our restated certificate of incorporation:
| · | article TWELFTH, which contains provisions relating to business combinations with interested stockholders and includes a supermajority vote requirement. As described under Item 2 above, article TWELFTH is proposed to be deleted. |
| · | article THIRTEENTH, which contains provisions relating to the board of directors and establishes the range for the number of directors on the board, the authority of the board to fix the exact number of directors within the range, the provisions for annual election of directors, and the authority of the board to fill vacancies or newly created directorships |
| · | article FOURTEENTH, which sets forth a list of factors for the board of directors to consider in evaluating a proposal by another party to make a tender or exchange offer for securities of the company or to effect a merger, consolidation or other business combination with the company |
| · | article FIFTEENTH itself and |
| · | article SIXTEENTH, which contains provisions setting forth how stockholder action must be effected and who is entitled to call special meetings of stockholders. |
The supermajority vote requirement does not apply to amendments that are recommended to stockholders by two-thirds of the continuing directors.
We added article FIFTEENTH to our restated certificate of incorporation in 1985. The supermajority vote requirement was intended to prevent one or more stockholders controlling a simple majority of our voting stock from repealing the fair price and other provisions referred to in article FIFTEENTH and to give minority stockholders holding in the aggregate in excess of 20% of the voting power the ability to prevent amendments to the fair price and other provisions referred to in article FIFTEENTH.
However, as with fair price provisions, in more recent years, some investors have viewed supermajority vote requirements as inconsistent with principles of good corporate governance and argue that such provisions make it more difficult for stockholders to effect change and participate in important decisions affecting the company. These investors believe that supermajority vote requirements limit the ability of a majority of stockholders to effect change by providing a veto right to a large minority stockholder or group of stockholders. They also assert that supermajority vote provisions cause boards and management to be less responsive or accountable to stockholders. Others have argued that supermajority vote requirements not only offer little, if any, protection to minority stockholders, but also have the effect of discouraging legitimate offers for the company by making them more expensive. A number of major corporations have determined that, regardless of the merits of supermajority vote provisions, principles of good corporate governance dictate that such requirements be eliminated.
After receiving the stockholder proposal, the board of directors reviewed the advantages and disadvantages of supermajority vote requirements contained in article FIFTEENTH and, after this review, decided to propose the repeal of article FIFTEENTH to further our goal of ensuring that our corporate governance policies maximize our accountability to stockholders.
If article FIFTEENTH is repealed, the stockholder vote required to approve amendments to the provisions of our restated articles of incorporation identified in article FIFTEENTH not recommended to stockholders by two-thirds of our continuing directors would be reduced from an 80% supermajority vote to a majority of our outstanding voting stock. Section 242(b) of the Delaware General Corporation Law would apply to all amendments to our restated certificate of incorporation and require that charter amendments be approved by a majority of the outstanding stock entitled to vote thereon and by a majority of the outstanding stock of each class entitled to vote thereon as a class, unless the Delaware General Corporation Law or our restated certificate of incorporation specifically provides for a greater than majority vote.
The board of directors has approved the proposed amendment as described above. The board resolution setting forth the proposed amendment to our restated certificate of incorporation is included in exhibit A to this proxy statement and shows the changes that would result from the amendment. If approved by our stockholders, the amendment will become effective upon filing with the Secretary of State of the State of Delaware, which filing we would make promptly after the annual meeting.
The board of directors recommends a vote “for” the proposal to repeal article FIFTEENTH of our restated certificate of incorporation, which contains supermajority vote requirements for amendments to certain articles of our restated certificate of incorporation.
Approval requires the affirmative vote of a majority of the outstanding shares of common stock. Abstentions will count as votes against this proposal.
ITEM 4. REPEAL OF SECTION (c) OF ARTICLE THIRTEENTH OF OUR RESTATED CERTIFICATE OF
INCORPORATION, WHICH PROVIDES THAT DIRECTORS MAY BE REMOVED BY STOCKHOLDERS
ONLY FOR CAUSE, AND TECHNICAL AMENDMENTS TO SECTION (a) OF ARTICLE THIRTEENTH |
Section (c) of article THIRTEENTH of our restated certificate of incorporation, as amended, provides that any director or the entire board of directors may be removed by stockholders only for cause and sets forth the requirements for such removal.
In 2007, our board of directors proposed and our stockholders approved the declassification of our board. The declassification has been phased in over a three-year period from 2008 to 2010. Directors elected at our 2007 annual meeting comprise the last class of directors elected to serve a three-year term, and their terms will expire with this year’s annual meeting. As a result, commencing with this year’s annual meeting, our board will be completely declassified, and all directors at this year’s annual meeting will be elected to serve one-year terms.
With the completion of the declassification of our board, section (c) of article THIRTEENTH will not be consistent with Section 141(k) of the Delaware General Corporation Law, which provides that the right of stockholders to remove directors may not be limited to removal for cause unless the board is classified.
The board of directors has therefore proposed to repeal section (c) of article THIRTEENTH and to make technical amendments to section (a) of article THIRTEENTH.
The board of directors has approved the proposed amendments to our restated certificate of incorporation described above. The board resolution setting forth the proposed amendments to our restated certificate of incorporation is included in exhibit A to this proxy statement and shows the changes that would result from the amendments. If approved by our stockholders, the amendments will become effective upon filing with the Secretary of State of the State of Delaware, which filing we would make promptly after the annual meeting. However, even if our stockholders do not approve the repeal of section (c), it will no longer have any effect because its provisions will be inconsistent with the Delaware General Corporation Law.
The board of directors recommends a vote “for” the proposal to repeal section (c) of article THIRTEENTH of our restated certificate of incorporation, which provides that directors may be removed by stockholders only for cause, and technical amendments to section (a) of article THIRTEENTH.
Approval requires the affirmative vote of a majority of the outstanding shares of common stock. Abstentions will count as votes against this proposal.
| ITEM 5. RATIFICATION OF INDEPENDENT AUDITORS |
The audit committee at its February
20082010 meeting appointed Deloitte & Touche LLP as our independent auditors for fiscal year
2008.2010. The board of directors concurred with the audit committee’s decision. Deloitte & Touche LLP has served as our independent auditors since fiscal year 2002.
Although your ratification vote will not affect the appointment or retention of Deloitte & Touche LLP for
2008,2010, the audit committee will consider your vote in determining its appointment of our independent auditors for the next fiscal year. The audit committee, in appointing our independent auditors, reserves the right, in its sole discretion, to change an appointment at any time during a fiscal year if it determines that such a change would be in our best interests.
A representative of Deloitte & Touche LLP will be present at the annual meeting and will be available to respond to appropriate questions. We do not anticipate that the representative will make a prepared statement at the meeting; however, he or she will be free to do so if he or she chooses.
The board of directors recommends a vote “for” the ratification of Deloitte & Touche LLP as our independent auditors for
2008.2010.
Ratification of the appointment of Deloitte & Touche LLP as our independent auditors for
20082010 requires the affirmative vote of a majority of our common stock present in person or represented by proxy at the meeting and entitled to vote on the proposal. Abstentions will count as votes against this proposal.
In connection with the audit of our financial statements for
2008,2010, the parties have drafted an agreement for
Audit Committeeaudit committee approval that contains provisions for alternative dispute resolution and for the exclusion of punitive damages. The agreement provides that disputes arising out of our engagement of Deloitte & Touche LLP are resolved through mediation or arbitration, commonly referred to as alternative dispute resolution procedures, and that the
companycompany’s and Deloitte & Touche LLP’s rights to pursue punitive damages or other forms of relief not based upon actual damages are waived. The alternative dispute resolution provisions do not apply to claims by third parties, such as our stockholders or creditors.
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| ACCOUNTING AND AUDITING MATTERS |
The following table summarizes the aggregate fees that our independent auditors, Deloitte & Touche LLP, billed or are expected to bill us for professional services rendered for 20072009 and 2006:2008:
| | | 2007 | | | 2006* | |
|---|
| | | |
| Audit Fees(a) | | | | $ | 2,409,261 | | | $ | 2,216,604 | |
| Audit-Related Fees(b) | | | | | 121,720 | | | | 164,346 | |
| Tax Fees(c) | | | | | 46,740 | | | | 6,380 | |
| All Other Fees(d) | | | | | 0 | | | | 0 | |
| Total Fees(e) | | | | $ | 2,577,721 | | | $ | 2,387,330 | |
| Ratio of Tax and All Other Fees to Audit and Audit-Related Fees | | | | | 1.8 | % | | | 0.3 | % |
| | 2009 | | | 2008* | |
| Audit Fees(a) | | $ | 2,393,800 | | | $ | 2,535,253 | |
| Audit-Related Fees(b) | | | 52,292 | | | | 78,511 | |
| Tax Fees(c) | | | 17,600 | | | | 33,653 | |
| All Other Fees(d) | | | 130,016 | | | | 0 | |
| Total Fees(e) | | $ | 2,593,708 | | | $ | 2,647,417 | |
| Ratio of Tax and All Other Fees to Audit and Audit-Related Fees | | | 6.03 | % | | | 1.29 | % |
| * | The 20062008 amounts were adjusted from amounts shown in the 20072009 proxy statement to reflect actual amounts. |
| |
| (a) | Audit fees for both 20072009 and 20062008 consisted of services rendered for the audit of our annual financial statements; reviews of our quarterly financial statements; comfort letters; statutory and regulatory audits and consents and other services related to Securities and Exchange Commission matters. |
| |
| (b) | Audit-related fees for 2007 consisted2009 are associated with the audit of the Intermountain Gas Company’s benefit plans and accounting research assistance. Audit-related fees for 2008 are associated with accounting research assistance; consultation on accounting process improvements, including recommended practices and opportunities for control improvement; and assistance in the implementationtransition of newbenefit plan audits to another accounting standards, accounting research assistance and audit offirm. |
| |
| (c) | Tax fees for 2009 include support services associated with the Cascade Natural Gas Corporation Employee Benefit Plan, as part of the Cascade acquisition. Audit-relatedIRS audit. Tax fees for 2006 consisted of2008 are associated with tax planning, compliance, and support services. |
| |
| (d) | All other fees for 2009 are for services rendered for the audit of our employee benefit plans; accounting consultations and auditsprovided by Deloitte FAS, LLP in connection with acquisitions;the review of accounting practices and accounting research assistance. |
(c) | Tax fees for 2007 are associated with international and domestic tax matters and property tax consulting services. Tax fees for 2006 are associated with property tax consulting services. |
(d) | procedures at one of the company’s operating locations. No fees under the category of all other fees were incurred during 2007 or 2006.2008. |
| |
| (e) | Total fees reported above include out of pocketout-of-pocket expenses related to the services provided of $264,880$267,708 for 2009 and $239,537$269,618 for 2007 and 2006, respectively.2008. |
The audit committee pre-approved all services Deloitte & Touche LLP performed in
20072009 in accordance with the pre-approval policy and procedures the audit committee adopted at its August 12, 2003 meeting. This policy is designed to achieve the continued independence of Deloitte & Touche LLP and to assist in our compliance with Sections 201 and 202 of the Sarbanes-Oxley Act of 2002 and related rules of the Securities and Exchange Commission.
The policy defines the permitted services in each of the audit, audit-related, tax and all other services categories as well as prohibited services. The pre-approval policy requires management to submit annually for approval to the audit committee a service plan describing the scope of work and anticipated cost associated with each category of service. At each regular audit committee meeting, management reports on services performed by Deloitte & Touche LLP and the fees paid or accrued through the end of the quarter preceding the meeting. Management may submit requests for
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additional permitted services before the next scheduled audit committee meeting to the designated member of the audit committee, Dennis W. Johnson, for approval. The designated member updates the audit committee at the next regularly scheduled meeting regarding any services that he approved during the interim period. At each regular audit committee meeting, management may submit to the audit committee for approval a supplement to the service plan containing any request for additional permitted services.
In addition, prior to approving any request for audit-related, tax or all other services of more than $50,000, Deloitte & Touche LLP will provide a statement setting forth the reasons why
the rendering of the proposed services does not compromise Deloitte & Touche LLP’s independence. This description and statement by Deloitte & Touche LLP may be incorporated into the service plan or as an exhibit thereto or may be delivered in a separate written statement.
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
ITEM 6. STOCKHOLDER PROPOSAL REQUESTINGA REPORT ON COAL COMBUSTION WASTE |
A stockholder has notified us that it intends to present a resolution for action by the stockholders at the annual meeting. We will provide the name, address and stock ownership of the proponent to stockholders promptly after receiving an oral or written request. The text of the resolution and the supporting statement submitted by the proponent are as follows.
Stockholder Proposal
Report On Risks Associated With Coal Combustion Waste
WHEREAS: Coal combustion waste (CCW) is a by-product of burning coal that contains high concentrations of arsenic, mercury, heavy metals and other toxins that pollution control equipment filters out of smokestacks. Across the country, over 130 million tons of CCW are being stored in surface waste ponds, impoundments and abandoned mines.
Our company’s electricity generation mix is 54% coal, 17% Gas, 4% Renewables, and 26% Purchased power/capacity agreements.
According to the company, our company operates CCW impoundment sites. CCW is therefore a significant issue for our company.
In 2007, the U.S. Environmental Protection Agency (EPA) published a draft risk assessment that found extremely high risks to human health from the disposal of CCW in waste ponds and landfills. EPA’s analyses of the behavior of CCW in unlined disposal sites predict that some metals will migrate and contaminate nearby groundwater to levels extremely dangerous to people.
The EPA has found ample evidence at over 60 sites in the U.S. that CCW has polluted ground and surface waters.
EPA has identified over 580 CCW impoundment facilities around the country. At least 49 of these have been labeled “high hazard potential” sites where a dam breach and subsequent spill of CCW material would likely result in a loss of human life and significant environmental consequences.
Recent reports by the New York Times and others have drawn attention to the impactful presence of CCW in the nation’s air and waterways, through leakage from CCW impoundments and through direct discharge to surrounding rivers and streams.
The Tennessee Valley Authority’s (TVA) 1.1 billion gallon CCW spill in December 2008 that covered over 300 acres in eastern Tennessee with toxic sludge highlights the serious environmental risks associated with storing CCW. TVA estimates a total cleanup cost of $1.2 billion. This figure does not contain the extensive litigation costs that ensued, including the large class action lawsuit filed against TVA in February 2009.
EPA officials have indicated that the agency will determine by the end of 2009 whether certain power plant by-products such as coal ash should be treated as hazardous waste, which would subject CCW to stricter regulations.
RESOLVED: Shareholders request that the board prepare a report, at reasonable cost and omitting proprietary information, on the company’s efforts, above and beyond legal compliance, to reduce environmental and health hazards associated with coal combustion waste ponds, impoundments and mines, and how those efforts reduce risks to the
company’s finance and operations. This report should be available to shareholders by August 2010.
_________________
Company Response
The board of directors recommends a vote “against” this proposal.
Our company and Montana-Dakota Utilities Co., a division of our company (“Montana-Dakota”), are committed to environmental stewardship and compliance with all applicable environmental laws and regulations.
Our company has three primary environmental goals:
| · | minimize waste and maximize resources |
| · | support environmental laws and regulations that are based on sound science and cost-effective technology and |
| · | comply with or exceed all applicable environmental laws, regulations and permit requirements. |
Montana-Dakota’s electric operations are subject to federal, state and local laws and regulations providing for air, water and solid waste pollution control; federal health and safety regulations; and state hazard communication standards.
The Environmental Protection Agency (“EPA”) has previously determined that fossil fuel combustion wastes, including coal combustion waste (“CCW”), did not warrant regulation as a hazardous waste and exempted them from regulation under Subtitle C (hazardous waste) of the Resource Conservation and Recovery Act (“RCRA”). However, CCW disposed of in landfills and surface impoundments is regulated under Subtitle D (solid waste regulations) of the RCRA, and CCW used as minefill is regulated under Subtitle D and/or under the Surface Mining Control and Reclamation Act. The EPA announced its intention to propose new regulations in December 2009 governing management and storage of CCW in landfills and surface impoundments and to determine whether to continue to regulate CCW as a non-hazardous solid waste under Subtitle D or to designate it as hazardous and regulate it under Subtitle C of the RCRA. In December 2009, however, the EPA announced that it was deferring taking action on this for a short period of time due to the complexity of the analysis. The EPA has also announced its intention to revise existing standards under the Clean Water Act, which would include discharge from CCW ponds.
Four of Montana-Dakota’s nine existing electric generating stations have steam turbines using coal for fuel. Montana-Dakota will also obtain electricity from Wygen III, a coal-fired electric generating station, when it becomes operational in spring 2010. Two stations, Coyote and Heskett, are located in North Dakota; Big Stone is located in South Dakota; Lewis & Clark is located in Montana; and Wygen III is located in Wyoming. Montana-Dakota is the owner and operator of Heskett and Lewis & Clark and has a 25 percent interest in Coyote, a 22.7 percent ownership interest in Big Stone and a 25 percent interest in Wygen III. CCW at these facilities is managed either in a wet state in ponds with dry disposal, or entirely in a dry state.
The states of North Dakota, South Dakota, and Wyoming have regulations relating to CCW that far exceed any current federal regulations. North Dakota, South Dakota, and Wyoming require facilities located within each state - Coyote and Heskett in North Dakota, Big Stone in South Dakota, and Wygen III in Wyoming - - to obtain permits for managing CCW impoundments and for long-term CCW disposal. The permits for each facility require that impoundments for CCW be appropriately designed and that ground water be monitored. Site staff and state environmental agency staff routinely inspect each site. Annual reports for these facilities, summarizing ground water results and activities conducted at these sites, are submitted to each respective regulatory agency: North Dakota Department of Health, South Dakota Department of Environment and Natural Resources, and Wyoming Department of Environmental Quality.
While the state of Montana has no requirements at this time for managing CCW, Montana-Dakota has adopted what it considers to be “best practices” at the Lewis & Clark Station, where it manages CCW in ponds and dewaters the waste prior to ultimate dry disposal at a naturally clay lined disposal area adjacent to the mine from which the plant receives its coal.
The ponds were designed and constructed under the supervision of a consulting professional engineer, requiring liners (clay or high density polyethylene), and appropriate stability and erosion prevention measures. There are ground water monitoring wells, which are sampled semiannually.
There are also weekly visual inspections of the ponds by plant technicians and a biennial visual inspection by the Montana Department of Environmental Quality Water Protection Bureau. The yard crews inspect the ash handling system daily, and in winter, the inspections are conducted twice daily.
The board of directors respects our stockholders’ interest in environmental and health matters. However, the board believes that Montana-Dakota has already taken appropriate actions to manage its CCW and that the investment of human and financial resources that would be required to produce such a report would not be a necessary or prudent use of stockholder assets.
Therefore, the board of directors recommends a vote “against” this proposal.
Approval requires the affirmative vote of a majority of our common stock present in person or represented by proxy at the meeting and entitled to vote on the proposal. Abstentions will count as votes against this proposal. Broker non-votes are not counted as voting power present and, therefore, are not counted in the vote.
| COMPENSATION DISCUSSION AND ANALYSIS |
The following compensation discussion and analysis may contain statements regarding corporate performance targets and goals. These targets and goals are disclosed in the limited context of our compensation programs and should not be understood to be statements of management’s expectations or estimates of results or other guidance. We specifically caution investors not to apply these statements to other contexts.
In this compensation discussion and analysis, we discuss our compensation objectives, our decisions, and the reasons for our decisions relating to
20072009 compensation for our named executive officers.
There have been a few changes in
For 2009, our named executive officers
from 2006 to 2007.were Terry D. Hildestad, Vernon A. Raile,
John G. Harp, William E. Schneider, and
John G. Harp were named executive officers in 2006 and continue to be named executive officers for 2007. Bruce T. Imsdahl, theSteven L. Bietz. Mr. Bietz, president and chief executive officer of
Montana-Dakota Utilities Co. and Great Plains Natural Gas Co.WBI Holdings, Inc.,
joins ouris a named executive officer
group for
2007. Martin A. White, our former chief executive officer, and Warren L. Robinson, our former executive vice president and chief financial officer, retired in 2006, and John K. Castleberry, our former executive vice president – administration, retired in 2007.the first time.
Each year we conduct a strategic analysis to identify opportunities and challenges associated with the operating environments in which we do business. SomeOur strategy is to apply our expertise in three core lines of our ongoing strategic goals include:business – energy, construction materials, and utility resources – to increase market share, increase profitability, and enhance stockholder value through:
| | • | pursuing higher-growth opportunities in our non-regulated businesses throughorganic growth as well as a continued disciplined approach to the support provided by the stabilityacquisition of well-managed companies and predictability of our regulated businessesproperties |
| | • | 7.0% - 10.0% earnings per share growththe elimination of system-wide cost redundancies through increased focus on integration of operations and standardization and consolidation of various support services and functions across companies within the organization and |
| | • | total stockholder return at or above the mediandevelopment of our performance graph peer group |
| • | maintaining a conservative capital structure while growing our businessesprojects that are accretive to earnings per share and |
| • | achieving or exceeding our weighted average cost of capital at the consolidated level and business unit levels |
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Throughout our compensation discussion and analysis we discuss specific pay decisions for each named executive officer and why we made those decisions. One basic tenet underlying some of our pay decisions is our overall performance. Our company’s performance, in turn, is significantly impacted by the performance of our named executive officers. When the compensation committee met in November 2006 to establish 2007 base salaries, we were in the final weeks of a year which yielded the following financial results:
| • | record earnings of $315 million, representing a 14.8% increase over 2005 |
| • | a total stockholder return of 20% |
| • | a return on invested capital of 10.6%, which was higher than our weighted average cost of capitalcapital. |
Objectives of our Compensation Program
We structure our compensation program to help retain and reward the executive officers who we believe are critical to our long-term success. We have a written executive compensation policy for our Section 16 officers, including all our named executive officers. Our policy has the following stated objectives:
| | • | recruit, motivate, reward, and retain the high performing executive talent required to create superior long-term total stockholder return in comparison to our peer group |
| | • | reward executives for short-term performance as well as the growth in enterprise value over the long-term |
| | • | provide a competitive package relative to industry-specific and general industry comparisons and internal pay equity, as appropriate, and |
| | • | ensure effective utilization and development of talent by working in concert with other management processes – for example, performance appraisal, succession planning, and management development. |
We pay/grant
base salaries in order to
| | • | base salaries in order to provide executive officers with sufficient, regularly-paid income and |
| | • | attract, recruit, and retain executives with the knowledge, skills, and abilities necessary to successfully execute their job duties and responsibilities |
annual incentives in order to
| | • | annual incentives in order to be competitive from a total remuneration standpoint |
| | • | and ensure focus on annual financial and operating results and |
| | | • | make a significant portion of our named executive officers’ compensation at risk and dependent upon achievement of performance goals relatinglong-term incentives in order to business unit or other operational goals |
long-term incentives in order to
| | • | be competitive from a total remuneration standpoint and |
| | • | ensure focus on stockholder return. |
If earned, incentive compensation, which consists of annual cash incentive awards and three-year performance share awards under our Long-Term Performance-Based Incentive Plan, makes up the greatest portion of our named executive officers’ total compensation. The compensation committee
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believes incentive compensation comprising 55%that comprised approximately 61% to 70%71% of total target compensation for the named executive officers for 2009 is appropriate because:
| | • | our named executive officers are in positions to drive, and therefore bear high levels of responsibility for, our corporate performance |
| | • | incentive compensation is at riskmore variable than base salary and dependent upon our performance |
| | • | at riskvariable compensation helps ensure focus on the goals that are aligned with our overall strategy and |
| | • | the interests of our named executive officers will be aligned with those of our stockholders by making a majority of the named executive officers’ target compensation contingent upon results that are beneficial to stockholders. |
The following table shows the allocation of total target compensation for 20072009 among the individual components of base salary, annual incentive, and long-term incentive:
| | | % of Total
Target
Compensation
Allocated to
Base Salary (%) | | | % of Total Target Compensation
Allocated to Incentives | | |
|---|
| | |
| Name | | | Annual (%) | | | Long-Term (%) | | | Annual +
Long-Term (%) | | |
|---|
| | | |
| Terry D. Hildestad | | | | | 30.0 | | | | 30.0 | | | | 40.0 | | | | 70.0 | |
| Vernon A. Raile | | | | | 41.7 | | | | 20.8 | | | | 37.5 | | | | 58.3 | |
| William E. Schneider | | | | | 41.7 | | | | 20.8 | | | | 37.5 | | | | 58.3 | |
| John G. Harp | | | | | 44.4 | | | | 22.2 | | | | 33.4 | | | | 55.6 | |
| Bruce T. Imsdahl | | | | | 44.4 | | | | 22.2 | | | | 33.4 | | | | 55.6 | |
| | % of Total Target Compensation Allocated to Base Salary (%) | % of Total Target Compensation Allocated to Incentives |
| Name | Annual (%) | | | Long-Term (%) | | | Annual + Long-Term (%) |
| Terry D. Hildestad | | | 28.6 | | 28.6 | | | | 42.8 | | | | 71.4 |
| Vernon A. Raile | | | 39.2 | | 25.5 | | | | 35.3 | | | | 60.8 |
| John G. Harp * | | | 39.2 | | 25.5 | | | | 35.3 | | | | 60.8 |
| William E. Schneider | | | 39.2 | | 25.5 | | | | 35.3 | | | | 60.8 |
| Steven L. Bietz | | | 39.2 | | 25.5 | | | | 35.3 | | | | 60.8 |
| * | The percentages listed for Mr. Harp exclude the additional incentive opportunity of $200,000 in 2009, which is discussed in greater detail under the heading “John G. Harp’s Additional 2009 Incentive.” Including the additional incentive opportunity would yield the following percentages: Base Salary, 33.4%; Annual Incentive, 36.5%; Long-Term Incentive, 30.1%; and Annual + Long-Term, 66.6%. |
In order to reward long-term growth as well as short-term results, the compensation committee establishes incentive targets that emphasize long-term compensation as much as or more than short-term compensation for all Section 16 officers. The annual incentive targets for
20072009 range from
10%30% to 100% of base salary and the long-term incentive targets range from
15%30% to
133%150% of base salary, depending on the executive’s salary grade. Generally, our approach is to allocate a higher percentage of total target compensation to the long-term incentive than to the short-term incentive for our higher level executives, since they are in a better position to influence our long-term performance.
Additionally, the long-term incentive, if earned, is paid in company common stock. These awards, combined with our stock ownership guidelines, promote ownership of our stock by the named executive officers. The compensation committee believes that, as stockholders, the named executive officers will be motivated to consistently deliver financial results that build wealth for all stockholders over the long-term.
We also offer our Section 16 officers, including all of our named executive officers, benefits under our pension plans and our non-qualified defined benefit retirement plan, which we refer to as the Supplemental Income Security Plan or SISP.
Historically, we have provided these programs because they have been instrumental in retaining executive talent; both have vesting requirements which call for minimum lengths of service to earn the full benefits. However, legislative changes relating to pension plans and cost reduction initiatives led to changes in both the pension plans and the SISP. The SISP was
adoptedalso changed to ensure the reductions in
1982defined benefit retirement plans were consistent between executive and non-executive employees. Specifically, benefit accruals under our pension plans ceased after December 31, 2009. We discuss the modifications to
provide participants with additional retirement incomeboth the pension plans and
death benefits. We provide these benefits because of their importance to our successthe SISP in
recruiting and retaining executive talent.the narrative following the “Pension Benefits for 2009” table.
All of our named executive officers have change of control employment agreements. The change of control employment agreements define “change of control” to include consummation of a merger or similar transaction rather than merely stockholder
approval. This prevents severance and other benefits from being provided if the transaction is not consummated.11
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Following a change of control transaction, the change of control agreements provide job and financial security to our named and executive officers by providing for a three-year employment period from the dateapproval of the change of control. During the employment period, the executive officer receives guaranteed minimum levels of compensation and benefits. The executive officer will also receive severance payments and benefits if his employment is terminated without cause, or if he resigns for good reason.
The agreements contain what are commonly referred to as “13th month triggers,” which provide that a resignation for good reason includes resignation for any reason during the 30 day period beginning on the first anniversary of the change of control. The compensation committee believes the 13th month trigger encourages executive officers to remain with the company or a successor during the critical year-long transition period following a transaction. This is beneficial to the company and its stockholders and, when combined with the other severance, protects executive officers who choose to continue employment.
The agreements also provide what is commonly referred to as a “modified tax gross-up.” This provides for an additional payment to make an officer whole for federal excise taxes that could be imposed on payments and benefits deemed to be related to the change of control. The gross-up payment is considered “modified” since it provides for gross-up payments only if the total payments deemed to relate to the change of control would have to be reduced by more than 10% to avoid the excise tax. If this threshold amount is not exceeded, payments and benefits to the executive are reduced to avoid the excise tax. The compensation committee believes a modified gross-up using a 110% threshold strikes an appropriate balance between the potential detriment to the officer of having to forfeit some payments and the potential benefit to the company of avoiding the excise tax and related gross-up obligation.
The board of directors and the compensation committee reviewed the change of control agreements in 2006. merger.
We
compared the terms of our change of control agreements to the terms of agreements for certain companies in our performance graph peer group and to the Frederic W. Cook & Co., Inc., 2005 Change-in-Control Report, Prevalence and Design of Executive Change-in-Control Arrangements at Each of the Top 50 NYSE and NASDAQ Companies. The compensation committee determined that the terms of our agreements were consistent with current practice and, accordingly, that maintaining these agreements is essential to competing with peer companies for top officers. We also believe it is important to encourage our
named executive officers to continue working for us during any change of control transaction periods and to provide severance payments and benefits if employment is terminated
in connection with a change of control or for no fault of the
officer.officer following a change of control. These agreements provide a measure of job and financial security so that potentially disruptive transactions do not affect the officers’ judgment when working on behalf of the company and its stockholders prior to and after a change of control. We do not view the change of control agreements as additional compensation and do not take them into account when determining the amount of compensation provided because the events required to trigger these payments and benefits may never occur.
In addition to these agreements, the Long-Term Performance-Based Incentive Plan provides for accelerated vesting and payment of performance awards previously granted but not yet vested at the time of a change of controlcontrol. In 2009, we amended the plan’s “change of control” definition so that vesting and payment of performance awards.awards are not triggered prematurely. The compensation committee believes that these protections are necessary to reassure the officers that they will not lose prior incentive awards or otherwise be adversely affected by a change of control.We discuss the amendments to the plan’s change of control definition in “Potential Payments upon Termination or Change of Control.” Role of Compensation Consultants and Management
Role of Compensation Consultants
The
In 2008, the compensation committee
uses an outsideretained Towers Perrin, a nationally recognized consulting firm, to assess the competitive pay levels for base salary and incentive compensation for each Section 16 officer
position.position and to assist the compensation committee in establishing competitive 2009 compensation targets for our Section 16 officers. The assessment
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includes included identifying material changes to the positions analyzed, updating competitive compensation information, gathering and analyzing relevant general and industry-specific survey data, and updating the base salary structure. In August 2006, the committee retained Towers Perrin, a nationally recognized consulting firm, to assist it in establishing competitive 2007 compensation targets for our Section 16 officers. Towers Perrin assessed competitive pay levels for base salary, total annual cash, which is base salary plus annual incentives, and total direct compensation, which is the sum of total annual cash and the expected value of long-term incentives. Towers Perrin also prepared an updated salary grade structure based on the above competitive analyses and identified overall competitive compensation targets. They compared our positions to like positions contained in general industry salarycompensation surveys, industry-specific salarycompensation surveys and, for our chief executive officer, the chief executive officers in our performance graph peer group. The salarycompensation surveys used by Towers Perrin were:
| Survey* | | | Number of
Companies
Participating
(#) | | | Median
Number of
Employees
(#) | | | Number of
Publicly-
Traded
Companies
(#)(1) | | | Median
Revenue
(000s)
($) | |
|---|
| | | |
| Towers Perrin’s Executive Compensation Database | | | | | 363 | | | | 20,500 | | | | 273 | | | | 6,114,000 | |
| Towers Perrin’s Energy Services Industry Executive Compensation Database | | | | | 93 | | | | 3,064 | | | | 67 | | | | 2,696,400 | |
| Effective Compensation, Inc.’s Oil & Gas Exploration and Production Survey | | | | | 87 | | | | 151 | | | | 54 | | | | 258,000 | |
| Mercer’s Energy Compensation Survey | | | | | 156 | | | | 359 | | | | 114 | | | | 379,467 | |
| Watson Wyatt’s Report on Top Management Compensation | | | | | 2,567 | | | | (2) | | | | (2) | | | | (2) | |
| Survey* | | Number of Companies Participating (#) | | Median Number of Employees (#) | | Number of Publicly- Traded Companies (#)(1) | | Median Revenue (000s) ($) |
| Towers Perrin’s Executive Compensation Database | | | 395 | | | | 18,529 | | | | 283 | | | | 5,730,000 | |
| Towers Perrin’s Energy Services Industry Executive Compensation Database | | | 91 | | | | 3,300 | | | | 63 | | | | 2,960,000 | |
Effective Compensation, Inc.’s Oil & Gas Exploration and Production Survey | | | 119 | | | | 140 | | | | 69 | | | | 247,000 | |
| Mercer’s Energy Compensation Survey | | | 217 | | | | 610 | | | | 173 | | | | 774,172 | |
| Watson Wyatt’s Report on Top Management Compensation | | | 2,309 | | | | (2 | ) | | | (2 | ) | | | (2 | ) |
| (1) | For the Towers Perrin Executive Compensation Database, the number listed in the table is the number of companies reporting market capitalization. For the Towers Perrin Energy Services Industry Executive Compensation Database, the number listed in the table is the number of companies reporting three-year stockholder return. |
| |
| (2) | The 2,5672,309 organizations participating in the 2007/2008 Watson Wyatt Report included: 370included 368 organizations with 2,000 to 4,999 employees; 301298 organizations with 5,000 to 9,999 employees; 292309 organizations with 10,000 to 19,999 employeesemployees; and 362372 organizations with 20,000 or more employees. Watson Wyatt did not provide a revenue breakdown or the number of publicly-traded companies participating in its survey. Towers Perrin utilized the 2007/2008 survey and aged the data to January 1, 2009. |
Our revenues for 2005 were approximately $3.5 billion. For 2006, our revenues were approximately $4.0 billion and for 2007, our revenues were $4.2 billion.
*The information in the table is based solely upon information provided by the publishers of the surveys and is not deemed filed or a part of this compensation discussion and analysis for certification purposes.
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Our revenues for 2007, 2008, and 2009 were approximately $4.2 billion, $5.0 billion, and [•] billion, respectively.
In addition to the above salarycompensation surveys, for the chief executive officer comparison, Towers Perrin used salary information for the chief executive officers at the following companies, which comprised 24 of the 26 companies in our performance graph peer group in July 2006:of 2007:
• Allegheny Energy, Inc.
• Allete Inc.
| • Alliant Energy Corp.
Corporation • Berry Petroleum Company • Black Hills Corp.
Corporation • Comstock Resources, Inc.
• Dycom Industries, Inc. • EMCOR Group, Inc. • Encore Acquisition Company • EQT Corporation (formerly Equitable Resources, Inc.
) • Florida Rock Industries, Inc.
• KeySpan Corp.
Granite Construction Inc. • Martin Marietta Materials, Inc.
• Newfield ExplorationNational Fuel Gas Co.
• NICOR, Inc.
Northwest Natural Gas Company | | • NSTAR • OGE Energy Corp. | | • ONEOK, Inc.
• Peoples Energy Corp.
• Pogo Producing Co.
• Quanta Services, Inc.
• Questar Corp.
Corporation • SCANA Corp.
Corporation • StoneSouthwest Gas Corporation • St. Mary Land & Exploration Company • Swift Energy Corp.
Company • TECO Energy,U.S. Concrete, Inc.
• UGI Corp.
• Vectren Corp.
Corporation • Vulcan Materials Co.
Company • XTO Energy Inc.Whiting Petroleum Corporation |
The chief executive officer played an important role in recommending 20072009 compensation to the committee for the other named executive officers. The chief executive officer attended compensation committee meetings; however, he was not present during discussions regarding his compensation. In addition, he assessed the performance of the named executive officers and worked with the human resources department and compensation consultants to recommend:
| | • | base salary grades and individual salaries |
| | • | annual and long-term incentive targets and |
| | • | inclusion in our SISP or increases in the level of the SISP benefits to current participants. |
Our human resources personnel also supported the chief executive officer and the compensation committee by:
| | • | working with the outside compensation consultants and the chief executive officer on the determination of recommended salary grades, which have associated annual base salariessalary ranges and incentive targets |
| | • | reviewing recommended salary increases and incentive targets submitted by executive officers for officers reporting to them for reasonableness and alignment with company or business unit objectives and to help ensure internal equity and |
| | • | designing and updating annual and long-term incentive programs. |
Once performance goals are approved by the compensation committee, the committee generally does not modify the goals. However, if major unforeseen changes in economic and environmental conditions or other significant factors beyond the control of management substantially affected their ability to achieve the specified performance goals, the compensation committee, in consultation with the chief executive officer, may modify the performance goals. Such goal modifications will only be considered in years of unusually adverse or favorable external conditions.
Internal Equity – Relative Value of Named Executive Officer Positions
From an internal equity standpoint, the compensation committee considers, upon recommendation of the chief executive officer, the relative value of each named executive officer position when making compensation decisions. A position’s relative value is determined by considering:
| • | participation on our management policy committee, which is the entity responsible for setting corporate-wide operating and management policies and procedures as well as our strategic direction |
| • | the position’s responsibilities relative to our total earnings, use of invested capital, and the stable generation of earnings and cash flow and |
| • | the position’s impact on key strategic initiatives. |
This consideration impacts the assignment of a salary grade, short-term incentive targets, and long-term incentive targets. The compensation committee may make adjustments from competitive data in one or more of these items to ensure the pay differences between the chief executive officer and the other named executive officers are reasonable in their judgment in light of the internal equity factors described above. For example, the compensation committee has historically assigned a long-term incentive target percentage to the chief executive officer position that is lower than the competitive level indicated through market data. The committee’s rationale is to have the chief executive officer’s compensation closer to the compensation of his direct reports than what the market data would otherwise indicate.
To test the reasonableness of the company’s approach on pay equity, the compensation committee measured the chief executive officer’s compensation as a multiple of the compensation paid to our other four named executives, then compared these multiples to competitive pay information provided by Towers Perrin. The chart below shows the company’s pay multiples and the competitive pay multiples.
We calculated the four multiples in the chart by dividing our chief executive officer’s target total direct compensation by the target total direct compensation of each of our four named executives. We calculated the four competitive pay multiples by dividing the target total direct compensation for the chief executive officer position, as provided by Towers Perrin, by the target total direct compensation of each position similar to each of our four named executives, as provided by Towers Perrin. For purposes of this comparison, target total direct compensation consists of base salary plus target annual incentive plus target long-term incentive.
The company’s chief executive officer multiples are less than chief executive officer pay multiples as calculated with competitive data*. The committee views the lower multiples as support for the belief that compensation targets among the named executives are equitably distributed.
*The information in the chart showing chief executive officer pay multiples from competitive data is based solely upon information provided by the publishers of the compensation surveys discussed earlier and is not deemed filed or a part of this compensation discussion and analysis for certification purposes.
The compensation committee, in conjunction with the board of directors, determined all compensation for each named executive officer for
20072009 and set overall and individual compensation targets for the three components of compensation — base salary, annual incentive, and long-term incentive. The compensation committee made recommendations to the board of directors regarding
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compensation of all Section 16 officers, and the board of directors then approved the recommendations.
The compensation committee
began its review ofreviewed competitive executive compensation data
from Towers Perrin and established salary grades at its August
20062008 meeting. At the November
20062008 meeting, it established
salary grades and individual base
salaries.salaries, target annual incentive award levels, and target long-term incentive award levels for 2009. At the February meetings of the compensation committee and the board of directors,
we determine annual and long-term incentive awards
were determined, along with the payouts based on performance from the recently completed performance period for prior annual and long-term awards. The February meetings occur after the release of earnings for the prior year.
Salary Grades for
20072009
The compensation committee determines ourthe named executive officers’ base salaries and annual and long-term incentive targets by reference to salary grades. Each salary grade has a minimum, midpoint, and maximum annual salary level with the midpoint targeted at approximately the 50th percentile of data provided by Towers Perrin for positions in the salary grade. The compensation committee may adjust the salary grades away from the 50th percentile in order to balance the
external market data with
the internal
equity and relative value of the positions.equity. The salary grades also have annual and long-term incentive target levels, which are expressed as a percentage of the individual’s actual annual salary.
NamedWe generally place named executive officers
generally are placed into a salary grade based on historical classification of their positions; however, the compensation committee, at its August meeting, reviews each classification and may place a position into a different salary grade if it determines that the targeted competitive compensation for the position changes significantly or the executive’s responsibilities and/or performance warrants
the change.a different salary grade. The committee also considers, upon recommendation from the chief executive officer, a position’s relative
value. A position’s relative value
is determined by considering | • | participation on our management policy committee, which is the body responsible for setting enterprise-wide operating and management policies and procedures as well as our strategic direction |
| • | the position’s responsibilities relative to our total earnings, use of invested capital and the stable generation of earnings and cash flows and |
| • | the position’s impact on key strategic initiatives. |
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as discussed above.
Our named executive officers’ salary grade classifications are listed below along with the 20072009 base salary ranges associated with each classification:
| Position | | | Grade | | | Name | | | 2007 Base Salary (000s) | | |
|---|
Minimum
($) | | | Midpoint
($) | | | Maximum
($) | |
|---|
| | | |
| President and CEO | | | | | K | | | Terry D. Hildestad | | | | | 620 | | | | 775 | | | | 930 | |
| Executive Vice President, Treasurer and CFO | | | | | J | | | Vernon A. Raile | | | | | 312 | | | | 390 | | | | 468 | |
| President and CEO, Knife River Corporation | | | | | J | | | William E. Schneider | | | | | 312 | | | | 390 | | | | 468 | |
| President and CEO, MDU Construction Services Group, Inc. | | | | | I | | | John G. Harp | | | | | 252 | | | | 315 | | | | 378 | |
| President and CEO, Montana-Dakota Utilities Co. and Great Plains Natural Gas Co. | | | | | I | | | Bruce T. Imsdahl | | | | | 252 | | | | 315 | | | | 378 | |
| | | | | | | 2009 Base Salary (000s) | |
| Position | | | Grade | | | Name | | | | Minimum ($) | | | Midpoint ($) | | | Maximum ($) | |
| President and CEO | | | K | | | Terry D. Hildestad | | | | 620 | | | 775 | | | 930 | |
| Executive Vice President, Treasurer and CFO | | | J | | | Vernon A. Raile | | | | 312 | | | 390 | | | 468 | |
| President and CEO, MDU Construction Services Group, Inc. | | | J | | | John G. Harp | | | | 312 | | | 390 | | | 468 | |
| President and CEO, Knife River Corporation | | | J | | | William E. Schneider | | | | 312 | | | 390 | | | 468 | |
| President and CEO, WBI Holdings, Inc. | | | J | | | Steven L. Bietz | | | | 312 | | | 390 | | | 468 | |
The executive vice president, treasurer and chief financial officer and the president and chief executive
officerofficers of Knife River Corporation,
MDU Construction Services Group, Inc., and WBI Holdings, Inc. are assigned to salary grade “J.” The committee believes that from an internal equity standpoint, these
two positions should carry the same salary
grade based on the above factors.grade. The
positions of president and chief executive officer of MDU Construction Services Group, Inc. and Montana-Dakota Utilities Co. and Great Plains Natural Gas Co. have historically been assigned to salary
grade “I.” The committee believes that from an internal equity standpoint, these two positions should carry the same salary grade based on the above factors. For all ofgrades for our named executive officers
the salary grades remained unchanged for
2007.2009.
The compensation committee determines where, within each salary grade, an individual’s base salary should be. The compensation committee believes that having a range of possible salaries within each salary grade gives the committee the flexibility to assign different salaries to individual executives within a salary grade to reflect one or more of the following:
| | • | our performance on financial measurements as compared to our performance graph peer group |
| | • | the executive’s performance on financial goals |
| | • | the executive’s performance on non-financial goals, including the results of the performance assessment program |
| | • | the executive’s experience, tenure, and future potential |
| | • | the position’s relative value compared to other positions within the company |
| | • | the relationship of the salary to the competitive salary market value |
| | • | internal pay equity with other executives and |
| | • | the economic environment of the corporation or executive’s business unit. |
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Our performance assessment program rates performance in the following areas, which help determine actual salaries within the range of salaries associated with the executive’s salary grade:
• visionary leadership
• strategic thinking
• leading with integrity
• managing customer focus
• financial responsibility
• achievement focus
• judgment
• planning and organization | | • leadership
• mentoring
• relationship building
• conflict resolution
• organizational savvy
• safety
• Great Place to Work® |
An executive’s overall performance in our performance assessment program is rated on a scale of one to five, with five as the highest rating denoting distinguished performance. An overall performance above 3.75 is considered commendable performance.
The chief executive officer assessed each named executive officer’s performance under the performance assessment program, and the compensation committee, as well as the full board of directors, assessed the chief executive officer’s performance.
Base Salaries of the Named Executive Officers for
20072009
Mr. Hildestad
was promoted tohas served as chief executive officer
insince August 2006.
At that timeFor 2009, the
compensation committee
assigned Mr. Hildestadincreased his salary by 7.1%, from $700,000 to
salary grade “K,” our highest salary grade, and increased$750,000. The reasons for Mr. Hildestad’s
base salary from $525,000 to $625,000. While the “K” salary grade midpoint was $750,000 in 2006, the compensation committee believed that setting Mr. Hildestad’s salary at the midpoint would have been premature given his new promotion to the position. In addition, the committee also decided that it would not give Mr. Hildestad a salary2009 increase
in January 2007 and took this into consideration when increasing his salary to $625,000.were:
| • | the company’s 2008 forecasted financial results (based on 9 months’ actual plus 3 months’ estimate) on earnings per share (EPS) and return on invested capital (ROIC) were higher than 2008 targets by 12.4% and 6.6%, respectively |
| • | the company’s ROIC for the twelve months ended June 30, 2008 was 19.1% higher than the median ROIC for the performance graph peer companies over the same time period on a continuing operations basis |
| • | the board recognized Mr. Hildestad’s strong leadership during difficult economic times, as well as fostering a culture of integrity throughout the organization, and |
| • | moving Mr. Hildestad’s salary closer to the 2009 salary grade midpoint of $775,000. |
Mr. Raile has served as executive vice president, treasurer and chief financial officer since January 2006. Mr. Raile’s 20072009 base salary was $350,700,set at $450,000, representing an increase of 10.0%12.5% over his 20062008 base salary of $318,750.$400,000. The committee set his 20072009 base salary at $350,700$450,000, above the midpoint of his salary grade, due to his commendable performance assessment rating, his years of service, and the results associated with these key achievements:
| • | the company’s 2008 forecasted financial results (based on 9 months’ actual plus 3 months’ estimate) on EPS and ROIC were higher than 2008 targets by 12.4% and 6.6%, respectively |
| • | the company’s ROIC for the twelve months ended June 30, 2008 was 19.1% higher than the median ROIC for the performance graph peer companies over the same time period on a continuing operations basis, and |
| • | key financing initiatives that were undertaken and Mr. Raile’s experience and skill. |
John G. Harp
Mr. Harp has served as president and chief executive officer of MDU Construction Services Group, Inc. since September 2004. For 2009, his base salary was set at $450,000, representing an increase of 12.5% over his 2008 base salary of $400,000. The committee set his 2009 base salary at $450,000, above the midpoint of his salary grade, due to his commendable performance assessment rating and to continue to move his base salary closer to the $390,000 midpoint of his salary grade. In addition, the committee increased Mr. Raile’s base salary due to results associated with these key achievements:
MDU Construction Services Group, Inc.’s 2008 forecasted financial results (based on 9 months’ actual plus 3 months’ estimate) on EPS and ROIC were higher than 2008 targets by 74.0% and 59.1%, respectively
| | • | leading an internal team onMDU Construction Services Group, Inc.’s ROIC for the successful re-negotiationtwelve months ended June 30, 2008 was 115.9% higher than the median ROIC of construction services companies in our revolving credit agreement for our non-regulated businesses, as well as the financing of the Cascade Natural Gas Corporation acquisition; both achievements occurred during a period of challenging credit marketsperformance graph peer group, and |
| | • | assisting in the saleMr. Harp’s strong grasp of our domestic independent power production assetsall aspects of MDU Construction Services Group, Inc.’s business, including operations, collections, bidding, and |
| • | continuing to strengthen our relationship with the investment community and rating agencies. personnel. |
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Mr. Schneider has served as president and chief executive officer of our subsidiary, Knife River Corporation since May 2005. Mr. Schneider’s 20072009 base salary was $422,000, whichmaintained at $447,400, representing no increase from 2008. The committee did not grant Mr. Schneider a base salary increase because Knife River Corporation’s 2008 nine-month financial results were less than target and because the committee wished to be consistent with the overall wage freeze imposed across Knife River Corporation.
Steven L. Bietz
Mr. Bietz has served as president and chief executive officer of WBI Holdings, Inc. since March 2006. For 2009, his base salary was above the 2007 salary grade midpointset at $350,000, representing an increase of $390,000, and 7.7% higher than11.8% over his 20062008 base salary of $392,000.$313,100. The committee set his 20072009 base salary at $422,000 because$350,000, below the midpoint of Knife River Corporation’s record 2006 financial results and Mr. Schneider’shis salary grade, due to his commendable performance assessment rating. In addition, the committee maintained Mr. Schneider’s salary above the salary grade midpoint based onrating and due to results associated with these key achievements:
| | • | continued penetration of,WBI Holdings, Inc.’s 2008 forecasted financial results (based on 9 months’ actual plus 3 months’ estimate) on EPS and profitable growth in, the asphalt materials market, which represented a significant opportunity for Knife River to leverage existing expertise in an area providing a new revenue stream to the companyROIC were higher than 2008 targets by 37.1% and 30.9%, respectively |
| | • | an improvementThe ROIC associated with the oil and natural gas exploration and production unit of over 20%WBI Holdings, Inc. for the twelve month period ended June 30, 2008 was 58.4% higher than the median ROIC of oil and natural gas exploration and production companies in the reduction of lost time incidents compared to 2005our performance graph peer group, and |
| | • | continued progress relating to our shared services initiative, which is designed to generate efficienciesMr. Bietz’s leadership in the financial transactions area through standardizing systems and processes. |
John G. Harp
Mr. Harp was appointed president and chief executive officer of MDU Construction Services Group, Inc. in September 2004. Mr. Harp’s 2007 base salary was set at $341,000, which was above the salary grade midpoint of $315,000 and 10% higher than his 2006 base salary of $310,000. This increase was primarily attributable to Mr. Harp’s leadership of the financial turn-around of MDU Construction Services Group, Inc. from a loss in 2004 to record 2006 financial results, as well as Mr. Harp’s commendable performance assessment rating. The committee also considered these additional accomplishments in determining his 2007 base salary:
| • | leading the acquisition of Desert Fire Holdings, Inc., which represented a different line of business than our traditional construction services but provided our Las Vegas operations with expanded service offerings, allowing them to further differentiate their operations from competitors in that area |
| • | a 33% improvement over the three-year averagelarge-scale development of the MDU Construction Services Group, Inc.’s lost time accident rate and |
| • | expanding into the industrial construction services market, which leveraged our existing expertise in an area that provides a new revenue stream.Bakken Field. |
Bruce T. Imsdahl
Mr. Imsdahl was appointed president and chief executive officer of Montana-Dakota Utilities Co. and Great Plains Natural Gas Co. in November 2004 and was appointed chief executive officer of Cascade Natural Gas Corporation upon the closing of that acquisition in July 2007. Mr. Imsdahl’s 2007 base salary was set at $322,400, which was above the salary grade midpoint of $315,000 and 4% higher than his 2006 base salary of $310,000. The decision to maintain his salary above the salary grade midpoint was driven by Montana-Dakota’s 2006 earnings results finishing above plan, Mr. Imsdahl’s commendable performance assessment rating and Mr. Imsdahl’s performance on these key initiatives:
| • | leading the acquisition of Cascade Natural Gas Corporation |
| • | delivering zero lost time accidents compared to an industry average of 2.5 and |
| • | increasing Montana-Dakota’s 2006 Great Place to Work® scores when compared to the prior two surveys. |
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The following table shows each named executive officer’s base salary for 20062008 and 20072009 and the percentage change.
| Name | | | Base Salary
for 2006
(000s)
($) | | | Base Salary
for 2007
(000s)
($) | | | % Change
(%) | |
|---|
| | |
| Terry D. Hildestad | | | | 625 | | | 625 | | | 0.0 | |
| Vernon A. Raile | | | | 319 | | | 351 | | | 10.0 | |
| William E. Schneider | | | | 392 | | | 422 | | | 7.7 | |
| John G. Harp | | | | 310 | | | 341 | | | 10.0 | |
| Bruce T. Imsdahl | | | | 310 | | | 322 | | | 4.0 | |
2007
| Name | Base Salary for 2008 (000s) ($) | | Base Salary for 2009 (000s) ($) | | % Change (%) |
| Terry D. Hildestad | | | 700.0 | | | 750.0 | | | 7.1 |
| Vernon A. Raile | | | 400.0 | | | 450.0 | | | 12.5 |
| John G. Harp | | | 400.0 | | | 450.0 | | | 12.5 |
| William E. Schneider | | | 447.4 | | | 447.4 | | | 0.0 |
| Steven L. Bietz | | | 313.1 | | | 350.0 | | | 11.8 |
What the Performance Measures Are and Why We Chose Them
The compensation committee develops and reviews financial and other corporate performance measures to help ensure that compensation to the executives reflects the success of their respective business unit and/or the corporation, as well as the value provided to our stockholders. For Messrs. Hildestad and Raile, the performance measures for annual incentive awards are our annual return on invested capital results compared to target and our annual earnings per share results compared to target. For Messrs. Schneider, Harp, and Imsdahl,Bietz, the performance measures for annual incentive awards are their respective business units’unit’s annual return on invested capital results compared to target and their respective business units’unit’s allocated
earnings per share results compared to target.
The 2009 safety results of WBI Holdings, Inc. was also a measure for Mr. Bietz’s 2009 annual incentive.
The compensation committee believes earnings per share and return on invested capital are very good measurements in assessing company performance from a financial standpoint. Earnings per share is a generally accepted accounting principle measurement and is a key driver of stockholder return over the long-term. Return on invested capital measures how efficiently and effectively management deploys its capital. Sustained returns on invested capital in excess of our cost of capital create wealth for our stockholders.
Allocated earnings per share for a business unit is calculated by dividing that business unit’s earnings by the business unit’s
proportionportion of the total company weighted average shares outstanding. Return on invested capital for the company is calculated by dividing our earnings,
beforewithout regard to after tax interest expense and preferred stock dividends, by our average capitalization for the calendar year. Return on invested capital for a business unit is calculated by dividing the business unit’s earnings,
beforewithout regard to after tax interest expense and preferred stock dividends, by the business unit’s average capitalization for the calendar year.
The compensation committee determines the weighting of the
goalsperformance measures each year based upon recommendations from the chief executive officer. The compensation committee weighted the
2007 goals2009 performance measures for return on invested capital compared to
plannedtargeted results and allocated earnings per share compared to
plannedtargeted results each at 50%. The compensation committee believes both measures are equally important in driving
shareholderstockholder value in the short term and over time.
In 2006 we began limiting
We limit the after-tax annual incentive compensation we will pay above the target amount. The after-tax incentives paid above target will be limitedamount to 20% of earnings in excess of planned earnings. TheWe calculate the earnings in excess of planned earnings are calculated without regard to the after-tax annual incentive amounts above target. TheWe measure the 20% limitation is measured at the major business unit level for business unit and operating company executives, which include Messrs. Harp, Schneider Harp and Imsdahl,Bietz, and at the corporate level for corporate executives, which include Messrs. Hildestad and Raile. In 2009, the 20% limitation was calculated without regard to the noncash ceiling test impairment charge that we discuss later.
We establish our incentive plan performance targets in connection with our annual financial planning process, where we assess the economic environment, competitive outlook, industry trends, and company specific conditions to set projections of results. The committee evaluates the projected results and uses this evaluation to establish the incentive plan performance targets. The committee also considers annual improvement in the return on invested capital measure for incentive
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purposes to help ensure that return on invested capital equalswill equal or exceedsexceed the weighted average cost of capital.
Targets are established Historically, this consideration took the form of a minimum annual increase in connection with our annual financial planning process, where we assess the future operating environment and set projections of results. Beginning in 2006, the committee implemented a change in how the return on investment capital targets are established for use in our annual incentive plans. The change was implemented to emphasize the need for each business unit and the company to generate, within a reasonable period of time, a return on invested capital that is at least equal to the business unit’s or company’s weighted average cost of capital. If a business unit’s and/or the company’s return on invested capital as established inincentive plan performance target(s). For 2009, the annual financial planning process, was below its weighted average cost of capital,committee chose to use the stretch return on invested capital target used forapproved by the board in the 2009 business plan rather than the required annual minimum increase in recognition of the soft economic environment and depressed commodity prices. In the committee’s discretion, it may establish incentive plan purposes would be increased. In February 2008,performance targets higher, lower, or at the compensation committee determinedsame level as the amount of incremental increase, if any, would be based on a consideration of factors includingprior year’s target and/or results.
What the
economic environment, industry trends and company specific conditions when establishing the return on invested capital targets.What theIncentive Targets Are and Why We Chose Them
Annual
The compensation committee established the annual incentive targets
were established by the compensation committee as a percentage of the individual’s actual base salary.
The chief executive officer’s target annual incentive was 100% of his base
salary,salary. Messrs. Raile, Harp, Schneider, and
the other named executive officers’Bietz’s target annual incentives were
50%65% of their base salaries. These incentive targets were derived in part from competitive data provided by Towers Perrin and in part by the compensation committee’s
judgmentdesire, based on internal equity,
of the positions, their relative value to
the company and the desire to maintainhave a
consistentuniform annual incentive target for
presidentsthe business unit president and chief executive
officers of the business unitsofficer positions and the executive vice president, treasurer and chief financial officer
positions.position. The target annual incentives for the named executive officers were eligible to earnexecutives did not change in 2009 from 0% to 200% of their targeted annual incentive.2008. The award opportunities available to each named executive officer ranged from no payment if the goals were met below the 85% level to a 200% payout if the goals were met at or above the 115% level.
In 2009, Mr. Bietz also had five individual goals relating to WBI Holdings, Inc.’s safety results, and each goal that was not met reduced his annual incentive award by 1%.
The table below lists each named executive officer’s 20072009 base salary, which was used to calculate the 2009 annual incentive target percentage, the officer’s 2007 annual2009 incentive plan performance targets, the 20072009 incentive plan results, and the annual incentive earned for 2007.2009.
| Name | | | 2007 Base
Salary
(000s)
($) | | | 2007
Annual
Incentive
Target
(%) | | | 2007
Incentive Plan
Performance
Targets | | | 2007
Incentive
Plan Results | | | 2007
Annual
Incentive
Earned
(000s)
($) | | |
|---|
EPS
($) | | | ROIC
(%) | | | EPS
($) | | | ROIC
(%) | | |
|---|
| | | |
| Terry D. Hildestad1 | | | | | 625 | | | | 100 | | | | 1.57 | | | | 9.4 | | | | 2.36 | | | | 13.1 | | | | 1,250 | |
| Vernon A. Raile1 | | | | | 351 | | | | 50 | | | | 1.57 | | | | 9.4 | | | | 2.36 | | | | 13.1 | | | | 351 | |
| William E. Schneider2 | | | | | 422 | | | | 50 | | | | 1.13 | | | | 8.0 | | | | 1.08 | | | | 7.6 | | | | 207 | |
| John G. Harp3 | | | | | 341 | | | | 50 | | | | 2.53 | | | | 10.8 | | | | 4.00 | | | | 16.7 | | | | 341 | |
| Bruce T. Imsdahl4 | | | | | 322 | | | | 50 | | | | .52 | | | | 7.1 | | | | .67 | | | | 8.3 | | | | 322 | |
| Name | 2009 Base Salary (000s) ($) | | 2009 Annual Incentive Target (%) | | 2009 Incentive Plan Performance Targets | | 2009 Incentive Plan Results | | 2009 Annual Incentive Earned (000s) ($) | |
| | | | | | | | | | | | | | |
EPS ($) | | | ROIC (%) | | EPS ($) | | | ROIC (%) | |
Terry D. Hildestad1 | | | 750.0 | | | 100 | | | 1.09 | | | | 5.7 | | | [•] | | | | [•] | | | [•] | |
Vernon A. Raile1 | | | 450.0 | | | 65 | | | 1.09 | | | | 5.7 | | | [•] | | | | [•] | | | [•] | |
John G. Harp2 | | | 450.0 | | | 65 | | | 3.17 | | | | 10.2 | | | [•] | | | | [•] | | | [•] | |
William E. Schneider3 | | | 447.4 | | | 65 | | | 0.52 | | | | 4.3 | | | [•] | | | | [•] | | | [•] | |
Steven L. Bietz4 | | | 350.0 | | | 65 | | | 1.69 | | | | 5.6 | | | [•] | | | | [•] | | | [•] | |
| (1) | 2007 Incentive PlanBased on earnings per share and return on invested capital for MDU Resources Group, Inc. The 2009 incentive plan results include both continuingwere adjusted to exclude the 2009 noncash impairment charge as discussed below. |
| |
| (2) | Based on allocated earnings per share and discontinued operations.return on invested capital for MDU Construction Services Group, Inc. The amount for Mr. Harp includes an additional [•] incentive as described below. |
(2) | |
| (3) | Based on allocated earnings per share and return on invested capital for Knife River Corporation. |
(4) | Based on allocated earnings per share and return on invested capital for WBI Holdings, Inc. The 2009 incentive plan results were adjusted to exclude the 2009 noncash impairment charge as discussed below. Also in 2009, WBI Holdings, Inc. met four of five safety goals, and therefore Mr. Bietz’s 2009 Annual Incentive Earned reflects a reduction of 1% or [•]. |
The following table shows the changes in our performance targets and achievements for both 2008 and 2009.
| | | | 2008 Incentive Plan Performance Targets | | 2008 Incentive Plan Results | | 2009 Incentive Plan Performance Targets | | 2009 Incentive Plan Results | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name | | | EPS ($) | | | | ROIC (%) | | | EPS ($) | | | | ROIC (%) | | | EPS ($) | | | | ROIC (%) | | | EPS ($) | | | | ROIC (%) | | |
Terry D. Hildestad1 | | | 1.77 | | | | 9.1 | | | 1.59 | | | | 8.0 | | | 1.09 | | | | 5.7 | | | [•] | | | | [•] | | |
Vernon A. Raile1 | | | 1.77 | | | | 9.1 | | | 1.59 | | | | 8.0 | | | 1.09 | | | | 5.7 | | | [•] | | | | [•] | | |
John G. Harp2 | | | 2.73 | | | | 10.5 | | | 5.03 | | | | 17.7 | | | 3.17 | | | | 10.2 | | | [•] | | | | [•] | | |
William E. Schneider3 | | | 1.03 | | | | 7.5 | | | 0.42 | | | | 3.5 | | | 0.52 | | | | 4.3 | | | [•] | | | | [•] | | |
Steven L. Bietz4 | | | - | | | | - | | | - | | | | - | | | 1.69 | | | | 5.6 | | | [•] | | | | [•] | | |
(3)(1) | Based on earnings per share and return on invested capital for MDU Resources Group, Inc. The 2009 incentive plan results were adjusted to exclude the 2009 noncash impairment charge as discussed below. |
| |
| (2) | Based on allocated earnings per share and return on invested capital for MDU Construction Services Group, Inc. |
| |
| (3) | Based on allocated earnings per share and return on invested capital for Knife River Corporation. |
| (4) | Based on allocated earnings per share and return on invested capital for Montana-Dakota Utilities Co.WBI Holdings, Inc. The 2009 incentive plan results were adjusted to exclude the 2009 noncash impairment charge as discussed below. |
2009 Annual Incentive Results and the Impact of the 2009 Noncash Impairment Charges
The company uses the full-cost method of accounting for its natural gas and oil activities. Under this method, the company is required to perform quarterly “ceiling tests” to compare the present value of the future net cash flow from proven reserves to the book value of those reserves at the balance sheet date.
Due to the low energy prices at the beginning of 2009, the compensation committee at the February 2009 meeting decided to disregard, for purposes of calculating 2009 annual incentives, the effects of any potential noncash ceiling test impairment charges related to the company’s natural gas and oil properties. The committee’s rationale for the decision was:
| · | operating cash flows are not affected by a ceiling test charge |
| · | the underlying value of the business is not affected by a ceiling test charge, |
| · | the ceiling test charge would be driven by a single day point in time price to value natural gas and Great Plains Natural Gas Co.oil reserves, which may not be reflective of the underlying long-term value of the assets, and |
The following table shows
| · | recognition of the Securities and Exchange Commission’s decision to change the “ceiling test” rules from using prices from the last day of the reporting period to a 12-month average of prices on the first day of the month during the reporting period effective December 31, 2009. |
On March 31, 2009, the changes incompany recorded a $384.4 million after-tax noncash charge. If the committee had not excluded the noncash charge, our performance targets and achievementsnamed executives would not have received an incentive payment for both 2006 and 2007.2009.
| Name | | | 2006
Incentive Plan
Performance
Targets | | | 2006
Incentive
Plan Results | | | 2007
Incentive Plan
Performance
Targets | | | 2007
Incentive Plan
Results | | |
|---|
EPS
($) | | | ROIC
(%) | | | EPS
($) | | | ROIC
(%) | | | EPS
($) | | | ROIC
(%) | | | EPS
($) | | | ROIC
(%) | | |
|---|
| | | |
| Terry D. Hildestad1 | | | | | 1.40 | | | | 9.2 | | | | 1.74 | | | | 10.6 | | | | 1.57 | | | | 9.4 | | | | 2.36 | | | | 13.1 | |
| Vernon A. Raile1 | | | | | 1.40 | | | | 9.2 | | | | 1.74 | | | | 10.6 | | | | 1.57 | | | | 9.4 | | | | 2.36 | | | | 13.1 | |
| William E. Schneider2 | | | | | .93 | | | | 7.0 | | | | 1.22 | | | | 8.7 | | | | 1.13 | | | | 8.0 | | | | 1.08 | | | | 7.6 | |
| John G. Harp3 | | | | | 1.54 | | | | 8.6 | | | | 2.56 | | | | 11.6 | | | | 2.53 | | | | 10.8 | | | | 4.00 | | | | 16.7 | |
| Bruce T. Imsdahl4 | | | | | — | | | | — | | | | — | | | | — | | | | .52 | | | | 7.1 | | | | .67 | | | | 8.3 | |
(1) | 2007 Incentive Plan results include both continuing and discontinued operations. |
(2) | Based on allocated earnings per share and return on invested capital for Knife River Corporation. |
(3) | Based on allocated earnings per share and return on invested capital for MDU Construction Services Group, Inc. |
(4) | Based on allocated earnings per share and return on invested capital for Montana-Dakota Utilities Co. and Great Plains Natural Gas Co. |
Terry D. Hildestad’s
20072009 Annual Incentive Award
As president and chief executive officer of MDU Resources Group, Inc., Mr. Hildestad’s 20072009 incentive plan performance targets were based on our earnings per share and return on invested capital. We set his 2009 earnings per share target levelslevel and return on invested capital below his 2008 targets and actual results to reflect significantly lower commodity prices and the 2006 achievement for these performance measures and abovecontinued effects of the 2006 targets. The committee believed that the incentive plan performance targets for Mr. Hildestad were sufficiently challenging targets because 2006 was a record year, we anticipated softnesssoft economic activity in the residential construction market, and we believed the upward trend in natural gas prices would abate in 2007. industries.
For
20072009 incentive plan results,
we exceeded 2007 targetthe company’s 2009 earnings per share and return on invested capital
by 50.3%results were [•] and
39.4%, respectively. These results reflect[•] of their respective 2009 targets. Therefore, we paid [•] to Mr.
Hildestad’s leadership in deciding to divest the independent power assets, yieldingHildestad as a
substantial gain and enabling redeployment of the proceeds into our core lines of business, and his leadership in furthering a culture of customer service, operating efficiencies, safety and earnings growth.2009 incentive.
Vernon A. Raile’s
20072009 Annual Incentive Award
As executive vice president, treasurer and chief financial officer of MDU Resources Group, Inc., Mr. Raile’s 20072009 incentive plan performance targets were based on our earnings per share and return on invested capital. WeAs discussed above for Mr. Hildestad, we set his 2009 earnings per share target levelslevel and return on invested capital below his 2008 targets and actual results to reflect significantly lower commodity prices and the 2006 achievement for these performance measures and abovecontinued effects of the 2006 targets. The committee believed that the incentive plan performance targets for Mr. Raile were sufficiently challenging targets because 2006 was a record year, we anticipated softnesssoft economic activity in the residential construction market, and we believed the upward trend in natural gas prices would abate for 2007. industries.
For 20072009 incentive plan results, we exceeded 2007 targetthe company’s 2009 earnings per share and return on invested capital by 50.3%results were [•] and 39.4%[•] of their respective 2009 targets. Therefore, we paid [•] to Mr. Raile as a 2009 incentive.
John G. Harp’s 2009 Annual Incentive Award
As president and chief executive officer of MDU Construction Services Group, Inc., respectively. Thesewe based Mr. Harp’s 2009 incentive plan performance targets on allocated earnings per share and return on invested capital for MDU Construction Services Group, Inc. We set his 2009 earnings per share target level above his 2008 earnings per share target level to reflect the 2009 planned dividend to MDU Resources Group, Inc., which we projected would reduce the allocated shares for MDU Construction Services Group, Inc. and therefore increase its allocated earnings per share. We set the 2009 return on invested capital target slightly lower than the 2008 return on invested capital target to reflect lower anticipated earnings. The 2009
earnings per share and return on invested capital targets were lower than the actual results
21
Table of Contents
for 2008 to reflect Mr. Raile’s assistancethe downturn in the divestitureLas Vegas construction market.
For 2009 incentive plan results, MDU Construction Services Group, Inc.’s 2009 earnings per share results and return on invested capital results were [•] and [•] of our independent power assets and his leadership in successfully representingtheir respective 2009 targets. These results would normally equate to an incentive payment of [•]. Therefore, we paid Mr. Harp [•] as a 2009 annual incentive.
John G. Harp’s Additional 2009 Incentive
In addition to the company2009 annual incentive award, Mr. Harp had the opportunity to earn an additional incentive, which the compensation committee structured as follows:
Construction Services Group, Inc.’s 2009 Return on Invested Capital (ROIC) as compared to
Construction Services Group, Inc.’s 2009 Weighted Average Cost of Capital (WACC) | Additional Incentive Amount |
| 2009 ROIC is less than 100 basis points above 2009 WACC | $0 |
| 2009 ROIC is 100 to 199 basis points above 2009 WACC | $100,000 |
| 2009 ROIC is 200 basis points or more above 2009 WACC | $200,000 |
Throughout 2009, MDU Construction Services Group, Inc. accumulated significant amounts of cash through effective working capital management. These amounts exceeded the amounts anticipated at the beginning of 2009, resulting in the
reduction of all of its commercial paper and more dividends to MDU Resources Group, Inc. than originally projected. In addition, MDU Construction Services Group, Inc. was able to lend the remaining excess cash to other MDU Resources subsidiaries, reducing debt at the MDU Resources Group, Inc. level. Although the remaining excess cash did not lower the invested capital
markets.at MDU Construction Services Group, Inc. on a stand alone basis, it did lower the overall invested capital of MDU Resources Group, Inc. Therefore, the compensation committee, upon recommendation from the chief executive officer, approved calculating MDU Construction Services Group, Inc.’s 2009 return on invested capital to reflect the excess cash accumulated. The committee’s rationale for this decision was:
| · | recognition of, and rewarding for, effectively managing accounts receivable through timely collections and |
| · | MDU Resources Group, Inc. benefited from the excess cash through lower average commercial paper balances in 2009. |
MDU Construction Services Group, Inc.’s 2009 return on invested capital for purposes of determining Mr. Harp’s additional 2009 incentive amount was [•] compared to its 2009 weighted average cost of capital of [•]. Because the 2009 return on invested capital of [•] was [•] the reported 2009 weighted average cost of capital of [•], Mr. Harp received [•] in additional incentive for 2009.
William E. Schneider’s
20072009 Annual Incentive Award
As president and chief executive officer of Knife River Corporation, Mr. Schneider’s
20072009 incentive plan performance targets were based on allocated earnings per share and return on invested capital for Knife River Corporation.
These targets included $4,000,000 in anticipated net income attributable to acquisitions throughout 2007, and $2,000,000 in anticipated net income on the sale of certain real estate assets. We set his
2009 targets
at levels below 2006 achievement for allocated earnings per share and return on invested capital
but above the 2006lower than his 2008 targets
for these performance measures.and higher than 2008 actual results. The
compensation committee
believed thatarrived at these targets
were sufficiently challenging for Mr. Schneider because ofbased on the
anticipatedcurrent economic softness in the
residential construction
market, the substantial completion ofmarkets, partially offset by a
major projectsignificant reduction in
2006, and the overall record results that occurred in 2006. With respect to the 2007 incentive plan results, Knife River
Corporation fell short of target earnings per share by 4.4% and fell short of the target return on invested capital by 5.0%.Upon recommendation from the chief executive officer, the committee and board of directors agreed to reduceCorporation’s cost structure.
For 2009, Knife
River’s 2007 allocatedRiver Corporation’s 2009 earnings per share and return on invested capital
targets by the equivalentresults were [•] and [•] of
$3,748,000 in net income. The $3,748,000 was comprised of: | • | $2,000,000 to reflect the fact that the sale of certain real estate assets was not consummated due to our decision to delay the sale in order to subdivide the property and |
| • | $1,748,000 to reflect the fact that unidentified acquisitions did not occur. |
The committee considers these events to be unusual conditions that warranted modifications totheir respective 2009 targets. Therefore, we paid Mr. Schneider’sSchneider [•] as a 2009 annual incentive performance targets under the terms of the Knife River Corporation Executive Incentive Compensation Plan. Also, the compensation committee believes the adjustment is appropriate under the Knife River Corporation Executive Incentive Compensation Plan for the following reasons:
| • | We believe that subdividing the property will likely enhance its value. Should we divest the property after the subdivision, the sales proceeds will likely be higher. |
| • | Our acquisition strategy is disciplined in that prospective acquisitions which fail to meet certain criteria are not pursued. This promotes long-term value creation for our shareholders and helps us avoid overpaying for an acquisition. Under Mr. Schneider’s leadership, Knife River completed five acquisitions in 2007, and the companies purchased generated, in the aggregate, financial results better than financial expectations. |
Had the 2007 allocated earnings per share and return on invested capital targets not been reduced by the $3,748,000, Mr. Schneider’s 2007 annual incentive award would have been $164,053, or approximately $43,000 less than the $207,000 annual incentive award earned for 2007.
John G. Harp’s 2007incentive.
Steven L. Bietz’s 2009 Annual Incentive Award
As president and chief executive officer of
MDU Construction Services Group,WBI Holdings, Inc., Mr.
Harp’s 2007Bietz’s 2009 incentive plan performance targets were based on allocated earnings per share and return on invested capital for
MDU Construction Services Group,WBI Holdings, Inc. We set his
target levels below the 2006 achievement for these performance measures and above the 2006 targets. The committee believed that the incentive plan performance targets for MDU Construction Services Group, Inc. were sufficiently challenging targets because 2006 was an exceptional year. For 2007 incentive plan results, MDU Construction Services Group, Inc. exceeded 2007 target2009 earnings per share and return on invested capital
by 58.1%target levels below his 2008 target and
54.6%, respectively. These2008 actual results
largely to reflect
Mr. Harp’s leadership in driving operating efficiencies, providing superior valuelower commodity prices and lower anticipated production due to
customers and continuation of the dramatic turnaround of MDU Construction Services Group, Inc.22
Table of Contents
Bruce T. Imsdahl’s 2007 Annual Incentive Award
As president and chief executive officer of Montana-Dakota Utilities Co. and Great Plains Natural Gas Co., Mr. Imsdahl’s 2007reduced capital expenditures.
For 2009 incentive plan
performance targets were based on allocatedresults, the company’s 2009 earnings per share and return on invested capital
for Montana-Dakota Utilities Co.results were [•] and
Great Plains Natural Gas Co. We set his 2007 target levels for allocated earnings per share at $0.52 and return on invested capital at 7.1%. The committee believed that the incentive plan performance targets for Montana-Dakota Utilities Co. and Great Plains Natural Gas Co. were sufficiently challenging targets because they required focus on maintaining solid execution[•] of
operating responsibilities in a year when significant time and energy were dedicated to consummating the Cascade Natural Gas Corporation acquisition. For 2007 incentive plan results, Montana-Dakota Utilities, Co. and Great Plains Natural Gas Co. exceeded 2007 target earnings per share and return on invested capital by 28.8% and 16.9%, respectively.their respective 2009 targets. These results
reflectequated to an incentive of [•], which was reduced by [•] or 1% due to not achieving one of the five 2009 safety goals. Therefore, we paid [•] to Mr.
Imsdahl’s leadership in keeping his team of employees engaged in effectively operating Montana-Dakota Utilities Co. and Great Plains Natural Gas Co. while, at the same time, dealing with regulatory matters and integration issues associated with the acquisition of Cascade Natural Gas Corporation.Bietz as a 2009 incentive.
Deferral of Annual Incentive Compensation
We provide executives the opportunity to defer receipt of earned annual incentives. If an executive chooses to defer
his/his or her annual incentive,
the companywe will credit the deferral with
interest. In August 2007,interest at a rate determined by the compensation
committee. For 2009, the committee
effective January 1, 2008, reduced the interest rate on deferred compensation fromdiscontinued using the prime rate
plus one percentage point to the prime rate.2007in favor of using Moody’s U.S. Long-Term Corporate Bond Yield Average for “A” rated companies. The committee’s reasons for using this approach recognized:
| · | incentive deferrals are a low-cost source of capital for the company and |
| · | incentive deferrals are unsecured obligations and therefore carry a higher risk to the executives. |
2009 Long-Term Incentives
Awards Granted in
20072009 under the Long-Term Performance-Based Incentive Plan
We use the Long-Term Performance-Based Incentive Plan, which is an omnibus plan and has been approved by our stockholders, for long-term incentive compensation. We discontinued the use of stock options in 2003 and now use performance shares as the only form of long-term incentive compensation.
At its August 2006 meeting, the compensation committee updated the list of companies that comprise our performance graph peer group to better reflect changes in the mix of our businesses since the establishment of the prior performance graph peer group in 2001.
The compensation committee
useduses the
updated performance graph peer group as the comparator group to determine relative stockholder return and potential payments under the Long-Term Performance-Based Incentive Plan
beginning with the 2007-2009for its 2009-2011 performance share award cycle. The companies comprising our
updated performance graph peer group are
as follows:• Alliant Energy Corporation
• Berry Petroleum Company - CL A
• Black Hills Corporation
• Comstock Resources, Inc.
• Dycom Industries, Inc.
• EMCOR Group Inc.
• Encore Acquisition Company
• Equitable Resources, Inc.
• Granite Construction Incorporated
• Martin Marietta Materials, Inc.
• National Fuel Gas Company
• Northwest Natural Gas Company
• NSTAR | | • OGE Energy Corp.
• ONEOK, Inc.
• Quanta Services, Inc.
• Questar Corporation
• SCANA Corporation
• Southwest Gas Corporation
• St. Mary Land & Exploration Company
• Swift Energy Company
• US Concrete, Inc.
• Vectren Corporation
• Vulcan Materials Company
• Whiting Petroleum Corporation |
23
Tablethe same companies listed above under the heading “Role of Contents
Compensation Consultants” with the exception of Florida Rock Industries, which was acquired in late 2007.
The performance
measures aremeasure is our total stockholder return over a three-year measurement period as compared to the total stockholder returns of the companies in our performance graph peer group over the same three-year period. The compensation committee selected this goal because it believes executive pay under a long-term, capital accumulation program such as this should mirror our long-term performance in stockholder return as compared to other public companies in our industries. Payments are made in company stock; dividend equivalents are paid in cash.
Total stockholder return is the percentage change in the value of an investment
ofin the common stock of a company, from
the closing price on the last trading day in the calendar year preceding the beginning of the performance period, through the last trading day in the final year of the performance period. It is assumed that dividends are reinvested in additional shares of common stock at the frequency paid.
As with the annual incentive target,
we determined the long-term incentive target for a given position
is determined by reference to the salary grade.
TheseWe derived these incentive targets
were derived in part from competitive data provided by Towers Perrin and in part by the committee’s judgment on the impact each position has on our total stockholder return. The committee also believed consistency across positions in the same salary grades
wasand keeping the chief executive officer’s long-term incentive target below a level indicated by competitive data were important from an internal equity standpoint. The
variance in target percentages reflects our philosophy that executives in higher salary grades should have more of their total compensation at risk because they are in positions to have a more direct impact on our2009 long-term
results.incentive targets for each named executive were unchanged from 2008.
On February 15, 2007,12, 2009, the board of directors, upon recommendation of the compensation committee, made performance share grants to the named executive officers. The compensation committee determined the target number of performance shares granted to each named executive officer by multiplying the named executive officer’s 20072009 base salary by his or her long-term incentive target and then dividing this product by the average of the closing prices of our stock from January 3, 20072, 2009 through January 22, 2007,2009, as shown in the following table:
| Name | | | 2007 Base
Salary to
Determine
Target
($) | | | 2007
Long-Term
Incentive
Target at
Time of
Grant
(%) | | | 2007
Long-Term
Incentive
Target at
Time of
Grant
($) | | | Average
Closing Price
of Our Stock
From Jan. 3
Through
Jan. 22
($) | | | Resulting
Number of
Performance
Shares
Granted on
Feb. 15
(#) | |
|---|
| | | |
| Terry D. Hildestad | | | | | 625,000 | | | | 133 | | | | 831,250 | | | | 25.12 | | | | 33,091 | |
| Vernon A. Raile | | | | | 350,700 | | | | 90 | | | | 315,630 | | | | 25.12 | | | | 12,564 | |
| William E. Schneider | | | | | 422,000 | | | | 90 | | | | 379,800 | | | | 25.12 | | | | 15,119 | |
| John G. Harp | | | | | 341,000 | | | | 75 | | | | 255,750 | | | | 25.12 | | | | 10,181 | |
| Bruce T. Imsdahl | | | | | 322,400 | | | | 75 | | | | 241,800 | | | | 25.12 | | | | 9,625 | |
| Name | 2009 Base Salary to Determine Target ($) | | 2009 Long-Term Incentive Target at Time of Grant (%) | | 2009 Long-Term Incentive Target at Time of Grant ($) | | Average Closing Price of Our Stock From January 2 Through January 22 ($) | | Resulting Number of Performance Shares Granted on February 12 (#) |
| Terry D. Hildestad | | | 750,000 | | | 150 | | | 1,125,000 | | | 20.52 | | | 54,824 |
| Vernon A. Raile | | | 450,000 | | | 90 | | | 405,000 | | | 20.52 | | | 19,736 |
| John G. Harp | | | 450,000 | | | 90 | | | 405,000 | | | 20.52 | | | 19,736 |
| William E. Schneider | | | 447,400 | | | 90 | | | 402,660 | | | 20.52 | | | 19,622 |
| Steven L. Bietz | | | 350,000 | | | 90 | | | 315,000 | | | 20.52 | | | 15,350 |
From 0% to 200% of the target grant will be paid out in February 20102012 depending on our three-year 2007-20092009-2011 total stockholder return compared to the total three-year stockholder returns of companies in our performance graph peer group. The payout percentage will be a function of our rank against our performance graph peer group as follows:
| The Company’s
Percentile Rank | | | | | Payout Percentage of
Feb. 15, 2007 February 12, 2009 Grant | |
|---|
| | |
100th | | | | | 200% | |
75th | | | | | 150% | |
50th | | | | | 100% | |
40th | | | | | 10% | |
Less than 40th | | | | | 0% | |
24
Table of Contents
Payouts for percentile ranks falling between the intervals will be interpolated. We also will pay dividend equivalents in cash on the number of shares actually earned for the performance period. The dividend equivalents will be paid in
20102012 at the same time as the performance awards are paid.
Awards Paid on February
15, 200712, 2009 under the Long-Term Performance-Based Incentive Plan
We granted performance shares to our named executive officers under the Long-Term Performance-Based Incentive Plan on February 12, 200416, 2006 for the 20042006 through 20062008 performance period. Our total stockholder return for the 20042006 through 20062008 performance period was 73.92%5.46%, which corresponded to a percentile rank of 48% against our performance graph peer group. The percentile rank of 48% corresponded to a payout percentage of 82%, meaning 82% of the target shares originally granted plus dividend equivalents were paid to the named executive officers. The table below lists the shares granted on February 12, 2004,16, 2006, the shares paid on February 15, 200712, 2009 based on the payout percentage, and the dividend equivalents earned.
| Name | Name | | Shares
Granted on
February 12,
20042
(#) | | Payout
Percentage
(%) | | Shares Paid on
February 15,
20072
(#) | | Dividend
Equivalents
($) | | | Shares Granted on February 16, 20061 (#) | | Payout Percentage (%) | | Shares Paid on February 12, 20091 (#) | | Dividend Equivalents ($) |
|---|
| | | |
| Terry D. Hildestad | | | | 19,645 | | | | 82% | | | | 16,109 | | | | 23,896 | | | | 23,883 | | | | 82 | | | | 19,584 | | | | 32,968 | |
| Vernon A. Raile | | 6,486 | | 82% | | | 5,319 | | 7,890 | | | | 12,429 | | | | 82 | | | | 10,192 | | | | 17,157 | |
| John G. Harp | | | | 10,072 | | | | 82 | | | | 8,259 | | | | 13,903 | |
| William E. Schneider | | 13,147 | | 82% | | | 10,781 | | 15,993 | | | | 15,285 | | | | 82 | | | | 12,534 | | | | 21,100 | |
| John G. Harp1 | | — | | — | | — | | — | | |
| Bruce T. Imsdahl | | 5,488 | | 82% | | | 4,500 | | 6,675 | | |
| Steven L. Bietz | | | | 7,018 | | | | 82 | | | | 5,755 | | | | 9,688 | |
| (1) | Mr. Harp was not granted performance shares in 2004 because he was not an employee of the company at the time performance shares were granted. |
(2) | Shares are adjusted for the 3-for-2 stock split effective July 26, 2006. |
Options That Accelerated Vested on February 15, 2007
We granted stock options to our named executive officers in 2001, pursuant to the 1992 Key Employee Stock Option Plan or the Long-Term Performance-Based Incentive Plan. These options become exercisable automatically on February 15, 2010. Vesting is accelerated upon change of control or upon attainment of performance goals. A portion of these options vested on February 12, 2004 after goals were met for the first performance cycle, 2001-2003; the remaining options vested on February 15, 2007 after goals were met for the second performance cycle, 2004-2006.
The performance goals for Messrs. Hildestad and Schneider were based on Knife River Corporation’s earnings and three-year average return on invested capital. The vesting of Messrs. Hildestad and Schneider’s remaining options was accelerated because Knife River Corporation’s 2006 earnings were 135.8% of its forecasted 2006 earnings, and its three-year average return on invested capital for 2004-2006 was 95.9% of its forecasted three-year average return on invested capital.
Mr. Imsdahl’s performance goals were based on Montana-Dakota Utilities Co.’s earnings and three-year average return on invested capital. The vesting of Mr. Imsdahl’s remaining options was accelerated because Montana-Dakota Utilities Co.’s 2006 earnings were 96.6% of its forecasted 2006 earnings, and its three-year average return on invested capital for 2004-2006 was 101.5% of its forecasted three-year average return on invested capital.
25
| Name | | | Options
Granted on
February 15,
2001(1)
(#) | | | Options Vested | | | Dividend
Equivalents
Paid on
February 15,
2007
($) | | |
|---|
February 12,
2004(1)
(#) | | | February 15,
2007(1)
(#) | | |
|---|
| | | |
| Terry D. Hildestad | | | | | 74,520 | | | | 5,524 | | | | 68,995 | | | | 134,791 | |
| William E. Schneider | | | | | 65,205 | | | | 8,190 | | | | 57,015 | | | | 111,386 | |
| Bruce T. Imsdahl | | | | | 75,937 | | | | 50,041 | | | | 25,896 | | | | 38,951 | |
(1) | Adjusted for the 3-for-2 stock splits effective October 29, 2003 and July 26, 2006. |
PEER4 Analysi$: Comparison of Pay for Performance Ratios
Each year we compare our named executive officers’ pay for performance ratios to the pay for performance ratios of the named executive officers in the performance graph peer group. This analysis looks at the relationship between our compensation levels and our average annual total stockholder return in comparison to the peer group over a five-year period. All data used in the analysis, including the valuation of long-term incentives and calculation of stockholder return, were compiled by Equilar, Inc., an independent service provider, which uses each company’s annual filings as a basis of its data collection.
This analysis consisted of
comparingdividing what we paid our named executive officers for the years
20022004 through
2006 to2008 by our average annual total stockholder return for the same five-year
period.period to yield our pay ratio. Our pay ratio was then compared to the pay ratio of the companies in the performance graph peer group, which was calculated by dividing total direct compensation for all the proxy group executives by the sum of each company’s average annual total stockholder return for the same five-year period. The results are shown in the following chart.
5 Year Total Direct Compensation to 5 Year Total Stockholder Return*
| | | MDU Resources
Group, Inc.
($) | | | Performance Graph
Peer Group
($) | |
|---|
| | | |
| Dollars of Total Direct Compensation1 per point of Total Stockholder Return | | | | | 2,151,562 | | | | 2,257,934 | |
| | MDU Resources Group, Inc. ($) | | Performance Graph Peer Group ($) |
Dollars of Total Direct Compensation1 per Point of Total Stockholder Return | | | 5,489,386 | | | 5,390,223 |
| (1) | Total direct compensation is the sum of annual base salaries, annual incentives, the value of long-term incentives at grant and all other compensation as reported in the proxy statements. For 2006, 2007 and 2008, total direct compensation also includes the change in qualified and non-qualified pension values and above-market earnings on non-qualifiednonqualified deferred compensation earnings as reported in the proxy statements. |
*The chart is not deemed filed or a part of this compensation discussion and analysis for certification purposes.
The results of the analysis showed that we paid our named executive officers
lessslightly more than what the peer group companies paid their named executive officers for comparable levels of stockholder return over the five-year period. Specifically, as indicated in the chart, the data shows that we paid
each of our named executive officers approximately
$106,000 less$99,000 more per point of stockholder return than our performance graph peer group.
The compensation committee believes this comparison helps demonstrate thatWe have been conducting our
stockholders receive good value for our executive compensation expense.
*The chart is not deemed filed or a part of this compensation discussion and analysis for certification purposes.
26
Table of Contents
Perquisites
Our named executive officers have limited perquisites, which may include personal use of our plane, limited accompaniment of family members with executives traveling for business purposes, reasonable vehicle allowances, home office allowances and subsidized annual physical examinations.
PEER4 Analysi$ since 2004.
Post-Termination Compensation and Benefits
Effective 2006, we no longer offer defined benefit pension plans to new non-bargaining unit employees.
Instead, executives and other employees are offered increased company contributionsThe defined benefit plans available to
our 401(k) plan. The pension plans continue in effect for all eligible employees hired before 2006.We provide our executives and other employees hired before 2006 with income for their retirementwere amended to cease benefit accruals after December 31, 2009. The frozen benefit provided through our qualified defined benefit pension plans where benefits areis determined by years of service and base salary. Because benefits under ourEffective 2010 for those employees who were participants in defined benefit pension plan increase with an employee’s period of serviceplans and earnings, we believe the pension encourages ourfor executives and other employees to make long-term commitments tohired after 2006, the company and as such, serves as an important retention tool.
offers increased company contributions to our 401(k) plan.
Supplemental Income Security Plan
We offer certain key managers and executives, including all of our named executive officers, benefits under our non-qualified retirement plan, which we refer to as the Supplemental Income Security Plan or SISP. The SISP has a ten-year vesting schedule and was amended to add an additional vesting requirement for benefit level increases occurring on or after
January 1, 2010. The SISP provides participants with additional retirement income and death benefits. The additional retirement income may take two forms:
| | • | a supplemental retirement benefit payable for fifteen years beginning at the later of age 65 or after employment ends andends. The company amended this portion of the benefit to reflect a 20% reduction in future benefit levels for employees who join the plan on or after January 1, 2010 or for current participants who receive benefit level increases on or after January 1, 2010. |
| | • | an additional retirement benefit to offset the Internal Revenue Code limitations placed on benefits payable under our qualified defined benefit pension plans. The company amended the additional retirement benefit to no longer allow new participants and to cease benefit accruals for existing participants after December 31, 2009. If eligible, the participants receive this retirement benefit after they separate from the company and until they reach age 65. In order to be eligible to receive the additional retirement benefit, theyparticipants must vest in their pension benefit, which requires five years of service, and their pension must be limited by the Internal Revenue Code. Mr. Harp has an additional qualification in that he must remain employed until age 60 in order to receive this additional retirement benefit. |
A death benefit is provided if SISP participants die before their supplemental retirement benefits commence or if they elect to receive death benefits in lieu of all or a part of their supplemental retirement benefits. The death benefit is payable for 15 years.
SISP Competitiveness Analysis
At the request of the compensation committee, the human resources department presented its report on the competitiveness of the SISP in November 2007. The human resources department analyzed the most recent proxy statements of our performance graph peer group. Of the performance graph peer companies, 15 reported offering one or more non-qualified defined benefit plans; 14 of the 15 reported the present value of the accumulated benefit at normal retirement age in the pension benefit table of their 2007 proxy statements. One company’s proxy statement containing this information was filed in January 2008 and therefore was not included in the November 2007 analysis.
The present value of the accumulated benefit at normal retirement, averaged for all of our named executive officers, was $2,044,351. This equated to the 72nd percentile of the 14 averages (one for each of the performance graph peer companies that offered one or more non-qualified defined
27
Table of Contents
benefit plans) of the present values of the accumulated benefits at normal retirement, averaged for each company’s named executive officers.
Our SISP benefit is high when compared to benefits at our performance graph peer companies who offer one or more non-qualified defined benefit plans.
We believe however, that the SISP is critical in retaining the talent necessary to drive long-term stockholder value. In addition, we believe that the 10 year10-year vesting provisionsprovision of the SISP, help offset the amounts our namedaugmented by an additional three years of vesting for benefit level increases occurring on or after January 1, 2010, helps promote retention of key executive officers will receive for their sustained commitmentofficers.
Benefit Level Increases
The chief executive officer recommends benefit level increases to the
company.Benefit Level Increases
compensation committee for participants except himself. The chief executive officer considers, among other things, the participant’s salary in relation to the salary ranges that correspond with the SISP benefit levels, the participant’s performance, the performance of the applicable business unit or the company, and the cost associated with the benefit level increase.
Each November, the compensation committee considers SISP benefit level increases. Theincreases for the upcoming year as recommended by the chief executive officer recommends the benefit level increases to the committee on executives other than himself; the committeeand also considers benefit level increases for the chief executive.executive officer. In November 2006,2008, Messrs. Hildestad, Raile, Harp, and SchneiderBietz each received an increase in their SISP benefit levels, which were effective on January 1, 2009. The benefit level increases recognized each named executive’s contribution to the success of the company and individual business unit, where applicable. The committee, however, approved the chief executive officer’s recommendation to limit the benefit increases for Messrs. Harp and Bietz to a level below the levels that corresponded to each named executive’s base salary. The chief executive officer’s rationale was to limit additional costs associated with the benefit level increases in light of the uncertain economic times. The committee believed Mr. Hildestad’s benefit level was appropriate and therefore did not grant him an increase.
In November 2009, Messrs. Harp, Schneider, and Bietz each received an increase in their SISP benefit levels which was effective on
JanuaryDecember 1,
2007.2009. The committee’s rationale for
theMessrs. Harp and Bietz’s benefit level increases was recognition of
each named executive’stheir continued contribution to the financial success of the
company.company and to bring their SISP benefit levels in line with their current salary. Mr. Schneider was awarded a benefit level increase to one level above the level corresponding to his current base salary in recognition of his leadership in the financial turnaround of Knife River Corporation. The following table reflects our named executive officers’ SISP
levels:| Name | | | Pre January 1, 2007
Annual SISP Benefits | | | Post January 1, 2007
Annual SISP Benefits | | |
|---|
Survivors
($) | | | Retirement
($) | | | Survivors
($) | | | Retirement
($) | | |
|---|
| | | |
| Terry D. Hildestad | | | | | 548,400 | | | | 274,200 | | | | 876,000 | | | | 438,000 | |
| Vernon A. Raile | | | | | 291,480 | | | | 145,740 | | | | 386,640 | | | | 193,320 | |
| William E. Schneider | | | | | 386,640 | | | | 193,320 | | | | 468,600 | | | | 234,300 | |
| John G. Harp | | | | | 291,480 | | | | 145,740 | | | | 291,480 | | | | 145,740 | |
| Bruce T. Imsdahl | | | | | 291,480 | | | | 145,740 | | | | 291,480 | | | | 145,740 | |
To encourage Mr. Harp to remain withlevels, including the company through 2007, on November 16, 2006, upon recommendation of our chief executive officer and the compensation committee, our board of directors approved an additional retirement benefit for Mr. Harp. The benefit provides for Mr. Harp to receive payments that represent the equivalent of an additional three years of service under the pension plan and the SISP because he did not resign or retire before January 2, 2008, and he has acceptable successors in place. The additional three years of service recognize Mr. Harp’s previous employment with a subsidiary of the company.
changes effective December 1, 2009:
| | | January 1, 2009 Annual SISP Benefits | | December 31, 2009 Annual SISP Benefits |
| | | | | | | | | | | | | | | | | |
| Name | | Survivors
($) | | Retirement ($) | | Survivors ($) | | Retirement ($) |
| Terry D. Hildestad | | | 1,025,040 | | | | 512,520 | | | | 1,025,040 | | | | 512,520 | |
| Vernon A. Raile | | | 548,400 | | | | 274,200 | | | | 548,400 | | | | 274,200 | |
| John G. Harp | | | 468,600 | | | | 234,300 | | | | 548,400 | | | | 274,200 | |
| William E. Schneider | | | 468,600 | | | | 234,300 | | | | 548,400 | | | | 274,200 | |
| Steven L. Bietz | | | 328,080 | | | | 164,040 | | | | 386,640 | | | | 193,320 | |
In November 2005, we implemented a guideline for repayment of incentives due to accounting restatements, commonly referred to as a clawback policy, whereby the compensation committee may seek repayment of annual and long-term incentives paid to executives if accounting restatements occur within three years after the payment of incentives under the annual and long-term plans. Under our clawback policy, the compensation committee may require employees to forfeit awards and may rescind vesting, or the acceleration of vesting, of an award.
Impact of Tax and Accounting Treatment
The compensation committee may consider the impact of tax and/or accounting treatment in determining compensation. Section 162(m) of the Internal Revenue Code places a limit of
$1,000,000$1 million on the amount of compensation paid to certain officers that we may deduct as a business expense in any tax year unless, among other things, the compensation qualifies as performance-based compensation, as that term is used in
sectionSection 162(m). Generally, long-term incentive compensation
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Table of Contents
and annual incentive awards for our chief executive officer and those executive officers whose overall compensation is likely to exceed $1,000,000$1 million are structured to be deductible for purposes of Section 162(m) of the Internal Revenue Code, but we may pay compensation to an executive officer that is not deductible. All annual or long-term incentive compensation paid to our named executive officers in 2007for 2009 satisfied the requirements for deductibility.
Section 409A of the Internal Revenue Code imposes additional income taxes on executive officers for certain types of deferred compensation if the deferral does not comply with Section 409A. We
administerhave amended our
compensation plans and
agreements in accordance witharrangements affected by Section 409A
and our compensation arrangements are structured to comply with
the objective of not triggering any additional income taxes under Section
409A, to the extent applicable, so that these taxes are avoided.409A.
Section 4999 of the Internal Revenue Code imposes an excise tax on payments to executives and others of amounts that are considered to be related to a change of control if they exceed levels specified in Section 280G of the Internal Revenue Code. The potential impact of the Section 4999 excise tax is addressed with the modified tax
gross-uppayment provisions in the change of control employment agreements, which are described earlier in this compensation discussion and analysis and later in the proxy statement under the heading “Potential Payments
Uponupon Termination or Change of Control.” We do not consider the potential impact of Section 4999 or 280G when designing our compensation programs.
The compensation committee also considers the accounting and cash flow implications of various forms of executive compensation. In our financial statements, we record salaries and
performance-basedannual incentive compensation
incentives as expenses in the amount paid, or to be paid, to the named executive officers.
AccountingFor our equity awards, accounting rules also require that we record an expense in our financial
statements for equity awards. Thestatements. We calculate the accounting expense of equity awards to employees
is calculated in accordance with
SFAS 123 (revised).FASB Accounting Standards Codification Topic 718.
Stock Ownership Guidelines
We instituted stock ownership guidelines on May 5, 1993, which we revised in February 2003, to encourage executives to own a multiple of their base salary in our common stock. All officers who participate in our Long-Term Performance-Based Incentive Plan are subject to the guidelines. The guidelines call for the executive to reach the multiple within five years. Unvested performance shares and other unvested equity awards do not count towards the guidelines. In 2009, the compensation committee reviewed these guidelines against the performance graph peer companies who published ownership guidelines, and determined no change was necessary. Each February, the compensation committee receives a report on the status of stock holdings by executives. The table shows the named executive officers’ holdings as of December 31, 2007:2009:
| Name | | | Guideline
Multiple of
Base Salary | | | Actual
Holdings as a
Multiple of
Base Salary | | | Number of
Years at
Guideline
Multiple
(#) | |
|---|
| | | |
| Terry D. Hildestad | | | | | 4X | | | | 6.68 | | | | 2.67 | |
| Vernon A. Raile | | | | | 3X | | | | 3.05 | | | | 2.00 | |
| William E. Schneider | | | | | 3X | | | | 5.45 | | | | 5.00 | |
| John G. Harp | | | | | 3X | | | | 8.16 | | | | 3.25 | |
| Bruce T. Imsdahl | | | | | 3X | | | | 6.70 | | | | 3.20 | |
| Name | Assigned Guideline Multiple of Base Salary | | Actual Holdings as a Multiple of Base Salary | | Number of Years at Guideline Multiple (#) | |
| Terry D. Hildestad | | 4X | | 5.79 | | 4.67 | |
| Vernon A. Raile | | 3X | | 2.96 | | 4.00 | |
| John G. Harp | | 3X | | 4.06 | | 5.25 | |
| William E. Schneider | | 3X | | 5.43 | | 8.00 | |
| Steven L. Bietz | | 3X | | 3.95 | | 7.33 | |
The compensation committee may consider the guidelines and the executive’s stock ownership in determining compensation. The committee, however, did not do so with respect to
20072009 compensation.
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Table of Contents
Policy Regarding Hedging Stock Ownership
In our Executive Compensation Policy, we adopted a policy that prohibits executives from hedging their ownership of company common stock. Executives may not enter into transactions that allow the executive to benefit from devaluation of our stock or otherwise own stock technically but without the full benefits and risks of such ownership.
COMPENSATION COMMITTEE REPORT
| COMPENSATION COMMITTEE REPORT |
The compensation committee has reviewed and discussed the Compensation Discussion and Analysis required by Reg. S-K, Item 402(b) with management. Based on the review and discussions referred to in the preceding sentence, the compensation committee recommended to the board of directors that the Compensation Discussion and Analysis be included in our proxy statement on Schedule 14A.
Thomas Everist, Chairman
Karen B. Fagg
Thomas C. Knudson
Patricia L. Moss
| Summary Compensation Table for 2009 |
Name and Principal Position (a) | | Year (b) | Salary ($) (c) | Bonus ($) (d) | Stock Awards ($) (e)(1) | Option Awards ($) (f)(1) | Non-Equity Incentive Plan Compensation ($) (g) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) (h)(2) | All Other Compensation ($) (i) | Total ($) (j) |
| |
Terry D. Hildestad President and CEO | | 2009 2008 | 750,000 700,000 | — | 1,117,861 1,200,485 | | [•] 310,800 | 825,319 898,941 | 9,824(3) 9,476 | [•] 3,119,702 |
| 2007 | 625,000 | — | 779,293 | — | 1,250,000 | 1,362,413 | 7,026 | 4,023,732 |
| | | | | | | | | | | |
Vernon A. Raile Executive Vice President, Treasurer and CFO | | 2009 2008 | 450,000 400,000 | — | 402,417 411,575 | | [•] 115,440 | 695,177 498,210 | 8,124(3) 7,176 | [•] 1,432,401 |
| 2007 | 350,700 | — | 295,882 | — | 350,700 | 555,248 | 7,026 | 1,559,556 |
| | | | | | | | | |
| | | | | | | | | | | |
John G. Harp President and CEO of MDU Construction Services Group, Inc. | | 2009 2008 | 450,000 400,000 | — | 402,417 411,575 | — | [•] (4) 720,000(5) | 761,670(6) 338,774(6) | 23,272(7) 23,230(7) | [•] 1,893,579 |
| 2007 | 341,000 | — | 239,763 | — | 341,000 | 47,334(6) | 23,080(7) | 992,177 |
| | | | | | | | | |
| | | | | | | | | | | |
William E. Schneider President and CEO of Knife River Corporation | | 2009 2008 | 447,400 447,400 | — | 400,093 460,374 | — | [•] — | 726,646 180,801 | 9,324(3) 8,976 | [•] 1,097,551 |
| 2007 | 422,000 | — | 356,052 | — | 206,780 | 450,347 | 7,026 | 1,442,205 |
| | | | | | | | | |
Steven L. Bietz President and CEO of WBI Holdings, Inc. | | 2009 2008 2007 | 350,000 — — | — | 312,987 — — | — | [•] — — | 475,985 — — | 8,084(3) — — | [•] — — |
Name and
Principal Position
(a) | | | Year
(b) | | | Salary
($)
(c) | | | Bonus
($)
(d) | | | Stock
Awards
($)
(e)(1) | | | Option
Awards
($)
(f)(1) | | | Non-Equity
Incentive Plan
Compensation
($)
(g) | | | Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)
(h)(2) | | | All Other
Compensation
($)
(i) | | | Total
($)
(j) | |
|---|
| | |
Terry D. Hildestad
President and CEO | | | | | 2007 | | | | 625,000 | | | | — | | | | 661,821 | | | | — | | | | 1,250,000 | | | | 1,362,413 | | | | 7,026 | | | | 3,906,260 | |
| | 2006 | | | | 562,500 | | | | — | | | | 376,394 | | | | 25,084 | | | | 1,125,000 | | | | 768,184 | | | | 6,876 | | | | 2,864,038 | (3) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Vernon A. Raile
Executive Vice President, Treasurer and CFO | | | | | 2007 | | | | 350,700 | | | | — | | | | 268,806 | | | | — | | | | 350,700 | | | | 555,248 | | | | 7,026 | | | | 1,532,480 | |
| | 2006 | | | | 318,750 | | | | — | | | | 161,690 | | | | — | | | | 318,750 | | | | 635,356 | | | | 6,876 | | | | 1,441,422 | (3) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
William E. Schneider
President and CEO of Knife River Corporation | | | | | 2007 | | | | 422,000 | | | | — | | | | 383,191 | | | | — | | | | 206,780 | | | | 450,347 | | | | 7,026 | | | | 1,469,344 | |
| | 2006 | | | | 392,000 | | | | — | | | | 248,217 | | | | 20,729 | | | | 392,000 | | | | 609,916 | | | | 6,876 | | | | 1,669,738 | (3) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
John G. Harp
President and CEO of MDU Construction Services Group, Inc. | | | | | 2007 | | | | 341,000 | | | | — | | | | 277,929 | | | | — | | | | 341,000 | | | | 47,334 | (5) | | | 23,080 | (6) | | | 1,030,343 | |
| | 2006 | | | | 310,000 | | | | — | | | | 150,566 | | | | — | | | | 810,000 | (4) | | | 324,976 | (5) | | | 31,323 | (6) | | | 1,626,865 | (3) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Bruce T. Imsdahl
President and CEO of Montana-Dakota Utilities Co. and Great Plains Natural Gas Co. | | | | | 2007 | | | | 322,400 | | | | — | | | | 289,434 | | | | — | | | | 322,400 | | | | 192,228 | | | | 7,026 | | | | 1,133,488 | |
| | 2006 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (1) | Amounts in these columnsthis column represent the dollar amount recognized for financial statement reporting purposes foraggregate grant date fair value of the 2007 and 2006 fiscal years for restricted stock awards, performance share awards and stock option awards grantedcalculated in 2007 and prior years. These amounts reflect our accounting expense for these awards and do not correspond to the actual value that will be recognized by the named executive officers. Assumptions used to determine the amounts in these columns are the same as used in the calculation of compensation expense for our audited financial statements, except for the effect of estimated forfeitures. Statement ofaccordance with Financial Accounting Standards No. 123 (revised), “Share-Based Payment” requires usBoard Accounting Standards Codification Topic 718 – Share-Based Payment. Amounts for 2008 and 2007 have been recalculated to estimate forfeitures when awards are granted and reduce estimated compensation expense accordingly. These columns werecomply with the new requirements. This column was prepared assuming none of the awards will be forfeited. However, for both these columns andThe amounts were calculated using a Monte Carlo simulation, as described in Note 13 of our audited financial statements compensation expense is adjusted for actual forfeitures. |
| The grant date fair value of restricted stock awards was basedin our Annual Report on the market price of our stock on the grant date. |
| The grant date fair valueForm 10-K for the performance shares granted in 2007 was determined by Monte Carlo simulation using a blended volatility term structure in the range of 18.17% to 18.73% comprised of 50% historical volatility and 50% implied volatility and a risk-free interest rate term structure in the range of 4.75% to 5.21% based on the U.S. Treasury security rates in effect as of the grant date. In addition, the mean overall simulation paths of the discounted dividends expected to be earned in the performance period used in the valuation was $1.25 per target share. |
| The grant date fair value for the performance shares granted in 2006 was determined by Monte Carlo simulation using a blended volatility term structure in the range of 17.65% to 18.79% comprised of 50% historical volatility and 50% implied volatility and a risk-free interest rate term structure in the range of 4.66% to 4.79% based on the U.S. Treasury security rates in effect as of the grant date. In addition, the mean overall simulation paths of the discounted dividends expected to be earned in the performance period used in the valuation was $1.37 per target share. |
| The grant date fair value for the performance share awards granted in 2005 was equal to the market value of our common stock on the grant date. |
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| The fair value of stock options was estimated on the grant date using the Black-Scholes option-pricing model. The fair value of the options granted and the underlying assumptions were as follows: |
Fair value of options at grant date | | | | | $3.22 | |
Risk-free interest rate | | | | | 5.18 | % |
Expected price volatility | | | | | 25.94 | % |
Expected dividend yield | | | | | 3.53 | % |
Expected life in years | | | | | 7 | |
Date of Grant | | | | | February 14, 2001 | year ended December 31, 2009. |
For additional information about these stock awards and option awards, refer to Note 14 of our audited financial statements in our Annual Report on Form 10-K for the year ended December 31, 2007.
| (2) | Amounts shown represent the change in the actuarial present value for years endingended December 31, 20062007, 2008, and December 31, 20072009 for the named executive officers’ accumulated benefits under the pension plan, excess SISP, and SISP and, for Mr. Harp, the additional retirement benefit, collectively referred to as the “accumulated pension change,” plus above market earnings on deferred annual incentives, if any. The amounts shown forare based on accumulated pension change onand above market earnings as of December 31, 2006 have been corrected from the amounts reported in the 2007, proxy statement due to an error by an actuary. The corrected amounts for 20062008, and the amounts for 2007 are:2009, as follows: |
| Name | | | Accumulated
Pension Change | | | Above Market
Earnings | | |
|---|
12/31/2006
($) | | | 12/31/2007
($) | | | 12/31/2006
($) | | | 12/31/2007
($) | | |
|---|
| | | |
| Terry D. Hildestad | | | | | 752,265 | | | | 1,336,815 | | | | 15,919 | | | | 25,598 | |
| Vernon A. Raile | | | | | 608,295 | | | | 508,987 | | | | 27,061 | | | | 46,261 | |
| William E. Schneider | | | | | 593,820 | | | | 411,123 | | | | 16,096 | | | | 39,224 | |
| John G. Harp | | | | | 239,228 | | | | 38,498 | | | | — | | | | — | |
Additional Retirement
(John G. Harp)* | | | | | 85,748 | | | | 8,836 | | | | — | | | | — | |
| Bruce T. Imsdahl | | | | | — | | | | 179,790 | | | | — | | | | 12,438 | |
| | | Accumulated Pension Change | | Above Market Earnings | |
| Name | | 12/31/2007 ($) | | 12/31/2008 ($) | | 12/31/2009 ($) | | 12/31/2007 ($) | | 12/31/2008 ($) | | 12/31/2009 ($) | | |
| Terry D. Hildestad | | | 1,336,815 | | | | 883,351 | | | | 806,554 | | | 25,598 | | | | 15,590 | | | | 18,765 | | | |
| Vernon A. Raile | | | 508,987 | | | | 469,755 | | | | 661,243 | | | 46,261 | | | | 28,455 | | | | 33,934 | | | |
| John G. Harp | | | 38,498 | | | | 331,558 | | | | 743,334 | | | — | | | | — | | | | — | | | |
Additional Retirement (John G. Harp)* | | | 8,836 | | | | 7,216 | | | | 18,336 | | | — | | | | — | | | | — | | | |
| William E. Schneider | | | 411,123 | | | | 155,816 | | | | 696,572 | | | 39,224 | | | | 24,985 | | | | 30,074 | | | |
| Steven L. Bietz | | | — | | | | — | | | | 475,985 | | | — | | | | — | | | | — | | | |
*See footnote 5.6.
| (3) | Totals corrected from amounts reported inIncludes company contributions to the 2007 proxy statement. See footnote 2.401(k) account, payment of a life insurance premium, and matching contributions to charitable organizations. |
| (4) | Includes one-time incentive payment of $500,000$[•] in addition to his annual incentive compensation. |
| (5) | Includes one-time incentive payment of $200,000 in addition to his executive incentive compensation plan payment. |
(5)(6) | In addition to the change in the actuarial present value of Mr. Harp’s accumulated benefit under the pension plan, excess SISP, and SISP, this amount also includes the following amounts attributable to Mr. Harp’s additional retirement benefit: |
| | | 2006 | | | 2007 | |
|---|
| Change in present value of additional years of service for pension plan | | | | $ | 77,447 | | | $ | 6,033 | |
| Change in present value of additional years of service for excess SISP | | | | $ | 8,301 | | | $ | 2,803 | |
| Change in present value of additional years of service for SISP | | | | | — | | | | — | |
| | | | 2007 | | 2008 | | 2009 |
| | Change in present value of additional years of service for pension plan | | $ | 6,033 | | | $ | 3,570 | | | $ | 13,077 | |
| | Change in present value of additional years of service for excess SISP | | | 2,803 | | | | 3,646 | | | | 5,259 | |
| | Change in present value of additional years of service for SISP | | | — | | | | — | | | | — | |
Mr. Harp’s additional retirement benefit is described in the narrative that follows the Pension Benefits for 2007 table. The additional retirement benefit provides Mr. Harp with additional retirement benefits equal to the additional benefit he would earn under the pension plan, excess SISP and the SISP if he had three additional years of service. The amounts in the table above reflect the change in present value of this additional benefit in 2006 and 2007. The additional retirement benefit was determined by calculating the actuarial present values of the accumulated benefits under the pension plan, excess SISP and SISP, with and without the three additional years of service, using the same assumptions used to determine the amounts disclosed in the Pension Benefits for 2007 table. Because Mr. Harp would be fully vested in his SISP benefit if he retired at age 65, the additional years of service provided by the additional retirement agreement would not increase that benefit. If Mr. Harp retires before becoming 100% vested in his SISP benefit, his SISP benefit would be less than the amount shown in the Pension Benefits for 2007 table, but the payments he would receive under the additional retirement benefit arrangement would increase, as would the amounts reflected in the table above and in the Summary Compensation Table. In the Summary Compensation Table in last year’s proxy statement, we disclosed a change in pension value of $772,200 for Mr. Harp. This included $197,550 attributable to the increase in Mr. Harp’s pension due to the additional years of service and $317,273 attributable to the increase in Mr. Harp’s SISP benefits due to the additional years of service. To calculate these amounts, we assumed Mr. Harp met the vesting conditions necessary to earn the additional retirement benefit and terminated employment on January 2, 2008. Both the $197,550 and the $317,273 amounts were reflected in our financial statements for 2007. We have determined, however, that it is more appropriate and consistent with our other disclosures in column (h) of the Summary Compensation Table and in the Pension Benefits for 2007 table if the amounts in the Summary Compensation Table attributable to this additional retirement benefit are determined using the same assumed retirement ages used for these other disclosures.
(6) | Mr. Harp’s additional retirement benefit is described in the narrative that follows the Pension Benefits for 2009 table. The additional retirement benefit provides Mr. Harp with additional retirement benefits equal to the additional benefit he would earn under the pension plan, excess SISP, and the SISP if he had three additional years of service. The amounts in the table above reflect the change in present value of this additional benefit in 2007, 2008, and 2009. The additional retirement benefit was determined by calculating the actuarial present values of the accumulated benefits under the pension plan, excess SISP, and SISP, with and without the three additional years of service, using the same assumptions used to determine the amounts disclosed in the Pension Benefits for 2009 table. Because Mr. Harp would be fully vested in his SISP benefit if he retired at age 65, the assumed retirement age of these calculations, the additional years of service provided by the additional retirement agreement would not increase that benefit. If Mr. Harp retires before becoming 100% vested in his SISP benefit, his SISP benefit would be less than the amount shown in the Pension Benefits for 2009 table, but the payments he would receive under the additional retirement benefit arrangement would increase, as would the amounts reflected in the table above and in the Summary Compensation Table. |
| (7) | Includes a company contribution to Mr. Harp’s 401(k) account, a matching contribution to a charity, payment of a life insurance premium, an additional premium for Mr. Harp’s long-term disability insurance, and Mr. Harp’s office and automobile allowance. |
32
Name
(a) | | | Grant
Date
(b) | | | 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
(#)
(i) | | | All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)
(j) | | | Exercise
or Base
Price of
Option
Awards
($/Sh)
(k) | | | Grant
Date Fair
Value of
Stock and
Option
Awards
($)
(l) | | |
|---|
Threshold
($)
(c) | | | Target
($)
(d) | | | Maximum
($)
(e) | | | Threshold
(#)
(f) | | | Target
(#)
(g) | | | Maximum
(#)
(h) | | |
|---|
| | | |
| Terry D. Hildestad | | | | | 2/15/07(1) | | | | 156,250 | | | | 625,000 | | | | 1,250,000 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | |
| | 2/15/07(2) | | | | — | | | | — | | | | — | | | | 3,309 | | | | 33,091 | | | | 66,182 | | | | — | | | | — | | | | — | | | | 779,293 | |
| Vernon A. Raile | | | | | 2/15/07(1) | | | | 43,838 | | | | 175,350 | | | | 350,700 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | |
| | 2/15/07(2) | | | | — | | | | — | | | | — | | | | 1,256 | | | | 12,564 | | | | 25,128 | | | | — | | | | — | | | | — | | | | 295,882 | |
| William E. Schneider | | | | | 2/15/07(3) | | | | 52,750 | | | | 211,000 | | | | 422,000 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | |
| | 2/15/07(2) | | | | — | | | | — | | | | — | | | | 1,512 | | | | 15,119 | | | | 30,238 | | | | — | | | | — | | | | — | | | | 356,052 | |
| John G. Harp | | | | | 2/15/07(4) | | | | 42,625 | | | | 170,500 | | | | 341,000 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | |
| | 2/15/07(2) | | | | — | | | | — | | | | — | | | | 1,018 | | | | 10,181 | | | | 20,362 | | | | — | | | | — | | | | — | | | | 239,763 | |
| Bruce T. Imsdahl | | | | | 2/15/07(5) | | | | 40,300 | | | | 161,200 | | | | 322,400 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | |
| | 2/15/07(2) | | | | — | | | | — | | | | — | | | | 963 | | | | 9,625 | | | | 19,250 | | | | — | | | | — | | | | — | | | | 226,669 | |
| Grants of Plan-Based Awards in 2009 |
| | | | 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 (#) (i) | | All Other Option Awards: Number of Securities Underlying Options (#) (j) | | Exercise or Base Price of Option Awards ($/Sh) (k) | | Grant Date Fair Value of Stock and Option Awards ($) (l) |
Name (a) | | Grant Date (b) | Threshold ($) (c) | Target ($) (d) | Maximum ($) (e) | | Threshold (#) (f) | Target (#) (g) | Maximum (#) (h) | | | |
| Terry D. Hildestad | | 2/12/09(1) | 187,500 | 750,000 | 1,500,000 | | — | — | — | — | | — | | — | | |
| | | 2/12/09(2) | — | — | — | | 5,482 | 54,824 | 109,648 | — | | — | | — | | 1,117,861 |
| Vernon A. Raile | | 2/12/09(1) | 73,125 | 292,500 | 585,000 | | — | — | — | — | | — | | — | | |
| 2/12/09(2) | — | — | — | | 1,973 | 19,736 | 39,472 | — | | — | | — | | 402,417 |
| John G. Harp | | 2/12/09(1) | 73,125 | 292,500 | 585,000 | | — | — | — | — | | — | | — | | |
| 2/12/09(2) | — | — | — | | 1,973 | 19,736 | 39,472 | — | | — | | — | | 402,417 |
| | | 2/12/09(3) | 100,000 | 200,000 | | | | | | | | | | | | |
| William E. Schneider | | 2/12/09(1) | 72,703 | 290,810 | 581,620 | | — | — | — | — | | — | | — | | |
| 2/12/09(2) | — | — | — | | 1,962 | 19,622 | 39,244 | — | | — | | — | | 400,093 |
| Steven L. Bietz | | 2/12/09(4) | 56,875 | 227,500 | 455,000 | | — | — | — | — | | — | | — | | |
| 2/12/09(2) | — | — | — | | 1,535 | 15,350 | 30,700 | — | | — | | — | | 312,987 |
| (1) | Annual incentive for 20072009 granted pursuant to the MDU Resources Group, Inc. Long-Term Performance-Based Incentive Plan. |
| (2) | Performance shares for the 2007-20092009-2011 performance period granted pursuant to the MDU Resources Group, Inc. Long-Term Performance-Based Incentive Plan. |
| (3) | AnnualMr. Harp’s additional 2009 incentive for 2007 granted pursuant to the Knife River Corporation Executive Incentive Compensation Plan.opportunity. |
| (4) | Annual incentive for 20072009 granted pursuant to the MDU Construction Services Group,WBI Holdings Inc. Executive Compensation Plan. |
(5) | Annual incentive for 2007 granted pursuant to the Montana-Dakota Utilities Co. Executive Incentive Compensation Plan. |
Narrative Discussion Relating to the Summary Compensation Table
and Grants of Plan-Based Awards Table
On February
14, 2007,11, 2009, the compensation committee recommended the
20072009 annual
incentive award opportunities for our named executive officers, and the board approved these opportunities at its meeting on February
15, 2007.12, 2009. These award opportunities are reflected in the Grants of Plan-Based Awards table at grant on February
15, 200712, 2009 in columns (c), (d)
, and (e) and in the Summary Compensation Table as earned with respect to
20072009 in column (g).
Executive officers may receive annual cash incentive awards based upon achievement of annual performance measures with a threshold, target, and maximum level. A target incentive award is established based
uponon a percent of the executive’s base salary. Actual payment may range from zero to 200% of the target based upon achievement of corporate goals.
In order to be eligible to receive an annual incentive award under the Long-Term Performance-Based Incentive Plan, Messrs. Hildestad,
Raile, Schneider, and
RaileHarp must have remained employed by the company through December 31,
2007,2009, unless the compensation committee determines otherwise. The committee has full discretion to determine the extent to which goals have been achieved, the payment level, whether any final payment will be made, and whether to adjust awards downward
33
Table of Contents
based upon individual performance. Unless the committee determines otherwise, performance measure targets shall be adjusted to take into account unusual or nonrecurring events affecting the company, a subsidiary or a division or
business unit, or any of their financial statements, or changes in applicable laws, regulations or accounting principles to the extent such unusual or nonrecurring events or changes in applicable laws, regulations or accounting principles otherwise would result in dilution or enlargement of the annual incentive award intended to be provided. Such adjustments are made in a manner that will not cause the award to fail to qualify as performance-based compensation for purposes of Section 162(m) of the Internal Revenue Code.
With respect to annual incentive awards granted pursuant to anthe WBI Holdings, Inc. Executive Incentive Compensation Plan, which includes Mr. Bietz, participants who retire at age 65 die or become disabled during the year remain eligible to receive an award. Subject to the compensation committee’s discretion, executives who terminate employment for other reasons are not eligible for an award.
The committee has full discretion to determine the extent to which goals have been achieved, the payment level, and whether any final payment will be made. Once performance goals are approved by the committee for executive incentive compensation plan awards, the committee generally does not modify the goals. However, if major unforeseen changes in economic and environmental conditions or other significant factors beyond the control of management substantially affected management’s ability to achieve the specified performance goals, the committee, in consultation with the chief executive officer, may modify the performance goals. Such goal modifications will only be considered in years of unusually adverse or favorable external conditions.
For Messrs. Hildestad and Raile, the performance measures for annual incentive awards are our annual return on invested capital achieved compared to target and our annual earnings per share achieved compared to target. For Messrs. Schneider, Harp, and
Imsdahl,Bietz, the performance measures for annual incentive awards are their respective business unit’s annual return on invested capital achieved compared to target and their respective business unit’s allocated earnings per share achieved compared to target.
In 2009, Mr. Bietz had five individual goals relating to WBI Holdings Inc.’s safety results, and each goal that was not met reduced his annual incentive award by 1%.
For
2007,2009, the compensation committee weighted the goals for annual return on invested capital compared to planned results and allocated earnings per share compared to planned results each at 50%.
In 2006 we began limiting
We limit the
after-tax annual incentive compensation we will pay above the target
amount. The after-tax incentives paid above target will be limitedamount to 20% of earnings in excess of planned earnings.
TheWe calculate the earnings in excess of planned earnings
are calculated without regard to the after-tax
annual incentive amounts above target.
TheWe measure the 20% limitation
is measured at the major business unit level for business unit and operating company executives, which include Messrs.
Harp, Schneider,
Harp and
Imsdahl,Bietz, and at the corporate level for corporate executives, which include Messrs. Hildestad and Raile.
The committee also considers annual improvementIn 2009, the 20% limitation was calculated without regard to the noncash ceiling test impairment charge as discussed in the
return on invested capital measure for incentive purposes to help ensure that return on invested capital equals or exceeds the weighted average cost of capital.34
Table of Contents
Compensation Discussion and Analysis.
The award opportunities available to each named executive officer were:
2007 earnings per share
results as a % of 2007 plan | | | Corresponding
payment of earnings
per share annual
incentive target | |
|---|
| | | |
| less than 85% | | | | | 0 | % |
| 85% | | | | | 25 | % |
| 90% | | | | | 50 | % |
| 95% | | | | | 75 | % |
| 100% | | | | | 100 | % |
| 103% | | | | | 120 | % |
| 106% | | | | | 140 | % |
| 109% | | | | | 160 | % |
| 112% | | | | | 180 | % |
| 115% or more | | | | | 200 | % |
2007 return on invested
capital results as a % of 2007 plan | | | Corresponding
payment of
return on invested
capital annual
incentive target | |
|---|
| | | |
| less than 85% | | | | | 0 | % |
| 85% | | | | | 25 | % |
| 90% | | | | | 50 | % |
| 95% | | | | | 75 | % |
| 100% | | | | | 100 | % |
| 103% | | | | | 120 | % |
| 106% | | | | | 140 | % |
| 109% | | | | | 160 | % |
| 112% | | | | | 180 | % |
| 115% or more | | | | | 200 | % |
2009 earnings per share results as a % of 2009 target | | | Corresponding payment of annual incentive target based on earnings per share | |
| Less than 85% | | | | | 0% | |
| 85% | | | | | 25% | |
| 90% | | | | | 50% | |
| 95% | | | | | 75% | |
| 100% | | | | | 100% | |
| 103% | | | | | 120% | |
| 106% | | | | | 140% | |
| 109% | | | | | 160% | |
| 112% | | | | | 180% | |
| 115% | | | | | 200% | |
2009 return on invested capital results as a % of 2009 target | | | Corresponding payment of annual incentive target based on return on invested capital | |
| Less than 85% | | | | | 0% | |
| 85% | | | | | 25% | |
| 90% | | | | | 50% | |
| 95% | | | | | 75% | |
| 100% | | | | | 100% | |
| 103% | | | | | 120% | |
| 106% | | | | | 140% | |
| 109% | | | | | 160% | |
| 112% | | | | | 180% | |
| 115% | | | | | 200% | |
For discussion of the specific incentive plan performance targets and results, please see the Compensation Discussion and Analysis.
In addition to his 2009 annual incentive award opportunity under our Long-Term Performance-Based Incentive Plan, Mr. Harp had an opportunity to earn an additional incentive, which was structured as follows:
| Construction Services Group, Inc.’s 2009 Return on Invested Capital (ROIC) as compared to Construction Services Group, Inc.’s 2009 Weighted Average Cost of Capital (WACC) | Additional Incentive Amount |
| 2009 ROIC is less than 100 basis points above 2009 WACC | $0 |
| 2009 ROIC is 100 to 199 basis points above 2009 WACC | $100,000 |
| 2009 ROIC is 200 basis points or more above 2009 WACC | $200,000 |
For a specific discussion of this additional incentive opportunity and the compensation discussioncommittee’s determination with respect to payment, please refer to the Compensation Discussion and analysis.Analysis.
On February
14, 2007,11, 2009, the compensation committee recommended long-term incentive grants to the named executive officers in the form of performance shares, and the board approved these grants at its meeting on February
15, 2007.12, 2009. These grants are reflected in columns (f), (g), (h)
, and (l) of the Grants of Plan-Based Awards
table.35
Tabletable and in column (e) of Contents
the Summary Compensation Table.
From 0% to 200% of the target grant will be paid out in February 20102012, depending on our 2007-20092009-2011 total stockholder return compared to the total three-year stockholder returns of companies in our performance graph peer group. The payout percentage is determined as follows:
| The Company’s Percentile Rank | | | | | Payout Percentage of
Feb. 15, 2007 February 12, 2009 Grant | | |
|---|
| | | |
100th | | | | | 200% | |
75th | 75th | | | | 150% | |
50th | 50th | | | | 100% | |
40th | 40th | | | | 10% | |
| Less than 40th | | | | | 0% | |
Payouts for percentile ranks falling between the intervals will be interpolated. We also will pay dividend equivalents in cash on the number of shares actually earned for the performance period. The dividend equivalents will be paid in
20102012 at the same time as the performance awards are paid.
Salary and Bonus in Proportion to Total Compensation
The following table shows the proportion of salary to total compensation. We paid no bonuses to our named executive officers in 2007.2009.
| Name | | | Salary
($) | | | Total Compensation
($) | | | Salary as % of
Total Compensation | |
|---|
| | | |
| Terry D. Hildestad | | | | | 625,000 | | | | 3,906,260 | | | | 16.0 | |
| Vernon A. Raile | | | | | 350,700 | | | | 1,532,480 | | | | 22.9 | |
| William E. Schneider | | | | | 422,000 | | | | 1,469,344 | | | | 28.7 | |
| John G. Harp | | | | | 341,000 | | | | 1,030,343 | | | | 33.1 | |
| Bruce T. Imsdahl | | | | | 322,400 | | | | 1,133,488 | | | | 28.4 | |
Outstanding Equity Awards at Fiscal Year-End 2007
| | | Option Awards | | | Stock Awards | | |
|---|
| | | | | |
Name
(a) | | | Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
(b)(1,2) | | | Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
(c) | | | Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
(d) | | | Option
Exercise
Price
($)
(e)(1) | | | Option
Expiration
Date
(f) | | | Number
of Shares
or Units
of Stock
That
Have Not
Vested
(#)
(g)(1,3) | | | Market
Value of
Shares or
Units of
Stock
That
Have Not
Vested
($)
(h) | | | Equity
Incentive
Plan Awards:
Number of
Unearned
Shares,
Units or
Other Rights
That Have
Not Vested
(#)
(i)(4) | | | Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares,
Units or
Other Rights
That Have
Not Vested
($)
(j)(5) | |
|---|
| | | |
| Terry D. Hildestad | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 3,712 | | | | 102,488 | | | | 128,309 | | | | 3,542,611 | |
| Vernon A. Raile | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,114 | | | | 30,758 | | | | 50,037 | | | | 1,381,522 | |
| William E. Schneider | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2,970 | | | | 82,002 | | | | 71,365 | | | | 1,970,388 | |
| John G. Harp | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 51,968 | | | | 1,434,836 | |
| Bruce T. Imsdahl | | | | | 25,896 | | | | — | | | | — | | | | 13.2178 | | | | 02/15/2011 | | | | 1,485 | | | | 41,001 | | | | 53,870 | | | | 1,487,351 | |
| Name | Salary ($) | Total Compensation ($) | Salary as % of Total Compensation | | |
| Terry D. Hildestad | | | 750,000 | | [•] | | [•] | | |
| Vernon A. Raile | | | 450,000 | | [•] | | [•] | | |
| John G. Harp | | | 450,000 | | [•] | | [•] | | |
| William E. Schneider | | | 447,400 | | [•] | | [•] | | |
| Steven L. Bietz | | | 350,000 | | [•] | | [•] | | |
| Outstanding Equity Awards at Fiscal Year-End 2009 |
| | | | Option Awards | | | Stock Awards | | |
Name (a) | | | Number of Securities Underlying Unexercised Options Exercisable (#) (b) | | | Number of Securities Underlying Unexercised Options Unexercisable (#) (c) | | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) (d) | | | Option Exercise Price ($) (e) | | | Option Expiration Date (f) | | | Number of Shares or Units of Stock That Have Not Vested (#) (g)(1,2) | | | Market Value of Shares or Units of Stock That Have Not Vested ($) (h) | | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) (i)(3) | | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) (j)(4) | | |
| Terry D. Hildestad | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 3,712 | | | | 87,603 | | | | 181,830 | | | | 4,291,188 | | |
| Vernon A. Raile | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,114 | | | | 26,290 | | | | 65,438 | | | | 1,544,337 | | |
| John G. Harp | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 63,055 | | | | 1,488,098 | | |
| William E. Schneider | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2,970 | | | | 70,092 | | | | 69,354 | | | | 1,636,754 | | |
| Steven L. Bietz | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 558 | | | | 13,169 | | | | 51,545 | | | | 1,216,462 | | |
| (1) | Adjusted for the 3-for-2 stock split effective July 26, 2006. |
| (2) | These options were granted in 2001 and vested on February 15, 2007. |
36
Table of Contents
(3) | These shares of restricted stock were granted in 2001 and vest automatically on February 15, 2010. Vesting of some or all shares may be accelerated upon change of control or if the total stockholder return equals or exceeds the 50th percentile of the performance graph peer group during the final three-year performance cycles: 2001-2003, 2004-2006 andcycle 2007-2009. Non-preferential dividends are paid on these shares. |
| Named Executive Officer | | | Award | | | Shares | | | End of
Performance
Period | |
|---|
| | | |
| Terry D. Hildestad | | | | | 2005 | | | | 38,244 | | | | 12/31/07 | |
| | 2006 | | | | 23,883 | | | | 12/31/08 | |
| | 2007 | | | | 66,182 | | | | 12/31/09 | |
| Vernon A. Raile | | | | | 2005 | | | | 12,480 | | | | 12/31/07 | |
| | 2006 | | | | 12,429 | | | | 12/31/08 | |
| | 2007 | | | | 25,128 | | | | 12/31/09 | |
| William E. Schneider | | | | | 2005 | | | | 25,842 | | | | 12/31/07 | |
| | 2006 | | | | 15,285 | | | | 12/31/08 | |
| | 2007 | | | | 30,238 | | | | 12/31/09 | |
| John G. Harp | | | | | 2005 | | | | 21,534 | | | | 12/31/07 | |
| | 2006 | | | | 10,072 | | | | 12/31/08 | |
| | 2007 | | | | 20,362 | | | | 12/31/09 | |
| Bruce T. Imsdahl | | | | | 2005 | | | | 24,548 | | | | 12/31/07 | |
| | 2006 | | | | 10,072 | | | | 12/31/08 | |
| | 2007 | | | | 19,250 | | | | 12/31/09 | |
| Named Executive Officer | | Award | | Shares | End of Performance Period | | |
| Terry D. Hildestad | | | | 2007 | | | | 33,091 | | | 12/31/09 | | |
| | 2008 | | | | 39,091 | | | 12/31/10 | | |
| | 2009 | | | | 109,648 | | | 12/31/11 | | |
| Vernon A. Raile | | | | 2007 | | | | 12,564 | | | 12/31/09 | | |
| | 2008 | | | | 13,402 | | | 12/31/10 | | |
| | 2009 | | | | 39,472 | | | 12/31/11 | | |
| John G. Harp | | | | 2007 | | | | 10,181 | | | 12/31/09 | | |
| | 2008 | | | | 13,402 | | | 12/31/10 | | |
| | 2009 | | | | 39,472 | | | 12/31/11 | | |
| William E. Schneider | | | | 2007 | | | | 15,119 | | | 12/31/09 | | |
| | 2008 | | | | 14,991 | | | 12/31/10 | | |
| | 2009 | | | | 39,244 | | | 12/31/11 | | |
| Steven L. Bietz | | | | 2007 | | | | 10,354 | | | 12/31/09 | | |
| | 2008 | | | | 10,491 | | | 12/31/10 | | |
| | 2009 | | | | 30,700 | | | 12/31/11 | | |
Shares for the
20052007 award are shown at the
maximumtarget level
(200%(100%) based on results for the
2005-20072007-2009 performance cycle
aboveat target.
Shares for the
20062008 award are shown at the target level (100%) based on results for the first two years of the
2006-20082008-2010 performance cycle
above threshold but belowat target.
Shares for the 20072009 award are shown at the maximum level (200%) based on results for the first year of the 2007-20092009-2011 performance cycle above target.
(5)(4) | Value based on the number of performance shares reflected in column (i) multiplied by $27.61,$23.60, the year-end closing price for 2007.2009. |
Option Exercises and Stock Vested during 2007
| | | Option Awards | | | Stock Awards | | |
|---|
| | | | | |
Name
(a) | | | Number of
Shares Acquired
on Exercise
(#)
(b) | | | Value Realized
on Exercise
($)
(c) | | | Number of
Shares Acquired
on Vesting
(#)
(d)(1,2) | | | Value Realized
on Vesting
($)
(e)(3) | |
|---|
| | | |
| Terry D. Hildestad | | | | | 68,995 | | | | 929,688 | | | | 16,109 | | | | 444,019 | |
| Vernon A. Raile | | | | | — | | | | — | | | | 5,319 | | | | 146,610 | |
| William E. Schneider | | | | | 57,015 | | | | 785,096 | | | | 10,781 | | | | 297,161 | |
| John G. Harp | | | | | — | | | | — | | | | — | | | | — | |
| Bruce T. Imsdahl | | | | | — | | | | — | | | | 4,500 | | | | 124,035 | |
| Option Exercises and Stock Vested during 2009 |
| | | | Option Awards | | | Stock Awards |
Name (a) | | | Number of Shares Acquired on Exercise (#) (b) | | | Value Realized on Exercise ($) (c) | | | Number of Shares Acquired on Vesting (#) (d)(1,2) | | Value Realized on Vesting ($) (e)(3) | |
| Terry D. Hildestad | | | | | — | | | | — | | | | 19,584 | | | | 397,426 | | |
| Vernon A. Raile | | | | | — | | | | — | | | | 10,192 | | | | 206,830 | | |
| John G. Harp | | | | | — | | | | — | | | | 8,259 | | | | 167,603 | | |
| William E. Schneider | | | | | — | | | | — | | | | 12,534 | | | | 254,358 | | |
| Steven L. Bietz | | | | | — | | | | — | | | | 5,755 | | | | 116,789 | | |
(1) | Adjusted for the 3-for-2 stock split effective July 26, 2006. |
| (2) | Reflects performance shares for the 2004-20062006-2008 performance period that vested on February 15, 2007.12, 2009. |
| (3) | Reflects the value of performance shares based on our stock price of $26.08$18.61 on February 15, 200712, 2009, and the dividend equivalents that were paid on the vested shares. |
Pension Benefits for 2007
Name
(a) | | Plan Name
(b) | | Number of
Years Credited
Service
(#)
(c) | | Present Value
of Accumulated
Benefit
($)
(d) | | Payments
During Last
Fiscal Year
($)
(e) | |
|---|
| | | |
| Terry D. Hildestad | | Pension Plan | | 34 | | 1,086,843 | | — | |
| SISP I(1) | | 25 | | 1,288,914 | | — | |
| SISP II(2) | | 25 | | 1,631,344 | | — | |
| SISP Excess | | 25 | | 459,960 | | — | |
| Vernon A. Raile | | Pension Plan | | 28 | | 932,905 | | — | |
| SISP I(1) | | 25 | | 781,593 | | — | |
| SISP II(2) | | 25 | | 943,264 | | — | |
| SISP Excess | | 25 | | 35,451 | | — | |
| William E. Schneider | | Pension Plan | | 14 | | 478,062 | | — | |
| SISP I(1) | | 13 | | 941,660 | | — | |
| SISP II(2) | | 13 | | 813,558 | | — | |
| SISP Excess | | 13 | | 70,086 | | — | |
| John G. Harp | | Pension Plan | | 3 | | 87,997 | | — | |
| SISP I(1) | | 2 | | — | | — | |
| SISP II(2) | | 2 | | 815,846 | | — | |
| SISP Excess | | 2 | | 11,538 | | — | |
| Harp Additional Retirement Benefit | | 3 | | 94,584 | | — | |
| Bruce T. Imsdahl | | Pension Plan | | 35 | | 1,246,277 | | — | |
| SISP I(1) | | 21 | | 656,240 | | — | |
| SISP II(2) | | 21 | | 435,546 | | — | |
| SISP Excess | | 21 | | 123,974 | | — | |
| Pension Benefits for 2009 |
Name (a) | Plan Name (b) | Number of Years Credited Service (#) (c) | Present Value of Accumulated Benefit ($) (d) | Payments During Last Fiscal Year ($) (e) |
| Terry D. Hildestad | Pension Plan | 35 | 1,369,893 | | — |
| | SISP I(1) | 27 | 1,487,740 | | — |
| | SISP II(2) | 27 | 2,456,479 | | — |
| | SISP Excess | 27 | 842,854 | | — |
| Vernon A. Raile | Pension Plan | 30 | 1,033,470 | | — |
| | SISP I(1) | 27 | 891,572 | | — |
| | SISP II(2) | 27 | 1,899,169 | | — |
| | SISP Excess | 27 | — | | — |
| John G. Harp | Pension Plan | 5 | 172,100 | | — |
| | SISP I(1) | 4 | — | | — |
| | SISP II(2) | 4 | 1,784,336 | | — |
| | SISP Excess | 4 | 33,837 | | — |
| | Harp Additional Retirement Benefit | 4 | 120,136 | | — |
| William E. Schneider | Pension Plan | 16 | 667,138 | | — |
| | SISP I(1) | 15 | 1,081,798 | | — |
| | SISP II(2) | 15 | 1,278,020 | | — |
| | SISP Excess | 15 | 128,798 | | — |
| Steven L. Bietz | Pension Plan | 28 | 675,382 | | — |
| | SISP I(1) | 15 | 458,686 | | — |
| | SISP II(2) | 15 | 440,819 | | — |
| | SISP Excess | 15 | 72,082 | | — |
| (1) | Grandfathered under Section 409A. |
| (2) | Not grandfathered under Section 409A. |
The amounts shown for the pension plan and excess SISP represent the actuarial present values of the executives’ accumulated benefits accrued as of December 31,
2007,2009, calculated using a
6.0%5.75% discount rate, the 1994 Group Annuity Mortality Table for post-retirement mortality and no recognition of future salary increases or pre-retirement mortality. The assumed retirement ages for these benefits was age 60 for Messrs.
Hildestad, Harp and
ImsdahlBietz and age 62 for Mr. Schneider. These are the earliest ages at which the executives could begin receiving unreduced benefits. Retirement on December 31,
20072009, was assumed for
Mr.Messrs. Hildestad and Raile, who
is currentlywere age
63.60 and 64 on that date. The amounts shown for the SISP I and SISP II were determined using a
6.0%5.75% discount rate and assume benefits
38
Table of Contents
commenced at age 65. The assumptions used to calculate Mr. Harp’s additional retirement benefit are described below.
Messrs. Hildestad, Raile, Harp and ImsdahlHarp participate in the MDU Resources Group, Inc. Pension Plan for Non-Bargaining Unit Employees, which we refer to as our pension plan. Mr. Schneider participates in the Knife River Corporation Salaried Employees’ Pension Plan, which we refer to as the KR pension plan. Mr. Bietz participates in the Williston Basin Interstate Pipeline Company Pension Plan, which we refer to as the WBI pension plan. Pension benefits under our pension plan and the WBI pension plan are based uponon the participant’s average annual salary over the 60 consecutive month period in which the participant received the highest annual salary during the participant’s final 10 years of service. For this purpose, only a participant’s salary is considered; bonusesincentives and other forms of compensation are not included. Benefits are determined by multiplying (1) the participant’s years of credited service by (2) the sum of (a) the average annual salary up to the social security integration level times 1.1% and (b) the average annual salary over the social security integration level times 1.45%. The KR pension plan uses the same formula except that 1.2% and 1.6% are used instead of 1.1% and 1.45%. The maximum
years of service recognized when determining benefits under
each of the pension plans is 35. Pension plan benefits are not reduced for social security benefits.
Each of the pension plans was amended to cease benefit accruals after December 31, 2009, meaning the normal retirement benefit will not change.
To receive unreduced retirement benefits under our
pension plan and the WBI pension plan, participants must either remain employed until age 60 or elect to defer commencement of benefits until age 60. Under the KR pension plan, participants must remain employed until age 62 or elect to defer commencement of benefits until age 62 to receive unreduced benefits.
Mr.Messrs. Hildestad and Raile
is currentlywere eligible for unreduced retirement benefits under our pension
plan.plan on December 31, 2009. Participants whose employment terminates between the ages of 55 and 60, with 5 years of service, in our
pension plan or the WBI pension plan and between the ages of 55 and 62, with 5 years of service, in the KR pension plan are eligible for early retirement benefits. Early retirement benefits are determined by reducing the normal retirement benefit by 0.25% per month for each month before age 60 in our
pension plan and the WBI pension plan and age 62 in the KR pension plan. If a participant’s employment terminates before age 55, the same reduction applies for each month the termination occurs before age 62, with the reduction capped at 21%. Messrs.
Hildestad,Harp and Schneider
and Imsdahl are currently eligible for early retirement benefits.
Benefits for single participants under the pension plans are paid as straight life amounts and benefits for married participants are paid as actuarially reduced pensions with a survivor benefit for spouses, unless participants choose otherwise.
Participants who terminate employment before age 55 may elect to receive their benefits in a lump sum. Mr. Bietz is currently eligible for a lump sum.
The Internal Revenue Code places limitations on benefit amounts that may be paid under the pension plans and on the amount of compensation that may be recognized when determining benefits. In
2007,2009, the maximum annual benefit payable under the pension plans was
$180,000$195,000 and the maximum amount of compensation that could be recognized when determining benefits was
$225,000.$245,000.
Supplemental Income Security Plan
We also offer key managers and executives, including all of our named executive officers, benefits under our non-qualified retirement plan, which we refer to as the Supplemental Income Security Plan or SISP. Benefits under the SISP consist ofof:
| | • | a supplemental retirement benefit intended to supplementaugment the retirement income provided under our qualified pension plans - we refer to this benefit as the regular SISP benefit |
| | • | an excess retirement benefit relating to Internal Revenue Code limitations on retirement benefits provided under our qualified pension plans - we refer to this benefit as the excess SISP benefit and |
| | • | death benefits –- we refer to these benefits as the SISP death benefit. |
Effective January 1, 2010, we amended the SISP to:
| • | reduce by 20% the regular SISP and death benefit levels in the benefit schedule used to determine regular SISP and death benefits for new participants and participants whose benefit levels increase on or after January 1, 2010 |
| • | impose an additional vesting period applicable to any increased regular SISP benefit and SISP death benefit occurring on or after January 1, 2010 |
| • | eliminate the excess SISP benefit for new participants and current participants who were not already eligible for the excess SISP benefit and |
| • | freeze excess SISP benefit accruals. |
SISP benefits are forfeited if the participant’s employment is terminated for cause.
39
Regular SISP Benefits and Death Benefits
Regular SISP benefits and death benefits are determined by reference to
aone of two schedules attached to the SISP - the original schedule or the amended schedule. Our compensation committee, after receiving recommendations from our chief executive officer, determines the level at which participants are placed in the
schedule.schedules. A participant’s placement is generally, but not always, determined by reference to the participant’s annual base salary.
Benefit levels in the amended schedule which became effective on January 1, 2010, are 20% lower than the benefit levels in the original schedule. The amended schedule applies to new participants and participants who receive a benefit level increase on or after January 1, 2010.
Participants can elect to receive (1) the regular SISP benefit only, (2) the SISP death benefit only, or (3) a combination of both. Regardless of the participant’s election, if the participant dies before the regular SISP benefit would commence, only the SISP death benefit is provided. If the participant elects to receive both a regular SISP benefit and a SISP death benefit, each of the benefits is reduced proportionately.
The regular SISP benefits reflected in the table above are based on the assumption that the participant elects to receive only the regular SISP benefit. The present values of the SISP death benefits that would be provided if the named executive officers were to die prior to the commencement of regular SISP benefits are reflected in the table that appears in the section entitled “Potential Payments
Uponupon Termination or Change of Control.”
We
The SISP was amended
the SISP in 2005 to address changes in applicable tax laws resulting from the enactment of section 409A of the Internal Revenue Code.
As amended, regularRegular SISP benefits that were vested as of December 31, 2004 and were thereby grandfathered under section 409A remain subject to SISP provisions then in
effect. Weeffect, which we refer to
these benefits as SISP I benefits. Regular SISP benefits that are subject to section 409A, which we refer to as SISP II benefits, are governed by amended provisions intended to comply with section 409A. Participants generally have more discretion with respect to the distributions of their SISP I benefits.
The time and manner in which the regular SISP benefits are paid depend on a variety of factors, including the time and form of benefit elected by the participant and whether the benefits are SISP I or SISP II benefits. Unless the participant elects otherwise, the SISP I benefits are paid over 180 months, with benefits commencing when the participant attains age 65 or, if later, when the participant retires.
Distribution ofThe SISP II benefits
generallycommence when the participant attains age 65 or, if later, when the participant retires, subject to a six-month delay if the participant is
deferred for six months andsubject to the
provisions of section 409A of the Internal Revenue Code that require delayed commencement of these types of retirement benefits. The SISP II benefits are paid over
180 months or, if commencement of payments is delayed for six months, 173 months.
If the commencement of benefits is delayed for six months, the first payment includes the payments that would have been paid during the six-month period. If the participant dies after the regular SISP benefits have begun but before receipt of all of the regular SISP benefits, the remaining payments are made to the participant’s designated beneficiary.
Rather than receiving their regular SISP
I benefits in equal monthly installments over 15 years commencing at age 65, participants can elect a different form and time of commencement of their SISP I benefits. Participants can elect to defer commencement of the regular SISP
I benefits. If this is elected, the participant retains the right to receive a monthly SISP death benefit if death occurs prior to the commencement of the regular SISP
I benefit.
Alternatively, participants can elect to receive both a regular SISP benefit and a SISP death benefit. A similar, one-time election may be made with respect to SISP II benefits, provided the election is made sufficiently in advance of the date SISP retirement benefits start.Participants also can elect to receive their SISP I benefits in one of three actuarially equivalent forms –- a life annuity, one hundred percent100% joint and survivor annuity, or a joint and two-thirds joint and survivor annuity, provided that the cost of providing these actuarial equivalent forms of benefits does not exceed the cost of providing the normal form of benefit. Additionally, the SISP’s administrator may choose to pay the SISP I benefits in the form of an actuarial equivalent lump sum. Neither the election to receive an actuarial equivalent benefit nor the administrator’s right to pay the regular SISP benefit in the form of an actuarially equivalent lump sum are available with respect to SISP II benefits.
To promote retention, the regular SISP benefits are subject to the following ten-year vesting schedule:
| | • | 0% vesting for less than 3 years of participation |
| | • | 20% vesting for 3 years of participation |
| | • | 40% vesting for 4 years of participation and |
| | • | an additional 10% vesting for each additional year of participation up to 100% vesting for 10 years of participation. |
In 2009, the plan was amended to impose an additional vesting requirement on benefit level increases for the regular SISP benefit granted on or after January 1, 2010. The requirement applies only to the increased benefit level. The increased benefit vests after the later of three additional years of participation in the SISP or the end of the regular vesting schedule described above. The additional three-year vesting requirement for benefit level increases is pro-rated for participants who are officers, attain age 65 and are required to retire, pursuant to the company’s bylaws, prior to the end of the additional vesting period as follows:
33% of the increase vests for participants required to retire at least one year but less than two years after the increase is granted and
66% of the increase vests for participants required to retire at least two years but less than three years after the increase is granted.
The benefit level increases of participants who attain age 65 and are required to retire pursuant to the company’s bylaws will be further reduced to the extent the participants are not fully vested in their regular SISP benefit under the 10-year vesting schedule described above. The additional vesting period associated with a benefit level increase may be waived by the compensation committee.
SISP death benefits become fully vested if the participant dies while actively employed. Otherwise, the SISP death benefits are subject to the same vesting scheduleschedules as the regular SISP benefits.
Excess SISP benefits are equal to the difference between (1) the monthly retirement benefits that would have been payable to the participant under
ourthe qualified pension
planplans absent the limitations under the Internal Revenue Code and (2) the actual benefits payable to the participant under the qualified pension plan. Participants are only eligible for the excess SISP benefits if (1) the participant is fully vested under the qualified pension plan, (2) the participant’s employment terminates prior to age 65, and (3) benefits under the qualified pension plan are reduced due to limitations under the Internal Revenue Code on plan compensation.
Effective January 1, 2005, participants who were not then vested in the excess SISP benefits were also required to remain actively employed by the company until age 60. In 2009, the plan was amended to limit eligibility of the excess SISP benefit to current SISP participants (1) who are already vested in the excess SISP benefit or (2) who will become vested in the excess SISP benefits if they remain employed with the company until age 60. The plan was further amended to freeze the excess SISP benefits to a maximum of the benefit level payable based on the participant’s years of service and compensation level as of December 31, 2009. With the exception of Mr. Harp, each of the named executive officers would be entitled to the excess SISP
benefitsbenefit if they were to terminate employment prior to age 65. Mr. Harp must remain employed until age 60 to become entitled to his excess SISP benefit.
Benefits generally commence six months after the participant’s employment terminates and continue up to age 65 or until the death of the participant, if prior to age 65. If a participant who dies prior to age 65 elected a joint and survivor benefit, the survivor’s excess SISP
benefits arebenefit is paid until the date the participant would have attained age 65.
Mr. Harp’s Additional Retirement Benefit
To encourage Mr. Harp to remain with the company,
through 2007, on November 16, 2006, upon recommendation of our chief executive officer and the compensation committee, our board of directors approved an additional retirement benefit for Mr. Harp. The benefit provides for Mr. Harp to receive payments that represent the equivalent of an additional three years of service under
theour pension plan,
the excess SISP, and the
SISP if he did not resign or retire before January 2, 2008 and if he had acceptable successors in place prior to his departure.SISP. The additional three years of service recognize Mr. Harp’s previous employment with a subsidiary of the company. To calculate payments Mr. Harp could receive due to his additional retirement benefit, we applied the additional years of service to each of the retirement arrangements and assumed
that he remained employed until age 60, for purposes of calculating the additional benefit under the pension plan and excess SISP, and age 65, for purposes of calculating the additional benefit under the SISP II. Because Mr. Harp would be fully vested in the SISP II benefit if he retired at age 65, the additional years of service provided by the agreement would not increase his SISP II benefit. Consequently, the amount shown in the table does not include any additional benefit attributable to the SISP II. If Mr. Harp were to retire before achieving 10 years of service and becoming fully vested in his SISP II benefit, the additional years of service provided by the additional retirement benefit would increase his vesting percentage under the SISP II and therefore would result in an additional payment. For a description of the payments that could be provided under the additional retirement benefit if Mr. Harp’s employment were to be terminated on December 31,
2007,2009, refer to the table and related notes in “Potential Payment upon Termination or Change of Control” below.
41
Table of Contents
The SISP also provides that if a participant becomes totally disabled, the participant will continue to receive credit for up to two additional years under the SISP as long as the participant is totally disabled during such time. Since the named executive officers other than Mr. Harp are fully vested in their SISP benefits, this would not result in any incremental benefit for the named executive officers other than Mr. Harp. The present value of these two additional years of service for Mr. Harp is reflected in the table that appears in the section entitled “Potential Payments
Uponupon Termination or Change of Control.”
Nonqualified Deferred Compensation for 2007
Name
(a) | | | Executive
Contributions in
Last FY
($)
(b) | | | Registrant
Contributions in
Last FY
($)
(c) | | | Earnings in
Aggregate
Last FY
($)
(d) | | | Aggregate
Withdrawals/
Distributions
($)
(e) | | | Aggregate
Balance at
Last FYE
($)
(f) | |
|---|
| | | |
| Terry D. Hildestad | | | | | — | | | | — | | | | 64,170 | | | | — | | | | 728,975 | |
| Vernon A. Raile | | | | | — | | | | — | | | | 115,965 | | | | — | | | | 1,317,207 | |
| William E. Schneider | | | | | 392,000(1) | | | | — | | | | 98,325 | | | | — | | | | 1,168,277 | |
| John G. Harp | | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Bruce T. Imsdahl | | | | | 159,278 | | | | — | | | | 31,178 | | | | — | | | | 375,498 | |
| Nonqualified Deferred Compensation for 2009 |
Name (a) | | | Executive Contributions in Last FY ($) (b) | | | Registrant Contributions in Last FY ($) (c) | | | Earnings in Aggregate Last FY ($) (d) | | | Aggregate Withdrawals/ Distributions ($) (e) | | | Aggregate Balance at Last FYE ($) (f) | | |
| Terry D. Hildestad | | | | | — | | | | — | | | | 52,314 | | | | — | | | | 835,932 | | |
| Vernon A. Raile | | | | | — | | | | — | | | | 94,556 | | | | — | | | | 1,510,791 | | |
| John G. Harp | | | | | — | | | | — | | | | — | | | | — | | | | — | | |
| William E. Schneider | | | | | — | | | | — | | | | 83,840 | | | | — | | | | 1,339,689(1) | | |
| Steven L. Bietz | | | | | — | | | | — | | | | — | | | | — | | | | — | | |
| (1) | This amountIncludes $392,000, which was reported in the Summary Compensation Table for 2006 in column (g). Amounts reported in the Summary Compensation Table for 2007 in column (g) that our named executive officers have elected to defer are credited in 2008 and will be reflected in this table for 2008. |
Participants in the executive incentive compensation plans may elect to defer up to 100% of their annual incentive awards. Deferred amounts
will accrue interest at a rate determined annually by the compensation committee. The interest rate in effect for
2007, commencing2009 was 6.48% or the “Moody’s Rate,” which was defined by reference to the U.S. Long-Term Corporate Bond Yield Average for “A” rated companies. Effective January 1,
2007 was 9.25% or prime rate plus one percent. In August 20072009, “Moody’s Rate” is the
compensation committee reducednumber that results from adding the
interest rate on deferred compensation fromdaily Moody’s U.S. Long-Term Corporate Bond Yield Average for “A” rated companies as of the
prime rate plus one percentage point tolast business day of each month for the
prime rate, effective January 1, 2008.12-month period ending October 31, 2008, and dividing by 12. The deferred amount will be paid in accordance with the participant’s election, following termination of employment or beginning in the fifth year following the year the award was granted. The amounts will be paid in accordance with the participant’s election in
a lump sum or in monthly installments not to exceed 120 months. In the event of a change of control, all amounts become immediately payable.
Under the executive incentive compensation plan, upon a change of control, deferred awards become immediately payable. In 2007, the plan’s definition of change of control was amended to comply with Section 409A of the Internal Revenue Code. As amended, a
A change of control is defined as
| | • | an acquisition during a 12-month period of 30% or more of the total voting power of our stock |
| | • | an acquisition of our stock that, together with stock already held by the acquirer, constitutes more than 50% of the total fair market value or total voting power of our stock |
| | • | replacement of a majority of the members of our board of directors during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of our board of directors or |
| | • | acquisition of our assets having a gross fair market value at least equal to 40% of the total gross fair market value of all of our assets. |
| Potential Payments upon Termination or Change of Control |
42
Table of Contents
Potential Payments upon Termination or Change of Control
The following
tables—Potential Payments upon Termination or Change of Control—tables show the payments and benefits our named executive officers would receive in connection with a variety of employment termination scenarios and upon a change of control. The information assumes the terminations and the change of control occurred on December 31,
2007.2009. All of the payments and benefits described below would be provided by the company or its subsidiaries.
The tables
do not include amounts such asexclude base salary,
2009 annual incentives,
and stock awards the named executive officers earned due to employment through December 31,
2007 or2009, and compensation
orand benefits provided under plans or arrangements that do not discriminate in favor of the named executive officers and that are generally available to all salaried employees, such as benefits under our qualified defined benefit pension plan, accrued vacation pay, continuation of health care benefits, and life insurance benefits. The tables also do not include the named executive officers’ benefits under our
non-qualified account balancenonqualified deferred compensation
plan.plans that are reported in the Nonqualified Deferred Compensation for 2009 table. See the Pension Benefits for
20072009 table and the Nonqualified Deferred Compensation for
20072009 table, and accompanying narratives, for a description of the named executive officers’ accumulated benefits under our qualified defined benefit pension plans and our
non-qualified account balancenonqualified deferred compensation
plan.plans.
We provide disability benefits to all of our salaried employees equal to 60% of their base salary, subject to a cap on the amount of base salary taken into account when calculating benefits. For
executives,officers, the limit on base salary is $200,000. For other salaried employees, the limit is $100,000. For all salaried employees, disability payments continue until age 65 if disability occurs at or before age 60 and for 5 years if disability occurs between the ages of 60 and 65. Disability benefits are reduced for amounts paid as retirement benefits. The amounts in the tables reflect the present value of the disability benefits attributable to the additional $100,000 of base salary recognized for executives under our disability program, subject to the 60% limitation, after reduction for amounts that would be paid as retirement benefits. The present value of the disability benefits was determined using a discount rate of
6.0%5.75%. As the tables reflect, with the exception of Mr. Harp, the reduction for amounts paid as retirement benefits would eliminate disability benefits assuming a termination of employment on December 31,
2007.2009.
Upon a change of control, share basedshare-based awards granted under our Long-Term Performance-Based Incentive Plan vest and non-share basednon-share-based awards are paid in cash. All of the named executive officers’ outstanding unvested stock options and all shares of restricted stock would vest in full upon a change of control. All performance share awards would vest at their target levels. For this purpose, the term change of control is defined as:
| | • | the public announcement that anotheracquisition by an individual, entity, will acquireor group of 20% or more of our outstanding voting stocksecurities |
| | • | commencement of a tender or exchange offer the consummation of which would result in the acquisition of 30% or more of our voting stock |
| • | the announcement of a transaction that would constitute a change in control under Item 6(e) of Schedule 14A under the Securities Exchange Act of 1934, as amended |
| • | a proposed changeturnover in a majority of our board of directors during any two consecutive years, unlesswithout the election or nominationapproval of each new director was approved by a vote of at least two-thirdsmajority of the directors then still in officemembers of the board who were members of the board at the beginningas of the periodplan’s effective date or whose election was approved by such board members |
| | • | anyconsummation of a merger or consolidation or sale or other event deemed by a majoritydisposition of all or substantially all of the compensation committeecompany’s assets, unless the company’s stockholders immediately prior to the transaction beneficially own more than 60% of our board to constitute a changethe outstanding shares and voting power of control.the resulting corporation after the merger or the corporation that acquires the company’s assets, as the case may be or |
| • | stockholder approval of the company’s liquidation or dissolution. |
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Table of Contents
Shares of restricted stock and associated dividends are forfeited upon termination of employment. Performance shares are forfeited if termination of employment occurs during the first year of the performance period. If a termination of employment occurs for a reason other than cause, performance share awards granted prior to 2009 are prorated as follows:
| • | if the termination of employment occurs during the second year of the performance period, the executive receives a prorated portion of any performance shares earned based on the number of months employed during the performance period and |
| • | if the termination of employment occurs during the third year of the performance period, the executive receives the full amount of any performance shares earned. |
Beginning with performance share awards granted in 2009, these awards will be forfeited if the second yearparticipant’s employment terminates for any reason before the participant has reached age 55 and completed 10 years of service. Performance shares and related dividend equivalents for those participants whose employment is terminated after the performance period, the executive receives aparticipant has reached age 55 and completed 10 years of service will be prorated portion of any performance shares earned based on the number of months employed during the performance period. If a termination of employment occurs for a reason other than cause during the third year of the performance period, the executive receives the full amount of any performance shares earned. as described above.
Accordingly, if a December 31,
20072009 termination is assumed, the
2007-2009named executive officers’ 2009-2011 performance share awards would be forfeited,
any amounts earned under the
2006-20082008-2010 performance share awards would be reduced by
12/36thsone-third, and
any amounts earned under the
2005-20072007-2009 performance share awards would
not be
earned.reduced. The number of performance shares earned depends on actual performance through the full performance period.
To illustrateAs actual performance for the
potential2007-2009 performance share awards has been determined, the amounts for these awards in the event of a non-change of control termination were based on actual performance, which resulted in vesting
that could occur under different employment termination scenarios, weof 100% of the target award. Amounts for the 2008-2010 performance share awards are also shown at target, based upon assumed target
performance. No amounts are shown for the 2009-2011 performance
share awards because such awards would be
achieved.forfeited. Although vesting would only occur after completion of the performance period, the amounts shown in the tables were not reduced to reflect the present value of the performance shares that could vest. Dividend equivalents attributable to earned performance shares would also be paid. Dividend equivalents accrued through December 31,
20072009 are included in the amounts shown.
The value of the vesting of shares of restricted stock and performance shares shown in the tables was determined by multiplying the number of shares of restricted stock or performance shares that would vest upon termination or a change of control by the closing price of our stock on December 31,
2007.2009.
We also have change of control employment agreements with our named executive officers and other executives, which provide certain protections to the executives in the event there is a change of control of the company.
For these purposes, we define “change of control” as:
| | • | the acquisition by an individual, entity, or group of 20% or more of our voting securities |
| | • | a turnover in a majority of our board of directors without the approval of a majority of the members of the board who were members of the board as of the agreement date or whose election was approved by such board members |
| | • | consummation of a merger or consolidation, unless our stockholders immediately prior to the merger beneficially own more than 60% of the outstanding shares and voting power of the resulting corporation after the merger or |
| | • | stockholder approval of our liquidation or dissolution. |
If a change of control occurs, the agreements provide for a three-year employment period from the date of the change of control, during which the named executive officer is entitled to receive:
| | • | a base salary of not less than twelve times the highest monthly salary paid within the preceding twelve months |
| | • | annual bonuses*incentive opportunity of not less than the highest annual bonus forincentive paid in any of the three years before the change of control and |
| | • | participation in our incentive, savings, retirement, and welfare benefit plans.plans |
| • | reasonable vehicle allowance, home office allowance, and subsidized annual physical examinations and |
| • | office and support staff, vacation, and expense reimbursement consistent with such benefits as they were provided before the change of control. |
Assuming a change of control occurred on December 31,
2007,2009, the guaranteed minimum level of base salary provided over the three-year employment period would not result in an increase in any
_______________
* “Bonus” for purposes of the change of control employment agreements refers to annual incentive compensation.
44
Table of Contents
of the named executive officers’ base salaries. The minimum annual bonusincentive amounts Messrs. Hildestad, Raile, Harp, Schneider, Harp and ImsdahlBietz would be entitled to over the three-year employment period would be $1,250,000, $350,700, $392,000, $341,000$[ • ], $[ • ], $[ • ], $[ • ], and $322,400,$[ • ], respectively. The agreements also provide that severance payments and benefits will be provided:
| | • | if we terminate the named executive officer’s employment is terminated during the employment period, other than for cause or disability, |
| • | if the named executive officer’s employment is terminated prior to the change of control, if connected to the change of control, other than for cause or disability or |
| | • | the named executive officer resigns for good reason, which includes for any reason during the 30-day period beginning on the first anniversary of the change of control.reason. |
“Cause” means the named executive officer’s willful and continued failure to substantially perform his duties or willfully engaging in illegal conduct or gross misconduct materially injurious to the company. “Good reason” includes:
| | • | thea material diminution of the named executive officer’s position, authority, duties, or responsibilities |
| | • | the reduction ofa material change in the named executive officer’s pay or benefitswork location and |
| | • | relocation or increased travel obligations.our material breach of the agreement. |
In such event, the named executive officer would receive:
| | • | accrued but unpaid base salary and accrued but unused vacation and payment of deferred compensation |
| | • | a lump sum payment equal to three times his (a) annual salary using the higher of the then current annual salary or twelve times the highest monthly salary paid within the twelve months before the change of control and (b) annual bonusincentive using the highest annual bonus forincentive paid in any of the three years before the change of control or, if higher, the annual bonusincentive for the most recently completed fiscal year |
| | • | a pro-rated annual bonusincentive for the year of termination |
| | • | an amount equal to the excess of (a) the actuarial equivalent of the additional benefit under our qualified pension plan and non-qualified defined benefit retirement plans that the named executive officer would receive under the SISP and any other supplemental or excess retirement plan if employment continued for an additional three years over (b) the actuarial equivalent of the actual benefit paid or payable under these plans |
| | • | welfare benefit plan coverage for the executive and his family for three years and an additional three years of service for purposes of determining eligibility for retiree welfare benefits |
| • | outplacement benefits and |
| | • | a modified tax gross-up. This is an additional payment equal to make the executive whole for any federal excise tax on excess parachute payments. The gross-up payment is not madepayments if the total parachute payments are not more thanexceed 110% of the safe harbor amount for that tax. In that case,If this 110% threshold is not exceeded, the executive’snamed executive officer’s payments and benefits would be reduced to avoid the tax. The named executive officers are not reimbursed for any taxes imposed on this tax reimbursement payment. |
This description of severance payments and benefits reflects the
current terms of the
agreements. The agreements
have not yet been amended to address changesas in
applicable tax laws under Section 409A of the Internal Revenue Code, but they would be operated in a manner that complies with Section 409A if a payment event were to occur before amendments have been made.effect on December 31, 2009.
The compensation committee may also consider providing severance benefits on a case-by-case basis for employment terminations not related to a change of control. The compensation committee
45
Table of Contents
adopted a checklist of factors in February 2005 to consider when determining whether any such severance benefits should be made.paid. The tables do not reflect any such severance benefits, as these benefits are made in the discretion of the committee on a case by casecase-by-case basis and it is not possible to estimate the severance benefits, if any, that would be made.
paid.
Terry D. Hildestad
Executive Benefits and
Payments Upon
Termination or
Change of Control | Executive Benefits and
Payments Upon
Termination or
Change of Control | | Voluntary
Termination | | Not for
Cause
Termination | | For Cause
Termination | | Death | | Disability | | Not for
Cause
or Good
Reason
Termination
(change of
control) | | Change of
Control
(without
termination) | | Executive Benefits and Payments Upon Termination or Change of Control | | Voluntary Termination ($) | Not for Cause Termination ($) | For Cause Termination ($) | | Death ($) | Disability ($) | Not for Cause or Good Reason Termination Following Change of Control ($) | Change of Control (Without Termination) ($) | |
|---|
| | | |
| Compensation: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Base Salary | | | | | | | | | | | | $ | 1,875,000 | | | | | | | | | | | | | | | | | | | 2,250,000 | | | | | |
| Short-term Incentive(1) | | | | | | | | | | | | $ | 5,000,000 | | | | | | | | | | | | | | | | | | | [ • ] | | | | | |
| 2005-2007 Performance Shares | | $ | 558,110 | | $ | 558,110 | | | | $ | 558,110 | | $ | 558,110 | | $ | 558,110 | | $ | 558,110 | | |
| 2006-2008 Performance Shares | | $ | 456,856 | | $ | 456,856 | | | | $ | 456,856 | | $ | 456,856 | | $ | 685,284 | | $ | 685,284 | | |
| 2007-2009 Performance Shares | | | | | | | | | | | | $ | 932,173 | | $ | 932,173 | | | 836,653 | | | 836,653 | | | | | 836,653 | | | 836,653 | | | 836,653 | | | 836,653 | | |
| 2008-2010 Performance Shares | | | 645,270 | | | 645,270 | | | | | 645,270 | | | 645,270 | | | 967,893 | | | 967,893 | | |
| 2009-2011 Performance Shares | | | | | | | | | | | | | | | | | 1,326,741 | | | 1,326,741 | | |
| Restricted Stock | | | | | | | | | | | | $ | 102,488 | | $ | 102,488 | | | | | | | | | | | | | | | | | 87,603 | | | 87,603 | | |
| Benefits and Perquisites: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Incremental Pension | | | | | | | | | | | | | | | | |
| Regular SISP(2) | | $ | 2,920,258 | | $ | 2,920,258 | | | | | | $ | 2,920,258 | | $ | 2,920,258 | | | | | 3,944,219 | | | 3,944,219 | | | | | | | | 3,944,219 | | | 3,944,219 | | | | | |
| Excess SISP(3) | | $ | 649,661 | | $ | 649,661 | | | | | | $ | 649,661 | | $ | 649,661 | | | | | 842,838 | | | 842,838 | | | | | | | | 842,838 | | | 842,838 | | | | | |
| SISP Death Benefits(4) | | | | | | | | $ | 8,694,010 | | | | | | | | | | | | | | | | | 10,335,773 | | | | | | | | | | | |
| Post-Retirement Health Care | | | | | | | | | | | | | | | | |
| Disability Benefits | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Continuation of Welfare Benefits | | | | | | | | | | | | $ | 59,701 | | | | |
| Outplacement Services | | | | | | | | | | | | $ | 50,000 | | | | | | | | | | | | | | | | | | | 50,000 | | | | | |
| 280G Tax Gross-up(5) | | | | | | | | | | | | $ | 4,465,009 | | | | |
| 280G Tax(5) | | | | | | | | | | | | | | | | | 1,940,878 | | | | | |
| Total | | $ | 4,584,885 | | $ | 4,584,885 | | | | $ | 9,708,976 | | $ | 4,584,885 | | $ | 17,297,684 | | $ | 2,278,055 | | | 6,268,980 | | | 6,268,980 | | | | | 11,817,696 | | | 6,268,980 | | | [ • ] | | | 3,218,890 | | |
| (1) | Includes the pro-ratedprorated annual bonusincentive for the year of termination, which is the full annual bonusincentive since we assume termination occurred on December 31, 2007,2009, and the additional severance payment of three times the annual bonus.incentive. For each of these, we used the higher of (1) the annual incentive earned in 20072009 or (2) the highest annual incentive earnedpaid in 2004, 20052007, 2008, and 2006.2009. |
| (2) | Represents the present value of Mr. Hildestad’s vested regular SISP benefit as of December 31, 2007,2009, which was $36,500$42,710 per month for 15 years, commencing at age 65. Present value was determined using a 6.0%5.75% discount rate. The terms of the regular SISP benefit are described following the Pension Benefits for 20072009 table. The three additional years of vesting credit assumed for purposes of calculating the additional SISP benefit under Mr. Hildestad’s change of control agreement would not increase the actuarial present value of his SISP amount. |
| (3) | Represents the present value of all excess SISP benefits Mr. Hildestad would be entitled to upon termination of employment under the SISP. The terms of the excess SISP benefit are described following the Pension Benefits for 20072009 table. The three additional years of employment assumed for purposes of calculating the additional retirement plan payment under Mr. Hildestad’s change of control agreement would not increase the actuarial present value of his qualified pension plan benefits or his excess SISP benefits. |
| (4) | Represents the present value of 180 monthly payments of $73,000$85,420 per month, which would be paid as a SISP death benefit under the SISP. Present value was determined using a 6.0%5.75% discount rate. The terms of the SISP death benefit are described following the Pension Benefits for 20072009 table. |
| (5) | Assumes an incremental overall tax rate of 41.994%, increased byDetermined applying the Internal Revenue Code section 4999 excise tax of 20%. only if 110% threshold is exceeded. |
Vernon A. Raile
Executive Benefits and
Payments Upon
Termination or
Change of Control | Executive Benefits and
Payments Upon
Termination or
Change of Control | | Voluntary
Termination | | Not for
Cause
Termination | | For Cause
Termination | | Death | | Disability | | Not for
Cause
or Good
Reason
Termination
(change of
control) | | Change of
Control
(without
termination) | | Executive Benefits and Payments Upon Termination or Change of Control | Voluntary Termination ($) | Not for Cause Termination ($) | For Cause Termination ($) | Death ($) | Disability ($) | Not for Cause or Good Reason Termination Following Change of Control ($) | Change of Control (Without Termination) ($) | | |
|---|
| | | |
| Compensation: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Base Salary | | | | | | | | | | | | $ | 1,052,100 | | | | | | | | | | | | | | | 1,350,000 | | | | |
| Short-term Incentive(1) | | | | | | | | | | | | $ | 1,402,800 | | | | | | | | | | | | | | | [ • ] | | | | |
| 2005-2007 Performance Shares | | $ | 182,126 | | $ | 182,126 | | | | $ | 182,126 | | $ | 182,126 | | $ | 182,126 | | $ | 182,126 | | |
| 2006-2008 Performance Shares | | $ | 237,754 | | $ | 237,754 | | | | $ | 237,754 | | $ | 237,754 | | $ | 356,630 | | $ | 356,630 | | |
| 2007-2009 Performance Shares | | | | | | | | | | | | $ | 353,928 | | $ | 353,928 | | | 317,661 | | 317,661 | | | | 317,661 | | 317,661 | | 317,661 | | 317,661 | | |
| 2008-2010 Performance Shares | | | 221,231 | | 221,231 | | | | 221,231 | | 221,231 | | 331,834 | | 331,834 | | |
| 2009-2011 Performance Shares | | | | | | | | | | | | | 477,611 | | 477,611 | | |
| Restricted Stock | | | | | | | | | | | | $ | 30,758 | | $ | 30,758 | | | | | | | | | | | | | 26,290 | | 26,290 | | |
| Benefits and Perquisites: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Incremental Pension | | | | | | | | | | | | | | | | |
| Regular SISP(2) | | $ | 1,724,857 | | $ | 1,724,857 | | | | | | $ | 1,724,857 | | $ | 1,724,857 | | | | | 2,790,741 | | 2,790,741 | | | | | | 2,790,741 | | 2,790,741 | | | | |
| Excess SISP(3) | | $ | 35,448 | | $ | 35,448 | | | | | | $ | 35,448 | | $ | 35,448 | | | | |
| SISP Death Benefits(4) | | | | | | | | $ | 3,837,274 | | | | | | | | |
| Post-Retirement Health Care | | | | | | | | | | | | | | | | |
| SISP Death Benefits(3) | | | | | | | | | 5,529,675 | | | | | | | | |
| Disability Benefits | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Continuation of Welfare Benefits | | | | | | | | | | | | $ | 54,920 | | | | |
| Outplacement Services | | | | | | | | | | | | $ | 50,000 | | | | | | | | | | | | | | | 50,000 | | | | |
| 280G Tax Gross-up(5) | | | | | | | | | | | | $ | 1,632,294 | | | | |
| 280G Tax(4) | | | | | | | | | | | | | 856,992 | | | | |
| Total | | $ | 2,180,185 | | $ | 2,180,185 | | | | $ | 4,257,154 | | $ | 2,180,185 | | $ | 6,875,861 | | $ | 923,442 | | | 3,329,633 | | 3,329,633 | | | | 6,068,567 | | 3,329,633 | | [ • ] | | 1,153,396 | | |
| (1) | Includes the pro-ratedprorated annual bonusincentive for the year of termination, which is the full annual bonusincentive since we assume termination occurred on December 31, 2007,2009, and the additional severance payment of three times the annual bonus.incentive. For each of these, we used the higher of (1) the annual incentive earned in 20072009 or (2) the highest annual incentive earnedpaid in 2004, 20052007, 2008, and 2006.2009. |
| (2) | Represents the present value of Mr. Raile’s vested regular SISP benefit as of December 31, 2007,2009, which was $16,110$22,850 per month for 15 years, commencing at age 65. Present value was determined using a 6.0%5.75% discount rate. The terms of the regular SISP benefit are described following the Pension Benefits for 2007 table. |
(3) | Represents the present value of all excess SISP benefits Mr. Raile would be entitled to upon termination of employment under the SISP. The terms of the excess SISP benefit are described following the Pension Benefits for 20072009 table. The three additional years of employmentvesting credit assumed for purposes of calculating the additional retirement plan paymentSISP benefit under Mr. Raile’s change of control agreement would not increase the actuarial present value of his qualified pension plan benefits or his excess SISP benefits.amount. |
(4)(3) | Represents the present value of 180 monthly payments of $32,220$45,700 per month, which would be paid as a SISP death benefit under the SISP. Present value was determined using a 6.0%5.75% discount rate. The terms of the SISP death benefit are described following the Pension Benefits for 20072009 table. |
(5)(4) | Assumes an incremental overall tax rate of 41.994%, increased byDetermined applying the Internal Revenue Code section 4999 excise tax of 20%. only if 110% threshold is exceeded. |
John G. Harp
Executive Benefits and Payments Upon Termination or Change of Control | Voluntary Termination ($) | | Not for Cause Termination ($) | | For Cause Termination ($) | | | Death ($) | | | Disability ($) | | Not for Cause or Good Reason Termination Following Change of Control ($) | | Change of Control (Without Termination) ($) | | |
| Compensation: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Base Salary | | | | | | | | | | | | | | | | | | | | | | | 1,350,000 | | | | | | |
| Short-term Incentive(1) | | | | | | | | | | | | | | | | | | | | | | | [ • ] | | | | | | |
| 2007-2009 Performance Shares | | | 257,410 | | | | 257,410 | | | | | | | | 257,410 | | | | 257,410 | | | | 257,410 | | | | 257,410 | | |
| 2008-2010 Performance Shares | | | 221,231 | | | | 221,231 | | | | | | | | 221,231 | | | | 221,231 | | | | 331,834 | | | | 331,834 | | |
| 2009-2011 Performance Shares | | | | | | | | | | | | | | | | | | | | | | | 477,611 | | | | 477,611 | | |
| Restricted Stock | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Benefits and Perquisites: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Incremental Pension(2) | | | 107,307 | | | | 107,307 | | | | | | | | | | | | 107,307 | | | | 184,737 | | | | | | |
| Regular SISP | | | 1,249,035 | (3) | | | 1,249,035 | (3) | | | | | | | | | | | 1,603,546 | (4) | | | 1,784,336 | (5) | | | | | |
| Excess SISP | | | | | | | | | | | | | | | | | | | | | | | 116,185 | | | | | | |
| SISP Death Benefits(6) | | | | | | | | | | | | | | | 5,529,675 | | | | | | | | | | | | | | |
| Disability Benefits(7) | | | | | | | | | | | | | | | | | | | 227,839 | | | | | | | | | | |
| Outplacement Services | | | | | | | | | | | | | | | | | | | | | | | 50,000 | | | | | | |
| 280G Tax(8) | | | | | | | | | | | | | | | | | | | | | | | 1,068,156 | | | | | | |
| Total | | | 1,834,983 | | | | | | | | | | | | 6,008,316 | | | | 2,417,333 | | | | [ • ] | | | | 1,066,855 | | |
Executive Benefits and
Payments Upon
Termination or
Change of Control | | | Voluntary
Termination | | | Not for
Cause
Termination | | | For Cause
Termination | | | Death | | | Disability | | | Not for
Cause
or Good
Reason
Termination
(change of
control) | | | Change of
Control
(without
termination) | |
|---|
| | | |
| Compensation: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Base Salary | | | | | | | | | | | | | | | | | | | | | | | | $ | 1,266,000 | | | | | |
| Short-term Incentive(1) | | | | | | | | | | | | | | | | | | | | | | | | $ | 1,568,000 | | | | | |
| 2005-2007 Performance Shares | | | | $ | 377,123 | | | $ | 377,123 | | | | | | | $ | 377,123 | | | $ | 377,123 | | | $ | 377,123 | | | $ | 377,123 | |
| 2006-2008 Performance Shares | | | | $ | 292,386 | | | $ | 292,386 | | | | | | | $ | 292,386 | | | $ | 292,386 | | | $ | 438,579 | | | $ | 438,579 | |
| 2007-2009 Performance Shares | | | | | | | | | | | | | | | | | | | | | | | | $ | 425,902 | | | $ | 425,902 | |
| Restricted Stock | | | | | | | | | | | | | | | | | | | | | | | | $ | 82,002 | | | $ | 82,002 | |
| Benefits and Perquisites: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Incremental Pension(2) | | | | | | | | | | | | | | | | | | | | | | | | $ | 46,868 | | | | | |
| Regular SISP(3) | | | | $ | 1,755,218 | | | $ | 1,755,218 | | | | | | | | | | | $ | 1,755,218 | | | $ | 1,755,218 | | | | | |
| Excess SISP | | | | $ | 114,031(4 | ) | | $ | 114,031(4 | ) | | | | | | | | | | $ | 114,031(4 | ) | | $ | 81,695(5 | ) | | | | |
| SISP Death Benefits(6) | | | | | | | | | | | | | | | | $ | 4,650,700 | | | | | | | | | | | | | |
| Post-Retirement Health Care | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Disability Benefits | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Continuation of Welfare Benefits | | | | | | | | | | | | | | | | | | | | | | | | $ | 41,943 | | | | | |
| Outplacement Services | | | | | | | | | | | | | | | | | | | | | | | | $ | 50,000 | | | | | |
| 280G Tax Gross-up(7) | | | | | | | | | | | | | | | | | | | | | | | | $ | 1,943,884 | | | | | |
| Total | | | | $ | 2,538,758 | | | $ | 2,538,758 | | | | | | | $ | 5,320,209 | | | $ | 2,538,758 | | | $ | 8,077,214 | | | $ | 1,323,606 | |
| (1) | Includes the pro-ratedprorated annual bonusincentive for the year of termination, which is the full annual bonusincentive since we assume termination occurred on December 31, 2007,2009, and the additional severance payment of three times the annual bonus.incentive. For each of these, we used the higher of (1) the annual incentive earned in 20072009 or (2) the highest annual incentive earnedpaid in 2004, 20052007, 2008, and 2006.2009. |
| (2) | Represents the paymentequivalent of three additional years of service that would be madeprovided under Mr. Schneider’s change of control agreement based on the increase inHarp additional retirement benefit described following the actuarial present value of his qualified pension plan benefit that would result if he continued employmentPension Benefits for an additional three years.2009 table. |
| (3) | Represents the present value of Mr. Schneider’sHarp’s vested regular SISP benefit as of December 31, 2007,2009, which was $19,525$15,995 per month for 15 years, commencing at age 65. Present value was determined using a 6.0%5.75% discount rate. The terms of the regular SISP benefit are described following the Pension Benefits for 20072009 table. |
(4) | Represents the present value of all excess SISP benefits Mr. Schneider would be entitled to upon termination of employment under the SISP. The terms of the excess SISP benefit are described following the Pension Benefits for 2007 table. |
(5) | Represents the present value of all excess SISP benefits Mr. Schneider would be entitled to upon termination of employment under the SISP, plus the payment that would be made under Mr. Schneider’s change of control agreement based on the increase in the actuarial present value of his excess SISP benefit that would result if he continued employment for an additional three years. |
(6) | Represents the present value of 180 monthly payments of $39,050 per month, which would be paid as a SISP death benefit under the SISP. Present value was determined using a 6.0% discount rate. The terms of the SISP death benefit are described following the Pension Benefits for 2007 table. |
(7) | Assumes an incremental overall tax rate of 41.994%, increased by the Internal Revenue Code section 4999 excise tax of 20%. |
48
Table of Contents
John G. Harp
Executive Benefits and
Payments Upon
Termination or
Change of Control | | | Voluntary
Termination | | | Not for
Cause
Termination | | | For Cause
Termination | | | Death | | | Disability | | | Not for
Cause
or Good
Reason
Termination
(change of
control) | | | Change of
Control
(without
termination) | |
|---|
| | | |
| Compensation: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Base Salary | | | | | | | | | | | | | | | | | | | | | | | | $ | 1,023,000 | | | | | |
| Short-term Incentive(1) | | | | | | | | | | | | | | | | | | | | | | | | $ | 1,364,000 | | | | | |
| 2005-2007 Performance Shares | | | | $ | 314,254 | | | $ | 314,254 | | | | | | | $ | 314,254 | | | $ | 314,254 | | | $ | 314,254 | | | $ | 314,254 | |
| 2006-2008 Performance Shares | | | | $ | 192,676 | | | $ | 192,676 | | | | | | | $ | 192,676 | | | $ | 192,676 | | | $ | 289,000 | | | $ | 289,000 | |
| 2007-2009 Performance Shares | | | | | | | | | | | | | | | | | | | | | | | | $ | 286,799 | | | $ | 286,799 | |
| Restricted Stock | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Benefits and Perquisites: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Incremental Pension(2) | | | | | | | | | | | | | | | | | | | | | | | | $ | 270,154 | | | | | |
| Regular SISP | | | | | | | | | | | | | | | | | | | | $ | 322,794(3 | ) | | $ | 652,676(4 | ) | | | | |
| Excess SISP | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| SISP Death Benefits(5) | | | | | | | | | | | | | | | | $ | 2,892,843 | | | | | | | | | | | | | |
| Post-Retirement Health Care | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Disability Benefits | | | | | | | | | | | | | | | | | | | | | | | | $ | 444,292 | | | | | |
| Continuation of Welfare Benefits | | | | | | | | | | | | | | | | | | | | | | | | $ | 38,890 | | | | | |
| Outplacement Services | | | | | | | | | | | | | | | | | | | | | | | | $ | 50,000 | | | | | |
| 280G Tax Gross-up(6) | | | | | | | | | | | | | | | | | | | | | | | | $ | 1,694,778 | | | | | |
| Total | | | | $ | 506,930 | | | $ | 506,930 | | | | | | | $ | 3,399,773 | | | $ | 829,724 | | | $ | 6,427,843 | | | $ | 890,053 | |
(1) | Includes the pro-rated annual bonus for the year of termination, which is the full annual bonus since we assume termination occurred on December 31, 2007, and Also includes the additional severance payment of three times the annual bonus. For each of these, we used the higher of (1) the annual incentive earned in 2007 or (2) the highest annual incentive earned in 2004, 2005 and 2006. |
(2) | Represents the payment that would be made under Mr. Harp’s change of control agreement based on the increase in the actuarial present value of his qualified pension plan benefit that would result if he continued employment for an additional three years. Also represents the equivalent ofattributable to three additional years of service that would be provided under the retirement benefit agreement described following the Pension Benefits for 20072009 table. |
(3)(4) | Represents the present value of the additional SISP retirement benefit due to an additional two years vesting under our SISP. The terms of the excess SISP benefit are described following the Pension Benefits for 20072009 table. Present value was determined using a 6.0%5.75% discount rate. |
(4)(5) | Represents the payment that would be made under Mr. Harp’s change of control agreement based on the increase in the actuarial present value of his regular SISP benefit that would result if he continued employment for an additional three years. Also includes the additional benefit attributable to three additional years of service that would be provided under the retirement benefit agreement described following the Pension Benefits for 20072009 table. |
(5)(6) | Represents the present value of 180 monthly payments of $24,290$45,700 per month, which would be paid as a SISP death benefit under the SISP. Present value was determined using a 6.0%5.75% discount rate. The terms of the SISP death benefit are described following the Pension Benefits for 20072009 table. |
(6)(7) | Assumes an incremental overall tax rateRepresents the present value of 36.45%, increased bythe disability benefit after reduction for amounts that would be paid as retirement benefits. Present value was determined using a 5.75% discount rate. |
| (8) | Determined applying the Internal Revenue Code section 4999 excise tax of 20%. only if 110% threshold is exceeded. |
William E. Schneider
Executive Benefits and Payments Upon Termination or Change of Control | | | Voluntary Termination ($) | | Not for Cause Termination (4) | | For Cause Termination ($) | | Death ($) | | Disability ($) | Not for Cause or Good Reason Termination Following Change of Control ($) | | Change of Control (Without Termination) ($) | |
| Compensation: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Base Salary | | | | | | | | | | | | | | | | | | | | | | 1,342,200 | | | | | | |
| Short-term Incentive(1) | | | | | | | | | | | | | | | | | | | | | | [ • ] | | | | | | |
| 2007-2009 Performance Shares | | | | | 382,260 | | | | 382,260 | | | | | | 382,260 | | | | 382,260 | | | 382,260 | | | | 382,260 | | |
| 2008-2010 Performance Shares | | | | | 247,451 | | | | 247,451 | | | | | | 247,451 | | | | 247,451 | | | 371,177 | | | | 371,177 | | |
| 2009-2011 Performance Shares | | | | | | | | | | | | | | | | | | | | | | 474,852 | | | | 474,852 | | |
| Restricted Stock | | | | | | | | | | | | | | | | | | | | | | 70,092 | | | | 70,092 | | |
| Benefits and Perquisites: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Regular SISP(2) | | | | | 2,359,818 | | | | 2,359,818 | | | | | | | | | | 2,359,818 | | | 2,359,818 | | | | | | |
| Excess SISP(3) | | | | | 126,868 | | | | 126,868 | | | | | | | | | | 126,868 | | | 126,868 | | | | | | |
| SISP Death Benefits(4) | | | | | | | | | | | | | | | 5,529,675 | | | | | | | | | | | | | |
| Disability Benefits | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Outplacement Services | | | | | | | | | | | | | | | | | | | | | | 50,000 | | | | | | |
| 280G Tax(5) | | | | | | | | | | | | | | | | | | | | | | 808,830 | | | | | | |
| Total | | | | | 3,116,397 | | | | 3,116,397 | | | | | | 6,159,386 | | | | 3,116,397 | | | [ • ] | | | | 1,298,381 | | |
Executive Benefits and
Payments Upon
Termination or
Change of Control | | | Voluntary
Termination | | | Not for
Cause
Termination | | | For Cause
Termination | | | Death | | | Disability | | | Not for
Cause
or Good
Reason
Termination
(change of
control) | | | Change of
Control
(without
termination) | |
|---|
| | | |
| Compensation: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Base Salary | | | | | | | | | | | | | | | | | | | | | | | | $ | 967,200 | | | | | |
| Short-term Incentive(1) | | | | | | | | | | | | | | | | | | | | | | | | $ | 1,289,600 | | | | | |
| 2005-2007 Performance Shares | | | | $ | 358,239 | | | $ | 358,239 | | | | | | | $ | 358,239 | | | $ | 358,239 | | | $ | 358,239 | | | $ | 358,239 | |
| 2006-2008 Performance Shares | | | | $ | 192,676 | | | $ | 192,676 | | | | | | | $ | 192,676 | | | $ | 192,676 | | | $ | 289,000 | | | $ | 289,000 | |
| 2007-2009 Performance Shares | | | | | | | | | | | | | | | | | | | | | | | | $ | 271,136 | | | $ | 271,136 | |
| Restricted Stock | | | | | | | | | | | | | | | | | | | | | | | | $ | 41,001 | | | $ | 41,001 | |
| Benefits and Perquisites: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Incremental Pension | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Regular SISP(2) | | | | $ | 1,091,786 | | | $ | 1,091,786 | | | | | | | | | | | $ | 1,091,786 | | | $ | 1,091,786 | | | | | |
| Excess SISP(3) | | | | $ | 123,362 | | | $ | 123,362 | | | | | | | | | | | $ | 123,362 | | | $ | 123,362 | | | | | |
| SISP Death Benefits(4) | | | | | | | | | | | | | | | | $ | 2,892,843 | | | | | | | | | | | | | |
| Post-Retirement Health Care | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Disability Benefits | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Continuation of Welfare Benefits | | | | | | | | | | | | | | | | | | | | | | | | $ | 60,076 | | | | | |
| Outplacement Services | | | | | | | | | | | | | | | | | | | | | | | | $ | 50,000 | | | | | |
| 280G Tax Gross-up(5) | | | | | | | | | | | | | | | | | | | | | | | | $ | 1,436,776 | | | | | |
| Total | | | | $ | 1,766,063 | | | $ | 1,766,063 | | | | | | | $ | 3,443,758 | | | $ | 1,766,063 | | | $ | 5,978,176 | | | $ | 959,376 | |
| (1) | Includes the pro-ratedprorated annual bonusincentive for the year of termination, which is the full annual bonusincentive since we assume termination occurred on December 31, 2007,2009, and the additional severance payment of three times the annual bonus.incentive. For each of these, we used the higher of (1) the annual incentive earned in 20072009 or (2) the highest annual incentive earnedpaid in 2004, 20052007, 2008, and 2006.2009. |
| (2) | Represents the present value of Mr. Imsdahl’sSchneider’s vested regular SISP benefit as of December 31, 2007,2009, which was $12,145$22,850 per month for 15 years, commencing at age 65. Present value was determined using a 6.0%5.75% discount rate. The terms of the regular SISP benefit are described following the Pension Benefits for 20072009 table. The three additional years of vesting credit assumed for purposes of calculating the additional SISP benefit under Mr. Schneider’s change of control agreement would not increase the actuarial present value of his SISP amount. |
| (3) | Represents the present value of all excess SISP benefits Mr. ImsdahlSchneider would be entitled to upon termination of employment under the SISP. The terms of the excess SISP benefit are described following the Pension Benefits for 20072009 table. The three additional years of employment assumed for purposes of calculating the additional retirement plan payment under Mr. Imsdahl’sSchneider’s change of control agreement would not increase the actuarial present value of his qualified pension plan benefits or his excess SISP benefits. |
| (4) | Represents the present value of 180 monthly payments of $24,290$45,700 per month, which would be paid as a SISP death benefit under the SISP. Present value was determined using a 6.0%5.75% discount rate. The terms of the SISP death benefit are described following the Pension Benefits for 20072009 table. |
| (5) | Assumes an incremental overall tax rate of 41.994%, increased byDetermined applying the Internal Revenue Code section 4999 excise tax of 20%. only if 110% threshold is exceeded. |
Name
(a) | | | Fees
Earned
or Paid
in Cash
($)
(b)(1) | | | Stock
Awards
($)
(c)(2) | | | Option
Awards
($)
(d) | | | Non-Equity
Incentive
Plan
Compensation
($)
(e) | | | Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
(f) | | | All Other
Compensation
($)
(g)(3) | | | Total
($)
(h) | |
|---|
| | | |
| Thomas Everist | | | | | 57,500 | | | | 125,825 | | | | —(4) | | | | — | | | | — | | | | 276 | | | | 183,601 | |
| Karen B. Fagg | | | | | 57,000 | (5) | | | 125,825 | | | | — | | | | — | | | | — | | | | 276 | | | | 183,101 | |
| Dennis W. Johnson | | | | | 65,500 | (6) | | | 125,825 | | | | — | | | | — | | | | — | | | | 276 | | | | 191,601 | |
| Richard H. Lewis | | | | | 60,000 | | | | 125,825 | | | | — | | | | — | | | | — | | | | 276 | | | | 186,101 | |
| Patricia L. Moss | | | | | 52,500 | (7) | | | 125,825 | | | | — | | | | — | | | | — | | | | 276 | | | | 178,601 | |
| John L. Olson | | | | | 65,000 | | | | 125,825 | | | | —(8) | | | | — | | | | — | | | | 276 | | | | 191,101 | |
| Harry J. Pearce | | | | | 80,000 | | | | 175,825 | (9) | | | —(10) | | | | — | | | | — | | | | 276 | | | | 256,101 | |
| Sister Thomas Welder, O.S.B. | | | | | 45,000 | | | | 125,825 | | | | — | | | | — | | | | — | | | | 276 | | | | 171,101 | |
| John K. Wilson | | | | | 55,500 | (11) | | | 125,825 | | | | — | | | | — | | | | — | | | | 276 | | | | 181,601 | |
Executive Benefits and Payments Upon Termination or Change of Control | | | Voluntary Termination ($) | | Not for Cause Termination ($) | | For Cause Termination ($) | | Death ($) | | Disability ($) | | Not for Cause or Good Reason Termination Following Change of Control ($) | | Change of Control (Without Termination) ($) | |
| Compensation: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Base Salary | | | | | | | | | | | | | | | | | | | | | | | | | 1,050,000 | | | | | | |
| Short-term Incentive(1) | | | | | | | | | | | | | | | | | | | | | | | | | [ • ] | | | | | | |
| 2007-2009 Performance Shares | | | | | 261,784 | | | | 261,784 | | | | | | | | 261,784 | | | | 261,784 | | | | 261,784 | | | | 261,784 | | |
| 2008-2010 Performance Shares | | | | | 173,171 | | | | 173,171 | | | | | | | | 173,171 | | | | 173,171 | | | | 259,757 | | | | 259,757 | | |
| 2009-2011 Performance Shares | | | | | | | | | | | | | | | | | | | | | | | | | 371,470 | | | | 371,470 | | |
| Restricted Stock | | | | | | | | | | | | | | | | | | | | | | | | | 13,169 | | | | 13,169 | | |
| Benefits and Perquisites: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Regular SISP(2) | | | | | 899,505 | | | | 899,505 | | | | | | | | | | | | 899,505 | | | | 899,505 | | | | | | |
| Excess SISP(3) | | | | | 146,033 | | | | 146,033 | | | | | | | | | | | | 146,033 | | | | 242,471 | | | | | | |
| SISP Death Benefits(4) | | | | | | | | | | | | | | | | | 3,898,602 | | | | | | | | | | | | | | |
| Disability Benefits | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Outplacement Services | | | | | | | | | | | | | | | | | | | | | | | | | 50,000 | | | | | | |
| 280G Tax(5) | | | | | | | | | | | | | | | | | | | | | | | | | 671,881 | | | | | | |
| Total | | | | | 1,480,493 | | | | 1,480,493 | | | | | | | | 4,333,557 | | | | 1,480,493 | | | | [ • ] | | | | 906,180 | | |
| (1) | Amounts rounded to exclude receiptIncludes the prorated annual incentive for the year of cashtermination, which is the full annual incentive since we assume termination occurred on December 31, 2009, and the additional severance payment of three times the annual incentive. For each of these, we used the higher of (1) the annual incentive earned in lieu of fractional shares of common stock.2009 or (2) the highest annual incentive paid in 2007, 2008, and 2009. |
| (2) | Represents the present value of Mr. Bietz’s vested regular SISP benefit as of December 31, 2009, which was $16,110 per month for 15 years, commencing at age 65. Present value was determined using a 5.75% discount rate. The terms of the regular SISP benefit are described following the Pension Benefits for 2009 table. The three additional years of vesting credit assumed for purposes of calculating the additional SISP benefit under Mr. Bietz’s change of control agreement would not increase the actuarial present value of his SISP amount. |
| (3) | Represents the present value of all excess SISP benefits Mr. Bietz would be entitled to upon termination of employment under the SISP. The terms of the excess SISP benefit are described following the Pension Benefits for 2009 table. |
| (4) | Represents the present value of 180 monthly payments of $32,220 per month, which would be paid as a SISP death benefit under the SISP. Present value was determined using a 5.75% discount rate. The terms of the SISP death benefit are described following the Pension Benefits for 2009 table. |
| (5) | Determined applying the Internal Revenue Code section 4999 excise tax of 20% only if 110% threshold is exceeded. |
| Director Compensation for 2009 |
| Name (a) | | | Fees Earned or Paid in Cash ($) (b) | | Stock Awards ($) (c)(1) | | | Option Awards ($) (d) | | | Non-Equity Incentive Plan Compensation ($) (e) | | | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) (f) | | | All Other Compensation ($) (g) (2) | | Total ($) (h) | | |
| | | |
| Thomas Everist | | | | | 57,083 | | | | 69,445 | | | | —(3) | | | | — | | | | — | | | | 174 | | | | 126,702 | | |
| Karen B. Fagg | | | | | 55,250 | (4) | | | 69,445 | | | | — | | | | — | | | | — | | | | 174 | | | | 124,869 | | |
| A. Bart Holaday | | | | | 50,583 | | | | 69,445 | | | | — | | | | — | | | | — | | | | 174 | | | | 120,202 | | |
| Dennis W. Johnson | | | | | 59,083 | | | | 69,445 | | | | — | | | | — | | | | — | | | | 174 | | | | 128,702 | | |
| Thomas C. Knudson | | | | | 52,083 | | | | 69,445 | | | | — | | | | — | | | | — | | | | 174 | | | | 121,702 | | |
| Richard H. Lewis | | | | | 55,083 | | | | 69,445 | | | | — | | | | — | | | | — | | | | 174 | | | | 124,702 | | |
| Patricia L. Moss | | | | | 52,083 | (5) | | | 69,445 | | | | — | | | | — | | | | — | | | | 174 | | | | 121,702 | | |
| John L. Olson | | | | | 40,083 | (6) | | | 69,445 | | | | —(7) | | | | — | | | | — | | | | 563,060 | (9) | | | 672,588 | | |
| Harry J. Pearce | | | | | 130,000 | | | | 69,445 | | | | —(8) | | | | — | | | | — | | | | 174 | | | | 199,619 | | |
| Sister Thomas Welder | | | | | 50,583 | | | | 69,445 | | | | — | | | | — | | | | — | | | | 174 | | | | 120,202 | | |
| John K. Wilson | | | | | 53,583 | (10) | | | 69,445 | | | | — | | | | — | | | | — | | | | 174 | | | | 123,202 | | |
| (1) | Valued based on $31.07,$17.147, the purchase price of the stock on the date of grant, April 27, 2007,May 18, 2009, which is the grant date fair value. |
(3) (2) | Group life insurance premium.premiums, except for Mr. Olson. |
(4) (3) | Mr. Everist had 28,68618,562 stock options outstanding as of December 31, 2007.2009. |
(5) (4) | Includes $18,000$17,984 that Ms. Fagg received in our common stock in lieu of cash. |
(6) (5) | Includes $65,500 that Mr. Johnson received in our common stock in lieu of cash. |
(7) | Includes $52,500$52,064 that Ms. Moss received in our common stock in lieu of cash. |
(8) (6) | Mr. Olson retired on August 13, 2009. |
| (7) | Mr. Olson had 23,62418,562 stock options outstanding as of December 31, 2007.2009. |
(9) | Includes $125,825 for the April 27, 2007 stock grant and $50,000 of stock as part of Mr. Pearce’s retainer as chairman of the board. |
(10) (8) | Mr. Pearce had 13,500 stock options outstanding as of December 31, 2007.2009. |
(11) (9) | Comprised of a group life insurance premium of $116 and the value of Mr. Olson’s deferred compensation at December 31, 2009, which is payable over five years in monthly installments. |
| (10) | Includes $30,000$44,578 that Mr. Wilson received in our common stock in lieu of cash. |
| |
Effective June 1, 2009, the board approved changes to the MDU Resources Group, Inc. Directors’ Compensation Policy, and the following table shows the cash and stock retainers payable to our non-employee directors.
| | Effective June 1, 2009 | Prior to June 1, 2009 |
| Base Retainer | $55,000 | $ 30,000 |
| Additional Retainers: | | |
| Non-Executive Chairman | 75,000 | 100,000 (1)(2) |
| Lead Director, if any | 33,000 | 33,000 |
| Audit Committee Chairman | 10,000 | 10,000 |
| Compensation Committee Chairman | 5,000 | 5,000 |
| Nominating and Governance Committee Chairman | 5,000 | 5,000 |
| Meeting Fees: | | |
| Board Meeting | – | 1,500 |
| Committee Meeting | – | 1,500 |
| Annual Stock Retainer | 4,050 shares | 4,050 shares |
(1) $50,000 of
Contentsthis amount was paid in company common stock prior to January 1, 2009.
(2) The fees and other compensation shown in the table are for services on ourNon-Executive Chairman does not receive board of directors and on committees of our board of directors.or committee meeting fees.
| Annual Non-Employee Director Retainers: | | | | | | |
| Non-Executive Chairman | | | | | $130,000 | (1)(2) |
| Lead Director, if any | | | | | 63,000 | |
| Audit Committee Chairman | | | | | 40,000 | |
| Compensation Committee Chairman | | | | | 35,000 | |
| Nominating and Governance Committee Chairman | | | | | 35,000 | |
| Other Non-Employee Directors | | | | | 30,000 | |
| Fee per Meeting Attended: | | | | | | |
| Board Meeting | | | | | $1,500 | |
| Committee Meeting | | | | | 1,500 | |
| Annual Stock Grant: | | | | | 4,050 shares | |
(1) | $50,000 of this amount is paid in company common stock. |
(2) | The Non-Executive Chairman does not receive board or committee meeting fees. |
In addition to liability insurance, we maintain group life insurance in the amount of $100,000 on each non-employee director for the benefit of each director’s beneficiaries during the time each director serves on the board. The annual cost per director is
$276.$174.
Directors may defer all or any portion of the annual cash retainer, meeting fees,
if any, and any other cash compensation paid for service as a director pursuant to the Deferred Compensation Plan for Directors. Deferred amounts are held as phantom stock with dividend accruals and are paid out in cash over a five-year period after the director leaves the board.
Directors are reimbursed for all reasonable travel expenses including spousal expenses in connection with attendance at meetings of the board and its committees. All amounts together with any other perquisites were below the disclosure threshold for
2007.2009.
Our post-retirement income plan for directors was terminated in May 2001 for current and future directors. The net present value of each director’s benefit was calculated and converted into phantom stock. Payment is deferred pursuant to the Deferred Compensation Plan for Directors and will be made in cash over a five-year period after the director’s retirement from the board.
The board adopted stock ownership guidelines for directors in November 2005. Each director is expected to own our common stock equal in value to five times the director’s
annual cashbase retainer. A director, with good cause and with the knowledge of the board, may donate or assign all of the director’s company common stock to a charitable, religious, or non-profit organization in lieu of ownership. Shares acquired through purchases on the open market and participation in our director stock plans will be considered in ownership calculations as will ownership of our common stock by a spouse. A director is allowed five years commencing January 1 of the year following the year of that director’s initial election to the board to meet the guideline requirements. The level of common stock ownership is monitored with an annual report made to the compensation committee of the
board at the February meeting.board. For stock ownership, please see “Security Ownership.”
In our Director Compensation Policy, we prohibit our directors from hedging their ownership of company common stock. Directors may not enter into transactions that allow the director to benefit from devaluation of our stock or otherwise own stock technically but without the full benefits and risks of such ownership.
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Narrative Disclosure of
ContentsINFORMATION CONCERNING EXECUTIVE OFFICERS
our Compensation Policies and Practices as They Relate to Risk Management
We have reviewed our compensation policies and practices for all employees and concluded that any risks arising from our policies and programs are not reasonably likely to have a material adverse effect on our company.
| INFORMATION CONCERNING EXECUTIVE OFFICERS |
At eachthe first annual meeting of the board after the annual meeting of stockholders, our board of directors elects our executive officers, who serve until the next annual meeting of the board or until their successors are chosen and qualify. A majority of our board of directors may remove any executive officer at any time. Information concerning our executive officers, including their ages, present corporate positions, and business experience, is as follows:
| Name | | | | Age | | | | Present Corporate Position
and Business Experience |
|---|
| |
| Terry D. Hildestad | | 5860 | | President and Chief Executive Officer. For information about Mr. Hildestad, see “Election of Directors.” |
| | | | |
| Steven L. Bietz | | 4951 | | Mr. Bietz was elected Presidentpresident and Chief Executive Officerchief executive officer of WBI Holdings, Inc. effective March 4, 2006; Presidentpresident effective January 2, 2006; Executive Vice Presidentexecutive vice president and Chief Operating Officerchief operating officer effective September 1, 2002; Vice President-Administrationvice president-administration and Chief Accounting Officerchief accounting officer effective November 3, 1999; Vice-President-Administrationvice president-administration effective February 1997; and Controllercontroller effective January 1994. |
| | | | |
| William R. Connors | | 48 | | Mr. Connors was elected vice president–renewable resources of MDU Resources Group, Inc., effective September 1, 2008. Prior to that, he was vice president-business development of Cascade Natural Gas Corporation effective November 2007; vice president-origination, contracts & regulatory of Centennial Energy Resources, LLC, effective January 2007; vice president-origination, contracts & regulatory of Centennial Power, Inc., effective July 2005; and, was first employed as vice president-contracts & regulatory of Centennial Power, Inc., effective July 2004. Prior to that Mr. Connors was of counsel to Miller Nash, LLP, a law firm in Seattle, Washington. |
| | | | |
| Mark A. Del Vecchio | | 4850 | | Mr. Del Vecchio was elected Vice President – Human Resourcesvice president–human resources on October 1, 2007. From November 3, 2003 to October 1, 2007, Mr. Del Vecchio was Directordirector of Executive Programsexecutive programs and Compensation.compensation. From April 1996 to October 31, 2003, Mr. Del Vecchio was Vice Presidentvice president and member of The Carter Group, LLC, an executive search and management consulting company. |
| | | | |
| David L. Goodin | | 48 | | Mr. Goodin was elected president and chief executive officer of Montana-Dakota Utilities Co., Great Plains Natural Gas Co., and Cascade Natural Gas Corporation effective June 6, 2008, and president and chief executive officer of Intermountain Gas Company effective October 1, 2008. Prior to that, he was president of Montana-Dakota Utilities Co. and Great Plains Natural Gas Co. effective March 1, 2008; president of Cascade Natural Gas Corporation effective July 2, 2007; executive vice president-operations and acquisitions of Montana-Dakota Utilities Co. effective January 2007; vice president-operations effective January 2000; electric systems manager effective April 1999; electric systems supervisor effective August 1993; division electric superintendent effective February 1989; and division electrical engineer effective May 1983. | |
| | | | | |
| John G. Harp | | 5557 | | Mr. Harp was elected Presidentpresident and Chief Executive Officerchief executive officer of Utility Services Inc., which is now MDU Construction Services Group, Inc., effective September 29, 2004. From May 2004 to September 29, 2004, Mr. Harp was Vice Presidentvice president of Ledcor Technical Services Inc., a provider of fiber optic cable maintenance services. From April 2001 to May 2004, he was Presidentpresident of JODE CORP., a broadband maintenance company. Mr. Harp sold JODE CORP. to Ledcor Construction in May 2004. Prior to that, he was Presidentpresident of Harp Line Constructors Co. and Harp Engineering, Inc. from July 1998, when they were bought by Utility Services Inc., to April 2001. | |
Bruce T. ImsdahlName | | 59Age | | Mr. Imsdahl was elected President and Chief Executive Officer of Montana-Dakota Utilities Co. and Great Plains Natural Gas Co., divisions of the Company, effective November 11, 2004. He previously was President of these two divisions effective July 4, 2003. Prior to that, he was Executive Vice President of these divisions effective February 5, 2003, Vice President-Energy Supply of Montana-Dakota Utilities Co. effective November 1, 1992 and Vice President-Power Supply of Montana-Dakota Utilities Co. effective May 4, 1989. Mr. Imsdahl was elected Chief Executive Officer of Cascade Natural Gas Corporation on July 2, 2007. |
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Table of Contents
Name | | Age | | Present Corporate Position
and Business Experience |
|---|
| | |
| Nicole A. Kivisto | | 3436 | | Ms. Kivisto was elected Controllervice president, controller and chief accounting officer effective December 1, 2005.February 17, 2010. Prior to that she was controller effective December 1, 2005; a Financial Analystfinancial analyst IV in the Corporate Planning Department effective May 2003; a Financialfinancial and Investor Relations Analystinvestor relations analyst in the Investor Relations Department effective May 2000; and a Financial Analystfinancial analyst in the Corporate Accounting Department effective July 1995. | |
| | | | | |
| Douglass A. Mahowald | | 60 | | Mr. Mahowald was elected treasurer and assistant secretary effective February 17, 2010. Prior to that he was the assistant treasurer and assistant secretary effective August 1992; treasury services manager effective November 1982; and budget statistician effective February 1982. | |
| Cynthia J. Norland | | 5355 | | Ms. Norland was elected Vice President – Administrationvice president–administration effective July 16, 2007. Prior to that she was the Assistant Vice President – Administrationassistant vice president–administration effective January 17, 2007; Associate General Counselassociate general counsel in the Legal Department effective March 6, 2004; and Senior Attorneysenior attorney in the Legal Department effective June 1, 1995. | |
| | | | | |
| Vernon A. Raile | | 6365 | | Mr. Raile was elected Executive Vice President, Treasurerretired on [February 16, 2010]. He served as executive vice president, treasurer and Chief Financial Officerchief financial officer effective March 1, 2006; Executive Vice Presidentexecutive vice president and Chief Financial Officerchief financial officer effective January 3, 2006; and Senior Vice President, Controllersenior vice president, controller and Chief Accounting Officerchief accounting officer effective November 2002. He served as Controllercontroller until May 2003. He was Vice President, Controllervice president, controller and Chief Accounting Officerchief accounting officer from August 1992 until November 2002. | |
| | | | | |
| Paul K. Sandness | | 5355 | | Mr. Sandness was elected General Counselgeneral counsel and Secretarysecretary of the Company,company, its divisions and major subsidiaries effective April 6, 2004. He also was elected a Directordirector of the Company’scompany’s principal subsidiaries and was appointed to the Managing Committees of Montana-Dakota Utilities Co. and Great Plains Natural Gas Co. Prior to that he served as a Senior Attorneysenior attorney effective 1987 and as an Assistant Secretaryassistant secretary of several subsidiary companies. | |
| | | | | |
| William E. Schneider | | 5961 | | Mr. Schneider was elected Presidentpresident and Chief Executive Officerchief executive officer of Knife River Corporation effective May 1, 2005; and Senior Vice President-Construction Materialssenior vice president-construction materials effective from September 15, 1999 to April 30, 2005. | |
| | | | | |
| Doran N. Schwartz | | 3840 | | Mr. Schwartz was elected Vice Presidentvice president and Chief Accounting Officerchief financial officer effective February 17, 2010. Prior to that he was vice president and chief accounting officer effective March 1, 2006; and Assistant Vice President-Special Projectsassistant vice president-special projects effective September 6, 2005. Prior to that, heHe was Directordirector of Controllershipmembership rewards for American Express, a financial services company, from November 2004 to August 1, 2005; Audit Manageraudit manager for Deloitte & Touche, an audit and professional services company, from June 2002 to November 2004; and Audit Manager/Senioraudit manager/senior for Arthur Andersen, an audit and professional services company, from December 1997 to June 2002. |
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Name | | Age | | Present Corporate Position
and Business Experience | |
|---|
| | | | | | |
| John P. Stumpf | | 4850 | | Mr. Stumpf was elected Vice President – Strategic Planningvice president–strategic planning effective December 1, 2006. Mr. Stumpf was Vice President – Corporate Developmentvice president–corporate development for Knife River Corporation from July 1, 2002 to November 30, 2006 and Directordirector of Corporate Developmentcorporate development of Knife River Corporation from January 14, 2002 to June 30, 2002. Prior to that, he was Special Projects Managerspecial projects manager for Knife River Corporation from May 1, 2000 to January 13, 2002. | |
SECURITY OWNERSHIP
The table below sets forth the number of shares of our capital stock that each director and each nominee for director, each named executive officer and all directors and executive officers as a group owned beneficially as of December 31, 2007.2009.
| | | | | | Common Shares Beneficially Owned Include: | | | | |
| Name | Name | | Common Shares
Beneficially
Owned(1) | | Common Shares Beneficially
Owned Include: | | Percent
of Class | | Deferred
Director Fees
Held as
Phantom
Stock(4) | | | Common Shares Beneficially Owned(1) | Shares Individuals Have Rights to Acquire Within 60 Days(2) | | Shares Held By Family Members(3) | | Percent of Class | | Deferred Director Fees Held as Phantom Stock(4) |
|---|
Shares
Individuals
Have Rights
to Acquire
Within 60
Days(2) | | Shares Held By
Family
Members(3) | | |
|---|
| | | |
| Steven L. Bietz | | | 58,516 | (5) | | | | | * | | |
| Thomas Everist | | | | 2,462,523 | (5) | | | 28,686 | | | | | | | | 1.4 | | | | 25,209 | | | 1,870,623 | (6) | 18,562 | | | | 1.0 | | 26,642 |
| Karen B. Fagg | | 9,244 | | | | | | * | | — | | | 19,381 | | | | | | * | | |
| John G. Harp | | 100,758 | (7) | | | | | | * | | — | | | 77,356 | (5) | | | | | * | | |
| Terry D. Hildestad | | 151,314 | (7) | | | | | | * | | — | | | 184,043 | (5) | | | | | * | | |
| Bruce T. Imsdahl | | 104,189 | (7) | | 25,896 | | | | * | | — | | |
| A. Bart Holaday | | | 14,050 | | | | | | * | | |
| Dennis W. Johnson | | 53,453 | (6) | | | | 4,560 | | * | | — | | | 67,506 | (7) | | | 4,560 | | * | | |
| Thomas C. Knudson | | | 9,500 | | | | | | * | | |
| Richard H. Lewis | | 8,100 | | | | | | * | | 4,700 | | | 16,200 | | | | | | * | | 10,152 |
| Patricia L. Moss | | 29,500 | | | | | | * | | — | | | 42,276 | | | | | | * | | |
| John L. Olson | | 115,198 | | 23,624 | | | | * | | 22,570 | | |
| Harry J. Pearce | | 147,025 | | 13,500 | | | | * | | 41,448 | | | 158,850 | | 13,500 | | | | * | | 43,806 |
| Vernon A. Raile | | 38,727 | (7) | | | | | | * | | — | | | 56,426 | (5) | | | | | * | | |
| William E. Schneider | | 83,300 | (7) | | | | | | * | | — | | | 102,898 | (5) | | | | | * | | |
| Sister Thomas Welder | | 60,375 | (8) | | | | | | * | | 19,180 | | | 46,942 | (8) | | | | | * | | 20,271 |
| John K. Wilson | | 51,065 | | | | | | * | | — | | | 67,578 | | | | | | * | | |
| All directors and executive officers as a group (21 in number) | | 3,509,087 | | 97,598 | | 5,744 | | 1.9 | | 113,107 | | |
| All directors and executive officers as a group (23 in number) | | | 2,929,144 | | 42,512 | | 14,146 | | 1.6 | | 100,871 |
| * | Less than one percent of the class. |
| (1) | “Beneficial ownership” means the sole or shared power to vote, or to direct the voting of, a security, or investment power with respect to a security. |
| (2) | Indicates shares of our stock that executive officers and directors have the right to acquire within 60 days pursuant to stock options. These shares are included in the “Common Shares Beneficially Owned” column. |
| (3) | These shares are included in the “Common Shares Beneficially Owned” column. |
| (4) | These shares are not included in the “Common Shares Beneficially Owned” column. Directors may defer all or a portion of their cash compensation pursuant to the Deferred Compensation Plan for Directors. Deferred amounts are held as phantom stock with dividend accruals and are paid out in cash over a five-year period after the director leaves the board. |
| |
| (5) | Includes 2,420,000full shares allocated to the officer’s account in our 401(k) retirement plan. |
| (6) | Includes 1,820,000 shares of common stock acquired through the sale of Connolly-Pacific to us. |
(6)(7) | Mr. Johnson disclaims all beneficial ownership of the 4,560 shares owned by his wife. |
(7) | Includes full shares allocated to the officer’s account in our 401(k) retirement plan. |
| (8) | The total includes shares held by the Annunciation Monastery, of which community Sister Welder is a member, and by the University of Mary, of which Sister Welder is the president.president emerita. The monastery owns 48,37333,260 shares. Sister Welder disclaims all beneficial ownership of the shares owned by the monastery and the university. |
_______________
The table below sets forth information with respect to any person we know to be the beneficial owner of more than five percent of any class of our voting securities.
| Title of Class | Title of Class | | Name and Address
of Beneficial Owner | | Amount and Nature
of Beneficial Ownership | | Percent
of Class | | | Name and Address of Beneficial Owner | | Amount and Nature of Beneficial Ownership | | Percent of Class | |
|---|
| Common Stock | | | New York Life Trust Company 51 Madison Avenue New York, NY 10010 | | 10,800,821(1) | | 5.881% | |
| | | | | | | | | | |
| Common Stock | | | New York Life Trust Company
51 Madison Avenue
New York, NY 10010 | | | | 10,874,746(1) | | | | 5.962% | | | BlackRock, Inc. 40 East 52nd Street New York, NY 10022 | | 10,863,566(2) | | 5.79% | |
| (1) | In a Schedule 13G/A, Amendment No. 8,9, filed on February 14, 2008,13, 2009, New York Life Trust Company indicates that it holds these shares as directed trustee of our 401(k) plan and has sole voting and dispositive power with respect to all shares. |
RELATED PERSON DISCLOSURE
| (2) | In a Schedule 13G, filed on January 29, 2010, BlackRock, Inc. reports that it completed its acquisition of Barclays Global Investors on December 1, 2009 and amends the most recent Schedule 13G filing made by Barclays Global Investors, NA and certain of its affiliates with respect to our common stock. BlackRock, Inc. reports sole voting and dispositive power with respect to all shares as the parent holding company or control person of BlackRock Asset Management Japan Limited, BlackRock Advisors (UK) Limited, BlackRock Institutional Trust Company, N.A., BlackRock Fund Advisors, BlackRock Asset Management Canada Limited, BlackRock Asset Management Australia Limited, BlackRock Advisors, LLC, BlackRock Capital Management, Inc., BlackRock Financial Management, Inc., BlackRock Investment Management, LLC, BlackRock (Luxembourg) S.A., BlackRock Fund Managers Ltd, BlackRock International Ltd and BlackRock Investment Management UK Ltd. |
| RELATED PERSON TRANSACTION DISCLOSURE |
The board of directors has adopted a policy for the review of related person transactions. This policy is contained in our corporate governance guidelines, which are posted on our website at www.mdu.com.
The audit committee reviews related person transactions in which we are or will be a participant to determine if they are in the best interests of our stockholders and the company. Financial transactions, arrangements, relationships, or any series of similar transactions, arrangements, or relationships in which a related person had or will have a material interest and that exceed $120,000 are subject to the committee’s review.
Related persons are directors, director nominees, executive officers, holders of 5% or more of our voting stock, and their immediate family members. Immediate family members are spouses, parents, stepparents, mothers-in-law, fathers-in-law, siblings, brothers-in-law, sisters-in-law, children, stepchildren, daughters-in-law, sons-in-law, and any person, other than a tenant or domestic employee, who shares in the household of a director, director nominee, executive officer, or holder of 5% or more of our voting stock.
After its review, the committee makes a determination or a recommendation to the board and officers of the company with respect to the related person transaction. Upon receipt of the
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committee’s recommendation, the board of directors or officers, as the case may be, taketakes such action as they deem appropriate in light of their responsibilities under applicable laws and regulations.
The audit committee and the board of directors reviewed two leases between an indirect subsidiary of the company and a Montana partnership, Mojo, owned by John G. Harp, President and Chief Executive Officer of MDU Construction Services Group, Inc., and his brother, Michael D. Harp. The properties described in these two leases are located in Kalispell and Billings,
Montana. From 1998 to July 2007, the KalispellMontana and
Billings properties were leased under three-year renewal options, and since July 2007 these properties have been leased
on a month-to-month basis subject to the board’s approval of new three-year leases.since 1998. In November 2007, the audit committee determined that renewing these leases
iswas in the company’s best interests after it reviewed 2004 third party appraisals for the properties and a 2007 appraisal of the Kalispell property and considered the consumer price index and our operating companies’ knowledge of local property markets. The audit committee recommended and the board approved
new three-year leases for these properties that provide for our indirect subsidiary to pay a combined monthly rent of $10,100 to
Mojo. This representsMojo, a
combined monthly rental increase of $1,008 over the prior 2004 rates and related leases.CORPORATE GOVERNANCE
Montana partnership.
The board of directors has adopted a statement of policyguidelines on director independence that includes categorical standardsare included in our corporate governance guidelines, which are available for director independence. We have attached the policy toreview on our proxy statement as exhibit “A”corporate website at http://www.mdu.com/Documents/Governance/ 2008_11_CorpGvrnGuide.pdf. The board of directors has determined that Thomas Everist, Karen B. Fagg, A. Bart Holaday, Dennis W. Johnson, Thomas C. Knudson, Richard H. Lewis, Patricia L. Moss, John L. Olson (until he retired August 13, 2009), Harry J. Pearce, Sister Thomas Welder, and John K. Wilson:
| | • | have no material relationship with us and |
| | • | are independent in accordance with our statement of policy on director independence standards,guidelines and the New York Stock Exchange listing standards and the Sarbanes-Oxley Act of 2002.standards. |
In determining director independence for 2007,2009, the board of directors considered the following transactions or relationships:
| | • | Mr. Everist’s ownership at that time of approximately 2.51.8 million shares of our common stock |
| | • | charitable contributions to the City of Dickinson in the amount of $20,000 – Mr. Johnson iswas president of the City of Dickinson board of commissionerscommissioners; payment to the company for utility line relocation done by our division, Montana-Dakota Utilities Co., in the regular course of business at the request of TMI Systems Design Corporation in the amount of $71,530 – Mr. Johnson was Chairman and Chief Executive Officer of TMI Systems Design Corporation |
| | • | charitable contributions to Colorado UpLift in the amount of $25,000 – Mr. Lewis iswas a director and member of Colorado UpLift’s executive committee |
| | • | charitable contributions to the Oregon Ethics in Business Program Sponsored by Willamette University – Ms. Moss served as co-chairperson of the program |
| • | charitable contributions to St. Alexius Medical Center in the amount of $6,000 – Sister Welder iswas a director of St. Alexius; payment of our employees’ tuition and education-related expenses and charitable contributions in the amount of $62,500 to the University of Mary – Sister Welder iswas the president of the University of Mary;Mary in 2008; and charitable contributions to Missouri Slope Areawide United Way in the amount of $20,500 – Sister Welder iswas a director of the Missouri Slope Areawide United Way.Way and |
| • | public utility services provided by our utility operations to entities with which directors are affiliated at rates fixed by the regulatory bodies having jurisdiction. |
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Table
Director Resignation Upon Change of
ContentsJob Responsibility
Our corporate governance guidelines require a director to tender his or her resignation after a material change in job responsibility. In 2009, no directors submitted resignations under this requirement.
We have a code of conduct and ethics, which we refer to as the Leading
withWith Integrity Guide,
thatwhich applies to all employees, directors, and officers.
We intend to satisfy our disclosure obligations regardingregarding:
| | • | amendments to, or waivers of, any provision of the code of conduct that applies to our principal executive officer, principal financial officer, and principal accounting officer and that relates to any element of the code of ethics definition in Regulation S-K, Item 406(b) and |
| | • | waivers of the code of conduct for our directors or executive officers, as required by New York Stock Exchange listing standards |
by posting such information on our website athttp://www.mdu.com/corporate_governance/mdur26.htmDocuments/Governance/IntegrityGuide.pdf.
Board Leadership Structure and Board’s Role in Risk Oversight
The board separated the positions of chairman of the board and chief executive officer in 2006 and elected Harry J. Pearce, a non-employee independent director, as our chairman, and Terry D. Hildestad as our president and chief executive officer. Separating these positions allows our chief executive officer to focus on our day-to-day business, while allowing the chairman of the board to lead the board in its fundamental role of providing advice to and independent oversight of management. The board recognizes the time, effort, and energy that the chief executive officer is required to devote to his position in the current business environment, as well as the commitment required to serve as our chairman, particularly as the board’s oversight responsibilities continue to grow. While our bylaws and corporate governance guidelines do not require that our chairman and chief executive officer positions be separate, the board believes that having separate positions and having an independent outside director serve as chairman is the appropriate leadership structure for the company at this time and demonstrates our commitment to good corporate governance.
Risk is inherent with every business, and how well a business manages risk can ultimately determine its success. We face a number of risks, including economic risks, environmental and regulatory risks, and others, such as the impact of competition and weather conditions. Management is responsible for the day-to-day management of risks the company faces, while the board, as a whole and through its committees, has responsibility for the oversight of risk management. In its risk oversight role, the board of directors has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed.
The board believes that establishing the right “tone at the top” and that full and open communication between management and the board of directors are essential for effective risk management and oversight. Our chairman meets regularly with our president and chief executive officer and other senior officers to discuss strategy and risks facing the company. Senior management attends the quarterly board meetings and is available to address any questions or concerns raised by the board on risk management-related and any other matters. Each quarter, the board of directors receives presentations from senior management on strategic matters involving our operations. The board holds strategic planning sessions with senior management to discuss strategies, key challenges, and risks and opportunities for the company.
While the board is ultimately responsible for risk oversight at our company, our three board committees assist the board in fulfilling its oversight responsibilities in certain areas of risk. The audit committee assists the board in fulfilling its oversight responsibilities with respect to risk management in the areas of financial reporting, internal controls and compliance with legal and regulatory requirements, and, in accordance with New York Stock Exchange requirements, discusses policies with respect to risk assessment and risk management. Risk assessment reports are regularly provided by management to the audit committee. The compensation committee assists the board in fulfilling its oversight responsibilities with respect to the management of risks arising from our compensation policies and programs. The nominating and governance committee assists the board in fulfilling its oversight responsibilities with respect to the management of risks associated with board organization, membership and structure, succession planning for our directors and executive officers, and corporate governance.
Board Meetings and Committees
During
2007,2009, the board of directors held
eightfive meetings. Each incumbent director attended at least
75 percent75% of the combined total meetings of the board and the committees on which the director served during
2007.2009. Director attendance at our annual meeting of stockholders is left to the discretion of each director.
ThreeFour directors attended our
20072009 annual meeting of stockholders.
Harry J. Pearce was elected non-employee chairman of the board on August 17, 2006. Mr. Pearce served as lead director from February 15, 2001 to August 17, 2006. He presides at the executive session of the non-employee directors held in connection with each regularly scheduled quarterly board of directors meeting. The non-employee directors also meet in executive session with the chief executive officer at each regularly scheduled quarterly board of directors meeting.
The board has a standing audit committee, compensation committee, and nominating and governance committee. These committees are composed entirely of independent directors under the applicable New York Stock Exchange listing standards.
The audit, compensation, and nominating and governance committees have charters, which are available for review on our website athttp://www.mdu.com/corporate_governance/mdur25.htmGovernance/Pages/Board
ChartersandCommittees.aspx. Our corporate governance guidelines are available athttp://www.mdu.com/corporate_ governance/mdur27.htmDocuments/Governance/2008_11_CorpGvrnGuide.pdf, and our Leading with With Integrity
Guide is also on our website athttp://www.mdu.com/corporate_governance/mdur26.htmDocuments/Governance/IntegrityGuide.pdf.
You may obtain copies of any of these documents, without charge, by writing to the secretary, MDU Resources Group, Inc., P.O. Box 5650, Bismarck, ND 58506-5650. Nominating and Governance Committee
The nominating and governance committee met three times during
2007.2009. The committee members
arewere John L. Olson, chairman, Karen B. Fagg, Richard H. Lewis, and Sister Thomas Welder.
John L. Olson served as chairman of the committee until he retired from the board on August 13, 2009, and Karen B. Fagg became chairman.
The nominating and governance committee provides recommendations to the board with respect to:
| | • | board organization, membership, and function |
| | • | committee structure and membership |
| | • | succession planning for our executive management and directors and |
| | • | corporate governance guidelines applicable to us. |
The nominating and governance committee assists the board in overseeing the management of risk in the committee's areas of responsibility.
The committee identifies individuals qualified to become directors and recommends to the board the nominees for director for the next annual meeting of stockholders. The committee also identifies and recommends to the board individuals qualified to become our principal officers and the
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nominees for membership on each board committee. The committee oversees the evaluation of the board and management.
In identifying nominees for director, the committee consults with board members, our management, consultants, and other individuals likely to possess an understanding of our business and knowledge concerning suitable director candidates.
We have a
Our corporate governance guidelines include our policy on consideration of director candidates recommended to us andus. We will consider candidates that our stockholders recommend. In November 2008, we amended our policy to include additional information stockholders must provide regarding their recommended candidates. Stockholders may submit director candidate recommendations to the nominating and governance committee chairman in care of the secretary at MDU Resources Group, Inc., P.O. Box 5650, Bismarck, ND 58506-5650. Please include the following information:
| | • | the candidate’s name, age, business address, residence address, and telephone number |
| | • | the candidate’s principal occupation |
| • | the class and number of shares of our stock owned by the candidate |
| • | a description of the candidate’s qualifications to be a director |
| • | whether the candidate would be an independent director and |
| | • | any other information you believe is relevant with respect to the recommendation. |
These guidelines provide information to stockholders who wish to recommend candidates for director for consideration by the nominating and governance committee. Stockholders who wish to actually nominate persons for election to our board at an annual meeting of stockholders must follow the procedures set forth in section 2.08 of our bylaws. You should submit such information at least 120 days priormay obtain a copy of the bylaws by writing to the anniversarysecretary of MDU Resources Group, Inc. at the mail dateaddress above. Our bylaws are also
available on our website at http://www.mdu.com/Documents/Governance/MDU%20ResourcesBylaws.pdf. See also the section entitled “2011 Annual Meeting of Stockholders” later in the prior year’s proxy statement, or for next year, no later than November 7, 2008.statement.
There are no differences in the manner by which the committee evaluates director candidates recommended by stockholders and those recommended by other sources.
In evaluating director candidates, the committee considers an individual’s
| | • | background, character, and experience |
| | • | skills and experience which complement the skills and experience of current board members |
| | • | success in the individual’s chosen field of endeavor |
| | • | skill in the areas of accounting and financial management, banking, general management, human resources, marketing, operations, public affairs, law, and operations abroad |
| | • | background in publicly traded companies |
| | • | geographic area of residence and |
| | • | independence, including affiliations or relationships with other groups, organizations, or entities.entities and |
| • | prior and future compliance with applicable law and all applicable corporate governance, code of conduct and ethics, conflict of interest, corporate opportunities, confidentiality, stock ownership and trading policies, and our other policies and guidelines. |
On February 11, 2010, the board, upon recommendation of the nominating and governance committee, amended our corporate governance guidelines to include diversity as a consideration in identifying nominees for director. When identifying nominees to serve as director, the nominating and governance committee will consider candidates with diverse business and professional experience, skills, gender, and ethnic background, as appropriate, in light of the current composition and needs of the board. The nominating and governance committee will assess the effectiveness of this policy annually in connection with the nomination of directors for election at the annual meeting of stockholders. The composition of the current board reflects diversity in business and professional experience, skills, and gender.
The committee generally will hire an outside firm to perform a background check on potential nominees.
The audit committee is a separately-designated standing committee established in accordance with section 3(a)(58)(A) of the Securities Exchange Act of 1934.
The audit committee met seven times during
2007.2009. The audit committee members are Dennis W. Johnson, chairman,
A. Bart Holaday, Richard H. Lewis,
John L. Olson and John K. Wilson.
John L. Olson served on the committee until he retired from the board on August 13, 2009. The board of directors has determined that Messrs. Johnson, Holaday, Lewis, Olson (until he retired), and Wilson are “audit committee financial experts” as defined by Securities and Exchange Commission regulations and Messrs. Johnson, Holaday, Lewis, Olson (until he retired), and Wilson are all independent under the applicable New York Stock Exchange listing standards.
The audit committee assists the board of directors in fulfilling its oversight responsibilities to the stockholders and serves as a communication link among the board, management, the independent auditors, and the internal auditors. The audit committee:
assists the board’s oversight of
the integrity of our financial statements
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| • | assists the board’s oversight of |
| | | • | the integrity of our financial statements and system of internal controls |
| | • | our compliance with legal and regulatory requirements |
| | | • | the independent auditors’ qualifications and independence and |
| | | • | the performance of our internal audit function and independent auditors and |
| | | risk management in the audit committee's areas of resonsibility and |
| | • | prepares the report that Securities and Exchange Commission rules require we include in our annual proxy statement. |
prepares the report that Securities and Exchange Commission rules require we include in our annual proxy statement.
AUDIT COMMITTEE REPORT
Audit Committee Report
In connection with our financial statements for the year ended December 31, 2007,2009, the audit committee has (1) reviewed and discussed the audited financial statements with management; (2) discussed with the independent auditors the matters required to be discussed by statement on Auditing Standards No. 61, as amended, AICPA,(AICPA, Professional Standards, Vol. 1, AU section
380,380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T; (3) received the written disclosures and the letter from the independent accountants required by
Independence Standards Board Standard No. 1,Independence Discussions with Audit Committees, as adopted byapplicable requirements of the Public Company Accounting Oversight Board
in Rule 3600T,regarding the independent accountant’s communications with the audit committee concerning independence, and discussed with the independent accountant the independent accountant’s independence.
Based on the review and discussions referred to in items (1) through (3) of the above paragraph, the audit committee recommended to the board of directors that the audited financial statements be included in our Annual Report on Form 10-K for the year ended December 31, 20072009 for filing with the Securities and Exchange Commission.
Dennis W. Johnson, Chairman
A. Bart Holaday
Richard H. Lewis
John L. Olson
The compensation committee met
fivefour times during
2007.2009. The compensation committee members are Thomas Everist, chairman, Karen B. Fagg,
Thomas C. Knudson, and Patricia L. Moss.
The compensation committee’s responsibilities, as set forth in its charter, include:
| | • | review and recommend changes to the board regarding our executive compensation policies for directors and executives |
| | • | evaluate the chief executive officer’s performance and, either as a committee or together with other independent directors as directed by the board, determine his or her compensation |
| | • | recommend to the board the compensation of our other Section 16 officers and directors |
| | • | establish goals, make awards, review performance and determine, or recommend to the board, awards earned under our annual and long-term incentive compensation plans |
| | • | review and discuss with management the compensation discussion and analysis and based upon such review and discussion, determine whether to recommend to the board that the compensation discussion and analysis be included in our proxy statement and/or our Annual Report on Form 10-K |
| • | arrange for the preparation of and approve the compensation committee report to be included in our proxy statement and/or Annual Report on Form 10-K and |
| • | assist the board in overseeing the management of risk in the committee's areas of responsibility. |
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arrange for the preparation of and approve the compensation committee report to be included in our proxy statement and/or Annual Report on Form 10-K.The compensation committee and the board of directors have sole and direct responsibility for determining compensation for our Section 16 officers and directors. The compensation committee makes recommendations to the board regarding compensation of all Section 16 officers, and the board then approves the recommendations. The compensation committee and the board may not delegate their authority. They may, however, use recommendations from outside consultants, the chief executive officer, and the human resources department. The chief executive officer, the
chief financial officer, the vice
president – humanpresident-human resources, and general counsel regularly attend compensation committee meetings. The committee meets in executive session as needed.
We discuss our processes and procedures for consideration and determination of compensation of our Section 16 officers in the
compensation discussionCompensation Discussion and
analysis.Analysis. We also discuss in the
compensation discussionCompensation Discussion and
analysisAnalysis the role of our executive officers and compensation consultants in determining or recommending compensation for our Section 16 officers.
The compensation committee has sole authority to retain, discharge, and approve fees and other terms and conditions for retention of compensation consultants to assist in consideration of the compensation of the chief executive officer, the other Section 16 officers, and the board of directors.
In August 2007, theThe compensation committee
amended its charter
to requirerequires the committee’s pre-approval of the engagement of the committee’s compensation consultants by the company for any other purpose.
In addition to the services Towers Perrin provided toFebruary 2009, the compensation committee approved the retention of Towers Perrin providedas its compensation consultant for 2009 to perform duties to be identified in an engagement letter. In an engagement letter dated March 3, 2009 and signed by the following serviceschairman of the compensation committee, the compensation committee requested Towers Perrin to assist our human resources departmentprovide an executive compensation review similar to those prepared in evaluatingprior years.
The review was to
| · | match company positions to survey data |
| · | develop 2010 competitive estimates on base salaries and targeted short-term and long-term incentives |
| · | compare company base salaries and targeted short-term and long-term incentives, by position, to market estimates |
| · | construct a recommended 2010 salary grade structure, salary grade changes, and changes in base salaries and incentive targets based on competitive data and |
| · | address general trends in executive compensation, such as overall salary movement and the recession’s impact on executive compensation. |
In May 2009, upon recommendation of the chairman, the committee decided not to continue the consultant’s engagement for 2009 due to budget concerns and the company’s ability to access data through other sources.
The compensation
for our non-Section 16 officerscommittee did authorize the company to participate in compensation and
management: | • | at the request of the compensation committee, a competitive analysis and report, substantially similar to that prepared for the Section 16 officers, for the select executive officers who participate in our Long-Term Performance-Based Incentive Plan and |
| • | access to salary surveys and an employee benefits database which our human resources department used to evaluate the compensation for non-select executive officers, management and our general employee population. |
employee benefits surveys sponsored by Towers Perrin.
The board of directors determines compensation for our non-employee directors based upon recommendations from the compensation committee. TheIn February 2009, the compensation committee reviewed and made recommendations with respect to directordecided that the compensation at its May 2007 meeting. The committee also retained Towers Perrin to provide a competitive analysis ofreview for the board of director compensation.directors would be undertaken internally by the company, rather than by an outside consultant. At its May 20072009 meeting, the committee reviewed the competitive analysis of competitive data and recent trends in director compensation prepared by Towers Perrin.the company. The Towers Perrin survey used marketcompany’s analysis was based on proxy data from our performance graph peer group companies gatheredcompiled by Equilar and on data from their 2007 proxy filings and addressed general trends in director compensation.the National Association of Corporate Directors 2008/2009 Director Compensation Report. The committee compared this survey data to our | • | annual cash retainer to non-employee directors and to the non-executive chairman of the board |
| • | stock awards to all non-employee directors |
| • | board meeting fees to all non-employee directors |
| • | committee meeting fees and |
| • | committee chairperson fees. |
Our chief executive officer reported to the committee on the portion directors’ compensation and each of the survey regarding non-executive chairman compensation.its components. After review and discussion of the market data, which indicated that aggregate director compensation was at the
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the National Association of Corporate Directors 2008/2009 Director Compensation Report companies and above the median – 65th percentile – of the peer group companies, the compensation committee made recommendations to maintain director compensation at its current level. Therecommended, and the board approved, that the recommendations.
annual retainer be increased by $25,000 to $55,000 and that the monthly fees be eliminated, effective June 1, 2009.
Stockholder Communications
Stockholders and other interested parties who wish to contact the board of directors or an individual director, including our non-employee chairman or non-employee directors as a group, should address a communication in care of the secretary at MDU Resources Group, Inc., P.O. Box 5650, Bismarck, ND 58506-5650. The secretary will forward all communications.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
| SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE |
Section 16 of the Securities Exchange Act of 1934, as amended, requires that officers, directors, and holders of more than 10% of our common stock file reports of their trading in our equity securities with the Securities and Exchange Commission. Based solely on a review of Forms 3, 4, and 5
and any amendments to these forms furnished to us during and with respect to
20072009 or written representations that no Forms 5 were required, we believe that all such reports were timely filed.
OTHER BUSINESS
Our
Neither the board of directors nor management
knows of no other mattersintends to
comebring before the
meeting. However, ifmeeting any
business other than the matters referred to in the notice of annual meeting and this proxy statement. In addition, other than as described under Item 6 above and in the following sentences, we have not been informed that any other matter will be presented to the meeting by others. One stockholder proposal was submitted for inclusion in the proxy statement, which we have omitted pursuant to Rule 14a-8 of the Securities and Exchange Commission’s proxy rules. If this stockholder complies with our advance notice bylaw provisions and properly presents the proposal at the annual meeting, it is the intention of the persons named in the proxy to vote against this proposal. If any other matter requiring a vote of the stockholders should arise, the persons named in the enclosed proxy will vote in accordance with their best judgment.
SHARED ADDRESS STOCKHOLDERS
| SHARED ADDRESS STOCKHOLDERS |
In accordance with a notice sent to eligible stockholders who share a single address, we are sending only one annual report to stockholders and
one proxy statement to that address unless we received instructions to the contrary from any stockholder at that address. This practice, known as “householding,” is designed to reduce our printing and postage costs. However, if a stockholder of record wishes to receive a separate annual report to stockholders and proxy statement in the future, he or she may contact the office of the treasurer at MDU Resources Group, Inc., P.O. Box 5650, Bismarck, ND 58506-5650, Telephone Number: (701) 530-1000. Eligible stockholders of record who receive multiple copies of our annual report to stockholders and proxy statement can request householding by contacting us in the same manner. Stockholders who own shares through a bank, broker, or other nominee can request householding by contacting the nominee.
We hereby undertake to deliver promptly, upon written or oral request, a separate copy of the annual report to stockholders and proxy statement to a stockholder at a shared address to which a single copy of the document was delivered.
2009 ANNUAL MEETING OF STOCKHOLDERS
| 2011 ANNUAL MEETING OF STOCKHOLDERS |
Director Nominations: Our bylaws provide that director nominations may be made only by (i) the board at any meeting of stockholders or the nominating committee or(ii) at an annual meeting by a stockholder entitled to vote for the election of directors and who has complied with the procedures established by the bylaws. For a nomination to be properly brought before an annual meeting by a stockholder, the stockholder intending to make the nomination must have given timely and proper notice of the nomination in writing to the corporate secretary in accordance with and containing all information and the completed questionnaire provided for in the bylaws. To be timely, such notice must be delivered writtento or mailed to the corporate secretary and received at our principal executive offices not later than 90 days prior to the first anniversary of the preceding year’s annual meeting of stockholders. For purposes of our annual meeting of stockholders expected to be held April 26, 2011, any stockholder who wishes to submit a nomination must submit the required notice to the corporate secretary. The written notice must contain certain information specified in the
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bylaws and must be received at least 120 days prior to the anniversary datesecretary on which we first mailed our proxy materials for the prior year’s annual stockholders’ meeting.
or before January 27, 2011.
Other Meeting Business: Our bylaws also provide that no business may be brought before an annual stockholders’ meeting except (i) as specified in the meeting notice given by or at the direction of the board, (ii) as otherwise properly brought before the meeting by or at the direction of the board or (iii) properly brought before the meeting by a stockholder entitled to vote who has delivered writtencomplied with the procedures established by the bylaws. For business to be properly brought before an annual meeting by a stockholder (other than nomination of a person for election as a director which is described above) the stockholder must have given timely and proper notice of such business in writing to the company secretary. The written notice must contain certaincorporate secretary, in accordance with, and containing all information specifiedprovided for in the bylaws and such business must be a proper matter for stockholder action under the General Corporation Law of Delaware. To be timely, such notice must be delivered or mailed to the corporate secretary and received at least 120our principal offices not later than the close of business 90 days prior to the first anniversary date on which we first mailed our proxy materials forof the priorpreceding year’s annual stockholders’ meeting.meeting of stockholders. For purposes of our annual meeting expected to be held April 26, 2011, any stockholder who wishes to bring business before the meeting (other than nomination of a person for election as a director which is described above) must submit the required notice to the corporate secretary on or before January 27, 2011.
Discretionary Voting: Rule 14a-4 of the Securities and Exchange Commission’s proxy rules allows us to use discretionary voting authority to vote on matters coming before an annual stockholders’ meeting if we do not have notice of the matter at least 45 days before the anniversary date on which we first mailed our proxy materials for the prior year’s annual stockholders’ meeting or the date specified by an advance notice provision in our bylaws. Our bylaws contain an advance notice provision that we have described above. For our annual meeting of stockholders expected to be held on April 28, 2009,26, 2011, stockholders must submit such written notice to the corporate secretary on or before November 7, 2008.January 27, 2011.
Stockholder Proposals: The requirements we describe above are separate from and in addition to the Securities and Exchange Commission’s requirements that a stockholder must meet to have a stockholder proposal included in our proxy statement under Rule 14a-8 of the Exchange Act. For purposes of our annual meeting of stockholders expected to be held on April 28, 2009,26, 2011, any stockholder who wishes to submit a proposal for inclusion in our proxy materials must submit such proposal to the corporate secretary on or before November 7, 2008.12, 2010.
Bylaw Copies: You may obtain a copy of the full text of the bylaw provisions discussed above by writing to the corporate secretary. Our bylaws are also available on our website at: http://www.mdu.com/Documents/Governance/ MDU%20ResourcesBylaws.pdf.
We will make available to our stockholders to whom we furnish this proxy statement a copy of our Annual Report on Form 10-K, excluding exhibits, for the year ended December 31,
2007,2009, which is required to be filed with the Securities and Exchange Commission. You may obtain a copy, without charge, upon written or oral request to the Office of the Treasurer of MDU Resources Group, Inc., 1200 West Century Avenue, Mailing Address: P.O. Box 5650, Bismarck, ND 58506-5650, Telephone Number: (701) 530-1000. You may also access our Annual Report on Form 10-K through our website at www.mdu.com.
By order of the Board of Directors,
Paul K. Sandness
Secretary
March 7, 200812, 2010
MDU Resources Group, Inc.
Statement’s Proposed Amendments
to Its Restated Certificate of
PolicyDirector Independence StandardsI.
Policy
It is the sense of this BoardIncorporation
RESOLVED, that the expertise and perspectiveBoard of independent directors isDirectors of great value and benefit to MDU Resources Group, Inc. (“MDU”(the “Corporation”) hereby declares it advisable:
(A) That the provisions requiring a supermajority vote by stockholders set forth in Articles TWELFTH and
its stockholders. Accordingly,FIFTEENTH of the Restated Certificate of Incorporation of the Corporation be repealed, and
that certain technical amendments to the provisions of Articles THIRTEENTH and FOURTEENTH of the Restated Certificate of Incorporation of the Corporation be adopted in
keepingconnection with the
other high standardsrepeal of
corporate governance which this Board has established for itself, the listing standards of the New York Stock Exchange, and laws and regulations applicable to MDU, this Board establishes the following guidelines on director independence and for determining whether its members are independent.II.
Director Independence – General
The Board believes that a substantial majority of its members should satisfy these standards for independence.
No director may be deemed independent unless the Board affirmatively determines, after due deliberation, that the director has no material relationship with MDU either directly or as a partner, shareholder or officer of an organization that has a relationship with MDU. In each case, the Board shall broadly consider all the relevant facts and circumstances and shall apply these standards. Trivial orde minimis affiliations or connections to MDU by a director or his or her immediate family will not generally be cause for the Board to determine that the director is not independent. In addition a director is not independent if:
(1) | The director is, or has been within the last three years, an employee, or has an immediate family member who is, or has been within the last three years, an executive officer, of MDU. |
(2) | The director has received, or has an immediate family member who has received, during any twelve month period within the last three years, more than $100,000 in direct compensation from MDU, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service). |
(3) | (A) The director or an immediate family member of the director is a current partner of a firm that is MDU’s internal or external auditor; (B) the director is a current employee of such a firm; (C) the director has an immediate family member who is a current employee of such a firm and who participates in the firm’s audit, assurance or tax compliance (but not tax planning) practice; or (D) the director or an immediate family member of the director was within the last three years (but is no longer) a partner or employee of such a firm and personally worked on MDU’s audit within that time. |
(4) | The director or an immediate family member of the director is, or has been within the last three years, employed as an executive officer of another company where any of MDU’s present executive officers at the same time serves or served on that company’s compensation committee. |
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(5) | The director is a current employee, or an immediate family member is a current executive officer, of a company that has made payments to, or received payments from, MDU for property or services in an amount which in any of the last three fiscal years exceeds the greater of $1 million, or 2% of such other company’s consolidated gross revenues. In applying the foregoing, both the payments and the consolidated gross revenues to be measured will be those reported in the last completed fiscal year. Contributions to tax exempt organizations are not considered “payments” for purposes of this paragraph 5. |
| Relationships involving a director’s affiliation with another company that account for lesser amounts than those specified in this paragraph 5 will not be considered to be material relationships that would impair the director’s independence, provided that the related payments for goods and services or in connection with other contractual arrangements (i) are made in the ordinary course of business and on substantially the same terms as those prevailing at the time for comparable transactions with non-affiliated parties, or (ii) involve the rendering of services as a public utility at rates or charges fixed in conformity with law or governmental authority. |
(6) | The director (or an immediate family member of the director) serves as an officer, director or trustee for a not-for-profit organization, and, within the organization’s preceding three fiscal years, MDU’s discretionary contributions in any single year to the organization exceed 2% of that organization’s consolidated gross revenues, or $1 million, whichever is greater. MDU’s automatic matching of employee charitable contributions will not be included in the amount of MDU’s contributions for purposes of this paragraph (6). |
(7) | The director is (or is affiliated with an organization that is) a significant advisor, counsel or consultant to MDU. |
(8) | The ownership of stock of MDU by directors is encouraged and substantial stock ownership (not involving control) will not affect the independence status of a director. |
For purposes of Section II(3) of this policy only, “immediate family member” means a director’s spouse, minor child or stepchild, or an adult child or stepchild sharing a home with the director. As used elsewhere in this policy, the term “immediate family member” includes a person’s spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than domestic employees) who shares such person’s home.
The Board will annually review the commercial, industrial, banking, consulting, legal, accounting and charitable (and other non-profit) relationships between MDU’s directorssupermajority vote provisions and the organizations with which they and the members of their immediate families have material interests. For relationships that are either not covered by or do not satisfy these guidelines, the determination of whether the relationship is material or not, and therefore whether the director would be independent or not, shall be made by the directors satisfying the independence guidelines.
III.
Director Independence – Audit Committee Members
No director who is a member of the Audit Committee of the Board may accept any consulting, advisory or compensatory fee from MDU, or from any of its subsidiary companies, other than in that director’s capacity as a member of the Board or any of the Board’s several committees.
In addition, no director who is a member of the Audit Committee may be an affiliated person of MDU or any of its subsidiary companies apart from affiliation occasioned by the director’s service as a member of the Board or any of the Board’s several committees. A director would be deemed an affiliated person of MDU if that director directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with MDU.
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IV.
Approval, Adoption, Amendment and Restatement
This Statement of Policydeclassification of the Board of Directors of MDU was approvedthe Corporation effected in 2007, effective at the close of business on the date on which the appropriate Certificate of Amendment to the Corporation’s Restated Certificate of Incorporation is filed in the office of the Secretary of State of the State of Delaware;
(B) That, in order to effect the foregoing, the Restated Certificate of Incorporation of the Corporation, as heretofore amended, be further amended by amending Articles TWELFTH, THIRTEENTH, FOURTEENTH and adoptedFIFTEENTH as follows:
TWELFTH. [RESERVED]
Part I. For the purposes of this Article TWELFTH, the following terms shall have the meaning hereinafter set forth:
(a) “Affiliate” or “Associate” shall have the respective meanings ascribed to such terms in the General Rules and Regulations under the Securities Exchange Act of 1934 as in effect on January 1, 1985.
(b) A person shall be a “Beneficial Owner” of any Voting Stock:
(i) which such person or any of its Affiliates or Associates (as herein defined) beneficially owns, directly or indirectly; or
(ii) which such person or any of its Affiliates or Associates has (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (B) the right to vote pursuant to any agreement, arrangement or understanding; or
(iii) which are beneficially owned, directly or indirectly, by resolutionany other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock.
(c) “Business Combination” shall mean any of the following:
(i) any merger or consolidation of the Corporation or any Subsidiary with (A) any Interested Stockholder or (B) any other corporation (whether or not itself an Interested Stockholder) which is, or after such merger or consolidation would be, an Affiliate of an Interested Stockholder; or
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Stockholder or any Affiliate of any Interested Stockholder of any assets of the Corporation or any Subsidiary having an aggregate Fair Market Value of $5,000,000 or more but shall not include transactions between the Corporation and its Subsidiaries; or
(iii) the issuance or transfer by the Corporation or any subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any subsidiary to any Interested Stockholder or any Affiliate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value of $5,000,000 or more; or,
(iv) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of an Interested Stockholder or any Affiliate of any Interested Stockholder; or
(v) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, statutory share exchange, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested Stockholder or any Affiliate of any Interested Stockholder.
(d) “Continuing Director” shall mean any member of the Board of Directors of MDU atthe Corporation (the “Board”) who is unaffiliated with, and not a meeting thereof heldnominee of, the 13th dayInterested Stockholder (as such term is used in the context of August, 2003,a Business Combination) and was amendeda member of the Board prior to the time that the Interested Stockholder became an Interested Stockholder and restatedany successor of a Continuing Director who is unaffiliated with, and not a nominee of, the 17thInterested Stockholder and is designated to succeed a Continuing Director by two-thirds of Continuing Directors then on the Board.
(e) “Fair Market Value” means:
(i) in the case of stock, the highest closing sale price during the thirty-day period immediately preceding the date in question of a share of such stock on the Composite Tape for the New York Stock Exchange-Listed Stocks, or, if such stock is not quoted on the Composite Tape for the New York Stock Exchange, or, if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the thirty-day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotations System (“NASDAQ”) or, if NASDAQ is not then in use, any other system then in use, or, if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by two-thirds of the Continuing Directors in good faith; and
(ii) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined by a majority of the Continuing Directors in good faith.
(f) “Institutional Voting Stock” shall mean any class of Voting Stock which was issued to and continues to be held solely by one or more insurance companies, pension funds, commercial banks, savings banks and/or similar financial institutions or institutional investors.
(g) “Interested Stockholder” shall mean any person (other than the Corporation or any Subsidiary) who or which:
(i) is the Beneficial Owner, directly or indirectly, of more than 10 percent of the voting power of the then outstanding Voting Stock; or
(ii) is an Affiliate of the Corporation and at any time within the two-year period immediately prior to the date in question, became the Beneficial Owner, directly or indirectly, of 10 percent or more of the voting power of the then outstanding Voting Stock; or
(iii) is an assignee of or has otherwise succeeded to any shares of Voting Stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Interested Stockholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933.
For the purpose of determining whether a person is an Interested Stockholder pursuant to this paragraph (g), the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned through application of paragraph (b) of this Part I but shall not include any other shares of Voting Stock which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise.
(h) In the event of any Business Combination in which the Corporation survives the phrase “consideration other than cash to be received” as used in Sections (a) and (b) of Part II of this Article TWELFTH shall include the shares of Common Stock and/or the shares of any other class of outstanding Voting Stock retained by the holders of such shares.
(i) A “person” shall mean any individual, firm, partnership, trust, corporation or other entity.
(j) “Subsidiary” means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Interested Stockholder set forth in paragraph (g) of this Part I, the term “Subsidiary” shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation.
(k) “Voting Stock” shall mean each share of stock of the Corporation generally entitled to vote in elections of directors.
The Continuing Directors of the Corporation shall have the power and duty to determine, for the purposes of this Article TWELFTH, on the basis of information known to them after reasonable inquiry, all facts necessary to determine the applicability of the various provisions of this Article TWELFTH, including (a) whether a person is an Interested Stockholder, (b) the number of shares of Voting Stock beneficially owned by any person, (c) whether a person is an Affiliate or Associate of another, and (d) whether a class of Voting Stock is Institutional Voting Stock. Any such determination made in good faith shall be binding and conclusive on all parties.
PART II.
Except as otherwise expressly provided in Part III of this Article TWELFTH and in addition to any other provision of law and as may otherwise be set forth in the Certificate of Incorporation, the consummation of any Business Combination shall require that all of the following conditions shall have been met:
(a) The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of Common Stock in such Business Combination shall be at least equal to the highest of the following:
(i) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers’ fees) paid by the Interested Stockholder for any shares of Common Stock acquired by it (A) within the two-year period immediately prior to the first public announcement of the proposal of the Business Combination (the “Announcement Date”) or (B) in the transaction in which it became an Interested Stockholder, whichever is highest;
(ii) the Fair Market Value per share of Common Stock on the Announcement Date or on the date on which the Interested Stockholder became an Interested Stockholder (such latter date is referred to in this Article TWELFTH as the “Determination Date”), whichever is higher; and
(iii) (if applicable) the price per share equal to the Fair Market Value per share of Common Stock determined pursuant to paragraph (ii) above, multiplied by the ratio of (A) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers’ fees) paid by the Interested Stockholder for any shares of Common Stock acquired by it within the two-year period immediately prior to the Announcement Date to (B) the Fair Market Value per share of Common Stock on the first day in such two-year period upon which the Interested Stockholder acquired any shares of February, 2005.Common Stock.
(b) The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of shares of any class of outstanding Voting Stock other than Common Stock (and other than Institutional Voting Stock), shall be at least equal to the highest of the following (it being intended that the requirements of this paragraph (b) shall be required to be met with respect to every class of outstanding Voting Stock, whether or not the Interested Stockholder has previously acquired any shares of a particular class of Voting Stock):
(i) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers’ fees) paid by the Interested Stockholder for any shares of such class of Voting Stock acquired by it (A) within the two-year period immediately prior to the Announcement Date or (B) in the transaction in which it became an Interested Stockholder, whichever is higher;
(ii) (if applicable) the highest preferential amount per share to which the holders of shares of such class of Voting Stock are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation;
(iii) the Fair Market Value per share of such class of Voting Stock on the Announcement Date or on the Determination Date, whichever is higher; and
(iv) (if applicable) the price per share equal to the Fair Market Value per share of such class of Voting Stock determined pursuant to paragraph (b)(iii) above, multiplied by the ratio of (A) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers’ fees) paid by the Interested Stockholder for any shares of such class of Voting Stock acquired by it within the two-year period immediately prior to the Announcement Date to (B) the Fair Market Value per share of such class of Voting Stock on the first day in such two-year period upon which the Interested Stockholder acquired any shares of such class of Voting Stock.
(c) The consideration to be received by holders of a particular class of outstanding Voting Stock (including Common Stock) shall be in cash or in the same form as the Interested Stockholder has previously paid for shares of such class of Voting Stock. If the Interested Stockholder has paid for shares of any class of Voting Stock with varying forms of consideration, the form of consideration for such class of Voting Stock shall be either cash or the form used to acquire the largest number of shares of such class of Voting Stock previously acquired by it.
(d) After such Interested Stockholder has become an Interested Stockholder and prior to the consummation of such Business Combination:
(i) except as approved by two-thirds of the Continuing Directors, there shall have been no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) on the outstanding Preferred Stock;
(ii) there shall have been (A) no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock), except as approved by two-thirds of the Continuing Directors, and (B) an increase in such annual rate of dividends as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of the Common Stock, unless the failure so to increase such annual rate is approved by two-thirds of the Continuing Directors; and
(iii) such Interested Stockholder shall have not become the beneficial owner of any additional shares of Voting Stock except as part of the transaction which results in such Interested Stockholder becoming an Interested Stockholder.
(e) After such Interested Stockholder has become an Interested Stockholder, such Interested Stockholder shall not have received the benefit, directly or indirectly (except proportionately as a stockholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise.
(f) A proxy or information statement describing the proposed Business Combination and containing the information specified for proxy or information statements under the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to stockholders of the Corporation at least thirty days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions).
PART III.
Unless the Business Combination shall have been approved by two-thirds of the Continuing Directors, (a) the provisions of Part II of this Article TWELFTH shall be applicable to each particular Business Combination, and (b) any such Business Combination shall be approved by the affirmative vote of at least four-fifths of the voting power of all shares of Voting Stock (considered for purposes of this Article TWELFTH as one class, it being understood that for purposes of this Article TWELFTH, each share of Voting Stock shall have the number of votes granted to it pursuant to Article FOURTH of the Certificate of Incorporation).
PART IV.
Nothing contained in this Article TWELFTH shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law.
THIRTEENTH. (a) The business and affairs of the Corporation shall be managed by the Board of Directors consisting of not less than six nor more than fifteen persons. The exact number of directors within the limitations specified in the preceding sentence shall be fixed from time to time by the Board of Directors pursuant to a resolution adopted by two-thirds of the Continuing Directors. The directors need not be elected by ballot unless required by the By-Laws of the Corporation.
At each annual meeting of stockholders, the directors shall be elected for terms expiring at the next annual meeting of stockholders; provided, however, that each director elected at the annual meetings of stockholders held in 2005, 2006 and 2007 shall serve for the full three-year term to which such director was elected. Each director shall hold office for the term for which he is elected or appointed and until his successor shall be elected and qualified or until his earlier resignation, removal from office or death, or until he shall resign or be removed.
In the event of any increase or decrease in the authorized number of directors, each director then serving as such shall nevertheless continue as director until the expiration of his current term, or until his earlier resignation, removal from office or death.
(b) Newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause shall be filled by a two-thirds vote of the Continuing Directors then in office, or a sole remaining director, although less than a quorum, and directors so chosen shall hold office for a term expiring at the next annual meeting of stockholders. If one or more directors shall resign from the Board effective as of a future date, such vacancy or vacancies shall be filled pursuant to the provisions hereof, and such new directorship(s) shall become effective when such resignation or resignations shall become effective, and each director so chosen shall hold office for a term expiring at the next annual meeting of stockholders.
(c) [RESERVED]
Any director or the entire Board of Directors may be removed; however, such removal must be for cause and must be approved as set forth in this Section. Except as may otherwise be provided by law, cause for removal shall be construed to exist only if: (i) the director whose removal is proposed has been convicted, or where a director was granted immunity to testify where another has been convicted, of a felony by a court of competent jurisdiction and such conviction is no longer subject to direct appeal; (ii) such director has been grossly negligent in the performance of his duties to the Corporation; or (iii) such director has been adjudicated by a court of competent jurisdiction to be mentally incompetent, which mental incompetency directly affects his ability as a director of the Corporation, and such adjudication is no longer subject to direct appeal.
Removal for cause, as cause is defined above, must be approved by at least a majority vote of the shares of the Corporation then entitled to be voted at an election for that director, and the action for removal must be brought within three months of such conviction or adjudication.
Notwithstanding the foregoing, and except as otherwise provided by law, in the event that Preferred Stock of the Corporation is issued and holders of any one or more series of such Preferred Stock are entitled, voting separately as a class, to elect one or more directors of the Corporation to serve for such terms as set forth in the Certificate of Incorporation, the provisions of this Article THIRTEENTH, Section (c), shall also apply, in respect to the removal of a director or directors so elected to the vote of the holders of the outstanding shares of that class and not to the vote of the outstanding shares as a whole.
(d) Any directors elected pursuant to special voting rights of one or more series of Preferred Stock, voting as a class, shall be excluded from, and for no purpose be counted in, the scope and operation of the foregoing provisions, unless expressly stated.
(e) For purposes of this Article THIRTEENTH, the following terms shall have the meanings hereinafter set forth:
(i) “Affiliate” or “Associate” shall have the respective meanings ascribed to such terms in the General Rules and Regulations under the Securities Exchange Act of 1934 as in effect on January 1, 1985.
(ii) A person shall be a “Beneficial Owner” of any Voting Stock:
(A) which such person or any of its Affiliates or Associates beneficially owns, directly or indirectly; or
(B)which such person or any of its Affiliates or Associates has (1) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (2) the right to vote pursuant to any agreement, arrangement or understanding; or
(C)which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock.
(iii) “Continuing Director” shall mean any member of the Board of Directors of the Corporation who is unaffiliated with, and not a nominee of, any Interested Stockholder and was a member of the Board of Directors prior to the time that any Interested Stockholder became an Interested Stockholder and any successor of a Continuing Director who is unaffiliated with, and not a nominee of, any Interested Stockholder and is designated to succeed a Continuing Director by two-thirds of the Continuing Directors then on the Board of Directors.
(iv) “Interested Stockholder” shall mean any person (other than the Corporation or any Subsidiary) who or which:
(A) is the Beneficial Owner, directly or indirectly, of more than 10 percent of the voting power of the then outstanding Voting Stock; or
(B)is an Affiliate of the Corporation and at any time within the two-year period immediately prior to the date in question, became the Beneficial Owner, directly or indirectly, of more than 10 percent of the voting power of the then outstanding Voting Stock; or
(C)is an assignee of or has otherwise succeeded to any shares of Voting Stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Interested Stockholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933.
For the purpose of determining whether a person is an Interested Stockholder pursuant to this Article THIRTEENTH, Section (e)(iv), the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned through application of Section (e)(ii) of this Article THIRTEENTH but shall not include any other shares of Voting Stock which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise.
(v) A “person” shall mean any individual, firm, partnership, trust, corporation or other entity.
(vi) “Subsidiary” means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Interested Stockholder set forth in Section (e)(iv) of this Article THIRTEENTH, the term “Subsidiary” shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation.
(vii) “Voting Stock” shall mean each share of stock of the Corporation generally entitled to vote in elections of directors.
The Continuing Directors of the Corporation shall have the power and duty to determine, on the basis of information known to them after reasonable inquiry, all facts necessary to determine the applicability of the various provisions of this Article THIRTEENTH, including (A) whether a person is an Interested Stockholder, (B) the number of shares of Voting Stock beneficially owned by any person, and (C) whether a person is an Affiliate or Associate of another. Any such determination made in good faith shall be binding and conclusive on all parties.
(f) Capitalized terms used and not defined in Article FOURTEENTH or in Article SIXTEENTH of the Certificate of Incorporation which are defined in Section (e) of this Article THIRTEENTH shall have the meanings, for purposes of Article FOURTEENTH and Article SIXTEENTH of the Certificate of Incorporation, ascribed to such terms in Section (e) of this Article THIRTEENTH.
FOURTEENTH. The Board of Directors, in evaluating any proposal by another party to (a) make a tender or exchange offer for any securities of the Corporation, (b) effect a Business Combination (as defined in Article TWELFTH),merger, consolidation or other business combination of the Corporation or (c) effect any other transaction having an effect upon the properties, operations or control of the Corporation similar to a tender or exchange offer or Business Combination for any securities of the Corporation or a merger, consolidation or other business
combination of the Corporation, as the case may be, whether by an Interested Stockholder (as defined in Article TWELFTH) or otherwise, may, in connection with the exercise of its judgment as to what is in the best interests of the Corporation and its stockholders, give due consideration to the following:
(i) the consideration to be received by the Corporation or its stockholders in connection with such transaction in relation not only to the then current market price for the outstanding capital stock of the Corporation, but also to the market price for the capital stock of the Corporation over a period of years, the estimated price that might be achieved in a negotiated sale of the Corporation as a whole or in part through orderly liquidation, the premiums over market price for the securities of other corporations in similar transactions, current political, economic and other factors bearing on securities prices and the Corporation’s financial condition, future prospects and future value as an independent Corporation;
(ii) the character, integrity and business philosophy of the other party or parties to the transaction and the management of such party or parties;
(iii) the business and financial conditions and earnings prospects of the other party or parties to the transaction, including, but not limited to, debt service and other existing or likely financial obligations of such party or parties, the intention of the other party or parties to the transaction regarding the use of the assets of the Corporation to finance the acquisition, and the possible effect of such conditions upon the Corporation and its Subsidiaries and the other elements of the communities in which the Corporation and its Subsidiaries operate or are located;
(iv) the projected social, legal and economic effects of the proposed action or transaction upon the Corporation or its Subsidiaries, its employees, suppliers, customers and others having similar relationships with the Corporation, and the communities in which the Corporation and its Subsidiaries do business;
(v) the general desirability of the continuance of the Corporation as an independent entity; and
(vi) such other factors as the Continuing Directors may deem relevant.
FIFTEENTH. [RESERVED]Notwithstanding anything to the contrary contained in this Certificate of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that a lesser percentage may be specified by law, this Certificate of Incorporation or the By-Laws of the Corporation), the affirmative vote of the holders of at least four-fifths of the voting power of the then outstanding Voting Stock shall be required to amend, alter, change or repeal, or to adopt any provision inconsistent with, Articles TWELFTH, THIRTEENTH, FOURTEENTH, FIFTEENTH and SIXTEENTH of this Certificate of Incorporation, provided that such four-fifths vote shall not be required for any amendment, alteration, change or repeal recommended to the stockholders by two-thirds of the Continuing Directors, as defined in Article TWELFTH.
FURTHER RESOLVED, that the Board of Directors hereby directs that this resolution and above proposed amendments be attached as an exhibit to the proxy statement for the Corporation’s 2010 Annual Meeting of Stockholders for consideration by the stockholders entitled to vote in respect thereof;
FURTHER RESOLVED, that upon approval of the proposed amendments to the Restated Certificate of Incorporation by the stockholders, the proper officers of the Corporation be, and each of them hereby is, authorized and directed to file a Certificate of Amendment to the Corporation’s Restated Certificate of
Incorporation with the Secretary of State of the State of Delaware, to amend the Corporation’s Registration Statement on Form 8-A relating to the common stock of the Corporation, and to file any and all other documents and to take any and all such further action as they deem necessary or appropriate to reflect such amendments.
MDU RESOURCES GROUP, INC.
ANNUAL MEETING OF STOCKHOLDERS
Tuesday, April 22, 2008
27, 2010
11:00 a.m. Central Daylight
SavingsSaving Time
909 Airport Road
Bismarck, ND
| |
| |
1200 West Century Avenue |
Mailing Address:
P.O. Box 5650
Bismarck,ND 58506-5650
(701) 530-1000 | proxy |
This proxy is solicited on behalf of the Board of Directors for the
Annual Meeting of Stockholders on April 22, 2008.27, 2010.
This proxy will also be used to provide voting instructions to New York Life Trust Company, as Trustee of the MDU Resources Group, Inc. 401(k) Retirement Plan, for any shares of Company common stock held in the plan.
The undersigned hereby appoints Harry J. Pearce and Paul K. Sandness and each of them, proxies, with full power of substitution, to vote all Common Stock of the undersigned at the Annual Meeting of Stockholders to be held at 11:00 a.m., Central Daylight SavingsSaving Time, April 22, 2008,27, 2010, at 909 Airport Road, Bismarck, ND, and at any adjournment(s) thereof, upon all subjects that may properly come before the meeting, including the matters described in the Proxy Statement furnished herewith, subject to any directions indicated on the reverse side.Your vote is important! Ensure that your shares are represented at the meeting. Either (1) submit your proxy by touch-tone telephone, (2) submit your proxy by Internet or (3) mark, date, sign and return this
letter proxy
card in the envelope provided (no postage is necessary if mailed in the United States).
If no directions are given, the proxies will vote in accordance with the Directors’ recommendation on all matters listed on this proxy, and at their discretion on any other matters that may properly come before the meeting.
See reverse for voting instructions.
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Address Change? Mark Box to the right and indicate changes below o | COMPANY # | |
| ADDRESS BLOCK |
There are three ways to vote your Proxy
Your telephone or Internet vote authorizes the Named Proxies to vote your shares in the same manner as if you marked, signed and returned your proxy card.
VOTE BY PHONE — TOLL FREE — 1-800-560-1965 — QUICK *** EASY *** IMMEDIATE
• | Use any touch-tone telephoneVote by Internet, Telephone or Mail 24 Hours a Day, 7 Days a Week Your phone or Internet vote authorizes the named proxies to vote your proxy 24 hours a day, 7 days a week, until 12:00 noon (CDT) on Monday, April 21, 2008. |
• | Please haveshares in the same manner as if you marked, signed and returned your proxy card and the last four digits of your Social Security Number or Tax Identification Number available. Follow the simple instructions the voice provides you.card. |
VOTE BY INTERNET — www.eproxy.com/mdu — QUICK *** EASY *** IMMEDIATE
• | | INTERNET – www.eproxy.com/mdu Use the Internet to vote your proxy 24 hours a day, 7 days a week, until 12:00 noonp.m. (CDT) on Monday, April 21, 2008.26, 2010. |
• | Please have | PHONE – 1-800-560-1965 Use a touch-tone telephone to vote your proxy until 12:00 p.m. (CDT) on Monday, April 26, 2010. |
| | MAIL – Mark, sign and date your proxy card and return it in the last four digits of your Social Security Numberpostage-paid envelope provided, or Tax Identification Number available. Follow the simple instructionsreturn it to obtain your records and create an electronic ballot.MDU Resources Group, Inc., c/o Shareowner Services, P.O. Box 64873, St. Paul, MN 55164-0873. |
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we’ve provided or return it toMDU Resources Group, Inc., c/o Shareowner ServicesSM, P.O. Box 64873, St. Paul, MN 55164-0873.
If you vote by Phone or Internet, please do not mail your Proxy
Card\/ Card.
Please
detachfold here
\/– Do not separate
The Board of Directors Recommends a Vote “FOR” all Nomineesnominees and “FOR” Item 2.Items 2, 3, 4, and 5.
| 1. | Election of directors: | | | | | | | | | |
| | | FOR | AGAINST | ABSTAIN | | | | FOR | AGAINST | ABSTAIN |
| | | | | | | | | | | |
| 01. | Thomas Everist | o | o | o | | 06. | Thomas C. Knudson | o | o | o |
| 02. | Karen B. Fagg | o | o | o | | 07. | Richard H. Lewis | o | o | o |
| 03. | Terry D. Hildestad | o | o | o | | 08. | Patricia L. Moss | o | o | o |
| 04. | A. Bart Holaday | o | o | o | | 09. | Harry J. Pearce | o | o | o |
| 05. | Dennis W. Johnson | o | o | o | | 10. | John K. Wilson | o | o | o |
1.2. | ElectionRepeal of directors:article TWELFTH of our restated certificate of incorporation, relating to business combinations with interested stockholders, and related amendments. | 01 Thomas Everist
02 Karen B. Fagg | 03 Patricia L. Moss
| | Vote FOR all
nominees (except
as indicated below) | o | Vote WITHHELD
from all nomineesAbstain |
(Instructions: To withhold authority to3. | Repeal of article FIFTEENTH of our restated certificate of incorporation, which contains supermajority vote requirements. | | | |
| 4. | Repeal of section (c) of article THIRTEENTH of our restated certificate of incorporation, which provides that directors may be removed only for any indicated nominee,
write the number(s) of the nominee(s) in the box provided to the right.)cause. | | | |
| | | | |
2.5. | Ratification of Deloitte & Touche LLP as our independent auditors for 20082010. | | For | | Against | o | Abstain |
The Board of Directors Recommends a Vote “AGAINST” Item 6.
6.Stockholder proposal requesting a report on coal combustion waste. | | | |
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTEDFOR EACH DIRECTOR ALL NOMINEES, FOR ITEMS 2, 3, 4, AND
FOR 5, AND AGAINST ITEM
2.Address Change? Mark Box o Indicate changes below: | Date | |
6.
| Date ____________________________________________________________________ |
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| Signature(s) in Box
Please sign exactly as your name(s) appears on Proxy. If held in joint tenancy, all persons should sign. Trustees, administrators,administrators, etc., should include title and authority. Corporations should provide full name of corporation and title of authorized officer signing the proxy.Proxy. |
The company’s chief executive officer multiples are less than chief executive officer pay multiples as calculated with competitive data*. The committee views the lower multiples as support for the belief that compensation targets among the named executives are equitably distributed.
