MINNESOTA POWER
EXECUTIVE LONG-TERM
INCENTIVE PLAN
(Amended and Restated Effective as of January 1, 1994)
MINNESOTA POWER
EXECUTIVE LONG-TERM INCENTIVE PLAN
(Amended and Restated Effective as of January 1, 1994)
I. EFFECTIVE DATE
This amended and restated Minnesota Power & Light Company (Company)
Executive Long-Term Incentive Plan (Plan) for a select group of management or
highly compensated executive employees is made effective as of January 1, 1994.
Effective January 1, 1994, participation in the Plan was extended to the
responsibility level of Salary Grade V. This Plan supersedes and replaces the
Minnesota Power Long-Term Incentive Plan dated January 1, 1992.
II. PURPOSES OF THE PLAN
The purposes of the Plan are:
1. To reward focusing on long-term planning and results.
2. To link compensation with enhancement of shareholder value.
III. CONCEPT
At the beginning of each new Performance Period, eligible key executives
will be granted a maximum Performance Award Opportunity expressed as a number
of shares of the Company's common stock, not to exceed the designated maximum
for that position. The extent to which the Award Opportunity is earned (e.g.,
the number of shares earned) depends on the Company's performance in terms of
stock price appreciation plus dividends in relation to the comparator groups
during the Performance Period. The Performance Period will be four calendar
years and the actual value of the shares earned will depend upon the price of
the Company's common stock at the end of the fourth calendar year.
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Illustrated below, Performance Period 1 began January 1, 1991, and will
end December 31, 1994. A new Performance Period will begin every year as shown.
1991 1992 1993 1994 1995 1996 1997
Performance
Period 1 ------ ------ ------ ------
Performance
Period 2 ------ ------ ------ ------
Performance
Period 3 ------ ------ ------ ------
Performance
Period 4, etc. ------ ------ ------ ------
IV. ELIGIBILITY
Participation is restricted to certain key executives. Participants are
divided into five groups (Participant Categories) to reflect varying
responsibility levels as follows:
Participant Salary
Category Grade
----------- ----------------
I XI
II IX
III VIII
IV VI-VII
V V
V. AWARD OPPORTUNITY
A maximum Performance Award Opportunity has been established for each
Participant Category. The Performance Award Opportunity is stated as a maximum
number of shares of common stock of the Company. If a Participant's
Responsibility Level changes during the Performance Period, or if a participant
first becomes eligible during a Performance Period, the Award Opportunity will
be
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prorated or adjusted as determined by the Executive Compensation Committee.
For Performance Periods 1, 2 and 3 illustrated in Section III, Performance
Award Opportunities will be based on the following schedule:
Award Opportunity
Participant Maximum Number of
Category Common Shares<F1>
----------- -----------------
I 6,000
II 5,000
III 4,000
IV 2,000
V 0 (Not Eligible)
<FN>
<F1>Based on shares outstanding as of January 1, 1991; to be adjusted in
the event of ensuing stock splits.
</FN>
For Performance Period 4 and later, Performance Award Opportunities will
be based on the following schedule:
Award Opportunity
Participant Maximum Number of
Category Common Shares<F1>
----------- -----------------
I 6,000
II 5,000
III 4,000
IV 2,000
V 1,500
<FN>
<F1>Based on shares outstanding as of January 1, 1994; to be adjusted in
the event of ensuing stock splits.
</FN>
VI. PERFORMANCE MEASURE
The Company's long-term performance will be measured by its Total
Shareholder Return (TSR) Ranking over each four-year Performance Period. TSR
is defined as:
TSR = Stock Price Appreciation + Reinvested Dividends
-----------------------------------------------
Initial Stock Price
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The TSR is determined by means of combining the change in stock price over
the entire Performance Period with dividends which are assumed to be reinvested
on each ex-dividend date. Key assumptions to be followed in calculation of TSR
are:
1) Stock prices used with respect to a performance Period are the
closing prices on the New York Stock Exchange on the last day
before the beginning of the Performance Period and the last day of
the Performance Period.
2) Dividends are assumed to be reinvested on the ex-
dividend date at the closing stock prices on that
date.
3) Calculation of TSR for the S&P 500 group is based
on the companies included in the S&P 500 as of the
end of Performance Period.
The current performance measure will be reviewed at the beginning of each
new Performance Period to determine that it remains applicable and effective.
A new performance measure may be adopted at any time by amending this Plan.
VII. COMPARATOR GROUPS
The TSR performance measure discussed above will be used to rank the
Company's performance relative to two comparator groups on a 60/40 weighted
basis. The first comparator group (weighted 60% in the award computation) will
consist of the 10 regional utility companies that are used in the Minnesota
Power and Affiliated Companies Incentive Compensation Plan. At the end of each
Performance Period, all companies, including the Company, will be ranked from 1
to 11, according to TSR.
The second comparator group (weighted at 40% in the award computation)
will include a broader group of companies comprising the S&P 500. Comparison
against this group will be based on the TSR percentile ranking of the Company
among the S&P 500, at the end of each Performance Period.
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VIII. AWARD DETERMINATION
After calculation of the Company's TSR ranking within the utility industry
comparator group and the S&P 500, the schedule below will prescribe the percent
of the Participant's Performance Award Opportunity actually earned. The
Performance Award Opportunity shall be as specified in Section V above.
Industry
TSR Percent of Award Opportunity Earned
Ranking
1-2 60 68 76 84 92 100
3 48 56 64 72 80 88
4 36 44 52 60 68 76
5 24 32 40 48 56 64
6 12 20 28 36 44 52
7-11 0 8 16 24 32 40
0-40 50 60 70 80 90
TSR Percentile Ranking in S&P 500
Straight line interpolation will be used for TSR Percentile Ranking
results between those discrete values specified in the table (no interpolation
is necessary regarding the Industry TSR Ranking).
Final awards will be reviewed and approved by the Executive Compensation
Committee. Each Participant's award amount will be the product obtained by
multiplying the Participant's Performance Award Opportunity shares as
determined at the beginning of the Performance Period by the appropriate
weighted percentages.
IX. EXAMPLE CALCULATION OF AWARDS
Assume a Participant's Performance Award Opportunity is 4,000 shares at
the beginning of the Performance Period. Assume further, that at the end of
the four-year Performance Period, the Company ranks fifth in its Industry TSR
Ranking and is at the 75th percentile among the S&P 500 comparator group. The
award would be computed as follows:
Opportunity Industry S&P 500 Final
Shares Ranking Ranking Shares Awarded
4,000 x (24% + 28%) = 2,080.
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X. PAYMENT OPTIONS
As soon as practicable following the end of the last year of the
Performance Period and upon approval of the Executive Compensation Committee,
awards will be paid totally in stock or in a combination of stock and cash (up
to a maximum of fifty percent cash) at the election of the Participant. At the
time awards are determined and approved, a Participant may elect on a form
provided by the Company to receive payment of up to fifty percent of the
approved award in cash.
XI. TERMINATION OF EMPLOYMENT
Awards to the CEO and COO will continue to run after their retirement
without any proration or reduction for the fact that retirement occurs before a
performance period has ended.
In the event of death, disability or retirement of any Participant prior
to the end of a four-year Performance Period, the provisions in the paragraphs
below will apply unless the Executive Compensation Committee makes an exception
and elects in its discretion to continue the award.
If termination of employment due to death, disability, or retirement
occurs (except as noted above for the CEO and COO in the event of retirement)
prior to the end of a Performance Period, the Participant's performance award
will be paid as soon as practicable after the end of the year of such
termination. The final award determination will be calculated as provided in
Section VIII above, after the end of such year (as if it were the end of the
four-year Performance Period). The award will then be multiplied by a prorated
adjustment factor, the numerator of which is the number of months the
Participant was employed by the Company during the Performance Period rounded
up to whole months and the denominator of which is 48. The result thus
obtained will be the actual final award to be provided by the Company to a
Participant or his/her beneficiary or estate if no beneficiary is named.
Notwithstanding any provisions in this Plan to the contrary, any payment to any
beneficiary may be withheld until it is determined if any generation-skipping
tax is due. Any amounts necessary to pay such tax may be subtracted from any
benefits otherwise due.
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Termination of employment for reasons other than death, disability, or
retirement before the end of a Performance Period will result in forfeiture of
the associated award opportunity unless an exception is made by the Executive
Compensation Committee.
XII. ADMINISTRATION
The administration of the Plan will be under the overall responsibility of
the Executive Compensation Committee of the Board of Directors. The Chief
Executive Officer will be responsible for administering the Plan (computing
awards, measuring performance of the comparator group, etc.). Any revisions to
the Plan will require review by the Executive Compensation Committee and
approval of the Board of Directors. The Chief Executive Officer will involve
other individuals and departments as required for the full and complete
administration of the Plan, in accordance with its terms.
XIII. NON-TRANSFERABILITY
In no event shall the Company make any payment under the Plan to any
assignee or creditor of a Participant or of a Participant's beneficiary. Prior
to the time of payment hereunder, a Participant or beneficiary shall have no
rights by way of anticipation or otherwise to assign or otherwise dispose of
any interest under the Plan nor shall such rights be assigned or transferred by
operation of law.
XIV. CLAIMS PROCEDURE
A) Filing a Claim
--------------
Any Participant or beneficiary, or his/her authorized representative, may
make a claim for benefits due under the Plan by making a written request
therefor to the Executive Compensation Committee, setting forth with
specificity the facts and events which give rise to the claim.
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b) Denial of Claim
---------------
The Executive Compensation Committee shall notify in writing any
Participant or beneficiary whose claim for benefits hereunder is denied. Said
notice shall be furnished within ninety days after the Executive Compensation
Committee receives the claim, unless special circumstances require an extension
of time for processing the claim. If such an extension of time for processing
is required, written notice of the extension shall be furnished to the
Participant or beneficiary prior to the termination of the initial ninety-day
period. In no event shall such extension exceed a period of ninety days from
the end of such initial period. The notice of extension shall indicate the
special circumstances requiring an extension of time and the date by which the
Executive Compensation Committee expects to render the final decision. The
notice of claim denial shall set forth the specific reasons for the denial,
including specific reference to pertinent Plan provisions. If appropriate,
said notice shall set forth any additional information the Participant or
beneficiary needs to supply in order to perfect his/her claim. The notice
shall also inform the Participant or beneficiary of the review procedure
available pursuant to this Section, and of his/her right to inspect pertinent
documents.
c) Review Of Claim Denial
----------------------
A Participant or beneficiary who desires further consideration of his/her
position, or a duly authorized representative, shall, within sixty days of
receipt of the notice above referred to, make written request to the Executive
Compensation Committee for review of such denial. Such request shall include a
statement of the Participant's or beneficiary's position. The Executive
Compensation Committee shall make a full and fair review of the decision
denying the claim, and shall deliver to the Participant or beneficiary a
written statement setting forth its decision and the specific reasons therefor,
including specific reference to pertinent Plan provisions, within sixty days
after receiving the request for review (unless special circumstances require an
extension of time for processing, in which case written notice of the extension
shall be furnished to the Participant or beneficiary prior to the commencement
of the extension and a decision shall be rendered as soon as possible, but not
later than 120 days after receiving the request for review).
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XV. EXPENSES
The cost of payments from the Plan and the expense of administering the
Plan shall be borne by the Company.
XVI. TAX WITHHOLDING
The Company shall have the right to deduct from all payments to be made
under the Plan, any federal, state or local taxes or other charges required by
law to be withheld with respect to such payments.
XVII. AMENDMENT AND TERMINATION
The Company expects the Plan to continue, but since future conditions
affecting the Company cannot be anticipated or foreseen, the Company must and
does hereby reserve the right to amend, modify, terminate or partially
terminate the Plan at any time and in any manner whatsoever by recommendation
of the Executive Compensation Committee and by action of the Board of
Directors. No amendment or termination may divest a Participant of amounts
accrued or credited to the Participant at the time of such amendment.
XVIII. APPLICABLE LAW
The Plan shall be governed and construed in accordance with the laws of
the State of Minnesota. The invalidity of any portion of the Plan shall not
invalidate the remainder hereof and said remainder shall continue in full
force. The captions and other titles herein are designed for convenience only
and are not to be resorted to for the purpose of interpreting any provision of
the Plan.
XIX. NO EMPLOYMENT RIGHTS
The Plan and elections hereto shall not be deemed or construed to be a
written contract of employment between any Participant and the Company, nor
shall any provision of the Plan (i) restrict the right of the Company to
discharge any Participant or (ii) in any way whatsoever grant to any
Participant the right to receive any
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guaranteed salary, bonus, incentive compensation award or any other payments of
any nature whatsoever.
XX. BINDING AGREEMENT
The provisions of the plan shall be binding upon the Participant, his or
her heirs, personal representatives and beneficiaries, and subject to the
rights granted to amend or terminate the Plan, the provisions of the Plan shall
also be binding upon the Company, its successors and assigns.
XXI. CONTRACTUAL OBLIGATIONS
It is intended that the Company is under a contractual obligation to make
payments to Participants or their beneficiaries from the general funds and
assets of the Company in accordance with the terms and conditions of the Plan.
A Participant or his/her beneficiary shall have no rights to such payments,
other than as a general, unsecured creditor of the Company.
MINNESOTA POWER
By Arend J. Sandbulte
-----------------------------------
Its Chief Executive Officer
Attest:
By Philip R. Halverson
-----------------------------------
Its Secretary
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