MINNESOTA POWER
DIRECTORS' LONG TERM
INCENTIVE PLAN
(Amended and Restated Effective as of January 1, 1994)
MINNESOTA POWER
DIRECTORS' LONG-TERM INCENTIVE PLAN
(Amended and restated effective January 1, 1994)
I. EFFECTIVE DATE
The Minnesota Power Directors' Long-Term Incentive Plan (Plan) for members
of the Board of Directors of Minnesota Power & Light Company (Company) is made
effective as of January 1, 1994. This Plan supersedes and replaces the
Minnesota Power Directors' 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, Directors will be granted
a maximum Performance Award Opportunity of up to 600 shares of the Company's
common stock. 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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Performance Periods will begin every other year as illustrated below.
1992 1993 1994 1995 1996 1997 1998 1999
Performance
Period 1 ------ ------ ------ ------
Performance
Period 2 ------ ------ ------ ------
Performance
Period 3 ------ ------ ------ ------
Performance
Period 4, etc. ------ ------
IV. 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
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Initial Stock Price
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
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remains applicable and effective. A new performance measure may be adopted at
any time by amending this Plan.
V. 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.
VI. 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 Director's Performance Award Opportunity actually earned. The
Performance Award Opportunity shall be as specified in Section III 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
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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 Director's award amount will be the product obtained by
multiplying the Director's Performance Award Opportunity shares as determined
at the beginning of the Performance Period by the appropriate weighted
percentages.
VII. EXAMPLE CALCULATION OF AWARDS
The Director's Performance Award Opportunity is 600 shares at the
beginning of the Performance Period. Assume 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 SharesAwarded
----------- -------- ------- -------------
600 x (24% + 28%) = 312
VIII. 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 Director. At the
time awards are determined and approved, a Director may elect on a form
provided by the Company to receive payment of up to fifty percent of the
approved award in cash.
IX. PRORATION OF AWARDS FOR INCOMPLETE PERFORMANCE PERIODS
Awards will be prorated for any Performance Period that a Director did not
serve during the full four year period, due to joining the board or retiring
from the board during a performance period(s). The Director's performance
award will be calculated as provided in Section VI above, after the end of
the last year of service (as if it
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were a full 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 Director served as a Director during the Performance Period rounded up to
whole months and the denominator of which is 48. The result thus obtained will
be the actual award to be provided by the Company to a Director 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.
X. 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.
XI. NON-TRANSFERABILITY
In no event shall the Company make any payment under the Plan to any
assignee or creditor of a Director or of a Director's beneficiary. Prior to
the time of payment hereunder, a Director 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.
XII. CLAIMS PROCEDURE
A) Filing a Claim
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Any Director 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
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Committee, setting forth with specificity the facts and events which give rise
to the claim.
b) Denial of Claim
---------------
The Executive Compensation Committee shall notify in writing any Director
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 Director 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 Director or
beneficiary needs to supply in order to perfect his/her claim. The notice
shall also inform the Director 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 Director 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 Director'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 Director 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 Director 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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XIII. EXPENSES
The cost of payments from the Plan and the expense of administering the
Plan shall be borne by the Company.
XIV. 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.
XV. AMENDMENT AND TERMINATION
This Plan maybe amended, modified, terminated or partially terminated at
any time by action of the Board of Directors. No amendment or termination may
divest a Director of amounts accrued or credited to the Director at the time of
such amendment.
XVI. 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.
XVII. NO EMPLOYMENT RIGHTS
The Plan and elections hereto shall not be deemed or construed to be a
promise of or right to continued service on the Board of Directors.
XVIII. BINDING AGREEMENT
The provisions of the plan shall be binding upon the Director, his or her
heirs, personal representatives and beneficiaries, and
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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.
XIX. CONTRACTUAL OBLIGATIONS
It is intended that the Company is under a contractual obligation to make
payments to Directors or their beneficiaries from the general funds and assets
of the Company in accordance with the terms and conditions of the Plan. A
Director 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
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Its Chief Executive Officer
Attest:
By Philip R. Halverson
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Its Secretary
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