MDU RESOURCES GROUP, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
____________________________________________________________
I. PURPOSE
The purpose of the Executive Incentive Compensation Plan
(the "Plan") is to provide an incentive for key executives of MDU
Resources Group, Inc. (the "Company") to focus their efforts on
the achievement of challenging and demanding corporate
objectives. The Plan is designed to reward successful corporate
performance as measured against specified performance goals as
well as exceptional individual performance. When corporate
performance reaches or exceeds the performance targets and
individual performance is exemplary, incentive compensation
awards, in conjunction with salaries, will provide a level of
compensation which recognizes the skills and efforts of the key
executives.
II. BASIC PLAN CONCEPT
The Plan provides an opportunity to earn annual incentive
compensation based on the achievement of specified annual
performance objectives. A target incentive award for each
individual within the Plan is established based on the position
level and actual base salary, provided, however, that the
Committee in its sole discretion, may, instead of actual base
salary, use the assigned salary grade market value (midpoint)
("Salary"). The target incentive award represents the amount to
be paid, subject to the achievement of the performance objective
targets established each year. Larger incentive awards than
target may be authorized when performance exceeds targets; lesser
or no amounts may be paid when performance is below target.
It is recognized that during a Plan Year major unforeseen
changes in economic and environmental conditions or other
significant factors beyond the control of management may
substantially affect the ability of the Plan Participants to
achieve the specified performance goals. Therefore, in its
review of corporate performance the Compensation Committee of the
Board of Directors (the "Committee"), in consultation with the
Chief Executive Officer of MDU Resources Group, Inc., may modify
the performance targets. However, it is contemplated that such
target modifications will be necessary only in years of unusually
adverse or favorable external conditions.
III. ADMINISTRATION
The Plan shall be administered by the Committee with the
assistance of the Chief Executive Officer of the MDU Resources
Group, Inc. The Committee shall approve annually, prior to the
beginning of each Plan Year, the list of eligible Participants,
and the target incentive award level for each position within the
Plan. The Plan's performance targets for the year shall be
approved by the Committee no later than its regularly scheduled
February meeting during that Plan Year. The Committee shall have
final discretion to determine actual award payment levels, method
of payment, and whether or not payments shall be made for any
Plan Year.
The Board of Directors of the Company may, at any time and
from time to time, alter, amend, supercede or terminate the Plan
in whole or in part, provided that no termination, amendment or
modification of the Plan shall adversely affect in any material
way an award that has met all requirements for payment without
the written consent of the participant holding such award, unless
such termination, modification or amendment is required by
applicable law.
IV. ELIGIBILITY
Executives who are determined by the Committee to have a key
role in both the establishment and achievement of Company
objectives shall be eligible to participate in the Plan.
Nothing in the Plan shall interfere with or limit in any way
the right of the Company to terminate any Participant's
employment at any time, for any reason or no reason in the
Company's sole discretion, or confer upon any Participant any
right to continue in the employment of the Company. No executive
shall have the right to be selected to receive an award under the
Plan, or, having been so selected, to be selected to receive a
future award.
V. PLAN PERFORMANCE MEASURES
Performance measures shall be established that consider
shareholder and customer interests. These measures shall be
evaluated annually based on achievement of specified goals.
The performance measure reflective of shareholder's
interest will be the percentage attainment of corporate goals,
as determined each year by the Committee. This measure may be
applied at the corporate level for individuals, such as the
Chief Executive Officer, or at the business unit level for
individuals whose major or sole impact is on business unit
results.
Individual performance will be assessed based on the
achievement of annually established individual objectives.
Threshold, target and maximum award levels will be
established annually for each performance measure and business
unit. The Committee will retain the right to make all
interpretations as to the actual attainment of the desired
results and will determine whether any circumstances beyond the
control of management need to be considered.
VI. TARGET INCENTIVE AWARDS
Target incentive awards will be expressed as a percentage of
each Participant's Salary. These percentages shall vary by
position and reflect larger reward opportunity for positions
having greater effect on the establishment and accomplishment of
the Company's or business unit's objectives. An exhibit showing
the target awards as a percentage of Salary for eligible
positions will be attached to this Plan at the beginning of each
Plan Year.
VII. INCENTIVE FUND DETERMINATION
The target incentive fund is the sum of the individual
target incentive awards for all eligible Participants. The
actual incentive fund may be lower, equal to, or greater than the
target fund as determined by the Committee, based on actual
performance as compared with approved performance objectives.
At the close of each Plan Year, the Chief Executive
Officer of MDU Resources Group, Inc. will prepare an analysis
showing the Company's and business unit's performance in relation
to each of the performance measures employed. This will be
provided to the Committee for review and comparison to threshold,
target and maximum performance levels. In addition, any
recommendations of the Chief Executive Officer will be presented
at this time. The Committee will then determine the amount of
the target incentive fund earned.
VIII.INDIVIDUAL AWARD DETERMINATION
Each individual Participant's award will be based first upon
the level of performance achieved by the Company or business unit
and secondly based upon the individual's performance. The
performance measures applicable for assessing individual
performance will be established at the beginning of each Plan
Year. The assessment by the Committee, after consultation with
the Chief Executive Officer, of achievement relative to the
established performance measures, as determined by a percentage
from 0 percent to 200 percent, will be applied to the
Participant's target incentive award which has been first
adjusted for Company or business unit performance.
IX. PAYMENT OF AWARDS
Except as provided below or as otherwise determined by the
Committee, in order to achieve an award under the Plan, the
Participant must remain in the employment of the Company or
business unit for the entire Plan Year and be an employee on the
Payment Date. If a Participant terminates employment with MDU
Resources Group, Inc. pursuant to Section 5.01 of the Company's
Bylaws which provides for mandatory retirement for certain
officers on their 65th birthday (or terminates employment with a
subsidiary of the Company pursuant to a similar subsidiary Bylaw
provision) and if the Participant's 65th birthday occurs during
the Plan Year, determination of whether the performance measures
have been met will be made at the end of the Plan Year, and to
the extent met, payment of the award will be made to the
Participant, prorated. Proration of awards shall be based upon
the number of full months elapsed from and including January to
and including the month in which the Participant's 65th birthday
occurs.
An individual Participant who transfers between the Company
and business units may receive a prorated award at the discretion
of the Committee. If employment is terminated prior to the
Payment Date as a result of death, disability or retirement, or
due to special circumstances as determined by the Committee,
payment may be made after termination. Payments made under this
Plan will not be considered part of compensation for pension
purposes. Payments when made will be in cash. Incentive awards
may be deferred if the appropriate elections have been executed
prior to the end of the Plan Year. Deferred amounts will accrue
interest at a rate determined annually by the Committee.
In the event of a "Change in Control" (as defined by the
Committee in its Rules and Regulations) then any award deferred
by each Participant shall become immediately payable to the
Participant in cash, together with accrued interest thereon to
the date of payment. In the event the Participant files suit to
collect the Participant's deferred award then all of the court
costs, other expenses of litigation, and attorneys' fees shall be
paid by the Company in the event the Participant prevails upon
any of the Participant's claims for payment of a deferred award.
MDU RESOURCES GROUP, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
RULES AND REGULATIONS
The Compensation Committee of the Board of Directors of MDU
Resources Group, Inc. (the "Company") adopted Rules and Regulations
for the administration of the Executive Incentive Compensation Plan
(the "Plan") on February 9, 1983, following adoption of the Plan by
the Board of Directors of the Company on November 4, l982.
I. DEFINITIONS
The following definitions shall be used for purposes of these
Rules and Regulations and for the purposes of administering the
Plan:
1. The "Committee" shall be the Compensation
Committee of the Board of Directors of the
Company.
2. The "Company" shall refer to MDU Resources
Group, Inc. alone and shall not refer to its
utility division or to any of its subsidiary
corporations.
3. "Participants" for any Plan Year shall be
those executives who have been approved by the
Committee as eligible for participation in the
Plan for such Plan Year.
4. "Payment Date" shall be the date set by
the Committee for payment of awards, other than
those awards deferred pursuant to Section IX of
the Plan and Section VII of these Rules and
Regulations.
5. The "Plan" shall refer to the Executive
Incentive Compensation Plan.
6. The "Plan Year" shall be the calendar year.
7. "Change in Control" shall mean the earlier
of the following to occur: (a) the public
announcement by the Company or by any person
(which shall not include the Company, any
subsidiary of the Company or any employee
benefit plan of the Company or of any
subsidiary of the Company) ("Person") that such
Person, who or which, together with all
Affiliates and Associates (within the meanings
ascribed to such terms in Rule 12b-2 of the
General Rules and Regulations under the
Securities Exchange Act of 1934, as amended
(17 C.F.R. 240.12b-2)) of such Person, shall be
the beneficial owner of twenty percent (20%) or
more of the voting stock then outstanding; (b)
the commencement of, or after the first public
announcement of any Person to commence, a
tender or exchange offer the consummation of
which would result in any Person becoming the
beneficial owner of voting stock aggregating
thirty percent (30%) or more of the then
outstanding voting stock; (c) the announcement
of any transaction relating to the Company
required to be described pursuant to the
requirements of Item 6(e) of Schedule 14A of
Regulation 14A of the Securities and Exchange
Commission under the Securities Exchange Act of
1934 (17 C.F.R. 240.14a-101, item 6(e)); (d) a
proposed change in the constituency of the
Board of Directors of the Company such that,
during any period of two (2) consecutive years,
individuals who at the beginning of such period
constitute the Board of Directors of the
Company cease for any reason to constitute at
least a majority thereof, unless the election
or nomination for election by the shareholders
of the Company of each new Director was
approved by a vote of at least two-thirds (2/3)
of the directors then still in office who were
members of the Board of Directors of the
Company at the beginning of the period; or (e)
any other event which shall be deemed by a
majority of the Compensation Committee of the
Board of Directors of the Company to constitute
a "Change in Control."
8. The "Prime Rate" shall be the base rate on
corporate loans posted by at least 75 percent
of the nation's 30 largest banks as reported
daily in The Wall Street Journal.
9. "Retirement" means the later of the day
the Participant attains age 55 or the day the
Participant ceases to be an employee of the
Company, its utility division or any of its
subsidiary corporations.
II. ADMINISTRATION
1. The Committee shall have the full power to
construe and interpret the Plan and to
establish and to amend these Rules and
Regulations for its administration.
2. No member of the Committee shall
participate in a decision as to their own
eligibility for, or award of, an incentive
award payment.
3. Prior to the beginning of each Plan Year,
the Committee shall approve a list of eligible
executives and notify those so approved that
they are eligible to participate in the Plan
for such Plan Year.
4. Prior to the beginning of each Plan Year,
the Committee and shall approve an Annual
Operating Plan. The Annual Operating Plan
shall include the Plan's performance measures
and target incentive award levels for each
salary grade covered by the Plan for the
following Plan Year. The Plan's performance
targets for the year shall be approved by the
Committee no later than its regularly scheduled
February meeting during the Plan Year. The
Annual Operating Plan, insofar as it is
relevant to each individual Participant, shall
be made available by the Committee to each
Participant in the Plan at the beginning of
each Plan Year.
5. The Committee shall have final discretion
to determine actual award payment levels,
method of payment, and whether or not payments
shall be made for any Plan Year. However,
unless the Plan's performance objectives are
met for the Plan Year, no award shall be made
for that Plan Year. Performance targets
modified pursuant to Section II of the Plan
will be deemed performance targets for purposes
of determining whether or not these targets
have been met.
III. PLAN PERFORMANCE MEASURES
1. The Committee shall establish the
percentage attainment of corporate performance
measure and the percentage attainment of
individual goals measure. The Committee may
establish more or fewer performance measures
as it deems necessary.
2. The corporate performance measure may be
set by reference to earnings, return on
invested capital or any other measure or
combination of measures deemed appropriate by
the Committee. It may be established for the
Company or for the individual business unit.
3. Individual performance will be assessed
based on the achievement of annually
established individual objectives.
4. Plan performance measures may be applied
at the corporate level for individuals such as
the Chief Executive Officer whose major or
sole impact is Company-wide, or at the
business unit level for individuals whose
major or sole impact is on the business unit
results. The Annual Operating Plan shall
contain a list of individuals to whom the Plan
performance measures will be applied at the
corporate level and a list of those
individuals for whom the Plan performance
measures will be applied at the business unit
level. The relevant business unit for each
individual will be identified.
5. The Committee shall set threshold, target
and maximum award levels for the performance
measures, for each business unit, and for the
Company. Those levels shall be included in
the Annual Operating Plan.
6. The Committee will retain the authority
to determine whether or not the actual
attainment of these measures has been made.
IV. TARGET INCENTIVE AWARDS
1. Target incentive awards will be a
percentage of each Participant's Salary, as
defined in the Plan.
2. Target incentive awards shall be set by
the Committee annually and will be included in
the Annual Operating Plan.
V. INCENTIVE FUND DETERMINATION
1. The target incentive fund is the sum of
the individual target incentive awards for all
eligible Participants.
2. The actual incentive fund will be
determined by the Committee, based on actual
performance as compared with the approved
performance measures.
3. As soon as practicable following the close
of each Plan Year, the Chief Executive Officer
will provide the Committee with an analysis
showing the Company's and each relevant
business unit's performance in relation to both
of the performance measures. The Committee
will review the analysis and determine, in its
sole discretion, the amount of the actual
incentive fund.
4. In determining the actual incentive fund,
the Committee may consider any recommendations
of the Chief Executive Officer.
VI. INDIVIDUAL AWARD DETERMINATION
1. The Committee shall have the sole
discretion to determine each individual
Participant's award. The Committee's decision
will be based first upon the level of performance
achieved by the Company or business unit and
second upon the individual's performance.
2. The Committee, after consultation with the
Chief Executive Officer, shall set the award as
a percentage from 0 percent to 200 percent of
the Participant's target incentive award,
adjusted for Company or business unit
performance.
VII. PAYMENT OF AWARDS
1. On the date the Committee determines the
awards to be made to individual Participants,
it shall also establish the Payment Date.
2. Except as provided below or as the
Committee otherwise determines, in order to
receive an award under the Plan, a Participant
must remain in the employment of the Company
for the entire Plan Year and be an employee on
the Payment Date.
3. If employment is terminated prior to
Payment Date as a result of death, disability
or retirement, or due to special circumstances
as determined by the Committee in its sole
discretion, payment may be made after
termination.
4. If a Participant terminates employment
with the Company pursuant to Section 5.01 of
the Company's Bylaws which provides for
mandatory retirement for certain officers on
their 65th birthday (or terminates employment
with a subsidiary of the Company pursuant to a
similar subsidiary Bylaw provision) and if the
Participant's 65th birthday occurs during the
Plan Year, determination of whether the
performance measures have been met will be made
at the end of the Plan Year, and to the extent
met, payment of the award will be made to the
Participant, prorated. Proration of awards
shall be based upon the number of full months
elapsed from and including January to and
including the month in which the Participant's
65th birthday occurs.
5. Payment of the awards shall be made in
cash. Payments shall be made on the Payment
Date unless the Participant has deferred, in
whole or in part, the receipt of the award by
making an election on the deferral form
attached hereto, prior to the end of the Plan
Year immediately preceding the Payment Date.
6. In the event a Participant has elected to
defer receipt of all or a portion of the award,
the Company shall set up an account in their
name. The amount of their award to the extent
deferred will be credited to the Participant's
account on the Payment Date.
7. The balance credited to an account of a
Participant who has elected to defer receipt of
an award will be an unsecured, unfunded
obligation of the Company.
8. Interest shall accrue on the balance
credited to a Participant's account. The rate
of interest shall be the Prime Rate plus
1 percentage point as reported on the last
Friday in January of each year. Interest on
the balance in an account shall accrue at the
rate so determined from the Payment Date
immediately following the determination to the
Payment Date of the following year.
9. Interest shall be credited to the account
on the day preceding Payment Date and shall be
calculated on the balance in the Participant's
account as of that date.
10. A Participant may elect to defer any
percentage, not to exceed l00, of an annual
award.
11. A Participant electing to defer any part of an
award must elect one of the following dates for
payment:
(1) Payment Date next following
termination of employment with the
Company or an affiliated company; or
(2) Payment Date of the fifth
year following the year in which the
award may be made.
12. A Participant may elect to receive the deferred
amounts accumulated in the Participant's
account in monthly installments, not to exceed
120. In the event the Participant elects to
receive the amounts in the Participant's
account in more than one installment, interest
shall continue to accrue on the balance
remaining in their account at the applicable
rate or rates determined annually by the
Committee.
13. In the event of the death of a Participant in
whose name a deferred account has been set up,
the Company shall, within six months
thereafter, pay to the Participant's estate or
the designated beneficiary the entire amount in
the deferred account.
14. In the event of a "Change in Control" then any
award deferred by each Participant shall become
immediately payable to the Participant. In the
event the Participant files suit to collect a
deferred award then all of the Participant's
court costs, other expenses of litigation, and
attorneys' fees shall be paid by the Company in
the event the Participant prevails upon any of
the Participant's claims for payment.