MONTANA-DAKOTA UTILITIES CO.
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
Montana-Dakota Utilities Co. 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 utility 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.
In this Plan, MDU Resources Group, Inc. is defined as the
"Company" while Montana-Dakota Utilities Co. is defined as the
"Utility Company."
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
Compensation Committee of the Board of Directors of the Company
(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 Committee, in consultation
with the Chief Executive Officer of the Company, 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 Company. 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, supersede 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 Utility
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 Utility Company to terminate any Participant's
employment at any time, for any reason or no reason in the
Utility Company's sole discretion, or confer upon any Participant
any right to continue in the employment of the Utility 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 shareholders' 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 whose major or
sole impact is Utility Company-wide, 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 Utility 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. Once the
incentive targets have been determined by the Committee, a target
incentive fund shall be established and accrued ratably by the
Utility Company. The incentive fund and accruals may be adjusted
during the year.
At the close of each Plan Year, the Chief Executive Officer
of the Company will prepare an analysis showing the Utility
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 Utility 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 Utility Company or business unit performance.
IX. PAYMENT OF AWARDS
Except as provided below or as otherwise determined by the
Committee, in order to receive an award under the Plan, the
Participant must remain in the employment of the Utility Company
or business unit for the entire Plan Year. If a Participant
terminates employment with the Utility Company pursuant to a
mandatory retirement provision in the Utility Company's Bylaws
that provides for mandatory retirement of 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 Utility Company
and the Company or any business unit of the Company may receive a
prorated award at the discretion of the Committee. 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 Utility Company in the event the Participant prevails
upon any of the Participant's claims for payment of a deferred
award.
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. The "Utility Company" shall refer to
Montana-Dakota Utilities Co., a Division of
MDU Resources Group, Inc.
4. "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.
5. "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.
6. The "Plan" shall refer to the Executive
Incentive Compensation Plan.
7. The "Plan Year" shall be the calendar year.
8. "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 of the Company 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
of the Company; (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; (e) the sale or
other disposition of all or substantially all
of the assets of the Utility Company, other
than to a subsidiary of the Company; or (f)
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."
9. 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.
10. "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 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 Utility 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 whose major or sole impact is
Utility 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 Utility 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. Once individual incentive targets have
been determined, a target incentive fund
shall be established and accrued ratably by
the Utility Company. The incentive fund and
accruals may be adjusted during the year.
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 Utility Company's and
each relevant business unit's performance in
relation to 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 Utility 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 Utility 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 employed by the
Utility Company or one of its business units
for the entire Plan Year.
3. If a Participant terminates employment with
the Utility Company pursuant to a mandatory
retirement provision in the Utility Company's
Bylaws that provides for mandatory retirement
of 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.
4. 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.
5. In the event a Participant has elected
to defer receipt of all or a portion of the
award, the Utility Company shall set up an
account in the Participant's name. The
amount of the Participant's award to the
extent deferred will be credited to the
Participant's account on the Payment Date.
6. 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 Utility Company.
7. 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.
8. Interest shall be credited to the
account on the day preceding the Payment Date
and shall be calculated on the balance in the
Participant's account as of that date.
9. A Participant may elect to defer any
percentage, not to exceed l00, of an annual
award.
10. 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 Utility Company or an
affiliated company; or
(2) Payment Date of the fifth year following the
year in which the award may be made.
11. 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.
12. In the event of the death of a Participant in whose
name a deferred account has been set up, the Utility
Company shall, within six months thereafter, pay to the
Participant's estate or the designated
beneficiary the entire amount in the deferred
account.
13. 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 Utility Company in the
event the Participant prevails upon any of
the Participant's claims for payment.