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 assigned salary grade market value (midpoint).
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,
the Plan's performance targets, and the target incentive award
level for each position within the Plan. 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.
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.
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 the earnings goal
as specified in the annual operating plan. This measure will 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 assigned salary grade market value (midpoint).
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 grade market value (midpoint) 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 150 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
In order to receive 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. 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, stock, or a combination
thereof as determined appropriate by the Committee. 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.
_________________________
Plan adopted November 4, 1982
Plan amended November 6, 1986
Plan amended May 15, 1996, effective January 1, 1996
Plan amended November 13, 1996, effective January 1, 1997
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 Management 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.
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 draw up an Annual Operating
Plan. The Annual Operating Plan shall include
the Plan's performance measures and performance
targets as well as the target incentive award
levels for each salary grade covered by the
Plan for the following 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 earnings measure and the
percentage attainment of individual goals
measure. The Committee may establish more or
fewer performance measures as it deems
necessary.
2. The earnings measure shall be set by reference
to the earnings of the Company or the
individual business unit.
3. Individual performance will be assessed based
on the achievement of annually established
individual objectives.
4. Plan performance measures will 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 assigned salary grade
midpoint.
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 150 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. 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. Payments of the awards may be made in cash,
stock or a combination thereof as determined by
the Committee. Such 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
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.
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 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 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) Retirement date;
(2) Payment Date next following
termination of employment; or
(3) 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 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 Company in
the event the Participant prevails upon any of
the Participant's claims for payment.
__________________________
Rules and Regulations adopted November 4, 1982
Rules and Regulations amended August 5, 1987
Rules and Regulations amended February 9, 1989
Rules and regulations amended May 15, 1996, effective January 1, 1996
Rules and regulations amended November 13, 1996, effective January 1, 1997