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 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
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. All awards
for 151-200 percent of target will be paid in full shares of one-
year restricted company stock. Any fractional share will be paid
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 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 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. 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. All awards for 151-200 percent of target
will be paid in full shares of one-year restricted
company stock. Any fractional share will be paid in
cash. 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.