MDU RESOURCES GROUP, INC.
KEY EMPLOYEE STOCK OPTION PLAN
(KESOP)
I. PURPOSE
The purpose of the MDU Resources Group, Inc. 1992 Key Employee
Stock Option Plan (the "Plan") is to motivate key employees of
MDU Resources Group, Inc. and its business units to achieve
specified long-term performance goals of MDU Resources Group,
Inc. or its business units and to encourage ownership by them of
the Common Stock of MDU Resources Group, Inc. The Plan
accomplishes these objectives through the grant of performance
accelerated Stock Options and the opportunity to earn dividend
equivalents.
II. DEFINITIONS
The following definitions shall be used for purposes of
administering the Plan:
"Agreement" means a written agreement evidencing each award
of Options, which shall contain such terms and be in such
form as the Compensation Committee may determine.
"Board" means the Board of Directors of the Company.
"Cause" means the (1) continued failure by a Participant to
perform his/her duties (except as a direct result of the
Participant's Disability) after receiving notification by
the Chief Executive Officer of the Company or an individual
designated by the Chief Executive Officer (or the Board of
Directors of the Company in the case of the Chief Executive
Officer) identifying the manner in which the Participant has
failed to perform his/her duties, (2) engaging in conduct,
which, in the opinion of a majority of the Board of
Directors of the Company or a business unit, is materially
injurious to the Company, or (3) conviction of any felony.
"Change of Control" means 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
the Rule 12b-2 of the General Rules and Regulations under
the Exchange Act) of such Person, shall be the beneficial
owner of twenty percent (20%) or more of the voting stock of
the Company 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 under the
Exchange Act; (d) a proposed change in constituency of the
Board such that, during any period of two (2) consecutive
years, individuals who at the beginning of such period
constitute the Board cease for any reason to constitute at
least a majority thereof, unless the election or nomination
for election by the stockholders 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 at the beginning of the period; or (e) any other
event which shall be deemed by a majority of the
Compensation Committee to constitute a "change in control."
"Common Stock" means the Common Stock, $1.00 par value, of
the Company.
"Company" shall refer to MDU Resources Group, Inc.
"Companies" shall refer to MDU Resources Group, Inc. and its
business units.
"Compensation Committee" or "Committee" shall be the
Compensation Committee of the Board of Directors of the
Company or any Committee of the Board performing similar
functions as appointed from time to time by the Board. The
Committee shall be constituted, to the extent required, so
as to permit the Plan to comply with Rule 16b-3.
"Disability" means the inability of a Participant to perform
each and every duty pertaining to the Participant's regular
occupation by reason of any medically determinable physical
or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a
continuous period of not less than twelve months.
"Dividend Account" is defined in Section IV.D 6.
"Effective Date" means the date as of which the Plan is
approved by the stockholders of MDU Resources Group, Inc.
"Eligible Employee" means any key employee of any of the
Companies who, in the opinion of the Compensation Committee,
has significant responsibility for the continued growth,
development and financial success of the Company or any
business unit thereof.
"Exchange" means the New York Stock Exchange.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" means the average of the high and low
prices for shares of Common Stock traded on the Exchange on
the date of the grant of such Option or if no shares are
traded on that day, on the next preceding day on which
Common Stock was traded on the Exchange.
"Goals" means the separate financial and/or non-financial
objectives set by the Committee for any of the Companies.
"Option" or "Stock Option" means an option to purchase
Common Stock granted pursuant to the Plan. Options may not
be "incentive stock options" as that term is defined in
Section 422 of the Internal Revenue Code of 1986, as
amended.
"Participants" means those Eligible Employees selected by
the Committee for participation in the Plan and includes
their beneficiaries as applicable.
"Performance Cycle" means a time frame established by the
Committee pursuant to Section IV.D 4 for the measurement of
Goals.
"Plan" means this MDU Resources Group, Inc. 1992 Key
Employee Stock Option Plan, adopted by the Board on February
13, 1992, and approved by the stockholders on April 28,
1992, and as amended from time to time.
"Rule 16b-3" means Rule 16b-3 under the Exchange Act or any
successor rule.
"Termination of Service" means leaving the employ of the
Companies for any reason. Transfer between Companies is not
a Termination of Service.
"Trustee" means a trustee chosen by the Committee or any
successor trustee selected by the Committee.
III. ADMINISTRATION
Subject to and not inconsistent with the express provisions of
the Plan the Committee has the sole and complete discretion to
administer and interpret the Plan, including, but not limited to:
(a) designating the Participants to whom Options are
granted under the Plan;
(b) authorizing the Trustee to grant Options, determining
the time(s) when Options are granted and fixing the number
of shares of Common Stock underlying each Option granted
hereunder;
(c) determining the terms and conditions of an Option
granted (including, but not limited to, the exercise price,
any restriction or limitation, the vesting provisions,
acceleration of vesting or forfeiture waiver applicable to
any Option) and the terms of the related Agreement;
(d) determining the conditions of the awarding of Dividend
Equivalents;
(e) establishing performance goals and fixing and adjusting
the Goals;
(f) interpreting the terms and provisions of the Plan;
(g) adopting, amending, and rescinding rules and regulations
relating to the Plan; and
(h) making all determinations necessary or advisable for the
administration of the Plan.
All decisions made by the Committee pursuant to the provisions of
the Plan shall be final and binding on all persons, including the
Companies, the Trustee, and the Plan's Participants.
The Committee may also revise or adjust the vesting provisions
(except that the Committee may not extend vesting beyond nine
years), goals and their levels applicable to a Performance Cycle,
at any time to take into account, among other things, new
Participants, promotions, transfers, terminations, changes in law
and accounting and tax rules and to make such adjustments as the
Committee deems necessary or appropriate to reflect the
Companies' performances or the impact of extraordinary or unusual
items, events, or circumstances or in order to avoid windfalls or
hardships.
The Company and/or the Committee may consult with legal counsel,
who may be counsel for the Company or other counsel, with respect
to its obligations and duties hereunder or with respect to any
claim, action, or proceeding or any other matter.
No member or agent of the Committee shall be personally liable
for any action, determination, or interpretation made in good
faith with respect to the Plan or grants made hereunder, and all
members and agents of the Committee shall be fully protected by
the Company in respect of any such action, determination, or
interpretation.
The Committee's determination under the Plan, including without
limitation, determinations as to the Participants to receive
grants, the terms and provisions of such grants and the
Agreement(s) evidencing the same, need not be uniform and may be
made by it selectively among the Eligible Employees who receive
or are eligible to receive grants under the Plan, whether or not
such Eligible Employees are similarly situated.
IV. GENERAL PLAN DESCRIPTION
A. Overview
The Plan provides for each Participant to (a) receive
grant(s) of Stock Options, (b) have the opportunity to earn
dividend equivalents, and (c) have the opportunity to
achieve accelerated vesting of Stock Options and receive
additional grants of Stock Options based upon the
achievement of Goals established by the Committee over a
designated Performance Cycle.
B. Eligibility
On or after the Effective Date, subject to the provisions of
the Plan, the Committee shall, from time to time, select
Participants from Eligible Employees and arrange with the
Trustee to grant them Stock Options. At the time of
selection, the Committee shall specify the terms and
conditions of the new Participant's initial grant of
Options.
C. Authorization
The total number of shares of Common Stock as to which
Options may be granted may not exceed 800,000 shares; if any
unexercised options lapse or terminate for any reason, the
shares underlying the Options may be made subject to Options
granted to other Participants. In the event of the
declaration of a Common Stock dividend and/or Common Stock
split, reclassification or analogous change in the
capitalization or any distributions (other than regular cash
dividends) to holders of record between the date of grant
and the date of exercise of an Option, an appropriate
adjustment shall be made to the total number of shares as to
which Options may be granted, to the number of shares
subject to Options, and to the exercise price.
Shares of Common Stock, delivered under this Plan may be
authorized but unissued shares of Common Stock, or shares of
Common Stock purchased on the open market and held by the
Trustee, or shares of Common Stock from the 1983 Key
Employees' Stock Option Plan.
D. Stock Options and Dividend Equivalents
(1) Grants
Each Participant shall receive a grant of Options on
the date she or he becomes a Participant. The
Committee shall determine the size of the grant to each
Participant and authorize the Trustee to make the
grant. Participants may receive subsequent grants of
Options from the Trustee when and as directed by the
Committee.
(2) Exercise Price and Term
The exercise price for an Option granted under the Plan
is the Fair Market Value of the Company's Common Stock
on the date of the Option grant. An Option granted
shall generally have a term of ten years commencing
from the date of grant, subject to the provisions of
Sections V and VI and to the general discretion of the
Committee set forth in Section III.
(3) Vesting and Accelerated Vesting Provisions
No Option may be exercised before it has vested.
Generally Option grants have a vesting period (before
accelerated vesting) of nine years subject to the
provisions of Section VI and to the general discretion
of the Committee set forth in Section III. The vesting
period for all or a portion of Options granted to a
Participant may be accelerated by the Committee subject
to the achievement of Goals for a Performance Cycle.
(4) Performance Cycle and Goals
The Committee shall fix the starting and ending dates
of each Performance Cycle. The minimum term shall be
six months; the maximum term shall be nine years. A
Performance Cycle will be the time period used in
assessing the performance of each of the Companies in
comparison to the separate Goals established by the
Committee for each of the Companies. Performance
Cycles and Goals may vary for each of the Companies.
(5) Subsequent Grants; Accelerated Vesting
Additional grants of Options may be made by the Trustee
at the direction of the Committee to Participants at
any time.
In particular, but not by way of limitation, additional
grants of Options may be made to Participants at the
beginning of a new Performance Cycle based upon the
appropriate Companies' achievement of Performance Goals
and the results of accelerated vesting of all or a
portion of previous grants. The Committee will have
the authority to determine the size and terms of any
new Option grant for each Participant.
(6) Dividend Equivalents
At the beginning of each Performance Cycle, a Dividend
Account (the "Dividend Account") shall be established
for each Participant. If a dividend is declared by the
Board on the Common Stock of the Company an equivalent
amount shall be accrued in the Dividend Account of each
Participant for each share of Common Stock underlying
all unvested Options held by the Participant. At the
end of each Performance Cycle the Committee in its sole
discretion may award an amount between 0% and 150% of a
Participant's Dividend Account based on whether the
Goals established for that Performance Cycle were
achieved. Any earned portion of a Participant's
Dividend Account is paid in cash to that Participant at
the end of each Performance Cycle at a date and time
determined by the Committee. Any portion of a
Participant's Dividend Account not awarded to the
Participant by the Committee is forfeited. However,
shares of Common Stock underlying unvested Options
retain a dividend equivalent and a Participant can earn
the value of these dividend equivalents in subsequent
Performance Cycles.
(7) Exercise of Options
As provided in paragraph (3) of this section, generally
all Options granted to a Participant under the Plan
shall vest on the ninth anniversary of the date of
grant; provided, however, that if and to the extent the
vesting of an Option is accelerated at the end of a
Performance Cycle, the Option may thereafter be
exercised to the extent that the Option has vested. Any
vested Option may be exercised from time to time in
part or as a whole, at the discretion of the
Participant, from the date of vesting until termination
of the Option; no Option shall be exercisable after its
expiration date; subject in either case to the
provisions set forth in Section V and to the general
discretion of the Committee set forth in Section III.
Options may be exercised by giving written notice of
exercise to the Trustee specifying the number of shares
to be purchased. The notice shall be accompanied by
the exercise price. Payment may also be made in part
or in full by tendering shares of Common Stock already
owned by the Participant, based upon the Fair Market
Value of the Common Stock on the date the Option is
exercised, or through share withholding. Participants
may also simultaneously exercise Options and sell the
shares of Common Stock thereby acquired and use the
proceeds from the sale as payment for the purchase
price of the shares. Such transactions, to the extent
required, shall be effected in accordance with Section
16 of the Exchange Act and the rules thereunder.
(8) Nonassignability of Options
Options granted may not be assigned, transferred, or
pledged by the Participant other than by will or the
laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the
Internal Revenue Code or Title 1 of the Employee
Retirement Income Security Act, or the rules
thereunder.
V. Termination of Service
A. Upon any Termination of Service, unvested Options and
any amounts accrued in a Participant's Dividend Account
shall be forfeited unless the Committee decides otherwise
pursuant to Section III.
B. Death
If the Participant dies while still employed, then any
vested Options, to the extent that they are then
exercisable, may be fully exercised at any time within one
(1) year (even if this extends the term of the Options)
after the date of the Participant's death by the person
designated in the Participant's last will and testament or
by the personal representative of the Participant's estate.
C. Disability
If the Participant suffers Disability, then any vested
Options, to the extent that they are then exercisable, may
be fully exercised by the Participant at any time within one
(1) year (even if this extends the terms of the Options)
after the date of Disability or by a person qualified or
authorized to act on behalf of the Participant.
D. Cause
If a Participant's Termination of Service is for Cause, the
right to exercise any vested Option shall terminate with
such termination of employment. For this purpose, the
determination of the Committee as to whether employment was
terminated for Cause shall be final.
E. Other Termination of Service
In the event of the Participant's Termination of Service for
reasons other than Death, Disability, or Cause, to the
extent that any vested Options are then exercisable, the
Participant shall be entitled to exercise the Options for
the three (3) month period following such Termination of
service (even if this extends the term of the Options).
VI. Change of Control
Upon a Change of Control of the Company, all Options previously
granted under the Plan shall become immediately vested and
available for exercise. The value of the amounts accrued in the
Participant's Dividend Account shall be paid in full at 100% of
the amount thereof to the Participant in cash upon the Change of
Control.
VII. Miscellaneous Provisions
A. Unsecured General Creditor
Participants and their beneficiaries, heirs,
successors, and assigns shall have no legal or
equitable rights, interests, or other claims in any
property or assets of the Company, nor shall they be
beneficiaries of, or have any rights, claims, or
interests in any specified assets of the Company. Any
and all of the Company's assets shall be and remain
general, unpledged, unrestricted assets of the Company.
The Company's obligation under the Plan shall be that
of an unfunded and unsecured promise of the Company to
cause shares of Common Stock to be available or to pay
benefits in the future.
B. No Contract of Employment
Nothing contained in this Plan nor any related
Agreement nor any action taken in the administration of
the Plan shall be construed as a contract of employment
or as giving a Participant any right to be retained in
the service of the Company.
C. Withholding Taxes
No later than the date on which a Participant receives
Common Stock with respect to any Option exercised or
cash with respect to Dividend Equivalents awarded under
the Plan, the Participant shall pay in cash to the
Company or its delegate or make arrangements
satisfactory to the Company regarding the payment of
any federal, state, or local taxes required by law to
be withheld with respect to any such amounts. The
Participant may also make payment (i) by tendering
shares of the Common Stock already owned by the
Participant, based on the fair market value of the
Common Stock on the date the tax is owed or (ii) by
having such amounts withheld from the shares of the
Common Stock otherwise distributable to him/her upon
exercise of his/her Options. Any such withholding on
behalf of a Participant shall be done in accordance
with Section 16 of the Exchange Act and the rules
thereunder to the extent required. The obligations of
the Company under the Plan shall be conditioned on such
payment or arrangements. The Company or its delegate
may deduct any taxes from any payment due to the
Participant from the Company to the extent allowed by
law.
D. Ten Percent Limitation
No Option shall be granted under this Plan to a
Participant if at the time the Option is granted the
Participant shall own stock representing more than 10%
of the combined voting power of all classes of voting
stock of the Company.
E. Severability
In the event that any provision of the Plan or any
related Agreement is held invalid, void or
unenforceable, the same shall not affect, in any
respect whatsoever, the validity of any other provision
of the Plan or any related Agreement.
F. Inurement of Rights and Obligations
The rights and obligations under the Plan shall inure
to the benefit of, and shall be binding upon the
Company, its successors and assigns, and the
Participants and their beneficiaries consistent with
the terms of the Plan.
G. Amendments
The Board may at any time amend, suspend, or terminate
the Plan including, without limitation, modifications
to take into account and comply with any changes in
applicable securities or federal income tax laws and
regulations, or other applicable laws and regulations;
provided, that no modification to the Plan shall
increase the number of shares available under the Plan
by more than 10 percent without approval of the holders
of the Common Stock, except as otherwise permitted
under Section IV.C; and provided further, that any such
amendment, suspension, or termination must be
prospective in that it may not deprive Participants of
any Options or rights previously granted under the Plan
whether vested or not, without consent of the
Participant, except if required by statute or rules or
regulations promulgated thereunder.
H. Restrictions
Shares of Common Stock acquired by Participants
pursuant to the exercise of Options granted under the
Plan shall be subject to such restrictions on
transferability and disposition as are required by
federal and state security laws and such Participants
shall not sell or transfer any shares acquired except
in accordance with such laws.
I. Legal and Other Requirements
The obligation of the Company to cause Common Stock to
be available under the Plan shall be subject to all
applicable laws, regulations, rules and approvals,
including, but not limited to the receipt of any
necessary approvals by state or federal regulatory
bodies, and the effectiveness of a registration
statement under the Securities Act of 1933 if deemed
necessary or appropriate by the Company. Certificates
for shares of Common Stock issued hereunder may be
legended as the Committee shall deem appropriate.
J. Agreements
Each grant of Options by the Trustee shall be evidenced
by an Agreement between the Trustee and the Participant
which shall contain such restrictions, terms and
conditions as the Committee may require.
Notwithstanding anything to the contrary contained in
the Plan, the Company shall not be under any obligation
to honor any grants under the Plan to any Participant
hereunder unless such Participant shall execute all
appropriate Agreements with respect to such Options in
such form as the Committee may determine from time to
time.
K. Applicable Law
The Plan and any related Agreements shall be governed
in accordance with the laws of the State of North
Dakota.
VIII. Establishment of Trust
The Company shall establish with the Trustee a trust
consisting of such sums of money or other property
acceptable to the Trustee as shall from time to time be paid
or delivered to the Trustee, all investments made therewith
and proceeds thereof and all earnings and profits thereon.
The Trustee shall invest funds, if any, advanced by the
Company in shares of Common Stock. Upon the exercise of an
Option by a Participant, the Trustee shall take Common Stock
from the trust or shall purchase Common Stock on the open
market or from the Company and deliver certificates for such
shares to the Participant.
The Company shall have the right at any time to terminate
the trust but such termination shall not affect the rights
of any Participant to whom an Option has been granted under
the Plan. After effecting all purchases and transfers of
Common Stock as are required by the Plan pursuant to the
exercise of Options by Participants, the Trustee shall be
relieved of all further liability. Termination of the trust
shall take effect as of the date the last such transfer is
made. Upon such termination any assets remaining in the
trust shall be returned to the Company unless other
directions are given to the Trustee by the Company.