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.
DEFINITIONS
Capitalized
terms not otherwise defined herein shall have the meanings given
them in the Utility Company’s Executive Incentive
Compensation Plan Rules and Regulations.
III.
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.
IV.
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.
V.
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.
VI.
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 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.
VII.
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.
VIII.
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.
IX.
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.
X.
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 Service 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 Service Year,
determination of whether the performance measures have been met
will be made at the end of the Service 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. The prorated award shall be paid as soon as
practicable in the year following the Service Year, but in all
events between January 1 and March 10.
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 will be made in cash as soon as
practicable in the year following the Service Year, but in all
events between January 1 and March 10.
Incentive
awards may be deferred if the appropriate elections have been
executed prior to the beginning of the Service Year. A
deferral election will be effective only for the incentive award
earned in the Service Year following the Plan Year in which the
election is made. Deferral elections may not be changed
or revoked after the Service Year begins. Deferred
amounts shall be subject to the terms of the Plan and the Rules and
Regulations, as amended, and, to the extent not inconsistent
therewith, the deferral election forms pursuant to which the
amounts were deferred. Deferred amounts will accrue
interest at a rate determined annually by the Committee and
specified in the Rules and Regulations.
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.
XI.
ACCOUNTING RESTATEMENTS
This
Section XI shall apply to incentive awards granted to all
Participants in the Plan. Notwithstanding anything in
the
Plan
or the Plan's Rules and Regulations to the contrary, if the Utility
Company's audited financial statements are restated, the Committee
may, in accordance with the Company's Guidelines for Repayment
of Incentives Due to Accounting Restatements , take such
actions as it deems appropriate (in its sole discretion) with
respect to
(a) unpaid
incentive awards under the Plan (including incentive awards
relating to completed Plan Years, but with respect to which
payments have not yet been made or deferred) ("Outstanding Awards")
and
(b) prior
incentive awards that were paid (or deferred) within the three-year
period preceding the restatement ("Prior Awards"), provided such
Prior Awards were not paid prior to the date the Plan was amended
to add this Section XI,
if
the calculation of the amounts payable, paid or deferred under such
awards are, or would have been, directly impacted by the
restatement, including, without limitation, (i) securing (or
causing to be secured) repayment of some or all payments made
pursuant to (or deferrals relating to) Prior Awards, (ii) making
(or causing to be made) additional payments (or crediting
additional deferrals), (iii) reducing or otherwise adjusting the
amount payable pursuant to Outstanding Awards and/or (iv) causing
the forfeiture of Outstanding Awards. The Committee may,
in its sole discretion, take different ac
