MDU RESOURCES GROUP, INC. NON-EMPLOYEE DIRECTOR LONG-TERM INCENTIVE COMPENSATION PLAN

Article 1. Establishment, Purpose and Duration

1.1            Establishment of the Plan.   MDU Resources Group, Inc., a Delaware corporation (hereinafter referred to as the "Company"), hereby establishes an incentive plan to be known as the "MDU Resources Group, Inc. Non-Employee Director Long-Term Incentive Compensation Plan" (hereinafter referred to as the "Plan"), as set forth in this document.  The Plan permits the grant of Nonqualified Stock Options (NQSO), Stock Appreciation Rights (SAR), Restricted Stock, Performance Units, Performance Shares and other awards.

The Plan shall become effective when approved by the stockholders at the annual meeting on April 22, 1997, (the "Effective Date"), and shall remain in effect as provided in Section 1.3 herein.

1.2            Purpose of the Plan.   The purpose of the Plan is to promote the success and enhance the value of the Company by linking the personal interests of Participants to those of Company stockholders and customers.  The Plan is further intended to assist the Company in its ability to motivate, attract and retain highly qualified individuals to serve as directors of the Company.

1.3            Duration of the Plan.   The Plan shall commence on the Effective Date, as described in Section 1.1 herein, and shall remain in effect, subject to the right of the Board of Directors to terminate the Plan at any time pursuant to Article 14 herein, until all Shares subject to it shall have been purchased or acquired according to the Plan's provisions.

Article 2. Definitions

Whenever used in the Plan, the following terms shall have the meanings set forth below and, when such meaning is intended, the initial letter of the word is capitalized:

2.1            "Award" means, individually or collectively, a grant under the Plan of NQSOs, SARs, Restricted Stock, Performance Units, Performance Shares or any other type of award permitted under Article 10 of the Plan.

2.2            "Award Agreement" means an agreement entered into by each Participant and the Company, setting forth the terms and provisions applicable to an Award granted to a Participant under the Plan.

2.3            "Base Value" of an SAR shall have the meaning set forth in Section 7.1 herein.

2.4            "Board" or "Board of Directors" means the Board of Directors of the Company.

2.5            "Change in Control" means the earliest 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 Committee to constitute a "change in control."

2.6            "Code " means the Internal Revenue Code of 1986, as amended from time to time.

2.7            "Committee" means the Committee, as specified in Article 3, appointed by the Board to administer the Plan with respect to Awards.

2.8            "Company" means MDU Resources Group, Inc., a Delaware corporation, or any successor thereto as provided in Article 15 herein.

2.9            "Director" means any individual who is a member of the Board of Directors of the Company.

2.10            "Dividend Equivalent" means, with respect to Shares subject to an Award, a right to be paid an amount equal to dividends declared on an equal number of outstanding Shares.

2.11            "Employee" means any full-time or regularly-scheduled part-time employee of the Company or of the Company's Subsidiaries, who is not covered by any collective bargaining agreement to which the Company or any of its Subsidiaries is a party.

2.12            "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, or any successor act thereto.

2.13            "Exercise Period" means the period during which an SAR or Option is exercisable, as set forth in the related Award Agreement.

2.14            "Fair Market Value" shall mean the average of the high and low sale prices as reported in the consoli­dated transaction reporting system or, if there is no such sale on the relevant date, then on the last previous day on which a sale was reported.

2.15            "Freestanding SAR " means an SAR that is granted independently of any Option.

2.16            "Non-Employee Director" means any person who is elected or appointed to the Board and who is not an Employee.

2.17            "Nonqualified Stock Option" or "NQSO" means an option to purchase Shares, granted under Article 6 herein, which is not intended to be an Incentive Stock Option under Section 422 of the Code.

2.18            "Option" means a Nonqualified Stock Option.

2.19            "Option Price" means the price at which a Share may be purchased by a Participant pursuant to an Option, as determined by the Committee and set forth in the Option Award Agreement.

2.20            "Participant" means a Non-Employee Director who has an outstanding Award granted under the Plan.

2.21            "Performance Unit" means an Award granted to a Participant, as described in Article 9 herein.

2.22            "Performance Share" means an Award granted to a Participant, as described in Article 9 herein.

2.23            "Period of Restriction" means the period during which the transfer of Restricted Stock is limited in some way, as provided in Article 8 herein.

2.24            "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act, as used in Sections 13(d) and 14(d) thereof, including usage in the definition of a "group" in Section 13(d) thereof.

2.25            "Restricted Stock" means an Award of Shares granted to a Participant pursuant to Article 8 herein.

2.26            "Shares" means the shares of common stock of the Company.

2.27            "Stock Appreciation Right" or "SAR" means a right, granted alone or in connection with a related Option, designated as an SAR, to receive a payment on the day the right is exercised, pursuant to the terms of Article 7 herein.  Each SAR shall be denominated in terms of one Share.

2.28            "Subsidiary" means any corporation that is a "subsidiary corporation" of the Company as that term is defined in Section 424(f) of the Code.

2.29            "Tandem SAR" means an SAR that is granted in connection with a related Option, the exercise of which shall require forfeiture of the right to purchase a Share under the related Option (and when a Share is purchased under the Option, the Tandem SAR shall be similarly canceled).

Article 3. Administration

3.1            The Committee.   The Plan shall be administered by any committee appointed by the Board or by the Board of Directors (the "Committee").

3.2            Authority of the Committee.   The Committee shall have full power except as limited by law, the Articles of Incorporation and the Bylaws of the Company, subject to such other restricting limitations or directions as may be imposed by the Board and subject to the provisions herein, to determine the size and types of Awards; to deter­mine the terms and conditions of such Awards in a manner consistent with the Plan; to construe and interpret the Plan and any agreement or instrument entered into under the Plan; to establish, amend or waive rules and regulations for the Plan's administration; and (subject to the provisions of Article 14 herein) to amend the terms and conditions of any outstanding Award.  Further, the Committee shall make all other determinations which may be necessary or advisable for the administration of the Plan.  As permitted by law, the Committee may delegate its authorities as identified hereunder.

3.3            Restrictions on Share Transferability.   The Committee may impose such restrictions on any Shares acquired pursuant to Awards under the Plan as it may deem advisable, including, without limitation, restrictions to comply with applicable Federal securities laws, with the requirements of any stock exchange or market upon which such Shares are then listed and/or traded and with any blue sky or state securities laws applicable to such Shares.

3.4            Approval.   The Committee or the Board shall approve all Awards made under the Plan and all elections made by Participants, prior to their effective date, to the extent necessary to comply with Rule 16b-3 under the Exchange Act.

3.5            Decisions Binding.   All determinations and decisions made by the Committee pursuant to the provisions of the Plan and all related orders or resolutions of the Board shall be final, conclusive and binding on all persons, including the Company, its stockholders, Participants and their estates and beneficiaries.

3.6            Costs.   The Company shall pay all costs of administration of the Plan.

Article 4. Shares Subject to the Plan

4.1            Number of Shares.   Subject to Section 4.2 herein, the maximum number of Shares that may be issued pursuant to Awards under the Plan shall be 595,125.  Shares underlying lapsed or forfeited Awards of Restricted Stock shall not be treated as having been issued pursuant to an Award under the Plan.  Shares that are potentially deliverable under an Award that expires or is canceled, forfeited, settled in cash or otherwise settled without the delivery of Shares shall not be treated as having been issued under the Plan.  Shares that are withheld to satisfy the Option Price related to an Option, SAR or other Award pursuant to which the Shares withheld have not yet been issued shall not be deemed to be Shares issued under the Plan.

Shares issued pursuant to the Plan may be (i) authorized but unissued Shares of Common Stock, (ii) treasury shares, or (iii) shares purchased on the open market.

4.2            Adjustments in Authorized Shares.   In the event of any equity restructuring (within the meaning of Financial Accounting Standards No. 123(R)), such as a stock dividend, stock split, spinoff, rights offering or recapitalization through a large, nonrecurring cash dividend, the Committee shall cause an equitable adjustment to be made (i) in the number and kind of Shares that may be delivered under the Plan and (ii) with respect to outstanding Awards, in the number and kind of Shares subject to outstanding Awards, the Option Exercise Price, Base Value or other price of Shares subject to outstanding Awards, any performance conditions relating to Shares, the market price of Shares, or per-Share results, and other terms and conditions of outstanding Awards, in the case of (i) and (ii) to prevent dilution or enlargement of rights. In the event of any other change in corporate capitalization, such as a merger, consolidation or liquidation, the Committee may, in its sole discretion, cause an equitable adjustment as described in the foregoing sentence to be made to prevent dilution or enlargement of rights. The number of Shares subject to any Award shall always be rounded down to a whole number when adjustments are made pursuant to this Section 4.2.  Adjustments made by the Committee pursuant to this Section 4.2 shall be final, binding and conclusive.

Article 5. Eligibility and Participation

5.1            Eligibility.   Persons eligible to participate in the Plan are any persons elected or appointed to the Board who are not Employees.

5.2            Actual Participation.   Subject to the provisions of the Plan, the Committee may, from time to time, select from all eligible Non-Employee Directors those to whom Awards shall be granted and shall determine the nature and amount of each Award.

Article 6. Stock Options

6.1            Grant of Options.   Subject to the terms and conditions of the Plan, Options may be granted to a Non-Employee Director at any time and from time to time, as shall be determined by the Committee.

The Committee shall have complete discretion in determining the number of Shares subject to Options granted to each Participant (subject to Article 4 herein) and, cons