MDU RESOURCES GROUP, INC.
DIRECTORS' COMPENSATION POLICY
Each Director who is not a full-time employee of the Company
shall receive compensation made up of annual cash retainers,
common stock, meeting fees and post-retirement income. Each
Director is also eligible for awards under the 1997 Non-Employee
Director Long-Term Incentive Plan.
Annual Retainers, Stock Compensation and Stock Option Grants
The Board service annual cash retainer shall be $13,000.
That of the Chairman of the Board shall be four times that of the
other Directors. The annual retainer for service as Chairman of
the Audit or Nominating Committee shall be $2,500 and of the
Compensation or Finance Committee, $4,000. Such retainers shall
be paid in monthly installments.
A minimum of $1,000 of the annual cash retainer shall be
deferred under the Amended and Restated Deferred Compensation
Plan for Directors adopted on February 13, 1992 and effective
January 1, 1992. If the Chairman of the Board is a retired
employee such deferral need not be made and this Plan shall not
apply. The Plan permits a Director to defer all or any portion
of the annual cash retainer, as well as meeting fees and any
other cash compensation paid for service as a Director, above the
mandatory $1,000 deferral. The amount deferred is recorded in
each participant's deferred compensation account and credited
with income in the manner prescribed in the Plan. For further
details, reference is made to the Plan, a copy of which is
attached.
Each Director shall receive 450 shares of Common Stock on or
about the 15th business day following the annual meeting of
stockholders. A Director may decline a stock payment for any
plan year, in writing in advance of the plan year to which stock
payment relates. No cash compensation shall be paid in lieu
thereof. By written election a Director may reduce the cash
portion of the annual retainer and have that amount applied to
the purchase of additional shares. The election must be made on
a form provided by the administrative committee and returned to
the committee at least six months prior to the applicable annual
meeting of stockholders. In the event the annual meeting of
shareholders occurs on July 1 or later, then the election shall
have been made by the last business day of the year prior to the
year in which the election is to be effective. The election
remains in effect until changed or revoked. No election may be
changed or revoked for the current year, but may be changed for a
subsequent year. For further details, reference is made to the
Non-Employee Director Stock Compensation Plan, a copy of which is
attached.
Each Director shall receive an option to purchase 2,250 shares of
the Company Common Stock. The option shall vest immediately and
is exercisable for 10 years from the date of the grant. The
otion price is the fair market value of the stock at the time of
the grant.
Board and Committee Meeting Fee
The fee for each Board meeting attended shall be $1,000 and
for each meeting attended of each Committee of which the Director
is a member, and for attendance at Planning and Pension meetings,
shall be $1,000, payable only to Directors who are not full-time
employees of the Company.
Post-Retirement Income
After retirement from the Board, each Director who does not
receive a pension benefit from the Company is entitled to receive
annual compensation in an amount equal to the sum of all annual
retainers being received by the Director at the time of the
Director's retirement. "Annual compensation" shall include the
value of the 450 shares of Common Stock at the time of
retirement. The dollar value included in the calculation of the
amount of annual compensation shall be the average of the high
price and the low price of the Common Stock as traded on the New
York Stock Exchange on the day of the annual meeting or, if no
stock is traded on that day, then the average on the day next
preceding the annual meeting date on which Common Stock was
traded. The annual compensation will be paid to the Director (or
to the Director's named beneficiary in the event the Director
dies after retirement and while the Director is still being paid
the annual compensation) in equal monthly installments over a
period of time equal to the period of service of the Director on
the Board. Should a Director die while in office, annual
compensation will be paid to the Director's named beneficiary in
an amount equal to the sum of all annual retainers being received
by the Director at the time of the Director's death. The annual
compensation will be paid in equal monthly installments over a
period of time equal to the period of service of the deceased on
the Board. If there is a "change in control" (as hereinafter
defined) then within 14 days thereafter the following actions
shall be taken:
(1) The Post-Retirement Income of each
Director currently serving on the Board and
entitled to receive such Income shall be
calculated as if the Director had retired
immediately prior to the change in control.
(2) The entire amount of the Post-Retirement
Income (as calculated under the preceding
paragraph) to which each Director is entitled
shall be paid to each Director in a lump sum.
(3) Each retired Director who, at the time
the change in control occurs, is retired and
is receiving, or is entitled to receive, Post-
Retirement Income, shall receive all
remaining Post-Retirement Income which has
not been paid to the retired Director (or the
retired Director's beneficiary) in a lump sum
and not in installments.
"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."
Directors Emeritus
The Board of Directors may elect from those persons who have
been members of the Board of Directors, Directors Emeritus. Those
elected shall have served as a Director for at least ten years.
The designation as a Director Emeritus may be renewed annually by
the Board of Directors, but not beyond the fifth year following
the Director's retirement from the Board of Directors.
Each person so designated may, from time to time, be invited
by the Chairman of the Board to participate as a nonvoting member
of the Company's Board of Directors. A Director Emeritus so
participating shall receive no meeting fee although reimbursement
for reasonable travel expenses in connection with attendance at
the meeting will be provided.
Travel Expense Reimbursement
All Directors will be reimbursed for reasonable travel
expenses including spouse's expenses (providing the spouse
participates in ALL business, community, spouse-specific and
social events), in connection with attendance at meetings of the
Company's Board of Directors and its committees. If the travel
expense is related to the reimbursement of commercial airfare,
such reimbursement will not exceed full-coach rate. If the
travel expense is related to reimbursement of non-commercial
airfare, such reimbursement will not exceed the rate for
comparable travel by means of commercial airline at the first-
class rate.
Directors' Liability
Article Seventeenth of the Company's Restated Certificate of
Incorporation provides that no Director of the Company shall be
liable to the Company or its stockholders for breach of fiduciary
duty as a Director, with certain exceptions stated below.
Section 7.07 of the Company's Bylaws requires the Company to
indemnify fully a Director against expenses, attorneys fees,
judgments, fines and amounts paid in settlement of any suit,
action or proceeding, whether civil or criminal, arising from an
action of a Director by reason of the fact that the Director was
a Director of MDU Resources Group, Inc.
There are exceptions to these protections: breaches of the
Directors' duty of loyalty to the Company or its stockholders,
acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law, violation of
Section 174 of the Delaware General Corporation Law (relating to
unlawful declaration of dividends and unlawful purchase of the
company's stock), and transactions from which the Director
derived an improper personal benefit (including short-swing
profits under Section 16(b) of the Securities Exchange Act of
1934).
The Company has and does maintain Directors' and Officers'
liability insurance coverage with a $75,000,000 limit.
Insurance Coverages
The Company maintains the following insurance for protection
of its Directors as they carry out the business of MDU Resources
Group, Inc.
1. General liability and automobile
liability insurance:
The Directors are afforded coverage
under the general liability and automobile
liability insurance of the Company. The
policy limit is $75,000,000 in excess of self-
insured retentions of $500,000 per
occurrence for general liability and
$250,000 per occurrence for automobile
liability; or $1,000,000 per
occurrence/$2,000,000 aggreggate for general
liability and $1,000,000 per occurrence for
automobile liability, where we are carrying
primary layer insurance coverage.
2. Fiduciary and employee benefit liability insurance:
The Directors are afforded coverage
under the fiduciary and employee benefits
liability insurance of the Company. The
policy has a $35,000,000 limit with no
deductible applicable to the Director.
3. Aircraft liability insurance:
The Company's existing aircraft
liability insurance policy extends coverage
while a non-owned* aircraft is used by a
Director in traveling to and from Director or
Board committee meetings. This insurance
coverage constitutes excess liability
coverage in the amount of $200,000,000.
*Non-owned aircraft is defined as: 1)
any aircraft registered under a "standard"
airworthiness certificate issued by the FAA;
2) aircraft with a seating capacity not
exceeding 40 seats; 3) aircraft that are not
owned by MDU Resources Group, Inc. or any of
its subsidiaries; 4) aircraft that are not
partly or wholly owned by or registered in
the Director's name or the name of any
Director's household member.
4. Travel and sojourn insurance:
All Directors are protected by a group
insurance policy with coverage of $250,000
that provides 24-hour accident protection
while traveling on Company business.
Coverage in all instances begins at the
actual start of a business trip and ends when
the Director returns to his/her home or
regular place of employment.
The beneficiary of the insurance will be
that beneficiary recorded on a beneficiary
designation card provided by the Company.
5. Group life insurance:
All outside Directors are protected by a
non-contributory group life insurance policy
with coverage of $100,000.
The coverage begins the day the Director
is elected to the Board of Directors and
terminates when the Director ceases to be an
outside Director.
A Certificate of Insurance shall be
provided to the Director and the beneficiary
of the insurance will be that beneficiary
recorded on a beneficiary designation card
provided by the Company.
This protection is considered taxable
compensation under current tax laws.
Consequently, the Company will provide each
Director annually on Form 1099 the amount of
taxable income related to this coverage.
