Document:

John Harp Employment Letter

    

    

     

    July
      20,
      2005

    

    

    

    Confidential

    

    John
      G.
      Harp

    288
      Juniper Springs

    Henderson,
      NV 89052

    

    Dear
      John:

    

    It
      is my
      pleasure to confirm, subject to approval by the Board of Directors of MDU
      Resources Group, Inc. at its meeting scheduled for August 11, 2005, the terms
      of
      your employment as President and Chief Executive Officer of Utility Services,
      Inc. (USI). This is a regular, full-time position terminable at will by either
      party that includes the following elements:

    

    	-  	
            Initial
              Base Salary:
              $250,000 annualized, paid bi-weekly.

          

    

    	-  	
            Executive
              Incentive:
              Participation in the USI Executive Incentive Plan (EICP) with an annual
              incentive target of 50 percent of base salary and a long-term incentive
              target of 75 percent of base salary; eligibility is effective with
              your
              start date and prorated for 2004.

          

    

    	-  	
            Extra
              Incentive:
              If
              during your employment USI achieves a net annual income of
              $12.5 million in 2007 or sooner, you will be eligible for an extra
              one-time cash bonus of $250,000. If during your employment USI achieves
              a
              net annual income of $18.6 million in 2008 or sooner, you will be
              eligible for an extra one-time cash bonus of $500,000. This latter
              one-time bonus will be in addition to the $250,000 extra one-time bonus
              that may be earned in 2007 or sooner.

          

    

    	-  	
            Vacation:
              Four weeks each calendar year.

          

    

    	-  	
            Benefits:
              Eligible to participate in USI benefit plans, including pension, 401(k),
              medical, dental, life insurance, sick leave, long-term disability and
              flexible spending accounts. You will also be eligible for inclusion
              in the
              Company’s Supplemental Income Security Plan (SISP) at Level 62.
              

          

    

    	-  	
            Change
              of Control:
              You will be provided a Change of Control Employment Agreement in a
              form
              currently available to other key officers of MDU Resources Group, Inc.
              and
              its business units. This Agreement provides a three-year employment
              agreement in the event of a change of control of MDU Resources during
              which employment term you would receive a base salary not less than
              your highest salary within the last 12 months and a bonus not less
              than the highest bonus received during the last three years.  You
              would also receive a comparable termination package in the event your
              employment is terminated during that term.  See page 24 of the 2005
              Proxy Statement for a more detailed description of the
              Agreement.

          

    

    In
      your
      new role, you will be reporting to Terry and me. This employment position is
      available to you with the understanding that you will devote your full business
      time, energy, and ability exclusively to the business interests of USI, and
      you
      are free from any contractual obligations that would impede your ability to
      perform your duties for USI.

    

    The
      Company regards the contents of this letter, including your salary, as
      confidential. If you need to discuss the details of this letter, please do
      so
      only with me.

    

    If
      these
      employment terms are acceptable, please sign and date below and return this
      letter to me.

    

    John,
      I
      am pleased you have joined our Company. You have already proven to be a valuable
      addition to the USI team and we feel confident our Company can provide you
      with
      the kind of challenges and growth opportunities you are seeking.

    

    Sincerely,

    

    /s/
      MARTIN A. WHITE

    Martin
      A.
      White

    

     

    

    

        I
      Agree to
      the terms of Employment
      as described above:

    

    

    

    /s/
      JOHN
      G. HARP

    John
      G.
      Harp

    

    

    Date:
      7/20/05Performance Share Award Agreement

    MDU
      RESOURCES GROUP, INC.

    LONG-TERM
      PERFORMANCE-BASED INCENTIVE PLAN

    

    PERFORMANCE
      SHARE AWARD AGREEMENT

    

     

    

    [Date]

    

     

    «name»

    «streetaddress»

    «citystzip»

     

    In
      accordance with the terms of the MDU Resources Group, Inc. Long-Term
      Performance-Based Incentive Plan (the "Plan"), pursuant to action of the
      Compensation Committee of the Board of Directors of MDU Resources Group, Inc.
      (the "Committee"), MDU Resources Group, Inc. (the "Company") hereby grants
      to
      you (the "Participant") Performance Shares (the "Award"), subject to the terms
      and conditions set forth in this Award Agreement (including Annexes A and B
      hereto and all documents incorporated herein by reference), as set forth
      below:

    

    
      	
              Target
                Award:

            	
              «shares»
                Performance Shares (the "Target Award")

            
	
              Performance
                Period:

            	
              [          ]
                through

              [          ]
                (the "Performance Period")

            
	
              Date
                of Grant:

            	
              [          ]

            
	
              Dividend
                Equivalents:

            	
              Yes

            

    

     

    THESE
      PERFORMANCE SHARES ARE SUBJECT TO FORFEITURE AS PROVIDED HEREIN. THIS
      AWARD AND AMOUNTS RECEIVED IN CONNECTION WITH THIS AWARD ARE ALSO SUBJECT TO
      FORFEITURE, RECAPTURE OR OTHER ACTION IN THE EVENT OF AN ACCOUNTING RESTATEMENT,
      AS PROVIDED IN ARTICLE 19 OF THE PLAN. ADDITIONALLY, BY SIGNING THIS AWARD
      AGREEMENT YOU ARE ACKNOWLEDGING AND AGREEING THAT ANY PERFORMANCE SHARE AWARD
      GRANTED TO YOU IN 2005 AND ANY AMOUNTS PAID OR PAYABLE OR DISTRIBUTED OR
      DISTRIBUTABLE PURSUANT TO ANY SUCH PRIOR 2005 AWARD SHALL ALSO BE SUBJECT TO
      FORFEITURE, RECAPTURE OR OTHER ACTION IN THE EVENT OF AN ACCOUNTING RESTATEMENT,
      AS PROVIDED IN ARTICLE 19 OF THE PLAN.

    

    Further
      terms and conditions of the Award are set forth in Annexes A and B hereto,
      which
      are integral parts of this Award Agreement.

    

    All
      terms, provisions and conditions applicable to the Award set forth in the Plan
      and not set forth in this Award Agreement are hereby incorporated herein by
      reference. To the extent any provision hereof is inconsistent with a provision
      of the Plan; the provisions of the Plan will govern. The Participant hereby
      acknowledges receipt of a copy of this Award Agreement, including Annexes A
      and
      B hereto, and a copy of the Plan and agrees to be bound by all the terms and
      provisions hereof and thereof.

    

    MDU
      RESOURCES GROUP, INC.

    

    

    By:        
      /s/ TERRY D. HILDESTAD    

    Terry
      D.
      Hildestad

    President
      and

    Chief
      Executive Officer

    

    

    Agreed:

    

    

    ___________________

    Participant

    

    

    

    Attachments:
       Annex
      A

            Annex
      B

     

    
      
        
        

      

      
        
        

        
        

      

      
        
        

      

    

    ANNEX
      A

    

    TO

    

    MDU
      RESOURCES GROUP, INC.

    LONG-TERM
      PERFORMANCE-BASED INCENTIVE PLAN

    

    PERFORMANCE
      SHARE AWARD AGREEMENT

    

    It
      is
      understood and agreed that the Award of Performance Shares evidenced by the
      Award Agreement to which this is annexed is subject to the following additional
      terms and conditions.

    

    1. Nature
      of Award.
      The
      Target Award represents the opportunity to receive shares of Company common
      stock, $1.00 par value ("Shares") and Dividend Equivalents on such Shares.
      The
      number of Shares that may be earned under this Award shall be determined
      pursuant to Section 2 hereof. The amount of Dividend Equivalents that may be
      earned under this Award shall be determined pursuant to Section 4 hereof. Except
      for Dividend Equivalents, which are paid in cash, Awards will be paid in
      Shares.

    

    2. Determination
      of Number of Shares Earned.

    

    The
      number of Shares earned, if any, for the Performance Period shall be determined
      in accordance with the following formula: 

    

    #
      of Shares = Payout Percentage X Target Award

    

    The
      "Payout Percentage" is based on the Company's total shareholder return ("TSR")
      relative to that of the Peer Group listed on Annex B (the "Percentile Rank")
      for
      the Performance Period, determined in accordance with the following
      table:

    

    
      	
              Percentile
                Rank

            	
              Payout
                Percentage 

              (%
                of Target Award)

            
	
              100th

            	
              200%

            
	
              75th

            	
              150%

            
	
              50th

            	
              100%

            
	
              40th

            	
              10%

            
	
              less
                than 40th

            	
              0%

            

    

    

    If
      the
      Company achieves a Percentile Ranking between the 40th and 50th percentiles,
      the
      Payout Percentage shall be equal to 10%, plus 9% for each Percentile Rank whole
      percentage above the 40th percentile. If the Company achieves a Percentile
      Ranking between the 50th and 100th percentiles, the Payout Percentage shall
      be
      equal to 100%, plus 2% for each Percentile Rank whole percentage above the
      50th
      percentile. 

    

    The
      Percentile Rank of a given company's TSR is defined as the percentage of the
      Peer Group companies' returns falling at or below the given company's TSR.
      The
      formula for calculating the Percentile Rank follows:

    

    Percentile
      Rank = (n - r + 1)/n x 100

     

    Where:

     

    
      	 	
              n
                =

            	
              total
                number of companies in the Peer Group, including the
                Company

            

    

     

    
      	 	
              r
                =

            	
              the
                numeric rank of the Company's TSR relative to the Peer Group, where
                the
                highest return in the group is ranked number
                1

            

    

     

    To
      illustrate, if the Company's TSR is the third highest in the Peer Group
      comprised of 26 companies, its Percentile Rank would be 92. The calculation
      is:
      (26 - 3 + 1)/26 x 100 = 92.

     

    The
      Percentile Rank shall be rounded to the nearest whole percentage.

     

    If
      the
      common stock of a company in the Peer Group ceases to be traded during the
      Performance Period, the company will be deleted from the Peer Group. Percentile
      Rank will be calculated without regard to the return of the deleted
      company.

     

    Total
      shareholder return is the percentage change in the value of an investment in
      the
      common stock of a company from the initial investment made on the last trading
      day in the calendar year preceding the beginning of the performance period
      through the last trading day in the final year of the performance period. It
      is
      assumed that dividends are reinvested in additional shares of common stock
      at
      the frequency paid.

     

    All
      Performance Shares that are not earned for the Performance Period shall be
      forfeited. 

    

    3. Issuance
      of Shares.
      Subject
      to any restrictions on distributions of Shares under the Plan, and subject
      to
      Section 6 of this Annex A, the Shares earned under the Award, if any, shall
      be
      issued to the Participant as soon as practicable (but no later than the next
      March 15) following the close of the Performance Period.

    

    4. Dividend
      Equivalents.
      Dividend Equivalents shall be earned with respect to any Shares issued to the
      Participant pursuant to this Award. The amount of Dividend Equivalents earned
      shall be equal to the total dividends declared on a Share between the Date
      of
      Grant of this Award and the last day of the Performance Period, multiplied
      by
      the number of Shares issued to the Participant pursuant to the Award Agreement.
      Any Dividend Equivalents earned shall
      be
      paid in cash to the Participant when the Shares to which they relate are issued
      or as soon as practicable thereafter. If the Award is forfeited or if no Shares
      are issued, no Dividend Equivalents shall be paid.

    

    5. Termination
      of Employment.

    

    (a) If
      the
      Participant's employment with the Company is terminated for any reason other
      than "Cause" (as defined below) (1) during the first year of the Performance
      Period, all Performance Shares (and related Dividend Equivalents) shall be
      forfeited; (2) during the second year of the Performance Period, determination
      of the Company's Percentile Rank for the Performance Period will be made by
      the
      Committee at the end of the Performance Period, and Shares (and related Dividend
      Equivalents) earned, if any, will be paid based on the Payout Percentage,
      prorated for the number of full months elapsed from and including the month
      in
      which the Performance Period began to and including the month in which the
      termination of employment occurs; and (3) during the third year of the
      Performance Period, determination of the Company's Percentile Rank for the
      Performance Period will be made by the Committee at the end of the Performance
      Period, and Shares (and related Dividend Equivalents) earned, if any, will
      be
      paid based on the Payout Percentage without prorating. 

    

    (b) If
      the
      Participant's employment is terminated for "Cause" (as defined below) during
      the
      Performance Period, all Performance Shares (and related Dividend Equivalents)
      shall be forfeited.

    

    (c) For
      purposes of the Award Agreement, the term "Cause" shall mean the Participant's
      fraud or dishonesty that has resulted or is likely to result in material
      economic damage to the Company or a Subsidiary, or the Participant's willful
      nonfeasance if such nonfeasance is not cured within ten days of written notice
      from the Company or a Subsidiary, as determined in good faith by a vote of
      at
      least two-thirds of the non-employee directors of the Company at a meeting
      of
      the Board at which the Participant is provided an opportunity to be
      heard.

    

    6. Tax
      Withholding.
      Pursuant to Article 16 of the Plan, the
      Committee shall have the power and the right to deduct or withhold, or require
      the Participant to remit to the Company, an amount sufficient to satisfy any
      Federal, state and local taxes (including the Participant's FICA obligations)
      required by law to be withheld with respect to the Award. The Committee may
      condition the delivery of Shares upon the Participant's satisfaction of such
      withholding obligations. The Participant may elect to satisfy all or part of
      such withholding requirement by tendering previously-owned Shares or by having
      the Company withhold Shares having a Fair Market Value equal to the minimum
      statutory withholding that could be imposed on the transaction (based on minimum
      statutory withholding rates for Federal, state, and local tax purposes, as
      applicable, including payroll taxes, that are applicable to such supplemental
      taxable income). Such election shall be irrevocable, made in writing, signed
      by
      the Participant, and shall be subject to any restrictions or limitations that
      the Committee, in its sole discretion, deems appropriate.

    

    7. Ratification
      of Actions.
      By
      accepting the Award or other benefit under the Plan, the Participant and each
      person claiming under or through him or her shall be conclusively deemed to
      have
      indicated the Participant's acceptance and ratification of, and consent to,
      any
      action taken under the Plan or the Award by the Company, its Board of Directors,
      or the Committee.

    

    8. Notices.
      Any
      notice hereunder to the Company shall be addressed to its office, 1200 West
      Century Avenue, P.O. Box 5650, Bismarck, North Dakota 58506; Attention:
      Corporate Secretary, and any notice hereunder to the Participant shall be
      addressed to him or her at the address specified on the Award Agreement, subject
      to the right of either party to designate at any time hereafter in writing
      some
      other address.

    

    9. Definitions.
      Capitalized terms not otherwise defined herein or in the Award Agreement shall
      have the meanings given them in the Plan.

    

    10. Governing
      Law and Severability.
      To the
      extent not preempted by Federal law, the Award Agreement will be governed by
      and
      construed in accordance with the laws of the State of Delaware, without regard
      to conflicts of law provisions. In the event any provision of the Award
      Agreement shall be held illegal or invalid for any reason, the illegality or
      invalidity shall not affect the remaining parts of the Award Agreement, and
      the
      Award Agreement shall be construed and enforced as if the illegal or invalid
      provision had not been included.

     

    11. No
      Rights to Continued Employment.
      The
      Award Agreement is not a contract of employment. Nothing in the Plan or in
      the
      Award Agreement shall interfere with or limit in any way the right of the
      Company or any Subsidiary to terminate the Participant's employment at any
      time,
      for any reason or no reason, or confer upon the Participant the right to
      continue in the employ of the Company or a Subsidiary.

    
      
        
        

      

      
        
        

        
        

      

      
        
        

      

    

    ANNEX
      B

    

    TO

    

    MDU
      RESOURCES GROUP, INC.

    LONG-TERM
      PERFORMANCE-BASED INCENTIVE PLAN

    

    PERFORMANCE
      SHARE AWARD AGREEMENT

    

    PEER
      GROUP COMPANIES

    

    Alliant
      Energy Corporation

    Berry
      Petroleum Company - CL A

    Black
      Hills Corporation

    Comstock
      Resources, Inc.

    Dycom
      Industries, Inc.

    EMCOR
      Group Inc.

    Encore
      Acquisition Company

    Equitable
      Resources, Inc.

    Florida
      Rock Industries, Inc.

    Granite
      Construction Incorporated

    Hanson
      PLC ADR

    InfraSource
      Services, Inc.

    Martin
      Marietta Materials, Inc.

    National
      Fuel Gas Company

    Northwest
      Natural Gas Company

    NSTAR

    OGE
      Energy Corp.

    ONEOK,
      Inc.

    Quanta
      Services, Inc.

    Questar
      Corporation

    SCANA
      Corporation

    Southwest
      Gas Corporation

    St.
      Mary
      Land & Exploration Company

    Swift
      Energy Company

    US
      Concrete, Inc.

    Vectren
      Corporation

    Vulcan
      Materials Company

    Whiting
      Petroleum Corporation

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