Document:

MDU Resources' EICP Plan & Rules and Regulations

    
      MDU
        RESOURCES GROUP, INC.

      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 MDU Resources Group, Inc. (the "Company")
        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 corporate 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.

      

      II.     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 (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.

      

      III.     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.

      

      IV.     ELIGIBILITY

      Executives
        who are determined by the Committee to have a key role in both the establishment
        and achievement of 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 Company
        to
        terminate any Participant’s employment at any time, for any reason or no reason
        in the Company’s sole discretion, or confer upon any Participant any right to
        continue in the employment of the 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.

      

      
        	
                V.

              	
                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, such as the
        Chief
        Executive Officer, 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.

      

      VI.     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 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.

      

      VII.    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 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 Company's or 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.

      

      VIII.   INDIVIDUAL
        AWARD DETERMINATION

      Each
        individual Participant's award will be based first upon the level of performance
        achieved by the 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 Company
        or business unit performance.

      IX.     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
        Company or business unit for the entire Plan Year. If a Participant terminates
        employment with the Company pursuant to Section 5.01 of the Company’s Bylaws
        which provides for mandatory retirement for 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 Plan Year, determination of whether the performance measures
        have been met will be made at the end of the Plan 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.

      An
        individual Participant who transfers between the Company and business units
        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 when made will be in cash. Incentive awards may be deferred if the
        appropriate elections have been executed prior to the end of the Plan Year.
        Deferred amounts will accrue interest at a rate determined annually by the
        Committee.

      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 Company
        in the
        event the Participant prevails upon any of the Participant's claims for payment
        of a deferred award.

      

      X.    ACCOUNTING
        RESTATEMENTS

      This
        Section X 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 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 3 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 X, 

      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 actions pursuant to this Section
        X
        with respect to different awards, different Participants (or beneficiaries)
        and/or different classes of awards or Participants (or beneficiaries). The
        Committee has no obligation to take any action permitted by this Section
        X. The
        Committee may consider any factors it chooses in taking (or determining whether
        to take) any action permitted by this Section X, including, without limitation,
        the following:

      (A) The
        reason for the restatement of the financial statements;

      (B) The
        amount of time between the initial publication and subsequent restatement
        of the
        financial statements; and

      (C) The
        Participant's current employment status, and the viability of successfully
        obtaining repayment.

      If
        the
        Committee requires repayment of all or part of a Prior Award, the amount
        of
        repayment may be based on, among other things, the difference between the
        amount
        paid to the individual and the amount that the Committee determines in its
        sole
        discretion should have been paid based on the restated results. The Committee
        shall determine whether repayment shall be effected (i) by seeking repayment
        from the Participant, (ii) by reducing (subject to applicable law and the
        terms
        and conditions of the applicable plan, program or arrangement) the amount
        that
        would otherwise be provided to the Participant under any compensatory plan,
        program or arrangement maintained by the Company or any of its affiliates,
        (iii)
        by withholding payment of future increases in compensation (including the
        payment of any discretionary bonus amount) or grants of compensatory awards
        that
        would otherwise have been made in accordance with the Company's otherwise
        applicable compensation practices, or (iv) by any combination of the foregoing.
        Additionally, by accepting an incentive award under the Plan, Participants
        acknowledge and agree that the Committee may take any actions permitted by
        this
        Section X with respect to Outstanding Awards to the extent repayment is to
        be
        made pursuant to another plan, program or arrangement maintained by the Company
        or any of its affiliates.

       

      MDU
        RESOURCES GROUP, INC. 

      EXECUTIVE
        INCENTIVE COMPENSATION PLAN

      RULES
        AND REGULATIONS

      

      The
        Compensation Committee of the Board of Directors of MDU Resources Group,
        Inc.
        (the "Company") adopted Rules and Regulations for the administration of the
        Executive Incentive Compensation Plan (the "Plan") on February 9, 1983,
        following adoption of the Plan by the Board of Directors of the Company on
        November 4, l982.

      

      I.      DEFINITIONS

      

      The
        following definitions shall be used for purposes of these Rules and Regulations
        and for the purposes of administering the Plan:

      

      
        	 	
                1.

              	
                The
                  "Committee" shall be the Compensation Committee of the Board of
                  Directors
                  of the Company.

              

      

      

      
        	 	
                2.

              	
                The
                  "Company" shall refer to MDU Resources Group, Inc. alone and shall
                  not
                  refer to its utility division or to any of its subsidiary
                  corporations.

              

      

      

      
        	 	
                3.

              	
                "Participants"
                  for any Plan Year shall be those executives who have been approved
                  by the
                  Committee as eligible for participation in the Plan for such Plan
                  Year.
                  

              

      

      

      
        	 	
                4.

              	
                "Payment
                  Date" shall be the date set by the Committee for payment of awards,
                  other
                  than those awards deferred pursuant to Section IX of the Plan and
                  Section
                  VII of these Rules and Regulations.

              

      

      

      
        	 	
                5.

              	
                The
                  "Plan" shall refer to the Executive Incentive Compensation
                  Plan.

              

      

      

      
        	 	
                6.

              	
                The
                  "Plan Year" shall be the calendar
                  year.

              

      

      

      
        	 	
                7.

              	
                "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."

              

      

      

      
        	 	
                8.

              	
                The
                  "Prime Rate" shall be the base rate on corporate loans posted by
                  at least
                  75 percent of the nation's largest banks as reported in The
                  Wall Street Journal.

              

      

      

      
        	 	
                9.

              	
                “Retirement”
                  means the later of the day the Participant attains age 55 or the
                  day the
                  Participant ceases to be an employee of the Company, its utility
                  division
                  or any of its subsidiary
                  corporations.

              

      

      

      II.     ADMINISTRATION

      

      
        	 	
                1.

              	
                The
                  Committee shall have the full power to construe and interpret the
                  Plan and
                  to establish and to amend these Rules and Regulations for its
                  administration.

              

      

      

      
        	 	
                2.

              	
                No
                  member of the Committee shall participate in a decision as to their
                  own
                  eligibility for, or award of, an incentive award
                  payment.

              

      

      

      
        	 	
                3.

              	
                Prior
                  to the beginning of each Plan Year, the Committee shall approve
                  a list of
                  eligible executives and notify those so approved that they are
                  eligible to
                  participate in the Plan for such Plan
                  Year.

              

      

      

      
        	 	
                4.

              	
                Prior
                  to the beginning of each Plan Year, the Committee shall approve
                  an Annual
                  Operating Plan. The Annual Operating Plan shall include the Plan's
                  performance measures and target incentive award levels for each
                  salary
                  grade covered by the Plan for the following Plan Year. The Plan’s
                  performance targets for the year shall be approved by the Committee
                  no
                  later than its regularly scheduled February meeting during the
                  Plan Year.
                  The Annual Operating Plan, insofar as it is relevant to each individual
                  Participant, shall be made available by the Committee to each Participant
                  in the Plan at the beginning of each Plan
                  Year.

              

      

      

      
        	 	
                5.

              	
                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. However, unless the Plan's performance objectives
                  are met
                  for the Plan Year, no award shall be made for that Plan Year. Performance
                  targets modified pursuant to Section II of the Plan will be deemed
                  performance targets for purposes of determining whether or not
                  these
                  targets have been met.

              

      

      

      III.    PLAN
        PERFORMANCE MEASURES

      

      
        	 	 	
                1.

              	
                The
                  Committee shall establish the percentage attainment of corporate
                  performance measure and the percentage attainment of individual
                  goals
                  measure. The Committee may establish more or fewer performance
                  measures as
                  it deems necessary.

              

      

      

      
        	 	 	
                2.

              	
                The
                  corporate performance measure may be set by reference to earnings,
                  return
                  on invested capital or any other measure or combination of measures
                  deemed
                  appropriate by the Committee. It may be established for the Company
                  or for
                  the individual business unit.

              

      

      

      
        	 	 	
                3.

              	
                Individual
                  performance will be assessed based on the achievement of annually
                  established individual objectives.

              

      

      

      
        	 	 	
                4.

              	
                Plan
                  performance measures may be applied at the corporate level for
                  individuals
                  such as the Chief Executive Officer whose major or sole impact
                  is
                  Company-wide, or at the business unit level for individuals whose
                  major or
                  sole impact is on the business unit results. The Annual Operating
                  Plan
                  shall contain a list of individuals to whom the Plan performance
                  measures
                  will be applied at the corporate level and a list of those individuals
                  for
                  whom the Plan performance measures will be applied at the business
                  unit
                  level. The relevant business unit for each individual will be
                  identified.

              

      

      

      
        	 	 	
                5.

              	
                The
                  Committee shall set threshold, target and maximum award levels
                  for the
                  performance measures, for each business unit, and for the Company.
                  Those
                  levels shall be included in the Annual Operating
                  Plan.

              

      

      

      
        	 	 	
                6.

              	
                The
                  Committee will retain the authority to determine whether or not
                  the actual
                  attainment of these measures has been
                  made.

              

      

      

      IV.   TARGET
        INCENTIVE AWARDS 

      

      
        	 	 	
                1.

              	
                Target
                  incentive awards will be a percentage of each Participant’s Salary, as
                  defined in the Plan.

              

      

      

      
        	 	 	
                2.

              	
                Target
                  incentive awards shall be set by the Committee annually and will
                  be
                  included in the Annual Operating
                  Plan.

              

      

      

      V.    INCENTIVE
        FUND DETERMINATION

      

      
        	
                 

              	
                1.

              	
                The
                  target incentive fund is the sum of the individual target incentive
                  awards
                  for all eligible Participants.

              

      

      

      
        	 	
                2.

              	
                Once
                  individual incentive targets have been determined, a target incentive
                  fund
                  shall be established and accrued ratably by the Company. The incentive
                  fund and accruals may be adjusted during the
                  year.

              

      

      

      
        	 	
                3.

              	
                As
                  soon as practicable following the close of each Plan Year, the
                  Chief
                  Executive Officer will provide the Committee with an analysis showing
                  the
                  Company's and each relevant business unit's performance in relation
                  to the
                  performance measures. The Committee will review the analysis and
                  determine, in its sole discretion, the amount of the actual incentive
                  fund.

              

      

      

      
        	 	
                4.

              	
                In
                  determining the actual incentive fund, the Committee may consider
                  any
                  recommendations of the Chief Executive
                  Officer.

              

      

      

      VI.     INDIVIDUAL
        AWARD DETERMINATION

      

      
        	 	
                1.

              	
                The
                  Committee shall have the sole discretion to determine each individual
                  Participant's award. The Committee's decision will be based first
                  upon the
                  level of performance achieved by the 
                  Company
                    or business unit and second upon the individual's
                    performance.

                

              

      

       

      
        	 	
                2.

              	
                The
                  Committee, after consultation with the Chief Executive Officer,
                  shall set
                  the award as a percentage from 0 percent to 200 percent of the
                  Participant's target incentive award, adjusted for Company or business
                  unit performance.

              

      

      

      VII.    PAYMENT
        OF AWARDS

      

      
        	 	
                1.

              	
                On
                  the date the Committee determines the awards to be made to individual
                  Participants, it shall also establish the Payment
                  Date.

              

      

      

      
        	 	
                2.

              	
                Except
                  as provided below or as the Committee otherwise determines, in
                  order to
                  receive an award under the Plan, a Participant must remain in the
                  employment of the Company for the entire Plan
                  Year.

              

      

      

      
        	 	
                3.

              	
                If
                  a Participant terminates employment with the Company pursuant to
                  Section
                  5.01 of the Company’s Bylaws which provides for mandatory retirement for
                  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 Plan Year, determination of whether
                  the
                  performance measures have been met will be made at the end of the
                  Plan
                  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.

              

      

      

      
        	 	
                4.

              	
                Payment
                  of the awards shall be made in cash. Payments shall be made on
                  the Payment
                  Date unless the Participant has deferred, in whole or in part,
                  the receipt
                  of the award by making an election on the deferral form attached
                  hereto,
                  prior to the end of the Plan Year immediately preceding the Payment
                  Date.

              

      

      

      
        	 	
                5.

              	
                In
                  the event a Participant has elected to defer receipt of all or
                  a portion
                  of the award, the Company shall set up an account in the Participant's
                  name. The amount of the Participant's award to the extent deferred
                  will be
                  credited to the Participant's account on the Payment
                  Date.

              

      

      

      
        	 	
                6.

              	
                The
                  balance credited to an account of a Participant who has elected
                  to defer
                  receipt of an award will be an unsecured, unfunded obligation of
                  the
                  Company.

              

      

      

      
        	 	
                7.

              	
                Interest
                  shall accrue on the balance credited to a Participant's account
                  from the
                  date the balance is credited. The rate of interest shall be the
                  Prime Rate
                  plus 1 percentage point as reported on the last business day of the
                  preceding year to be effective on January 1 of each new Plan
                  Year.

              

      

      

      
        	 	
                8.

              	
                Interest
                  shall be compounded and credited to the account
                  monthly.

              

      

      

      
        	 	
                9.

              	
                A
                  Participant may elect to defer any percentage, not to exceed l00,
                  of an
                  annual award.

              

      

      

      
        	 	
                10.

              	
                A
                  Participant electing to defer any part of an award must elect one
                  of the
                  following dates for payment:

              

      

      

      
        	 	 	
                (1)

              	
                Payment
                  Date next following termination of employment with the Company
                  or an
                  affiliated company; or

              

      

      

      
        	 	 	
                (2)

              	
                Payment
                  Date of the fifth year following the year in which the award may
                  be
                  made.

              

      

      

      
        	 	
                11.

              	
                A
                  Participant may elect to receive the deferred amounts accumulated
                  in the
                  Participant's account in monthly installments, not to exceed 120.
                  In the
                  event the Participant elects to receive the amounts in the Participant's
                  account in more than one installment, interest shall continue to
                  accrue on
                  the balance remaining in their account at the applicable rate or
                  rates
                  determined annually by the
                  Committee.

              

      

      

      
        	 	
                12.

              	
                In
                  the event of the death of a Participant in whose name a deferred
                  account
                  has been set up, the Company shall, within six months thereafter,
                  pay to
                  the Participant's estate or the designated beneficiary the entire
                  amount
                  in the deferred account.

              

      

      

      
        	 	
                13.

              	
                In
                  the event of a "Change in Control" then any award deferred by each
                  Participant shall become immediately payable to the Participant.
                  In the
                  event the Participant files suit to collect a deferred award then
                  all of
                  the Participant's court costs, other expenses of litigation, and
                  attorneys' fees shall be paid by the Company in the event the Participant
                  prevails upon any of the Participant's claims for
                  payment.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.     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.

      

      III.     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.

      

      IV.     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.

      

      V.     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 shareholders’ 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.

      

      VI.     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.

      

      VII.    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.

      

      VIII.   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.

      

      IX. 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 Plan 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 Plan
        Year,
        determination of whether the performance measures have been met will be made
        at
        the end of the Plan 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. 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 when made will be in cash. Incentive awards may
        be
        deferred if the appropriate elections have been executed prior to the end
        of the
        Plan Year. Deferred amounts will accrue interest at a rate determined annually
        by the Committee.

      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.

      

      X.      ACCOUNTING
        RESTATEMENTS 

      This
        Section X 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 3 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 X, 

      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 actions pursuant to this Section
        X
        with respect to different awards, different Participants (or beneficiaries)
        and/or different classes of awards or Participants (or beneficiaries). The
        Committee has no obligation to take any action permitted by this Section
        X. The
        Committee may consider any factors it chooses in taking (or determining whether
        to take) any action permitted by this Section X, including, without limitation,
        the following:

      (A) The
        reason for the restatement of the financial statements;

      (B) The
        amount of time between the initial publication and subsequent restatement
        of the
        financial statements; and

      (C) The
        Participant's current employment status, and the viability of successfully
        obtaining repayment.

      If
        the
        Committee requires repayment of all or part of a Prior Award, the amount
        of
        repayment may be based on, among other things, the difference between the
        amount
        paid to the individual and the amount that the Committee determines in its
        sole
        discretion should have been paid based on the restated results. The Committee
        shall determine whether repayment shall be effected (i) by seeking repayment
        from the Participant, (ii) by reducing (subject to applicable law and the
        terms
        and conditions of the applicable plan, program or arrangement) the amount
        that
        would otherwise be provided to the Participant under any compensatory plan,
        program or arrangement maintained by the Company or any of its affiliates,
        (iii)
        by withholding payment of future increases in compensation (including the
        payment of any discretionary bonus amount) or grants of compensatory awards
        that
        would otherwise have been made in accordance with the Company's otherwise
        applicable compensation practices, or (iv) by any combination of the foregoing.
        Additionally, by accepting an incentive award under the Plan, Participants
        acknowledge and agree that the Committee may take any actions permitted by
        this
        Section X with respect to Outstanding Awards to the extent repayment is to
        be
        made pursuant to another plan, program or arrangement maintained by the Company
        or any of its affiliates.

      

      MONTANA-DAKOTA
        UTILITIES CO.

      EXECUTIVE
        INCENTIVE COMPENSATION PLAN

      RULES
        AND REGULATIONS

      

      The
        Compensation Committee of the Board of Directors of MDU Resources Group,
        Inc.
        (the "Company") adopted Rules and Regulations for the administration of the
        Executive Incentive Compensation Plan (the "Plan") on February 9, 1983,
        following adoption of the Plan by the Board of Directors of the Company on
        November 4, l982. 

      

      I. DEFINITIONS

      The
        following definitions shall be used for purposes of these Rules and Regulations
        and for the purposes of administering the Plan:

      

      
        	 	
                1.

              	
                The
                  "Committee" shall be the Compensation Committee of the Board of
                  Directors
                  of the Company. 

              

      

      

      
        	 	
                2.

              	
                The
                  "Company" shall refer to MDU Resources Group, Inc. alone and shall
                  not
                  refer to its utility division or to any of its subsidiary corporations.
                  

              

      

      

      
        	 	
                3.

              	
                The
                  "Utility Company" shall refer to Montana-Dakota Utilities Co.,
                  a Division
                  of MDU Resources Group, Inc.

              

      

      

      
        	 	
                4.

              	
                "Participants"
                  for any Plan Year shall be those executives who have been approved
                  by the
                  Committee as eligible for participation in the Plan for such Plan
                  Year.

              

      

      

      
        	 	
                5.

              	
                "Payment
                  Date" shall be the date set by the Committee for payment of awards,
                  other
                  than those awards deferred pursuant to Section IX of the Plan and
                  Section
                  VII of these Rules and Regulations.

              

      

      

      
        	 	
                6.

              	
                The
                  "Plan" shall refer to the Executive Incentive Compensation
                  Plan.

              

      

      

      
        	 	
                7.

              	
                The
                  "Plan Year" shall be the calendar
                  year.

              

      

      

      
        	 	
                8.

              	
                "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 of the
                  Company
                  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 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
                  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; (e) the sale or
                  other
                  disposition of all or substantially all of the assets of the Utility
                  Company, other than to a subsidiary of the Company; or (f) 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."

              

      

      

      
        	 	
                9.

              	
                The
                  "Prime Rate" shall be the base rate on corporate loans posted by
                  at least
                  75 percent of the nation's largest banks as reported in The
                  Wall Street Journal.

              

      

      

      
        	 	
                10.

              	
                “Retirement”
                  means the later of the day the Participant attains age 55 or the
                  day the
                  Participant ceases to be an employee of the Company, its utility
                  division
                  or any of its subsidiary
                  corporations.

              

      

      

      II.     ADMINISTRATION

      

      
        	 	
                1.

              	
                The
                  Committee shall have the full power to construe and interpret the
                  Plan and
                  to establish and to amend these Rules and Regulations for its
                  administration.

              

      

      

      
        	 	
                2.

              	
                No
                  member of the Committee shall participate in a decision as to their
                  own
                  eligibility for, or award of, an incentive award
                  payment.

              

      

      

      
        	 	
                3.

              	
                Prior
                  to the beginning of each Plan Year, the Committee shall approve
                  a list of
                  eligible executives and notify those so approved that they are
                  eligible to
                  participate in the Plan for such Plan
                  Year.

              

      

      

      
        	 	
                4.

              	
                Prior
                  to the beginning of each Plan Year, the Committee shall approve
                  an Annual
                  Operating Plan. The Annual Operating Plan shall include the Plan's
                  performance measures and target incentive award levels for each
                  salary
                  grade covered by the Plan for the following Plan Year. The Plan’s
                  performance targets for the year shall be approved by the Committee
                  no
                  later than its regularly scheduled February meeting during the
                  Plan Year.
                  The Annual Operating Plan, insofar as it is relevant to each individual
                  Participant, shall be made available by the Committee to each Participant
                  in the Plan at the beginning of each Plan
                  Year.

              

      

      

      
        	 	
                5.

              	
                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. However, unless the Plan's performance objectives
                  are met
                  for the Plan Year, no award shall be made for that Plan Year. Performance
                  targets modified pursuant to Section II of the Plan will be deemed
                  performance targets for purposes of determining whether or not
                  these
                  targets have been met.

              

      

      

      III.   PLAN
        PERFORMANCE MEASURES

      

      
        	 	 	
                1.

              	
                The
                  Committee shall establish the percentage attainment of corporate
                  performance measure and the percentage attainment of individual
                  goals
                  measure. The Committee may establish more or fewer performance
                  measures as
                  it deems necessary.

              

      

      

      
        	 	 	
                2.

              	
                The
                  corporate performance measure may be set by reference to earnings,
                  return
                  on invested capital or any other measure or combination of measures
                  deemed
                  appropriate by the Committee. It may be established for the Utility
                  Company or for the individual business
                  unit.

              

      

      

      
        	 	 	
                3.

              	
                Individual
                  performance will be assessed based on the achievement of annually
                  established individual objectives.

              

      

      

      
        	 	 	
                4.

              	
                Plan
                  performance measures 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 the
                  business
                  unit results. The Annual Operating Plan shall contain a list of
                  individuals to whom the Plan performance measures will be applied
                  at the
                  corporate level and a list of those individuals for whom the Plan
                  performance measures will be applied at the business unit level.
                  The
                  relevant business unit for each individual will be
                  identified.

              

      

      

      
        	 	 	
                5.

              	
                The
                  Committee shall set threshold, target and maximum award levels
                  for the
                  performance measures, for each business unit, and for the Utility
                  Company.
                  Those levels shall be included in the Annual Operating
                  Plan.

              

      

      

      
        	 	 	
                6.

              	
                The
                  Committee will retain the authority to determine whether or not
                  the actual
                  attainment of these measures has been
                  made.

              

      

      

      IV.   TARGET
        INCENTIVE AWARDS

      

      
        	 	 	
                1.

              	
                Target
                  incentive awards will be a percentage of each Participant’s Salary, as
                  defined in the Plan.

              

      

      

      
        	 	 	
                2.

              	
                Target
                  incentive awards shall be set by the Committee annually and will
                  be
                  included in the Annual Operating
                  Plan.

              

      

       

      V.    INCENTIVE
        FUND DETERMINATION

      

      
        	 	
                1.

              	
                The
                  target incentive fund is the sum of the individual target incentive
                  awards
                  for all eligible Participants.

              

      

      

      
        	 	
                2.

              	
                Once
                  individual incentive targets have been determined, 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.

              

      

      

      
        	 	
                3.

              	
                As
                  soon as practicable following the close of each Plan Year, the
                  Chief
                  Executive Officer will provide the Committee with an analysis showing
                  the
                  Utility Company's and each relevant business unit's performance
                  in
                  relation to the performance measures. The Committee will review
                  the
                  analysis and determine, in its sole discretion, the amount of the
                  actual
                  incentive fund.

              

      

      

      
        	 	
                4.

              	
                In
                  determining the actual incentive fund, the Committee may consider
                  any
                  recommendations of the Chief Executive
                  Officer.

              

      

      

      VI.     INDIVIDUAL
        AWARD DETERMINATION

      

      
        	 	
                1.

              	
                The
                  Committee shall have the sole discretion to determine each individual
                  Participant's award. The Committee's decision will be based first
                  upon the
                  level of performance achieved by the Utility Company or business
                  unit and
                  second upon the individual's
                  performance.

              

      

      

      
        	 	
                2.

              	
                The
                  Committee, after consultation with the Chief Executive Officer,
                  shall set
                  the award as a percentage from 0 percent to 200 percent of the
                  Participant's target incentive award, adjusted for Utility Company
                  or
                  business unit performance.

              

      

      

      VII.    PAYMENT
        OF AWARDS

      

      
        	 	
                1.

              	
                On
                  the date the Committee determines the awards to be made to individual
                  Participants, it shall also establish the Payment
                  Date.

              

      

      

      
        	 	
                2.

              	
                Except
                  as provided below or as the Committee otherwise determines, in
                  order to
                  receive an award under the Plan, a Participant must remain employed
                  by the
                  Utility Company or one of its business units for the entire Plan
                  Year.

              

      

      

      
        	 	
                3.

              	
                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 Plan Year, determination of whether
                  the
                  performance measures have been met will be made at the end of the
                  Plan
                  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.

              

      

      

      
        	 	
                4.

              	
                Payment
                  of the awards shall be made in cash. Payments shall be made on
                  the Payment
                  Date unless the Participant has deferred, in whole or in part,
                  the receipt
                  of the award by making an election on the deferral form attached
                  hereto,
                  prior to the end of the Plan Year immediately preceding the Payment
                  Date.

              

      

      

      
        	 	
                5.

              	
                In
                  the event a Participant has elected to defer receipt of all or
                  a portion
                  of the award, the Utility Company shall set up an account in the
                  Participant’s name. The amount of the Participant’s award to the extent
                  deferred will be credited to the Participant's account on the Payment
                  Date.

              

      

      

      
        	 	
                6.

              	
                The
                  balance credited to an account of a Participant who has elected
                  to defer
                  receipt of an award will be an unsecured, unfunded obligation of
                  the
                  Utility Company.

              

      

      

      
        	 	
                7.

              	
                Interest
                  shall accrue on the balance credited to a Participant's account
                  from the
                  date the balance is credited. The rate of interest shall be the
                  Prime Rate
                  plus 1 percentage point as reported on the last business day of the
                  preceding year to be effective on January 1 of each new Plan Year.
                  

              

      

      

      
        	 	
                8.

              	
                Interest
                  shall be compounded and credited to the account monthly.
                  

              

      

      

      
        	 	
                9.

              	
                A
                  Participant may elect to defer any percentage, not to exceed l00,
                  of an
                  annual award.

              

      

      

      
        	 	
                10.

              	
                A
                  Participant electing to defer any part of an award must elect one
                  of the
                  following dates for payment:

              

      

      

      
        	 	 	
                (1)

              	
                Payment
                  Date next following termination of employment with the Utility
                  Company or
                  an affiliated company; or

              

      

      

      
        	 	 	
                (2)

              	
                Payment
                  Date of the fifth year following the year in which the award may
                  be
                  made.

              

      

      

      
        	 	
                11.

              	
                A
                  Participant may elect to receive the deferred amounts accumulated
                  in the
                  Participant's account in monthly installments, not to exceed 120.
                  In the
                  event the Participant elects to receive the amounts in the Participant's
                  account in more than one installment, interest shall continue to
                  accrue on
                  the balance remaining in their account at the applicable rate or
                  rates
                  determined annually by the
                  Committee.

              

      

      

      
        	 	
                12.

              	
                In
                  the event of the death of a Participant in whose name a deferred
                  account
                  has been set up, the Utility Company shall, within six months thereafter,
                  pay to the Participant's estate or the designated beneficiary the
                  entire
                  amount in the deferred account.

              

      

      

      
        	 	
                13.

              	
                In
                  the event of a "Change in Control" then any award deferred by each
                  Participant shall become immediately payable to the Participant.
                  In the
                  event the Participant files suit to collect a deferred award then
                  all of
                  the Participant's 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.

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