UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) |
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MDU RESOURCES GROUP, INC.
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(NameResources Group, Inc.
(Name of Registrant as Specified in Itsits Charter) - --------------------------------------------------------------------------------
(Name
(Name of Person(s) Filing Proxy Statement, if other thanOther Than the Registrant)
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| MDU Resources Group, Inc. Proxy Statement |
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| 2007 Notice of Annual Meeting |
| and Proxy Statement |
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|_____________________________________________________________________________|
[LOGO]
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1200 West Century Avenue Terry D. Hildestad
President and
Chief Executive Officer
x | | No fee required |
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1200 West Century Avenue | Terry D. Hildestad President and Chief Executive Officer |
Mailing Address:
P.O. Box 5650
Bismarck, ND 58506-5650
(701) 530-1000
March 8, 2007
12, 2010
To Our Stockholders:
Please join us for the 20072010 Annual Meeting of Stockholders. The meeting will be held on Tuesday, April 24, 2007,27, 2010, at 11:00 a.m., Central Daylight SavingsSaving Time, at 909 Airport Road, Bismarck, North Dakota.
The formal matters are described in the accompanying Notice of Annual Meeting of Stockholders and Proxy Statement. We also will have a brief report on current matters of interest. Lunch will be served following the meeting.
We were pleased with the stockholder response for the 20062009 Annual Meeting at which 9088.77 percent of the common stock was represented in person or by proxy. We hope for an even greater representation at the 20072010 meeting.
You may vote your shares by telephone, by the
internetInternet, or by returning the enclosed
letter proxy.proxy card. Representation of your shares at the meeting is very important. We urge you to submit your proxy
promptly by one of the three
methods.
I hope you will find it possible to attend the meeting.
Sincerely yours,
Terry D. Hildestad
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MDU RESOURCES GROUP, INC.
1200 West Century Avenue
Mailing Address:
P.O. Box 5650
Bismarck, ND 58506-5650
(701) 530-1000
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 24, 2007
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March 8, 2007
NOTICE IS HEREBY GIVENpromptly.Please note that the Annual Meeting of Stockholders of MDU
Resources Group, Inc. will be held at 909 Airport Road, Bismarck, North Dakota,New York Stock Exchange rules have changed. Brokers may not vote your shares on Tuesday, April 24, 2007, at 11:00 a.m., Central Daylight Savings Time, for
the following purposes:
(1) To elect four directors to three year terms;
(2) To increase the authorized shares of common stock from 250,000,000 to
500,000,000;
(3) To declassify our board of directors;
(4) To ratify the appointment of Deloitte & Touche LLP as our independent
auditors for 2007;
(5) To act upon a stockholder proposal requesting a sustainability report;
and
(6) To transact any other business that may properly come before the
meeting or any adjournment or adjournments thereof.
The boardelection of directors has fixed the close of business on February 26,
2007if you have not given your broker specific instructions as the record date for the determination of common stockholders who willto how to vote. Please be entitledsure to notice of, andgive specific voting instructions to your broker so that your vote at, the meeting.
can be counted.
All stockholders who find it convenient to do so are cordially invited and urged to attend the meeting in person. Registered stockholders will receive a request for admission ticket(s) with their proxy card that can be completed and returned to us postage-free. Stockholders whose shares are held in the name of a bank or broker will not receive a request for admission ticket(s). They should, instead, (1) call (701) 530-1000 to request an admission ticket(s), (2) come to
the registration table at the annual meeting withbring a statement from their bank or broker showing proof of stock ownership as of February 26, 2007[ • ] to the annual meeting, and (3) present their admission ticket(s) and photo identification, such as a driver'sdriver’s license. Directions to the meeting will be included with your admission ticket.
I hope you will find it possible to attend the meeting.
| Sincerely yours, |
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| Terry D. Hildestad |
MDU RESOURCES GROUP, INC.
1200 West Century Avenue
Mailing Address:
P.O. Box 5650
Bismarck, ND 58506-5650
(701) 530-1000
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD APRIL 27, 2010 |
Important Notice Regarding the Availability of Proxy Materials for the
Stockholder Meeting to Be Held on April 27, 2010
The 2010 Notice of Annual Meeting and Proxy Statement and 2009 Annual Report
to Stockholders are available at www.mdu.com/proxymaterials.
March 12, 2010
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of MDU Resources Group, Inc. will be held at 909 Airport Road, Bismarck, North Dakota, on Tuesday, April 27, 2010, at 11:00 a.m., Central Daylight Saving Time, for the following purposes:
(1) | To elect ten directors nominated by the board of directors to one-year terms; |
(2) | To repeal Article TWELFTH of our Restated Certificate of Incorporation, which contains provisions relating to business combinations with interested stockholders, and make related amendments to Articles THIRTEENTH and FOURTEENTH; |
(3) | To repeal Article FIFTEENTH of our Restated Certificate of Incorporation, which contains supermajority vote requirements for amendments to certain articles of our Restated Certificate of Incorporation; |
(4) | To repeal section (c) of Article THIRTEENTH of our Restated Certificate of Incorporation, which provides that directors may be removed by stockholders only for cause, and make technical amendments to section (a) of Article THIRTEENTH; |
(5) | To ratify the appointment of Deloitte & Touche LLP as our independent auditors for 2010; |
(6) | To act upon a stockholder proposal requesting a report on coal combustion waste; and |
(7) | To transact any other business that may properly come before the meeting or any adjournment or adjournments thereof. |
The board of directors has set the close of business on [ • ] as the record date for the determination of common stockholders who will be entitled to notice of, and to vote at, the meeting.
All stockholders who find it convenient to do so are cordially invited and urged to attend the meeting in person. Registered stockholders will receive a request for admission ticket(s) with their proxy card that can be completed and returned to us postage-free. Stockholders whose shares are held in the name of a bank or broker will not receive a request for admission ticket(s). They should, instead, (1) call (701) 530-1000 to request an admission ticket(s), (2) bring a statement from their bank or broker showing proof of stock ownership as of [ • ] to the annual meeting, and (3) present their admission ticket(s) and photo identification, such as a driver’s license. Directions to the meeting will be included with your admission ticket. We look forward to seeing you.
By order of the Board of Directors,
Paul K. Sandness
Secretary
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TABLE OF CONTENTS
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Page
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Notice of Annual Meeting of Stockholders
Proxy Statement 1
Voting Information 1
Item 1. Election of Directors 4
Director Nominees for Three Year Term 4
Continuing Incumbent Directors 6
Director Terms Expiring in 2008 6
Director Terms Expiring in 2009 7
Item 2. Increase in Authorized Common Stock 9
Item 3. Declassification of Board of Directors 10
Item 4. Ratification of Independent Auditors 12
Accounting and Auditing Matters 12
Item 5. Stockholder Proposal Requesting Sustainability Report 14
Executive Compensation 18
Compensation Discussion and Analysis 18
Compensation Committee Report 42
Summary Compensation Table for 2006 43
Grants of Plan-Based Awards in 2006 45
Outstanding Equity Awards at Fiscal Year-End 2006 50
Option Exercises and Stock Vested during 2006 51
Pension Benefits for 2006 52
Nonqualified Deferred Compensation for 2006 57
Potential Payments upon Termination or Change of Control 58
Director Compensation for 2006 67
Information Concerning Executive Officers 69
Security Ownership 73
Related Person Disclosure 74
Corporate Governance 75
Audit Committee Report 79
Section 16(a) Beneficial Ownership Reporting Compliance 81
Other Business 82
Shared Address Stockholders 82
2008 Annual Meeting of Stockholders 82
Exhibit A - Resolution of Board of Directors on Increase A-1
in Authorized Common Stock
Exhibit B - Resolution of Board of Directors on Declassification of Board B-1
Exhibit C - Statement of Policy on Director Independence C-1
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PROXY STATEMENT
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| By order of the Board of Directors, |
| Paul K. SandnessSecretary |
| Page |
Notice of Annual Meeting of Stockholders | |
Proxy Statement | 1 |
Voting Information | 1 |
Item 1. Election of Directors | 3 |
Director Nominees | 4 |
Item 2. Repeal of Article TWELFTH of our Restated Certificate of Incorporation, which Contains Provisions Relating to Business Combinations with Interested Stockholders, and Related Amendments to Articles THIRTEENTH and FOURTEENTH | 12 |
Item 3. Repeal of Article FIFTEENTH of our Restated Certificate of Incorporation, which Contains Supermajority Vote Requirements for Amendments to Certain Articles of our Restated Certificate of Incorporation | 14 |
Item 4. Repeal of Section (c) of Article THIRTEENTH of our Restated Certificate of Incorporation, which Provides that Directors may be Removed by Stockholders Only for Cause, and Technical Amendments to Section (a) of Article THIRTEENTH | 15 |
Item 5. Ratification of Independent Auditors | 16 |
Accounting and Auditing Matters | 17 |
Item 6. Stockholder Proposal Requesting a Report on Coal Combustion Waste | 18 |
Executive Compensation | 20 |
Compensation Discussion and Analysis | 20 |
Compensation Committee Report | 38 |
Summary Compensation Table for 2009 | 39 |
Grants of Plan-Based Awards in 2009 | 41 |
Outstanding Equity Awards at Fiscal Year-End 2009 | 44 |
Option Exercises and Stock Vested during 2009 | 45 |
Pension Benefits for 2009 | 46 |
Nonqualified Deferred Compensation for 2009 | 50 |
Potential Payments upon Termination or Change of Control | 51 |
Director Compensation for 2009 | 59 |
Information Concerning Executive Officers | 61 |
Security Ownership | 63 |
Related Person Transaction Disclosure | 64 |
Corporate Governance | 65 |
Section 16(a) Beneficial Ownership Reporting Compliance | 71 |
Other Business | 71 |
Shared Address Stockholders | 71 |
2011 Annual Meeting of Stockholders | 72 |
Exhibit A – MDU Resources Group, Inc.’s Proposed Amendments to its Restated Certificate of Incorporation | A-1 |
The board of directors of MDU Resources Group, Inc. is furnishing this proxy statement beginning March 8, 200712, 2010 to solicit your proxy for use at our annual meeting of stockholders on April 24, 2007.
27, 2010.
We will pay the cost of soliciting your proxy and reimburse brokers and others for forwarding proxy material to you. Georgeson Inc. additionally will solicit proxies for approximately $7,500$8,000 plus out-of-pocket expenses.
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VOTING INFORMATION
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The Securities and Exchange Commission’s e-proxy rules allow companies to post their proxy materials on the Internet and provide only a Notice of Internet Availability of Proxy Materials to stockholders as an alternative to mailing full sets of proxy materials except upon request. For 2010, we have elected to use the Securities and Exchange Commission’s full set delivery option, which means that while we are posting our proxy materials online, we are also mailing a full set of our proxy materials to our stockholders. We believe that mailing a full set of proxy materials will help ensure that a majority of outstanding shares of our common stock are present in person or represented by proxy at our meeting. We also hope to help maximize stockholder participation. Therefore, even if you previously consented to receiving your proxy materials electronically, you will receive a full set of proxy materials in the mail for this year’s annual meeting. However, we will continue to evaluate the option of providing only a Notice of Internet Availability of Proxy Materials to some or all of our stockholders in the future.
Who may vote? You may vote if you owned shares of our common stock at the close of business on February 26, 2007.[ • ]. You may vote each share that you owned on that date on each matter presented at the meeting. As of February 26, 2007,[ • ], we had [ • ] shares of common stock outstanding entitled to one vote per share.
What am I voting on? You are voting on:
o the election of four directors for three year terms each
o the increase in the number of authorized shares of common stock
from 250,000,000 to 500,000,000
o the declassification of our board of directors
o the ratification of Deloitte & Touche LLP as our independent
auditors for 2007
o a stockholder proposal requesting a sustainability report and
o any other business a stockholder properly brings before the
meeting.
· | the election of ten directors nominated by the board of directors for one-year terms |
· | the repeal of article TWELFTH of our restated certificate of incorporation, which contains provisions relating to business combinations with interested stockholders, and related amendments to articles THIRTEENTH and FOURTEENTH |
· | the repeal of article FIFTEENTH of our restated certificate of incorporation, which contains supermajority vote requirements for amendments to certain articles of our restated certificate of incorporation |
· | the repeal of section (c) of article THIRTEENTH of our restated certificate of incorporation, which provides that directors may be removed by stockholders only for cause, and technical amendments to section (a) of article THIRTEENTH |
· | the ratification of the appointment of Deloitte & Touche as our independent auditors for 2010 |
· | a stockholder proposal requesting a report on coal combustion waste and |
· | any other business that is properly brought before the meeting. |
What vote is required to pass an item of business? A majority of our outstanding shares of common stock entitled to vote must be present in person or represented by proxy to hold the meeting.
If you hold shares through an account with a bank or broker, the bank or broker may vote your shares on certainsome matters even if you do not provide voting instructions. Brokerage firms have the authority under the New York Stock Exchange rules to vote shares on routinecertain matters for whichwhen their customers do not provide voting instructions. The election of directors and the
ratification of Deloitte & Touche LLP as the Company's independent auditors for
2007 are considered routine matters. When a proposal is not routine andHowever, on other matters, when the brokerage firm has not received voting instructions from its customers, the brokerage firm cannot vote the shares on that proposal. Thosematter and a “broker non-vote” occurs. Please note that the New York Stock Exchange rules have changed and an uncontested election of directors is no longer considered a routine matter. This means that brokers may not vote your shares are
considered "broker non-votes."
on the election of directors if you have not given your broker specific instructions as to how to vote. Please be sure to give specific voting instructions to your broker so that your vote can be counted.
Item 1 - 1—Election of Directors
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A pluralitymajority of votes of the common stock entitled to vote and present in
person or represented by proxycast is required to elect a director.director in an uncontested election. A majority of votes cast means the number of votes cast “for” a director’s election must exceed the number of votes cast “against” the director’s election. “Abstentions” and “broker non-votes” do not count as votes cast “for” or “against” the director’s election. In a contested election, which is an election in which the electionnumber of nominees for director exceeds the number of directors you may vote for the director or withhold your vote. Withheld
votesto be elected, directors will be excluded fromelected by a plurality of the vote and will have no effect on the outcome.votes cast. If anya nominee becomes unavailable for any reason or if a vacancy should occur before the election, which we do not anticipate, the proxies will vote your shares in their discretion for another person in their discretion.
We amended our corporate governance guidelines in February 2006 in
connection withnominated by the election of directors. In an uncontested election ofboard.
Our policy on majority voting for directors and our corporate governance guidelines require any nominee for re-election as a director who receives a greater number of votes "withheld" fromto tender to the board, prior to nomination, his or her election than
votes "for" his or her election to promptly tender his or herirrevocable resignation to the
chairman offrom the board followingthat will be effective, in an uncontested election of directors only, upon
· | receipt of a greater number of votes “against” than votes “for” election at our annual meeting of stockholders and |
· | acceptance of such resignation by the board of directors. |
Following certification of the stockholder vote. Thevote, the nominating and governance committee will thenpromptly recommend to the board of
directors whether or not to accept or reject the tendered resignation. The board will act on the nominating and governance committee’s recommendation no later than 90 days following the date of the annual meeting.
Item 2—Repeal of Article TWELFTH of our Restated Certificate of Incorporation, which Contains Provisions Relating to Business Combinations with Interested Stockholders, and Related Amendments to Articles THIRTEENTH and FOURTEENTH
Approval of Item 2 - Increase in Authorized Numberrequires the affirmative vote of Shares of Common Stock
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In order to increase the number of authorized shares of common stock from
250,000,000 to 500,000,000, a majority of the outstanding shares of common stock
must vote "for" the increase.stock. Abstentions and broker non-votes will count as votes "against"“against” the increase.proposal.
Item 3—Repeal of Article FIFTEENTH of our Restated Certificate of Incorporation, which Contains Supermajority Vote Requirements for Amendments to Certain Articles of our Restated Certificate of Incorporation
Approval of Item 3 - Declassificationrequires the affirmative vote of Board of Directors
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In order to declassify our board of directors, a majority of the outstanding shares of common stock must vote "for" declassification.stock. Abstentions
and broker non-votes will count as votes "against" declassification.“against” the proposal.
Item 4—Repeal of Section (c) of Article THIRTEENTH of our Restated Certificate of Incorporation, which Provides That Directors May Be Removed by Stockholders Only for Cause, and Technical Amendments to Section (a) of Article THIRTEENTH
Approval of Item 4 - Ratificationrequires the affirmative vote of Deloitte & Touche LLPa majority of the outstanding shares of common stock. Abstentions will count as Independent Auditors for
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2007
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votes “against” the proposal.
Item 5—Ratification of the appointmentAppointment of Deloitte & Touche LLP as our independent
auditorsIndependent Auditors for 20072010
Approval of Item 5 requires the affirmative vote of a majority of our common stock present in person or represented by proxy at the meeting and entitled to vote on the proposal. Abstentions will count as votes "against"“against” the proposal.
Item 5 - 6—Stockholder Proposal Requesting Sustainabilitya Report ------ -----------------------------------------------------
on Coal Combustion Waste
Approval of
the stockholder proposal requesting a sustainability reportItem 6 requires
anthe affirmative vote of a majority of our common stock present in person or represented by proxy at the meeting and entitled to vote on the proposal. Abstentions will count as votes
"against"“against” the
proposal,proposal. Broker non-votes are not counted as voting power present and,
broker non-votes
will have no effect ontherefore, are not counted in the
outcome.
2
vote.Unless you specify otherwise when you submit your proxy, the proxies will vote your shares of common stock "for"“for” all directors nominated by the board of directors, “for” proposals 1, 2, 3, and 4 and "against"5 and “against” proposal 5.
6.
How do I vote? There are three ways to vote by proxy:
o by calling the toll free telephone number on the proxy
o by using the internet or
o by returning the enclosed letter proxy in the envelope provided.
· | by calling the toll free telephone number on the enclosed proxy card |
· | by using the Internet as described on the enclosed proxy card or |
· | by returning the enclosed proxy card in the envelope provided. |
You may be able to vote by telephone or the internetInternet if your shares are held in the name of a bank or broker. Follow their instructions.
You may have to pay electronic access charges for internet voting.
Can I revoke my proxy? Yes. You can revoke your proxy by:
o
· | filing written revocation with the corporate secretary before the meeting |
· | filing a proxy bearing a later date with the corporate secretary before the meeting or |
· | revoking your proxy at the meeting and voting in person. |
ITEM 1. ELECTION OF DIRECTORS |
At our 2007 annual meeting of stockholders, our board of directors proposed and our stockholders approved the
corporate secretary before the
meeting
o filing a proxy bearing a later date with the corporate secretary
before the meeting or
o revoking your proxy at the meeting and voting in person.
3
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ITEM 1. ELECTION OF DIRECTORS
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Martin A. White retired on August 17, 2006. He had served as chairmandeclassification of our board since February 15, 2001of directors. The declassification was phased in over a three-year period from 2008 - 2010. Directors elected at our 2007 annual meeting comprise the last class elected to serve a three-year term, and chief executive officer since April 1,
1998. Robert L. Nance also retired fromtheir terms will expire at this year’s annual meeting. As a result, commencing with this year’s annual meeting, our board on August 17, 2006. Mr. Nance
had been a director since 1993 and was the chairman of the finance committee.
You will be voting on four directorscompletely declassified. All nominees for director are nominated to serve for a termone-year terms, until the annual meeting of three years
each until 2010 orstockholders in 2011 and until their respective successors are elected. All nominees
are incumbent directorselected and nominated for reelection, except Mr. Hildestad who
was elected byqualified, or until their earlier resignation, removal from office, or death. Effective as of the date of this year’s annual meeting, the board of directors inhas set the number of directors at ten. The board of directors expresses its thanks to John L. Olson and Sister Thomas Welder, O.S.B. Mr. Olson retired from the board effective August 200613, 2009 after reaching the mandatory retirement age of 70 for outside directors. Mr. Olson served on the board for 24 years and is a nomineeon the audit committee for election for23 years. He also served on the compensation and nominating and governance committees during his tenure. Sister Welder chose not to seek re-election at this annual meeting because, pursuant to our bylaws’ mandatory retirement policy, she would be required to retire on May 13, 2010, which is the first time. Your proxy holderregular meeting of the board after she attains the mandatory retirement age. Sister Welder served on the board for 22 years and on the nominating and governance committee for 21 years. She also served on the finance and audit committees during her tenure. Their dedicated service and expertise will vote your shares forbe missed.
We have provided information below about our nominees, all of whom are incumbent directors, including their ages, years of service as directors, business experience, and service on other boards of directors, including any other directorships held during the board's nominees unless you instruct otherwise. If a nominee is unablepast five years. We have also included information about each nominee’s specific experience, qualifications, attributes, or skills that led the board to conclude that he or she should serve as a director yourof MDU Resources Group, Inc. at the time we file our proxy holder may vote for any substitute nominee proposed by
the board.statement, in light of our business and structure. Unless we specifically note below, no corporation or organization namedreferred to below is a subsidiary or other affiliate of ours. Information concerning
the nominees, including their ages, years of service as directors and business
experience, which each nominee has furnished to us, is as follows:
DIRECTOR NOMINEES FOR THREE YEAR TERM
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Terry D. Hildestad Director Since 2006
Age 57 Nominated for Term Expiring in 2010
[PHOTO]
Mr. Hildestad was elected President and Chief Executive Officer
and a Director of the Company effective August 17, 2006. He had
served as President and Chief Operating Officer from May 1, 2005
until August 17, 2006. Prior to that, he served as President and
Chief Executive Officer of our subsidiary, Knife River
Corporation, from 1993 until May 1, 2005. He additionally serves
as an executive officer and as chairman of the Company's
principal subsidiaries and of the Managing Committees of
Montana-Dakota Utilities Co. and Great Plains Natural Gas Co.
Dennis W. Johnson Director Since 2001
Age 57 Nominated for Term Expiring in 2010
[PHOTO]
Mr. Johnson is Chairman, Chief Executive Officer and President of
TMI Corporation, and Chairman and Chief Executive Officer of TMI
Systems Design Corporation, TMI Transport Corporation and TMI
Storage Systems Corporation, all of Dickinson, North Dakota,
manufacturers of casework and architectural woodwork. He has been
employed at TMI since 1974 serving as President or Chief
Executive Officer since 1982 and majority stockholder since 1985.
Mr. Johnson serves as President of the Dickinson City Commission.
He previously was a Director of the Federal Reserve Bank of
Minneapolis. He currently serves on the Audit Committee.
| | Thomas Everist Age 60 | | Director Since 1995 Compensation Committee |
Mr. Everist has served as president and chairman of The Everist Company, Sioux Falls, South Dakota, an aggregate, concrete, and asphalt production company, since April 15, 2002. He was previously president and chairman of L.G. Everist, Inc., Sioux Falls, South Dakota, an aggregate production company, from 1987 to April 15, 2002. He held a number of positions in the aggregate and construction industries prior to assuming his current position with The Everist Company. He is a director of Showplace Wood Products, Sioux Falls, South Dakota, a custom cabinets manufacturer, and has been a director of Raven Industries, Inc., Sioux Falls, South Dakota, a general manufacturer of electronics, flow controls, and engineered films since 1996, and its chairman of the board since April 1, 2009. Mr. Everist attended Stanford University where he received a bachelor’s degree in mechanical engineering and a master’s degree in construction management. He is active in the Sioux Falls community and currently serves as a director on the Sanford Health Foundation, a non-profit charitable health services organization. From July 2001 to June 2006, he served on the South Dakota Investment Council, the state agency responsible for prudently investing state funds. For the following reasons, the board concluded that Mr. Everist should serve as a director of MDU Resources Group, Inc., in light of our business and structure, at the time we file our proxy statement. A significant portion of MDU Resources Group, Inc.’s earnings is derived from its construction services and aggregate mining businesses. Mr. Everist has considerable business experience in this area, with more than 36 years in the aggregate and construction materials industry. He has also demonstrated success in his business and leadership skills, serving as president and chairman of his companies for over 22 years. We value other public company board service. Mr. Everist has experience serving as a director and now chairman of another public company, which enhances his contributions to our board. His leadership skills and experience with his own companies and on other boards enable him to be an effective board member and compensation committee chairman. With the retirement of John L. Olson and Sister Thomas Welder, Mr. Everist becomes our longest serving board member, providing 15 years of board experience as well as extensive knowledge of our business. |
| | Karen B. Fagg Age 56 | | Director Since 2005 Nominating and Governance Committee Compensation Committee |
Ms. Fagg has served as vice president of DOWL LLC, d/b/a DOWL HKM, an engineering and design firm, since April 2008. Ms. Fagg was president from April 1, 1995 through March 2008, and chairman and majority owner from June 2000 through March 2008 of HKM Engineering, Inc., Billings, Montana, an engineering and physical science services firm. HKM Engineering, Inc. merged with DOWL LLC on April 1, 2008. Ms. Fagg was employed with MSE, Inc., Butte, Montana, an energy research and development company, from 1976 through 1988 and served as vice president of operations and corporate development director. Ms. Fagg served a four-year term as director of the Montana Department of Natural Resources and Conservation, Helena, Montana, the state agency charged with promoting stewardship of Montana’s water, soil, energy, and rangeland resources; regulating oil and gas exploration and production; and administering several grant and loan programs from 1989 through 1992. Ms. Fagg has a bachelor’s degree in mathematics from Carroll College in Helena, Montana. She served on the board for St. Vincent’s Healthcare from October 2003 until October 2009, including a term as board chair and on the board of Deaconess Billings Clinic Health System from 1994 to 2003. She is a member of the Board of Trustees of Carroll College, the Board of Advisors of the Charles M. Bair Family Trust, and a member of the Board of Directors of the Billings Chamber of Commerce. She is also a member of the Montana State University Engineering Advisory Council, whose responsibilities include evaluating the mission and goals of the College of Engineering and assisting in the development and implementation of the college’s strategic plan. From 2002 through 2006, she served on the Montana Board of Investments, the state agency responsible for prudently investing state funds. From 2001 to 2005, she served on the board of Montana State University’s Advanced Technology Park. From 2000 to 2007, she served on the ZooMontana Board and as vice chair from 2006 to 2007. |
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John L. Olson Director Since 1985
Age 67 Nominated for Term Expiring in 2010
[PHOTO]
Mr. Olson has been President and Chief Executive Officer of Blue
Rock Products Company and of Blue Rock Distributing Company, a
beverage bottling company and a distributing company,
respectively, in Sidney, Montana since 1965. He also is Chairman
of Admiral Beverage Corporation, Worland, Wyoming, and Ogden,
Utah; former Chairman and Director of the Foundation for
Community Care, Sidney, Montana; past Chairman and a member of
the Executive Committee of the University of Montana Foundation;
a Director of BlueCross BlueShield of Montana; and trustee for
Blue Rock Products Company Profit Sharing Trust, Sidney, Montana.
He currently serves on the Audit and Nominating and Governance
Committees.
John K. Wilson Director Since 2003
Age 52 Nominated for Term Expiring in 2010
[PHOTO]
Mr. Wilson has been President of Durham Resources, LLC, a
privately held financial management company, in Omaha, Nebraska
since 1994. He also serves as President of the Durham Foundation
and is a Director of Bridges Investment Fund, a mutual fund, the
Greater Omaha Chamber of Commerce and the Durham Western Heritage
Museum, all in Omaha. He additionally serves on the community
relations board of US Bank NA Omaha and is a governor of the
Joslyn Art Museum in Omaha. He previously was President of Great
Plains Energy Corp., a public utility holding company and an
affiliate of Durham Resources, LLC, from 1994 to July 1, 2000. He
also was Vice President of Great Plains Natural Gas Co., an
affiliate company of Durham Resources, LLC, until July 1, 2000.
Great Plains Energy Corp. and Great Plains Natural Gas Co. were
sold to the Company on July 1, 2000. He currently serves on the
Audit Committee.
| | For the following reasons, the board concluded that Ms. Fagg should serve as a director of MDU Resources Group, Inc., in light of our business and structure, at the time we file our proxy statement. Construction and engineering, energy, and the responsible development of natural resources are all important aspects of our business. Ms. Fagg has business experience in all these areas, including 15 years of construction and engineering experience at DOWL, HKM and its predecessor, HKM Engineering, Inc., where she has served as vice president, president, and chairman. Ms. Fagg has also had 12 years of experience in energy research and development at MSE, Inc., where she served as vice president of operations and corporate development director, and four years focusing on stewardship of natural resources as director of the Montana Department of Natural Resources and Conservation. In addition to her industry experience, Ms. Fagg brings to our board 12 years of business leadership and management experience as president and chairman of her own company, as well as knowledge and experience acquired through her service on a number of Montana state and community boards. |
| | Terry D. Hildestad Age 60 | | Director Since 2006 President and Chief Executive Officer |
Mr. Hildestad was elected president and chief executive officer and a director of the company effective August 17, 2006. He had served as president and chief operating officer from May 1, 2005 until August 17, 2006. Prior to that, he served as president and chief executive officer of our subsidiary, Knife River Corporation, from 1993 until May 1, 2005. He began his career with the company in 1974 at Knife River, where he served in several operating positions before becoming its president. He additionally serves as an executive officer and as chairman of the company’s principal subsidiaries and of the managing committees of Montana-Dakota Utilities Co. and Great Plains Natural Gas Co. Mr. Hildestad has a bachelor’s degree from Dickinson State University and has completed the Advanced Management Program at Harvard School of Business. Mr. Hildestad is a member of the U.S. Bancorp Western North Dakota Advisory Board of Directors. For the following reasons, the board concluded that Mr. Hildestad should serve as a director of MDU Resources Group, Inc., in light of our business and structure, at the time we file our proxy statement. As chief executive officer of MDU Resources Group, Inc., Mr. Hildestad is the only officer of the company to sit on our board, consistent with our past practice. With over 35 years of experience at our company, Mr. Hildestad has a deep knowledge and understanding of MDU Resources Group, Inc., its operating companies and its lines of business. Mr. Hildestad has demonstrated his leadership abilities and his commitment to our company since he was elected president and chief executive officer and a director in 2006 and prior to that time through his long service as chief operating officer of the company and as president and chief executive officer at Knife River, our construction materials and contracting subsidiary. The board also believes that Mr. Hildestad’s integrity, values, and good judgment make him well-suited to serve on our board. |
| | A. Bart Holaday Age 67 | | Director Since 2008 Audit Committee |
Mr. Holaday headed the Private Markets Group of UBS Asset Management and its predecessor entities for 15 years prior to his retirement in 2001, during which time he managed more than $19 billion in investments. Prior to that he was vice president and principal of the InnoVen Venture Capital Group. He was founder and president of Tenax Oil and Gas Corporation, an onshore Gulf Coast exploration and production company, from 1980 through 1982. He has four years of senior management experience with Gulf Oil Corporation, a global energy and petrochemical company, and eight years of senior management with the federal government, including the Department of Defense, Department of the Interior, and the Federal Energy Administration. He is currently the president and owner of Dakota Renewable Energy Fund, LLC, which invests in small companies in North Dakota. He is a member of the investment advisory board of Commons Capital LLC, a venture capital firm; a member of the board of directors of Adams Street Partners, LLC, a private equity investment firm; Alerus Financial, a financial services company; Jamestown College; the United States Air Force Academy Endowment (chairman); the Falcon Foundation (vice president), which provides scholarships to Air Force Academy applicants; the Center for Innovation Foundation at the University of North Dakota (chairman and trustee) and the University of North Dakota Foundation; and is chairman and CEO of the Dakota Foundation. He is a past member of the board of directors of the National Venture Capital Association, Walden University, and the U.S. Securities and Exchange Commission advisory committee on the regulation of capital markets. |
| | Mr. Holaday has a bachelor’s degree in engineering sciences from the U.S. Air Force Academy. He was a Rhodes Scholar, earning a bachelor’s degree and a master’s degree in politics, philosophy, and economics from Oxford University. He also earned a law degree from George Washington Law School and is a Chartered Financial Analyst. In 2005, he was awarded an honorary Doctor of Letters from the University of North Dakota. For the following reasons, the board concluded that Mr. Holaday should serve as a director of MDU Resources Group, Inc., in light of our business and structure, at the time we file our proxy statement. MDU Resources Group, Inc. has significant operations in the natural gas and oil industry. Mr. Holaday has knowledge and experience in this industry. He founded and served as president of Tenax Oil and Gas Corporation. He has four years experience in senior management with Gulf Oil Corporation and 15 years of experience managing private equity investments, including investments in oil and gas, as the head of the Private Markets Group of UBS Asset Management and its predecessor organizations. This business experience demonstrates his leadership skills and success in the oil and gas industry. Mr. Holaday brings to the board his extensive finance and investment experience as well as his business development skills acquired through his work at UBS Asset Management, Tenax Oil and Gas Corporation, Gulf Oil Corporation, and several private equity investment firms. This will enhance the knowledge of the board and provide useful insights to management in connection not only with our natural gas and oil business, but with all of our businesses. |
| | Dennis W. Johnson Age 60 | | Director Since 2001 Audit Committee |
Mr. Johnson is chairman, chief executive officer and president of TMI Corporation, and chairman and chief executive officer of TMI Systems Design Corporation, TMI Transport Corporation and TMI Storage Systems Corporation, all of Dickinson, North Dakota, manufacturers of casework and architectural woodwork. He has been employed at TMI since 1974 serving as president or chief executive officer since 1982 and has been the majority stockholder since 1985. Mr. Johnson is serving his ninth year as president of the Dickinson City Commission. He previously was a director of the Federal Reserve Bank of Minneapolis. He is a past member and chairman of the Theodore Roosevelt Medora Foundation. Mr. Johnson has a bachelor of science degree in electrical and electronics engineering as well as a master of science degree in industrial engineering from North Dakota State University. He has served on numerous industry, state, and community boards, including the North Dakota Workforce Development Council (chairperson), the Decorative Laminate Products Association, the North Dakota Technology Corporation, St. Joseph Hospital Life Care Foundation, St. John Evangelical Lutheran Church, Dickinson State University, the executive operations committee of the University of Mary Harold Shafer Leadership Center, and the Dickinson United Way. He also served on North Dakota Governor Sinner’s Education Action Commission, the North Dakota Job Service Advisory Council, the North Dakota State University President’s Advisory Council, North Dakota Governor Schafer’s Transition Team, and chaired North Dakota Governor Hoeven’s Transition Team. He has received numerous awards including the 1991 Regional Small Business Person of the Year Award and the Greater North Dakotan Award. |
| | For the following reasons, the board concluded that Mr. Johnson should serve as a director of MDU Resources Group, Inc., in light of our business and structure, at the time we file our proxy statement. Mr. Johnson has over 27 years of experience in business management, manufacturing, and finance, and has demonstrated his success in these areas, through his positions as chairman, president, and CEO of TMI, as well as through his prior service as a director of the Federal Reserve Bank of Minneapolis. His finance experience and leadership skills enable him to make valuable contributions to our audit committee, which he has chaired for six years. As a result of his service on a number of state and local organizations in North Dakota, Mr. Johnson has significant knowledge of local, state, and regional issues involving North Dakota, a state where we have significant operations and assets. |
| | Thomas C. Knudson Age 63 | | Director Since 2008 Compensation Committee |
Mr. Knudson has been president of Tom Knudson Interests, LLC, since its formation on January 14, 2004. Tom Knudson Interests, LLC, provides consulting services in energy, sustainable development, and leadership. Mr. Knudson began employment with Conoco Oil Company (Conoco) in May 1975 and retired in 2004 from Conoco’s successor, ConocoPhillips, as senior vice president of human resources, government affairs and communications, and information technology. Mr. Knudson served as a member of ConocoPhillips’ management committee. His diverse career at Conoco and ConocoPhillips included engineering, operations, business development, and commercial assignments. He was the founding chairman of the Business Council for Sustainable Development in both the United States and the United Kingdom. He has been a director of Bristow Group Inc. since June 2004 and its chairman of the board of directors since August 2006, and was a director of Natco Group Inc. from April 2005 to November 2009 and Williams Partners LP from November 2005 to September 2007. Bristow Group Inc. is a leading provider of helicopter services to the offshore oil industry. Natco Group Inc. is a leading manufacturer of oil and gas processing equipment. Williams Partners LP owns natural gas gathering, transportation, processing, and treating assets, and also has natural gas liquids fractionating and storage assets. Mr. Knudson has a bachelor’s degree in aerospace engineering from the U.S. Naval Academy and a master’s degree in aerospace engineering from the U.S. Naval Postgraduate School. He served as a naval aviator, flying combat missions in Vietnam, and was a lieutenant commander in 1974 when he was honorably discharged. Mr. Knudson has served on the boards of a number of petroleum industry associations, Covenant House Texas, The Houston Museum of Natural Science, and Alpha USA/Houston. He has served as an adjunct professor at the Jones Graduate School of Management at Rice University. For the following reasons, the board concluded that Mr. Knudson should serve as a director of MDU Resources Group, Inc., in light of our business and structure, at the time we file our proxy statement. A significant portion of our earnings is derived from natural gas and oil production and the transportation, storage, and gathering of natural gas. Mr. Knudson has extensive knowledge and experience in this industry as a result of his prior employment with Conoco, as well as through his service on the boards of Natco Group, Inc. and Williams Partners LP. Mr. Knudson has a broad background in engineering, operations, and business development, as well as service on the management committee at Conoco and ConocoPhillips, which bring additional experience and perspective to our board. His service as senior vice president of human resources at ConocoPhillips makes him an excellent fit for our compensation committee. Sustainable business development is also an important aspect of our business, and Mr. Knudson, as the founding chairman of the Business Council for Sustainable Development, brings to our board significant experience and knowledge in this area. Mr. Knudson also has significant knowledge of local, state, and regional issues involving Texas, a state where we have important operations and assets. |
| | Richard H. Lewis Age 60 | | Director Since 2005 Audit Committee Nominating and Governance Committee |
Mr. Lewis has been the managing general partner of Brakemaka LLLP, a private investment partnership for managing family investments, and president of the Lewis Family Foundation since August 2004. Mr. Lewis serves as chairman of the board of Entre Pure Industries, Inc., a privately held company involved in the purified water and ice business. He serves as a director of Colorado State Bank and Trust and on the senior advisory board of TPH Partners, L.P., a private equity fund with an energy-only focus. Mr. Lewis founded Prima Energy Corporation, a natural gas and oil exploration and production company in 1980, and served as chairman and chief executive officer of the company until its sale in July 2004. During his tenure, Prima Energy was named to Forbes Magazine’s 200 Best Small Companies in America list seven times and was ranked the No. 1 Colorado public company for the decade of the 1990’s in terms of market return. Mr. Lewis represented natural gas producers on a panel that studied electric restructuring in Colorado and has testified before Congressional committees on industry matters. He worked in private practice as a certified public accountant for eight years prior to founding Prima Energy. Mr. Lewis has a bachelor’s degree in finance and accounting from the University of Colorado. He served as a board member on the Colorado Oil and Gas Association from November 1999 to November 2009, including a term as its president. In 2000, Mr. Lewis was inducted into the Ernst & Young Entrepreneur of the Year Hall of Fame and in 2004 was inducted into the Rocky Mountain Oil and Gas Hall of Fame. Mr. Lewis serves as the chairman of the Development Board of Colorado Uplift, a non-profit organization whose mission is to build long-term, life-changing relationships with urban youth. He also serves on the Board of Trustees of Alliance for Choice in Education, which provides scholarships to inner city youth. He has also served on the Board of Trustees of the Metro Denver YMCA, the Advisory Council to the Leeds School of Business at the University of Colorado, and as a director for the Partnership for the West. For the following reasons, the board concluded that Mr. Lewis should serve as a director of MDU Resources Group, Inc., in light of our business and structure, at the time we file our proxy statement. MDU Resources Group, Inc. derives a significant portion of its earnings from natural gas and oil production, one of our business segments. Mr. Lewis has extensive business experience, recognized excellence, and demonstrated success in this industry through almost 25 years at his company, Prima Energy Corporation, and ten years on the board of the Colorado Oil and Gas Association. In addition to his industry experience, he brings investment experience to our board through his service on the senior advisory board of an energy-only private equity fund. As a certified public accountant and a director of Colorado State Bank and Trust, Mr. Lewis also contributes significant finance and accounting knowledge to our board and audit committee. Mr. Lewis also brings to the board his knowledge of local, state, and regional issues involving Colorado and the Rocky Mountain region, where we have important operations. |
| | Patricia L. Moss Age 56 | | Director Since 2003 Compensation Committee |
Ms. Moss has served as the president and chief executive officer of Cascade Bancorp, a financial holding company in Bend, Oregon, since 1998, chief executive officer of Cascade Bancorp’s principal subsidiary, Bank of the Cascades, since 1993, serving also as president from 1993 to 2003, and a director of Cascade Bancorp since 1993. She also serves as a director of the Oregon Investment Fund Advisory Council, a state-sponsored program to encourage the growth of small businesses within Oregon, and a director of Clear Choice Health Plans Inc., a multi-state insurance company. Ms. Moss graduated magna cum laude with a bachelor of science degree in business administration from Linfield College in Oregon and did master’s studies at Portland State University. She received commercial banking school certification at the ABA Commercial Banking School at the University of Oklahoma. She served as a director of the Oregon Business Council, whose mission is to mobilize business leaders to contribute to Oregon’s quality of life and economic prosperity; the Cascades Campus Advisory Board of the Oregon State University; the North Pacific Group, Inc., a wholesale distributor of building materials, industrial and hardwood products, and other specialty products; the Aquila Tax Free Trust of Oregon, a mutual fund created especially for the benefit of Oregon residents; and as a director and chair of the St. Charles Medical Center. In August 2009, the Federal Deposit Insurance Corporation and the Oregon Division of Finance and Corporate Securities entered into a consent agreement with Bank of the Cascades that requires the bank to develop and adopt a plan to maintain the capital necessary for it to be “well-capitalized,” to improve its lending policies and its allowance for loan losses, to increase its liquidity, to retain qualified management, and to increase the participation of its board of directors in the affairs of the bank. In October 2009, the bank’s parent, Cascade Bancorp, entered into a written agreement with the Federal Reserve Bank of San Francisco and the Oregon Division relating largely to improving the financial condition of Cascade Bancorp and the bank. For the following reasons, the board concluded that Ms. Moss should serve as a director of MDU Resources Group, Inc., in light of our business and structure, at the time we file our proxy statement. A significant portion of MDU Resources Group, Inc.’s utility, construction services, and contracting operations are located in the Pacific Northwest. Ms. Moss has first-hand business experience and knowledge of the Pacific Northwest economy and local, state, and regional issues through her position as president, chief executive officer, and a director at Cascade Bancorp and Bank of the Cascades, where she has over 28 years of experience. Ms. Moss provides to our board her experience in finance and banking as well as her experience in business development through her work at Cascade Bancorp and on the Oregon Investment Advisory Council and the Oregon Business Council. Ms. Moss is also certified as a Senior Professional in Human Resources, which makes her well-suited for our compensation committee. In deciding that Ms. Moss should be renominated as a director, the board was mindful of the consent agreement with Bank of the Cascades, but concluded that Ms. Moss brought the many skills and experiences discussed above to our board and had proved herself to be a dedicated and hard-working director. |
| | Harry J. Pearce Age 67 | | Director Since 1997 Chairman of the Board |
Mr. Pearce was elected chairman of the board of the company on August 17, 2006. Prior to that, he served as lead director effective February 15, 2001 and was vice chairman of the board from November 16, 2000 until February 15, 2001. Mr. Pearce has been a director of Marriott International, Inc., a major hotel chain, since 1995. He was a director of Nortel Networks Corporation, a global telecommunications company, from January 11, 2005 to August 10, 2009, serving as chairman of the board from June 29, 2005. He retired on December 19, 2003, as chairman of Hughes Electronics Corporation, a General Motors Corporation subsidiary and provider of digital television entertainment, broadband satellite network, and global video and data broadcasting. He had served as chairman since June 1, 2001. Mr. Pearce was vice chairman and a director of General Motors Corporation, one of the world’s largest automakers, from January 1, 1996 to May 31, 2001. He served on the President’s Council on Sustainable Development and co-chaired the President’s Commission on the United States Postal Service. Prior to joining General Motors, he was a senior partner in the Pearce & Durick law firm in Bismarck, ND. Mr. Pearce is a director of the United States Air Force Academy Endowment, and a member of the Advisory Board of the University of Michigan Cancer Center. He is a Fellow of the American College of Trial Lawyers and a member of the International Society of Barristers. He also serves on the Board of Trustees of Northwestern University. He has served as a chairman or director on the boards of numerous nonprofit organizations, including as chairman of the board of Visitors of the U.S. Air Force Academy, chairman of the National Defense University Foundation, and chairman of the Marrow Foundation. He currently serves as a director of the National Bone Marrow Transplant Link and New York Marrow Foundation. Mr. Pearce received a bachelor’s degree in engineering sciences from the U.S. Air Force Academy and his law degree from Northwestern University’s School of Law. For the following reasons, the board concluded that Mr. Pearce should serve as a director of MDU Resources Group, Inc., in light of our business and structure, at the time we file our proxy statement. MDU Resources Group, Inc. values public company leadership and the experience directors gain through such leadership. Mr. Pearce is recognized nationally as well as in the State of North Dakota as a business leader and for his business acumen. He has multinational business management experience and proven leadership skills through his position as vice chairman at General Motors, as well as through his extensive service on the boards of large public companies, including Marriott International; Hughes Electronics, where he was chairman; and Nortel Networks, where he also was chairman. He also brings to our board his long experience as a practicing attorney. In addition, Mr. Pearce is focused on corporate governance issues and is the founding chair of the Chairmen’s Forum, an organization comprised of non-executive chairmen of publicly-traded companies. Participants in the Chairmen’s Forum discuss ways to enhance the accountability of corporations to owners and promote a deeper understanding of independent board leadership and effective practices of board chairmanship. The board also believes that Mr. Pearce’s values and commitment to excellence make him well-suited to serve as chairman of our board. |
| | John K. Wilson Age 55 | | Director Since 2003 Audit Committee |
Mr. Wilson was president of Durham Resources, LLC, a privately held financial management company, in Omaha, Nebraska, from 1994 to December 31, 2008. He previously was president of Great Plains Energy Corp., a public utility holding company and an affiliate of Durham Resources, LLC, from 1994 to July 1, 2000. He was vice president of Great Plains Natural Gas Co., an affiliate company of Durham Resources, LLC, until July 1, 2000. The company bought Great Plains Energy Corp. and Great Plains Natural Gas Co. on July 1, 2000. Mr. Wilson also served as president of the Durham Foundation and was a director of Bridges Investment Fund, a mutual fund, and the Greater Omaha Chamber of Commerce. He is presently a director of HDR, Inc., an international architecture and engineering firm based in Omaha, and serves on the advisory boards of US Bank NA Omaha and Duncan Aviation, an aircraft service provider, headquartered in Lincoln, Nebraska. He also serves as deputy director of the Robert B. Daugherty Charitable Foundation. Mr. Wilson is a certified public accountant. He received his bachelor’s degree in business administration, cum laude, from the University of Nebraska – Omaha. During his career, he was a member of the audit staff and an audit manager at Peat, Marwick, Mitchell (now known as KPMG), controller for Great Plains Natural Gas Co., and chief financial officer and treasurer for all Durham Resources entities. For the following reasons, the board concluded that Mr. Wilson should serve as a director of MDU Resources Group, Inc., in light of our business and structure, at the time we file our proxy statement. Mr. Wilson has an extensive background in finance and accounting as well as extensive experience with mergers and acquisitions through his education and work experience at a major accounting firm and his later positions as controller and vice president of Great Plains Natural Gas Co.; president of Great Plains Energy Corp.; and president, chief financial officer, and treasurer for Durham Resources, LLC and all Durham Resources entities. The electric and natural gas utility business was our core business when our company was founded in 1924. That business now operates through four utilities: Montana-Dakota Utilities Co., Great Plains Natural Gas Co., Cascade Natural Gas Corporation, and Intermountain Gas Company. Mr. Wilson is our only non-employee director with direct experience in this area through his prior positions at Great Plains Natural Gas Co. and Great Plains Energy. In addition, Mr. Wilson’s extensive finance and accounting experience make him well-suited for our audit committee. |
The board of directors recommends a vote "for"“for” each nominee.
A pluralitymajority of votes of the common stock entitled to vote and present in
person or represented by proxycast is required to elect a director. "Withheld"director in an uncontested election. A majority of votes cast means the number of votes cast ��for” a director’s election must exceed the number of votes cast “against” the director’s election. “Abstentions” and “broker non-votes” do not count as votes cast “for” or “against” the director’s election. In a contested election, which is an election in determining whether awhich the number of nominees for director nominee receivesexceeds the number of directors to be elected and which we do not anticipate, directors will be elected by a plurality of votes.
Inthe votes cast.
Unless you specify otherwise when you submit your proxy, the proxies will vote your shares of common stock “for” all directors nominated by the board of directors. If a nominee becomes unavailable for any reason or if a vacancy should occur before the election, which we do not anticipate, the proxies will vote your shares in their discretion for another person nominated by the board.
Our policy on majority voting for directors and our corporate governance guidelines require any nominee for re-election as a director to tender to the board, prior to nomination, his or her irrevocable resignation from the board that will be effective, in an uncontested election any nominee for director who receives a greater
number of votes "withheld" from his or her election than votes "for" his or her
election is required to promptly tender his or her resignation to the chairman
of the board followingdirectors only, upon:
· | receipt of a greater number of votes “against” than votes “for” election at our annual meeting of stockholders and |
· | acceptance of such resignation by the board of directors. |
Following certification of the stockholder
vote. Thevote, the nominating and governance committee will
thenpromptly recommend to the board
of directors whether
or not to accept
or reject the tendered resignation.
5
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CONTINUING INCUMBENT DIRECTORS
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Information concerning our continuing incumbent directors, whose terms
expire in 2008 or 2009, including their ages, years of service as directors and
business experience which each director has furnished to us, is as follows:
DIRECTOR TERMS EXPIRING IN 2008
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Thomas Everist Director Since 1995
Age 57 Term Expires in 2008
[PHOTO]
Mr. Everist has served as President and Chairman of The Everist
Company, Sioux Falls, South Dakota, an aggregate, concrete and
asphalt production company, since April 15, 2002. He previously
was President and Chairman of L.G. Everist, Inc., Sioux Falls,
South Dakota, an aggregate production company, from 1987 to April
15, 2002. He also is Managing Member of South Maryland Creek
Ranch, LLC, a land development company and President of SMCR,
Inc., an investment company. He is a Director of Showplace Wood
Products, Sioux Falls, South Dakota, a custom cabinets
manufacturer; and a Director of Raven Industries, Inc., Sioux
Falls, South Dakota, a general manufacturer of electronics, sewn
products, flow controls and engineered films. He currently servesboard will act on the Compensation Committee.
Karen B. Fagg Director Since 2005
Age 53 Term Expires in 2008
[PHOTO]
Ms. Fagg has been President since April 1, 1995nominating and majority
owner since June 2000 of HKM Engineering, Inc., Billings,
Montana, an engineering and physical science services firm. She
was employed with Mountain States Energy, Inc., Butte, Montana,
an environmental technology research and development company, as
Business Development Director and Vice President of Operations
from June 1976 through December 1988. Ms. Fagg also served a
four-year term as Directorgovernance committee’s recommendation no later than 90 days following the date of the Montana Department of Natural
Resources and Conservation, Helena, Montana, from January 1989
through December 1992. From January 1993 through March 1995, she
served as Corporate Development Director for Mountain States
Energy, Inc. She servesannual meeting. Please note that the New York Stock Exchange rules have changed. Brokers may not vote your shares on the Montana Boardelection of Investments anddirectors if you have not given your broker specific instructions as to how to vote. Please be sure to give specific voting instructions to your broker so that your vote can be counted.
ITEM 2. REPEAL OF ARTICLE TWELFTH OF OUR RESTATED CERTIFICATE OF INCORPORATION, WHICH CONTAINS PROVISIONS RELATING TO BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS, AND RELATED AMENDMENTS TO ARTICLES THIRTEENTH AND FOURTEENTH |
In November 2009, we received a stockholder proposal requesting that the
Board of ZooMontana. Ms. Fagg is a member of the Board of
Trustees for Carroll College and for St. Vincent's Healthcare.
Ms. Fagg currently serves on the Compensation and Nominating and
Governance Committees.
Patricia L. Moss Director Since 2003
Age 53 Term Expires in 2008
[PHOTO]
Ms. Moss has been President, Chief Executive Officer and a
Director of Cascade Bancorp, a financial holding company, and
Bank of the Cascades, Bend, Oregon, since 1998. She also serves
as a Director of North Pacific
6
Products, Inc., a distributor of wood products, building
materials and agricultural commodities, the Oregon Investment
Fund Advisory Council, a state sponsored program to encourage the
growth of small businesses within Oregon, and Clear Choice Health
Plans, a ten-county health insurance company. She currently
serves on the Compensation Committee.
DIRECTOR TERMS EXPIRING IN 2009
- -------------------------------
Richard H. Lewis Director Since 2005
Age 57 Term Expires in 2009
[PHOTO]
Mr. Lewis has been the Managing General Partner of Brakemaka
LLLP, a private investment partnership for managing family
investments, and President of the Lewis Family Foundation since
August 2004. He founded Prima Energy Corporation, a natural gas
and oil exploration and production company, in 1980 and served as
Chairman, President and Chief Executive Officer of the company
until its sale in July 2004. Mr. Lewis serves as Chairman of the
Board of Entre Pure Industries, Inc., a privately held company
involved in the purified water and ice business. He is past
President and a current Board member of the Colorado Oil and Gas
Association and serves as a Director of Colorado State Bank and
Trust. He currently serves on the Audit and Nominating and
Governance Committees.
Harry J. Pearce Director Since 1997
Age 64 Term Expires in 2009
[PHOTO]
Mr. Pearce was elected Chairman of the Board of the Company on
August 17, 2006. Prior to that, he served as Lead Director
effective February 15, 2001 and was Vice Chairman of the Board
from November 16, 2000 until February 15, 2001. Mr. Pearce was
named Chairman of the Board of Nortel Networks Corporation, a
telecommunications equipment manufacturer, on June 29, 2005. He
retired on December 19, 2003, as Chairman of Hughes Electronics
Corporation, a General Motors Corporation subsidiary and provider
of digital television entertainment, broadband satellite network,
and global video and data broadcasting. He had served as Chairman
since June 1, 2001. Mr. Pearce formerly was Vice Chairman and a
Director of General Motors Corporation, the world's largest
vehicle manufacturer, from January 1, 1996 to May 31, 2001. He is
a Director of Marriott International, Inc., a major hotel chain,
and is Chairman of The Marrow Foundation. He is a Director of the
Leukemia & Lymphoma Society Research Foundation, a Fellow of the
American College of Trial Lawyers, and a member of the
International Society of Barristers. He also serves on the Board
of Trustees of Northwestern University.
7
Sister Thomas Welder, Director Since 1988
O.S.B. Term Expires in 2009
Age 66
[PHOTO]
Sister Welder has been the President of the University of Mary,
Bismarck, North Dakota since 1978. She is a Director of St.
Alexius Medical Center of Bismarck, the Bismarck-Mandan
Development Association and the Missouri Slope Areawide United
Way. She also is a member of the North Dakota Higher Education
Roundtable and the Theodore Roosevelt Medora Founder's Society
and is a past member of the Bismarck-Mandan Area Chamber of
Commerce Board and the Consultant-Evaluator Corps for the North
Central Association of Colleges and Schools. She currently serves
on the Nominating and Governance Committee.
8
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ITEM 2. INCREASE IN AUTHORIZED COMMON STOCK
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Our capital stock consists of 252,000,000 authorized shares divided into
four classes:
o 500,000 shares of preferred stock with a par value of $100 per
share
o 1,000,000 shares of preferred stock A without par value
o 500,000 shares of preference stock without par value and
o 250,000,000 shares of common stock with a par value of $1.00 per
share.
We split our common stock three-for-two effective July 26, 2006. As of
February 26, 2007, we had issued and outstanding [ ] shares of common stock, and
we had reserved [ ] additional shares for issuance under our director, executive
and employee stock plans, a potential earn-out in connection with a prior
acquisition and our dividend reinvestment plan. Because of the limited number of
shares available to issue, our board of directors take the steps necessary to change the stockholder vote requirements that call for a greater than simple majority vote in our restated certificate of incorporation, as amended, and bylaws to a majority of votes cast for or against any proposal. Article TWELFTH of our restated certificate of incorporation, which has unanimously“fair price” provisions relating to business combinations with interested stockholders, contains a supermajority vote requirement. Article TWELFTH provides that, unless the transaction is approved by two-thirds of the continuing directors, the fair price and votedprocedural requirements of article TWELFTH will apply to recommendthe business combination, and the business combination must be approved by at least 80% of the voting power of the outstanding voting stock. In this proxy statement, we sometimes refer to the provisions of article TWELFTH as the “fair price” provisions.
Article TWELFTH requires the affirmative vote of at least 80% of the voting power of our outstanding voting stock to approve certain transactions involving an “interested stockholder,” which is a person or group that you approvebeneficially owns more than 10% of our outstanding voting stock.
The supermajority vote requirement applies to the following transactions:
· | a merger or consolidation with an interested stockholder |
· | a sale, lease, exchange or other disposition of assets of the company with an aggregate fair market value of $5 million or more to an interested stockholder |
· | the issuance of securities by the company with an aggregate fair market value of $5 million or more to an interested stockholder |
· | a voluntary plan of liquidation or dissolution proposed by an interested stockholder and |
· | a reclassification, recapitalization, merger or any other transaction that increases the proportionate share of outstanding shares of the company owned by an interested stockholder. |
The supermajority vote requirement does not apply to transactions that have been approved by two-thirds of the continuing directors. Continuing directors are members of the board who are unaffiliated with, and not nominees of, an amendmentinterested stockholder and who were members of the board prior to the time the interested stockholder became an interested stockholder. Continuing directors also include directors designated to succeed continuing directors.
We added article TWELFTH to our restated certificate of incorporation to increasein 1985. As we discussed in our authorizedproxy statement at that time, there had been a number of instances in which an unsolicited bidder had acquired control of a company over the objections of management and, after acquiring control, had compelled a merger, consolidation or sale of assets without an arm’s length negotiation of the terms. While tender offers or other takeover attempts could be made at a price substantially above the market price of a company’s common stock, they frequently were made for less than all of the outstanding shares of a target company. Such partial offers could present stockholders with the alternative of either partially liquidating their investment at a time when that may be disadvantageous or retaining an investment in an enterprise under new management whose objectives may differ from 250,000,000those of the remaining stockholders. Article TWELFTH was designed to 500,000,000 shares. There would be no changedeal with then recently-developed takeover strategies such as two-tiered transactions that often resulted in inequitable treatment of long-term stockholders. Article TWELFTH was designed to encourage a person making an unsolicited bid for the company to negotiate with our board of directors to reach terms that were fair and in the par valuebest interests of $1.00 per
share.the stockholders.
In more recent years, however, some investors have viewed fair price provisions as inconsistent with principles of good corporate governance and believe that these provisions make it more difficult for stockholders to effect change and participate in important decisions affecting the company. These investors believe that the supermajority vote requirement that is part of the fair price provisions limits the ability of a majority of stockholders to effect change by providing a veto right to a large minority stockholder or group of stockholders. They also assert that supermajority vote provisions cause boards and management to be less responsive or accountable to stockholders. Others have argued that supermajority vote requirements not only offer little, if any, protection to minority stockholders, but also have the effect of discouraging legitimate offers for a company by making them more expensive.
After receiving the stockholder proposal, the board of directors reviewed the advantages and disadvantages of the provisions contained in article TWELFTH and after this review decided to propose the repeal of article TWELFTH to further our goal of ensuring that our corporate governance policies maximize our accountability to stockholders.
The company will continue to be subject to Section 203 of the Delaware General Corporation Law, whether or not the proposed amendments are approved. With some exceptions, Section 203 provides that a business combination, as defined in Section 203, with an interested stockholder, which is a person owning 15% or more of a company’s outstanding voting stock, cannot be completed for a three-year period after the date the person became an interested stockholder, unless
· | prior to the time the person became an interested stockholder, the board of directors approved either the business combination or the transaction that resulted in the person becoming an interested stockholder |
· | upon consummation of the transaction that resulted in the person becoming an interested stockholder, that person owned at least 85% of the outstanding voting stock, excluding certain shares or |
· | the business combination was approved by the board of directors and by at least two-thirds of the outstanding voting stock not owned by the interested stockholder. |
In addition to the deletion of article TWELFTH, the board of directors has proposed related amendments to articles THIRTEENTH and FOURTEENTH of our restated certificate of incorporation. These amendments add to article THIRTEENTH some definitions of terms currently included in article TWELFTH that are relevant to other articles of our restated certificate of incorporation. These definitions of terms have been modified to reflect the repeal of article
TWELFTH. In addition, in article FOURTEENTH, the amendments substitute the term “business combination” that was previously defined in article TWELFTH with a description of the term’s meaning, which is no longer limited to transactions with “interested stockholders.”
The board of directors has approved the proposed amendments to our restated certificate of incorporation described above. The board resolution includingsetting forth the proposed amendments to our restated certificate of incorporation is included in exhibit A to this proxy statement and shows the changes that would result from the amendments. If approved by our stockholders, the amendments will become effective upon filing with the Secretary of State of the State of Delaware, which filing we would make promptly after the annual meeting.
The board of directors recommends a vote “for” the proposal to repeal article TWELFTH of our restated certificate of incorporation, which contains provisions relating to business combinations with interested stockholders, and related amendments to articles THIRTEENTH and FOURTEENTH.
Approval requires the affirmative vote of a majority of the outstanding shares of common stock. Abstentions will count as votes against this proposal.
ITEM 3. REPEAL OF ARTICLE FIFTEENTH OF OUR RESTATED CERTIFICATE OF INCORPORATION, WHICH CONTAINS SUPERMAJORITY VOTE REQUIREMENTS FOR AMENDMENTS TO CERTAIN ARTICLES OF OUR RESTATED CERTIFICATE OF INCORPORATION |
As discussed above under Item 2, in November 2009, we received a stockholder proposal requesting that the board of directors take the steps necessary to change the stockholder vote requirements that call for a greater than simple majority vote in our restated certificate of incorporation and bylaws to a majority of votes cast for or against any proposal.
Article FIFTEENTH of our restated certificate of incorporation, as amended, requires the affirmative vote of at least 80% of the voting power of the outstanding voting stock to amend, alter, change or repeal, or to adopt any provision inconsistent with, the following provisions of our restated certificate of incorporation:
· | article TWELFTH, which contains provisions relating to business combinations with interested stockholders and includes a supermajority vote requirement. As described under Item 2 above, article TWELFTH is proposed to be deleted. |
· | article THIRTEENTH, which contains provisions relating to the board of directors and establishes the range for the number of directors on the board, the authority of the board to fix the exact number of directors within the range, the provisions for annual election of directors, and the authority of the board to fill vacancies or newly created directorships |
· | article FOURTEENTH, which sets forth a list of factors for the board of directors to consider in evaluating a proposal by another party to make a tender or exchange offer for securities of the company or to effect a merger, consolidation or other business combination with the company |
· | article FIFTEENTH itself and |
· | article SIXTEENTH, which contains provisions setting forth how stockholder action must be effected and who is entitled to call special meetings of stockholders. |
The supermajority vote requirement does not apply to amendments that are recommended to stockholders by two-thirds of the continuing directors.
We added article FIFTEENTH to our restated certificate of incorporation in 1985. The supermajority vote requirement was intended to prevent one or more stockholders controlling a simple majority of our voting stock from repealing the fair price and other provisions referred to in article FIFTEENTH and to give minority stockholders holding in the aggregate in excess of 20% of the voting power the ability to prevent amendments to the fair price and other provisions referred to in article FIFTEENTH.
However, as with fair price provisions, in more recent years, some investors have viewed supermajority vote requirements as inconsistent with principles of good corporate governance and argue that such provisions make it more difficult for stockholders to effect change and participate in important decisions affecting the company. These investors believe that supermajority vote requirements limit the ability of a majority of stockholders to effect change by providing a veto right to a large minority stockholder or group of stockholders. They also assert that supermajority vote provisions cause boards and management to be less responsive or accountable to stockholders. Others have argued that supermajority vote requirements not only offer little, if any, protection to minority stockholders, but also have the effect of discouraging legitimate offers for the company by making them more expensive. A number of major corporations have determined that, regardless of the merits of supermajority vote provisions, principles of good corporate governance dictate that such requirements be eliminated.
After receiving the stockholder proposal, the board of directors reviewed the advantages and disadvantages of supermajority vote requirements contained in article FIFTEENTH and, after this review, decided to propose the repeal of article FIFTEENTH to further our goal of ensuring that our corporate governance policies maximize our accountability to stockholders.
If article FIFTEENTH is repealed, the stockholder vote required to approve amendments to the provisions of our restated articles of incorporation identified in article FIFTEENTH not recommended to stockholders by two-thirds of our continuing directors would be reduced from an 80% supermajority vote to a majority of our outstanding voting stock. Section 242(b) of the Delaware General Corporation Law would apply to all amendments to our restated certificate of incorporation and require that charter amendments be approved by a majority of the outstanding stock entitled to vote thereon and by a majority of the outstanding stock of each class entitled to vote thereon as a class, unless the Delaware General Corporation Law or our restated certificate of incorporation specifically provides for a greater than majority vote.
The board of directors has approved the proposed amendment as described above. The board resolution setting forth the proposed amendment to our restated certificate of incorporation is included in exhibit
"A"A to this proxy
statement.
The additional authorized shares would enable us to issue common stock to
raise capital funds expeditiouslystatement and
economically for our ongoing operational
needs. We could use the shares for our director, executive and employee stock
plans and our dividend reinvestment plan, for possible acquisitions, stock
distributions or splits, or other corporate purposes. We would be able to issue
common stock without the delay and expense involved in obtaining stockholder
approval when we believe that such issuance is appropriate; however, we would be
required to obtain all necessary regulatory approvals prior to issuance of any
additional common stock. We have no present plans for issuance or use of the
proposed additional authorized common stock.
All newly authorized shares of common stock when issued would have the same
rights as the presently authorized shares, including the right to cast one vote
per share and to receive dividends when and to the extent we declare and pay
them. Company stockholders would have no preemptive rights with respect to the
issuance of the additional common stock.
Any issuance of additional shares of common stock would increase the
outstanding number of shares of common stock and dilute the percentage ownership
of existing stockholders. The dilutive effect of an issuance could discourage a
change of control by making it more difficult or costly. We are not aware of any
specific effort to obtain control of us, and we have no present intention of
using the proposed increase in authorized common stock to deter a change of
control.
9
None of our directors or officers has any interest, direct or indirect, in
the adoption of the proposed amendment except as a holder of our common stock.
We are not furnishing financial statements as we do not believe that they
are material for the exercise of prudent judgment regarding this proposal.
The board of directors recommends a vote "for" the proposal to increase our
authorized shares of common stock.
Approval requires the affirmative vote of a majority of all outstanding
common stock. Abstentions and broker non-votes will count as votes against this
proposal.
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ITEM 3. DECLASSIFICATION OF BOARD OF DIRECTORS
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Article THIRTEENTH of our restated certificate of incorporation, as
amended, provides for a classified board of directors. This means that our board
of directors is divided into three classes, as nearly equal in number as
possible, with members of each class serving staggered three-year terms. We
adopted this system for electing directors in 1985.
Our board of directors has approved and voted to recommend that you approve
an amendment to our restated certificate of incorporation to provide for a
declassified board of directors. This means that all directors would be elected
annually and serve one-year terms.
The board of directors has set the current number of directors at ten, and
this proposal would not change the present number of directors. Directors will
retain the authority to change the number of directors and to fill any vacancies
or newly-created directorships. However, any director elected to fill a vacancy
or a newly-created directorship would serve for a term expiring at the next
annual meeting.
Classified or staggered boards have been widely adopted and have a long
history in corporate law. Proponents of classified boards assert they promote
the independence of directors because directors elected for multi-year terms are
less subject to outside influence. Proponents of a staggered system for the
election of directors also believe it provides continuity and stability in the
management of the business and affairs of a company because a majority of
directors always have prior experience as directors of the company. Proponents
further assert that classified boards may enhance stockholder value by forcing
an entity seeking control of a target company to initiate arms-length
discussions with the board of the target company because the entity is unable to
replace the entire board in a single election.
On the other hand, some investors view classified boards as having the
effect of reducing the accountability of directors to stockholders because
classified boards limit the ability of stockholders to evaluate and elect all
directors on an annual basis. The election of directors is a primary means for
stockholders to influence corporate governance policies and to hold management
accountable for implementing those policies. In addition, opponents of
classified boards assert that a staggered structure for the election of
directors may discourage proxy
10
contests in which stockholders have an opportunity to vote for a competing slate
of nominees and therefore may erode stockholder value. A number of major
corporations have determined that, regardless of the merits of a classified
board, principles of good corporate governance dictate that all directors of a
corporation be elected annually.
The board of directors has considered carefully the advantages and
disadvantages of maintaining a classified board structure, and in the past
concluded that it would be in the best interests of the company and its
stockholders to maintain the classified board. This year, the company received a
stockholder proposal on declassification, and the board again gave due
consideration to the various arguments for and against a classified board and
consulted with internal and outside advisors. After this review, the board of
directors decided that it is an appropriate time to propose declassifying the
board. This determination by the board is in furtherance of our goal of ensuring
that our corporate governance policies maximize our accountability to
stockholders and allow stockholders the opportunity each year to register their
views on the performance of the board of directors.
The board of directors has approved the proposed amendment declassifying
the board of directors. If approved by the stockholders, we will amend our
restated certificate of incorporation to provide for the annual election of all
directors.
If our stockholders approve the amendment, the directors elected at this
annual meeting of stockholders in 2007 will, along with the directors elected at
the annual meetings of stockholders held in 2005 and 2006, serve their full
three-year terms. Beginning with the annual meeting of stockholders to be held
in 2008, each director whose term is ending will be elected annually and serve
until the next following annual meeting or until his or her earlier resignation
or termination from the board.
The board resolution including the proposed amendment to our restated
certificate of incorporation is included in exhibit B to this proxy statement.
We have shownshows the changes to the relevant sections of Article THIRTEENTH of the
restated certificate of incorporation resultingthat would result from the amendment. If approved by our stockholders, the amendment will become effective upon filing with the Secretary of State of the State of Delaware, which filing we would make promptly after the annual meeting. The board of directors recommends a vote "for"“for” the proposal to amendrepeal article FIFTEENTH of our restated certificate of incorporation, which contains supermajority vote requirements for amendments to declassifycertain articles of our boardrestated certificate of directors.
incorporation.
Approval requires the affirmative vote of a majority of
allthe outstanding
shares of common stock. Abstentions
and broker non-votes will count as votes against this proposal.
11
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ITEM 4. RATIFICATION OF INDEPENDENT AUDITORS
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ITEM 4. REPEAL OF SECTION (c) OF ARTICLE THIRTEENTH OF OUR RESTATED CERTIFICATE OF INCORPORATION, WHICH PROVIDES THAT DIRECTORS MAY BE REMOVED BY STOCKHOLDERS ONLY FOR CAUSE, AND TECHNICAL AMENDMENTS TO SECTION (a) OF ARTICLE THIRTEENTH |
Section (c) of article THIRTEENTH of our restated certificate of incorporation, as amended, provides that any director or the entire board of directors may be removed by stockholders only for cause and sets forth the requirements for such removal.
In 2007, our board of directors proposed and our stockholders approved the declassification of our board. The declassification has been phased in over a three-year period from 2008 to 2010. Directors elected at our 2007 annual meeting comprise the last class of directors elected to serve a three-year term, and their terms will expire with this year’s annual meeting. As a result, commencing with this year’s annual meeting, our board will be completely declassified, and all directors at this year’s annual meeting will be elected to serve one-year terms.
With the completion of the declassification of our board, section (c) of article THIRTEENTH will not be consistent with Section 141(k) of the Delaware General Corporation Law, which provides that the right of stockholders to remove directors may not be limited to removal for cause unless the board is classified.
The board of directors has therefore proposed to repeal section (c) of article THIRTEENTH and to make technical amendments to section (a) of article THIRTEENTH.
The board of directors has approved the proposed amendments to our restated certificate of incorporation described above. The board resolution setting forth the proposed amendments to our restated certificate of incorporation is included in exhibit A to this proxy statement and shows the changes that would result from the amendments. If approved by our stockholders, the amendments will become effective upon filing with the Secretary of State of the State of Delaware, which filing we would make promptly after the annual meeting. However, even if our stockholders do not approve the repeal of section (c), it will no longer have any effect because its provisions will be inconsistent with the Delaware General Corporation Law.
The board of directors recommends a vote “for” the proposal to repeal section (c) of article THIRTEENTH of our restated certificate of incorporation, which provides that directors may be removed by stockholders only for cause, and technical amendments to section (a) of article THIRTEENTH.
Approval requires the affirmative vote of a majority of the outstanding shares of common stock. Abstentions will count as votes against this proposal.
ITEM 5. RATIFICATION OF INDEPENDENT AUDITORS |
The audit committee at its February 20072010 meeting appointed Deloitte & Touche LLP as our independent auditors for fiscal year 2007.2010. The board of directors concurred with the audit committee'scommittee’s decision. Deloitte & Touche LLP has served as our independent auditors since fiscal year 2002.
Although your ratification vote will not affect the appointment or retention of Deloitte & Touche LLP for 2007,2010, the audit committee will consider your vote in determining its appointment of our independent auditors for the next fiscal year. The audit committee, in appointing our independent auditors, reserves the right, in its sole discretion, to change an appointment at any time during a fiscal year if it determines that such a change would be in our best interests.
A representative of Deloitte & Touche LLP will be present at the annual meeting and will be available to respond to appropriate questions. We do not anticipate that the representative will make a prepared statement at the meeting; however, he or she will be free to do so if he or she chooses.
The board of directors recommends a vote "for"“for” the ratification of Deloitte & Touche LLP as our independent auditors for 2007.
2010.
Ratification of the appointment of Deloitte & Touche LLP as our independent auditors for 20072010 requires the affirmative vote of a majority of our common stock present in person or represented by proxy at the meeting and entitled to vote on the proposal. Abstentions will count as votes against this proposal.
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ACCOUNTING AND AUDITING MATTERS
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In connection with the audit of our financial statements for 2010, the parties have drafted an agreement for audit committee approval that contains provisions for alternative dispute resolution and for the exclusion of punitive damages. The agreement provides that disputes arising out of our engagement of Deloitte & Touche LLP are resolved through mediation or arbitration, commonly referred to as alternative dispute resolution procedures, and that the company’s and Deloitte & Touche LLP’s rights to pursue punitive damages or other forms of relief not based upon actual damages are waived. The alternative dispute resolution provisions do not apply to claims by third parties, such as our stockholders or creditors.
ACCOUNTING AND AUDITING MATTERS |
Fees
The following table summarizes the aggregate fees that our independent auditors, Deloitte & Touche LLP, billed or are expected to bill us for professional services rendered for
20062009 and
2005:
12
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2006 2005*
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Audit Fees(a) $2,244,835 $1,831,013
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Audit-Related Fees(b) 168,926 224,152
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Tax Fees(c) 6,380 74,720
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All Other Fees(d) 0 0
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Total Fees $2,420,141 $2,129,885
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Ratio of Tax and All Other Fees to Audit and 0.26% 3.66%
Audit-Related Fees
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* The 2005 amounts were adjusted from amounts shown in the 2006 proxy statement
to reflect actual amounts.
(a) Audit fees for both 2006 and 2005 consisted of services rendered for the
audit of our annual financial statements; reviews of our quarterly
financial statements; comfort letters; statutory and regulatory audits; and
consents and other services related to Securities and Exchange Commission
matters.
(b) Audit-related fees for 2006 and 2005 consisted of services rendered for the
audit of our employee benefit plans; due diligence associated with mergers
and acquisitions; and consultation on accounting issues.
(c) Tax fees for 2006 are associated with property tax consulting services; tax
fees for 2005 consisted of services related to tax credit filings.
(d) No all other fees were incurred during 2006 or 2005.
2008: | 2009 | | | 2008* | |
Audit Fees(a) | | $ | 2,393,800 | | | $ | 2,535,253 | |
Audit-Related Fees(b) | | | 52,292 | | | | 78,511 | |
Tax Fees(c) | | | 17,600 | | | | 33,653 | |
All Other Fees(d) | | | 130,016 | | | | 0 | |
Total Fees(e) | | $ | 2,593,708 | | | $ | 2,647,417 | |
Ratio of Tax and All Other Fees to Audit and Audit-Related Fees | | | 6.03 | % | | | 1.29 | % |
* | The 2008 amounts were adjusted from amounts shown in the 2009 proxy statement to reflect actual amounts. |
| |
(a) | Audit fees for both 2009 and 2008 consisted of services rendered for the audit of our annual financial statements; reviews of our quarterly financial statements; comfort letters; statutory and regulatory audits and consents and other services related to Securities and Exchange Commission matters. |
| |
(b) | Audit-related fees for 2009 are associated with the audit of the Intermountain Gas Company’s benefit plans and accounting research assistance. Audit-related fees for 2008 are associated with accounting research assistance; consultation on accounting process improvements, including recommended practices and opportunities for control improvement; and assistance in the transition of benefit plan audits to another accounting firm. |
| |
(c) | Tax fees for 2009 include support services associated with the Cascade Natural Gas Corporation IRS audit. Tax fees for 2008 are associated with tax planning, compliance, and support services. |
| |
(d) | All other fees for 2009 are for services provided by Deloitte FAS, LLP in connection with the review of accounting practices and procedures at one of the company’s operating locations. No fees under the category of all other fees were incurred during 2008. |
| |
(e) | Total fees reported above include out-of-pocket expenses related to the services provided of $267,708 for 2009 and $269,618 for 2008. |
Pre-Approval Policy
The audit committee pre-approved all services Deloitte & Touche LLP performed in 20062009 in accordance with the pre-approval policy and procedures the audit committee adopted at its August 12, 2003 meeting. This policy is designed to achieve the continued independence of Deloitte & Touche LLP and to assist in our compliance with Sections 201 and 202 of the Sarbanes-Oxley Act of 2002 and related rules of the Securities and Exchange Commission.
The policy defines the permitted services in each of the audit,
audit-
related,audit-related, tax and all other services categories as well as prohibited services. The pre-approval policy requires management to submit annually for approval to the audit committee a service plan describing the scope of work and anticipated cost associated with each category of service. At each regular audit committee meeting, management reports on services performed by Deloitte & Touche LLP and the fees paid or accrued through the end of the quarter preceding the meeting. Management may submit
requests for additional
permitted services
contemplated to be performed before the next scheduled audit committee meeting to the designated member of the audit committee, Dennis W. Johnson, for approval. The designated member updates the audit committee at the next regularly scheduled meeting regarding any services that he approved during the interim period. At each regular audit committee meeting, management may submit to the audit committee for approval a supplement to the service plan containing any request for additional permitted services.
13
In addition, prior to approving any request for audit-related, tax or all other services of more than $50,000, Deloitte & Touche LLP will provide a statement setting forth the reasons why the rendering of the proposed services does not compromise Deloitte & Touche LLP'sLLP’s independence. This description and statement by Deloitte & Touche LLP may be incorporated into the service plan or as an exhibit thereto or may be delivered in a separate written statement.
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ITEM 5. STOCKHOLDER PROPOSAL REQUESTING SUSTAINABILITY REPORT
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Calvert Asset Management
ITEM 6. STOCKHOLDER PROPOSAL REQUESTINGA REPORT ON COAL COMBUSTION WASTE |
A stockholder has notified us that it intends to submitpresent a resolution for action by the proposal set forth below for considerationstockholders at the annual meeting. Calvert ResolutionWe will provide the name, address and Supporting Statement
- -------------------------------------------
SUSTAINABILITY REPORT RESOLUTION
Whereas:
Investors increasingly seek disclosurestock ownership of companies' socialthe proponent to stockholders promptly after receiving an oral or written request. The text of the resolution and environmental practicesthe supporting statement submitted by the proponent are as follows.
Stockholder Proposal
Report On Risks Associated With Coal Combustion Waste
WHEREAS: Coal combustion waste (CCW) is a by-product of burning coal that contains high concentrations of arsenic, mercury, heavy metals and other toxins that pollution control equipment filters out of smokestacks. Across the country, over 130 million tons of CCW are being stored in surface waste ponds, impoundments and abandoned mines.
Our company’s electricity generation mix is 54% coal, 17% Gas, 4% Renewables, and 26% Purchased power/capacity agreements.
According to the company, our company operates CCW impoundment sites. CCW is therefore a significant issue for our company.
In 2007, the U.S. Environmental Protection Agency (EPA) published a draft risk assessment that found extremely high risks to human health from the disposal of CCW in waste ponds and landfills. EPA’s analyses of the behavior of CCW in unlined disposal sites predict that some metals will migrate and contaminate nearby groundwater to levels extremely dangerous to people.
The EPA has found ample evidence at over 60 sites in the beliefU.S. that they impact
shareholder value. Many investors believe companies that are good
employers, environmental stewards,CCW has polluted ground and corporate citizens are
moresurface waters.
EPA has identified over 580 CCW impoundment facilities around the country. At least 49 of these have been labeled “high hazard potential” sites where a dam breach and subsequent spill of CCW material would likely
to generate incremental financial returns, be more
stable in turbulent economic and political conditions, and enjoy
long-term business success.
Mainstream financial companies are seeking tools to understand
the links between sustainability performance and capital markets.
According to research consultant Innovest, major investment firms
including ABN-AMRO, Schroders, T. Rowe Price, and Legg Mason
subscribe to information on companies' social and environmental
practices to help make investment decisions.
Sustainability refers to endeavors that meet present needs
without impairing the ability of future generations to meet their
own needs. It includes "encouraging long lasting social well
being in communities where [companies] operate, interacting with
different stakeholders (e.g. clients, suppliers, employees,
government, local communities, and non-governmental
organizations), and responding to their specific and evolving
needs, thereby securing a long-term 'license to operate,'
superior customer and employee loyalty, and ultimately superior
financial returns" (Dow Jones Sustainability Group).
Globally, approximately 1,500 companies produce reports on
sustainability issues (Association of Chartered Certified
Accountants, www.corporateregister.com), including more than half
of the global
14
Fortune 500 (KPMG International Survey of Corporate Responsibility
Reporting 2005).
MDU Resources Group competes internationally, and global
expectations regarding sustainability reporting are increasing.
The European Commission recommends corporate sustainability
reporting, and listed companies in Australia, South Africa and
France are required to provide investors with information on
their social and environmental performance.
Companies increasingly recognize that transparency and dialogue
about sustainability are elements of business success. For
example, Unilever's Chairman statedresult in a 2003 speech, "So when we
talk about corporate social responsibility, we don't see itloss of human life and significant environmental consequences. Recent reports by the New York Times and others have drawn attention to the impactful presence of CCW in the nation’s air and waterways, through leakage from CCW impoundments and through direct discharge to surrounding rivers and streams.
The Tennessee Valley Authority’s (TVA) 1.1 billion gallon CCW spill in December 2008 that covered over 300 acres in eastern Tennessee with toxic sludge highlights the serious environmental risks associated with storing CCW. TVA estimates a total cleanup cost of $1.2 billion. This figure does not contain the extensive litigation costs that ensued, including the large class action lawsuit filed against TVA in February 2009.
EPA officials have indicated that the agency will determine by the end of 2009 whether certain power plant by-products such as something business "does"coal ash should be treated as hazardous waste, which would subject CCW to society but as something that is
fundamental to everything we do. Not just philanthropy or
community investment, important though that is, but the impact of
our operations and products as well as the interaction we have
with the societies we serve."
RESOLVED:stricter regulations.
RESOLVED: Shareholders request that the Board of Directors issueboard prepare a sustainability report, to shareholders, at reasonable cost and omitting proprietary information, by December 31, 2007.
SUPPORTING STATEMENT
Theon the company’s efforts, above and beyond legal compliance, to reduce environmental and health hazards associated with coal combustion waste ponds, impoundments and mines, and how those efforts reduce risks to the
company’s finance and operations. This report should include the company's definition of
sustainability, as well as a company-wide review of company
policies, practices, and metrics relatedbe available to long-term social and
environmental sustainability.
We recommend that MDU Resources Group use the Global Reporting
Initiative's Sustainability Reporting Guidelines ("The
Guidelines") to prepare the report. The Global Reporting
Initiative (www.globalreporting.org) is an international
organization developed with representatives from the business,
environmental, human rights and labor communities. The Guidelines
provide guidance on report content, including performance on
direct economic impacts, environmental, labor practices and
decent work conditions, human rights, society, and product
responsibility. The Guidelines provide a flexible reporting
system that allows the omission of content that is not relevant
to company operations. Over 700 companies use or consult the
Guidelines for sustainability reporting, including
Anheuser-Busch, Cadbury Schweppes, Diageo, PepsiCo, and
SABMiller.
---------------------
shareholders by August 2010.
_________________
Company Response
- ----------------
The board of directors recommends a vote
"against"“against” this proposal.
15
While there are Our company and Montana-Dakota Utilities Co., a numberdivision of different definitions of sustainability, we
believe that sustainability means our ability to meet the needs of the present
without compromising the ability of the future generations to meet their own
needs.
Wecompany (“Montana-Dakota”), are committed to the conduct of business according to the highest
ethical standards, as reflected in our code of conductenvironmental stewardship and our code of ethics,
which are posted on our website.
Our code of ethics includes the following provisions:
Introduction
Among the many objectives of MDU Resources Group, Inc.,
its utility divisioncompliance with all applicable environmental laws and its subsidiaries, stands the
constant goal of serving the long-term interests of the
owners - our shareholders. In fulfilling this objective we
must fully respect the legitimate claims and rights of
customers, employees, regulators, the general public, and
others whose interests touch upon ours.
No "Quick Fix"...
Our long-term profitability can only be achieved
through fair, honest and intelligent decisions with respect
to all those with whom we deal. Considering this position,
we will not accept a "quick fix" at the expense of our
future well-being.
A Step Beyond...
regulations.
Our company has always maintained a strong commitment
to the concept of corporate citizenship including the view
that companies as well as individuals must contribute to the
well-being of society. We accomplish this contribution
through the important services we provide but it extends far
beyond our basic products and services. Our corporate
citizenship must include active interest in the quality of
life enjoyed by our fellow employees and the citizens of the
many cities, towns and states we serve. These contributions
are further enhanced by conducting our business with
integrity.
In addition to these provisions, the codes cover other sustainability
issues including equal opportunity, compliance with laws, workplace safety, fair
competition and fair dealing. Further, the codes illustrate our involvement in
community activities and professional organizations.
In 1983, we established the MDU Resources Foundation to support
institutions, organizations and programs within the geographic area in which we
conduct business. The MDU Resources Foundation considers requests from health
and human services organizations, educational institutions, civic and community
activity organizations, cultural organizations andthree primary environmental organizations.
Information about the MDU Resources Foundation is on our website.
16
Our commitment to conducting our business with integrity includes
responsibly developing our earth's natural resources. All of our operating
business unitsgoals: · | minimize waste and maximize resources |
· | support environmental laws and regulations that are based on sound science and cost-effective technology and |
· | comply with or exceed all applicable environmental laws, regulations and permit requirements. |
Montana-Dakota’s electric operations are subject to a number of laws, rules and regulations that have
been put in place to protect the environment and are regulated by federal, state and local agencies and governments. A guiding principle of our corporation is
environmental responsibility. We are dedicated to fulfilling that tenet.
We are committed to:
o Minimizing waste and maximizing resources.
o Supporting environmental laws and regulations providing for air, water and solid waste pollution control; federal health and safety regulations; and state hazard communication standards.
The Environmental Protection Agency (“EPA”) has previously determined that fossil fuel combustion wastes, including coal combustion waste (“CCW”), did not warrant regulation as a hazardous waste and exempted them from regulation under Subtitle C (hazardous waste) of the Resource Conservation and Recovery Act (“RCRA”). However, CCW disposed of in landfills and surface impoundments is regulated under Subtitle D (solid waste regulations) of the RCRA, and CCW used as minefill is regulated under Subtitle D and/or under the Surface Mining Control and Reclamation Act. The EPA announced its intention to propose new regulations in December 2009 governing management and storage of CCW in landfills and surface impoundments and to determine whether to continue to regulate CCW as a non-hazardous solid waste under Subtitle D or to designate it as hazardous and regulate it under Subtitle C of the RCRA. In December 2009, however, the EPA announced that it was deferring taking action on this for a short period of time due to the complexity of the analysis. The EPA has also announced its intention to revise existing standards under the Clean Water Act, which would include discharge from CCW ponds.
Four of Montana-Dakota’s nine existing electric generating stations have steam turbines using coal for fuel. Montana-Dakota will also obtain electricity from Wygen III, a coal-fired electric generating station, when it becomes operational in spring 2010. Two stations, Coyote and Heskett, are based on
sound sciencelocated in North Dakota; Big Stone is located in South Dakota; Lewis & Clark is located in Montana; and cost-effective technology.
o Meeting or surpassing all applicable environmental laws,
regulationsWygen III is located in Wyoming. Montana-Dakota is the owner and permit requirements.
An environmental statement is included on our website.
As evidenced in our codesoperator of Heskett and through the MDU Resources Foundation, our
companyLewis & Clark and has a commitment towards sustainability. Our25 percent interest in Coyote, a 22.7 percent ownership interest in Big Stone and a 25 percent interest in Wygen III. CCW at these facilities is managed either in a wet state in ponds with dry disposal, or entirely in a dry state.
The states of North Dakota, South Dakota, and Wyoming have regulations relating to CCW that far exceed any current federal regulations. North Dakota, South Dakota, and Wyoming require facilities located within each state - Coyote and Heskett in North Dakota, Big Stone in South Dakota, and Wygen III in Wyoming - - to obtain permits for managing CCW impoundments and for long-term CCW disposal. The permits for each facility require that impoundments for CCW be appropriately designed and that ground water be monitored. Site staff and state environmental agency staff routinely inspect each site. Annual reports for these facilities, summarizing ground water results and activities conducted at these sites, are submitted to each respective regulatory agency: North Dakota Department of Health, South Dakota Department of Environment and Natural Resources, and Wyoming Department of Environmental Quality.
While the state of Montana has no requirements at this time for managing CCW, Montana-Dakota has adopted what it considers to be “best practices” at the Lewis & Clark Station, where it manages CCW in ponds and dewaters the waste prior to ultimate dry disposal at a naturally clay lined disposal area adjacent to the mine from which the plant receives its coal.
The ponds were designed and constructed under the supervision of a consulting professional engineer, requiring liners (clay or high density polyethylene), and appropriate stability and erosion prevention measures. There are ground water monitoring wells, which are sampled semiannually.
There are also weekly visual inspections of the ponds by plant technicians and a biennial visual inspection by the Montana Department of Environmental Quality Water Protection Bureau. The yard crews inspect the ash handling system daily, and in winter, the inspections are conducted twice daily.
The board of directors respects our stockholders'stockholders’ interest in sustainability.environmental and health matters. However, ourthe board believes that Montana-Dakota has already taken appropriate actions to manage its CCW and that the investment of human and financial resources that would be required to produce such a sustainability report based on the Sustainability Reporting Guidelines
of the Global Reporting Initiative, as requested in the Calvert proposal, would not representbe a necessary or prudent use of the stockholders'stockholder assets.
Therefore, the board of directors recommends a vote "against"“against” this proposal.
Approval requires the affirmative vote of a majority of our common stock present in person or represented by proxy at the meeting and entitled to vote on the proposal. Abstentions
and broker non-votes will count as votes against this proposal.
17
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EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMPENSATION DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
Broker non-votes are not counted as voting power present and, therefore, are not counted in the vote. COMPENSATION DISCUSSION AND ANALYSIS |
The following compensation discussion and analysis may contain statements regarding corporate performance targets and goals. These targets and goals are disclosed in the limited context of our compensation programs and should not be understood to be statements of management’s expectations or estimates of results or other guidance. We specifically caution investors not to apply these statements to other contexts.
Introduction
- ------------
In this compensation discussion and analysis, we discuss our compensation objectives, our decisions, and the rationale behind thosereasons for our decisions relating to 20062009 compensation for our named executive officers.
For 2009, our named executive officers were Terry D. Hildestad, Vernon A. Raile, John G. Harp, William E. Schneider, and Steven L. Bietz. Mr. Bietz, president and chief executive officer of WBI Holdings, Inc., is a named executive officer for the first time.
Each year we conduct a strategic analysis to identify opportunities and challenges associated with the operating environments in which we do business. Our strategy is to apply our expertise in three core lines of business – energy, construction materials, and utility resources – to increase market share, increase profitability, and enhance stockholder value through:
| • | organic growth as well as a continued disciplined approach to the acquisition of well-managed companies and properties |
| • | the elimination of system-wide cost redundancies through increased focus on integration of operations and standardization and consolidation of various support services and functions across companies within the organization and |
| • | the development of projects that are accretive to earnings per share and return on invested capital. |
Objectives of our Compensation Program
- --------------------------------------
We structure our compensation program to help retain and reward the executive officers who we believe are critical to our long-term success. We have a written executive compensation policy which was last amended in
November 2006, for our Section 16 officers, including all our named executive officers whom we discuss later in this compensation discussion and analysis.officers. Our policy has the following stated objectives
o recruit, motivate, reward and retain the high performing executive
talent required to create superior long-term total stockholder return
in comparison to our peer group
o reward executives for short-term performance as well as the growth in
enterprise value over the long-term
o provide a competitive package relative to industry-specific and
general industry comparisons and internal pay equity, as appropriate
and
o ensure effective utilization and development of talent by working in
concert with other management processes - for example, performance
appraisal, succession planning and management development.
Determination of Compensation
- -----------------------------
How we structure compensation
-----------------------------
objectives:
| • | recruit, motivate, reward, and retain the high performing executive talent required to create superior long-term total stockholder return in comparison to our peer group |
| • | reward executives for short-term performance as well as the growth in enterprise value over the long-term |
| • | provide a competitive package relative to industry-specific and general industry comparisons and internal equity, as appropriate, and |
| • | ensure effective utilization and development of talent by working in concert with other management processes – for example, performance appraisal, succession planning, and management development. |
We
pay our Section 16 officers a combination of base salary, annual cash
incentive and long-term equity-based incentive, in addition to providing income
for their retirement and other benefits. We pay base salaries in order to
provide executive officers with sufficient, regularly-paid income and to
attract, recruit and retain executives with the knowledge, skills and abilities
necessary to successfully execute their job duties and responsibilities. We
pay/grant
executives the opportunity to earn annual incentives in order to be
competitive from a total remuneration standpoint and to ensure focus on annual
financial and operating results. We provide executives
18
the opportunity to earn long-term compensation in order to be competitive from a
total remuneration standpoint and to ensure focus on stockholder return.
Each year, the compensation committee sets overall compensation targets for
each Section 16 officer, as well as individual targets for the three components
of compensation - base salary, annual incentive and long-term incentive.
The compensation committee structures the target levels of compensation to
enable us to retain and reward the executive officers that we believe are
critical to our long-term success. The compensation committee also structures
compensation to ensure that a significant portion of our executive officers'
opportunity is directly related to our stock performance and other factors that
directly and indirectly influence stockholder value. This includes tying
incentive compensation to both (i) total stockholder return, which reflects our
corporate performance relative to our performance graph peer group and (ii)
business unit or other operational goals.
Because our executive officers recommend to the compensation committee the
levels of achievement for our annual incentive compensation awards, the
compensation committee and the board of directors review the recommended levels
carefully before approving them. This is to ensure that the goals are set
sufficiently high to provide our executive officers with true stretch
performance goals.
In addition, commencing in 2006, we now limit the aggregate amount of
annual incentive compensation we will pay to all our executive officers to 20
percent of after tax earnings in excess of planned earnings. The 20 percent
limitation is measured at the major business unit level for business unit
executives and at the corporate level for corporate executives. As we discuss
later, the committee also established a requirement for minimum improvement in
the return on invested capital measures for incentive purposes to ensure that
return on invested capital equals or exceeds the weighted average cost of
capital.
| • | base salaries in order to provide executive officers with sufficient, regularly-paid income and attract, recruit, and retain executives with the knowledge, skills, and abilities necessary to successfully execute their job duties and responsibilities |
| • | annual incentives in order to be competitive from a total remuneration standpoint and ensure focus on annual financial and operating results and |
| • | long-term incentives in order to be competitive from a total remuneration standpoint and ensure focus on stockholder return. |
If earned, incentive compensation, which consists of annual cash incentive awards and three-year performance share awards under our Long-Term Performance-Based Incentive Plan, makes up the greatest portion of our named executive officers'officers’ total compensation. The compensation committee believes incentive compensation that comprised approximately 61% to 71% of total target compensation for the named executive officers for 2009 is appropriate because:
| • | our named executive officers are in positions to drive, and therefore bear high levels of responsibility for, our corporate performance |
| • | incentive compensation is more variable than base salary and dependent upon our performance |
| • | variable compensation helps ensure focus on the goals that are aligned with our overall strategy and |
| • | the interests of our named executive officers will be aligned with those of our stockholders by making a majority of the named executive officers’ target compensation contingent upon results that are beneficial to stockholders. |
The following table shows the allocation of total
targetedtarget compensation for
20062009 among the individual components of base salary, annual incentive, and long-term incentive:
19
- --------------------------------------------------------------------------------
Name % of Total % of Total % of Total
Target Target Target
Compensation Compensation Compensation
Allocated to Allocated to Allocated to
Base Salary Annual Incentive Long-Term
Incentive
- --------------------------------------------------------------------------------
Martin A. White 30.0% 30.0% 40.0%
(former CEO)
- --------------------------------------------------------------------------------
Terry D. Hildestad(1) (CEO) 34.7% 34.7% 30.6%
-------------------------------------------------
(COO) 32.8% 32.8% 34.4%
- --------------------------------------------------------------------------------
William E. Schneider 41.6% 20.9% 37.5%
- --------------------------------------------------------------------------------
Warren L. Robinson(2) - - -
(former CFO)
- --------------------------------------------------------------------------------
Vernon A. Raile (CFO) 41.6% 20.9% 37.5%
- --------------------------------------------------------------------------------
John K. Castleberry(1) (WBI(3) CEO) 47.4% 23.7% 28.9%
--------------------------------------------
(EVP - Admin.) 44.4% 22.2% 33.4%
- --------------------------------------------------------------------------------
John G. Harp 44.4% 22.2% 33.4%
- --------------------------------------------------------------------------------
(1) Mr. Hildestad's and Mr. Castleberry's percentages are annualized.
(2) Mr. Robinson received no incentive awards during 2006 due to his retirement.
(3) WBI Holdings, Inc. is a subsidiary.
The compensation committee believes incentive compensation comprising 50%
to 70% of total target compensation for the named executive officers is
appropriate because:
o these executive officers are in positions to drive corporate
performance
o results beneficial to stockholders will trigger incentive compensation
payments to these executive officers
o this compensation is "at risk" and earned only if financial results
warrant any payments and
o tying the majority of total target compensation to incentive payments
helps ensure focus on the incentive goals.
| % of Total Target Compensation Allocated to Base Salary (%) | % of Total Target Compensation Allocated to Incentives |
Name | Annual (%) | | | Long-Term (%) | | | Annual + Long-Term (%) |
Terry D. Hildestad | | | 28.6 | | 28.6 | | | | 42.8 | | | | 71.4 |
Vernon A. Raile | | | 39.2 | | 25.5 | | | | 35.3 | | | | 60.8 |
John G. Harp * | | | 39.2 | | 25.5 | | | | 35.3 | | | | 60.8 |
William E. Schneider | | | 39.2 | | 25.5 | | | | 35.3 | | | | 60.8 |
Steven L. Bietz | | | 39.2 | | 25.5 | | | | 35.3 | | | | 60.8 |
* | The percentages listed for Mr. Harp exclude the additional incentive opportunity of $200,000 in 2009, which is discussed in greater detail under the heading “John G. Harp’s Additional 2009 Incentive.” Including the additional incentive opportunity would yield the following percentages: Base Salary, 33.4%; Annual Incentive, 36.5%; Long-Term Incentive, 30.1%; and Annual + Long-Term, 66.6%. |
In order to reward long-term growth as well as short-term results, the compensation committee establishes incentive targets that emphasize long-term compensation as much as or more than short-term compensation for all officer positions.Section 16 officers. The annual incentive targets for 2009 range from 10%30% to 100% of base salary and the long-term incentive targets range from 15%30% to 133%150% of base salary, depending on the executive'sexecutive’s salary grade. Generally, our approach is to allocate a higher percentage of total target compensation to the long-term incentive than to the short-term incentive for our higher level executives, since they are in a better position to influence our long-term performance.
Additionally, the long-term incentive, if earned, is paid in company common stock. These awards, combined with our stock ownership guidelines,
which we
discuss later, promote ownership of our stock by the named executive officers. The compensation committee believes
20
that, as stockholders, the named executive officers will be motivated to consistently deliver financial results that build wealth for all stockholders over the long-term.
How we determined 2006 compensation
-----------------------------------
The compensation committee, in conjunction with the boardWe also offer our Section 16 officers, including all of directors,
determined all compensation for each named executive officer for 2006.
The compensation committee determines our named executive officers' annual
salaries and annual and long-term incentive targets by reference to salary
grades. Each salary grade has a minimum, median and maximum annual salary level
as well as annual and long-term incentive target levels, which are expressed as
a percentage of the individual's actual annual salary. Named executive officers
generally are placed into a salary grade based on historical classification of
their positions; however, the compensation committee may place an executive into
a different salary grade if it determines that the executive's position,
responsibilities or performance warrant the change. Also, the committee
considers, upon recommendation from the chief executive officer, a position's
relative value. A position's relative value is determined by considering
o participation on our management policy committee, which is the body
responsible for setting enterprise-wide operating and management
policies and procedures as well as the company's strategic direction
o the position's responsibilities relative to the company's total
earnings, use of invested capital, and the stable generation of
earnings and cash flows and
o the position's impact on key strategic initiatives.
Our historical classifications have been:
- ----------------------------------------------------------------------------
President and CEO Grade K Martin A. White
Terry D. Hildestad
- ----------------------------------------------------------------------------
Executive Vice President, Treasurer and CFO Vernon A. Raile
Warren L. Robinson
Grade J
President and CEO of
WBI Holdings, Inc. and John K. Castleberry
Knife River Corporation William E. Schneider
- ----------------------------------------------------------------------------
President and CEO of Grade I John G. Harp
MDU Construction Services Group, Inc.
- ----------------------------------------------------------------------------
For 2006, all our named executive officers, benefits under our pension plans and our non-qualified defined benefit retirement plan, which we refer to as the Supplemental Income Security Plan or SISP. Historically, we have provided these programs because they have been instrumental in retaining executive talent; both have vesting requirements which call for minimum lengths of service to earn the full benefits. However, legislative changes relating to pension plans and cost reduction initiatives led to changes in both the pension plans and the SISP. The SISP was also changed to ensure the reductions in defined benefit retirement plans were placedconsistent between executive and non-executive employees. Specifically, benefit accruals under our pension plans ceased after December 31, 2009. We discuss the modifications to both the pension plans and the SISP in their salary
grades basedthe narrative following the “Pension Benefits for 2009” table.
All of our named executive officers have change of control employment agreements. The change of control employment agreements define “change of control” to include consummation of a merger or similar transaction rather than merely stockholder approval of the merger.
We believe it is important to encourage our executive officers to continue working for us during any change of control transaction periods and to provide severance payments and benefits if employment is terminated for no fault of the officer following a change of control. These agreements provide a measure of job and financial security so that potentially disruptive transactions do not affect the officers’ judgment when working on historical classificationbehalf of their positions. the company and its stockholders prior to and after a change of control. We do not view the change of control agreements as additional compensation and do not take them into account when determining the amount of compensation provided because the events required to trigger these payments and benefits may never occur.
In addition to these agreements, the Long-Term Performance-Based Incentive Plan provides for accelerated vesting and payment of performance awards at the time of a new
position, executive vice president - administration, for Mr. Castleberry, was
assignedchange of control. In 2009, we amended the plan’s “change of control” definition so that vesting and payment of awards are not triggered prematurely. The compensation committee believes that these protections are necessary to reassure the officers that they will not lose prior incentive awards or otherwise be adversely affected by a salary grade - "I".
21
At least every two yearschange of control. We discuss the amendments to the plan’s change of control definition in “Potential Payments upon Termination or Change of Control.” Role of Compensation Consultants and Management
Role of Compensation Consultants
In 2008, the compensation committee uses an outsideretained Towers Perrin, a nationally recognized consulting firm, to assess the competitive pay levels for base salary and incentive compensation for each Section 16 officer position.position and to assist the compensation committee in establishing competitive 2009 compensation targets for our Section 16 officers. The assessment includesincluded identifying material changes to Section 16 officer jobs,the positions analyzed, updating competitive compensation information, gathering and analyzing relevant general and industry-specific survey data, and updating the base salary structure. In 2005,
Towers Perrin, a nationally recognized consulting firm, assisted the committee
in establishing competitive 2006 compensation targets for our Section 16
officers. Towers Perrin assessed competitive pay levels for base salary, total annual cash, which is base salary plus annual bonus,incentives, and total direct compensation, which is the sum of total annual cash and the expected value of long-term incentives. Towers Perrin also prepared an updated salary grade
structure based on the above competitive analyses.
Towers Perrin identified overall competitive compensation targets as well
as individual targets for salaries, annual incentives and long-term incentives
for each Section 16 officer position. They compared our Section 16 officer positions to like positions contained in general industry salarycompensation surveys, industry-specific salarycompensation surveys and, for our chief executive officer, the chief executive officers in our performance graph peer group. The salarycompensation surveys used by Towers Perrin were:
o Towers Perrin's Executive Compensation Database
o Towers Perrin's Energy Services Industry Executive Compensation
Database
o Effective Compensation, Inc.'s Oil & Gas Exploration and Production
Survey
o Mercer's Energy Compensation Survey
o Watson Wyatt's Report on Top Management Compensation
- ---------------------------------------------------------------------------
Survey* Number of Median Number Median
Companies Number of of Revenue
Participating Employees Publicly ($000s)
Traded
Companies
- ---------------------------------------------------------------------------
Towers Perrin's Executive 345 19,621 214 4,615,600
Compensation Database
- ---------------------------------------------------------------------------
Towers Perrin's Energy 87 3,460 63 2,472,400
Services Industry Executive
Compensation Database
- ---------------------------------------------------------------------------
Effective Compensation, 76 130 48 148,000
Inc.'s Oil & Gas
Exploration and Production
Survey
- ---------------------------------------------------------------------------
Mercer's Energy 199 288 140 351,550
Compensation Survey
- ---------------------------------------------------------------------------
Our revenues for 2005 were approximately $3.46 billion.
- -------------------------
Survey* | | Number of Companies Participating (#) | | Median Number of Employees (#) | | Number of Publicly- Traded Companies (#)(1) | | Median Revenue (000s) ($) |
Towers Perrin’s Executive Compensation Database | | | 395 | | | | 18,529 | | | | 283 | | | | 5,730,000 | |
Towers Perrin’s Energy Services Industry Executive Compensation Database | | | 91 | | | | 3,300 | | | | 63 | | | | 2,960,000 | |
Effective Compensation, Inc.’s Oil & Gas Exploration and Production Survey | | | 119 | | | | 140 | | | | 69 | | | | 247,000 | |
Mercer’s Energy Compensation Survey | | | 217 | | | | 610 | | | | 173 | | | | 774,172 | |
Watson Wyatt’s Report on Top Management Compensation | | | 2,309 | | | | (2 | ) | | | (2 | ) | | | (2 | ) |
(1) | For the Towers Perrin Executive Compensation Database, the number listed in the table is the number of companies reporting market capitalization. For the Towers Perrin Energy Services Industry Executive Compensation Database, the number listed in the table is the number of companies reporting three-year stockholder return. |
| |
(2) | The 2,309 organizations participating in the 2007/2008 Watson Wyatt Report included 368 organizations with 2,000 to 4,999 employees; 298 organizations with 5,000 to 9,999 employees; 309 organizations with 10,000 to 19,999 employees; and 372 organizations with 20,000 or more employees. Watson Wyatt did not provide a revenue breakdown or the number of publicly-traded companies participating in its survey. Towers Perrin utilized the 2007/2008 survey and aged the data to January 1, 2009. |
*The information in the table
and on the Watson Wyatt report is based solely upon information provided by the publishers of the surveys and is not deemed filed or a part of this compensation discussion and analysis for certification purposes.
22
A totalOur revenues for 2007, 2008, and 2009 were approximately $4.2 billion, $5.0 billion, and [•] billion, respectively.
In addition to the above compensation surveys, for the chief executive officer comparison, Towers Perrin used information for the chief executive officers at the following companies, which comprised our performance graph peer group in July of 2,305 organizations participated in Watson Wyatt's Report on Top2007:
| • Alliant Energy Corporation • Berry Petroleum Company • Black Hills Corporation • Comstock Resources, Inc. • Dycom Industries, Inc. • EMCOR Group, Inc. • Encore Acquisition Company • EQT Corporation (formerly Equitable Resources, Inc.) • Florida Rock Industries, Inc. • Granite Construction Inc. • Martin Marietta Materials, Inc. • National Fuel Gas Co. • 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 • U.S. Concrete, Inc. • Vectren Corporation • Vulcan Materials Company • Whiting Petroleum Corporation |
Role of Management Compensation. There were 405 organizations with 2,000 to 4,999
employees; 304 organizations with 5,000 to 9,999 employees; 260 organizations
with 10,000 to 19,999 employees and 355 organizations with 20,000 or more
employees. Also, there were 539 organizations with sales of $2.0 billion or
more. Watson Wyatt did not report the number of publicly traded companies
participating in its survey.*
Executive officers also played an important part in determining 2006
compensation. Executive officers assessed performance for those officers
reporting to them.
The chief executive officer played an important role in recommending 2009 compensation to the committee for the other named executive officers. The chief executive officer attended compensation committee meetings; however, he was not present during discussions regarding his compensation. In addition, he assessed the performance for allof the named executive officers and then worked with the human resources department and compensation consultants to determine the recommended salary grades for the executive positions. The vice
president of human resources and otherrecommend:
| • | base salary grades and individual salaries |
| • | annual and long-term incentive targets and |
| • | increases in the level of the SISP benefits to current participants. |
Our human resources personnel also supported the chief executive officer and the compensation committee by
o by:
| • | working with the outside compensation consultants and the chief executive officer on the determination of recommended salary grades, which have associated annual base salary ranges and incentive targets |
| • | reviewing recommended salary increases and incentive targets submitted by executive officers for officers reporting to them for reasonableness and alignment with company or business unit objectives and to help ensure internal equity and |
| • | designing and updating annual and long-term incentive programs. |
Once performance goals are approved by the compensation committee, the committee generally does not modify the goals. However, if major unforeseen changes in economic and environmental conditions or other significant factors beyond the control of management substantially affected their ability to achieve the specified performance goals, the compensation committee, in consultation with the chief executive officer, may modify the performance goals. Such goal modifications will only be considered in years of unusually adverse or favorable external conditions.
Internal Equity – Relative Value of Named Executive Officer Positions
From an internal equity standpoint, the compensation committee considers, upon recommendation of the chief executive officer, the relative value of each named executive officer position when making compensation decisions. A position’s relative value is determined by considering:
| • | participation on our management policy committee, which is the entity responsible for setting corporate-wide operating and management policies and procedures as well as our strategic direction |
| • | the position’s responsibilities relative to our total earnings, use of invested capital, and the stable generation of earnings and cash flow and |
| • | the position’s impact on key strategic initiatives. |
This consideration impacts the assignment of a salary grade, short-term incentive targets, and long-term incentive targets. The compensation committee may make adjustments from competitive data in one or more of these items to ensure the pay differences between the chief executive officer and the other named executive officers are reasonable in their judgment in light of the internal equity factors described above. For example, the compensation committee has historically assigned a long-term incentive target percentage to the chief executive officer position that is lower than the competitive level indicated through market data. The committee’s rationale is to have the chief executive officer’s compensation closer to the compensation of his direct reports than what the market data would otherwise indicate.
To test the reasonableness of the company’s approach on pay equity, the determinationcompensation committee measured the chief executive officer’s compensation as a multiple of recommendedthe compensation paid to our other four named executives, then compared these multiples to competitive pay information provided by Towers Perrin. The chart below shows the company’s pay multiples and the competitive pay multiples.
We calculated the four multiples in the chart by dividing our chief executive officer’s target total direct compensation by the target total direct compensation of each of our four named executives. We calculated the four competitive pay multiples by dividing the target total direct compensation for the chief executive officer position, as provided by Towers Perrin, by the target total direct compensation of each position similar to each of our four named executives, as provided by Towers Perrin. For purposes of this comparison, target total direct compensation consists of base salary plus target annual incentive plus target long-term incentive.
The company’s chief executive officer multiples are less than chief executive officer pay multiples as calculated with competitive data*. The committee views the lower multiples as support for the belief that compensation targets among the named executives are equitably distributed.
*The information in the chart showing chief executive officer pay multiples from competitive data is based solely upon information provided by the publishers of the compensation surveys discussed earlier and is not deemed filed or a part of this compensation discussion and analysis for certification purposes.
Decisions for 2009
The compensation committee, in conjunction with the board of directors, determined all compensation for each named executive officer for 2009 and set overall and individual compensation targets for the three components of compensation — base salary, annual incentive, and long-term incentive. The compensation committee made recommendations to the board of directors regarding compensation of all Section 16 officers, and the board of directors then approved the recommendations.
The compensation committee reviewed competitive executive compensation data from Towers Perrin and established salary grades which have associated annualat its August 2008 meeting. At the November 2008 meeting, it established individual base salaries, target annual incentive award levels, and target long-term incentive targets
o reviewing recommended salary increasesaward levels for 2009. At the February meetings of the compensation committee and incentive targets submitted
by executive officers for officers reporting to them for
reasonableness and alignment with company or business unit objectives
and to help ensure internal equity and
o designingthe board of directors, annual and long-term incentive programs.awards were determined, along with the payouts based on performance from the recently completed performance period for prior annual and long-term awards. The following chart showsFebruary meetings occur after the median annualrelease of earnings for the prior year.
Salary Grades for 2009
The compensation committee determines the named executive officers’ base salarysalaries and the approximate
target annual and long-term incentive targets by reference to salary grades. Each salary grade has a minimum, midpoint, and maximum annual salary level with the midpoint targeted at approximately the 50th percentile of data provided by Towers Perrin for positions in the salary grade. The compensation committee may adjust the salary grades away from the 50th percentile in order to balance the
external market data with internal equity. The salary grades also have annual and long-term incentive target levels, which are expressed as a percentage of the individual’s actual annual salary. We generally place named executive officers into a salary grade based on historical classification of their positions; however, the compensation committee, at its August meeting, reviews each classification and may place a position into a different salary grade if it determines that the targeted competitive compensation for the relevantposition changes significantly or the executive’s responsibilities and/or performance warrants a different salary grades. As
shown ingrade. The committee also considers, upon recommendation from the following chart,chief executive officer, a position’s relative value as discussed above.
Our named executive officers’ salary grade classifications are listed below along with the 2009 base salary ranges associated with each classification:
| | | | | | 2009 Base Salary (000s) | |
Position | | | Grade | | | Name | | | | Minimum ($) | | | Midpoint ($) | | | Maximum ($) | |
President and CEO | | | K | | | Terry D. Hildestad | | | | 620 | | | 775 | | | 930 | |
Executive Vice President, Treasurer and CFO | | | J | | | Vernon A. Raile | | | | 312 | | | 390 | | | 468 | |
President and CEO, MDU Construction Services Group, Inc. | | | J | | | John G. Harp | | | | 312 | | | 390 | | | 468 | |
President and CEO, Knife River Corporation | | | J | | | William E. Schneider | | | | 312 | | | 390 | | | 468 | |
President and CEO, WBI Holdings, Inc. | | | J | | | Steven L. Bietz | | | | 312 | | | 390 | | | 468 | |
The executive vice president, treasurer and chief financial officer and the president and chief executive officers of Knife River Corporation, MDU Construction Services Group, Inc., and WBI Holdings, Inc. are assigned to salary grade “J.” The committee believes that from an internal equity standpoint, these positions should carry the same salary grade. The salary grades for our named executive officers were assigned to one
of three salary grades.
- --------------------------------------------------------------------------------
Target
Median Target Long-
Base Annual Term Target
Salary Salary Incentive Incentive Total
Name Grade ($ 000s) ($ 000s) ($ 000s) ($ 000s)
- --------------------------------------------------------------------------------
Martin A. White (former CEO) K $750 $750 $998 $2,498
- --------------------------------------------------------------------------------
Terry D. Hildestad (CEO and (COO) K $750 $750 $998 $2,498
- --------------------------------------------------------------------------------
William E. Schneider J $375 $187 $338 $900
- --------------------------------------------------------------------------------
Warren L. Robinson (former CFO) J $375 $187 $338 $900
- --------------------------------------------------------------------------------
Vernon A. Raile (CFO) J $375 $187 $338 $900
- --------------------------------------------------------------------------------
John K. Castleberry (WBI CEO) J $375 $187 $338 $900
------------------------------------------------
(EVP - Admin.) I $310 $155 $233 $698
- --------------------------------------------------------------------------------
John G. Harp I $310 $155 $233 $698
- --------------------------------------------------------------------------------
After approving theremained unchanged for 2009.
The compensation committee determines where, within each salary grade,
assigned to each named executive officer,
the compensation committee determined where, within that salary grade, the
individual'san individual’s base salary should be.
This determination was based on
recommendations from our chief executive officer.
23
The compensation committee believes that having a range of possible salaries within each salary grade is advantageous as it gives the committee the flexibility to assign different salaries to individual executives within a salary grade to reflect one or more of the following:
o the executive's performance on financial goals
o the executive's performance on non-financial goals, including the
results of the performance assessment program
o the executive's experience, tenure and future potential
o the position's relative value compared to other positions within the
company
o the relationship of the salary to the competitive salary market value
o internal pay equity with other executives and/or
o the economic environment of the corporation or executive's business
unit.
| • | our performance on financial measurements as compared to our performance graph peer group |
| • | executive’s performance on financial goals |
| • | executive’s performance on non-financial goals, including the results of the performance assessment program |
| • | executive’s experience, tenure, and future potential |
| • | position’s relative value compared to other positions within the company |
| • | relationship of the salary to the competitive salary market value |
| • | internal equity with other executives and |
| • | economic environment of the corporation or executive’s business unit. |
Our performance assessment program evaluatesrates performance basedin the following areas, which help determine actual salaries within the range of salaries associated with the executive’s salary grade:
• visionary leadership • strategic thinking • leading with integrity • managing customer focus • financial responsibility • achievement focus • judgment • planning and organization | • leadership • mentoring • relationship building • conflict resolution • organizational savvy • safety • Great Place to Work® |
An executive’s overall performance in our performance assessment program is rated on behavioral and results-oriented competencies and objectives. a scale of one to five, with five as the highest rating denoting distinguished performance. An overall performance above 3.75 is considered commendable performance.
The chief executive officer assessed each named executive
officer'sofficer’s performance under the performance assessment program, and the compensation committee,
as well as the full board of directors, assessed the chief executive
officer'sofficer’s performance.
Our performance assessment program rates
performance in different competencies, as follows:
o visionary leadership
o strategic thinking
o leading with integrity
o managing customer focus
o financial responsibility
o achievement focus
o judgment
o planning & organization
o leadership
o mentoring
o relationship building
o conflict resolution
o communications
o safety and
o great place to work
24
In the following discussion, we provide further explanation of why and how
the compensation committee determined each named executive officer's salary
grade and the executive's actual 2006 salary and annual and long-term
incentives.
2006 Salary Grades and Base Salaries forof the Named Executive Officers - -----------------------------------------------------------------
The compensation committee began its review of executive compensation data
at its August 2005 meeting. It assigned 2006 salary grades and determined 2006
individual base salaries and annual and long-term incentive targets under the
annual and long-term plans at the November 2005 meeting. Actual 2006 annual and
long-term incentive awards, along with the payouts based on performance from the
recently completed performance period for prior annual and long-term awards,
were determined at the February 2006 meetings of the compensation committee and
the board of directors. The February meetings occurred after the release of
earnings for the prior year.
The compensation committee also adjusted compensation, as necessary, at
other times during the year to reflect promotions or other changes in executive
officers' positions with the company.
Martin A. White
---------------
As we discussed above, the compensation committee used data provided by
Towers Perrin from five different salary surveys for compensation comparison. In
addition to these salary surveys described above, for the chief executive
officer comparison, Towers Perrin also used salary information for the chief
executive officers at the following companies, which comprised our performance
graph peer group:
- ---------------------------------------------------------------------------
Allegheny Energy, Inc. Oneok, Inc.
Allete Peoples Energy
Alliant Energy Corp. Pogo Producing Co.
Black Hills Corp. Quanta Services, Inc.
Comstock Resources, Inc. Questar Corp.
Equitable Resources, Inc. Scana Corp.
Florida Rock Industries Stone Energy Corp.
Keyspan Corp. Teco Energy, Inc.
Martin Marietta Materials UGI Corp.
Newfield Exploration Vectren
Nicor Vulcan Materials Corp.
OGE Energy Corp. XTO Energy, Inc.
- ---------------------------------------------------------------------------
2009
Terry D. Hildestad
Mr.
WhiteHildestad has served
as our chief executive officer from April 1, 1998 until
his retirement on August 17, 2006. In 2006, as chief executive officer
Mr.
White was assigned to our highest salary grade "K." Mr. White's salary grade
contained salary ranges from a minimum of $600,000 to a target of $750,000 and a
maximum of $900,000. In determining Mr. White's salary grade, the compensation
committee reviewed the performance graph peer group survey data and the
25
other market data discussed above. The performance graph peer group showed a
median base salary of $685,000, and the other market data showed a base salary
target of $830,000 for chief executive officers. The committee set Mr. White's
actual 2006 base salary at $750,000, which was his assigned salary grade's
midpoint and an increase of 7.14% from his 2005 base salary; this was above the
peer group median of $685,000 but below the target level based on the other
market data. The committee's decision was based on Mr. White's commendable
performance assessment rating, his outstanding leadership and his contribution
to our record financial results.
Terry D. Hildestad
------------------
Terry D. Hildestad was our chief operating officer until August 17, 2006
when he was elected as chief executive officer. Mr. Hildestad was assigned to a
salary grade "K." The base salary target for a president and chief operating
officer was $485,000, based on the survey data provided by Towers Perrin as a
part of their annual competitive analysis. The committee set Mr. Hildestad's
actual base salary at $525,000 because he received a commendable performance
assessment rating and Knife River Corporation's 2005 financial results were
above plan. Mr. Hildestad had been president and chief executive officer of
Knife River Corporation. The committee believed that this salary was appropriate
because Mr. Hildestad assumed additional responsibilities as our president and
chief operating officer and was making significant strides to successfully
assume our chief executive officer position insince August 2006. When Mr. Hildestad became our chief executive officer,For 2009, the committee increased his base salary by 7.1%, from $700,000 to $625,000. While the "K" salary grade midpoint was
$750,000, the committee believed that setting$750,000. The reasons for Mr. Hildestad's salary at the
midpoint would have been premature given his short tenure in the position. The
committee looks to sustained performance and contribution over time before
setting a named executive officer's base salary at or above the salary grade
midpoint. The committee also decided that it would not give Mr. Hildestad a
salaryHildestad’s 2009 increase on January 1, 2007 and took this into consideration when
increasing his salary to $625,000 in August 2006.
William E. Schneider
--------------------
William E. Schneider is president and chief executive officer of our
subsidiary, Knife River Corporation. Mr. Schneider's assigned salary grade of
"J" had a midpoint of $375,000, with a minimum of $300,000 and a maximum of
$450,000. Upon recommendation from the chief executive officer, the committee
chose the "J" salary grade because they believed Mr. Schneider should be in the
same salary grade as our chief financial officer and the chief executive officer
of WBI Holdings, Inc.
Mr. Schneider's actual 2006 base salary was $392,000, which was above the
2006 salary grade midpoint of $375,000, because Knife River Corporation's 2005
financial results were above plan, he assumed additional responsibilities as
business unit chief executive officer and he received a commendable performance
assessment rating. Also, the committee believed a salary above the salary grade
midpoint was appropriate given the fact that Mr. Schneider was successfully
spearheading a number of Knife River Corporation initiatives, such as a regional
operating structure to improve efficiencies and acceleration of Knife River
Corporation's migration to a common information systems platform.
26
Warren L. Robinson
------------------
Warren L. Robinson was our executive vice president and chief financial
officer until January 3, 2006 and an employee until he retired February 17,
2006. Because of his retirement, Mr. Robinson received no base salary increase
or incentive compensation for 2006. As we discussed in our 2006 proxy statement,
we entered into an agreement with Warren L. Robinson on November 23, 2005 in
connection with his retirement as executive vice president and chief financial
officer. Mr. Robinson received a severance payment of $1,000,000. The
compensation committee determined that this was an appropriate amount in light
of Mr. Robinson's years of service to the company, business acumen and timing in
the capital markets, which contributed to our six-fold increase in earnings from
1988 to 2004. Mr. Robinson also had long-term incentive awards which have been
or will be paid out based upon company performance in accordance with the terms
of the awards.
were: | • | the company’s 2008 forecasted financial results (based on 9 months’ actual plus 3 months’ estimate) on earnings per share (EPS) and return on invested capital (ROIC) were higher than 2008 targets by 12.4% and 6.6%, respectively |
| • | the company’s ROIC for the twelve months ended June 30, 2008 was 19.1% higher than the median ROIC for the performance graph peer companies over the same time period on a continuing operations basis |
| • | the board recognized Mr. Hildestad’s strong leadership during difficult economic times, as well as fostering a culture of integrity throughout the organization, and |
| • | moving Mr. Hildestad’s salary closer to the 2009 salary grade midpoint of $775,000. |
Vernon A. Raile
---------------
Vernon A. Raile was elected our chief financial officer effective January
3, 2006. The 2006 market data provided by Towers Perrin showed a targeted base
salary of $390,000. However,
Mr. Raile was assigned to salary grade "J", the
historical classification for our chief financial officer. The salary grade had
a midpoint of $375,000, a minimum of $300,000 and a maximum of $450,000.
The committee determined Mr. Raile's actual 2006 base salary at $318,750,
which was an increase of 46.65% from his 2005 base salary. This reflected Mr.
Raile's assumption of additional responsibilitieshas served as executive vice president, treasurer and chief financial officer a desire to move hissince January 2006. Mr. Raile’s 2009 base salary closer
towas set at $450,000, representing an increase of 12.5% over his 2008 base salary of $400,000. The committee set his 2009 base salary at $450,000, above the midpoint of $375,000, record financial results andhis salary grade, due to his commendable performance assessment rating. However, rating, his years of service, and the results associated with these key achievements:
| • | the company’s 2008 forecasted financial results (based on 9 months’ actual plus 3 months’ estimate) on EPS and ROIC were higher than 2008 targets by 12.4% and 6.6%, respectively |
| • | the company’s ROIC for the twelve months ended June 30, 2008 was 19.1% higher than the median ROIC for the performance graph peer companies over the same time period on a continuing operations basis, and |
| • | key financing initiatives that were undertaken and Mr. Raile’s experience and skill. |
John G. Harp
Mr.
Raile's base salary was
significantly below the 2006 salary grade midpoint of $375,000 primarily because
of his short tenureHarp has served as
executive vice president, treasurer and chief financial
officer. The committee believes aligning compensation targets to competitive
benchmarks over time versus all at once is prudent because it gives them the
opportunity to assess the executive's performance and contribution in his new
role.
John K. Castleberry
-------------------
John K. Castleberry was president and chief executive officer of our
subsidiary, WBI Holdings, Inc., and had planned to retire in 2006. However,
effective March 4, 2006, Mr. Castleberry accepted our offer to become executive
vice president - administration of MDU Resources Group, Inc.
As president and chief executive officer of WBI Holdings, Inc., Mr.
Castleberry's assigned salary grade of "J" had a midpoint of $375,000, a minimum
of $300,000 and a maximum of $450,000. Mr. Castleberry's actual base salary for
2006 was $370,000, which was the same as 2005 due to his anticipated retirement
in early 2006.
As executive vice president - administration of MDU Resources Group, Inc.,
Mr. Castleberry was placed in a lower salary grade of "I", with a midpoint of
$310,000, a minimum of $248,000 and a maximum of $372,000. The compensation
committee approved the salary
27
grade assignment for the executive vice president - administration position
based on the chief executive officer's recommendation. The chief executive
officer's rationale for recommending this salary grade was:
o The position's importance in leading our initiative of moving certain
functions to a shared services environment. This initiative involves
placing duplicative functions across the organization, e.g., payroll,
information technology and purchasing, into a centralized organization
to leverage economies of scale and to leverage our purchasing power
with suppliers and vendors.
o Mr. Castleberry's past success in leading WBI Holdings, Inc. In
addition, his operational orientation and disciplined approach to
developing systems and processes were viewed as qualities necessary to
make the shared services initiative a success.
o The desire to have Mr. Castleberry in the same salary grade as the president and chief executive officer of MDU Construction Services Group, Inc. Mr. Castleberry's actualsince September 2004. For 2009, his base salary was set at $300,000 per year, slightly
below$450,000, representing an increase of 12.5% over his 2008 base salary of $400,000. The committee set his 2009 base salary at $450,000, above the midpoint because of his short tenure in this position. The committee
believes that aligning compensationsalary grade, due to his commendable performance assessment rating and due to results associated with these key achievements:MDU Construction Services Group, Inc.’s 2008 forecasted financial results (based on 9 months’ actual plus 3 months’ estimate) on EPS and ROIC were higher than 2008 targets to competitive benchmarks over time
versus all at once is prudent because it gives them the opportunity to assess
the executive's performanceby 74.0% and contribution in his new role.
John G. Harp
------------
John G. Harp is59.1%, respectively
| • | MDU Construction Services Group, Inc.’s ROIC for the twelve months ended June 30, 2008 was 115.9% higher than the median ROIC of construction services companies in our performance graph peer group, and |
| • | Mr. Harp’s strong grasp of all aspects of MDU Construction Services Group, Inc.’s business, including operations, collections, bidding, and personnel. |
William E. Schneider
Mr. Schneider has served as president and chief executive officer of MDU Construction
Services Group, Inc.Knife River Corporation since May 2005. Mr. Harp was assigned to salary grade "I", which had a
midpoint of $310,000, a minimum of $248,000 and a maximum of $372,000. The
Towers Perrin competitive analysis showed a targetSchneider’s 2009 base salary of $280,000 for
his position. Upon recommendationwas maintained at $447,400, representing no increase from 2008. The committee did not grant Mr. Schneider a base salary increase because Knife River Corporation’s 2008 nine-month financial results were less than target and because the committee wished to be consistent with the overall wage freeze imposed across Knife River Corporation.
Steven L. Bietz
Mr. Bietz has served as president and chief executive officer the
committee chose a salary grade with targeted ranges higher than the Towers
Perrin data would indicate because the position manages a business unit that
until 2005 had poor operational and financial performance, requiring a greater
degree of leadership and problem solving than would otherwise have been called
for had the business unit been more stable.
Mr. Harp's actual 2006WBI Holdings, Inc. since March 2006. For 2009, his base salary was set at $310,000,$350,000, representing an increase of 11.8% over his 2008 base salary of $313,100. The committee set his 2009 base salary at $350,000, below the midpoint of his salary grade, midpoint, because of the financial turn-around of MDU Construction Services
Group, Inc. from a loss in 2004due to a profit in 2005 and Mr. Harp'shis commendable performance assessment rating.
rating and due to results associated with these key achievements:
| • | WBI Holdings, Inc.’s 2008 forecasted financial results (based on 9 months’ actual plus 3 months’ estimate) on EPS and ROIC were higher than 2008 targets by 37.1% and 30.9%, respectively |
| • | The ROIC associated with the oil and natural gas exploration and production unit of WBI Holdings, Inc. for the twelve month period ended June 30, 2008 was 58.4% higher than the median ROIC of oil and natural gas exploration and production companies in our performance graph peer group, and |
| • | Mr. Bietz’s leadership in the large-scale development of the Bakken Field. |
The following table shows each named executive
officer'sofficer’s base salary for
20052008 and
20062009 and the percentage change.
28
- -----------------------------------------------------------------------------
Name Base Salary Base Salary % Change
for 2005 for 2006
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Martin A. White $700,000 $750,000 7.14%
- -----------------------------------------------------------------------------
Terry D. Hildestad (CEO) $625,000 19.04%
effective August
18, 2006
-----------------------------------------------
(COO) $475,000 $525,000 10.52%
- -----------------------------------------------------------------------------
William E. Schneider $350,000 $392,000 12.00%
- -----------------------------------------------------------------------------
Warren L. Robinson $425,000 $425,000 0.00%
- -----------------------------------------------------------------------------
Vernon A. Raile $217,360 $318,750 46.65%
- -----------------------------------------------------------------------------
John K. Castleberry (WBI CEO) $370,000 $370,000 0.00%
-----------------------------------------------
$300,000 effective -18.9%
(EVP - Admin.) March 4, 2006
- -----------------------------------------------------------------------------
John G. Harp $250,000 $310,000 24.00%
- -----------------------------------------------------------------------------
2006Name | Base Salary for 2008 (000s) ($) | | Base Salary for 2009 (000s) ($) | | % Change (%) |
Terry D. Hildestad | | | 700.0 | | | 750.0 | | | 7.1 |
Vernon A. Raile | | | 400.0 | | | 450.0 | | | 12.5 |
John G. Harp | | | 400.0 | | | 450.0 | | | 12.5 |
William E. Schneider | | | 447.4 | | | 447.4 | | | 0.0 |
Steven L. Bietz | | | 313.1 | | | 350.0 | | | 11.8 |
2009 Annual Incentives
- ----------------------
Annual
What the Performance Measures Are and long-term incentive targets were established by the compensation
committee for each salary grade as a percentage of the individual's actual base
salary.
The chief executive officer's and the chief operating officer's target
annual incentive was 100% of base salary, and the other named executive
officers' target annual incentives were 50% of their base salaries. These
incentive targets were derived in part from competitive data provided by Towers
Perrin and in part by the committee's judgment on internal equity of the
positions, their relative value to the company and the desire to maintain a
consistent annual incentive target for the chief executive officer and the chief
operating officer positions as well as for the president and chief executive
officers of the business units.
Why We Chose Them
The compensation committee develops and reviews financial and other corporate performance measures to help ensure that compensation to the executives reflects the success of thetheir respective business unit and/or the corporation, as well as the value provided to our stockholders. For Messrs. White, Hildestad Robinson,and Raile, and Castleberry, as executive vice president -
administration, the performance measures for annual incentive awards are the
company'sour annual return on invested capital results compared to target and the
company'sour annual earnings per share results compared to target. For Messrs. Schneider, Harp, and Castleberry, as president and chief executive officer of WBI
Holdings, Inc.,Bietz, the performance measures for annual incentive awards are their respective business unit'sunit’s annual return on invested capital results compared to target and their respective business unit'sunit’s allocated
earnings per share results compared to target.
During Mr. Castleberry's tenure as president and chief
executive officerThe 2009 safety results of WBI Holdings, Inc.
, the safety record of that business unit was also a
performance measure for Mr.
Castleberry.
29
Target results are generally developed through the company'sBietz’s 2009 annual financial planning process, whereby we assess the future operating environment
and build projections of anticipated results. For 2006 the committee implemented
a change in how the return on investment capital targets are established for use
in our annual incentive plans. incentive.The change was implemented to emphasize the need
for each business unit and the company to generate, within a reasonable period
of time, a return on invested capital that is at least equal to the business
unit's or company's weighted average cost of capital. If a business unit's or
the company's return on invested capital, as determined by the annual financial
planning process, was below their weighted average cost of capital, the return
on invested capital target used for incentive plan purposes was increased.
Thecompensation committee believes earnings per share and return on invested capital are very good measurements in assessing how well or how poorly the company is
performingperformance from a financial standpoint. The formerEarnings per share is a generally accepted accounting principle measurement and is a key driver of stockholder return over the long-term. The latterReturn on invested capital measures how efficiently and effectively management deploys its capital. Sustained returns on invested capital in excess of the
company'sour cost of capital create wealth for the company'sour stockholders.
Allocated earnings per share for a business unit is calculated by dividing that business unit'sunit’s earnings by the business unit's proportionunit’s portion of the total company weighted average shares outstanding. Return on invested capital for the company is calculated by dividing the company's net income beforeour earnings, without regard to after tax interest expense net of tax, and preferred stock dividends, by the company'sour average capitalization for a 12-month period.the calendar year. Return on invested capital for a business unit is calculated by dividing the business unit's net income beforeunit’s earnings, without regard to after tax interest expense net of tax, and preferred stock dividends, by the business unit'sunit’s average capitalization for a 12-month period.
the calendar year.
The compensation committee determines the weighting of the goalsperformance measures each year based upon recommendations from the chief executive officer. For 2006, theThe compensation committee weighted the goals2009 performance measures for annual return on invested capital compared to plannedtargeted results and allocated earnings per share compared to plannedtargeted results each at 50%. The equal weight given to these two goals represents a change from
prior years when the compensation committee weightedbelieves both measures are equally important in driving stockholder value in the goalshort term and over time.
We limit the after-tax annual incentive compensation we will pay above the target amount to 20% of earnings in excess of planned earnings. We calculate the earnings in excess of planned earnings without regard to the after-tax annual incentive amounts above target. We measure the 20% limitation at the major business unit level for business unit executives, which include Messrs. Harp, Schneider and Bietz, and at the corporate level for corporate executives, which include Messrs. Hildestad and Raile. In 2009, the 20% limitation was calculated without regard to the noncash ceiling test impairment charge that we discuss later.
We establish our incentive plan performance targets in connection with our annual financial planning process, where we assess the economic environment, competitive outlook, industry trends, and company specific conditions to set projections of results. The committee evaluates the projected results and uses this evaluation to establish the incentive plan performance targets. The committee also considers annual improvement in the return on invested capital at 25% and the goalmeasure for allocated earnings per share at 75%.
Upon recommendation from the chief executive officer, the committee changed the
weighting. The compensation committee determinedincentive purposes to help ensure that return on invested capital iswill equal or exceed the weighted average cost of capital. Historically, this consideration took the form of a key factorminimum annual increase in determining how well a business unit, unit’s and/or the company,
generates returns for a givencompany’s return on invested capital incentive plan performance target(s). For 2009, the committee chose to use the stretch return on invested capital target approved by the board in the 2009 business plan rather than the required annual minimum increase in recognition of the soft economic environment and depressed commodity prices. In the committee’s discretion, it may establish incentive plan performance targets higher, lower, or at the same level of investmentas the prior year’s target and/or results.
What the Incentive Targets Are and should therefore comprise
a more significant portion ofWhy We Chose Them
The compensation committee established the annual incentive compensationtargets as a percentage of executives.
the individual’s actual base salary.
The
namedchief executive
officersofficer’s target annual incentive was 100% of his base salary. Messrs. Raile, Harp, Schneider, and Bietz’s target annual incentives were
eligible to earn from 0% to 200%65% of their
targetedbase salaries. These incentive targets were derived in part from competitive data provided by Towers Perrin and in part by the compensation committee’s desire, based on internal equity, to have a uniform annual
incentive.incentive target for the business unit president and chief executive officer positions and the executive vice president, treasurer and chief financial officer position. The target annual incentives for the named executives did not change in 2009 from 2008. The award opportunities available to each named executive officer ranged from no payment if the goals were met below the 85% level to a 200% payout if the goals were met at or above the 115% level.
We
discuss theIn 2009, Mr. Bietz also had five individual goals relating to WBI Holdings, Inc.’s safety results, and each goal that was not met reduced his annual incentive award
opportunities in more detail later in this proxy statement.
30
by 1%.The table below lists each named executive officer's 2006officer’s 2009 base salary, which was used to calculate the annual incentive, the officer's 20062009 annual incentive target percentage, the 2006 financial results as a percentage of plannedofficer’s 2009 incentive plan performance targets, the 2009 incentive plan results, and the annual incentive earned for 2006.
- -------------------------------------------------------------------------------
20062009.
Name | 2009 Base Salary (000s) ($) | | 2009 Annual Incentive Target (%) | | 2009 Incentive Plan Performance Targets | | 2009 Incentive Plan Results | | 2009 Annual Incentive Earned (000s) ($) | |
| | | | | | | | | | | | | |
EPS ($) | | | ROIC (%) | | EPS ($) | | | ROIC (%) | |
Terry D. Hildestad1 | | | 750.0 | | | 100 | | | 1.09 | | | | 5.7 | | | [•] | | | | [•] | | | [•] | |
Vernon A. Raile1 | | | 450.0 | | | 65 | | | 1.09 | | | | 5.7 | | | [•] | | | | [•] | | | [•] | |
John G. Harp2 | | | 450.0 | | | 65 | | | 3.17 | | | | 10.2 | | | [•] | | | | [•] | | | [•] | |
William E. Schneider3 | | | 447.4 | | | 65 | | | 0.52 | | | | 4.3 | | | [•] | | | | [•] | | | [•] | |
Steven L. Bietz4 | | | 350.0 | | | 65 | | | 1.69 | | | | 5.6 | | | [•] | | | | [•] | | | [•] | |
(1) | Based on earnings per share and return on invested capital for MDU Resources Group, Inc. The 2009 incentive plan results were adjusted to exclude the 2009 noncash impairment charge as discussed below. |
| |
(2) | Based on allocated earnings per share and return on invested capital for MDU Construction Services Group, Inc. The amount for Mr. Harp includes an additional [•] incentive as described below. |
| |
(3) | Based on allocated earnings per share and return on invested capital for Knife River Corporation. |
(4) | Based on allocated earnings per share and return on invested capital for WBI Holdings, Inc. The 2009 incentive plan results were adjusted to exclude the 2009 noncash impairment charge as discussed below. Also in 2009, WBI Holdings, Inc. met four of five safety goals, and therefore Mr. Bietz’s 2009 Annual Incentive Earned reflects a reduction of 1% or [•]. |
The following table shows the changes in our performance targets and achievements for both 2008 and 2009.
| | | 2008 Incentive Plan Performance Targets | | 2008 Incentive Plan Results | | 2009 Incentive Plan Performance Targets | | 2009 Incentive Plan Results | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name | | | EPS ($) | | | | ROIC (%) | | | EPS ($) | | | | ROIC (%) | | | EPS ($) | | | | ROIC (%) | | | EPS ($) | | | | ROIC (%) | | |
Terry D. Hildestad1 | | | 1.77 | | | | 9.1 | | | 1.59 | | | | 8.0 | | | 1.09 | | | | 5.7 | | | [•] | | | | [•] | | |
Vernon A. Raile1 | | | 1.77 | | | | 9.1 | | | 1.59 | | | | 8.0 | | | 1.09 | | | | 5.7 | | | [•] | | | | [•] | | |
John G. Harp2 | | | 2.73 | | | | 10.5 | | | 5.03 | | | | 17.7 | | | 3.17 | | | | 10.2 | | | [•] | | | | [•] | | |
William E. Schneider3 | | | 1.03 | | | | 7.5 | | | 0.42 | | | | 3.5 | | | 0.52 | | | | 4.3 | | | [•] | | | | [•] | | |
Steven L. Bietz4 | | | - | | | | - | | | - | | | | - | | | 1.69 | | | | 5.6 | | | [•] | | | | [•] | | |
(1) | Based on earnings per share and return on invested capital for MDU Resources Group, Inc. The 2009 incentive plan results were adjusted to exclude the 2009 noncash impairment charge as discussed below. |
| |
(2) | Based on allocated earnings per share and return on invested capital for MDU Construction Services Group, Inc. |
| |
(3) | Based on allocated earnings per share and return on invested capital for Knife River Corporation. |
(4) | Based on allocated earnings per share and return on invested capital for WBI Holdings, Inc. The 2009 incentive plan results were adjusted to exclude the 2009 noncash impairment charge as discussed below. |
2009 Annual Incentive Name 2006 Plan 2006 Incentive
Annual Performance Plan Results 2006
2006 Base Incentive Targets Annual
Salary Target EPS ROIC EPS ROIC Incentive
($) (%) ($) (%) Earned
- -------------------------------------------------------------------------------
Martin A. $468,750 100% 1.40 9.2 [ ] [ ] [ ]
White(1)
- -------------------------------------------------------------------------------
and the Impact of the 2009 Noncash Impairment Charges
The company uses the full-cost method of accounting for its natural gas and oil activities. Under this method, the company is required to perform quarterly “ceiling tests” to compare the present value of the future net cash flow from proven reserves to the book value of those reserves at the balance sheet date.
Due to the low energy prices at the beginning of 2009, the compensation committee at the February 2009 meeting decided to disregard, for purposes of calculating 2009 annual incentives, the effects of any potential noncash ceiling test impairment charges related to the company’s natural gas and oil properties. The committee’s rationale for the decision was:
· | operating cash flows are not affected by a ceiling test charge |
· | the underlying value of the business is not affected by a ceiling test charge, |
· | the ceiling test charge would be driven by a single day point in time price to value natural gas and oil reserves, which may not be reflective of the underlying long-term value of the assets, and |
· | recognition of the Securities and Exchange Commission’s decision to change the “ceiling test” rules from using prices from the last day of the reporting period to a 12-month average of prices on the first day of the month during the reporting period effective December 31, 2009. |
On March 31, 2009, the company recorded a $384.4 million after-tax noncash charge. If the committee had not excluded the noncash charge, our named executives would not have received an incentive payment for 2009.
Terry D. $562,500 100% 1.40 9.2 [ Hildestad’s 2009 Annual Incentive Award
As president and chief executive officer of MDU Resources Group, Inc., Mr. Hildestad’s 2009 incentive plan performance targets were based on our earnings per share and return on invested capital. We set his 2009 earnings per share target level and return on invested capital below his 2008 targets and actual results to reflect significantly lower commodity prices and the continued effects of the soft economic activity in the construction industries.
For 2009 incentive plan results, the company’s 2009 earnings per share and return on invested capital results were [•] [ and [•] [ of their respective 2009 targets. Therefore, we paid [•] to Mr. Hildestad - -------------------------------------------------------------------------------
as a 2009 incentive.
Vernon A. Raile’s 2009 Annual Incentive Award
As executive vice president, treasurer and chief financial officer of MDU Resources Group, Inc., Mr. Raile’s 2009 incentive plan performance targets were based on our earnings per share and return on invested capital. As discussed above for Mr. Hildestad, we set his 2009 earnings per share target level and return on invested capital below his 2008 targets and actual results to reflect significantly lower commodity prices and the continued effects of the soft economic activity in the construction industries.
For 2009 incentive plan results, the company’s 2009 earnings per share and return on invested capital results were [•] and [•] of their respective 2009 targets. Therefore, we paid [•] to Mr. Raile as a 2009 incentive.
John G. Harp’s 2009 Annual Incentive Award
As president and chief executive officer of MDU Construction Services Group, Inc., we based Mr. Harp’s 2009 incentive plan performance targets on allocated earnings per share and return on invested capital for MDU Construction Services Group, Inc. We set his 2009 earnings per share target level above his 2008 earnings per share target level to reflect the 2009 planned dividend to MDU Resources Group, Inc., which we projected would reduce the allocated shares for MDU Construction Services Group, Inc. and therefore increase its allocated earnings per share. We set the 2009 return on invested capital target slightly lower than the 2008 return on invested capital target to reflect lower anticipated earnings. The 2009
earnings per share and return on invested capital targets were lower than the actual results for 2008 to reflect the downturn in the Las Vegas construction market.
For 2009 incentive plan results, MDU Construction Services Group, Inc.’s 2009 earnings per share results and return on invested capital results were [•] and [•] of their respective 2009 targets. These results would normally equate to an incentive payment of [•]. Therefore, we paid Mr. Harp [•] as a 2009 annual incentive.
John G. Harp’s Additional 2009 Incentive
In addition to the 2009 annual incentive award, Mr. Harp had the opportunity to earn an additional incentive, which the compensation committee structured as follows:
Construction Services Group, Inc.’s 2009 Return on Invested Capital (ROIC) as compared to Construction Services Group, Inc.’s 2009 Weighted Average Cost of Capital (WACC) | Additional Incentive Amount |
2009 ROIC is less than 100 basis points above 2009 WACC | $0 |
2009 ROIC is 100 to 199 basis points above 2009 WACC | $100,000 |
2009 ROIC is 200 basis points or more above 2009 WACC | $200,000 |
Throughout 2009, MDU Construction Services Group, Inc. accumulated significant amounts of cash through effective working capital management. These amounts exceeded the amounts anticipated at the beginning of 2009, resulting in the reduction of all of its commercial paper and more dividends to MDU Resources Group, Inc. than originally projected. In addition, MDU Construction Services Group, Inc. was able to lend the remaining excess cash to other MDU Resources subsidiaries, reducing debt at the MDU Resources Group, Inc. level. Although the remaining excess cash did not lower the invested capital at MDU Construction Services Group, Inc. on a stand alone basis, it did lower the overall invested capital of MDU Resources Group, Inc. Therefore, the compensation committee, upon recommendation from the chief executive officer, approved calculating MDU Construction Services Group, Inc.’s 2009 return on invested capital to reflect the excess cash accumulated. The committee’s rationale for this decision was:
· | recognition of, and rewarding for, effectively managing accounts receivable through timely collections and |
· | MDU Resources Group, Inc. benefited from the excess cash through lower average commercial paper balances in 2009. |
MDU Construction Services Group, Inc.’s 2009 return on invested capital for purposes of determining Mr. Harp’s additional 2009 incentive amount was [•] compared to its 2009 weighted average cost of capital of [•]. Because the 2009 return on invested capital of [•] was [•] the reported 2009 weighted average cost of capital of [•], Mr. Harp received [•] in additional incentive for 2009.
William E. $392,000 50% Please see discussion below [ ]
Schneider
- -------------------------------------------------------------------------------
Warren L. $53,125 - - - - - -
Robinson(2)
- -------------------------------------------------------------------------------
Vernon A. $318,750 50% 1.40 9.2 [ ] [ ] [ ]
Raile
- -------------------------------------------------------------------------------
John K. $311,667 50% Please see discussion below [ ]
Castleberry 1.40 9.2 [ ] [ ]
- -------------------------------------------------------------------------------
John G. Harp $310,000 50% Please see discussion below [ ]
- -------------------------------------------------------------------------------
(1) Mr. White's annual incentive was prorated due to his retirement in August
2006.
(2) Mr. Robinson did not receive an annual incentive in 2006 due to his
retirement.
Schneider’s 2009 Annual Incentive Award
As president and chief executive officer of Knife River Corporation, Mr. Schneider's 2006Schneider’s 2009 incentive plan performance targets were based on allocated earnings per share and return on invested capital for Knife River Corporation. HisWe set his 2009 targets were set at levels 18 percent and 8 percent, respectively, above the
2005 achievements for these performance measures. The committee believed that
these targets were sufficiently challenging for Mr. Schneider because, in order
to attain these financial targets, Mr. Schneider would be required, at a
minimum, to implement significant operational changes at certain underperforming
subsidiaries. With respect to the 2006 incentive plan results, Knife River
Corporation exceeded 2006 targetallocated earnings per share and return on invested capital lower than his 2008 targets and higher than 2008 actual results. The compensation committee arrived at these targets based on the current economic softness in the construction markets, partially offset by 31 percenta significant reduction in Knife River Corporation’s cost structure.
For 2009, Knife River Corporation’s 2009 earnings per share and 24 percent, respectively.return on invested capital results were [•] and [•] of their respective 2009 targets. Therefore, we paid Mr. Schneider achieved these
excellent results through[•] as a combination of operational improvements, changes in
market strategy and implementation of effective cost controls.
Mr. Castleberry's2009 annual incentive was prorated to reflect his service as
president and chief executive officer of WBI Holdings, Inc. and executive vice
president - administration of MDU Resources Group, Inc. The goals shown in the
table are for MDU Resources Group, Inc. only. Mr. Castleberry's incentive plan
performance targets, during the portion of time he served asincentive.
Steven L. Bietz’s 2009 Annual Incentive Award
As president and chief executive officer of WBI Holdings, Inc.,
were based on allocated earnings per
share and return on invested capital for WBI Holdings, Inc. The targets were set
at levels 2 percent and 19 percent lower, respectively, than the 2005
achievement for these performance measures. The committee believed that the
incentive plan performance targets for WBI
31
Holdings, Inc. required sufficient stretch on Mr. Castleberry's part, given that
2005 financial results had benefited from the effects of a favorable regulatory
order, combined with expected lower natural gas commodity prices and increasing
operational costs for 2006. Furthermore, Mr. Castleberry's performance target
for return on invested capital would still be significantly above the cost of
capital for his business unit. With respect to the 2006 incentive plan results,
WBI Holdings, Inc. exceeded 2006 target earnings per share and return on
invested capital by 14 percent and 5 percent, respectively.
As president and chief executive officer of MDU Construction Services
Group, Inc., Mr. Harp's 2006Bietz’s 2009 incentive plan performance targets were based on allocated earnings per share and return on invested capital for MDU Construction
Services Group,WBI Holdings, Inc. His targets wereWe set at levels 6 percent above the 2005
targets for these same performance measures. At the time Mr. Harp assumed the
presidency of this business unit in late 2004, he was confronted with
significant challenges in turning around a business unit that had incurred
significant losses in 2004. Although the compensation committee believed that
Mr. Harp had achieved commendable progress in 2005, significant efforts would be
required in 2006 to resolve a number of the issues remaining. Thus, the
committee believed that the incentive plan targets for 2006 were sufficiently
challenging but not so aggressive as to impede the orderly progress of Mr.
Harp's improvement plan. For 2006 incentive plan results, MDU Construction
Services Group, Inc. exceeded 2006 targethis 2009 earnings per share and return on invested capital by 66 percenttarget levels below his 2008 target and 35 percent, respectively. This reflects2008 actual results largely to reflect lower commodity prices and lower anticipated production due to reduced capital expenditures. For 2009 incentive plan results, the outstanding efforts by Mr. Harp in improving 2006 financialcompany’s 2009 earnings per share and return on invested capital results for this
business unit over those for the prior two years.
In additionwere [•] and [•] of their respective 2009 targets. These results equated to the annualan incentive of $310,000 Mr. Harp earned under our
executive incentive compensation plan, he also earned an additional $500,000
one-time bonus payment. When Mr. Harp[•], which was hired in September 2004reduced by [•] or 1% due to effectuate
a turn-aroundnot achieving one of the Utility Services Inc. business unit, now called MDU
Construction Services Group, Inc., he was offered one-time incentive
opportunitiesfive 2009 safety goals. Therefore, we paid [•] to Mr. Bietz as a 2009 incentive.
Deferral of (i) $250,000 if MDU Construction Services Group, Inc. reported
annual net income of $12.5 million in 2007 or sooner and in addition (ii)
$500,000 if MDU Construction Services Group, Inc. reported annual net income of
$18.6 million or more in fiscal year 2008 or sooner. The first goal was met in
2005, and in fiscal year 2006 MDU Construction Services Group, Inc. met the
second goal.
DeferredAnnual Incentive Compensation
- ---------------------
We provide executives the opportunity to defer receipt of earned annual incentives. If an executive chooses to defer his/his or her annual incentive, the
companywe will credit the deferral with interest at a rate determined by the compensation committee. For 2009, the committee discontinued using the prime rate plus one percentage
point. Messrs. Hildestad, Schneider and Raile deferred their annual incentivesin favor of using Moody’s U.S. Long-Term Corporate Bond Yield Average for 2005.
“A” rated companies. The committee’s reasons for using this approach recognized:
· | incentive deferrals are a low-cost source of capital for the company and |
· | incentive deferrals are unsecured obligations and therefore carry a higher risk to the executives. |
2009 Long-Term Incentives
Awards Granted in 20062009 under the Long-Term Performance-Based Incentive Plan
- ---------------------------------------------------------------------------
We use the Long-Term Performance-Based Incentive Plan, which is an omnibus plan and has been approved by our stockholders, for long-term incentive compensation. We discontinued the use of stock options in 2003 and now use performance shares as the only form of long-term incentive compensation.
32
The compensation committee uses the performance graph peer group as the comparator group to determine relative stockholder return and potential payments under the Long-Term Performance-Based Incentive Plan for its 2009-2011 performance share award cycle. The companies comprising our performance graph peer group are the same companies listed above under the heading “Role of Compensation Consultants” with the exception of Florida Rock Industries, which was acquired in late 2007.
The performance measures aremeasure is our total stockholder return over a three-year measurement period as compared to the total stockholder returns of the companies in our performance graph peer group.group over the same three-year period. The compensation committee selected this goal because it believes executive pay under a long-term, capital accumulation program such as this should mirror our long-term performance in stockholder return as compared to other public companies in our industries. Payments are made in company stock; dividend equivalents are paid in cash.
Similar to
Total stockholder return is the percentage change in the value of an investment in the common stock of a company, from the closing price 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.
As with the annual incentive target, we determined the long-term incentive target for a given position is determined by reference to the salary grade. Mr. White's
target was 133% of base salary, although Mr. White was not granted performance
shares under the program in 2006 due to his retirement. Mr. Hildestad's target
was 105% of base salary. Messrs. Schneider's, Raile's and Robinson's targets
were 90% of base salary each, although Mr. Robinson was not granted performance
shares under the program in 2006 due to his retirement. Messrs. Castleberry's
and Harp's targets were 75% of base salary. TheseWe derived these incentive targets were derived in part from competitive data provided by Towers Perrin and in part by the committee'scommittee’s judgment on the impact each position has on our total stockholder return. The committee also believed consistency across positions in the same salary grades wasand keeping the chief executive officer’s long-term incentive target below a level indicated by competitive data were important from an internal equity standpoint. The 2009 long-term incentive targets for each named executive were unchanged from 2008.
On February
16, 2006,12, 2009, the board
of directors, upon recommendation of the compensation committee, made
long-term incentiveperformance share grants to the named executive
officers in
the form of performance shares.officers. The
compensation committee determined the target number of performance shares granted to each named executive officer by multiplying the named executive
officer's 2006officer’s 2009 base salary by his
or her long-term incentive target and then dividing this product by the average of the closing prices of our stock from January
1, 20062, 2009 through January
23, 2006.
- ------------------------------------------------------------------------------------
Performance
Average shares
2006 long- 2006-long closing Resulting granted
term term price of number of adjusted
2006 base incentive incentive our stock performance for July
salary to target % target $ from Jan. shares 26, 2006
determine at time at time 1 through granted on 3-for-2
Name target $ of grant of grant Jan. 23 Feb. 16 stock split
- ------------------------------------------------------------------------------------
Martin A. - - - - - -
White(1)
- ------------------------------------------------------------------------------------
Terry D. $525,000 105% $551,250 $34.62 15,922 23,883
Hildestad(2)
- ------------------------------------------------------------------------------------
William E. $392,000 90% $352,800 $34.62 10,190 15,285
Schneider
- ------------------------------------------------------------------------------------
Warren L. - - - - - -
Robinson(3)
- ------------------------------------------------------------------------------------
Vernon A. $318,750 90% $286,875 $34.62 8,286 12,429
Raile
- ------------------------------------------------------------------------------------
John K. $300,000 75% $225,000 $34.62 6,499 9,748
Castleberry
- ------------------------------------------------------------------------------------
John G. Harp $310,000 75% $232,500 $34.62 6,715 10,072
- ------------------------------------------------------------------------------------
(1) Mr. White was not granted performance shares22, 2009, as shown in
2006 due to his retirement.
(2) Mr. Hildestad did not receive any additional performance shares when he
became president and chief executive officer in August 2006.
33
(3) Mr. Robinson was not granted performance shares in 2006 due to his
retirement.
the following table:Name | 2009 Base Salary to Determine Target ($) | | 2009 Long-Term Incentive Target at Time of Grant (%) | | 2009 Long-Term Incentive Target at Time of Grant ($) | | Average Closing Price of Our Stock From January 2 Through January 22 ($) | | Resulting Number of Performance Shares Granted on February 12 (#) |
Terry D. Hildestad | | | 750,000 | | | 150 | | | 1,125,000 | | | 20.52 | | | 54,824 |
Vernon A. Raile | | | 450,000 | | | 90 | | | 405,000 | | | 20.52 | | | 19,736 |
John G. Harp | | | 450,000 | | | 90 | | | 405,000 | | | 20.52 | | | 19,736 |
William E. Schneider | | | 447,400 | | | 90 | | | 402,660 | | | 20.52 | | | 19,622 |
Steven L. Bietz | | | 350,000 | | | 90 | | | 315,000 | | | 20.52 | | | 15,350 |
From 0% to 200% of the target grant will be paid out in February 20092012 depending on our three-year 2006-20082009-2011 total stockholder return compared to the total three-year stockholder returns of companies in our performance graph peer group. The payout percentage will be a function of our rank against our performance graph peer group as follows:
- ---------------------------------------------------------------------------
The Company's Percentile Rank Payout Percentage of Feb. 16, 2006 Grant
- ---------------------------------------------------------------------------
100th 200%
- ---------------------------------------------------------------------------
75th 150%
- ---------------------------------------------------------------------------
50th 100%
- ---------------------------------------------------------------------------
40th 10%
- ---------------------------------------------------------------------------
Less than 40th 0%
- ---------------------------------------------------------------------------
The Company’s Percentile Rank | | Payout Percentage of February 12, 2009 Grant |
100th | | | | 200% |
75th | | | | 150% |
50th | | | | 100% |
40th | | | | 10% |
Less than 40th | | | | 0% |
Payouts for percentile ranks falling between the intervals will be interpolated. We also will pay dividend equivalents in cash on the number of shares actually earned for the performance period. The dividend equivalents will be paid in 20092012 at the same time as the performance awards are paid.
Awards Paid on February 16, 200612, 2009 under the Long-Term Performance-Based Incentive - --------------------------------------------------------------------------------
Plan
- ----
We granted performance shares to our named executive officers under the Long-Term Performance-Based Incentive Plan on February
13, 200316, 2006 for the
20032006 through
20052008 performance period.
As we reported in last year's proxy statement,
these performance shares vested at the 118% payout level. Our total stockholder return for the
20032006 through
20052008 performance period was
106.56%5.46%, which corresponded to a percentile rank of
59%48% against our performance graph peer group. The percentile rank of
59%48% corresponded to a payout percentage of
118%82%, meaning
118%82% of the target shares originally granted plus dividend equivalents were paid to the named executive officers. The table below lists the shares granted on February
13, 2003,16, 2006, the shares paid on February
16, 200612, 2009 based on the payout percentage, and the dividend equivalents earned.
- -------------------------------------------------------------------------
Shares
granted on Shares paid
February 13, Payount on February Dividend
Name 2003(2) percentage 16, 2006(2) Equivalents
- -------------------------------------------------------------------------
Martin A. White 17,083 118% 20,158 $28,221.90
- -------------------------------------------------------------------------
Terry D. Hildestad 5,809 118% 6,855 $9,597.00
- -------------------------------------------------------------------------
William E. Schneider 4,324 118% 5,103 $7,144.20
- -------------------------------------------------------------------------
Warren L. Robinson 5,809 118% 6,855 $9,597.00
- -------------------------------------------------------------------------
Vernon A. Raile 2,134 118% 2,518 $3,525.90
- -------------------------------------------------------------------------
John K. Castleberry 5,809 118% 6,855 $9,597.00
- -------------------------------------------------------------------------
John G. Harp(1) - - - -
- -------------------------------------------------------------------------
(1) Mr. Harp was not granted performance shares in 2003 because he was not then
an employee of the company.
34
(2) Name | | Shares Granted on February 16, 20061 (#) | | Payout Percentage (%) | | Shares Paid on February 12, 20091 (#) | | Dividend Equivalents ($) |
Terry D. Hildestad | | | 23,883 | | | | 82 | | | | 19,584 | | | | 32,968 | |
Vernon A. Raile | | | 12,429 | | | | 82 | | | | 10,192 | | | | 17,157 | |
John G. Harp | | | 10,072 | | | | 82 | | | | 8,259 | | | | 13,903 | |
William E. Schneider | | | 15,285 | | | | 82 | | | | 12,534 | | | | 21,100 | |
Steven L. Bietz | | | 7,018 | | | | 82 | | | | 5,755 | | | | 9,688 | |
(1) | Shares are adjusted for the 3-for-2 stock split effective October 29, 2003
and the July 26, 2006 stock split.
Perquisites and Tax Gross-Ups
- -----------------------------
Our named executive officers have limited perquisites, which may include
personal use of our plane, limited accompaniment of family members with
executives traveling for business purposes, reasonable vehicle allowances, home
office allowances and subsidized annual physical examinations.
In connection with Martin White's retirement in August 2006, we paid the
cost of travel for members of Mr. White's family to attend his retirement party
and also provided a tax gross-up to Mr. White on this amount. While the company
has rarely provided tax gross-ups, the board believed that it was appropriate in
recognition of Mr. White's very successful tenure as our chairman and chief
executive officer.
Pension Plan
- ------------
Effective 2006, we no longer offer pensions to new employees. Instead,
executives and other employees are offered increased company contributions to
our 401(k) plan. The pension plans continue in effect for all employees hired
before 2006.
We provide our executives and other employees hired before 2006 with income
for their retirement through our qualified defined benefit pension plans, where
benefits are determined by years of service and base salary. For benefits under
the pension plans, 35 years is the maximum number of years of service the
participants in these plans can accrue. Pension benefits are determined by the
step-rate formula that emphasizes the highest consecutive 60 months of base
salary within the last 10 years of service. Employees who retire early receive
reduced benefits under the pension plans. We discuss other material terms of the
pension plans later in this proxy statement. Because benefits under our pension
plan increase with an employee's period of service and earnings, we believe the
pension encourages our employees to make long-term commitments to the company,
and as such, serves as an important retention tool.
Supplemental Income Security Plan
- ---------------------------------
We also offer certain key managers and executives, including all of our
named executive officers, benefits under our nonqualified retirement plan, which
we refer to as the Supplemental Income Security Plan or SISP. The SISP was
adopted in 1982 to provide participants with additional retirement income and
death benefits.
The additional retirement income may take two forms:
o a supplemental retirement benefit payable for fifteen years beginning
at the later of age 65 or after employment ends and
o an additional retirement benefit to offset the Internal Revenue Code
limitations placed on benefits payable under our qualified defined
benefit pension plans. If eligible, the participants receive this
retirement benefit after they separate from the company and until they
reach age 65. In order to be eligible to receive the additional
retirement
35
benefit, they must vest in their pension benefit, which requires five
years of service, and their pension must be limited by the Internal
Revenue Code. Mr. Harp has an additional qualification in that he must
remain employed until age 60 in order to receive this additional
retirement benefit.
A death benefit is provided if SISP participants die before their
supplemental retirement benefits commence or if they elect to receive death
benefits in lieu of all or a part of their supplemental retirement benefits.
We discuss the other terms of the SISP later in the proxy statement.
In November 2006, we amended the SISP to give the compensation committee
the responsibility of selecting participants and establishing levels of
participation. The committee's selections are based on recommendations from the
chief executive officer. Previously, the chief executive officer selected
participants in the SISP and their level of participation. Participation, as
well as the level of participation, was solely at the discretion of the chief
executive officer and was intended to reward those who made significant
contributions to our success and profitability. In November 2005, certain named
executive officers received upgrades to their SISP levels that became effective
on January 1, 2006. The upgrades, along with the chief executive officer's
rationale for the upgrades, are summarized in the following table:
- ---------------------------------------------------------------------------------------
Name Pre January 1, 2006 Post January 1, 2006 Rationale for Annual SISP Benefits Annual SISP Benefits upgrade
- ---------------------------------------------------------------------------------------
Survivors Retirement Survivors Retirement
- ---------------------------------------------------------------------------------------
Martin A. White(1) $1,025,040 $512,520 $1,025,040 $512,520 -
- ---------------------------------------------------------------------------------------
Terry D. Hildestad $386,640 $193,320 $548,400 $274,200 Assumption of
additional duties
of president and
chief operating
officer
- ---------------------------------------------------------------------------------------
William E. Schneider $251,400 $125,700 $386,640 $193,320 Assumption of
additional duties
of president and
chief executive
officer, Knife
River
Corporation
- ---------------------------------------------------------------------------------------
Warren L. Robinson $386,640 $193,320 $468,600 $234,300 Recognition of
past performance
and contribution
to our success
- ---------------------------------------------------------------------------------------
Vernon A. Raile $175,200 $87,600 $291,480 $145,750 Assumption of
additional duties
of executive vice
- ---------------------------------------------------------------------------------------
36
- ---------------------------------------------------------------------------------------
president,
treasurer and
chief financial
officer
- ----------------------------------------------------------------------------------------
John K. Castleberry $386,640 $193,320 $468,600 $234,300 Recognition of
past performance
and contribution
to our success.
- ----------------------------------------------------------------------------------------
John G. Harp $219,000 $109,500 $291,480 $145,750 Recognition of
past performance
and contribution
to our success.
- ---------------------------------------------------------------------------------------
the 3-for-2 stock split effective July 26, 2006.
(1) Mr. White did not receive an upgrade to his SISP level.
In 2003, we considered increasing the retirement benefits provided under
the SISP, and we engaged Towers Perrin to compare the retirement benefits
provided under the SISP to similar plans provided by companies in our
performance graph peer group. Towers Perrin's analysis showed that the
retirement benefits provided by the SISP were higher, as a percentage of final
annual compensation, than supplemental retirement benefits provided by most of
the companies in the performance graph peer group, assuming final annual
compensation of $200,000, $500,000 or $1,000,000 and length of service of 15,
20, 25 or 30 years. The extent to which the benefits under the SISP exceeded
benefits provided by the other companies depended on the level of final annual
compensation and years of service assumed. Based on Towers Perrin's findings, we
determined that the SISP benefits should not be increased; however, because of
the SISP's importance to our success in recruitment and retention of exceptional
executive talent, the SISP benefit levels were maintained.
To encourage Mr. Harp to remain with the company through 2007, on November
16, 2006, upon recommendation of our chief executive officer and the
compensation committee, our board of directors approved an additional retirement
benefit for Mr. Harp. The benefit provides for Mr. Harp to receive payments that
represent the equivalent of an additional three years of service under the
pension plan and the SISP if he does not resign or retire before January 2, 2008
and if he has acceptable successors in place prior to his departure. The
additional three years of service recognize Mr. Harp's previous employment with
a subsidiary of the company. If Mr. Harp were to retire or resign on January 2,
2008, and live to age 81, the equivalent of the additional three years of
service under the pension plan would yield total payments to Mr. Harp of
$421,462 over his lifetime. The equivalent of the additional three years of
service under the SISP would yield aggregate total payments over 15 years to Mr.
Harp of $874,440 beginning at age 65, assuming he does not die before age 65.
37
Post-Termination Compensation and Benefits
We have entered into change of control employment agreements with each of
our Section 16 officers, including our named executive officers. We believe it
is important to provide an inducement for our executive officers to continue
working for us during any change of control transition periods and to provide
severance benefits if employment is terminated in connection with a change of
control.
If a change of control should occur, each agreement provides for a
three-year employment period from the date of the change of control. During the
employment period, the executive officer receives guaranteed minimum levels of
compensation and benefits and severance benefits. In addition if the company or
a successor terminates the executive officer's employment without cause or if
the executive officer resigns for good reason, in either case, during the
employment period or prior to the employment period if the termination is deemed
to be related to the change of control, the executive officer is entitled to
receive three times base salary and bonus as well as other amounts.
The change of control employment agreements define "change of control" to
include:
o an individual, entity or group acquiring 20% or more of our voting
securities
o a turnover in a majority of our board of directors without the
approval of a majority of the directors who were members of the board
as of the agreement date or whose election was approved by such board
members
o consummation of a merger or consolidation, unless our stockholders
immediately prior to the merger beneficially own more than 60% of the
outstanding shares and voting power of the resulting corporation after
the merger or
o the stockholders approving liquidation or dissolution of the company.
Having the actual consummation of a merger or similar transaction rather
than the stockholder approval date is a conservative trigger and prevents
payouts from being made prematurely, in the event consummation were not to
occur.
The agreements contain what are commonly referred to as "13th month
triggers," which provide that a resignation for good reason includes resignation
for any reason during the 30 day period beginning on the first anniversary of
the change of control. The compensation committee believes that providing
severance benefits for terminations without cause or for good reason limits the
provision of severance benefits to situations where an executive officer's
employment is terminated due to the change of control and through no fault of
the executive. The compensation committee believes the 13th month trigger
encourages executive officers to remain with the company or a successor during
the critical year-long transition period following a transaction, which is
beneficial to the company and its stockholders, and protects executive officers
who choose to so continue employment.
The agreements also provide what is commonly referred to as a modified tax
gross-up. This provides for an additional payment to make an executive whole for
federal excise taxes on excess parachute payments, unless the excess parachute
payments are not more than 110% of the
38
safe harbor amount. In that case, the payments to the executive would be reduced
to the safe harbor amount.
The board of directors and the compensation committee reviewed the change
of control agreements in 2006. We compared the terms of our change of control
agreements to those of certain members of our performance graph peer group and
to the Frederic W. Cook & Co., Inc., 2005 Change-in-Control Report, Prevalence
and Design of Executive Change-in-Control Arrangements at Each of the Top 50
NYSE and NASDAQ Companies. The compensation committee determined that the terms
of the agreement were consistent with current practice and in the best interests
of the stockholders because the agreement provides an incentive for executives
to remain employed through any change of control.
In addition to these agreements, the terms of the Long-Term
Performance-Based Incentive Plan call for accelerated vesting of awards
previously granted but not yet vested at the time of a change of control and
payment of performance awards.
In the case of any termination of employment, the compensation committee
may also consider providing severance benefits on a case-by-case basis. The
compensation committee adopted a checklist of factors in February 2005 to
consider when determining whether any such severance benefits will be made upon
termination.
PEER4 analysi$Analysi$: Comparison of Pay for Performance Ratios Each year we compare our named executive officers'officers’ pay for performance ratios to the pay for performance ratios of the named executive officers in the performance graph peer group. This analysis looks at the relationship between our compensation levels and our average annual total stockholder return in comparison to the peer group over a five-year period. All data used in the analysis, including the valuation of long-term incentives and calculation of stockholder return, were compiled by Equilar, Inc., an independent service provider, which uses each company'scompany’s annual filings as a basis of theirits data collection. This analysis consisted of comparingdividing what we paid our named executive officers for the years 20012004 through 2005 to2008 by our average annual total stockholder return for the same five-year period.period to yield our pay ratio. Our pay ratio was then compared to the pay ratio of the companies in the performance graph peer group, which was calculated by dividing total direct compensation for all the proxy group executives by the sum of each company'scompany’s average annual total stockholder return for the same five-year period. The results are shown in the following chart. 5 Year Total Direct Compensation to 5 Year Total Stockholder Return*
- ---------------------------------------------------------------------------
MDU Resources Group, Performance Graph Peer
Inc. Group
- ---------------------------------------------------------------------------
Dollars of Total Direct $3,084,702 $5,777,577
Compensation(1) per point of
- ---------------------------------------------------------------------------
- ------------------
| MDU Resources Group, Inc. ($) | | Performance Graph Peer Group ($) | Dollars of Total Direct Compensation1 per Point of Total Stockholder Return | | | 5,489,386 | | | 5,390,223 |
(1) | Total direct compensation is the sum of annual base salaries, annual incentives, the value of long-term incentives at grant and all other compensation as reported in the proxy statements. For 2006, 2007 and 2008, total direct compensation also includes the change in pension values and nonqualified deferred compensation earnings as reported in the proxy statements. |
*The chart is not deemed filed or a part of this compensation discussion and analysis for certification purposes.
39
- ---------------------------------------------------------------------------
Total Stockholder Return
- ---------------------------------------------------------------------------
(1) Total direct compensation is the sum of annual base salaries, annual
incentives, the value of long-term incentives at grant and other
compensation as reported in the proxy statements.
The results of the analysis showed that we paid our named executive officers significantly lessslightly more than what the peer group companies paid their named executive officers for comparable levels of stockholder return over the five-year period. Specifically, as indicated in the chart, the data shows that we paid our named executivesexecutive officers approximately $2.7 million less$99,000 more per point of stockholder return than our performance graph peer group. We have been conducting our PEER4 Analysi$ since 2004. Post-Termination Compensation and Benefits Pension Plans Effective 2006, we no longer offer defined benefit pension plans to new non-bargaining unit employees. The defined benefit plans available to employees hired before 2006 were amended to cease benefit accruals after December 31, 2009. The frozen benefit provided through our qualified defined benefit pension plans is determined by years of service and base salary. Effective 2010 for those employees who were participants in defined benefit pension plans and for executives and other employees hired after 2006, the company offers increased company contributions to our 401(k) plan. Supplemental Income Security Plan Benefits Offered We offer certain key managers and executives, including all of our named executive officers, benefits under our non-qualified retirement plan, which we refer to as the Supplemental Income Security Plan or SISP. The SISP has a ten-year vesting schedule and was amended to add an additional vesting requirement for benefit level increases occurring on or after January 1, 2010. The SISP provides participants with additional retirement income and death benefits. The additional retirement income may take two forms: | • | a supplemental retirement benefit payable for fifteen years beginning at the later of age 65 or after employment ends. The company amended this portion of the benefit to reflect a 20% reduction in future benefit levels for employees who join the plan on or after January 1, 2010 or for current participants who receive benefit level increases on or after January 1, 2010. | | • | an additional retirement benefit to offset the Internal Revenue Code limitations placed on benefits payable under our qualified defined benefit pension plans. The company amended the additional retirement benefit to no longer allow new participants and to cease benefit accruals for existing participants after December 31, 2009. If eligible, the participants receive this retirement benefit after they separate from the company and until they reach age 65. In order to be eligible to receive the additional retirement benefit, participants must vest in their pension benefit, which requires five years of service, and their pension must be limited by the Internal Revenue Code. Mr. Harp has an additional qualification in that he must remain employed until age 60 in order to receive this additional retirement benefit. |
A death benefit is provided if SISP participants die before their supplemental retirement benefits commence or if they elect to receive death benefits in lieu of all or a part of their supplemental retirement benefits. The death benefit is payable for 15 years. We believe the SISP is critical in retaining the talent necessary to drive long-term stockholder value. In addition, we believe that the 10-year vesting provision of the SISP, augmented by an additional three years of vesting for benefit level increases occurring on or after January 1, 2010, helps promote retention of key executive officers. Benefit Level Increases The chief executive officer recommends benefit level increases to the compensation committee believes this comparison helps demonstratefor participants except himself. The chief executive officer considers, among other things, the participant’s salary in relation to the salary ranges that correspond with the SISP benefit levels, the participant’s performance, the performance of the applicable business unit or the company, and the cost associated with the benefit level increase. Each November, the compensation committee considers SISP benefit level increases for the upcoming year as recommended by the chief executive officer and also considers benefit level increases for the chief executive officer. In November 2008, Messrs. Raile, Harp, and Bietz each received an increase in their SISP benefit levels, which were effective on January 1, 2009. The benefit level increases recognized each named executive’s contribution to the success of the company and individual business unit, where applicable. The committee, however, approved the chief executive officer’s recommendation to limit the benefit increases for Messrs. Harp and Bietz to a level below the levels that corresponded to each named executive’s base salary. The chief executive officer’s rationale was to limit additional costs associated with the benefit level increases in light of the uncertain economic times. The committee believed Mr. Hildestad’s benefit level was appropriate and therefore did not grant him an increase. In November 2009, Messrs. Harp, Schneider, and Bietz each received an increase in their SISP benefit levels which was effective on December 1, 2009. The committee’s rationale for Messrs. Harp and Bietz’s benefit level increases was recognition of their continued contribution to the financial success of the company and to bring their SISP benefit levels in line with their current salary. Mr. Schneider was awarded a benefit level increase to one level above the level corresponding to his current base salary in recognition of his leadership in the financial turnaround of Knife River Corporation. The following table reflects our stockholders
receive good value for ournamed executive compensation expense.
officers’ SISP levels, including the changes effective December 1, 2009: | | January 1, 2009 Annual SISP Benefits | | December 31, 2009 Annual SISP Benefits | | | | | | | | | | | | | | | | | | Name | | Survivors ($) | | Retirement ($) | | Survivors ($) | | Retirement ($) | Terry D. Hildestad | | | 1,025,040 | | | | 512,520 | | | | 1,025,040 | | | | 512,520 | | Vernon A. Raile | | | 548,400 | | | | 274,200 | | | | 548,400 | | | | 274,200 | | John G. Harp | | | 468,600 | | | | 234,300 | | | | 548,400 | | | | 274,200 | | William E. Schneider | | | 468,600 | | | | 234,300 | | | | 548,400 | | | | 274,200 | | Steven L. Bietz | | | 328,080 | | | | 164,040 | | | | 386,640 | | | | 193,320 | |
Clawback
We In November 2005, we implemented a guideline for repayment of incentives due to accounting restatements, commonly referred to as a clawback policy, in November 2005 whereby the compensation committee may seek repayment of annual and long-term incentives paid to executives if accounting restatements occur within three years after the payment of incentives under the annual and long-term plans. Under our clawback policy, the compensation committee may require employees to forfeit awards and may rescind vesting, or the acceleration of vesting, of an award. Impact of Tax and Accounting Treatment The compensation committee may consider the impact of tax and/or accounting treatment in determining compensation. Section 162(m) of the Internal Revenue Code places a limit of $1 million on the amount of compensation paid to certain officers that we may deduct as a business expense in any tax year unless, among other things, the compensation qualifies as performance-based compensation, as that term is used in Section 162(m). Generally, long-term incentive compensation and annual incentive awards for our chief executive officer and those executive officers whose overall compensation is likely to exceed $1,000,000$1 million are structured to be deductible for purposes of Section 162(m) of the Internal Revenue Code, but we may pay compensation to an executive officer that is not deductible. Approximately $120,000All annual or long-term incentive compensation paid to Mr. Harpour named executive officers for 2009 satisfied the requirements for deductibility. Section 409A of the Internal Revenue Code imposes additional income taxes on executive officers for certain types of deferred compensation if the deferral does not comply with Section 409A. We have amended our compensation plans and arrangements affected by Section 409A with the objective of not triggering any additional income taxes under Section 409A. Section 4999 of the Internal Revenue Code imposes an excise tax on payments to executives and others of amounts that are considered to be related to a change of control if they exceed levels specified in 2006 wasSection 280G of the Internal Revenue Code. The potential impact of the Section 4999 excise tax is addressed with the modified tax payment provisions in the change of control employment agreements, which are described earlier in this compensation discussion and analysis and later in the proxy statement under the heading “Potential Payments upon Termination or Change of Control.” We do not deductible for purposesconsider the potential impact of Section 162(m).
4999 or 280G when designing our compensation programs. The compensation committee also considers the accounting and cash flow implications of various forms of executive compensation. In our financial statements, we record salaries and annual incentive compensation as expenses in the amount paid, or to be paid, to the named executive officers. For our equity awards, accounting rules also require that we record an expense in our financial statements. We calculate the accounting expense of equity awards to employees in accordance with FASB Accounting Standards Codification Topic 718. Stock Ownership Guidelines We instituted stock ownership guidelines on May 5, 1993, which we revised in February 2003, to encourage executives to own a multiple of their base salary in our common stock. All officers who participate in our Long-Term Performance-Based Incentive Plan are subject to the guidelines. The guidelines call for the executive to reach the multiple within five years. Unvested performance shares and other unvested equity awards do not count towards the guidelines. In 2009, the compensation committee reviewed these guidelines against the performance graph peer companies who published ownership guidelines, and determined no change was necessary. Each February, the compensation committee receives a report on the status of stock holdings by executives. The table shows the named executive officersofficers’ holdings as of December 31, 2006:
40
------------------------------------------------------------------
Name Guideline Actual Number of
multiple of holdings as years at
base salary a multiple guideline
of base multiple
salary
------------------------------------------------------------------
Martin A. White(1) - - -
------------------------------------------------------------------
Terry D. Hildestad 4 X 5.27 1.67
------------------------------------------------------------------
William E. Schneider 3 X 3.67 4.00
------------------------------------------------------------------
Warren L. Robinson(1) - - -
------------------------------------------------------------------
Vernon A. Raile 3 X 3.09 1.00
------------------------------------------------------------------
John K. Castleberry 3 X 1.40 4.00
------------------------------------------------------------------
John G. Harp 3 X 8.31 2.25
------------------------------------------------------------------
1 Retired.
2009:Name | Assigned Guideline Multiple of Base Salary | | Actual Holdings as a Multiple of Base Salary | | Number of Years at Guideline Multiple (#) | | Terry D. Hildestad | | 4X | | 5.79 | | 4.67 | | Vernon A. Raile | | 3X | | 2.96 | | 4.00 | | John G. Harp | | 3X | | 4.06 | | 5.25 | | William E. Schneider | | 3X | | 5.43 | | 8.00 | | Steven L. Bietz | | 3X | | 3.95 | | 7.33 | |
The compensation committee may consider the guidelines and the executive'sexecutive’s stock ownership in determining compensation. The committee, however, did not do so with respect to 20062009 compensation. Policy Regarding Hedging Stock Ownership In our Executive Compensation Policy, we adopted a policy that prohibits executives from hedging their ownership of company common stock. Executives may not enter into transactions that allow the executive to benefit from devaluation of our stock or otherwise own stock technically but without the full benefits and risks of such ownership.
41
- --------------------------------------------------------------------------------
COMPENSATION COMMITTEE REPORT
- --------------------------------------------------------------------------------
COMPENSATION COMMITTEE REPORT |
The compensation committee has reviewed and discussed the Compensation Discussion and Analysis required by Reg. S-K, Item 402(b) with management. Based on the review and discussions referred to in the preceding sentence, the compensation committee recommended to the board of directors that the Compensation Discussion and Analysis be included in our proxy statement on Schedule 14A. Thomas Everist, Chairman Karen B. Fagg Thomas C. Knudson Patricia L. Moss
42
Summary Compensation Table for 2006
- --------------------------------------------------------------------------------------------------------
NameSummary Compensation Table for 2009 |
Name and Principal Position (a) | | Year (b) | Salary ($) (c) | Bonus ($) (d) | Stock Awards ($) (e)(1) | Option Awards ($) (f)(1) | Non-Equity Incentive Plan Compensation ($) (g) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) (h)(2) | All Other Compensation ($) (i) | Total ($) (j) | | Terry D. Hildestad President and CEO | | 2009 2008 | 750,000 700,000 | — | 1,117,861 1,200,485 | | [•] 310,800 | 825,319 898,941 | 9,824(3) 9,476 | [•] 3,119,702 | 2007 | 625,000 | — | 779,293 | — | 1,250,000 | 1,362,413 | 7,026 | 4,023,732 | | | | | | | | | | | | Vernon A. Raile Executive Vice President, Treasurer and CFO | | 2009 2008 | 450,000 400,000 | — | 402,417 411,575 | | [•] 115,440 | 695,177 498,210 | 8,124(3) 7,176 | [•] 1,432,401 | 2007 | 350,700 | — | 295,882 | — | 350,700 | 555,248 | 7,026 | 1,559,556 | | | | | | | | | | | | | | | | | | | | | John G. Harp President and CEO of MDU Construction Services Group, Inc. | | 2009 2008 | 450,000 400,000 | — | 402,417 411,575 | — | [•] (4) 720,000(5) | 761,670(6) 338,774(6) | 23,272(7) 23,230(7) | [•] 1,893,579 | 2007 | 341,000 | — | 239,763 | — | 341,000 | 47,334(6) | 23,080(7) | 992,177 | | | | | | | | | | | | | | | | | | | | | William E. Schneider President and CEO of Knife River Corporation | | 2009 2008 | 447,400 447,400 | — | 400,093 460,374 | — | [•] — | 726,646 180,801 | 9,324(3) 8,976 | [•] 1,097,551 | 2007 | 422,000 | — | 356,052 | — | 206,780 | 450,347 | 7,026 | 1,442,205 | | | | | | | | | | Steven L. Bietz President and CEO of WBI Holdings, Inc. | | 2009 2008 2007 | 350,000 — — | — | 312,987 — — | — | [•] — — | 475,985 — — | 8,084(3) — — | [•] — — |
(1) | Amounts in this column represent the aggregate grant date fair value of the performance share awards calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 – Share-Based Payment. Amounts for 2008 and Year Salary Bonus Stock Option Non-Equity Change2007 have been recalculated to comply with the new requirements. This column was prepared assuming none of the awards will be forfeited. The amounts were calculated using a Monte Carlo simulation, as described in All Other Total
Principal ----- ($) ($) Awards Awards Incentive Plan Pension Compensation ($)
Position ($) ($) Compensation ValueNote 13 of our audited financial statements in our Annual Report on Form 10-K for the year ended December 31, 2009. |
(2) | Amounts shown represent the change in the actuarial present value for years ended December 31, 2007, 2008, and ($)
($) Nonqualified
Deferred
Compensation
Earnings ($)
(a) (b) (c) (d) (e)(1) (f)(1) (g) (h)(2) (i) (j)
- --------------------------------------------------------------------------------------------------------
Terry D. 2006 562,500 - 376,394 25,084 [ ] [ ] 6,876 [ ]
Hildestad
President2009 for the named executive officers’ accumulated benefits under the pension plan, excess SISP, and CEO(3)
- --------------------------------------------------------------------------------------------------------
Martin A. 2006 468,750 - 218,206(5) - [ ] [ ] 25,110(6) [ ]
White
Former
ChairmanSISP and, CEO(4)
- --------------------------------------------------------------------------------------------------------
Vernon A. 2006 318,750 - 161,690 - [ ] [ ] 6,876 [ ]
Raile
Executive
Vice
President,
Treasurerfor Mr. Harp, the additional retirement benefit, collectively referred to as the “accumulated pension change,” plus above market earnings on deferred annual incentives, if any. The amounts shown are based on accumulated pension change and CFO
- -------------------------------------------------------------------------------------------------------
Warren L. 2006 53,125 - 93,142(8) - [ ] [ ] 1,001,685(9) [ ]
Robinson
Former
Executive
Vice
Presidentabove market earnings as of December 31, 2007, 2008, and CFO(7)
- --------------------------------------------------------------------------------------------------------
William E. 2006 392,000 - 248,217 20,729 [ ] [ ] 6,876 [ ]
Schneider
President and
CEO of Knife
River
Corporation
- --------------------------------------------------------------------------------------------------------
John K. 2006 311,667 - 323,641 - [ ] [ ] 6,876 [ ]
Castleberry
Executive
Vice
President -
Administration(10)
- --------------------------------------------------------------------------------------------------------
John G. Harp 2006 310,000 - 150,566 - [ ](11) [ ](12) 31,323(13) [ ]
President and
CEO of MDU
Construction
Services
Group, Inc.
- --------------------------------------------------------------------------------------------------------
2009, as follows: |
(1) Please refer to Note 13 to our audited financial statements in our Annual
Report on Form 10-K for the year ended December 31, 2006. Assumptions used
in the valuation of the stock awards and option awards in this table are
the same as used in the valuation of compensation expense for our audited
financial statements, except for the effect of estimated forfeitures.
Statement of Financial Accounting Standard No. 123 (revised), "Share-Based
Payment (revised 2004)" requires us to estimate forfeitures when awards are
granted and reduce estimated compensation expense accordingly. This table
was prepared assuming that none of the awards will be forfeited. However,
for both this table and our audited financial statements, compensation
expense is adjusted for actual forfeitures.
(2) Amounts shown represent the change in the actuarial present value of the
named executive officers' accumulated benefit under the pension plan and
the Supplemental Income Security Plan (SISP), collectively referred to as
"accumulated pension change," plus above market earnings on deferred annual
incentives. The specific amounts are:
43
---------------------------------------------------------
Accumulated Above Market
Pension Change Earnings
---------------------------------------------------------
Mr. Hildestad [ ] 15,919
---------------------------------------------------------
Mr. White [ ] -
---------------------------------------------------------
Mr. Raile [ ] 27,061
---------------------------------------------------------
Mr. Robinson [ ] 13,360
---------------------------------------------------------
Mr. Schneider [ ] 16,096
---------------------------------------------------------
Mr. Castleberry [ ] -
---------------------------------------------------------
| | Accumulated Pension Change | | Above Market Earnings | | Name | | 12/31/2007 ($) | | 12/31/2008 ($) | | 12/31/2009 ($) | | 12/31/2007 ($) | | 12/31/2008 ($) | | 12/31/2009 ($) | | | Terry D. Hildestad | | | 1,336,815 | | | | 883,351 | | | | 806,554 | | | 25,598 | | | | 15,590 | | | | 18,765 | | | | Vernon A. Raile | | | 508,987 | | | | 469,755 | | | | 661,243 | | | 46,261 | | | | 28,455 | | | | 33,934 | | | | John G. Harp | | | 38,498 | | | | 331,558 | | | | 743,334 | | | — | | | | — | | | | — | | | | Additional Retirement (John G. Harp)* | | | 8,836 | | | | 7,216 | | | | 18,336 | | | — | | | | — | | | | — | | | | William E. Schneider | | | 411,123 | | | | 155,816 | | | | 696,572 | | | 39,224 | | | | 24,985 | | | | 30,074 | | | | Steven L. Bietz | | | — | | | | — | | | | 475,985 | | | — | | | | — | | | | — | | | |
*See footnote 12 regarding Mr. Harp.
(3) Elected president and chief executive officer effective August 17, 2006.
(4) Retired effective August 17, 2006.
(5) Mr. White forfeited 14,850 shares of restricted stock and 23,762
performance shares upon his retirement.
(6) Includes a company contribution to Mr. White's 401(k) account, a tax
gross-up for airplane travel cost of $1,978, his spouse's personal travel
on commercial aircraft, payment of a life insurance premium, an additional
payment for Mr. White's long-term disability insurance and the aggregate
incremental cost of Mr. White's personal travel on our aircraft.
(7) Resigned as Executive Vice President and CFO effective January 3, 2006 and
as an employee effective February 17, 2006.
(8) Mr. Robinson forfeited 3,712 shares of restricted stock and 11,686
performance shares upon his retirement.
(9) Includes a $1,000,000 severance payment in connection with his retirement
and a company contribution to Mr. Robinson's 401(k) account.
(10) Mr. Castleberry was president and chief executive officer of WBI Holdings,
Inc. until March 3, 2006, when he became executive vice president -
administration of MDU Resources Group, Inc.
(11) Includes one-time incentive payment of $500,000 in addition to his
executive incentive compensation plan payment.
(12) Comprised of:
Change in pension - [ ]
Above market interest - -
Present value of additional - [ ]
years of service
for pension plan
Present value of additional
years of service
for SISP - [ ]
In addition to accumulated pension under the pension plan and SISP and
incentive deferral earnings on deferred annual incentives, this amount is
the present value of the equivalent of additional years of service credit
for purposes of Mr. Harp's pension and SISP. In November 2006, the
compensation committee approved Mr. Harp receiving the equivalent of an
additional three years of service credit for purposes of his pension and
SISP if he remains an employee of the company through January 2, 2008 and
has a succession plan in place by such time. The December 31, 2006 present
value of the equivalent of the additional three years of vesting for
pension purposes was calculated by assuming [ ]. The December 31, 2006
present value the equivalent of of the additional three years of vesting
for SISP purposes was calculated by assuming [ ].
(13) Includes a company contribution to Mr. Harp's 401(k) account, payment of a
life insurance premium, an additional premium for Mr. Harp's long-term
disability insurance and Mr. Harp's office and automobile allowance.
44
6. (3) | Includes company contributions to the 401(k) account, payment of a life insurance premium, and matching contributions to charitable organizations. |
(4) | Includes one-time incentive payment of $[•] in addition to his annual incentive compensation. |
(5) | Includes one-time incentive payment of $200,000 in addition to his executive incentive compensation plan payment. |
(6) | In addition to the change in the actuarial present value of Mr. Harp’s accumulated benefit under the pension plan, excess SISP, and SISP, this amount also includes the following amounts attributable to Mr. Harp’s additional retirement benefit: |
| | | 2007 | | 2008 | | 2009 | | Change in present value of additional years of service for pension plan | | $ | 6,033 | | | $ | 3,570 | | | $ | 13,077 | | | Change in present value of additional years of service for excess SISP | | | 2,803 | | | | 3,646 | | | | 5,259 | | | Change in present value of additional years of service for SISP | | | — | | | | — | | | | — | |
| Mr. Harp’s additional retirement benefit is described in the narrative that follows the Pension Benefits for 2009 table. The additional retirement benefit provides Mr. Harp with additional retirement benefits equal to the additional benefit he would earn under the pension plan, excess SISP, and the SISP if he had three additional years of service. The amounts in the table above reflect the change in present value of this additional benefit in 2007, 2008, and 2009. The additional retirement benefit was determined by calculating the actuarial present values of the accumulated benefits under the pension plan, excess SISP, and SISP, with and without the three additional years of service, using the same assumptions used to determine the amounts disclosed in the Pension Benefits for 2009 table. Because Mr. Harp would be fully vested in his SISP benefit if he retired at age 65, the assumed retirement age of these calculations, the additional years of service provided by the additional retirement agreement would not increase that benefit. If Mr. Harp retires before becoming 100% vested in his SISP benefit, his SISP benefit would be less than the amount shown in the Pension Benefits for 2009 table, but the payments he would receive under the additional retirement benefit arrangement would increase, as would the amounts reflected in the table above and in the Summary Compensation Table. |
(7) | Includes a company contribution to Mr. Harp’s 401(k) account, a matching contribution to a charity, payment of a life insurance premium, an additional premium for Mr. Harp’s long-term disability insurance, and Mr. Harp’s office and automobile allowance. |
Grants of Plan-Based Awards in 2006
- -----------------------------------------------------------------------------------------------------------------------------------
Name Grant Estimated Future Payouts Under Estimated Future Payouts Under All All Other Exercise Grant
Date Non-Equity2009 |
| | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock or Units (#) (i) | | All Other Option Awards: Number of Securities Underlying Options (#) (j) | | Exercise or Base Price of Option Awards ($/Sh) (k) | | Grant Date Fair Value of Stock and Option Awards ($) (l) | Name (a) | | Grant Date (b) | Threshold ($) (c) | Target ($) (d) | Maximum ($) (e) | | Threshold (#) (f) | Target (#) (g) | Maximum (#) (h) | | | | Terry D. Hildestad | | 2/12/09(1) | 187,500 | 750,000 | 1,500,000 | | — | — | — | — | | — | | — | | | | | 2/12/09(2) | — | — | — | | 5,482 | 54,824 | 109,648 | — | | — | | — | | 1,117,861 | Vernon A. Raile | | 2/12/09(1) | 73,125 | 292,500 | 585,000 | | — | — | — | — | | — | | — | | | 2/12/09(2) | — | — | — | | 1,973 | 19,736 | 39,472 | — | | — | | — | | 402,417 | John G. Harp | | 2/12/09(1) | 73,125 | 292,500 | 585,000 | | — | — | — | — | | — | | — | | | 2/12/09(2) | — | — | — | | 1,973 | 19,736 | 39,472 | — | | — | | — | | 402,417 | | | 2/12/09(3) | 100,000 | 200,000 | | | | | | | | | | | | | William E. Schneider | | 2/12/09(1) | 72,703 | 290,810 | 581,620 | | — | — | — | — | | — | | — | | | 2/12/09(2) | — | — | — | | 1,962 | 19,622 | 39,244 | — | | — | | — | | 400,093 | Steven L. Bietz | | 2/12/09(4) | 56,875 | 227,500 | 455,000 | | — | — | — | — | | — | | — | | | 2/12/09(2) | — | — | — | | 1,535 | 15,350 | 30,700 | — | | — | | — | | 312,987 |
(1) | Annual incentive for 2009 granted pursuant to the MDU Resources Group, Inc. Long-Term Performance-Based Incentive Plan Awards EquityPlan. |
(2) | Performance shares for the 2009-2011 performance period granted pursuant to the MDU Resources Group, Inc. Long-Term Performance-Based Incentive Plan Awards Other Option or Base Date
---------- ---------- ----------- ---------- ------- ------------ Stock Awards: Price of Fair
Thresh- Target Maxi- Thresh- Target Maxi- Awards: Number Option Value of
old ($) mum old (#) mum Number of Awards Stock
($) ($) (#) (#) of Securities ($/Sh) and
Shares Under- Option
of Stock lying Awards
or Units Options
(#) (#)
(a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l)
- ------------ ---------- ---------- ---------- ----------- ---------- ------- ------------ --------- ---------- ---------- ---------
Terry D. 2/16/06(1) 82,031 328,125 656,250 - - - - - - -
Hildestad
---------- ---------- ---------- ----------- ---------- ------- ------------ --------- ---------- ---------- ---------
2/16/06(2) - - - 2,388 23,883 47,766 - - - 602,330
---------- ---------- ---------- ----------- ---------- ------- ------------ --------- ---------- ---------- ---------
8/16/06(1) 58,594 234,375 468,750 - - - - - - -
- ------------ ---------- ---------- ---------- ----------- ---------- ------- ------------ --------- ---------- ---------- ---------
Martin A. 2/16/06(3) 187,500 750,000 1,500,000 - - - - - - -
White
- ------------ ---------- ---------- ---------- ----------- ---------- ------- ------------ --------- ---------- ---------- ---------
Vernon A. 2/16/06(4) 39,844 159,375 318,750 - - - - - - -
Raile
---------- ---------- ---------- ----------- ---------- ------- ------------ --------- ---------- ---------- ---------
2/16/06(2) - - - 1,243 12,429 24,858 - - - 313,460
- ------------ ---------- ---------- ---------- ----------- ---------- ------- ------------ --------- ---------- ---------- ---------
Warren L. - - - - - - - - - - -
Robinson
- ------------ ---------- ---------- ---------- ----------- ---------- ------- ------------ --------- ---------- ---------- ---------
William E. 2/16/06(5) 49,000 196,000 392,000 - - - - - - -
Schneider
---------- ---------- ---------- ----------- ---------- ------- ------------ --------- ---------- ---------- ---------
2/16/06(2) - - - 1,529 15,285 30,570 - - - 385,488
- ------------ ---------- ---------- ---------- ----------- ---------- ------- ------------ --------- ---------- ---------- ---------
John K. 2/16/06(6) 7,708 30,833 61,667 - - - - - - -
Castleberry
---------- ---------- ---------- ----------- ---------- ------- ------------ --------- ---------- ---------- ---------
3/04/06(7) 31,250 125,000 250,000 - - - - - - -
---------- ---------- ---------- ----------- ---------- ------- ------------ --------- ---------- ---------- ---------
2/16/06(2) - - - 975 9,748 19,496 - - - 245,845
---------- ---------- ---------- ----------- ---------- ------- ------------ --------- ---------- ---------- ---------
John G. Harp 2/16/06(8) 38,750 155,000 310,000 - - - - - - -
---------- ---------- ---------- ----------- ---------- ------- ------------ --------- ---------- ---------- ---------
2/16/06(2) - - - 1,007 10,072 20,144 - - - 254,016
- ------------ ---------- ---------- ---------- ----------- ---------- ------- ------------ --------- ---------- ---------- ---------
Plan. |
(1) Annual incentive for 2006 granted pursuant to the Long-Term
Performance-Based Incentive Plan. Mr. Hildestad's grants are prorated to
reflect his 7.5 months as COO and his 4.5 months as CEO.
(2) Performance shares for the 2006-2008 performance period granted pursuant to
the Long-Term Performance-Based Incentive Plan.
45
(3) Annual incentive for 2006 granted pursuant to the Long-Term
Performance-Based Incentive Plan.
(4) Annual incentive for 2006 granted pursuant to the MDU Resources Group, Inc.
Executive Incentive Compensation Plan.
(5) Annual incentive for 2006 granted pursuant to the Knife River Corporation
Executive Incentive Compensation Plan.
(6) Annual incentive for 2006 granted pursuant to the WBI Holdings, Inc.
Executive Incentive Compensation Plan. Mr. Castleberry's awards are
prorated to reflect his two months as CEO of WBI Holdings and his ten
months as Executive Vice President - Administration of MDU Resources Group,
Inc.
(7) Annual incentive for 2006 granted pursuant to the MDU Resources Group, Inc.
Executive Incentive Compensation Plan. Mr. Castleberry's awards are
prorated to reflect his two months as CEO of WBI Holdings and his ten
months as Executive Vice President - Administration of MDU Resources Group,
Inc.
(8) Annual incentive for 2006 granted pursuant to the MDU Construction Services
Group, Inc. Executive Incentive Compensation Plan.
46
(3) | Mr. Harp’s additional 2009 incentive opportunity. |
(4) | Annual incentive for 2009 granted pursuant to the WBI Holdings Inc. Executive Incentive Compensation Plan. |
Narrative Discussion Relating to the Summary Compensation Table and Grants of Plan-Based Awards Table Incentive Awards Annual Incentive
----------------
On February 14, 2006,11, 2009, the compensation committee recommended 2006the 2009 annual incentive award opportunities for our named executive officers, and the board approved these opportunities at its meeting on February 16, 2006.12, 2009. These award opportunities are reflected in the Grants of Plan-Based Awards table at grant on February 16, 200612, 2009 in columns (c), (d), and (e) and in the Summary Compensation Table as earned with respect to 20062009 in column (g). Executive officers may receive annual cash incentive awards based upon achievement of annual performance measures with a threshold, target, and maximum level. A target incentive award is established based uponon a percent of the executive'sexecutive’s base salary. Actual payment may range from zero to 200% of the target based upon achievement of corporate goals.
Participants who retire, die or become disabled during the year remain In order to be eligible to receive an award. Subject toannual incentive award under the Long-Term Performance-Based Incentive Plan, Messrs. Hildestad, Raile, Schneider, and Harp must have remained employed by the company through December 31, 2009, unless the compensation committee's
discretion, executives who terminate employment for other reasons are not
eligible for an award.committee determines otherwise. The committee has full discretion to determine the extent to which goals have been achieved, the payment level, whether any final payment will be made, and whether to adjust awards downward.
downward based upon individual performance. Unless the committee determines otherwise, performance measure targets shall be adjusted to take into account unusual or nonrecurring events affecting the company, a subsidiary or a division or business unit, or any of their financial statements, or changes in applicable laws, regulations or accounting principles to the extent such unusual or nonrecurring events or changes in applicable laws, regulations or accounting principles otherwise would result in dilution or enlargement of the annual incentive award intended to be provided. Such adjustments are made in a manner that will not cause the award to fail to qualify as performance-based compensation for purposes of Section 162(m) of the Internal Revenue Code. With respect to annual incentive awards granted pursuant to the WBI Holdings, Inc. Executive Incentive Compensation Plan, which includes Mr. Bietz, participants who retire at age 65 during the year remain eligible to receive an award. Subject to the compensation committee’s discretion, executives who terminate employment for other reasons are not eligible for an award. The committee has full discretion to determine the extent to which goals have been achieved, the payment level, and whether any final payment will be made. Once performance goals are approved by the committee for executive incentive compensation plan awards, the committee generally does not modify the goals. However, if major unforeseen changes in economic and environmental conditions or other significant factors beyond the control of management substantially affected management’s ability to achieve the specified performance goals, the committee, in consultation with the chief executive officer, may modify the performance goals. Such goal modifications will only be considered in years of unusually adverse or favorable external conditions. For Messrs. White, Hildestad Robinson and Raile, and for Mr. Castleberry,
as executive vice president - administration, the performance measures for annual incentive awards are our annual return on invested capital achieved compared to target and our annual earnings per share achieved compared to target. For Messrs. Schneider, and Harp, and for Mr. Castleberry, as president and chief executive
officer of WBI Holdings, Inc.,Bietz, the performance measures for annual incentive awards are their respective business unit'sunit’s annual return on invested capital achieved compared to target and their respective business unit'sunit’s allocated earnings per share achieved compared to target. DuringIn 2009, Mr. Castleberry's tenure as president and chief
executive officer ofBietz had five individual goals relating to WBI Holdings Inc., the’s safety record ofresults, and each goal that business unit
also was a performance measure for Mr. Castleberry.
not met reduced his annual incentive award by 1%. For 2006,2009, the compensation committee weighted the goals for annual return on invested capital compared to planned results and allocated earnings per share compared to planned results each at 50%. We limit the aggregate amount ofafter-tax annual incentive compensation we will pay above the target amount to all our executive officers to 20 percent20% of after tax earnings in excess of planned earnings. The 20 percentWe calculate the earnings in excess of planned earnings without regard to the after-tax annual incentive amounts above target. We measure the 20% limitation is measured at the major business unit level for business unit and operating company executives, which include Messrs. Harp, Schneider, and Bietz, and at the corporate level for corporate executives.
47
executives, which include Messrs. Hildestad and Raile. In 2009, the 20% limitation was calculated without regard to the noncash ceiling test impairment charge as discussed in the Compensation Discussion and Analysis.The award opportunities available to each named executive officer were:
2006 earnings per share Corresponding payment of earnings
results as a % of 2006 plan per share annual incentive target
--------------------------- ---------------------------------
less than 85% 0%
85% 25%
90% 50%
95% 75%
100% 100%
103% 120%
106% 140%
109% 160%
112% 180%
115% or more 200%
2006 return on invested capital Corresponding payment of return on
results as a % of 2006 plan invested capital annual incentive target
--------------------------- ----------------------------------------
less than 85% 0%
85% 25%
90% 50%
95% 75%
100% 100%
103% 120%
106% 140%
109% 160%
112% 180%
115% or more 200% 2009 earnings per share results as a % of 2009 target | | | Corresponding payment of annual incentive target based on earnings per share | | Less than 85% | | | | | 0% | | 85% | | | | | 25% | | 90% | | | | | 50% | | 95% | | | | | 75% | | 100% | | | | | 100% | | 103% | | | | | 120% | | 106% | | | | | 140% | | 109% | | | | | 160% | | 112% | | | | | 180% | | 115% | | | | | 200% | |
2009 return on invested capital results as a % of 2009 target | | | Corresponding payment of annual incentive target based on return on invested capital | | Less than 85% | | | | | 0% | | 85% | | | | | 25% | | 90% | | | | | 50% | | 95% | | | | | 75% | | 100% | | | | | 100% | | 103% | | | | | 120% | | 106% | | | | | 140% | | 109% | | | | | 160% | | 112% | | | | | 180% | | 115% | | | | | 200% | |
For discussion of the specific incentive plan performance targets and results, please see the compensation discussionCompensation Discussion and analysis.
Mr. Harp
--------
Analysis. In addition to thehis 2009 annual incentive award opportunity under our Long-Term Performance-Based Incentive Plan, Mr. Harp earned under our executive
incentive compensation plan, he also earnedhad an opportunity to earn an additional $500,000 one-time
bonus payment. When Mr. Harpincentive, which was hired in September 2004structured as follows:
Construction Services Group, Inc.’s 2009 Return on Invested Capital (ROIC) as compared to Construction Services Group, Inc.’s 2009 Weighted Average Cost of Capital (WACC) | Additional Incentive Amount | 2009 ROIC is less than 100 basis points above 2009 WACC | $0 | 2009 ROIC is 100 to 199 basis points above 2009 WACC | $100,000 | 2009 ROIC is 200 basis points or more above 2009 WACC | $200,000 |
For a specific discussion of this additional incentive opportunity and the compensation committee’s determination with respect to effectuate a
turn-around of MDU Construction Services Group, Inc., he was offered incentive
opportunities of (i) $250,000 if MDU Construction Services Group, Inc. reported
annual net income of $12.5 million in 2007 or soonerpayment, please refer to the Compensation Discussion and in addition (ii)
$500,000 if MDU Construction Services Group, Inc. reported annual net income of
$18.6 million or more in fiscal year 2008 or sooner. The first goal was met in
2005, and in fiscal year 2006 MDU Construction Services Group, Inc. met the
second goal.
Analysis. Long-Term Incentive
-------------------
On February 14, 2006,11, 2009, the compensation committee recommended long-term incentive grants to the named executive officers in the form of performance shares, and the board approved 48
these grants at its meeting on February 16, 2006.12, 2009. These grants are reflected in columns (f), (g), (h), and (l) of the Grants of Plan-Based Awards table.
table and in column (e) of the Summary Compensation Table.From 0% to 200% of the target grant will be paid out in February 20092012, depending on our 2006-20082009-2011 total stockholder return compared to the total three-year stockholder returns of companies in our performance graph peer group. The payout percentage is determined as follows:
- --------------------------------------------------------------------------------
The Company's Percentile Rank Payout Percentage of Feb. 16, 2006
Grant
- --------------------------------------------------------------------------------
100th 200%
- --------------------------------------------------------------------------------
75th 150%
- --------------------------------------------------------------------------------
50th 100%
- --------------------------------------------------------------------------------
40th 10%
- --------------------------------------------------------------------------------
Less than 40th 0%
- --------------------------------------------------------------------------------
The Company’s Percentile Rank | | Payout Percentage of February 12, 2009 Grant | | | 100th | | | | 200% | | | 75th | | | | 150% | | | 50th | | | | 100% | | | 40th | | | | 10% | | | Less than 40th | | | | 0% | |
Payouts for percentile ranks falling between the intervals will be interpolated. We also will pay dividend equivalents in cash on the number of shares actually earned for the performance period. The dividend equivalents will be paid in 20092012 at the same time as the performance awards are paid.
Mr. Robinson
Warren L. Robinson was our executive vice president and chief financial
officer until January 3, 2006 and an employee until he retired February 17,
2006. Because of his retirement, Mr. Robinson received no base salary increase
or incentive compensation for 2006. We entered into an agreement with Warren L.
Robinson on November 23, 2005 in connection with his retirement as executive
vice president and chief financial officer. Mr. Robinson received a severance
payment of $1,000,000.
Salary and Bonus in Proportion to Total Compensation The following table shows the proportion of salary to total compensation. We paid no bonuses to our named executive officers in 2006.
- --------------------------------------------------------------------------------
Name Salary Total Compensation Salary as % of
($) ($) Total Compensation
- --------------------------------------------------------------------------------
Terry D. Hildestad 562,500
- --------------------------------------------------------------------------------
Martin A. White 468,750
- --------------------------------------------------------------------------------
Vernon A. Raile 318,750
- --------------------------------------------------------------------------------
Warren L. Robinson 53,125
- --------------------------------------------------------------------------------
William E. Schneider 392,000
- --------------------------------------------------------------------------------
John K. Castleberry 311,667
- --------------------------------------------------------------------------------
John G. Harp 310,000
- --------------------------------------------------------------------------------
49
Outstanding Equity Awards at Fiscal Year-End 2006
2009.
- --------------- ------------------------------------------------------------------ --------------------------------------------
Option Awards Stock Awards
- --------------- ------------------------------------------------------------------ --------------------------------------------
Name Number Number of Equity
of Securities Incentive Option Option Number of Market Equity Equity
Securities Underlying Plan Exercise Expiration Shares Value Incentive Incentive
Underlying Unexercised Awards: Price Date or Units of Plan Plan Awards:
Unexercised Options Number of | Salary ($) | Total Compensation ($) | Salary as % of Stock Shares Awards: Market or
Options (#) Securities That or Units Number of Payout Value
(#) Unexercisable Underlying Have of Stock Unearned of Unearned
Exercisable Unexercised Not That Shares, Shares, Units
Unearned Vested Have Units or Other
Options (#) Not or Other Rights That
(#) Vested Rights Have Not
($) That Have Vested
Not Vested ($)
(#)
(a) (b) (c)1, (2) (d) (e) (1) (f) (g)(1)(3) (h) (i)(4) (j)(5)
- --------------- -------------- ---------------- ----------- --------- ------------ --------- -------- ---------- --------------
Total Compensation | | | Terry D. - 68,995 - 13.2178 2/15/2011 3,712 95,176 62,650 1,606,346
Hildestad
- --------------- -------------- ---------------- ----------- --------- ------------ --------- -------- ---------- --------------
Martin A. - - - - - - - 104,702 2,684,559
White
- --------------- -------------- ---------------- ----------- --------- ------------ --------- -------- ---------- --------------
| | | 750,000 | | [•] | | [•] | | | Vernon A. - - - - - 1,114 28,563 25,155 644,974
Raile
- --------------- -------------- ---------------- ----------- --------- ------------ --------- -------- ---------- --------------
Warren L. - - - - - - - 27,081 694,357
Robinson
- --------------- -------------- ---------------- ----------- --------- ------------ --------- -------- ---------- --------------
William E. - 57,015 - 13.2178 2/15/2011 2,970 76,151 41,353 1,060,291
Schneider
- --------------- -------------- ---------------- ----------- --------- ------------ --------- -------- ---------- --------------
John K. - - - - - 2,970 76,151 48,515 1,243,925
Castleberry
- --------------- -------------- ---------------- ----------- --------- ------------ --------- -------- ---------- --------------
| | | 450,000 | | [•] | | [•] | | | John G. Harp - - - - - - - 20,839 534,312
- --------------- -------------- ---------------- ----------- --------- ------------ --------- -------- ---------- --------------
| | | 450,000 | | [•] | | [•] | | | William E. Schneider | | | 447,400 | | [•] | | [•] | | | Steven L. Bietz | | | 350,000 | | [•] | | [•] | | |
(1)
Outstanding Equity Awards at Fiscal Year-End 2009 |
| | | Option Awards | | | Stock Awards | | | Name (a) | | | Number of Securities Underlying Unexercised Options Exercisable (#) (b) | | | Number of Securities Underlying Unexercised Options Unexercisable (#) (c) | | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) (d) | | | Option Exercise Price ($) (e) | | | Option Expiration Date (f) | | | Number of Shares or Units of Stock That Have Not Vested (#) (g)(1,2) | | | Market Value of Shares or Units of Stock That Have Not Vested ($) (h) | | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) (i)(3) | | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) (j)(4) | | | Terry D. Hildestad | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 3,712 | | | | 87,603 | | | | 181,830 | | | | 4,291,188 | | | Vernon A. Raile | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,114 | | | | 26,290 | | | | 65,438 | | | | 1,544,337 | | | John G. Harp | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 63,055 | | | | 1,488,098 | | | William E. Schneider | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2,970 | | | | 70,092 | | | | 69,354 | | | | 1,636,754 | | | Steven L. Bietz | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 558 | | | | 13,169 | | | | 51,545 | | | | 1,216,462 | | |
(1) | Adjusted for the 3-for-2 stock split effective July 26, 2006. | (2) | These shares of restricted stock were granted in 2001 and vest automatically on February 15, 2010. Vesting of some or all shares may be accelerated upon change of control or if the total stockholder return equals or exceeds the 50th percentile of the performance graph peer group during the final three-year performance cycle 2007-2009. Non-preferential dividends are paid on these shares. |
Named Executive Officer | | Award | | Shares | End of Performance Period | | | Terry D. Hildestad | | | | 2007 | | | | 33,091 | | | 12/31/09 | | | | 2008 | | | | 39,091 | | | 12/31/10 | | | | 2009 | | | | 109,648 | | | 12/31/11 | | | Vernon A. Raile | | | | 2007 | | | | 12,564 | | | 12/31/09 | | | | 2008 | | | | 13,402 | | | 12/31/10 | | | | 2009 | | | | 39,472 | | | 12/31/11 | | | John G. Harp | | | | 2007 | | | | 10,181 | | | 12/31/09 | | | | 2008 | | | | 13,402 | | | 12/31/10 | | | | 2009 | | | | 39,472 | | | 12/31/11 | | | William E. Schneider | | | | 2007 | | | | 15,119 | | | 12/31/09 | | | | 2008 | | | | 14,991 | | | 12/31/10 | | | | 2009 | | | | 39,244 | | | 12/31/11 | | | Steven L. Bietz | | | | 2007 | | | | 10,354 | | | 12/31/09 | | | | 2008 | | | | 10,491 | | | 12/31/10 | | | | 2009 | | | | 30,700 | | | 12/31/11 | | |
Shares for the 3-for-2 stock split effective July 26, 2006.
(2) These options were granted in 2001 and vest on February 15, 2010. Vesting
of some or all options may be accelerated upon change of control or upon
attainment of performance goals during three-year performance cycles:
2001-2003, 2004-2006 and 2007-2009. Dividend equivalents were granted with
the options and may be earned from 0% to 200% at the end of the performance
cycles to the extent options vest.
(3) These shares of restricted stock were granted in 2001 and vest on February
15, 2010. Vesting of some or all shares may be accelerated upon change of
control or if the total stockholder return equals or exceeds the 50th
percentile of the performance graph peer group during three-year
performance cycles: 2001-2003, 2004-2006 and 2007-2009. Non-preferential
dividends2007 award are paid on these shares.
(4) Consists of performance shares for the 2004-2006, 2005-2007 and 2006-2008
performance periods, shown at the target level (100%) based on 2006results for the 2007-2009 performance abovecycle at target. Shares for the threshold2008 award are shown at the target level but below target.
(5) Value(100%) based on the number of performance shares at target multiplied by
$25.64, the year-end closing price.
50
Option Exercises and Stock Vested during 2006
- ------------------------------------------------------------------------------------
Option Awards Stock Awards
- ------------------------------------------------------------------------------------
Name Number of Value Realized Number of Shares Value Realized
Shares Acquired on Exercise Acquired on on Vesting
on Exercise ($) Vesting ($)
(#) (#)
(a) (b) (c) (d)(1)(2) (e)(3)
- ------------------------------------------------------------------------------------
Terry D. - - 12,030 287,490
Hildestad
- ------------------------------------------------------------------------------------
Martin A. - - 30,508 732,968
White
- ------------------------------------------------------------------------------------
Vernon A. - - 5,105 121,475
Raile
- ------------------------------------------------------------------------------------
Warren L. - - 10,995 263,582
Robinson
- ------------------------------------------------------------------------------------
William E. - - 9,243 220,658
Schneider
- ------------------------------------------------------------------------------------
John K. - - 10,995 263,582
Castleberry
- ------------------------------------------------------------------------------------
John G. Harp - - - -
- ------------------------------------------------------------------------------------
(1) Adjustedresults for the 3-for-2 stock split effective July 26, 2006.
(2) Reflectsfirst two years of the 2008-2010 performance sharescycle at target. Shares for the 2003-2005 performance period that
vested on February 16, 2006.
(3) Reflects2009 award are shown at the value of performance sharesmaximum level (200%) based on our stock priceresults for the first year of $23.10
(split adjusted)the 2009-2011 performance cycle above target. (4) | Value based on the number of performance shares reflected in column (i) multiplied by $23.60, the year-end closing price for 2009. |
Option Exercises and Stock Vested during 2009 |
| | | Option Awards | | | Stock Awards | Name (a) | | | Number of Shares Acquired on Exercise (#) (b) | | | Value Realized on Exercise ($) (c) | | | Number of Shares Acquired on Vesting (#) (d)(1,2) | | Value Realized on Vesting ($) (e)(3) | | Terry D. Hildestad | | | | | — | | | | — | | | | 19,584 | | | | 397,426 | | | Vernon A. Raile | | | | | — | | | | — | | | | 10,192 | | | | 206,830 | | | John G. Harp | | | | | — | | | | — | | | | 8,259 | | | | 167,603 | | | William E. Schneider | | | | | — | | | | — | | | | 12,534 | | | | 254,358 | | | Steven L. Bietz | | | | | — | | | | — | | | | 5,755 | | | | 116,789 | | |
(1) | Adjusted for the 3-for-2 stock split effective July 26, 2006. |
(2) | Reflects performance shares for the 2006-2008 performance period that vested on February 12, 2009. |
(3) | Reflects the value of performance shares based on our stock price of $18.61 on February 12, 2009, and the dividend equivalents that were paid on the vested shares. |
Pension Benefits for 2009 |
Name (a) | Plan Name (b) | Number of Years Credited Service (#) (c) | Present Value of Accumulated Benefit ($) (d) | Payments During Last Fiscal Year ($) (e) | Terry D. Hildestad | Pension Plan | 35 | 1,369,893 | | — | | SISP I(1) | 27 | 1,487,740 | | — | | SISP II(2) | 27 | 2,456,479 | | — | | SISP Excess | 27 | 842,854 | | — | Vernon A. Raile | Pension Plan | 30 | 1,033,470 | | — | | SISP I(1) | 27 | 891,572 | | — | | SISP II(2) | 27 | 1,899,169 | | — | | SISP Excess | 27 | — | | — | John G. Harp | Pension Plan | 5 | 172,100 | | — | | SISP I(1) | 4 | — | | — | | SISP II(2) | 4 | 1,784,336 | | — | | SISP Excess | 4 | 33,837 | | — | | Harp Additional Retirement Benefit | 4 | 120,136 | | — | William E. Schneider | Pension Plan | 16 | 667,138 | | — | | SISP I(1) | 15 | 1,081,798 | | — | | SISP II(2) | 15 | 1,278,020 | | — | | SISP Excess | 15 | 128,798 | | — | Steven L. Bietz | Pension Plan | 28 | 675,382 | | — | | SISP I(1) | 15 | 458,686 | | — | | SISP II(2) | 15 | 440,819 | | — | | SISP Excess | 15 | 72,082 | | — |
(1) | Grandfathered under Section 409A. |
(2) | Not grandfathered under Section 409A. |
The amounts shown for the pension plan and excess SISP represent the actuarial present values of the executives’ accumulated benefits accrued as of December 31, 2009, calculated using a 5.75% discount rate, the 1994 Group Annuity Mortality Table for post-retirement mortality and no recognition of future salary increases or pre-retirement mortality. The assumed retirement ages for these benefits was age 60 for Messrs. Harp and Bietz and age 62 for Mr. Schneider. These are the earliest ages at which the executives could begin receiving unreduced benefits. Retirement on February 16, 2006December 31, 2009, was assumed for Messrs. Hildestad and Raile, who were age 60 and 64 on that date. The amounts shown for the dividend equivalents thatSISP I and SISP II were paid on the vested shares.
51
Pension Benefits for 2006
- ------------------------------------------------------------------------------------
Name Plan Name Number of Present Value Payments
Years Credited of Accumulated During Last
Service Benefit Fiscal Year
(#) ($) ($)
(a) (b) (c) (d) (e)
- ------------------------------------------------------------------------------------
Terry D.
Hildestad Pension Plan 33
----------------------------------------------------------------------
SISP I(1) 24
----------------------------------------------------------------------
SISP II(2) 24
----------------------------------------------------------------------
SISP Excess 24
- ------------------------------------------------------------------------------------
Martin A.
White Pension Plan 14 $13,318
----------------------------------------------------------------------
SISP I(1) 14 $146,000
----------------------------------------------------------------------
SISP II(2) 14
----------------------------------------------------------------------
SISP Excess 0
- ------------------------------------------------------------------------------------
Vernon A.
Raile Pension Plan 27
----------------------------------------------------------------------
SISP I(1) 24
----------------------------------------------------------------------
SISP II(2) 24
----------------------------------------------------------------------
SISP Excess 24
- ------------------------------------------------------------------------------------
Warren L.
Robinson Pension Plan 17 $36,168
----------------------------------------------------------------------
SISP I(1) 17
----------------------------------------------------------------------
SISP II(2) 17
----------------------------------------------------------------------
SISP Excess 17 $32,245
- ------------------------------------------------------------------------------------
William E.
Schneider Pension Plan 13
----------------------------------------------------------------------
SISP I(1) 12
----------------------------------------------------------------------
SISP II(2) 12
----------------------------------------------------------------------
SISP Excess 12
- ------------------------------------------------------------------------------------
John K.
Castleberry Pension Plan 25
----------------------------------------------------------------------
SISP I(1) 18
----------------------------------------------------------------------
SISP II(2) 18
- ------------------------------------------------------------------------------------
52
- ------------------------------------------------------------------------------------
SISP Excess 18
- ------------------------------------------------------------------------------------
John G. Harp Pension Plan 2
----------------------------------------------------------------------
SISP I(1) 1
----------------------------------------------------------------------
SISP II(2) 1
----------------------------------------------------------------------
SISP Excess 1
----------------------------------------------------------------------
Harp Additional
Retirement Benefit [ ]
- ------------------------------------------------------------------------------------
(1) Grandfathered under Section 409A.
(2) Not grandfathered under Section 409A.
[Valuation methoddetermined using a 5.75% discount rate and all materialassume benefits commenced at age 65. The assumptions used in quantifying
present value to be provided.]
calculate Mr. Harp’s additional retirement benefit are described below. Pension Plan
- ------------
Plans Messrs. Hildestad, White, Raile, Robinson, Castleberry and Harp participate in the MDU Resources Group, Inc. Pension Plan for Non-Bargaining Unit Employees, which we refer to as our pension plan. Mr. Schneider participates in the Knife River Corporation Salaried Employees'Employees’ Pension Plan, which we refer to as the KR pension plan. Mr. Bietz participates in the Williston Basin Interstate Pipeline Company Pension Plan, which we refer to as the WBI pension plan. Pension benefits under our pension plan and the WBI pension plan are based uponon the participant'sparticipant’s average annual salary over the 60 consecutive month period in which the participant received the highest annual salary during the participant'sparticipant’s final 10 years of service. For this purpose, only a participant'sparticipant’s salary is considered; bonusesincentives and other forms of compensation are not included. Benefits are determined by multiplying (1) the participant'sparticipant’s years of credited service by (2) the sum of (a) the average annual salary up to the social security integration level times 1.1% and (b) the average annual salary over the social security integration level times 1.45%. The KR pension plan uses the same formula except that 1.2% and 1.6% are used instead of 1.1% and 1.45%. The maximum years of service recognized when determining benefits under each of the pension plans is 35. Pension plan benefits are not reduced for social security benefits.
Participants Each of the pension plans was amended to cease benefit accruals after December 31, 2009, meaning the normal retirement benefit will not change. To receive unreduced retirement benefits under our pension plan and the WBI pension plan, participants must either remain employed until age 60 or elect to defer electioncommencement of benefits until age 60. Under the benefitKR pension plan, participants must remain employed until age 62 or elect to defer commencement of benefits until age 62 to receive unreduced retirement benefits under our planbenefits. Messrs. Hildestad and until age 62 under the KR pension plan. Mr. Raile is currentlywere eligible for unreduced retirement benefits under our pension plan. Mr. White, who retired in
August 2006, is receiving unreduced retirement benefits.plan on December 31, 2009. Participants whose employment terminates between the ages of 55 and 60, with 5 years of service, in our pension plan or the WBI pension plan and between the ages of 55 and 62, with 5 years of service, in the KR pension plan are eligible for early retirement benefits. Early retirement benefits are determined by reducing the normal retirement benefit by .25%0.25% per month for each month before age 60 in our pension plan and the WBI pension plan and age 62 in the KR pension plan. If a participant'sparticipant’s employment terminates before age 55, the same reduction applies for each month the termination occurs before age 62, with the reduction capped at 21%. Messrs. Hildestad,Harp and Schneider and Robinson are currently eligible for early retirement benefits. Benefits for single participants under the pension plans are paid as straight life amounts and benefits for married participants are paid as actuarially reduced pensions with a survivorship
53
survivor benefit for spouses, unless participants choose otherwise. Participants who terminate employment before age 55 may elect to receive their benefits in a lump sum. Mr. Bietz is currently eligible for a lump sum.The Internal Revenue Code places limitations on benefit amounts that may be paid under the pension plans and on the amount of compensation that may be recognized when determining benefits. In 2006,2009, the maximum annual benefit payable under the pension plans was $175,000$195,000 and the maximum amount of compensation that could be recognized when determining benefits was $220,000.
$245,000. Supplemental Income Security Plan
---------------------------------
We also offer key managers and executives, including all of our named executive officers, benefits under our nonqualifiednon-qualified retirement plan, which we refer to as the Supplemental Income Security Plan or SISP. Benefits under the SISP consist of
o a supplemental retirement benefit intended to supplementof: | • | a supplemental retirement benefit intended to augment the retirement income provided under our qualified pension plans - we
refer to this benefit as the regular SISP benefit
o an excess retirement benefit relating to Internal Revenue Code
limitations on retirement benefits provided under our qualified
pension plans - we refer to this benefit as the excess SISP benefit
and
o death benefits - we refer to this benefit as the regular SISP benefit | | • | an excess retirement benefit relating to Internal Revenue Code limitations on retirement benefits provided under our qualified pension plans - we refer to this benefit as the excess SISP benefit and | | • | death benefits - we refer to these benefits as the SISP death benefit. |
Effective January 1, 2010, we amended the SISP death benefit.
to:
| • | reduce by 20% the regular SISP and death benefit levels in the benefit schedule used to determine regular SISP and death benefits for new participants and participants whose benefit levels increase on or after January 1, 2010 | | • | impose an additional vesting period applicable to any increased regular SISP benefit and SISP death benefit occurring on or after January 1, 2010 | | • | eliminate the excess SISP benefit for new participants and current participants who were not already eligible for the excess SISP benefit and | | • | freeze excess SISP benefit accruals. |
SISP benefits are forfeited if the participant’s employment is terminated for cause. Regular SISP Benefits and Death Benefits Regular SISP benefits and death benefits are determined by reference to aone of two schedules attached to the SISP - the original schedule or the amended schedule. Our compensation committee, after receiving recommendations from our chief executive officer, determines the level at which participants are placed in the schedule.schedules. A participant'sparticipant’s placement is generally, but not always, determined by reference to the participant'sparticipant’s annual base salary. Benefit levels in the amended schedule which became effective on January 1, 2010, are 20% lower than the benefit levels in the original schedule. The amended schedule applies to new participants and participants who receive a benefit level increase on or after January 1, 2010. Participants can elect to receive (1) the regular SISP benefit only, (2) the SISP death benefit only, or (3) a combination of both. Regardless of the participant'sparticipant’s election, if the participant dies before the regular SISP benefit would commence, only the SISP death benefit is provided. If the participant elects to receive both a regular SISP benefit and a SISP death benefit, each of the benefits is reduced proportionately. The regular SISP benefits reflected in the table above are based on the assumption that the participant elects to receive only the regular SISP benefit. The present values of the SISP death benefits that would be provided if the named executive officers were to die prior to the commencement of regular SISP benefits are reflected in the table that appears in the section entitled "Potential“Potential Payments Uponupon Termination or Change of Control."
We” The SISP was amended the SISP in 2005 to address changes in applicable tax laws resulting from the enactment of section 409A of the Internal Revenue Code. As
amended, regularRegular SISP benefits that were vested as of December 31, 2004 and were thereby grandfathered under section 409A remain subject to SISP provisions then in effect. Weeffect, which we refer to these benefits as SISP I benefits. Regular SISP benefits that are subject to section 409A, which we refer to as SISP II benefits, are
54
governed by amended provisions intended to comply with section 409A. Participants generally have more discretion with respect to the distributions of their SISP I benefits. The time and manner in which the regular SISP benefits are paid depend on a variety of factors, including the time and form of benefit elected by the participant and whether the benefits are SISP I benefits or SISP II benefits. Unless the participant elects otherwise, the SISP I benefits are paid over 180 months, with benefits commencing when the participant attains age 65 or, if later, when the participant retires. Distribution ofThe SISP II benefits generallycommence when the participant attains age 65 or, if later, when the participant retires, subject to a six-month delay if the participant is deferred for six months andsubject to the provisions of section 409A of the Internal Revenue Code that require delayed commencement of these types of retirement benefits. The SISP II benefits are paid over 180 months or, if commencement of payments is delayed for six months, 173 months. If the commencement of benefits is delayed for six months, the first payment includes the payments that would have been paid during the six-month period. If the participant dies after the regular SISP benefits have begun but before receipt of all of the regular SISP benefits, the remaining payments are made to the participant'sparticipant’s designated beneficiary. The regular SISP benefits reflected in the
table above are based on the assumption that the participants' SISP I and SISP
II benefits commenced at age 65.
Rather than receiving their regular SISP I benefits in equal monthly installments over 15 years commencing at age 65, participants can elect a different form and time of commencement of their SISP I benefits. Participants can elect to defer commencement of the regular SISP benefits - ifI benefits. If this is elected, the participant retains the right to receive a monthly SISP death benefit if death occurs prior to the commencement of the regular SISP I benefit.
Alternatively, participants can elect to receive both a regular SISP benefit and
a SISP death benefit. A similar, one-time election may be made with respect to
SISP II benefits, provided the election is made sufficiently in advance of the
date SISP retirement benefits start.
Participants also can elect to receive their SISP I benefits in one of three actuarially equivalent forms - a life annuity, one hundred percent100% joint and survivor annuity, or a joint and two-thirds joint and survivor annuity, provided that the cost of providing these actuarial equivalent forms of benefits does not exceed the cost of providing the normal form of benefit. Additionally,
the SISP's administrator may choose to pay the SISP I benefits in the form of an
actuarial equivalent lump sum. Neither the election to receive an actuarial equivalent benefit nor the administrator'sadministrator’s right to pay the regular SISP benefit in the form of an actuarially equivalent lump sum are available with respect to SISP II benefits.
To promote retention, the regular SISP benefits are subject to the following ten-year vesting schedule:
o | • | 0% vesting for less than 3 years of participation | | • | 20% vesting for 3 years of participation | | • | 40% vesting for 4 years of participation and | | • | an additional 10% vesting for each additional year of participation up to 100% vesting for 10 years of participation. |
In 2009, the plan was amended to impose an additional vesting requirement on benefit level increases for the regular SISP benefit granted on or after January 1, 2010. The requirement applies only to the increased benefit level. The increased benefit vests after the later of three additional years of participation o 20%in the SISP or the end of the regular vesting schedule described above. The additional three-year vesting requirement for 3benefit level increases is pro-rated for participants who are officers, attain age 65 and are required to retire, pursuant to the company’s bylaws, prior to the end of the additional vesting period as follows: 33% of the increase vests for participants required to retire at least one year but less than two years after the increase is granted and 66% of participation
o 40%the increase vests for participants required to retire at least two years but less than three years after the increase is granted. The benefit level increases of participants who attain age 65 and are required to retire pursuant to the company’s bylaws will be further reduced to the extent the participants are not fully vested in their regular SISP benefit under the 10-year vesting for 4 years of participation and
o anschedule described above. The additional 10% vesting for each additional year of participation up
to 100% vesting for 10 years of participation.
period associated with a benefit level increase may be waived by the compensation committee. SISP death benefits become fully vested if the participant dies while actively employed. Otherwise, the SISP death benefits are subject to the same vesting scheduleschedules as the regular SISP benefits.
55
Excess SISP Benefits Excess SISP benefits are equal to the difference between (1) the monthly retirement benefits that would have been payable to the participant under ourthe qualified pension planplans absent the limitations under the Internal Revenue Code and (2) the actual benefits payable to the participant under the qualified pension plan. Participants are only eligible for the excess SISP benefits if (1) the participant is fully vested under histhe qualified pension plan, (2) the participant'sparticipant’s employment terminates prior to age 65, and (3) benefits under the qualified pension plan are reduced due to limitations under the Internal Revenue Code on plan compensation. Effective January 1, 2005, participants who were not then vested in the excess SISP benefits were also required to remain actively employed by the company until age 60. In 2009, the plan was amended to limit eligibility of the excess SISP benefit to current SISP participants (1) who are already vested in the excess SISP benefit or (2) who will become vested in the excess SISP benefits if they remain employed with the company until age 60. The plan was further amended to freeze the excess SISP benefits to a maximum of the benefit level payable based on the participant’s years of service and compensation level as of December 31, 2009. With the exception of Mr. Harp, each of the named executive officers would be entitled to the excess SISP benefitsbenefit if they were to terminate employment prior to age 65. Mr. Harp must remain employed until age 60 to become entitled to his excess SISP benefit. Benefits generally commence six months after the participant'sparticipant’s employment terminates and continue up to age 65 or until the death of the participant, if prior to age 65. If a participant who dies prior to age 65 elected a joint and survivor benefit, the survivor'ssurvivor’s excess SISP benefits arebenefit is paid until the date the participant would have attained age 65.
The amounts reflected in the table above were determined by assuming
benefits commenced at age 60 for Messrs. Hildestad, Castleberry and Harp and age
62 for Mr. Schneider. These are the earliest ages at which the executives could
begin receiving unreduced benefits. For Mr. Raile, who is age 61, the amount
reflects an assumption of an immediate retirement. For Messrs. White and
Robinson, the amounts reflect the fact that they are retired and in payment.
Harp’s Additional Retirement Benefit To encourage Mr. Harp to remain with the company, through 2007, on November 16, 2006, upon recommendation of our chief executive officer and the compensation committee, our board of directors approved an additional retirement benefit for Mr. Harp. The benefit provides for Mr. Harp to receive payments that represent the equivalent of an additional three years of service under theour pension plan, the excess SISP, and the SISP if he remains employed through January 2, 2008 and if he has a
succession plan in place prior to his departure.SISP. The additional three years of service recognize Mr. Harp'sHarp’s previous employment with a subsidiary of the company. To calculate payments Mr. Harp could receive due to his additional retirement benefit, we applied the additional years of service to each of the retirement arrangements and assumed he remained employed until age 60, for purposes of calculating the additional benefit under the pension plan and excess SISP, and age 65, for purposes of calculating the additional benefit under the SISP II. Because Mr. Harp would be fully vested in the SISP II benefit if he retired at age 65, the additional years of service provided by the agreement would not increase his SISP II benefit. Consequently, the amount shown in the table does not include any additional benefit attributable to the SISP II. If Mr. Harp were to retire or resign on January 2, 2008, and live to
age 81, the equivalent of the additional threebefore achieving 10 years of service underand becoming fully vested in his SISP II benefit, the pension plan would yield total payments to Mr. Harp of $421,462 over his
lifetime. The equivalent of the additional three years of service provided by the additional retirement benefit would increase his vesting percentage under the SISP II and therefore would yield totalresult in an additional payment. For a description of the payments that could be provided under the additional retirement benefit if Mr. Harp’s employment were to Mr. Harpbe terminated on December 31, 2009, refer to the table and related notes in “Potential Payment upon Termination or Change of $874,440 beginning at age 65 and
lasting for 15 years, assuming he does not die before age 65.
Control” below. The SISP also provides that if a participant becomes totally disabled, the participant will continue to receive credit for up to two additional years under the SISP as long as the participant is totally disabled during such time. Since the named executive officers other than Mr. Harp are fully vested in their SISP benefits, this would not result in any incremental benefit for the named executive officers other than Mr. Harp. The present value of these two additional years of service for Mr. Harp is reflected in the table that appears in the section entitled "Potential“Potential Payments Uponupon Termination or Change of Control. "
56
”Nonqualified Deferred Compensation for 2009 |
Name (a) | | | Executive Contributions in Last FY ($) (b) | | | Registrant Contributions in Last FY ($) (c) | | | Earnings in Aggregate Last FY ($) (d) | | | Aggregate Withdrawals/ Distributions ($) (e) | | | Aggregate Balance at Last FYE ($) (f) | | | Terry D. Hildestad | | | | | — | | | | — | | | | 52,314 | | | | — | | | | 835,932 | | | Vernon A. Raile | | | | | — | | | | — | | | | 94,556 | | | | — | | | | 1,510,791 | | | John G. Harp | | | | | — | | | | — | | | | — | | | | — | | | | — | | | William E. Schneider | | | | | — | | | | — | | | | 83,840 | | | | — | | | | 1,339,689(1) | | | Steven L. Bietz | | | | | — | | | | — | | | | — | | | | — | | | | — | | |
(1) | Includes $392,000, which was reported in the Summary Compensation Table for 2006
- -----------------------------------------------------------------------------------
Name Executive Registrant Aggregate Aggregate Aggregate
Contributions Contributions Earnings in Withdrawals/ Balance
in in Last Distributions at Last
Last FY Last FY FY ($) FYE
($) ($) ($) ($)
(a) (b)(1) (c) (d) (e) (f)
- -----------------------------------------------------------------------------------
Terry D. 20,597 - 49,367 - 664,805
Hildestad
- -----------------------------------------------------------------------------------
Martin A. - - - - -
White
- -----------------------------------------------------------------------------------
Vernon A. 195,624 - 87,475 - 1,201,243
Raile
- -----------------------------------------------------------------------------------
Warren L. - - 43,698 - 589,860
Robinson
- -----------------------------------------------------------------------------------
William 166,667 - 49,180 - 677,952
E.
Schneider
- -----------------------------------------------------------------------------------
John K. - - - - -
Castleberry
- -----------------------------------------------------------------------------------
John G. - - - - -
Harp
- -----------------------------------------------------------------------------------
column (g).
(1) Amounts reported were reflected in the Summary Compensation Table for 2005
but not in the Summary Compensation Table for 2006. Amounts reported in the
Summary Compensation Table for 2006 in column (g) that our named executive
officers have elected to defer are credited in 2007 and will be reflected
in this table for 2007.
Participants in the executive incentive compensation plans may elect to defer up to 100% of their annual incentive awards. Deferred amounts will accrue interest at a rate determined annually by the compensation committee. The committee has established the interest rate at prime plus one percent as
reported on the last Friday in January of each year. The interest rate in effect for 2006, commencing2009 was 6.48% or the “Moody’s Rate,” which was defined by reference to the U.S. Long-Term Corporate Bond Yield Average for “A” rated companies. Effective January 27, 2006 was 8.25%.1, 2009, “Moody’s Rate” is the number that results from adding the daily Moody’s U.S. Long-Term Corporate Bond Yield Average for “A” rated companies as of the last business day of each month for the 12-month period ending October 31, 2008, and dividing by 12. The deferred amount will be paid in accordance with the participant'sparticipant’s election, following termination of employment or beginning in the fifth year following the year the award was granted. The amounts will be paid in accordance with the participant'sparticipant’s election in a lump sum or in monthly installments not to exceed 120 months. In the event of a change of control, all amounts become immediately payable.
57
A change of control is defined as | • | an acquisition during a 12-month period of 30% or more of the total voting power of our stock | | • | an acquisition of our stock that, together with stock already held by the acquirer, constitutes more than 50% of the total fair market value or total voting power of our stock |
| • | replacement of a majority of the members of our board of directors during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of our board of directors or | | • | acquisition of our assets having a gross fair market value at least equal to 40% of the total gross fair market value of all of our assets. |
Potential Payments upon Termination or Change of Control
Terry D. Hildestad
------------------
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Not for
Cause or
Executive Benefits and Change of Good
Payments Upon Not for Control Reason
Termination or Voluntary Early Normal Cause For Cause (without Termination
Change of Control Termination Retirement Retirement Termination Termination Death Disability termination) (CoC)
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Compensation:
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Base Salary
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Short-term incentive
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
2004-2006
Performance Shares
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
2005-2007
Performance Shares
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
2006-2008
Performance Shares
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Stock Options
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Restricted Stock
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Benefits and
Perquisites:
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Incremental
Pension*
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Incremental
Regular SISP*
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Incremental
Excess SISP*
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Post-Retirement
Health Care
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Life Insurance
Proceeds
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Disability
Benefits
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Employee Assistance
Program
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Continuation of
Welfare Benefits
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Outplacement
Services
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Tax Gross-up on
Perquisites
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
280G Tax Gross-up
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Total:
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
* Executive is also entitled
The following tables show the payments and benefits our named executive officers would receive in connection with a variety of employment termination scenarios and upon a change of control. The information assumes the terminations and the change of control occurred on December 31, 2009. All of the payments and benefits described below would be provided by the company or its subsidiaries. The tables exclude base salary, 2009 annual incentives, stock awards the named executive officers earned due to employment through December 31, 2009, and compensation and benefits provided under plans or arrangements that do not discriminate in favor of the named executive officers and that are generally available to all salaried employees, such as benefits reflected onunder our qualified defined benefit pension plan, accrued vacation pay, continuation of health care benefits, and life insurance benefits. The tables also do not include the named executive officers’ benefits under our nonqualified deferred compensation plans that are reported in the Nonqualified Deferred Compensation for 2009 table. See the Pension Benefits for 20062009 table and the Nonqualified Deferred Compensation for 2006
table. Amounts shown here represent2009 table, and accompanying narratives, for a description of the named executive officers’ accumulated benefits under our qualified defined benefit pension plans and our nonqualified deferred compensation plans. We provide disability benefits to all of our salaried employees equal to 60% of their base salary, subject to a cap on the amount of base salary taken into account when calculating benefits. For officers, the limit on base salary is $200,000. For other salaried employees, the limit is $100,000. For all salaried employees, disability payments continue until age 65 if disability occurs at or before age 60 and for 5 years if disability occurs between the ages of 60 and 65. Disability benefits are reduced for amounts paid as retirement benefits. The amounts in the tables reflect the present value of the disability benefits attributable to the additional benefits$100,000 of base salary recognized for executives under our disability program, subject to which the executive60% limitation, after reduction for amounts that would be entitled.
58
Martin A. White**
---------------
paid as retirement benefits. The present value of the disability benefits was determined using a discount rate of 5.75%. As the tables reflect, with the exception of Mr. Harp, the reduction for amounts paid as retirement benefits would eliminate disability benefits assuming a termination of employment on December 31, 2009. Upon a change of control, share-based awards granted under our Long-Term Performance-Based Incentive Plan vest and non-share-based awards are paid in cash. All shares of restricted stock would vest in full upon a change of control. All performance share awards would vest at their target levels. For this purpose, the term change of control is defined as:
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Not for
Cause | • | the acquisition by an individual, entity, or Executive Benefitsgroup of 20% or more of our outstanding voting securities | | • | a turnover in a majority of our board of directors without the approval of a majority of the members of the board who were members of the board as of the plan’s effective date or whose election was approved by such board members | | • | consummation of a merger or consolidation or sale or other disposition of all or substantially all of the company’s assets, unless the company’s stockholders immediately prior to the transaction beneficially own more than 60% of the outstanding shares and Changevoting power of Good
Payments Upon Not for Control Reason
Terminationthe resulting corporation after the merger or Voluntary Early Normal Cause For Cause (without Termination
Changethe corporation that acquires the company’s assets, as the case may be or | | • | stockholder approval of Control Termination Retirement Retirement Termination Termination Death Disability termination) (CoC)
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Compensation:
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Base Salary
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Short-term incentive
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
2004-2006
Performance Shares
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
2005-2007
Performance Shares
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
2006-2008
Performance Shares
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Stock Options
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Restricted Stock
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Benefits and
Perquisites:
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Incremental
Pension*
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Incremental
Regular SISP*
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Incremental
Excess SISP*
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Post-Retirement
Health Care
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Life Insurance
Proceeds
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Disability
Benefits
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Employee Assistance
Program
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Continuationthe company’s liquidation or dissolution. |
Shares of restricted stock and associated dividends are forfeited upon termination of employment. Performance shares are forfeited if termination of employment occurs during the first year of the performance period. If a termination of employment occurs for a reason other than cause, performance share awards granted prior to 2009 are prorated as follows: | • | if the termination of Welfare Benefits
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Outplacement
Services
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Tax Gross-up on
Perquisites
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
280G Tax Gross-up
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Total:
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
|
* Executive is also entitled to all benefits reflected on the Pension
Benefits for 2006 table and the Nonqualified Deferred Compensation for 2006
table. Amounts shown here represent the additional benefits to whichemployment occurs during the second year of the performance period, the executive receives a prorated portion of any performance shares earned based on the number of months employed during the performance period and | | • | if the termination of employment occurs during the third year of the performance period, the executive receives the full amount of any performance shares earned. |
Beginning with performance share awards granted in 2009, these awards will be forfeited if the participant’s employment terminates for any reason before the participant has reached age 55 and completed 10 years of service. Performance shares and related dividend equivalents for those participants whose employment is terminated after the participant has reached age 55 and completed 10 years of service will be prorated as described above.
Accordingly, if a December 31, 2009 termination is assumed, the named executive officers’ 2009-2011 performance share awards would be entitled.
** Mr. White retired on August 17, 2006.
59
Vernon A. Raile
---------------
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Not for
Cause or
Executive Benefits and Change of Good
Payments Upon Not for Control Reason
Termination or Voluntary Early Normal Cause For Cause (without Termination
Change of Control Termination Retirement Retirement Termination Termination Death Disability termination) (CoC)
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Compensation:
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Base Salary
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Short-term incentive
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
2004-2006
Performance Shares
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
2005-2007
Performance Shares
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
2006-2008
Performance Shares
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Stock Options
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Restricted Stock
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Benefits and
Perquisites:
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Incremental
Pension*
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Incremental
Regular SISP*
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Incremental
Excess SISP*
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Post-Retirement
Health Care
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Life Insurance
Proceeds
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Disability
Benefits
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Employee Assistance
Program
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Continuation of
Welfare Benefits
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Outplacement
Services
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Tax Gross-up on
Perquisites
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
280G Tax Gross-up
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Total:
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
* Executive is also entitled to all benefits reflected onforfeited, any amounts earned under the Pension
Benefits for 2006 table and the Nonqualified Deferred Compensation for 2006
table. Amounts shown here represent the additional benefits to which the
executive2008-2010 performance share awards would be entitled.
60
Warren L. Robinson**
------------------
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Not for
Cause or
Executive Benefits and Change of Good
Payments Upon Not for Control Reason
Termination or Voluntary Early Normal Cause For Cause (without Termination
Change of Control Termination Retirement Retirement Termination Termination Death Disability termination) (CoC)
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Compensation:
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Base Salary
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Severance
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Short-term incentive
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
2004-2006
Performance Shares
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
2005-2007
Performance Shares
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
2006-2008
Performance Shares
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Stock Options
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Restricted Stock
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Benefits and
Perquisites:
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Incremental
Pension*
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Incremental
Regular SISP*
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Incremental
Excess SISP*
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Post-Retirement
Health Care
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Life Insurance
Proceeds
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Disability
Benefits
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Employee Assistance
Program
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Continuation of
Welfare Benefits
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Outplacement
Services
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Tax Gross-up on
Perquisites
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
280G Tax Gross-up
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Total:
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
* Executive isreduced by one-third, and any amounts earned under the 2007-2009 performance share awards would not be reduced. The number of performance shares earned depends on actual performance through the full performance period. As actual performance for the 2007-2009 performance share awards has been determined, the amounts for these awards in the event of a non-change of control termination were based on actual performance, which resulted in vesting of 100% of the target award. Amounts for the 2008-2010 performance share awards are also entitled to all benefits reflected onshown at target, based upon assumed target performance. No amounts are shown for the Pension
Benefits for 2006 table and the Nonqualified Deferred Compensation for 2006
table. Amounts shown here represent the additional benefits to which the
executive2009-2011 performance share awards because such awards would be entitled.
** Mr. Robinson retiredforfeited. Although vesting would only occur after completion of the performance period, the amounts shown in the tables were not reduced to reflect the present value of the performance shares that could vest. Dividend equivalents attributable to earned performance shares would also be paid. Dividend equivalents accrued through December 31, 2009 are included in the amounts shown. The value of the vesting of shares of restricted stock and performance shares shown in the tables was determined by multiplying the number of shares of restricted stock or performance shares that would vest upon termination or a change of control by the closing price of our stock on February 17, 2006
61
William E. Schneider
--------------------
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Not for
Cause or
Executive Benefits and Change of Good
Payments Upon Not for Control Reason
Termination or Voluntary Early Normal Cause For Cause (without Termination
Change of Control Termination Retirement Retirement Termination Termination Death Disability termination) (CoC)
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Compensation:
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Base Salary
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Short-term incentive
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
2004-2006
Performance Shares
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
2005-2007
Performance Shares
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
2006-2008
Performance Shares
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Stock Options
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Restricted Stock
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Benefits and
Perquisites:
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Incremental
Pension*
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Incremental
Regular SISP*
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Incremental
Excess SISP*
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Post-Retirement
Health Care
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Life Insurance
Proceeds
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Disability
Benefits
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Employee Assistance
Program
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Continuation of
Welfare Benefits
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Outplacement
Services
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Tax Gross-up on
Perquisites
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
280G Tax Gross-up
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Total:
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
* Executive isDecember 31, 2009. We also entitled to all benefits reflected on the Pension
Benefits for 2006 table and the Nonqualified Deferred Compensation for 2006
table. Amounts shown here represent the additional benefits to which the
executive would be entitled.
62
John K. Castleberry
-------------------
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Not for
Cause or
Executive Benefits and Change of Good
Payments Upon Not for Control Reason
Termination or Voluntary Early Normal Cause For Cause (without Termination
Change of Control Termination Retirement Retirement Termination Termination Death Disability termination) (CoC)
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Compensation:
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Base Salary
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Short-term incentive
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
2004-2006
Performance Shares
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
2005-2007
Performance Shares
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
2006-2008
Performance Shares
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Stock Options
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Restricted Stock
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Benefits and
Perquisites:
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Incremental
Pension*
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Incremental
Regular SISP*
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Incremental
Excess SISP*
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Post-Retirement
Health Care
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Life Insurance
Proceeds
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Disability
Benefits
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Employee Assistance
Program
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Continuation of
Welfare Benefits
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Outplacement
Services
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Tax Gross-up on
Perquisites
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
280G Tax Gross-up
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Total:
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
* Executive is also entitled to all benefits reflected on the Pension
Benefits for 2006 table and the Nonqualified Deferred Compensation for 2006
table. Amounts shown here represent the additional benefits to which the
executive would be entitled.
63
John G. Harp
------------
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Not for
Cause or
Executive Benefits and Change of Good
Payments Upon Not for Control Reason
Termination or Voluntary Early Normal Cause For Cause (without Termination
Change of Control Termination Retirement Retirement Termination Termination Death Disability termination) (CoC)
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Compensation:
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Base Salary
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Short-term incentive
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
2004-2006
Performance Shares
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
2005-2007
Performance Shares
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
2006-2008
Performance Shares
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Stock Options
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Restricted Stock
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Benefits and
Perquisites:
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Incremental
Pension*
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Incremental
Regular SISP*
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Incremental
Excess SISP*
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Additional
Retirement
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Post-Retirement
Health Care
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Life Insurance
Proceeds
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Disability
Benefits
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Employee Assistance
Program
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Continuation of
Welfare Benefits
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Outplacement
Services
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Tax Gross-up on
Perquisites
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
280G Tax Gross-up
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
Total:
- ------------------------ ------------ ---------- ---------- ------------ ----------- ------ ---------- ------------ ------------
* Executive is also entitled to all benefits reflected on the Pension
Benefits for 2006 table and the Nonqualified Deferred Compensation for 2006
table. Amounts shown here represent the additional benefits to which the
executive would be entitled.
64
Discussion of Potential Payments upon Termination or Change of Control
We have change of control employment agreements with our named executive officers and other executives, which provide certain protections to the executives in the event there is a change of control of the company.
We For these purposes, we define "change“change of control" as
o the acquisition by an individual, entity or group of 20% or more
of our voting securities
o a turnover in a majority of our board of directors without the
approval of a majority of the members of the board who were
members of the board as of the agreement date or whose election
was approved by such board members
o consummation of a merger or consolidation, unless our
stockholders immediately prior to the merger beneficially own
more than 60% of the outstanding shares and voting power of the
resulting corporation after the merger or
o stockholder approval of our liquidation or dissolution.
control” as: | • | the acquisition by an individual, entity, or group of 20% or more of our voting securities | | • | a turnover in a majority of our board of directors without the approval of a majority of the members of the board who were members of the board as of the agreement date or whose election was approved by such board members | | • | consummation of a merger or consolidation, unless our stockholders immediately prior to the merger beneficially own more than 60% of the outstanding shares and voting power of the resulting corporation after the merger or | | • | stockholder approval of our liquidation or dissolution. |
If a change of control occurs, the agreements provide for a three-year employment period from the date of the change of control, during which the named executive officer is entitled to receive
o receive: | • | a base salary of not less than twelve times the highest monthly salary not less than the highest amount paid within the
preceding twelve months
o annual bonuses not less than the highest bonus paid within the preceding twelve months | | • | annual incentive opportunity of not less than the highest annual incentive paid in any of the three years before the change of control | | • | participation in our incentive, savings, retirement, and welfare benefit plans | | • | reasonable vehicle allowance, home office allowance, and subsidized annual physical examinations and | | • | office and support staff, vacation, and expense reimbursement consistent with such benefits as they were provided before the change of control. |
Assuming a change of control occurred on December 31, 2009, the guaranteed minimum level of base salary provided over the three-year employment period would not result in an increase in any of the named executive officers’ base salaries. The minimum annual incentive amounts Messrs. Hildestad, Raile, Harp, Schneider, and o participation in our incentive, savings, retirementBietz would be entitled to over the three-year employment period would be $[ • ], $[ • ], $[ • ], $[ • ], and welfare
benefit plans.$[ • ], respectively. The agreements also provide that severance payments and benefits will be provided
o if the named executive officer's employment is terminated during
the employment period, other than for cause or disability
o if the named executive officer's employment is terminated prior
to the change of control, if connected to the change of control,
other than for cause or disability or
65
o the named executive officer resigns for good reason, which
includes for any reason during the 30-day period beginning on the
first anniversary of the change of control.
"Cause"provided: | • | if we terminate the named executive officer’s employment during the employment period, other than for cause or disability, or | | • | the named executive officer resigns for good reason. |
“Cause” means the named executive officer'sofficer’s willful and continued failure to substantially perform his duties or willfully engaging in illegal conduct or gross misconduct materially injurious to the company. "Good reason" includes
o the diminution of the named executive officer's position,
authority, duties or responsibilities
o the reduction of the named executive officer's pay or benefits
and
o relocation or increased travel obligations.
“Good reason” includes: | • | a material diminution of the named executive officer’s authority, duties, or responsibilities | | • | a material change in the named executive officer’s work location and | | • | our material breach of the agreement. |
In such event, the named executive officer would receive
o three times his highest annual base pay within the last twelve
months
o three times his highest annual bonus, as defined
o an immediate pro-rated cash-out of his bonus for the year of
termination based on the highest annual bonus
o receive: | • | accrued but unpaid base salary and accrued but unused vacation | | • | a lump sum payment equal to three times his (a) annual salary using the higher of the then current annual salary or twelve times the highest monthly salary paid within the twelve months before the change of control and (b) annual incentive using the highest annual incentive paid in any of the three years before the change of control or, if higher, the annual incentive for the most recently completed fiscal year | | • | a pro-rated annual incentive for the year of termination | | • | an amount equal to the excess of (a) the actuarial equivalent of the additional benefit the named executive officer would receive under the SISP and any other supplemental or excess retirement plan if employment continued for an additional three years | | • | outplacement benefits and | | • | a payment equal to any federal excise tax on excess parachute payments if the total parachute payments exceed 110% of the safe harbor amount for that tax. If this 110% threshold is not exceeded, the named executive officer’s payments and benefits would be reduced to avoid the tax. The named executive officers are not reimbursed for any taxes imposed on this tax reimbursement payment. |
This description of severance payments and benefits reflects the terms of the benefit under our qualified and nonqualified retirement plans
that he would receive if he continued employment with the company
for an additional three years over (b) the actual benefit paid or
payable under these plans
o welfare benefit plan coverage for the executive and his family
for three years
o outplacement benefits and
o a modified tax gross-up. This is an additional payment to make
the executive whole for any federal excise taxagreements as in effect on excess
parachute payments, unless the total parachute payments were not
more than 110% of the safe harbor amount for that tax, in which
case the named executive officer's payments would be reduced to
the safe harbor amount.
Any compensation previously deferred will be distributed upon a termination
in connection with a change of control. In addition, any awards granted under
the Long-Term Performance-Based Incentive Plan vest upon a change of control;
performance awards that are not share-based are paid out in cash.
In case of any termination of employment, theDecember 31, 2009. The compensation committee may also consider providing severance benefits on a case-by-case basis.basis for employment terminations not related to a change of control. The compensation committee adopted a checklist of factors in February 2005 to consider when determining whether any such severance benefits willshould be paid. The tables do not reflect any such severance benefits, as these benefits are made upon
termination.
66
Director Compensation for 2006
- -------------- ---------- ----------- ------------ ---------------- ---------------- ---------------- ----------------
Name Fees Stock Option Non-Equity Change in All Other Total
Earned Awards Awards Incentive Pension Compensation ($)
or ($) ($) Plan Value and ($)
Paid in Compensation Nonqualified
Cash ($) Deferred
($) Compensation
Earnings
(a) (b) (c)(1) (d) (e) (f) (g)(2) (h)
- -------------- ---------- ----------- ------------ ---------------- ---------------- ---------------- ----------------
Thomas 51,250 100,208 -(3) - - 276 151,734
Everist
- -------------- ---------- ----------- ------------ ---------------- ---------------- ---------------- ----------------
Karen B. Fagg 54,333 100,208 - - - 276 154,817
- -------------- ---------- ----------- ------------ ---------------- ---------------- ---------------- ----------------
Dennis W. 65,000 100,208 - - - 276 165,484
Johnson
- -------------- ---------- ----------- ------------ ---------------- ---------------- ---------------- ----------------
Richard H. 58,833 100,208 - - - 276 159,317
Lewis
- -------------- ---------- ----------- ------------ ---------------- ---------------- ---------------- ----------------
Patricia L. 52,833 100,208 - - - 276 153,317
Moss
- -------------- ---------- ----------- ------------ ---------------- ---------------- ---------------- ----------------
Robert L. 39,000 100,208 -(5) - - 910,394(6) 1,049,602
Nance(4)
- -------------- ---------- ----------- ------------ ---------------- ---------------- ---------------- ----------------
John L. Olson 60,417 100,208 -(7) - - 276 164,901
- -------------- ---------- ----------- ------------ ---------------- ---------------- ---------------- ----------------
Harry J. 86,306 118,756(8) -(9) - - 276 205,339
Pearce
- -------------- ---------- ----------- ------------ ---------------- ---------------- ---------------- ----------------
Sister 54,333 100,208 -(10) - - 276 154,817
Thomas
Welder,
O.S.B.
- -------------- ---------- ----------- ------------ ---------------- ---------------- ---------------- ----------------
John K. 55,833 100,208 - - - 276 156,317
Wilson
- -------------- ---------- ----------- ------------ ---------------- ---------------- ---------------- ----------------
(1) Valued based on $37.11, the purchase pricediscretion of the stockcommittee on a case-by-case basis and it is not possible to estimate the date of
grant, April 28, 2006.severance benefits, if any, that would be paid. Terry D. Hildestad Executive Benefits and Payments Upon Termination or Change of Control | | Voluntary Termination ($) | Not for Cause Termination ($) | For Cause Termination ($) | | Death ($) | Disability ($) | Not for Cause or Good Reason Termination Following Change of Control ($) | Change of Control (Without Termination) ($) | | Compensation: | | | | | | | | | | | | | | | | | | | | | | | | | Base Salary | | | | | | | | | | | | | | | | | | | 2,250,000 | | | | | | Short-term Incentive(1) | | | | | | | | | | | | | | | | | | | [ • ] | | | | | | 2007-2009 Performance Shares | | | | 836,653 | | | 836,653 | | | | | | 836,653 | | | 836,653 | | | 836,653 | | | 836,653 | | | 2008-2010 Performance Shares | | | | 645,270 | | | 645,270 | | | | | | 645,270 | | | 645,270 | | | 967,893 | | | 967,893 | | | 2009-2011 Performance Shares | | | | | | | | | | | | | | | | | | | 1,326,741 | | | 1,326,741 | | | Restricted Stock | | | | | | | | | | | | | | | | | | | 87,603 | | | 87,603 | | | Benefits and Perquisites: | | | | | | | | | | | | | | | | | | | | | | | | | Regular SISP(2) | | | | 3,944,219 | | | 3,944,219 | | | | | | | | | 3,944,219 | | | 3,944,219 | | | | | | Excess SISP(3) | | | | 842,838 | | | 842,838 | | | | | | | | | 842,838 | | | 842,838 | | | | | | SISP Death Benefits(4) | | | | | | | | | | | | | 10,335,773 | | | | | | | | | | | | Disability Benefits | | | | | | | | | | | | | | | | | | | | | | | | | Outplacement Services | | | | | | | | | | | | | | | | | | | 50,000 | | | | | | 280G Tax(5) | | | | | | | | | | | | | | | | | | | 1,940,878 | | | | | | Total | | | | 6,268,980 | | | 6,268,980 | | | | | | 11,817,696 | | | 6,268,980 | | | [ • ] | | | 3,218,890 | | |
(1) | Includes the prorated annual incentive for the year of termination, which is the full annual incentive since we assume termination occurred on December 31, 2009, and the additional severance payment of three times the annual incentive. For each of these, we used the higher of (1) the annual incentive earned in 2009 or (2) the highest annual incentive paid in 2007, 2008, and 2009. |
(2) | Represents the present value of Mr. Hildestad’s vested regular SISP benefit as of December 31, 2009, which was $42,710 per month for 15 years, commencing at age 65. Present value was determined using a 5.75% discount rate. The terms of the regular SISP benefit are described following the Pension Benefits for 2009 table. The three additional years of vesting credit assumed for purposes of calculating the additional SISP benefit under Mr. Hildestad’s change of control agreement would not increase the actuarial present value of his SISP amount. |
(3) | Represents the present value of all excess SISP benefits Mr. Hildestad would be entitled to upon termination of employment under the SISP. The terms of the excess SISP benefit are described following the Pension Benefits for 2009 table. The three additional years of employment assumed for purposes of calculating the additional retirement plan payment under Mr. Hildestad’s change of control agreement would not increase the actuarial present value of his excess SISP benefits. |
(4) | Represents the present value of 180 monthly payments of $85,420 per month, which would be paid as a SISP death benefit under the SISP. Present value was determined using a 5.75% discount rate. The terms of the SISP death benefit are described following the Pension Benefits for 2009 table. |
(5) | Determined applying the Internal Revenue Code section 4999 excise tax of 20% only if 110% threshold is exceeded. |
Vernon A. Raile Executive Benefits and Payments Upon Termination or Change of Control | Voluntary Termination ($) | Not for Cause Termination ($) | For Cause Termination ($) | Death ($) | Disability ($) | Not for Cause or Good Reason Termination Following Change of Control ($) | Change of Control (Without Termination) ($) | | | Compensation: | | | | | | | | | | | | | | | | | | Base Salary | | | | | | | | | | | | | 1,350,000 | | | | | Short-term Incentive(1) | | | | | | | | | | | | | [ • ] | | | | | 2007-2009 Performance Shares | | | 317,661 | | 317,661 | | | | 317,661 | | 317,661 | | 317,661 | | 317,661 | | | 2008-2010 Performance Shares | | | 221,231 | | 221,231 | | | | 221,231 | | 221,231 | | 331,834 | | 331,834 | | | 2009-2011 Performance Shares | | | | | | | | | | | | | 477,611 | | 477,611 | | | Restricted Stock | | | | | | | | | | | | | 26,290 | | 26,290 | | | Benefits and Perquisites: | | | | | | | | | | | | | | | | | | Regular SISP(2) | | | 2,790,741 | | 2,790,741 | | | | | | 2,790,741 | | 2,790,741 | | | | | SISP Death Benefits(3) | | | | | | | | | 5,529,675 | | | | | | | | | Disability Benefits | | | | | | | | | | | | | | | | | | Outplacement Services | | | | | | | | | | | | | 50,000 | | | | | 280G Tax(4) | | | | | | | | | | | | | 856,992 | | | | | Total | | | 3,329,633 | | 3,329,633 | | | | 6,068,567 | | 3,329,633 | | [ • ] | | 1,153,396 | | |
(1) | Includes the prorated annual incentive for the year of termination, which is the full annual incentive since we assume termination occurred on December 31, 2009, and the additional severance payment of three times the annual incentive. For each of these, we used the higher of (1) the annual incentive earned in 2009 or (2) the highest annual incentive paid in 2007, 2008, and 2009. |
(2) | Represents the present value of Mr. Raile’s vested regular SISP benefit as of December 31, 2009, which was $22,850 per month for 15 years, commencing at age 65. Present value was determined using a 5.75% discount rate. The terms of the regular SISP benefit are described following the Pension Benefits for 2009 table. The three additional years of vesting credit assumed for purposes of calculating the additional SISP benefit under Mr. Raile’s change of control agreement would not increase the actuarial present value of his SISP amount. |
(3) | Represents the present value of 180 monthly payments of $45,700 per month, which would be paid as a SISP death benefit under the SISP. Present value was determined using a 5.75% discount rate. The terms of the SISP death benefit are described following the Pension Benefits for 2009 table. |
(4) | Determined applying the Internal Revenue Code section 4999 excise tax of 20% only if 110% threshold is exceeded. |
John G. Harp Executive Benefits and Payments Upon Termination or Change of Control | Voluntary Termination ($) | | Not for Cause Termination ($) | | For Cause Termination ($) | | | Death ($) | | | Disability ($) | | Not for Cause or Good Reason Termination Following Change of Control ($) | | Change of Control (Without Termination) ($) | | | Compensation: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Base Salary | | | | | | | | | | | | | | | | | | | | | | | 1,350,000 | | | | | | | Short-term Incentive(1) | | | | | | | | | | | | | | | | | | | | | | | [ • ] | | | | | | | 2007-2009 Performance Shares | | | 257,410 | | | | 257,410 | | | | | | | | 257,410 | | | | 257,410 | | | | 257,410 | | | | 257,410 | | | 2008-2010 Performance Shares | | | 221,231 | | | | 221,231 | | | | | | | | 221,231 | | | | 221,231 | | | | 331,834 | | | | 331,834 | | | 2009-2011 Performance Shares | | | | | | | | | | | | | | | | | | | | | | | 477,611 | | | | 477,611 | | | Restricted Stock | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Benefits and Perquisites: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Incremental Pension(2) | | | 107,307 | | | | 107,307 | | | | | | | | | | | | 107,307 | | | | 184,737 | | | | | | | Regular SISP | | | 1,249,035 | (3) | | | 1,249,035 | (3) | | | | | | | | | | | 1,603,546 | (4) | | | 1,784,336 | (5) | | | | | | Excess SISP | | | | | | | | | | | | | | | | | | | | | | | 116,185 | | | | | | | SISP Death Benefits(6) | | | | | | | | | | | | | | | 5,529,675 | | | | | | | | | | | | | | | Disability Benefits(7) | | | | | | | | | | | | | | | | | | | 227,839 | | | | | | | | | | | Outplacement Services | | | | | | | | | | | | | | | | | | | | | | | 50,000 | | | | | | | 280G Tax(8) | | | | | | | | | | | | | | | | | | | | | | | 1,068,156 | | | | | | | Total | | | 1,834,983 | | | | | | | | | | | | 6,008,316 | | | | 2,417,333 | | | | [ • ] | | | | 1,066,855 | | |
(1) | Includes the prorated annual incentive for the year of termination, which is the full annual incentive since we assume termination occurred on December 31, 2009, and the additional severance payment of three times the annual incentive. For each of these, we used the higher of (1) the annual incentive earned in 2009 or (2) the highest annual incentive paid in 2007, 2008, and 2009. | (2) | Represents the equivalent of three additional years of service that would be provided under the Harp additional retirement benefit described following the Pension Benefits for 2009 table. |
(3) | Represents the present value of Mr. Harp’s vested regular SISP benefit as of December 31, 2009, which was $15,995 per month for 15 years, commencing at age 65. Present value was determined using a 5.75% discount rate. The terms of the regular SISP benefit are described following the Pension Benefits for 2009 table. Also includes the additional benefit attributable to three additional years of service that would be provided under the retirement benefit agreement described following the Pension Benefits for 2009 table. |
(4) | Represents the present value of the additional SISP retirement benefit due to an additional two years vesting under our SISP. The terms of the SISP benefit are described following the Pension Benefits for 2009 table. Present value was determined using a 5.75% discount rate. |
(5) | Represents the payment that would be made under Mr. Harp’s change of control agreement based on the increase in the actuarial present value of his regular SISP benefit that would result if he continued employment for an additional three years. Also includes the additional benefit attributable to three additional years of service that would be provided under the retirement benefit agreement described following the Pension Benefits for 2009 table. | (6) | Represents the present value of 180 monthly payments of $45,700 per month, which would be paid as a SISP death benefit under the SISP. Present value was determined using a 5.75% discount rate. The terms of the SISP death benefit are described following the Pension Benefits for 2009 table. | (7) | Represents the present value of the disability benefit after reduction for amounts that would be paid as retirement benefits. Present value was determined using a 5.75% discount rate. | (8) | Determined applying the Internal Revenue Code section 4999 excise tax of 20% only if 110% threshold is exceeded. |
William E. Schneider Executive Benefits and Payments Upon Termination or Change of Control | | | Voluntary Termination ($) | | Not for Cause Termination (4) | | For Cause Termination ($) | | Death ($) | | Disability ($) | Not for Cause or Good Reason Termination Following Change of Control ($) | | Change of Control (Without Termination) ($) | | Compensation: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Base Salary | | | | | | | | | | | | | | | | | | | | | | 1,342,200 | | | | | | | Short-term Incentive(1) | | | | | | | | | | | | | | | | | | | | | | [ • ] | | | | | | | 2007-2009 Performance Shares | | | | | 382,260 | | | | 382,260 | | | | | | 382,260 | | | | 382,260 | | | 382,260 | | | | 382,260 | | | 2008-2010 Performance Shares | | | | | 247,451 | | | | 247,451 | | | | | | 247,451 | | | | 247,451 | | | 371,177 | | | | 371,177 | | | 2009-2011 Performance Shares | | | | | | | | | | | | | | | | | | | | | | 474,852 | | | | 474,852 | | | Restricted Stock | | | | | | | | | | | | | | | | | | | | | | 70,092 | | | | 70,092 | | | Benefits and Perquisites: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Regular SISP(2) | | | | | 2,359,818 | | | | 2,359,818 | | | | | | | | | | 2,359,818 | | | 2,359,818 | | | | | | | Excess SISP(3) | | | | | 126,868 | | | | 126,868 | | | | | | | | | | 126,868 | | | 126,868 | | | | | | | SISP Death Benefits(4) | | | | | | | | | | | | | | | 5,529,675 | | | | | | | | | | | | | | Disability Benefits | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Outplacement Services | | | | | | | | | | | | | | | | | | | | | | 50,000 | | | | | | | 280G Tax(5) | | | | | | | | | | | | | | | | | | | | | | 808,830 | | | | | | | Total | | | | | 3,116,397 | | | | 3,116,397 | | | | | | 6,159,386 | | | | 3,116,397 | | | [ • ] | | | | 1,298,381 | | |
(1) | Includes the prorated annual incentive for the year of termination, which is the full annual incentive since we assume termination occurred on December 31, 2009, and the additional severance payment of three times the annual incentive. For each of these, we used the higher of (1) the annual incentive earned in 2009 or (2) the highest annual incentive paid in 2007, 2008, and 2009. |
(2) | Represents the present value of Mr. Schneider’s vested regular SISP benefit as of December 31, 2009, which was $22,850 per month for 15 years, commencing at age 65. Present value was determined using a 5.75% discount rate. The terms of the regular SISP benefit are described following the Pension Benefits for 2009 table. The three additional years of vesting credit assumed for purposes of calculating the additional SISP benefit under Mr. Schneider’s change of control agreement would not increase the actuarial present value of his SISP amount. |
(3) | Represents the present value of all excess SISP benefits Mr. Schneider would be entitled to upon termination of employment under the SISP. The terms of the excess SISP benefit are described following the Pension Benefits for 2009 table. The three additional years of employment assumed for purposes of calculating the additional retirement plan payment under Mr. Schneider’s change of control agreement would not increase the actuarial present value of his excess SISP benefits. |
(4) | Represents the present value of 180 monthly payments of $45,700 per month, which would be paid as a SISP death benefit under the SISP. Present value was determined using a 5.75% discount rate. The terms of the SISP death benefit are described following the Pension Benefits for 2009 table. |
(5) | Determined applying the Internal Revenue Code section 4999 excise tax of 20% only if 110% threshold is exceeded. |
Steven L. Bietz Executive Benefits and Payments Upon Termination or Change of Control | | | Voluntary Termination ($) | | Not for Cause Termination ($) | | For Cause Termination ($) | | Death ($) | | Disability ($) | | Not for Cause or Good Reason Termination Following Change of Control ($) | | Change of Control (Without Termination) ($) | | Compensation: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Base Salary | | | | | | | | | | | | | | | | | | | | | | | | | 1,050,000 | | | | | | | Short-term Incentive(1) | | | | | | | | | | | | | | | | | | | | | | | | | [ • ] | | | | | | | 2007-2009 Performance Shares | | | | | 261,784 | | | | 261,784 | | | | | | | | 261,784 | | | | 261,784 | | | | 261,784 | | | | 261,784 | | | 2008-2010 Performance Shares | | | | | 173,171 | | | | 173,171 | | | | | | | | 173,171 | | | | 173,171 | | | | 259,757 | | | | 259,757 | | | 2009-2011 Performance Shares | | | | | | | | | | | | | | | | | | | | | | | | | 371,470 | | | | 371,470 | | | Restricted Stock | | | | | | | | | | | | | | | | | | | | | | | | | 13,169 | | | | 13,169 | | | Benefits and Perquisites: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Regular SISP(2) | | | | | 899,505 | | | | 899,505 | | | | | | | | | | | | 899,505 | | | | 899,505 | | | | | | | Excess SISP(3) | | | | | 146,033 | | | | 146,033 | | | | | | | | | | | | 146,033 | | | | 242,471 | | | | | | | SISP Death Benefits(4) | | | | | | | | | | | | | | | | | 3,898,602 | | | | | | | | | | | | | | | Disability Benefits | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Outplacement Services | | | | | | | | | | | | | | | | | | | | | | | | | 50,000 | | | | | | | 280G Tax(5) | | | | | | | | | | | | | | | | | | | | | | | | | 671,881 | | | | | | | Total | | | | | 1,480,493 | | | | 1,480,493 | | | | | | | | 4,333,557 | | | | 1,480,493 | | | | [ • ] | | | | 906,180 | | |
(1) | Includes the prorated annual incentive for the year of termination, which is the full annual incentive since we assume termination occurred on December 31, 2009, and the additional severance payment of three times the annual incentive. For each of these, we used the higher of (1) the annual incentive earned in 2009 or (2) the highest annual incentive paid in 2007, 2008, and 2009. |
(2) | Represents the present value of Mr. Bietz’s vested regular SISP benefit as of December 31, 2009, which was $16,110 per month for 15 years, commencing at age 65. Present value was determined using a 5.75% discount rate. The terms of the regular SISP benefit are described following the Pension Benefits for 2009 table. The three additional years of vesting credit assumed for purposes of calculating the additional SISP benefit under Mr. Bietz’s change of control agreement would not increase the actuarial present value of his SISP amount. |
(3) | Represents the present value of all excess SISP benefits Mr. Bietz would be entitled to upon termination of employment under the SISP. The terms of the excess SISP benefit are described following the Pension Benefits for 2009 table. |
(4) | Represents the present value of 180 monthly payments of $32,220 per month, which would be paid as a SISP death benefit under the SISP. Present value was determined using a 5.75% discount rate. The terms of the SISP death benefit are described following the Pension Benefits for 2009 table. |
(5) | Determined applying the Internal Revenue Code section 4999 excise tax of 20% only if 110% threshold is exceeded. |
Director Compensation for 2009 |
Name (a) | | | Fees Earned or Paid in Cash ($) (b) | | Stock Awards ($) (c)(1) | | | Option Awards ($) (d) | | | Non-Equity Incentive Plan Compensation ($) (e) | | | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) (f) | | | All Other Compensation ($) (g) (2) | | Total ($) (h) | | | | | | Thomas Everist | | | | | 57,083 | | | | 69,445 | | | | —(3) | | | | — | | | | — | | | | 174 | | | | 126,702 | | | Karen B. Fagg | | | | | 55,250 | (4) | | | 69,445 | | | | — | | | | — | | | | — | | | | 174 | | | | 124,869 | | | A. Bart Holaday | | | | | 50,583 | | | | 69,445 | | | | — | | | | — | | | | — | | | | 174 | | | | 120,202 | | | Dennis W. Johnson | | | | | 59,083 | | | | 69,445 | | | | — | | | | — | | | | — | | | | 174 | | | | 128,702 | | | Thomas C. Knudson | | | | | 52,083 | | | | 69,445 | | | | — | | | | — | | | | — | | | | 174 | | | | 121,702 | | | Richard H. Lewis | | | | | 55,083 | | | | 69,445 | | | | — | | | | — | | | | — | | | | 174 | | | | 124,702 | | | Patricia L. Moss | | | | | 52,083 | (5) | | | 69,445 | | | | — | | | | — | | | | — | | | | 174 | | | | 121,702 | | | John L. Olson | | | | | 40,083 | (6) | | | 69,445 | | | | —(7) | | | | — | | | | — | | | | 563,060 | (9) | | | 672,588 | | | Harry J. Pearce | | | | | 130,000 | | | | 69,445 | | | | —(8) | | | | — | | | | — | | | | 174 | | | | 199,619 | | | Sister Thomas Welder | | | | | 50,583 | | | | 69,445 | | | | — | | | | — | | | | — | | | | 174 | | | | 120,202 | | | John K. Wilson | | | | | 53,583 | (10) | | | 69,445 | | | | — | | | | — | | | | — | | | | 174 | | | | 123,202 | | |
(1) | Valued based on $17.147, the purchase price of the stock on the date of grant, May 18, 2009, which is the grant date fair value. |
(2) | Group life insurance premiums, except for Mr. Olson. |
(3) | Mr. Everist had 18,562 stock options outstanding as of December 31, 2009. |
(4) | Includes $17,984 that Ms. Fagg received in our common stock in lieu of cash. |
(5) | Includes $52,064 that Ms. Moss received in our common stock in lieu of cash. |
(6) | Mr. Olson retired on August 13, 2009. |
(7) | Mr. Olson had 18,562 stock options outstanding as of December 31, 2009. | (8) | Mr. Pearce had 13,500 stock options outstanding as of December 31, 2009. | (9) | Comprised of a group life insurance premium of $116 and the value of Mr. Olson’s deferred compensation at December 31, 2009, which is payable over five years in monthly installments. | (10) | Includes $44,578 that Mr. Wilson received in our common stock in lieu of cash. | | |
Effective June 1, 2009, the board approved changes to the MDU Resources Group, life insurance premium, except for Mr. Nance.
(3) Mr. Everist had 28,686 stock options outstanding as of December 31, 2006,
which are adjusted for the 3-for-2 stock split effective July 26, 2006.
(4) Retired effective August 17, 2006.
(5) Mr. Nance had 33,748 stock options outstanding as of December 31, 2006,
which are adjusted for the 3-for-2 stock split effective July 26, 2006.
(6) Comprised of a group life insurance premium of $184Inc. Directors’ Compensation Policy, and the valuefollowing table shows the cash and stock retainers payable to our non-employee directors.
| Effective June 1, 2009 | Prior to June 1, 2009 | Base Retainer | $55,000 | $ 30,000 | Additional Retainers: | | | Non-Executive Chairman | 75,000 | 100,000 (1)(2) | Lead Director, if any | 33,000 | 33,000 | Audit Committee Chairman | 10,000 | 10,000 | Compensation Committee Chairman | 5,000 | 5,000 | Nominating and Governance Committee Chairman | 5,000 | 5,000 | Meeting Fees: | | | Board Meeting | – | 1,500 | Committee Meeting | – | 1,500 | Annual Stock Retainer | 4,050 shares | 4,050 shares |
(1) $50,000 of Mr.
Nance's deferred compensation at December 31, 2006, which became payable
over five yearsthis amount was paid in accordance with his election after his retirement.
67
(7) Mr. Olson had 28,686 stock options outstanding as of December 31, 2006,
which are adjusted for the 3-for-2 stock split effective July 26, 2006.
(8) Includes $100,208 for the April 28, 2006 stock grant and $18,546 of stock
as part of Mr. Pearce's retainer as chairman of the board.
(9) Mr. Pearce had 13,500 stock options outstanding as of December 31, 2006,
which are adjusted for the 3-for-2 stock split effective July 26, 2006.
(10) Sister Thomas Welder is a member of the Benedictine Sisters of the
Annunciation, B.M.V., which had 5,500 stock options outstanding as of
December 31, 2006, as adjusted for the 3-for-2 stock split effective July
26, 2006.
We increased compensation for our directors effective June 1, 2006.
Each non-employee director, other than the lead director, if any, and the
non-executive chairman of the board, receives $30,000, an increase of $10,000,
and 4,050 shares of ourcompany common stock as an annual retainer forprior to January 1, 2009. (2) The Non-Executive Chairman does not receive board service.
The lead director, if any, receives $63,000 and 4,050 shares of our common stock
as an annual retainer. The non-executive chairman, which is a new position,
receives $100,000, one-half in cash and one-half in stock, and 4,050 shares of
our common stock as an annual retainer. We make the grants of our common stock
on or about the fifteenth business day following the annual meeting of
stockholders pursuant to the 1997 Non-Employee Director Long-Term Incentive
Plan.
The audit committee chairman receives an additional $10,000 annual
retainer, an increase of $2,500. The nominating and governance and compensation
committee chairmen each receive an additional $5,000 annual retainer, an
increase of $1,000.
Each non-employee director also receives $1,500 for each board meeting
attended and each committee member receives $1,500 for each committee meeting attended.
fees. In addition to liability insurance, we maintain group life insurance in the amount of $100,000 on each non-employee director for the benefit of each director'sdirector’s beneficiaries during the time each director serves on the board. The annual cost per director is $276.
$174. Directors may defer all or any portion of the annual cash retainer, meeting fees, if any, and any other cash compensation paid for service as a director pursuant to the Deferred Compensation Plan for Directors. Deferred amounts are held as phantom stock with dividend accruals and are paid out in cash over a five-year period after the director leaves the board. Directors are reimbursed for all reasonable travel expenses including spousal expenses in connection with attendance at meetings of the board and its committees. All amounts together with any other perquisites were below the disclosure threshold for 2006.
2009. Our post-retirement income plan for directors was terminated in May 2001 for current and future directors. The net present value of each director'sdirector’s benefit was calculated and converted into phantom stock. Payment is deferred pursuant to the Deferred Compensation Plan for Directors and will be made in cash over a five-year period after the director'sdirector’s retirement from the board. The board adopted stock ownership guidelines for directors in November 2005. Each director is expected to own our common stock equal in value to five times the director's annual cashdirector’s base retainer. A director, with good cause and with the knowledge of the board, may donate or assign all of the director'sdirector’s company common stock to a charitable, religious, or non-profit
68
organization in lieu of ownership. Shares acquired through purchases on the open market and participation in our director stock plans will be considered in ownership calculations as will ownership of our common stock by a spouse. A director is allowed five years commencing January 1 of the year following the year of that director'sdirector’s initial election to the board to meet the guideline requirements. The level of common stock ownership is monitored with an annual report made to the compensation committee of the board. For stock ownership, please see “Security Ownership.”In our Director Compensation Policy, we prohibit our directors from hedging their ownership of company common stock. Directors may not enter into transactions that allow the director to benefit from devaluation of our stock or otherwise own stock technically but without the full benefits and risks of such ownership. Narrative Disclosure of our Compensation Policies and Practices as They Relate to Risk Management We have reviewed our compensation policies and practices for all employees and concluded that any risks arising from our policies and programs are not reasonably likely to have a material adverse effect on our company.
INFORMATION CONCERNING EXECUTIVE OFFICERS |
At the first annual meeting of the board atafter the February meeting.
- --------------------------------------------------------------------------------
INFORMATION CONCERNING EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
Ourannual meeting of stockholders, our board of directors elects our executive officers, who serve until the
next annual meeting of the board.their successors are chosen and qualify. A majority of our board of directors may remove any executive officer at any time. Information concerning our executive officers, including their ages, present corporate positions, and business experience, is as follows:
Name Age Present Corporate Position
and Business Experience
- ------------------------ ----- --------------------------------------------
Terry D. Hildestad 57 President and Chief Executive Officer.
For information about Mr. Hildestad,
see "Election of Directors."
Steven L. Bietz 48 Mr. Bietz was elected President and
Chief Executive Officer of WBI
Holdings, Inc. effective March 4,
2006; President effective January 2,
2006; Executive Vice President and
Chief Operating Officer effective
September 1, 2002;
Vice President-Administration and
Chief Accounting Officer effective
November 3, 1999;
Vice-President-Administration
effective February 1997; and
Controller effective January 1994.
John K. Castleberry 52 Mr. Castleberry was elected Executive
Vice President - Administration
effective March 4, 2006; President and
Chief Executive Officer of WBI
Holdings, Inc. and Williston Basin
Interstate Pipeline Company effective
November 1998; and President of WBI
Holdings, Inc. effective January 1995.
Paul Gatzemeier 56 Mr. Gatzemeier was elected President
and Chief Executive Officer of
Centennial Energy Resources LLC
effective November 11, 2004; Vice
President and General Manager of
Centennial Energy Resources LLC
effective January 31, 2003; and Vice
President and General Manager of
Centennial Holdings Capital Corp.
effective June 2001.
69
John G. Harp 54 Mr. Harp was elected President and
Chief Executive Officer of Utility
Services Inc., which is now MDU
Construction Services Group, Inc.,
effective September 29, 2004. From May
2004 to September 29, 2004, Mr. Harp
was Vice President of Ledcor Technical
Services Inc., a provider of fiber
optic cable maintenance services.
From April 2001 to May 2004, he was
President of JODE CORP., a broadband
maintenance company. Mr. Harp sold
JODE CORP. to Ledcor Construction in
May 2004. Prior to that, he was
President of Harp Line Constructors
and Harp Engineering, Inc. from July
1998, when they were bought by Utility
Services Inc., to April 2001.
Bruce T. Imsdahl 58 Mr. Imsdahl was elected President and
Chief Executive Officer of
Montana-Dakota Utilities Co. and Great
Plains Natural Gas Co., divisions of
the Company, effective November 11,
2004. He previously was President of
these two divisions effective July 4,
2003. Prior to that, he was Executive
Vice President of these divisions
effective February 5, 2003, Vice
President-Energy Supply of
Montana-Dakota Utilities Co. effective
November 1, 1992 and Vice
President-Power Supply of
Montana-Dakota Utilities Co. effective
May 4, 1989.
Nicole A. Kivisto 33 Ms. Kivisto was elected Controller
effective December 1, 2005. Prior to
that she was a Financial Analyst IV in
the Corporate Planning Department
effective May 2003; a Financial and
Investor Relations Analyst in the
Investor Relations Department
effective May 2000; and a Financial
Analyst in the Corporate Accounting
Department effective July 1995.
Vernon A. Raile Name | | Age | | Present Corporate Position and Business Experience | Terry D. Hildestad | | 60 | | President and Chief Executive Officer. For information about Mr. Hildestad, see “Election of Directors.” | | | | | | Steven L. Bietz | | 51 | | Mr. Bietz was elected president and chief executive officer of WBI Holdings, Inc. effective March 4, 2006; president effective January 2, 2006; executive vice president and chief operating officer effective September 1, 2002; vice president-administration and chief accounting officer effective November 3, 1999; vice president-administration effective February 1997; and controller effective January 1994. | | | | | | William R. Connors | | 48 | | Mr. Connors was elected vice president–renewable resources of MDU Resources Group, Inc., effective September 1, 2008. Prior to that, he was vice president-business development of Cascade Natural Gas Corporation effective November 2007; vice president-origination, contracts & regulatory of Centennial Energy Resources, LLC, effective January 2007; vice president-origination, contracts & regulatory of Centennial Power, Inc., effective July 2005; and, was first employed as vice president-contracts & regulatory of Centennial Power, Inc., effective July 2004. Prior to that Mr. Connors was of counsel to Miller Nash, LLP, a law firm in Seattle, Washington. | | | | | | Mark A. Del Vecchio | | 50 | | Mr. Del Vecchio was elected vice president–human resources on October 1, 2007. From November 3, 2003 to October 1, 2007, Mr. Del Vecchio was director of executive programs and compensation. From April 1996 to October 31, 2003, Mr. Del Vecchio was vice president and member of The Carter Group, LLC, an executive search and management consulting company. | | | | | | David L. Goodin | | 48 | | Mr. Goodin was elected president and chief executive officer of Montana-Dakota Utilities Co., Great Plains Natural Gas Co., and Cascade Natural Gas Corporation effective June 6, 2008, and president and chief executive officer of Intermountain Gas Company effective October 1, 2008. Prior to that, he was president of Montana-Dakota Utilities Co. and Great Plains Natural Gas Co. effective March 1, 2008; president of Cascade Natural Gas Corporation effective July 2, 2007; executive vice president-operations and acquisitions of Montana-Dakota Utilities Co. effective January 2007; vice president-operations effective January 2000; electric systems manager effective April 1999; electric systems supervisor effective August 1993; division electric superintendent effective February 1989; and division electrical engineer effective May 1983. | | | | | | | | John G. Harp | | 57 | | Mr. Harp was elected president and chief executive officer of Utility Services Inc., which is now MDU Construction Services Group, Inc., effective September 29, 2004. From May 2004 to September 29, 2004, Mr. Harp was vice president of Ledcor Technical Services Inc., a provider of fiber optic cable maintenance services. From April 2001 to May 2004, he was president of JODE CORP., a broadband maintenance company. Mr. Harp sold JODE CORP. to Ledcor Construction in May 2004. Prior to that, he was president of Harp Line Constructors Co. and Harp Engineering, Inc. from July 1998, when they were bought by Utility Services Inc., to April 2001. | |
61 Mr. Raile was elected Executive Vice
President, Treasurer and Chief
Financial Officer effective March 1,
2006; Executive Vice President and
Chief Financial Officer effective
January 3, 2006; and Senior Vice
President, Controller and Chief
Accounting Officer effective November
2002. He served as Controller until
May 2003. He was Vice President,
Controller and Chief Accounting
Officer from August 1992 until
November 2002.
Cindy C. Redding 48 Ms. Redding was elected Vice
President-Human Resources effective
July 2003 and was Director of Human
Resources from December 2002 until
70
July 2003. Before joining the Company,
she served from July 1998 until
December 2002 in the positions of
Director, Human Resources, Molded
Plastics Division, as Corporate
Benefits Planning & Delivery Manager,
and as Manager, Strategic Staffing
Services, for Sonoco Products Company,
a global packaging company. Prior to
that, Ms. Redding worked for Abbott
Laboratories, a global health care
company, as Manager, Human Resources,
Abbott International Division, from
1997 to July 1998. From 1980 to 1997,
she worked in various business
administration and human resources
roles, domestic and international, for
Amoco Corporation, a worldwide
integrated energy company.
Paul K. Sandness 52 Mr. Sandness was elected General
Counsel and Secretary of the Company,
its divisions and major subsidiaries
effective April 6, 2004. He also was
elected a Director of the Company's
principal subsidiaries and was
appointed to the Managing Committees
of Montana-Dakota Utilities Co. and
Great Plains Natural Gas Co. Prior to
that he served as a Senior Attorney
effective 1987 and as an Assistant
Secretary of several subsidiary
companies.
William E. Schneider 58 Mr. Schneider was elected President
and Chief Executive Officer of Knife
River Corporation effective May 1,
2005; and Senior Vice
President-Construction Materials
effective from September 15, 1999 to
April 30, 2005.
Doran N. Schwartz 37 Mr. Schwartz was elected Vice
President and Chief Accounting Officer
effective March 1, 2006; and Assistant
Vice President-Special Projects
effective September 6, 2005. Prior to
that, he was Director of
Controllership for American Express, a
financial services company, from
November 2004 to August 2005; Audit
Manager for Deloitte & Touche, an
audit and professional services
company, from June 2002 to November
2004; and Audit Manager/Senior for
Arthur Andersen, an audit and
professional services company, from
December 1997 to June 2002.
John P. Stumpf 47 Mr. Stumpf was elected Vice President
- Strategic Planning effective
December 1, 2006. Mr. Stumpf was Vice
President - Corporate Development for
Knife River Corporation from July 1, 2002 to
71
November 30, 2006 and Director
of Corporate Development of Knife
River Corporation from January 14,
2002 to June 30, 2002. Prior to that,
he was Special Projects Manager for
Knife River Corporation from May 1,
2000 to January 13, 2002.
72
- --------------------------------------------------------------------------------
SECURITY OWNERSHIP
- --------------------------------------------------------------------------------
Name | | Age | | Present Corporate Position and Business Experience | | Nicole A. Kivisto | | 36 | | Ms. Kivisto was elected vice president, controller and chief accounting officer effective February 17, 2010. Prior to that she was controller effective December 1, 2005; a financial analyst IV in the Corporate Planning Department effective May 2003; a financial and investor relations analyst in the Investor Relations Department effective May 2000; and a financial analyst in the Corporate Accounting Department effective July 1995. | | | | | | | | Douglass A. Mahowald | | 60 | | Mr. Mahowald was elected treasurer and assistant secretary effective February 17, 2010. Prior to that he was the assistant treasurer and assistant secretary effective August 1992; treasury services manager effective November 1982; and budget statistician effective February 1982. | | Cynthia J. Norland | | 55 | | Ms. Norland was elected vice president–administration effective July 16, 2007. Prior to that she was the assistant vice president–administration effective January 17, 2007; associate general counsel in the Legal Department effective March 6, 2004; and senior attorney in the Legal Department effective June 1, 1995. | | | | | | | | Vernon A. Raile | | 65 | | Mr. Raile retired on [February 16, 2010]. He served as executive vice president, treasurer and chief financial officer effective March 1, 2006; executive vice president and chief financial officer effective January 3, 2006; and senior vice president, controller and chief accounting officer effective November 2002. He served as controller until May 2003. He was vice president, controller and chief accounting officer from August 1992 until November 2002. | | | | | | | | Paul K. Sandness | | 55 | | Mr. Sandness was elected general counsel and secretary of the company, its divisions and major subsidiaries effective April 6, 2004. He also was elected a director of the company’s principal subsidiaries and was appointed to the Managing Committees of Montana-Dakota Utilities Co. and Great Plains Natural Gas Co. Prior to that he served as a senior attorney effective 1987 and as an assistant secretary of several subsidiary companies. | | | | | | | | William E. Schneider | | 61 | | Mr. Schneider was elected president and chief executive officer of Knife River Corporation effective May 1, 2005; and senior vice president-construction materials effective from September 15, 1999 to April 30, 2005. | | | | | | | | Doran N. Schwartz | | 40 | | Mr. Schwartz was elected vice president and chief financial officer effective February 17, 2010. Prior to that he was vice president and chief accounting officer effective March 1, 2006; and assistant vice president-special projects effective September 6, 2005. He was director of membership rewards for American Express, a financial services company, from November 2004 to August 1, 2005; audit manager for Deloitte & Touche, an audit and professional services company, from June 2002 to November 2004; and audit manager/senior for Arthur Andersen, an audit and professional services company, from December 1997 to June 2002. | | | | | | | | John P. Stumpf | | 50 | | Mr. Stumpf was elected vice president–strategic planning effective December 1, 2006. Mr. Stumpf was vice president–corporate development for Knife River Corporation from July 1, 2002 to November 30, 2006 and director of corporate development of Knife River Corporation from January 14, 2002 to June 30, 2002. Prior to that, he was special projects manager for Knife River Corporation from May 1, 2000 to January 13, 2002. | |
The table below sets forth the number of shares of our capital stock that each director and each nominee for director, each named executive officer and all directors and executive officers as a group owned beneficially as of December 31, 2006.
2009. | | | | Common Shares Beneficially Owned Include: | | | | | Name | | Common Shares Beneficially Owned(1) | Shares Individuals Have Rights to Acquire Within 60 Days(2) | | Shares Held By Family Members(3) | | Percent of Class | | Deferred Director Fees Held as Phantom Stock(4) | Steven L. Bietz | | 58,516 | (5) | | | | | * | | | Thomas Everist | | 1,870,623 | (6) | 18,562 | | | | 1.0 | | 26,642 | Karen B. Fagg | | 19,381 | | | | | | * | | | John G. Harp | | 77,356 | (5) | | | | | * | | | Terry D. Hildestad | | 184,043 | (5) | | | | | * | | | A. Bart Holaday | | 14,050 | | | | | | * | | | Dennis W. Johnson | | 67,506 | (7) | | | 4,560 | | * | | | Thomas C. Knudson | | 9,500 | | | | | | * | | | Richard H. Lewis | | 16,200 | | | | | | * | | 10,152 | Patricia L. Moss | | 42,276 | | | | | | * | | | Harry J. Pearce | | 158,850 | | 13,500 | | | | * | | 43,806 | Vernon A. Raile | | 56,426 | (5) | | | | | * | | | William E. Schneider | | 102,898 | (5) | | | | | * | | | Sister Thomas Welder | | 46,942 | (8) | | | | | * | | 20,271 | John K. Wilson | | 67,578 | | | | | | * | | | All directors and executive officers as a group (23 in number) | | 2,929,144 | | 42,512 | | 14,146 | | 1.6 | | 100,871 |
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Common* | Less than one percent of the class. |
(1) | “Beneficial ownership” means the sole or shared power to vote, or to direct the voting of, a security, or investment power with respect to a security. |
(2) | Indicates shares of our stock that executive officers and directors have the right to acquire within 60 days pursuant to stock options. These shares are included in the “Common Shares Beneficially Owned Include:
------------------------------Owned” column. |
(3) | These shares are included in the “Common Shares Individuals
Have RightsBeneficially Owned” column. |
(4) | These shares are not included in the “Common Shares Beneficially Owned” column. Directors may defer all or a portion of their cash compensation pursuant to Common Shares Acquire Shares Held By
Beneficially Within 60 Family Percent
Name Owned(1) Days(2) Members(3)the Deferred Compensation Plan for Directors. Deferred amounts are held as phantom stock with dividend accruals and are paid out in cash over a five-year period after the director leaves the board. | | | (5) | Includes full shares allocated to the officer’s account in our 401(k) retirement plan. |
(6) | Includes 1,820,000 shares of Class
- ------------------------------------------------------------------------------------------
John K. Castleberry 16,980(7) *
Thomas Everist 3,458,473(4) 28,686 1.9
Karen B. Fagg 4,550 *
John G. Harp 100,516(7) *
Terry D. Hildestad 115,625(7) *
Dennis W.common stock acquired through the sale of Connolly-Pacific to us. |
(7) | Mr. Johnson 46,365(5)disclaims all beneficial ownership of the 4,560 *
Richard H. Lewis 4,050 *
Patricia L. Moss 23,572 *
John L. Olson 111,148 28,686 *
Harry J. Pearce 141,186 13,500 *
Vernon A. Raile 38,449(7) *
Warren L. Robinson 14,111(6) 5,505 *
William E. Schneider 56,092(7) *shares owned by his wife. |
(8) | The total includes shares held by the Annunciation Monastery, of which community Sister Thomas Welder 60,260(8) 5,500 *
Martin A. White 304,431(9) 83,283 *
John K. Wilson 41,942 *
All directorsis a member, and executive
officers as a group (24 in
number) 4,709,398 76,822 94,885 2.6
- ------------------------------------------------------------------------------------------
by the University of Mary, of which Sister Welder is the president emerita. The monastery owns 33,260 shares. Sister Welder disclaims all beneficial ownership of the shares owned by the monastery and the university. |
* Less than one percent of the class.
(1) "Beneficial ownership" means the sole or shared power to vote, or to direct
the voting of, a security, or investment power with respect to a security.
(2) Indicates shares of our stock that executive officers and directors have
the right to acquire within 60 days pursuant to stock options. These shares
are included in the "Common Shares Beneficially Owned" column.
(3) These shares are included in the "Common Shares Beneficially Owned" column.
73
(4) Includes 3,420,000 shares of common stock acquired through the sale of
Connolly-Pacific to us.
(5) Mr. Johnson disclaims all beneficial ownership of the 4,560 shares owned by
his wife.
(6) Mr. Robinson resigned from his position as an officer on January 3, 2006
and retired effective February 17, 2006.
(7) Includes full shares allocated to the officer's account in our 401(k)
retirement plan.
(8) The total includes shares held by the Annunciation Monastery, of which
community Sister Welder is a member, and by the University of Mary, of
which Sister Welder is the president. The monastery owns 42,873 shares, and
it may acquire 5,500 shares within 60 days pursuant to stock options. The
university owns 11,887 shares. Sister Welder disclaims all beneficial
ownership of the shares owned by the monastery and the university.
(9) Includes full shares allocated to the officer's account in our 401(k)
retirement plan. Mr. White retired on August 17, 2006.
_______________ The table below sets forth information with respect to any person we know to be the beneficial owner of more than five percent of any class of our voting securities.
-------------------------------------------------------------------
Title of Class Amount and
Nature Percent
Name and Address of Beneficial of
of Beneficial Owner Ownership Class
-------------------------------------------------------------------
Common Stock New York Life Trust 7,916,227 6.6%
Company (1)(2)
51 Madison Avenue
New York, NY 10010
-------------------------------------------------------------------
(1) In a Schedule 13G/A, Amendment No. 6, filed on February 13, 2006, New York
Life Trust Company indicates that it holds these shares as directed trustee
of our 401(k) plan and has sole voting and dispositive power with respect
to all shares.
(2) Not adjusted for the 3-for-2 stock split effective July 26, 2006.
- --------------------------------------------------------------------------------
RELATED PERSON DISCLOSURE
- --------------------------------------------------------------------------------
Title of Class | | Name and Address of Beneficial Owner | | Amount and Nature of Beneficial Ownership | | Percent of Class | | Common Stock | | New York Life Trust Company 51 Madison Avenue New York, NY 10010 | | 10,800,821(1) | | 5.881% | | | | | | | | | | Common Stock | | BlackRock, Inc. 40 East 52nd Street New York, NY 10022 | | 10,863,566(2) | | 5.79% | |
(1) | In a Schedule 13G/A, Amendment No. 9, filed on February 13, 2009, New York Life Trust Company indicates that it holds these shares as directed trustee of our 401(k) plan and has sole voting and dispositive power with respect to all shares. |
(2) | In a Schedule 13G, filed on January 29, 2010, BlackRock, Inc. reports that it completed its acquisition of Barclays Global Investors on December 1, 2009 and amends the most recent Schedule 13G filing made by Barclays Global Investors, NA and certain of its affiliates with respect to our common stock. BlackRock, Inc. reports sole voting and dispositive power with respect to all shares as the parent holding company or control person of BlackRock Asset Management Japan Limited, BlackRock Advisors (UK) Limited, BlackRock Institutional Trust Company, N.A., BlackRock Fund Advisors, BlackRock Asset Management Canada Limited, BlackRock Asset Management Australia Limited, BlackRock Advisors, LLC, BlackRock Capital Management, Inc., BlackRock Financial Management, Inc., BlackRock Investment Management, LLC, BlackRock (Luxembourg) S.A., BlackRock Fund Managers Ltd, BlackRock International Ltd and BlackRock Investment Management UK Ltd. |
RELATED PERSON TRANSACTION DISCLOSURE |
The board of directors has adopted a policy for the review of related person transactions. This policy is contained in our corporate governance guidelines, which are posted on our website at www.mdu.com.
74
The audit committee reviews related person transactions in which we are or will be a participant to determine if they are in the best interests of our stockholders and the company. Financial transactions, arrangements, relationships, or any series of similar transactions, arrangements, or relationships in which a related person had or will have a material interest and that exceed $120,000 are subject to the committee'scommittee’s review. Related persons are directors, director nominees, executive officers, holders of 5% or more of our voting stock, and their immediate family members. Immediate family members are spouses, parents, stepparents, mothers-in-law, fathers-in-law, siblings, brothers-in-law, sisters-in-law, children, stepchildren, daughters-in-law, sons-in-law, and any person, other than a tenant or domestic employee, who shares in the household of a director, director nominee, executive officer, or holder of 5% or more of our voting stock. After its review, the committee makes a determination or a recommendation to the board which
ultimately decides whetherand officers of the company with respect to approve or ratify athe related person transaction. The board's decisionUpon receipt of the committee’s recommendation, the board of directors or officers, as the case may be, based ontakes such action as they deem appropriate in light of their responsibilities under applicable laws and regulations. The audit committee and the committee's recommendation or on its
independent evaluationboard of whetherdirectors reviewed two leases between an indirect subsidiary of the transaction iscompany and a Montana partnership, Mojo, owned by John G. Harp, President and Chief Executive Officer of MDU Construction Services Group, Inc., and his brother, Michael D. Harp. The properties described in these two leases are located in Kalispell and Billings, Montana and have been leased since 1998. In November 2007, the audit committee determined that renewing these leases was in the company’s best interests after it reviewed 2004 third party appraisals for the properties and a 2007 appraisal of the Kalispell property and considered the consumer price index and our stockholdersoperating companies’ knowledge of local property markets. The audit committee recommended and the company.
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CORPORATE GOVERNANCE
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board approved three-year leases for these properties that provide for our indirect subsidiary to pay a combined monthly rent of $10,100 to Mojo, a Montana partnership. Director Independence
- ---------------------
The board of directors has adopted a statement of policyguidelines on director independence that includes categorical standardsare included in our corporate governance guidelines, which are available for director independence. We
have posted this statement of policy toreview on our corporate website at www.mdu.com and attached
the policy to our proxy statement as exhibit "C"http://www.mdu.com/Documents/Governance/ 2008_11_CorpGvrnGuide.pdf. The board of directors has determined that all current members of the board and all members of the board
during 2006
o have or had no material relationship with us and
o are or were independent in accordance with our statement of
policy on director independence standards, the New York Stock
Exchange listing standards and the Sarbanes-Oxley Act of 2002,
except Terry D. Hildestad, our president and chief executive officer, and MartinThomas Everist, Karen B. Fagg, A. White, our former chairman and chief executive officer, whoBart Holaday, Dennis W. Johnson, Thomas C. Knudson, Richard H. Lewis, Patricia L. Moss, John L. Olson (until he retired August 17, 2006.
13, 2009), Harry J. Pearce, Sister Thomas Welder, and John K. Wilson: | • | have no material relationship with us and | | • | are independent in accordance with our director independence guidelines and the New York Stock Exchange listing standards. |
In determining director independence for 2006,2009, the board of directors considered the following transactions or relationships:
o Mr. Everist's | • | Mr. Everist’s ownership at that time of approximately 1.8 million shares of our common stock | | • | charitable contributions to the City of Dickinson in the amount of $20,000 – Mr. Johnson was president of the City of Dickinson board of commissioners; payment to the company for utility line relocation done by our division, Montana-Dakota Utilities Co., in the regular course of business at the request of TMI Systems Design Corporation in the amount of $71,530 – Mr. Johnson was Chairman and Chief Executive Officer of TMI Systems Design Corporation | | • | charitable contributions to Colorado UpLift in the amount of $25,000 – Mr. Lewis was a director and member of Colorado UpLift’s executive committee | | • | charitable contributions to St. Alexius Medical Center in the amount of $6,000 – Sister Welder was a director of St. Alexius; payment of our employees’ tuition and education-related expenses and charitable contributions in the amount of $62,500 to the University of Mary – Sister Welder was the president of the University of Mary in 2008; and charitable contributions to Missouri Slope Areawide United Way in the amount of $20,500 – Sister Welder was a director of the Missouri Slope Areawide United Way and | | • | public utility services provided by our utility operations to entities with which directors are affiliated at rates fixed by the regulatory bodies having jurisdiction. |
Director Resignation Upon Change of approximately 3.5 million shares of
our common stock
o charitable contributions to the City of Dickinson and the
Theodore Roosevelt Medora Foundation - Mr. Johnson is president
of the City of Dickinson board of commissioners and was director
of the foundation
75
o business relationships that we describe in the notes to our
financial statements in our Annual Report on Form 10-K for the
year ended December 31, 2006 between subsidiaries of MDU
Resources Group, Inc. and companies with which Mr. Nance, our
director who retired in August 2006, is affiliated and
o the provision of electric service and charitable contributions to
the University of Mary and St. Alexius Medical Center - Sister
Welder is president of the University of Mary andJob Responsibility Our corporate governance guidelines require a director of
St. Alexius.
to tender his or her resignation after a material change in job responsibility. In 2009, no directors submitted resignations under this requirement. Code of Conduct
- ---------------
We have a code of conduct applicableand ethics, which we refer to directors, officers, managerial
employees andas the Leading With Integrity Guide, which applies to all employees, involved in financial activities on our behalf. We
also have a code of ethics that applies generally to our employees.
directors, and officers. We intend to satisfy our disclosure obligations regarding
o amendments to, or waivers of, any provision of the code of
conduct that applies to our principal executive officer,
principal financial officer and principal accounting officer and
that relates to any element of the code of ethics definition in
Regulation S-K, Item 406(b) and
o waivers of the code of conduct for our directors or executive
officers, as required by New York Stock Exchange listing
standards,
regarding: | • | amendments to, or waivers of, any provision of the code of conduct that applies to our principal executive officer, principal financial officer, and principal accounting officer and that relates to any element of the code of ethics definition in Regulation S-K, Item 406(b) and | | • | waivers of the code of conduct for our directors or executive officers, as required by New York Stock Exchange listing standards |
by posting such information on our website at www.mdu.com.
http://www.mdu.com/Documents/Governance/IntegrityGuide.pdf. Board Leadership Structure and Board’s Role in Risk Oversight The board separated the positions of chairman of the board and chief executive officer in 2006 and elected Harry J. Pearce, a non-employee independent director, as our chairman, and Terry D. Hildestad as our president and chief executive officer. Separating these positions allows our chief executive officer to focus on our day-to-day business, while allowing the chairman of the board to lead the board in its fundamental role of providing advice to and independent oversight of management. The board recognizes the time, effort, and energy that the chief executive officer is required to devote to his position in the current business environment, as well as the commitment required to serve as our chairman, particularly as the board’s oversight responsibilities continue to grow. While our bylaws and corporate governance guidelines do not require that our chairman and chief executive officer positions be separate, the board believes that having separate positions and having an independent outside director serve as chairman is the appropriate leadership structure for the company at this time and demonstrates our commitment to good corporate governance. Risk is inherent with every business, and how well a business manages risk can ultimately determine its success. We face a number of risks, including economic risks, environmental and regulatory risks, and others, such as the impact of competition and weather conditions. Management is responsible for the day-to-day management of risks the company faces, while the board, as a whole and through its committees, has responsibility for the oversight of risk management. In its risk oversight role, the board of directors has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed. The board believes that establishing the right “tone at the top” and that full and open communication between management and the board of directors are essential for effective risk management and oversight. Our chairman meets regularly with our president and chief executive officer and other senior officers to discuss strategy and risks facing the company. Senior management attends the quarterly board meetings and is available to address any questions or concerns raised by the board on risk management-related and any other matters. Each quarter, the board of directors receives presentations from senior management on strategic matters involving our operations. The board holds strategic planning sessions with senior management to discuss strategies, key challenges, and risks and opportunities for the company. While the board is ultimately responsible for risk oversight at our company, our three board committees assist the board in fulfilling its oversight responsibilities in certain areas of risk. The audit committee assists the board in fulfilling its oversight responsibilities with respect to risk management in the areas of financial reporting, internal controls and compliance with legal and regulatory requirements, and, in accordance with New York Stock Exchange requirements, discusses policies with respect to risk assessment and risk management. Risk assessment reports are regularly provided by management to the audit committee. The compensation committee assists the board in fulfilling its oversight responsibilities with respect to the management of risks arising from our compensation policies and programs. The nominating and governance committee assists the board in fulfilling its oversight responsibilities with respect to the management of risks associated with board organization, membership and structure, succession planning for our directors and executive officers, and corporate governance. Board Meetings and Committees
- -----------------------------
During 2006,2009, the board of directors held eightfive meetings. Each incumbent director attended at least 75 percent75% of the combined total meetings of the board and the committees on which the director served during 2006.2009. Director attendance at our annual meeting of stockholders is left to the discretion of each director. TwoFour directors attended our 20062009 annual meeting of stockholders. Harry J. Pearce served as lead director until August 17, 2006, when he was elected non-employee chairman of the board.board on August 17, 2006. Mr. Pearce served as lead director from February 15, 2001 to August 17, 2006. He presides at the executive session of the non-employee directors held in connection with each regularly scheduled quarterly board of directors meeting. The non-employee directors also meet in executive session with the chief executive officer at each regularly scheduled quarterly board of directors meeting. The board has a standing audit committee, compensation committee, and nominating and governance committee. These committees are composed entirely of independent directors under the applicable New York Stock Exchange listing standards. The audit, compensation, and nominating and governance committees have charters, which are available for review along with our corporate governance
guidelines, code of conduct,
76
and code of ethics, on our website at www.mdu.com. You may obtain copies of any
of these documents by writing to the secretary, MDU Resources Group, Inc.http://www.mdu.com/Governance/Pages/Board ChartersandCommittees.aspx. Our corporate governance guidelines are available at http://www.mdu.com/Documents/Governance/2008_11_CorpGvrnGuide.pdf, P.O.
Box 5650, Bismarck, ND 58506-5650.
and our Leading With Integrity Guide is also on our website at http://www.mdu.com/Documents/Governance/IntegrityGuide.pdf. Nominating and Governance Committee
- -----------------------------------
The nominating and governance committee met fourthree times during 2006.2009. The committee members arewere John L. Olson, chairman, Karen B. Fagg, Richard H. Lewis, and Sister Thomas Welder. RobertJohn L. NanceOlson served as a memberchairman of the committee until his retirementhe retired from the board on August 17, 2006. Thomas Everist, Harry J.
Pearce13, 2009, and John K. Wilson served as members of the committee until August 17,
2006.
Karen B. Fagg became chairman. The nominating and governance committee provides recommendations to the board with respect to
oto: | • | board organization, membership, and function | | • | committee structure and membership | | • | succession planning for our executive management and directors and | | • | corporate governance guidelines applicable to us. |
The nominating and governance committee assists the board organization, membership and function
o committee structure and membership
o succession planning for our executivein overseeing the management and
o corporate governance guidelines applicable to us.
of risk in the committee's areas of responsibility. The committee identifies individuals qualified to become directors and recommends to the board the nominees for director for the next annual meeting of stockholders. The committee also identifies and recommends to the board individuals qualified to become our principal officers and the nominees for membership on each board committee. The committee oversees the evaluation of the board and management. In identifying nominees for director, the committee consults with board members, our management, consultants, and other individuals likely to possess an understanding of our business and knowledge concerning suitable director candidates.
We have a Our corporate governance guidelines include our policy on consideration of director candidates recommended to us
andus. We will consider candidates that our stockholders recommend. In November 2008, we amended our policy to include additional information stockholders must provide regarding their recommended candidates. Stockholders may submit director candidate recommendations to the nominating and governance committee chairman in care of the secretary at MDU Resources Group, Inc., P.O. Box 5650, Bismarck, ND 58506-5650. Please include the following information:
o the candidate's name, age, business address and telephone number
o the candidate's principal occupation and
o | • | the candidate’s name, age, business address, residence address, and telephone number | | • | the candidate’s principal occupation | | • | the class and number of shares of our stock owned by the candidate | | • | a description of the candidate’s qualifications to be a director | | • | whether the candidate would be an independent director and | | • | any other information you believe is relevant with respect to the recommendation. |
These guidelines provide information to stockholders who wish to recommend candidates for director for consideration by the nominating and governance committee. Stockholders who wish to actually nominate persons for election to our board at an annual meeting of stockholders must follow the procedures set forth in section 2.08 of our bylaws. You may obtain a copy of the bylaws by writing to the recommendation.
You should submit such informationsecretary of MDU Resources Group, Inc. at least 120 days prior to the anniversaryaddress above. Our bylaws are also available on our website at http://www.mdu.com/Documents/Governance/MDU%20ResourcesBylaws.pdf. See also the section entitled “2011 Annual Meeting of Stockholders” later in the mail date of last year's proxy statement, or for next year, no later than
November 9, 2007.
77
statement. There are no differences in the manner by which the committee evaluates director candidates recommended by stockholders and those recommended by other sources. In evaluating director candidates, the committee considers an individual's
oindividual’s | • | background, character, and experience | | • | skills and experience which complement the skills and experience of current board members | | • | success in the individual’s chosen field of endeavor | | • | skill in the areas of accounting and financial management, banking, general management, human resources, marketing, operations, public affairs, law, and operations abroad | | • | background in publicly traded companies | | • | geographic area of residence | | • | independence, including affiliations or relationships with other groups, organizations, or entities and | | • | prior and future compliance with applicable law and all applicable corporate governance, code of conduct and ethics, conflict of interest, corporate opportunities, confidentiality, stock ownership and trading policies, and our other policies and guidelines. |
On February 11, 2010, the board, upon recommendation of the nominating and governance committee, amended our corporate governance guidelines to include diversity as a consideration in identifying nominees for director. When identifying nominees to serve as director, the nominating and governance committee will consider candidates with diverse business and professional experience, skills, gender, and ethnic background, characteras appropriate, in light of the current composition and needs of the board. The nominating and governance committee will assess the effectiveness of this policy annually in connection with the nomination of directors for election at the annual meeting of stockholders. The composition of the current board reflects diversity in business and professional experience,
o skills, and experience which complement the skills and experience
of current board members
o success in the individual's chosen field of endeavor
o skill in the areas of accounting and financial management,
banking, general management, human resources, marketing,
operations, public affairs, law and operations abroad
o background in publicly traded companies
o geographic area of residence and
o affiliations or relationships with other groups, organizations or
entities.
gender.
The committee generally will hire an outside firm to perform a background check on potential nominees.
Audit Committee
- ---------------
The audit committee is a separately-designated standing committee established in accordance with section 3(a)(58)(A) of the Securities Exchange Act of 1934. The audit committee met seven times during 2006.2009. The audit committee members are Dennis W. Johnson, chairman, A. Bart Holaday, Richard H. Lewis, John L. Olson and John K. Wilson. RobertJohn L. NanceOlson served as a member ofon the committee until his
retirementhe retired from the board on August 17, 2006. Patricia L. Moss and Sister Thomas
Welder served as members of the committee until August 17, 2006.13, 2009. The board of directors has determined that Messrs. Johnson, Holaday, Lewis, Olson (until he retired), and Wilson are "audit“audit committee financial experts"experts” as defined by Securities and Exchange Commission regulations and Messrs. Johnson, Holaday, Lewis, Olson (until he retired), and Wilson are all independent under the applicable New York Stock Exchange listing standards. The audit committee assists the board of directors in fulfilling its oversight responsibilities to the stockholders and serves as a communication link among the board, management, the independent auditors, and the internal auditors. The audit committee:
o assists the board's oversight of
- the integrity of our financial statements
- our compliance with legal and regulatory requirements
78
- the independent auditors' qualifications and independence
and
- the performance of our internal audit function and
independent auditors and
o prepares the report that Securities and Exchange Commission rules
require we include in our annual proxy statement.
- --------------------------------------------------------------------------------
AUDIT COMMITTEE REPORT
- --------------------------------------------------------------------------------
| • | assists the board’s oversight of | | | • | the integrity of our financial statements and system of internal controls | | | • | our compliance with legal and regulatory requirements | | | • | the independent auditors’ qualifications and independence | | | • | the performance of our internal audit function and independent auditors and | | | | risk management in the audit committee's areas of resonsibility and | | | • | prepares the report that Securities and Exchange Commission rules require we include in our annual proxy statement. |
Audit Committee Report In connection with our financial statements for the year ended December 31, 2006,2009, the audit committee has (1) reviewed and discussed the audited financial statements with management; (2) discussed with the independent auditors the matters required to be discussed by statement on Auditing Standards No. 61, as amended, AICPA, (AICPA, Professional Standards, Vol. 1, AU section 380,380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T; (3) received the written disclosures and the letter from the independent accountants required by Independence Standards Board
Standard No. 1, Independence Discussions with Audit Committees, as adopted
byapplicable requirements of the Public Company Accounting Oversight Board in Rule 3600T,regarding the independent accountant’s communications with the audit committee concerning independence, and discussed with the independent accountant the independent accountant'saccountant’s independence. Based on the review and discussions referred to in items (1) through (3) of the above paragraph, the audit committee recommended to the board of directors that the audited financial statements be included in our Annual Report on Form 10-K for the year ended December 31, 20062009 for filing with the Securities and Exchange Commission. Dennis W. Johnson, Chairman A. Bart Holaday Richard H. Lewis
John L. Olson
John K. Wilson
-------------------
_______________ Compensation Committee
- ----------------------
The compensation committee met four times during 2006.2009. The compensation committee members are Thomas Everist, chairman, Karen B. Fagg, Thomas C. Knudson, and Patricia L. Moss. Dennis W. Johnson, Richard H. Lewis and Harry J. Pearce served as members
of the committee until August 17, 2006. Mr. Pearce served as chairman of the
committee until June 1, 2006.
The compensation committee'scommittee’s responsibilities, as set forth in its charter, include:
o review and recommend changes to the board regarding our executive
compensation policies for directors and executives
79
o evaluate the chief executive officer's performance and, either as
a committee or together with other independent directors as
directed by the board, determine his compensation
o recommend to the board the compensation of our other Section 16
officers and directors
o establish goals, make awards, review performance and determine,
or recommend to the board, awards earned under our annual and
long-term incentive compensation plans
o review and discuss with management the compensation discussion
and analysis and based upon such review and discussion, determine
whether to recommend to the board that the compensation
discussion and analysis be included in our proxy statement or our
Annual Report on Form 10-K
o arrange for the preparation of and approve the compensation
committee report to be included in our proxy statement or Annual
Report on Form 10-K and
o sole authority to retain and discharge and approve fees for
compensation consultants.
| • | review and recommend changes to the board regarding our executive compensation policies for directors and executives | | • | evaluate the chief executive officer’s performance and, either as a committee or together with other independent directors as directed by the board, determine his or her compensation | | • | recommend to the board the compensation of our other Section 16 officers and directors | | • | establish goals, make awards, review performance and determine, or recommend to the board, awards earned under our annual and long-term incentive compensation plans | | • | review and discuss with management the compensation discussion and analysis and based upon such review and discussion, determine whether to recommend to the board that the compensation discussion and analysis be included in our proxy statement and/or our Annual Report on Form 10-K | | • | arrange for the preparation of and approve the compensation committee report to be included in our proxy statement and/or Annual Report on Form 10-K and | | • | assist the board in overseeing the management of risk in the committee's areas of responsibility. |
The compensation committee and the board of directors have sole and direct responsibility for determining compensation offor our Section 16 officers and directors. TheyThe compensation committee makes recommendations to the board regarding compensation of all Section 16 officers, and the board then approves the recommendations. The compensation committee and the board may not delegate thistheir authority. They may, however, use recommendations from outside consultants, the chief executive officer, and the human resources department. The chief executive officer, the chief financial officer, the vice president -
humanpresident-human resources, and general counsel regularly attend compensation committee meetings. The committee meets in executive session as needed.
The compensation committee makes recommendations to the board regarding
compensation of all Section 16 officers, and the board then approves the
recommendations.
We discuss our processes and procedures for consideration and determination of compensation of our Section 16 officers in the compensation discussionCompensation Discussion and analysis.Analysis. We also discuss in the compensation discussionCompensation Discussion and analysisAnalysis the role of our executive officers and compensation consultants in determining or recommending compensation for our Section 16 officers. The compensation committee has sole authority to retain, discharge, and approve fees and other terms and conditions for retention of compensation consultants to assist in consideration of the compensation of the chief executive officer, the other Section 16 officers, and the board of directors. The compensation committee charter requires the committee’s pre-approval of the engagement of the committee’s compensation consultants by the company for any other purpose. In February 2009, the compensation committee approved the retention of Towers Perrin as its compensation consultant for 2009 to perform duties to be identified in an engagement letter. In an engagement letter dated March 3, 2009 and signed by the chairman of the compensation committee, the compensation committee requested Towers Perrin to provide an executive compensation review similar to those prepared in prior years.
The review was to
· | match company positions to survey data |
· | develop 2010 competitive estimates on base salaries and targeted short-term and long-term incentives |
· | compare company base salaries and targeted short-term and long-term incentives, by position, to market estimates |
· | construct a recommended 2010 salary grade structure, salary grade changes, and changes in base salaries and incentive targets based on competitive data and |
· | address general trends in executive compensation, such as overall salary movement and the recession’s impact on executive compensation. |
In May 2009, upon recommendation of the chairman, the committee decided not to continue the consultant’s engagement for 2009 due to budget concerns and the company’s ability to access data through other sources.
The compensation committee did authorize the company to participate in compensation and employee benefits surveys sponsored by Towers Perrin.
The board of directors determines compensation for our non-employee directors based upon recommendations from the compensation committee. TheIn February 2009, the compensation committee reviewed and made recommendations with respect to directordecided that the compensation atreview for the board of directors would be undertaken internally by the company, rather than by an outside consultant. At its May 2006 meeting. At that2009 meeting, the committee reviewed a
survey onthe analysis of competitive data and recent trends in director compensation prepared by Towers Perrin at the direction of
the compensation committee.company. The Towers Perrin survey used marketcompany’s analysis was based on proxy data from our performance graph peer group companies gatheredcompiled by Equilar and on data from their 2006 proxy filings.the National Association of Corporate Directors 2008/2009 Director Compensation Report. The committee compared this survey data to our 80
o annual cash retainer to non-employee directorsdirectors’ compensation and to the
non-executive chairmaneach of the board
o stock awards to all non-employee directors
o board meeting fees to all non-employee directors
o committee meeting fees and
o committee chairperson fees.
Our chief executive officer reported to the committee on the portion of the
survey regarding non-executive chairman compensation.its components. After review and discussion of the market data, the compensation committee made recommendations
to increasewhich indicated that aggregate director compensation towas at the 61st percentilemedian of the market data in
the Towers Perrin survey. The board approved the recommendations.
At its May and August 2006 meetings, the committee also reviewed a report
prepared by the National Association of Corporate Directors on best practices on
director compensation. The committee noted that,2008/2009 Director Compensation Report companies and above the median – 65th percentile – of the six best practices
identified inpeer group companies, the report, five of the policies, regarding director compensation programs, director stock ownershipcommittee recommended, and the use of independent professional or
financial service providers, have been adopted.
board approved, that the annual retainer be increased by $25,000 to $55,000 and that the monthly fees be eliminated, effective June 1, 2009. Stockholder Communications
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Stockholders and other interested parties who wish to contact the board of directors or an individual director, including our non-employee chairman or non-employee directors as a group, should address a communication in care of the secretary at MDU Resources Group, Inc., P.O. Box 5650, Bismarck, ND 58506-5650. The secretary will forward all communications.
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE |
Section 16 of the Securities Exchange Act of 1934, as amended, requires that officers, directors, and holders of more than 10% of our common stock file reports of their trading in our equity securities with the Securities and Exchange Commission. Based solely on a review of Forms 3, 4, and 5 and any amendments to these forms furnished to us during and with respect to 20062009 or written representations that no Forms 5 were required, we believe that all such reports were timely filed.
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OTHER BUSINESS
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OurNeither the board of directors nor management knows of no other mattersintends to comebring before the meeting.
However, ifmeeting any business other than the matters referred to in the notice of annual meeting and this proxy statement. In addition, other than as described under Item 6 above and in the following sentences, we have not been informed that any other matter will be presented to the meeting by others. One stockholder proposal was submitted for inclusion in the proxy statement, which we have omitted pursuant to Rule 14a-8 of the Securities and Exchange Commission’s proxy rules. If this stockholder complies with our advance notice bylaw provisions and properly presents the proposal at the annual meeting, it is the intention of the persons named in the proxy to vote against this proposal. If any other matter requiring a vote of the stockholders should arise, the persons named in the enclosed proxy will vote in accordance with their best judgment.
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SHARED ADDRESS STOCKHOLDERS
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SHARED ADDRESS STOCKHOLDERS |
In accordance with a notice sent to eligible stockholders who share a single address, we are sending only one annual report to stockholders and one proxy statement to that address unless we received instructions to the contrary from any stockholder at that address. This practice, known as "householding,"“householding,” is designed to reduce our printing and postage costs. However, if a stockholder of record wishes to receive a separate annual report orto stockholders and proxy statement in the future, he or she may contact the office of the treasurer at MDU Resources Group, Inc., P.O. Box 5650, Bismarck, ND 58506-5650.58506-5650, Telephone Number: (701) 530-1000. Eligible stockholders of record who receive multiple copies of our annual report to stockholders and proxy statement can request householding by contacting us in the same manner. Stockholders who own shares through a bank, broker, or other nominee can request householding by contacting the nominee. We hereby undertake to deliver promptly, upon written or oral request, a separate copy of the annual report to stockholders orand proxy statement as
applicable, to a stockholder at a shared address to which a single copy of the document was delivered.
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2008 ANNUAL MEETING OF STOCKHOLDERS
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2011 ANNUAL MEETING OF STOCKHOLDERS |
Director Nominations: Our bylaws provide that director nominations may be made only by (i) the board at any meeting of stockholders or the nominating committee or(ii) at an annual meeting by a stockholder entitled to vote for the election of directors and who has complied with the procedures established by the bylaws. For a nomination to be properly brought before an annual meeting by a stockholder, the stockholder intending to make the nomination must have given timely and proper notice of the nomination in writing to the corporate secretary in accordance with and containing all information and the completed questionnaire provided for in the bylaws. To be timely, such notice must be delivered writtento or mailed to the corporate secretary and received at our principal executive offices not later than 90 days prior to the first anniversary of the preceding year’s annual meeting of stockholders. For purposes of our annual meeting of stockholders expected to be held April 26, 2011, any stockholder who wishes to submit a nomination must submit the required notice to the corporate secretary. The written
notice must contain certain information specified in the bylaws and must be
received at least 120 days prior to the anniversary datesecretary on which we first
mailed our proxy materials for the prior year's annual stockholders' meeting.
or before January 27, 2011. Other Meeting Business: Our bylaws also provide that no business may be brought before an annual stockholders' meeting except (i) as specified in the meeting notice given by or at the direction of the board, (ii) as otherwise properly brought before the meeting by or at the direction of the board or (iii) properly brought before the meeting by a stockholder entitled to vote who has delivered writtencomplied with the procedures established by the bylaws. For business to be properly brought before an annual meeting by a stockholder (other than nomination of a person for election as a director which is described above) the stockholder must have given timely and proper notice of such business in writing to the company secretary. The written notice must contain certaincorporate secretary, in accordance with, and containing all information specifiedprovided for in the bylaws and such business must be a proper matter for stockholder action under the General Corporation Law of Delaware. To be timely, such notice must be delivered or mailed to the corporate secretary and received at least 120our principal offices not later than the close of business 90 days prior to the first anniversary dateof the preceding year’s annual meeting of stockholders. For purposes of our annual meeting expected to be held April 26, 2011, any stockholder who wishes to bring business before the meeting (other than nomination of a person for election as a director which is described above) must submit the required notice to the corporate secretary on which we first mailed our proxy materials for the prior year's annual
stockholders' meeting.
82
or before January 27, 2011. Discretionary Voting: Rule 14a-4 of the Securities and Exchange Commission'sCommission’s proxy rules allows us to use discretionary voting authority to vote on matters coming before an annual stockholders'stockholders’ meeting if we do not have notice of the matter at least 45 days before the anniversary date on which we first mailed our proxy materials for the prior year'syear’s annual stockholders'stockholders’ meeting or the date specified by an advance notice provision in our bylaws. Our bylaws contain an advance notice provision that we have described above. For our annual meeting of stockholders expected to be held on April 22, 2008,26, 2011, stockholders must submit such written notice to the corporate secretary on or before November 9, 2007.
January 27, 2011. Stockholder Proposals: The requirements we describe above are separate from and in addition to the Securities and Exchange Commission'sCommission’s requirements that a stockholder must meet to have a stockholder proposal included in our proxy statement under Rule 14a-8 of the Exchange Act. For purposes of our annual meeting of stockholders expected to be held on April 22, 2008,26, 2011, any stockholder who wishes to submit a proposal for inclusion in our proxy materials must submit such proposal to the corporate secretary on or before November 9, 2007.
12, 2010. Bylaw Copies: You may obtain a copy of the full text of the bylaw provisions discussed above by writing to the corporate secretary. Our bylaws are also available on our website at: http://www.mdu.com/Documents/Governance/ MDU%20ResourcesBylaws.pdf. We will make available to our stockholders to whom we mailfurnish this proxy statement a copy of our Annual Report on Form 10-K, excluding exhibits, for the year ended December 31, 2006,2009, which is required to be filed with the Securities and Exchange Commission. You may obtain a copy, without charge, upon written or oral request to the Office of the Treasurer of MDU Resources Group, Inc., 1200 West Century Avenue, Mailing Address: P.O. Box 5650, Bismarck, ND 58506-5650, Telephone Number: (701) 530-1000. You may also access our Annual Report on Form 10-K through our website at www.mdu.com. By order of the Board of Directors, Paul K. Sandness Secretary March 8, 2007
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EXHIBIT A
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12, 2010
MDU Resources Group, Inc.’s Proposed Amendments to Its Restated Certificate of Incorporation RESOLVED, that the Board of Directors of MDU Resources Group, Inc. (the “Corporation”) hereby declares it advisable: (A) That the numberprovisions requiring a supermajority vote by stockholders set forth in Articles TWELFTH and FIFTEENTH of sharesthe Restated Certificate of Common Stock whichIncorporation of the Company is
authorizedCorporation be repealed, and that certain technical amendments to issuethe provisions of Articles THIRTEENTH and FOURTEENTH of the Restated Certificate of Incorporation of the Corporation be increased from 250,000,000 shares of Common Stockadopted in connection with the par valuerepeal of $1.00 per share, to 500,000,000 shares withsuch supermajority vote provisions and the par valuedeclassification of $1.00 per share,the Board of Directors of the Corporation effected in 2007, effective at the close of business on the date on which the appropriate Certificate of Amendment to the Company'sCorporation’s Restated Certificate of Incorporation is filed in the office of the Secretary of State of the State of Delaware; (B) That, in order to effect the foregoing, the Restated Certificate of Incorporation of the Company, as heretofore amended, be further amended by
deleting the first paragraph of Article FOURTH, and by inserting in place
thereof a new first paragraph of said Article FOURTH to read as follows:
FOURTH. The total number of shares of stock which the
Corporation, shall have authority to issue is TwoFive Hundred
Fifty-Two Million (252,000,000502,000,000) divided into four
classes, namely, Preferred Stock, Preferred Stock A, Preference
Stock, and Common Stock. The total number of shares of such
Preferred Stock authorized is Five Hundred Thousand (500,000) shares
of the par value of One Hundred Dollars ($100) per share
(hereinafter called the "Preferred Stock") amounting in the
aggregate to Fifty Million Dollars ($50,000,000). The total number
of shares of such Preferred Stock A authorized is One Million
(1,000,000) shares without par value (hereinafter called the
"Preferred Stock A"). The total number of shares of such Preference
Stock authorized is Five Hundred Thousand (500,000) shares without
par value (hereinafter called the "Preference Stock"). The total
number of shares of such Common Stock authorized is TwoFive Hundred
Fifty Million (250,000,000500,000,000) of the par value of One and
no/100 Dollars ($1.00) per share (hereinafter called the "Common
Stock"), amounting in the aggregate to TwoFive Hundred Fifty Million
Dollars ($250,000,000). 500,000,000).
FURTHER RESOLVED, that the Board of Directors hereby directs that this
resolution and above proposed amendment be attached as an exhibit to the proxy
statement for the Company's next Annual or Special Meeting of Stockholders for
consideration by the Stockholders entitled to vote in respect thereof.
A-1
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EXHIBIT B
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RESOLVED, that the Board of Directors of MDU Resources Group, Inc. hereby
declares it advisable:
(A) That the Board of Directors of the Company be declassified and the
members of the Board of Directors be elected annually, effective at the close of
business on the date on which the appropriate Certificate of Amendment to the
Company's Restated Certificate of Incorporation is filed in the office of the
Secretary of State of the State of Delaware;
(B) That, in order to effect the foregoing, the Restated Certificate of
Incorporation of the Company, as heretofore amended, be further amended by amending ArticleArticles TWELFTH, THIRTEENTH, to readFOURTEENTH and FIFTEENTH as follows:
THIRTEENTH.TWELFTH. [RESERVED] Part I. For the purposes of this Article TWELFTH, the following terms shall have the meaning hereinafter set forth: (a) “Affiliate” or “Associate” shall have the respective meanings ascribed to such terms in the General Rules and Regulations under the Securities Exchange Act of 1934 as in effect on January 1, 1985. (b) A person shall be a “Beneficial Owner” of any Voting Stock: (i) which such person or any of its Affiliates or Associates (as herein defined) beneficially owns, directly or indirectly; or (ii) which such person or any of its Affiliates or Associates has (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (B) the right to vote pursuant to any agreement, arrangement or understanding; or (iii) which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock. (c) “Business Combination” shall mean any of the following: (i) any merger or consolidation of the Corporation or any Subsidiary with (A) any Interested Stockholder or (B) any other corporation (whether or not itself an Interested Stockholder) which is, or after such merger or consolidation would be, an Affiliate of an Interested Stockholder; or (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Stockholder or any Affiliate of any Interested Stockholder of any assets of the Corporation or any Subsidiary having an aggregate Fair Market Value of $5,000,000 or more but shall not include transactions between the Corporation and its Subsidiaries; or (iii) the issuance or transfer by the Corporation or any subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any subsidiary to any Interested Stockholder or any Affiliate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value of $5,000,000 or more; or, (iv) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of an Interested Stockholder or any Affiliate of any Interested Stockholder; or (v) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, statutory share exchange, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested Stockholder or any Affiliate of any Interested Stockholder. (d) “Continuing Director” shall mean any member of the Board of Directors of the Corporation (the “Board”) who is unaffiliated with, and not a nominee of, the Interested Stockholder (as such term is used in the context of a Business Combination) and was a member of the Board prior to the time that the Interested Stockholder became an Interested Stockholder and any successor of a Continuing Director who is unaffiliated with, and not a nominee of, the Interested Stockholder and is designated to succeed a Continuing Director by two-thirds of Continuing Directors then on the Board. (e) “Fair Market Value” means: (i) in the case of stock, the highest closing sale price during the thirty-day period immediately preceding the date in question of a share of such stock on the Composite Tape for the New York Stock Exchange-Listed Stocks, or, if such stock is not quoted on the Composite Tape for the New York Stock Exchange, or, if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the thirty-day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotations System (“NASDAQ”) or, if NASDAQ is not then in use, any other system then in use, or, if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by two-thirds of the Continuing Directors in good faith; and (ii) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined by a majority of the Continuing Directors in good faith. (f) “Institutional Voting Stock” shall mean any class of Voting Stock which was issued to and continues to be held solely by one or more insurance companies, pension funds, commercial banks, savings banks and/or similar financial institutions or institutional investors. (g) “Interested Stockholder” shall mean any person (other than the Corporation or any Subsidiary) who or which: (i) is the Beneficial Owner, directly or indirectly, of more than 10 percent of the voting power of the then outstanding Voting Stock; or (ii) is an Affiliate of the Corporation and at any time within the two-year period immediately prior to the date in question, became the Beneficial Owner, directly or indirectly, of 10 percent or more of the voting power of the then outstanding Voting Stock; or (iii) is an assignee of or has otherwise succeeded to any shares of Voting Stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Interested Stockholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. For the purpose of determining whether a person is an Interested Stockholder pursuant to this paragraph (g), the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned through application of paragraph (b) of this Part I but shall not include any other shares of Voting Stock which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. (h) In the event of any Business Combination in which the Corporation survives the phrase “consideration other than cash to be received” as used in Sections (a) and (b) of Part II of this Article TWELFTH shall include the shares of Common Stock and/or the shares of any other class of outstanding Voting Stock retained by the holders of such shares. (i) A “person” shall mean any individual, firm, partnership, trust, corporation or other entity. (j) “Subsidiary” means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Interested Stockholder set forth in paragraph (g) of this Part I, the term “Subsidiary” shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation. (k) “Voting Stock” shall mean each share of stock of the Corporation generally entitled to vote in elections of directors. The Continuing Directors of the Corporation shall have the power and duty to determine, for the purposes of this Article TWELFTH, on the basis of information known to them after reasonable inquiry, all facts necessary to determine the applicability of the various provisions of this Article TWELFTH, including (a) whether a person is an Interested Stockholder, (b) the number of shares of Voting Stock beneficially owned by any person, (c) whether a person is an Affiliate or Associate of another, and (d) whether a class of Voting Stock is Institutional Voting Stock. Any such determination made in good faith shall be binding and conclusive on all parties. PART II. Except as otherwise expressly provided in Part III of this Article TWELFTH and in addition to any other provision of law and as may otherwise be set forth in the Certificate of Incorporation, the consummation of any Business Combination shall require that all of the following conditions shall have been met: (a) The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of Common Stock in such Business Combination shall be at least equal to the highest of the following: (i) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers’ fees) paid by the Interested Stockholder for any shares of Common Stock acquired by it (A) within the two-year period immediately prior to the first public announcement of the proposal of the Business Combination (the “Announcement Date”) or (B) in the transaction in which it became an Interested Stockholder, whichever is highest; (ii) the Fair Market Value per share of Common Stock on the Announcement Date or on the date on which the Interested Stockholder became an Interested Stockholder (such latter date is referred to in this Article TWELFTH as the “Determination Date”), whichever is higher; and (iii) (if applicable) the price per share equal to the Fair Market Value per share of Common Stock determined pursuant to paragraph (ii) above, multiplied by the ratio of (A) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers’ fees) paid by the Interested Stockholder for any shares of Common Stock acquired by it within the two-year period immediately prior to the Announcement Date to (B) the Fair Market Value per share of Common Stock on the first day in such two-year period upon which the Interested Stockholder acquired any shares of Common Stock. (b) The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of shares of any class of outstanding Voting Stock other than Common Stock (and other than Institutional Voting Stock), shall be at least equal to the highest of the following (it being intended that the requirements of this paragraph (b) shall be required to be met with respect to every class of outstanding Voting Stock, whether or not the Interested Stockholder has previously acquired any shares of a particular class of Voting Stock): (i) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers’ fees) paid by the Interested Stockholder for any shares of such class of Voting Stock acquired by it (A) within the two-year period immediately prior to the Announcement Date or (B) in the transaction in which it became an Interested Stockholder, whichever is higher; (ii) (if applicable) the highest preferential amount per share to which the holders of shares of such class of Voting Stock are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation; (iii) the Fair Market Value per share of such class of Voting Stock on the Announcement Date or on the Determination Date, whichever is higher; and (iv) (if applicable) the price per share equal to the Fair Market Value per share of such class of Voting Stock determined pursuant to paragraph (b)(iii) above, multiplied by the ratio of (A) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers’ fees) paid by the Interested Stockholder for any shares of such class of Voting Stock acquired by it within the two-year period immediately prior to the Announcement Date to (B) the Fair Market Value per share of such class of Voting Stock on the first day in such two-year period upon which the Interested Stockholder acquired any shares of such class of Voting Stock. (c) The consideration to be received by holders of a particular class of outstanding Voting Stock (including Common Stock) shall be in cash or in the same form as the Interested Stockholder has previously paid for shares of such class of Voting Stock. If the Interested Stockholder has paid for shares of any class of Voting Stock with varying forms of consideration, the form of consideration for such class of Voting Stock shall be either cash or the form used to acquire the largest number of shares of such class of Voting Stock previously acquired by it. (d) After such Interested Stockholder has become an Interested Stockholder and prior to the consummation of such Business Combination: (i) except as approved by two-thirds of the Continuing Directors, there shall have been no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) on the outstanding Preferred Stock; (ii) there shall have been (A) no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock), except as approved by two-thirds of the Continuing Directors, and (B) an increase in such annual rate of dividends as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of the Common Stock, unless the failure so to increase such annual rate is approved by two-thirds of the Continuing Directors; and (iii) such Interested Stockholder shall have not become the beneficial owner of any additional shares of Voting Stock except as part of the transaction which results in such Interested Stockholder becoming an Interested Stockholder. (e) After such Interested Stockholder has become an Interested Stockholder, such Interested Stockholder shall not have received the benefit, directly or indirectly (except proportionately as a stockholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise. (f) A proxy or information statement describing the proposed Business Combination and containing the information specified for proxy or information statements under the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to stockholders of the Corporation at least thirty days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions). PART III. Unless the Business Combination shall have been approved by two-thirds of the Continuing Directors, (a) the provisions of Part II of this Article TWELFTH shall be applicable to each particular Business Combination, and (b) any such Business Combination shall be approved by the affirmative vote of at least four-fifths of the voting power of all shares of Voting Stock (considered for purposes of this Article TWELFTH as one class, it being understood that for purposes of this Article TWELFTH, each share of Voting Stock shall have the number of votes granted to it pursuant to Article FOURTH of the Certificate of Incorporation). PART IV. Nothing contained in this Article TWELFTH shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. THIRTEENTH. (a) The business and affairs of the Corporation shall be managed by the Board of Directors consisting of not less than six nor more than fifteen persons. The exact number of directors within the limitations specified in the preceding sentence shall be fixed from time to time by the Board of Directors pursuant to a resolution adopted by two-thirds of the Continuing Directors. The directors need not be elected by ballot unless required by the By-Laws of the Corporation.
The Board of Directors shall be divided into three classes as
nearly equal in number as may be. The initial term of office of each
director in the first class shall expire at the annual meeting of
stockholders in 1986; the initial term of office of each director in
the second class shall expire at the annual meeting of stockholders
in 1987; and the initial term of office of each director in the
third class shall expire at the annual meeting of stockholders in
1988. At each annual election commencing at theAt each annual meeting of stockholders, of 1986,, the successors to the class of
directors whose term expires at that time shall be elected to hold
office for a term of three years to succeed those whose term
expires, so that the term of one class of directors shall expire
each year.for terms expiring at the next annual meeting of stockholders;stockholders; provided, however, that each director elected at the annual meetings of stockholders held in 2005, 2006 and 2007 shall serve for the full three-year term to which such director was elected.elected. Each director shall hold office for the term for which he is elected or appointed and until his successor shall be elected and qualified or until his earlier resignation, removal from office or death, or until he shall resign or be removed.
removed. In the event of any increase or decrease in the authorized number of directors, (i) each director then serving as such shall B-1
nevertheless continue as a director of the class of which he is a
member until the expiration of his current term, or until his earlier resignation, removal from office or death, and (ii) the newly
created or eliminated directorships resulting from such increase or
decrease shall be apportioned by the Board of Directors among the
three classes of directors so as to maintain such classes as nearly
equal in number as may be. .
death. (b) Newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause shall be filled by a two-thirds vote of the Continuing Directors then in office, or a sole remaining director, although less than a quorum, and directors so chosen shall hold office for a term expiring at the next annual meeting of stockholders at which the term of the class
to which they have been elected expires.stockholders. If one or more directors shall resign from the Board effective as of a future date, such vacancy or vacancies shall be filled pursuant to the provisions hereof, and such new directorship(s) shall become effective when such resignation or resignations shall become effective, and each director so chosen shall hold office as herein provided in the
filling of other vacancies. for a term expiring at the next annual meeting of stockholders. (c) [RESERVED] Any director or the entire Board of Directors may be removed; however, such removal must be for cause and must be approved as set forth in this Section. Except as may otherwise be provided by law, cause for removal shall be construed to exist only if: (i) the director whose removal is proposed has been convicted, or where a director was granted immunity to testify where another has been convicted, of a felony by a court of competent jurisdiction and such conviction is no longer subject to direct appeal; (ii) such director has been grossly negligent in the performance of his duties to the Corporation; or (iii) such director has been adjudicated by a court of competent jurisdiction to be mentally incompetent, which mental incompetency directly affects his ability as a director of the Corporation, and such adjudication is no longer subject to direct appeal. Removal for cause, as cause is defined above, must be approved by at least a majority vote of the shares of the Corporation then entitled to be voted at an election for that director, and the action for removal must be brought within three months of such conviction or adjudication.
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Notwithstanding the foregoing, and except as otherwise provided by law, in the event that Preferred Stock of the Corporation is issued and holders of any one or more series of such Preferred Stock are entitled, voting separately as a class, to elect one or more directors of the Corporation to serve for such terms as set forth in the Certificate of Incorporation, the provisions of this Article THIRTEENTH, Section (c), shall also apply, in respect to the removal of a director or directors so elected to the vote of the holders of the outstanding shares of that class and not to the vote of the outstanding shares as a whole. (d) Any directors elected pursuant to special voting rights of one or more series of Preferred Stock, voting as a class, shall be excluded from, and for no purpose be counted in, the scope and operation of the foregoing provisions, unless expressly stated. (e) For purposes of this Article THIRTEENTH, the following terms shall have the meanings hereinafter set forth: (i) “Affiliate” or “Associate” shall have the respective meanings ascribed to such terms in the General Rules and Regulations under the Securities Exchange Act of 1934 as in effect on January 1, 1985. (ii) A person shall be a “Beneficial Owner” of any Voting Stock: (A) which such person or any of its Affiliates or Associates beneficially owns, directly or indirectly; or (B)which such person or any of its Affiliates or Associates has (1) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (2) the right to vote pursuant to any agreement, arrangement or understanding; or (C)which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock. (iii) “Continuing Director” shall mean any member of the Board of Directors of the Corporation who is unaffiliated with, and not a nominee of, any Interested Stockholder and was a member of the Board of Directors prior to the time that any Interested Stockholder became an Interested Stockholder and any successor of a Continuing Director who is unaffiliated with, and not a nominee of, any Interested Stockholder and is designated to succeed a Continuing Director by two-thirds of the Continuing Directors then on the Board of Directors. (iv) “Interested Stockholder” shall mean any person (other than the Corporation or any Subsidiary) who or which: (A) is the Beneficial Owner, directly or indirectly, of more than 10 percent of the voting power of the then outstanding Voting Stock; or (B)is an Affiliate of the Corporation and at any time within the two-year period immediately prior to the date in question, became the Beneficial Owner, directly or indirectly, of more than 10 percent of the voting power of the then outstanding Voting Stock; or (C)is an assignee of or has otherwise succeeded to any shares of Voting Stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Interested Stockholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. For the purpose of determining whether a person is an Interested Stockholder pursuant to this Article THIRTEENTH, Section (e)(iv), the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned through application of Section (e)(ii) of this Article THIRTEENTH but shall not include any other shares of Voting Stock which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. (v) A “person” shall mean any individual, firm, partnership, trust, corporation or other entity. (vi) “Subsidiary” means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Interested Stockholder set forth in Section (e)(iv) of this Article THIRTEENTH, the term “Subsidiary” shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation. (vii) “Voting Stock” shall mean each share of stock of the Corporation generally entitled to vote in elections of directors. The Continuing Directors of the Corporation shall have the power and duty to determine, on the basis of information known to them after reasonable inquiry, all facts necessary to determine the applicability of the various provisions of this Article THIRTEENTH, including (A) whether a person is an Interested Stockholder, (B) the number of shares of Voting Stock beneficially owned by any person, and (C) whether a person is an Affiliate or Associate of another. Any such determination made in good faith shall be binding and conclusive on all parties. (f) Capitalized terms used and not defined in Article FOURTEENTH or in Article SIXTEENTH of the Certificate of Incorporation which are defined in Section (e) of this Article THIRTEENTH shall have the meanings, for purposes of Article FOURTEENTH and Article SIXTEENTH of the Certificate of Incorporation, ascribed to such terms in Section (e) of this Article THIRTEENTH. FOURTEENTH. The Board of Directors, in evaluating any proposal by another party to (a) make a tender or exchange offer for any securities of the Corporation, (b) effect a Business Combination (as defined in Article TWELFTH),merger, consolidation or other business combination of the Corporation or (c) effect any other transaction having an effect upon the properties, operations or control of the Corporation similar to a tender or exchange offer or Business Combination for any securities of the Corporation or a merger, consolidation or other business combination of the Corporation, as the case may be, whether by an Interested Stockholder (as defined in Article TWELFTH) or otherwise, may, in connection with the exercise of its judgment as to what is in the best interests of the Corporation and its stockholders, give due consideration to the following: (i) the consideration to be received by the Corporation or its stockholders in connection with such transaction in relation not only to the then current market price for the outstanding capital stock of the Corporation, but also to the market price for the capital stock of the Corporation over a period of years, the estimated price that might be achieved in a negotiated sale of the Corporation as a whole or in part through orderly liquidation, the premiums over market price for the securities of other corporations in similar transactions, current political, economic and other factors bearing on securities prices and the Corporation’s financial condition, future prospects and future value as an independent Corporation; (ii) the character, integrity and business philosophy of the other party or parties to the transaction and the management of such party or parties; (iii) the business and financial conditions and earnings prospects of the other party or parties to the transaction, including, but not limited to, debt service and other existing or likely financial obligations of such party or parties, the intention of the other party or parties to the transaction regarding the use of the assets of the Corporation to finance the acquisition, and the possible effect of such conditions upon the Corporation and its Subsidiaries and the other elements of the communities in which the Corporation and its Subsidiaries operate or are located; (iv) the projected social, legal and economic effects of the proposed action or transaction upon the Corporation or its Subsidiaries, its employees, suppliers, customers and others having similar relationships with the Corporation, and the communities in which the Corporation and its Subsidiaries do business; (v) the general desirability of the continuance of the Corporation as an independent entity; and (vi) such other factors as the Continuing Directors may deem relevant. FIFTEENTH. [RESERVED]Notwithstanding anything to the contrary contained in this Certificate of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that a lesser percentage may be specified by law, this Certificate of Incorporation or the By-Laws of the Corporation), the affirmative vote of the holders of at least four-fifths of the voting power of the then outstanding Voting Stock shall be required to amend, alter, change or repeal, or to adopt any provision inconsistent with, Articles TWELFTH, THIRTEENTH, FOURTEENTH, FIFTEENTH and SIXTEENTH of this Certificate of Incorporation, provided that such four-fifths vote shall not be required for any amendment, alteration, change or repeal recommended to the stockholders by two-thirds of the Continuing Directors, as defined in Article TWELFTH. FURTHER RESOLVED, that the Board of Directors hereby directs that this resolution and above proposed amendmentamendments be attached as an exhibit to the proxy statement for the Company's nextCorporation’s 2010 Annual or Special Meeting of Stockholders for consideration by the stockholders entitled to vote in respect thereof.
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EXHIBIT C
- --------------------------------------------------------------------------------
MDU Resources Group, Inc.
Statementthereof;FURTHER RESOLVED, that upon approval of Policy
Director Independence Standards
I.
Policy
Itthe proposed amendments to the Restated Certificate of Incorporation by the stockholders, the proper officers of the Corporation be, and each of them hereby is, authorized and directed to file a Certificate of Amendment to the senseCorporation’s Restated Certificate of this Board that the expertise and perspective of
independent directors is of great value and benefit to MDU Resources Group, Inc.
("MDU") and its stockholders. Accordingly, and in keeping Incorporation with the other high
standardsSecretary of corporate governance which this Board has established for itself,
the listing standardsState of the New York Stock Exchange, and laws and regulations
applicableState of Delaware, to MDU, this Board establishesamend the following guidelinesCorporation’s Registration Statement on director
independence and for determining whether its members are independent.
II.
Director Independence - General
The Board believes that a substantial majority of its members should
satisfy these standards for independence.
No director may be deemed independent unlessForm 8-A relating to the Board affirmatively
determines, after due deliberation, that the director has no material
relationship with MDU either directly or as a partner, shareholder or officer of
an organization that has a relationship with MDU. In each case, the Board shall
broadly consider all the relevant facts and circumstances and shall apply these
standards. Trivial or de minimis affiliations or connections to MDU by a
director or his or her immediate family will not generally be cause for the
Board to determine that the director is not independent. In addition a director
is not independent if:
(1) The director is, or has been within the last three years, an employee, or
has an immediately family member who is, or has been within the last three
years, an executive officer, of MDU.
(2) The director has received, or has an immediate family member who has
received, during any twelve month period within the last three years, more
than $100,000 in direct compensation from MDU, other than director and
committee fees and pension or other forms of deferred compensation for
prior service (provided such compensation is not contingent in any way on
continued service).
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(3) (A) The director or an immediate family membercommon stock of the director is a
current partner of a firm that is MDU's internalCorporation, and to file any and all other documents and to take any and all such further action as they deem necessary or external auditor; (B)
the director is a current employee ofappropriate to reflect such a firm; (C) the director has an
immediate family member who is a current employee of such a firm and who
participates in the firm's audit, assurance or tax compliance (but not tax
planning) practice; or (D) the director or an immediate family member of
the director was within the last three years (but is no longer) a partner
or employee of such a firm and personally worked on MDU's audit within
that time.
(4) The director or an immediate family member of the director is, or has been
within the last three years, employed as an executive officer of another
company where any of MDU's present executive officers at the same time
serves or served on that company's compensation committee.
(5) The director is a current employee, or an immediate family member is a
current executive officer, of a company that has made payments to, or
received payments from, MDU for property or services in an amount which in
any of the last three fiscal years exceeds the greater of $1 million, or
2% of such other company's consolidated gross revenues. In applying the
foregoing, both the payments and the consolidated gross revenues to be
measured will be those reported in the last completed fiscal year.
Contributions to tax exempt organizations are not considered "payments"
for purposes of this paragraph 5.
Relationships involving a director's affiliation with another company that
account for lesser amounts than those specified in this paragraph 5 will
not be considered to be material relationships that would impair the
director's independence, provided that the related payments for goods and
services or in connection with other contractual arrangements (i) are made
in the ordinary course of business and on substantially the same terms as
those prevailing at the time for comparable transactions with
non-affiliated parties, or (ii) involve the rendering of services as a
public utility at rates or charges fixed in conformity with law or
governmental authority.
(6) The director (or an immediate family member of the director) serves as an
officer, director or trustee for a not-for-profit organization, and,
within the organization's preceding three fiscal years, MDU's
discretionary contributions in any single year to the organization exceed
2% of that organization's consolidated gross revenues, or $1 million,
whichever is greater. MDU's automatic matching of employee charitable
contributions will not be included in the amount of MDU's contributions
for purposes of this paragraph (6).
(7) The director is (or is affiliated with an organization that is) a
significant advisor, counsel or consultant to MDU.
(8) The ownership of stock of MDU by directors is encouraged and substantial
stock ownership (not involving control) will not affect the independence
status of a director.
For purposes of Section II(3) of this policy only, "immediate family
member" means a director's spouse, minor child or stepchild, or an adult child
or stepchild sharing a home with the director. As used elsewhere in this policy,
the term "immediate family member" includes a
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person's spouse, parents, children, siblings, mothers and fathers-in-law, sons
and daughters-in-law, brothers and sisters-in-law, and anyone (other than
domestic employees) who shares such person's home.
The Board will annually review the commercial, industrial, banking,
consulting, legal, accounting and charitable (and other non-profit)
relationships between MDU's directors and the organizations with which they and
the members of their immediate families have material interests. For
relationships that are either not covered by or do not satisfy these guidelines,
the determination of whether the relationship is material or not, and therefore
whether the director would be independent or not, shall be made by the directors
satisfying the independence guidelines.
III.
Director Independence - Audit Committee Members
No director who is a member of the Audit Committee of the Board may accept
any consulting, advisory or compensatory fee from MDU, or from any of its
subsidiary companies, other than in that director's capacity as a member of the
Board or any of the Board's several committees.
In addition, no director who is a member of the Audit Committee may be an
affiliated person of MDU or any of its subsidiary companies apart from
affiliation occasioned by the director's service as a member of the Board or any
of the Board's several committees. A director would be deemed an affiliated
person of MDU if that director directly or indirectly, through one or more
intermediaries, controls, or is controlled by, or is under common control with
MDU.
IV.
Approval, Adoption, Amendment and Restatement
This Statement of Policy of the Board of Directors of MDU was approved and
adopted by resolution of the Board of Directors of MDU at a meeting thereof held
the 13th day of August, 2003, and was amended and restated the 17th day of
February, 2005.
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[LOGO]
amendments.
MDU RESOURCES GROUP, INC.
ANNUAL MEETING OF STOCKHOLDERS
Tuesday, April 24, 2007
27, 2010 11:00 a.m. Central Daylight SavingsSaving Time
909 Airport Road Bismarck, ND
If you consented to access the Annual Report to Stockholders and
Proxy Statement via the Internet, these documents may be viewed
by going to the MDU Resources Group, Inc. website.
The website address is: www.mdu.com/2007-proxy.html
If you would like to access the proxy materials electronically next year
go to the following Consent site address: www.econsent.com/mdu/
[MDU RESOURCES LOGO]
1200 WEST CENTURY AVENUE
MAILING ADDRESS:
P.O. BOX 5650 BISMARCK, ND 58506-5650
(701) 530-1000
PROXY
================================================================================
| | | 1200 West Century Avenue Mailing Address: P.O. Box 5650 Bismarck, ND 58506-5650 (701) 530-1000 | proxy |
This proxy is solicited on behalf of the Board of Directors for the Annual Meeting of Stockholders on April 24, 2007.
27, 2010.
This proxy will also be used to provide voting instructions to New York Life Trust Company, as Trustee of the MDU Resources Group, Inc. 401(k) Retirement Plan, for any shares of Company common stock held in the plan.
The undersigned hereby appoints Harry J. Pearce and Paul K. Sandness and each of them, proxies, with full power of substitution, to vote all Common Stock of the undersigned at the Annual Meeting of Stockholders to be held at 11:00 a.m., Central Daylight SavingsSaving Time, April 24, 2007,27, 2010, at 909 Airport Road, Bismarck, ND, and at any adjournment(s) thereof, upon all subjects that may properly come before the meeting, including the matters described in the Proxy Statement furnished herewith, subject to any directions indicated on the reverse side. Your vote is important! Ensure that your shares are represented at the meeting. Either (1) submit your proxy by touch-tone telephone, (2) submit your proxy by Internet or (3) mark, date, sign and return this letter proxy card in the envelope provided (no postage is necessary if mailed in the United States). If no directions are given, the proxies will vote in accordance with the Directors'Directors’ recommendation on all matters listed on this proxy, and at their discretion on any other matters that may properly come before the meeting.
See reverse for voting instructions.
==================
COMPANY #
==================
There are three ways to vote your Proxy
Your telephone or Internet vote authorizes the Named Proxies to vote your shares
in the same manner as if you marked, dated, signed and returned your proxy card.
VOTE BY PHONE - - TOLL FREE - - 1-800-560-1965 - - QUICK*** EASY*** IMMEDIATE
- - Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a
week, until 12:00 noon (CDT) on Monday, April 23, 2007.
- - Please have your proxy card and the last four digits of your Social Security
Number or Tax Payer Identification Number available.
- - Follow the simple instructions the Voice provides you.
VOTE BY INTERNET - - www.eproxy.com/mdu/ - - QUICK*** EASY*** IMMEDIATE
- - Use the Internet to vote your proxy 24 hours a day, 7 days a week, until
12:00 noon (CDT) on Monday, April 23, 2007.
- - Please have your proxy card and the last four digits of your Social Security
Number or Tax Payer Identification Number available. Follow the simple
instructions to obtain your records and create an electronic ballot.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope
we've provided or return it to MDU Resources Group, Inc., c/o Shareowner
Services (SM), P.O. Box 64873, St. Paul, MN 55164-0873.
| Address Change? Mark Box to the right and indicate changes below o | COMPANY # | | | ADDRESS BLOCK |
| Vote by Internet, Telephone or Mail 24 Hours a Day, 7 Days a Week Your phone or Internet vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed and returned your proxy card. |
| | INTERNET – www.eproxy.com/mdu Use the Internet to vote your proxy until 12:00 p.m. (CDT) on Monday, April 26, 2010. | | | PHONE – 1-800-560-1965 Use a touch-tone telephone to vote your proxy until 12:00 p.m. (CDT) on Monday, April 26, 2010. | | | MAIL – Mark, sign and date your proxy card and return it in the postage-paid envelope provided, or return it to MDU Resources Group, Inc., c/o Shareowner Services, P.O. Box 64873, St. Paul, MN 55164-0873. |
If you vote by Phone or Internet, please do not mail your Proxy Card.
v
Please detachfold here v
– Do not separate
The Board of Directors Recommends a Vote "FOR"“FOR” all Nominees,
"FOR"nominees and “FOR” Items 2, 3, and 4, and "AGAINST" Item 5.
1. | Election of directors: | | | | | | | | | | | | FOR | AGAINST | ABSTAIN | | | | FOR | AGAINST | ABSTAIN | | | | | | | | | | | | 01. | Thomas Everist | o | o | o | | 06. | Thomas C. Knudson | o | o | o | 02. | Karen B. Fagg | o | o | o | | 07. | Richard H. Lewis | o | o | o | 03. | Terry D. Hildestad | o | o | o | | 08. | Patricia L. Moss | o | o | o | 04. | A. Bart Holaday | o | o | o | | 09. | Harry J. Pearce | o | o | o | 05. | Dennis W. Johnson | o | o | o | | 10. | John K. Wilson | o | o | o |
1. Election2. | Repeal of 01 Terry D. Hildestad 03 John L. Olson [ ] Vote FOR [ ] Vote
directors: all WITHHELD
02 Dennis W. Johnson 04 John K. Wilson nominees from all
(except as nominees
indicated
below)
==============================
(Instructions: To withhold authority to vote for any indicated nominee,
write the number(s) of the nominee(s) in the box provided to the right.)
==============================
2. Amend Article FOURTHarticle TWELFTH of our restated certificate of [ ] For [ ] Against [ ] Abstain
incorporation, relating to increasebusiness combinations with interested stockholders, and related amendments. | | | |
3. | Repeal of article FIFTEENTH of our authorized sharesrestated certificate of common stock
3. Amend Articleincorporation, which contains supermajority vote requirements. | | | | 4. | Repeal of section (c) of article THIRTEENTH of our restated certificate of [ ] For [ ] Against [ ] Abstain
incorporation, to declassify our board ofwhich provides that directors 4. may be removed only for cause. | | | | | | | | | 5. | Ratification of Deloitte & Touche LLP as our independent [ ] For [ ] Against [ ] Abstain
auditors for 2007
5. Stockholder2010. | | | |
The Board of Directors Recommends a Vote “AGAINST” Item 6.
6.Stockholder proposal requesting sustainabilitya report [ ] on coal combustion waste. | | | o Abstain
This Proxy when properly executed will be voted as directed or, if no direction
is given, will be voted FOR each Director, FOR Items 2, 3 and 4 and AGAINST Item
5.
Address Change? Mark Box [ ] Indicate changes below: |
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED FOR ALL NOMINEES, FOR ITEMS 2, 3, 4, AND 5, AND AGAINST ITEM 6.
Date _________________________
_______________________________
_______________________________
Signatures(s)____________________________________________________________________ | Signature(s) in box
Box
Please sign exactly as your name(s) appearappears on Proxy. If held in joint tenancy, all persons mustshould sign. Trustees, administrators,administrators, etc., should include title and authority. Corporations should provide full name of corporation and title of authorized officer signing the proxy.
Proxy. |
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