UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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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MDU Resources Group, Inc.
Long-Term Performance-Based Incentive Plan
Talking Points for Calls to Stockholders
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At the Annual Meeting of Stockholders scheduled for Tuesday, April 25, 2006, the
Board of Directors of MDU is asking stockholders to approve amendments to the
1997 Executive Long-Term Incentive Plan to (i) change the name of the plan to
the "Long-Term Performance-Based Incentive Plan", (ii) extend the term of the
plan until such time as all shares subject to the plan have been issued
according to the terms of the plan, (iii) add minimum vesting requirements for
full value awards (i.e., awards other than stock options or stock appreciation
rights) and (iv) make other non-material changes.
These talking points are being provided to MDU management on March 31, 2006 for
use in soliciting stockholders for proxies to vote in favor of the Board's
proposal.
Purpose and Background
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o Glass Lewis & Co., a leading investment research and proxy advisory firm
serving institutional investors, evaluated the proposal to amend the plan,
including the plan's cost, and recommended that its clients vote "for" the
amended plan.
o Glass Lewis evaluated the amended plan in light of several metrics and
found:
o That the likely annual cost of the amended plan is within one standard
deviation of the average cost of similar programs for all financial
metrics tested.
o That the percentage of the plan's cost to the Company's enterprise
value is within one standard deviation of the average of the same
metric for the Company's peers and that the plan is less expensive
than the plans at more than half the peer group companies.
o That the likely future grants under the plan per employee are within
one standard deviation of the industry average.
o PROXY Governance, Inc., an independent proxy advisory and voting firm, also
analyzed the amended plan and recommended that its clients vote "for" the
proposal. It concluded that the Company's executive compensation appeared
reasonable compared to peers and given the Company's relative financial
performance. It supported the amended plan as part of the Company's overall
compensation structure, which it found to be reasonable and clearly
disclosed.
o Institutional Shareholder Services (ISS), another proxy advisory firm, has
recommended that its clients vote "against" the amended plan, primarily
based on its calculation that the cost of the amended plan exceeds the
Company's allowable cap under ISS's proprietary model.
o ISS calculated the plan's "cost" using a Shareholder Value Transfer
(SVT) metric to be 5.74% of market value, which exceeds the Company's
allowable cap of 5.0%.
o The Company disagrees with ISS's recommendation and urges stockholders to
vote "for" the amended plan.
Key Points
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o The plan has been in existence since 1997. The amendments only eliminate
the 2007 termination date, change the plan's name and add minimum vesting
requirements for full value awards. The amendments do not add additional
shares to the existing plan.
o The Company reduced the authorized shares for the plan by 2 million shares
in 2005. Stockholders voted on the plan at the 2005 Annual Meeting for
purposes of Section 162(m) of the Internal Revenue Code, and ISS
recommended that its clients vote "for" the plan at the 2005 Annual
Meeting.
o The plan's dollar cost of 5.74% as calculated by ISS (SVT) is only slightly
greater than the allowable cap of 5.0% (with an even smaller difference as
compared with the 2004 cap of 5.25%).
o In basing its recommendation mainly on the numerical cost calculation, ISS
failed, the Company believes, to consider or give adequate weight to the
following:
o ISS did a three-year "burn rate" analysis to measure how rapidly the
Company uses the shares reserved for its equity compensation plans.
The Company's three year burn rate average was 0.12%, well below ISS's
referenced Industry Burn Rate Cap of 1.56%.
o The Company's stock returns have significantly outperformed ISS's
index comparison as well as the proxy peer group and the S&P 500 (see
page 33 of the proxy statement). The Company's average stock
performance as compared with the Russell 3000 index for corresponding
periods (as of 12/31/2005):
1 Year 3 Year 5 Year
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MDU Resources 25.69% 27.35% 11.89%
Russell 3000 4.28% 13.90 -0.07%
As indicated in the proxy statement (page 32), the Company paid its
named executive officers significantly less than its peers
(approximately $1.6 million per point of stockholder return) for
comparable returns over the five year period 2000-2004.
o Of the 9,253,227 total shares available under the Company's plans (as
of 12/31/2005), 2,195,875 shares (approximately 24%) are attributable
to employee plans and may not be used for executives or directors.
Summary and Recommendation
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o The purpose of the plan is to promote the success and enhance the value of
the Company by linking the personal interests of officers and key employees
to those of the Company's stockholders and customers. The plan is vital to
the Company's ability to motivate, attract and retain highly qualified
individuals to serve as officers and key employees.
o MDU believes that the plan has and will continue to provide for the proper
incentives to key employees to achieve financial results that create
superior stockholder value. The stockholders of MDU Resources have
benefited significantly in both absolute terms as well as in comparison to
other peer companies.
o Based on all of the foregoing, MDU recommends that you vote For amending
MDU's Long-Term Performance-Based Incentive Plan.