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                                                                 Exhibit 10(b)

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                                 MINNESOTA POWER

                                DIRECTOR LONG-TERM

                               STOCK INCENTIVE PLAN


                                Effective 01/01/96




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                                 MINNESOTA POWER
                     DIRECTOR LONG-TERM STOCK INCENTIVE PLAN


 
1.      Establishment, Purpose and Duration
 
        1     Establishment of the Plan.  Minnesota Power & Light Company,
a  Minnesota  corporation  (hereinafter  referred to as the  "Company"),  hereby
establishes  an  outside  director  plan to be  known  as the  "Minnesota  Power
Director  Long-Term  Stock  Incentive  Plan"  (hereinafter  referred  to as  the
"Plan"),  as set forth in this  document.  The Plan  provides for the  automatic
grant of Stock Options and Performance Shares to non-employee directors.

        The Plan shall become  effective as of January 1, 1996 (the  "Effective
Date"),  subject to shareholder approval, and shall remain in effect as provided
in Section 1.3 herein.
 
        2     Purpose of the Plan.  The  purpose of the Plan is to promote
the  success  and  enhance  the value of the  Company  by linking  the  personal
interests  of directors  to those of Company  shareholders.  The Plan is further
intended to assist the Company in its  ability to  motivate,  attract and retain
highly qualified individuals to serve as directors of the Company.
 
        3     Duration  of the  Plan.  The  Plan  shall  commence  on the
Effective Date, as described in Section 1.1 herein,  and shall remain in effect,
subject to the right of the Board of Directors to terminate the Plan at any time
pursuant  to Article 12 herein,  until all Shares  subject to it shall have been
purchased or acquired according to the Plan's provisions.  However,  in no event
may a Grant be made  under  the Plan on or after the  tenth  anniversary  of the
Effective Date.
 
        4     Long-Term  Incentive  Plan. The Company has  previously  made
grants to outside directors under the Directors' Long-Term Incentive Plan, which
provides for maximum award  opportunities  of 600 shares of Company common stock
every  other year.  The terms of this plan are set forth in Annex A hereto.  One
performance period (1994-1997) is still running under this plan, although no new
performance  period will commence in 1996. On and after the Effective  Date, the
shares relating to the existing performance period shall be deemed to be covered
by this Plan and shall be counted  against the number of shares  available under
this Plan,  and their  grant and the  performance  goals shall be deemed to have
been approved by Company shareholders by their approval of this Plan.


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2.      Definitions

        Whenever used in the Plan, the following  terms shall have the meanings
set forth below and,  when such meaning is intended,  the initial  letter of the
word is capitalized:
 
        1     "Board" or "Board of Directors" means the Board of Directors of
 the Company.
 
        2     "Change in Control"  of the Company  shall be deemed to have
occurred as of the first day that any one or more of the  following conditions
shall have been satisfied:

        (a)    the dissolution or liquidation of the Company;
 
        (b)    a reorganization,   merger  or  consolidation  of  the Company
               with one or more unrelated corporations, as a result of which the
               Company is not the surviving corporation;
 
        (c)    the sale,  exchange,  transfer  or other  disposition of shares
               of the common stock of the Company (or shares of the stock of any
               person  that  is a  shareholder  of the  Company)  in one or more
               transactions,  related  or  unrelated,  to  one or  more  Persons
               unrelated  to the Company  if, as a result of such  transactions,
               any  Person  (or any  Person  and its  affiliates) owns more than
               twenty  percent  (20%) of the  voting  power  of the  outstanding
               common stock of the Company; or
 
        (d)    the sale of all or substantially all the assets of the Company.
 
        3      "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
 
        4      "Committee" means the committee,  as specified in
Article 3, appointed by the Board to administer the Plan with respect to Grants.
 
        5      "Company" means Minnesota Power & Light Company, a Minnesota
corporation, or any successor thereto as provided in Article 15 herein.
 
        6      "Director"  means  any  individual  who is a member of the
Board of  Directors  of the Company.
 
        7      "Dividend Equivalent" means, with respect to Shares subject to
Performance  Shares, a right to be paid an amount equal to any and all dividends
declared on an equal number of outstanding Shares.

        8      "Employee" means any full-time  employee of the Company or of the
Company's  Subsidiaries,  who  is  not  covered  by  any  collective  bargaining
agreement to which the Company or any of its Subsidiaries is a party.  Directors
who are not otherwise employed by the Company shall not be considered  Employees
under the Plan.

                                       2
<PAGE>
        9     "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor act thereto.

        10    "Exercise Period" means the period during which an Option is
exercisable, as set forth in the related Grant Agreement.
 
        11    "Fair Market Value" means the closing sale  price as reported in
the  composite  reporting  system or, if there was no such sale on the  relevant
date, then on the last previous day on which a sale was reported.
 
        12    "Grant" means, individually or collectively, a grant under the
Plan of Stock  Options  and  Performance  Shares  and the grant  made  under the
Directors' Long-Term Incentive Plan referred to in Section 1.4 herein.
 
        13    "Grant  Agreement" means an agreement  entered into by each
Participant and the Company,  setting forth the terms and provisions  applicable
to a Grant made to a Participant under the Plan.
 
        14    "Insider" means an Employee who is, on the relevant date, an
officer,  director or ten percent (10%)  beneficial owner of the common stock of
the Company, as defined under Section 16 of the Exchange Act.
 
        15     "Option or "Stock Option" means an option to purchase Shares,
granted under Article 6 herein.

        16     "Option Price" means the price at which a Share may be purchased
by a Participant pursuant to an Option, set forth in the Grant Agreement.

        17     "Participant" means any person who is elected or appointed to
the Board of Directors of the Company and who is not an Employee.

        18     "Performance Period" means the time period during which
performance goals must be met.

        19     "Performance Share" means a Grant made to a Participant, as
described in Article 7 herein.

        20     "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act, as used in Sections 13(d) and 14(d) thereof
including usage in the definition of a "group" in Section 13(d) thereof.

        21     "Plan Year" means the period commencing on the Effective Date of
the Plan and ending the next following December 31 and thereafter the calendar
year.

                                       3
<PAGE>
 
        22     "Retirement" means resignation from the Board upon reaching
retirement  age, or otherwise  resigning or not standing for reelection with the
approval of the Board.

        23     "Shares" means the shares of common stock of the Company,
without par value.

        24     "Subsidiary" means any corporation that is a "subsidiary
corporation"  of the  Company as that term is  defined in Section  424(f) of the
Code.

3.      Administration
 
        1     The Committee. The Plan shall be administered by a committee (the
"Committee")  appointed by the Board  consisting  of not less than three persons
who are not eligible to  participate  in the Plan.  The members of the Committee
shall be appointed  from time to time by, and shall serve at the  discretion of,
the Board of  Directors.  Members  of the  Committee  need not be members of the
Board.
 
        2     Authority of the  Committee.  The Committee shall have full power
except as limited by law,  the Articles of  Incorporation  and the Bylaws of the
Company,  subject to such other restricting  limitations or directions as may be
imposed by the Board and  subject to the  provisions  herein,  to  construe  and
interpret the Plan and any  agreement or instrument  entered into under the Plan
and  to  establish,  amend  or  waive  rules  and  regulations  for  the  Plan's
administration. Further, the Committee shall make all other determinations which
may be necessary or advisable for the  administration  of the Plan. As permitted
by law, the Committee may delegate its authorities as identified hereunder.
 
        3     Decisions Binding.  All determinations and decisions made by the
Committee  pursuant  to the  provisions  of the Plan and all  related  orders or
resolutions of the Board shall be final,  conclusive and binding on all persons,
including the Company, its shareholders,  the Participants and their estates and
beneficiaries.
 
        4     Costs. The Company shall pay all costs of administration of the
Plan.
 
4.      Shares Subject to the Plan
 
        1     Number of Shares. Subject to Section 4.2 herein, the maximum
number of Shares  available  for grant under the Plan shall be one hundred fifty
thousand  (150,000).  Shares underlying lapsed or forfeited grants may be reused
for other grants.  Shares may be (i)  authorized  but unissued  shares of common
stock or (ii) shares purchased on the open market.

                                       4

<PAGE>
 
        2     Adjustments in Authorized Shares.  In the event of any merger,
reorganization, consolidation,  recapitalization, separation, liquidation, stock
dividend, split-up, share combination or other change in the corporate structure
of the Company affecting the Shares, such adjustment shall be made in the number
and class of Shares which may be delivered under the Plan, and in the number and
class of and/or  price of Shares  subject to  outstanding  Grants made under the
Plan, as may be determined to be appropriate and equitable by the Committee,  in
its sole  discretion,  to prevent  dilution or enlargement of rights;  provided,
however,  that the number of Shares subject to any Grant shall always be a whole
number.

 
5.      Eligibility and Participation

        Persons eligible to participate in the Plan are any persons elected or
appointed to the Board of Directors of the Company, who are not Employees.

 
6.      Stock Options
 
        1     Grant of  Options.  On the  first business  day  after  the
Effective  Date and on each January 2nd thereafter (or on the first business day
thereafter if January 2nd is not a business  day),  725 Options shall be granted
to each Participant.
 
        2     Option Grant Agreement. Each Option grant shall be evidenced by
an Option Grant  Agreement that shall specify the Option Price,  the duration of
the Option,  the number of Shares to which the Option  pertains and the Exercise
Period.
 
        3     Option  Price.  The Option Price for each Option grant under the
Plan shall be the Fair Market Value of a Share on the date of grant.
 
        4     Duration of Options.  Each Option  shall  expire on the tenth
anniversary of the date of grant.

        5     Exercise  Period and  Exercise.  50% of the Options shall become
exercisable on the first  anniversary of the date of grant; the remaining 50% of
the Options shall become  exercisable  on the second  anniversary of the date of
grant.
 
        Subject to the  provisions of Article 8 herein, a Participant may
exercise  an Option at any time during the  Exercise  Period.  Options  shall be
exercised  by the  delivery  of a written  notice of  exercise  to the  Company,
setting  forth the  number of Shares  with  respect to which the Option is to be
exercised, accompanied by provisions for full payment for the Shares.

                                       5

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        The Option  Price upon  exercise of any Option  shall be payable to the
Company  in  full  either  (a) in  cash  or  its  equivalent,  (b) by  tendering
previously  acquired Shares having an aggregate Fair Market Value at the time of
exercise  equal to the total  Option Price  (provided  that the Shares which are
tendered  must  have been held by the  Participant  for at least six (6)  months
prior to their tender to satisfy the Option  Price),  (c) by share  withholding,
(d) by cashless exercise or (e) by a combination of (a), (b) (c) and/or (d).
 
        As soon as  practicable  after  receipt  of a written  notification  of
exercise of an Option and  provisions  for full  payment  therefor,  the Company
shall deliver to the Participant,  in the Participant's name, Share certificates
in an  appropriate  amount based upon the number of Shares  purchased  under the
Option(s).

 
7.      Performance Shares
 
        1     Grant of Performance Shares. On the first business day after the
Effective  Date and on every  second  January  2nd  thereafter  (or on the first
business  day  thereafter,  if January 2nd is not a business  day),  Performance
Shares,  equal in number to $10,000 divided by the Fair Market Value for a Share
on the date of Grant, shall be granted to each Participant.
 
        2     Dividend  Equivalents.  The  Participant  shall also
receive Dividend  Equivalents  with respect to the number of Performance  Shares
subject to the Grant.  The  Dividend  Equivalents  credited on each common stock
ex-dividend  date  during  the  Performance  Period  shall  be in  the  form  of
additional  Performance  Shares,  shall be added to the  number  of  Performance
Shares  subject  to the Grant and shall  equal the  number of Shares  (including
fractional Shares) that could be purchased on the ex-dividend date, based on the
closing sale price as reported in the consolidated  transaction reporting system
on that date,  with cash  dividends  that  would  have been paid on  Performance
Shares, if such Performance Shares were Shares.
 
        3     Performance Share Grant Agreement. Each grant of Performance
Shares shall be  evidenced by a  Performance  Share Grant  Agreement  that shall
specify  the date of grant,  the number of  Performance  Shares  granted and the
Performance Period. Performance Periods shall end on the December 31st two years
after the date of grant.
 
        Performance  Goals. The Performance Goal for each Performance Period is
total  shareholder  return (defined as stock price  appreciation  plus dividends
reinvested on the ex-dividend date throughout the Performance Period, divided by
the Fair Market Value of a share at the beginning of the Performance Period) for
the Company in comparison to the total  shareholder  return for the 16 companies
set forth in Annex B hereto over the Performance Period.

                                       6
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First Performance Cycle (1996-1997)

                  Threshold              Target               Superior
                  ---------              ------               --------
% Payout          50%                    100%                 200%
Goal              40th percentile        50th percentile      75th percentile


Subsequent Performance Cycles (1998-1999 and thereafter)

                  Threshold              Target               Superior
                  ---------              ------               --------
% Payout          50%                    100%                 200%
Goal              47th percentile        65th percentile      88th percentile

 
        No awards will be paid if the  threshold  percentiles  are not  reached.
Earned awards will range from 50% up to 200% of the number of Performance Shares
granted (as  increased by the  Dividend  Equivalents),  based on the  percentile
reached.  Straight  line  interpolation  will be used for results  between those
specified, rounded down to the nearest whole Share.
 
        If any  company  listed on Annex B hereto no longer  exists,  whether by
merger into another company, dissolution or for any other reason, no replacement
company  shall be named  unless the number of companies  still  remaining on the
list is reduced below 12, in which case the Company's  independent  compensation
consulting firm shall select  replacement  companies to bring the number back to
16.
 
        4     Earning of Performance Shares.  After the applicable Performance
Period has ended,  the holder of Performance  Shares shall receive a payout with
respect to the Performance Shares earned by the Participant over the Performance
Period,  to be determined as a function of the extent to which the corresponding
performance goals have been achieved.

        5     Form and Timing of Payment of Performance Shares. Subject to the
provisions  of  Articles  8 and 11,  50% of any  earned  Performance  Shares (as
increased  by the  Dividend  Equivalents)  shall  be paid  after  the end of the
Performance  Period  promptly  after   determination  of  the  extent  to  which
Performance  Goals have been met. The  remaining  50% of the earned  Performance
Shares (as  increased  by the  Dividend  Equivalents)  shall  continue to accrue
Dividend  Equivalents,  as set forth in Section 7.2 above, until paid out as set
forth in the next sentence.  One-half of the remaining earned Performance Shares
(as  increased  by the  Dividend  Equivalents)  shall be paid  out on the  first
business day in January,  1999. The remaining  Performance Shares shall continue
to accrue  Dividend  Equivalents and shall be paid out on the first business day
in January, 2000.
 
              Payment shall be made in Minnesota Power common stock.

                                       7
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8.      Termination of Director Status
 
        1     Retirement or Death. In the  event a  Participant ceases to be a
Director of the Company by reason of Retirement or death

              (i) before the  Exercise  Period  commences for a Stock Option
              Grant, any Stock Options not yet exercisable  shall become
              exercisable  immediately and may be exercisable in full at
              any time during the one year period after Retirement or death;
 
              (ii) after the Exercise Period commences for a Stock Option Grant,
              such Stock Options may be exercised in full at any time during the
              one year period after  Retirement  or death,  but in no even after
              the Exercise Period has expired;
 
              (iii) during a  Performance  Period for  Performance  Shares,  the
              Participant (or his beneficiary or estate) shall receive a payment
              of any earned  Performance  Shares (as  increased  by the Dividend
              Equivalents),  promptly after determination of the extent to which
              Performance  Goals have been met.  The  payment  shall be prorated
              based upon the number of  complete  and  partial  calendar  months
              within the Performance Period which have elapsed as of the date of
              Retirement  or death in relation to the number of calendar  months
              in the full Performance Period; and

              (iv) after the end of a Performance  Period, but before any or all
              earned  Performance Shares have been paid out, the Participant (or
              his  beneficiary  or estate) shall be entitled to a full payout of
              all  earned  Performance  Shares  (as  increased  by the  Dividend
              Equivalents), which shall be paid promptly after such occurrence.
 
        2     Other.  Except as set forth in Article 11 herein, in the event a
participant ceases to be a director of the Company for any other reason

              (i) all Stock Options not yet exercisable or exercised shall be
              forfeited;

              (ii) all Performance Shares and related Dividend Equivalents
              not yet earned shall be forfeited; and
 
              (iii) all earned Performance Shares (as increased by Dividend
              Equivalents) shall continue to accrue Dividend Equivalents and
              shall be paid out as and when provided in Section 7.6 above.

                                       8
<PAGE>


 
9.      Beneficiary Designation
 
        Each  Participant  under  the Plan  may,  from  time to  time,  name any
beneficiary or beneficiaries  (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid in case of his or her death before
he or she  receives  any or all of such  benefit.  Each such  designation  shall
revoke  all  prior  designations  by the  same  Participant,  shall be in a form
prescribed  by the  Committee  and  will be  effective  only  when  filed by the
Participant in writing with the Committee during the Participant's  lifetime. In
the  absence  of  any  such  designation,   benefits   remaining  unpaid  at the
Participant's death shall be paid to the Participant's estate.

        The spouse of a married  Participant  domiciled in a community  property
jurisdiction shall join in any designation of beneficiary or beneficiaries other
than the spouse.
 
10. Continuation of Directors in Same Status
 
        Nothing in the Plan or any action taken pursuant to the Plan
shall be  construed  as creating or  constituting  evidence of any  agreement or
understanding,  express or implied, that the Company will retain a Director as a
director  or in any other  capacity  for any  period of time or at a  particular
retainer or other rate of  compensation,  as conferring upon any Participant any
legal or other right to continue as a director or in any other  capacity,  or as
limiting,  interfering  with or otherwise  affecting the right of the Company to
terminate a  Participant  in his capacity as a director or otherwise at any time
for any reason,  with or without  cause,  and without  regard to the effect that
such termination might have upon him as a Participant under the Plan.
 
11.     Change in Control

        Upon the occurrence of a Change in Control,  as defined herein,  unless
otherwise specifically prohibited by the terms of Article 16 herein:
 
        (a)     Any and all Options granted hereunder shall become immediately
                exercisable;
 
        (b)     With  respect  to all  outstanding  Grants of  Performance
                Shares, the Committee (i) shall determine the greater of (x) the
                payout at 100% of the number of  Performance  Shares granted for
                the entire  Performance  Period  and (y) the  payout  based upon
                actual  performance for the Performance  Period ending as of the
                effective  date of the Change in  Control,  in either case after
                giving effect to accumulation  of Dividend  Equivalents and (ii)
                shall pay to the  Participants  immediately  the greater of such
                amounts,  in Shares,  prorated based upon the number of complete
                and partial calendar months within the Performance  Period which
                have elapsed as of the  effective  date of the Change in Control
                in  relation  to the  number  of  calendar  months  in the  full
                Performance Period.  However,  there shall not be an accelerated
                payout  under  this  Section  11(b)  with  respect  to Grants of
                Performance  Shares  which  were made  less than six (6)  months
                prior to the effective date of the Change in Control; and
 
                                       9
<PAGE>


 
        (c)    All earned Performance  Shares (as increased by Dividend
               Equivalents) not yet paid out shall be paid out immediately.

 
12.     Amendment, Modification  and Termination
 
        1     Amendment,  Modification and Termination.  The Board may, at
any time and from time to time, alter,  amend,  suspend or terminate the Plan in
whole  or  in  part;  provided,   however,  that  no  amendment  which  requires
shareholder approval in order for the Plan to continue to comply with Rule 16b-3
under the Exchange Act, including any successor to such Rule, shall be effective
unless  such  amendment   shall  be  approved  by  the  requisite  vote  of  the
shareholders  of the  Company  entitled  to vote  thereon.  Notwithstanding  the
foregoing,  any provision of the Plan that either states the amount and price of
securities  to be  issued  under  the  Plan and  specifies  the  timing  of such
issuances,  or sets forth a formula that determines the amount, price and timing
of such issuances,  shall not be amended more than once every six months,  other
than to  comport  with  changes  in the Code,  the  Employee  Retirement  Income
Security Act of 1974, or the rules thereunder.
 
        2     Grants Previously Made.  No termination, amendment or modification
of the Plan shall adversely affect in any material way any Grant previously made
under the Plan,  without the written  consent of the  Participant  holding  such
Grant  unless  such  termination,  modification  or  amendment  is  required  by
applicable law.
 
13.     Restrictions on Share Transferability

        The  Committee  may impose  such  restrictions  on any Shares  acquired
pursuant to the exercise of an Option or the payment of Performance Shares under
the Plan as it may deem advisable,  including, without limitation,  restrictions
to comply with applicable  Federal securities laws, with the requirements of any
stock  exchange or market upon which such Shares are then listed  and/or  traded
and with any blue sky or state securities laws applicable to such Shares.

 
14.     Nontransferability

        No Options or  Performance  Shares  granted under the Plan may be sold,
transferred,  pledged,  assigned, or otherwise alienated or hypothecated,  other
than  by  will  or  by  the  laws  of  descent  and  distribution.   Further,  a
Participant's  rights  under the Plan  shall be  exercisable  during  his or her
lifetime only by such Participant or his or her legal representative.
 
                                       10

<PAGE>
15.     Successors

        All obligations  of the Company under the Plan,  with respect to Grants
made  hereunder,  shall be binding on any successor to the Company,  whether the
existence  of such  successor  is the result of a direct or  indirect  purchase,
merger,  consolidation or otherwise, of all or substantially all of the business
and/or assets of the Company.
 
16.     Legal Construction
 
        1     Gender and Number.  Except where otherwise  indicated by the
context,  any masculine  term used herein also shall  include the feminine,  the
plural shall include the singular and the singular shall include the plural.

        2     Severability.  In the event any provision of the Plan shall
be held illegal or invalid for any reason,  the  illegality or invalidity  shall
not affect the remaining  parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
 
        3     Requirements of Law.  Neither the Plan nor the Company shall
be  obligated  to issue any shares of common  stock  pursuant to the Plan at any
time  unless and until all  applicable  requirements  imposed by any federal and
state  securities  and other  laws,  rules and  regulations,  by any  regulatory
agencies  or by any stock  exchanges  upon which the common  stock may be listed
have been fully met.  As a  condition  precedent  to any  issuance  of shares of
common stock and delivery of certificates evidencing such shares pursuant to the
Plan,  the Board or the  Committee  may  require a  Participant to take any such
action or make any such covenants,  agreements and  representations as the Board
or the  Committee,  as the case may be, in its  discretion  deems  necessary  or
advisable to ensure compliance with such  requirements.  The Company shall in no
event be obligated to register the shares of common stock  deliverable under the
Plan  pursuant  to the  Securities  Act of 1933,  as  amended,  or to qualify or
register such shares under any securities  laws of any state upon their issuance
under the Plan or at any time  thereafter,  or to take any other action in order
to  cause  the  issuance  and  delivery  of such  shares  under  the Plan or any
subsequent offer, sale, or other transfer of such shares to comply with any such
law, regulation or requirement.  Participants are responsible for complying with
all  applicable  federal  and  state  securities  and  other  laws,  rules,  and
regulations in connection with any offer,  sale, or other transfer of the shares
of common stock issued under the Plan or any interest therein including, without
limitation,  compliance with the registration requirements of the Securities Act
of 1933 as amended  (unless an  exception  therefrom is  available)  or with the
provisions of Rule 144 promulgated thereunder,  if applicable,  or any successor
provisions.  Certificates  for  shares of common  stock may be  legended  as the
Committee shall deem appropriate.
 
        Notwithstanding  any other provision set forth in the Plan, if required
by the then-current Section 16 of the Exchange Act, any "derivative security" or
"equity security" offered pursuant to the Plan to any Insider may not be sold or
transferred  within the minimum time limits  specified or required in such rule.
The terms "equity  security" and  "derivative  security" shall have the meanings
ascribed to them in the then-current Rule 16a-1 under the Exchange Act.

                                       11
<PAGE>
 
        4     Securities  Law  Compliance.   With  respect  to  Insiders,
transactions  under  the  Plan  are  intended  to  comply  with  all  applicable
conditions  of the Federal  securities  laws. To the extent any provision of the
Plan or action by the Committee fails to so comply,  it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the Committee.
 
        Governing  Law. To the extent not  preempted  by Federal law,
the Plan, and all agreements  hereunder,  shall be construed in accordance with,
and governed by, the laws of the State of Minnesota.
 .
 .
 .
                                              MINNESOTA POWER



                                              By       E. L. Russell
                                                 ----------------------------
                                                 Its Chief Executive Officer

Attest:


By          Philip R. Halverson
   ----------------------------------------
            Corporate Secretary


                                       12
<PAGE>
 
                                     ANNEX A

                       Directors' Long-Term Incentive Plan

 
                  The plan  awards a maximum  of 600  shares of common  stock to
each  outside  director  if,  over  a  four-year  period  commencing  with  each
even-numbered year, total shareholders return (TSR) equals or exceeds (i) median
TSR compared to a  pre-selected  group of comparable  utilities  (listed  below)
and/or (ii) the 40.0  percentile  TSR  compared to  companies  in the Standard &
Poor's 500. No awards are granted to directors if Company results are below both
of these threshold  performance  levels. The comparison to comparable  utilities
and to the S&P 500 companies is weighted 60% and 40%, respectively.

                  The first comparator group is comprised of:

Midamerican Energy Company
IES Industries, Inc.
Interstate Power Company
Madison Gas & Electric Company
Northern States Power Company
Otter Tail Power Company
Wisconsin Energy Corporation
WPL Holdings, Inc.
Northwestern Public Service Company
Wisconsin Public Service Corporation

                  The second comparator group is the companies comprising the
S&P 500.

                  After  calculation  of the  Company's  TSR ranking  within the
first and second comparator  groups, the schedule below indicates the percent of
the Director's Performance Award Opportunity actually earned.

Utility TSR Ranking
- -------------------
 
              -----------------------------------------------------------------
    1-2            60         68         76          84         92         100
              -----------------------------------------------------------------
     3             48         56         64          72         80          88
              -----------------------------------------------------------------
     4             36         44         52          60         68          76
              -----------------------------------------------------------------
     5             24         32         40          48         56          64
              -----------------------------------------------------------------
     6             12         20         28          36         44          52
              -----------------------------------------------------------------
   7-11             0          8         16          24         32          40
              -----------------------------------------------------------------

                 0-40         50         60          70         80          90

                                     TSR Percentile Ranking in S&P 500
                                     ---------------------------------

                                       13
<PAGE>

         TSR is defined as:

                  TSR = Stock price appreciation + reinvested dividends
                        -----------------------------------------------
                                        Initial stock price

         -        Stock prices for the  beginning  and end of the period are the
                  closing prices on the composite  reporting system on the first
                  and last business days of the period.

         -        Dividends are assumed to be reinvested on the ex-dividend
                  date at the closing stock prices on that date.

         -        Calculation of TSR for the S&P 500 group is based on the
                  companies included in the S&P 500 Index as of the end of the
                  period.

                                       14
<PAGE>


 

                                     ANNEX B



Black Hills Corp.

Central & South West

CILCORP Inc.

Eastern Utilities Assoc.

Florida Progress Corp.

Hawaiian Electric Indust.

Mid American Energy

MDU Resources Group

Montana Power Co.

New England Electric Sys.

PacifiCorp

Potomac Electric Power

Public Service Enterprise

SCEcorp

TECO Energy Inc.

UtiliCorp United, Inc.

                                       15








