<PAGE>
                                                                   EXHIBIT 10(a)
                                            ALLETE Second Quarter 2007 Form 10-Q

================================================================================



                                  ALLETE, INC.



                                   $50,000,000



                       5.99% Senior Notes Due June 1, 2017



                                 --------------



                             NOTE PURCHASE AGREEMENT


                                 --------------



                               Dated June 8, 2007



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                                TABLE OF CONTENTS

                                                                            PAGE


SECTION 1.  AUTHORIZATION OF NOTES.............................................1


SECTION 2.  SALE AND PURCHASE OF NOTES.........................................1


SECTION 3.  CLOSING............................................................1


SECTION 4.  CONDITIONS TO CLOSING..............................................2

     Section 4.1   Representations and Warranties..............................2
     Section 4.2   Performance; No Default.....................................2
     Section 4.3   Compliance Certificates.....................................2
     Section 4.4   Opinions of Counsel.........................................2
     Section 4.5   Purchase Permitted By Applicable Law, Etc...................3
     Section 4.6   Sale of Notes...............................................3
     Section 4.7   Payment of Special Counsel Fees.............................3
     Section 4.8   Private Placement Number....................................3
     Section 4.9   Changes in Corporate Structure..............................3
     Section 4.10  Funding Instructions........................................3
     Section 4.11  Proceedings and Documents...................................3

SECTION 5.  REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................4

     Section 5.1   Organization; Power and Authority...........................4
     Section 5.2   Authorization, Etc..........................................4
     Section 5.3   Disclosure..................................................4
     Section 5.4   Organization and Ownership of Shares of
                     Subsidiaries..............................................4
     Section 5.5   Financial Statements; Material Liabilities..................5
     Section 5.6   Compliance with Laws, Other Instruments, Etc................5
     Section 5.7   Governmental Authorizations, Etc............................6
     Section 5.8   Litigation..................................................6
     Section 5.9   Taxes.......................................................6
     Section 5.10  Title to Property; Leases...................................6
     Section 5.11  Licenses, Permits, Etc......................................6
     Section 5.12  Compliance with ERISA.......................................6
     Section 5.13  Private Offering by the Company.............................7
     Section 5.14  Use of Proceeds; Margin Regulations.........................8
     Section 5.15  Existing Indebtedness; Future Liens.........................8
     Section 5.16  Foreign Assets Control Regulations, Etc.....................8
     Section 5.17  Status under Investment Company Act and ICC
                     Termination Act...........................................9
     Section 5.18  Environmental Matters.......................................9

SECTION 6.  REPRESENTATIONS OF THE PURCHASERS..................................9

     Section 6.1   Purchase for Investment.....................................9
     Section 6.2   Source of Funds.............................................9

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SECTION 7.  INFORMATION AS TO COMPANY.........................................11

     Section 7.1   Financial and Business Information.........................11
     Section 7.2   Officer's Certificate......................................13
     Section 7.3   Visitation.................................................14

SECTION 8.  PAYMENT AND PREPAYMENT OF THE NOTES...............................14

     Section 8.1   Maturity...................................................14
     Section 8.2   Optional Prepayments with Make-Whole Amount................14
     Section 8.3   Change in Control..........................................15
     Section 8.4   Allocation of Partial Prepayments..........................16
     Section 8.5   Maturity; Surrender, Etc...................................16
     Section 8.6   Purchase of Notes..........................................16
     Section 8.7   Make-Whole Amount..........................................17

SECTION 9.  AFFIRMATIVE COVENANTS.............................................18

     Section 9.1   Compliance with Law........................................18
     Section 9.2   Insurance..................................................18
     Section 9.3   Maintenance of Properties..................................18
     Section 9.4   Payment of Taxes and Claims................................19
     Section 9.5   Corporate Existence, Etc...................................19
     Section 9.6   Books and Records..........................................19

SECTION 10. NEGATIVE COVENANTS................................................19

     Section 10.1  Transactions with Affiliates...............................19
     Section 10.2  Merger, Consolidation, Etc.................................20
     Section 10.3  Terrorism Sanctions Regulations............................20
     Section 10.4  Liens......................................................20
     Section 10.5  Maximum Ratio of Funded Debt to Total Capital..............24

SECTION 11. EVENTS OF DEFAULT.................................................24


SECTION 12. REMEDIES ON DEFAULT, ETC..........................................27

     Section 12.1  Acceleration...............................................27
     Section 12.2  Other Remedies.............................................27
     Section 12.3  Rescission.................................................27
     Section 12.4  No Waivers or Election of Remedies, Expenses, Etc..........28

SECTION 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.....................28

     Section 13.1  Registration of Notes......................................28
     Section 13.2  Transfer and Exchange of Notes.............................28
     Section 13.3  Replacement of Notes.......................................29

SECTION 14. PAYMENTS ON NOTES.................................................29

     Section 14.1  Place of Payment...........................................29
     Section 14.2  Home Office Payment........................................29

SECTION 15. EXPENSES, ETC.....................................................30

     Section 15.1  Transaction Expenses.......................................30

                                      -ii-

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     Section 15.2  Survival...................................................30

SECTION 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE
            AGREEMENT.........................................................30


SECTION 17. AMENDMENT AND WAIVER..............................................30

     Section 17.1  Requirements...............................................30
     Section 17.2  Solicitation of Holders of Notes...........................31
     Section 17.3  Binding Effect, etc........................................31
     Section 17.4  Notes Held by Company, etc.................................32

SECTION 18. NOTICES...........................................................32


SECTION 19. REPRODUCTION OF DOCUMENTS.........................................32


SECTION 20. CONFIDENTIAL INFORMATION..........................................33


SECTION 21. SUBSTITUTION OF PURCHASER.........................................34


SECTION 22. MISCELLANEOUS.....................................................34

     Section 22.1  Successors and Assigns.....................................34
     Section 22.2  Payments Due on Non-Business Days..........................34
     Section 22.3  Accounting Terms...........................................34
     Section 22.4  Severability...............................................34
     Section 22.5  Construction, etc..........................................35
     Section 22.6  Counterparts...............................................35
     Section 22.7  Governing Law..............................................35

                                     -iii-

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SCHEDULE A       --   INFORMATION RELATING TO PURCHASERS

SCHEDULE B       --   DEFINED TERMS

SCHEDULE 5.4     --   Subsidiaries of the Company and Ownership of
                      Subsidiary Stock

SCHEDULE 5.15    --   Existing Indebtedness

EXHIBIT 1        --   Form of 5.99% Senior Note due June 1, 2017

EXHIBIT 4.4(a)   --   Form of Opinion of Deborah A. Amberg, Senior Vice
                      President, General Counsel and Secretary of
                      ALLETE, INC.

EXHIBIT 4.4(b)   --   Form of Opinion of Thelen Reid Brown Raysman &
                        Steiner LLP

EXHIBIT 4.4(c)   --   Form of Opinion of Chapman and Cutler LLP


                                      -iv-

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                                  ALLETE, INC.
                             30 West Superior Street
                             Duluth, Minnesota 55802


                       5.99% Senior Notes due June 1, 2017


                                                                    June 8, 2007
TO EACH OF THE PURCHASERS LISTED IN
        SCHEDULE A HERETO:


Ladies and Gentlemen:

     ALLETE, Inc., a Minnesota corporation (the "COMPANY"),  agrees with each of
the purchasers  whose name appears at the end hereof (each,  a "PURCHASER"  and,
collectively, the "PURCHASERS") as follows:

SECTION 1.  AUTHORIZATION OF NOTES.

     The Company  will  authorize  the issue and sale of  $50,000,000  aggregate
principal  amount of its 5.99% Senior Notes due June 1, 2017 (the "NOTES",  such
term to include  any such notes  issued in  substitution  therefor  pursuant  to
Section 13). The Notes shall be  substantially in the form set out in Exhibit 1,
with such changes therefrom,  if any, as may be approved by you and the Company.
Certain  capitalized  and other  terms  used in this  Agreement  are  defined in
Schedule B; and references to a "SCHEDULE" or an "EXHIBIT" are, unless otherwise
specified, to a Schedule or an Exhibit attached to this Agreement.

SECTION 2.  SALE AND PURCHASE OF NOTES

     Subject to the terms and  conditions  of this  Agreement,  the Company will
issue and sell to each  Purchaser  and each  Purchaser  will  purchase  from the
Company, at the Closing provided for in Section 3, Notes in the principal amount
specified  opposite such Purchaser's name in Schedule A at the purchase price of
100% of the principal amount thereof. The Purchasers'  obligations hereunder are
several and not joint  obligations  and no Purchaser shall have any liability to
any Person for the performance or non-performance of any obligation by any other
Purchaser hereunder.

SECTION 3.  CLOSING

     The sale and purchase of the Notes to be purchased by each Purchaser  shall
occur at the  offices of Thelen  Reid  Brown  Raysman & Steiner  LLP,  875 Third
Avenue,  New York,  New York 10022,  at 10:00 a.m.,  New York time, at a closing
(the  "CLOSING") on June 8, 2007 or on such other Business Day thereafter as may
be agreed  upon by the Company  and the  Purchasers.  At the Closing the Company
will deliver to each  Purchaser  the Notes to be purchased by such  Purchaser in
the form of a single Note (or such greater number of Notes in  denominations  of
at least  $100,000 as such  Purchaser may request) dated the date of the Closing
and registered in such Purchaser's name (or in the name of its nominee), against
delivery by such Purchaser to the


<PAGE>

Company  or its  order  of  immediately  available  funds in the  amount  of the
purchase price therefor by wire transfer for the account of the Company at Wells
Fargo Bank, San  Francisco,  CA, ABA 121 000 248 for further credit to Minnesota
Power Account  002-0000-364,  Attn: Richard P. Ausman,  218-723-3908.  If at the
Closing the Company shall fail to tender such Notes to any Purchaser as provided
above in this Section 3, or any of the  conditions  specified in Section 4 shall
not have been fulfilled,  such Purchaser shall, at its election,  be relieved of
all further obligations under this Agreement, without thereby waiving any rights
such Purchaser may have by reason of such failure or such nonfulfillment.  If at
the Closing one Purchaser shall fail to purchase the Notes which it is obligated
to  purchase  under this  Agreement,  the  Company  shall have the option (i) of
terminating  its  obligation to sell any and all of the Notes to all  Purchasers
and be relieved  of all further  obligations  under this  Agreement,  or (ii) of
terminating its obligation to sell any Notes only to such  defaulting  Purchaser
and be  relieved  of all  further  obligations  under this  Agreement  only with
respect to such defaulting Purchaser.

SECTION 4.  CONDITIONS TO CLOSING

     Each Purchaser's obligation to purchase and pay for the Notes to be sold to
such Purchaser at the Closing is subject to the fulfillment,  prior to or at the
Closing, of the following conditions:

     SECTION 4.1   REPRESENTATIONS  AND  WARRANTIES.   The  representations  and
warranties  of the Company in this  Agreement  shall be correct when made and at
the time of the Closing.

     SECTION 4.2   PERFORMANCE; NO DEFAULT. The Company shall have performed and
complied with all agreements and conditions contained in this Agreement required
to be  performed  or  complied  with by it prior to or at the  Closing and after
giving  effect to the issue and sale of the Notes  (and the  application  of the
proceeds thereof as contemplated by Section 5.14) no Default or Event of Default
shall have occurred and be continuing.

     SECTION 4.3   COMPLIANCE CERTIFICATES.

            (a)    OFFICER'S  CERTIFICATE.  The  Company  shall  have  delivered
     to such Purchaser an Officer's Certificate,  dated the date of the Closing,
     certifying that the conditions  specified in Sections 4.1, 4.2 and 4.9 have
     been fulfilled.

            (b)    SECRETARY'S CERTIFICATE.  The Company shall have delivered to
     such Purchaser a certificate of its Secretary or Assistant Secretary, dated
     the date of Closing,  certifying as to the resolutions attached thereto and
     other corporate  proceedings  relating to the authorization,  execution and
     delivery of the Notes and this Agreement.

     SECTION 4.4   OPINIONS  OF  COUNSEL.  Such  Purchaser  shall have  received
opinions in form and substance satisfactory to such Purchaser, dated the date of
the Closing (a) from Deborah A. Amberg,  Senior Vice President,  General Counsel
and  Secretary  of ALLETE,  Inc.,  and Thelen Reid Brown  Raysman & Steiner LLP,
counsel for the Company,  covering  the matters set forth in Exhibit  4.4(a) and
4.4(b),   respectively,   and  covering  such  other  matters  incident  to  the
transactions contemplated hereby as such Purchaser or its counsel may reasonably
request (and the Company hereby instructs its counsel to deliver such opinion to
the  Purchasers)  and (b) from Chapman and Cutler LLP, the  Purchasers'  special
counsel in connection with such

                                       -2-

<PAGE>

transactions, substantially in the form set forth in Exhibit 4.4(c) and covering
such  other  matters  incident  to  such  transactions  as  such  Purchaser  may
reasonably request.

     SECTION 4.5   PURCHASE  PERMITTED  BY APPLICABLE  LAW, ETC.  On the date of
the Closing  such  Purchaser's  purchase of Notes shall (a) be  permitted by the
laws and  regulations of each  jurisdiction  to which such Purchaser is subject,
without  recourse  to  provisions  (such as Section  1405(a)(8)  of the New York
Insurance Law) permitting  limited  investments by insurance  companies  without
restriction  as to the character of the particular  investment,  (b) not violate
any applicable law or regulation (including, without limitation, Regulation T, U
or X of the  Board of  Governors  of the  Federal  Reserve  System)  and (c) not
subject such Purchaser to any tax, penalty or liability under or pursuant to any
applicable law or  regulation,  which law or regulation was not in effect on the
date hereof. If requested by such Purchaser,  such Purchaser shall have received
an Officer's Certificate certifying as to such matters of fact as such Purchaser
may  reasonably  specify to enable such  Purchaser  to  determine  whether  such
purchase is so permitted.

     SECTION 4.6   SALE OF NOTES. Contemporaneously with the Closing the Company
shall sell to each Purchaser and each  Purchaser  shall purchase the Notes to be
purchased by it at the Closing as specified in Schedule A.

     SECTION 4.7   PAYMENT  OF  SPECIAL  COUNSEL  FEES.   Without  limiting  the
provisions of Section 15.1, the Company shall have paid on or before the Closing
the fees, charges and disbursements of the Purchasers'  special counsel referred
to in  Section  4.4 to the  extent  reflected  in a  statement  of such  counsel
rendered to the Company at least one Business Day prior to the Closing.

     SECTION 4.8   PRIVATE  PLACEMENT NUMBER.  A Private Placement Number issued
by Standard & Poor's CUSIP Service  Bureau (in  cooperation  with the SVO) shall
have been obtained for the Notes.

     SECTION 4.9   CHANGES IN CORPORATE  STRUCTURE.  The Company  shall not have
changed its jurisdiction of incorporation  or  organization,  as applicable,  or
been  a  party  to  any  merger  or  consolidation  or  succeeded  to all or any
substantial  part of the liabilities of any other entity,  at any time following
the date of the most recent financial statements referred to in Section 5.5.

     SECTION 4.10  FUNDING  INSTRUCTIONS. At least three  Business Days prior to
the date of the Closing, each Purchaser shall have received written instructions
signed by a  Responsible  Officer on letterhead  of the Company  confirming  the
information  specified  in Section 3  including  (i) the name and address of the
transferee  bank, (ii) such  transferee  bank's ABA number and (iii) the account
name and number into which the purchase price for the Notes is to be deposited.

     SECTION 4.11  PROCEEDINGS   AND   DOCUMENTS.    All   corporate  and  other
proceedings in connection with the  transactions  contemplated by this Agreement
and all  documents  and  instruments  incident  to such  transactions  shall  be
satisfactory to such Purchaser and its special  counsel,  and such Purchaser and
its special  counsel  shall have  received  all such  counterpart  originals  or
certified  or other copies of such  documents as such  Purchaser or such special
counsel may reasonably request.

                                      - 3 -

<PAGE>

SECTION 5.  REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

     The Company represents and warrants to each Purchaser that:

     SECTION 5.1   ORGANIZATION;  POWER  AND  AUTHORITY.   The   Company   is  a
corporation duly organized, validly existing and in good standing under the laws
of its  jurisdiction  of  incorporation,  and is  duly  qualified  as a  foreign
corporation  and  is in  good  standing  in  each  jurisdiction  in  which  such
qualification is required by law, other than those jurisdictions as to which the
failure to be so qualified or in good standing could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. The Company
has the corporate  power and authority to own or hold under lease the properties
it purports to own or hold under  lease,  to transact  the business it transacts
and proposes to transact,  to execute and deliver this  Agreement  and the Notes
and to perform the provisions hereof and thereof.

     SECTION 5.2   AUTHORIZATION,  ETC.  This  Agreement and the Notes have been
duly  authorized by all necessary  corporate  action on the part of the Company,
and this Agreement  constitutes,  and upon  execution and delivery  thereof each
Note will  constitute,  a legal,  valid and  binding  obligation  of the Company
enforceable  against the Company in  accordance  with its terms,  except as such
enforceability  may  be  limited  by  (i)  applicable  bankruptcy,   insolvency,
reorganization,  moratorium or other similar laws  affecting the  enforcement of
creditors' rights generally and (ii) general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).

     SECTION 5.3   DISCLOSURE.   The  Company,  through  its  agent,  JP  Morgan
Securities  Inc., has delivered to each Purchaser a copy of the Company's Annual
Report on Form 10-K for the year  ended  December  31,  2006,  and a copy of the
Company's  Quarterly  Report on Form 10-Q for the quarter  ended March 31, 2007,
each of which has also been  filed  with the SEC  under  the  Exchange  Act (the
"DISCLOSURE  DOCUMENTS").  The  Disclosure  Documents  fairly  describe,  in all
material  respects and as of their  respective  dates, the general nature of the
business  and  principal  properties  of the Company and its  Subsidiaries.  The
Disclosure  Documents do not contain,  as of their respective  dates, any untrue
statement  of a material  fact or omit to state any material  fact  necessary to
make the statements  therein not misleading in light of the circumstances  under
which they were made.  Except as disclosed in the  Disclosure  Documents,  since
December  31,  2006,  there  has  been no  change  in the  financial  condition,
operations,  business  or  properties  of the Company or any  Subsidiary  except
changes that  individually  or in the aggregate could not reasonably be expected
to have a Material  Adverse  Effect.  There is no fact known to the Company that
could reasonably be expected to have a Material Adverse Effect that has not been
set forth herein or in the Disclosure Documents.

     SECTION 5.4   ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES.

            (a)    Schedule  5.4  contains  (except as noted  therein)  complete
     each and correct lists of the Company's active Subsidiaries, showing, as to
     Subsidiary, the correct name thereof, the jurisdiction of its organization,
     and the  percentage of shares of each class of its capital stock or similar
     equity  interests   outstanding   owned  by  the  Company  and  each  other
     Subsidiary.

                                      - 4 -

<PAGE>

            (b)    All of the  outstanding  shares of  capital  stock or similar
     by the equity  interests of each Subsidiary  shown in Schedule 5.4 as being
     owned Company and its Subsidiaries have been validly issued, are fully paid
     and nonassessable  and are owned by the Company or another  Subsidiary free
     and clear of any Lien (except as otherwise disclosed in Schedule 5.4).

            (c)    Each  Subsidiary  identified in Schedule 5.4 is a corporation
     or other legal entity duly organized, validly existing and in good standing
     under the laws of its jurisdiction of  organization,  and is duly qualified
     as a foreign  corporation  or other legal entity and is in good standing in
     each  jurisdiction  in which such  qualification  is required by law, other
     than those  jurisdictions  as to which the failure to be so qualified or in
     good standing could not,  individually  or in the aggregate,  reasonably be
     expected to have a Material  Adverse  Effect.  Each such Subsidiary has the
     corporate  or other  power and  authority  to own or hold  under  lease the
     properties  it  purports  to own or hold under  lease and to  transact  the
     business it transacts and proposes to transact.

            (d)    No  Significant  Subsidiary  nor Superior  Water,  Light  and
     Power Company  ("SWL&P") is a party to, or otherwise  subject to any legal,
     regulatory,  contractual or other  restriction  (other than this Agreement,
     the agreements listed on Schedule 5.4 and customary  limitations imposed by
     corporate law, the Federal Power Act or similar  statutes)  restricting the
     ability of such  Significant  Subsidiary  or SWL&P to pay  dividends out of
     profits or make any other similar  distributions  of profits to the Company
     or any of its Subsidiaries that owns outstanding shares of capital stock or
     similar equity interests of such Significant Subsidiary or SWL&P.

     SECTION 5.5   FINANCIAL  STATEMENTS;  MATERIAL  LIABILITIES.  The financial
statements  included in the  Disclosure  Documents  (including the schedules and
notes)  fairly  present in all  material  respects  the  consolidated  financial
position  of  the  Company  and  its  Subsidiaries  as of the  respective  dates
specified in such  financial  statements and the  consolidated  results of their
operations and cash flows for the respective  periods so specified and have been
prepared in accordance  with GAAP  consistently  applied  throughout the periods
involved except as set forth in the notes thereto  (subject,  in the case of any
interim financial statements,  to normal year-end adjustments).  The Company and
its Subsidiaries do not have any Material  liabilities that are not disclosed on
such financial statements or otherwise disclosed in the Disclosure Documents.

     SECTION 5.6   COMPLIANCE WITH LAWS, OTHER INSTRUMENTS,  ETC. The execution,
delivery and performance by the Company of this Agreement and the Notes will not
(i)  contravene,  result in any breach of, or  constitute  a default  under,  or
result in the  creation of any Lien in respect of any property of the Company or
any Subsidiary under, any indenture,  mortgage, deed of trust, loan, purchase or
credit agreement,  lease,  corporate  charter or by-laws,  or any other Material
agreement or instrument to which the Company or any Subsidiary is a party,  (ii)
conflict  with  or  result  in a  breach  of  any of the  terms,  conditions  or
provisions of any order, judgment, decree, or ruling of any court, arbitrator or
Governmental  Authority applicable to the Company or any Significant  Subsidiary
or (iii) violate any provision of any statute or other rule or regulation of any
Governmental Authority applicable to the Company or any Significant Subsidiary.

                                      - 5 -

<PAGE>

     SECTION 5.7   GOVERNMENTAL  AUTHORIZATIONS,  ETC.  No consent,  approval or
authorization of, or registration,  filing or declaration with, any Governmental
Authority is required in connection with the execution,  delivery or performance
by the  Company of this  Agreement  or the Notes other than such which have been
obtained and which shall be in full force and effect at the Closing.

     SECTION 5.8   LITIGATION.  Except as described in the Disclosure Documents,
there are no actions,  suits,  investigations or proceedings  pending or, to the
knowledge of the  Company,  threatened  against or affecting  the Company or any
Subsidiary  or any  property  of the Company or any  Subsidiary  in any court or
before any  arbitrator  of any kind or before or by any  Governmental  Authority
which,  if  adversely  determined,  would  individually  or  in  the  aggregate,
reasonably be expected to have a Material Adverse Effect.

     SECTION 5.9   TAXES.  The Company and its  Subsidiaries  have filed all tax
returns that are required to have been filed in any jurisdiction,  and have paid
all taxes  shown to be due and  payable on such  returns and all other taxes and
assessments levied upon them or their properties,  assets, income or franchises,
to the extent such taxes and assessments  have become due and payable and before
they have become delinquent, except for any taxes and assessments (i) the amount
of which is not  individually  or in the aggregate  Material or (ii) the amount,
applicability or validity of which is currently being contested in good faith by
appropriate  proceedings  and with respect to which the Company or a Subsidiary,
as the case may be, has established adequate reserves in accordance with GAAP.

     SECTION 5.10  TITLE TO PROPERTY;  LEASES.  The Company and its Subsidiaries
have good and sufficient title to their respective  properties that individually
or in the aggregate are Material, including all such properties reflected in the
most recent  audited  balance  sheet  referred to in Section 5.5 or purported to
have been acquired by the Company or any  Subsidiary  after said date (except as
sold or otherwise  disposed of in the ordinary  course of business).  All leases
that  individually or in the aggregate are Material are valid and subsisting and
are in full force and effect in all material respects.

     SECTION 5.11  LICENSES, PERMITS, ETC.  Except  as set forth or contemplated
in the Disclosure Documents, the Company and its Subsidiaries own or possess all
licenses, permits, franchises, authorizations,  patents, copyrights, proprietary
software,  service marks,  trademarks and trade names, or rights  thereto,  that
individually  or in the aggregate are Material,  without known conflict with the
rights of others.

     SECTION 5.12  COMPLIANCE WITH ERISA.

            (a)    The  Company   and  each  ERISA   Affiliate   have   operated
     and  administered  each Plan in compliance  with all applicable laws except
     for such instances of  noncompliance  as have not resulted in and could not
     reasonably be expected to result in a Material Adverse Effect.  Neither the
     Company nor any ERISA  Affiliate  has  incurred any  liability  pursuant to
     Title I or IV of ERISA or the penalty or excise tax  provisions of the Code
     relating to employee benefit plans (as defined in section 3 of ERISA),  and
     no event,  transaction  or  condition  has  occurred  or exists  that could
     reasonably be expected to result in the incurrence of any such liability by
     the Company or any ERISA Affiliate, or in the

                                      - 6 -

<PAGE>

     imposition  of any Lien on any of the rights,  properties or assets  of the
     Company or any ERISA  Affiliate,  in either case pursuant to  Title I or IV
     of ERISA  or  to such  penalty  or excise  tax  provisions  or  to  section
     401(a)(29)  or 412 of the Code or  section  4068 of ERISA,  other than such
     liabilities  or Liens  as would  not be  individually  or in the  aggregate
     Material.

            (b)    The present value of the aggregate benefit  liabilities under
     each of the Plans (other than  Multiemployer  Plans),  determined as of the
     end of such  Plan's  most  recently  ended  plan  year on the  basis of the
     actuarial  assumptions  specified for funding  purposes in such Plan's most
     recent actuarial  valuation  report,  did not exceed the aggregate  current
     value of the assets of such Plan  allocable to such benefit  liabilities by
     more  than  $26,500,000  in the case of any  single  Plan and by more  than
     $9,500,000 in the aggregate for all Plans.

            (c)    The Company  and  its  ERISA  Affiliates  have  not  incurred
     withdrawal  liabilities  (and  are not  subject  to  contingent  withdrawal
     liabilities)   under   section   4201  or  4204  of  ERISA  in  respect  of
     Multiemployer Plans that individually or in the aggregate are Material.

            (d)    The expected  postretirement  benefit obligation  (determined
     as of the last day of the  Company's  most  recently  ended  fiscal year in
     accordance  with Financial  Accounting  Standards  Board Statement No. 106,
     without  regard  to  liabilities   attributable  to  continuation  coverage
     mandated by section 4980B of the Code) of the Company and its  Subsidiaries
     is  approximately   $60,000,000.   A  substantial  portion  of  the  annual
     postretirement   benefit  costs  recognized  by  the  Company's   regulated
     companies are recovered  through rates filed with the Company's  regulatory
     jurisdictions,  as more  fully  described  in  Note 16 to the  Consolidated
     Financial  Statements in the  Company's  Annual Report on Form 10-K for the
     year ended December 31, 2006.

            (e)    The execution and delivery of this Agreement and the issuance
     and sale of the Notes  hereunder will not involve any  transaction  that is
     subject to the  prohibitions  of section 406 of ERISA or in connection with
     which a tax could be imposed pursuant to section  4975(c)(1)(A)-(D)  of the
     Code.  The  representation  by the Company to each  Purchaser  in the first
     sentence of this  Section  5.12(e) is made in reliance  upon and subject to
     the  accuracy  of such  Purchaser's  representation  in Section 6.2 and the
     completeness of such Purchaser's  disclosures pursuant to Section 6.2 as to
     the sources of the funds used to pay the purchase  price of the Notes to be
     purchased by such Purchaser.

     SECTION 5.13  PRIVATE  OFFERING  BY  THE  COMPANY.  Neither the Company nor
anyone acting on its behalf has offered the Notes or any similar  securities for
sale to,  or  solicited  any  offer to buy any of the same  from,  or  otherwise
approached  or negotiated  in respect  thereof  with,  any person other than the
Purchasers and not more than 16 other Institutional Investors, each of which has
been offered the Notes at a private sale for investment. Neither the Company nor
anyone  acting on its  behalf has taken,  or will  take,  any action  that would
subject the issuance or sale of the Notes to the  registration  requirements  of
Section  5 of the  Securities  Act or to the  registration  requirements  of any
securities or blue sky laws of any applicable jurisdiction.

                                      - 7 -

<PAGE>

     SECTION 5.14  USE OF PROCEEDS; MARGIN  REGULATIONS.  The Company will apply
the proceeds of the sale of the Notes to fund corporate growth opportunities and
for general  corporate  purposes.  No part of the proceeds  from the sale of the
Notes hereunder will be used, directly or indirectly,  for the purpose of buying
or carrying any margin stock within the meaning of  Regulation U of the Board of
Governors  of the  Federal  Reserve  System (12 CFR 221),  or for the purpose of
buying or carrying or trading in any securities  under such  circumstances as to
involve the Company in a violation of Regulation X of said Board (12 CFR 224) or
to involve any broker or dealer in a violation of Regulation T of said Board (12
CFR 220).  Margin  stock does not  constitute  more than 20% of the value of the
consolidated assets of the Company and its Subsidiaries and the Company does not
have any present  intention that margin stock will  constitute  more than 20% of
the value of such assets. As used in this Section,  the terms "MARGIN STOCK" and
"PURPOSE OF BUYING OR CARRYING" shall have the meanings assigned to them in said
Regulation U.

     SECTION 5.15  EXISTING INDEBTEDNESS; FUTURE LIENS.

            (a)    Except  as  described  therein,  Schedule  5.15  sets forth a
     complete and correct list of all outstanding  Indebtedness that is Material
     of the Company and its Significant Subsidiaries as of March 31, 2007, since
     which  date  there has been no  Material  change in the  amounts,  interest
     rates,   sinking   funds,   installment   payments  or  maturities  of  the
     Indebtedness  of the Company or its Significant  Subsidiaries.  Neither the
     Company  nor any  Significant  Subsidiary  is in  default  and no waiver of
     default is currently in effect, in the payment of any principal or interest
     on any such  Indebtedness  and no event or condition exists with respect to
     such  Indebtedness  that would  permit (or that with notice or the lapse of
     time, or both, would permit) one or more Persons to cause such Indebtedness
     to become  due and  payable  before  its  stated  maturity  or  before  its
     regularly scheduled dates of payment.

            (b)    Except as disclosed in Schedule 5.15, neither the Company nor
     any  Significant  Subsidiary  has agreed or consented to cause or permit in
     the future (upon the  happening of a contingency  or otherwise)  any of its
     property,  whether now owned or hereafter acquired, to be subject to a Lien
     not permitted by Section 10.5.

            (c)    Neither  the  Company  nor  any  Subsidiary is a party to, or
     otherwise subject to any provision contained in, any instrument  evidencing
     Indebtedness  that is  Material  of the  Company  or such  Subsidiary,  any
     agreement  relating  thereto  or any other  agreement  (including,  but not
     limited to, its charter or other organizational  document) which limits the
     amount  of,  or  otherwise  imposes   restrictions  on  the  incurring  of,
     Indebtedness of the Company, except as specifically indicated in Schedule
     5.15.

     SECTION 5.16  FOREIGN ASSETS CONTROL REGULATIONS, ETC.

            (a)    Neither  the  sale of the Notes  by the Company hereunder nor
     its use of the  proceeds  thereof  will  violate the Trading with the Enemy
     Act, as amended,  or any of the foreign assets  control  regulations of the
     United  States  Treasury  Department  (31 CFR,  Subtitle  B,  Chapter V, as
     amended) or any enabling legislation or executive order relating thereto.

                                      - 8 -

<PAGE>

            (b)    Neither  the  Company  nor  any  Subsidiary  (i)  is a Person
     described or designated in the Specially  Designated  Nationals and Blocked
     Persons List of the Office of Foreign Assets Control or in Section 1 of the
     Anti-Terrorism  Order or (ii) engages in any dealings or transactions  with
     any such Person. The Company and its Subsidiaries are in compliance, in all
     material respects, with the USA Patriot Act.

            (c)    No part of the proceeds from the sale of the Notes  hereunder
     will be used, directly or indirectly,  for any payments to any governmental
     official or  employee,  political  party,  official  of a political  party,
     candidate  for  political  office,  or anyone  else  acting in an  official
     capacity,  in order to  obtain,  retain or direct  business  or obtain  any
     improper  advantage,  in violation  of the United  States  Foreign  Corrupt
     Practices  Act of 1977,  as  amended,  assuming  in all cases that such Act
     applies to the Company.

     SECTION 5.17  STATUS UNDER INVESTMENT  COMPANY ACT AND ICC TERMINATION ACT.
Neither  the  Company  nor any  Subsidiary  is subject to  regulation  under the
Investment  Company Act of 1940, as amended or the ICC  Termination Act of 1995,
as amended.

     Section 5.18  ENVIRONMENTAL  MATTERS. Except as disclosed in the Disclosure
Documents,  the  Company and its  Subsidiaries  (i) are in  compliance  with all
Environmental Laws, (ii) have received all permits,  licenses or other approvals
required of them under applicable Environmental Laws to conduct their respective
businesses,  and (iii) are in  compliance  with all terms and  conditions of any
such  permit,  license or  approval;  except,  in each  case,  such as could not
reasonably be expected to result in a Material Adverse Effect.

SECTION 6.  REPRESENTATIONS OF THE PURCHASERS.

     SECTION 6.1   PURCHASE FOR INVESTMENT.  Each Purchaser severally represents
that it is purchasing  the Notes for its own account or for one or more separate
accounts  maintained by such Purchaser or for the account of one or more pension
or trust funds and not with a view to the  distribution  thereof,  provided that
the  disposition  of such  Purchaser's  or their  property shall at all times be
within such  Purchaser's or their control.  Each Purchaser  understands that the
Notes have not been  registered  under the Securities Act and may be resold only
if  registered  pursuant  to  the  provisions  of  the  Securities  Act or if an
exemption  from  registration  is available,  except under  circumstances  where
neither such registration nor such an exemption is required by law, and that the
Company is not required to register the Notes.

     SECTION 6.2   SOURCE OF FUNDS.  Each Purchaser severally represents that at
least one of the following  statements is an accurate  representation as to each
source of funds (a  "Source")  to be used by such  Purchaser to pay the purchase
price of the Notes to be purchased by such Purchaser hereunder:

            (a)    the Source is an "insurance  company general account" (as the
     term is defined  in The  United  States  Department  of Labor's  Prohibited
     Transaction  Exemption  ("PTE") 95-60) in respect of which the reserves and
     liabilities  (as  defined  by  the  annual  statement  for  life  insurance
     companies approved by the National  Association of Insurance  Commissioners
     (the "NAIC ANNUAL  STATEMENT")) for the general account contract(s) held by
     or on behalf of any employee benefit plan together with the amount of

                                      - 9 -

<PAGE>

     the reserves and liabilities for the general account contract(s) held by or
     on  behalf  of any  other  employee  benefit plans maintained by  the  same
     employer (or  affiliate  thereof as  defined  in PTE 95-60) or  by the same
     employee organization in the general account do not exceed 10% of the total
     reserves and  liabilities  of the general  account  (exclusive  of separate
     account liabilities) plus surplus as set forth in the NAIC Annual Statement
     filed with such Purchaser's state of domicile; or

            (b)    the  Source is a separate  account that is  maintained solely
     in connection with such Purchaser's  fixed  contractual  obligations  under
     which the amounts  payable,  or credited,  to any employee benefit plan (or
     its related  trust) that has any interest in such  separate  account (or to
     any  participant or beneficiary of such plan (including any annuitant)) are
     not affected in any manner by the  investment  performance  of the separate
     account; or

            (c)    the Source is either (i) an insurance company pooled separate
     account,  within  the  meaning  of PTE  90-1  or  (ii)  a  bank  collective
     investment  fund,  within  the  meaning  of the PTE  91-38  and,  except as
     disclosed  by such  Purchaser  to the  Company in writing  pursuant to this
     clause (c), no employee  benefit plan or group of plans  maintained  by the
     same employer or employee  organization  beneficially owns more than 10% of
     all  assets  allocated  to  such  pooled  separate  account  or  collective
     investment fund; or

            (d)    the Source constitutes assets of an "investment fund" (within
     the  meaning of Part V of PTE 84-14 (the  "QPAM  EXEMPTION"))  managed by a
     "qualified  professional  asset  manager" or "QPAM"  (within the meaning of
     Part V of the QPAM  Exemption),  no employee benefit plan's assets that are
     included in such  investment  fund,  when  combined  with the assets of all
     other employee benefit plans established or maintained by the same employer
     or by an  affiliate  (within  the  meaning of  Section  V(c)(1) of the QPAM
     Exemption)  of such  employer  or by the  same  employee  organization  and
     managed by such QPAM, exceed 20% of the total client assets managed by such
     QPAM,  the  conditions  of Part  I(c)  and (g) of the  QPAM  Exemption  are
     satisfied,  neither the QPAM nor a person  controlling or controlled by the
     QPAM  (applying  the  definition  of  "control" in Section V(e) of the QPAM
     Exemption)  owns a 5% or more  interest in the Company and (i) the identity
     of such QPAM and (ii) the names of all employee  benefit plans whose assets
     are included in such  investment fund have been disclosed to the Company in
     writing pursuant to this clause (d); or

            (e)    the  Source  constitutes  assets  of  a "plan(s)" (within the
     meaning of Section IV of PTE 96-23 (the "INHAM  EXEMPTION"))  managed by an
     "in-house  asset manager" or "INHAM"  (within the meaning of Part IV of the
     INHAM  Exemption),  the  conditions of Part I(a),  (g) and (h) of the INHAM
     Exemption  are  satisfied,  neither the INHAM nor a person  controlling  or
     controlled by the INHAM  (applying  the  definition of "control" in Section
     IV(d) of the INHAM Exemption) owns a 5% or more interest in the Company and
     (i) the identity of such INHAM and (ii) the name(s) of the employee benefit
     plan(s)  whose  assets  constitute  the Source have been  disclosed  to the
     Company in writing pursuant to this clause (e); or

            (f)    the Source is a governmental plan; or

                                     - 10 -

<PAGE>

            (g)    the Source  is  one  or  more employee  benefit  plans,  or a
     separate  account or trust fund  comprised of one or more employee  benefit
     plans, each of which has been identified to the Company in writing pursuant
     to this clause (g); or

            (h)    the  Source does not include  assets of any employee  benefit
     plan, other than a plan exempt from the coverage of ERISA.

As used in this Section 6.2, the terms  "EMPLOYEE  BENEFIT PLAN,"  "GOVERNMENTAL
PLAN," and "SEPARATE  ACCOUNT"  shall have the respective  meanings  assigned to
such terms in section 3 of ERISA.

SECTION 7.  INFORMATION AS TO COMPANY

     SECTION 7.1   FINANCIAL AND BUSINESS INFORMATION.  As  long  as  any of the
Notes are  outstanding,  the Company  shall deliver to each holder of Notes that
is an Institutional Investor:

            (a)    QUARTERLY STATEMENTS  --  within  60  days  (or  such shorter
     period as is 15 days  greater than the period  applicable  to the filing of
     the Company's  Quarterly Report on Form 10-Q (the "FORM 10-Q") with the SEC
     regardless  of whether  the  Company is subject to the filing  requirements
     thereof) after the end of each quarterly  fiscal period in each fiscal year
     of the Company  (other than the last  quarterly  fiscal period of each such
     fiscal year), duplicate copies of,

                         (i)   a consolidated   balance  sheet  of  the Company,
            including its Subsidiaries, as at the end of such quarter, and

                         (ii)  consolidated   statements   of  income  and  cash
            flows of theCompany,  including its  Subsidiaries,  for such quarter
            and (in the case of the second and third  quarters)  for the portion
            of the fiscal year ending with such quarter,

     setting  forth  in each  case  in  comparative  form  the  figures  for the
     corresponding  periods  in the  previous  fiscal  year,  all in  reasonable
     detail,  prepared in accordance with GAAP applicable to quarterly financial
     statements generally, and certified by a Senior Financial Officer as fairly
     presenting,  in  all  material  respects,  the  financial  position  of the
     companies being reported on and their results of operations and cash flows,
     subject to changes  resulting  from  year-end  adjustments,  PROVIDED  that
     delivery within the time period  specified above of copies of the Company's
     Form 10-Q prepared in compliance with the  requirements  therefor and filed
     with the SEC shall be deemed to satisfy the  requirements  of this  Section
     7.1(a),  PROVIDED,  FURTHER,  that the Company shall be deemed to have made
     such delivery of such Form 10-Q if it shall have timely made such Form 10-Q
     available on "EDGAR" and on its home page on the worldwide web (at the date
     of this  Agreement  located at:  http//www.allete.com)  (such  availability
     being referred to as "ELECTRONIC DELIVERY");

            (b)    ANNUAL STATEMENTS -- within  120 days (or such shorter period
     as is 15 days  greater  than the  period  applicable  to the  filing of the
     Company's  Annual  Report  on Form  10-K  (the  "FORM  10-K")  with the SEC
     regardless of whether the Company is

                                     - 11 -

<PAGE>

     subject to the filing  requirements  thereof)  after the end of each fiscal
     year of the Company, duplicate copies of,

                         (i)   a consolidated   balance   sheet  of the Company,
            including itsSubsidiaries, as at the end of such year, and

                         (ii)  consolidated  statements  of  income,  changes in
            shareholders'  equity and cash flows of the Company,  including  its
            Subsidiaries for such year,

     setting forth in each case in comparative form the figures for the previous
     fiscal year, all in reasonable  detail,  prepared in accordance  with GAAP,
     and  accompanied  by an opinion  thereon of independent  registered  public
     accounting firm of recognized national standing,  which opinion shall state
     that such financial  statements  present fairly, in all material  respects,
     the  financial  position of the  companies  being  reported  upon and their
     results of  operations  and cash flows and have been prepared in conformity
     with GAAP, and that the  examination of such  accounting firm in connection
     with such financial  statements has been made in accordance  with generally
     accepted  auditing  standards,  and that such audit  provides a  reasonable
     basis for such  opinion in the  circumstances,  PROVIDED  that the delivery
     within the time period  specified above of the Company's Form 10-K for such
     fiscal year (together with the Company's annual report to shareholders,  if
     any,  prepared  pursuant to Rule 14a-3 under the Exchange  Act) prepared in
     accordance with the requirements  therefor and filed with the SEC, shall be
     deemed to  satisfy  the  requirements  of this  Section  7.1(b),  PROVIDED,
     FURTHER,  that the  Company  shall be deemed to have made such  delivery of
     such Form 10-K if it shall have timely made Electronic Delivery thereof;

            (c)    SEC  AND  OTHER  REPORTS  --  promptly  upon  their  becoming
     available,one copy of (i) each financial statement, report, notice or proxy
     statement  sent by the Company or any  Subsidiary to its public  securities
     holders  generally,   and  (ii)  each  regular  or  periodic  report,  each
     registration  statement (without exhibits except as expressly  requested by
     such holder), and each final prospectus and all amendments thereto filed by
     the Company or any Subsidiary with the SEC, PROVIDED that the Company shall
     be deemed to have made such  delivery  of such  documents  if it shall have
     timely made Electronic Delivery thereof;

            (d)    NOTICE OF DEFAULT OR EVENT OF  DEFAULT  --  promptly,  and in
     any event within five days after a Responsible  Officer  becoming  aware of
     the  existence  of any  Default  or Event of Default or that any Person has
     given any notice or taken any  action  with  respect  to a claimed  default
     hereunder  or that any Person has given any notice or taken any action with
     respect to a claimed  default of the type referred to in Section  11(f),  a
     written notice  specifying  the nature and period of existence  thereof and
     what action the Company is taking or proposes to take with respect thereto,
     provided,  however,  that the Company  shall not be required to comply with
     the provisions of this Section 7.1(d) for so long as the Company is subject
     to the public reporting requirements of the Exchange Act;

            (e)    ERISA MATTERS  -- promptly, and in any event within five days
     after a  Responsible  Officer  becoming  aware of  any of the following,  a
     written notice setting

                                     - 12 -

<PAGE>

     forth the nature  thereof  and the action,  if any, that  the Company or an
     ERISA Affiliate proposes to take with respect thereto:

                   (i)   with  respect  to  any  Plan,  any reportable event, as
            defined in section 4043(c) of ERISA and the regulations  thereunder,
            for  which  notice  thereof  has not been  waived  pursuant  to such
            regulations as in effect on the date hereof; or

                   (ii)  the  taking  by the  PBGC of  steps  to  institute,  or
            the threatening by the PBGC of the institution of, proceedings under
            section 4042 of ERISA for the  termination of, or the appointment of
            a trustee to administer,  any Plan, or the receipt by the Company or
            any ERISA Affiliate of a notice from a Multi-employer Plan that such
            action   has  been   taken  by  the  PBGC  with   respect   to  such
            Multi-employer Plan; or

                   (iii) any event,  transaction  or condition that could result
             in the  incurrence  of any  liability  by the  Company or any ERISA
            Affiliate  pursuant  to  Title I or IV of ERISA  or the  penalty  or
            excise tax  provisions  of the Code  relating  to  employee  benefit
            plans,  or in the  imposition  of  any  Lien  on any of the  rights,
            properties or assets of the Company or any ERISA Affiliate  pursuant
            to Title I or IV of ERISA or such penalty or excise tax  provisions,
            if such  liability  or Lien,  taken  together  with any  other  such
            liabilities or Liens then existing,  could reasonably be expected to
            have a Material Adverse Effect;

            (f)    REQUESTED  INFORMATION -- with  reasonable  promptness,  such
     other data and information relating to the business,  operations,  affairs,
     financial  condition,  assets or  properties  of the  Company or any of its
     Subsidiaries  (including,  but  without  limitation,  actual  copies of the
     Company's  Form  10-Q and Form  10-K) or  relating  to the  ability  of the
     Company to perform its  obligations  hereunder  and under the Notes as from
     time to time may be reasonably requested by any such holder of Notes.

     SECTION 7.2   OFFICER'S  CERTIFICATE.  Each  set  of  financial  statements
delivered  to a holder of Notes  pursuant  to Section  7.1(a) or Section  7.1(b)
shall be  accompanied  by a certificate of a Senior  Financial  Officer  setting
forth  (which,  in  the  case  of  Electronic  Delivery  of any  such  financial
statements, shall be by separate concurrent delivery of such certificate to each
holder of Notes):

            (a)    COVENANT COMPLIANCE  --  the  information (including detailed
     calculations)  required  in order to  establish  whether the Company was in
     compliance with the  requirements of Section 10.5,  during the quarterly or
     annual period covered by the statements then being furnished; and

            (b)    EVENT OF DEFAULT  --  a  statement that such Senior Financial
     Officer has reviewed the relevant  terms hereof and has made,  or caused to
     be made,  under his or her  supervision,  a review of the  transactions and
     conditions  of the Company and its  Subsidiaries  from the beginning of the
     quarterly or annual period covered by the statements  then being  furnished
     to the date of the certificate and that such review shall

                                     - 13 -

<PAGE>

     not have  disclosed  the  existence  during such period of any condition or
     event that  constitutes  a Default  or an Event of Default  or, if any such
     condition or event existed or exists,  specifying  the nature and period of
     existence  thereof and what action the Company shall have taken or proposes
     to take with respect thereto.

     SECTION 7.3   VISITATION.  The Company shall permit the  representatives of
each holder of Notes that is an Institutional Investor:

            (a)    NO DEFAULT -- if no Default or Event of Default then  exists,
     the Company shall permit the  representatives  of each holder of Notes that
     is an  Institutional  Investor,  at the  expense  of such  holder  and upon
     reasonable  prior notice to the Company,  to visit the principal  executive
     office of the Company, to discuss the affairs, finances and accounts of the
     Company and its  Subsidiaries  with the Company's  officers,  and (with the
     consent of the Company, which consent will not be unreasonably withheld) to
     visit the other offices and properties of the Company and each  Subsidiary,
     all at such reasonable times and as often as may be reasonably requested in
     writing; and

            (b)    DEFAULT -- if a Default or Event of Default  then  exists, at
     the  expense of the  Company  to visit and  inspect  any of the  offices or
     properties  of  the  Company  or  any  Subsidiary,  to  examine  all  their
     respective  books of account,  records,  reports and other papers,  to make
     copies and extracts  therefrom,  and to discuss their  respective  affairs,
     finances and accounts with their respective officers and independent public
     accountants (and by this provision the Company  authorizes said accountants
     to discuss  the  affairs,  finances  and  accounts  of the  Company and its
     Subsidiaries), all at such times and as often as may be requested.

SECTION 8.  PAYMENT AND PREPAYMENT OF THE NOTES.

     SECTION 8.1   MATURITY. As provided  therein, the entire  unpaid  principal
balance  of the Notes  shall be due and  payable  on the  stated  maturity  date
thereof.

     SECTION 8.2   OPTIONAL PREPAYMENTS WITH MAKE-WHOLE AMOUNT. The Company may,
at its option,  upon notice as provided  below,  prepay at any time all, or from
time to time any part of,  the  Notes,  in an  amount  not less  than 10% of the
aggregate  principal  amount  of the  Notes  then  outstanding  in the case of a
partial  prepayment,  at 100% of the principal amount so prepaid,  together with
interest  accrued  thereon to the date of such  prepayment,  and the  Make-Whole
Amount determined for the prepayment date with respect to such principal amount.
The  Company  will give each  holder of Notes  written  notice of each  optional
prepayment  under  this  Section  8.2 not less than 30 days and not more than 60
days prior to the date fixed for such prepayment. Each such notice shall specify
such date (which shall be a Business Day), the aggregate principal amount of the
Notes to be prepaid on such date, the principal amount of each Note held by such
holder to be prepaid  (determined  in  accordance  with  Section  8.4),  and the
interest to be paid on the prepayment date with respect to such principal amount
being prepaid,  and shall be accompanied by a certificate of a Senior  Financial
Officer  as to the  estimated  Make-Whole  Amount  due in  connection  with such
prepayment  (calculated  as if the  date of such  notice  were  the  date of the
prepayment),  setting forth the details of such  computation.  Two Business Days
prior to such  prepayment,  the Company  shall deliver to each holder of Notes a
certificate of

                                     - 14 -

<PAGE>

a Senior  Financial  Officer  specifying  the  calculation  of  such  Make-Whole
Amount as of the specified prepayment date.

     SECTION 8.3   CHANGE IN CONTROL.

            (a)    NOTICE OF CHANGE IN  CONTROL  AND  CHANGE IN  CONTROL  EVENT.
     The Company will,  within five Business Days after any Responsible  Officer
     has  knowledge  of the  occurrence  of any Change in Control,  give written
     notice of such Change in Control to each holder of Notes. If within 90 days
     after such Change in Control, the Company does not, for any reason, have an
     Investment  Grade  Rating,  a "Change in Control  Event" shall be deemed to
     have occurred. If a Change in Control Event has occurred, the Company shall
     give immediate written notice thereof to the holders, and such notice shall
     contain  and   constitute   an  offer  to  prepay  Notes  as  described  in
     subparagraph  (b) of this  Section  8.3 and  shall  be  accompanied  by the
     certificate described in subparagraph (e) of this Section 8.3.

            (b)    OFFER  TO  PREPAY  NOTES.  The  offer  to  prepay  the  Notes
     contemplated by  subparagraph  (a) of this Section 8.3 shall be an offer to
     prepay,  in  accordance  with and subject to this Section 8.3, all, but not
     less  than all,  of the  Notes  held by each  holder  (in this  case  only,
     "HOLDER" in respect of any Note  registered  in the name of a nominee for a
     disclosed  beneficial  owner  shall mean such  beneficial  owner) on a date
     specified in such offer (the "Proposed  Prepayment Date").  Such date shall
     be not less than 30 days and not more  than 60 days  after the date of such
     offer.

            (c)    ACCEPTANCE.  A holder of Notes may accept the offer to prepay
     made pursuant to this Section 8.3 by causing a notice of such acceptance to
     be  delivered  to the Company not later than 15 days prior to the  Proposed
     Prepayment  Date. A failure by a holder of Notes to respond to the offer to
     prepay made  pursuant to this  Section 8.3 shall be deemed to  constitute a
     rejection of such offer by such holder.

            (d)    PREPAYMENT. Prepayment of the Notes to be prepaid pursuant to
     this  Section 8.3 shall be at 100% of the  principal  amount of such Notes,
     together with interest on such Notes accrued to the date of prepayment  and
     without any Make-Whole Amount. The Prepayment shall be made on the Proposed
     Prepayment Date.

            (e)    OFFICER'S  CERTIFICATE.  Each  offer  to  prepay  the   Notes
     pursuant  to this  Section  8.3  shall  be  accompanied  by a  certificate,
     executed by a Senior Financial Officer of the Company and dated the date of
     such offer,  specifying:  (i) the Proposed  Prepayment Date; (ii) that such
     offer is made  pursuant to this Section 8.3;  (iii) the interest that would
     be  due on  each  Note  offered  to be  prepaid,  accrued  to the  Proposed
     Prepayment  Date;  (iv) that the  conditions  of this Section 8.3 have been
     fulfilled;  (v) in reasonable  detail, the nature of the Change in Control;
     and (vi) any written response from the relevant rating agency.

            (f)    CERTAIN DEFINITIONS.

            "CHANGE IN CONTROL"  shall  be deemed to have occurred if any person
(as such term is used in Section 13(d) and Section  14(d)(2) of the Exchange Act
as in effect on the date of
                                     - 15 -

<PAGE>

the Closing) or related  persons  constituting  a group (as such term is used in
Rule 13d-5 under the Exchange Act) become the "beneficial  owners" (as such term
is used in Rule  13d-3  under the  Exchange  Act as in effect on the date of the
Closing),  directly or indirectly, of more than 50% of the total voting power of
all classes then outstanding of the voting stock of the Company.

            "INVESTMENT GRADE RATING"  in respect  of  any Person means,  at the
time of  determination,  at least two of the  following  ratings of its  senior,
unsecured  long-term  indebtedness  for borrowed money: (i) by Standard & Poor's
Rating  Services,  a division of The  McGraw-Hill  Companies,  or any  successor
thereof,  "BBB-" or better,  (ii) by Moody's  Investors  Service,  Inc.,  or any
successor thereof, "Baa3" or better, or (iii) by any other nationally recognized
statistical rating agency, an equivalent or better rating.

            (g)    ASSUMPTIONS.  All  calculations  contemplated in this Section
     8.3  involving  the capital  stock or other  equity  interest of any Person
     shall be made with the assumption that all  convertible  securities of such
     Person then  outstanding and all convertible  securities  issuable upon the
     exercise of any warrants,  options an other rights outstanding at such time
     were  converted  at such time and that all  options,  warrants  and similar
     rights to acquire shares of capital stock or other equity  interest of such
     Person were exercised at such time.

     SECTION 8.4   ALLOCATION  OF  PARTIAL PREPAYMENTS.  In  the  case  of  each
partial prepayment of the Notes pursuant to Section 8.2, the principal amount of
the Notes to be prepaid  shall be  allocated  among all of the Notes at the time
outstanding in proportion,  as nearly as practicable,  to the respective  unpaid
principal amounts thereof not theretofore called for prepayment. All prepayments
pursuant to Section 8.3 shall be applied as therein provided.

     SECTION 8.5   MATURITY;  SURRENDER, ETC. In the case of each  prepayment of
Notes  pursuant  to this  Section  8, the  principal  amount  of each Note to be
prepaid  shall  mature  and  become  due and  payable on the date fixed for such
prepayment  (which  shall be a Business  Day),  together  with  interest on such
principal amount accrued to such date and the applicable  Make-Whole  Amount, if
any.  From and after  such  date,  unless  the  Company  shall  fail to pay such
principal  amount  when so due and  payable,  together  with  the  interest  and
Make-Whole Amount, if any, as aforesaid, interest on such principal amount shall
cease to accrue.  Any Note paid or prepaid in full shall be  surrendered  to the
Company and cancelled and shall not be reissued,  and no Note shall be issued in
lieu of any prepaid principal amount of any Note.

     SECTION 8.6   PURCHASE  OF  NOTES. The Company will not and will not permit
any  Affiliate to purchase,  redeem,  prepay or otherwise  acquire,  directly or
indirectly,  any of the  outstanding  Notes  except  (a)  upon  the  payment  or
prepayment of the Notes in accordance  with the terms of this  Agreement and the
Notes  or (b)  pursuant  to an  offer  to  purchase  made by the  Company  or an
Affiliate pro rata to the holders of all Notes at the time  outstanding upon the
same terms and  conditions.  Any such  offer  shall  provide  each  holder  with
sufficient information to enable it to make an informed decision with respect to
such offer,  and shall remain open for at least 10 Business Days. If the holders
of more than 25% of the principal  amount of the Notes then  outstanding  accept
such offer, the Company shall promptly notify the remaining holders of such fact
and the  expiration  date for the  acceptance  by holders of Notes of such offer
shall be extended by the number of days  necessary  to give each such  remaining
holder at least 10

                                     - 16 -

<PAGE>

Business Days from its receipt of such notice to accept such offer.  The Company
will promptly  cancel all Notes acquired by it or any Affiliate  pursuant to any
payment,  prepayment  or purchase of Notes  pursuant  to any  provision  of this
Agreement  and no Notes may be issued in  substitution  or exchange for any such
Notes.

     SECTION 8.7   MAKE-WHOLE AMOUNT.

     "MAKE-WHOLE AMOUNT" means, with respect to any Note, an amount equal to the
excess, if any, of the Discounted Value of the Remaining Scheduled Payments with
respect to the  Called  Principal  of such Note over the  amount of such  Called
Principal,  PROVIDED  that the  Make-Whole  Amount  may in no event be less than
zero. For the purposes of determining the Make-Whole Amount, the following terms
have the following meanings:

     "CALLED  PRINCIPAL"  means, with respect to any Note, the principal of such
Note that is to be prepaid  pursuant to Section 8.2 or has become or is declared
to be  immediately  due and  payable  pursuant to Section  12.1,  as the context
requires.

     "DISCOUNTED VALUE" means, with respect to the Called Principal of any Note,
the amount obtained by discounting all Remaining Scheduled Payments with respect
to such  Called  Principal  from  their  respective  scheduled  due dates to the
Settlement  Date with  respect to such  Called  Principal,  in  accordance  with
accepted  financial  practice  and at a  discount  factor  (applied  on the same
periodic  basis as that on which  interest on the Notes is payable) equal to the
Reinvestment Yield with respect to such Called Principal.

     "REINVESTMENT  YIELD"  means,  with respect to the Called  Principal of any
Note,  .50% over the yield to maturity  implied by (i) the yields reported as of
10:00  a.m.  (New York City  time) on the  second  Business  Day  preceding  the
Settlement Date with respect to such Called Principal, on the display designated
as "Page  PX1" (or such  other  display as may  replace  Page PX1) on  Bloomberg
Financial  Markets for the most recently  issued actively traded on the run U.S.
Treasury  securities  having a maturity  equal to the Remaining  Average Life of
such Called Principal as of such Settlement Date, or (ii) if such yields are not
reported  as of such  time  or the  yields  reported  as of  such  time  are not
ascertainable  (including  by  way  of  interpolation),  the  Treasury  Constant
Maturity Series Yields  reported,  for the latest day for which such yields have
been so reported as of the second  Business Day  preceding the  Settlement  Date
with respect to such Called Principal,  in Federal Reserve  Statistical  Release
H.15 (or any comparable  successor  publication)  for U.S.  Treasury  securities
having a constant  maturity  equal to the Remaining  Average Life of such Called
Principal as of such Settlement Date.

     In the case of each  determination  under clause (i) or clause (ii), as the
case may be, of the preceding paragraph,  such implied yield will be determined,
if necessary, by (a) converting U.S. Treasury bill quotations to bond equivalent
yields in accordance  with  accepted  financial  practice and (b)  interpolating
linearly  between (1) the applicable  U.S.  Treasury  security with the maturity
closest to and greater than such  Remaining  Average Life and (2) the applicable
U.S. Treasury security with the maturity closest to and less than such Remaining
Average Life. The  Reinvestment  Yield shall be rounded to the number of decimal
places as appears in the interest rate of the applicable Note.

                                     - 17 -

<PAGE>

     "REMAINING  AVERAGE LIFE" means, with respect to any Called Principal,  the
number  of years  (calculated  to the  nearest  one-twelfth  year)  obtained  by
dividing (i) such Called Principal into (ii) the sum of the products obtained by
multiplying (a) the principal component of each Remaining Scheduled Payment with
respect to such Called  Principal by (b) the number of years  (calculated to the
nearest  one-twelfth  year) that will elapse  between the  Settlement  Date with
respect to such Called  Principal and the  scheduled due date of such  Remaining
Scheduled Payment.

     "REMAINING  SCHEDULED PAYMENTS" means, with respect to the Called Principal
of any Note,  all payments of such Called  Principal  and interest  thereon that
would be due after the Settlement Date with respect to such Called  Principal if
no payment of such Called  Principal  were made prior to its scheduled due date,
PROVIDED that if such Settlement  Date is not a date on which interest  payments
are due to be made  under the terms of the  Notes,  then the  amount of the next
succeeding  scheduled interest payment will be reduced by the amount of interest
accrued to such  Settlement Date and required to be paid on such Settlement Date
pursuant to Section 8.2 or Section 12.1.

     "SETTLEMENT  DATE" means, with respect to the Called Principal of any Note,
the date on which such Called Principal is to be prepaid pursuant to Section 8.2
or has become or is  declared  to be  immediately  due and  payable  pursuant to
Section 12.1, as the context requires.

SECTION 9.  AFFIRMATIVE COVENANTS.

     The Company covenants that so long as any of the Notes are outstanding:

     SECTION 9.1   COMPLIANCE  WITH  LAW.  Without  limiting Section  10.3,  the
Company will, and will cause each of its  Subsidiaries to, comply with all laws,
ordinances  or  governmental  rules  or  regulations  to  which  each of them is
subject,  including,  without  limitation,   ERISA,  the  USA  Patriot  Act  and
Environmental  Laws,  and will  obtain  and  maintain  in effect  all  licenses,
certificates,   permits,   franchises  and  other  governmental   authorizations
necessary to the ownership of their  respective  properties or to the conduct of
their respective businesses, in each case to the extent necessary to ensure that
non-compliance  with such laws,  ordinances or governmental rules or regulations
or  failures  to  obtain or  maintain  in effect  such  licenses,  certificates,
permits,   franchises   and  other   governmental   authorizations   could  not,
individually  or in the  aggregate,  reasonably  be  expected to have a Material
Adverse Effect.

     SECTION 9.2   INSURANCE.  The  Company  will,  and will  cause  each of its
Subsidiaries  to,  maintain,  with  financially  sound and  reputable  insurers,
insurance with respect to their  respective  properties  and businesses  against
such  casualties  and  contingencies,  of such types,  on such terms and in such
amounts (including  deductibles,  co-insurance and  self-insurance,  if adequate
reserves are  maintained  with  respect  thereto) as is customary in the case of
entities of established  reputations  engaged in the same or a similar  business
and   similarly   situated,   except  in  each  case  to  the  extent  that  any
non-compliance  with the  terms of this  Section  9.2 could  not  reasonably  be
expected to have a Material Adverse Effect.

     SECTION 9.3   MAINTENANCE  OF  PROPERTIES. The Company will, and will cause
each of its  Subsidiaries  to,  maintain and keep, or cause to be maintained and
kept, their respective

                                     - 18 -

<PAGE>

properties in good repair, working order and condition (other than ordinary wear
and tear),  so that the  business  carried  on in  connection  therewith  may be
properly  conducted at all times,  PROVIDED  that this Section shall not prevent
the  Company  or  any  Subsidiary  from  discontinuing  the  operation  and  the
maintenance of any of its properties if such  discontinuance is desirable in the
conduct of its business and the Company has concluded  that such  discontinuance
could not,  individually  or in the aggregate,  reasonably be expected to have a
Material Adverse Effect.

     SECTION 9.4   PAYMENT OF TAXES AND CLAIMS. The Company will, and will cause
each of its  Subsidiaries  to, file all tax returns  required to be filed in any
jurisdiction  and to pay and  discharge all taxes shown to be due and payable on
such returns and all other taxes,  assessments,  governmental charges, or levies
imposed on them or any of their properties, assets, income or franchises, to the
extent  the same have  become  due and  payable  and  before  they  have  become
delinquent  and all claims for which sums have become due and payable  that have
or might become a Lien on properties or assets of the Company or any Subsidiary,
PROVIDED  that  neither the Company  nor any  Subsidiary  need pay any such tax,
assessment,  charge, levy or claim if (i) the amount,  applicability or validity
thereof is contested by the Company or such Subsidiary on a timely basis in good
faith and in  appropriate  proceedings,  and the  Company  or a  Subsidiary  has
established  adequate  reserves therefor in accordance with GAAP on the books of
the Company or such Subsidiary or (ii) the non-filing of all such returns and/or
nonpayment of all such taxes,  assessments,  charges,  levies and claims (as the
case  may be) in the  aggregate  could  not  reasonably  be  expected  to have a
Material Adverse Effect.

     SECTION 9.5  CORPORATE EXISTENCE, ETC. Subject to Section 10.2, the Company
will at all times  preserve  and keep in full  force and  effect  its  corporate
existence.  Subject to Section 10.2,  the Company will at all times preserve and
keep  in  full  force  and  effect  the  corporate  existence  of  each  of  its
Subsidiaries  (unless merged into the Company or a Wholly-Owned  Subsidiary) and
all Material rights and franchises of the Company and its  Subsidiaries  unless,
in the good faith  judgment of the  Company,  the  termination  of or failure to
preserve and keep in full force and effect such  corporate  existence,  right or
franchise could not,  individually or in the aggregate,  have a Material Adverse
Effect.

     SECTION 9.6   BOOKS  AND  RECORDS. The Company will, and will cause each of
its  Subsidiaries  to, maintain proper books of record and account in conformity
with GAAP and all applicable  requirements of any Governmental  Authority having
legal or regulatory  jurisdiction  over the Company or such  Subsidiary,  as the
case may be.

SECTION 10. NEGATIVE COVENANTS.

     The Company covenants that so long as any of the Notes are outstanding:

     SECTION 10.1  TRANSACTIONS  WITH AFFILIATES.  The Company will not and will
not permit any  Significant  Subsidiary to enter into directly or indirectly any
Material  transaction  or  Material  group of  related  transactions  (including
without  limitation the purchase,  lease,  sale or exchange of properties of any
kind or the rendering of any service) with any Affiliate (other than the Company
or  another  Subsidiary),  except in the  ordinary  course and  pursuant  to the
reasonable  requirements  of the  Company's  or  such  Significant  Subsidiary's
business and upon fair and

                                    - 19 -

<PAGE>

reasonable terms no less favorable to the Company or such Significant Subsidiary
than would be obtainable in a comparable arm's-length  transaction with a Person
not an Affiliate.

     SECTION 10.2  MERGER, CONSOLIDATION,  ETC. The Company will not consolidate
with or merge  with  any  other  Person  or  convey,  transfer  or lease  all or
substantially  all  of  its  assets  in  a  single   transaction  or  series  of
transactions to any Person unless:

            (a)    the successor formed by such consolidation or the survivor of
     such merger or the Person that  acquires by  conveyance,  transfer or lease
     all or  substantially  all of the assets of the Company as an entirety,  as
     the case may be,  shall  be a  solvent  corporation  or  limited  liability
     company  organized  and  existing  under the laws of the  United  States or
     Canada or any  jurisdiction  thereof  (including the District of Columbia),
     and, if the Company is not such corporation or limited  liability  company,
     (i) such corporation or limited  liability  company shall have executed and
     delivered  to  each  holder  of any  Notes  its  assumption  of the due and
     punctual  performance and observance of each covenant and condition of this
     Agreement  and the Notes and (ii) such  corporation  or  limited  liability
     company  shall have caused to be  delivered  to each holder of any Notes an
     opinion of nationally recognized  independent counsel, or other independent
     counsel reasonably satisfactory to the Required Holders, to the effect that
     all agreements or instruments  effecting such assumption are enforceable in
     accordance with their terms and comply with the terms hereof; and

            (b)    immediately  before  and  immediately  after giving effect to
     such transaction, no Default or Event of Default shall have occurred and be
     continuing  and the  Company  would  be able to  incur  at  least  $1.00 of
     additional Funded Debt.

No such conveyance,  transfer or lease of substantially all of the assets of the
Company in  violation of the terms of this Section 10.2 shall have the effect of
releasing the Company or any successor  corporation or limited liability company
that shall theretofore have become such in the manner prescribed in this Section
10.2 from its liability under this Agreement or the Notes.

     SECTION 10.3  TERRORISM  SANCTIONS  REGULATIONS.  The  Company will not and
will not permit any Subsidiary to (a) become a Person described or designated in
the Specially  Designated  Nationals  and Blocked  Persons List of the Office of
Foreign Assets Control or in Section 1 of the Anti-Terrorism Order or (b) engage
in any dealings or transactions with any such Person.

     SECTION 10.4  LIENS.  The Company  will not, and will not permit any of its
Subsidiaries to, directly or indirectly create, incur, assume or permit to exist
(upon the happening of a contingency  or otherwise)  any Lien on or with respect
to any  property  or asset  (including,  without  limitation,  any  document  or
instrument  in respect of goods or  accounts  receivable)  of the Company or any
such Subsidiary,  whether now owned or held or hereafter acquired, or any income
or profits  therefrom or assign or otherwise  convey any right to receive income
or profits, except:

            (a)    Liens existing on the date of this Agreement;

                                     - 20 -

<PAGE>

            (b)    Liens on any Utility Property securing Indebtedness  incurred
     in the ordinary course of the Company's utility business;

            (c)    Liens for taxes,  assessments or other  governmental  charges
     which are not yet due and  payable  or the  payment  of which is not at the
     time required by Section 9.4;

            (d)    statutory   Liens  of  landlords   and   Liens  of  carriers,
     warehousemen,  mechanics,  materialmen  and other similar  Liens  including
     Liens  incident to  construction,  in each case,  incurred in the  ordinary
     course of business for sums not yet due and payable or the payment of which
     is not at the time required by Section 9.4;

            (e)    Liens  (other  than  any  Lien imposed by ERISA)  incurred or
     deposits  made in the  ordinary  course of business (i) for salary or wages
     earned,  but  not  yet  payable,   or  (ii)  in  connection  with  workers'
     compensation,  unemployment insurance and other types of social security or
     retirement  benefits,  or (iii) to secure  (or to obtain  letters of credit
     that secure) the  performance of tenders,  statutory  obligations,  surety,
     reclamations  or appeal bonds,  bids,  leases (other than Capital  Leases),
     obligations, or (iv) to secure (or to obtain letters of credit that secure)
     obligations  to public  utilities,  municipalities,  governmental  or other
     public  authorities in connection  with the supply of services or utilities
     to the  Company  or a  Subsidiary,  in each  case not  incurred  or made in
     connection with the borrowing of money, the obtaining of advances or credit
     or the payment of the deferred purchase price of property;

            (f)    any  attachment  or  judgment  Lien,  unless  the judgment it
     secures  shall  not,  within 60 days  after the  entry  thereof,  have been
     discharged or execution  thereof stayed pending  appeal,  or shall not have
     been discharged within 60 days after the expiration of any such stay;

            (g)    leases   or   subleases   granted   to   others,   easements,
     rights-of-way, title irregularities,  restrictions, encroachments and other
     charges  or  encumbrances,  in each case  incidental  to the  ownership  of
     property or assets or the ordinary course of business of the Company or any
     of its  Subsidiaries,  PROVIDED  that such Liens do not, in the  aggregate,
     materially detract from the value of such property;

            (h)    minor  survey  exceptions  and the  like  which  do  not,  in
     the aggregate, materially detract from the value of such property;

            (i)    Liens  on  property  or assets of  any   Subsidiary  securing
     Indebtedness owing to the Company or to another Wholly-Owned Subsidiary;

            (j)    any  Lien  created  to secure all or any part of the purchase
     price, or to secure Indebtedness incurred or assumed to pay all or any part
     of the  purchase  price  or  cost  of  construction,  of  property  (or any
     improvement thereof) acquired or constructed by the Company or a Subsidiary
     after the date of the Closing, PROVIDED that

                         (i)   any such  Lien  shall  extend  solely to the item
            or items of such  property (or  improvement  thereon) so acquired or
            constructed  and,  if  required  by  the  terms  of  the  instrument
            originally creating such Lien, other

                                     - 21 -

<PAGE>

            property (or improvements  thereon) which is an improvement to or is
            acquired  for  specific  use in  connection  with such  acquired  or
            constructed  property  (or  improvement  thereof)  or  which is real
            property being improved by such acquired or constructed property (or
            improvement thereon),

                         (ii)  the  principal amount of the Indebtedness secured
            by such Lien shall at no time exceed an amount  equal to 100% of the
            lesser  of (A) the cost to the  Company  or such  Subsidiary  of the
            property (or improvement thereon) so acquired or constructed and (B)
            the fair market value (as  determined  in good faith by the board of
            directors of the Company) of such property (or improvement  thereon)
            at the time of such acquisition or construction; and

                         (iii) any such Lien shall be created  contemporaneously
            with, or within 365 days after,  the  acquisition or construction of
            such property;

            (k)    any  Lien  existing on property of a Person immediately prior
     to its being  consolidated  with or merged into the Company or a Subsidiary
     or its becoming a Subsidiary, or any Lien existing on any property acquired
     by the Company or any  Subsidiary  at the time such property is so acquired
     (whether or not the Indebtedness  secured thereby shall have been assumed),
     provided  that (i) no such Lien  shall  have been  created  or  assumed  in
     contemplation of such  consolidation or merger or such Person's  becoming a
     Subsidiary or such acquisition of property,  and, (ii) each such Lien shall
     extend solely to the item or items of property so acquired and, if required
     by the  terms  of the  instrument  originally  creating  such  Lien,  other
     property  which is an  improvement  to or is acquired  for  specific use in
     connection with such acquired property;

            (l)    controls,  restrictions,  obligations,  duties  and/or  other
     burdens  imposed by federal,  state,  municipal  or other law, or by rules,
     regulations or orders of Governmental Authorities, upon any property of the
     Company or its  Subsidiaries or the ownership,  operation or use thereof or
     upon the Company with  respect to any of its  property or the  operation or
     use thereof or with respect to any  franchise,  grant,  license,  permit or
     public purpose  requirement,  or any rights reserved to or otherwise vested
     in  Governmental  Authorities  to impose any such  controls,  restrictions,
     obligations, duties and/or other burdens;

            (m)    rights reserved to or vested in others to take or receive any
     part of any coal, ore, gas, oil and other  minerals,  any timber and/or any
     electric  capacity  or energy,  gas,  water,  steam and any other  products
     developed,  produced,  manufactured,   generated,  purchased  or  otherwise
     acquired  by the  Company or by others on property of the Company or any of
     its Subsidiaries;

            (n)    (i) rights and interests of Persons other than the Company or
     its Subsidiaries arising out of contracts, agreements and other instruments
     to which the Company or any of its Subsidiaries is a party and which relate
     to the common ownership or joint use of property; and (ii) all Liens on the
     interests of Persons other than the Company or its Subsidiaries in property
     owned in common by such Persons and the Company or any of its  Subsidiaries
     if and to the extent that the enforcement of such Liens

                                     - 22 -

<PAGE>

     would not adversely affect the interests of the Company or its Subsidiaries
     in such property in any material respect;

            (o)    any  Liens  which  have  been  bonded  for the full amount in
     dispute or for the payment of which  other  adequate  security  arrangement
     have been made;

            (p)    grants  by   the  Company  or  any  of  its  Subsidiaries  of
     easements,  ground leases or rights-of-way in, upon, over and/or across the
     property  or  rights-of-way  of the  Company  or its  Subsidiaries  for the
     purpose of roads,  pipe  liens,  transmission  lines,  distribution  lines,
     communication lines, railways, removal of coal or other minerals or timber,
     and other like  purposes,  or for the joint or common use of real property,
     rights-of-way, facilities and/or equipment; PROVIDED, HOWEVER, that no such
     grant shall materially  impair the use of the property or rights-of-way for
     the  purposes  for which such  property  or  rights-of-way  are held by the
     Company or its Subsidiaries;

            (q)    Liens  on  property of the Company or its Subsidiaries  which
     secure  indebtedness for borrowed money less than one year from the date of
     the issuance or incurrence  thereof and is not  extendible at the option of
     the issuer;

            (r)    Liens  created or assumed by the  Company or its Subsidiaries
     in connection with the issuance of debt securities the interest on which is
     not  included  in gross  income for  purposes  of federal  income  taxation
     pursuant to Section 103 of the Code (or any  successor  provision  of law),
     for the purpose of financing or refinancing,  in whole or in part, costs of
     acquisition or  construction  in connection  with the issuance of such debt
     securities  either  by  applicable  law  or by  the  issuer  of  such  debt
     securities or is otherwise necessary in order to establish or maintain such
     exclusion from gross income;

            (s)    Liens securing  indebtedness  or lease  obligations (i) which
     are related to the  construction  or acquisition of property not previously
     owned by the  Company  or (ii)  which are  related  to the  financing  of a
     project  involving the  development or expansion of property of the Company
     or any of its  Subsidiaries  and (iii) , in either  case,  the  obligee  in
     respect of which has no recourse to the Company or its  Subsidiaries or any
     property  of the  Company  or its  Subsidiaries  other  than  the  property
     constructed  or  acquired  with the  proceeds  of such  transaction  or the
     project  financed  with the proceeds of such  transaction  (or the proceeds
     thereof);

            (t)    Liens  created  by  the  Mortgage  and  Deed  of  Trust dated
     September  1, 1945  between the Company and Irving  Trust  Company (now The
     Bank of New York) and Richard H. West (Douglas I. MacInnes,  successor), as
     Trustees,  as  heretofore  and  hereafter  supplemented  and  amended  (the
     "Mortgage"); and Liens created by any other indenture hereafter executed by
     the Company pursuant to which bonds issued under the Mortgage are or are to
     be delivered to the trustee(s)  under such indenture in a principal  amount
     at least equal to the principal  amount of debt securities to be secured by
     such indenture;

            (u)    any mortgage,  pledge, security interest, Lien or encumbrance
     upon any shares of capital  stock of  majority  owned  subsidiaries  of the
     Company to the extent such

                                     - 23 -

<PAGE>

     capital stock is directly owned by the Company,  created at the time of the
     acquisition  of such capital stock by the Company, or within 365 days after
     such  time, to  secure  all or  a portion  of  the  purchase price for such
     capital stock;

            (v)    any mortgage,  pledge, security interest, Lien or encumbrance
     upon any such capital stock existing thereon at the time of the acquisition
     thereof by the Company (whether or not the obligations  secured thereby are
     assumed by the Company and whether or not such mortgage,  pledge,  security
     interest,  Lien  or  encumbrance  was  created  in  contemplation  of  such
     acquisition);

            (w)    any  extension,  renewal  or  replacement  of  any  mortgage,
     pledge,  security interest, Lien or encumbrance permitted by subsection (u)
     or (v) of this Section  10.6,  or of any  indebtedness  for borrowed  money
     secured  thereby;  provided that the principal  amount of  indebtedness  so
     secured  immediately  following  the  time of such  extension,  renewal  or
     replacement  shall not  exceed  the  principal  amount of  indebtedness  so
     secured  immediately  preceding  the  time of such  extension,  renewal  or
     replacement,  and that such  extension,  renewal or  replacement  mortgage,
     pledge,  security interest, Lien or encumbrance shall be limited to no more
     than the same  proportion of all shares of capital stock as were covered by
     the mortgage,  pledge,  security  interest,  Lien or  encumbrance  that was
     extended, renewed or replaced;

            (x)    any Lien  renewing, extending or  replacing  Liens  permitted
     by  subsections  (a), (b), (j), (k), (q), (r) and (s) of this Section 10.6,
     PROVIDED that,  (i) the principal  amount of  Indebtedness  secured by such
     Lien  immediately  prior to such  extension,  renewal or  refunding  is not
     increased (or if increased,  the increased principal amount of Indebtedness
     so secured does not exceed the fair market  value of the secured  property,
     as determined in good faith by the board of directors of the Company or the
     Subsidiary, as the case may be), or the maturity thereof reduced, (ii) such
     Lien is not extended to any other  property,  and (iii)  immediately  after
     such extension,  renewal or refunding, no Default or Event of Default would
     exist; and

            (y)    any Lien, other than a Lien described in any of the foregoing
     subsections  (a)  through  (x),  inclusive,  to the extent  that it secures
     Indebtedness,  or guarantees thereof,  the outstanding  principal amount of
     which at the time of creation of such Lien,  when added to the  outstanding
     principal balance of all Indebtedness  secured by Liens incurred under this
     subsection  (y) then  outstanding,  does  not  exceed  20% of  Consolidated
     Assets.

     SECTION 10.5  MAXIMUM  RATIO OF FUNDED DEBT TO TOTAL  CAPITAL.  The Company
will not incur additional Funded Debt, unless after giving effect thereto and to
the  application  of the  proceeds  thereof,  Funded Debt does not exceed 70% of
Total Capital.

SECTION 11. EVENTS OF DEFAULT.

     An "EVENT OF DEFAULT"  shall exist if any of the  following  conditions  or
events shall occur and be continuing:

                                     - 24 -

<PAGE>

            (a)    the  Company  defaults  in  the payment of any  principal  or
     Make-Whole  Amount,  if any,  on any Note  when the  same  becomes  due and
     payable,  whether  at  maturity  or at a date  fixed for  prepayment  or by
     declaration or otherwise; or

            (b)    the Company  defaults in the  payment of any  interest on any
     Note for more than  five  Business  Days  after  the same  becomes  due and
     payable; or

            (c)    the Company defaults in the performance of or compliance with
     any term contained in Section 7.1(d) or Section 10.2; or

            (d)    the Company defaults in the performance of or compliance with
     any term contained  herein (other than those referred to in Sections 11(a),
     (b) and (c)) and such  default  is not  remedied  within 30 days  after the
     earlier of (i) a Responsible  Officer  obtaining  actual  knowledge of such
     default and (ii) the Company  receiving written notice of such default from
     any holder of a Note (any such written notice to be identified as a "notice
     of default" and to refer specifically to this Section 11(d)); or

            (e)    any  representation  or  warranty  made  in  writing by or on
     behalf of the Company or by any officer of the Company in this Agreement or
     in any writing  furnished in connection with the transactions  contemplated
     hereby  proves to have been false or incorrect  in any material  respect on
     the date as of which made; or

            (f)    (i) the Company or any Subsidiary is in default (as principal
     or as  guarantor  or other  surety) in the payment of any  principal  of or
     premium  or  make-whole  amount or  interest  on any  Indebtedness  that is
     outstanding  in  an  aggregate   principal   amount  in  excess  of  2%  of
     Consolidated  Assets  beyond  any  period of grace  provided  with  respect
     thereto,  or (ii)  the  Company  or any  Subsidiary  is in  default  in the
     performance  of or  compliance  with  any  term  of  any  evidence  of  any
     Indebtedness in an aggregate  outstanding  principal amount in excess of 2%
     of  Consolidated  Assets or of any mortgage,  indenture or other  agreement
     relating  thereto or any other  condition  exists,  and as a consequence of
     such  default  or  condition  such  Indebtedness  has  become,  or has been
     declared,  due and  payable  before  its  stated  maturity  or  before  its
     regularly  scheduled  dates of payment,  or (iii) as a  consequence  of the
     occurrence  or  continuation  of any  event or  condition  (other  than the
     passage of time or the right of the holder of  Indebtedness to convert such
     Indebtedness into equity interests),  (x) the Company or any Subsidiary has
     become  obligated  to  purchase  or repay  Indebtedness  before its regular
     maturity or before its regularly scheduled dates of payment in an aggregate
     outstanding principal amount in excess of 2% of Consolidated Assets, or (y)
     one or more Persons have the right to require the Company or any Subsidiary
     so to purchase or repay such Indebtedness; or

            (g)    the  Company  or  any Significant Subsidiary (i) is generally
     not paying,  or admits in writing its  inability  to pay, its debts as they
     become due,  (ii) files,  or consents by answer or  otherwise to the filing
     against it of, a petition for relief or  reorganization  or  arrangement or
     any other petition in bankruptcy,  for  liquidation or to take advantage of
     any bankruptcy, insolvency, reorganization, moratorium or other similar law
     of any  jurisdiction,  (iii)  makes an  assignment  for the  benefit of its
     creditors,  (iv)  consents to the  appointment  of a  custodian,  receiver,
     trustee or other officer with similar powers with

                                     - 25 -

<PAGE>

     respect to it or with respect to any substantial part of its property,  (v)
     is adjudicated as insolvent or to be  liquidated,  or (vi) takes  corporate
     action for the purpose of any of the foregoing; or

            (h)    a court or Governmental  Authority of competent  jurisdiction
     enters an order  appointing,  without  consent by the Company or any of its
     Significant Subsidiaries,  a custodian,  receiver, trustee or other officer
     with similar  powers with respect to it or with respect to any  substantial
     part of its property,  or  constituting  an order for relief or approving a
     petition for relief or  reorganization  or any other petition in bankruptcy
     or for liquidation or to take advantage of any bankruptcy or insolvency law
     of any jurisdiction, or ordering the dissolution, winding-up or liquidation
     of the Company or any of its Significant Subsidiaries, or any such petition
     shall be filed against the Company or any of its  Significant  Subsidiaries
     and such petition shall not be dismissed within 60 days; or

            (i)    a final  judgment  or  judgments  for  the payment  of  money
     aggregating in excess of 2% of Consolidated Assets are rendered against one
     or more of the Company and its Significant Subsidiaries and which judgments
     are not, within 60 days after entry thereof,  bonded,  discharged or stayed
     pending appeal,  or are not discharged  within 60 days after the expiration
     of such stay; or

            (j)    if (i) any  Plan shall  fail  to  satisfy the minimum funding
     standards  of ERISA or the Code  for any  plan  year or part  thereof  or a
     waiver of such standards or extension of any amortization  period is sought
     or  granted  under  section  412 of the  Code,  (ii) a notice  of intent to
     terminate  any Plan shall have been or is  reasonably  expected to be filed
     with the PBGC or the PBGC shall have  instituted  proceedings  under  ERISA
     section 4042 to terminate  or appoint a trustee to  administer  any Plan or
     the PBGC shall have notified the Company or any ERISA Affiliate that a Plan
     may become a subject of any such  proceedings,  (iii) the present  value of
     the  aggregate  benefit  liabilities  under each of the Plans  (other  than
     Multiemployer Plans),  exceeds the aggregate current value of the assets of
     such Plan  allocable  to such benefit  liabilities  by more than 25% in the
     case of any single Plan or by more than 25% in the aggregate for all Plans,
     (iv)  the  Company  or  any  ERISA  Affiliate  shall  have  incurred  or is
     reasonably  expected  to incur any  liability  pursuant to Title I or IV of
     ERISA or the  penalty  or excise tax  provisions  of the Code  relating  to
     employee benefit plans (within the meaning of Section 3 of ERISA),  (v) the
     Company or any ERISA Affiliate  withdraws from any  Multiemployer  Plan, or
     (vi) the  Company or any  Subsidiary  establishes  or amends  any  employee
     welfare  benefit  plan  (within  the  meaning of  Section 3 of ERISA)  that
     provides  post-employment  welfare benefits in a manner that would increase
     the  liability of the Company or any  Subsidiary  thereunder;  and any such
     event or events  described  in  clauses  (i)  through  (vi)  above,  either
     individually  or  together  with any  other  such  event or  events,  could
     reasonably be expected to have a Material Adverse Effect.

                                     - 26 -

<PAGE>

SECTION 12. REMEDIES ON DEFAULT, ETC.

     SECTION 12.1  ACCELERATION.  (a) If an Event of Default with respect to the
Company  described  in  Section  11(g) or (h)  (other  than an Event of  Default
described in clause (i) of Section  11(g) or described in clause (vi) of Section
11(g) by virtue of the fact that such clause  encompasses  clause (i) of Section
11(g)) has occurred,  all the Notes then outstanding shall automatically  become
immediately due and payable.

            (b)    If any other Event of Default has occurred and is continuing,
     any holder or holders of more than 50% in principal  amount of the Notes at
     the time  outstanding may at any time at its or their option,  by notice or
     notices  to the  Company,  declare  all the Notes  then  outstanding  to be
     immediately due and payable.

            (c)    If any Event of  Default  described  in Section  11(a) or (b)
     has occurred and is continuing,  any holder or holders of Notes at the time
     outstanding  affected by such Event of Default  may at any time,  at its or
     their  option,  by notice or notices to the Company,  declare all the Notes
     held by it or them to be immediately due and payable.

     Upon any Notes  becoming  due and payable under this Section  12.1, whether
automatically or by declaration, such Notes will forthwith mature and the entire
unpaid principal amount of such Notes,  plus (x) all accrued and unpaid interest
thereon (including,  but not limited to, interest accrued thereon at the Default
Rate) and (y) the  Make-Whole  Amount  determined  in respect of such  principal
amount  (to  the  full  extent  permitted  by  applicable  law),  shall  all  be
immediately due and payable, in each and every case without presentment, demand,
protest  or  further  notice,  all of  which  are  hereby  waived.  The  Company
acknowledges,  and the parties hereto agree,  that each holder of a Note has the
right to maintain its investment in the Notes free from repayment by the Company
(except as herein specifically  provided for) and that the provision for payment
of a Make-Whole Amount by the Company in the event that the Notes are prepaid or
are  accelerated  as a result of an Event of  Default,  is  intended  to provide
compensation for the deprivation of such right under such circumstances.

     SECTION 12.2  OTHER  REMEDIES.  If  any  Default  or Event of  Default  has
occurred and is continuing, and irrespective of whether any Notes have become or
have been declared immediately due and payable under Section 12.1, the holder of
any Note at the time  outstanding  may proceed to protect and enforce the rights
of such  holder  by an  action  at law,  suit in  equity  or  other  appropriate
proceeding,  whether for the specific  performance  of any  agreement  contained
herein or in any Note,  or for an  injunction  against a violation of any of the
terms hereof or thereof,  or in aid of the exercise of any power granted  hereby
or thereby or by law or otherwise.

     SECTION 12.3  RESCISSION. At  any  time  after any Notes have been declared
due and payable pursuant to Section 12.1(b) or (c), the holders of not less than
51% in principal amount of the Notes then outstanding,  by written notice to the
Company,  may rescind and annul any such declaration and its consequences if (a)
the Company has paid all overdue  interest on the Notes,  all  principal  of and
Make-Whole  Amount, if any, on any Notes that are due and payable and are unpaid
other  than by reason of such  declaration,  and all  interest  on such  overdue
principal  and  Make-Whole  Amount,  if any,  and (to the  extent  permitted  by
applicable  law) any overdue  interest  in respect of the Notes,  at the Default
Rate, (b) neither the Company nor any other

                                     - 27 -

<PAGE>

Person  shall have paid any  amounts  which have  become due solely by reason of
such declaration, (c) all Events of Default and Defaults, other than non-payment
of amounts that have become due solely by reason of such declaration,  have been
cured or have been waived  pursuant to Section 17, and (d) no judgment or decree
has been  entered  for the payment of any monies due  pursuant  hereto or to the
Notes.  No rescission  and  annulment  under this Section 12.3 will extend to or
affect any subsequent Event of Default or Default or impair any right consequent
thereon.

     SECTION 12.4  NO WAIVERS OR ELECTION OF REMEDIES,  EXPENSES, ETC. No course
of dealing and no delay on the part of any holder of any Note in exercising  any
right, power or remedy shall operate as a waiver thereof or otherwise  prejudice
such holder's rights, powers or remedies. No right, power or remedy conferred by
this  Agreement or by any Note upon any holder thereof shall be exclusive of any
other right,  power or remedy  referred to herein or therein or now or hereafter
available  at law, in equity,  by statute or  otherwise.  Without  limiting  the
obligations  of the Company under Section 15, the Company will pay to the holder
of each Note on demand such further  amount as shall be  sufficient to cover all
costs and  expenses of such holder  incurred in any  enforcement  or  collection
under this Section 12,  including,  without  limitation,  reasonable  attorneys'
fees, expenses and disbursements.

SECTION 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.

     SECTION 13.1  REGISTRATION  OF  NOTES.   The  Company  shall  keep  at  its
principal  executive  office a register for the registration and registration of
transfers  of Notes.  The name and  address of each holder of one or more Notes,
each transfer thereof and the name and address of each transferee of one or more
Notes  shall  be  registered  in such  register.  Prior to due  presentment  for
registration of transfer,  the Person in whose name any Note shall be registered
shall be deemed and  treated as the owner and holder  thereof  for all  purposes
hereof,  and the Company shall not be affected by any notice or knowledge to the
contrary.  The  Company  shall  give  to  any  holder  of  a  Note  that  is  an
Institutional  Investor promptly upon request  therefor,  a complete and correct
copy of the names and addresses of all registered holders of Notes.

     SECTION 13.2  TRANSFER AND EXCHANGE OF NOTES. Upon surrender of any Note to
the Company at the address and to the attention of the  designated  officer (all
as specified in Section 18(iii)),  for registration of transfer or exchange (and
in the case of a surrender for registration of transfer accompanied by a written
instrument of transfer duly  executed by the  registered  holder of such Note or
such  holder's  attorney  duly  authorized  in writing  and  accompanied  by the
relevant name,  address and other  information for notices of each transferee of
such Note or part  thereof),  within ten Business Days  thereafter,  the Company
shall execute and deliver,  at the Company's expense (except as provided below),
one or more new Notes (as requested by the holder thereof) in exchange therefor,
in an aggregate  principal  amount equal to the unpaid  principal  amount of the
surrendered  Note.  Each such new Note shall be  payable to such  Person as such
holder may  request  and shall be  substantially  in the form of Exhibit 1. Each
such new Note shall be dated and bear interest  from the date to which  interest
shall  have  been  paid  on the  surrendered  Note  or  dated  the  date  of the
surrendered  Note if no interest  shall have been paid thereon.  The Company may
require  payment  of a sum  sufficient  to cover any  stamp tax or  governmental
charge  imposed in respect of any such  transfer  of Notes.  Notes  shall not be
transferred in denominations  of less than $100,000,  provided that if necessary
to enable the  registration  of  transfer  by a holder of its entire  holding of
Notes, one Note may be in a

                                     - 28 -

<PAGE>

denomination of less than $100,000. Any transferee,  by its acceptance of a Note
registered  in its name (or the name of its  nominee),  shall be  deemed to have
made the representation set forth in Section 6.2.

     SECTION 13.3  REPLACEMENT  OF NOTES.  Upon  receipt by  the  Company at the
address and to the  attention  of the  designated  officer  (all as specified in
Section 18(iii)) of evidence  reasonably  satisfactory to it of the ownership of
and the loss, theft, destruction or mutilation of any Note (which evidence shall
be, in the case of an  Institutional  Investor,  notice from such  Institutional
Investor of such ownership and such loss, theft, destruction or mutilation), and

            (a)    in  the  case  of  loss,  theft  or destruction, of indemnity
     reasonably satisfactory to it (provided that if the holder of such Note is,
     or is a nominee for, an original Purchaser or another holder of a Note with
     a minimum net worth of at least  $100,000,000 or a Qualified  Institutional
     Buyer,  such Person's own unsecured  agreement of indemnity shall be deemed
     to be satisfactory), or

            (b)    in the case of mutilation, upon  surrender  and  cancellation
     thereof,

within ten  Business  Days  thereafter,  the  Company at its own  expense  shall
execute and deliver,  in lieu thereof,  a new Note,  dated and bearing  interest
from the date to which  interest  shall  have  been paid on such  lost,  stolen,
destroyed or mutilated Note or dated the date of such lost, stolen, destroyed or
mutilated Note if no interest shall have been paid thereon.

SECTION 14. PAYMENTS ON NOTES.

     SECTION 14.1  PLACE  OF  PAYMENT.  Subject  to Section  14.2,  payments  of
principal,  Make-Whole  Amount, if any, and interest becoming due and payable on
the Notes shall be made in New York,  New York at the  principal  office of U.S.
Bank in such jurisdiction. The Company may at any time, by notice to each holder
of a Note,  change  the place of  payment  of the Notes so long as such place of
payment shall be either the principal office of the Company in such jurisdiction
or the principal office of a bank or trust company in such jurisdiction.

     SECTION 14.2  HOME OFFICE  PAYMENT. So long as any Purchaser or its nominee
shall be the  holder of any Note,  and  notwithstanding  anything  contained  in
Section  14.1 or in such Note to the  contrary,  the  Company  will pay all sums
becoming due on such Note for principal, Make-Whole Amount, if any, and interest
by the  method  and  at the  address  specified  for  such  purpose  below  such
Purchaser's name in Schedule A, or by such other method or at such other address
as such  Purchaser  shall  have from time to time  specified  to the  Company in
writing for such purpose,  without the presentation or surrender of such Note or
the making of any  notation  thereon,  except that upon  written  request of the
Company  made  concurrently  with  or  reasonably   promptly  after  payment  or
prepayment in full of any Note,  such  Purchaser  shall  surrender such Note for
cancellation,  reasonably promptly after any such request, to the Company at its
principal  executive office or at the place of payment most recently  designated
by the Company pursuant to Section 14.1. Prior to any sale or other  disposition
of any Note held by a Purchaser  or its nominee,  such  Purchaser  will,  at its
election,  either  endorse  thereon the amount of principal paid thereon and the
last date to which  interest has been paid thereon or surrender such Note to the
Company  in  exchange  for a new Note or Notes  pursuant  to Section  13.2.  The
Company will

                                     - 29 -

<PAGE>

afford the benefits of this Section 14.2 to any  Institutional  Investor that is
the direct or indirect  transferee  of any Note  purchased by a Purchaser  under
this Agreement and that has made the same agreement relating to such Note as the
Purchasers have made in this Section 14.2.

SECTION 15. EXPENSES, ETC.

     SECTION 15.1  TRANSACTION   EXPENSES.   Whether  or  not  the  transactions
contemplated hereby are consummated, the Company will pay all costs and expenses
(including  reasonable  attorneys'  fees of a special counsel and, if reasonably
required  by the  Required  Holders,  local or other  counsel)  incurred  by the
Purchasers and each other holder of a Note in connection with such  transactions
and in connection with any  amendments,  waivers or consents under or in respect
of this Agreement or the Notes (whether or not such amendment, waiver or consent
becomes effective),  including,  without limitation:  (a) the costs and expenses
incurred in enforcing or defending (or determining  whether or how to enforce or
defend) any rights  under this  Agreement or the Notes or in  responding  to any
subpoena  or other  legal  process or informal  investigative  demand  issued in
connection  with this Agreement or the Notes,  or by reason of being a holder of
any Note,  (b) the costs  and  expenses,  including  financial  advisors'  fees,
incurred in connection  with the  insolvency or bankruptcy of the Company or any
Subsidiary  or  in  connection  with  any  work-out  or   restructuring  of  the
transactions contemplated hereby and by the Notes and (c) the costs and expenses
incurred in connection with the initial filing of this Agreement and all related
documents and financial  information with the SVO PROVIDED,  that such costs and
expenses  under this clause (c) shall not exceed  $3,000.  The Company will pay,
and will save each  Purchaser and each other holder of a Note harmless from, all
claims in respect of any fees, costs or expenses, if any, of brokers and finders
(other than those, if any, retained by a Purchaser or other holder in connection
with its purchase of the Notes).

     SECTION 15.2  SURVIVAL.  The  obligations of the Company under this Section
15 will survive the payment or transfer of any Note, the enforcement,  amendment
or waiver of any provision of this Agreement or the Notes,  and the  termination
of this Agreement.

SECTION 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.

     All  representations  and  warranties  contained  herein shall  survive the
execution and delivery of this Agreement and the Notes, the purchase or transfer
by any  Purchaser  of any Note or portion  thereof or  interest  therein and the
payment of any Note, and may be relied upon by any subsequent  holder of a Note,
regardless  of any  investigation  made  at any  time  by or on  behalf  of such
Purchaser  or any  other  holder  of a Note.  All  statements  contained  in any
certificate  or  other  instrument  delivered  by or on  behalf  of the  Company
pursuant to this Agreement shall be deemed representations and warranties of the
Company under this Agreement.  Subject to the preceding sentence, this Agreement
and the Notes  embody  the  entire  agreement  and  understanding  between  each
Purchaser and the Company and supersede all prior agreements and  understandings
relating to the subject matter hereof.

SECTION 17. AMENDMENT AND WAIVER.

     SECTION 17.1  REQUIREMENTS.  This  Agreement and  the Notes may be amended,
and the  observance  of any term  hereof or of the  Notes may be waived  (either
retroactively or

                                     - 30 -

<PAGE>

prospectively),  with (and only with) the written consent of the Company and the
Required  Holders,  except  that  (a)  no  amendment  or  waiver  of  any of the
provisions of Section 1, 2, 3, 4, 5, 6 or 21 hereof,  or any defined term (as it
is used therein),  will be effective as to any Purchaser  unless consented to by
such Purchaser in writing,  and (b) no such amendment or waiver may, without the
written  consent  of the  holder of each Note at the time  outstanding  affected
thereby, (i) subject to the provisions of Section 12 relating to acceleration or
rescission,  change the amount or time of any prepayment or payment of principal
of, or reduce the rate or change the time of payment or method of computation of
interest or of the Make-Whole  Amount on, the Notes,  (ii) change the percentage
of the  principal  amount of the  Notes the  holders  of which are  required  to
consent to any such  amendment  or waiver,  or (iii)  amend any of  Sections  8,
11(a), 11(b), 12, 17 or 20.

     SECTION 17.2  SOLICITATION OF HOLDERS OF NOTES.

            (a)    SOLICITATION.  The Company  will provide  each  holder of the
     Notes  (irrespective  of the  amount  of  Notes  then  owned  by  it)  with
     sufficient information,  sufficiently far in advance of the date a decision
     is  required,  to enable  such holder to make an  informed  and  considered
     decision  with  respect  to any  proposed  amendment,  waiver or consent in
     respect of any of the provisions  hereof or of the Notes.  The Company will
     deliver  executed or true and correct copies of each  amendment,  waiver or
     consent  effected  pursuant to the  provisions  of this  Section 17 to each
     holder of  outstanding  Notes  promptly  following  the date on which it is
     executed  and  delivered  by, or receives  the consent or approval  of, the
     requisite holders of Notes.

            (b)    OFFER  OF  PAYMENT.   The  Company  will  not  offer  to  pay
     any  remuneration,  whether by way of supplemental or additional  interest,
     fee or otherwise, or grant any security or provide other credit support, to
     any  holder  of  Notes  as  consideration  for or as an  inducement  to the
     entering  into by any holder of Notes of any waiver or  amendment of any of
     the terms and provisions  hereof unless such  remuneration  is concurrently
     offered,  on  the  same  terms,  ratably  to  each  holder  of  Bonds  then
     outstanding

            (c)    CONSENT  IN  CONTEMPLATION  OF  TRANSFER.  Any  consent  made
     pursuant  to  this  Section  17.2  by the  holder  of  any  Note  that  has
     transferred  or has  agreed  to  transfer  such  Note to the  Company,  any
     Subsidiary  or any  Affiliate of the Company and has provided or has agreed
     to provide such written  consent as a condition to such  transfer  shall be
     void and of no force or effect  except  solely as to such  holder,  and any
     amendments  effected or waivers  granted or to be effected or granted  that
     would not have been or would not be so  effected  or  granted  but for such
     consent (and the consents of all other  holders of Notes that were acquired
     under  the  same or  similar  conditions)  shall be void and of no force or
     effect except solely as to such transferring holder.

     SECTION 17.3  BINDING EFFECT, ETC. Any amendment or waiver  consented to as
provided  in this  Section  17 applies  equally  to all  holders of Notes and is
binding  upon them and upon each future  holder of any Note and upon the Company
without  regard to whether such Note has been marked to indicate such  amendment
or waiver.  No such amendment or waiver will extend to or affect any obligation,
covenant, agreement, Default or Event of Default not expressly amended or waived
or impair any right consequent thereon. No course of dealing between the Company

                                     - 31 -

<PAGE>

and the holder of any Note nor any delay in exercising  any rights  hereunder or
under any Note  shall  operate  as a waiver of any  rights of any holder of such
Note. As used herein,  the term "THIS  AGREEMENT" and  references  thereto shall
mean this Agreement as it may from time to time be amended or supplemented.

     SECTION 17.4  NOTES  HELD  BY  COMPANY,  ETC.  Solely  for the  purpose  of
determining  whether the holders of the  requisite  percentage  of the aggregate
principal  amount  of  Notes  then  outstanding  approved  or  consented  to any
amendment,  waiver or consent to be given under this Agreement or the Notes,  or
have  directed  the taking of any action  provided  herein or in the Notes to be
taken  upon the  direction  of the  holders  of a  specified  percentage  of the
aggregate  principal  amount  of  Notes  then  outstanding,  Notes  directly  or
indirectly  owned by the Company or any of its Affiliates shall be deemed not to
be outstanding.

SECTION 18. NOTICES.

     All notices and  communications  provided for hereunder shall be in writing
and sent (a) by telecopy if the sender on the same day sends a  confirming  copy
of such notice by a recognized overnight delivery service (charges prepaid),  or
(b) by  registered  or certified  mail with return  receipt  requested  (postage
prepaid),  or (c) by a  recognized  overnight  delivery  service  (with  charges
prepaid). Any such notice must be sent:

                         (i)   if  to  any  Purchaser  or its  nominee,  to such
            Purchaser   or   nominee   at  the   address   specified   for  such
            communications  in  Schedule  A, or at such  other  address  as such
            Purchaser or nominee shall have specified to the Company in writing,

                         (ii)  if  to  any  other  holder  of  any Note, to such
            holder at such address as such other holder shall have  specified to
            the Company in writing, or

                         (iii) if to the Company,  to the Company at its address
            set forth at the  beginning  hereof to the  attention of its General
            Counsel,  or at  such  other  address  as  the  Company  shall  have
            specified to the holder of each Note in writing.

Notices under this Section 18 will be deemed given only when actually received.

SECTION 19. REPRODUCTION OF DOCUMENTS.

     This  Agreement  and all documents  relating  thereto,  including,  without
limitation,  (a)  consents,  waivers and  modifications  that may  hereafter  be
executed,  (b) documents  received by any  Purchaser at the Closing  (except the
Notes  themselves),  and  (c)  financial  statements,   certificates  and  other
information  previously  or  hereafter  furnished  to  any  Purchaser,   may  be
reproduced  by such  Purchaser  by any  photographic,  photostatic,  electronic,
digital,  or other similar  process and such  Purchaser may destroy any original
document so reproduced.  The Company  agrees and stipulates  that, to the extent
permitted  by  applicable  law, any such  reproduction  shall be  admissible  in
evidence as the  original  itself in any judicial or  administrative  proceeding
(whether  or  not  the  original  is  in  existence  and  whether  or  not  such
reproduction  was made by such  Purchaser in the regular course of business) and
any enlargement,  facsimile or further  reproduction of such reproduction  shall
likewise be  admissible  in  evidence.  This  Section

                                     - 32 -

<PAGE>

19 shall not prohibit  the Company or any other holder of Notes from  contesting
any such reproduction to the same extent that it could contest the original,  or
from   introducing   evidence  to   demonstrate   the  inaccuracy  of  any  such
reproduction.

SECTION 20. CONFIDENTIAL INFORMATION.

     For the  purposes of this  Section  20,  "CONFIDENTIAL  INFORMATION"  means
information  delivered  to any  Purchaser  by or on behalf of the Company or any
Subsidiary  in connection  with the  transactions  contemplated  by or otherwise
pursuant to this  Agreement  that is  proprietary in nature and that was clearly
marked or labeled or  otherwise  adequately  identified  when  received  by such
Purchaser as being  confidential  information of the Company or such Subsidiary,
provided that such term does not include information that (a) was publicly known
or otherwise known to such Purchaser prior to the time of such  disclosure,  (b)
subsequently becomes publicly known through no act or omission by such Purchaser
or any person acting on such Purchaser's  behalf, (c) otherwise becomes known to
such Purchaser other than through disclosure by the Company or any Subsidiary or
(d) constitutes  financial  statements delivered to such Purchaser under Section
7.1 that are otherwise  publicly  available.  Each  Purchaser  will maintain the
confidentiality  of such Confidential  Information in accordance with procedures
adopted by such Purchaser in good faith to protect  confidential  information of
third parties  delivered to such  Purchaser,  provided  that such  Purchaser may
deliver or disclose  Confidential  Information to (i) its  directors,  officers,
employees,  agents,  attorneys,  trustees  and  affiliates  (to the extent  such
disclosure   reasonably   relates  to  the   administration  of  the  investment
represented by its Notes),  (ii) its financial  advisors and other  professional
advisors  who  agree  to  hold   confidential   the   Confidential   Information
substantially  in accordance  with the terms of this Section 20, (iii) any other
holder of any Note, (iv) any Institutional  Investor to which it sells or offers
to sell such Note or any part  thereof  or any  participation  therein  (if such
Person  has  agreed  in  writing  prior  to its  receipt  of  such  Confidential
Information  to be bound by the  provisions  of this Section 20), (v) any Person
from which it offers to purchase any security of the Company (if such Person has
agreed in writing prior to its receipt of such  Confidential  Information  to be
bound  by the  provisions  of this  Section  20),  (vi)  any  federal  or  state
regulatory authority having jurisdiction over such Purchaser,  (vii) the NAIC or
the SVO or, in each case, any similar organization, or any nationally recognized
rating  agency  that  requires  access to  information  about  such  Purchaser's
investment  portfolio,  or (viii)  any other  Person to which such  delivery  or
disclosure may be necessary or  appropriate  (w) to effect  compliance  with any
law, rule, regulation or order applicable to such Purchaser,  (x) in response to
any subpoena or other legal  process,  (y) in connection  with any litigation to
which such  Purchaser  is a party or (z) if an Event of Default has occurred and
is  continuing,  to the extent such  Purchaser  may  reasonably  determine  such
delivery and disclosure to be necessary or appropriate in the enforcement or for
the protection of the rights and remedies under such Purchaser's  Notes and this
Agreement. Each holder of a Note, by its acceptance of a Note, will be deemed to
have agreed to be bound by and to be entitled to the benefits of this Section 20
as  though  it were a party to this  Agreement.  On  reasonable  request  by the
Company in connection  with the delivery to any holder of a Note of  information
required to be  delivered  to such holder  under this  Agreement or requested by
such  holder  (other  than a  holder  that is a party to this  Agreement  or its
nominee),  such holder will enter into an agreement  with the Company  embodying
the provisions of this Section 20.

                                     - 33 -

<PAGE>

SECTION 21. SUBSTITUTION OF PURCHASER.

     Each Purchaser shall have the right to substitute any one of its Affiliates
as the  purchaser  of the Notes that it has  agreed to  purchase  hereunder,  by
written  notice  to the  Company,  which  notice  shall be  signed  by both such
Purchaser and such  Affiliate,  shall contain such  Affiliate's  agreement to be
bound by this  Agreement and shall contain a  confirmation  by such Affiliate of
the accuracy with respect to it of the  representations  set forth in Section 6.
Upon receipt of such notice,  any reference to such  Purchaser in this Agreement
(other than in this Section 21),  shall be deemed to refer to such  Affiliate in
lieu  of such  original  Purchaser.  In the  event  that  such  Affiliate  is so
substituted as a Purchaser hereunder and such Affiliate  thereafter transfers to
such  original  Purchaser  all of the Notes  then held by such  Affiliate,  upon
receipt  by the  Company  of  notice of such  transfer,  any  reference  to such
Affiliate as a "Purchaser"  in this  Agreement  (other than in this Section 21),
shall no longer be deemed to refer to such  Affiliate,  but shall  refer to such
original Purchaser,  and such original Purchaser shall again have all the rights
of an original holder of the Notes under this Agreement.

SECTION 22. MISCELLANEOUS.

     SECTION 22.1  SUCCESSORS  AND ASSIGNS.  All covenants and other  agreements
contained in this  Agreement  by or on behalf of any of the parties  hereto bind
and inure to the benefit of their respective  successors and assigns (including,
without  limitation,  any  subsequent  holder of a Note) whether so expressed or
not.

     SECTION 22.2  PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this Agreement
or  the  Notes  to  the  contrary  notwithstanding  (but  without  limiting  the
requirement in Section 8.4 that the notice of any optional  prepayment specify a
Business Day as the date fixed for such prepayment), any payment of principal of
or Make-Whole  Amount or interest on any Note that is due on a date other than a
Business Day shall be made on the next succeeding Business Day without including
the additional days elapsed in the  computation of the interest  payable on such
next succeeding  Business Day; provided that if the maturity date of any Note is
a date other than a Business  Day, the payment  otherwise  due on such  maturity
date shall be made on the next  succeeding  Business  Day and shall  include the
additional  days  elapsed in the  computation  of interest  payable on such next
succeeding Business Day.

     SECTION 22.3  ACCOUNTING  TERMS. All accounting terms used herein which are
not expressly defined in this Agreement have the meanings  respectively given to
them in accordance with GAAP. Except as otherwise  specifically provided herein,
(i) all computations made pursuant to this Agreement shall be made in accordance
with Agreement Accounting Principles, and (ii) all financial statements shall be
prepared in accordance with GAAP.

     SECTION 22.4  SEVERABILITY.  Any   provision  of  this  Agreement  that  is
prohibited or unenforceable in any jurisdiction  shall, as to such jurisdiction,
be ineffective to the extent of such  prohibition  or  unenforceability  without
invalidating  the  remaining  provisions  hereof,  and any such  prohibition  or
unenforceability in any jurisdiction shall (to the full extent permitted by law)
not invalidate or render unenforceable such provision in any other jurisdiction.

                                     - 34 -

<PAGE>

     SECTION 22.5  CONSTRUCTION,  ETC. Each covenant  contained  herein shall be
construed  (absent  express  provision to the contrary) as being  independent of
each other covenant  contained  herein, so that compliance with any one covenant
shall  not  (absent  such an  express  contrary  provision)  be deemed to excuse
compliance with any other covenant.  Where any provision herein refers to action
to be taken by any Person, or which such Person is prohibited from taking,  such
provision  shall  be  applicable  whether  such  action  is  taken  directly  or
indirectly by such Person.

     For the avoidance of doubt,  all  Schedules  and Exhibits  attached to this
Agreement shall be deemed to be a part hereof.

     SECTION 22.6  COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one  instrument.  Each  counterpart may consist of a number of copies
hereof, each signed by less than all, but together signed by all, of the parties
hereto.

     SECTION 22.7  GOVERNING LAW. This Agreement shall be construed and enforced
in accordance  with, and the rights of the parties shall be governed by, the law
of the State of New York excluding  choice-of-law  principles of the law of such
State that would permit the application of the laws of a jurisdiction other than
such State.


                                   * * * * *


                                     - 35 -

<PAGE>

     If  you  are  in  agreement  with  the  foregoing,  please sign the form of
agreement  on a  counterpart  of this  Agreement  and return it to the  Company,
whereupon this Agreement  shall become a binding  agreement  between you and the
Company.

                                         Very truly yours,

                                         ALLETE, INC.



                                         By: /s/ Mark A. Schober
                                             -----------------------------------
                                             Name:  Mark A. Schober
                                             Title: Sr. Vice President & CFO


                                     - 36 -

<PAGE>

This Agreement is hereby
accepted and agreed to as
of the date thereof.

                                         THE NORTHWESTERN MUTUAL LIFE
                                           INSURANCE COMPANY


                                         By: /s/ David A. Barras
                                             -----------------------------------
                                             Name:  David A. Barras
                                             Its Authorized Representative





ALLETE, Inc.
Note Purchase Agreement

<PAGE>

This Agreement is hereby
accepted and agreed to as
of the date thereof.

                                         THRIVENT FINANCIAL FOR LUTHERANS


                                         By: /s/ Alan D. Onstad
                                             Name:  Alan D. Onstad
                                             Title: Associate Portfolio Manager





ALLETE, Inc.
Note Purchase Agreement

<PAGE>

                                                                      SCHEDULE A
                                                                      ----------

Information Relating to Purchasers

                                                            PRINCIPAL AMOUNT OF
NAME AND ADDRESS OF PURCHASER                              NOTES TO BE PURCHASED

THE NORTHWESTERN MUTUAL LIFE
    INSURANCE COMPANY                                           $25,000,000
720 East Wisconsin Avenue
Milwaukee, Wisconsin  53202
Attention:  Securities Department
Fax Number:  (414) 665-7124

Payments

Payments  shall be made by bank wire transfer of  immediately  available  funds,
providing  sufficient  information  to identify the source of the transfer,  the
amount of interest and/or principal and the series of Notes and PPN, to:

     US Bank
     777 East Wisconsin Avenue
     Milwaukee, WI 53202
     ABA# 075000022

     For the account of: Northwestern Mutual Life
     Account No. 182380324521

Notices

All notices and  communications to be addressed as first provided above,  except
notices with respect to payments and written  confirmation  of each such payment
to be addressed,  Attention: Investment Operations Department, Fax Number: (414)
665-6998.

Name of Nominee in which Notes are to be issued:  None

Taxpayer I.D. Number:  39-0509570


                                   SCHEDULE A
                          (to Note Purchase Agreement)

<PAGE>

                                                            PRINCIPAL AMOUNT OF
NAME AND ADDRESS OF PURCHASER                              NOTES TO BE PURCHASED

THRIVENT FINANCIAL FOR LUTHERANS
625 Fourth Avenue South                                         $5,000,000
Minneapolis, Minnesota  55415                                   $5,000,000
Attention:  Investment Division                                 $5,000,000
Fax Number:  (612) 340-4027                                     $5,000,000
                                                                $5,000,000

Payments

All payments of principal, premium or interest on the account of the Notes shall
be made by bank wire transfer (in immediately available funds) to:

     ABA # 011000028
     State Street Bank & Trust Co.
     DDA # A/C -- 6813-049-1
     Fund Number:  NCE1
     Fund Name:  Thrivent Financial for Lutherans
     All payments must include the following information:
     Security Description, Private Placement Number (018522 B*2),
     Reference Purpose of Payment and Interest and/or
     Principal Breakdown

Notices

All notices and  communications to be addressed as first provided above,  except
notices with respect to payment and written  confirmation  of each such payment,
to be addressed:

     Thrivent Financial for Lutherans
     625 Fourth Avenue South
     Minneapolis, Minnesota  55415
     Attention:  Investment Division-Private Placements
     Fax:  (612) 340-4027
              with a copy to:
     Thrivent Accounts
     State Street Kansas City
     801 Pennsylvania
     Kansas City, Missouri  64105
     Attention:  Bart Woodson
     Fax:  (816) 691-3610

Name of Nominee in which Notes are to be issued:  Swanbird & Co.

Taxpayer I.D. Number for Swanbird & Co.:  04-3475606

<PAGE>

                                                                      SCHEDULE B
                                                                      ----------

                                  DEFINED TERMS

     As used herein, the following terms have the respective  meanings set forth
below or set forth in the Section hereof following such term:

     "AFFILIATE"  means, at any time, and with respect to any Person,  any other
Person  that  at  such  time  directly  or   indirectly   through  one  or  more
intermediaries  Controls,  or is Controlled by, or is under common Control with,
such first Person,  and,  with respect to the Company,  shall include any Person
beneficially owning or holding, directly or indirectly, 10% or more of any class
of  voting  or  equity  interests  of  the  Company  or  any  Subsidiary  or any
corporation of which the Company and its Subsidiaries  beneficially own or hold,
in the aggregate,  directly or indirectly, 10% or more of any class of voting or
equity  interests.  As used in this definition,  "CONTROL" means the possession,
directly or  indirectly,  of the power to direct or cause the  direction  of the
management  and policies of a Person,  whether  through the  ownership of voting
securities,  by contract or  otherwise.  Unless the  context  otherwise  clearly
requires,  any reference to an "Affiliate" is a reference to an Affiliate of the
Company.

     "AGREEMENT ACCOUNTING PRINCIPLES" means GAAP, provided that with respect to
the  calculations  for purposes of determining  compliance with the covenant set
forth in Section 10.5, such term means generally accepted accounting  principles
in effect as of the date of the Closing applied on a basis  consistent with that
used in the  preparation  of the  most  recent  audited  consolidated  financial
statements of the Company.

     "ANTI-TERRORISM  ORDER" means  Executive  Order No. 13,224 of September 24,
2001,  Blocking  Property and Prohibiting  Transactions with Persons Who Commit,
Threaten to Commit or Support  Terrorism,  66 U.S. Fed. Reg. 49, 079 (2001),  as
amended.

     "BUSINESS  DAY" means (a) for the  purposes  of Section  8.7 only,  any day
other than a Saturday,  a Sunday or a day on which  commercial banks in New York
City are required or  authorized  to be closed,  and (b) for the purposes of any
other provision of this Agreement,  any day other than a Saturday, a Sunday or a
day on which  commercial  banks in New York,  New York or Duluth,  Minnesota are
required or authorized to be closed.

     "CAPITAL  LEASE"  means,  at any time,  a lease  with  respect to which the
lessee is required concurrently to recognize the acquisition of an asset and the
incurrence of a liability in accordance with GAAP.

     "CHANGE IN CONTROL" is defined in Section 8.3(f).

     "CHANGE IN CONTROL EVENT" is defined in Section 8.3(a).

     "CLOSING" is defined in Section 3.

     "CODE"  means the Internal  Revenue  Code of 1986,  as amended from time to
time, and the rules and regulations promulgated thereunder from time to time.


                                   SCHEDULE B
                          (to Note Purchase Agreement)

<PAGE>

     "COMPANY" means ALLETE, Inc., a Minnesota corporation or any successor that
becomes such in the manner prescribed in Section 10.2.

     "CONFIDENTIAL INFORMATION" is defined in Section 20.

     "CONSOLIDATED  ASSETS"  means  the  total  amount  of  assets  shown on the
consolidated  balance sheet of the Company and its  Subsidiaries,  determined in
accordance  with GAAP and prepared as of the end of the fiscal quarter then most
recently ended.

     "CONSOLIDATED NET WORTH" means, as of any date of determination, the sum of
stockholders'  equity  (including  preferred  stock and QUIPs),  PLUS additional
paid-in capital,  PLUS retained  earnings (or MINUS  accumulated  deficits) PLUS
preferred  securities of the Company and its  Subsidiaries,  PROVIDED,  however,
that the computation of Consolidated Net Worth shall exclude  Accumulated  Other
Comprehensive Income/Loss,  unearned ESOP shares and market value of derivatives
(FAS 133), all of the foregoing  determined  with respect to the Company and its
Subsidiaries  on a consolidated  basis in accordance  with Agreement  Accounting
Principles.

     "DEFAULT"  means an event or condition the occurrence or existence of which
would,  with the lapse of time or the giving of notice or both,  become an Event
of Default.

     "DEFAULT RATE" means that rate of interest that is the greater of (i) 2.00%
per annum above the rate of interest stated in clause (a) of the first paragraph
of the Notes or (ii) 2.00% over the rate of interest publicly  announced by U.S.
Bank in New York, New York as its "base" or "prime" rate.

     "DISCLOSURE DOCUMENTS" is defined in Section 5.3.

     "ELECTRONIC DELIVERY" is defined in Section 7.1(a).

     "ENVIRONMENTAL  LAWS" means any and all Federal,  state, local, and foreign
statutes,  laws, regulations,  ordinances,  rules,  judgments,  orders, decrees,
permits, concessions,  grants, franchises,  licenses, agreements or governmental
restrictions  relating to pollution and the protection of the environment or the
release of any  materials  into the  environment,  including  but not limited to
those related to Hazardous Materials.

     "ERISA"  means the Employee  Retirement  Income  Security  Act of 1974,  as
amended from time to time, and the rules and regulations  promulgated thereunder
from time to time in effect.

     "ERISA AFFILIATE" means any trade or business (whether or not incorporated)
that is treated as a single employer together with the Company under section 414
of the Code.

     "Event of Default" is defined in Section 11.

     "EXCHANGE ACT" means the  Securities  Exchange Act of 1934, as amended from
time to time, and the rules and regulations  promulgated thereunder from time to
time in effect.

     "FORM 10-K" is defined in Section 7.1(b).

<PAGE>

     "FORM 10-Q" is defined in Section 7.1(a).

     "FUNDED DEBT" means,  for any Person on a consolidated  basis in accordance
with Agreement Accounting Principles, without duplication:

            (a)    all indebtedness of such Person for borrowed money;

            (b)    the  deferred and unpaid  balance of the purchase price owing
     by such Person on account of any assets or services  purchased  (other than
     trade  payables  and other  accrued  liabilities  incurred in the  ordinary
     course of business  that are not overdue by more than 180 days unless being
     contested in good faith) if such  purchase  price is (i) due more than nine
     months from the date of incurrence of the obligation in respect  thereof or
     (ii) evidenced by a note or a similar written instrument;

            (c)    all capitalized lease obligations;

            (d)    all  indebtedness  secured by a Lien on any property owned by
     such  Person,  whether or not such  indebtedness  has been  assumed by such
     entity or is nonrecourse to such Person;

            (e)    notes payable and drafts accepted representing  extensions of
     credit whether or not  representing  obligations  for borrowed money (other
     than such notes or drafts  from the  deferred  purchase  price of assets or
     services to the extent  such  purchase  price  is  excluded from clause (b)
     above);

            (f)    indebtedness  evidenced  by bonds,  notes or similar  written
     instrument;

            (g)    the  face  amount  of all  letters  of  credit  and  bankers'
     acceptances issued for the account of such entity, and without duplication,
     all drafts drawn  thereunder  (other than such letters of credit,  bankers'
     acceptances  and drafts for the  deferred  purchase  price ...of  assets or
     services  to  the  extent  such  purchase  price  is  under  interest  rate
     agreements or currency agreements); and

            (h)    guaranty   obligations  of   such   Person  with  respect  to
     indebtedness  for borrowed money of another Person  (including  Affiliates)
     aggregating in excess of 2% of Consolidated Assets;

     PROVIDED,  however,  that in no event shall any  calculation of Funded Debt
     include (i) deferred taxes,  (ii)  securitized  trade  receivables or (iii)
     deferred credits  including  regulatory  assets and contributions in aid of
     construction.

     "GAAP" means  generally  accepted  accounting  principles as in effect from
time to time in the United States of America.

     "GOVERNMENTAL AUTHORITY" means

            (a)    the government of

                                      - 3 -

<PAGE>

                   (i)   the  United  States of America  or  any State  or other
            political subdivision thereof, or

                   (ii)  any  other jurisdiction  in  which  the Company  or any
            Subsidiary  conducts  all or any  part  of its  business,  or  which
            asserts  jurisdiction  over any  properties  of the  Company  or any
            Subsidiary, or

            (b)    any  entity  exercising   executive,  legislative,  judicial,
     regulatory  or  administrative  functions  of, or  pertaining  to, any such
     government.

     "GUARANTY"  means, with respect to any Person,  any obligation  (except the
endorsement  in the ordinary  course of business of negotiable  instruments  for
deposit or collection) of such Person guaranteeing or in effect guaranteeing any
indebtedness,  dividend or other  obligation  of any other Person in any manner,
whether  directly or  indirectly,  including  (without  limitation)  obligations
incurred through an agreement, contingent or otherwise, by such Person:

            (a)    to purchase such indebtedness or obligation  or any  property
     constituting security therefor;

            (b)    to advance or supply funds (i) for the purchase or payment of
     such indebtedness or obligation, or (ii) to maintain any working capital or
     other  balance  sheet  condition or any income  statement  condition of any
     other  Person or  otherwise  to  advance  or make  available  funds for the
     purchase or payment of such indebtedness or obligation;

            (c)    to lease properties or to  purchase  properties  or  services
     primarily  for the purpose of assuring  the owner of such  indebtedness  or
     obligation  of the  ability  of any  other  Person to make  payment  of the
     indebtedness or obligation; or

            (d)    otherwise  to  assure  the  owner  of  such  indebtedness  or
     obligation against loss in respect thereof.

In any computation of the indebtedness or other liabilities of the obligor under
any Guaranty, the indebtedness or other obligations that are the subject of such
Guaranty shall be assumed to be direct obligations of such obligor.

     "HAZARDOUS  MATERIAL"  means  any and all  pollutants,  toxic or  hazardous
wastes or other  substances  that might pose a hazard to health and safety,  the
removal  of which may be  required  or the  generation,  manufacture,  refining,
production, processing, treatment, storage, handling, transportation,  transfer,
use, disposal, release,  discharge,  spillage, seepage or filtration of which is
or shall be restricted, prohibited or penalized by any applicable law including,
but not limited to, asbestos, urea formaldehyde foam insulation, polychlorinated
biphenyls, petroleum, petroleum products, lead based paint, radon gas or similar
restricted, prohibited or penalized substances.

     "HOLDER"  means,  with  respect to any Note,  the Person in whose name such
Note is registered in the register maintained by the Company pursuant to Section
13.1,  except as otherwise defined in Section 8.3(b) for purposes of Section 8.3
only.

                                      - 4 -

<PAGE>

     "INDEBTEDNESS"  with  respect to any  Person  means,  at any time,  without
duplication,

            (a)    its  liabilities  for   borrowed  money  and  its  redemption
     obligations in respect of mandatorily redeemable Preferred Stock;

            (b)    its  liabilities for the deferred  purchase price of property
     acquired by such Person (excluding accounts payable arising in the ordinary
     course of business but including all  liabilities  created or arising under
     any conditional sale or other title retention agreement with respect to any
     such property);

            (c)    (i)  all  liabilities  appearing  on  its  balance  sheet  in
     accordance  with GAAP in respect of Capital Leases and (ii) all liabilities
     which would appear on its balance sheet in accordance  with GAAP in respect
     of Synthetic  Leases  assuming such Synthetic  Leases were accounted for as
     Capital Leases;

            (d)    all liabilities for borrowed money secured  by any Lien  with
     respect to any property owned by such Person (whether or not it has assumed
     or otherwise become liable for such liabilities);

            (e)    all  its  liabilities  in  respect  of  letters  of credit or
     instruments  serving a similar  function issued or accepted for its account
     by banks and other  financial  institutions  (whether  or not  representing
     obligations for borrowed money);

            (f)    the aggregate Swap Termination Value of all Swap Contracts of
     such Person; and

            (g)    any Guaranty of such Person with respect to  liabilities of a
     type described in any of clauses (a) through (f) hereof.

Indebtedness  of any Person shall include all  obligations of such Person of the
character described in clauses (a) through (g) to the extent such Person remains
legally liable in respect  thereof  notwithstanding  that any such obligation is
deemed to be extinguished under GAAP.

     "INSTITUTIONAL  INVESTOR" means (a) any Purchaser of a Note, (b) any holder
of a Note holding  (together with one or more of its affiliates) more than 5% of
the  aggregate  principal  amount of the Notes then  outstanding,  (c) any bank,
trust company, savings and loan association or other financial institution,  any
pension plan,  any  investment  company,  any insurance  company,  any broker or
dealer,  or any other similar  financial  institution  or entity,  regardless of
legal form, and (d) any Related Fund of any holder of any Note.

     "INVESTMENT GRADE RATING" is defined in Section 8.3(f).

     "LIEN"  means,  with respect to any Person,  any  mortgage,  lien,  pledge,
charge, security interest or other encumbrance,  or any interest or title of any
vendor,  lessor,  lender or other  secured  party to or of such Person under any
conditional  sale or other title retention  agreement or Capital Lease,  upon or
with respect to any property or asset of such Person  (including  in the case of
stock,   stockholder  agreements,   voting  trust  agreements  and  all  similar
arrangements).

<PAGE>

     "MAKE-WHOLE AMOUNT" is defined in Section 8.7.

     "MATERIAL" means material in relation to the business, operations, affairs,
financial  condition,  assets or properties of the Company and its  Subsidiaries
taken as a whole.

     "MATERIAL  ADVERSE  EFFECT"  means a  material  adverse  effect  on (a) the
business, operations,  affairs, financial condition, assets or properties of the
Company and its Subsidiaries taken as a whole, or (b) the ability of the Company
to perform  its  obligations  under  this  Agreement  and the Notes,  or (c) the
validity or enforceability of this Agreement or the Notes.

     "MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer plan" (as such
term is defined in section 4001(a)(3) of ERISA).

     "NAIC" means the National  Association  of Insurance  Commissioners  or any
successor thereto.

     "NOTES" is defined in Section 1.

     "OFFICER'S  CERTIFICATE"  means a certificate of a Senior Financial Officer
or of any other  officer of the  Company  whose  responsibilities  extend to the
subject matter of such certificate.

     "PBGC"  means the  Pension  Benefit  Guaranty  Corporation  referred to and
defined in ERISA or any successor thereto.

     "PERSON" means an individual,  partnership,  corporation, limited liability
company,  association,  trust, unincorporated  organization,  business entity or
Governmental Authority.

     "PLAN"  means an  "employee  benefit  plan" (as defined in section  3(3) of
ERISA)  subject to Title I of ERISA that is or, within the preceding five years,
has been established or maintained, or to which contributions are or, within the
preceding  five years,  have been made or required to be made, by the Company or
any ERISA  Affiliate or with respect to which the Company or any ERISA Affiliate
may have any liability.

     "PREFERRED  STOCK"  means any class of  capital  stock of a Person  that is
preferred over any other class of capital stock (or similar equity interests) of
such  Person as to the  payment of  dividends  or the payment of any amount upon
liquidation or dissolution of such Person.

     "PROPERTY" or "PROPERTIES"  means, unless otherwise  specifically  limited,
real or  personal  property  of any  kind,  tangible  or  intangible,  choate or
inchoate.

     "PROPOSED PREPAYMENT DATE" is defined in Section 8.3(b).

     "PTE" is defined in Section 6.2(a).

     "PURCHASER" is defined in the first paragraph of this Agreement.

     "QUALIFIED  INSTITUTIONAL  BUYER"  means  any  Person  who is a  "qualified
institutional  buyer"  within  the  meaning  of such  term as set  forth in Rule
144A(a)(1) under the Securities Act.

                                      - 6 -

<PAGE>

     "RELATED  FUND" means,  with respect to any holder of any Note, any fund or
entity that (i)  invests in  Securities  or bank  loans,  and (ii) is advised or
managed by such  holder,  the same  investment  advisor as such  holder or by an
affiliate of such holder or such investment advisor.

     "REQUIRED  HOLDERS"  means,  at any time,  the  holders  of at least 51% in
principal amount of the Notes at the time  outstanding  (exclusive of Notes then
owned by the Company or any of its Affiliates).

     "RESPONSIBLE  OFFICER"  means any Senior  Financial  Officer  and any other
officer  of the  Company  with  responsibility  for  the  administration  of the
relevant portion of this Agreement.

     "SEC"  shall mean the  Securities  and  Exchange  Commission  of the United
States, or any successor thereto.

     "SECURITIES" OR "SECURITY" shall have the meaning specified in Section 2(1)
of the Securities Act.

     "SECURITIES  ACT" means the Securities Act of 1933, as amended from time to
time, and the rules and regulations  promulgated thereunder from time to time in
effect.

     "SENIOR  FINANCIAL  OFFICER" means the chief financial  officer,  principal
accounting officer, treasurer or comptroller of the Company.

     "SIGNIFICANT  SUBSIDIARY"  has the  meaning  set forth in Item  1.02(w)  of
Regulation S-X under the Securities Act.

     "SUBSIDIARY"  means, as to any Person, any other Person in which such first
Person or one or more of its  Subsidiaries  or such first Person and one or more
of its Subsidiaries  owns sufficient  equity or voting interests to enable it or
them  (as a group)  ordinarily,  in the  absence  of  contingencies,  to elect a
majority of the  directors  (or Persons  performing  similar  functions) of such
second Person,  and any partnership or joint venture if more than a 50% interest
in the profits or capital  thereof is owned by such first  Person or one or more
of its  Subsidiaries  or such first  Person and one or more of its  Subsidiaries
(unless such  partnership  or joint venture can and does  ordinarily  take major
business actions without the prior approval of such Person or one or more of its
Subsidiaries). Unless the context otherwise clearly requires, any reference to a
"Subsidiary" is a reference to a Subsidiary of the Company.

     "SVO" means the Securities Valuation Office of the NAIC or any successor to
such Office.

     "SWAP  CONTRACT"  means (a) any and all  interest  rate swap  transactions,
basis swap transactions,  basis swaps, credit derivative  transactions,  forward
rate  transactions,   commodity  swaps,  commodity  options,  forward  commodity
contracts,  equity or equity index swaps or options,  bond or bond price or bond
index  swaps  or  options  or  forward  foreign   exchange   transactions,   cap
transactions, floor transactions,  currency options, spot contracts or any other
similar transactions or any of the foregoing (including, but without limitation,
any  options  to  enter  into  any  of the  foregoing),  and  (b)  any  and  all
transactions  of any kind, and the related  confirmations,  which are subject to
the terms  and  conditions  of, or  governed  by,  any form of

                                      - 7 -

<PAGE>

master  agreement   published  by  the   International   Swaps  and  Derivatives
Association, Inc., any International Foreign Exchange Master Agreement.

     "SWAP  TERMINATION  VALUE"  means,  in  respect  of any  one or  more  Swap
Contracts,  after  taking into  account  the effect of any  legally  enforceable
netting agreement relating to such Swap Contracts,  (a) for any date on or after
the date such Swap  Contracts  have been  closed  out and  termination  value(s)
determined in accordance therewith,  such termination value(s),  and (b) for any
date prior to the date  referenced in clause (a), the  amounts(s)  determined as
the mark-to-market  values(s) for such Swap Contracts,  as determined based upon
one or more  mid-market or other readily  available  quotations  provided by any
recognized dealer in such Swap Contracts.

     "SWL&P" is defined in Section 5.4(d).

     "SYNTHETIC  LEASE" means, at any time, any lease (including leases that may
be  terminated  by the lessee at any time) of any property (a) that is accounted
for as an  operating  lease  under  GAAP and (b) in  respect of which the lessee
retains or obtains  ownership of the property so leased for U.S.  federal income
tax purposes, other than any such lease under which such Person is the lessor.

     "TOTAL  CAPITAL"  means,  as of  any  date  of  determination,  the  sum of
Consolidated Net Worth and Funded Debt.

     "USA  PATRIOT  ACT" means  United  States  Public Law  107-56,  Uniting and
Strengthening  America by Providing  Appropriate Tools Required to Intercept and
Obstruct  Terrorism (USA PATRIOT ACT) Act of 2001, as amended from time to time,
and the  rules  and  regulations  promulgated  thereunder  from  time to time in
effect.

     "UTILITY  PROPERTY"  means all  property  and assets of the Company and its
Subsidiaries used principally in the electric,  natural gas and water operations
that are regulated by applicable Governmental Authorities.

     "WHOLLY-OWNED  SUBSIDIARY"  means,  at any time, any Subsidiary one hundred
percent of all of the equity interests (except directors' qualifying shares) and
voting  interests  of which are owned by any one or more of the  Company and the
Company's other Wholly-Owned Subsidiaries at such time.


                                      - 8 -

<PAGE>

                                  SCHEDULE 5.4
          SUBSIDIARIES OF THE COMPANY AND OWNERSHIP OF SUBSIDIARY STOCK

5.4(a)
<TABLE>
<CAPTION>
------------------------------------------------------------------------- --------------------------------- ------------------------
                       SUBSIDIARIES
                            OF                                                                                      PERCENT
  ALLETE, INC. (D/B/A ALLETE; MINNESOTA POWER; MINNESOTA                                                           OF VOTING
POWER, INC.; MINNESOTA POWER & LIGHT COMPANY; MPEX; MPEX                              STATE OF                       STOCK
             A DIVISION OF MINNESOTA POWER)                                         ORGANIZATION                     OWNED
------------------------------------------------------------------------- --------------------------------- ------------------------
<S>                                                                                 <C>                            <C>
ALLETE Automotive Services, LLC                                                      Minnesota                        100
------------------------------------------------------------------------- --------------------------------- ------------------------
ALLETE Properties, LLC (d/b/a ALLETE Properties)                                     Minnesota                        100
------------------------------------------------------------------------- --------------------------------- ------------------------
     ALLETE Commercial, LLC                                                           Florida                         100
------------------------------------------------------------------------- --------------------------------- ------------------------
     Cape Coral Holdings, Inc.                                                        Florida                         100
------------------------------------------------------------------------- --------------------------------- ------------------------
     Cape Properties, Inc.                                                            Florida                         100
------------------------------------------------------------------------- --------------------------------- ------------------------
     Lehigh Acquisition Corporation                                                   Delaware                         80
------------------------------------------------------------------------- --------------------------------- ------------------------
           Florida Landmark Communities, Inc.                                         Florida                          80
------------------------------------------------------------------------- --------------------------------- ------------------------
                  Cliffside Properties, Inc.                                         California                        80
------------------------------------------------------------------------- --------------------------------- ------------------------
                  Enterprise Lehigh, Inc.                                             Florida                          80
------------------------------------------------------------------------- --------------------------------- ------------------------
                  Lehigh Corporation                                                  Florida                          80
------------------------------------------------------------------------- --------------------------------- ------------------------
                  Lehigh Land & Investment, Inc.                                      Florida                          80
------------------------------------------------------------------------- --------------------------------- ------------------------
                  Mardem, LLC                                                         Florida                          50
------------------------------------------------------------------------- --------------------------------- ------------------------
                  Palm Coast Holdings, Inc.                                           Florida                          80
------------------------------------------------------------------------- --------------------------------- ------------------------
                  Port Orange Holdings, LLC                                           Florida                          80
------------------------------------------------------------------------- --------------------------------- ------------------------
           Interlachen Lakes Estates, Inc.                                            Florida                          80
------------------------------------------------------------------------- --------------------------------- ------------------------
           SRC of Florida, Inc.                                                       Florida                          80
------------------------------------------------------------------------- --------------------------------- ------------------------
           Sundowner Properties, Inc.                                               Pennsylvania                       80
------------------------------------------------------------------------- --------------------------------- ------------------------
     Palm Coast Forest, LLC                                                           Florida                         100
------------------------------------------------------------------------- --------------------------------- ------------------------
     Palm Coast Land, LLC                                                             Florida                         100
------------------------------------------------------------------------- --------------------------------- ------------------------
     Tomoka Holdings, LLC                                                             Florida                         100
------------------------------------------------------------------------- --------------------------------- ------------------------
     Winter Haven Citi Centre, LLC                                                    Florida                         100
------------------------------------------------------------------------- --------------------------------- ------------------------
ALLETE Water Services, Inc.                                                          Minnesota                        100
------------------------------------------------------------------------- --------------------------------- ------------------------
     Florida Water Services Corporation                                               Florida                         100
------------------------------------------------------------------------- --------------------------------- ------------------------
           Auto Replacement Property, LLC                                             Indiana                         100
------------------------------------------------------------------------- --------------------------------- ------------------------
           Energy Replacement Property, LLC                                          Minnesota                        100
------------------------------------------------------------------------- --------------------------------- ------------------------
     Georgia Water Services Corporation                                               Georgia                         100
------------------------------------------------------------------------- --------------------------------- ------------------------
Minnesota Power Enterprises, Inc.                                                    Minnesota                        100
------------------------------------------------------------------------- --------------------------------- ------------------------
     BNI Coal, Ltd.                                                                 North Dakota                      100
------------------------------------------------------------------------- --------------------------------- ------------------------
     MP Affiliate Resources, Inc.                                                    Minnesota                        100
------------------------------------------------------------------------- --------------------------------- ------------------------
     Rainy River Energy Corporation                                                  Minnesota                        100
------------------------------------------------------------------------- --------------------------------- ------------------------
     Rainy River Energy Corporation-Wisconsin                                        Wisconsin                        100
------------------------------------------------------------------------- --------------------------------- ------------------------
     Synertec, Incorporation                                                         Minnesota                        100
------------------------------------------------------------------------- --------------------------------- ------------------------
     Upper Minnesota Properties, Inc.                                                Minnesota                        100
------------------------------------------------------------------------- --------------------------------- ------------------------
           Upper Minnesota Properties-Development, Inc.                              Minnesota                        100
------------------------------------------------------------------------- --------------------------------- ------------------------
           Upper Minnesota Properties-Irving, Inc.                                   Minnesota                        100
------------------------------------------------------------------------- --------------------------------- ------------------------
           Upper Minnesota Properties-Meadowlands, Inc.                              Minnesota                        100
------------------------------------------------------------------------- --------------------------------- ------------------------
                Meadowlands Affordable Housing Limited Partnership                   Minnesota                        99.5
------------------------------------------------------------------------- --------------------------------- ------------------------
MP Investments, Inc.                                                                  Delaware                        100
------------------------------------------------------------------------- --------------------------------- ------------------------
RendField Land Company, Inc.                                                         Minnesota                        100
------------------------------------------------------------------------- --------------------------------- ------------------------
Superior Water, Light and Power Company                                              Wisconsin                        100
------------------------------------------------------------------------- --------------------------------- ------------------------
</TABLE>

<PAGE>

                                  SCHEDULE 5.4
          SUBSIDIARIES OF THE COMPANY AND OWNERSHIP OF SUBSIDIARY STOCK

5.4(d)    Master  Loan  Agreement  between  Florida  Landmark  Communities, Inc.
          and Cypress Coquina Bank, dated March 16, 2005, as amended.

<PAGE>

                                 SCHEDULE 5.15
                             EXISTING INDEBTEDNESS

5.15(a)
<TABLE>
<CAPTION>
SHORT TERM DEBT
                                           DRAWN LINES OF CREDIT
MARCH 31, 2007               Max                  Used             Unused
--------------------------------------------------------------------------------
<S>                          <C>                <C>                <C>

Florida Landmark <F1>        $8,500,000         $5,657,330         $2,842,670

<FN>
<F1> Guaranteed  by  Lehigh  Acquisition  Corporation.  Used  portion of line of
credit is classified as current maturities on the ALLETE consolidated  financial
statements.
</FN>
</TABLE>

<TABLE>
<CAPTION>
LONG TERM DEBT
                                                               3/31/07<F1>
--------------------------------------------------------------------------------
MILLIONS
<S>                                                            <C>
First Mortgage Bonds
     6.68% Series Due 2007                                     $  20.0
     5.99% Series Due 2027                                        60.0
     5.28% Series Due 2020                                        35.0
     4.95% Pollution Control Series F Due 2022                   111.0
     5.69% Series Due 2036                                        50.0
Variable Demand Revenue Refunding Bonds
     Series 1997 A, B, C and D Due 2007 - 2020                    39.0
Industrial Development Revenue Bonds 6.5% Due 2025                 6.0
Industrial Development Variable Rate Demand Refunding
     Revenue Bonds Series 2006 Due 2025                           27.8
Other Long-Term Debt, 2.0% - 8.5% Due 2007 - 2025                 42.8
--------------------------------------------------------------------------------

Total Long-Term Debt                                             391.6
Less Due Within One Year                                          32.3
--------------------------------------------------------------------------------

Net Long-Term Debt                                             $ 359.3
--------------------------------------------------------------------------------
<FN>
<F1> Unaudited.
</FN>
</TABLE>

5.15(b)
None

5.15(c)
The Mortgage and Deed of Trust, dated September 1, 1945, between the Company and
Irving Trust  Company (now The Bank of New York) and Richard H. West (Douglas I.
MacInnes, successor), as Trustees, as supplemented and amended.

Fourth Amended and Restated Committed  Facility Letter,  dated January 11, 2006,
as  thereafter  amended,  by and among the  Company and  LaSalle  Bank  National
Association, in its capacity as agent for the Banks party thereto.

<PAGE>

Letters of Credit:

            Letter of Credit  Agreement,  dated July 5, 2006,  by and among the
            Company and Wells Fargo Bank, National Association.

            Letter of Credit  Agreement,  dated November 1, 2005, as thereafter
            amended,  by and  among  the  Company  and  LaSalle  Bank  National
            Association.

            Letter  of  Credit  Agreement,  dated May 1,  2003,  as  thereafter
            amended,  by and  among  the  Company  and  LaSalle  Bank  National
            Association.

            Reimbursement Agreement,  dated May 1, 2002, as thereafter amended,
            by and among the Company and LaSalle Bank National Association.

<PAGE>

                                 [FORM OF NOTE]

                                  ALLETE, INC.

                       5.99% SENIOR NOTE DUE JUNE 1, 2017


No. R-[___]                                                         June 8, 2007
$[_______]                                                   PPN [_____________]

     FOR VALUE  RECEIVED,  the  undersigned,  ALLETE,  INC  (herein  called  the
"COMPANY"),  a corporation organized and existing under the laws of the State of
Minnesota, hereby promises to pay to [____________],  or registered assigns, the
principal  sum of  [_____________________]  DOLLARS (or so much thereof as shall
not have been prepaid) on June 1, 2017, with interest  (computed on the basis of
a 360-day year of twelve 30-day  months) (a) on the unpaid balance hereof at the
rate of 5.99% per annum from the date hereof,  payable semiannually,  on the 1st
day of June and December in each year, commencing with the June or December next
succeeding the date hereof, until the principal hereof shall have become due and
payable,  and (b) to the extent  permitted  by law,  on any  overdue  payment of
interest  and,  during the  continuance  of an Event of Default,  on such unpaid
balance and on any overdue payment of any Make-Whole Amount, at a rate per annum
from time to time equal to the  greater of (i) 7.99% or (ii) 2.00% over the rate
of interest  publicly  announced by U.S. Bank from time to time in New York, New
York as its "base" or "prime" rate,  payable  semiannually  as aforesaid (or, at
the option of the registered holder hereof, on demand).

     Payments  of  principal  of,  interest  on and any  Make-Whole  Amount with
respect  to this Note are to be made in  lawful  money of the  United  States of
America at U.S. Bank or at such other place as the Company shall have designated
by written  notice to the holder of this Note as provided  in the Note  Purchase
Agreement referred to below.

     This Note is one of a series of Senior  Notes  (herein  called the "NOTES")
issued  pursuant to the Note  Purchase  Agreement,  dated as of June 8, 2007 (as
from time to time amended, the "NOTE PURCHASE  AGREEMENT"),  between the Company
and the  respective  Purchasers  named  therein and is entitled to the  benefits
thereof.  Each holder of this Note will be deemed, by its acceptance  hereof, to
have (i) agreed to the confidentiality provisions set forth in Section 20 of the
Note Purchase  Agreement and (ii) made the  representation  set forth in Section
6.2 of the Note Purchase  Agreement.  Unless  otherwise  indicated,  capitalized
terms used in this Note  shall have the  respective  meanings  ascribed  to such
terms in the Note Purchase Agreement.

     This Note is  registered  on the books and records of the  Company  and, as
provided  in the  Note  Purchase  Agreement,  upon  surrender  of this  Note for
registration  of transfer  accompanied by a written  instrument of transfer duly
executed,  by the  registered  holder  hereof  or such  holder's  attorney  duly
authorized in writing, a new Note for a like principal amount will be issued to,
and  registered in the name of, the  transferee.  Prior to due  presentment  for
registration  of  transfer,  the Company may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving  payment and
for all other  purposes,  and the Company  will not be affected by any notice to
the contrary.


                                   EXHIBIT 1
                          (to Note Purchase Agreement

<PAGE>

     This Note is subject to optional prepayment,  in whole or from time to time
in part, at the times and on the terms specified in the Note Purchase Agreement,
but not otherwise.

     If an Event of Default occurs and is continuing, the principal of this Note
may be declared or otherwise become due and payable in the manner,  at the price
(including any applicable Make-Whole Amount) and with the effect provided in the
Note Purchase Agreement.

     This Note shall be  construed  and  enforced in  accordance  with,  and the
rights of the Company and the holder of this Note shall be governed  by, the law
of the State of New York excluding  choice-of-law  principles of the law of such
State that would permit the application of the laws of a jurisdiction other than
such State.

                                         ALLETE, INC.




                                         By:
                                            ------------------------------------
                                            Name:
                                            Title:


                                      - 2 -

<PAGE>

                                                                  EXHIBIT 4.4(a)
                                                                  --------------

                               FORM OF OPINION OF
            Deborah A. Amberg, Senior Vice President, General Counsel
                          and Secretary of ALLETE, Inc.


                           [ALLETE, INC. LETTERHEAD]


                                                         June 8, 2007


To Each of the Purchasers Listed
on Schedule A to the Note Purchase Agreement
dated June 8, 2007

            Re:    $50,000,000 5.99% Senior Notes due June 1, 2017
                   Issued by ALLETE, Inc.
                   --------------------------------------------------

Ladies and Gentlemen:

            Reference  is  made   to  the sale  by  ALLETE,  Inc.,  a  Minnesota
corporation  ("Company")  of  $50,000,000  principal  amount of its 5.99% Senior
Notes due June 1, 2017 (the  "Notes").  The Notes will be issued  under the Note
Purchase  Agreement,  dated as of June 8, 2007 (the  "Agreement").  I advise you
that I am General  Counsel to the  Company  and have acted in that  capacity  in
connection  with such  issuance and sale and I (or  attorneys  in the  Company's
legal  department  with  whom  I  have  consulted)  have   participated  in  the
preparation  of (i) the  Agreement;  and (ii) the petition  filed by the Company
with the Minnesota Public Utilities  Commission  seeking  authorization to issue
the Notes.  In addition,  I have reviewed the order issued by said Commission in
response to said petition.

            All  capitalized   terms   used   herein  without  definition  shall
have the respective meanings set forth in the Agreement.

            In  furnishing  this  opinion,  I  have  examined  the  Amended  and
Restated Articles of Incorporation,  as amended (the "Charter"), and the Bylaws,
as  amended,  of the  Company  and the  Agreement,  and have made  such  further
investigation and examined such further documents and records of the Company and
certificates of public  officials as I have deemed  necessary or appropriate for
purposes of this opinion.

            I  have  also  reviewed  all  corporate  proceedings  taken  by  the
Company in respect of the  authorization  of the  Agreement and the issuance and
sale of the Notes thereunder and I have examined the Notes.


                                 EXHIBIT 4.4(a)
                          (To Note Purchase Agreement)

<PAGE>

            For  purposes  of  the  opinions  expressed  below,  I have  assumed
(i) the  authenticity  of all documents  submitted to me as originals,  (ii) the
conformity  to the  originals of all  documents  submitted to me as certified or
photostatic  copies and the authenticity of the originals of such copies,  (iii)
the genuineness of all signatures other than on behalf of the Company,  (iv) the
legal capacity of natural persons, (v) the power, corporate or otherwise, of all
parties  other  than  the  Company  to  enter  into  and to  perform  all of its
obligations  under such  documents,  (vi) the due  authorization,  execution and
delivery of all documents by all parties other than the Company,  and (vii) that
the  consideration  contemplated  by the Agreement for the purchase of the Notes
has been paid.

            For  purposes  of  the opinions  contained  herein, I  have  made no
independent  investigation of the facts referred to herein,  and with respect to
such facts have relied,  for the purpose of rendering this opinion and except as
otherwise  stated herein,  exclusively  on the statements  contained and matters
provided for in the Agreement and such other documents relating to the Agreement
as I have deemed advisable,  including the factual  representations,  warranties
and covenants  contained  therein as made by the respective  parties thereto and
assumed that any such statement or representation  that was given or dated on or
prior to the date hereof  continues to remain accurate and complete,  insofar as
relevant to my opinion, from such earlier date through and including the date of
this opinion.

            Based on such examinations and investigation, it is my opinion that:


            1.     The Company is a validly organized  and existing  corporation
                   and in good standing under the laws of the State of Minnesota
                   and is  duly  qualified  as a  foreign  corporation  in  each
                   jurisdiction  in which the character of the properties  owned
                   or leased by it or the nature of the business  transacted  by
                   it makes  such  qualification  necessary,  except  where  the
                   failure  to be so  qualified  would not  result in a Material
                   Adverse Effect.

            2.     The Company is  a  corporation duly authorized by its Charter
                   to conduct the  business  which it is now  conducting  as set
                   forth in the Disclosure Documents and the Company holds valid
                   and subsisting  franchises,  licenses and permits authorizing
                   it to carry on the business in which it is engaged.

            3.     The  Company  has all requisite corporate power and authority
                   to execute and deliver, and to perform all of its obligations
                   under, the Agreement and the Notes.

            4.     The  Agreement  has  been duly and validly  authorized by all
                   necessary   corporate  action,  has  been  duly  and  validly
                   executed and delivered, and is a valid and binding obligation
                   of the  Company  enforceable  in  accordance  with its terms,
                   except as (i) the  enforceability  thereof  may be limited by
                   bankruptcy,  insolvency or similar laws affecting enforcement
                   of   creditors'   rights   generally   and  (ii)   rights  of
                   acceleration and the  availability of equitable  remedies may
                   be limited by equitable principles of general applicability.

                                      - 2 -

<PAGE>

            5.     The  Notes  have  been  duly and  validly  authorized  by all
                   necessary   corporate   action  and  have  been  executed  in
                   accordance with the provisions of the Agreement and delivered
                   and are  entitled to the  benefits of the  Agreement  and are
                   valid and binding  obligations of the Company  enforceable in
                   accordance with their terms, except as (i) the enforceability
                   thereof may be limited by  bankruptcy,  insolvency or similar
                   laws affecting enforcement of creditors' rights generally and
                   (ii) rights of acceleration and the availability of equitable
                   remedies  may be limited by equitable  principles  of general
                   applicability.

            6.     An  order  has  been issued by the Minnesota Public Utilities
                   Commission  certifying  the Company's  capital  structure and
                   authorizing  the issuance  and sale of the Notes,  and to the
                   best of my knowledge after such inquiry as I deem reasonable,
                   said order is still in full force and effect;  and no further
                   approval, authorization, consent or order of any public board
                   or body (other than in connection  or in compliance  with the
                   provisions  of the  securities  or  "blue  sky"  laws  of any
                   jurisdiction)  is legally  required for the  authorization of
                   the issuance and sale of the Notes or, as of the date hereof,
                   the performance of the Notes or the Agreement.

                   Neither the  execution by the Company of the Agreement nor he
                   issue and sale by the Company of the Notes as contemplated by
                   the  Agreement  nor the  consummation  by the  Company of the
                   other  transactions  contemplated  by the Agreement or, as of
                   the  date  hereof,  the  performance  of  the  Notes  or  the
                   Agreement  conflicts  with,  or  results  in a breach of, the
                   Charter or Bylaws of the Company or any material agreement or
                   instrument  to which the  Company  is a party or by which the
                   Company  is  bound,  any law or  regulation  or, so far as is
                   known to me after  such  inquiry  as I deem  reasonable,  any
                   order   or    regulation    of   any   court,    governmental
                   instrumentality  or arbitrator,  and which conflict or breach
                   is material to the Company and its  subsidiaries,  taken as a
                   whole.

            8.     The  execution,  delivery  and  performance  by  the  Company
                   of the  Agreement  and the Notes do not and will not  violate
                   any  provision  of  Regulations  T,  U or X of the  Board  of
                   Governors of the Federal Reserve System.

            9.     It is not necessary, in connection with the sale of the Notes
                   to the Purchasers by the Company,  in the manner contemplated
                   by the Agreement,  to register the Notes under the Securities
                   Act of 1933, as amended,  or to qualify the  Agreement  under
                   the Trust Indenture Act of 1939, as amended.

            10.    Except as disclosed in the Disclosure Documents, there are no
                   actions,  suits, or proceedings pending or, to the best of my
                   knowledge after due inquiry,  threatened  against the Company
                   before  any  court  or   arbitrator   or  by  or  before  any
                   administrative agency or governmental authority, which,

                                      - 3 -

<PAGE>
                   if  adversely  determined,  would  prevent or have a material
                   adverse  effect on the  ability of the Company to perform its
                   obligations under the Agreement or the Notes.

            11.    The Company  is  not  an "investment  company"  or  a company
                   "controlled" by an "investment company" within the meaning of
                   the Investment Company Act of 1940, as amended.

            I am a member of the Minnesota Bar  and do not hold myself out as an
expert on the laws of any other  jurisdiction.  As to all  matters of  Minnesota
law,  Thelen Reid Brown Raysman & Steiner LLP is hereby  authorized to rely upon
this opinion to the same extent as if this opinion had been addressed to them.

            The opinions  expressed  above  are limited to the laws and facts in
effect on the date  hereof.  I disclaim any  obligation  to advise you of facts,
circumstances,  events or  developments  which  hereafter  may be  brought to my
attention and which might alter, affect or modify the opinions expressed herein.

            The  opinion  is  rendered  to  you in  connection  with the  above-
described transaction.  This opinion may not be relied upon by you for any other
purpose,  or relied  upon or  furnished  to any other  Person,  without my prior
written consent, except that (i) this opinion may be reviewed by, but not relied
upon by, applicable legal or regulatory  bodies and proposed  transferees of the
Notes,  and (ii) this opinion may be relied upon by  transferees of the Notes as
of the date of original delivery hereof.

                                         Very truly yours,




                                         DEBORAH A. AMBERG




<PAGE>
                                                                  EXHIBIT 4.4(b)
                                                                  --------------


                               FORM OF OPINION OF
                     THELEN REID BROWN RAYSMAN & STEINER LLP


                               [TRBRS LETTERHEAD]


                                                                    June 8, 2007


To Each of the Purchasers Listed
on Schedule A to the Note Purchase Agreement
dated June 8, 2007

            Re:    $50,000,000 5.99% Senior Notes due June 1, 2017
                   Issued by ALLETE, Inc.
                   --------------------------------------------------

Ladies and Gentlemen:

            Reference  is  made  to  the  sale  by  ALLETE,  Inc.,  a  Minnesota
corporation  ("Company")  of  $50,000,000  principal  amount of its 5.99% Senior
Notes due June 1, 2017 (the  "Notes").  The Notes will be issued  under the Note
Purchase  Agreement,  dated as of June 8, 2007 (the "Agreement").  We advise you
that we have acted as counsel to the Company in  connection  with such  issuance
and sale and have participated in the preparation of the Agreement. In addition,
we have  reviewed the petition  filed by the Company with the  Minnesota  Public
Utilities  Commission  seeking  authorization  to issue the Notes, and the order
issued by said Commission in response to said petition.

            All capitalized terms used herein without definition shall have have
the respective meanings set forth in the Agreement.

            In  furnishing  this  opinion,  we have  examined  the  Amended  and
Restated Articles of Incorporation,  as amended,  and the Bylaws, as amended, of
the Company,  and the Agreement,  and have made such further  investigation  and
examined such further  documents and records of the Company and  certificates of
public officials as we have deemed necessary or appropriate for purposes of this
opinion.

            We have also reviewed all corporate proceedings taken by the Company
in respect of the  authorization  of the  Agreement and the issuance and sale of
the Notes thereunder and we have examined the Notes.

            For purposes of the opinions  expressed  below,  we have assumed (i)
the  authenticity  of all  documents  submitted  to us as  originals,  (ii)  the
conformity  to the  originals of all  documents  submitted to us as certified or
photostatic copies and the authenticity of the


                                EXHIBIT 4.4(b)
                          (To Note Purchase Agreement)
<PAGE>

originals of such copies,  (iii) the genuineness of all signatures other than on
behalf of the  Company,  (iv) the legal  capacity  of natural  persons,  (v) the
power,  corporate or  otherwise,  of all parties other than the Company to enter
into and to perform all of its obligations  under such  documents,  (vi) the due
authorization, execution and delivery of all documents by all parties other than
the Company, and (vii) that the consideration  contemplated by the Agreement for
the purchase of the Notes has been paid.

            For  purposes  of the  opinions  contained  herein,  we have made no
independent  investigation of the facts referred to herein,  and with respect to
such facts have relied,  for the purpose of rendering this opinion and except as
otherwise  stated herein,  exclusively  on the statements  contained and matters
provided for in the Agreement and such other documents relating to the Agreement
as we have deemed advisable,  including the factual representations,  warranties
and covenants  contained  therein as made by the respective  parties thereto and
assumed that any such statement or representation  that was given or dated on or
prior to the date hereof  continues to remain accurate and complete,  insofar as
relevant to our opinion,  from such earlier date through and  including the date
of this opinion.

            Based on such examinations and investigation, it is my opinion that:

            1.     The Company  has all requisite  corporate power and authority
                   to execute and deliver, and to perform all of its obligations
                   under, the Agreement and the Notes.

            2.     The  Agreement  has been duly and validly  authorized by all
                   necessary   corporate  action,  has  been  duly  and  validly
                   executed and delivered, and is a valid and binding obligation
                   of the  Company  enforceable  in  accordance  with its terms,
                   except as (i) the  enforceability  thereof  may be limited by
                   bankruptcy,  insolvency or similar laws affecting enforcement
                   of   creditors'   rights   generally   and  (ii)   rights  of
                   acceleration and the  availability of equitable  remedies may
                   be limited by equitable principles of general applicability.

            3.     The  Notes  have  been duly  and  validly  authorized  by all
                   necessary   corporate  action  and  have  been  executed  and
                   authenticated  in  accordance  with  the  provisions  of  the
                   Agreement  and  delivered and are entitled to the benefits of
                   the  Agreement and are valid and binding  obligations  of the
                   Company enforceable in accordance with their terms, except as
                   (i) the enforceability  thereof may be limited by bankruptcy,
                   insolvency   or  similar  laws   affecting   enforcement   of
                   creditors'  rights  generally and (ii) rights of acceleration
                   and the availability of equitable  remedies may be limited by
                   equitable principles of general applicability.

            4.     An  order  has  been issued by the Minnesota Public Utilities
                   Commissioncertifying  the  Company's  capital  structure  and
                   authorizing  the issuance  and sale of the Notes,  and to the
                   best  of  our  knowledge   after  such  inquiry  as  we  deem
                   reasonable, said order is still in full force and effect; and
                   no further approval,  authorization,  consent or order of any
                   public board or

                                      - 2 -

<PAGE>

                   body  (other than in  connection  or in  compliance  with the
                   provisions  of the  securities  or  "blue  sky"  laws  of any
                   jurisdiction)  is legally  required for the  authorization of
                   the issuance and sale of the Notes or, as of the date hereof,
                   the performance of the Notes or the Agreement.

            5.     The  execution,  delivery  and  performance  by  the  Company
                   of the  Agreement  and the Notes do not and will not  violate
                   any  provision  of  Regulations  T,  U or X of the  Board  of
                   Governors of the Federal Reserve System.

            6.     It  is  not  necessary,  in  connection  with the sale of the
                   Notes  to the  Purchasers  by  the  Company,  in  the  manner
                   contemplated  by the  Agreement,  to register the Notes under
                   the  Securities  Act of 1933,  as amended,  or to qualify the
                   Agreement under the Trust Indenture Act of 1939, as amended.

            7.     The  Company  is  not  an  "investment  company" or a company
                   "controlled" by an "investment company" within the meaning of
                   the Investment Company Act of 1940, as amended.

            This opinion is limited to the laws of the States of  Minnesota  and
New York and the federal laws of the United States of America. As to all matters
of Minnesota  law, we have relied with your consent upon an opinion of even date
herewith  addressed to you by Deborah A. Amberg,  Esq.,  Senior Vice  President,
General Counsel and Secretary of the Company.

            The opinions expressed above are limited to the laws and facts in in
effect on the date hereof.  We disclaim any  obligation  to advise you of facts,
circumstances,  events or  developments  which  hereafter  may be brought to our
attention and which might alter, affect or modify the opinions expressed herein.

            The  opinion  is  rendered  to you in  connection  with  the  above-
described transaction.  This opinion may not be relied upon by you for any other
purpose,  or relied upon or  furnished  to any other  Person,  without our prior
written consent, except that (i) this opinion may be reviewed by, but not relied
upon by, applicable legal or regulatory  bodies and proposed  transferees of the
Notes,  and (ii) this opinion may be relied upon by  transferees of the Notes as
of the date of original delivery hereof.

                                         Very truly yours,




                                         THELEN REID BROWN RAYSMAN & STEINER LLP

<PAGE>
                                                                  EXHIBIT 4.4(b)
                                                                  --------------

                               FORM OF OPINION OF
                             CHAPMAN AND CUTLER LLP

     The  closing  opinion of Chapman  and Cutler  LLP,  special  counsel to the
Purchasers,  called for by Section 4.4(b) of the Note Purchase Agreement,  shall
be  dated  the  date of  Closing  and  addressed  to each  purchaser,  shall  be
satisfactory  in form and substance to the Purchasers and shall be to the effect
that:

     1.     The  Note  Purchase  Agreement and  the  Notes  are  enforceable  in
accordance  with their  respective  terms  (subject to  bankruptcy,  insolvency,
fraudulent   transfer,   reorganization,   moratorium   and   laws  of   general
applicability  relating to or affecting  creditors' rights and to general equity
principles).

     2.     The issuance, sale and delivery of the Notes under the circumstances
contemplated by the Note Purchase  Agreement do not, under existing law, require
the  registration of the Notes under the Securities Act of 1933, as amended,  or
the  qualification  of an indenture  under the Trust  Indenture  Act of 1939, as
amended.


                                EXHIBIT 4.4(c)
                        (To Note Purchase Agreement)