exhibit_10o5.htm


    Exhibit 10(o)5

     

    ALLETE 2008
Form 10-K


    


     

    


     

    ALLETE

    NON-EMPLOYEE
DIRECTOR COMPENSATION DEFERRAL PLAN II

     

     

     

     

     

    
 

     

    Effective
January 1, 2009

     

    


     

     

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

    


    TABLE OF
CONTENTS

    


    
      
        	
                 

              	
                 

              	
                PAGE

              
	 
      	 
      	 
      	 
      
	
                ARTICLE
      1

              	
                Establishment
      and Purpose

              	
                2

              
	 
      	 
      	 
      	 
      
	
                ARTICLE
      2

              	
                Administration

              	
                2

              
	 
      	
                2.1

              	
                Administrator

              	
                2

              
	 
      	
                2.2

              	
                Duties

              	
                2

              
	 
      	
                2.3

              	
                Agents

              	
                2

              
	 
      	
                2.4

              	
                Binding
      Effect of Decisions

              	
                2

              
	 
      	
                2.5

              	
                Company
      Information

              	
                3

              
	 
      	 
      	 
      	 
      
	
                ARTICLE
      3

              	
                Participation

              	
                3

              
	 
      	 
      	 
      	 
      
	
                ARTICLE
      4

              	
                Deferrals

              	
                3

              
	 
      	
                4.1

              	
                Annual
      Deferral Election

              	
                3

              
	 
      	
                4.2

              	
                Cancellations
      of Deferral Elections due to Unforeseeable Emergency

              	
                3

              
	 
      	 
      	 
      	 
      
	
                ARTICLE
      5

              	
                Accounts
      and Investments

              	
                4

              
	 
      	
                5.1

              	
                Establishment
      of Accounts

              	
                4

              
	 
      	
                5.2

              	
                Timing
      of Credits to Accounts

              	
                4

              
	 
      	
                5.3

              	
                Vesting

              	
                4

              
	 
      	
                5.4

              	
                Investments

              	
                4

              
	 
      	
                5.5

              	
                Valuation
      Date

              	
                4

              
	 
      	 
      	 
      	 
      
	
                ARTICLE
      6

              	
                Distributions

              	
                4

              
	 
      	
                6.1

              	
                Distributions

              	
                4

              
	 
      	
                6.2

              	
                Additional
      Distribution Rules

              	
                5

              
	 
      	
                6.3

              	
                Subsequent
      Changes in Time and Form of Payment

              	
                6

              
	 
      	 
      	 
      	 
      
	
                ARTICLE
      7

              	
                Payment
      Acceleration and Delay

              	
                6

              
	 
      	
                7.1

              	
                Permitted
      Accelerations of Payment

              	
                6

              
	 
      	
                7.2

              	
                Permissible
      Distribution Delays

              	
                7

              
	 
      	
                7.3

              	
                Suspension
      Not Allowed

              	
                8

              
	 
      	 
      	 
      	 
      
	
                ARTICLE
      8

              	
                Beneficiary
      Designation

              	
                8

              
	 
      	
                8.1

              	
                Beneficiary

              	
                8

              
	 
      	
                8.2

              	
                No
      Beneficiary Designation

              	
                8

              


      

    

    


    
      
        
           


        

        
           


          
            

          

        

        
           


        

      

    

    


    


    
      
        	 
      	 
      	 
      	 
      
	
                 

              	
                 

              	
                PAGE

              
	 
      	 
      	 
      	 
      
	
                ARTICLE
      9

              	
                Claims
      Procedures

              	
                8

              
	 
      	 
      	 
      	 
      
	
                ARTICLE
      10

              	
                Amendment
      or Termination

              	
                8

              
	 
      	 
      	 
      	 
      
	
                ARTICLE
      11

              	
                Miscellaneous
      Provisions

              	
                9

              
	 
      	
                11.1

              	
                Unsecured
      General Creditor

              	
                9

              
	 
      	
                11.2

              	
                Trust
      Fund

              	
                9

              
	 
      	
                11.3

              	
                Section
      409A Compliance

              	
                9

              
	 
      	
                11.4

              	
                Company’s
      Liability

              	
                9

              
	 
      	
                11.5

              	
                Nonassignability

              	
                9

              
	 
      	
                11.6

              	
                No
      Right to Board Position

              	
                10

              
	 
      	
                11.7

              	
                Incompetency

              	
                10

              
	 
      	
                11.8

              	
                Furnishing
      Information

              	
                10

              
	 
      	
                11.9

              	
                Notice

              	
                10

              
	 
      	
                11.10

              	
                Gender
      and Number

              	
                10

              
	 
      	
                11.11

              	
                Headings

              	
                10

              
	 
      	
                11.12

              	
                Applicable
      Law and Construction

              	
                10

              
	 
      	
                11.13

              	
                Invalid
      or Unenforceable Provisions

              	
                10

              
	 
      	
                11.14

              	
                Successors

              	
                10

              
	 
      	 
      	 
      	 
      
	
                ARTICLE
      12

              	
                Definitions

              	
                11

              


      

    

    


    


    


    
      
        
           


        

        
           


          
            

          

        

        
           


        

      

    

    


    ALLETE

    NON-EMPLOYEE
DIRECTOR COMPENSATION DEFERRAL PLAN II

    


     

    Effective
January 1, 2009

     

    


     

    ARTICLE
1

     

    Establishment and
Purpose

     

    This
document includes the terms of the ALLETE Non-Employee Director Compensation
Deferral Plan II, the purpose of which is to provide Directors an opportunity to
elect to defer Compensation.  The Plan is a successor to the ALLETE
Director Compensation Deferral Plan (the “Predecessor Plan”).  On
December 31, 2004, the Company froze the Predecessor Plan, and on January 1,
2005, the Company established the Plan to govern amounts initially deferred
after December 31, 2004 and investment earnings thereon.  From
January 1, 2005 to the effective date hereof, the Company operated and
administered the Plan in all material respects in good faith compliance with the
applicable requirements of Section 409A, the final and proposed Treasury
Regulations, IRS Notice 2005-1, and all other IRS guidance.  Effective
January 1, 2009, the Company amends and restates the Plan in its entirety
to comply with Section 409A.  Capitalized terms, unless otherwise
defined herein, shall have the meaning provided in Article 12.

     

    ARTICLE
2

     

    Administration

     

    
      	
              2.1

            	
              Administrator.

            


    

     

    The
Executive Compensation Committee of the Board shall administer the
Plan.  Notwithstanding the foregoing, the Administrator may delegate
any of its duties to such other person or persons from time to time as it may
designate.  Members of the Executive Compensation Committee may
participate in the Plan; however, any Director serving on the Executive
Compensation Committee shall not vote or act on any matter relating solely to
himself or herself.

     

    
      	
              2.2

            	
              Duties.

            


    

     

    The
Administrator has the authority to construe and interpret all provisions of the
Plan, to resolve any ambiguities, to adopt rules and practices concerning the
administration of the Plan, to make any determinations and calculations
necessary or appropriate hereunder, and, to the maximum extent permitted by
Section 409A, the authority to remedy any errors, inconsistencies or
omissions.  The Company shall pay all expenses and liabilities
incurred in connection with Plan administration.

     

    
      	
              2.3

            	
              Agents.

            


    

     

    The
Administrator may engage the services of accountants, attorneys, actuaries,
investment consultants, and such other professional personnel as are deemed
necessary or advisable to assist in fulfilling the Administrator’s
responsibilities.  The Administrator, the Company and the Board may
rely upon the advice, opinions or valuations of any such persons.

     

    
      	
              2.4

            	
              Binding
      Effect of Decisions.

            


    

     

    The
decision or action of the Administrator with respect to any question arising out
of or in connection with the administration, interpretation and

     

    


    
      
        
           


        

        
          2

          
            

          

        

        
           


        

      

    

    


    application
of the Plan and the rules and regulations promulgated hereunder shall be final,
conclusive and binding upon all persons having any interest in the
Plan.  Neither the Administrator, its delegates, nor the Board shall
be personally liable for any good faith action, determination or interpretation
with respect to the Plan, and each shall be fully protected by the Company in
respect of any such action, determination or interpretation.

     

    
      	
              2.5

            	
              Company
      Information.

            


    

     

    To enable
the Administrator to perform its duties, the Company shall supply full and
timely information to the Administrator on all matters relating to the
Compensation, the Directors, the date and circumstances of a Director’s
Separation from Service, and other pertinent information as the Administrator
may reasonably require.

     

    


    ARTICLE
3

     

    Participation

     

    Directors
may participate in the Plan, but only with respect to Plan Years commencing
after an individual first becomes a Director.  Each Plan Year, the
Administrator shall notify Directors of their eligibility to participate in the
Plan during the following Plan Year.  A Director who is eligible to
participate shall become a participant by completing an election form on which
the Director elects Deferrals and delivering the completed form to the Company
as specified in the Plan.  The terms of this Plan shall continue to
govern a Director’s Account until the Account is paid in full.

     

    


     

    ARTICLE
4

     

    Deferrals

     

    
      	
              4.1

            	
              Annual
      Deferral Election.

            


    

     

    For each
Plan Year, a Director may elect:  (i) to defer some or all of the
Director’s Compensation and (ii) to the extent permitted by this Plan, the time
and form of distribution of Deferrals.  Elections are effective on a
calendar-year basis and become irrevocable no later than the date specified by
the Administrator, but in any event before the beginning of the Plan Year to
which the elections relate.  A Director’s election will become
effective only if the forms required by the Administrator have been properly
completed and signed by the Director, timely delivered to the Administrator, and
accepted by the Administrator.  A Director who fails to file the
election before the required date will be treated as having elected not to defer
any amounts for the following Plan Year.

     

    
      	
              4.2

            	
              Cancellations
      of Deferral Elections due to Unforeseeable
    Emergency.

            


    

     

    If a
Director experiences an Unforeseeable Emergency during a Plan Year, the Director
may submit to the Administrator a written request to cancel Deferrals for the
Plan Year to satisfy the Unforeseeable Emergency.  If the
Administrator either approves the Director’s request to cancel Deferrals for the
Plan Year, or approves a request for a distribution of prior Deferrals in
accordance with Section 6.1.3, then effective as of the date the request is
approved the Administrator shall cancel the Director’s deferral elections for
the

     

    


    
      
        
           


        

        
          3

          
            

          

        

        
           


        

      

    

    


    remainder
of the Plan Year.  A Director whose Deferrals are canceled during a
Plan Year in accordance with this section may elect Deferrals for the following
Plan Year.

     

    ARTICLE
5

     

    Accounts and
Investments

     

    
      	
              5.1

            	
              Establishment
      of Accounts.

            


    

     

    The
Company will establish notional accounts for each Director as the Administrator
deems necessary or advisable from time to time to be consistent with 2.1 and 5.4
below.  The Company will establish a Director’s Account no later than
the date on which the Director first elects to defer any amounts into the
Account.  Each Account shall be credited as appropriate for Deferrals
and earnings with respect to Deferrals and debited for distributions from the
Account.

     

    
      	
              5.2

            	
              Timing
      of Credits to Accounts.

            


    

     

    The
Administrator shall credit a Director’s Deferrals to the Director’s Account not
later than the end of the calendar year during which the Company would otherwise
have paid the amounts to the Director but for the Director’s deferral
election.

     

    
      	
              5.3

            	
              Vesting.

            


    

     

    All
Director Accounts are fully vested at all times.

     

    
      	
              5.4

            	
              Investments.

            


    

     

    The
Administrator may select investment funds to use for measuring notional gains
and losses.  The Administrator will establish, from time to time,
rules and procedures for allowing each Director, who has not had a Separation
from Service, to designate which one or more of the selected investment funds
will be used to determine the notional gains and losses credited or debited to
the Director’s Account prior to Separation from Service.

     

    
      	
              5.5

            	
              Valuation
      Date.

            


    

     

    As of
each Valuation Date, each Account will be adjusted to reflect the effect of
notional investment gains or losses, additions, distributions, transfers and all
other transactions with respect to that Account since the previous Valuation
Date.

     

    
       

      ARTICLE
6

       

      Distributions

       

      
        	
                6.1  

              	
                Distributions.

              


      

       

      The Plan
provides for distributions in a Specified Year, upon a Separation from Service
or upon an Unforeseeable Emergency.  As described in Section 6.1.1,
each Plan Year a Director may elect to have all or a portion of the Deferrals
for that year distributed in a Specified Year.  With respect to
amounts not subject to distribution in a Specified Year, the Plan requires
distribution upon Separation from Service at a time and in a form elected by the
Director, or for Directors who fail to elect, at a time and in a form specified
by the Plan.  A Director wishing to elect a time and form of
distribution upon Separation from Service must submit a distribution election at
the time of the Director’s initial Deferrals.  A Director’s
distribution elections are irrevocable and will govern the Deferrals to which
the election relates until the amounts covered by the election are paid in full
or until subsequently changed in accordance with Section
6.3.  Notwithstanding any elections by a Director, all distributions
are subject to the provisions of Section 6.2.

       

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

         

         

      

      
        	
                6.1.1  

              	
                Specified
      Year.  A Director may elect to receive a distribution of
      Deferrals in a Specified Year, which may be no earlier than the third Plan
      Year beginning after the date on which the Director initially elects to
      receive a distribution in a Specified Year.  Except as otherwise
      provided in this subsection or in Section 6.3, once a Director has elected
      to receive a distribution in a Specified Year, the Director may not elect
      to receive a distribution in a different Specified
      Year.  Beginning during the year preceding a Specified Year
      previously elected by the Director, the Director may elect to receive a
      distribution of Deferrals in a later Specified Year, subject, however, to
      the restrictions of this subsection.  All amounts distributable
      in a Specified Year will be paid in a single lump
  sum.

              


      

       

      
        	
                6.1.2  

              	
                Separation
      from Service.  A Director may elect to receive a
      distribution of Deferrals commencing upon Separation from Service or
      during any of the first five years following the year of the Separation
      from Service.  A Director may elect to receive the distribution
      in the form of a lump sum, annual installments over a period of five (5),
      ten (10), or fifteen (15) years, or a combination of both a lump sum and
      installments.

              


      

       

      
        	
                6.1.3  

              	
                Unforeseeable
      Emergency.  A Director may submit a written request for a
      distribution on account of an Unforeseeable Emergency.  Upon
      approval by the Administrator of a Director’s request, the Director’s
      Account, or that portion of the Director’s Account deemed necessary by the
      Administrator to satisfy the Unforeseeable Emergency plus amounts
      necessary to pay taxes reasonably anticipated because of the distribution,
      will be distributed in a single lump sum in a manner consistent with
      Section 409A.

              


      

       

      
        	
                6.2  

              	
                Additional
      Distribution Rules.

              


      

       

      


       

      
        	
                6.2.1  

              	
                Default
      Time and Form of Payment.  If a
      Director fails timely to elect a time and form of payment, the Director’s
      Account will be distributed upon any Separation from Service in the form
      of a single lump sum payment.

              


      

       

      
        	
                6.2.2  

              	
                Rules
      Applicable to All Distributions.  Except as
      otherwise provided in this section, if a Director has elected to receive a
      distribution commencing upon a Distribution Event, or if the distribution
      is required upon Separation from Service, the distribution will commence
      between the date of the Distribution Event and the end of the year in
      which the Distribution Event occurs.  If a Director has elected,
      or is required, to receive a distribution commencing upon a Distribution
      Event, and the Distribution Event occurs on or after October 1 of a Plan
      Year, the distribution may, to the extent permitted by Section 409A,
      commence after the Distribution Event and on or before the 15th
      day of the third calendar month following the Distribution Event, even if
      after the end of the year during which the Distribution Event occurs;
      provided, however, the Director will not be permitted, directly or
      indirectly, to designate the taxable year of the
      distribution.  If a Director has elected to receive a
      distribution commencing during any of the first five years following a
      Separation from Service, the distribution will commence during the year
      elected by the Director.  If a Director has elected to receive a
      distribution in a Specified Year, the distribution will occur during the
      Specified Year.  Any distribution that complies with this
      section shall be deemed for all purposes to comply with the Plan
      requirements regarding the time and form of
  distributions.

              


      

       

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

      
        	
                6.2.3  

              	
                Installment
      Payments.  If a
      Director elects to receive distributions in annual installments, the
      Director’s Account will be paid in substantially equal installments in
      consecutive years over the period elected by the
      Director.  During the distribution period the Director’s Account
      will be credited with interest compounded monthly at a rate of 7.5% per
      year.  Each annual installment will be paid during the Plan Year
      in which it is due.  Any installment distribution that complies
      with this section shall be deemed for all purposes to comply with the Plan
      requirements regarding the time and form of
  distributions.

              


      

       

      
        	
                6.2.4  

              	
                Death
      After Commencement of Distributions.  Upon the
      death of a Director after distributions of the Director’s Account have
      commenced, the balance of the Director’s Account will be distributed to
      the Director’s Beneficiary at the same times and in the same forms that
      the Account would have been distributed to the Director if the Director
      had survived.

              


      

       

      
        	
                6.3  

              	
                Subsequent
      Changes in Time and Form of Payment.

              


      

       

      A
Director may, in accordance with rules, procedures and forms specified from time
to time by the Administrator, elect to change the time of payment or change the
form in which the Director’s Account is distributed or both, provided
that:  (i) the Director elects at least twelve (12) months prior to
the date on which payments are otherwise scheduled to commence; (ii) the new
election does not take effect for at least twelve (12) months; and (iii) with
respect to changes applicable to distributions in a Specified Year or upon
Separation from Service, the distributions must be deferred for at least five
years from the date the distributions would otherwise have been paid, or in the
case of installment payments, five years from the date the installments were
scheduled to commence.  For purposes of this section, distributions on
account of a Specified Year are considered scheduled to commence on January 1 of
the Specified Year and distributions on account of a Separation from Service are
considered to commence on the date of the Separation from Service, or if the
Director has elected to receive a distribution of Deferrals commencing during
any of the first five years following the year of the Separation from Service,
January 1 of the year elected by the Director.  Any such election
shall be irrevocable on the date it is filed with the Administrator unless
subsequently changed pursuant to this Section.

       

    

    ARTICLE
7

     

    Payment Acceleration and
Delay

     

    
      	
              7.1

            	
              Permitted
      Accelerations of Payment.

            


    

     

    Except as
otherwise provided herein or permitted by Section 409A, the Plan prohibits the
acceleration of the time or schedule of any payment due under the
Plan.

     

    


    
      
        
           


        

        
          6

          
            

          

        

        
           


        

      

    

    


    Distribution
in the Event of Taxation.  If, for any
reason, all or any portion of any benefit provided by the Plan becomes taxable
to a Director because of a violation of Section 409A prior to receipt, the
Director may file a written request with the Administrator for a distribution of
that portion of the Plan benefit that has become taxable.  Upon the
grant of such a request, which grant shall not be unreasonably withheld, the
Director shall receive a distribution equal to the taxable portion of the plan
benefit.  If the request is granted, the tax liability distribution
shall be paid between the date on which the Director’s request is approved and
the end of the Plan Year during which the approval occurred, or if later, the
15th
day of the third calendar month following the date on which the Director’s
request is approved.

     

    
      	
               
      

            	
              7.1.1

            	
              Compliance
      with Ethics Laws or Conflicts of Interests Laws.  The
      Administrator may, in its sole discretion, accelerate the time or schedule
      of a payment to the extent necessary to avoid the violation of any
      applicable Federal, state, local, or foreign ethics law or conflicts of
      interest law as provided in Treasury Regulations section
      1.409A-3(j)(4)(iii)(B).

            


    

     

    
      	
               
      

            	
              7.1.2

            	
              Small
      Accounts.  The
      Administrator may, in its sole discretion, distribute the Director’s
      Account in a single lump sum provided: (i) the distribution results in the
      payment of the Director’s entire Account and all other account balance
      plans required to be aggregated with the Director’s Account pursuant to
      Section 409A and (ii) the total distribution does not exceed the
      applicable dollar limit under Code section 402(g)(1)(B).  The
      Administrator shall notify the Director in writing if the Administrator
      exercises its discretion pursuant to this
  Section.

            


    

     

    
      	
               
      

            	
              7.1.3

            	
              Settlement
      of a Bona Fide Dispute.  The
      Administrator may, in its sole discretion, accelerate the time or schedule
      of a distribution as part of a settlement of a bona fide dispute between
      the Director and the Company over a Director’s right to a distribution
      provided that the distribution relates only to the deferred compensation
      in dispute and the Company is not experiencing a downturn in financial
      health.

            


    

     

    
      	
              7.2

            	
              Permissible
      Distribution Delays.

            


    

     

    Notwithstanding
anything in the Plan to the contrary, to the extent permitted by Section 409A,
the Administrator may, in its sole discretion, delay distribution to a
Director:

     

    
      	
               
      

            	
              7.2.1

            	
              If
      the distribution would jeopardize the Company’s ability to continue as a
      going concern, provided that the delayed distribution is distributed in
      the first calendar year in which the distribution would not have such
      effect.

            


    

     

    
      	
               
      

            	
              7.2.2

            	
              If
      the distribution would violate Federal securities or other applicable
      laws, provided that the delayed distribution is distributed at the
      earliest date at which the Administrator reasonably anticipates that the
      distribution will not cause such
violation.

            


    

     

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    
      
        	
                 
      

              	
                7.2.3

              	 If
      calculation of the distribution is not administratively practicable due to
      events beyond the control of the Director, provided that the delayed
      distribution is paid in the first calendar year in which the calculation
      of the distribution is administratively
  practicable.


      

    

     

     

    
      	
              7.3

            	
              Suspension
      Not Allowed.

            


    

     

    If a
Director whose distributions have commenced becomes eligible again to defer
Compensation under any plan maintained by a Related Company, distribution of any
remaining amounts in his Account may not be suspended.

     

    


    ARTICLE
8

     

    Beneficiary
Designation

     

    
      	
              8.1

            	
              Beneficiary.

            


    

     

    Each
Director shall have the right, at any time, to designate a Beneficiary(ies)
(both primary as well as contingent) to whom a Director’s Account shall be paid
if a Director dies prior to complete distribution of the
Account.  Each Beneficiary designation shall be in a written form
prescribed by the Administrator, and will be effective only when filed with the
Administrator during the Director’s lifetime.  Any Beneficiary
designation may be changed by a Director without the consent of the previously
named Beneficiary by filing a new Beneficiary designation with the
Administrator.  The most recent Beneficiary designation received by
the Administrator shall control the distribution of a Director’s Account in the
event of the Director’s death.

     

    
      	
              8.2

            	
              No
      Beneficiary Designation.

            


    

     

    In the
absence of an effective Beneficiary designation, or if all designated
Beneficiaries predecease the Director or die prior to the complete distribution
of the Director’s Account, the Account shall be paid in the following order of
precedence: (a) the Director’s surviving spouse; (b) the Director’s children
(including adopted children), per stirpes; or (c) the Director’s
estate.

     

    ARTICLE
9

     

    Claims
Procedures

     

    Any
Director or Beneficiary, or his or her authorized representative, may file a
claim for benefits due him or her under the Plan by written request to the
Company, setting forth with specificity the facts and events which give rise to
the claim.  The Company shall promptly respond, consistent with any
legal requirements that might apply.

     

    ARTICLE
10

     

    Amendment or
Termination

     

    The
Company hereby reserves the right to amend, modify, or terminate the Plan at
any time by action of the Board, with or without prior notice.  No
amendment or termination shall reduce any Director’s Account without the written
consent of the affected Director.  Notwithstanding anything herein to
the contrary, to the extent consistent with Section 409A, the Board may
terminate the Plan and distribute to each Director the amount in his or her
Account in a lump sum; provided that all distributions (i) commence no
earlier than the date that is twelve (12) months following the termination date
(or any earlier date that would comply with Section 409A) and (ii) are
completed by the date that is twenty-four (24) months following the

     

    


    
      
        
           


        

        
          8

          
            

          

        

        
           


        

      

    

     

    termination
date (or any later date that would comply with Section 409A).  In
addition, distributions may be accelerated upon a Plan termination as provided
above only if, to the extent required under Section 409A, (i) all
other nonqualified deferred compensation “account balance plans” (within the
meaning of Section 409A), in which any Director participates are terminated
along with the Plan, and (ii) the Company does not adopt any new
nonqualified deferred compensation “account balance plan” (within the meaning of
Section 409A), for three years following the date of Plan
termination.

     

    ARTICLE
11

     

    Miscellaneous
Provisions

     

    
      	
              11.1

            	
              Unsecured
      General Creditor.

            


    

     

    Directors
and their Beneficiaries, heirs, successors and assigns shall have no legal or
equitable rights, interests or claims in any property or assets of the
Company.  Any and all of the Company’s assets shall be, and remain,
the general, unpledged unrestricted assets of the Company.  The
Company’s obligation under the Plan shall be merely that of an unfunded and
unsecured promise to pay money in the future.

     

    
      	
              11.2

            	
              Trust
      Fund.

            


    

     

    At its
discretion, the Company may establish a Trust, with such trustees as the Company
may approve, for the purpose of providing for the distribution of benefits owed
under this Plan.  The Trust’s assets shall be held for distribution of
all the Company’s general creditors in the event of insolvency or
bankruptcy.  To the extent any Plan benefits are paid from any such
Trust, the Company shall have no further obligations to pay them.  If
not paid from the Trust, such benefits shall remain the obligation of the
Company.

     

    
      	
              11.3

            	
              Section
      409A Compliance.

            


    

     

    All
provisions of the Plan shall be interpreted and administered to the extent
possible in a manner consistent with Section 409A.  To the extent that any
provision of the Plan would cause a conflict with the requirements of Section
409A, or would cause the administration of the Plan to fail to satisfy Section
409A, such provision shall be deemed null and void to the extent permitted by
applicable law.  Nothing herein shall be construed as a guarantee of
any particular tax treatment to a Director.

     

    
      	
              11.4

            	
              Company’s
      Liability.

            


    

     

    The
Company’s liability for the distribution of benefits shall be defined only by
the Plan.  The Company shall have no obligation to a Director except
as expressly provided in the Plan.

     

    
      	
              11.5

            	
              Nonassignability.

            


    

     

    Neither a
Director nor any other person shall have any right to commute, sell, assign,
transfer, pledge, anticipate, mortgage or otherwise encumber, transfer,
hypothecate, alienate or convey in advance of actual receipt, the amounts, if
any, payable hereunder, or any part thereof, which are, and all rights to which
are expressly declared to be, unassignable and non-transferable.  No
part of the amounts payable shall, prior to actual payment, be subject to
seizure, attachment, garnishment or sequestration for the payment of any debts,
judgments, alimony or separate maintenance owed by a Director or any other
person, be transferable by operation of law in the event of a Director’s or any
other person’s bankruptcy or insolvency or be transferable to a spouse as a
result of a property settlement or otherwise.

     

    


    
      
        
           


        

        
          9

          
            

          

        

        
           


        

      

    

     

    
      	
              11.6

            	
              No
      Right to Board Position.
  

            


    

     

    
      Nothing
in the Plan shall be deemed to create any obligation on the part of the Board to
nominate any of its members for reelection by the Company’s stockholders, nor
confer upon any Director the right to remain a member of the Board for any
period of time, or at any particular rate of compensation.

       

    

    
      	
              11.7

            	
              Incompetency.

            


    

     

    If the
Administrator determines that a distribution under this Plan is to be paid to a
minor, to a person declared incompetent or to a person incapable of handling the
disposition of that person’s property, the Administrator may direct such
distribution to be paid to the guardian, legal representative or person having
the care and custody of such minor, incompetent or incapable
person.  The Administrator may require proof of majority, competence,
capacity, guardianship or status as a legal representative, as it may deem
appropriate prior to distribution.  Any distribution shall be for the
account of the Director and the Director’s Beneficiary, as the case may be, and
shall completely discharge any liability for such amount.

     

    
      	
              11.8

            	
              Furnishing
      Information.

            


    

     

    A
Director or his Beneficiary will cooperate with the Administrator by furnishing
any and all information requested by the Administrator and take such other
actions as may be requested in order to facilitate the administration of the
Plan and the distributions hereunder.

     

    
      	
              11.9

            	
              Notice.

            


    

     

    Any
notice or filing required or permitted under the Plan shall be sufficient if in
writing and if (i) hand-delivered or sent by telecopy, (ii) sent by registered
or certified mail, or (iii) sent by nationally-recognized overnight
courier.  Such notice shall be deemed given as of  (i) the
date of delivery if hand-delivered or sent by telecopy, (ii) as of the date
shown on the postmark on the receipt for registration or certification, if
delivery is by mail, or (iii) on the first business day after dispatch, if sent
by nationally-recognized overnight courier.

     

    
      	
              11.10

            	
              Gender
      and Number.

            


    

     

    Except
when otherwise indicated by context, words in the masculine gender shall include
the feminine and neuter genders, the singular shall include the plural, and the
plural shall include the singular.

     

    
      	
              11.11

            	
              Headings.

            


    

     

    The
headings contained in this Plan are for convenience only and will not control or
affect the meaning or construction of any of the terms or provisions of this
Plan.

     

    
      	
              11.12

            	
              Applicable
      Law and Construction.

            


    

     

    This Plan
shall be governed by, construed and administered in accordance with the laws of
the State of Minnesota, other than its laws respecting choice of
law.

     

    
      	
              11.13

            	
              Invalid
      or Unenforceable Provisions.

            


    

     

    If any
provision of this Plan shall be held invalid or unenforceable, such invalidity
or unenforceability shall not affect any other provisions hereof and the
Administrator may elect in its sole discretion to construe such invalid or
unenforceable provisions in a manner that conforms to applicable law or as if
such provisions, to the extent invalid or unenforceable, had not been
included.

     

    
      	
              11.14

            	
              Successors.

            


    

     

    This Plan
shall bind any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business or
assets of

     

    


    
      
        
           


        

        
          10

          
            

          

        

        
           


        

      

    

    


    the
Company, in the same manner and to the same extent that the Company would be
obligated under this Plan if no succession had taken place.  In the
case of any transaction in which a successor would not by the foregoing
provision or by operation of law be bound by this Plan, the Company shall
require such successor expressly and unconditionally to assume and agree to
perform the obligations of the Company and each Company under this Plan, in the
same manner and to the same extent that the Company and each Company would be
required to perform if no such succession had taken place.

     

    ARTICLE
12

     

    Definitions

     

    The
following terms shall have the meanings set forth below:

     

    “Account”
means the Company’s bookkeeping entry representing the Director’s Deferrals, and
such other accounts or sub-accounts as the Administrator deems necessary or
appropriate.

     

    “Administrator”
means the Executive Compensation Committee of the Board.

     

    “Beneficiary”
means one or more persons, trusts, estates or other entities, designated in
accordance with this Plan, that are entitled to receive Plan benefits upon the
death of a Director.

     

    “Board”
means the Board of Directors of the Company.

     

    “Code”
means the Internal Revenue Code of 1986, as it may be amended from time to
time.

     

    “Company”
means ALLETE, Inc., a Minnesota Corporation, and any successor to all, or
substantially all, of the Company’s assets or business.

     

    “Compensation”
means the cash compensation for services as a Director, excluding perquisites
and reimbursements.

     

    “Deferrals”
means any portion of a Director’s Compensation that a Director elects to defer
in accordance with the Plan.

     

    “Director”
means a member of the Board who is not an employee of any Related
Company.

     

    “Distribution
Event” means a Specified Year, a Separation from Service or the Administrator’s
determination regarding the occurrence of an Unforeseeable
Emergency.

     

    “IRS”
means the Internal Revenue Service.

     

    “Plan”
means the ALLETE Non-Employee Director Compensation Deferral Plan II, as amended
from time to time.

     

    


    
      
        
           


        

        
          11

          
            

          

        

        
           


        

      

    

    


    “Plan
Year” means a period beginning on January 1 of each calendar year and continuing
through December 31 of such calendar year.

     

    “Related
Company” means the Company and all persons with whom the Company would be
considered a single employer under Code section 414(b) (employees of controlled
group of corporations), and all persons with whom such person would be
considered a single employer under Code section 414(c) (employees of
partnerships, proprietorships, etc., under common control); provided that in
applying Code sections 1563(a)(1), (2), and (3) for purposes of determining a
controlled group of corporations under Code section 414(b), the language “at
least 50 percent” is used instead of “at least 80 percent” each place it appears
in Code sections 1563(a)(1), (2), and (3), and in applying Treasury Regulations
section 1.414(c)-2 for purposes of determining trades or businesses (whether or
not incorporated) that are under common control for purposes of Code section
414(c), “at least 50 percent” is used instead of “at least 80 percent” each
place it appears in Treasury Regulations section 1.414(c)-2.

     

    “Section
409A” means section 409A of the Code (and any successor provision), and
regulations and other guidance issued by the Treasury Department and Internal
Revenue Service thereunder.

     

    “Separation
from Service” means that the Director ceases to perform services as a Director
and the Company does not then anticipate that the Director will continue to
perform services in any capacity for any Related Company.

     

    “Specified
Year” means the year specified by a Director as the year in which the Director
will receive a distribution payment of all or a portion of his
Account.  The Specified Year must be at least two years after the year
the compensation would have been paid but for the Director’s deferral
election.

     

    “Trust”
means one or more trusts established pursuant to the ALLETE, Inc. Non-Employee
Director Compensation Trust Agreement, effective October 11, 2004, between the
Company and the trustee named therein, as amended from time to
time.

     

    “Unforeseeable
Emergency” means an unanticipated emergency that is caused by an event beyond
the control of the Director that would result in severe financial hardship to
the Director resulting from (i) an illness or accident of the Director or the
Director’s spouse, the Director’s beneficiary, or the Director’s dependent (as
defined in Code section 152, without regard to Code sections 152(b)(1), (b)(2),
and (d)(1)(B)), (ii) a loss of the Director’s property due to casualty, or (iii)
such other similar extraordinary and unforeseeable circumstances arising as a
result of events beyond the control of the Director, all as determined in the
sole discretion of the Administrator.

     

    “Valuation
Date” means each day that the U.S. stock markets are open or such other dates as
may be set by the Administrator from time to time.

     

    


     

    


    
      
        
           


        

        
          12

          
            

          

        

        
           


        

      

    

    


    IN
WITNESS WHEREOF, ALLETE, Inc. has caused these presents to be signed and its
corporate seal to be hereunto affixed by its duly authorized officers, effective
as of January 1, 2009

     

    


     

    


     

    ALLETE, Inc.

     

    


     

    By: Donald J.
Shippar   

                                                                

                                                           Donald
J. Shippar

     

    
      	
               
      

            	
              Its:

            	
              Chairman,
      President and Chief Executive
Officer

            


    

     

    


     

    ATTEST

     

    By:   Deborah A.
Amberg                                                                      

     

     Deborah A. Amberg

     

    Its:    
 Senior Vice President, General Counsel and Secretary

     

    


     

    


     

    


    


     

    


    


    


    
      
        
           


        

        
          13