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exa1017psp.htm

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    EXHIBIT
A 10.17

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    CENTRAL
VERMONT PUBLIC SERVICE CORPORATION

     

    PERFORMANCE
SHARE INCENTIVE PLAN

     

    2010

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      CENTRAL
VERMONT PUBLIC SERVICE CORPORATION

       

      PERFORMANCE
SHARE INCENTIVE PLAN

       

      TABLE
OF CONTENTS

       

      
        	 
      	 
      	
                Section

              
	
                ARTICLE
      I

              	
                -
      PURPOSE

                 

              	 
      
	
                ARTICLE
      II

              	
                -
      DEFINITIONS

                 

              	 
      
	 
      	
                "Account"

                "Award"

                "Board"

                "Change
      in Control"

                "Code"

              	
                2.1

                2.2

                2.3

                2.4

                2.5

                 

              
	 
      	
                "Committee"

                "Common
      Stock" or "Stock"

                "Comparison
      Group"

                "Component"

                "Dividend
      Equivalent"

                "Effective
      Date"

                 

              	
                2.6

                2.7

                2.8

                2.9

                2.10

                2.11

              
	 
      	
                "Employer"

                "Exchange
      Act"

                "Fair
      Market Value"

                "Operational
      Measures"

                "Participant"

                "Performance
      Cycle"

                 

                "PeRS"

                "Plan"

                "Pro
      Rata Portion"

                "Stock
      Unit "

                "Target
      PeRS "

                 

                "Termination
      of Employment"

                "Total
      Shareholder Return"

              	
                2.12

                2.13

                2.14

                2.15

                2.16

                2.17

                 

                2.18

                2.19

                2.20

                2.21

                2.22

                 

                2.23

                2.24

              

      

       

       

       

      (i)

      
         

         

        

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      
        	
                ARTICLE
      III

              	
                -
      DETERMINATION OF PERFORMANCE SHARES

                 

                Designation
      of PeRS and Related Terms

                Adjustment
      of and Changes in Stock

              	
                 

                 

                3.1

                3.2

                 

              
	
                ARTICLE
      IV

              	
                -
      PAYMENT OF GRANTS

                 

                Performance
      Awards

                Accounts

                Payment
      of Account 

              	
                 

                 

                4.1

                4.2

                4.3

                 

              
	
                ARTICLE
      V

                 

              	
                -
      TERMINATION OF EMPLOYMENT

                 

                Termination
      Prior to Completion of Performance Cycle

                Change
      in Control 

              	
                 

                 

                5.1

                5.2

                 

              
	
                ARTICLE
      VI

              	
                -
      ADMINISTRATION

                 

                Committee

                Amendment
      and Termination

              	
                 

                 

                6.1

                6.2

                 

              
	
                ARTICLE
      VII

              	
                -
      GENERAL PROVISIONS

                 

                Payments
      to Minors and Incompetents

                No
      Contract

                Use
      of Masculine and Feminine; Singular and Plural

                Non-Alienation
      of Benefits

                Income
      Tax Withholding

                 

                Continuation
      of Plan

                Governing
      Law

                Captions

                Severability

              	
                 

                 

                7.1

                7.2

                7.3

                7.4

                7.5

                 

                7.6

                7.7

                7.8

                7.9

              

      

       

       

       

      (ii)
 

      
        
           

        

        
           

          
            

          

        

        
           

        

      

ARTICLE
I

    PURPOSE

     

    Effective
January 1, 2010, Central Vermont Public Service Corporation (the "Employer") has
established The Central Vermont Public Service Corporation Performance Share
Plan (the "Plan") in order to strengthen the ability of the Employer to attract
and retain talented executives and to promote the long-term growth and
profitability of the Employer by linking a significant element of executives’
compensation opportunity to the performance of the Employer in meeting key
operational and shareholder return goals over an extended period of
time.

     

    
      
        
           

           

        

         

      

      
        - 1
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    ARTICLE
II

    DEFINITIONS

     

    
      	
              2.1

            	
              "Account"
      means the bookkeeping account established for the Participant under
      Section 4.2.

            

    

     

    
      	
              2.2

            	
              "Award"
      means any payment or settlement in respect of a grant of Common Stock or
      cash or any combination thereof in accordance with Section
      4.1.

            

    

     

    
      	
              2.3

            	
              "Board"
      means the Board of Directors of Central Vermont Public Service
      Corporation.

            

    

     

    
      	
              2.4

            	
              "Change
      in Control" shall have the same meaning as the term defined in the
      standard form Change in Control Agreement approved by the Employer’s Board
      of Directors and awarded from time to
time.

            

    

     

    
      	
              2.5

            	
              "Code"
      means the Internal Revenue Code of 1986, as amended from time to time, and
      pertinent regulations issued thereunder. Reference to any section of the
      Code shall include any successor provision
  thereto.

            

    

     

    
      	
              2.6

            	
              "Committee"
      means the Compensation Committee appointed by the Board to administer this
      Plan. The Committee shall be comprised of at least 3 members who qualify
      as “non-employee directors” within the meaning of Rule 16B-3 promulgated
      under the Exchange Act.

            

    

     

    
      	
              2.7

            	
              "Common
      Stock" or "Stock"
      means the common stock of the
Employer.

            

    

     

    
      	
              2.8

            	
              "Comparison
      Group" means the peer group of companies designated by the
      Committee as the Comparison Group relative to a given Performance Cycle,
      as described in Section 3.1(c)

            

    

     

    
      
        
        

      

      
        - 2
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              2.9

            	
              

                “Component”
      means the part of the plan related to specific
      measures.  Starting in 2005, there are two plan components – one
      related to relative Total Shareholder Return performance and the second
      related to meeting key Operational Measure
    performance.

              

            

    

     

    
      	
               2.10

            	
              "Dividend
      Equivalent" means credits in respect of each PeRS (as defined in
      section 2.18) or other Stock Unit representing an amount equal to the
      dividends or distributions declared and paid on a share of Common
      Stock.

            

    

     

    
      	
               2.11

            	
              "Effective
      Date" means January 1, 2010, the effective date of this
      Plan.

            

    

     

    
      	
               2.12

            	
              "Employer"
      means Central Vermont Public Service Corporation, its subsidiaries and
      affiliates, and its successor or
successors.

            

    

     

    
      	
               2.13

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

            

    

     

    
      	
               2.14

            	
              "Fair
      Market Value" means the average of the high and low quoted selling
      price for a share of Common Stock of the Company on the applicable date as
      quoted on the New York Stock Exchange (“NYSE”) in the Eastern Edition of
      the Wall Street Journal or in a similarly readily available public source
      on such date.  If such date shall not be a business day, then
      the preceding day which shall be a business day, or if no sale takes
      place, then the average of the bid and asked prices on such
      date.

            

    

     

    
      	
              2.15

            	
              “Operational
      Measures” means the specific measures of operational performance
      chosen for a three-year performance cycle. (See Exhibit
  B.)

            

    

     

    
      	
              2.16

            	
              "Participant"
      means an executive officer of the Employer who is selected by the Board to
      participate in this Plan.

            

    

     

    
      	
              2.17

            	
              "Performance
      Cycle" means the period over which PeRS designated in respect of
      the Performance Cycle potentially may be earned. Performance Cycles will
      be three year periods extending from January 1 of the initial year through
      December 31 of the third year in the Performance Cycle. Performance Cycles
      generally will begin each year, and therefore will overlap with one
      another.

            

    

     

    
      
        
        

      

      
        - 3
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              2.18

            	
              "PeRS"
      means Stock Units which are potentially earnable by a Participant
      hereunder upon achievement of specific levels of performance for the two
      plan components as shown in Exhibit A and B.  The term is an
      acronym for “performance-based restricted Stock
  Units”.

            

    

     

    
      	
              2.19

            	
              "Plan"
      means the Central Vermont Public Service Corporation Performance Share
      Incentive Plan, as set forth herein, as may be amended from time to time.
      Shares for this plan were approved by shareholders on May 6, 2008 as the
      Omnibus Stock Plan (Amended and Restated 2002 Long-Term Incentive Plan)
      and any subsequent replacement
plans.

            

    

     

    
      	
              2.20

            	
              "Pro
      Rata Portion" means a portion of shares which is determined by
      multiplying a predetermined number of PeRS by the ratio of months in a
      thirty-six month performance cycle within which the executive was an
      employee of the Company and a Participant with respect to that
      cycle.  

            

    

     

    
      	
              2.21

            	
              "Stock
      Unit" is a bookkeeping unit which represents a right to receive one
      share of Common Stock upon settlement, together with a right to accrual of
      additional Stock Units as a result of Dividend Equivalents, subject to the
      terms and conditions of this Plan. Stock Units are arbitrary accounting
      measures created and used solely for purposes of this Plan, and do not
      represent ownership rights in the Employer, shares of Common Stock, or any
      asset of the Employer.

            

    

     

    
      	
              2.22

            	
              "Target
      PeRS" means a number of PeRS designated as a target number that may
      be earned by a Participant in respect to a given Performance Cycle plus
      the number of PeRS resulting directly or indirectly from Dividend
      Equivalents on the originally designated number of Target
      PeRS.

            

    

     

    
      
        
        

      

      
        - 4
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              2.23

            	
              "Termination
      of Employment" means the Participant’s termination of employment
      with the Employer.

            

    

     

    
      	
              2.24

            	
              "Total
      Shareholder Return" (TSR) means the amount, expressed as a
      percentage, of market price appreciation or depreciation of a share of
      common stock plus dividends on a share of Common Stock or on the common
      stock of a company in the Comparison Group (in both cases excluding
      extraordinary dividends), assuming dividend reinvestment at the dividend
      payment date, for the specified 3-year
period.

            

    

     

    
    

    
      
        
           

           

        

         

      

      
        - 5
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              ARTICLE
      III

            

    

    
      	
               
      

            	
              DETERMINATION
      OF PERFORMANCE SHARES

            

    

     

    
      	
              3.1      
      Designation
      of PeRS and Related
Terms

            

    

     

    
      	
               
      

            	
              (a)

            	
              Designation
      of PeRS. Not later than 90 days after the beginning of a
      Performance Cycle, the Committee shall: (i) select employees to
      participate in the Performance Cycle; (ii) designate, for each such
      employee Participant, the Target PeRS number such Participant shall have
      the opportunity to earn in such Performance Cycle related to TSR
      performance component of the plan;  (iii) designate, for each
      such employee Participant, the Target PeRS number such Participant shall
      have the opportunity to earn in such Performance cycle  related
      to Operational Measure performance; (iv) specify the duration of the
      Performance Cycle; (v) specify a table (Exhibit A), grid or formula that
      sets forth the amount of PeRS that will be earned in the first component
      of the Plan corresponding to the percentile rank of the Company’s average
      TSR for the three years ending on the last day of the Performance Cycle as
      compared to the unweighted average TSR of the Comparison Group for the
      three years ending on the last day of the Performance Cycle; and (vi)
      specify a table (Exhibit B) grid or formula that sets forth the amount of
      PeRS that will be earned corresponding to the Company’s performance based
      on the key operational measure component of the plan. The Committee may,
      in its discretion, reduce or eliminate the amount of payment with respect
      to an Award of PeRS to a Participant, notwithstanding the achievement of a
      specified performance
condition.

            

    

     

    
      	
               
      

            	
              (b)

            	
              New
      Participants.  The provisions of 3.1(a) notwithstanding,
      at any time during a Performance Cycle, the Committee may select a new
      employee or a newly promoted employee who was not currently participating
      in the Performance Cycle to participate in the Performance Cycle and
      designate, for any such employee Participant, the number of PeRS or
      additional PeRS such Participant shall have the opportunity to earn in
      such Performance Cycle; provided, however, that such designation must be
      effective at least six months before the stated end date of the
      Performance Cycle. In determining the number of Target PeRS to be
      designated under this paragraph (b), the Committee may take into account
      the portion of the Performance Cycle already elapsed, the performance
      achieved during such elapsed portion of the Performance Cycle, and such
      other considerations as the Committee may deem relevant. The Committee
      shall also determine whether any calculation of the Pro Rata Portion for
      such Participant shall be adjusted to include or exclude periods prior to
      the Participant’s employment in the numerator or denominator used in
      calculating such amount.

            

    

     

    
      
        
        

      

      
        - 6
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              (c)

            	
              Comparison
      Group. The Comparison Group for each Performance Cycle shall be
      designated by the Committee, provided that, if the Committee does not
      designate a new Comparison Group for any Performance Cycle, the Comparison
      Group shall be that most recently designated by the
      Committee.

            

    

     

    The
Comparison Group for each Performance Cycle for the TSR Component of the Plan is
developed including all publically traded utilities as defined by SIC Codes 4911
– Electric Services, and 4931 – Electric Services and Other Service
Combinations.  In the event a merger, acquisition, or other
extraordinary corporate event affects a company included in the Comparison
Group, and if as a result in the Committee’s judgment such event causes TSR for
such company not to be comparable with periods prior to the event or otherwise
necessitates a change or adjustment to ensure continued comparability, the
Committee shall make such adjustments in order to maintain the comparability of
results of the Comparison Group.

     

    
      	
               
      

            	
              (d)

            	
              Determination
      of Number of Earned PeRS. Not later than 120 days after the end of
      each Performance Cycle, the Committee shall determine the extent to which
      the performance goals for the earning of PeRS were achieved during such
      Performance Cycle and the number of PeRS (or, the “Award”) earned by each
      Participant with respect to each component for the Performance Cycle (see
      Exhibit A and Exhibit B). The Committee shall make written determinations
      that the performance goals and any other material terms relating to the
      earning of PeRS were in fact
satisfied.

            

    

     

    
      
        
        

      

      
        - 7
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              3.2

            	
              Adjustment
      of and Changes in Stock. In the event of any change in the
      outstanding shares of Common Stock by reason of any stock dividend or
      split, recapitalization, merger, consolidation, spinoff, combination or
      exchange of shares or other similar corporate transaction, or any
      distributions to common shareholders other than regular cash dividends,
      the Committee may make such substitution or adjustment, if any, as it
      deems to be equitable, as to the number or kind of shares of Common Stock,
      PeRS, and/or other securities issued, reserved or granted for any purpose
      under this Plan.

            

    

     

    
      
        
           

           

        

         

      

      
        - 8
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              ARTICLE
      IV

            

    

    
      	
               
      

            	
              PAYMENT
      OF GRANTS

            

    

     

    
      	
              4.1

            	
              Performance
      Awards.  Subject to the applicable provisions of Article
      III, each Participant shall be entitled to receive an Award of Common
      Stock in an amount equal to the aggregate Fair Market Value of the PeRS
      earned in respect of a Performance Cycle. Participants shall be
      immediately vested in such Award as of the date it is
      granted.

            

    

     

    
      	
              4.2

            	
              Accounts.  The
      Committee shall maintain a bookkeeping Account for each Participant
      reflecting the number of PeRS credited to the Participant hereunder
      including dividend equivalents. The Account may include subaccounts or
      other designations as the Committee may deem
      appropriate.

            

    

     

    
      	
              4.3

            	
              Payment
      of Account. Payment of an Account may be made in shares of Common
      Stock, in cash equal to the Fair Market Value of the shares on the date as
      of which payment is made, or in any combination of Common Stock and cash,
      and at such time or times as the Committee, in its discretion, shall
      determine.  The intent is to grant the payment in shares of
      Common Stock subject to sections 3.2 and 7.5 of this
      Plan.  Payment shall be made on or before March 15th
      immediately following the conclusion of the Performance
      Cycle.

            

    

     

    
      	 	
              The
      Committee may permit (subject to such conditions as the Committee may from
      time to time establish in order to provide for matters such as the
      effective deferral of taxation) a Participant to elect to defer receipt of
      all or any portion of any payment of shares of Common Stock that would
      otherwise be due to such Participant in payment or settlement of any Award
      under the Plan.  An eligible participant may elect to defer the
      award through the Deferred Compensation Plan for Officers and Directors of
      Central Vermont Public Service Corporation.   Any deferred
      amount will be invested in phantom “company
  stock”.

            

    

     

    
      
        
           

           

        

         

      

      
        - 9
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              The
      shares of Common Stock which may be issued under the Plan may be
      authorized and unissued shares or issued shares which have been reacquired
      by the Employer.  No fractional share of the Common Stock shall
      be issued under the Plan.  Awards of fractional shares of the
      Common Stock, if any, shall be settled in
cash.

            

    

     

    
      
        
           

           

        

         

      

      
        - 10
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              ARTICLE
      V

              

                TERMINATION
      OF EMPLOYMENT

              

            

    

     

    
      	
              5.1

            	
              Termination
      Prior to Completion of Performance
  Cycle.

            

    

     

    
      	
               
      

            	
              (a)

            	
              Termination
      of Employment. Upon a Participant’s termination of employment with
      the Employer prior to completion of a Performance Cycle all unearned PeRS
      relating to such Performance Cycle shall cease to be earnable and shall be
      cancelled, and Participant shall have no further rights or opportunities
      hereunder unless the Committee deems
  appropriate.

            

    

     

    
      	
               
      

            	
              (b)

            	
              Disability,
      Death, or Retirement. If Termination of Employment is due to the
      death or the Permanent and Total Disability (as defined as any disability
      that would qualify as permanent and total disability under any long term
      disability policy sponsored by the Company) or Retirement (as defined
      under the provisions of The Pension Plan of Central Vermont Public Service
      Corporation and Its Subsidiaries, i.e., the “Pension Plan”) of the
      Participant, the Participant or his beneficiary (as designated for
      purposes of the Pension Plan) shall be deemed to have earned and shall be
      entitled to receive settlement of the Pro Rata Portion of the PeRS at
      target relating to the Performance Cycles in effect at the date of
      termination, at the time and to the extent such PeRS would otherwise have
      been earned and settled, in accordance with Article IV if the individual
      had not terminated until after the close of the Performance
      Cycles.

            

    

     

    
      	
               
      

            	
              If
      the Participant has timely filed an irrevocable election to defer
      settlement of PeRS following a termination of employment, such earned PeRS
      shall be settled in accordance with such deferral
  election.

            

    

     

    
      
        
        

      

      
        - 11
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              5.2

            	
              Change
      in Control.  Upon a Change in Control, Section 5.1(a)
      shall cease to apply and each Participant shall be 100% vested in the PeRS
      at target performance relating to the Performance Cycles in effect as of
      the Change in Control.   Accordingly, if for example the
      Change in Control results in Executive’s Termination of Employment prior
      to the completion of a Performance Cycle, Executive will be deemed to have
      earned and shall be entitled to receive, in accordance with the applicable
      provisions of the Plan including Section 4.3 hereof concerning the timing
      for payment, the Pro Rata Portion of the PeRS at target performance
      relating to Performance Cycles in effect as of the Change in
      Control.

            

    

     

    
      
        
           

           

        

         

      

      
        - 12
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    ARTICLE
VI

    ADMINISTRATION

     

    
      	
              6.1

            	
              Committee.
      This Plan shall be administered by the Board through the Compensation
      Committee. The Committee shall have full discretion to interpret and
      administer the Plan and its decision in any matter involving the
      interpretation and application of this Plan shall be final and binding on
      all parties.  The Committee may delegate to one or more of its
      members or to any Officer or Officers of the Company such administrative
      duties under the Plan as the Committee may deem
      advisable.

            

    

     

    
      	
              6.2

            	
              Amendment
      and Termination. The Compensation Committee reserves the right to
      amend, modify, suspend or terminate this Plan in whole or in part at any
      time by action of the Board. However, no such amendment may alter the
      maximum number of shares without shareholder
    approval.

            

    

     

    
      
        
           

           

        

         

      

      
        - 13
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              ARTICLE
      VII

            

    

    
      	
               
      

            	
              GENERAL
      PROVISIONS

            

    

     

    
      	
              7.1

            	
              Payments
      to Minors and Incompetents.  If any Participant, spouse
      or beneficiary entitled to receive any benefits hereunder is a minor or is
      deemed by the Committee or is adjudged to be legally incapable of giving
      valid receipt and discharge for such benefits, they will be paid to such
      person or institution as the Committee may designate or to the duly
      appointed guardian. Such payment shall, to the extent made, be deemed a
      complete discharge of any such payment under the
    Plan.

            

    

     

    
      	
              7.2

            	
              No
      Contract.  This Plan shall not be deemed a contract of
      employment with any Participant, nor shall any provision hereof affect the
      right of the Employer to terminate a Participant's
      employment.

            

    

     

    
      	
              7.3

            	
              Use
      of Masculine and Feminine; Singular and
      Plural.  Wher­ever used in this Plan, the masculine
      gender will include the feminine gender and the singular will include the
      plural, unless the context indicates
  otherwise.

            

    

     

    
      	
              7.4

            	
              Non-Alienation
      of Benefits.  No amount payable to, or held under the
      Plan for the account of, any Participant, spouse or beneficiary shall be
      subject in any manner to anticipation, alienation, sale, transfer,
      assignment, pledge, encumbrance, or charge, and any attempt to so
      anticipate, alienate, sell, trans­fer, assign, pledge, encumber, or
      charge the same shall be void; nor shall any amount payable to, or held
      under the Plan for the account of, any Participant be in any manner liable
      for such Participant's debts, contracts, liabilities, engage­ments, or
      torts, or be subject to any legal process to levy upon or
      attach.

            

    

     

    
      	
              7.5

            	
              Income
      Tax Withholding. As a condition to the delivery of any Shares, the
      Committee may require that the Participant, at the time of such payment of
      shares, pay to the Company an amount to satisfy any applicable tax
      withholding obligation or such greater amount of withholding as the
      Committee shall determine from time to time, or the Committee may take
      such other action as it may deem necessary to satisfy any such withholding
      obligations.  The Committee, in its sole discretion, may permit
      or require Participant to satisfy all or a part of the tax withholding
      obligations incident to the payment of shares by having the Company
      withhold a portion of the Shares that would otherwise be issuable to the
      Participant.  Such Shares shall be valued based on their Fair
      Market Value on the date the tax withholding is required to be
      made.  Any such Share withholding with respect to a Participant
      subject to Section 16(a) of the Exchange Act shall be subject to such
      limitations as the Committee may impose to comply with the requirements of
      Section 16 of the Exchange
Act.

            

    

     

    
      
        
        

      

      
        - 14
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              7.6

            	
              Continuation
      of Plan. In the event of a Change in Control, this Plan shall
      remain in full force and effect as an obligation of the Employer or its
      successors in interest.

            

    

     

    
      	
              7.7

            	
              Governing
      Law.  The provisions of the Plan shall be interpreted,
      con­strued, and admin­istered in accordance with the referenced
      provisions of the Code and with the laws of the State of
      Vermont.

            

    

     

    
      	
              7.8

            	
              Captions.  The
      captions contained in the Plan are inserted only as a matter of
      convenience and for reference and in no way define, limit, enlarge, or
      describe the scope or intent of the Plan nor in any way affect the
      construction of any provision of the
  Plan.

            

    

     

    
      	
              7.9

            	
              Severability.
      If any provision of the Plan is held invalid or unenforceable, its
      invalidity or unenforceability will not affect any other provision of the
      Plan, and the Plan will be construed and enforced as if such provision had
      not been included.

            

    

     

    
      
        
           

        

         

      

      
        - 15
-

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              IN
      WITNESS WHEREOF, the Employer has caused this instrument to be executed by
      its duly authorized officer as of the 3rd day of March,
    2010.

            

    

     

    CENTRAL
VERMONT PUBLIC

    SERVICE
CORPORATION

     

     

     

       By:
   /s/ Joan
Gamble                            

     

    Title:   /s/ VP Business
Services             

     

    Attest:

     

    By:   /s/ Mary C.
Marzec               

           Assistant
Corporate Secretary

     

     

     

     

     

    (Corporate
Seal)

     

     

     

     

     

     

     

     

    
      
        
           

        

         

      

      
        - 16
-

        
          

        

      

      
         

      

    

     

    
      Exhibit
A

       

    

    PeRS
Earned for Total Shareholder Return Performance Component

    for
2010-2012 Performance Cycle

     

     

     

    
      	
              Three
      Year Total 

              Shareholder
      Return -
      

              Employer
      Percentile Rank 

              vs.
      Comparison Group

            	 
      	
               

               

              Multiple
      of

              Target
      PeRS Earned

            
	 
      	 
      	 
      
	
              75th
      percentile or higher

              50th
      percentile

              30th
      percentile

              Below
      30th
      percentile

            	 
      	
              1.5

              1.0

              0.3

              0.0

            
	 
      	 
      	 
      

    

     

     

    The
resulting three year Total Shareholder Return determined for this Plan shall be
rounded up to nearest percentile specified above. The multiple of Target PeRS
earned between each of the respective percentiles specified above shall be
determined by linear interpolation.

     

     

     

     

     

    
      
        
           

        

         

      

      
        - 17
-

        
          

        

      

      
         

      

    

    
      Exhibit
B

       

    

    2010-2012
Cycle Operational Measure

    
 

    
      	 
      	
               

               

            	
              Threshold

              0%

            	
              Target

              100%

            	
              Maximum

              150%

            	
              Operational
      

              Measure
      Weight

               

            
	Customer	Service
      Quality and Reliability: 3-year average results of SAIFI, CAIDI, and
      Customer Trasactional Satisfaction on SERVE matrix.	3	4	5	15%

    

     

    

    
      	Financial	Regulatory
      paradigm: allowed ROE, power cost recovery, and non-power cost
      recovery.	3	4	5	45%

    

     

     

    
      	Process	Smart
      Power project success based on Board discretion using 2010 - 2012 Smart
      Power matrix as a guideline.	3	4	5	30%

    

     

     

    
      	People	Safety: Measured by
      the workers compensation experience modification factor (MOD factor)
      ['04=1.34; '05=1.28; '06=1.11; '07=0.88; '08=1.00; '09=0.91; '10=0.92;
      '11=0.93]	1.00	0.90	0.88	10%

    

     

    

    
      	
            	
              Hurdle:

              If CV
      falls below investment grade status in 2010 - 2012 then the operational
      measures payout can not be above target.

            	
            	
            	100%

    

     

     

    
      
        
           

        

         

      

      
        - 18
-exhibit_10m.htm

     

     

     

    

     

    

     

    ALLETE

     

    EXECUTIVE
LONG-TERM

     

    INCENTIVE
COMPENSATION PLAN

     

    

     

    

     

    As
Amended and Restated

     

    Effective
January 1, 2006

     

     

     

     

     

     

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    ALLETE

     

    EXECUTIVE
LONG-TERM INCENTIVE COMPENSATION PLAN

     

    As
Amended and Restated Effective January 1, 2006

     

     

    

     

    Article
1.Establishment, Purpose and
Duration

     

     

    1.1Establishment of the Plan.
ALLETE, Inc., a Minnesota corporation, formerly Minnesota Power & Light
Company (hereinafter referred to as the “Company”), established an incentive
compensation plan known as the “ALLETE Executive Long-Term Incentive
Compensation Plan” (hereinafter referred to as the “Plan”), as set forth in this
document. The Plan permits the grant of nonqualified stock options (“NQSO”),
incentive stock options (“ISO”), stock appreciation rights (“SAR”), restricted
stock, performance units, performance shares and other grants. Capitalized terms
are defined in Article 17.

     

     

    The Plan first became effective as of
January 1, 1996, and shall remain in effect as provided in Section 1.3 herein.
This Plan document reflects the amendment and restatement of the Plan which will
become effective upon shareholder approval as of January 1, 2006 (the “Effective
Date”), and applies to Grants issued on or after January 1, 2006, and Grants
exercised on or after January 1, 2006.

     

     

    1.2Purpose of the Plan. The
purpose of the Plan is to promote the success and enhance the value of the
Company by linking the personal interests of Participants to those of Company
shareholders and customers, providing Participants with an incentive for
outstanding performance.

     

     

    The Plan is further intended to
assist the Company in its ability to motivate, attract and retain the services
of Participants upon whom the successful conduct of its operations is largely
dependent.

     

     

    1.3Duration of the Plan. The
Plan shall remain in effect, subject to the right of the Board of Directors to
terminate the Plan at any time pursuant to Article 13 herein, until all Shares
subject to it shall have been purchased or acquired according to the Plan’s
provisions; provided, however, in no event may a Grant be made under the Plan on
or after the tenth anniversary of the Effective Date.

     

     

    Article
2.Administration

     

     

    2.1The Committee. The Plan shall
be administered by the Executive Compensation Committee of the Board consisting
of not less than three (3) Directors. The members of the Committee shall be
appointed from time to time by, and shall serve at the discretion of, the Board
of Directors.

     

     

    The Committee, to the extent necessary,
shall be comprised solely of Directors who are: (a) “non-employee directors” as
contemplated by Rule 16b-3 under the Exchange Act; (b) “outside directors” as
contemplated by Section 162(m) of the Code; and (c) “independent directors” as
contemplated by Section 303A.02 of the New York Stock Exchange Listed Company
Manual.

     

     

    2.2Authority of the Committee.
The Committee shall have full power except as limited by law, the Articles of
Incorporation and the Bylaws of the Company, subject to such other restricting
limitations or directions as may be imposed by the Board and subject to the
provisions herein, to determine the size and types of Grants; to determine the
terms and conditions of such Grants in a manner consistent with the Plan; to
construe and interpret the Plan and any agreement or instrument entered into
under the Plan; to establish, amend or waive rules and regulations for the
Plan’s administration; and (subject to the provisions of Article 13 herein) to
amend the terms and conditions of any outstanding Grant; provided, however, the
Committee may award or grant only those types of Grants that either comply with
the applicable requirements of Section 409A of the Code and related guidance, or
do not result in the deferral of compensation within the meaning of Section 409A
of the Code and related guidance. Further, the Committee shall make all other
determinations which may be necessary or advisable for the administration of the
Plan. As permitted by law, the Committee may delegate its authorities as
identified hereunder.

     

     

    2.3Decisions Binding. All
determinations and decisions made by the Committee pursuant to the provisions of
the Plan and all related orders or resolutions of the Board shall be final,
conclusive and binding on all persons, including the Company, its shareholders,
Employees, Participants and their estates and beneficiaries.

     

     

    2.4Costs. The Company shall pay
all costs of administration of the Plan.

     

     

    Article
3.Shares Subject to the
Plan

     

     

    3.1Number of Shares. Subject to
Section 3.2 herein, the total number of Shares available for grant under the
Plan shall not exceed three million, two hundred thirty three thousand, three
hundred thirty three (3,233,333) Shares as authorized at the time of the annual
meeting of shareholders on May 10, 2005 reduced by the number of Shares as to
which Options or Shares have been granted or exercised. Shares may be (i)
authorized but unissued Shares of common stock, or (ii) Shares purchased on the
open market. Shares underlying lapsed or forfeited Grants, Grants that are not
paid in shares, previously acquired Shares tendered to exercise an Option, or
Shares withheld in accordance with Section 14.2 to satisfy tax withholding
obligations may be re-used for other Grants.

     

     

    Subject to Section 3.2 herein, to the
extent consistent with Sections 422 and 424 of the Code, not more than an
aggregate of three million, two hundred thirty three thousand, three hundred
thirty three (3,233,333) Shares may be issued under Incentive Stock
Options.

     

     

    3.2Adjustments in Authorized
Shares. In the event of any merger, reorganization, consolidation,
recapitalization, separation, liquidation, stock dividend, split-up, share
combination or other change in the corporate structure of the Company affecting
the Shares, such adjustment shall be made in the number and class of Shares
which may be delivered under the Plan, and in the number and class of and/or
price of Shares subject to outstanding Grants made under the Plan, as may be
determined to be appropriate and equitable by the Committee, in its sole
discretion, to prevent dilution or enlargement of rights; provided, however,
that the number of Shares subject to any Grant shall always be a whole number.
Notwithstanding the foregoing or any Plan provision to the contrary, any
substitution of a new Option pursuant to a corporate transaction for an
outstanding Option or the assumption of an outstanding Option shall meet the
requirements of Treasury Regulation Section 1.424-1. The preceding sentence
shall apply to “incentive stock options” as that term is defined in Section 422
of the Code and nonqualified stock options.

     

     

    Article
4.Eligibility and
Participation

     

     

    4.1Eligibility. Persons eligible
to participate in the Plan include all officers and key employees of the Company
and its Subsidiaries, as determined by the Committee, including Employees who
are members of the Board, but excluding Directors who are not
Employees.

     

     

    4.2Actual Participation. Subject
to the provisions of the Plan, the Committee may, from time to time, select from
all Eligible Employees those to whom Grants shall be made and shall determine
the nature and amount of each Grant.

     

     

    Article
5.Stock Options

     

     

    5.1Grant of Options. Subject to
the terms and conditions of the Plan, Options may be granted to an Eligible
Employee at any time and from time to time, as shall be determined by the
Committee. The Committee shall have complete discretion in determining the
number of Shares subject to Options granted to each participant (subject to
Article 3 herein) and consistent with the provisions of the Plan, in determining
the terms and conditions pertaining to such Options; provided, however, the
maximum number of Shares subject to Options which may be granted to any single
Participant during any one calendar year is one hundred thousand (100,000). The
Committee may grant ISOs, NQSOs or a combination thereof.

     

     

    5.2Option Grant Agreement. Each
Option grant shall be evidenced by an Option Grant Agreement that shall specify
the Option Price, the duration of the Option, the number of Shares to which the
Option pertains, the Exercise Period and such other provisions as the Committee
shall determine.  The Option Grant Agreement also shall specify
whether the Option is intended to be an ISO or a NQSO.

     

     

    5.3Option Price. The Option
Price for each Option granted under the Plan shall be the Fair Market Value of a
Share on the date of grant, or such higher price as the Committee may
determine.

     

     

    5.4Duration of Options. Each
Option shall expire at such time as the Committee shall determine at the time of
grant; provided, however, that no Option shall be exercisable later than the
tenth (10th) anniversary of its date of grant.

     

     

    5.5Dividend Equivalents. To the
extent permitted by Section 2.2 herein, simultaneously with the grant of an
Option, the Participant receiving the Option may be granted Dividend Equivalents
with respect to the Shares subject to such Option. Dividend Equivalents shall
constitute rights to amounts equal to the dividends declared on equal number of
outstanding Shares on all payment dates occurring during the period between the
grant date of an Option and the date the Option is exercised. The Committee
shall determine at the time Dividend Equivalents are granted the conditions, if
any, to which the payment of such Dividend Equivalents is subject.

     

     

    5.6Exercise of and Payment for Options.
Options granted under the Plan shall be exercisable at such times and be
subject to such restrictions and conditions as the Committee shall in each
instance approve, which need not be the same for each Grant or for each
Participant. However, in no event may an Option granted under the Plan become
exercisable prior to six (6) months following the date of its
grant.

     

     

    A Participant may exercise an Option at
any time during the Exercise Period. Options shall be exercised by the delivery
of a written notice of exercise to the Company or its designated agent, setting
forth the number of Shares with respect to which the Option is to be exercised,
accompanied by provisions for full payment for the Shares.

     

     

    The Option Price upon exercise of any
Option shall be payable to the Company in full either: (a) in cash or its
equivalent, (b) by tendering, either by actual or constructive delivery,
previously acquired Shares having an aggregate fair market value at the time of
exercise equal to the total Option Price (provided that the Shares which are
tendered must have been held by the Participant for at least six months prior to
their tender to satisfy the Option Price), (c) by Share withholding or (d) by a
combination of (a), (b), and/or (c). 

     

     

    To the extent not prohibited by Section
402 of the Sarbanes-Oxley Act of 2002, the Committee also may allow cashless
exercise as permitted under Federal Reserve Board’s Regulation T, subject to
applicable securities law restrictions, or by any other means which the
Committee determines to be consistent with the Plan’s purpose and applicable
law.

     

     

    As soon as practicable after receipt of
a written notification of exercise of an Option and provisions for full payment
therefor, the Company shall deliver to the Participant, in the Participant’s
name, Shares in an appropriate amount based upon the number of Shares purchased
under the Option(s).

     

     

    5.7Restrictions on Share
Transferability. The Committee may impose such restrictions on any Shares
acquired pursuant to the exercise of an Option under the Plan as it may deem
advisable, including, without limitation, restrictions to comply with applicable
Federal securities laws, with the requirements of any stock exchange or market
upon which such Shares are then listed and/or traded and with any blue sky or
state securities laws applicable to such Shares.

     

     

    5.8Termination of Employment.
Each Option Grant Agreement shall set forth the extent to which the
Participant shall have the right to exercise the Option following termination of
the Participant’s employment with the Company and its Subsidiaries. Such
provisions shall be determined in the sole discretion of the Committee, shall be
included in the Option Grant Agreement entered into with Participants, need not
be uniform among all Options granted pursuant to the Plan or among Participants
and may reflect distinctions based on the reasons for termination of
employment.

     

     

    5.9Nontransferability of Options.
No Option granted under the Plan may be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated, other than by will or by the
laws of descent and distribution.  Further, all Options granted to a
Participant under the Plan shall be exercisable during his or her lifetime only
by such Participant or his or her legal representative.

     

     

    Article
6.Stock Appreciation
Rights

     

     

    6.1Grant of SARs. To the extent
permitted by Section 2.2 herein, and subject to the terms and conditions of the
Plan, an SAR may be granted to an Eligible Employee at any time and from time to
time, as shall be determined by the Committee. The Committee may grant
Freestanding SARs, Tandem SARs or any combination of these forms of
SARs.

     

     

    The Committee shall have complete
discretion in determining the number of SARs granted to each Participant
(subject to Article 3 herein) and, consistent with the provisions of the Plan,
in determining the terms and conditions pertaining to such SARs; provided,
however, the maximum number of SARs which may be granted to any single
Participant during any one calendar year is one hundred thousand
(100,000).

     

     

    The Base Value of a Freestanding SAR
shall equal the Fair Market Value of a Share on the date of grant of the SAR.
The Base Value of Tandem SARs shall equal the Option Price of the related
Option. In no event shall any SAR granted hereunder become exercisable within
the first six (6) months of its grant.

     

     

    6.2SAR Grant Agreement. Each SAR
grant shall be evidenced by a SAR Grant Agreement that shall specify the number
of SARs granted, the Base Value, the term of the SAR (not to exceed ten (10)
years), the Exercise Period and such other provisions as the Committee shall
determine.

     

     

    6.3Exercise of Tandem SARs.
Tandem SARs may be exercised for all or part of the Shares subject to the
related Option upon the surrender of the right to exercise the equivalent
portion of the related Option. A Tandem SAR may be exercised only with respect
to the Shares for which its related Option is then exercisable.

     

     

    Notwithstanding any other provision of
the Plan to the contrary, with respect to a Tandem SAR granted in connection
with an ISO: (i) the Tandem SAR will expire no later than the expiration of the
underlying ISO; (ii) the value of the payout with respect to the Tandem SAR may
be for no more than one hundred percent (100%) of the difference between the
Option Price of the underlying ISO and the Fair Market Value of the Shares
subject to the underlying ISO at the time the Tandem SAR is exercised; and (iii)
the Tandem SAR may be exercised only when the Fair Market Value of the Shares
subject to the ISO exceeds the Option Price of the ISO.

     

     

    6.4Exercise of Freestanding SARs.
Freestanding SARs may be exercised upon whatever terms and conditions the
Committee, in its sole discretion, imposes upon them.

     

     

    6.5Exercise and Payment of SARs.
A Participant may exercise an SAR at any time during the Exercise Period.
SARs shall be exercised by the delivery of a written notice of exercise to the
Company or its designated agent, setting forth the number of SARs being
exercised. Upon exercise of an SAR, a Participant shall be entitled to receive
payment from the Company in an amount equal to the product of:

     

     

    
      	
               
      

            	
              (a)
      the excess of (i) the Fair Market Value of a Share on the date of exercise
      over (ii) the Base Value of the SAR, multiplied
  by

            

    

     

     

    
      	
               
      

            	
              (b)
      the number of Shares with respect to which the SAR is
      exercised.

            

    

     

     

    
      	
               
      

            	
              The
      payment upon SAR exercise shall be in Shares of equivalent
      value.

            

    

     

     

    6.6Termination of Employment.
Each SAR Grant Agreement shall set forth the extent to which the Participant
shall have the right to exercise the SAR following termination of the
Participant employment with the Company and its Subsidiaries. Such provisions
shall be determined in the sole discretion of the Committee, shall be included
in the SAR Grant Agreement entered into with Participants, need not be uniform
among all SARs granted pursuant to the Plan or among Participants and may
reflect distinctions based on the reasons for termination of
employment.

     

     

    6.7Nontransferability of SARs.
No SAR granted under the Plan may be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated, other than by will or by the laws of
descent and distribution.  Further, all SARs granted to a Participant
under the Plan shall be exercisable during his or her lifetime only by such
Participant or his or her legal representative.

     

     

    Article
7.Restricted Stock

     

     

    7.1Grant of Restricted Stock. To
the extent permitted by Section 2.2 herein, and subject to the terms and
conditions of the Plan, Restricted Stock may be granted to Eligible Employees at
any time and from time to time, as shall be determined by the Committee. The
Committee shall have complete discretion in determining the number of shares of
Restricted Stock granted to each Participant (subject to Article 3 herein) and,
consistent with the provisions of the Plan, in determining the terms and
conditions pertaining to such Restricted Stock; provided, however, the maximum
number of shares of Restricted Stock which may be granted to any single
Participant during any one calendar year is twenty thousand
(20,000).

     

     

    7.2Restricted Stock Grant
Agreement. Each Restricted Stock Grant shall be evidenced by a Restricted
Stock Grant Agreement that shall specify the Period or Periods of Restriction,
the number of Restricted Stock Shares granted and such other provisions as the
Committee shall determine. The Period or Periods of Restriction shall end only
on the terms and conditions determined by the Committee and specified in the
Restricted Stock Grant Agreement, which may include the attainment of one or
more Performance Goals or upon one or more specified dates.

     

     

    7.3Transferability. Except as
provided in this Article 7, Restricted Stock granted herein may not be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated until the
end of the applicable Period of Restriction established by the Committee and
specified in the Restricted Stock Grant Agreement. However, in no event may any
Restricted Stock granted under the Plan become vested in a Participant prior to
six (6) months following the date of its grant. All rights with respect to the
Restricted Stock granted to a Participant under the Plan shall be available
during his or her lifetime and such rights are not assignable or
transferable.

     

     

    7.4Certificate Legend. Each
certificate representing Restricted Stock granted pursuant to the Plan may bear
a legend substantially as follows:

     

     

    “The sale
or other transfer of the shares of stock represented by this certificate,
whether voluntary, involuntary or by operation of law, is subject to certain
restrictions on transfer as set forth in the ALLETE, Inc. Executive Long-Term
Incentive Compensation Plan, and in a Restricted Stock Grant Agreement. A copy
of such Plan and such Agreement may be obtained from ALLETE, Inc.”

     

     

    The Company shall have the right to
retain the certificates representing Restricted Stock in the Company’s
possession until such time as all restrictions applicable to such Shares have
been satisfied.

     

     

    7.5Removal of Restrictions.
Except as otherwise provided in this Article 7, Restricted Stock shall become
freely transferable by the Participant after the last day of the Period of
Restriction applicable thereto. Once Restricted Stock is released from the
restrictions, the Participant shall be entitled to have the legend referred to
in Section 7.4 removed from his or her stock certificate.

     

     

    7.6Voting Rights. During the
Period of Restriction, Participants holding Restricted Stock may exercise full
voting rights with respect to those Shares.

     

     

    7.7Dividends and Other
Distributions. During the Period of Restriction, Participants holding
Restricted Stock shall be credited with all regular cash dividends paid with
respect to all Shares while they are so held. All cash dividends and other
distributions paid with respect to Restricted Stock shall be credited to
Participants subject to the same restrictions on transferability and
forfeitability as the Restricted Stock with respect to which they were paid. If
any such dividends or distributions are paid in Shares, such Shares shall be
subject to the same restrictions on transferability and forfeitability as the
Restricted Stock with respect to which they were paid. Subject to the
restrictions on vesting and the forfeiture provisions, all dividends credited to
a Participant shall be paid to the Participant promptly following the full
vesting of the Restricted Stock with respect to which such dividends were paid.
The provisions of this Section 7.7 are subject to the right of the Committee to
determine otherwise at the time of grant.

     

     

    7.8Termination of Employment.
Each Restricted Stock Grant Agreement shall set forth the extent to which
the Participant shall have the right to receive unvested Restricted Shares
following termination of the Participant’s employment with the Company and its
Subsidiaries. Such provisions shall be determined in the sole discretion of the
Committee, shall be included in the Restricted Stock Grant Agreement entered
into with Participants, need not be uniform among all grants of Restricted Stock
or among Participants and may reflect distinctions based on the reasons for
termination of employment.

     

     

    Article
8.Performance Units and
Performance Shares

     

     

    8.1Grant of Performance Units and
Performance Shares. To the extent permitted by Section 2.2, and subject
to the terms of the Plan, Performance Units and/or Performance Shares may be
granted to an Eligible Employee at any time and from time to time, as shall be
determined by the Committee. The Committee shall have complete discretion in
determining the number of Performance Units and/or Performance Shares granted to
each Participant (subject to Article 3 herein) and, consistent with the
provisions of the Plan, in determining the terms and conditions pertaining to
such Grants; provided, however, the maximum award to any single Participant with
respect to Performance Units granted in any one calendar year shall be 200% of
base salary determined at the time the Performance Goals are established by the
Committee, but in no event more than $1,000,000, and with respect to Performance
Shares shall be twenty thousand (20,000) Shares.

     

     

    8.2Performance Unit/Performance Share
Grant Agreement. Each grant of Performance Units and/or Performance
Shares shall be evidenced by a Performance Unit and/or Performance Share Grant
Agreement that shall specify the number of Performance Units and/or Performance
Shares granted, the initial value (if applicable), the Performance Period, the
Performance Goals and such other provisions as the Committee shall determine,
including, but not limited to, any right to Dividend Equivalents during or after
the Performance Period.

     

     

    8.3Value of Performance
Units/Shares. Each Performance Unit shall have an initial value that is
established by the Committee at the time of grant. The value of a Performance
Share shall equal the value of one Share. The Committee shall set Performance
Goals in its discretion which, depending on the extent to which they are met,
will determine the number and/or value of Performance Units/Shares that will be
paid out to the Participants. 

     

     

    8.4Earning of Performance
Units/Shares. After the applicable Performance Period has ended, the
holder of Performance Units/Shares shall be entitled to receive payout with
respect to the Performance Units/Shares earned by the Participant over the
Performance Period, to be determined as a function of the extent to which the
corresponding Performance Goals have been achieved.

     

     

    8.5Form and Timing of Payment of
Performance Units/Shares. Payment of earned Performance Units/Shares
shall be made following the close of the applicable Performance Period. The
Committee, in its sole discretion, may pay earned Performance Units/Shares in
cash or in Shares (or in a combination thereof), which have an aggregate Fair
Market Value equal to the value of the earned Performance Units/Shares at the
close of the applicable Performance Period.  Such Shares may be
granted subject to any restrictions deemed appropriate by the
Committee.

     

     

    8.6Dividend Equivalents. To the
extent permitted by Section 2.2 herein, simultaneously with the grant of
Performance Shares, the Participant may be granted Dividend Equivalents with
respect to such Performance Shares. Dividend Equivalents shall constitute rights
to amounts equal to the dividends declared on an equal number of outstanding
Shares on all payment dates occurring during the period between the grant date
and the date the Performance Shares are earned or paid out. The Committee shall
determine at the time Dividend Equivalents are granted the conditions, if any,
to which the payment of such Dividend Equivalents is subject.

     

     

    8.7Termination of Employment.
Each Grant Agreement shall set forth the extent to which the Participant
shall have the right to receive a Performance Unit/Share payout following
termination of the Participant’s employment with the Company and its
Subsidiaries. Such provisions shall be determined in the sole discretion of the
Committee, shall be included in the Grant Agreement entered into with the
Participants, need not be uniform among all grants of Performance Units/Shares
or among Participants and may reflect distinctions based upon reasons for
termination of employment.

     

     

    8.8Nontransferability.
Performance Units/Shares may not be sold, transferred, pledged, assigned or
otherwise alienated or hypothecated, other than by will or by the laws of
descent and distribution. Further, a Participant’s rights under the Plan shall
be exercisable during the his or her lifetime only by such Participant or his or
her legal representative.

     

     

    Article
9.Other Grants

     

     

    To the extent permitted by Section 2.2
herein and subject to Article 3 herein, the Committee shall have the right to
make other Grants which may include, without limitation, the grant of Shares
based on certain conditions, the payment of cash based on Performance Goals, or
other criteria established by the Committee, and the payment of Shares in lieu
of cash under other Company incentive or bonus programs. Payment under or
settlement of any such Grants shall be made in such manner and at such times as
the Committee may determine.

     

     

    Article
10.Beneficiary
Designation

     

     

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

     

     

    The spouse of a married Participant
domiciled in a community property jurisdiction shall join any designation of
beneficiary or beneficiaries other than the spouse.

     

     

    Article
11.Rights of
Employees

     

     

    11.1Employment. Nothing in the
Plan shall interfere with or limit in any way the right of the Company to
terminate any Participant’s employment at any time, for any reason or no reason
in the Company’s sole discretion, nor confer upon any Participant any right to
continue in the employ of the Company.

     

     

    11.2Participation. No Employee
shall have the right to be selected to receive a Grant under the Plan, or,
having been so selected, to be selected to receive a future Grant.

     

     

    Article
12.Change in Control

     

     

    Upon the occurrence of a Change in
Control, unless otherwise specifically prohibited by the terms of Article 16
herein or unless the Committee provides otherwise prior to the Change in
Control:

     

     

    
      	
               
      

            	
              (a)
      Any and all Options and SARs granted hereunder shall become immediately
      exercisable;

            

    

     

     

    
      	
               
      

            	
              (b)
      Any Period of Restriction and restrictions imposed on Restricted Stock
      shall be deemed to have expired;

            

    

     

     

    
      	
               
      

            	
              (c)
      With respect to all outstanding Grants of Performance Units, Performance
      Shares and other performance-based Grants, the Committee (i) shall
      determine the greater of (x) the payout at 100% of the number of
      Performance Units or Shares granted for the entire Performance Period and
      (y) the payout based upon actual performance for the Performance Period
      ending as of the effective date of the Change in Control in either case
      after giving effect to the accumulation of Dividend Equivalents and (ii)
      shall pay to the Participants the greater of such amounts, prorated based
      upon the number of complete and partial calendar months within the
      Performance Period which have elapsed as of the effective date of the
      Change in Control in relation to the number of calendar months in the full
      Performance Period. Payment shall be made in cash or in stock, as
      determined by the Committee.  However, there shall not be an
      accelerated payout under this Section 12(c) with respect to Grants of
      Performance Units, Performance Shares or other performance-based Grants
      which were made less than six (6) months prior to the effective date of
      the Change in Control; and

            

    

     

     

    
      	
               
      

            	
              (d)
      All earned Performance Units, Performance Shares and other
      performance-based Grants (as increased by any Dividend Equivalents to the
      date of payment) not yet paid out shall be paid out immediately, in cash
      or in stock, as determined by the
Committee.

            

    

     

     

    Article
13.Amendment, Modification and
Termination

     

     

    13.1Amendment, Modification and
Termination. The Board may, at any time and from time to time, alter,
amend, suspend or terminate the Plan in whole or in part; provided, however,
that no amendment which requires shareholder approval in order for the Plan to
comply with Section 422 of the Code, Section 303A.08 of the New York Stock
Exchange Listed Company Manual, or any other applicable law, regulation or rule,
shall be effective unless such amendment shall be approved by the requisite vote
of the shareholders of the Company entitled to vote thereon.

     

     

    13.2Grants Previously Made. No
termination, amendment or modification of the Plan shall adversely affect in any
material way any Grant previously made under the Plan, without the written
consent of the Participant holding such Grant unless such termination,
modification or amendment is required by applicable law.

     

     

    Article
14.Withholding

     

     

    14.1Tax Withholding. The Company
shall have the power and the right to deduct or withhold, or require a
Participant to remit to the Company, an amount sufficient to satisfy federal,
state and local taxes (including the Participant’s FICA obligation) required by
law to be withheld with respect to a Grant made under the Plan; provided,
however, with respect to any Grant that is subject to Section 409A of the Code,
the Company may, to the extent permitted by Section 409A of the Code, permit the
acceleration of the time or schedule of a payment to pay the FICA Amount, and
any related income tax at source imposed by Section 3401 of the Code on the FICA
Amount.

     

     

    14.2Share Withholding. With
respect to withholding required upon the exercise of Options or SARs, upon the
lapse of restrictions on Restricted Stock, or upon any other taxable event
arising out of or as a result of Grants made hereunder, Participants may elect,
subject to the approval of the Committee, to satisfy the withholding
requirement, in whole or in part, by having the Company withhold Shares having a
Fair Market Value on the date the tax is to be determined equal to the minimum
statutory total tax which could be imposed on the transaction; provided,
however, with respect to any Grant that is subject to Section 409A of the Code,
the Company may, to the extent permitted by Section 409A of the Code, permit the
acceleration of the time or schedule of a payment to pay the FICA Amount, and
any related income tax at source imposed by Section 3401 of the Code on the FICA
Amount. All elections shall be irrevocable, made in writing and signed by the
Participant.

     

     

    Article
15.Successors

     

     

    All obligations of the Company under
the Plan, with respect to Grants made hereunder, shall be binding on any
successor to the Company, whether the existence of such successor is the result
of a direct or indirect purchase, merger, consolidation or otherwise, of all or
substantially all of the business and/or assets of the Company.

     

     

    Article
16.Legal
Construction

     

     

    16.1Gender and Number. Except
where otherwise indicated by the context, any masculine term used herein also
shall include the feminine, the plural shall include the singular and the
singular shall include the plural.

     

     

    16.2Severability. In the event
any provision of the Plan shall be held illegal or invalid for any reason, the
illegality or invalidity shall not affect the remaining parts of the Plan, and
the Plan shall be construed and enforced as if the illegal or invalid provision
had not been included.

     

     

    16.3Requirements of Law. The
making of Grants and the issuance of Shares under the Plan shall be subject to
all applicable laws, rules and regulations, and to such approvals by any
governmental agencies or national securities exchanges as may be
required.

     

     

    Notwithstanding any other provision set
forth in the Plan, if required by the then-current Section 16 of the Exchange
Act, any “derivative security” or “equity security” offered pursuant to the Plan
to any Insider may not be sold or transferred within the minimum time limits
specified or required in such rule, except to the extent Rule 16b-3 exempts any
such sale or transfer from the restrictions of Section 16. The terms “equity
security” and “derivative security” shall have the meanings ascribed to them in
the then-current Rule 16a-l under the Exchange Act.

     

     

    16.4Securities Law Compliance.
With respect to Insiders, transactions under the Plan are intended to comply
with all applicable conditions of the Federal securities laws. To the extent any
provision of the Plan or action by the Committee fails to so comply, it shall be
deemed null and void, to the extent permitted by law and deemed advisable by the
Committee.

     

     

    16.5Governing Law. To the extent
not preempted by Federal law, the Plan, and all agreements hereunder, shall be
construed in accordance with, and governed by, the laws of the State of
Minnesota.

     

     

    Article
17.Definitions

     

     

    Whenever used in the Plan, the
following terms shall have the meanings set forth below and, when such meaning
is intended, the initial letter of the word is capitalized:

     

     

    “Base Value” of an SAR shall have the
meaning set forth in Section 6.1 herein.

     

     

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

     

     

    “Cause” means: (i) willful misconduct
on the part of a Participant that is detrimental to the Company or (ii) the
conviction of a Participant for the commission of a felony or crime involving
moral turpitude. “Cause” under either (i) or (ii) shall be determined in good
faith by the Committee.

     

     

    “Change in Control” of the Company
shall be deemed to have occurred as of the first day that any one or more of the
following conditions shall have been satisfied:

     

     

    
      	
               
      

            	
              (a)the
      dissolution or liquidation of the
Company;

            

    

     

     

    
      	
               
      

            	
              (b)a
      reorganization, merger or consolidation of the Company with one or more
      unrelated corporations, as a result of which the Company is not the
      surviving corporation;

            

    

     

     

    
      	
               
      

            	
              (c)the
      sale, exchange, transfer or other disposition of shares of the common
      stock of the Company (or shares of the stock of any person that is a
      shareholder of the Company) in one or more transactions, related or
      unrelated, to one or more Persons unrelated to the Company if, as a result
      of such transactions, any Person (or any Person and its affiliates) owns
      more than twenty percent (20%) of the voting power of the outstanding
      common stock of the Company; or

            

    

     

     

    
      	
               
      

            	
              (d)the
      sale of all or substantially all the assets of the
  Company.

            

    

     

     

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

     

     

    “Committee” means the committee, as
specified in Article 2, appointed by the Board to administer the Plan with
respect to Grants.

     

     

    “Company” means ALLETE, Inc., a
Minnesota corporation, formerly known as Minnesota Power & Light Company, or
any successor thereto as provided in Article 15 herein.

     

     

    “Director” means any individual who is
a member of the Board of Directors of the Company.

     

     

    “Dividend Equivalent” means, with
respect to Shares subject to Options or Performance Shares, a right to an amount
equal to dividends declared on an equal number of outstanding
Shares.

     

     

    “Effective Date” means January 1, 2006.

     

     

    “Eligible Employee” means an Employee
who is eligible to participate in the Plan, as set forth in Section 4.1
herein.

     

     

    “Employee” means any employee of the
Company or any of its Subsidiaries, who is not covered by any collective
bargaining agreement to which the Company or any of its Subsidiaries is a party.
Directors who are not otherwise employed by the Company shall not be considered
Employees under the Plan. For purposes of the Plan, transfer of employment of a
Participant between the Company and any one of its Subsidiaries (or between
Subsidiaries) shall not be deemed a termination of employment.

     

     

    “Exchange Act” means the Securities
Exchange Act of 1934, as amended from time to time, or any successor act
thereto.

     

     

    “Exercise Period” means the period
during which an SAR or Option is exercisable, as set forth in the related Grant
Agreement.

     

     

    “Fair Market Value” means the closing
sale price as reported in the composite reporting system or, if there is no such
sale on the relevant date, then on the last previous day on which a sale was
reported.

     

     

    “FICA Amount” means the FICA tax
imposed on any Grant.

     

     

    “Freestanding SAR” means an SAR that is
granted independently of any Options.

     

     

    “Grant” means, individually or
collectively, a grant under the Plan of NQSOs, ISOs, SARs, Restricted Stock,
Performance Units, Performance Shares or any other type of grant permitted under
Article 9 of the Plan.

     

     

    “Grant Agreement” means an agreement
entered into by each Participant and the Company, setting forth the terms and
provisions applicable to a Grant made to a Participant under the
Plan.

     

     

    “Incentive Stock Option” or “ISO” means
an option to purchase Shares, granted under Article 5 herein, which is
designated as an Incentive Stock Option and satisfies the requirements of
Section 422 of the Code.

     

     

    “Insider” means an Employee who is, on
the relevant date, an officer, director or ten percent (10%) beneficial owner of
the common stock of the Company, as contemplated by Section 16 of the Exchange
Act.

     

     

    “Nonqualified Stock Option” or “NQSO”
means an option to purchase Shares, granted under Article 5 herein, which is not
intended to be an Incentive Stock Option.

     

     

    “Option” means an Incentive Stock
Option or a Nonqualified Stock Option.

     

     

    “Option Price” means the price at which
a Share may be purchased by a Participant pursuant to an Option, as determined
by the Committee and set forth in the Option Grant Agreement.

     

     

    “Participant” means an Employee who has
outstanding a Grant made under the Plan.

     

     

    “Performance Goals” means, the general
performance objectives, the attainment of which shall serve as a basis for the
determination of the number or value of Restricted Stock, Performance Units, or
Performance Shares granted under the Plan. Unless and until the Committee
proposes for shareholder vote a change in the Performance Goals to be used for
purposes of grants to Participants, the Performance Goals shall be based upon
any one or more of the following:

     

     

    
      	
               
      

            	
              (a)
      Total shareholder return (measured as the sum of Share price appreciation
      and dividends declared).

            

    

     

     

    
      	
               
      

            	
              (b)
      Return on invested capital, assets or net
  assets.

            

    

     

     

    
      	
               
      

            	
              (c)
      Share earnings/earnings growth.

            

    

     

     

    
      	
               
      

            	
              (d)
      Cash flow/cash flow growth.

            

    

     

     

    
      	
               
      

            	
              (e)
      Cost of services to consumers.

            

    

     

     

    
      	
               
      

            	
              (f)
      Growth in revenue, sales, operating income, net income, stock price and/or
      earnings per share.

            

    

     

     

    
      	
               
      

            	
              (g)
      Return on shareholders’ equity.

            

    

     

     

    
      	
               
      

            	
              (h)
      Economic value created.

            

    

     

     

    
      	
               
      

            	
              (i)
      Customer satisfaction and/or customer service
  quality.

            

    

     

     

    
      	
               
      

            	
              (j)
      Operating effectiveness.

            

    

     

     

    If applicable tax and securities laws
change to permit Committee discretion to alter the governing Performance Goals
without obtaining shareholder approval of such changes and without losing any
income tax benefits to the Company, the Committee shall have sole discretion to
make such changes without obtaining shareholder approval.

     

     

    “Performance Period” means the period
of time during which the Performance Goals will be measured to determine what,
if any, Performance Units/Performance Shares have been earned. A Performance
Period shall, in all cases, be at least six (6) months in length.

     

     

    “Performance Share” means a Grant made
to an Employee, as described in Article 8 herein.

     

     

    “Performance Unit” means the right of a
Participant to receive, upon satisfaction of the Performance Goal, an amount of
cash or Shares equal to the difference between the value of the Performance Unit
as the date of grant, which may be zero, and the value of the Performance Unit
on the date the Performance Goals are met. The value of a Performance Unit at
the date of grant is determined by the Committee and may be, but is not required
to be, based on the underlying stock price. In accordance with the plan,
Performance Units may be paid in cash, shares, or a combination thereof, as
determined by Committee. 

     

     

    “Period of Restriction” means the
period during which the transfer of Restricted Stock is limited, as provided in
Article 7 herein.

     

     

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

     

     

    “Restricted Stock” means a Grant of
Shares made to a Participant pursuant to Article 7 herein.

     

     

    “Retirement” shall, with respect to a
Participant, have the meaning ascribed to such term in the tax qualified
retirement plan maintained by the Company or Subsidiary for the benefit of such
Participant. In the event Participant is eligible for benefits under more than
one such tax qualified retirement plan, the earliest date provided under any of
said plans shall be the meaning ascribed under this Plan.

     

     

    “Shares” means the shares of common
stock of the Company, without par value.

     

     

    “Stock Appreciation Right” or “SAR”
means a right, granted alone or in connection with a related Option, designated
as an SAR, to receive a payment on the day the right is exercised, pursuant to
the terms of Article 6 herein. Each SAR shall be denominated in terms of one
Share.

     

     

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

     

     

    “Tandem SAR” means an SAR that is
granted in connection with a related Option, the exercise of which shall require
forfeiture of the right to purchase a Share under the related Option (and when a
Share is purchased under the Option, the Tandem SAR shall be similarly
canceled).

     

     

    

     

     

                                 ALLETE,
Inc.

     

     

    

     

     

                                 By:/s/ Donald J.
Shippar

     

                                 Donald J.
Shippar

                                 President and Chief
Executive Officer

     

    

     

     

    

     

     

    Attest:/s/ Deborah A.
Amberg

     

    Deborah A. Amberg

    Vice President

    General Counsel &
Secretary

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