Document:

exhibit_10m10.htm

     

    
      Exhibit
        10(m)10

       

      ALLETE
        2007 Form 10-K

    

    ANNEX
      B

    TO

    ALLETE

    EXECUTIVE
      LONG TERM INCENTIVE COMPENSATION PLAN

    PERFORMANCE
      SHARE GRANT

    Effective
      2008

    [Eligible
      Executive Employees]

    

    

    Financial
      Measure:

    

    Total
      Shareholder Return (TSR) computed over the three-year period.

    

    Performance
      Share Award:

    

    If
      ALLETE’s TSR ranking is 3rd or higher
      among a
      peer group of 16 companies (superior performance), 200% of the Performance
      Share
      Grant will be earned.  If ALLETE’s TSR performance ranks 9th among the
      peer
      group (target performance), 100% of the Grant will be earned.  If
      ALLETE’s TSR performance ranks 12th (threshold
      performance), 50% of the Grant will be earned.  If TSR performance is
      below threshold, no Performance Shares will be earned.  Straight-line
      interpolation will be used to determine earned awards based on the TSR ranking
      between threshold, target and superior.

    

    

    
      	 	
              TSR
                Rank

            	
              Perf.
                Level

            	
              Payout
                %

            
	 	 	 	 
	 	
              1

            	 	
              200.0%

            
	 	
              2

            	 	
              200.0%

            
	 	
              3

            	
              Superior

            	
              200.0%

            
	 	
              4

            	 	
              183.3%

            
	 	
              5

            	 	
              166.7%

            
	 	
              6

            	 	
              150.0%

            
	 	
              7

            	 	
              133.3%

            
	 	
              8

            	 	
              116.7%

            
	 	
              9

            	
              Target

            	
              100.0%

            
	 	
              10

            	 	
              83.3%

            
	 	
              11

            	 	
              66.7%

            
	 	
              12

            	
              Threshold

            	
              50.0%

            
	 	
              13

            	 	
              0%

            
	 	
              14

            	 	
              0%

            
	 	
              15

            	 	
              0%

            
	 	
              16

            	 	
              0%

            
	 	
              17

            	 	
              0%exhibit_10q.htm

     

    Exhibit 10(q)

     

    ALLETE
2007 Form 10-K

    

     

    ALLETE AND AFFILIATED
COMPANIES

     

    CHANGE IN CONTROL SEVERANCE
PLAN

     

    ALLETE’s Board of Directors has
determined that it is in the best interest of ALLETE and its shareholders to
foster the continued dedication and objectivity of certain key members of the
Company's management notwithstanding the possibility or occurrence of an
acquisition by another company or other change in control of the
Company.  Accordingly, ALLETE has adopted this Change in Control
Severance Plan effective as of the “Effective Date.”

     

    Section
1.                                Definitions.
For purposes of the Plan, the following terms shall have the meanings indicated
below:

     

    “Act” means the Securities
Exchange Act of 1934, as amended from time to time.

     

    “Affiliate” means any entity
directly or indirectly controlled by, controlling or under common control with,
ALLETE.

     

    “ALLETE” means ALLETE, Inc., a
Minnesota Corporation.

     

    “Base Salary” shall mean, as
to any Participant, the highest amount a Participant is entitled to receive
annually as base salary at any time during the Protection Period, without
reduction for any pre-tax contributions to benefit plans.

     

    “Benefit Continuation Payment”
means the payment described in Section 2.1.2.

     

    “Board” means the Board of
Directors of ALLETE.

     

    “Bonus Amount” shall mean, as
to any Participant, an amount equal to the Participant's annual bonus which
would have been payable under the Bonus Plans in which he or she participates
(x) as of immediately prior to the Change in Control had he or she continued in
employment until the end of the fiscal year of the Employer in which the Change
in Control occurs and had bonuses been payable at "target" levels
for  such year or (y) if greater, as of the Termination Date had he or
she continued in employment until the end of the fiscal year of the Employer in
which the Termination Date occurs and had bonuses been payable at "target"
levels for such year.

     

    “Bonus Plans” shall mean the
ALLETE Executive Annual Incentive Plan, the ALLETE Results Sharing Program and
any similar or successor annual bonus or profit sharing plans, excluding plans
intended to qualify under Section 401(a) of the Code.

     

    “Cause” means:

     

    (a)           the
Participant’s willful and continued failure to perform the duties and
responsibilities of his or her position (other than as a result of the
Participant’s disability or anticipated failure after the Participant gives
notice of Termination for Good Reason

     

    by the
Participant) after there has been delivered to the Participant a written demand
for performance which describes the basis for the belief that the Participant
has not substantially performed his or her duties and after the Participant
fails to take full corrective action within twenty (20) days of receipt of such
notice; or

     

    (b)           any
material act of personal dishonesty taken by the Participant in connection with
his or her responsibilities as an employee of the Company which is demonstrably
and materially injurious to the Company; or

     

    (c)           the
Participant’s conviction of, or plea of nolo contendere to, a felony
that the Company (or in the case of the Chief Executive Officer, the Board)
reasonably believes has had or will have a material detrimental effect on the
Company’s business or reputation.

     

    “Change in Control” means the
earliest of:

     

    (a) the
date any one Person, or more than one Person acting as a group (as the term
“group” is used in Treasury Regulation section 1.409A-3(i)(5)(v)(B)), acquires
ownership of stock of ALLETE that, together with stock previously held by the
acquiror, constitutes more than fifty (50%) percent of the total fair market
value or total voting power of ALLETE stock.  If any one Person, or
more than one Person acting as a group, is considered to own more than fifty
(50%) percent of the total fair market value or total voting power of ALLETE
stock, the acquisition of additional stock by the same Person or Persons acting
as a group does not cause a Change in Control.  An increase in the
percentage of stock owned by any one Person, or Persons acting as a group, as a
result of a transaction in which ALLETE acquires its stock in exchange for
property, is treated as an acquisition of stock;

     

    (b) the
date any one Person, or more than one Person acting as a group (as the term
“group” is used in Treasury Regulation section 1.409A-3(i)(5)(v)(B)), acquires
(or has acquired during the twelve (12) month period ending on the date of the
most recent acquisition by that Person or Persons) ownership of a ALLETE stock
possessing at least thirty (30%) percent of the total voting power of ALLETE
stock;

     

    (c) the
date a majority of the members of the ALLETE board of directors is replaced
during any twelve (12) month period by directors whose appointment or election
is not endorsed by a majority of the members of the board of directors prior to
the date of appointment or election; or

     

    (d) the
date any one Person, or more than one Person acting as a group (as the term
“group” is used in Treasury Regulation section 1.409A-3(i)(5)(v)(B)), acquires
(or has acquired during the twelve (12) month period ending on the date of the
most recent acquisition by that Person or Persons) assets from ALLETE that have
a total gross fair market value equal to at least forty (40%) percent of the
total gross fair market value of all ALLETE’s assets immediately prior to the
acquisition or acquisitions.  

     

    For this
purpose, “gross fair market value” means the value of the corporation’s assets,
or the value of the assets being disposed of, without regard to any liabilities
associated with these assets.

     

    In
determining whether a Change in Control occurs, the attribution rules of Code
Section 318 apply to determine stock ownership.  The stock underlying
a vested option is treated as owned by the individual who holds the vested
option, and the stock underlying an unvested option is not treated as owned by
the individual who holds the unvested option.

     

    “Change in Control Severance
Payment” means the Severance Payment and Benefit Continuation
Payment.

     

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

     

    “Committee” means the
committee responsible for administering the Plan, as described in Section
5.

     

    “Company” means ALLETE and its
Affiliates and except for purposes of determining whether a Change in Control
has occurred, shall include any successor in interest to its business or assets
which assumes the obligations of the Plan as required in Section 6.1 or which
becomes bound by the terms of the Plan by operation of law.

     

    “Effective Date” means
February 13, 2008.

     

    “Good Reason” means the
occurrence of any of the following without the Participant’s consent, which will
permit the Participant to terminate employment within ninety (90) days after the
end of the Cure Period (defined below):

     

    (a)           a
material diminution of the Participant’s authority, duties, or responsibilities
relative to the authority, duties or responsibilities of the Participant prior
to such reduction; or

     

    (b)           a
material diminution by the Company in the Participant’s total compensation,
including base pay, aggregate incentive compensation opportunities (but
excluding any reduction in incentive compensation awards as the result of the
performance of the Participant or the Company) and aggregate benefits, as in
effect immediately prior to such reduction; or

     

    (c)           the
relocation of the Participant to a location or facility more than fifty (50)
miles from the Participant's location immediately prior to change;
or

     

    (d)           a
material diminution by the Company of the authority, duties, or responsibilities
of the supervisor to whom the Participant is required to report relative to the
authority, duties or responsibilities of the supervisor prior to such reduction,
including a requirement that the Participant report to a corporate officer or
employee instead of reporting directly to the Board; or

     

    (e)           a
material diminution in the budget over which the Participant retains authority
relative to the budget prior to such reduction; or

     

    (f)           any
other action or inaction that constitutes a material breach by the Company of an
agreement under which a Participant provides services.

     

    Notwithstanding
the foregoing, the Participant may not resign for Good Reason without first
providing the Employer with written notice (except in the case
of  ALLETE’s Chief Executive Officer who shall provide such notice to
the Board) of the condition that could constitute a “Good Reason” event within
ninety (90) days of the initial existence of the condition and then only if such
condition has not been remedied by the Employer within thirty (30) days of such
written notice (the “Cure Period”).

     

    “Employer” shall mean, as applicable to any
Participant, ALLETE or an Affiliate that employs the
Participant.

     

    “Involuntary Separation”
means, with respect to a Participant, an involuntary termination of
employment by the Employer without Cause, or a voluntary termination by the
Participant with Good Reason.

     

    “Participant” means an
individual who the Committee has selected to participate in the Plan and who has
received written notification of both the eligibility to participate and status
as either a “Group A Participant” or a “Group B Participant.”

     

    “Person” means any individual,
corporation (including any non-profit corporation), general, limited or limited
liability partnership, limited liability company, joint venture, estate, trust,
firm, association, organization or other entity or any governmental or
quasi-governmental authority, organization, agency or body.

     

    “Plan” means this ALLETE and
Affiliated Companies Change in Control Severance Plan.

     

    “Protection Period” means the
period beginning on the date that is six (6) months prior to a Change in Control
and ending on the date that is twenty four (24) months after a Change in
Control.

     

    “Severance Duration
Multiplier” means with respect to any Group A Participant, 2.5; and, with
respect to any Group B Participant, 1.5.

     

    “Severance Payment” means the
payment described in Section 2.1.1.

     

    “Termination Date” shall mean,
with respect to a Participant, the date of the Participant’s Involuntary
Separation.

     

    Section
2.                                Change in Control Severance
Benefits.

     

    2.1           Involuntary Separation in
Connection with Change in Control. If a Participant has
an  Involuntary Separation on any date during the Protection Period,
Participant will receive the following severance benefits from the
Employer:

     

    2.1.1    Severance
Payment.  Participant will receive a lump sum cash payment in
an amount equal to the product of (a) the applicable Severance Duration
Multiplier and (b) the sum of (i) the Participant’s Base Salary and (ii) the
Participant’s Bonus Amount.

     

    2.1.2    Benefit Continuation
Payment.  Participant will receive an additional lump sum cash
payment in an amount equal to (a) plus (b) as follows:

     

     (a)           the
applicable Severance Duration Multiplier times the sum of: (i) the annual
premium for medical and dental benefits in effect on the Termination Date as
determined for individuals who are entitled to elect continuation coverage
pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended (“COBRA”); (ii) the annual premium the Employer would have paid to
maintain core life insurance on behalf of the Participant had the Participant
remained an employee of the Employer; (iii) an amount the Employer would have
allocated to the Participant annually under the Minnesota Power and Affiliated
Companies Flexible Compensation Plan, determined with reference to the
Participant’s Base Salary; and (iv) the annual SERP II Annual Make-Up Award
Participant would have received had Participant remained employed by the
Employer, determined on the basis of Participant’s Base Salary and Bonus
Amounts, and the maximum Employer matching contribution to defined contribution
plans; and

     

    (b)           the
lump sum present value of the additional supplemental retirement benefit the
Participant would have accrued under the ALLETE and Affiliated Companies
Supplemental Executive Retirement Plan II (“SERP II”) if Participant had
remained employed by the Company for an additional number of years equal to the
applicable Severance Duration Multiplier, determined on the basis of
Participant’s Base Salary and Bonus Amounts, and the actuarial assumptions used
in connection with SERP II on the date of the Change of Control.

     

    Participants
will be responsible for electing benefit continuation coverage, if such coverage
is desired, pursuant to COBRA, within the time period prescribed pursuant to
COBRA, and for paying all COBRA premiums for any continuation coverage so
elected.

     

    2.1.3    Outplacement
Services.  The Company will pay up to an aggregate of $25,000
for outplacement services obtained by Participant on or before the end of the
second year following the year including the Termination Date, provided that the
services commence not later than three (3) months following the later of the
Change in Control or the Termination Date, and all amounts must be paid by the
end of the third year following the year including the Termination
Date.  Outplacement services will be provided only in kind; the
Company will pay the outplacement service provider(s) directly for services
rendered to the Participant in accordance with this Section.  No cash
will be paid in lieu of outplacement services, nor will cash compensation to the
Participant be increased if the Participant declines or does not use
outplacement services.

     

    2.2           Timing of Severance
Payments.  Subject to Sections 2.5 and 3.1, the Company will
pay any Change in Control Severance Payment to which a Participant is entitled
within 30 days after

     

    the later
of the Termination Date or the effective date of the Separation Agreement and
Release, but in no event more than seventy-four (74) calendar days after the
later of the date of the Change of Control or the Termination Date.

     

    2.3           Voluntary Resignation;
Termination for Cause.  If Participant’s employment with the
Company terminates for any reason other than Involuntary Separation, Participant
will not receive any payments under this Plan.

     

    2.4           Coordination with other
Payments.                                                                           The
payments and benefits under this Plan to a Participant are intended to
constitute the exclusive payments in the nature of severance or termination pay
that shall be due to a Participant upon termination of his or her employment
without Cause or for Good Reason in connection with a Change in Control and
shall be in lieu of any such other payments under any agreement, plan, practice
or policy of the Company, except as otherwise expressly provided in a written
agreement between the Company and the Participant that such severance payments
or benefits are to be paid in addition to any payment or benefit described
herein. Accordingly, if a Participant is a party to an employment, severance,
termination, salary continuation or other similar agreement with the Company or
any of its Affiliates, or is a participant in any other severance plan, practice
or policy of the Company or any of its Affiliates that does not expressly
provide that such severance payments or benefits are to be paid in addition to
any payment or benefit described herein, the severance pay to which the
Participant is entitled under this Plan shall be reduced (but not below zero) by
the amount of severance pay to which he or she is entitled under such other
agreement, plan, practice or policy; provided that the reduction set forth in
this sentence shall not apply as to any other such agreement, plan, practice or
policy that contains a reduction provision substantially similar to this Section
2.4 so long as the reduction provision of such other agreement, plan, practice
or policy is applied.

     

    2.5    Code Section
409A.  To the extent that any payment under this Plan is deemed
to be deferred compensation subject to the requirements of Section 409A of the
Code, or any final regulations or guidance promulgated thereunder (“Section
409A”), the plan will be operated in compliance with Section 409A with respect
to the subject payment.   Notwithstanding anything in this Plan
to the contrary, if Participant is a Specified Employee, the payment of any
amount under this Plan that is Nonqualified Deferred Compensation, and that
becomes payable on account of a Separation from Service, will be delayed and
paid in a lump sum, with interest from the date on which it would otherwise have
been paid in accordance with Section 2.2 at the short-term applicable federal
rate, on the first date on which any such amount may be paid without triggering
a tax under Section 409A, but in no event before the date that is six (6) months
and one (1) day following the Participant’s Separation from
Service.  The Plan is intended to comply with the requirements of
Section 409A so that none of the severance payments and benefits to be provided
hereunder will be subject to the additional tax imposed under Section 409A, and
any ambiguities herein will be interpreted to so comply.  The Company
may amend or modify the plan, at any time, to comply with Section
409A.  The terms “Specified Employee,” “Nonqualified Deferred
Compensation,” and “Separation from Service” shall have the meaning provided by
Section 409A and the applicable Treasury Regulations.

     

    Section
3.                                Conditions to Receipt of
Benefits; No Mitigation.

     

    3.1           Separation Agreement and
Release of Claims. No Change in Control Severance Payment shall be
provided to a Participant unless, within sixty (60) days following the later of
the Change in Control or Participant’s Termination Date, the Participant
delivers to the Company a Separation Agreement and Release, that has been
properly executed on or after the Participant’s Termination Date and has become
irrevocable as provided therein.  The initial form of the Separation
Agreement and Release, including non-solicitation, non-competition and
non-disparagement provisions, is attached to this Plan as Appendix
A.  Prior to the occurrence of a Change in Control, the Company
may revise the Separation Agreement and Release.  The Company may in
any event modify the Separation Agreement and Release to conform it to the laws
of the local jurisdiction applicable to a Participant or a change in applicable
federal law so long as such modification does not increase the obligations of
the Participant thereunder.

     

    3.2    No Duty to
Mitigate.  Participant will not be required to mitigate the
amount of any payment or benefit contemplated by this Plan, nor will any
earnings that Participant may receive from any other source reduce any such
payment or benefits.

     

    Section
4.                                Limitation on Payments;
Excise Tax Gross-up.

     

    4.1           Notwithstanding
anything in this Plan to the contrary and except as set forth below, in the
event it shall be determined that any “Payment,” as defined in Section 4.6,
would be subject to the “Excise Tax,” as defined in Section 4.6, then the
Participant shall be entitled to receive an additional payment (the “Gross-Up
Payment,” as defined in Section 4.6) in an amount such that the net amount of
the Gross-Up Payment retained by Participant, after payment of all federal,
state and local income and employment taxes (including, without limitation, any
federal, state, and local income and employment taxes and Excise Tax imposed on
the Gross-Up Payment, and any interest or penalties imposed with respect to such
taxes, but excluding any tax on the Payment), shall be equal to the Excise Tax
imposed on the Payment. Notwithstanding the foregoing provisions of this Section
4, if it shall be determined that the Participant is entitled to the Gross-Up
Payment, but that the Parachute Value, as defined in Section 4.6, of all
Payments will not exceed the Safe Harbor Amount, as defined in Section 4.6, if
the Payments are reduced to an amount not less than 85% of the total of all
Payments, then no Gross-Up Payment shall be made to the Participant and the
amounts payable under this Agreement shall be reduced so that the Parachute
Value of all Payments, in the aggregate, equals the Safe Harbor
Amount.  The reduction of the amounts payable hereunder, if
applicable, shall be made by first reducing the Severance Payment, unless an
alternative method of reduction is elected by the Participant, and in any event
shall be made in such a manner as to maximize the Value, as defined in Section
4.6, of all Payments actually made to the Participant.  For purposes
of reducing the Payments to the Safe Harbor Amount, only amounts payable under
this Agreement (and no other Payments) shall be reduced.  If the
reduction of the amount payable under this Agreement would not result in a
reduction of the Parachute Value of all Payments to the Safe Harbor Amount, no
amounts payable under the Agreement shall be reduced pursuant to this
Section.

     

    4.2           
Subject to the provisions of Section 4.3, all determinations required to be made
under this Section 4, including whether and when a Gross-Up Payment is required,
the amount of such Gross-Up Payment and the assumptions to be utilized in
arriving at such determination, shall be made by a
nationally recognized certified public accounting firm as may be designated by
the Participant (the "Accounting Firm"). For purposes of the Accounting Firm’s
determinations, the Participant shall be deemed to pay federal income tax and
employment taxes at the highest marginal rate of federal income and employment
taxation in the calendar year in which the Gross-Up Payment is to be made and
state and local income taxes at the highest marginal rate of taxation in the
state and locality of the Participant's residence on the date the Payment is
made, net of the reduction in federal income taxes that the Participant may
obtain from the deduction of such state and local income taxes. The Accounting
Firm shall provide detailed supporting calculations both to the Company and the
Participant within 15 business days of the receipt of notice from the
Participant that there has been a Payment or such earlier time as is requested
by the Company. In the event that the Accounting Firm is serving as accountant
or auditor for the individual, entity or group effecting the Change in Control,
the Participant may appoint another nationally recognized accounting firm to
make the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section, shall be paid by the Company to the
Participant within 5 days of the receipt of the Accounting Firm's determination.
Any determination by the Accounting Firm shall be binding upon the Company and
the Participant.  As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments that will not
have been made by the Company should have been made (the "Underpayment"),
consistent with the calculations required to be made hereunder. In the event the
Company exhausts its remedies pursuant to Section 4.3 and the Participant
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Participant.

     

    4.3           
The Participant shall notify the Company in writing of any claim by the Internal
Revenue Service that, if successful, would require the payment by the Company of
the Gross-Up Payment. Such notification shall be given as soon as practicable,
but no later than 10 business days after the Participant is informed in writing
of such claim. The Participant shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Participant
shall not pay such claim prior to the expiration of the 30-day period following
the date on which the Participant gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes with respect to such
claim is due). If the Company notifies the Participant in writing prior to the
expiration of such period that the Company desires to contest such claim, the
Participant shall:

     

    4.3.1    give the Company any
information reasonably requested by the Company relating to such
claim,

     

    4.3.2    take such
action in connection with contesting such claim as the Company shall reasonably
request in writing from time to time, including, without limitation, accepting
legal representation with respect to such claim by an attorney reasonably
selected by the Company,

     

    4.3.3    cooperate
with the Company in good faith in order effectively to contest such claim,
and

    4.3.4    permit the
Company to participate in any proceedings relating to such claim; provided,
however, that the Company shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in connection with such
contest, and shall indemnify and hold the Participant harmless, on an after-tax
basis, for any Excise Tax or income tax (including interest and penalties)
imposed as a result of such representation and payment of costs and
expenses.

     

    Without
limitation on the foregoing provisions of this Section 4.3, the Company shall
control all proceedings taken in connection with such contest, and, at its sole
discretion, may pursue or forgo any and all administrative appeals, proceedings,
hearings and conferences with the applicable taxing authority in respect of such
claim and may, at its sole discretion, either pay the tax claimed to the
appropriate taxing authority on behalf of the Participant and direct the
Participant to sue for a refund or contest the claim in any permissible manner,
and the Participant agrees to prosecute such contest to a determination before
any administrative tribunal, in a court of initial jurisdiction and in one or
more appellate courts, as the Company shall determine; provided, however, that,
if the Company pays such claim and directs the Participant to sue for a refund,
the Company shall indemnify and hold the Participant harmless, on an after-tax
basis, from any Excise Tax or income tax (including interest or penalties)
imposed with respect to such payment or with respect to any imputed income in
connection with such payment; and provided, further, that any extension of the
statute of limitations relating to payment of taxes for the taxable year of the
Participant with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which the Gross-Up
Payment would be payable hereunder, and the Participant shall be entitled to
settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.

     

    4.4           
If, after the receipt by the Participant of a Gross-Up Payment or payment by the
Company of an amount on the Participant's behalf pursuant to Section 4.3, the
Participant becomes entitled to receive any refund with respect to the Excise
Tax to which such Gross-Up Payment relates or with respect to such claim, the
Participant shall (subject to the Company complying with the requirements of
Section 4.3, if applicable) promptly pay to the Company the amount of such
refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after payment by the Company of an amount on the
Participant's behalf pursuant to Section 4.3, a determination is made that the
Participant shall not be entitled to any refund with respect to such claim and
the Company does not notify the Participant in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then the amount of such payment shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.

     

    4.5           
Notwithstanding any other provision of this Section 4, the Company may, in its
sole discretion, withhold and pay over to the Internal Revenue Service or any
other applicable taxing authority, for the benefit of the Participant, all or
any portion of any Gross-Up Payment, and the Participant hereby consents to such
withholding.

     

    4.6           Definitions.  The
following terms shall have the following meanings for purposes of this Section
4.

    4.6.1    “Excise Tax” shall
mean the excise tax imposed by Section 4999 of the Code, together with any
interest or penalties imposed with respect to such excise tax.

     

    4.6.2    “Parachute
Value” of a Payment shall mean the present value as of the date of the change of
control for purposes of Section 280G of the Code of the portion of such Payment
that constitutes a "parachute payment" under Section 280G(b)(2), as determined
by the Accounting Firm for purposes of determining whether and to what extent
the Excise Tax will apply to such Payment.

     

    4.6.3    A “Payment” shall
mean any payment or distribution in the nature of compensation (within the
meaning of Section 280G(b)(2) of the Code) to or for the benefit of the
Participant, whether paid or payable pursuant to this Agreement or
otherwise.

     

    4.6.4    The “Safe Harbor
Amount” means 2.99 times the Participant's “base amount,” within the meaning of
Section 280G(b)(3) of the Code.

     

    4.6.5    “Value” of a Payment
shall mean the economic present value of a Payment as of the date of the change
of control for purposes of Section 280G of the Code, as determined by the
Accounting Firm using the discount rate required by Section 280G(d)(4) of the
Code.

     

     

    Section
5.                                Plan
Administration.

     

    5.1           The
Plan shall be interpreted, administered and operated by the Executive
Compensation Committee of the Board (“Committee”).  Subject to the
express terms of the Plan, the Committee shall have complete authority, in its
sole discretion, to determine who shall be a Participant, to interpret the Plan,
to prescribe, amend and rescind rules relating to the Plan, and to make all
other determinations necessary or advisable for the administration of the Plan.
Notwithstanding the foregoing, the Committee may delegate any of its duties
hereunder to such Person or Persons from time to time as it may
designate.

     

    5.2           All
expenses and liabilities that members of the Committee incur in connection with
the administration of the Plan shall be borne by the Company. The Committee may
employ attorneys, consultants, accountants, appraisers, brokers, or other
Persons, and the Committee, the Company and the Company's officers and directors
shall be entitled to rely upon the advice, opinions or valuations of any such
Persons. No member of the Committee or the Board shall be personally liable for
any action, determination or interpretation made in good faith with respect to
the Plan, and all members of the Committee shall be fully protected by the
Company in respect of any such action, determination or
interpretation.

     

    Section
6.                                Successors.

    

    6.1              The Company’s
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 and/or assets of 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 Employer under this Plan,
in the same manner and to the same
extent that the Company and each Employer would be required to perform if no
such succession had taken place.

     

    6.2           Participant’s
Successors. All rights of the Participant under this Plan will inure to
the benefit of, and be enforceable by, the Participant's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees, legatees or other beneficiaries. If a Participant dies while any
amount is payable to such Participant hereunder (other than amounts which, by
their terms, terminate upon the death of the Participant) if such Participant
had continued to live, all such amounts, unless otherwise provided herein, shall
be paid in accordance with the terms of this Plan to the executors, personal
representatives or administrators of such Participant's estate.

     

    Section
7.                                Notices.

     

    7.1           General.  Notices
and all other communications provided for in the Plan shall be in writing and
shall be deemed to have been duly given when personally delivered or when mailed
by United States registered or certified mail, return receipt requested and
postage prepaid.  In the case of a Participant, mailed notices will be
sent to his or her home address most recently communicated to the Company in
writing.  In the case of the Company, mailed notices will be addressed
to its corporate headquarters, and all notices will be directed to the attention
of its Vice President, Human Resources.

     

    7.2           Notice of
Termination.  Any termination of a Participant’s employment by
the Company for Cause or by a Participant for Good Reason will be communicated
by a notice of termination to the other party given in accordance with Section
7.1 of the Plan.

     

    Section
8.                                Miscellaneous.

     

    8.1           No Waiver. No waiver
by the Company or any Participant, as the case may be, at any time of any lack
of compliance with any condition or provision of this Plan to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same, or at any prior or subsequent time. All other plans,
policies and arrangements of the Company in which the Participant participates
during the term of this Plan shall be interpreted so as to avoid the duplication
of benefits paid hereunder.

     

    8.2           No Right to
Employment. Nothing contained in this Plan or any documents relating to
the Plan shall: (a) confer on a Participant any right to continue in the employ
of the Company or a subsidiary, (b)constitute any contract or agreement of
employment, or (c) interfere in any way with the right of the Company to
terminate the Participant's employment at any time, with or without
Cause.

     

    8.3           Legal Fees and
Expenses.  If a Participant commences a legal action to enforce
any of the obligations of the Company under this Plan and Participant prevails
on the merits of the substantive issues in dispute in such proceeding, the
Company shall pay the Participant the amount necessary to reimburse the
Participant in full for all actual reasonable expenses (including
reasonable attorneys' fees and legal expenses) incurred by the Participant with
respect to such action.

    

    8.4    Plan Termination; Amendment
of Plan.  Prior to a Change in Control, the Plan may be amended
or modified in any respect, and may be terminated, in any such case by
resolution adopted by the Executive Compensation Committee of the Board;
provided, however, that no such amendment, modification or termination that
would adversely affect the benefits or protections hereunder of any individual
who is a Participant as of the date such amendment, modification or termination
is adopted shall be effective as it relates to such individual unless no Change
in Control occurs within one year after such adoption, any such attempted
amendment, modification or termination adopted within one year prior to a Change
in Control being null and void ab initio as it relates to all such individuals
who were Participants prior to such adoption (it being understood, however, that
the hiring, termination of employment, promotion or demotion of any employee of
the Company prior to a Change in Control shall not be construed to be an
amendment, modification or termination of the Plan); provided, further, however,
that the Plan may not be amended, modified or terminated, (i) at the request of
a third party who has indicated an intention or taken steps to effect a Change
in Control and who effectuates a Change in Control or (ii) otherwise in
connection with, or in anticipation of, a Change in Control which actually
occurs, any such attempted amendment, modification or termination being null and
void ab initio.  Any action taken to amend, modify or terminate the
Plan which is taken after the execution of an agreement providing for a
transaction or transactions which, if consummated, would constitute a Change in
Control shall conclusively be presumed to have been taken in connection with a
Change in Control.  From and after the occurrence of a Change in
Control, the Plan may not be amended or modified in any manner that would in any
way adversely affect the benefits or protections provided hereunder to any
individual who is a Participant in the Plan on the date the Change in Control
occurs.  From and after the occurrence of a Change in Control, except
to the extent specifically permitted by the last sentence of Section 3.1, the
revision of the Separation Agreement and Release, attached hereto as Appendix A, shall be
deemed to be a modification of the Plan for purposes of this Section
8.4.  If a Change in Control occurs, this Plan shall continue in full
force and effect and shall not terminate or expire until after all Participants
who have become entitled to Change in Control Severance Payments hereunder shall
have received such payments in full.

     

    8.5           Benefits not
Assignable. Except as otherwise provided herein or by law, no right or
interest of a Participant under the Plan shall be assignable or transferable, in
whole or in part, either directly or by operation of law or otherwise, including
without limitation by execution, levy, garnishment, attachment, pledge or in any
manner; no attempted assignment or transfer thereof shall be effective; and no
right or interest of a Participant under the Plan shall be liable for, or
subject to, any obligation or liability of such Participant. When a payment is
due pursuant this Plan to a Participant who is unable to care for his or her
affairs, payment may be made directly to his or her legal guardian or personal
representative.

     

    8.6           Tax Withholding. All
amounts payable hereunder shall be subject to withholding of applicable federal,
state and local taxes.

     

    8.7           Minnesota Law. This
Plan will be construed and interpreted, and the rights of the Company and
Participants will be determined in accordance with, the laws of the State of
Minnesota (without regard to the conflicts of laws principles thereof), to the
extent not preempted by federal law, which shall otherwise control.

     

    8.8           Validity. The
invalidity or unenforceability of any provision of this Plan shall not affect
the validity or enforceability of any other provision of this Plan, which shall
remain in full force and effect. If this Plan shall for any reason be or become
unenforceable by either party, this Plan shall thereupon terminate and become
unenforceable by the other party as well.

     

    

     

    NOW, THEREFORE, ALLETE has adopted this
Change in Control Severance Plan effective as of the Effective
Date.

     

    ALLETE, Inc.

     

    By _/s/ Donald J.
Shipper__________________

     

    Its _Chairman, President, and
CEO_________

     

    

     

    Attest:

     

    By _/s/__Deborah A.
Amberg________________________________

     

    Its
___Sr. VP, General Counsel &
Secretary____________________

     

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Appendix
A

    

    Form
of

    SEPARATION
AGREEMENT AND RELEASE

    

    WHEREAS
<< [full
name]>> (“Executive”) is a Participant of the ALLETE Change in
Control Severance Plan (“the Plan”), and whereas Executive’s employment with
<>
(together with all affiliates of ALLETE, Inc., the “Company”) terminated
effective <>
(“<<”Termination
Date” / “Retirement Date”>>)under circumstances that make Executive
eligible to receive certain compensation and other benefits under the Plan, and
whereas Executive enters into this Separation Agreement and Release
(“Agreement”) of <<  [his /
her]  >> own free will and deed; therefore, as of the
date written below the Company  and Executive agree as
follows:

     

        1.    Separation
Benefit.  Executive will receive from the Company the payment
and other benefits provided by the Plan and delivered in accordance with the
Plan provided that this Agreement becomes effective and Executive has not
rescinded the Agreement within the Reconsideration Period (defined
below).

     

        2.    Non-Solicitation.  From
the <<Termination
Date” / “Retirement Date>> and for a period continuing through the
date that twenty four (24) months following the later of the <<Termination Date” /
“Retirement Date>>  or a Change in Control (as defined in
the Plan) Executive will not solicit, or assist any Person (as defined in the
Plan) in the solicitation of, any director, officer or employee of the Company
for employment other than with the Company, or otherwise interfere with or
disrupt any employment relationship (contractual or otherwise) of the
Company.

     

        3.    Non-Competition.  For
a period of twelve (12) months following the later of the <<Termination Date” /
“Retirement Date>> or a Change in Control (as defined in the Plan)
Executive will not, without the written express consent of the Company, directly
or indirectly, alone or as a partner, owner, officer, director, employee, or
consultant of any other firm, business or entity, engage in any activity in
competition with the Company.  This prohibition will apply only to
activities in which the Company is engaged at any time during the Executive’s
employment with the Company and only with respect to those geographic regions in
which the Company is engaged in such business activities or reasonably
anticipates engaging in such business activities. << Provide specific
areas or examples as appropriate>>.  Notwithstanding the
foregoing, nothing herein shall prohibit Executive from owning stock of any
corporation, if such stock is traded on a recognized national securities
exchange.

     

        4.    Nondisparagement.  For
a period of twelve (12) months following the later of the <<Termination Date” /
“Retirement Date>> or a Change in Control (as defined in the Plan)
Executive will not, directly or indirectly, knowingly and materially disparage,
criticize, or otherwise make derogatory statements regarding the Company or any
aspect of management policies, operations, practices, or personnel of the
Company.  Notwithstanding the foregoing, nothing contained herein will
be deemed to restrict the Participant from providing information to any
governmental or regulatory agency (or in any way limit the content of such
information) to the
extent the Participant is required to provide such information pursuant to
applicable law or regulation; nor will the foregoing restrict the Participant
from enforcing his or her rights under this Agreement or the Plan. The Company
promises that its officers will not disparage Executive, and will do nothing
intentionally calculated  to harm the Executive’s
reputation.

     

        5.    Non
Disclosure.   Executive agrees to keep confidential all
information and trade secrets to which Executive has had access during and in
the course of Executive’s employment by the Company, (whether written, prepared
or made by him or others), including but not limited to the terms of this
Agreement, the business practices, strategies, and opportunities of the Company,
and any other non-public information relating to the Company’s
business.  Notwithstanding the foregoing, Executive may reveal the
existence of this Agreement, its terms and conditions, and the facts and
circumstances leading up to this Agreement with Executive’s spouse, attorneys,
accountants, tax consultants, and to state and federal tax authorities or as may
be required by law.

     

        6.    Waiver and
Release.  Except with respect to Executive’s rights under this
Agreement and the Plan, Executive on behalf of himself and his heirs, executors,
administrators, representatives, successors and assigns, agrees to release and
forever discharge ALLETE, Inc., and its affiliates, subsidiaries, predecessors,
successors, related entities, insurers and the current and former officers,
directors, shareholders, employees, attorneys, agents and trustees or
administrators of any benefit plan of each of the foregoing (any and all of
which are referred to as “Releasees”) generally from any and all charges,
complaints, claims, promises, agreements, causes of actions, damages, and debts
of any nature whatsoever, known or unknown (collectively “Claims”), which
Executive has, claims to have, ever had, or ever claimed to have had against
Releasees up through the date of execution of this Agreement, including but not
limited to any Claims under the common law or any statute.  This
waiver and release includes but is not limited to any rights, remedies, claims,
and causes of action under the Minnesota Human Rights Act, Title VII of the
Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act
of 1967, the Employee Retirement Income Securities Act of 1974, as amended, (but
only as to claims arising thereunder prior to the date hereof) the Older Workers
Benefit Protection Act, the Americans with Disabilities Act, the Family Medical
Leave Act, state unemployment compensation benefits, and any other federal,
state or local discrimination or civil rights statute or any federal, state or
local ordinance of any kind, any tort theory, any contract theory and any
equitable theory, and all claims for back pay, front pay, vacation pay, or sick
pay, excepting only:

    

              (a)   rights
of the Executive under this Separation Agreement and Release and the
Plan;

    

              (b)   rights
of the Executive relating to equity awards held by the Executive as of his or
her Termination Date (as defined in the Plan);

    

              (c)   the
right of the Executive to receive COBRA continuation coverage in accordance with
applicable law;

              (d)   rights
to indemnification the Executive may have (i) under applicable corporate law,
(ii) under the by-laws or certificate of incorporation of any Releasee or (iii)
as an insured under any director's and officer's liability insurance policy now
or previously in force;

    

              (e)   claims
(i) for benefits under any health, disability, retirement, deferred
compensation, life insurance or other, similar Executive benefit plan or
arrangement of the Company and (ii) for earned but unused vacation pay through
the Termination Date in accordance with applicable Company policy;
and

    

              (f)   claims
for the reimbursement of unreimbursed business expenses incurred prior to the
Termination Date pursuant to applicable Company policy.

    

    Executive
has been provided a period of twenty-one (21) days to consider this Agreement
before executing it.  Executive has had an opportunity to discuss this
agreement with Executive’s attorney or other adviser <<  [he /
she]  >> had determined to be
appropriate.  Executive may rescind this waiver and release of claims
within fifteen (15) days of the date of this Agreement, (the “Reconsideration
Period”) in which event the Company shall have no obligation to pay the benefits
described in paragraph 1 above or otherwise provided under the
Plan.

     

        7.    Severability.  Should
any provision of this agreement be held invalid or illegal, such illegality
shall not invalidate the whole of this agreement, but, rather, the agreement
shall be construed as if it did not contain the illegal part, and the rights and
obligations of the parties shall be construed and enforced
accordingly.

     

        8.    Voluntary
Agreement.  This Agreement is entered into on a completely
voluntary basis by both Executive and Minnesota Power, and represents the
complete agreement between the parties, superseding any previous
agreements.

     

        The date of
this Agreement shall be dated <<
______________________>>.

    

    

    EXECUTIVE:

    

    By:  ______________________________________

    

    Name:
____________________________________

    

    

    

    ALLETE,
Inc. << or
applicable affiliate employer>>

    

    By:  ______________________________________

    

    Name:
____________________________________

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