Exhibit 10(g)

AGREEMENT

THIS AGREEMENT (the “Agreement”) is made as of the 16th day of December, 2005, among ALLETE, Inc., a Minnesota corporation (“ALLETE”), Wisconsin Public Service Corporation, a Wisconsin corporation (“WPSC”) and WPS Investments, LLC, a Wisconsin limited liability company (“WPSI”).  WPSC and WPSI are sometimes referred to herein collectively as “WPS.”  Each of ALLETE, WPSC and WPSI is sometimes referred to herein as a “Party” or collectively as the “Parties.”

WHEREAS, WPSC and ALLETE were originally joint applicants in connection with the construction of a 345 kV transmission line, which is planned to run from ALLETE’s Arrowhead substation located near Duluth, Minnesota to American Transmission Company LLC’s (“ATCLLC”) Weston substation, located near Wausau, Wisconsin (the “Project”);

WHEREAS, in connection with the initial joint development of the Project, WPSC and ALLETE agreed that ALLETE would have the right to purchase a portion of the Project located in Wisconsin (“Project Right”); and

WHEREAS, the primary responsibility for the Project was transferred to ATCLLC in 2003, pursuant to the November 8, 2002 agreement among ATCLLC, ATC Management Inc. (“ATCMI”) (ATCLLC and ATCMI may be collectively referred to herein as “ATC”), WPSC and WPSI (WPSC and WPSI may be collectively referred to herein as “WPS”) (“Transfer Agreement”), and as approved by the Public Service Commission of Wisconsin (“PSCW”) in Docket 05-AE-115 (Order dated April 17, 2003), and by the Federal Energy Regulatory Commission (“FERC”) in American Transmission Co. LLC, et al., 102 FERC ¶ 62,172 (2003);

NOW, THEREFORE, in consideration of the promises and mutual agreements herein contained, the Parties hereby agree as follows:

1.         Purpose of Agreement.  The Parties have determined it is preferable that, rather than exercising its Project Right, ALLETE or ALLETE’s designated affiliate (collectively referred to herein as “ALLETE”), funds a portion of ATC’s monthly capital calls to WPS pursuant to the Transfer Agreement (“Project Capital Calls”); and in exchange for ALLETE’s funding of such Project Capital Calls, ALLETE receives Member Units (as such term is defined in the ATCLLC Operating Agreement dated as of January 1, 2001) in ATCLLC, and Class A Common Stock (as such term is defined in the ATCMI Shareholders Agreement dated as of January 1, 2001) in ATCMI.

ALLETE is willing to relinquish its Project Right in exchange for funding $60 million in project Capital Calls by the end of 2006.

2.       ALLETE Participation in Project Capital Calls.  The Parties hereby acknowledge and agree that:

i.      Project Capital Calls:  Commencing with the first Project Capital Call on or after the Effective Date (as defined in Section 5 below) and subject to the terms of this Agreement, ALLETE shall fund 72% of each Project Capital Call; provided however, if the Effective date occurs after the December 2005 Project Capital Call, but before the January 2006 Project Capital Call, is funded, ALLETE shall fund 78% of each Project Capital Call beginning with the January 2006 Project Capital Call. If the Effective Date occurs after the January 2006 Project Capital Call has been funded, the Parties shall cooperate in good faith to modify ALLETE’s percentage participation in Project Capital Calls by the end of 2006. If, following the May 2006 Project Capital Call, the Parties reasonably determine that ALLETE’s then-current percentage participation in Project Capital Calls will not likely result in ALLETE being able to fund $60 million in Project Capital Calls by the end of 2006, then the Parties shall agree to a one-time increase to ALLETE’s percentage participation in Project Capital Calls, beginning with the June 2006 Project Capital Call. Such increased participation percentage will not exceed 100% of such Project Capital Calls but will be based on an intent to modify ALLETE’s percentage participation to allow ALLETE to fund a total of $60 million in Project Capital Calls by the end of 2006.

ii.      Funding of Project Capital Calls: In the event that WPS, under the ATC-WPS Agreement (as such term is defined in Section 6(b) below), has the right to refuse to participate in a Project Capital Call, ALLETE shall also have the right, but not the obligation, to refuse to participate in such Project Capital Call.

3.         Termination of Project Right.  Upon ALLETE’s funding of a total of $60 million in Project Capital Calls by the end of 2006, or in the event of WPS’s termination of this Agreement in accordance with Section 7(i) below, ALLETE’s Project Right shall automatically terminate; provided, however, if ALLETE is not offered the opportunity to fund a total of $60 million in Project Capital Calls by the end of 2006, then the Parties shall negotiate in good faith an amendment to this Agreement that preserves and reinstates, to the maximum extent possible, each Party’s benefits of the bargain as set forth in this Agreement.

4.         Transaction Documents.  In order to effectuate the transaction contemplated in this Agreement, the Parties acknowledge and agree that the following agreements must be fully executed and delivered in addition to this Agreement:

i.        Transfer Agreement Amendment, as defined in Section 9 below, among ATCLLC, ATCMI, WPSC and WPSI;

ii.       Operating Agreement between ATCLLC and ALLETE; and

iii.      Subscription Agreement among ATCLLC, ATCMI and ALLETE.

This Agreement and the agreements listed in subsections (i) through (iii) above are collectively referred to herein as the “Transaction Documents.”

5.         Term and Effective Date. The term of this Agreement shall commence as of the date first written above and shall expire when ALLETE has funded $60 million in Project Capital Calls, unless extended or earlier terminated as provided herein (“Term”). The “Effective Date” shall be the date on which all Required Approvals, as set forth in Section 9 below, have been received and all Transaction Documents have been fully executed and delivered.

6.         Representations and Warranties.

a.      Each of the Parties hereby represents and warrants to each of the other Parties that, from and after the Effective Date:

i.      This Agreement and that other Transaction Documents to which it is a party constitute valid and binding obligations of such Party, enforceable against it in accordance with their respective terms, except as such enforceability may be limited by bankruptcy, insolvency, or similar laws or equitable remedies affecting creditors’ rights generally;

ii.      There are no lawsuits, claims, complaints or investigations pending, or to its knowledge threatened, against it, by any governmental entity or third party that would reasonably be likely to prohibit, or otherwise have a materially adverse consequence on, the transactions contemplated by this Agreement and that other Transaction Documents to which it is a party;

iii.      It has obtained all consents, authorizations and approvals, and taken all other actions, that are required for it to execute, deliver and perform its obligations under this Agreement and the other Transaction Documents to which it is a party; and

iv.      The execution, delivery and performance by it of this Agreement and the other Transaction Documents to which it is a party will not: result in a material breach under any agreements to which it is a party, or constitute a violation of any applicable federal, state or local governmental law, regulation or order.

b.      Each of WPSC and WPSI further represents and warrants to ALLETE that: (i) all agreements between it and ATCLLC and/or ATCMI, which relate to the Project and are reasonably necessary for WPSC and WPSI to cede to ALLETE a percentage of their rights to participate in Project Capital Calls as set forth herein (the “ATC-WPS Agreements”), are in full force and effect; and (ii) neither it nor ATC is in violation of breach under any of the ATC-WPS Agreements, and it has received no notice and has no knowledge of any claim alleging a violation or breach under the ATC-WPS Agreements, which would reasonably be likely to prohibit or otherwise materially affect the transactions contemplated by this Agreement and the other Transaction Documents to which it is a party. WPSC and WPSI shall promptly notify ALLETE in writing of any party’s termination, violation or breach, or claim or notice therefor, under any of the ATC-WPS Agreements. Any termination of the ATC-WPS Agreements, before the termination of the Project Right under Section 3 above, shall have no effect on the Project Right.

The Parties’ representations and warranties set forth in this Section 6 shall survive until the earlier of the expiration of the Term or termination of this Agreement.

7.         Termination.  This Agreement may be terminated upon prior, written notice:

i.      by either WPS or ALLETE if any representation or warranty made by the other Party under this Agreement or any of the other Transaction Documents shall prove to have been materially false or misleading when made or ceases to remain true during the Term or if the other Party breaches any of its obligations under this Agreement, if such cessation or breach would reasonably be expected to have a materially adverse consequence on the other Party or the transactions contemplated in the Transaction Documents, provided that, if cure of the underlying condition that resulted in the untruth or cure of the breach would result in it having no materially adverse consequence on the other Party or the transactions contemplated in the Transaction Documents, such condition or breach has not been cured within thirty (30) days after receipt of written notice from the other Party;

ii.     by ALLETE in the event of ATC’s: (i) dissolution or liquidation; (ii) assignment of any of its rights under the Transaction Documents for the benefit of creditors; or (iii) voluntarily filing, or having filed against it, a petition in bankruptcy or insolvency or for reorganization or arrangement under United States bankruptcy laws or the insolvency act of any State; or

iii.    by ALLETE for all future Project Capital Calls in the event that any of the agreements described in Section 4(i) – (iii) above expires or is terminated; provided however, if ALLETE terminates this Agreement under this subpart (iii), the Parties shall negotiate in good faith an amendment to this Agreement that preserves and reinstates, to the maximum extent possible, each Party’s benefits of the bargain as set forth in this Agreement.

8.         Assignment.  The Parties’ respective rights and obligations under this Agreement may be assigned only with the written consents of the other Parties hereto, which consents shall not be unreasonably withheld or unduly delayed; provided however, any Party may, without the other Parties’ consents, assign all or part of its rights and obligations hereunder to its affiliated company including, without limitation, its successor in interest by way of merger, consolidation or sale of all or substantially all of its assets. This Agreement shall be binding upon and shall inure to the benefit of the Parties, their respective successors and permitted assigns, but shall not confer any rights or remedies upon any third party. Any purported assignment of this Agreement without the written consent of the other Parties, if required hereunder, shall be null and void.

9.         Regulatory and Other Required Approvals. This agreement is expressly conditioned on: (i) the PSCW’s approval of an amendment to the Transfer Agreement, to facilitate ALLETE’s participation in Project Capital Calls as set forth in Sections 1 and 2 above (“Transfer Agreement Amendment”); (ii) FERC 203 approval of ALLETE’s acquisition of Member Units in ATCLLC and Class A Common Stock in ATCMI; and (iii) the approval of the ATCMI Board of Directors, which is attached as Exhibit A hereto and made a part here of (“ATCMI Board of Directors’ Approval”). (Collectively, subparts (i), (ii) and (iii) are referred to herein as “Required Approvals.”) The Parties shall cooperate in good faith in seeking all Required Approvals necessary to effectuate this Agreement and the other Transaction Documents. If a Party receives notice, or otherwise becomes aware, that another regulatory approval is required in order to effectuate this Agreement or the other Transaction Documents, such Party shall notify the other Parties via telephone as soon as practicable, and they shall cooperate in good faith to obtain such additional regulatory approval as expeditiously as possible.

10.         Severability. If: (i) any term of this Agreement is determined to be invalid, illegal or unenforceable by any court or governmental authority having jurisdiction; or (ii) one or more of the Required Approvals set forth in Section 9 above is not obtained by May 15, 2006, or is denied or conditioned in a manner that materially adversely affects a Party’s respective benefits and obligations hereunder, then the parties shall negotiate in good faith a new provision or new agreement that will be legally enforceable, or gain such Required Approvals as applicable, and to the maximum extent possible, restore each Party’s Benefits of the bargain contained in this Agreement.

11.         Counterparts. This Agreement may be executed in any number of separate counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same agreement.

IN WITNESS WHEREOF, this Agreement has be executed and delivered by the Parties hereto on the date first written above.

 

WISCONSIN PUBLIC SERCIVE			ALLETE, INC.
CORPORATION
By:	/s/ Larry L. Weyers		By:	/s/ Donald J. Shippar
	Name: Larry L. Weyers			Name: Donald J. Shippar
	Title: Chairman and Chief Executive Officer			Title: President & CEO
WPS INVESTMENTS, LLC
By WPS Resources Corporation, its Manager
By:	/s/ Larry L Weyers
	Name: Larry L Weyers
	Title: Chairman, President and Chief Executive Officer

 

 

 

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EXHIBIT A

 

ATCMI BOARD OF DIRECTORS’ APPROVAL

 

UNANIMOUS CONSENT TO ACTION BY THE DIRECTORS

OF ATC MANAGEMENT INC.

ADMISSION OF ALLETE, INC., OR ITS DESIGNATED SUBSIDIARY,

AS A MEMBER OF ATCLLC

The undersigned, constituting all of the members of the Board of Directors of ATC Management Inc. (“ATCMI”), a Wisconsin corporation, pursuant to Section 3.5(c) of the Amended and Restated Bylaws of ATCMI and the provisions of Wis. Stat. § 180.0821, hereby adopt the following resolution by unanimous written consent as though adopted by them at a duly constituted meeting of the Board of Directors:

 

RESOLVED, that pursuant to the authority granted to the Board of Directors in Section 3.1 of the Operating Agreement of American Transmission Company LLC to admit new members to American Transmission Company LLC (“ATCLLC”) upon such terms and conditions as the Board deems appropriate, and pursuant to the authority granted in Section 3.1 of the Amended and Restated Bylaws of ATCMI, ALLETE, Inc. or a subsidiary that it designates (“ALLETE”) is hereby approved for membership in ATCLLC.

 

ALLETE shall be allowed to purchase membership units in ATCLLC and purchase shares of ATCMI Class A Common Stock at a share price of Ten Dollars ($10.00) per share, in proportion to its total membership interest in ATCLLC all as further described below.

ALLETE will be allowed to purchase ATCLLC membership units by funding a portion of ATCLLC’s Arrowhead-Weston Project Capital Calls (“Project Capital Calls”) pursuant to sections 5.b., 5.c. and 6 of the Agreement for Transfer of Primary Responsibility For Arrowhead-Weston Transmission Project, as amended by the Fist and Second Amendments (“Transfer Agreement”) attached as Exhibit A.

 

To effectuate ALLETE’s and WPS’ intent that ALLETE purchase $60 million of membership units in ATCLLC by the end of 2006 which would otherwise have been purchased by WPSI by participation in Project Capital Calls, ALLETE is allowed to purchase membership units reflecting 72 percent of each monthly Project Capital Call commencing in min December 2005; provided however:

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If ALLETE is not authorized to purchase ATCLLC membership units until after the December 2005 Project Capital Call has been funded, ALLETE shall be allowed to purchase membership units reflecting 78 percent of each Project Capital Call beginning with the first Project Capital Call following all conditions set forth in these resolutions being met.

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If ALLETE is not authorized to purchase ATCLLC membership units until after the January 2006 Project Capital Call has been funded, ALLETE’s percentage participation in Project Capital Calls for the remainder of 2006 will be adjusted upward, up to a maximum of 100 percent, to target a total purchase of $60 million in membership units via participation in Project Capital Calls by the end of 2006, and ALLETE shall be allowed to purchase membership units reflecting such increased percentage participation in Project Capital Calls.

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If following the May 2006 Project Capital Call, it is reasonably determined that ALLETE’s then-current percentage participation in Project Capital Calls will not result in its purchase of $60 million in membership units via participation in Project Capital Calls by the end of 2006, then, with the consent of WPSI, ALLETE’s percentage participation in the Project Capital Calls shall increase as necessary, up to a maximum of 100 percent, to target the purchase of $60 million in membership units by the end of 2006, beginning with the June 2006 Project Capital Call, and ALLETE shall be allowed to purchase membership units reflecting such increased percentage participation in Project Capital Calls.

Upon ALLETE’s purchase of $60 million in membership units, ALLETE’s right to purchase membership units via the Project Capital Calls shall automatically terminate.

RESOLVED FURTHER, that ALLETE shall have the right, but not the obligation, to participate in ATCLLC’s general equity capital calls on a pro rata basis in accordance with ALLETE’s percentage ownership of ATCLLC, calculated as has been customary or, if changed, as applicable for all ATCLLC members.

RESOLVED FURTHER, that in connection with the proceding Resolution, Management is hereby authorized and directed to execute all documents, containing terms and conditions consistent with this Resolution, necessary or convenient for the admission of ALLETE to ATCLLC, receipt of cash, issuance to ALLETE of ATCLLC membership units and issuance to ALLETE of share of Class A Common Stock of ATCMI, conditioned upon receipt of all state and federal regulatory approvals, and other such third-party approvals as necessary.

Dated as of the 12th day of December, 2005.

José M. Delgado		J. Leroy Thilly
Anthony S. Earl		William C. Verrette
William D. Harvey		Larry L. Weyers

 

Allen L. Leverett		Gary J. Wolter
Agustin A. Ramirez		Stephen J. Yanisch

 

 

 

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EXHIBIT A

SECOND AMENDMENT TO

AGREEMENT FOR TRANSFER OF PRIMARY REPONSIBILITY

FOR ARROWHEAD-WESTON TRANSMISSION PROJECT

 

The parties to the Agreement for Transfer of Primary Responsibility for Arrowhead-Weston Transmission Project hereby agree to amend the Agreement as follows:

1.           Section 5.b. of the Agreement is amended to add the following two sentences at the beginning thereof:

“As used in this Section 5.b. and in Section 6., “WPSI” shall mean WPSI or its designee, provided such designee has been approved for membership in ATCLLC by the Board of Directors of ATCM in their sole discretion and in accordance with such approval.”

“As used in this Section 5.b. and in Section 6., “WPSC” shall mean WPSC or its designee, provided such designee has been approved by the Board of Directors of ATCM in their sole discretion to own ATCM Class A common stock and in accordance with such approval.”

2.           The fifth sentence of Section 5.b. after the addition of the two sentences described in “1” above is amended by adding the words “in total” after the word “purchase.”

3.           A new section, Section 5.c. shall be added as follows: “5.c. If a person designated by WPSI or WPSC pursuant to Section 5.b. does not purchase membership units or Class A shares, WPSI and WPSC respectively shall purchase such membership units or Class A shares.”

4.           Paragraph 11 is deleted and the numbers of the subsequent sections shall not be changed.

Dated this ____ day of November, 2005.

Wisconsin Public Service Corporation			American Transmission Company LLC,
			by its corporate manager
			ATC Management Inc.
By:			By:
	Larry L. Weyers			Jose M. Delgado
	Chairman, President and Chief			President and Chief Executive
	Executive Officer			Officer
WPS Investments, LLC,			ATC Management Inc.
by its corporate manager,
WPS Resources Corporation
By:			By:
	Larry L. Weyers			Jose M. Delgado
	Chairman, President and Chief			President and Chief Executive
	Executive Officer			Officer

 

 

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Exhibit 10(h)1

 

 

 

AMENDED AND RESTATED

ALLETE

EXECUTIVE ANNUAL INCENTIVE PLAN

With Amendments through January 1, 2010

 

 

 

 

 

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AMENDED AND RESTATED

ALLETE

EXECUTIVE ANNUAL INCENTIVE PLAN

 

Article 1.Establishment and Purpose

1.1Establishment of the Plan.  ALLETE, Inc., a Minnesota corporation, f/k/a Minnesota Power, Inc., f/k/a Minnesota Power & Light Company (hereinafter referred to as the “Company”), hereby establishes an annual incentive compensation plan (the “Plan”), as set forth in this document.  The Plan allows for annual cash payments to Participants based on the Company’s annual performance relative to both financial and non-financial goals.

1.2Purpose of the Plan.  The purpose of the Plan is to motivate Participants to work toward improved annual financial and non-financial performance.  The Plan is further intended to assist the Company in its ability to attract and retain the services of officers and key employees upon whom the successful conduct of its operations is largely dependent.

Article 2.Definitions

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

2.1“Award” means the payment made to the Participant based on the achievement of established financial and nonfinancial performance goals as provided under the Plan.

2.2“Business Unit” means any subsidiary or division of the Company labeled as a business unit for the purposes of the Plan.

2.3“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 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 transaction, 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 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.

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

2.5“Committee” means the Executive Compensation Committee, appointed by the Board of Directors to administer the Plan.

 

        2.6“Disability” or “Disabled” means a physical or mental condition in which the Participant is:

 

(a)           unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months;

 

(b)           by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under the Employer’s accident and health plan;

 

(c)           determined to be totally disabled by the Social Security Administration; or

 

(d)           disabled pursuant to an Employer-sponsored disability insurance arrangement provided that the definition of disability applied under such disability insurance program complies with the foregoing definition of Disability.

 

2.7“Eligible Employee” means an employee who is eligible to participate in the Plan, as approved by the Committee.

2.8“Participant” means an Eligible Employee who has received an opportunity for an Award.

2.9“Performance Year” shall mean the period from January 1 through December 31 of any given year.

2.10“Proration” or “Prorated” means an Award calculation that accounts for time spent in a job position or Business Unit based on the number of whole months spent in the position or Business Unit and counting as a whole month any month the Participant was in the position or Business Unit on the 15th of the month.

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

2.12“Retirement” or “Retires” means Separation from Service, for reasons other than death or Disability, on or after attaining normal retirement age or early retirement age as defined in the most applicable qualified retirement plan sponsored by the Related Company that employed  the Participant immediately preceding the Separation from Service, without regard to whether the Participant is a participant in such plan, or if the employer Related Company does not sponsor such retirement plan, on or after attaining Normal Retirement Age or Early Retirement Age as defined in the Minnesota Power and Affiliated Companies Retirement Plan A, without regard to whether the Participant is a participant under the Minnesota Power and Affiliated Companies Retirement Plan A.

2.13“Separation from Service” means that the Participant terminates employment within the meaning of Treasury Regulations section 1.409A-1(h) and other applicable guidance with all Related Companies.  Whether a termination of employment has occurred is determined under the facts and circumstances, and a termination of employment shall occur if all Related Companies and the Participant reasonably anticipate that no further services shall be performed after a certain date or that the level of bona fide services the Participant shall perform after such date (as an employee or an independent contractor) shall permanently decrease to no more than 20 percent of the average level of bona fide services performed (whether as an employee or an independent contractor) over the immediately preceding 36-month period (or the full period of services to the Related Companies if the Participant has been providing services to the Related Companies less than 36 months).  A Participant shall not be considered to separate from service during a bona fide leave of absence for less than six (6) months or longer if the Participant retains a right to reemployment with any Related Company by contract or statute.  With respect to disability leave, a Participant shall not be considered to separate from service for 29 months unless the Participant otherwise terminates employment or is terminated by all Related Companies

2.14“Target Award” means the percent of base salary set out at the beginning of the Performance Year, a percentage of which is earned based on performance.

 

Article 3.Administration

3.1The Committee.  The Plan shall be administered by the Executive Compensation Committee of the Board.

3.2Authority of the Committee.  The Committee shall have full power to administer the Plan, including, without limitation, the following: to determine the size of Awards; to determine the terms and conditions under which Awards will be made; to interpret the Plan as it deems appropriate; to establish, amend or waive rules relating to the administration of the Plan; and to delegate its authority as it deems appropriate.

3.3Costs.  The Company shall pay all costs of administration of the Plan.

Article 4.  Funding

4.1Required Funding.  The required funding for Awards under the Plan will be determined before the start of each Performance Year by summing the Target Awards of the Participants.

4.2Adjustments.  As soon as practical after the end of the Performance Year, Awards will be calculated and the funded Award pool will be adjusted accordingly.  If the sum total of actual Awards is greater than the sum total of Target Awards, the difference will be paid out of the additional Company profit generated by the results causing the higher payout.

Article 5.Eligibility and Participation

5.1Eligibility.  Eligible Employees may include officers and key employees of Related Companies, including employees who serve as members of the Company’s Board of Directors, as determined by the Company Chief Executive Officer and approved by the Committee.

Article 6.  Performance Measurement

6.1Financial Measures.  Within ninety (90) days of the start of the Performance Year, the Committee shall approve any financial performance goals using measurements such as the following:  return on gross investment (ROGI), free cash flow, revenue growth, earnings before interest, taxes, depreciation, amortization and leases (EBITDAL), and/or earnings per share (EPS).

6.2Nonfinancial Measures Employed.  Within ninety (90) days of the start of the Performance Year, the Committee will approve any non-financial performance goals based on strategic objectives.

Article 7.Award Determination

7.1Award Calculation.  As soon as possible after the close of the Performance Year, based on audited financial statements (for financial goals) and other records (for nonfinancial goals), each Participant’s Award shall be calculated.  The Committee reserves the right to select from all Eligible Employees, an employee or employees who will not receive Awards under the Plan due to individual performance.  A Participant’s Award will be reduced by, and the Participant will not receive, any amount that otherwise would be disallowed as a deduction by the Company due to the limitations under Code Section 162(m), or any subsequent or similar Code provision that limits the amount of compensation expense the Company may deduct.

7.2Awards.  Any Award with respect to a Performance Year shall be paid between January 1 and March 15 of the year following the close of such Performance Year.

Article 8. Other Awards

The Committee shall have the right to make other Awards which it deems appropriate based on outstanding individual or team performance.  The Committee may grant shares of the Company’s common stock in lieu of cash from time to time.

Article 9.Beneficiary Designation

Each Participant under the Plan may name any beneficiary 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.

Article 10.  Deferrals

The Committee may permit a Participant to defer such Participant’s receipt of an Award.  If any such deferral election is permitted, the Committee shall, in its sole discretion, establish rules and procedures for such payment deferrals.

 

 

Article 11.New Hires

A new employee may become a Participant in the year hired and become eligible to earn a Prorated Award for the Performance Year corresponding to the year of hire.

Article 12.Transfers

If during a Performance Year the Participant transfers to a different Business Unit and remains a Participant in the new Business Unit but with different performance goals, different opportunity level or both, the Participant will be eligible to earn a total Prorated Award equal to the sum of: (a) the Prorated Award applicable to the portion of the Performance Year spent in the Business Unit from which the Participant transferred and (b) the Prorated Award applicable to the portion of the Performance Year spent in the Business Unit to which the Participant transferred.

Article 13.Promotions

If during a Performance Year the Participant transfers to a different position in the same Business Unit but with a different opportunity level, the Participant will be eligible to earn a total Prorated Award equal to the sum of: (a) the Prorated Award applicable to the portion of the Performance Year spent in the position from which the Participant transferred and (b) the Prorated Award applicable to the portion of the Performance Year spent in the position to which the Participant transferred.

Article 14.Retirement or Disability

In the case of Retirement or Disability, the Participant will receive a Prorated Award based on the number of months within the Performance Year which had elapsed as of the date of Retirement or Disability.

Article 15.Death

Prorated Awards earned based on the number of months during the Performance Year spent in the employ of the Company until death will be paid to the Participant’s beneficiary or, if no beneficiary is named, to the Participant’s estate.

Article 16.Separation from Service

Separation from Service other than for Retirement, Disability or death before December 31 of any Performance Year results in forfeiture of any Award unless otherwise determined by the Committee.

Article 17. Rights of Employees

17.1Employment.  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 for no reason in the Company’s sole discretion, nor confer upon any Participant any right to continue in the employ of the Company.

17.2Participation.  No employee shall have the right to be selected to receive an Award under the Plan, or, having been so selected, to be selected to receive a future Award.

Article 18.Change-in-Control

Upon the occurrence of a Change-in-Control, as defined herein, Awards under the Plan will be calculated as if the end of the Performance Year had occurred, based on the Company’s performance to date.

Article 19.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 Participants' FICA obligation) required by law to be withheld with respect to an Award made under the Plan.

Article 20.Amendment

The Company reserves the right to cancel, amend, terminate, suspend or otherwise change the Plan or outstanding Awards for any reason at any time before, during or after the Performance Year to which an Award relates, upon authorization of its Board of Directors.  The Executive Compensation Committee of the Board of Directors may expand, reduce or otherwise change any and all opportunities, Awards, and any and all financial factors, or financial measures used in the Plan or outstanding Awards for any reason at any time before, during or after the Performance Year to which an Award relates.  All changes described in this paragraph are at the sole discretion of the Board of Directors and/or the Executive Compensation Committee, may be made at any time, and may have a retroactive effective date.

                  ALLETE, Inc.

By    Donald J. Shippar

                                         Donald J. Shippar

                                         Chairman & Chief Executive Officer

Attest:

By   Deborah A. Amberg

Deborah A. Amberg

Senior Vice President, General Counsel & Secretary

 

 

---

 

Exhibit 10(h)3

ALLETE Executive Annual Incentive Plan

Form of Award

Effective 2010

[Eligible Executive Employees]

 
 

Target Award Opportunity

Base Salary	$
Times
Award Opportunity (percent of base salary)	%
Equals
Target Award	$

Performance Levels and Award Amounts

Goal Performance Level	Payout as Percent of Target Award	Award Amount
Superior	200%	$
Target	100%	$
Threshold	37.5%	$
Below Threshold	0%	$

Goals

							Goal
							Weighting
	Financial Goals
		Net Income from Continuing Operations					50%
		Cash from Operating Activities					25%
	Strategic Goals						25%
							100%

 

 

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Exhibit 10(m)8

ANNEX A

TO

ALLETE EXECUTIVE LONG-TERM INCENTIVE COMPENSATION PLAN

PERFORMANCE SHARE GRANT

1.           Further Terms and Conditions of Performance Shares.  The Grant of Performance Shares evidenced by the Grant to which this is annexed is subject to the following additional terms and conditions:

(a)           Dividend Equivalents.  The Participant shall receive Dividend Equivalents with respect to the number of Performance Shares subject to the Grant.  Dividend Equivalents shall be calculated and credited to the Participant at the end of the Performance Period.  The Dividend Equivalents shall be in the form of additional Performance Shares, which shall be added to the number of Performance Shares subject to the Grant, and which shall equal the number of Shares (including fractional Shares) that could be purchased on the dividend payment dates, based on the closing sale price as reported in the consolidated transaction reporting system on that date, with cash dividends that would have been paid on Performance Shares, if such Performance Shares were Shares.

(b)           Satisfaction of Goals.  At the end of the Performance Period, the Executive Compensation Committee (the “Committee”) shall determine the extent to which the Performance Goals have been met.  The Participant will not be credited with any Performance Shares if the threshold level has not been met. Subject to the provisions of subsection (d) hereof and to provisions in the Plan for change in control, percentages of the Performance Share grant shall be credited to the Participant as follows:  If the threshold level has been met, 50% of the Performance Shares (as increased by the Dividend Equivalents) shall be credited to the Participant.  If the target level has been met, 100% of the Performance Shares (as increased by the Dividend Equivalents) shall be credited to the Participant.  If the superior level has been met, 200% of the Performance Shares (as increased by the Dividend Equivalents) shall be credited to the Participant.  Straight line interpolation will be used to determine earned awards based on achievement of goals between the threshold, target and superior levels.

(c)           Payment.  Subject to the provisions of subsection (d) hereof and to provisions in the Plan for change in control, Performance Shares as determined by the Committee according to subsection (b) hereof shall be paid out 100% (as increased by the Dividend Equivalents) within two and one half months after the end of the Performance Period and after the Committee has determined the extent to which Performance Goals have been met.  Payment shall be made, after withholding Performance Shares equal in value to the Participant’s income tax obligation via a deposit of ALLETE common stock into an Invest Direct account. Performance Share awards shall not vest until paid.

(d)           Payment Upon Death, Retirement or Disability; Forfeiture of Unvested Performance Shares Upon Demotion, Unsatisfactory Job Performance or Other Separation from Service.

(1)

If during a Performance Period the Participant (i) Retires, (ii) dies while employed by a Related Company, or (iii) becomes Disabled, the Participant (or the Participant’s beneficiary or estate) shall receive a payment of any Performance Shares (as increased by the Dividend Equivalents) after the end of the Performance Period, promptly after the Committee has determined the extent to which Performance Goals have been met.  The payment shall be prorated based upon the number of whole calendar months within the Performance Period which had elapsed as of the date of death, Retirement or Disability in relation to the number of calendar months in the full Performance Period. A whole month is counted in the calculation if the Participant was in the position as of the 15th of the month.

(2)

If after the end of a Performance Period, but before any or all Performance Shares have been paid, as specified in subsection (d)(1) above, the Participant Retires, dies or becomes Disabled, the Participant (or the Participant’s beneficiary or estate) shall be entitled to a full payout of all Performance Shares (as increased by the Dividend Equivalents), which shall be paid out at the next scheduled performance share payment date.

(3)

If prior to payment of all Performance Shares, the Participant is demoted, or ALLETE or a Business Unit determines, in its sole discretion, that the Participant’s job performance is unsatisfactory, ALLETE reserves the right to cancel or amend the Participant’s grant relating to any unpaid Performance Shares, with the result that some portion or all of the Participant’s unpaid Performance Shares will be forfeited.

(4)

If the Participant has a Separation from Service for any reason other than those specified in subsection (d)(1) above, all Performance Shares and related Dividend Equivalents to the extent not yet paid shall be forfeited on the date of such Separation from Service, except as otherwise provided by the Committee.

2.           Ratification of Actions.  By receiving the Grant or other benefit under the Plan, the Participant and each person claiming under or through Participant shall be conclusively deemed to have indicated the Participant’s acceptance and ratification of, and consent to, any action taken under the Plan or the Grant by ALLETE, the Board or the Committee.

3.           Notices.  Any notice hereunder to ALLETE shall be addressed to ALLETE, 30 West Superior Street, Duluth, Minnesota 55802, Attention:  Manager - Executive Compensation and Employee Benefits, Human Resources, and any notice hereunder to the Participant shall be directed to the Participant’s address as indicated by ALLETE’s records, subject to the right of either party to designate at any time hereafter in writing some other address.

4.           Governing Law and Severability.  To the extent not preempted by the Federal law, the Grant will be governed by and construed in accordance with the laws of the State of Minnesota, without regard to its conflicts of law provisions.  In the event any provision of the Grant shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Grant, and the Grant shall be construed and enforced as if the illegal or invalid provision had not been included.

5.           Definitions.  Capitalized terms not otherwise defined herein shall have the meanings given them in the Plan.  The following definitions apply to the Grant and this Annex A:

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

 

(b)           “Disability” or “Disabled” means a physical or mental condition in which the Participant is:

 

(i)

unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months;

 

(ii)

by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under the Employer’s accident and health plan;

 

(iii)

determined to be totally disabled by the Social Security Administration; or

 

(iv)

disabled pursuant to an Employer-sponsored disability insurance arrangement provided that the definition of disability applied under such disability insurance program complies with the foregoing definition of Disability.

 

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

(d)           “Retirement” or “Retires” means Separation from Service, for reasons other than death or Disability, on or after attaining normal retirement age or early retirement age as defined in the most applicable qualified retirement plan sponsored by the Related Company that employed  the Participant immediately preceding the Separation from Service, without regard to whether the Participant is a participant in such plan, or if the employer Related Company does not sponsor such retirement plan, on or after attaining Normal Retirement Age or Early Retirement Age as defined in the Minnesota Power and Affiliated Companies Retirement Plan A, without regard to whether the Participant is a participant under the Minnesota Power and Affiliated Companies Retirement Plan A.

(e)           “Separation from Service” means that the Participant terminates employment within the meaning of Treasury Regulations section 1.409A-1(h) and other applicable guidance with all Related Companies.  Whether a termination of employment has occurred is determined under the facts and circumstances, and a termination of employment shall occur if all Related Companies and the Participant reasonably anticipate that no further services shall be performed after a certain date or that the level of bona fide services the Participant shall perform after such date (as an employee or an independent contractor) shall permanently decrease to no more than 20 percent of the average level of bona fide services performed (whether as an employee or an independent contractor) over the immediately preceding 36-month period (or the full period of services to the Related Companies if the Participant has been providing services to the Related Companies less than 36 months).  A Participant shall not be considered to separate from service during a bona fide leave of absence for less than six (6) months or longer if the Participant retains a right to reemployment with any Related Company by contract or statute.  With respect to disability leave, a Participant shall not be considered to separate from service for 29 months unless the Participant otherwise terminates employment or is terminated by all Related Companies.

 

 

 

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Exhibit 10(m)9

ANNEX A

TO

ALLETE EXECUTIVE LONG-TERM INCENTIVE COMPENSATION PLAN

RESTRICTED STOCK UNIT GRANT

 

The grant of restricted stock units (each , a “RSU”) under the ALLETE Executive Long-Term Incentive Compensation Plan (the “Plan”), evidenced by the Grant to which this is annexed, is subject to the following additional terms and conditions:

1.  Form and Timing of Payment.  Subject to the provisions hereof, each RSU will be paid in the form of one share of ALLETE common stock (each, a “Share”), plus accrued dividend equivalents, which shares will be deposited into an account for the Participant in the ALLETE Invest Direct plan.  Except as otherwise provided in sections 3 and 4, below, payment will be made during the period ending sixty days after the end of the vesting period; provided, however, the Participant will not be permitted, directly or indirectly, to designate the taxable year of the distribution.  Payment will be subject to withholding Shares equal in value to the Participant’s income tax obligation.

2.  Dividend Equivalents. The Participant will receive Dividend Equivalents in connection with the RSU’s granted.  Dividend Equivalents will be calculated and credited to the Participant at the time the underlying RSU’s are paid.  Dividend Equivalents shall be in the form of additional RSU’s, which shall be added to the number of RSU’s subject to the grant, and which shall equal the number of Shares (including fractional Shares) that could have been purchased on the dividend payment dates based on the closing price as reported in the consolidated transaction reporting system on that date with cash dividends that would have been paid on the RSU’s, if such RSU’s were Shares.

3.  Payment Upon Retirement, Death or Disability; Forfeiture Upon Other Termination of Employment or Unsatisfactory Job Performance.

3.1  Subject to Section 3.4 below, if during the vesting period the Participant (i) Retires, (ii) dies while employed by ALLETE or any Related Company, or (iii) becomes Disabled, a portion of the unvested RSU’s subject to the Grant will vest and be paid to the Participant (or the Participant’s beneficiary or estate)  during the period ending sixty days after such event; provided, however, the Participant will not be permitted, directly or indirectly, to designate the taxable year of the distribution. Payment pursuant to this Section 3.1 shall be prorated, after giving effect to the accumulation of Dividend Equivalents, based on the number of whole calendar months within the vesting period that had elapsed as of the date of Retirement, death or Disability in relation to the number of calendar months in the vesting period. For purposes of this calculation, the Participant will be credited with a whole month if the Participant was employed on the 15th of the month.

3.2  If during the vesting period or prior to payment of all RSU’s the Participant has a Separation from Service for any reason other than those specified in Section 3.1 above, all unvested or unpaid RSU’s subject to the Grant will be forfeited on the date of such Separation from Service.

3.3  If during the vesting period or prior to payment of all Shares the Participant is demoted, or if ALLETE determines, in its sole discretion, that the Participant’s job performance is unsatisfactory, ALLETE may cancel or amend the Participant’s grant relating to any unpaid RSU’s, resulting in the forfeiture of some portion or all of the Participant’s unpaid RSU’s.

3.4  Notwithstanding anything herein to the contrary, if the Participant becomes entitled to a payment of the RSU’s by reason of the Participant’s Retirement and if the Participant is a Specified Employee on the date of such Retirement, payment shall not be made until the earlier of: (i) the expiration of the six-month period beginning on the date of Participant’s Retirement, or (ii) the date of the Participant’s death.  The payment to which a Specified Employee would otherwise be entitled during this six-month period shall be paid, together with dividend equivalents that have accrued during this six-month delay, during the seventh month following the date of the Participant’s Retirement, or, if earlier, the date of the Participant’s death.

4.  Change in Control.   Upon the occurrence of a Change in Control, unless the Committee provides otherwise prior to the Change in Control, outstanding unvested RSU’s shall immediately vest and be payable to the Participant during the period ending sixty days after the Change in Control; provided, however, the Participant will not be permitted, directly or indirectly, to designate the taxable year of the distribution.  Any payment on account of a Change in Control will be prorated, after giving effect to the accumulation of Dividend Equivalents, based on the number of whole calendar months within the three-year vesting period that had elapsed as of the date of the Change in Control in relation to the number of calendar months in the three-year vesting period. For purposes of this calculation, the Participant will be credited with a whole month if the Participant was employed on the 15th of the month.

5.  Ratification of Actions.  By receiving the Grant or other benefit under the Plan, the Participant and each person claiming under or through Participant shall be conclusively deemed to have indicated the Participant’s acceptance and ratification of, and consent to, any action taken under the Plan or the Grant by ALLETE, the Board, or the Committee.

6.  Notices.  Any notice hereunder to ALLETE shall be addressed to ALLETE, 30 West Superior Street, Duluth, Minnesota 55802, Attention:  Manager - Executive Compensation and Employee Benefits, Human Resources, and any notice hereunder to the Participant shall be directed to the Participant’s address as indicated by ALLETE’s records, subject to the right of either party to designate at any time hereafter in writing some other address.

7.  Governing Law and Severability.  To the extent not preempted by the Federal law, the Grant will be governed by and construed in accordance with the laws of the State of Minnesota, without regard to its conflicts of law provisions.  In the event any provision of the Grant shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Grant, and the Grant shall be construed and enforced as if the illegal or invalid provision had not been included.

8.  Definitions.  Capitalized terms not otherwise defined herein shall have the meanings given them in the Plan.  The following definitions apply to the Grant and this Annex A:

8.1             “Change in Control” means the earliest of:

 

(i)

the date any one Person, or more than one Person acting as a group (as the term “group” is used in Treasury Regulations section 1.409A-3(i)(5)(v)(B)), acquires ownership of stock of the Company that, together with stock previously held by the acquirer, constitutes more than fifty (50%) percent of the total fair market value or total voting power of Company 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 Company 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 Company acquires its stock in exchange for property, is treated as an acquisition of stock;

 

(ii)

the date any one Person, or more than one Person acting as a group (as the term “group” is used in Treasury Regulations 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 Company stock possessing at least thirty (30%) percent of the total voting power of Company stock;

 

(iii)

the date a majority of the members of the Company’s 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

 

(iv)

the date any one Person, or more than one Person acting as a group (as the term “group” is used in Treasury Regulations 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 the Company that have a total gross fair market value equal to at least forty (40%) percent of the total gross fair market value of all the Company’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.  The term “Person” used in this definition 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.

 

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

 

8.3           “Disability” or “Disabled” means a physical or mental condition in which the Participant is:

 

(i)

unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months;

 

(ii)

by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under the Employer’s accident and health plan;

 

(iii)

determined to be totally disabled by the Social Security Administration; or

 

(iv)

disabled pursuant to an Employer-sponsored disability insurance arrangement provided that the definition of disability applied under such disability insurance program complies with the foregoing definition of Disability.

 

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

8.5           “Retirement” or “Retires” means Separation from Service, for reasons other than death or Disability, on or after attaining normal retirement age or early retirement age as defined in the most applicable qualified retirement plan sponsored by the Related Company that employed  the Participant immediately preceding the Separation from Service, without regard to whether the Participant is a participant in such plan, or if the employer Related Company does not sponsor such retirement plan, on or after attaining Normal Retirement Age or Early Retirement Age as defined in the Minnesota Power and Affiliated Companies Retirement Plan A, without regard to whether the Participant is a participant under the Minnesota Power and Affiliated Companies Retirement Plan A.

 

8.6            “Separation from Service” means that the Participant terminates employment within the meaning of Treasury Regulations section 1.409A-1(h) and other applicable guidance with all Related Companies.  Whether a termination of employment has occurred is determined under the facts and circumstances, and a termination of employment shall occur if all Related Companies and the Participant reasonably anticipate that no further services shall be performed after a certain date or that the level of bona fide services the Participant shall perform after such date (as an employee or an independent contractor) shall permanently decrease to no more than 20 percent of the average level of bona fide services performed (whether as an employee or an independent contractor) over the immediately preceding 36-month period (or the full period of services to the Related Companies if the Participant has been providing services to the Related Companies less than 36 months).  A Participant shall not be considered to separate from service during a bona fide leave of absence for less than six (6) months or longer if the Participant retains a right to reemployment with any Related Company by contract or statute.  With respect to disability leave, a Participant shall not be considered to separate from service for 29 months unless the Participant otherwise terminates employment or is terminated by all Related Companies.

8.7           “Specified Employee” means an Participant who is subject to the six-month delay rule described in Code section 409A(2)(B)(i), determined in accordance with guidelines adopted by the Board from time to time as permitted by Section 409A of the Code and Treasury Regulations section 1.409A-1 et seq., as they both may be amended from time to time, and other guidance issued by the Treasury Department and Internal Revenue Service thereunder.

 

 

 

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Exhibit 12

ALLETE

Computation of Ratios of Earnings to Fixed Charges (Unaudited)

Year Ended December 31	2009	2008	2007	2006	2005
Millions
Earnings as defined:
Pretax Income Before Non-Controlling Interest	$91.5	$126.4	$137.2	$128.2	$19.8
Add: Fixed Charges	38.3	30.3	26.6	27.7	27.3
Less:  Non-Controlling Interest (a)	–	–	–	–	–
Undistributed Income from Less than 50 percent
Owned Equity Investment	3.7	3.8	3.3	2.3	–
Earnings as defined:	126.1	152.9	160.5	153.6	47.1
Fixed Charges:
Interest on Long-Term Debt	34.2	27.4	23.2	22.8	23.4
Other Interest Charges	1.6	0.4	1.5	2.9	1.1
Interest Component of All Rentals (b)	2.5	2.5	1.9	2.0	2.8
Total Fixed Charges	38.3	30.3	26.6	27.7	27.3
Ratio of Earnings to Fixed Charges	3.29	5.05	6.03	5.55	1.73

(a) Pre-tax income of subsidiaries that have not incurred fixed charges.

(b) Represents interest portion of rents estimated at 33 1/3 percent.

 

 

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Exhibit 21

SUBSIDIARIES OF THE REGISTRANT

(As of December 31, 2009)

(Reported Under Item 601 of Regulation S-K)

 

											State or Country
Name											of Organization
ALLETE, Inc. (d.b.a. ALLETE; Minnesota Power; Minnesota Power, Inc.;											Minnesota
	Minnesota Power & Light Company; MPEX; MPEX A Division of Minnesota Power)
	ALLETE Automotive Services, LLC										Minnesota
	ALLETE Capital II										Delaware
	ALLETE Capital III										Delaware
	ALLETE Properties, LLC (d.b.a. ALLETE Properties)										Minnesota
		ALLETE Carolinas, LLC									Delaware
		ALLETE Commercial, LLC									Florida
		Cape Coral Holdings, Inc.									Florida
		Lake Swamp, LLC									Florida
		Lehigh Acquisition Corporation									Delaware
			Florida Landmark Communities, Inc.								Florida
						Lehigh Corporation					Florida
						Palm Coast Holdings, Inc.					Florida
						Port Orange Holdings, LLC					Florida
			Interlachen Lakes Estates, Inc.								Florida
		Palm Coast Land, LLC									Florida
		Tomoka Holdings, LLC									Florida
	ALLETE Water Services, Inc.										Minnesota
		Florida Water Services Corporation									Florida
			Auto Replacement Property, LLC								Indiana
			Energy Replacement Property, LLC								Minnesota
		Georgia Water Services Corporation									Georgia
	Energy Land, Incorporated										Wisconsin
	Lakeview Financial Corporation I										Minnesota
	Lakeview Financial Corporation II										Minnesota
		Logistics Coal, LLC									Minnesota
	Minnesota Power Enterprises, Inc.										Minnesota
		BNI Coal, Ltd.									North Dakota
		MP Affiliate Resources, Inc.									Minnesota
		Rainy River Energy Corporation									Minnesota
		Rainy River Energy Corporation - Wisconsin									Wisconsin
		Synertec, Incorporated									Minnesota
		Upper Minnesota Properties, Inc.									Minnesota
					Upper Minnesota Properties - Development, Inc.						Minnesota
					Upper Minnesota Properties - Irving, Inc.						Minnesota
					Upper Minnesota Properties - Meadowlands, Inc.						Minnesota
								Meadowlands Affordable Housing Limited Partnership			Minnesota
	MP Investments, Inc.										Delaware
	RendField Land Company, Inc.										Minnesota
	Superior Water, Light and Power Company										Wisconsin

 

 

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Exhibit 23(a)

 

Consent of Independent Registered Public Accounting Firm

 

 

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-150681, 333-02109, 333-41882, 333-57104, 333-147965) and Form S-8 (Nos. 333-16445, 333-16463, 333-82901, 333-91348, 333-105225, 333-124455, 333-162890) of ALLETE, Inc. of our report dated February 12, 2010, relating to the financial statements, financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

 

PricewaterhouseCoopers LLP

PRICEWATERHOUSECOOPERS LLP

Minneapolis, Minnesota

February 12, 2010

 

 

 

 

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Exhibit 31(a)

Rule 13a-14(a)/15d-14(a) Certification by the Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Donald J. Shippar, of ALLETE, Inc. (ALLETE), certify that:

1.	I have reviewed this annual report on Form 10-K for the fiscal year ended December 31, 2009, of ALLETE;

 

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c.

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d.

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date:  February 12, 2010                 Donald J. Shippar 

 

                          Donald J. Shippar

                          Chairman and Chief Executive Officer

 

 

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Exhibit 31(b)

Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Mark A. Schober, of ALLETE, Inc. (ALLETE), certify that:

1.	I have reviewed this annual report on Form 10-K for the fiscal year ended December 31, 2009, of ALLETE;

 

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c.

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d.

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date:  February 12, 2010                                                          Mark A. Schober                                                                        

 

Mark A. Schober

Senior Vice President and Chief Financial Officer

 

 

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Exhibit 32

Section 1350 Certification of Periodic Report

By the Chief Executive Officer and Chief Financial Officer

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, each of the undersigned officers of ALLETE, Inc. (ALLETE), does hereby certify that:

 

1.	The Annual Report on Form 10-K of ALLETE for the fiscal year ended December 31, 2009, (Report) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and

 

2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of ALLETE.

 

Date:  February 12, 2010                                                           Donald J. Shippar                                                                       

 

Donald J. Shippar

Chairman and Chief Executive Officer

Date:  February 12, 2010                                                           Mark A. Schober                                                                       

 

Mark A. Schober

Senior Vice President and Chief Financial Officer

This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to liability pursuant to that section. Such certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that ALLETE specifically incorporates it by reference.

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to ALLETE and will be retained by ALLETE and furnished to the Securities and Exchange Commission or its staff upon request.

 

 

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NEWS		Exhibit 99
	For Release:	February 12, 2010
	Investor Contact:	Tim Thorp
		218-723-3953
		tthorp@allete.com

ALLETE reports 2009 earnings

Results in line with previously-stated guidance

 

ALLETE, Inc. (NYSE: ALE) today reported 2009 earnings of $1.89 per share, compared with 2008 earnings of $2.82 per share. Net income was $61 million on operating revenue of $759.1 million in 2009, versus net income of $82.5 million and operating revenue of $801 million in 2008. ALLETE’s 2009 financial results reflected a $4.9 million, or 15 cent per share, after-tax charge for the 2008 portion of electric customer refunds from a prior rate case. Excluding that charge, ALLETE’s 2009 earnings were $2.04 per share.

“The financial picture for ALLETE in 2009 was negatively impacted by the economic downturn and by regulatory outcomes that were less than favorable to us,” said Don Shippar, ALLETE's Chairman and Chief Executive Officer.

Regulated Operations recorded net income of $65.9 million during the year, $2 million less than in 2008. Higher electric rates did not offset the combination of increased expenses, the 2008 portion of customer refunds, and lower kilowatt-hour sales. Due to the region’s sluggish economy, sales of electricity to residential, municipal, commercial and industrial customers all declined from 2008 to 2009.

Kilowatt-hour sales to other power suppliers, however, more than doubled from 2008 to 2009 as Minnesota Power sold a portion of the electricity not used by its industrial customers.

ALLETE recorded higher income from its investment in the American Transmission Company due to an investment balance that climbed to $88.4 million at the end of 2009.

Net income in the Investments and Other segment fell by $19.5 million compared to 2008. Year-over-year comparison in this segment was also affected by $9.6 million in tax benefits and a gain on the sale of securities in 2008 that did not reoccur in 2009. ALLETE Properties recorded a net loss of $4.7 million in 2009 versus net income of $1.8 million the previous year as real estate market conditions remained weak throughout the year.

Common stock shares issued by the company during the year to fund ALLETE’s regulated utility capital investment program diluted earnings by 19 cents per share in 2009.

Shippar said he expects ALLETE earnings for the full year 2010 to be within a range of $2.05 and $2.35 per share.

“We’re encouraged by an improved outlook for our industrial customers and we expect to achieve acceptable regulatory outcomes in 2010,” he said. Shippar also noted that a new industrial customer, Mesabi Nugget, is now in operation and that the company’s investment balance in the American Transmission Company will grow in 2010.

ALLETE's corporate headquarters are located in Duluth, Minnesota. ALLETE provides energy services in the upper Midwest and has real estate holdings in Florida. More information about the company is available on ALLETE's Web site at www.allete.com.

 

The statements contained in this release and statements that ALLETE may make orally in connection with this release that are not historical facts, are forward-looking statements. Actual results may differ materially from those projected in the forward-looking statements. These forward-looking statements involve risks and uncertainties and investors are directed to the risks discussed in documents filed by ALLETE with the Securities and Exchange Commission.

ALLETE’s press releases and other communications may include certain non-Generally Accepted Accounting Principles (GAAP) financial measures. A “non-GAAP financial measure” is defined as a numerical measure of a company’s financial performance, financial position or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP in the company’s financial statements.

Non-GAAP financial measures utilized by the Company include presentations of earnings (loss) per share. ALLETE’s management believes that these non-GAAP financial measures provide useful information to investors by removing the effect of variances in GAAP reported results of operations that are not indicative of changes in the fundamental earnings power of the Company’s operations. Management believes that the presentation of the non-GAAP financial measures is appropriate and enables investors and analysts to more accurately compare the company’s ongoing financial performance over the periods presented.

 

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ALLETE, Inc.

 

Consolidated Statement of Income

For the Periods Ended December 31, 2009 and 2008

Millions Except Per Share Amounts

			Quarter Ended		Year to Date
			2009	2008	2009	2008
Operating Revenue
	Operating Revenue		$216.0	$196.1	$766.7	$801.0
	Prior Year Rate Refunds		–	–	(7.6)	–
		Total Operating Revenue	216.0	196.1	759.1	801.0
Operating Expenses
	Fuel and Purchased Power		80.1	63.3	279.5	305.6
	Operating and Maintenance		84.2	76.6	308.9	318.1
	Depreciation		17.9	16.4	64.7	55.5
		Total Operating Expenses	182.2	156.3	653.1	679.2
Operating Income			33.8	39.8	106.0	121.8
Other Income (Expense)
	Interest Expense		(8.4)	(6.8)	(33.8)	(26.3)
	Equity Earnings in ATC		4.6	4.1	17.5	15.3
	Other		(2.0)	1.7	1.8	15.6
		Total Other Income (Expense)	(5.8)	(1.0)	(14.5)	4.6
Income Before Non-Controlling Interest and  Income Taxes			28.0	38.8	91.5	126.4
Income Tax Expense			9.3	15.1	30.8	43.4
Net Income			18.7	23.7	60.7	83.0
	Less: Non-Controlling Interest in Subsidiaries		–	0.2	(0.3)	0.5
Net Income Attributable to ALLETE			$18.7	$23.5	$61.0	$82.5
Average Shares of Common Stock
	Basic		33.4	30.1	32.2	29.2
	Diluted		33.5	30.2	32.2	29.3
Basic and Diluted Earnings Per Share of Common Stock			$0.56	$0.78	$1.89	$2.82
Dividends Per Share of Common Stock			$0.44	$0.43	$1.76	$1.72

Consolidated Balance Sheet

Millions

 

	Dec. 31,	Dec. 31,			Dec. 31,	Dec. 31,
	2009	2008			2009	2008
Assets				Liabilities and Equity
Cash and Short-Term Investments	$25.7	$102.0		Current Liabilities	$133.1	$150.7
Other Current Assets	199.8	150.3		Long-Term Debt	695.8	588.3
Property, Plant and Equipment	1,622.7	1,387.3		Other Liabilities	372.1	389.3
Investment in ATC	88.4	76.9		Deferred Income Taxes & Investment Tax Credits	253.1	169.6
Investments	130.5	136.9		Equity	939.0	836.9
Other	326.0	281.4
Total Assets	$2,393.1	$2,134.8		Total Liabilities and Equity	$2,393.1	$2,134.8

 

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					Quarter Ended		Year to Date
ALLETE, Inc.					December 31,		December 31,
Income (Loss)					2009	2008	2009	2008
Millions
	Regulated Operations				$20.9	$21.4	$65.9	$67.9
	Investments and Other				(2.2)	2.1	(4.9)	14.6
	Net Income Attributable to ALLETE				$18.7	$23.5	$61.0	$82.5
Diluted Earnings Per Share					$0.56	$0.78	$1.89	$2.82

 

Statistical Data
Corporate
	Common Stock
		High			$35.29	$44.63	$35.29	$49.00
		Low			$32.23	$28.28	$23.35	$28.28
		Close			$32.68	$32.27	$32.68	$32.27
	Book Value				$26.39	$25.37	$26.39	$25.37

Kilowatt-hours Sold
Millions
	Regulated Utility
		Retail and Municipals
			Residential		308	318	1,164	1,172
			Commercial		358	365	1,420	1,454
			Municipals		262	259	992	1,002
			Industrial		1,294	1,726	4,475	7,192
				Total Retail and Municipal	2,222	2,668	8,051	10,820
		Other Power Suppliers			981	556	4,056	1,800
				Total Regulated Utility	3,203	3,224	12,107	12,620
	Non-regulated Energy Operations				41	48	203	217
				Total Kilowatt-hours Sold	3,244	3,272	12,310	12,837

This exhibit has been furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing.

 

 

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