x

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

¨

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

 

 

Minnesota		41-0418150
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

 

Title of Each Class		Name of Each Stock Exchange on Which Registered
Common Stock, without par value		New York Stock Exchange

 

 

 

 

Large Accelerated Filer x

Accelerated Filer ¨

Non-Accelerated Filer ¨

Smaller Reporting Company ¨

 

Definitions			3
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995			5
Part I
Item 1.	Business		6
	Regulated Operations		6
		Electric Sales / Customers	6
		Power Supply	9
		Transmission and Distribution	11
		Investment in ATC	11
		Properties	11
		Regulatory Matters	12
		Regional Organizations	14
		Minnesota Legislation	14
		Competition	14
		Franchises	15
	Investments and Other		15
		BNI Coal	15
		ALLETE Properties	15
		Non-Rate Base Generation	16
		Other	16
	Environmental Matters		16
	Employees		20
	Availability of Information		20
	Executive Officers of the Registrant		21
Item 1A.	Risk Factors		22
Item 1B.	Unresolved Staff Comments		25
Item 2.	Properties		25
Item 3.	Legal Proceedings		25
Item 4.	Removed and Reserved		25
Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		26
Item 6.	Selected Financial Data		27
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		28
	Overview		28
	2010 Compared to 2009		29
	2009 Compared to 2008		31
	Critical Accounting Estimates		33
	Outlook		34
	Liquidity and Capital Resources		39
	Capital Requirements		42
	Environmental and Other Matters		42
	Market Risk		42
	Recently Adopted Accounting Standards		43
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		43
Item 8.	Financial Statements and Supplementary Data		43
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		43
Item 9A.	Controls and Procedures		44
Item 9B.	Other Information		44
Part III
Item 10.	Directors, Executive Officers and Corporate Governance		45
Item 11.	Executive Compensation		45
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		45
Item 13.	Certain Relationships and Related Transactions, and Director Independence		45
Item 14.	Principal Accounting Fees and Services		45
Part IV
Item 15.	Exhibits and Financial Statement Schedules		46
Signatures			50
Consolidated Financial Statements			53

Abbreviation or Acronym	Term
ALLETE	ALLETE, Inc.
ALLETE Properties	ALLETE Properties, LLC and its subsidiaries
AFUDC	Allowance for Funds Used During Construction - the cost of both debt and equity funds used to finance utility plant additions during construction periods
ARS	Auction Rate Securities
ATC	American Transmission Company LLC
Basin	Basin Electric Power Cooperative
Bison 1	Bison 1 Wind Project
Bison 2	Bison 2 Wind Project
BNI Coal	BNI Coal, Ltd.
Boswell	Boswell Energy Center
CO2	Carbon Dioxide
Company	ALLETE, Inc. and its subsidiaries
DC	Direct Current
EPA	Environmental Protection Agency
ESOP	Employee Stock Ownership Plan
FASB	Financial Accounting Standards Board
FERC	Federal Energy Regulatory Commission
Form 8-K	ALLETE Current Report on Form 8-K
Form 10-K	ALLETE Annual Report on Form 10-K
Form 10-Q	ALLETE Quarterly Report on Form 10-Q
FTR	Financial Transmission Rights
GAAP	Accounting Principles Generally Accepted in the United States
GHG	Greenhouse Gases
Hibbard	Hibbard Renewable Energy Center
IBEW Local 31	International Brotherhood of Electrical Workers Local 31
IBEW Local 1593	International Brotherhood of Electrical Workers Local 1593
Invest Direct	ALLETE’s Direct Stock Purchase and Dividend Reinvestment Plan
kV	Kilovolt(s)
Laskin	Laskin Energy Center
Manitoba Hydro	Manitoba Hydro-Electric Board
MBtu	Million British thermal units
Medicare Part D	Medicare Part D provision of the Patient Protection and Affordable Care Act of 2010
Mesabi Nugget	Mesabi Nugget Delaware, LLC
Minnesota Power	An operating division of ALLETE, Inc.
Minnkota Power	Minnkota Power Cooperative, Inc.
MISO	Midwest Independent Transmission System Operator, Inc.
Moody’s	Moody’s Investors Service, Inc.
MPCA	Minnesota Pollution Control Agency

MPUC	Minnesota Public Utilities Commission
MW / MWh	Megawatt(s) / Megawatt-hour(s)
NextEra Energy	NextEra Energy Resources, LLC
NDPSC	North Dakota Public Service Commission
NOL	Net Operating Loss
Non-residential	Retail commercial, non-retail commercial, office, industrial, warehouse, storage and institutional
NO2	Nitrogen Dioxide
NOX	Nitrogen Oxides
Note ___	Note ___ to the consolidated financial statements in this Form 10-K
NPDES	National Pollutant Discharge Elimination System
NYSE	New York Stock Exchange
OES	Minnesota Office of Energy Security
Oliver Wind I	Oliver Wind I Energy Center
Oliver Wind II	Oliver Wind II Energy Center
Palm Coast Park	Palm Coast Park development project in Florida
Palm Coast Park District	Palm Coast Park Community Development District
PolyMet	PolyMet Mining Corporation
PPA	Power Purchase Agreement
PSCW	Public Service Commission of Wisconsin
PUHCA 2005	Public Utility Holding Company Act of 2005
Rainy River Energy	Rainy River Energy Corporation - Wisconsin
RSOP	Retirement Savings and Stock Ownership Plan
SEC	Securities and Exchange Commission
SO2	Sulfur Dioxide
Square Butte	Square Butte Electric Cooperative
Standard & Poor’s	Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc.
SWL&P	Superior Water, Light and Power Company
Taconite Harbor	Taconite Harbor Energy Center
Taconite Ridge	Taconite Ridge Energy Center
Town Center	Town Center at Palm Coast development project in Florida
Town Center District	Town Center at Palm Coast Community Development District
WDNR	Wisconsin Department of Natural Resources

·	our ability to successfully implement our strategic objectives;
·	prevailing governmental policies, regulatory actions, and legislation, including those of the United States Congress, state legislatures, the FERC, the MPUC, the PSCW, the NDPSC, the EPA and various state, local and county regulators, and city administrators, about allowed rates of return, financings, industry and rate structure, acquisition and disposal of assets and facilities, real estate development, operation and construction of plant facilities, recovery of purchased power, capital investments and other expenses, present or prospective wholesale and retail competition (including but not limited to transmission costs), zoning and permitting of land held for resale and environmental matters;
·	our ability to manage expansion and integrate acquisitions;
·	the potential impacts of climate change and future regulation to restrict the emissions of GHG on our Regulated Operations;
·	effects of restructuring initiatives in the electric industry;
·	economic and geographic factors, including political and economic risks;
·	changes in and compliance with laws and regulations;
·	weather conditions;
·	natural disasters and pandemic diseases;
·	war and acts of terrorism;
·	wholesale power market conditions;
·	population growth rates and demographic patterns;
·	effects of competition, including competition for retail and wholesale customers;
·	changes in the real estate market;
·	pricing and transportation of commodities;
·	changes in tax rates or policies or in rates of inflation;
·	project delays or changes in project costs;
·	availability and management of construction materials and skilled construction labor for capital projects;
·	changes in operating expenses and capital expenditures;
·	global and domestic economic conditions affecting us or our customers;
·	our ability to access capital markets and bank financing;
·	changes in interest rates and the performance of the financial markets;
·	our ability to replace a mature workforce and retain qualified, skilled and experienced personnel; and
·	the outcome of legal and administrative proceedings (whether civil or criminal) and settlements that affect the business and profitability of ALLETE.

Item 1.

Business

Year Ended December 31	2010	2009	2008
Consolidated Operating Revenue – Millions	$907.0	$759.1	$801.0
Percentage of Consolidated Operating Revenue
Regulated Operations	92%	90%	89%
Investments and Other	8%	10%	11%
	100%	100%	100%

Regulated Utility Electric Sales
Year Ended December 31	2010	%	2009	%	2008	%
Millions of Kilowatt-hours
Retail and Municipals
Residential	1,150	9	1,164	10	1,172	9
Commercial	1,433	11	1,420	12	1,454	12
Industrial	6,804	52	4,475	37	7,192	57
Municipals (FERC rate regulated)	1,006	7	992	8	1,002	8
Total Retail and Municipals	10,393	79	8,051	67	10,820	86
Other Power Suppliers	2,745	21	4,056	33	1,800	14
Total Regulated Utility Electric Sales	13,138	100	12,107	100	12,620	100

Industrial Customer Electric Sales
Year Ended December 31	2010	%	2009	%	2008	%
Millions of Kilowatt-hours
Taconite Producers	4,324	64	2,124	47	4,579	64
Paper, Pulp and Wood Products	1,573	23	1,454	33	1,567	22
Pipelines	494	7	504	11	582	8
Other Industrial	413	6	393	9	464	6
Total Industrial Customer Electric Sales	6,804	100	4,475	100	7,192	100

Customer	Industry	Location	Ownership	Earliest Termination Date
ArcelorMittal USA – Minorca Mine (a)	Taconite	Virginia, MN	ArcelorMittal USA Inc.	January 31, 2015
Hibbing Taconite Co. (c)	Taconite	Hibbing, MN	62.3% ArcelorMittal USA Inc. 23.0% Cliffs Natural Resources Inc. 14.7% United States Steel Corporation	December 31, 2015
United States Steel Corporation (USS) (USS – Minnesota Ore) (a,b)	Taconite	Mt. Iron, MN and Keewatin, MN	United States Steel Corporation	January 31, 2015
United Taconite LLC (c)	Taconite	Eveleth, MN	Cliffs Natural Resources Inc.	December 31, 2015
Mesabi Nugget Delaware, LLC (c)	Iron Nugget	Hoyt Lakes, MN	Steel Dynamics, Inc (80%) Kobe Steel USA (20%)	December 31, 2017
UPM, Blandin Paper Mill (a)	Paper	Grand Rapids, MN	UPM-Kymmene Corporation	January 31, 2015
Boise White Paper, LLC (c)	Paper	International Falls, MN	Boise Paper Holdings, LLC	December 31, 2013
Sappi Cloquet LLC (a)	Paper and Pulp	Cloquet, MN	Sappi Limited	January 31, 2015
NewPage Corporation – Duluth Mills (a)	Paper and Pulp	Duluth, MN	NewPage Corporation	January 31, 2015

(a)	The contract will terminate four years from the date of written notice from either Minnesota Power or the customer. No notice of contract cancellation has been given by either party. Thus, the earliest date of cancellation is January 31, 2015.

(b)	United States Steel Corporation owns both the Minntac Plant in Mountain Iron, MN and the Keewatin Taconite Plant in Keewatin, MN.

(c)	As of February 1, 2011, the contract has not reached the period of advance notice of cancellation.

Regulated Utility Power Supply	Unit No.	Year Installed	Net Capability	Year Ended December 31, 2010 Generation and Purchases
			MW	MWh	%
Coal-Fired
Boswell Energy Center	1	1958	68
in Cohasset, MN	2	1960	66
	3	1973	362
	4	1980	468
			964	5,680,246	42.2%
Laskin Energy Center	1	1953	56
in Hoyt Lakes, MN	2	1953	51
			107	516,369	3.8
Taconite Harbor Energy Center	1	1957	76
in Schroeder, MN	2	1957	76
	3	1967	79
			231	1,244,316	9.2
Total Coal			1,302	7,440,931	55.2
Biomass/Coal/Natural Gas
Hibbard Renewable Energy Center
in Duluth, MN	3 & 4	1949, 1951	54	163,945	1.2
Cloquet Energy Center in Cloquet, MN	5	2001	22	104,636	0.8
Total Biomass/Coal/Natural Gas			76	268,581	2.0
Hydro
Group consisting of ten stations in MN	Various		101	418,286	3.1
Wind (a)
Taconite Ridge in Mt. Iron, MN	1-10	2008	4	63,958	0.5
Bison 1 in Center, ND	1-16	2010	8	10,274	0.1
Total Wind			12	74,232	0.6
Total Company Generation			1,491	8,202,030	60.9
Long-Term Purchased Power
Lignite Coal – Square Butte near Center, ND				1,294,082	9.6
Wind – Oliver County, ND				331,541	2.5
Hydro – Manitoba Hydro in Winnipeg, MB, Canada				523,825	3.9
Total Long-Term Purchased Power				2,149,448	16.0
Other Purchased Power(b)				3,112,782	23.1
Total Purchased Power				5,262,230	39.1
Total			1,491	13,464,260	100.0%

 

(a)

The nameplate capacity of Taconite Ridge is 25 MW. The nameplate capacity of the first phase of Bison 1 is 36.8 MW and was commissioned December 8, 2010. The capacity reflected in the table is actual accredited capacity of the facility. Accredited capacity is the amount of net generating capability associated with the facility for which capacity credit was obtained using limited historical data. As more data is collected, actual accredited capacity may increase.

(b)	Includes short-term market purchases in the MISO market and from Other Power Suppliers.

Coal Delivered to Minnesota Power
Year Ended December 31	2010	2009	2008
Average Price per Ton	$25.49	$24.99	$22.73
Average Price per MBtu	$1.42	$1.37	$1.25

·	Increased system flexibility to adapt to volatile business cycles and varied future industrial load scenarios;

·	Reductions in the emission of GHGs (primarily CO2); and

·	Compliance with mandated renewable energy standards.

Non-Rate Base Power Supply	Unit No.	Year Installed	Year Acquired	Net Capability (MW)
Rapids Energy Center (a)
in Grand Rapids, MN
Steam – Biomass (b)	6 & 7	1969, 1980	2000	29
Hydro – Conventional Run-of-River	4 & 5	1917	2000	1

(a)	The net generation is primarily dedicated to the needs of one customer.

(b)	Rapids Energy Center is supplemented by coal.

·	Expand our renewable energy supply.

·	Improve the efficiency of our coal-based generation facilities, as well as other process efficiencies.

·	Provide energy conservation initiatives for our customers and engage in other demand side efforts.

·	Support research of technologies to reduce carbon emissions from generation facilities and support carbon sequestration efforts.

·	Achieve overall carbon emission reductions.

Solid and Hazardous Waste. The Resource Conservation and Recovery Act of 1976 regulates the management and disposal of solid and hazardous wastes. We are required to notify the EPA of hazardous waste activity and, consequently, routinely submit the necessary reports to the EPA. The Toxic Substances Control Act regulates the management and disposal of materials containing polychlorinated biphenyl (PCB). In response to the EPA Region V’s request for utilities to participate in the Great Lakes Initiative by voluntarily removing remaining PCB inventories, Minnesota Power is in the process of voluntarily replacing its remaining PCB capacitor banks. Known PCB-contaminated oil in substation equipment was replaced by June 2007. We are in material compliance with these rules.< /div>

ALLETE 2010 Form 10-K

74 

 

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Note 10.

Commitments, Guarantees and Contingencies (Continued)

Environmental Matters (Continued)

In late 2010, the EPA issued guidance to permitting authorities and affected sources to facilitate incorporation of the Tailoring Rule permitting requirements into the Title V and PSD permitting programs. The guidance stated that the project-specific top-down BACT determination process used for other pollutants will also be used to determine BACT for GHG emissions. Through sector-specific white papers, EPA also provided examples and technical summaries of GHG emission control technologies and techniques EPA considers available or likely to be available to sources. It is possible these control technologies could be determined to be BACT on a project by project basis. In the near term, one option appears to be energy efficiency maximization.

Legal challenges to the EPA’s regulation of GHG emissions, including the Tailoring Rule, have been filed and are awaiting judicial determination. Comments to the Permitting Guidance were also submitted and may be addressed by EPA in the form of revised guidance documents.

We cannot predict the nature or timing of any additional GHG legislation or regulation. Although we are unable to predict the compliance costs we might incur, the costs could have a material impact on our financial results.

Coal Ash Management Facilities. Minnesota Power generates coal ash at all five of its steam electric stations. Two facilities store ash in onsite impoundments (ash ponds) with engineered liners and containment dikes. Another facility stores dry ash in a landfill with an engineered liner and leachate collection system. Two facilities generate a combined wood and coal ash that is either land applied as an approved beneficial use, or trucked to state permitted landfills. On June 18, 2010, the EPA proposed regulations for coal combustion residuals generated by the electric utility sector. The proposal sought comments on three general regulatory schemes for coal ash. Public comments were submitted to the EPA by November 19, 2010. We are unable to predict the complia nce costs we might incur; however, there is the possibility they could have a material impact.

Manufactured Gas Plant Site. We are reviewing and addressing environmental conditions at a former manufactured gas plant site within the City of Superior, Wisconsin, and formerly operated by SWL&P. We have been working with the WDNR to determine the extent of contamination and the remediation of contaminated locations. At December 31, 2010, we have a $0.5 million liability for this site, and a corresponding regulatory asset as we expect recovery of remediation costs to be allowed by the PSCW.

Other Matters

BNI Coal. As of December 31, 2010, BNI Coal had surety bonds outstanding of $18.4 million related to the reclamation liability for closing costs associated with its mine and mine facilities. Although the coal supply agreements obligate the customers to provide for the closing costs, additional assurance is required by federal and state regulations. In addition to the surety bonds, BNI Coal has secured a letter of credit with CoBANK ACB for an additional $10.0 million, of which $6.7 million is needed to meet the requirements for BNI Coal’s total reclamation liability currently estimated at $25.1 million. BNI Coal does not believe it is likely that any of these outstanding bonds will be drawn upon.

ALLETE Properties. As of December 31, 2010, ALLETE Properties, through its subsidiaries, had surety bonds outstanding of $11.6 million primarily related to performance and maintenance obligations to governmental entities to construct improvements in their various projects. The remaining work to be completed on these improvements is estimated to be approximately $9.0 million, and ALLETE Properties does not believe it is likely that any of these outstanding bonds will be drawn upon.

Community Development District Obligations. In March 2005, the Town Center District issued $26.4 million of tax-exempt, 6 percent capital improvement revenue bonds; and in May 2006, the Palm Coast Park District issued $31.8 million of tax-exempt, 5.7 percent special assessment bonds. The capital improvement revenue bonds and the special assessment bonds are payable through property tax assessments on the land owners over 31 years (by May 1, 2036, and 2037, respectively). The bond proceeds were used to pay for the construction of a portion of the major infrastructure improvements in each district, and to mitigate traffic and environmental impacts. The bonds are payable from and secured by the revenue derived from assessments imposed, levied and collected by each district. The asses sments were billed to the landowners in November 2006, for Town Center and November 2007, for Palm Coast Park. To the extent that we still own land at the time of the assessment, we will incur the cost of our portion of these assessments, based upon our ownership of benefited property. At December 31, 2010, we owned 69 percent of the assessable land in the Town Center District (69 percent at December 31, 2009) and 93 percent of the assessable land in the Palm Coast Park District (86 percent at December 31, 2009). At these ownership levels our annual assessments are $1.4 million for Town Center and $2.1 million for Palm Coast Park. As we sell property, the obligation to pay special assessments will pass to the new landowners. Under current accounting rules, these bonds are not reflected as debt on our consolidated balance sheet.

ALLETE 2010 Form 10-K

75 

 

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Note 10.

Commitments, Guarantees and Contingencies (Continued)

Legal Proceedings. In January 2011, the Company was named as a defendant in a lawsuit in the Sixth Judicial District for the State of Minnesota by one of our customer’s, United Taconite, LLC, property and business interruption insurers. In October 2006, United Taconite experienced a fire as a result of the failure of certain electrical protective equipment. The equipment at issue in the incident was not owned, designed, or installed by Minnesota Power, but Minnesota Power had provided testing and calibration services related to the equipment. The lawsuit alleges approximately $20 million in damages related to the fire. The Company believes that it has strong defenses to the lawsuit and intends to vigorously assert such defenses. An expense related to any damages th at may result from the lawsuit has not been recorded as of December 31, 2010, because a potential loss is not currently probable or reasonably estimable; however, the Company believes it has adequate insurance coverage for potential loss.

Other. We are involved in litigation arising in the normal course of business. Also in the normal course of business, we are involved in tax, regulatory and other governmental audits, inspections, investigations and other proceedings that involve state and federal taxes, safety, compliance with regulations, rate base and cost of service issues, among other things. While the resolution of such matters could have a material effect on earnings and cash flows in the year of resolution, none of these matters are expected to materially change our present liquidity position, or have a material adverse effect on our financial condition.

Note 11.

Common Stock and Earnings Per Share

Summary of Common Stock	Shares	Equity
	Thousands	Millions
Balance as of December 31, 2007	30,827	$461.2
2008   Employee Stock Purchase Plan	17	0.6
Invest Direct	161	6.9
Options and Stock Awards	24	4.6
Equity Issuance Program	1,556	60.8
Balance as of December 31, 2008	32,585	$534.1
2009   Employee Stock Purchase Plan	24	0.7
Invest Direct	456	13.6
Options and Stock Awards	8	1.1
Equity Issuance Program	1,685	51.9
Contributions to Pension	463	12.0
Balance as of December 31, 2009	35,221	$613.4
2010   Employee Stock Purchase Plan	19	0.6
Invest Direct	346	11.7
Options and Stock Awards	51	4.4
Equity Issuance Program	180	6.0
Balance as of December 31, 2010	35,817	$636.1

Equity Issuance Program. We entered into a distribution agreement with KCCI, Inc., in February 2008, as amended, with respect to the issuance and sale of up to an aggregate of 6.6 million shares of our common stock, without par value. For the year ended December 31, 2010, 0.2 million shares of common stock were issued under this agreement resulting in net proceeds of $6.0 million. During 2009, 1.7 million shares of common stock were issued for net proceeds of $51.9 million. As of December 31, 2010, approximately 3.1 million shares of common stock remain available for issuance pursuant to the amended distribution agreement. The shares issued in 2010 and 2009 were offered for sale, from time to time, in accordance with the terms of the amended distribution agreem ent pursuant to Registration Statement No. 333-147965. The remaining shares may be offered for sale, from time to time, in accordance with the terms of the amended distribution agreement pursuant to Registration Statement No. 333-170289.

Authorized Common Stock. On May 12, 2009, shareholders approved an amendment to the Company’s Amended and Restated Articles of Incorporation to increase the number of authorized shares of common stock from 43.3 million to 80.0 million.

Earnings Per Share. The difference between basic and diluted earnings per share arises, if any, from outstanding stock options, non-vested restricted stock, and performance share awards granted under our Executive and Director Long-Term Incentive Compensation Plans. In accordance with accounting standards for earnings per share, for 2010, 0.5 million options to purchase shares of common stock were excluded from the computation of diluted earnings per share because the option exercise prices were greater than the average market prices, and therefore, their effect would be anti-dilutive (0.6 million shares were excluded for 2009 and 0.6 million in 2008).

ALLETE 2010 Form 10-K

76 

 

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Note 11.

Common Stock and Earnings Per Share (Continued)

Reconciliation of Basic and Diluted
Earnings Per Share		Dilutive
Year Ended December 31	Basic	Securities	Diluted
Millions Except Per Share Amounts
2010
Net Income Attributable to ALLETE	$75.3	–	$75.3
Common Shares	34.2	0.1	34.3
Per Share of Common Stock	$2.20	–	$2.19
2009
Net Income Attributable to ALLETE	$61.0	–	$61.0
Common Shares	32.2	–	32.2
Per Share of Common Stock	$1.89	–	$1.89
2008
Net Income Attributable to ALLETE	$82.5	–	$82.5
Common Shares	29.2	0.1	29.3
Per Share of Common Stock	$2.82	–	$2.82

Note 12.

Other Income (Expense)

Year Ended December 31	2010	2009	2008
Millions
AFUDC - Equity	$4.2	$5.8	$3.3
Investments and Other Income (a)	0.4	(4.0)	12.3
Total Other Income	$4.6	$1.8	$15.6

(a)	In 2008, Investment and Other Income included a gain from the sale of certain available-for-sale securities. The gain was triggered when securities were sold to reallocate investments to meet defined investment allocations based upon an approved investment strategy.

Note 13.

Income Tax Expense

On March 23, 2010, the Patient Protection and Affordable Care Act, which was subsequently amended on March 30, 2010, was signed into law by the President. The law includes provisions to generate tax revenue to help offset the cost of the new legislation. One of the provisions changes the tax treatment for retiree prescription drug expenses by eliminating the tax deduction for expenses that are reimbursed under Medicare Part D, beginning January 1, 2013. Based on this provision, we are subject to additional taxes in the future and were required to reverse previously recorded tax benefits in the period of enactment. Consequently, the elimination of the previously recorded tax benefit resulted in a non-recurring charge to net income of $4.0 million in 2010. On October 8, 2010, we submitted a filing with the MPUC to request deferral o f the retail portion of Medicare Part D of this legislation. As we are unable to predict the outcome at this time, we have not deferred any portion of this amount as a regulatory asset.

ALLETE 2010 Form 10-K

77 

 

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Note 13.

Income Tax Expense (Continued)

Income Tax Expense
Year Ended December 31	2010	2009	2008
Millions
Current Tax Expense (Benefit)
Federal (a)	$(23.0)	$(42.6)	$6.2
State	1.3	(1.8)	(1.6)
Total Current Tax Expense (Benefit)	(21.7)	(44.4)	4.6
Deferred Tax Expense
Federal (b)	61.4	66.0	29.3
State	5.3	10.3	13.4
Change in Valuation Allowance	0.2	(0.1)	(2.9)
Investment Tax Credit Amortization	(0.9)	(1.0)	(1.0)
Total Deferred Tax Expense	66.0	75.2	38.8
Total Income Tax Expense	$44.3	$30.8	$43.4

(a)

The 2010 federal current tax benefit is primarily due to the implementation of tax planning initiatives and bonus depreciation provisions in the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 and the Small Business Jobs Act of 2010. The 2009 federal current tax benefit is primarily due to bonus depreciation provisions of the American Recovery and Reinvestment Act of 2009.

(b)

The 2010 federal deferred tax expense is primarily due to tax planning initiatives and bonus depreciation provisions of the Small Business Jobs Act of 2010 and the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. Also included in 2010 is a one-time charge of $4.0 million as a result of the Patient Protection and Affordable Care Act. The 2009 federal deferred tax expense is primarily due to bonus depreciation provisions of the American Recovery and Reinvestment Act of 2009.

Reconciliation of Taxes from Federal Statutory
Rate to Total Income Tax Expense
Year Ended December 31	2010	2009	2008
Millions
Income Before Non-Controlling Interest and Income Taxes	$119.1	$91.5	$126.4
Statutory Federal Income Tax Rate	35%	35%	35%
Income Taxes Computed at 35 percent Statutory Federal Rate	$41.7	$32.0	$44.2
Increase (Decrease) in Tax Due to:
State Income Taxes – Net of Federal Income Tax Benefit	4.5	5.4	4.8
Impact of Patient Protection and Affordable Care Act	4.0	–	–
Regulatory Differences for Utility Plant	(2.0)	(2.5)	(1.6)
Production Tax Credit	(1.6)	(1.2)	(0.4)
Other	(2.3)	(2.9)	(3.6)
Total Income Tax Expense	$44.3	$30.8	$43.4

The effective tax rate on income was 37.2 percent for 2010 (33.7 percent for 2009; 34.3 percent for 2008).

ALLETE 2010 Form 10-K

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Note 13.

Income Tax Expense (Continued)

Deferred Tax Assets and Liabilities
As of December 31	2010	2009
Millions
Deferred Tax Assets
Employee Benefits and Compensation (a)	$121.8	$118.2
Property Related	51.1	46.5
NOL and Tax Credit Carryforward	28.2	–
Investment Tax Credits	9.7	10.0
Other	12.7	14.4
Gross Deferred Tax Assets	223.5	189.1
Deferred Tax Asset Valuation Allowance	(0.5)	(0.3)
Total Deferred Tax Assets	$223.0	$188.8
Deferred Tax Liabilities
Property Related	$387.2	$294.1
Regulatory Asset for Benefit Obligations	105.8	96.5
Unamortized Investment Tax Credits	13.7	14.1
Partnership Basis Differences	19.4	14.6
Other	27.3	28.2
Total Deferred Tax Liabilities	$553.4	$447.5
Net Deferred Income Taxes	$330.4	$258.7
Recorded as:
Net Current Deferred Tax Liabilities (b)	$5.2	$5.6
Net Long-Term Deferred Tax Liabilities	325.2	253.1
Net Deferred Income Taxes	$330.4	$258.7

(a)	Includes unfunded employee benefits

(b)	Included in Other Current Liabilities.

NOL and Tax Credit Carryforwards
Year Ended December 31	2010	2009
Millions
Federal NOL carryforward (a)	$62.0	$7.3
Federal tax credit carryforwards	3.7	1.9
State NOL carryforward (a)	71.7	59.6
State tax credit carryforwards, net of federal detriment	1.7	0.1

(a)	Pretax amounts

In 2010 we had federal and state NOLs and tax credit carryforwards primarily due to bonus depreciation provisions in the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 and the Small Business Jobs Act of 2010. The 2010 federal NOL will be partially utilized by carrying it back against prior years’ income with the remainder carried forward to offset future years’ income. We expect to fully utilize the federal NOL and tax credit carryforwards; therefore a deferred tax asset has been recorded to recognize the resulting tax benefit. The state NOL and tax credits will be carried forward to future tax years. We have established a valuation allowance against certain state NOL and tax credits that we do not expect to utilize before their expiration. The 2009 federal and state NOL were primarily due t o bonus depreciation provisions in the American Recovery and Reinvestment Act of 2009. The federal and state carryforward periods expire between 2014 and 2030.

Gross Unrecognized Income Tax Benefits	2010	2009	2008
Millions
Balance at January 1	$9.5	$8.0	$5.3
Additions for Tax Positions Related to the Current Year	–	0.5	0.7
Reductions for Tax Positions Related to the Current Year	(0.2)	–	–
Additions for Tax Positions Related to Prior Years	4.4	1.0	4.5
Reduction for Tax Positions Related to Prior Years	–	–	(2.5)
Settlements	(0.3)	–	–
Lapse of Statute	(1.1)	–	–
Balance as of December 31	$12.3	$9.5	$8.0

ALLETE 2010 Form 10-K

79 

 

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Note 13.

Income Tax Expense (Continued)

The gross unrecognized tax benefits as of December 31, 2010, includes $0.6 million of net unrecognized tax benefits that, if recognized, would affect the annual effective income tax rate.

As of December 31, 2010, we had $0.7 million ($0.9 million for 2009 and $0.6 million for 2008) of accrued interest related to unrecognized tax benefits included in the consolidated balance sheet. We classify interest related to unrecognized tax benefits as interest expense and tax-related penalties in operating expenses in the consolidated statement of income. In 2010, we recognized a $0.2 million reduction of interest expense (interest expense of $0.4 million for 2009 and $0.4 million for 2008). There were no penalties recognized for 2010, 2009 or 2008.

We file a consolidated federal income tax return in the United States and state income tax returns in various jurisdictions. ALLETE is currently under examination by the IRS for the tax years 2005 through 2009. ALLETE is no longer subject to federal or state examination for years before 2005.

During the next 12 months it is reasonably possible the amount of unrecognized tax benefits could be reduced by $4.0 million due to statute expirations and anticipated audit settlements. This amount is primarily due to timing issues.

Note 14.

Other Comprehensive Income (Loss)

Other Comprehensive Income (Loss)
Year Ended December 31	2010	2009	2008
Millions
Net Income	$74.8	$60.7	$83.0
Other Comprehensive Income
Unrealized Gain on Securities    Net of income taxes of $0.6, $1.7, and $(3.7)	0.8	2.8	(6.0)
Reclassification Adjustment for Losses Included in Income       Net of income taxes of $–, $–, and $(2.7)	–	–	(3.7)
Defined Benefit Pension and Other Postretirement Plans    Net of income taxes of $–, $4.1, and $(13.3)	–	6.2	(18.8)
Total Other Comprehensive Income (Loss)	0.8	9.0	(28.5)
Total Comprehensive Income	$75.6	$69.7	$54.5
Less: Non-Controlling Interest in Subsidiaries	(0.5)	(0.3)	0.5
Comprehensive Income Attributable to ALLETE	$76.1	$70.0	$54.0

Accumulated Other Comprehensive Income (Loss)
As of December 31	2010	2009
Millions
Unrealized Loss on Securities	$(1.0)	$(1.8)
Defined Benefit Pension and Other Postretirement Plans	(22.2)	(22.2)
Total Accumulated Other Comprehensive Loss	$(23.2)	$(24.0)

Note 15.

Pension and Other Postretirement Benefit Plans

We have noncontributory union and non-union defined benefit pension plans covering eligible employees. The plans provide defined benefits based on years of service and final average pay. In 2010, we made total contributions of $26.5 million ($32.9 million in 2009 of which $12.0 million was contributed in shares of ALLETE common stock). We also have defined contribution pension plans covering substantially all employees. The 2010 plan year employer contributions, which are made through our employee stock ownership plan, totaled $7.2 million ($7.1 million for the 2009 plan year.) (See Note 11. Common Stock and Earnings Per Share and Note 16. Employee Stock and Incentive Plans)

In 2006, amendments were made to the non-union defined benefit pension plan and the RSOP. The non-union defined benefit pension plan was amended to suspend further crediting of service to the plan and closed the plan to new participants. In conjunction with the change, contributions were increased to the RSOP. In 2010, the Minnesota Power unions defined benefit pension plan was amended to close the plan to new participants.

ALLETE 2010 Form 10-K

80 

 

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Note 15.

Pension and Other Postretirement Benefit Plans (Continued)

We have postretirement health care and life insurance plans covering eligible employees. In 2010, our postretirement health plan was amended to close the plan to employees hired after January 31, 2011. The full eligibility requirement was also amended in 2010, to age 55 with 10 years of service. The postretirement health plans are contributory with participant contributions adjusted annually. Postretirement health and life benefits are funded through a combination of Voluntary Employee Benefit Association trusts (VEBAs), established under section 501(c)(9) of the Internal Revenue Code, and irrevocable grantor trusts. In 2010 $12.8 million was contributed to the VEBAs. In 2009 we contributed $9.3 million to the VEBAs and $0.3 million to the grantor trust.

Management considers various factors when making funding decisions such as regulatory requirements, actuarially determined minimum contribution requirements, and contributions required to avoid benefit restrictions for the pension plans. Estimated defined benefit pension and postretirement health and life contributions for 2011 are expected to be $7.8 million and $12.9 million, respectively. Contributions are based on estimates and assumptions that are subject to change.

Accounting for Defined Benefit Pension and Postretirement Benefit Plans requires that employers recognize on a prospective basis the funded status of their defined benefit pension and other postretirement plans on their consolidated balance sheet and recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise during the period but that are not recognized as components of net periodic benefit cost.

The defined benefit pension and postretirement health and life benefit costs recognized annually by our regulated companies are expected to be recovered through rates filed with our regulatory jurisdictions. As a result, these amounts that are required to otherwise be recognized in accumulated other comprehensive income have been recognized as a long-term regulatory asset on our consolidated balance sheet, in accordance with the accounting standards for Regulated Operations. The defined benefit pension and postretirement health and life benefit costs associated with our other non-rate base operations are recognized in accumulated other comprehensive income.

Pension Obligation and Funded Status
Year Ended December 31	2010	2009
Millions
Accumulated Benefit Obligation	$485.6	$435.9
Change in Benefit Obligation
Obligation, Beginning of Year	$465.2	$440.4
Service Cost	6.2	5.7
Interest Cost	26.2	26.2
Actuarial Loss	47.1	14.6
Benefits Paid	(27.2)	(25.5)
Participant Contributions	8.1	3.9
Obligation, End of Year	$525.6	$465.3
Change in Plan Assets
Fair Value, Beginning of Year	$327.6	$273.7
Actual Return on Plan Assets	45.6	41.6
Employer Contribution	36.0	37.8
Benefits Paid	(27.2)	(25.5)
Fair Value, End of Year	$382.0	$327.6
Funded Status, End of Year	$(143.6)	$(137.7)
Net Pension Amounts Recognized in Consolidated Balance Sheet Consist of:
Current Liabilities	$(0.9)	$(0.9)
Noncurrent Liabilities	$(142.8)	$(136.8)

ALLETE 2010 Form 10-K

81 

 

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Note 15.

Pension and Other Postretirement Benefit Plans (Continued)

The pension costs that are reported as a component within our consolidated balance sheet, reflected in regulatory long-term assets and accumulated other comprehensive income, consist of the following:

Unrecognized Pension Costs
Year Ended December 31	2010	2009
Millions
Net Loss	$225.1	$196.5
Prior Service Cost	1.4	1.8
Total Unrecognized Pension Costs	$226.5	$198.3

Components of Net Periodic Pension Expense
Year Ended December 31	2010	2009	2008
Millions
Service Cost	$6.2	$5.7	$5.8
Interest Cost	26.2	26.2	25.4
Expected Return on Plan Assets	(33.7)	(33.8)	(32.5)
Amortization of Loss	6.6	3.4	1.6
Amortization of Prior Service Costs	0.5	0.6	0.6
Net Pension Expense	$5.8	$2.1	$0.9

Other Changes in Pension Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income and Regulatory Assets
Year Ended December 31	2010	2009
Millions
Net Loss	$35.2	$6.8
Amortization of Prior Service Costs	(0.5)	(0.6)
Amortization of Gain	(6.6)	(3.4)
Total Recognized in Other Comprehensive Income and Regulatory Assets	$28.1	$2.8

Information for Pension Plans with an Accumulated Benefit Obligation in Excess of Plan Assets
Year Ended December 31	2010	2009
Millions
Projected Benefit Obligation	$525.6	$465.3
Accumulated Benefit Obligation	$485.6	$435.9
Fair Value of Plan Assets	$382.0	$327.6

ALLETE 2010 Form 10-K

82 

 

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Note 15.

Pension and Other Postretirement Benefit Plans (Continued)

Postretirement Health and Life Obligation and Funded Status
Year Ended December 31	2010	2009
Millions
Change in Benefit Obligation
Obligation, Beginning of Year	$192.1	$166.9
Service Cost	4.8	4.1
Interest Cost	10.9	10.0
Actuarial Loss	17.6	18.4
Participant Contributions	2.1	1.7
Plan Amendments	(14.2)	(1.3)
Benefits Paid	(9.2)	(7.7)
Obligation, End of Year	$204.1	$192.1
Change in Plan Assets
Fair Value, Beginning of Year	$96.4	$78.6
Actual Return on Plan Assets	12.0	13.9
Employer Contribution	13.4	9.9
Participant Contributions	2.0	1.6
Benefits Paid	(9.1)	(7.6)
Fair Value, End of Year	$114.7	$96.4
Funded Status, End of Year	$(89.4)	$(95.7)
Net Postretirement Health and Life Amounts Recognized in Consolidated Balance Sheet Consist of:
Current Liabilities	$(0.8)	$(0.8)
Noncurrent Liabilities	$(88.6)	$(94.8)

According to the accounting standards for Retirement Benefits only assets in the VEBAs are treated as plan assets in the above table for the purpose of determining funded status. In addition to the postretirement health and life assets reported in the previous table, we had $19.8 million in irrevocable grantor trusts included in Other Investments on our consolidated balance sheet at December 31, 2010 ($18.2 million at December 31, 2009).

The postretirement health and life costs that are reported as a component within our consolidated balance sheet, reflected in regulatory long-term assets and accumulated other comprehensive income, consist of the following:

Unrecognized Postretirement Health and Life Costs
Year Ended December 31	2010	2009
Millions
Net Loss	$80.1	$69.6
Prior Service Cost	(11.2)	(1.3)
Transition Obligation	0.2	6.9
Total Unrecognized Postretirement Health and Life Costs	$69.1	$75.2

Components of Net Periodic Postretirement Health and Life Expense
Year Ended December 31	2010	2009	2008
Millions
Service Cost	$4.8	$4.1	$4.0
Interest Cost	10.9	10.0	9.4
Expected Return on Plan Assets	(9.5)	(8.3)	(7.2)
Amortization of Prior Service Cost	(0.1)	–	–
Amortization of Loss	4.8	2.5	1.4
Amortization of Transition Obligation	2.5	2.5	2.5
Net Postretirement Health and Life Expense	$13.4	$10.8	$10.1

ALLETE 2010 Form 10-K

83 

 

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Note 15.

Pension and Other Postretirement Benefit Plans (Continued)

Other Changes in Postretirement Benefit Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income and Regulatory Assets
Year Ended December 31	2010	2009
Millions
Net Loss	$15.3	$12.9
Prior Service Cost (Credit) Arising During the Period	(14.2)	(1.3)
Amortization of Prior Service Cost	0.1	–
Amortization of Transition Obligation	(2.5)	(2.5)
Amortization of Loss	(4.8)	(2.5)
Total Recognized in Other Comprehensive Income and Regulatory Assets	$(6.1)	$6.6

Estimated Future Benefit Payments
		Postretirement
	Pension	Health and Life
Millions
2011	$27.5	$8.5
2012	$28.4	$9.5
2013	$29.4	$10.5
2014	$30.6	$11.6
2015	$31.8	$12.7
Years 2016 – 2020	$174.6	$73.3

The pension and postretirement health and life costs recorded in other long-term assets and accumulated other comprehensive income expected to be recognized as a component of net pension and postretirement benefit costs for the year ending December 31, 2011, are as follows:

		Postretirement
	Pension	Health and Life
Millions
Net Loss	$0.3	$8.5
Prior Service Costs	$12.1	$(1.7)
Transition Obligations	–	$0.1
Total Pension and Postretirement Health and Life Costs	$12.4	$6.9

Weighted-Average Assumptions Used to Determine Benefit Obligation
Year Ended December 31	2010	2009
Discount Rate
Pension	5.36%	5.81%
Postretirement Health and Life	5.40%	5.81%
Rate of Compensation Increase	4.3 – 4.6%	4.3 – 4.6%
Health Care Trend Rates
Trend Rate	10%	8.5%
Ultimate Trend Rate	5%	5%
Year Ultimate Trend Rate Effective	2018	2017

Weighted-Average Assumptions Used to Determine Net Periodic Benefit Costs
Year Ended December 31	2010	2009	2008
Discount Rate	5.81%	6.12%	6.25%
Expected Long-Term Return on Plan Assets
Pension	8.5%	8.5%	9.0%
Postretirement Health and Life	6.8 – 8.5%	6.8 – 8.5%	7.2 – 9.0%
Rate of Compensation Increase	4.3 – 4.6%	4.3 – 4.6%	4.3 – 4.6%

ALLETE 2010 Form 10-K

84 

 

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Note 15.

Pension and Other Postretirement Benefit Plans (Continued)

In establishing the expected long-term return on plan assets, we take into account the actual long-term historical performance of our plan assets, the actual long-term historical performance for the type of securities we are invested in, and apply the historical performance utilizing the target allocation of our plan assets to forecast an expected long-term return. Our expected rate of return is then selected after considering the results of each of those factors, in addition to considering the impact of current economic conditions, if applicable, on long-term historical returns.

The discount rate is computed using a yield curve adjusted for ALLETE’s projected cash flows to match our plan characteristics. The yield curve is determined using high-quality long-term corporate bond rates at the valuation date. We believe the adjusted discount curve used in this comparison does not materially differ in duration and cash flows from our pension obligation.

Sensitivity of a One-Percentage-Point Change in Health Care Trend Rates
	One Percent	One Percent
	Increase	Decrease
Millions
Effect on Total of Postretirement Health and Life Service and Interest Cost	$2.5	$(2.0)
Effect on Postretirement Health and Life Obligation	$23.1	$(19.2)

Actual Plan Asset Allocations
	Pension		Postretirement Health and Life (a)
	2010	2009	2010	2009
Equity Securities	52%	53%	58%	54%
Debt Securities	29%	28%	33%	38%
Real Estate	5%	5%	–	–
Private Equity	14%	14%	9%	8%
	100%	100%	100%	100%

(a)	Includes VEBAs and irrevocable grantor trusts.

Pension plan equity securities did not include any ALLETE common stock at December 31, 2010. At December 31, 2009, $9.9 million, or 3.0 percent, of ALLETE common stock was included.

To achieve strong returns within managed risk, we diversify our asset portfolio to approximate the target allocations in the table below. Equity securities are diversified among domestic companies with large, mid and small market capitalizations, as well as investments in international companies. The majority of debt securities are made up of investment grade bonds.

Plan Asset Target Allocations
		Postretirement
	Pension	Health and Life (a)
Equity Securities	50%	48%
Debt Securities	30%	34%
Real Estate	10%	9%
Private Equity	10%	9%
	100%	100%

(a)	Includes VEBAs and irrevocable grantor trusts.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). We utilize market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. We primarily apply the market approach for recurring fair value measurements and endeavor to utilize the best available information. Accordingly, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs, which are used to measure fair value, are prioritized through the fair value hierarch y. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:

Level 1 — Quoted prices are available in active markets for identical assets as of the reported date. Active markets are those in which transactions for the asset occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

ALLETE 2010 Form 10-K

85 

 

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Note 15.

Pension and Other Postretirement Benefit Plans (Continued)

 

Level 2 — Pricing inputs are other than quoted prices in active markets, but are either directly or indirectly observable as of the reported date. The types of assets included in Level 2 are typically either comparable to actively traded securities or contracts, such as treasury securities with pricing interpolated from recent trades of similar securities, or priced with models using highly observable inputs, such as commodity options priced using observable forward prices and volatilities.

Level 3 — Significant inputs that are generally less observable from objective sources. The types of assets included in Level 3 are those with inputs requiring significant management judgment or estimation, such as the complex and subjective models and forecasts used to determine the fair value.

Pension Fair Value

	At Fair Value as of December 31, 2010
Recurring Fair Value Measures	Level 1	Level 2	Level 3	Total
Millions
Assets:
Equity Securities
U.S. Large-cap (a)	$30.4	$29.9	$3.5	$63.8
U.S. Mid-cap Growth (a)	14.0	13.7	1.6	29.3
U.S. Small-cap (a)	13.7	13.5	1.6	28.8
International	–	77.1	–	77.1
Debt Securities:
Mutual Funds	46.5		–	46.5
Fixed Income	–	65.7	–	65.7
Other Types of Investments:
Private Equity Funds	–	–	50.7	50.7
Real Estate	–	–	20.1	20.1
Total Fair Value of Assets	$104.6	$199.9	$77.5	$382.0

	Equity Securities
Activity in Level 3	(Auction Rate Securities)	Private Equity Funds	Real Estate
Millions
Balance as of December 31, 2009	$9.1	$44.7	$17.3
Actual Return on Plan Assets	–	(4.1)	(6.1)
Purchases, sales, and settlements, net	(2.4)	10.1	8.9
Balance as of December 31, 2010	$6.7	$50.7	$20.1

	At Fair Value as of December 31, 2009
Recurring Fair Value Measures	Level 1	Level 2	Level 3	Total
Millions
Assets:
Equity Securities
U.S. Large-cap (a)	$23.2	$27.5	$5.2	$55.9
U.S. Mid-cap Growth (a)	8.9	10.6	2.0	21.5
U.S. Small-cap (a)	8.6	10.1	1.9	20.6
International	–	66.4	–	66.4
ALLETE	9.9	–	–	9.9
Debt Securities:
Mutual Funds	32.0	–	–	32.0
Fixed Income	–	59.3	–	59.3
Other Types of Investments:
Private Equity Funds	–	–	44.7	44.7
Real Estate	–	–	17.3	17.3
Total Fair Value of Assets	$82.6	$173.9	$71.1	$327.6

(a)

The underlying investments classified under U.S. Equity Securities consist of Money Market Funds and U.S. Government Bonds (Level 1), Hedge Funds (Level 2), and Auction Rate Securities (Level 3), which are combined with futures, which settle daily, in a portable alpha program to achieve the returns of the U.S. Equity Securities Large-cap, Mid-cap Growth, and Small-cap funds. Our exposure with respect to these investments includes both the futures and the underlying investments.

ALLETE 2010 Form 10-K

86 

 

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Note 15.

Pension and Other Postretirement Benefit Plans (Continued)

Recurring Fair Value Measures	Equity Securities
Activity in Level 3	(Auction Rate Securities)	Private Equity Funds	Real Estate
Millions
Balance as of December 31, 2008	$10.2	$43.2	$17.0
Actual Return on Plan Assets	0.1	(8.7)	(8.6)
Purchases, sales, and settlements, net	(1.1)	10.2	8.9
Balance as of December 31, 2009	$9.1	$44.7	$17.3

Postretirement Health and Life Fair Value

	At Fair Value as of December 31, 2010
Recurring Fair Value Measures	Level 1	Level 2	Level 3	Total
Millions
Assets:
Equity Securities
U.S. Large-cap	$15.7	–	–	$15.7
U.S. Mid-cap Growth	11.4	–	–	11.4
U.S. Small-cap	11.5	–	–	11.5
International	26.8	–	–	26.8
Debt Securities:
Mutual Funds	9.0	–	–	9.0
Fixed Income	–	$27.9	–	27.9
Other Types of Investments:
Private Equity Funds	–	–	$12.4	12.4
Total Fair Value of Assets	$74.4	$27.9	$12.4	$114.7

Activity in Level 3	Private Equity Funds
Millions
Balance as of December 31, 2009	$9.4
Actual Return on Plan Assets	1.4
Purchases, sales, and settlements, net	1.6
Balance as of December 31, 2010	$12.4

	At Fair Value as of December 31, 2009
Recurring Fair Value Measures	Level 1	Level 2	Level 3	Total
Millions
Assets:
Equity Securities
U.S. Large-cap	$13.4	–	–	$13.4
U.S. Mid-cap Growth	9.0	–	–	9.0
U.S. Small-cap	6.3	–	–	6.3
International	21.4	–	–	21.4
Debt Securities:
Mutual Funds	5.5	–	–	5.5
Fixed Income	–	$31.4	–	31.4
Other Types of Investments:
Private Equity Funds	–	–	$9.4	9.4
Total Fair Value of Assets	$55.6	$31.4	$9.4	$96.4

Activity in Level 3	Private Equity Funds
Millions
Balance as of December 31, 2008	$7.9
Actual Return on Plan Assets	(1.1)
Purchases, sales, and settlements, net	2.6
Balance as of December 31, 2009	$9.4

ALLETE 2010 Form 10-K

87

 

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Note 15.

Pension and Other Postretirement Benefit Plans (Continued)

Accounting and disclosure requirements for the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Act) provides guidance for employers that sponsor postretirement health care plans that provide prescription drug benefits. We provide postretirement health benefits that include prescription drug benefits, which qualify us for the federal subsidy under the Act.

Note 16.

Employee Stock and Incentive Plans

Employee Stock Ownership Plan. We sponsor a leveraged ESOP within the RSOP. As of their date of hire, eligible employees may to contribute to the RSOP plan. In 1990, the ESOP issued a $75 million note (term not to exceed 25 years at 10.25 percent) to us as consideration for 2.8 million shares (1.9 million shares adjusted for stock splits) of our newly issued common stock. The note was refinanced in 2006 at 6 percent. We make annual contributions to the ESOP equal to the ESOP’s debt service less available dividends received by the ESOP. The majority of dividends received by the ESOP are used to pay debt service, with the balance distributed to participants. The ESOP shares were initially pledged as collateral for its debt. As the debt is repaid, shares are released from colla teral and allocated to participants based on the proportion of debt service paid in the year. As shares are released from collateral, we report compensation expense equal to the current market price of the shares less dividends on allocated shares. Dividends on allocated ESOP shares are recorded as a reduction of retained earnings; available dividends on unallocated ESOP shares are recorded as a reduction of debt and accrued interest. ESOP compensation expense was $7.1 million in 2010 ($6.5 million in 2009; $10.1 million in 2008).

According to the accounting standards for stock compensation, unallocated ALLETE common stock currently held and purchased by the ESOP will be treated as unearned ESOP shares and not considered as outstanding for earnings per share computations. ESOP shares are included in earnings per share computations after they are allocated to participants.

Year Ended December 31	2010	2009	2008
Millions
ESOP Shares
Allocated	2.2	2.2	2.0
Unallocated	1.3	1.5	1.9
Total	3.5	3.7	3.9
Fair Value of Unallocated Shares	$48.4	$49.0	$61.3

Stock-Based Compensation. Stock Incentive Plan. Under our Executive Long-Term Incentive Compensation Plan (Executive Plan), share-based awards may be issued to key employees through a broad range of methods, including non-qualified and incentive stock options, performance shares, performance units, restricted stock, stock appreciation rights and other awards. There are 1.4 million shares of common stock reserved for issuance under the Executive Plan, with 0.7 million of these shares available for issuance as of December 31, 2010.

We had a Director Long-Term Stock Incentive Plan (Director Plan) which expired on January 1, 2006. No grants have been made since 2003 under the Director Plan. Approximately 2,586 options were outstanding under the Director Plan at December 31, 2010.

We currently have the following types of share-based awards outstanding:

Non-Qualified Stock Options. The options allow for the purchase of shares of common stock at a price equal to the market value of our common stock at the date of grant. Options become exercisable beginning one year after the grant date, with one-third vesting each year over three years. Options may be exercised up to ten years following the date of grant. In the case of qualified retirement, death or disability, options vest immediately and the period over which the options can be exercised is three years. Employees have up to three months to exercise vested options upon voluntary termination or involuntary termination without cause. All options are cancelled upon termination for cause. All options vest immediately upon retirement, death, disability or a change of control, as de fined in the award agreement. We determine the fair value of options using the Black-Scholes option-pricing model. The estimated fair value of options, including the effect of estimated forfeitures, is recognized as expense on the straight-line basis over the options’ vesting periods, or the accelerated vesting period if the employee is retirement eligible.

No stock options were granted under our Executive Long-Term Incentive Compensation Plan in 2009 or 2010. The following assumptions were used in determining the fair value of stock options granted during 2008, under the Black-Scholes option-pricing model:

ALLETE 2010 Form 10-K

88 

 

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Note 16.

Employee Stock and Incentive Plans (Continued)

	2008
Risk-Free Interest Rate	2.8%
Expected Life	5 Years
Expected Volatility	20%
Dividend Growth Rate	4.4%

The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the grant date. Expected volatility is estimated based on the historic volatility of our stock and the stock of our peer group companies. We utilize historical option exercise and employee pre-vesting termination data to estimate the option life. The dividend growth rate is based upon historical growth rates in our dividends.

Performance Shares. Under the performance share awards plan, the number of shares earned is contingent upon attaining specific market goals over a three-year performance period. Market goals are measured by total shareholder return relative to a group of peer companies. In the case of qualified retirement, death or disability during a performance period, a pro-rata portion of the award will be earned at the conclusion of the performance period based on the market goals achieved. In the case of termination of employment for any reason other than qualified retirement, death or disability, no award will be earned. If there is a change in control, a pro-rata portion of the award will be paid based on the greater of actual performance up to the date of the change in control or target performance. The fair value of these awards is determined by the probability of meeting the total shareholder return goals. Compensation cost is recognized over the three-year performance period based on our estimate of the number of shares which will be earned by the award recipients.

Restricted Stock Units. Under the restricted stock units plan, shares vest monthly over a three year period. In the case of qualified retirement, death or disability, a pro-rata portion of the award will be earned. In the case of termination of employment for any other reason other than qualified retirement, death or disability, no award will be earned. If there is a change in control, a pro-rata portion of the award will be paid. The fair value of these awards is equal to the grant date fair value. Compensation cost is recognized over the three-year vesting period based on our estimate of the number of shares which will be earned by the award recipients.

Employee Stock Purchase Plan (ESPP). Under our ESPP, eligible employees may purchase ALLETE common stock at a 5 percent discount from the market price. Because the discount is not greater than 5 percent, we are not required to apply fair value accounting to these awards.

RSOP. The RSOP is a contributory defined contribution plan subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended, and qualifies as an employee stock ownership plan and profit sharing plan. The RSOP provides eligible employees an opportunity to save for retirement.

The following share-based compensation expense amounts were recognized in our consolidated statement of income for the periods presented.

Share-Based Compensation Expense
Year Ended December 31	2010	2009	2008
Millions
Stock Options	$0.1	$0.3	$0.7
Performance Shares	1.5	1.5	1.1
Restricted Stock Units	0.6	0.3	–
Total Share-Based Compensation Expense	$2.2	$2.1	$1.8
Income Tax Benefit	$0.9	$0.8	$0.7

There were no capitalized stock-based compensation costs at December 31, 2010, 2009, or 2008.

As of December 31, 2010, the total unrecognized compensation cost for the performance share awards and restricted stock units not yet recognized in our consolidated statements of income was $1.5 million and $0.7 million, respectively. These amounts are expected to be recognized over a weighted-average period of 1.6 years for both performance share awards and restricted stock units.

ALLETE 2010 Form 10-K

89 

 

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Note 16.

Employee Stock and Incentive Plans (Continued)

Non-Qualified Stock Options. The following table presents information regarding our outstanding stock options as of December 31, 2010.

	2010		2009		2008
		Weighted-Average		Weighted-Average		Weighted-Average
	Number of	Exercise	Number of	Exercise	Number of	Exercise
	Options	Price	Options	Price	Options	Price
Outstanding as of January 1,	646,235	$40.05	672,419	$39.99	510,992	$39.83
Granted (a)	–	–	–	–	180,815	$39.10
Exercised	40,769	$27.76	4,508	$18.85	16,627	$25.56
Forfeited	44,579	$43.16	21,676	$42.62	2,761	$39.39
Outstanding as of December 31,	560,887	$40.69	646,235	$40.05	672,419	$39.99
Exercisable as of December 31,	523,491	$39.76	512,743	$37.34	406,894	$34.48

(a)	Stock options have not been granted since 2008.

Cash received from non-qualified stock options exercised was $1.1 million in 2010. The weighted-average grant-date intrinsic value of options granted in 2008 was $6.18 for 2008 (none in 2010 or 2009). The intrinsic value of a stock award is the amount by which the fair value of the underlying stock exceeds the exercise price of the award. The total intrinsic value of options exercised was $0.3 million during 2010 ($0.1 million in 2009; $0.2 million in 2008).

	Range of Exercise Price
As of December 31, 2010	$18.85 to $29.79	$37.76 to $41.35	$44.15 to $48.65
Options Outstanding and Exercisable:
Number Outstanding and Exercisable	44,738	296,770	181,983
Weighted Average Remaining Contractual Life (Years)	1.5	5.4	5.5
Weighted Average Exercise Price	$26.96	$39.44	$46.37

Performance Shares. The following table presents information regarding our non-vested performance shares as of December 31, 2010.

	2010		2009		2008
		Weighted-		Weighted-		Weighted-
		Average		Average		Average
	Number of	Grant Date	Number of	Grant Date	Number of	Grant Date
	Shares	Fair Value	Shares	Fair Value	Shares	Fair Value
Non-vested as of January 1,	121,825	$41.96	79,238	$47.94	68,501	$45.63
Granted	49,302	$35.44	69,800	$35.06	36,684	$54.05
Unearned Grant Award	(22,909)	$54.50	(24,615)	$41.97	(23,624)	$42.80
Forfeited	(25,729)	$36.45	(2,598)	$38.78	(2,323)	$50.87
Non-vested as of December 31,	122,489	$38.15	121,825	$41.96	79,238	$47.94

Less than 0.1 million performance share were granted in February 2010 for the performance period ending in 2012. The ultimate issuance is contingent upon the attainment of certain future market goals of ALLETE during the performance periods. The grant date fair value of the performance share awards was $1.2 million.

No performance shares were awarded in February 2010 for the three year performance period ending in 2009, as performance targets were not met. However, in accordance with the accounting standards for stock compensation, no compensation expense previously recognized in connection with those grants will be reversed.

Less than 0.1 million performance shares were awarded in February 2011 for the three year performance period ending in 2010. The grant date fair value of the shares awarded was $1.6 million.

ALLETE 2010 Form 10-K

90 

 

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Note 16.

Employee Stock and Incentive Plans (Continued)

Restricted Stock Units. The following table presents information regarding our available restricted stock units as of December 31, 2010.

	2010		2009
		Weighted- Average		Weighted- Average
	Number of	Grant Date	Number of	Grant Date
	Shares	Fair Value	Shares	Fair Value
Available as of January 1,	28,983	$29.41	–	–
Granted	26,589	$31.83	30,465	$29.41
Awarded	(3,091)	$29.75	–	–
Forfeited	(8,678)	$30.62	(1,482)	$29.41
Available as of December 31,	43,803	$30.61	28,983	$29.41

Less than 0.1 million restricted stock units were granted in February 2010 for the vesting period ending in 2012. The grant date fair value of the restricted stock unit awards was $0.7 million.

Less than 0.05 million restricted stock units were awarded in 2010. The grant date fair value of the shares awarded was $0.1 million.

Note 17.

Derivatives

Occasionally we enter into financial derivative instruments to manage price risk for certain power marketing contracts. Changes in a derivatives’ fair value are recognized currently in earnings unless specific hedge accounting criteria is met. The mark-to-market fluctuations on any cash flow hedge are recorded in other comprehensive income on the consolidated balance sheet. During 2010, we did not enter into any new derivative instruments, and have no outstanding derivative contracts at December 31, 2010. There were no changes in fair value of derivatives recognized in 2010 in earnings, and no mark-to market changes in cash flow hedges recorded in 2010.

During 2009 we entered into two types of financial derivative instruments consisting of cash flow hedges for an energy sale that included pricing based on daily natural gas prices, and FTRs purchased to manage congestion risk for forward power sales contracts. As of December 31, 2009, approximately $0.7 million remained in other assets on our consolidated balance sheet for FTRs, which settled monthly throughout the first five months of 2010 at cost. During 2009, changes in the fair value of outstanding derivatives resulted in the recognition of $.04 million of revenue in the first two quarters, and a decrease in revenue of $0.4 million in the third quarter of 2009 when the energy swap contract ended. The mark-to-market fluctuations on the cash flow hedge in 2009 were recorded in other comprehensive income as a $0.1 milli on increase in fair value in the first quarter and a decrease of $0.1 million in the second quarter of 2009.

Note 18.

Quarterly Financial Data (Unaudited)

Information for any one quarterly period is not necessarily indicative of the results which may be expected for the year.

Quarter Ended	Mar. 31	Jun. 30	Sept. 30	Dec. 31
Millions Except Earnings Per Share
2010
Operating Revenue	$233.6	$211.2	$224.1	$238.1
Operating Income	$46.1	$31.7	$35.3	$22.7
Net Income Attributable to ALLETE	$23.0	$19.4	$19.6	$13.3
Earnings Per Share of Common Stock
Basic	$0.68	$0.57	$0.57	$0.38
Diluted	$0.68	$0.57	$0.56	$0.38
2009
Operating Revenue	$199.6	$164.7	$178.8	$216.0
Operating Income	$31.1	$15.7	$25.4	$33.8
Net Income Attributable to ALLETE	$16.9	$9.4	$16.0	$18.7
Earnings Per Share of Common Stock
Basic	$0.55	$0.29	$0.49	$0.56
Diluted	$0.55	$0.29	$0.49	$0.56

ALLETE 2010 Form 10-K

91 

 

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Schedule II

ALLETE

Valuation and Qualifying Accounts and Reserves

	Balance at	Additions		Deductions	Balance at
	Beginning	Charged	Other	from	End of
	of Period	to Income	Charges	Reserves (a)	Period
Millions
Reserve Deducted from Related Assets
Reserve For Uncollectible Accounts
2008  Trade Accounts Receivable	$1.0	$1.0	–	$1.3	$0.7
Finance Receivables – Long-Term	$0.2	–	–	$0.1	$0.1
2009  Trade Accounts Receivable	$0.7	$1.3	–	$1.1	$0.9
Finance Receivables – Long-Term	$0.1	$0.3	–	–	$0.4
2010  Trade Accounts Receivable	$0.9	$1.1	–	$1.1	$0.9
Finance Receivables – Long-Term	$0.4	$0.8	–	$ 0.4	$0.8
Deferred Asset Valuation Allowance
2008  Deferred Tax Assets	$3.3	$ (2.9)	–	–	$0.4
2009  Deferred Tax Assets	$0.4	$ (0.1)	–	–	$0.3
2010  Deferred Tax Assets	$0.3	$0.2	–	–	$0.5

(a) Includes uncollectible accounts written off.

ALLETE 2010 Form 10-K

92 

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Exhibit 10(h)1

 

 

 

 

AMENDED AND RESTATED

ALLETE

EXECUTIVE ANNUAL INCENTIVE PLAN

With Amendments through January 1, 2011

 

 

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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.

1.3 Compensation Recovery Policy.  Effective January 1, 2011, all amounts payable to Participants in accordance with the Plan are subject to the terms of any compensation recovery policy or policies established by ALLETE as such policy or policies may be amended from time to time (“Compensation Recovery Policy”). ALLETE hereby incorporates into the Plan the terms of the Compensation Recovery Policy.

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 a period that is less than a full Performance Year.  In the case of time spent in a job position or Business Unit, Proration will be 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.  In the case of a performance period that is less than a full Performance Year, Proration will be based on the number of months elapsed since the beginning of the Performance Y ear and counting as a whole month any month during which at least 15 calendar days were included as part of the performance period.

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 Pla n 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 t he 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 Cod e 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.

 

 

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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.  If Awards are earned, Participants will receive a Prorated Award based on the number of months in the Performance Year which had elapsed as of the Change in Control.

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   Alan R. Hodnik_____________________

                  Alan R. Hodnik

                                                              President & Chief Executive Officer

Attest:

By   Debroah A. Amberg________________________

Deborah A. Amberg

Senior Vice President, General Counsel & Secretary

 

 

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Exhibit 10(h)4

 

 

ALLETE Executive Annual Incentive Plan

Form of Award

Effective 2011

[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%

Compensation Subject to Compensation Recovery Policy

Annual Incentive Plan Compensation is subject to recoupment as defined in the Compensation Recovery policy.

 

Exhibit 10(i)2

 

 

AMENDMENT TO

 

ALLETE AND AFFILIATED COMPANIES

 

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

 

              The ALLETE and Affiliate Companies Supplemental Executive Retirement Plan, as amended and restated effective January 1, 2009 (“SERP I”), is amended as follows, effective January 1, 2011.

1.           Section 1.1 is amended by adding the following new sentence at the end:

 

Effective January 1, 2011, the Company hereby amends SERP I to provide that the SERP I retirement benefit not yet paid to a participant is forfeited in the event the participant has a separation from service for cause and to incorporate any compensation recovery policy adopted by the Company.

             

 

2.           New Section 1.3 is added to read as follows:

 

                            1.3        Compensation Recovery Policy.

 

Effective January 1, 2011, all amounts payable to Participants in accordance with this Plan are subject to, and the Company hereby incorporates into this SERP I, the terms of any compensation recovery policy or policies established and amended by the Company from time to time (“Compensation Recovery Policy”).

                                        

3.           A new defined term “Misconduct” is added at the end of Section 2 to read as follows:

(Q)

“Misconduct” means the occurrence of either or both of the following, as determined in its sole discretion by either the Executive Compensation Committee of the Company’s Board of Directors with respect to Section 16 Officers of the Company, or the Administrator with respect to any other Participant:

 

(a)

an act or omission by the Participant involving dishonesty in connection with his or her responsibilities as an employee of the Company; or

 

(b)

the Participant’s conviction of, or entry of a plea of nolo contendere to, any felony or a misdemeanor involving moral turpitude, provided that a misdemeanor motor vehicle violation will not constitute a crime of moral turpitude unless it involves driving while impaired within the scope of employment or another serious driving offense committed within the scope of employment.

 

For purposes of clarifying the foregoing definition, Misconduct can occur regardless of whether the Company discovers the Misconduct before or after the Participant’s termination of employment and regardless of whether the Participant terminates employment on account of the Misconduct.

 

4.           New Section 4.17 is added to read as follows:

 

                            4.17       Forfeiture of Vested Retirement Benefit for Misconduct.

 

Notwithstanding any other term or condition in this Section 4, a Participant will forfeit any vested Retirement Benefit attributable to any year during which the Participant engaged in Misconduct and any subsequent period.  For purposes of calculating the Retirement Benefit of any Participant who engaged in Misconduct, the Participant’s Final Average Earnings and Years of Credited Service will exclude the period during which the Participant engaged in Misconduct and any subsequent period.

                                          

 

5.           New Section 4.18 is added to read as follows:

 

                            4.18       Withholding Pursuant to Compensation Recovery Policy.

 

All benefits are subject to the provisions of Sections 1.3, regardless of whether distributions have commenced.

                                          

              IN WITNESS WHEREOF, and as evidence of the adoption of this amendment to SERP I, ALLETE, Inc. has caused this amendment to be executed by its duly authorized representative this __ day of ___________, 2011.

 

ALLETE, Inc.

By:  /s/ Alan R. Hodnik______________                                                                    

Alan R. Hodnik

President and Chief Executive Officer

ATTEST:

By:  /s/ Deborah A. Amberg__________                                                                    

Deborah A. Amberg

Senior Vice President, General Counsel & Secretary

 

 

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Exhibit 10(i)3

 

 

ALLETE AND AFFILIATED COMPANIES

 

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN II

 

Amended and Restated Effective January 1, 2011

 

 

 

 

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TABLE OF CONTENTS				Page
ARTICLE 1 Establishment and Purpose				2
	1.1	Establishment		2
	1.2	Compensation Recovery Policy		3
ARTICLE 2 Section 409A Plans and Organization				3
	2.1	Section 409A Plans		3
	2.2	Organization		3
	2.3	Section 409A Compliance		3
ARTICLE 3 Administration				4
	3.1	Administrator		4
	3.2	Duties		4
	3.3	Agents		4
	3.4	Binding Effect of Decisions		4
	3.5	Employer Information		4
ARTICLE 4 Participation				4
	4.1	Eligibility and Commencement of Participation		4
	4.2	Special Rule for Initial Participation		5
	4.3	Termination of Participation		5
ARTICLE 5 Annual Make-Up Award				5
	5.1	Eligibility		5
	5.2	Amount of Annual Make-Up Award		5
	5.3	Payment		6
	5.4	Forfeiture of Annual Make-up Award		6
ARTICLE 6 SERP II Account Balance Plan for Employees				7
	6.1	Elective Deferrals		7
	6.2	Non-Elective Deferrals		8
	6.3	FICA and Other Taxes		8
	6.4	Distributions		8
	6.5	Additional Distribution Rules		10
	6.6	Subsequent Changes in Time and Form of Distributions		11
ARTICLE 7 Accounts and Investments				12
	7.1	Establishment of Accounts		12
	7.2	Timing of Credits to Accounts		12
	7.3	Vesting		12
	7.4	Investments		12
	7.5	Valuation Date		12
ARTICLE 8 SERP II Retirement Benefit				12
	8.1	Eligibility		12
	8.2	Vesting and Forfeiture		13
	8.3	Retirement Benefit		13
	8.4	Forfeiture of Vested Retirement Benefit for Misconduct		13
	8.5	Time and Form of Distributions		14
	8.6	Additional Distribution Rules		14
	8.7	Subsequent Changes in Time and Form of Payment		16
	8.8	FICA and Other Taxes		16
ARTICLE 9 Payment Acceleration and Delay				16
	9.1	Permitted Accelerations of Payment		16
	9.2	Permissible Payment Delays		17
	9.3	Suspension Not Allowed		18
ARTICLE 10 Beneficiary Designation				18
	10.1	Beneficiary		18
	10.2	No Beneficiary Designation		18
ARTICLE 11 Claims Procedures				18
	11.1	Presentation of Claim		18
	11.2	Notification of Decision		18
	11.3	Review of a Denied Claim		19
	11.4	Decision on Review		20
	11.5	Other Remedies		20
ARTICLE 12 Amendment or Termination				21
ARTICLE 13 Miscellaneous Provisions				21
	13.1	Unsecured General Creditor		21
	13.2	Employer’s Liability		21
	13.3	Nonassignability		21
	13.4	No Right to Employment		21
	13.5	Incompetency		22
	13.6	Tax Withholding		22
	13.7	Furnishing Information		22
	13.8	Notice		22
	13.9	Gender and Number		22
	13.10	Headings		22
	13.11	Applicable Law and Construction		22
	13.12	Invalid or Unenforceable Provisions		22
	13.13	Successors		23
APPENDIX A				24

 

 

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ALLETE AND AFFILIATED COMPANIES

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN II

 

Effective January 1, 2011

 

 

ARTICLE 1

 

Establishment, Purpose and Intent

 

1.1

Establishment.  This document includes the terms of the ALLETE and Affiliated Companies Supplemental Executive Retirement Plan II.  The purpose of SERP II is to provide eligible Employees (i) an opportunity to elect to defer compensation and (ii) a supplemental Retirement Benefit, the primary purpose of which is to compensate for annual compensation limits and maximum benefit limitations imposed by the Code on Retirement Plans maintained by the Company.

 

SERP II is a successor to the ALLETE and Affiliated Companies Supplemental Executive Retirement Plan (“SERP I”).  On December 31, 2004, the Company froze SERP I with respect to all deferrals and vested accrued Retirement Benefits (if any).  On January 1, 2005, the Company established SERP II to govern (a) amounts initially deferred after December 31, 2004 and investment earnings thereon; (b) Retirement Benefit accruals after December 31, 2004; and (c) accrued but unvested SERP I Retirement Benefits as of December 31, 2004.  From January 1, 2005 to the effective date hereof, the Company operated and administered the Plan in all material respects in good faith compliance with the applicable requirements of Section 409A, the final and proposed Treasury Regulations, IRS Notice 2005-1, an d all other IRS guidance.  The Company amended and restated SERP II in its entirety, effective January 1, 2009, to comply with Section 409A.  The Company intends that SERP II constitute an unfunded deferred compensation plan for a select group of management or highly compensated employees within the meaning of ERISA sections 201(2), 301(a)(3) and 401(a)(1).  All provisions of SERP II shall be interpreted and administered to the extent possible in a manner consistent with the stated intentions.

 

Effective January 20, 2009, the Company amended SERP II to narrow the salary-grade eligibility requirements to receive an Annual Make-Up Award for employees who first became eligible to participate in SERP II after September 30, 2006.

Effective January 1, 2011, the Company hereby amends SERP II to incorporate any compensation recovery policy adopted by the Company and to provide that certain benefits may be subject to forfeiture for Misconduct.

Capitalized terms, unless otherwise defined herein, shall have the meaning provided in Appendix A.

 

Page 2 

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1.2

Compensation Recovery Policy.  Effective January 1, 2011, all amounts payable to Participants in accordance with this Plan are subject to, and the Company hereby incorporates into this SERP II, the terms of any compensation recovery policy or policies established and amended by the Company from time to time (“Compensation Recovery Policy”).

 

ARTICLE 2

 

Section 409A Plans and Organization

 

2.1	Section 409A Plans.

 

The provisions of SERP II include terms and conditions applicable to the following 409A Plans:

 

2.1.1

An elective account balance plan for Employees for purposes of Elective Deferrals;

 

2.1.2

A non-elective account balance plan for Employees for purposes of Non-Elective Deferrals; and

 

2.1.3

A non-account balance plan for Employees.

 

2.2	Organization.

 

Except as otherwise provided in this section or in a specific section, all provisions of the Plan apply to all amounts deferred under any Article of the Plan.

 

2.2.1

The provisions of Article 5 apply only for purposes of identifying employees eligible to receive an Annual Make-Up Award and the amount of the award, if any.

 

2.2.2

The provisions of Articles 6 and 7 apply only to the extent that SERP II provides for Employees’ Elective Deferrals, or Non-Elective Deferrals or both, which, for purposes of Section 409A, represent the elective and non-elective account balance plans identified in subsections 2.1.1 and 2.1.2, respectively.

 

2.2.3

The provisions of Article 8 apply only to the extent that SERP II provides for Retirement Benefits, which represent the non-account balance plan identified in subsection 2.1.3.

 

2.3	Section 409A Compliance.

 

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

 

 

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ARTICLE 3

 

Administration

 

3.1	Administrator.

 

The Administrator shall administer the Plan or may delegate any of its duties to such other person or persons from time to time as it may designate. Members of the Employee Benefit Plans Committee may participate in SERP II; however, any individual serving on the Employee Benefit Plans Committee shall not vote or act on any matter relating solely to himself or herself.

 

3.2

Duties.

 

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

 

3.3

Agents.

 

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

 

3.4	Binding Effect of Decisions.

 

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

 

3.5	Employer Information.

 

To enable the Administrator to perform its duties, each Employer shall supply full and timely information to the Administrator on all matters relating to the compensation of its Participants, the date and circumstances of the Participant’s death, Disability or Separation from Service, and other pertinent information as the Administrator may reasonably require.

 

ARTICLE 4

 

Participation

 

4.1	Eligibility and Commencement of Participation.

 

Eligible Employees may participate in the Plan, except to the extent provided in Section 8.1 regarding eligibility for Retirement Benefits.  Each Plan Year, the Administrator shall notify Eligible Employees of their eligibility to participate in the Plan during the following Plan Year.  An Eligible Employee shall become a Participant either upon the initial submission of an election form on which the Eligible Employee has elected Elective Deferrals or upon first receiving an allocation of Non-Elective Deferrals.

 

 

Page 4 

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4.2	Special Rule for Initial Participation.

 

Within 30 days after the date an individual first becomes an Eligible Employee, the individual may elect to commence participating with respect to compensation to be paid for services performed after the election is filed.  This election relating to initial participation in the Plan is available only to Participants who do not participate in any Aggregated Plans.  If an Employee whose participation in the Plan is terminated again becomes an Eligible Employee, he or she may elect to defer pursuant to this Section only if the Employee was ineligible to defer compensation in this Plan and all other Related Company elective account balance plans, within the meaning of Section 409A, for the 24 months preceding the date on which the Participant again became eligible to participate in this Plan.

 

4.3	Termination of Participation.

 

If the Administrator determines in good faith that a Participant is no longer an Eligible Employee, the Participant shall cease active participation in the Plan on the last day of the Plan Year during which the Participant ceased to be an Eligible Employee, and the terms of this Plan shall continue to govern Participant’s Account until the Participant’s Account is paid in full.

 

ARTICLE 5

 

Annual Make-Up Award

 

5.1	Eligibility.

 

An Employee who:  (i) was a Participant as of September 30, 2006, (ii) has continuously remained an Employee in ALLETE management salary grade SA-SM, and (iii) has continuously participated in the ALLETE Executive Annual Incentive Plan or been eligible to receive a Bonus shall be eligible to receive an Annual Make-up Award.  Any other Employee shall be eligible to receive an Annual Make-up Award if the Employee:  (i) initially becomes, or again becomes, a Participant after September 30, 2006, (ii) is in ALLETE management salary grade SG-SM, and (iii) participates in the ALLETE Executive Annual Incentive Plan or is eligible to receive a Bonus.

5.2	Amount of Annual Make-Up Award.

 

The Annual Make-Up Award shall be the sum of the Flexible Dollar Makeup, the RSOP Allocation Makeup and the RSOP Match Allocation Makeup, each calculated as described in this section.

 

5.2.1

Flexible Dollar Makeup.  The Flexible Dollar Makeup for a Plan Year shall equal the product of A and B, with A equal to the sum of (i) 2% and (ii) the Participant’s life insurance percentage under the Minnesota Power and Affiliated Companies Flexible Compensation Plan for nonunion employees, and B equal to the sum of: (a) the total of the Participant’s Annual Incentive Award and other awards (to the extent included in calculations for the Retirement Plans) for such year, and (b) the Participant’s Salary (determined as of October 1 of the prior Plan Year) in excess of the Code section 401(a)(17) limitation in effect for that Plan Year.

 

 

Page 5 

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5.2.2

RSOP Allocation Makeup.  For a Participant who was a Participant as of September 30, 2006, for so long as he remains continuously eligible as a Participant, the RSOP Allocation Makeup for a Plan Year shall equal the product of C and D, with C equal to the sum of (i) 1.5% and (ii) the percentage (if any) being allocated for that year as an excess amount pursuant to the RSOP, and D equal to the sum of (a) the total of the Participant’s Annual Incentive Award and other award (to the extent included in calculations for the Retirement Plans) for such year, and (b) the amount of the Participant’s Salary in excess of the Code section 401(a)(17) limitation in effect for that Plan Year.

 

For a Participant who becomes a Participant on or after October 1, 2006, the RSOP Allocation Makeup for a Plan Year shall equal the product of E and F, with E equal to the sum of: (i) 6% and (ii) the percentage, if any, being allocated as an excess amount pursuant to the RSOP; and F equal to the sum of (a) the total of the Participant’s Annual Incentive Award and other award (to the extent included in calculations for the Retirement Plans) for the year, and (b) the amount of the Participant’s Salary in excess of the Code section 401(a)(17) limitation in effect for that Plan Year.

 

If a Participant ceases to be an Eligible Employee during a Plan Year the RSOP Allocation Makeup for that Plan Year will be calculated by:  (i) taking into account the full Annual Incentive Award and other award (to the extent included in calculations for the Retirement Plans) and, (ii) with respect to any Participant whose base salary exceeds the Code section 401(a)(17) limitation in effect for that Plan Year, prorating the Participant’s Salary to reflect the period during the Plan Year for which the Participant was an Eligible Employee.

 

5.2.3

RSOP Match Allocation Makeup.  The RSOP Match Allocation Makeup for a Plan Year shall equal the excess of G over H, with G equal to the lesser of: (i) the sum of the Participant’s Elective Deferrals out of Salary and RSOP deferrals (including both pre-tax and Roth after-tax deferrals), and (ii) with respect to any Eligible Employee who was a Participant as of September 30, 2006, for so long as he remains continuously eligible as a Participant, 4% of the Participant’s Salary plus Bonus; or with respect to any Eligible Employee who becomes a Participant on or after October 1, 2006, 5% of the Participant’s Salary plus Bonus; and H equal to RSOP matching contributions for the Plan Year on b ehalf of the Participant.

 

5.3

Payment.

 

Except to the extent deferred in accordance with this Plan, the Annual Make-Up Award for any year shall be paid between January 1 and March 15 of the year following the year to which the award relates.

 

5.4

Forfeiture of Annual Make-Up Award.  Notwithstanding any other term or provision of this Article 5, if a Participant engages in Misconduct, the Participant shall forfeit or repay, as necessary, any Annual Make-Up Award payable on account of the period during which the Misconduct occurred and any subsequent period.

Page 6 

 

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ARTICLE 6

 

SERP II Account Balance Plan for Employees

 

6.1	Elective Deferrals.

 

6.1.1

Deferral Elections.  For each Plan Year, a Participant may elect to defer some or all of Salary, Bonus, and, if eligible, an Annual Make-up Award, Severance Pay and Other Awards.  Elections are effective on a calendar year basis and become irrevocable no later than the date specified by the Administrator, but in any event before the beginning of the Plan Year to which the elections relate.  A Participant’s elections will become effective only if the forms required by the Administrator have been properly completed and signed by the Participant, timely delivered to the Administrator, and accepted by the Administrator.  A Participant who fails to file elections before the required date will be treated as having elected not to defer any amounts for the following Plan Year.  For any Plan Year the Administrator may, in its sole discretion, decide not to allow one or more Participants to defer certain types of compensation.

 

6.1.2

Special Rule for Performance-Based Compensation.  The Administrator, in its complete and sole discretion, may allow a Participant to revise a deferral election with respect to a Bonus if the Administrator determines that the Bonus is performance-based compensation within the meaning of Section 409A and the election becomes irrevocable no later than the earlier of: (a) six months preceding the end of the performance period to which the Bonus relates; or (b) the date as of which the Bonus has become readily ascertainable, within the meaning of Section 409A.

 

6.1.3

Special Rule for Severance Pay.  A Participant may elect to defer all or a portion of Severance Pay by filing with the Administrator an irrevocable deferral election no later than the date the Participant obtains a legally binding right to the Severance Pay.

 

6.1.4

Cancellation of Deferral Election due to Disability.  If a Participant becomes disabled, the Administrator may, in its sole discretion, cancel the Participant’s deferral election, with respect to amounts to be deferred on or after the cancellation, by the end of the year during which the Participant becomes disabled, or, if later, the 15th day of the third month following the date on which the Participant becomes disabled.  For purposes of this Section, a Participant shall be disabled if the Participant is suffering from any medically determinable physical or mental impairment resulting in the Participant’ ;s inability to perform the duties of his position or any substantially similar position, if such impairment can be expected to result in death or can be expected to last for a continuous period of six months.

 

  Page 7

 

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The Participant may elect to defer amounts for the Plan Year following his return to employment and for every Plan Year thereafter while an Eligible Employee, provided the Participant’s deferral election otherwise complies with all of the requirements of this Section.

 

6.1.5

Cancellation of Deferral Election due to Unforeseeable Emergency.  If a Participant experiences an Unforeseeable Emergency during a Plan Year, the Participant may submit to the Administrator a written request to cancel Elective Deferrals for the Plan Year to satisfy the Unforeseeable Emergency.  If the Administrator either approves the Participant’s request to cancel Elective Deferrals for the Plan Year, or approves a request for a distribution of in accordance with Section 6.4.6, then effective as of the date the request is approved the Administrator shall cancel the Participant’s deferral elections for the remainder of the Plan Year.  A Participant whose Elective Deferra ls are canceled during a Plan Year in accordance with this section may elect Elective Deferrals for the following Plan Year; provided, however, if required to comply with Treasury Regulations section 1.401(k)-1(d)(3), the Participant may not elect to defer any amounts attributable to periods less than six months from the date on which the Participant receives a distribution on account of an Unforeseeable Emergency.

 

6.1.6

Withholding of Deferrals.  The Administrator will withhold Elective Deferrals not later than the end of the calendar year during which the Company would otherwise have paid the amounts to the Participant but for the Participant’s deferral election.  The Administrator will not withhold Elective Deferrals from a Participant’s Salary during any period in which the Participant is on an unpaid leave of absence.

 

6.2	Non-Elective Deferrals.

 

6.2.1

Annual Make-Up Award.  If the Administrator determines that a Participant’s Salary exceeds the Code section 401(a)(17) limit, the Administrator shall automatically credit the Participant’s Annual Make-up Award to the Participant’s Account.

 

6.2.2

162(m) Deferrals.  The Administrator shall automatically credit a Participant’s 162(m) Deferrals to the Participant’s Account.

 

6.3	FICA and Other Taxes.

 

For each Plan Year during which a Participant has Deferrals, the Participant’s Employer(s) shall, in a manner determined by the Employer(s), withhold the Participant’s share of FICA and other required employment or state, local, and foreign taxes on Deferrals from that portion of the Participant’s Salary, Bonus, Annual Make-up Award, Severance Pay, Other Award and in the event of a 162(m) Deferral, the Participant’s compensation generally, that is not deferred. To the extent permitted by Section 409A, the Administrator may reduce a Participant’s Deferrals to the extent necessary to pay FICA and other employment, state, local and foreign taxes.

 

6.4	Distributions.

 

The Plan provides for distributions in a Specified Year, or upon a Separation from Service, death, Disability, or Unforeseeable Emergency.  At the time of a Participant’s initial deferral election, a Participant may elect to receive a distribution:  (i) with respect to Elective Deferrals, in a Specified Year; and (ii) with respect to all Deferrals, upon the earlier of Separation from Service, death or Disability.  In each subsequent Plan year, a Participant may elect to have all or any portion of that year’s Elective Deferrals distributed either in a Specified Year, subject to the restrictions in Section 6.4.1, or in accordance with the Participant’s prior elections for distributions other than in a Specified Year.  Except as otherwise provided in the Plan, a Participant’ s distribution elections are irrevocable and will govern the Deferrals to which the election relates until the amounts covered by the election are paid in full or until subsequently changed in accordance with Section 6.6.  Notwithstanding any elections by a Participant, all distributions are subject to the provisions of Sections 1.2 and 6.5.

 

 

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6.4.1

Specified Year.  A Participant may elect to receive a distribution of Elective Deferrals in a Specified Year, which may be no earlier than the third Plan Year beginning after the date on which the Participant initially elects to receive a distribution in a Specified Year.  Except as otherwise provided in this subsection or in Section 6.6, once a Participant has elected to receive a distribution in a Specified Year, the Participant may not elect to receive a distribution in a different Specified Year.  Beginning during the year preceding any Specified Year previously elected by the Participant, the Participant may elect to receive a distribution of Elective Deferrals in a later Specifi ed Year, subject, however, to the restrictions of this subsection.  All amounts distributed in a Specified Year will be paid in a single lump sum.

 

6.4.2

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

 

6.4.3

Disability.  A Participant may elect to receive a distribution on account of Disability.  Distributions upon Disability will commence on the earlier of the Participant’s 65th birthday or the second anniversary of the Disability, unless changed in accordance with Section 6.6.  A Participant may elect to receive the distribution in the form of a lump sum, monthly installments over a period of five (5), ten (10), or fifteen (15) years, or a combination of both a lump sum and installments.  Notwithstanding any other election by a Participant relating to a distribution upon Disability, if a Parti cipant dies after commencement of a Disability but before the year during which distributions would commence, the Participant’s Account shall be distributed in accordance with the Participant’s election regarding distributions upon death.

 

6.4.4

Death.  A Participant may elect to receive a distribution commencing upon death or during any of the first five years following the year of death. A Participant may elect to receive a distribution in the form of a lump sum, monthly installments over a period of five (5), ten (10), or fifteen (15) years, or a combination of both a lump sum and installments.

 

 

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6.4.5

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

 

6.5	Additional Distribution Rules.

 

 

6.5.1

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

 

 

6.5.2

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

 

6.5.3

Installments.  If a Participant elects to receive distributions in monthly installments, the Participant’s Account will be paid in substantially equal monthly installments in consecutive years over the period elected by the Participant.  Each monthly installment will be paid during the Plan Year in which it is due, commencing as described in Section 6.5.2.  During the Plan Year in which distributions commence, the Participant will receive one installment for each calendar month beginning after the date of the Distribution Event, or, if the Participant has elected to receive a distribution commencing during any of the first five years following the year of a Distribution Event, o ne monthly installment for each calendar month beginning after the anniversary date of the Distribution Event.  During the distribution period, the Participant’s Account will be credited with interest compounded monthly at a rate of 7.5% per year.  Any installment distribution that complies with this section shall be deemed for all purposes to comply with the Plan requirements regarding the time and form of distributions.

 

 

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6.5.4

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

 

6.5.5

Distributions to Specified Employees.  Notwithstanding anything to the contrary in this Plan, if a Participant becomes entitled to a distribution on account of a Separation from Service and is a Specified Employee on the date of the Separation from Service, distributions shall not commence until the earlier of:  (i) the expiration of the six-month period beginning on the date of Participant’s Separation from Service, or (ii) the date of Participant’s death.  Payments to which a Specified Employee would otherwise be entitled during this six-month period shall be accumulated and paid, together with earnings that have accrued during this six-month delay, during the seventh mo nth following the date of the Participant’s Separation from Service, or, if earlier, the date of the Participant’s death.

 

6.5.6

Effect of Change in Control.  Notwithstanding a Participant’s elections regarding distributions upon a Separation from Service and a distribution in a Specified Year, if (a) the Participant has a Separation from Service within two years following a Change in Control or (b) a Change in Control occurs within six months after the Participant has a Separation from Service, the Participant shall receive a distribution of the Participant’s entire Account in a single lump sum upon the later of the Separation from Service or the Change in Control, whether or not distributions have already commenced.

 

6.6	Subsequent Changes in Time and Form of Distributions.

 

A Participant may, in accordance with rules, procedures and forms specified from time to time by the Administrator, elect to change the time of commencement or change the form in which the Participant’s Account is distributed or both, provided that:  (i) the Participant elects at least twelve (12) months prior to the date on which payments are otherwise scheduled to commence; (ii) the new election does not take effect for at least twelve (12) months; and (iii) with respect to changes applicable to distributions in a Specified Year or upon Separation from Service, the distributions must be deferred for at least five (5) years from the date the distributions would otherwise have been paid, or in the case of installment payments, five (5) years from the date the installments were scheduled to commence.  For purp oses of this section, distributions on account of a Specified Year are considered scheduled to commence on January 1 of the Specified Year and all other distributions are considered to commence on the date of the Distribution Event, or if the Participant has elected a later year for commencement, January 1 of the year elected by the Participant.  Any election in accordance with this section to change the time or form or both shall be irrevocable on the date it is filed with the Administrator unless subsequently changed pursuant to this Section.

 

 

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ARTICLE 7

 

Accounts and Investments

 

7.1	Establishment of Accounts.

 

The Company will establish notional accounts for each Participant as the Administrator deems necessary or advisable from time to time.  The Company will establish a Participant’s Account at the earlier of the time a Participant first elects to defer any amounts into the Account or the time the Company first credits non-elective amounts to the Account.  Each Account shall be credited as appropriate with deferrals and earnings with respect to deferrals and debited for distributions from the Account.

 

7.2	Timing of Credits to Accounts.

 

The Administrator shall credit a Participant’s Elective Deferrals to the Participant’s Account(s) not later than the end of the calendar year during which the Company would otherwise have paid the amounts to the Participant but for the Participant’s deferral election.  The Administrator shall credit Non-Elective Deferrals at such times and in such amounts as the Administrator determines.

 

7.3

Vesting.

 

All Participant Accounts are fully vested at all times.

 

7.4	Investments.

 

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

 

7.5	Valuation Date.

 

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

 

ARTICLE 8

 

SERP II Retirement Benefit

 

8.1	Eligibility.

 

The provisions of Article 8 apply only to Eligible Employees who were eligible for Retirement Benefits on September 30, 2006.  Effective October 1, 2006, the Company froze eligibility for Retirement Benefits and individuals who were not Participants on that date are not eligible for Retirement Benefits.  Any Participant who was accruing Retirement Benefits on September 30, 2006 or who was eligible to accrue Retirement Benefits on that date because the Participant received an Annual Incentive Award or Other Award and was serving in management salary grades SA – SM, will remain eligible for Retirement Benefits in accordance with this section; provided the Participant remains an Employee of a Related Company.

 

 

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8.2	Vesting; Forfeiture of Unvested Retirement Benefit.

 

Participants will fully vest in the Retirement Benefit upon:  (i) Retirement; (ii) becoming Disabled after attaining both age 50 and 10 years of Vesting Service; or (iii) upon attaining age 50 and 10 years of Vesting Service after becoming Disabled.  Participants will forfeit unvested Retirement Benefits and prior years of Vesting Service upon Separation from Service or death prior to full vesting.

 

8.3	Retirement Benefit.

 

The amount of the Retirement Benefit shall equal a single life annuity determined in the manner provided in the Retirement Plans, including any applicable early retirement factors and cost of living adjustments, but using a Participant’s Final Average Earnings and years of Credited Service as described in this section.

 

8.3.1

Final Average Earnings.  Final Average Earnings include the sum of:  (i) the Participant’s four highest consecutive Annual Incentive Awards and Other Awards within the “applicable 15-year period,” and (ii) the Participant’s highest Basic Compensation during any consecutive 48-month period within the “applicable 15-year period” to the extent that Basic Compensation exceeds the limitation on compensation imposed by Code section 401(a)(17).  Compensation in excess of the limitation on compensation imposed by Code section 401(a)(17) shall be determined by using the limit in effect on the first day of the 48-month period described in (i) and the next thr ee anniversaries of that date.  With respect to a Participant who becomes entitled to a distribution upon Retirement, the “applicable 15-year period” shall be the fifteen (15) years preceding the date of Retirement.  With respect to a Participant who becomes entitled to a distribution because of Disability, the “applicable 15-year period” shall be the 15-year period that: (i) ends no earlier than the Participant’s Disability and no later than the Participant’s sixty-fifth (65th) birthday; and (ii) would result in the greatest Retirement Benefit.

 

8.3.2

Years of Credited Service.  A Participant will receive credit for years of Credited Service after September 30, 2006, only to the extent that: (i) the Participant has been continuously employed since that date by a Related Company in management salary grades SA – SM; and (ii) distributions of Retirement Benefits have not commenced.

 

8.4

Forfeiture of Vested Retirement Benefit for Misconduct. Notwithstanding any other term or condition in this Article 8, a Participant will forfeit any vested Retirement Benefit attributable to any year during which the Participant engaged in Misconduct and any subsequent period.  For purposes of calculating the Retirement Benefit of any Participant who engaged in Misconduct, the Participant’s Final Average Earnings and Years of Credited Service will exclude the period during which the Participant engaged in Misconduct and any subsequent period.

 

 

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8.5

Time and Form of Distributions.  Subject to the provisions of Section 8.6, a Participant will become entitled to a distribution of vested Retirement Benefits, in the form determined by this section, upon the earlier of:  (i) Retirement; (ii) Disability; or (iii) solely with respect to a Participant who vests after becoming Disabled, the earlier of death or attainment of age 65.

 

8.5.1

Election of Alternative Forms of Distribution.  A Participant may elect to receive the Retirement Benefit in one of the following forms, each of which shall be actuarially equivalent:  (i) monthly installments over a 15-year period, (ii) a monthly life annuity, (iii) a lump sum payment; or (iv) a combination of a lump sum and either (i) or (ii).  Actuarially equivalence will be calculated using actuarial factors adopted by the Administrator from time to time.  Effective as of December 31, 2008, Participant elections regarding the form of distribution are irrevocable and will remain in effect until the Retirement Benefits are paid in full unless a Participant elects to change the time and form of payment in accordance with Section 8.7.< /font>

 

8.5.2

Default Form of Payment.  If a Participant fails to elect a form of payment with respect to the Participant’s Retirement Benefit before December 31, 2008, the Retirement Benefit will be paid in the form of monthly installments over a 15-year period unless the Participant elects to change the time and form of payment in accordance with Section 8.7.

 

         8.6  Additional Distribution Rules.

 

8.6.1

Commencement of Distributions.  Distributions on account of a Distribution Event other than Disability will commence between the date of the Distribution Event and the end of the year in which the Distribution Event occurs.  If a Distribution Event other than Disability occurs on or after October 1 of a Plan Year, the distribution may, to the extent permitted by Section 409A, commence after the Distribution Event and on or before the 15th day of the third calendar month following the Distribution Event, even if after the end of the year during which the Distribution Event occurs; provided, however, the Participant will not be permitted, directly or indirectly, to designate the taxable year of the distribution.  Any distribution that complies with this section shall be deemed for all purposes to comply with the Plan requirements regarding the time and form of distributions.

 

8.6.2

Distributions to Specified Employees.  Notwithstanding anything to the contrary in this Plan, if a Participant becomes entitled to a distribution on account of a Retirement and is a Specified Employee on the date of the Retirement, distributions shall not commence 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.  Payments to which a Specified Employee would otherwise be entitled during this six-month period shall be accumulated and paid, together with earnings (calculated using the interest rate adopted by the Administrator for determining actuarial equivalence) that have accrued during this six-month delay, during the sev enth month following the date of the Participant’s Retirement, or, if earlier, the date of the Participant’s death.

 

 

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8.6.3

Disability.  Unless subsequently changed in accordance with the Plan, distributions on account of Disability will commence on the earlier of the Participant’s 65th birthday or the second anniversary of the Disability.

 

8.6.4

Annuity Payments and Installments.  If a Participant elects to receive all or a portion of the distributions in monthly installments, that portion to be paid in installments will be paid in substantially equal monthly installments in consecutive months over a 15-year period.  If a Participant elects to receive all or a portion of the distributions in the form of a life annuity, that portion to be paid as a life annuity will be paid in monthly installments in consecutive months for the remainder of the Participant’s life, in the case of a unmarried Participant, and in the case of a married Participant over the lives of the Participant and the Participant’s Eligible Surviving Spouse.  Each monthly installment or life annuity payment wi ll be paid during the Plan Year in which it is due, commencing as described in Section 8.6.1.  During the Plan Year in which distributions commence, the Participant will receive one installment or life annuity payment for each calendar month beginning after the date of the Distribution Event.  If the Participant has elected to be paid in installments, during the distribution period the portion of the Participant’s Account to be paid in installments will be credited with interest compounded monthly at the interest rate used by the Administrator to determine actuarial equivalence.  Any distribution that complies with this section shall be deemed for all purposes to comply with the Plan requirements regarding the time and form of distributions.

 

8.6.5

Death After Commencement of Benefits.  Upon the death of a Participant after distributions of the Participant’s Retirement Benefit have commenced, the remainder of the Participant’s Retirement Benefit will continue to be distributed to the Participant’s Beneficiary at the same time and in the same form as the benefit would have been distributed to the Participant had the Participant survived, except to the extent that the Participant had elected a life annuity: (i) if the Participant has an Eligible Surviving Spouse on the date of death, the surviving spouse will receive 60% of the Participant’s life annuity benefit for the remainder of the spouse’s life and (ii) if the Participant does not have an Eligible Surviving Spouse, the annuit y will cease as of the first day of the month following the month during which the Participant died.

 

8.6.6

Effect of Change of Control.  With respect to any Participant whose Retirement Benefit distributions have commenced, or would commence, upon a Separation from Service, if (a) the Participant’s Separation from Service occurs within two years following a Change in Control or (b) a Change in Control occurs within six months after the Participant’s Separation from Service, then notwithstanding the Participant’s elections regarding distributions upon a Separation from Service, the Participant shall receive a distribution of the Participant’s entire remaining vested Retirement Benefit in a single lump sum upon the later of the Separation from Service or the Change in Control, whether or not distributions have already commenced.  Any Reti rement Benefit that does not become payable in a lump sum in accordance with this section will vest, if at all, in accordance with Section 8.2, will become payable in accordance with Section 8.5, and will otherwise remain subject to the provisions of Article 8.

 

 

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         8.7  Subsequent Changes in Time and Form of Payment.

 

A Participant may, in accordance with rules, procedures and forms specified from time to time by the Administrator, elect to change the form in which the Participant’s Retirement Benefit is distributed, provided that:  (i) the Participant elects at least twelve (12) months prior to the date on which payments are otherwise scheduled to commence; (ii) the new election does not take effect for at least twelve (12) months; and (iii) with respect to changes applicable to distributions upon Retirement or, solely with respect to a Participant who vests after becoming Disabled, distributions upon attaining age 65, distributions must be deferred for at least five years from the date the distributions would otherwise have been paid, or in the case of installment payments or life annuity payments, five years from the date the ins tallments or life annuity payments were scheduled to commence.  Any such election shall be irrevocable on the date it is filed with the Administrator unless subsequently changed pursuant to this section.  For purposes of this section, distributions are considered to commence on the date of the Distribution Event.

 

         8.8  FICA and Other Taxes.

 

At the time of a Participant’s Distribution Event, the Participant’s Employer(s) shall, in a manner determined by the Employer(s), calculate the FICA and other required employment or state, local, and foreign taxes due on the lump sum present value, calculated using the factors adopted by the Administrator for determining actuarial equivalence, of the Participant’s Retirement Benefit and shall reduce the Participant’s Retirement Benefit by the amount of any such taxes payable by the Participant.  The amount of the Participant’s Retirement Benefit remaining after reduction for any taxes shall be payable in accordance with Sections 8.6 and 8.7.

 

ARTICLE 9

 

Payment Acceleration and Delay

 

9.1	Permitted Accelerations of Payment.

 

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

 

9.1.1

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

 

 

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9.1.2

Compliance with Ethics Laws or Conflicts of Interests Laws.  The Administrator is authorized, in its sole discretion, to accelerate the time or schedule of a payment to the extent necessary to avoid the violation of any applicable federal, state, local, or foreign ethics law or conflicts of interest law as provided in Section 409A.

 

9.1.3

Small Accounts.  The Administrator may, in its sole discretion, distribute in a single lump sum the aggregate amounts of Deferrals or Elective Deferrals or both credited to the Participant’s Account, along with any related earnings, provided: (i) the distribution results in the payment of the Participant’s entire interest in the Account and all Aggregated Plans, and (ii) the total payment does not exceed the applicable dollar limit under Code section 402(g)(1)(B).  The Administrator shall notify the Participant in writing if the Administrator exercises its discretion pursuant to this Section.

 

9.1.4

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

 

9.1.5

Settlement of Debt.  The Administrator may, in its sole discretion, accelerate the time or schedule of a payment to satisfy an ordinary debt owed by the Participant to the Employer at the time the debt becomes due as provided in Section 409A.

 

9.2	Permissible Payment Delays.

 

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

 

9.2.1

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

 

9.2.2

If the Company reasonably anticipates that its deduction with respect to a distribution, if paid as scheduled, could be limited or barred by the application of Code section 162(m), provided the delayed amount is distributed in the first calendar year in which the Company reasonably anticipates that the deduction would not be limited or barred by the application of Code section 162(m).

 

9.2.3

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

 

 

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9.2.4

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

 

9.3	Suspension Not Allowed.

 

If a Participant whose distributions have commenced becomes eligible again to defer compensation as a Participant in any plan subject to Section 409A maintained by a Related Company, distribution of the Participant’s Retirement Benefit or Account may not be suspended.

 

ARTICLE 10

 

Beneficiary Designation

 

10.1	Beneficiary.

 

Each Participant shall have the right, in accordance with procedures established from time to time by the Administrator, to designate a Beneficiary(ies) (both primary as well as contingent) to whom Plan benefits shall, if permitted by the Plan, be paid if a Participant dies prior to complete distribution of benefits.  Each Beneficiary designation shall be in a written form prescribed by the Administrator, and will be effective only when filed with the Administrator during the Participant’s lifetime.  Any Beneficiary designation may be changed by a Participant without the consent of the previously named Beneficiary by filing a new Beneficiary designation with the Administrator.  The most recent Beneficiary designation received by the Administrator shall control the payment of all benefits under the P lan in the event of the Participant’s death.

 

10.2	No Beneficiary Designation.

 

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

 

 

ARTICLE 11

 

Claims Procedures

 

11.1	Presentation of Claim.

 

Any Participant or Beneficiary of a deceased Participant (such Participant or Beneficiary being referred to below as a “Claimant”) may file with the Administrator a written claim for a determination with respect to Plan benefits.  The claim must state with particularity the determination desired by the Claimant.

 

11.2	Notification of Decision.

 

The Administrator shall consider a Claimant’s claim, and, except as provided below, within 90 days after the claim is received, shall notify the Claimant in writing:

 

 

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11.2.1

That the claim has been allowed in full; or

 

11.2.2

That the claim has been denied, in whole or in part, and such notice must set forth in a manner calculated to be understood by the Claimant:

 

(a)	The specific reason(s) for the denial of the claim, or any part of it;

 

(b)	Specific reference(s) to pertinent provisions of the Plan upon which such denial was based;

 

(c)	A description of any additional material or information necessary for the Claimant to perfect the claim, and an explanation of why such material or information is necessary; and

 

(d)	An explanation of the claim review procedures and time limits, including a statement of the Claimant’s right to initiate a civil action pursuant to section 502(a) of ERISA following an adverse determination upon review.

 

11.2.3

If the Administrator determines that an extension of time for processing is required, written notice of the extension shall be furnished to the Claimant prior to termination of the original 90-day period.  In no event shall such extension exceed 90 days from the end of such initial period.

 

11.2.4

In the case of a claim for disability benefits, the Administrator shall notify the Claimant, in accordance with subsection 11.2.2 above, within 45 days after the claim is received.  The notification shall advise the Claimant whether the Administrator’s denial relied upon any specific rule, guideline, protocol or scientific or clinical judgment.

 

11.2.5

In the case of a claim for disability benefits, if the Administrator determines that an extension of time for processing is required due to matters beyond the control of the Plan, written notice of the extension shall be furnished to the Claimant prior to termination of the original 45-day period.  Such extension shall not exceed 30 days from the end of the initial period.  If, prior to the end of the first 30-day extension period, the Administrator determines that, due to matters beyond the control of the Plan, an additional extension of time for processing is required, written notice of a second 30-day extension shall be furnished to the Claimant prior to termination of the first 30-day extension.

 

11.3	Review of a Denied Claim.

 

Within 90 days after receiving a notice from the Administrator that a claim has been denied, in whole or in part, a Claimant (or the Claimant’s duly authorized representative) may file a written request for a review of the denial of the claim and of pertinent documents.  The Claimant (or the Claimant’s duly authorized representative):

 

11.3.1

May request reasonable access to, and copies of, all documents, records, and other information relevant to the claim, which shall be provided to Claimant free of charge; and

 

 

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11.3.2

May submit written comments or other documents.

 

11.4	Decision on Review.

 

The Administrator shall review all comments or other documents submitted by the Claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.  The Administrator shall render its decision on review promptly, and not later than 60 days after the filing of a written request for review of the denial (or, if other special circumstances require additional time and written notice of such extension and circumstances is given to the Claimant within the initial 60-day period).  The Administrator shall notify the Claimant, in language calculated to be understood by the Claimant:

 

11.4.1

That the claim has been allowed in full; or

 

11.4.2

That the claim has been denied, in whole or in part, and such notice must set forth:

 

(a)	Specific reasons for the decision;

 

(b)	Specific reference(s) to the pertinent Plan provisions upon which the decision was based;

 

(c)	A statement that Claimant is entitled to reasonable access to, and copies of, all documents, records or other information relevant to the claim upon request and free of charge;

 

(d)	A statement regarding the Claimant’s right to initiate an action pursuant to section 502(a) of ERISA; and

 

(e)	Such other matters as the Administrator deems relevant.

 

11.4.3

In the case of a claim for disability benefits, the notice shall set forth:

 

(a)	Whether the Administrator’s denial relied upon any specific rule, guideline, protocol or scientific or clinical judgment; and

 

(b)	The following statement: “You and your Plan may have other voluntary alternative dispute resolution options, such as mediation.  One way to find out what may be available is to contact your local U.S. Department of Labor Office and your State insurance regulatory agency.”

 

11.5	Other Remedies.

 

A Claimant’s compliance with the foregoing procedures is a mandatory prerequisite to a Claimant’s right to pursue any other remedy with respect to any claim relating to this Plan.

 

 

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ARTICLE 12

 

Amendment or Termination

 

The Company hereby reserves the right to amend, modify, or terminate any one or more of the 409A Plans, at any time by action of the Board, with or without prior notice.  No amendment or termination shall reduce any Participant’s Account or Retirement Benefit without the written consent of the affected Participant.  Notwithstanding anything herein to the contrary, to the extent consistent with Section 409A, the Board may terminate the Plan and distribute to each Participant the Participant’s Account and the Participant’s Retirement Benefit, if any, in a lump sum; provided that all distributions (i) commence no earlier than the date that is twelve (12) months following the termination date (or any earlier date that would comply with Section 409A) and (ii) are completed by the date that is twenty-four (24) months following the termination date (or any later date that would comply with Section 409A).  In addition, payments may be accelerated upon termination of any 409A Plan only if, to the extent required under Section 409A, (i) the Company terminates all Aggregated Plans, and (ii) for three years following the date of termination of the 409A Plan, the Company does not adopt any new arrangement that would have been an Aggregated Plan of the terminated 409A Plan.

 

ARTICLE 13

 

Miscellaneous Provisions

 

13.1	Unsecured General Creditor.

 

Participants and their Beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, interests or claims in any property or assets of an Employer.  An Employer’s obligation under the Plan shall be merely that of an unfunded and unsecured promise to pay money in the future.

 

13.2	Employer’s Liability.

 

An Employer’s liability for benefits shall be defined only by the Plan.  An Employer shall have no obligation to a Participant except as expressly provided in the Plan.

 

13.3	Nonassignability.

 

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

 

13.4	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 a Related Company, (b) constitute any contract or agreement of employment, (c) interfere with the right of a Related Company to terminate the Participant’s employment at any time, with or without cause.

 

 

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13.5	Incompetency.

 

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

 

13.6	Tax Withholding.

 

To the extent required by the law in effect at the time of any distribution, the Participant’s Employer shall withhold from any payments to a Participant hereunder any taxes required to be withheld by the federal or any state or local government, in amounts and in a manner to be determined in the sole discretion of the Employer(s).

 

13.7	Furnishing Information.

 

A Participant or his Beneficiary will cooperate with the Administrator by furnishing any and all information requested by the Administrator and take such other actions as may be requested in order to facilitate the administration of the Plan and the distributions hereunder, including but not limited to taking such physical examinations as the Administrator may deem necessary.

 

13.8

Notice.

 

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

 

13.9	Gender and Number.

 

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

 

13.10

Headings.

 

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

 

13.11

Applicable Law and Construction.

 

The Plan shall be governed by, construed and administered in accordance with the applicable provisions of ERISA, and any other applicable Federal law, including Section 409A, and to the extent not preempted by Federal law, this Plan shall be governed by, construed and administered in accordance with the laws of the State of Minnesota, other than its laws respecting choice of law.

 

13.12

Invalid or Unenforceable Provisions.

 

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

 

 

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13.13

Successors.

 

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

 

 

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APPENDIX A

 

“162(m) Deferrals” means the portion of a Participant’s Annual Incentive Award for a Plan Year that the Company reasonably anticipates is not deductible by the application of Code section 162(m).

 

“409A Plan” means one of the separate non-qualified deferred compensation arrangements described in Section 2.1.

 

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

 

“Administrator” means the Employee Benefit Plans Committee appointed by the Board or delegates of the Employee Benefit Plans Committee.

 

“Aggregated Plans” means, with respect to any 409A Plan, that plan and all other non-qualified deferred compensation plans which must be aggregated with that plan in accordance with the plan aggregation rules of Section 409A.

 

“Annual Incentive Award” means the annual award received by a Participant under the ALLETE Executive Annual Incentive Plan or any predecessor or successor plan.

 

“Basic Compensation” shall have the meaning prescribed in Retirement Plan A, but shall be calculated without regard to the limitation on compensation imposed by Code section 401(a)(17).

 

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

 

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

 

“Bonus” means any incentive compensation, including Annual Incentive Awards, that is payable to the Participant in addition to the Participant’s Salary.

 

“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;

 

 

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(ii)

(b) 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)

(c) 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)

(d) 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.

 

“Claimant” shall have the meaning set forth in Section 11.1.

 

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

 

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

 

“Credited Service” shall have the meaning prescribed in the Retirement Plan A.

 

 

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“Deferrals” means Elective Deferrals and Non-Elective Deferrals.

 

“Disability” or “Disabled” when used with an initial capital letter, 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.

 

When the term “disability” (without an initial capital letter) is used in the Plan, it shall have the meaning prescribed in the definition of “Separation from Service.”

 

“Distribution Event” means, with respect to Article 6, a Specified Year, a Separation from Service, death, Disability or the Administrator’s determination regarding the occurrence of an Unforeseeable Emergency and, with respect to Article 8, Retirement, Disability or solely with respect to a Participant who vests after becoming Disabled, the earlier of death or attainment of age 65.

 

“Elective Deferrals” means any portion of a Participant’s Salary, Bonus, Severance Pay, Annual Make-up Award or Other Award that a Participant irrevocably elects to defer.

 

“Eligible Employee” means an Employee in management salary grades SA-SM, who has been notified in writing by the Administrator of eligibility to participate in the Plan.

 

“Eligible Surviving Spouse” shall have the meaning prescribed in Retirement Plan A.

 

“Employee” means a person who is a common-law employee of any Related Company.

 

“Employer(s)” means the Company and any Related Company (now in existence or hereafter formed or acquired) that have been selected by the Administrator to participate in the Plan.

 

 

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“ERISA” means the Employee Retirement Income Security Act of 1974, as it may be amended from time to time.

 

“IRS” means the Internal Revenue Service.

 

“Misconduct” means the occurrence of either or both of the following, as determined in its sole discretion by either the Executive Compensation Committee of the Company’s Board of Directors with respect to Section 16 Officers of the Company, or the Administrator with respect to any other Participant:

(a)           an act or omission by the Participant involving dishonesty in connection with his or her responsibilities as an employee of the Company; or

 

(b)           the Participant’s conviction of, or entry of a plea of nolo contendere to, any felony or a misdemeanor involving moral turpitude, provided that a misdemeanor motor vehicle violation will not constitute a crime of moral turpitude unless it involves driving while impaired within the scope of employment or another serious driving offense committed within the scope of employment.

 

For purposes of clarifying the foregoing definition, Misconduct can occur regardless of whether the Company discovers the Misconduct before or after the Participant’s Separation from Service and regardless of whether the Participant has a Separation from Service on account of the Misconduct.

 

“Non-Elective Deferrals” means 162(m) Deferrals and the Annual Make-up Award credited to the Account of any Participant whose Salary exceeds the Code section 401(a)(17) limit.

 

“Other Award” means an award, other than an Annual Incentive Award or Severance Pay, that a Participant may defer at the Administrator’s discretion.

 

“Participant” means any Eligible Employee (i) who has elected to defer amounts under the Plan, (ii) who is eligible to receive a Retirement Benefit or (iii) whose compensation, or a portion thereof, was deferred as a Non-Elective Deferral.

 

“Plan” means SERP II.

 

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

 

“Related Company” means the Company and all persons with whom the Company would be considered a single employer under Code section 414(b) (employees of controlled group of corporations), and all persons with whom such person would be considered a single employer under Code section 414(c) (employees of partnerships, proprietorships, etc., under common control); provided that in applying Code sections 1563(a)(1), (2), and (3) for purposes of determining a controlled group of corporations under Code section 414(b), the language “at least 50 percent” is used instead of “at least 80 percent” each place it appears in Code sections 1563(a)(1), (2), and (3), and in applying Treasury Regulations section 1.414(c)-2 for purposes of determining tr ades 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.

 

 

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“Retirement” means Separation from Service, for reasons other than death, on or after attaining both 50 years of age and 10 years of Vesting Service.

 

“Retirement Benefit” means the benefit payable pursuant to Article 8.

 

“Retirement Plans” mean the Minnesota Power and Affiliated Companies Retirement Plan A and Minnesota Power and Affiliated Companies Retirement Plan B, as amended from time to time.

 

“Retirement Savings and Stock Ownership Plan” or “RSOP” means the Minnesota Power and Affiliated Companies Retirement Savings and Stock Ownership Plan, as amended from time to time.

 

“Salary” means the Participant’s earnings during a calendar year, before any reduction pursuant to Code sections 125, 132(f)(4), or 401(k) and this Plan.  It does not include overtime compensation, if any, Bonuses, Annual Incentive Awards and Other Awards, expense reimbursements, allowances, commission payments, employer contributions or awards under this Plan or other employee benefit plans, imputed income (whether such imputed income is from vehicle use, life insurance premiums, or any other source) payments made pursuant to the Results Sharing Program, payment of stock options and performance shares under the Long Term Incentive Compensation Plan, and any other payments of a similar nature.  In the case of a Participant who is emp loyed jointly by the Company and an affiliated company (as defined in the RSOP), Salary as defined herein shall include amounts received from all such companies.

 

“Section 409A” means both 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.

 

“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 contrac tor) 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.  For purposes of determining whether a Separation from Service has occurred on account of a disability, a Participant shall be disabled if the Participant is suffering from any medically determinable physical or mental impairment resulting in the Participant’s inability to perform the duties of his position or any substantially simil ar position, if such impairment can be expected to result in death or can be expected to last for a continuous period of 6 months.

 

 

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“SERP II” means the ALLETE and Affiliated Companies Supplemental Executive Retirement Plan II, as amended from time to time.

 

“Severance Pay” means the cash payment(s) to a Participant payable in connection with his Separation from Service in accordance with the terms of a severance arrangement that is the subject of bona fide, arm’s length negotiations between a Related Company and the Participant at the time of the Separation from Service.

 

“Specified Year” means a calendar year during which a Participant has elected to receive a distribution of Elective Deferrals.

 

“Specified Employee” means an Employee who is subject to the six-month delay rule described in Code section 409A(2)(B)(i).  The Board shall adopt guidelines for identifying Specified Employees in a manner consistent with Section 409A, and may amend the guidelines from time to time as permitted by Section 409A.

 

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

 

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

 

“Vesting Service” shall have the meaning prescribed in the Retirement Plan A.  Participants will continue to receive credit for Vesting Service after October 1, 2006.  A Disabled Participant will receive credit for Vesting Service on account of any period after the commencement of the Disability during which the Participant is characterized as an active employee on the Related Company’s employment records.

 

 

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IN WITNESS WHEREOF, ALLETE, Inc. has caused these presents to be signed by its duly authorized officers, effective as of January 1, 2011.

 

 

 

ALLETE, Inc.

 

 

By:  /s/ Alan R. Hodnik___________                                                              

 

                                                Alan R. Hodnik

 

Its:

President and Chief Executive Officer

 

 

ATTEST

 

By:  /s/ Deborah A. Amberg________                                                                         

 

Deborah A. Amberg

 

Its:  Senior Vice President, General Counsel and Secretary

 

 

 

 

 

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Exhibit 10(m)2

 

 

 

AMENDMENT TO

ALLETE EXECUTIVE LONG-TERM INCENTIVE COMPENSATION PLAN

 

The ALLETE Executive Long-Term Incentive Compensation Plan, as amended and restated effective January 1, 2006 (the “Plan”), is amended as follows, effective January 1, 2011.

 

1.	The following is added at the end Section 1.1:

 

Effective January 1, 2011, the Company hereby amends the Plan to incorporate any compensation recovery policy adopted by the Company, to explicitly prohibit re-pricing and cash

buyouts of Options and SARs granted under the Plan unless approved by Company shareholders, and to provide that in connection with a Change in Control, so long as the successor assumes a Restricted Stock Grant, the restrictions will be deemed to have lapsed upon the Participant’s termination of employment by the company in connection with the Change in Control.

                                

2.	A new Section 1.4 is added at the end of Article 1 to read as follows:

 

1.4          Compensation Recovery Policy. Effective January 1, 2011, all Grants are subject to the terms of any compensation recovery policy or policies established by the Company as

such policy or policies may be amended from time to time (“Compensation Recovery Policy”). The Company hereby incorporates the terms of the Compensation Recovery Policy into the Plan.

                                

3.	Section 5.3 is deleted in its entirety and replaced with the following:

 

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

determine.  Except in connection with a corporate transaction involving the Company (including, but not limited to, any stock dividend, stock split, recapitalization, reorganization, merger, spin-off or exchange of shares), the terms of an outstanding award may not be adjusted or amended to reduce the exercise price of any outstanding Option granted under the Plan without shareholder approval; nor may an outstanding award for Options granted under the Plan be cancelled, exchanged, bought out or surrendered in exchange for cash or another award or Options with an exercise price that is less than the exercise price of the original Option without shareholder approv al.

                                

4.  The following is added at the end Section 6.1:

 

Except in connection with a corporate transaction involving the Company (including, but not limited to, any stock dividend, stock split, recapitalization, reorganization, merger, spin-off

or exchange of shares), the terms of an outstanding award may not be adjusted or amended to reduce the exercise price of any outstanding SAR granted under the Plan without shareholder approval; nor may an outstanding award for SARs granted under the Plan be cancelled, exchanged, bought out or surrendered in exchange for cash or another award or SARs with an exercise price that is less than the exercise price of the original SAR without shareholder approval.

            

5.Paragraph (b) of Article 12 is deleted in its entirety and replaced with the following:

 

(b)

Any Period of Restriction and other restrictions imposed on Restricted Stock shall be deemed to have expired.  No Period of Restriction and other restrictions will be deemed to have expired, however, if and to the extent that the Restricted Stock Grant is, in connection with the Change in Control, fully assumed by the successor corporation or parent thereof; in such case, any Period of Restriction and other restrictions imposed on Restricted Stock shall be deemed to have expired upon a Participant’s termination of employment by the successor corporation for reasons other than cause within 18 months following the occurrence of the Change in Control.

 

 

IN WITNESS WHEREOF, and as evidence of the adoption of this amendment to the Plan, ALLETE, Inc. has caused this amendment to be executed by its duly authorized representative this __ day of ___________, 2011.

 

ALLETE, Inc.

By:  /s/ Alan R. Hodnik______________

Alan R. Hodnik

President and Chief Executive Officer

ATTEST:

By:  /s/ Deborah A. Amberg________

Deborah A. Amberg

Senior Vice President, General Counsel & Secretary

 

 

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Exhibit 10(m)11

 

ANNEX A

TO

ALLETE

EXECUTIVE LONG-TERM INCENTIVE COMPENSATION PLAN

PERFORMANCE SHARE GRANT

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

1.           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.

2.           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 Section 4 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 Pa rticipant.  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.

3.           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 Section 2 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 n ot vest until paid.

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

4.1           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 a s of the 15th of the month.

 

 

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4.2           If after the end of a Performance Period, but before any or all Performance Shares have been paid, as specified in Section 4.1 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.

4.3           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.

4.4           If the Participant has a Separation from Service for any reason other than those specified in subsection 4.1 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.

5.           Compensation Recovery Policy.  The Grant is subject to the terms of any compensation recovery policy or policies established by ALLETE as may be amended from time to time (“Compensation Recovery Policy”). ALLETE hereby incorporates into the Grant the terms of the Compensation Recovery Policy.

6.           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.

7.           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.

8.           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.

9.           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:

 

2

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

 

9.2           “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.

 

9.3           “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 Treasu ry 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.

9.4           “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.

9.5           “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 perc ent 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.

 

3

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Exhibit 10(m)12

 

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. Except as otherwise provided in Section 4, 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.

 

 

 

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3.2           Except as otherwise provided in Section 4, 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 ParticipantR 17;s death.

4.         Change in Control.  Upon a Change in Control, unless the Committee provides otherwise prior to the Change in Control, outstanding unvested RSU’s shall be prorated (as described below) and such prorated RSU’s shall immediately vest and be payable to the Participant during the period ending sixty days after the Change in Control.  The RSU’s will not be subject to proration and immediately vest, however, if and to the extent that the Grant is, in connection with the Change in Control, fully assumed by the successor corporation or parent thereof; in such case, the RSU’s shall be prorated and immediately v est upon a Participant’s termination of employment by the successor corporation for reasons other than cause within 18 months following the Change in Control and be payable to the Participant during the period ending sixty days after the termination of employment.  Any payment on account of or in connection with 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 or termination of employment, as applicable, 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.  In no event will the Participant be permitted, directly or indirectly, to designate the taxab le year of the distribution on account of or in connection with a Change in Control.

 

5.         Compensation Recovery Policy.  The Grant is subject to the terms of any compensation recovery policy or policies established by ALLETE as may be amended from time to time (“Compensation Recovery Policy”). ALLETE hereby incorporates into the Grant the terms of the Compensation Recovery Policy.

 

6.         Section 409A Compliance.  To the extent that any provision of the Grant would cause a conflict with the requirements of Section 409A or would cause the administration of the Grant to fail to satisfy Section 409A, such provision shall be deemed null and void to the extent permitted by applicable law.  Nothing herein shall be construed as a guarantee of any particular tax treatment.

 

 

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7.          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.

8.          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.

9.          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.

10.        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:

 10.1          “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;

 

 

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(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.

 

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

 

10.3           “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.

 

 

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10.4           “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 Treasur y 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.

10.5           “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.

 

10.6           “Section 409A” means Section 409A of the Code and Treasury Regulations section 1.409A-1 et seq., as they both may be amended from time to time, or other guidance issued by the Treasury Department and Internal Revenue Service thereunder.

10.7           “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 p erformed (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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10.8	“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 10(n)9

 

 

 

ALLETE, INC.

Non-Management Director Compensation

Effective January 19, 2011

 
 

Board Retainers (1) (2) Stock Cash	$60,000 $35,000
Committee Cash Retainers (1) (2) Audit Executive Compensation Corporate Governance & Nominating	$9,000 $7,500 $7,500
Chair Cash Retainers (1) (2) Audit Executive Compensation Corporate Governance & Nominating	$8,500 $5,500 $4,500

Lead Director (1) (2) (3) Board Stock Retainer Board Cash Retainer Lead Director Cash Retainer

$60,000 $35,000 $25,000

Board Chairman (1) (2) (3) Board Stock Retainer Board Cash Retainer

$90,000 $85,000

(1)	Cash and stock retainers may be deferred under the Director Compensation Deferral Plan II.

(2)	Cash retainers may be elected to be received in ALLETE stock.

(3)	Lead Director and Board Chairman are not eligible for other committee or chair retainers.

 

 

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Exhibit 10(q)

 

 

 

AMENDED AND RESTATED

 

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 adopted the Change in Control Severance Plan effective as of February 13, 2008.

 

Effective as of the “Effective Date,” The Board has adopted this Amended and Restated Change in Control Severance Pay Plan designed, among other changes, to eliminate the excise tax gross-up feature, to eliminate certain benefit continuation payments and to establish a modified severance payment cap, all as provided herein.

 

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 Plan 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 Plan” shall mean the ALLETE Executive Annual Incentive Plan and any similar or successor annual bonus plan, 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 acquir es 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 January 19, 2011.

 

“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 Amended and Restated 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 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; and (iii) an amount the Employ er 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.

 

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 wit h 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 otherw ise 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.

 

If it is determined that 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 Plan or otherwise (a “Payment”) would constitute an “excess parachute payment” within the meaning of Section 280G of the Code, the aggregate present value of the Payments under the Plan shall be reduced (but not below zero) to the Reduced Amount (defined below), provided that the Payments shall be reduced only if the Accounting Firm (described below) determines that the reduction will provide the Executive with a greater net after-tax benefit than would no reduction.  The “Reduced Amount” shall be an amount expressed in the present value which maximizes the aggregate presen t value of Payments under this Plan without causing any Payment under this Plan to be subject to the excise tax imposed under Code Section 4999, determined in accordance with Code Section 280G(d)(4).  Payments under this Plan shall be reduced on a nondiscretionary basis in such a way as to minimize the reduction in the economic value deliverable to the Participant.  Any such reduction shall be implemented in a manner consistent with the requirements of Code Section 409A, and if more than one payment has the same value for this purpose and they are payable at different times, they will be reduced on a pro rata basis.  The determination of whether any Payments constitute an “excess parachute payment” within the meaning of Code Section 280G and, if so, the amount to be delivered to the Participant pursuant to this Section of the Plan shall be determined by an independent accounting firm (the “Accounting Firm”) selected by the Participant and the Company. 0; The Accounting Firm shall be a nationally recognized United States public accounting firm.  If the Participant and the Company cannot agree on the Accounting Firm, the Participant and the Company shall each designate one (1) accounting firm and those two firms shall jointly select the accounting firm to serve as the Accounting Firm.  All fees and expenses of the Accounting Firm shall be borne solely by the Company.  Any determination by the Accounting Firm shall be binding upon the Company and the Participant.

 

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 la w 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 Chan ge 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 s hall 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 pa yments 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 persona l 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 Amended and Restated Change in Control Severance Plan effective as of the Effective Date.

 

ALLETE, Inc.

 

By:  ____________________________________

 

                     Name:  __________________________________

 

 

Attest:

 

By  ___________________________________

 

Its  ___________________________________

 

 

 

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Appendix A

Form of

SEPARATION AGREEMENT AND RELEASE

WHEREAS << [full name] >> (“Executive”) is a Participant of the Amended and Restated ALLETE and Affiliated Companies Change in Control Severance Plan (“the Plan”), and whereas Executive’s employment with <<ALLETE, Inc. or applicable Affiliate >> (together with all affiliates of ALLETE, Inc., the “Company”) terminated effective <<Termination Date>> (“<<”Termination Date” / “Retirement Date”>>)under circumstances that make Executive eligible to receive certain compens ation 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 (collective ly “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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Exhibit 12

ALLETE

Computation of Ratios of Earnings to Fixed Charges (Unaudited)

Year Ended December 31	2010	2009	2008	2007	2006
Millions
Earnings, as defined:
Pretax Income Before Non-Controlling Interest	$119.1	$91.5	$126.4	$137.2	$128.2
Add: Fixed Charges	43.4	38.3	30.3	26.6	27.7
Less:  Non-Controlling Interest (a)	–	–	–	–	–
Undistributed Income from Less than 50 percent
Owned Equity Investment	3.4	3.7	3.8	3.3	2.3
Total Earnings as defined	$159.1	$126.1	$152.9	$160.5	$153.6
Fixed Charges:
Interest on Long-Term Debt	$39.7	$34.2	$27.4	$23.2	$22.8
Other Interest Charges	1.0	1.6	0.4	1.5	2.9
Interest Component of All Rentals (b)	2.7	2.5	2.5	1.9	2.0
Total Fixed Charges	$43.4	$38.3	$30.3	$26.6	$27.7
Ratio of Earnings to Fixed Charges	3.67	3.29	5.05	6.03	5.55

 

(a) Pretax income of subsidiaries that have not incurred fixed charges.

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

Exhibit 21

Exhibit 21

 

SUBSIDIARIES OF THE REGISTRANT

(As of December 31, 2010)

(Reported Under Item 601 of Regulation S-K)

                                                                                                                                  0;       State or Country

Name                                                                                                                       0;                                                                                                                                                                          & #160; 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 Commercial, LLC									Florida
		Cape Coral Holdings, Inc.									Florida
		Lake Swamp, LLC									Florida
		Lehigh Acquisition Corporation									Delaware
				Florida Landmark Communities, LLC							Florida
						Lehigh Corporation					Florida
						Mardem, LLC
						Palm Coast Holdings, Inc.					Florida
						Port Orange Holdings, LLC					Florida
				Interlachen Lakes Estates, LLC							Florida
		Palm Coast Land, LLC									Florida
		Tomoka Holdings, LLC									Florida
	ALLETE Water Services, Inc.										Minnesota
		Florida Water Services Corporation									Florida
			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
		ALLETE Renewable Resources, Inc.
		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
	MP Investments, Inc.										Delaware
	RendField Land Company, Inc.										Minnesota
	Superior Water, Light and Power Company										Wisconsin

Exhibit 23(a)

ALLETE 2010 Form 10-K

Consent of Independent Registered Public Accounting Firm

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (Nos. 333-166515, 333-170289) and Form S-8 (Nos. 333-16445, 333-91348, 333-105225, 333-162890) of ALLETE, Inc. of our report dated February 16, 2011, relating to the financial statements, financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

 

/s/ PricewaterhouseCoopers LLP

PRICEWATERHOUSECOOPERS LLP

Minneapolis, Minnesota

February 16, 2011

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, Alan R. Hodnik, of ALLETE, Inc. (ALLETE), certify that:

1.	I have reviewed this annual report on Form 10-K for the fiscal year ended December 31, 2010, 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 16, 2011

Alan R. Hodnik

Alan R. Hodnik

President 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, 2010, 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 16, 2011

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 16, 2011

Alan R. Hodnik

Alan R. Hodnik

President and Chief Executive Officer

Date:  February 16, 2011

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 16, 2011
	Investor Contact:	Tim Thorp
		218-723-3953
		tthorp@allete.com

 

ALLETE reports 16 percent growth in 2010 earnings per share

 

ALLETE, Inc. (NYSE:ALE) today reported 2010 earnings of $2.19 per share, a 16 percent increase over the $1.89 per share recorded in 2009. ALLETE’s net income in 2010 was $75.3 million on total operating revenue of $907 million, compared to $61 million of net income and revenue of $759.1 million in 2009. Excluding a nonrecurring 12 cent charge as a result of the Patient Protection and Affordable Care Act, ALLETE’s pro forma earnings were $2.31 per share in 2010. 2009 results included a 15 cent per share nonrecurring charge.

 

“Improved power sales to our taconite customers was a reflection of a healthier economy and positively impacted our earnings for the year,” said ALLETE President and CEO Al Hodnik. “Megawatt-hour sales to these customers increased by 104 percent from 2009 to 2010.”

 

Income from Regulated Operations rose to $79.8 million during 2010 from $65.9 million in the previous year. The results reflected the stronger megawatt-hour sales combined with interim rate increases for Minnesota Power retail customers, and increased transmission-related margins. These increases were significantly offset by higher operating and maintenance, depreciation, interest and income tax expenses.

 

The Investments and Other segment recorded a net loss of $4.5 million during the year compared to a net loss of $4.9 million in 2009.

 

An increase in the average number of common shares outstanding, with issuance proceeds used to fund the company’s capital expenditure program, had a dilutive impact of 14 cents per share in 2010.

 

Hodnik said the company expects to earn between $2.35 and $2.55 in 2011. The company recently increased its quarterly dividend to 44.5 cents per share.

 

“We anticipate building upon our strengths in 2011 and beyond, to the benefit of our customers and shareholders, as the overall economy improves and we continue to make capital investments in renewable and transmission assets,” Hodnik said.

 

The company will host a conference call and webcast at 10:00 a.m. Eastern time today to discuss details of its performance for the year. Interested parties may listen live by calling (877) 303-5852, or by accessing the webcast at www.allete.com. A replay of the call will be available through February 20, 2011 by dialing (800) 642-1687, pass code 38206714.

 

ALLETE’s corporate headquarters are in Duluth, Minnesota. In addition to its electric utilities, Minnesota Power in northeast Minnesota and Superior, Water, Light & Power Co. in northwest Wisconsin, ALLETE owns BNI Coal in Center, N. D. and has an eight percent equity interest in American Transmission Co. More information about the company is available on ALLETE’s Web site at www.allete.com.

 

 

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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, 2010 and 2009

Millions Except Per Share Amounts

			Quarter Ended		Year to Date
			2010	2009	2010	2009
Operating Revenue
	Operating Revenue		$238.1	$216.0	$907.0	$766.7
	Prior Year Rate Refunds		–	–	–	(7.6)
		Total Operating Revenue	238.1	216.0	907.0	759.1
Operating Expenses
	Fuel and Purchased Power		92.0	80.1	325.1	279.5
	Operating and Maintenance		102.7	84.2	365.6	308.9
	Depreciation		20.7	17.9	80.5	64.7
		Total Operating Expenses	215.4	182.2	771.2	653.1
Operating Income			22.7	33.8	135.8	106.0
Other Income (Expense)
	Interest Expense		(11.1)	(8.4)	(39.2)	(33.8)
	Equity Earnings in ATC		4.5	4.6	17.9	17.5
	Other		0.8	(2.0)	4.6	1.8
		Total Other Income (Expense)	(5.8)	(5.8)	(16.7)	(14.5)
Income Before Non-Controlling Interest and  Income Taxes			16.9	28.0	119.1	91.5
Income Tax Expense			3.8	9.3	44.3	30.8
Net Income			13.1	18.7	74.8	60.7
	Less: Non-Controlling Interest in Subsidiaries		(0.2)	–	(0.5)	(0.3)
Net Income Attributable to ALLETE			$13.3	$18.7	$75.3	$61.0
Average Shares of Common Stock
	Basic		34.5	33.4	34.2	32.2
	Diluted		34.7	33.5	34.3	32.2
Basic Earnings Per Share of Common Stock			$0.38	$0.56	$2.20	$1.89
Diluted Earnings Per Share of Common Stock			0.38	0.56	2.19	1.89
Dividends Per Share of Common Stock			$0.44	$0.44	$1.76	$1.76

 

Consolidated Balance Sheet

Millions

	Dec. 31,	Dec. 31,			Dec. 31	Dec. 31,
	2010	2009			2010	2009
Assets				Liabilities and Equity
Cash and Short-Term Investments	$51.6	$25.7		Current Liabilities	$158.9	$133.1
Other Current Assets	188.1	199.8		Long-Term Debt	771.6	695.8
Property, Plant and Equipment	1,805.6	1,622.7		Other Liabilities	324.8	325.0
Regulatory Assets	310.2	293.2		Regulatory Liabilities	43.6	47.1
Investment in ATC	93.3	88.4		Deferred Income Taxes	325.2	253.1
Investments	126.0	130.5		Equity	985.0	939.0
Other	34.3	32.8
Total Assets	$2,609.1	$2,393.1		Total Liabilities and Equity	$2,609.1	$2,393.1

 

 

 

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					Quarter Ended		Year to Date
ALLETE, Inc.					December 31,		December 31,
Income (Loss)					2010	2009	2010	2009
Millions
	Regulated Operations				$14.6	$20.9	$79.8	$65.9
	Investments and Other				(1.3)	(2.2)	(4.5)	(4.9)
	Net Income Attributable to ALLETE				$13.3	$18.7	$75.3	$61.0
Diluted Earnings Per Share					$0.38	$0.56	$2.19	$1.89

Statistical Data
Corporate
	Common Stock
		High			$37.95	$35.29	$37.95	$35.29
		Low			$34.81	$32.23	$29.99	$23.35
		Close			$37.26	$32.68	$37.26	$32.68
	Book Value				$27.25	$26.39	$27.25	$26.39

Kilowatt-hours Sold
Millions
	Regulated Utility
		Retail and Municipals
			Residential		303	308	1,150	1,164
			Commercial		359	358	1,433	1,420
			Municipals		260	262	1,006	992
			Industrial		1,848	1,294	6,804	4,475
				Total Retail and Municipal	2,770	2,222	10,393	8,051
		Other Power Suppliers			577	981	2,745	4,056
				Total Regulated Utility	3,347	3,203	13,138	12,107
	Non-regulated Energy Operations				31	41	118	203
				Total Kilowatt-hours Sold	3,378	3,244	13,256	12,310

 

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.