SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )

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/ / Preliminary Proxy Statement
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/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12

Minnesota Power & Light Company
...............................................................................................................................................................
(Name of Registrant as Specified in Its Charter)

Philip R. Halverson
...............................................................................................................................................................
(Name of Person(s) Filing Proxy Statement)Statement, if other than the Registrant)

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[LOGO]

NOTICE AND PROXY STATEMENT

------------------------------

Annual Meeting of Shareholders

Tuesday, May 13, 1997
Duluth, Minnesota

------------------------------

[LOGO OF MINNESOTA POWER] NOTICE AND PROXY STATEMENT

ANNUAL MEETING OF SHAREHOLDERS
Tuesday, May 14, 1996
Duluth, Minnesota

[LOGO OF MINNESOTA POWER]March 20, 1997

Dear Shareholder:

WeYou are cordially invite youinvited to attend Minnesota Power's 19961997 Annual Meeting
of Shareholders on Tuesday, May 14, 199613, 1997 at 2 p.m.10:30 a.m. in the auditorium at the
Duluth Entertainment Convention Center (DECC). The DECC is located on the
waterfront at 350 Harbor Drive in Duluth. Free parking is available in the
adjoining lot. On behalf of the Board of Directors, weI encourage you to attend.

This year there13 nominees are 14 nominees standing for election to the Board. Two members of the Board, Sister Kathleen Hofer and Charles Russell, will
not stand for reelection. We thank them for their contributions to the success
of the Company. We are
pleased to have standing for election, for the first
time, D. Michael Hockett, Jack R. Kelly, Jr., and George L. Mayer. Mr.
Hockett is Chairmana new nominee, Ms. Kathleen A. Brekken, President and CEO of
ADESA Corporation,Midwest of Cannon Falls. With her election, Ms. Brekken will bring to the Board
the entrepreneurial and marketing skills she has used to build her family-owned
business in Cannon Falls, Minnesota into a successful enterprise serving major
markets in the U.S. and Canada.

Also to be acted upon at our new automobile auction
subsidiary. Mr. Kelly was Chairmanmeeting is a shareholder proposal recommending
that the Shareholder Rights Plan adopted by the Board on July 26, 1996 be
repealed unless it is approved by shareholders. As explained more fully within,
your Board of ADESA until it joinedDirectors believes the Rights Plan to be an important tool
available to the Board for assuring that any party interested in acquiring
Minnesota Power last July. He continuespay all shareholders full value for their shares. Therefore, we
urge you to vote against this shareholder proposal.

After our Annual Meeting, we invite you to visit with our directors,
officers and employees over a box lunch. A summary of the Annual Meeting
proceedings will be a valued advisormailed in early June to ADESA, servingall shareholders. If you plan on
its board
of directors. Mr. Mayer, a seasoned real estate investor and manager,
will contribute toattending please return the Company's ongoing real estate investment strategy.

We recommend for your approval the Executive Long-Term Incentive
Compensation Plan and the Director Long-Term Stock Incentive Plan. The plans are
designed to more closely link the interest of Directors and management to those
of our shareholders.enclosed reservation card.

It is important that your shares be represented at the Annual Meeting. At
your earliest convenience, please sign, date, and mail the enclosed proxy card
in the envelope provided.

Prior to our Annual Meeting this year, you will have a special
opportunity to learn more about the newest member of Minnesota Power's team,
ADESA Corporation. Key members of ADESA management will be on hand with displays
and information booths describing ADESA's many services to the automotive
industry. As a special plus, the ADESA team will conduct a live automobile
auction, with licensed car dealers selling and bidding on cars. The ADESA
management team will make presentations and answer your questions over a box
lunch. Visit with the car dealers as well. This program will be very informative
and fun. Review the enclosed information and, if you plan to participate, please
fill out the enclosed reply card and return it with your proxy.

A summary of the Annual Meeting proceedings will be mailed in early
June to all shareholders.

Thank you for your continued support.

We look forward to seeing you in
May.

Sincerely,

Arend J. SandbulteEdwin L. Russell
Edwin L. Russell
Chairman, President and
Chief Executive Officer

MINNESOTA POWER & LIGHT COMPANY
- - --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS - MAY 14, 199613, 1997
- - --------------------------------------------------------------------------------
The Annual Meeting of Shareholders of Minnesota Power & Light Company
will be held in the auditorium at the Duluth Entertainment Convention Center,
350 Harbor Drive, Duluth, Minnesota, on Tuesday, May 14, 199613, 1997 at 2 p.m.10:30 a.m. for
the following purposes:

1. To elect a Board of 14 Directors13 directors to serve for the ensuing year;

2. To appoint Price Waterhouse LLP as the Company's independent accountants
for 1996;1997;

3. To vote uponon a shareholder proposal to approveregarding the Minnesota Power Executive
Long-Term Incentive Compensation Plan;

4. To vote upon a proposal to approve the Minnesota Power Director
Long-Term Stock IncentiveCompany's Shareholder
Rights Plan; and

5.4. To transact such other business as may properly come before the meeting
or any adjournments thereof.

Shareholders of record on the books of the Company at the close of business
on March 15, 199614, 1997, are entitled to notice of and to vote at the Annual Meeting.

All shareholders are cordially invited and encouraged to attend the meeting
in person. The holders of a majority of the shares entitled to vote at the
meeting must be present in person or by proxy to constitute a quorum.

We would appreciate your signing and returning the enclosed proxy card at
your earliest convenience to facilitate an efficient tally of your votes.

By order of the Board of Directors,

Philip R. Halverson
CorporatePhilip R. Halverson
Vice President, General Counsel
and Secretary

Dated at Duluth, Minnesota
March 20, 19961997

If you have not received the Minnesota Power 19951996 Annual Report, which
includes financial statements, kindly notify Minnesota Power Shareholder
Services, 30 West Superior Street, Duluth, MN 55802, telephone number
1-800-535-3056 or 1-218-723-3974, and a copy will be sent to you.

MINNESOTA POWER & LIGHT COMPANY
30 West Superior Street
Duluth, Minnesota 55802

- - --------------------------------------------------------------------------------
PROXY STATEMENT
- - --------------------------------------------------------------------------------
Solicitation

The Proxy accompanying this statement is solicited on behalf of the Board
of Directors of Minnesota Power & Light Company (Minnesota Power or Company) for
use at the Annual Meeting of Shareholders to be held on May 14,
1996,13, 1997, and any
adjournments thereof. The purpose of the meeting is to elect a Board of 1413
Directors to serve for the ensuing year, to appoint Price Waterhouse LLP as the
Company's independent accountants for 1996,1997, to vote uponconsider a shareholder proposal
to approveregarding the Executive Long-Term Incentive Compensation Plan, to vote upon a
proposal to approve the Director Long-Term Stock IncentiveCompany's Shareholder Rights Plan, and to transact such other
business as may properly come before the meeting. All properly executed proxies
received at or before the meeting, and entitled to vote, will be voted at the
meeting.

This Proxy Statement and enclosed proxy card were first mailed on or about
March 20, 1996.1997. Each proxy delivered pursuant to this solicitation is revocable
any time before it is voted, by written notice delivered to the
Corporate Secretary of the
Company.

The Company expects to solicit proxies primarily by mail. Proxies also may
be solicited in person and by telephone at a nominal cost by regular or retired
employees of the Company. The expenses of such solicitation are the ordinary
ones in connection with preparing, assembling, and mailing the material and also
include charges and expenses of brokerage houses and other custodians, nominees,
or other fiduciaries for communicating with shareholders. Additional
solicitation of proxies will be made by mail, telephone, and in person by
Corporate Investor Communications, Inc., a firm specializing in the solicitation
of proxies, at a cost to the Company of approximately $6,000 plus expenses. The
total amount of such expensescosts will be borne by the Company.

Outstanding Shares and Voting Procedures

The outstanding shares of capital stock of the Company, as of March 15,
1996,14,
1997, were as follows:

Preferred Stock 5% Series ($100 par value)........................113,358 shares

Serial Preferred Stock $7.36 Series (without par value)...........170,000.......................113,358 shares
Serial Preferred Stock A $7.125 Series (without par value)........100,000.......100,000 shares
Serial Preferred Stock A $6.70 Series (without par value).........100,000........100,000 shares
Common Stock (without par value) ..............................31,647,905..............................32,934,958 shares

Each share of the Company's Common Stock and preferred stocks and Common Stock of record on
the books of the Company at the close of business on March 15, 1996,14, 1997, is entitled
to notice of the Annual Meeting and to one vote.

The affirmative vote of a majority of the shares of stock present and
entitled to vote at the Annual Meeting is required for election of each director
and for
1

approval of the other items to be acted upon by shareholders. An automated
system administered by the Company's Shareholder Services Department tabulates
the votes. Abstentions are included in determining the number of shares present
and voting and are treated as votes against the particular proposal. Broker
non-votes are not counted for or against any particular
proposal.

Unless contrary instructions are indicated on the Proxy, all shares
represented by valid proxies will be voted "FOR" the election of all nominees
for director named herein, "FOR" the appointment of Price Waterhouse, LLP as the
Company's independent accountants for 1997, and "AGAINST" the shareholder
proposal regarding the Company's Shareholder Rights Plan.

Proposals of Shareholders for the 1998 Annual Meeting
Scheduled for May 13, 1997

All proposals from shareholders to be considered at the Annual Meeting
scheduled for May 13, 199712, 1998 must be received by the Corporate Secretary at 30 West Superior
Street, Duluth, Minnesota 55802, not later than November 20, 1996.21, 1997.

Security Ownership of Certain Beneficial Owners and Management

The following table lists the only persons known to the Company who ownowned
beneficially as of March 1, 1996,1997, more than 5 percent of any class of the
Company's voting securities. Unless otherwise indicated, the beneficial owners
shown have sole voting and investment power over the shares listed.

Number of Shares Percentage
Title of Class Name and Address of Beneficial Owner Beneficially Owned of the Class
- - -------------- ------------------------------------ ------------------ ------------

Serial Preferred American General Corporation 15,400 9.1%
Stock 2929 Allen Parkway
Houston, TX 77019
- -----------------------------------------------------------------------------------------------------------------------
Serial Preferred ISACO 150,000 75.0%
Stock A c/o IDS Trust
P.O. Box 1450
Minneapolis, MN 55485
- ------------------------------------------------------------------------------------------------------------------------ ----------------------------------------------------------------------------------------------
Serial Preferred HARE & Co. 30,000 15.0%
Stock A c/o Bank of New York
P.O. Box 11203
New York, NY 10249
- ------------------------------------------------------------------------------------------------------------------------ ----------------------------------------------------------------------------------------------
Serial Preferred Auer & Co. 10,000 5.0%
Stock A c/o Bankers Trust Co.
P.O. Box 704
New York, NY 10015
- ------------------------------------------------------------------------------------------------------------------------ ----------------------------------------------------------------------------------------------
Serial Preferred Sigler & Co. 10,000 5.0%
Stock A c/o Manufacturers Hanover Trust Co.
P.O. Box 50000
Newark, NJ 07101-8006
- ------------------------------------------------------------------------------------------------------------------------ ----------------------------------------------------------------------------------------------
Common Stock Mellon Bank, N.A. 4,696,7934,865,604 15.0%
One Mellon Bank Center
Pittsburgh, PA 15258
- ------------------------------------------------------------------------------------------------------------------------ ----------------------------------------------------------------------------------------------

American General has shared power with American General Life and
Accident Insurance Company (AGLA) to vote or direct the vote and to dispose or
direct the disposition of 10,000 shares, and with American General Life
Insurance Company of New York (AGNY) to vote or direct the vote and to dispose
or direct the disposition of 5,400 shares. AGLA and AGNY, wholly owned
subsidiaries of American General, are the record owners of these shares.
Mellon Bank holds 4,548,3444,371,481 shares in its capacity as Trustee of the
Minnesota Power and Affiliated Companies Employee Stock Ownership Plan and
Trust (ESOP). Generally, these shares will be voted in accordance with
instructions received by Mellon Bank from participants in the ESOP.

The following table presents the shares of Common Stock of the Company
(Common Stock) beneficially owned by directors, nominees for director, executive
officers named in the Summary Compensation Table appearing subsequently in this
Proxy Statement, and all directors and executive officers of the Company as a
group, as of March 15, 1996.14, 1997. Unless otherwise indicated, the persons shown have
sole voting and investment power over the shares listed.

Shares Stock Shares Stock
Name of Beneficial Owner SharesOwned* Options Name of Beneficial Owner SharesOwned* Options
- - ------------------------ ------------- --------- ------------------------ -------------- ---------

Kathleen A. Brekken 200 0 Bruce W. Stender 2,081 1,450
Merrill K. Cragun 3,200 Charles A.3,912 1,450 Edwin L. Russell 7,26443,947 26,890
Dennis E. Evans 5,400 Edwin L. Russell 16,557
D. Michael Hockett 0 5,900 1,450 Arend J. Sandbulte 31,055
Sr. Kathleen Hofer 0 Nick Smith 1,22532,667 725
Peter J. Johnson 3,840 Bruce W. Stender 1,461
Jack R. Kelly, Jr. 1,5005,252 1,450 Donald C. Wegmiller 2,8913,804 1,450
George L. Mayer 21,0002,000 1,450 John Cirello 1,000 10,267
Paula F. McQueen 2,700 1,450 Donnie R. Crandell 2,373
Paula F. McQueen 2,2002,907 10,684
Robert S. Nickoloff 7,964 1,450 Robert D. Edwards 10,035
Robert S. Nickoloff 6,92610,672 11,642
Jack I. Rajala 9,400 1,450 David G. Gartzke 4,734
Jack I. Rajala 8,260 Jack R. McDonald 10,219 5,486 9,072
Nick Smith 1,725 1,450

Directors and Executive Officers as a Group (26(24 in Group) 144,659275,570
- - -------------------------------------------------------------------------------------------------------------------
Each*Each director, nominee for director, and executive officer owns only a fraction of 1 percent of any class of
Company stock and all directors and executive officers as a group also own less than 1 percent of any class.
- - -------------------------------------------------------------------------------------------------------------------
Mr. Hockett, Director Twenty-five percent of Minnesota Power and Chairman and CEO of ADESA
Corporation, holds a 15 percent ownership interest in ADESA, which links
his financial interest with that of the Company.
Consistent with her vows as a member of the Benedictine Order, Sr.
Kathleen Hofer owns no stock of the Company.
options are currently exercisable.
Voting and investment power for all shares is shared with his spouse.
Includes 16,20925 shares owned by his spouse.
Includes 24,387 shares for which voting and investment power is shared
with his spouse, and 3481,488 shares ownedheld as custodian for his children.
children and
18,000 shares of restricted stock in which voting power is shared with
his spouse.
Includes 3,6343,655 shares for which voting and investment power is shared
with his spouse.
Includes 505 Shares owned includes 623 shares owned by his spouse.
Includes 2,420 sharesspouse and stock
options includes 2,625 options owned by his spouse.

- - --------------------------------------------------------------------------------
ITEM NO. 1 - ELECTION OF DIRECTORS
- - --------------------------------------------------------------------------------

The Board expects that all of the nominees will be available for
election. In the event, however, that any of them should become unavailable, itIt is intended that the proxy wouldshares represented by the enclosed Proxy will be
voted, unless authority is withheld, "FOR" the election of the 13 nominees for
Director named in the following section. Directors are elected to serve until
the next annual election of directors and until a successor is elected and
qualified or until a director's earlier resignation or removal. In the event
that any nominee should become unavailable, which is not anticipated, the Board
of Directors may provide by resolution for a nomineelesser number of directors or
designate substitute nominees, who would be
designatedreceive the votes represented by the
Board, unless the Board reduces the number of directors
serving on the Board.

In connection with its acquisition of ADESA in July 1995, the Company
appointed Mr. Hockett as a director, effective July 26, 1995, and agreed to
nominate Mr. Hockett (or an alternate nominee selected by a majority of the
ADESA management shareholders) for election by the shareholders at the 1996,
1997, and 1998 Annual Meetings, and thereafter if ADESA management has not then
exercised its right to sell or the Company has not exercised its right to
purchase ADESA management's 17 percent ownership interest in ADESA Corporation.enclosed Proxy.
3

Nominees for Director
All nominees are currently serving as directors except for Kathleen A. Brekken.

Directors Standing for Election

Director
Since
--------

PHOTO KATHLEEN A. BREKKEN, 47, Cannon Falls, MN. President and CEO of -
Midwest of Cannon Falls, Inc., a wholesale distributor of seasonal
gift items, exclusive collectibles, and distinctive home decor, with
fifteen showrooms in major markets throughout the U.S. and Canada.
Board of Regents of St. Olaf College in Minnesota.

PHOTO MERRILL K. CRAGUN, 64,65, Brainerd, MN. President of Cragun 1991
Corp., a 1991
resort and conference center. Director of MP Real Estate Holdings,
Inc. (MP Real Estate), and MP Water Resources, Inc.* (MP Water Resources)Water).

PHOTO DENNIS E. EVANS, 57,58, Minneapolis, MN. Member of the Executive 1986
and the 1986
Executive Compensation Committees. President and Chief Executive Officer (CEO)CEO of the Hanrow
Financial Group, Ltd., a merchant banking firm. Director of MP
Water
Resources, ADESA Corporation (ADESA), Angeion Corporation and
Astrocom Corporation.

PHOTO D. MICHAEL HOCKETT, 53, Indianapolis, IN. Chairman and CEO 1995
of ADESA. He was previously CEO and President of ADESA
and, before that, CEO of the four auto auction companies
that became subsidiaries of ADESA when it was formed in 1992.

PHOTO PETER J. JOHNSON, 59,60, Tower, MN. Member of the Electric Operations 1994
Operations
Committee. President and CEO of Hoover Construction Company, a highway
and heavy construction contractor. Chairman of Michigan Limestone
Operations, which produces limestone. Director of Queen City Federal
Savings and of Queen City Bancorp, Inc.

PHOTO JACK R. KELLY, JR., 61, Atlanta, GA. Director of ADESA 1996
(was Chairman until July 1995). A general partner in
Noro-Moseley Partners, a venture capital firm with
committed capital of approximately $150 million focusing
on growth companies in the Southeast.

PHOTO GEORGE L. MAYER, 51,52, Essex, CT. Founder and President of --
Manhattan 1996
Realty Group which manages various real estate properties located
predominantly in northeastern United States. Director of MP Real
Estate.A consultant to the board of directors of Schwaab, Inc.,
one of the country's largest manufacturermanufacturers of handheld rubber stamps
and associated products.

- - --------------------------------------------------------------------------------
A wholly owned subsidiary of Minnesota Power,
except that Minnesota Power owns 83 percent of ADESA.Power.
- - --------------------------------------------------------------------------------

Director
Since
--------

PHOTO PAULA F. McQUEEN, 49,50, Punta Gorda, FL. Member of the 1993
Executive and 1993
Audit Committees. Partner of Webb, McQueen & Co., P.L., a certified
public accounting firm. President and CEO of Allied Engineering &
Testing Inc., an engineering and materials testing company. She wasWas
previously Director and President of PGI Sales Incorporated, a
southwest Florida community developer. Director of MP Water Resources, MP
Real Estate Holdings, and SouthTrust Bank of Southwest Florida, N.A.

PHOTO ROBERT S. NICKOLOFF, 66,67, St. Paul, MN. Chairman of the Executive 1986
Executive
Compensation Committee and member of the Executive Committee. Board
Chairman of the Board of Medical Innovation Capital, Inc., and General Partner of
Medical Innovation Partners and Medical Innovation Partners II, all
venture capital firms. Self-employed as an attorney. Director of
ADESA, and Green Tree Financial Corporation.Corporation and Integ, Inc.

PHOTO JACK I. RAJALA, 56,57, Grand Rapids, MN. Member of the Executive 1985
and the1985
Electric Operations Committees. Chairman and CEO of Rajala Companies
and Director and President of Rajala Mill Company, which manufacture
and trade lumber. Director of Grand Rapids State Bank.

PHOTO EDWIN L. RUSSELL, 51,52, Duluth, MN. Chairman, President and CEO of 1995
Minnesota Power. Member of the Executive and the Electric Operations
Committees. Director of ADESA, MP Water
Resources, MP Real Estate Holdings,
American Paging, Inc., American Photo Booths,Capital Re, Inc., Tennent Co., Lake Superior
Center, United Way of Greater Duluth and Advantage Minnesota. He wasWas
previously Group Vice President of J. M. Huber Corporation, a $1.5
billion diversified manufacturing and natural resources company.

PHOTO AREND J. SANDBULTE, 62,63, Duluth, MN. Former Chairman, President and CEO 1983
of Minnesota 1983
Power andPower. Member of the Executive Committee. He was President of
Minnesota Power until May 1995 and CEO until January
1996. Chairman of Superior Water, Light and Power
Company and MP Water Resources. Director of
ADESA, and St. Mary Land and Exploration Company.Company, Iowa State
University Foundation, and the Community Board of Norwest Bank
Minnesota North. Chairman of Lake Superior Center.

- - --------------------------------------------------------------------------------
A wholly owned subsidiary of Minnesota Power.
- - --------------------------------------------------------------------------------

Director
Since
--------

PHOTO NICK SMITH, 59,60, Duluth, MN. Member of the Executive 1995
Compensation and 1995
Electric Operations Committees. Chairman of and attorney with
Fryberger, Buchanan, Smith & Frederick, P.A., a law firm. Director of
MP Water Resources. and North Shore Bank of Commerce. Chair and CEO of
Northeast Ventures Corporation, a venture capital firm investing in
northeastern Minnesota.

- --------------------------------------------------------------------------------
A wholly owned subsidiary of Minnesota Power,
except that Minnesota Power owns 83 percent of ADESA.
- --------------------------------------------------------------------------------

Director
Since
--------
PHOTO BRUCE W. STENDER, 54,55, Duluth, MN. Member of the Audit Committee. 1995
Committee.
President and CEO of Labovitz Enterprises, Inc. which owns and manages
hotel properties. Director of ADESA. Chairman of the Sota Tech
Fund, a non-profit corporation developing new technologies, and Vice Chairmana
Trustee of the Benedictine Health System, the parent corporation for a
group of non-profit health care providers.C. K. Blandin Foundation.

PHOTO DONALD C. WEGMILLER, 57,58, Minneapolis, MN. Chairman of the Audit 1992
Audit
Committee and member of the Executive Compensation Committee.
President and CEO of Management Compensation Group/HealthCare, a
national executive compensation and benefits consulting firm. He wasWas
previously Vice Chairman and President of Health Span Health System
and President and CEO of Health One Corporation, diversified health
services organizations. Director of G. D. Searle and Co., HBO &
Company, Medical Graphics Corporation, Health Providers
Insurance Company, InPhyNet Medical Management,
Inc., Life Rate Systems, Inc., and Possis Medical, Inc.

Board and Committee Meetings in 19951996

During 1995,1996 the Board of Directors held nine6 meetings. The Executive
Committee, which held five6 meetings during 1995,1996, provides oversight of corporate
financial matters, performs the functions of a director nominating committee,
and is authorized to exercise the authority of the Board in the intervals
between meetings. Shareholders may recommend nominees for director to the
Executive Committee by addressing the Corporate Secretary of the Company, 30 West
Superior Street, Duluth, Minnesota 55802. The Audit Committee, which held
five4 meetings in 1995,1996, recommends the selection of independent accountants,
reviews and evaluates the Company's accounting and financial practices, and
reviews and recommends approval of the annual audit report. The Executive
Compensation Committee, which held four3 meetings in 1995, ensures that1996, establishes compensation
and benefit arrangements for Company officers and other key executives
areintended to be equitable, competitive
6

with the marketplace, and consistent with corporate objectives. The Electric
Operations Committee, which held three4 meetings in 1995,1996, provides oversight of the
Company's MP-ElectricMP Electric business unit. The Directors sitting on the boardboards of MP Water
Resources, Inc., ADESA Corporation and MP Real Estate Holdings, Inc., bothall wholly
owned subsidiaries willof Minnesota Power, have oversight of Minnesota Power's
water, operationsautomotive, and real estate operations, respectively. All directors
attended 75 percent or more of the 6
aggregate number of meetings of the Board of
Directors and applicable committee meetings in 1995.

Certain Relationships and Related Transactions

ADESA Relationships

On December 19, 1995 ADESA Corporation,1996.

Director Compensation

Employee directors receive no additional compensation for their services as
directors. In 1996 the Company's subsidiary,
purchased Eagle Investments II, LLC (Eagle), an Indiana limited liability
company, from five members of the ADESA Corporation's Executive Management team,
including Mr. Hockett, ADESA's Chairman and CEO, who owned 90 percent of Eagle.
Eagle's only asset was a jet aircraft which was to be used by ADESA in managing
its growing number of auction sites. ADESACompany paid Eagle $99,000 as the cash
purchase price for these interests. An additional $1,814,795, representing the
principal and interest owing on a Note held by Bank One, N.A., Indianapolis, was
paid to Eagle and the jet aircraft is now owned free and clear of liens. Eagle
paid $1,881,318 for the aircraft, license, and other associated acquisition
costs on July 11, 1995, and invested $52,216 in the aircraft for improvements
and maintenance. Upon subsequent evaluation, it was determined that ownership of
a jet aircraft would no longer be necessary, and ADESA has now sold the
aircraft.

ADESA leases space oneach director an annual basis for its principal offices in an
office building located at 1919 S. Post Road, Indianapolis, Indiana, from CIL,
Inc., an entity that is wholly owned by Mr. Hockett. ADESA paid an aggregateretainer fee of
$148,488 in lease payments to CIL during 1995. Management believes that$5,000 and 500 shares of Common Stock under the terms of the lease are comparableCompany's Director
Stock Plan. In addition, each director was paid $950 for each Board, Committee,
and subsidiary board meeting attended, except that $500 was paid for attendance
at a second meeting held the same day as another meeting. Each director who is
the Chairman of a Committee received an additional $150 for each Committee
meeting attended. A $250 fee was paid for all conference call meetings.
Directors may elect to terms that could be obtained by ADESA from
unrelated parties for comparable rental property. As specified underdefer all or a services
agreement with CIL, ADESA received $19,200 inpart of the cash portion of their retainer
fees from CIL for providing
certain general and administrative servicesmeeting fees. The shares of Common Stock paid to CIL. ADESAdirectors during 1996
had an outstanding
receivable from CIL at December 31, 1995average market price of $95,541 arising from the purchase$27.24 per share. The Company also provides life
insurance of automobiles at ADESA-Indianapolis and certain construction costs incurred by
ADESA at 1919 S. Post Road, Indianapolis, Indiana which were to be reimbursed by
CIL. Such receivables were paid in the normal course of business.

Mr. Hockett and Mr. Dave Hill, a director and executive officer of
ADESA, and Mr. Hill's son own an automobile dealership that has participated as
a seller and a buyer at certain of ADESA's auction facilities. In addition, Mr.
Hockett, Mr. Hill, and Mr. Larry Wechter, a director and executive officer of
ADESA, are directors and officers of the corporation which owns such dealership.
Such dealership settles its accounts$5,000 on the same terms as any third-party
customerlife of each director at ADESA auctions, and, in the ordinary course, ADESA had outstanding
receivables from the dealership of $95,231 at December 31, 1995 representing the
unremitted purchase price of automobiles purchased at auction which were
remitted by ADESAan aggregate cost to the
sellers netCompany of ADESA's fees. Such receivables were$713 in 1996. At the Board's direction, Director Evans was paid
$43,000 in the normal course of business. The dealership paid fees to ADESA in the
aggregate of $21,610 during 19951996 for use of auction facilities.

Messrs. Hockett, Hill, and Wechter are shareholders of a corporation
which owns a corporation which has participated as a seller and a buyer at
certain of ADESA's auction facilities. In addition, Mr. Wechter is director of
such corporation. Such corporation settles its accounts on the same terms as any
third-party customer at ADESA's auctions, and, in the ordinary course ADESA had
outstanding receivables from such corporation of $16,170 at December 31, 1995
representing the unremitted purchase price of automobiles purchased at auction
which were remitted by ADESAservices related to the sellers netsearch for and hiring of ADESA's fees. Such
receivables were paid inMr. Russell
to assume the normal courseoffice of business. The corporation paid
fees to ADESA in the aggregate of $13,634 during 1995 for use of auction
facilities.
Other Relationships

Robert S. Mars, Jr., who retired from the Board of Directors effective
May 9, 1995, is Chairman of W.P.& R.S. Mars Company, an industrial equipment and
supply firm. In the normal course of business through May 9 in 1995 the Company
and its subsidiaries purchased $86,737 worth of tools, equipment, and repair
services from Mars Company. Some of these tools, equipment, and repair services
were purchased pursuant to competitive bids, and others were purchased directly
from inventory of the company as required. It is the opinionPresident of the Company that
such purchases were madein 1995, and for his continuing
services as advisor and Board liaison to Mr. Russell when he became Chief
Executive Officer (CEO) in January 1996.

Effective January 1, 1996, non-employee directors receive automatic grants
of 725 stock options every year and performance shares valued at prices that were competitive with others$10,000 every
other year pursuant to the Director Long-Term Stock Incentive Plan. The stock
options vest 50 percent after the first year, the remaining 50 percent after the
second year and expire on the tenth anniversary of the date of grant. The
exercise price for each grant is the closing sale price of Company Common Stock
on the date of grant. The two-year performance periods for performance shares
end on December 31st the year following the date of grant. Dividend equivalents
in this
area.

See the disclosure hereinform of transactionsadditional performance shares accrue during the performance
period and are paid only to the extent the underlying grant is earned. The
performance goal of each performance period is Total Shareholder Return (defined
as stock price appreciation plus dividends reinvested on the ex-dividend date
throughout the performance period, divided by the fair market value of a share
at the beginning of the performance period) for the Company with
Norwest Bank and with LAREX, Inc. under "Compensation Committee Interlocks and
Insider Participation."

8in comparison to the
Total Shareholder Return for 16 diversified utilities.

Compensation of Executive Officers

The following information describes compensation paid in the years 19931994
through 19951996 for the Company's five highest paidnamed executive officers.

SUMMARY COMPENSATION
TABLE
- - ------------------------------------------------------------------------------------------------------------------
Year
Long Term
Annual Compensation Long-TermCompensation
--------------------- ------------------------
Awards

Name Restricted Securities All
and Stock Underlying Other
Compensation Compensation
----------------------------------------------------
Name and Principal Position Salary Bonus Payouts - LTIPAward(s) Options/ Comp.
Position Year ($) ($) ($) PayoutsSARs (#) ($)
- - ------------------------------------------------------------------------------------------------------------------

Edwin L. Russell 1996 322,981 370,439 687,000 13,230 26,976
Chairman, President
and Chief Executive Officer

Arend J. Sandbulte 1996 168,077 269,674 0 0 60,002
Former Chairman, President 1995 371,090 191,014 0 0 48,974
Chairman
and Chief Executive Officer 1994 352,587 45,953 0 0 74,925

Officer 1993 362,625 93,470 31,440 63,107

Jack R. McDonald 1995 206,219 139,407Robert D. Edwards 1996 221,693 146,544 0 24,4775,570 27,799
Executive Vice President-Finance 1994 196,154 15,727 0 25,951
and Corporate Development 1993 194,417 28,000 22,270 22,117

Robert D. EdwardsPresident 1995 208,481 110,132 0 0 16,588
Executive Vice Presidentand President-MP Electric 1994 196,154 30,860 0 0 20,173

John Cirello 1996 195,000 163,056 0 5,051 0
Executive Vice President 1995 81,000 40,000 0 0 51,218
and President-MP-Electric 1993 196,167 35,000 22,270 17,740President and CEO
of MP Water Resources

Donnie R. Crandell 1996 178,904 111,062 0 3,886 14,611
Senior Vice President and 1995 172,827 53,963 0 0 20,261
Senior Vice President-President - MP Real Estate 1994 37,635 5,340 0 0 2,199
Corporate Development 1993 108,517 10,909 0 6,334Holdings

David G. Gartzke 1996 172,625 77,380 0 4,378 17,909
Senior Vice President- 1995 165,089 57,924 0 0 11,013
Senior Vice President-Finance and CFO 1994 140,446 17,440 0 0 14,126
Finance and CFO 1993 139,167 11,360 0 11,134

- -------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------

Amounts shown include compensation earned by the named executive
officers, as well as amounts earned but deferred at the election of
those officers. The "Bonus" column is comprised of amounts earned
pursuant to Results Sharing and the Annual Incentive Plan.

The amountsamount shown representrepresents the fair market value of 24,000 shares of restricted
Common Stock reportable for 1993, based upon corporate performance duringgranted on January 2, 1996, pursuant to the four-year
period endedExecutive Long
Term Incentive Compensation Plan. At December 31, 1993.1996, Mr. Russell
held 18,000 shares of restricted Common Stock valued at $495,000. Mr.
Russell receives non-preferential dividends on this stock. This award
vests at a rate of 6,000 shares per year.

Consistent with his retirement plans, Mr. Sandbulte stepped down from
the Office of Chief Executive Officer effective January 23, 1996, consistent with his retirement plans.and
from the office of Chairman of the Board effective May 14, 1996, and
retired effective May 31, 1996.

The amounts shown for 19951996 include the following Company contributions
for the named executive officers:

Above-Market
Annual Company
Annual Company Contribution to the Above-Market Interest
Annual Company Contribution to the SupplementalCompany Earned on
Company Contribution Contribution Compensation
Contribution to the to the Deferred
to the Employee Supplemental Under
Flexible Stock Executive Deferred Under Executive
Benefit Ownership Retirement Incentive
Name Flexible Benefit Plan Ownership Plan Retirement Plan Incentive Plan *
- ------------------------- ---------------------- ---------------------- --------------------- --------------------------
- --------------------------------------------------------------------------------
Edwin L. Russell 5,325 2,001 19,650 0
Arend J. Sandbulte $9,975 $3,004 $25,257 $10,738
Jack R. McDonald 8,100 3,004 11,063 2,3104,604 1,393 22,216 31,789
Robert D. Edwards 6,825 3,004 5,563 1,1963,009 12,843 5,122
Donnie R. Crandell 6,825 3,004 1,5213,009 4,777 0
John Cirello 0 0 0 0
David G. Gartzke 6,006 2,644 1,723 640
6,825 3,008 4,420 3,656

* The Company made investments in corporate-owned life insurance which will
recover the cost of these above-market benefits if actuarial factors and other
assumptions are realized.

LONG-TERM INCENTIVE PLANS TABLE

AwardsOPTIONS GRANTS IN LAST FISCAL YEAR
- - -------------------------------------------------------------------------------

Alternative
Grant
Individual Grants Date Value
- - -------------------------------------------------------------------------------
Number of % of Total
Securities Options Exercise Grant Date
Underlying Granted to or Base Present
Options Employees in LastPrice Expiration Value
Name Granted (#) Fiscal Year
Estimated Future Payouts
under Non-Stock Price-Based
Plans
(a) (b) (c) (d) (e)
Number of Performance or
Shares, Other Period
Units or Until
Other Maturation or
Name Rights (#) Payout Target (#) Maximum (#)($/Sh) Date $
- ------------------- ---- ----------- ------------ --------------- -------------- -------------------- ---------- ---------

Edwin L. Russell 13,230 11.2 28.625 1/2/06 89,435
Arend J. Sandbulte 3,600 1/95 - 12/98 3,600 6,000

Jack R. McDonald 2,850 1/95 - 12/98 2,850 4,7500 0 0 0 0
Robert D. Edwards 2,8505,570 4.7 28.625 1/95 - 12/98 2,850 4,7502/06 37,653
Donnie R. Crandell 1,0003,886 3.3 28.625 1/95 - 12/98 1,000 1,6662/06 26,269
John Cirello 5,051 4.3 28.625 1/2/06 34,145
David G. Gartzke 1,5254,378 3.7 28.625 1/952/06 29,595
- 12/98 1,525 2,541- -------------------------------------------------------------------------------

The stock options vest 50 percent on January 2, 1997, and 50 percent
on January 2, 1998, and are subject to a change in control acceleration
provision.

The grant date dollar value of the stock options is based on a
combination Black-Scholes, binomial price method. The blended ratio
associated with the January 2, 1996 option grants is .236, based on an
average industry Black-Scholes ratio of .373 and a Minnesota Power binomial
ratio (as of January 2, 1996) of .099. The method is a complicated
mathematical formula premised on immediate exercisability and
transferability of the options, which are not features of the Company's
options granted to executive officers and other employees. The values shown
are theoretical and do not necessarily reflect the actual values the
recipients may eventually realize. Any actual value to the officer or other
employee will depend on the extent to which the market value of the
Company's common shares at a future date exceeds the exercise price. In
addition to the stock prices at grant and the exercise prices, which are
identical, and the ten-year term of each option, the following assumptions
for modeling were used to calculate the values shown for the options
granted on January 2, 1996: expected dividend yield of 7.59 percent (based
on most recent quarterly dividend), expected stock price volatility of .149
(based on 250 trading days previous to January 2, 1996), and the ten-year
option term and a risk-free rate of return of 5.65 percent (based on
Treasury yields). The assumptions and the calculations used for the model
were provided by an independent consulting firm.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
- - --------------------------------------------------------------------------------------------------------------------

Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Shares Value Options Options
Acquired Realized at FY-End (#) at FY-End ($)
Name on Exercise(#) ($) Exercisable Unexercisable Exercisable Unexercisable
- - ---- -------------- -------- ----------- ------------- ----------- -------------

Edwin L. Russell 0 0 0 13,230 0 0
Arend J. Sandbulte 0 0 0 0 0 0
Robert D. Edwards 0 0 0 5,570 0 0
Donnie R. Crandell 0 0 0 3,886 0 0
John Cirello 0 0 0 5,501 0 0
David G. Gartzke 0 0 0 4,378 0 0
- - --------------------------------------------------------------------------------------------------------------------

LONG-TERM INCENTIVE PLANS -
AWARDS IN THE LAST FISCAL YEAR
- - --------------------------------------------------------------------------------

Estimated Future Payouts (fromunder
Non-Stock Price-Based Plans
-------------------------------
Number of Performance
Shares, Units or Other
or Other Period Until
Rights Maturation or Threshold Target Maximum
Name (#) Payout (#) (#) (#)
- - ---- -------------- ------------- --------- ------ -------
Edwin L. Russell 6,245 2 years 3,122 6,245 12,489
Arend J. Sandbulte 0 to maximum) under0 0 0 0
Robert D. Edwards 2,629 2 years 1,314 2,629 5,258
Donnie R. Crandell 1,834 2 years 917 1,834 3,668
John Cirello 2,384 2 years 1,192 2,384 4,769
David G. Gartzke 2,066 2 years 1,033 2,066 4,133
- - --------------------------------------------------------------------------------
The table directly above reflects the Long-Term Incentive Plan are
based uponnumber of shares of Common Stock that
can be earned for the total shareholder return ranking1996-1997 performance period if the Total Shareholder
Return of the Company in comparison(or, for business unit executives, other financial
measures established for business units selected because of their correlation to
Total Shareholder Return) meets goals established by the Executive Compensation
Committee. These goals are based on the Company's ranking against a peer group
of ten Upper Midwest utilities (60%) and16 diversified electric utilities. The threshold performance share award will
be earned if the S&P 500 (40%). The
Company must rank in the 55th percentile of the peer group or aboveCompany's Total Shareholder Return ranking is at the 40th
percentile, of the S&P 500 for any award to be earned. The target award iswill be earned if the Company ranks inis at the 73rd50th
percentile, of the peer group and the 70th
percentile of the S&P 500; and the maximum award iswill be earned if the Company ranks
first or second in the peer group andis at the 90th percentile76th
percentile. Dividend equivalents accrue during the performance period and are
paid in shares only to the extent performance goals are achieved. If earned, 50
percent of the S&P 500.
Payouts are madeperformance shares will be paid in cashstock after the end of the
performance period; the remaining 50 percent will be paid in stock, half on the
first anniversary of the end of the performance period and Company Common Stock.half on the second
anniversary thereof. Payment is accelerated upon a change in control of

the Company at 200 percent of the target number of performance shares granted as
increased by dividend equivalents for the performance period.

Retirement Plans

The following table sets forth examples of the estimated annual
retirement benefits that would be payable to participants in the Company's
Retirement Plan and Supplemental Executive Retirement Plan after various
periods of service, assuming no changes to the plans and retirement at the
normal retirement age of 65:

PENSION PLAN
TABLE
Years of Service
------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Remuneration 15 20 25 30 35
- - --------------------------------------------------------------------------------

$125,000 $15,000 $33,750 $40,000 $46,250 $52,500$33,500 $39,750 $46,000 $52,250
150,000 18,000 40,500 48,000 55,500 63,00040,200 47,700 55,200 62,700
175,000 21,000 47,250 56,000 64,750 73,50046,900 55,650 64,400 73,150
200,000 24,000 54,000 64,000 74,000 84,00053,600 63,600 73,600 83,600
225,000 27,000 60,750 72,000 83,250 94,50060,300 71,550 82,800 94,050
250,000 30,000 67,500 80,000 92,500 105,00067,000 79,500 92,000 104,500
300,000 36,000 81,000 96,000 111,000 126,00080,400 95,400 110,400 125,400
400,000 48,000 108,000 128,000 148,000 168,000107,200 127,200 147,200 167,200
500,000 60,000 135,000 160,000 185,000 210,000134,000 159,000 184,000 209,000
600,000 72,000 162,000 192,000 222,000 252,000160,800 190,800 220,800 250,800
700,000 84,000 189,000 224,000 259,000 294,000187,600 222,600 257,600 292,600
800,000 96,000 214,400 254,400 294,400 334,400
900,000 108,000 241,200 286,200 331,200 376,200
- - --------------------------------------------------------------------------------

Represents the highest annualized average compensation (salary and
bonus) received for 48 consecutive months during the employee's last 15
years of service with the Company. For determination of the pension
benefit, the 48-month period for highest average salary may be different
from the 48-month period of highest aggregate bonus compensation.

Retirement benefit amounts shown are in the form of a straight-life annuity
to the employee and are based on amounts listed in the Summary Compensation
Table under the headings Salary and Bonus. Retirement benefit amounts shown are
not subject to any deduction for Social Security or other offset amounts. The
Retirement Plan provides that the benefit amount at retirement is subject to
adjustment in future years to reflect cost of living increases to a maximum
adjustment of 3 percent per year. As of December 31, 1995,1996 (except for Mr.
Sandbulte whose service is determined as of May 31, 1996, his retirement date),
the executive officers named in the Summary Compensation Table had the following
number of years of credited service under the plan:

Edwin L. Russell 2 years John Cirello 2 years
Arend J. Sandbulte 31 years Donnie R. Crandell 1415 years
Jack R. McDonald 28Robert D. Edwards 20 years David G. Gartzke 20 years
Robert D. Edwards 1921 years

With certain exceptions, the Internal Revenue Code of 1986, as amended,
(Code) presently restricts the aggregate amount of annual pension which may be paid to an

11
employee under the Retirement Plan to $120,000 for 1996, which amount is

11
subject
to adjustment in future years to reflect cost of living increases. The Company's
Supplemental Executive Retirement Plan provides for supplemental payments by the
Company to eligible executives (including the executive officers named in the
Summary Compensation Table) in amounts sufficient to maintain total retirement
benefits upon retirement at a level which would have been provided by the
Retirement Plan if benefits were not restricted by the Code.

Compensation of Directors

Employee directors receive no additional compensation for their
services as directors. In 1995, the Company paid each director an annual
retainer fee of $5,000 and 500 shares of Common Stock under the terms of the
Company's Director Stock Plan. In addition, each director was paid $850 for each
Board, Committee, and subsidiary board meeting attended, except that $500 was
paid for attendance at a second meeting held the same day as another meeting.
Each director who is the Chairman of a Committee received an additional $150 for
each Committee meeting attended. A $250 fee was paid for conference call
meetings. Directors may elect to defer all or a part of the cash portion of
their retainer fees and meeting fees. The shares of Common Stock paid to
directors during 1995 had an average market price of $26.13 per share. The
Company also provides life insurance of $5,000 on the life of each director at
an aggregate cost to the Company of $938 in 1995.

The Board has a Long-Term Incentive Plan which provides a compensation
program similar to that provided to the executive officers by the Long-Term
Incentive Plan (as described in the Executive Compensation Committee Report
below), except that the directors' maximum award opportunity is 600 shares of
Common Stock every other year. The plan awards Common Stock to the directors if,
over a four-year period commencing with each even numbered year, the total
return to the Company's shareholders (that is, stock price appreciation plus
reinvested dividends) ranks at or above the 55th percentile of a pre-selected
group of ten comparable utilities or above the 40th percentile of the Standard &
Poor's 500 (S&P 500). The size of the award varies depending upon the extent to
which the Company's total return exceeds the above total returns. No awards were
paid to directors for the four-year period ending December 31, 1995 because the
Company's stock performance was below both threshold total returns.

Effective January 1, 1996, directors will receive automatic grants of
stock options every year and performance shares every other year pursuant to the
new Director Long-Term Stock Incentive Plan, which is being presented to
shareholders for approval at this Annual Meeting and which is described in
greater detail later in this Proxy Statement. Awards of stock under the current
Long-Term Incentive Plan will no longer be made after the end of the current
four-year performance period (1994 - 1997).

Employment Contracts

The Company entered into employment agreements effective May 1, 1995
with Robert D. Edwards and David G. Gartzke in which each executive agreed to
remain an employee of the Company through May 31, 1998 at an annual base salary
that is not less than his respective 1995 base salary.

Report of Board Executive Compensation Committee on Executive Compensation

Described below are the compensation policies of the Executive Compensation
Committee of the Board of Directors effective for 19951996 with respect to the
executive officers of the Company. Composed entirely of independent outside
directors, the Executive Compensation Committee is responsible for recommending
to the Board the policies which govern the executive compensation program of the
Company and for administering those policies. To assist the Executive
Compensation Committee in connection with the performance of such
responsibilities for 1995,1996, the Board retained the services of Hewitt Associates
LLC,William M. Mercer,
Inc. (Mercer), a benefits and compensation consulting firm. Hewitt Associates has been
retained in this capacity since 1986.

The role of the executive compensation program is to help the Company
achieve its corporate goals by motivating performance, rewarding positive
results, and encouraging teamwork. Recognizing that the potential impact an
individual employee has on the attainment of corporate goals tends to increase
at higher levels within the Company, the executive compensation program provides
greater variability in compensating individuals based on results achieved as
their levels within the Company rise. In other words, individuals with the
greatest potential impact on achieving the stated goals have the greatest amount
to gain when goals are achieved and the greatest amount at risk when goals are
not achieved.

The program also recognizes that, in order to attract and retain
exceptional executive talent, compensation must be competitive in the national
market when measured against comparable firmscompanies within that market. For those
executives engaged primarily or exclusively in electric operations, the relevant
market for purposes of comparison is other electric utilities throughout the
country which, on average, are comparable in size to the Company. For those
executives engaged substantially in the Company's diversification activities,
the appropriate market for purposes of comparison includes both electric utilities and
general industry. Comparisons with the general industry market allow recognition
of skills required in diversification activities and compensation levels of
executives in other industries.

To determine market levels of compensation for executive officers in 1995,1996,
the Executive Compensation Committee relied upon comparative information
provided by Hewitt Associates,Mercer, based on seven surveys including data from over 100
utilities and several hundred general industrial companies. All data were
analyzed to determine median compensation levels for comparable positions in
comparably-sized companies. While these companies are not the same 15 electric utilities and 25
industrial companies previously selected by Hewitt Associates andas those in
the peer group used for

comparison purposes forin the past seven years. Theperformance graph, the Executive Compensation
Committee believes that these companies are

appropriate for market compensation comparison, primarily because they are
approximately the same size as the Company as measured by sales revenue.

The Executive Compensation Committee determined that executive base salary
plus additional performance-based compensation at the target level should
approximate the midpoint of the range of base salary plus total
performance-based compensation in the appropriate market. Executive compensation
actually paid by the Company for 19951996 was above target, on average, reflecting
the fact that both financial and non-financial goals were, on average, met or
exceeded. As a result, executive compensation paid in 1996 fell withinat the upper end
of the mid-range of executive compensation paid by the comparable companies.

Since compensation has remained well below amounts that would be
affected by

Section 162(m) of the Internal Revenue Code, of 1986, as amended, the
Company had no policyenacted in 1995 regarding the deductibility of qualifying1993, generally
disallows a tax deduction to public companies for compensation over $1 million
paid to the corporation's CEO and four other most highly compensated executive
officers. Qualifying performance-based compensation will not be subject to the
deduction limit if certain requirements are met. The stock options and
performance shares granted to the executive officers in 1996 under that section.the Executive
Long-Term Incentive Compensation Plan are intended to qualify as
performance-based compensation and should therefore be fully deductible for
Federal income tax purposes. The Company currently intends to structure the
performance-based portion of its executive officer compensation to achieve
maximum deductibility under Section 162(m) so long as this can be done without
sacrificing flexibility and corporate objectives.

As described below, executive officers of the Company receive a
compensation package which consists of four basic elements: base salary,
performance-based compensation, supplemental executive benefits and perquisites.
The CEO's compensation is discussed separately.

Base Salary

Base salaries are set at a level so that, if the target level of
performance is achieved under the performance-based plans as described below,
executive officers' total compensation, including amounts paid under each of the
performance-based compensation plans, will be near the midpoint of market
compensation as described in the preceding four paragraphs.above. Base salaries of the executive officers (not including the CEO) were
increased onby an average by 5.2of 7.6 percent in 1995,1996, reflecting market adjustments,
merit increases and merit increases.promotions.

Performance-Based Compensation

Performance-based compensation includes stock options and performance
shares awarded under the new Executive Long-Term Incentive Plan, Common Stock
under the old Long-Term Incentive Plan, as well as the opportunity to earn cash
awards under Results Sharing and the Annual Incentive Plan. Performance goals
are approved in advance by the Executive Compensation Committee and the Board. A
target level of performance under the performance-based plans represents
performance that is either consistent with or above budget, or represents averageat
least median Total Shareholder Return performance as measured against the peer
groupgroups described below. Total Shareholder Return is defined as stock price
appreciation plus dividends reinvested on the ex-dividend date throughout the
relevant performance

period, divided by the fair market value of a share at the beginning of the
performance period. With target performance, plus the value of stock options
granted, executive compensation will be near the midpoint of the relevant
market. If no performance awards are earned, and no value is attributed to the
stock options granted, compensation of the Company's executive officers willwould
be near the 40th
percentileapproximately 70 percent of the market compensation level, while performance
at increments above the target level will result in total compensation above
the midpoint of the market.

The Company's performance-based compensation plans include:

- Results Sharing. The Results Sharing award opportunity rewards annual
performance of the executive's responsibility area as well as overall
corporate performance. Results Sharing awardsAwards are available to all employees on the 14
same
percentage of pay basis and are intended to focus employee
attention on both responsibility area performance and corporate
performance generally.basis. Target financial performance will result in an
award of 2.55 percent of base salary, assuming non-financial goals
established by the Executive Compensation Committee are also
accomplished. For 1996 the electric and water utility business units
earned Results Sharing awards equaling 6.8 percent and 9.5 percent of
base salary, respectively, based on business unit pre-tax operating
income results (weighted 75 percent) and earnings per share performance
(weighted 25 percent). Based on its contributions to the Company's
earnings per share target, the real estate business unit earned an award
of 7.5 percent of base salary. Results Sharing awards equalingThe Corporate group earned an award of 7.3
percent of base salary, were earned by executive officers and employees inwhich is an average of the MP-Electricabove business unit
in 1995 because MP-Electric substantially
exceeded its operating income budget and achieved its otherresults, weighted by payroll of each business unit goals. Awards averaging 5.7 percent of base payunit. To earn these awards,
non-financial goals approved by the Executive Compensation Committee were
earned by
executive officers and employees in the corporate business unit as a
result of superior operating income achieved by MP-Electric.also achieved.

- Annual Incentive Plan. The Annual Incentive Plan is intended to focus
executive attention on superior performance ofmeeting and exceeding annual financial and
non-financial business unit goals established by the Company in
comparison to other companies. The Annual Incentive Plan rewards
near-termExecutive
Compensation Committee. For 1996 corporate executive officers were
rewarded for corporate performance as measured by earnings per share of
the Company's ranking in
relation to (i) a peer group of ten electric utility companies
operating in the same geographic region as the Company (Upper Midwest)
selected by Hewitt Associates, and (ii) the companies listed in the S&P
500 Index. The full award opportunity is earned if Company performance
equals or exceeds the 90th percentile for all performance measures when
measured against performance of both the peer group utilities and the
S&P 500 companies. The target level of performance is achieved if the
Company's performance is at the 60th percentile. At the target level,Common Stock, while the executive officers (not includingof the CEO) would earn awards
ranging from 15 percentreal
estate business unit were rewarded for the contribution of their business
unit to 24 percent of base salary depending on their
level of responsibility. At the target level, the CEO would earn an
award of 36 percent of his base salary. Based on 1995 results, theearnings per share. The executive officers (not includingof the CEO) earned awards averaging 15.6
percentCompany's
electric and water business units were rewarded for performance of base salary under this plan. This award resulted from the
MP-Electrictheir
respective business unit achieving maximumunits in 1996 as measured by operating cash return on
investment (weighted 50 to 60 percent) and operating free cash flow
(weighted 40 to 50 percent). These measures of financial performance under the plan
with respect to its operating income goal, the Company achieving below
target performance with respect to its earnings per share goal, and
total shareholder return performance at the 64th percentile when
compared to the peer group of 10 utilities.

In addition to the foregoing, strategic goals were
established pursuant
to the planchosen by the Executive Compensation Committee because they are
positively correlated with the Total Shareholder Return achieved by the
Company for eachits shareholders. Target level performance is earned if
budgeted financial results are achieved. In 1996 executive officer namedofficers in
the Summary Compensation Table. These goals relate to
the performance of the business unit within the scope of responsibility
of each officer. Each executive officer (not including the CEO) may be
awarded up to 10Corporate group earned awards averaging 38 percent of base salary though higher awards may
result from superiorby
achieving earnings performanceof $2.28 per share of Common Stock of the business unit for
whichCompany
compared to the officer is responsible. Target performance would result in
paymentbudget of an award equal to 4 percent of base salary.$2.25, and achieving certain non-financial
goals. The CEO may be
awarded up to 15 percent of his salary, with a target of 6 percent. Thetop executive officer responsible for MP-Electric

achieved an award equalin each of the electric, water and real
estate business units earned awards ranging from 53.7 to 2574.1 percent of
base salary as determined by a
formula settingexceeding financial and non-financial goals established by
the size of his award based on operating income of MP-
Electric. The other three executive officers (not including the CEO)
received awards in the range of 9 percent to 10 percent of base salary
for achieving strategic and earnings goals in their respective areas of
responsibility.Executive Compensation Committee.
14

- Long-Term Incentive Plan.Plans. The Long-Term Incentive Plan is
designed to motivate long-term strategic planning and reward long-term
corporate performance, as measured by total shareholder return. In JanuaryTotal Shareholder Return over
four-year performance periods commencing each January. At the outset of
each yearperformance period, the executive officers arewere given a maximum
award opportunity of a stated number of shares of the Company's Common
Stock based upon
the Company's performance over a four-year performance period.Stock. Sixty percent of the award opportunity iswith respect to the
four-year period ending December 31, 1996, was based upon rank among a
peer group of ten utilities operating in the same geographic region as
the Company (Upper Midwest), and forty40 percent of thethis award opportunity iswas
based on rank among the S&P 500 companies. For the four-year performance
period ending December 31, 1995,1996, the maximum award opportunity was 6,000
shares for the CEO. The maximum award ranged
from 1,5002,000 to 5,000 shares for the other executive officers. The maximum award
opportunity is earned if the Company ranks first or second in the peer
group and at or above the 90th percentile among the S&P 500 companies.
The Company must achieve at least a 55th percentile ranking among a peer
group of ten utilities or a 40th percentile ranking among the S&P 500
companies for any award to be earned. For the four-year performance
period ending December 31, 1995,1996, no awards were earned because the
Company did not achieve total shareholder returna Total Shareholder Return at the level required
for a payout under the plan. To motivate the CEO to maintain a focus on
the long-term performance of the Company during the last years before the
CEO's retirement, the Executive Compensation Committee has provided for
the continuing participation of the CEO in the Long-Term Incentive Plan
after retirement. Consistent with this practice, in 1995, and effective
with his retirement from the office of CEO in January 1996, the Board
provided for the continued participation of Mr. Sandbulte in the
Long-Term Incentive Plan with four-year performance periods commencing on
each January 1 from 1996 through the year 2000, with a target opportunity
in each year equal to 27 percent of his 1996 base salary. Any awards will
be paid to Mr. Sandbulte in cash.

Effective for 1996 no further performance periods were initiated under
the Long-Term Incentive Plan, except for Mr. Sandbulte as stated above,
and, with shareholder approval, the new Executive Long-Term Incentive
Compensation Plan was implemented. Under the new plan, in 1996 the
executive officers of the Company were awarded stock options and
performance shares having target award values ranging from 25 percent to
35 percent of the executives' base salaries. The value of each award
opportunity was divided equally between stock options and performance
shares. The stock options will have value if the Company's Common Stock
price appreciates. The performance shares will have value if, in two
years from the date of grant, the Total Shareholder Return of the Company
(or, for business unit executives, other financial measures established
for business units selected because of their correlation to Total
Shareholder Return) meets goals established by the Executive Compensation
Committee. These goals are based on the Company's ranking against a peer
group of 16 diversified electric utilities recommended by Mercer and
adopted by the Executive Compensation Committee as

appropriate comparators. The threshold performance share award will be
earned if the Company's Total Shareholder Return ranking is at the 40th
percentile, the target award will be earned if the Company is at the
50th percentile, and the maximum award will be earned if the Company
is at the 76th percentile. Dividend equivalents accrue during the
performance period and are paid in shares only to the extent performance
goals are achieved. If earned, 50 percent of the performance shares will
be paid in stock after the end of the performance period; the remaining
50 percent will be paid in stock, half on the first anniversary of the
end of the performance period and half on the second anniversary
thereof. Payment is accelerated upon a change in control of the Company
at 200 percent of the target number of performance shares granted as
increased by dividend equivalents for the performance period. These
awards are consistent with the Executive Compensation Committee's
philosophy of linking a significant portion of the executive officers'
compensation to the performance of the Company as measured by Total
Shareholder Return or by other measures of financial performance which
correlate with Total Shareholder Return.

Supplemental Executive Benefits

The Company has established a Supplemental Executive Retirement Plan (SERP)
to treat employees, including the executive officers, equitably by replacing
benefits not provided by the Company's Flexible Benefit Plan and the Employee
Stock Ownership Plan due to government-imposed limits and to provide retirement
benefits which are competitive with those offered by other businesses with which
the Company competes for managerial talent. The SERP also provides employees
whose salaries exceed the salary limitations for tax-qualified plans imposed by
the Code with additional benefits such that they receive in aggregate the
benefits they would have been entitled to receive had such limitations not been
imposed.

The Company has also adopted Executive Investment Plans whereby executive
officers may enter into agreements with the Company to irrevocably defer a
portion of their compensation until after termination of service, retirement or
death. The Executive Investment Plans are non-qualified deferred compensation
plans under which benefits result wholly from deferred compensation.

Perquisites

The Company provides various perquisites to assist selected executive
officers in fulfilling their business responsibilities in a cost and time
efficient manner, to the extent they are consistent with competitive practice.
Perquisites provided by the Company to the named executive officers did not
exceed the lesser of $50,000 or 10 percent of the total salary and bonus shown
for them in the Summary Compensation Table. The perquisites provided by the
Company were reviewed by the Executive Compensation Committee and determined to
be reasonable and in line with electric utility companies of comparable size.

Chief Executive Officer Compensation

Effective June 1, 1995,In January 1996 the Executive Compensation CommitteeBoard of Directors increased Mr. Sandbulte's (CEORussell's annual base

salary 8.3 percent in 1995) base salary by 5.7 percent to reflectconjunction with his contributionselection to the Company.office of CEO. Under
the Company's Results Sharing Plan, the CEOMr. Russell was awarded $21,226,$23,416, or 5.77.3
percent of his base salary, because MP-Electric
achieved operating income well above its budget and achieved its otherwhich was calculated based on an average of the
Results Sharing awards paid to the Company's business unit goals.units for 1996
performance, weighted by the payroll of each business unit. In April 1996 Mr.
Russell was paid a bonus of $125,000, which the Executive Compensation Committee
determined would be appropriate based upon Mr. Russell's contributions to the
Company in 1995. Under theMinnesota Power's Annual Incentive Plan for the CEOCompany's
performance in 1996, Mr. Russell earned $112,788,an award of $220,220, or 29.7
percent of base salary in 1995 because the MP-Electric business unit achieved
maximum performance under the plan with respect to its operating income goal,
the Company achieved below target performance with respect to its earnings per
share, and total shareholder return performance at the 64th percentile when
compared to a peer group of ten electric utility companies. Also under the
Annual Incentive Plan, the CEO was awarded $57,000, or 1567.8 percent of
his base salary, for accomplishing Individual Strategic Goals assigned to himbased on a formula established in advance by the Executive
Compensation Committee which included consummationrewarded Mr. Russell, as well as other executive
officers in the Corporate group, for above-budget earnings per share performance
by the Company in 1996, as well as for achievement of non-financial goals
established by the Executive Compensation Committee.

Mr. Russell's compensation plan also contains elements which motivate him
to focus on the longer-term performance of the ADESA
acquisitionCompany. To align Mr. Russell's
financial interests with those of the shareholders and successfully guidingto help retain his
services for the transitionfull four-year vesting period, Mr. Russell was awarded 24,000
shares of restricted Common Stock of the Company effective January 2, 1996,
pursuant to the Company's Executive Long-Term Incentive Compensation Plan,
subject to the restriction that his right to retain ownership in said stock
would vest at the rate of 6,000 shares per year beginning in 1996. Also under
the Executive Long-Term Incentive Compensation Plan, in January 1996, Mr.
Russell was awarded a target opportunity valued at 55 percent of his base
salary. This value was divided equally between stock options and performance
shares. The stock options become fully exercisable in two years and expire 10
years from the date of grant. The options will have value if the Company's stock
price appreciates. The performance shares will have target value if, in two
years from the date of grant, the Total Shareholder Return realized by ADESA to membership onCompany
shareholders is at the Minnesota Power team,50th percentile of a peer group of 16 diversified
utilities recommended by Mercer and successfully executing the management succession
plan adopted by the Board. No award was earned in 1995Executive Compensation
Committee as appropriate comparators.

To recruit Mr. Russell from general industry and retain his services at
Minnesota Power, the Executive Compensation Committee has endeavored to provide
Mr. Russell with a compensation package that is half-way between the midpoints
of compensation paid by electric utilities and compensation paid by general
industrial companies the CEO underapproximate size of the Long-Term Incentive Plan becauseCompany. The Compensation
Committee has designed Mr. Russell's compensation package to provide substantial
incentive to achieve and exceed the Company did not achieveBoard's Total Shareholder Return goals for
the threshold total
shareholder return required for payout under the plan.Company's shareholders.

March 20, 19961997
Executive Compensation Committee

Robert S. Nickoloff, Chairman Charles A. Russell Dennis E. Evans
Donald C. Wegmiller Nick Smith

Compensation Committee Interlocks and Insider Participation

The members of the Executive Compensation Committee are Robert S.
Nickoloff, Chairman, Dennis E. Evans, Charles A. Russell, Nick Smith, and Donald C. Wegmiller.

- - Norwest Bank Relationships. Director Charles A. Russell, who, by reason of
his retirement, is not standing for reelection to the Board of Directors,
retired as Chairman and CEO of Norwest Bank Minnesota North, N.A. on
December 31, 1995. Norwest has loan commitments under which the Company is
required to pay certain fees or maintain compensating balances, although
during 1995 Norwest did not hold notes of the Company for loans pursuant to
these arrangements. Additionally, Reach All Partnership, in which the
Company held an 82 1/2 percent ownership interest through its subsidiaries,
had a secured working capital line of credit with Norwest under which $3.8
million was outstanding, with interest payable at prime rate plus 2 1/2
percent per annum. Principal and interest due under this loan were paid in
full during October 1995 in connection with the termination of Reach All's
operations. Reach All's financial arrangements with Norwest were entered
into before the Company purchased its ownership interest in Reach All. It
is the opinion of management that these financial arrangements reflected
market rates.

- - LAREX Economic Development Project.Project

In 1995 the CompanyMinnesota Power began developing plans for an energy park to be
located on its property adjacent to its Boswell Energy Center in Cohasset, MN.
The first tenant of the energy park will beis LAREX International, Inc. LAREX developed
a process to extract from certain tree species a substance that is used in a
variety of commercial applications. The Company,Minnesota Power, through a subsidiary,
entered into a contract to pay M. A. Mortenson Company $1.7$1.336 million for
construction of the buildings to be occupied by LAREX, and agreed to lease these
buildings to LAREX. The Iron Range RehabilitationResources and RedevelopmentRehabilitation Board (IRRRB), a
local economic development agency, has agreed to purchase the buildings from
the Company'sMinnesota Power's subsidiary when LAREX occupies the building upon completion of
construction, for an amount equal to the cost of construction,
and the subsidiary will then assign the building lease to the IRRRB. Construction
is expected to be complete in May 1996. The Company will enterMinnesota
Power has entered into a separate ground lease with LAREX at an economic
development rate which the
CompanyMinnesota Power will offer to other tenants of the energy
park. It is expected the
Company willMinnesota Power has also provideprovided financing to LAREX in the amount of
$200,000 under the customary terms of the Company'sMinnesota Power's Economic Development
Loan Program. This financing will bewas used to purchase equipment in which the Company will
retainMinnesota
Power has retained a security interest. LAREX is expected to provideproviding quality jobs and
representsrepresented an important first step in the development of the energy park.
Following the sale of the building and assignments of the leases as described
above, only the Economic Development Loan will remain an obligation to the
Company.

LAREX was founded in 1993 by Medical Innovation Fund II of Minneapolis and
Northeast Ventures of Duluth. To date, LAREX's owners have invested $3.25$7.434
million in LAREX as follows: Medical Innovation Fund II has invested $2.5$3.406
million and holds 58.553.0 percent of all stock currently outstanding; Northeast
Ventures has invested $750,000$1,030,000 and holds 1816.3 percent of the currently issued
and outstanding stock; and the remaining investment and stock is held by various
employeesindividuals and entities including Larex International Investors Ltd. (LII), a
partnership of LAREX. In addition to the foregoing,
in return for an investment of

approximately $1 million, LAREX has issuedwhich Kolya Management Company (i) a
promissory note convertible into LAREX stock with market value equal tois the face value of the note at the time of LAREX's next stock offering and (ii)
a warrant giving Kolya the right to purchase, at market value, additional
stock of LAREX with an aggregate value of approximately $500,000. Also,general partner. LII has
invested $1.1 million. Medical Innovation Fund II, Northeast Ventures, invested an additional $250,000and LII,
in addition to certain other investors in LAREX, receivinghave received warrant rights
based on their respective participation in return a note and warrants with the same terms describedspecific periodic financing activity
in the preceding
sentence.LAREX.

Minnesota Power Director Robert Nickoloff serves as a General Partner of
Medical Innovation Partners II, possessing a 20 percent ownership interest.
Medical Innovation Partners II is the general partner of Medical Innovation Fund
II. In addition, Mr. Nickoloff serves on the boards of directors of Northeast
Ventures and LAREX. Northeast Ventures, together with its affiliate Iron Range
Ventures, is a $7.8$9.0 million venture capital fund investing in northeastern
Minnesota. Minnesota Power purchased a 21 percent interest in Northeast Ventures
for $1 million in 1989 at a time when there were no relationships between
Northeast Ventures and

18
Minnesota Power or its Directorsdirectors or employees. Minnesota Power invested in
Northeast Ventures as an economic development contribution and has agreed that it
wouldwill not withdraw its investment. Mr. Gregory Sandbulte, the son of Arend
Sandbulte, former Minnesota Power Chairman, Arend Sandbulte,CEO and President, and current
Director, is currently president of Northeast Ventures.Ventures and a director of LAREX.
Mr. Nick Smith serves as chairman and CEO of Northeast Ventures, and is a member
of the Minnesota Power and LAREX boards of directors. Geraldine R. VanTassel,
former Vice President - Corporate Resource Planning of Minnesota Power, is a
director of Northeast Ventures. Mr. Gregory Sandbulte and Mr. Smith, along with
a third party, are general partners in Kolya Management Company, holding a five
percent ownership interest. Mr. Bo Nickoloff, the son of Mr. Robert Nickoloff,
is an employee of LAREX.

19
Minnesota Power Common Stock Performance

The following graph compares the Company's cumulative total shareholder
returnTotal Shareholder
Return on its Common Stock with the cumulative return of the S&P 500 Index
and the S&P Utilities Index, a capitalization-weighted index of 26 stocks,
which is designed to measure the performance of the electric power utility
company sector of the S&P 500 Index. The S&P 500 Index is a capitalization-
weighted index of 500 stocks designed to measure performance of the broad
domestic economy through changes in the aggregate market value of 500 stocks
representing all major industries. Because this composite index has a broad
industry base, its performance may not closely track that of a composite index
comprised solely of electric utilities. In previous Proxy Statements, the
Company used the Duff & Phelps Electric Utility Index over the preceding five calendar years. The
Duff & Phelps Electric Utility Index includes 89 of the largest investor-owned
electric utilities in the U.S.which is no longer
published. The calculations assume a $100 investment on December 31, 1990,1991,
and reinvestment of all dividends at the time paid.

[GRAPHIC MATERIAL OMITTEDOMMITTED-PERFORMANCE GRAPH]
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
Minnesota Power 100.00 111.90 113.31 94.14 114.02 118.99
S&P Utilities
Index (Electrics) 100.00 105.89 119.24 103.66 135.88 135.46
S&P 500 100.00 107.61 118.41 119.98 165.02 202.87
Duff & Phelps Electric 100.00 108.90 119.04 106.42 136.19 N/A

Certain Relationships and Related Transactions

Effective August 21, 1996, Minnesota Power acquired the remaining 17
percent ownership interest in ADESA Corporation from the ADESA management
shareholders. In connection with the transaction, Mr. D. Michael Hockett
resigned from his positions as Director of Minnesota Power and Chairman,
Director and CEO of ADESA, and Mr. Larry Wechter resigned from his positions as
Director and President of ADESA. Mr. Hallett, who was previously President of
ADESA-Canada and a director of ADESA, was elected President and CEO of ADESA. In
connection with this transaction, Minnesota Power paid $36.0 million to Mr.
Hockett, $2.7 million to Mr. Wechter, $1.2 million to Mr. James P. Hallett, and
$1.7 million to Mr. John E. Fuller.

In 1996 ADESA leased space for its principal offices in an office building
located at 1919 S. Post Road, Indianapolis, Indiana, from CIL, Inc., an entity
that is wholly owned by the former Chairman, President and CEO of ADESA, Mr.
Hockett. This lease terminates on February 28, 1998, and ADESA management does
not plan on renewal. ADESA paid an aggregate of $144,000 in lease payments to
CIL during 1996. Management believes that the terms of the lease are comparable
to terms that could be obtained by ADESA from unrelated parties for comparable
rental property. As specified under a services agreement with CIL, ADESA
received $99,623 in fees from CIL in 1996 for providing certain general and
administrative services to CIL.

See the disclosure herein of transactions by the Company with LAREX, Inc.
under "Compensation Committee Interlocks and Insider Participation."

- PERFORMANCE GRAPH]

1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ----

Minnesota Power 100.00 132.22 147.85 149.59 124.34 150.54
S&P 500 100.00 130.34 140.27 154.34 156.44 215.01
Duff & Phelps Electrics 100.00 128.78 140.24 153.30 137.05 175.38
- --------------------------------------------------------------------------------
ITEM NO. 2 - APPOINTMENT OF INDEPENDENT ACCOUNTANTS
- - --------------------------------------------------------------------------------
The Audit Committee of the Board of Directors of the Company has
recommended the appointment of Price Waterhouse as independent accountants for
the Company for the year 1996.1997. Price Waterhouse has acted in the same capacity
since October 1963.

A representative of the accounting firm will be present at the Annual
Meeting of Shareholders, will have an opportunity to make a statement if he or
she so desires, and will be available to respond to appropriate questions.

In connection with the 19951996 audit, Price Waterhouse reviewed the Company's
annual report, examined the related financial statements, and reviewed interim
financial statements and certain of the Company's filings with the Federal
Energy Regulatory Commission and the Securities and Exchange Commission.

The Board of Directors recommends a vote in favor of"FOR" the appointment of Price
Waterhouse as the Company's independent accountants for 1996.1997.

Change in Accountants

On September 3, 1996, the Board of Directors of ADESA Corporation resolved
to engage Price Waterhouse LLP as independent accountants for ADESA for the year
ended December 31, 1996, and dismiss Ernst & Young LLP (E&Y) as such independent
accountants. This change was effected for purposes of administrative efficiency
and cost effectiveness following the purchase by Minnesota Power of the
remaining 17 percent minority interest in ADESA in August 1996. During the two
fiscal years ended December 31, 1995, and the subsequent interim period through
September 3, 1996, there were no disagreements with E&Y on any matters of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedures which, if not resolved to the satisfaction of E&Y, would
have caused E&Y to make reference to the matter in their report. E&Y reports on
ADESA's financial statements for the fiscal year ended December 31, 1994, and
six-month periods ended June 30, 1995, and December 31, 1995, contained no
adverse opinion or disclaimer of opinion and were not qualified or modified as
to uncertainty or audit scope. E&Y's letter dated September 5, 1996, addressed
to the Securities and Exchange Commission stated it agreed with the above
statements.

- - --------------------------------------------------------------------------------
ITEM NO. 3 - RECOMMENDED APPROVAL OFSHAREHOLDER PROPOSAL REGARDING THE
MINNESOTA POWER
EXECUTIVE LONG-TERM INCENTIVE COMPENSATIONCOMPANY'S SHAREHOLDER RIGHTS PLAN
- - --------------------------------------------------------------------------------

At its meeting on January 22 and 23, 1996, the Board of Directors
adopted the Minnesota Power Executive Long-Term Incentive Compensation Plan
(Plan), subject to approval by the shareholders.
The following is a summaryproposal was submitted by Mr. Kenneth Steiner of the material features of the Plan.

The Plan is intended to replace the existing Long-Term Incentive Plan,
which has four-year performance periods, the last of which will end on December
31, 1998.

A vote in favor of the Plan will be deemed also to be a vote in favor
of the performance goals as set forth in the Plan.

Purpose of the Plan

The purpose of the Plan is to promote the success and enhance the value
of the Company by linking participants' personal interests to those of Company
shareholders and customers, providing participants with an incentive for
outstanding performance. The Plan is further intended to assist the Company in
its ability to motivate, attract and retain the services of participants upon
whom the successful conduct of its operations is largely dependent.

Effective Date and Duration

The Plan became effective on January 1, 1996, subject to approval by
the shareholders, and shall remain in effect, subject to the right of the Board
of Directors to terminate the Plan at any time, until all shares subject to the
Plan shall have been purchased or acquired. No grants may be made under the Plan
after the tenth anniversary of the effective date.

Amendments

The Board may, at any time and from time to time, alter, amend,
suspend or terminate the Plan in whole or in part; provided, however, that no
amendment which requires shareholder approval in order for the Plan to continue
to comply with Rule 16b-3 under the Securities Exchange Act of 1934, as amended,
(Exchange Act) shall be effective unless approved by the shareholders.

Administration of the Plan

The Plan will be administered by the Executive Compensation Committee
of the Board of Directors (which consists exclusively of outside directors) or
by such other committee (Committee) consisting of not less than three
non-employee directors appointed by the Board of Directors. The Committee will,
to the extent necessary, be comprised solely of directors qualified to
administer the Plan pursuant to Rule 16b-3 of the Exchange Act and Treas. Reg.
Section 1.162-27(e)(3) with respect to grants made to certain key executive
officers (Key Executives). Compliance with this requirement is one of the
factors necessary to enable the

Company to avoid the income tax deduction limitations under Section 162(m) of
the Code (Section 162(m) Limitations) on annual compensation in excess of
$1,000,000.

Shares Subject to the Plan

The Plan authorizes the grant of up to 2,100,000Great Neck,
NY who owns 394 shares of Minnesota Power Common Stock. Shares underlying grantsThe Minnesota Power
Board of Directors recommends a vote "AGAINST" this resolution.

RESOLVED, that lapse, are forfeitedthe shareholders of Minnesota Power & Light Company urge the
board of directors to redeem any shareholder rights plan unless the issue is
approved by the affirmative vote of a majority of the outstanding shares at a
meeting of the shareholders held as soon as possible.

Supporting Statement: Minnesota Power & Light Company adopted a
"Shareholder Rights Plan" in July 1996 that provides formidable protection from
acquirers who would seek to purchase the company without board approval. The
Rights Plan, commonly known as a "Poison Pill" would become exercisable if a
person or aregroup were to acquire 15 percent or more of the company's common
stock.

I believe that this Poison Pill is both unnecessary and harmful. It serves
to entrench management and the board of directors. It makes it more difficult
for an outside concern to acquire our stock at a premium price because they
could not paidgo directly to the shareholders with a tender offer. Minnesota Power &
Light stock has under performed its peer group and the S&P 500 in 1993 and 1994,
as can be seen on page 20 of last year's proxy statement. The board of directors
owns very little common stock mayof Minnesota Power & Light, which can be reusedseen on
page 3 of last year's proxy statement. They have unilaterally taken action to
institute the "Poison Pill" plan without asking the other shareholders (who own
99% of the company's stock) what they think. The Shareholder Rights Plan is both
untimely and ill-conceived, in my opinion.
21

Recently Phillip Morris and Chase Manhattan both voluntarily redeemed their
own Poison Pills. Minnesota Power & Light Company should attempt to emulate
these well-run companies and do the same. At the very least, it should be put to
a shareholder vote.

I urge your support. Vote for subsequent grants. Shares may be (i)this proposal.

Board of Directors Statement Opposing the Resolution

The Board of Directors authorized but unissued shares of Common Stock or (ii) shares purchased on the open market. The market value ofRights Agreement, dated July 24,
1996, between the Company Common Stock as of March 1, 1996 was
$27.625.

If any corporate transaction occurs that causes a change inand the capitalizationCorporate Secretary of the Company, as Rights
Agent ("Rights Plan") to protect the Committeeinterests of Minnesota Power shareholders
in the event that Minnesota Power is authorizedconfronted with an acquisition proposal at
a price deemed by the Board to make such
adjustmentsbe inadequate, and to the number and class of shares of stock delivered, and the number
and class and/or price of shares of Common Stock subject to outstanding grants
made under theprotect against
acquisitions that would result in unequal treatment among shareholders. The
Rights Plan as it deems appropriate and equitableis designed to prevent dilution
or enlargement of participants' rights.

Eligibility and Participation

Employees eligible to participate in the Plan include officers and key
employeesa potential acquiror from gaining control of
the Company and its subsidiaries, as determined by the Committee,
including employees who are members ofwithout offering all shareholders what the Board of Directors, but excluding
directors who are not employees. It is anticipated that the approximate number
of employees who will be eligible initiallybelieves to participate under the Plan will
be at least 100.

Grants under the Plan

Stock Options

The Committee may grant incentive stock options (ISOs), nonqualified
stock options or a combination thereof under the Plan. The option price for each
such grant shall be the
closing sale pricefull value of Company stock ontheir investment and to otherwise preserve the date of
grant. Options shall expire at such times as the Committee determines at the
time of grant; provided, however, that no option shall be exercisable later than
the tenth anniversary of its grant. Simultaneously with the grant of an option,
a participant may receive dividend equivalents, which entitle the participant to
a right to receive thelong-term value of
the dividends paid with respectCompany for all shareholders. The Rights Plan is also designed to prevent a
potential acquiror from acquiring a controlling interest in the numberCompany through
open market purchases without paying a control premium to all shareholders and
can prevent other takeover tactics that the Board concludes are not in the best
interests of shares held under option fromMinnesota Power's shareholders.

The rights are excercisable only if a person or group of affiliated or
associated persons (1) acquires, or obtains the dateright to acquire, beneficial
ownership of grant to15 percent or more of the date of exercise. The
Committee will determine at the time that dividend equivalents are granted the
conditions, if any, to which the payment of such dividend equivalents is
subject.

Options granted under the Plan shall be exercisable at such times and
subject to such restrictions and conditions as the Committee shall approve;
provided that no option may be exercisable prior to six (6) months following its
grant. The option exercise price is payable in cash, in shares ofoutstanding Common Stock of the Company
havingor (2) commences, or intends to commence, a fair market value equal totender or exchange offer that would
result in the exercise price,beneficial ownership by share
withholdingsuch person or in a combinationgroup of 15 percent or more
of the foregoing. The Committee may allow, along
with other means of exercise, cashless exercise as permitted under the Federal
Reserve Board's Regulation T, subject to the applicable securities laws.

Stock Appreciation Rights

Stock Appreciation Rights (SARs) granted under the Plan may be in the
form of freestanding SARs, tandem SARs or a combination thereof. The base value
of a freestanding SAR shall be equal to the closing sale price of a share of
Company Common Stock on the date of grant. The base value of a tandem SAR shall
be equal to the option price of the related option. No SAR granted under the
Plan may be exercisable prior to six (6) months following its grant. The term of
any SAR granted under the Plan shall be determined by the Committee, provided
that such term may not exceed ten (10) years.

Freestanding SARs may be exercised upon such terms and conditions as
are imposed by the Committee and set forth in the SAR grant agreement. A tandem
SAR may be exercised only with respect to the shares ofoutstanding Common Stock of the Company for which its related optionCompany. The Rights Plan is exercisable.

Upon exercise of an SAR, a participant will receive the excesssimilar to
those adopted by over 1,500 United States corporations, including at least 65
electric and gas utility companies. An explanation of the fair market value of a share of Company Common Stock on the date of exercise
over the base value multiplied by the number of shares with respectRights Plan was
provided to which the
SAR is exercised. Payment due to the participant upon exercise may be made in
cash, in shares of Company Common Stock having a fair market value equal to such
cash amount, or in a combination of cash and shares, as determined by the
Committee.

The maximum number of SARs which may be granted to any one participant
under the Plan in any calendar year is 20,000.

Restricted Stock

Restricted stock may be granted in such amounts and subject to such
terms and conditions as determined by the Committee.

Restricted stock may not be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated until the end of the applicable restricted
period; provided, however, that in no event may restricted stock granted under
the Plan vest prior to six (6) months following the date of its grant.

Participants holding restricted stock may exercise full voting rights
with respect to those shares during the restricted period and shall be credited
with regular cash dividends and other distributions paid with respect to such
shares. Subject to the Committee's right to determine otherwiseall shareholders at the time of grant, dividends or distributions credited duringits adoption in July 1996.

The proponent asserts that the restricted period shall be
subjectRights Plan makes it more difficult for an
outside concern to the same restrictions on transferability and forfeitability as the
shares of restricted stock with respect to which they were paid. All dividends
credited shall be paid promptly following the vesting of the share of restricted
stock to which such dividends or other distributions relate.

Performance Units and Performance Shares

Performance units and performance shares may be granted in the amounts
and subject to such terms and conditions as determined by the Committee. The

Committee shall set performance goals, which, depending on the extent to which
they are met during the performance periods established by the Committee, will
determine the number and/or value of performance units/shares that will be paid
out to participants. Performance periods shall, in all cases, be at least six
(6) months in length.

Simultaneously with the grant of performance shares, the participant
may be granted dividend equivalents with respect to such performance shares.
Dividend equivalents shall constitute rights to be paid amounts equal to the
dividends declared on an equal number of outstanding shares on all payment dates
occurring during the period between the grant date of the performance shares and
the date the performance shares are earned or paid out.

Participants shall receive payment of the value of performance
units/shares earned after the end of the performance period, or at such later
time as the Committee may determine. Payment of performance units/shares shall
be made in cash and/or shares of Common Stock which have an aggregate fair
market value equal to the value of the earned performance units/shares after the
end of the applicable performance period, in such combination as the Committee
determines. Such shares may be granted subject to any restrictions deemed
appropriate by the Committee.

Unless and until the Committee proposes a change in such goals for
shareholder vote or applicable tax and/or securities laws change to permit
Committee discretion to alter such performance goals without obtaining
shareholder approval, to avoid the Section 162(m) Limitations, the performance
goals to be used for purposes of grants to Key Executives shall be based upon
any one or more of the following:

Total shareholder return (measured as the sum of share appreciation and
dividends declared).

Return on invested capital, assets, or net assets.

Share earnings/earnings growth.

Cash flow/cash flow growth.

Cost of services to consumers.

Growth in revenues, sales, operating income, net income, stock price
and/or earnings per share.

Return on shareholders equity.

Economic value created.

Customer satisfaction and/or customer service quality.

Operating effectiveness

The maximum payout to any one participant (i) with respect to
performance units granted in any calendar year is 200% of base salary determined
at the earlier of the beginning of the performance period and the time the
performance goals are set by the Committee and (ii) with respect to performance
shares in any calendar year is 20,000 shares.

Other Grants

The Committee may make other grants which may include, without
limitation, the grant of shares of Common Stock based upon certain specified
conditions and the payment of shares in lieu of cash under other Company
incentive or bonus programs in such manner and at such times as the Committee
determines.

Termination of Employment

In the event a participant's employment is terminated during a
performance period, before grants become exercisable or vested, or after they
become exercisable but before exercise, the Committee shall determine, at the
time of grant, participants' rights, if any, with respect to such grants.

Transferability

Grants may not be sold, transferred, pledged, assigned or otherwise
alienated or hypothecated, other than by will or by the laws of descent and
distribution. A participant's rights shall be exercisable only by the
participant during his or her lifetime.

Change in Control

As of the effective date of a change in control,

(i) any option or SAR outstanding shall become immediately
exercisable;
(ii) any restriction period and restrictions imposed on restricted
stock shall be deemed to have expired;
(iii) the superior number of performance shares granted for the
entire performance period including dividend equivalents
for the entire performance period shall be paid out, in cash
or in stock, as determined by the Committee; and

(iv) any earned performance units or performance shares (as
increased by any dividend equivalents to the date of payment)
not yet paid out shall be paid out immediately, in cash or in
stock, as determined by the Committee. There shall not,
however, be any accelerated payout with respect to performance
grants made less than six (6) months prior to the change in
control.

For purposes of the above, a 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 events have occurred:

(i) the dissolution or liquidation of the Company;

(ii) 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;

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

(iv) a reorganization, merger or consolidation of the Company with
one or more unrelated corporations, if immediately after the
consummation of such transaction less than a majority of the
Board of Directors of the surviving corporation is comprised
of Continuing Directors. Continuing Director shall mean (i)
each member of the Board of Directors of the Company, while
such person is a member of the Board, who is not the other
party to the transaction, an Affiliate or Associate (as these
terms are defined in the Securities Exchange Act of 1934, as
amended) of such other party to the transaction, or a
representative of such other party or of any such Affiliate or
Associate, and was a member of the Board immediately prior to
the initial public announcement of a proposal relating to a
reorganization, merger or consolidation involving such other
party, or an Affiliate or Associate of such other party or
(ii) any person who subsequently becomes a member of the
Board, while such person is a member of the Board, who is not
the other party to the transaction, or an Affiliate or
Associate thereof, or a representative of such other party to
the transaction or of any such Affiliate or Associate, if such
person's nomination for election to the Board is recommended
or approved by two-thirds of the Continuing Directors then in
office; or

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

New Plan Benefits
Minnesota Power
Executive Long-Term Incentive Compensation Plan

- -------------------------------------------------------------------------------------------
Dollar Value of Number of
Name & Position Dollar Value Number of Performance Shares Performance Shares
of Options Options
- -------------------------------------------------------------------------------------------

Arend J. 0 0
Sandbulte, 1. 0 1. 0
Chairman & Chief 2. 0 2. 0
Executive Officer 3. 0 3. 0
- -------------------------------------------------------------------------------------------
Jack R. McDonald, 0 0
Executive Vice 1. 0 1. 0
President-Finance 2. 0 2. 0
and Corporate 3. 0 3. 0
Development
- -------------------------------------------------------------------------------------------
Robert D. Edwards, $37,653 5,570
Executive Vice 1. $ 43,338 1. 1,514
President and 2. 86,677 2. 3,028
President-MP-Electric 3. 173,353 3. 6,056
- -------------------------------------------------------------------------------------------
Donnie R. $26,269 3,886
Crandell, Senior 1. $ 30,228 1. 1,056
Vice 2. 60,456 2. 2,112
President-Corporate 3. 120,912 3. 4,224
Development
- -------------------------------------------------------------------------------------------
David G. Gartzke, $29,595 4,378
Senior Vice 1. $ 34,064 1. 1,190
President-Finance 2. 68,128 2. 2,380
and CFO 3. 136,255 3. 4,760
- -------------------------------------------------------------------------------------------
Executive Group $293,702 43,447
1. $ 344,416 1. 12,032
2. 688,803 2. 24,063
3. 1,377,607 3. 48,126
- -------------------------------------------------------------------------------------------
Non-Executive N/A N/A
Director Group
- -------------------------------------------------------------------------------------------
Non-Executive $508,764 75,261
Officer Employee 1. $ 811,891 1. 28,363
Group 2. 1,623,753 2. 56,725
3. 3,247,506 3. 113,450
- -------------------------------------------------------------------------------------------
Each Nominee for N/A N/A
Election as
Director
- -------------------------------------------------------------------------------------------
Each Associate of N/A N/A
any of such
Directors,
Executive Officers
or Nominees
- -------------------------------------------------------------------------------------------
Each other person N/A N/A
who received or is
to receive 5% of
such Options
- -------------------------------------------------------------------------------------------
- ------------------
1. Threshold
2. Target
3. Superior

The table reflects the number of stock options and performance shares
granted pursuant to the Plan on January 2, 1996, subject to approval of the Plan
by the shareholders.

The dollar value of the stock options is based on a combination
Black-Scholes, binomial pricing method. The stock options vest 50 percent on
January 2, 1997 and 50 percent on January 2, 1998, are exercisable at $28.625
per share, and expire on January 2, 2006. The value of the performance shares is
based on $28.625, the closing price ofacquire Minnesota Power Common Stock on January
2, 1996. Performance shares carry dividend equivalents which addat a premium price
because it could not go directly to the numbershareholders with a tender offer. The
Rights Plan does not prohibit a tender offer, but does encourage a potential
acquiror to negotiate directly with the Board. The purpose of shares subjectencouraging the
outsider to negotiate with the grant. Threshold, target, and superior award numbers inBoard is to ensure that an acquiror pays
Minnesota Power shareholders a premium reflecting the table reflect dividend equivalents expected to be accrued over the two year
performance period at the current dividend rate.

It is contemplated that additional grants under the Plan will be made
annually.

Federal Income Tax Consequences

The following is a brief description of the federal tax consequences
related to options awarded under the Plan.

Consequences to the Optionholder

Grant
- -----

There are no federal income tax consequences to the optionholder solely
by reason of the grant of ISOs and non-ISOs under the Plan.

Exercise
- --------

The exercise of an ISO is not a taxable event for regular federal
income tax purposes if certain requirements are satisfied, including the
restriction providing that the optionholder generally must exercise the option
no later than three (3) months following the termination of his or her
employment. However, such exercise may give rise to an alternative minimum tax
liability (see "Alternative Minimum Tax" below).

Upon the exercise of a non-ISO, the optionholder will generally
recognize ordinary income in an amount equal to the excess of the fair marketfull value of the sharesCompany.
The Board is in a stronger position than individual shareholders to negotiate a
price that maximizes the value for all of Company Common Stockthe Company's shareholders. By
creating inducements for a potential acquiror to negotiate with the Board, the
Rights Plan creates an orderly process that allows the Board sufficient time to
evaluate whether a takeover offer is beneficial to all of the Company's
shareholders, while retaining the Board's flexibility to develop alternatives
that may result in greater value for the Company's shareholders. A basic
objective of the Rights Plan is to encourage potential acquirors to come forward
with a sound offer at the earliest possible time of exercise over the
amount paid as the exercise price. The ordinary income recognized in connectionand to negotiate with the
exerciseBoard. It is well recognized that the price an acquiror is ultimately willing to
pay

for a company's stock can far exceed the initial offer, especially when the
acquiror must negotiate with the company's board of directors.

The Company's Rights Plan is administered by and under the control of the
Minnesota Power Board of Directors. Eleven of the Company's twelve current
directors are neither employees nor officers of the Company. The Board possesses
a broad range of experience in business, finance and law. In the event of an
optionholderoffer that is in the best interests of the shareholders, the Board would have a
fiduciary obligation to redeem the Rights to permit the offer to proceed. The
Board is knowledgeable of its fiduciary duty to represent the interests of
shareholders when evaluating the merits of any acquisition proposal.

The Board believes that the proper time to consider redemption of the
Rights is when a specific offer is made to acquire the Company's Common Stock.
Redemption of the Rights prior to that time would expose the Company's
shareholders to abusive takeover tactics, remove any incentive for the potential
acquiror to approach the Board, and deprive the Board of the time to evaluate
any third party offer and maximize value for all shareholders of the Company
either through negotiations or development of alternatives.

The Board of Directors unanimously recommends a vote "AGAINST" this
shareholder proposal. The affirmative vote of a non-ISO will be subject to both wage
and employment tax withholding.

The optionholder's tax basis in the shares acquired pursuant to the
exercise of an option will be the amount paid upon exercise plus, in the case of
a non-ISO, the amount of ordinary income recognized by the optionholder upon
exercise.

Qualifying Disposition
- ----------------------

If an optionholder disposesmajority of shares of Company Common Stock acquired
upon the exercise of an ISO in a taxable transaction,present and such disposition
occurs more than two years from the date on which the option is granted and more
than one year after the date on which the shares are transferred to the
optionholder pursuant to the exercise of the ISO, the optionholder will
recognize long-term capital gain or loss equal to the difference between the
amount realized upon such disposition and the optionholder's adjusted basis in
such shares (generally the option exercise price).

Disqualifying Disposition
- -------------------------

If the optionholder disposes of shares of Company Common Stock acquired
upon the exercise of an ISO (other than in certain tax-free transactions) within
two years from the date on which the ISO is granted or within one year after the
transfer of the shares to the optionholder pursuant to the exercise of the ISO,
then at the time of disposition the optionholder will generally recognize
ordinary income equal to the lesser of (i) the excess of such share's fair
market value on the date of exercise over the exercise price paid by the
optionholder or (ii) the optionholder's actual gain (i.e., the excess, if any,
of the amount realized on the disposition over the exercise price paid by the
optionholder). If the total amount realized on a taxable disposition (including
return of capital and capital gain) exceeds the fair market value on the date of
exercise, then the optionholder will recognize a capital gain in the amount of
such excess. If the optionholder incurs a loss on the disposition (i.e., if the
total amount realized is less than the exercise price paid by the optionholder),
then the loss will be a capital loss.

Other Disposition
- -----------------

If an optionholder disposes of shares of Company Common Stock acquired
upon exercise of a non-ISO in a taxable transaction, the optionholder will
recognize capital gain or loss in an amount equal to the difference between his
or her basis (as discussed above) in the shares sold and the total amount
realized upon disposition. Any such capital gain or loss (and any capital gain
or loss recognized on a disqualifying disposition of shares of Company Common
Stock acquired upon exercise of ISOs as discussed above) will be long-term
depending on whether the shares of Company Common Stock were held for more than
one year from the date such shares were transferred to the optionholder.

Alternative Minimum Tax
- -----------------------

Alternative minimum tax (AMT) is imposed in addition to, but only to
the extent it exceeds, the optionholder's regular tax for the taxable year.
Generally, AMT is computed at the rate of 26% on the excess of a taxpayer's
alternative minimum taxable income (AMTI) over the exemption amount, but only if
such excess amount does not exceed $175,000 ($87,500 in the case of married

individuals filing separate returns). The AMT tax rate is 28% of such excess
amount over the $175,000 ($87,500) amount. For these purposes, the exemption
amount is $45,000 for joint returns or returns of surviving spouses ($33,750 for
single taxpayers and $22,500 for married individuals filing separate returns),
reduced by 25% of the excess AMTI over $150,000 for joint returns or returns of
surviving spouses ($112,500 for single taxpayers and $75,000 for married
individuals filing separate returns). A taxpayer's AMTI is essentially the
taxpayer's taxable income adjusted pursuant to the AMT provisions and increased
by items of tax preference.

The exercise of ISOs (but not non-ISOs) will generally result in an
upward adjustment to the optionholder's AMTI in the year of exercise by an
amount equal to the excess, if any, of the fair market value of the stock on the
date of exercise over the exercise price. The basis of the stock acquired, for
AMT purposes, will equal the exercise price increased by the prior upward
adjustment of the taxpayer's AMTI due to the exercise of the option. This will
result in a corresponding downward adjustment to the optionholder's AMTI in the
year the stock is disposed of.

Consequences to the Company

There are no federal income tax consequences to the Company by reason
of the grant of ISOs or non-ISOs or the exercise of ISOs (other than
disqualifying dispositions).

At the time the optionholder recognizes ordinary income from the
exercise of a non-ISO, the Company will be
entitled to a federal income tax
deduction in the amount of the ordinary income so recognized (as described
above), provided that the Company satisfies its withholding obligations
described below. To the extent the optionholder recognizes ordinary income by
reason of a disqualifying disposition of the stock acquired upon exercise of
ISOs, the Company will be entitled to a corresponding deduction in the year in
which the disposition occurs. Any deduction to which the Company may be entitled
may be limited by reason of the Section 162(m) Limitations, as described above.

The Companyvote will be required to report to the Internal Revenue Service
any ordinary income recognized by any optionholder by reason of the exercise of
a non-ISO. The Company will be required to withhold income and employment taxes
(and pay the employer's shares of employment taxes) with respect to ordinary
income recognized by the optionholder upon the exercise of non-ISOs.

Other Tax Consequences

The foregoing discussion is not a complete description of the federal
income tax aspects of ISOs and non-ISOs under the Plan. In addition,
administrative and judicial interpretations of the application of the federal
income tax laws are subject to change. Furthermore, the foregoing discussion
does not address state or local tax consequences.

- --------------------------------------------------------------------------------
ITEM NO. 4 - RECOMMENDED APPROVAL OF THE
MINNESOTA POWER
DIRECTOR LONG-TERM STOCK INCENTIVE PLAN
- --------------------------------------------------------------------------------

At its meeting on January 22 and 23, 1996, the Board of Directors
adopted the Minnesota Power Director Long-Term Stock Incentive Plan (Plan),
subject to approval by the shareholders. The following is a summary of the
material features of the Plan.

The Plan is intended to replace the existing Director Long-Term
Incentive Plan, which has four-year performance periods, the last of which will
end on December 31, 1997. The Plan will cover the performance share grants
currently held under the old plan.

A vote in favor of the Plan will be deemed also to be a vote in favor
of the performance goals set forth in the Plan and a vote in favor of the grant
of shares under the old Directors' Long-Term Incentive Plan and the goals
relating thereto, all as set forth in the Plan.

Purpose of the Plan

The purpose of the Plan is to promote the success and enhance the value
of the Company by linking directors' personal interests to those of Company
shareholders. The Plan is further intended to assist the Company in its ability
to motivate, attract and retain highly qualified individuals to serve as
directors of the Company.

Effective Date and Duration

Amendments

The Board may, at any time and from time to time, alter, amend, suspend
or terminate the Plan in whole or in part; provided, however, that no amendment
which requires shareholder approval in order for the Plan to continue to comply
with Rule 16b-3 under the Exchange Act shall be effective unless approved by the
shareholders. Any provision of the Plan stating the amount, price and timing of
securities to be issued under the Plan shall not be amended more than once every
six months, other than to comport with changes in the Internal Revenue Code, the
Employee Retirement Income Security Act of 1974 or the rules thereunder.

Administration of the Plan

The Plan will be administered by a committee (Committee) appointed by
the Board of Directors consisting of not less than three persons who are not
eligible to participate in the Plan. Members of the Committee need not be
members of the Board.

Shares Subject to the Plan

The Plan authorizes the grant of up to 150,000 shares of Minnesota
Power Common Stock. Shares underlying grants that lapse or are forfeited may be
reused for subsequent grants. Shares may be (i) authorized but unissued shares
of Common Stock or (ii) shares purchased on the open market. The market value of
Company Common Stock as of March 1, 1996 was $27.625.

If any corporate transaction occurs that causes a change in the
capitalization of the Company, the Committee shall make such adjustments to the
number and class of shares of stock delivered, and the number and class and/or
price of shares of Common Stock subject to outstanding grants made under the
Plan, as it deems appropriate and equitable to prevent dilution or enlargement
of participants' rights.

Eligibility and Participation

Only non-employee directors of the Company are eligible to participate
in the Plan. The number of directors who will be eligible initially to
participate under the Plan will be 12.

Grants under the Plan

Stock Options
- -------------

On January 2, 1996 and on every January 2nd thereafter, each
non-employee director of the Company will receive a grant of 725 stock options.
The exercise price for each such grant shall be the closing sale price of
Company Common Stock on the date of grant. Options shall expire on the tenth
anniversary of the date of grant.

Options granted under the Plan shall be exercisable 50% on the first
anniversary of the date of grant and the remaining 50% on the second anniversary
of the date of grant. The option exercise price is payable in cash, in shares of
Common Stock of the Company having a fair market value equal to the exercise
price, by share withholding, cashless exercise or in a combination of the
foregoing.

Performance Shares
- ------------------
On January 2, 1996 and on every second January 2nd thereafter, each
non-employee director of the Company will receive a grant of performance shares
equal in number to $10,000 divided by the closing sale price of Company Common
Stock on the date of grant. Performance periods shall end on the December 31st
two years after the date of grant.

The participant shall also receive dividend equivalents with respect to
the number of performance shares subject to the grant. The dividend equivalents
credited on each Common Stock ex-dividend date during the performance period
shall be in the form of additional performance shares, shall be added to the
number of performance shares subject to the grant and shall equal the number of
shares (including fractional shares) that could be purchased on the ex-dividend
date, 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.

The performance goal for each performance period is total shareholder
return (defined as stock price appreciation plus dividends reinvested on the
ex-dividend date throughout the performance period, divided by the fair market
value of a share at the beginning of the performance period) for the Company in
comparison to the total shareholder return for the 16 companies set forth in the
Plan over the performance period. The fair market value of shares is defined as
the closing price as reported on the composite reporting system on the first day
of the performance period.

First Performance Cycle (1996-1997)
- --------------------------------------------------------------------------------
Threshold Target Superior
- --------------------------------------------------------------------------------
% Payout 50% 100% 200%
- --------------------------------------------------------------------------------
Goal 40th percentile 50th percentile 75th percentile
- --------------------------------------------------------------------------------

Subsequent Performance Cycles (1998-1999 and thereafter)
- --------------------------------------------------------------------------------
Threshold Target Superior
- --------------------------------------------------------------------------------
% Payout 50% 100% 200%
- --------------------------------------------------------------------------------
Goal 47th percentile 65th percentile 88th percentile
- --------------------------------------------------------------------------------

No awards will be paid if the threshold percentiles are not reached.
Earned awards will range from 50% to 200% of the number of performance shares
granted (as increased by the dividend equivalents), based on the percentile
performance achieved by the Company. Straight line interpolation will be used
for results between those specified, rounded down to the nearest whole share.

Subject to the provisions for termination or change in control, 50% of
any earned performance shares (as increased by the dividend equivalents) shall
be paid after the end of the performance period promptly after determination of
the extent to which performance goals have been met. The remaining 50% of the
earned performance shares (as increased by the dividend equivalents) shall
continue to accrue dividend equivalents until paid out as set forth in the next
sentence. One-
33

half of the remaining earned performance shares (as increased by the dividend
equivalents) shall be paid out on the next January 2. The remaining performance
shares shall continue to accrue dividend equivalents and shall be paid out on
the following January 2.

Termination of Director Status

In the event a participant ceases to be a director of the Company by
reason of retirement or death:

(i) before the exercise period commences for an option, any
options not yet exercisable shall become exercisable
immediately and be exercisable in full at any time during the
one year period after retirement or death;

(ii) after the exercise period commences for an option, such
options may be exercised in full at any time during the one
year period after retirement or death, but in no event after
the exercise period has expired;

(iii) during a performance period for performance shares, the
participant (or his or her beneficiary or estate) shall
receive a payment of any earned performance shares (as
increased by dividend equivalents), promptly after
determination of the extent to which performance goals have
been met. The payout shall be prorated based upon the number
of months elapsed as of the date of retirement or death in
relation to the full performance period; and

(iv) after the end of a performance period, but before any or all
earned performance shares have been paid out, the participant
(or his or her beneficiary or estate) shall be entitled to a
full payout of all earned performance shares (as increased by
the dividend equivalents), which shall be paid promptly after
such occurrence.

Retirement is defined as resignation upon reaching retirement age, or
otherwise resigning or not standing for reelection with the approval of the
Board.

In the event a participant ceases to be a director of the Company for
any other reason (other than upon a change in control):

(i) all options not yet exercisable or exercised shall be
forfeited;

(ii) all performance shares and related dividend equivalent not yet
earned shall be forfeited; and

(iii) earned performance shares (as increased by dividend
equivalents) shall continue to accrue dividend equivalents
and shall be paid out as and when provided in Section 7.6
of the Plan.

Transferability

Change in Control

As of the effective date of a change in control:

(i) any options outstanding shall become immediately exercisable;

(ii) the higher of (x) 100% of the number of performance shares
granted for the entire performance period and (y) the payout
based on actual performance for the performance period ending
on the date of the change in control (in either case after
giving effect to the accumulation of dividend equivalents),
prorated to reflect the number of months in the performance
period up to the date of the change in control in relation to
the full performance period, shall be paid out immediately in
shares; and

(iii) all earned performance shares (as increased by dividend
equivalents) not yet paid out shall be paid out immediately in
shares. There shall not, however, be any accelerated payout
with respect to performance share grants made less than six
(6) months prior to the change in control.

For purposes of the above, a 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 events have occurred:

(i) the dissolution or liquidation of the Company;

(ii) 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;

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

(iv) the sale of substantially all of the assets of the Company.

New Plan Benefits
Minnesota Power
Director Long-Term Stock Incentive Plan
(including award under old plan)
proposal.

- ----------------------------------------------------------------------------------------------------------
Dollar Value of Number of
Dollar Value Number of Dollar Value Number of Performance Performance
Name & Position of Shares Shares of Options Options Shares Shares
- ----------------------------------------------------------------------------------------------------------

Non-Executive $176,845 6,178 $58,812 8,700 1. $69,044 1. 2,412
Director Group
2. 138,087 2. 4,824

3. 276,174 3. 9,648
- ----------------------------------------------------------------------------------------------------------

Each Nominee for $17,175 600 $4,901 725 1. $5,754 1. 207
Election as
Director 2. 11,507 2. 402

3. 23,015 3. 804
- ----------------------------------------------------------------------------------------------------------
- -------------------
1. Threshold
2. Target
3. Superior

The table reflects the number of stock options and performance shares
granted pursuant to the Plan on January 2, 1996, subject to approval of the Plan
by the shareholders.

The dollar value of the stock options is based on a combination
Black-Scholes, binomial pricing method. The stock options vest 50% on January 2,
1997 and 50% on January 2, 1998, are exercisable at $28.625 per share, and
expire on January 2, 2006. Performance shares carry dividend equivalents which
add to the number of shares subject to the grant. Threshold, target, and
superior award numbers in the table reflect dividend equivalents expected to be
accrued over the two year performance period at the current dividend rate. The
table also reflects the maximum award number and dollar value of shares granted
under the old Plan for the 1994 - 1997 performance cycle. The value of the
performance shares and the awards under the old Plan is based on $28.625, the
closing price of Minnesota Power Common Stock on January 2, 1996.

Additional grants of stock options will be made annually, and
additional grants of performance shares will be made every other year.

Federal Income Tax Consequences

The following is a brief description of the federal tax consequences
related to options awarded under the Plan.

Consequences to the Optionholder

Grant
- -----

There are no federal income tax consequences to the optionholder solely
by reason of the grant of an option under the Plan.

Exercise
- --------

Upon the exercise of an option, the optionholder will generally
recognize ordinary income in an amount equal to the excess of the fair market
value of the shares of Company Common Stock at the time of exercise over the
amount paid as the exercise price.

The optionholder's tax basis in the shares acquired pursuant to the
exercise of an option will be the amount paid upon exercise plus the amount of
ordinary income recognized by the optionholder upon exercise.

Disposition of Shares Acquired Under an Option
- ----------------------------------------------

If an optionholder disposes of shares of Company Common Stock acquired
upon exercise of an option in a taxable transaction, the optionholder will
recognize capital gain or loss in an amount equal to the difference between his
basis (as discussed above) in the shares sold and the total amount realized upon
disposition. Any such capital gain or loss will be long-term depending on
whether the shares of Company Common Stock were held for more than one year from
the date such shares were transferred to the optionholder.

Consequences to the Company

There are no federal income tax consequences to the Company by reason
of the grant of options.

At the time the optionholder recognizes ordinary income from the
exercise of an option, the Company will be entitled to a federal income tax
deduction in the amount of the ordinary income so recognized (as described
above).

The Company will be required to report to the Internal Revenue Service
any ordinary income recognized by any optionholder by reason of the exercise of
an option.

Other Tax Consequences

The foregoing discussion is not a complete description of the federal
income tax aspects of options under the Plan. In addition, administrative and
judicial interpretations of the application of the federal income tax laws are
subject to change. Furthermore, the foregoing discussion does not address state
or local tax consequences.

Old Plan

The Company has previously made grants to outside directors under the
Directors' Long-Term Incentive Plan, which provides for maximum award
opportunities of 600 shares of Company Common Stock every other year. One
performance period (1994 - 1997) is still running under this plan, although no
new performance period will commence in 1996. On and after the effective date of
the new Plan, the shares relating to the existing performance period shall be
deemed to be covered by the new Plan and shall be counted against the number of
shares available under the new Plan, and their grant and the performance goals
shall be deemed to have been approved by Company shareholders by their approval
of the new Plan.

The old plan awards a maximum of 600 shares of Common Stock to each
outside director if, over a four-year period commencing with each even-numbered
year, total shareholder return (TSR) equals or exceeds (i) median TSR compared
to a pre-selected group of comparable utilities (listed below) and/or (ii) the
40th percentile TSR compared to companies in the Standard & Poor's 500. No
awards are granted to directors if Company results are below both of these
threshold performance levels. The comparison to comparable utilities and to the
S&P 500 companies is weighted 60 percent and 40 percent, respectively.

The first comparator group is comprised of:

MidAmerican Energy Company
IES Industries, Inc.
Interstate Power Company
Madison Gas & Electric Company
Northern States Power Company
Otter Tail Power Company
Wisconsin Energy Corporation
WPL Holdings, Inc.
Northwestern Public Service Company
Wisconsin Public Service Corporation

The second comparator group is the companies comprising the S&P 500.

After calculation of the Company's TSR ranking within the first and
second comparator groups, the schedule below indicates the percent of the
Director's Performance Award Opportunity actually earned.

Utility TSR Ranking

---------------------------------------------------------------
1-2 60 68 76 84 92 100
---------------------------------------------------------------
3 48 56 64 72 80 88
---------------------------------------------------------------
4 36 44 52 60 68 76
---------------------------------------------------------------
5 24 32 40 48 56 64
---------------------------------------------------------------
6 12 20 28 36 44 52
---------------------------------------------------------------
7-11 0 8 16 24 32 40
---------------------------------------------------------------
0-40 50 60 70 80 90
TSR Percentile Ranking in S&P 500

TSR is defined as:
TSR = Stock price appreciation + reinvested dividends
-----------------------------------------------------
Initial stock price

- Stock prices for the beginning and end of the period are the closing
prices on the composite reporting system on the first and last business
days of the period.

- Dividends are assumed to be reinvested on the ex-dividend date at the
closing stock prices on that date.

- Calculation of TSR for the S&P 500 group is based on the companies
included in the S&P 500 Index as of the end of the period. - --------------------------------------------------------------------------------
OTHER BUSINESS
- - --------------------------------------------------------------------------------

The Board of Directors does not know of any other business to be presented
at the meeting. However, if any other matters properly come before the meeting,
it is the intention of the persons named in the accompanying proxy card to vote
pursuant to the proxies in accordance with their judgment in such matters.

It is important that all proxy cards be forwarded promptly in order that
the necessary vote may be present at the meeting. We respectfully request that
you sign and return the accompanying proxy card at your earliest convenience.

By order of the Board of Directors,
Dated March 20, 19961997

Philip R. Halverson
Corporate Secretary

Appendix

Appendix A Minnesota Power Executive Long-Term Incentive Compensation Plan

Appendix B Minnesota Power Director Long-Term Stock Incentive Plan

Appendix A

MINNESOTA POWER

EXECUTIVE LONG-TERM

INCENTIVE COMPENSATION PLAN

Effective 01/01/96

MINNESOTA POWER
EXECUTIVE LONG-TERM INCENTIVE COMPENSATION PLAN

1. Establishment, Purpose and Duration

1 Establishment of the Plan. Minnesota Power & Light Company,
a Minnesota corporation (hereinafter referred to as the "Company"), hereby
establishes an incentive compensation plan to be known as the "Minnesota Power
Executive Long-Term Incentive Compensation Plan" (hereinafter referred to as the
"Plan"), as set forth in this document. The Plan permits the grant of
Nonqualified Stock Options (NQSO), Incentive Stock Options (ISO), Stock
Appreciation Rights (SAR), Restricted Stock, Performance Units, Performance
Shares and other grants.

The Plan shall become effective as of January 1, 1996 (the "Effective
Date"), subject to shareholder approval, and shall remain in effect as provided
in Section 1.3 herein.

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

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

3 Duration of the Plan. The Plan shall commence on the
Effective Date, as described in Section 1.1 herein, and shall remain in effect,
subject to the right of the Board of Directors to terminate the Plan at any time
pursuant to Article 15 herein, until all Shares subject to it shall have been
purchased or acquired according to the Plan's provisions. However, in no event
may a Grant be made under the Plan on or after the tenth anniversary of the
Effective Date.

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:

1 "Base Value" of an SAR shall have the meaning set forth in
Section 7.1 herein.

2 "Board" or "Board of Directors" means the Board of Directors of
the Company.

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

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

(a) the dissolution or liquidation of the Company;

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

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

(d) a reorganization, merger or consolidation of the Company with
one or more unrelated corporations, if immediately after the
consummation of such transaction less than a majority of the
board of directors of the surviving corporation is comprised of
Continuing Directors. Continuing Director shall mean (i) each
member of the Board of Directors of the Company, while such
person is a member of the Board, who is not the other party to
the transaction, an Affiliate or Associate (as these terms are
defined in the Exchange Act) of such other party to the
transaction, or a representative of such other party or of any
such Affiliate or Associate, and was a member of the Board
immediately prior to the initial public announcement of a
proposal relating to a reorganization, merger or consolidation
involving such other party, or an Affiliate or Associate of such
other party or (ii) any person who subsequently becomes a member
of the Board, while such person is a member of the Board, who is
not the other party to the transaction, or an Affiliate or
Associate thereof, or a representative of such other party to
the transaction or of any such Affiliate or Associate, if such
person's nomination for election to the Board is recommended or
approved by two-thirds of the Continuing Directors then in
office;

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

5 "Code" means the Internal Revenue Code of 1986, as amended from
time to time.

6 "Committee" means the committee, as specified in Article 3,
appointed by the Board to administer the Plan with respect to Grants.

7 "Company" means Minnesota Power & Light Company, a Minnesota
corporation, or any successor thereto as provided in Article 17 herein.

8 "Director" means any individual who is a member of the Board of
Directors of the Company.

9 "Disability" shall have the meaning ascribed to such term under
Section 22(e)(3) of the Code.

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

11 "Eligible Employee" means an employee who is eligible to
participate in the Plan, as set forth in Section 5.1 herein.

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

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

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

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

16 "Freestanding SAR" means an SAR that is granted independently of
any Options.

17 "Grant" means, individually or collectively, a grant under the
Plan of NQSOs, ISOs, SARs, Restricted Stock, Performance Units, Performance
Shares or any other type of grant permitted under Article 10 of the Plan.

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

19 "Incentive Stock Option" or "ISO" means an option to purchase
Shares, granted under Article 6 herein, which is designated as an
Incentive Stock Option and satisfies the requirements of Section 422 of the
Code.

20 "Insider means an Employee who is, on the relevant date, an
officer, director or ten percent (10%) beneficial owner of the Common Stock of
the Company, as defined under Section 16 of the Exchange Act.

21 "Named Executive Officer" means a Participant who, as of the
date of vesting and/or payout of a Grant, is one of the group of "covered
employees," as defined in the Regulations promulgated under Code Section 162(m),
or any successor statute.

22 "Nonqualified Stock Option" or "NQSO" means an option to
purchase Shares, granted under Article 6 herein, which is not intended to be an
Incentive Stock Option.

23 "Option" means an Incentive Stock Option or a Nonqualified Stock
Option.

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

25 "Participant" means an Employee who has outstanding a Grant made
under the Plan.

26 "Performance Unit" means a Grant made to an Employee, as
described in Article 9 herein.

27 "Performance Share" means a Grant made to an Employee, as
described in Article 9 herein.

28 "Period of Restriction" means the period during which the
transfer of Restricted Stock is limited, as provided in Article 8 herein.

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

30 "Restricted Stock" means a Grant of Shares made to a Participant
pursuant to Article 8 herein.

31 "Retirement" shall, with respect to a Participant, have the
meaning ascribed to such term in the tax-qualified defined benefit pension plan
maintained by the Company for the benefit of such Participant.

32 "Shares" means the shares of common stock of the Company, without
par value.

33 "Stock Appreciation Right" or "SAR" means a right, granted alone
or in connection with a related Option, designated as an SAR, to receive a
payment on the day the right is exercised, pursuant to the terms of Article 7
herein. Each SAR shall be denominated in terms of one Share.

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

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

3. Administration

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

The Committee, to the extent necessary, shall be comprised solely of
Directors who are eligible to administer the Plan pursuant to Rule 16b-3 under
the Exchange Act and Treas. Reg. 1.162-27(e)(3) with respect to Grants made to
Named Executive Officers. However, if for any reason the Committee does not
qualify to administer the Plan, as contemplated by Rule 16b-3 under the Exchange
Act or Treas. Reg. 1.162-27(e)(3), the Board of Directors may appoint a new
Committee so as to comply with Rule 16b-3 and Treas. Reg. 1.162-27(e)(3).

2 Authority of the Committee. The Committee shall have full
power except as limited by law, the Articles of Incorporation and the Bylaws of
the Company, subject to such other restricting limitations or directions as may
be imposed by the Board and subject to the provisions herein, to determine the
size and types of Grants; to determine the terms and conditions of such Grants
in a manner consistent with the Plan; to construe and interpret the Plan and any
agreement or instrument entered into under the Plan; to establish, amend or
waive rules and regulations for the Plan's administration; and (subject to the
provisions of Article 15 herein) to amend the terms and conditions of any
outstanding Grant. Further, the Committee shall make all other determinations
which may be necessary or advisable for the administration of the Plan. As
permitted by law, the Committee may delegate its authorities as identified
hereunder.

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

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

4. Shares Subject to the Plan

1 Number of Shares. Subject to Section 4.2 herein, the maximum
number of Shares available for grant under the Plan shall be two million
(2,000,000). Shares underlying lapsed or forfeited Grants, or Grants that are
not paid in stock, may be reused for other Grants. Shares may be (i) authorized
but unissued shares of Common Stock or (ii) shares purchased on the open market.

2 Adjustments in Authorized Shares. In the event of any merger,
reorganization, consolidation, recapitalization, separation, liquidation, stock
dividend, split-up, share combination or other change in the corporate structure
of the Company affecting the Shares, such adjustment shall be made in the number
and class of Shares which may be delivered under the Plan, and in the number and
class of and/or price of Shares subject to outstanding Grants made under the
Plan, as may be determined to be appropriate and equitable by the Committee, in
its sole discretion, to prevent dilution or enlargement of rights; provided,
however, that the number of Shares subject to any Grant shall always be a whole
number.

5. Eligibility and Participation

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

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

6. Stock Options

1 Grant of Options. Subject to the terms and conditions of the Plan,
Options may be granted to an Eligible Employee at any time and from time to
time, as shall be determined by the Committee. The Committee shall have complete
discretion in determining the number of Shares subject to Options granted to
each Participant (subject to Article 4 herein) and consistent with the
provisions of the Plan, in determining the terms and conditions pertaining to
such Options; provided, however, the maximum number of shares subject to Options
which may be granted to any single Participant during any one calendar year is
twenty thousand (20,000). The Committee may grant ISOs, NQSOs or a combination
thereof.

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

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.

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

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

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

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

The Option Price upon exercise of any Option shall be payable to the
Company in full either (a) in cash or its equivalent, (b) by tendering
previously acquired Shares having an aggregate Fair Market Value at the time of
exercise equal to the total Option Price (provided that the Shares which are
tendered must have been held by the Participant for at least six (6) months
prior to their tender to satisfy the Option Price), (c) by share withholding or
(d) by a combination of (a), (b) and/or (c).

The Committee also may allow cashless exercise as permitted under
Federal Reserve Board's Regulation T, subject to applicable securities law
restrictions, or by any other means which the Committee determines to be
consistent with the Plan's purpose and applicable law.

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

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

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

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

7. Stock Appreciation Rights

1 Grant of SARs. Subject to the terms and conditions of the Plan,
an SAR may be granted to an Eligible Employee at any time and from time to time,
as shall be determined by the Committee. The Committee may grant Freestanding
SARs, Tandem SARs or any combination of these forms of SAR.

The Committee shall have complete discretion in determining the number
of SARs granted to each Participant (subject to Article 4 herein) and,
consistent with the provisions of the Plan, in determining the terms and
conditions pertaining to such SARs; provided, however, the maximum number of
SARs which may be granted to any single Participant during any one calendar year
is twenty thousand (20,000).

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

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

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

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

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

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

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

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

At the sole discretion of the Committee, the payment upon SAR exercise
may be in cash, in Shares of equivalent value, or in some combination thereof.

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

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

8. Restricted Stock

1 Grant of Restricted Stock. Subject to the terms and conditions
of the Plan, Restricted Stock may be granted to Eligible Employees at any time
and from time to time, as shall be determined by the Committee. The Committee
shall have complete discretion in determining the number of shares of Restricted
Stock granted to each Participant (subject to Article 4 herein) and, consistent
with the provisions of the Plan, in determining the terms and conditions
pertaining to such Restricted Stock.

2 Restricted Stock Grant Agreement. Each Restricted Stock grant
shall be evidenced by a Restricted Stock Grant Agreement that shall specify the
Period or Periods of Restriction, the number of Restricted Stock Shares granted
and such other provisions as the Committee shall determine.

3 Transferability. Except as provided in this Article 8, Restricted
Stock granted herein may not be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated until the end of the applicable Period of
Restriction established by the Committee and specified in the Restricted Stock
Grant Agreement. However, in no event may any Restricted Stock granted under the
Plan become vested in a Participant prior to six (6) months following the date
of its grant. All rights with respect to the Restricted Stock granted to a
Participant under the Plan shall be available during his or her lifetime only to
such Participant.

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

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

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

5 Removal of Restrictions. Except as otherwise provided in this
Article 8, Restricted Stock shall become freely transferable by the
Participant after the last day of the Period of Restriction applicable thereto.
Once Restricted Stock is released from the restrictions, the Participant
shall be entitled to have the legend referred to in Section 8.4 removed from
his or her stock certificate.

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

7 Dividends and Other Distributions. During the Period of
Restriction, Participants holding Restricted Stock shall be credited with all
regular cash dividends paid with respect to all Shares while they are so held.
All cash dividends and other distributions paid with respect to Restricted Stock
shall be credited to Participants subject to the same restrictions on
transferability and forfeitability as the Restricted Stock with respect to which
they were paid. If any such dividends or distributions are paid in Shares, such
Shares shall be subject to the same restrictions on transferability and
forfeitability as the Restricted Stock with respect to which they were paid.
Subject to the restrictions on vesting and the forfeiture provisions, all
dividends credited to a Participant shall be paid to the Participant promptly
following the full vesting of the Restricted Stock with respect to which such
dividends were paid. The provisions of this Section 8.7 are subject to the right
of the Committee to determine otherwise at the time of grant.

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

9. Performance Units and Performance Shares

1 Grant of Performance Units and Performance Shares. Subject to
the terms of the Plan, Performance Units and/or Performance Shares may be
granted to an Eligible Employee at any time and from time to time, as shall be
determined by the Committee. The Committee shall have complete discretion in
determining the number of Performance Units and/or Performance Shares granted to
each Participant (subject to Article 4 herein) and, consistent with the
provisions of the Plan, in determining the terms and conditions pertaining to
such Grants; provided, however, the maximum payout to any single Participant
with respect to Performance Units granted in any one calendar year shall be 200%
of base salary determined at the earlier of the beginning of the Performance
Period and the time the performance goals are set by the Committee and with
respect to Performance Shares shall be twenty thousand (20,000) shares.

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

3 Value of Performance Units/Shares. Each Performance Unit shall
have an initial value that is established by the Committee at the time of grant.
The value of a Performance Share shall equal the value of one Share. The
Committee shall set performance goals in its discretion which, depending on the
extent to which they are met, will determine the number and/or value of
Performance Units/Shares that will be paid out to the Participants. The time
period during which the performance goals must be met shall be called a
"Performance Period." Performance Periods shall, in all cases, be at least six
(6) months in length.

Unless and until the Committee proposes for shareholder vote a change
in the general performance goals set forth below, the attainment of which shall
serve as a basis for the determination of the number and/or value of Performance
Units and/or Performance Shares granted under the Plan, the performance goals to
be used for purposes of grants to Named Executive Officers shall be based upon
any one or more of the following:

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

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

(d) Cash flow/cash flow growth.

(e) Cost of services to consumers.

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

(g) Return on shareholders equity.

(h) Economic value created.

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

(j) Operating effectiveness.

In the event that applicable tax and/or securities laws change to permit
Committee discretion to alter the governing performance goals without obtaining
shareholder approval of such changes and without losing any income tax benefits
to the Company, the Committee shall have sole discretion to make such changes
without obtaining shareholder approval.

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

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

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

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

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

10. Other Grants

The Committee shall have the right to make other Grants which may
include, without limitation, the grant of Shares based on certain conditions,
the payment of cash based on performance criteria established by the Committee,
and the payment of Shares in lieu of cash under other Company incentive or bonus
programs. Payment under or settlement of any such Grants shall be made in such
manner and at such times as the Committee may determine.

11. Beneficiary Designation

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

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

12. Deferrals

The Committee may permit a Participant to defer such Participant's
receipt of the payment of cash or the delivery of Shares that would otherwise be
due to such Participant by virtue of (1) the exercise of an SAR or (2) the
satisfaction of any requirements or goals with respect to any Grants. If any
such deferral election is permitted, the Committee shall, in its sole
discretion, establish rules and procedures for such payment deferrals.

13. Rights of Employees

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

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

14. Change in Control

Upon the occurrence of a Change in Control, as defined herein, unless
otherwise specifically prohibited by the terms of Article 18 herein or unless
the Committee provides otherwise prior to the Change in Control:

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

(b) Any restriction periods and restrictions imposed on Restricted
Stock shall be deemed to have expired;

(c) With respect to all outstanding Grants of Performance Units,
Performance Shares and other performance-based Grants, there
shall be paid out immediately to Participants the superior number
of Performance Units or Shares granted for the entire Performance
Period as increased by Dividend Equivalents for the entire
Performance Period. Payment shall be made in cash or in stock, as
determined by the Committee. However, there shall not be an
accelerated payout under this Section 14(c) with respect to Grants
of Performance Units, Performance Shares or other performance-based
Grants which were made less than six (6) months prior to the
effective date of the Change in Control; and

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

15. Amendment, Modification and Termination

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

16. Withholding

1 Tax Withholding. The Company shall have the power and the right
to deduct or withhold, or require a Participant to remit to the Company, an
amount sufficient to satisfy Federal, state and local taxes (including the
Participant's FICA obligation) required by law to be withheld with respect to a
Grant made under the Plan.

2 Share Withholding. With respect to withholding required upon
the exercise of Options or SARs, upon the lapse of restrictions on Restricted
Stock, or upon any other taxable event arising out of or as a result of Grants
made hereunder, Participants may elect, subject to the approval of the
Committee, to satisfy the withholding requirement, in whole or in part, by
having the Company withhold Shares having a Fair Market Value on the date the
tax is to be determined equal to the minimum statutory total tax which could be
imposed on the transaction. All elections shall be irrevocable, made in writing
and signed by the Participant.

17. Successors

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

18. Legal Construction

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

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

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

Notwithstanding any other provision set forth in the Plan, if required
by the then-current Section 16 of the Exchange Act, any "derivative security" or
"equity security" offered pursuant to the Plan to any Insider may not be sold or
transferred within the minimum time limits specified or required in such rule.
The terms "equity security" and "derivative security" shall have the meanings
ascribed to them in the then-current Rule 16a-1 under the Exchange Act.

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

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

MINNESOTA POWER

By Edwin L. Russell
---------------------------
Its Chief Executive Officer

Attest:

By Philip R. Halverson
-----------------------------------
CorporateVice President, General Counsel
and Secretary

1523

Appendix B

MINNESOTA POWER

DIRECTOR LONG-TERM

STOCK INCENTIVE PLAN

Effective 01/01/96

MINNESOTA POWER
DIRECTOR LONG-TERM STOCK INCENTIVE PLAN

1. Establishment, Purpose and Duration

1 Establishment of the Plan. Minnesota Power & Light Company,
a Minnesota corporation (hereinafter referred to as the "Company"), hereby
establishes an outside director plan to be known as the "Minnesota Power
Director Long-Term Stock Incentive Plan" (hereinafter referred to as the
"Plan"), as set forth in this document. The Plan provides for the automatic
grant of Stock Options and Performance Shares to non-employee directors.

The Plan shall become effective as of January 1, 1996 (the "Effective
Date"), subject to shareholder approval, and shall remain in effect as provided
in Section 1.3 herein.

2 Purpose of the Plan. The purpose of the Plan is to promote
the success and enhance the value of the Company by linking the personal
interests of directors to those of Company shareholders. The Plan is further
intended to assist the Company in its ability to motivate, attract and retain
highly qualified individuals to serve as directors of the Company.

3 Duration of the Plan. The Plan shall commence"Printed with soy based inks on the
Effective Date, as described in Section 1.1 herein, and shall remain in effect,
subject to the right of the Board of Directors to terminate the Plan at any time
pursuant to Article 12 herein, until all Shares subject to it shall have been
purchased or acquired according to the Plan's provisions. However, in no event
may a Grant be made under the Plan on or after the tenth anniversary of the
Effective Date.

4 Long-Term Incentive Plan. The Company has previously made
grants to outside directors under the Directors' Long-Term Incentive Plan, which
provides for maximum award opportunities of 600 shares of Company common stock
every other year. The terms of this plan are set forth in Annex A hereto. One
performance period (1994-1997) is still running under this plan, although no new
performance period will commence in 1996. On and after the Effective Date, the
shares relating to the existing performance period shall be deemed to be covered
by this Plan and shall be counted against the number of shares available under
this Plan, and their grant and the performance goals shall be deemed to have
been approved by Company shareholders by their approval of this Plan.

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:

1 "Board" or "Board of Directors" means the Board of Directors of
the Company.

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

(a) the dissolution or liquidation of the Company;

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

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

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

3 "Code" means the Internal Revenue Code of 1986, as
amended from time to time.

4 "Committee" means the committee, as specified in
Article 3, appointed by the Board to administer the Plan with respect to Grants.

5 "Company" means Minnesota Power & Light Company, a Minnesota
corporation, or any successor thereto as provided in Article 15 herein.

6 "Director" means any individual who is a member of the
Board of Directors of the Company.

7 "Dividend Equivalent" means, with respect to Shares subject to
Performance Shares, a right to be paid an amount equal to any and all dividends
declared on an equal number of outstanding Shares.

8 "Employee" means any full-time employee of the Company or of the
Company's Subsidiaries, who is not covered by any collective bargaining
agreement to which the Company or any of its Subsidiaries is a party. Directors
who are not otherwise employed by the Company shall not be considered Employees
under the Plan.

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

10 "Exercise Period" means the period during which an Option is
exercisable, as set forth in the related Grant Agreement.

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

12 "Grant" means, individually or collectively, a grant under the
Plan of Stock Options and Performance Shares and the grant made under the
Directors' Long-Term Incentive Plan referred to in Section 1.4 herein.

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

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

15 "Option or "Stock Option" means an option to purchase Shares,
granted under Article 6 herein.

16 "Option Price" means the price at which a Share may be purchased
by a Participant pursuant to an Option, set forth in the Grant Agreement.

17 "Participant" means any person who is elected or appointed to
the Board of Directors of the Company and who is not an Employee.

18 "Performance Period" means the time period during which
performance goals must be met.

19 "Performance Share" means a Grant made to a Participant, as
described in Article 7 herein.

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

21 "Plan Year" means the period commencing on the Effective Date of
the Plan and ending the next following December 31 and thereafter the calendar
year.

22 "Retirement" means resignation from the Board upon reaching
retirement age, or otherwise resigning or not standing for reelection with the
approval of the Board.

23 "Shares" means the shares of common stock of the Company,
without par value.

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

3. Administration

1 The Committee. The Plan shall be administered by a committee (the
"Committee") appointed by the Board consisting of not less than three persons
who are not eligible to participate in the Plan. The members of the Committee
shall be appointed from time to time by, and shall serve at the discretion of,
the Board of Directors. Members of the Committee need not be members of the
Board.

2 Authority of the Committee. The Committee shall have full power
except as limited by law, the Articles of Incorporation and the Bylaws of the
Company, subject to such other restricting limitations or directions as may be
imposed by the Board and subject to the provisions herein, to construe and
interpret the Plan and any agreement or instrument entered into under the Plan
and to establish, amend or waive rules and regulations for the Plan's
administration. Further, the Committee shall make all other determinations which
may be necessary or advisable for the administration of the Plan. As permitted
by law, the Committee may delegate its authorities as identified hereunder.

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

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

4. Shares Subject to the Plan

1 Number of Shares. Subject to Section 4.2 herein, the maximum
number of Shares available for grant under the Plan shall be one hundred fifty
thousand (150,000). Shares underlying lapsed or forfeited grants may be reused
for other grants. Shares may be (i) authorized but unissued shares of common
stock or (ii) shares purchased on the open market.

5. Eligibility and Participation

Persons eligible to participate in the Plan are any persons elected or
appointed to the Board of Directors of the Company, who are not Employees.

6. Stock Options

1 Grant of Options. On the first business day after the
Effective Date and on each January 2nd thereafter (or on the first business day
thereafter if January 2nd is not a business day), 725 Options shall be granted
to each Participant.

3 Option Price. The Option Price for each Option grant under the
Plan shall be the Fair Market Value of a Share on the date of grant.

4 Duration of Options. Each Option shall expire on the tenth
anniversary of the date of grant.

5 Exercise Period and Exercise. 50% of the Options shall become
exercisable on the first anniversary of the date of grant; the remaining 50% of
the Options shall become exercisable on the second anniversary of the date of
grant.

Subject to the provisions of Article 8 herein, a Participant may
exercise an Option at any time during the Exercise Period. Options shall be
exercised by the delivery of a written notice of exercise to the Company,
setting forth the number of Shares with respect to which the Option is to be
exercised, accompanied by provisions for full payment for the Shares.

The Option Price upon exercise of any Option shall be payable to the
Company in full either (a) in cash or its equivalent, (b) by tendering
previously acquired Shares having an aggregate Fair Market Value at the time of
exercise equal to the total Option Price (provided that the Shares which are
tendered must have been held by the Participant forrecycled paper containing at
least six (6) months
prior to their tender to satisfy the Option Price), (c)10 percent fibers from paper recycled by share withholding,
(d) by cashless exercise or (e) by a combination of (a), (b) (c) and/or (d).

7. Performance Shares

1 Grant of Performance Shares. On the first business day after the
Effective Date and on every second January 2nd thereafter (or on the first
business day thereafter, if January 2nd is not a business day), Performance
Shares, equal in number to $10,000 divided by the Fair Market Value for a Share
on the date of Grant, shall be granted to each Participant.

2 Dividend Equivalents. The Participant shall also
receive Dividend Equivalentsconsumers."

[Recycle Logo] [Logo] [Printed with respect to the number of Performance Shares
subject to the Grant. The Dividend Equivalents credited on each common stock
ex-dividend date during the Performance Period shall be in the form of
additional Performance Shares, shall be added to the number of Performance
Shares subject to the Grant and shall equal the number of Shares (including
fractional Shares) that could be purchased on the ex-dividend date, 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.

3 Performance Share Grant Agreement. Each grant of Performance
Shares shall be evidenced by a Performance Share Grant Agreement that shall
specify the date of grant, the number of Performance Shares granted and the
Performance Period. Performance Periods shall end on the December 31st two years
after the date of grant.

Performance Goals. The Performance Goal for each Performance Period is
total shareholder return (defined as stock price appreciation plus dividends
reinvested on the ex-dividend date throughout the Performance Period, divided by
the Fair Market Value of a share at the beginning of the Performance Period) for
the Company in comparison to the total shareholder return for the 16 companies
set forth in Annex B hereto over the Performance Period.

First Performance Cycle (1996-1997)

Threshold Target Superior
--------- ------ --------
% Payout 50% 100% 200%
Goal 40th percentile 50th percentile 75th percentile

Subsequent Performance Cycles (1998-1999 and thereafter)

Threshold Target Superior
--------- ------ --------
% Payout 50% 100% 200%
Goal 47th percentile 65th percentile 88th percentile

No awards will be paid if the threshold percentiles are not reached.
Earned awards will range from 50% up to 200% of the number of Performance Shares
granted (as increased by the Dividend Equivalents), based on the percentile
reached. Straight line interpolation will be used for results between those
specified, rounded down to the nearest whole Share.

If any company listed on Annex B hereto no longer exists, whether by
merger into another company, dissolution or for any other reason, no replacement
company shall be named unless the number of companies still remaining on the
list is reduced below 12, in which case the Company's independent compensation
consulting firm shall select replacement companies to bring the number back to
16.

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

5 Form and Timing of Payment of Performance Shares. Subject to the
provisions of Articles 8 and 11, 50% of any earned Performance Shares (as
increased by the Dividend Equivalents) shall be paid after the end of the
Performance Period promptly after determination of the extent to which
Performance Goals have been met. The remaining 50% of the earned Performance
Shares (as increased by the Dividend Equivalents) shall continue to accrue
Dividend Equivalents, as set forth in Section 7.2 above, until paid out as set
forth in the next sentence. One-half of the remaining earned Performance Shares
(as increased by the Dividend Equivalents) shall be paid out on the first
business day in January, 1999. The remaining Performance Shares shall continue
to accrue Dividend Equivalents and shall be paid out on the first business day
in January, 2000.

Payment shall be made in Minnesota Power common stock.

8. Termination of Director Status

1 Retirement or Death. In the event a Participant ceases to be a
Director of the Company by reason of Retirement or death

(i) before the Exercise Period commences for a Stock Option
Grant, any Stock Options not yet exercisable shall become
exercisable immediately and may be exercisable in full at
any time during the one year period after Retirement or death;

(ii) after the Exercise Period commences for a Stock Option Grant,
such Stock Options may be exercised in full at any time during the
one year period after Retirement or death, but in no even after
the Exercise Period has expired;

(iii) during a Performance Period for Performance Shares, the
Participant (or his beneficiary or estate) shall receive a payment
of any earned Performance Shares (as increased by the Dividend
Equivalents), promptly after determination of the extent to which
Performance Goals have been met. The payment shall be prorated
based upon the number of complete and partial calendar months
within the Performance Period which have elapsed as of the date of
Retirement or death in relation to the number of calendar months
in the full Performance Period; and

(iv) after the end of a Performance Period, but before any or all
earned Performance Shares have been paid out, the Participant (or
his beneficiary or estate) shall be entitled to a full payout of
all earned Performance Shares (as increased by the Dividend
Equivalents), which shall be paid promptly after such occurrence.

2 Other. Except as set forth in Article 11 herein, in the event a
participant ceases to be a director of the Company for any other reason

(i) all Stock Options not yet exercisable or exercised shall be
forfeited;

(ii) all Performance Shares and related Dividend Equivalents
not yet earned shall be forfeited; and

(iii) all earned Performance Shares (as increased by Dividend
Equivalents) shall continue to accrue Dividend Equivalents and
shall be paid out as and when provided in Section 7.6 above.

9. Beneficiary Designation

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

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

10. Continuation of Directors in Same Status

Nothing in the Plan or any action taken pursuant to the Plan
shall be construed as creating or constituting evidence of any agreement or
understanding, express or implied, that the Company will retain a Director as a
director or in any other capacity for any period of time or at a particular
retainer or other rate of compensation, as conferring upon any Participant any
legal or other right to continue as a director or in any other capacity, or as
limiting, interfering with or otherwise affecting the right of the Company to
terminate a Participant in his capacity as a director or otherwise at any time
for any reason, with or without cause, and without regard to the effect that
such termination might have upon him as a Participant under the Plan.

11. Change in Control

Upon the occurrence of a Change in Control, as defined herein, unless
otherwise specifically prohibited by the terms of Article 16 herein:

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

(b) With respect to all outstanding Grants of Performance
Shares, the Committee (i) shall determine the greater of (x) the
payout at 100% of the number of Performance Shares granted for
the entire Performance Period and (y) the payout based upon
actual performance for the Performance Period ending as of the
effective date of the Change in Control, in either case after
giving effect to accumulation of Dividend Equivalents and (ii)
shall pay to the Participants immediately the greater of such
amounts, in Shares, prorated based upon the number of complete
and partial calendar months within the Performance Period which
have elapsed as of the effective date of the Change in Control
in relation to the number of calendar months in the full
Performance Period. However, there shall not be an accelerated
payout under this Section 11(b) with respect to Grants of
Performance Shares which were made less than six (6) months
prior to the effective date of the Change in Control; and

12. Amendment, Modification and Termination

1 Amendment, Modification and Termination. The Board may, at
any time and from time to time, alter, amend, suspend or terminate the Plan in
whole or in part; provided, however, that no amendment which requires
shareholder approval in order for the Plan to continue to comply with Rule 16b-3
under the Exchange Act, including any successor to such Rule, shall be effective
unless such amendment shall be approved by the requisite vote of the
shareholders of the Company entitled to vote thereon. Notwithstanding the
foregoing, any provision of the Plan that either states the amount and price of
securities to be issued under the Plan and specifies the timing of such
issuances, or sets forth a formula that determines the amount, price and timing
of such issuances, shall not be amended more than once every six months, other
than to comport with changes in the Code, the Employee Retirement Income
Security Act of 1974, or the rules thereunder.

13. Restrictions on Share Transferability

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

14. Nontransferability

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

15. Successors

16. Legal Construction

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

3 Requirements of Law. Neither the Plan nor the Company shall
be obligated to issue any shares of common stock pursuant to the Plan at any
time unless and until all applicable requirements imposed by any federal and
state securities and other laws, rules and regulations, by any regulatory
agencies or by any stock exchanges upon which the common stock may be listed
have been fully met. As a condition precedent to any issuance of shares of
common stock and delivery of certificates evidencing such shares pursuant to the
Plan, the Board or the Committee may require a Participant to take any such
action or make any such covenants, agreements and representations as the Board
or the Committee, as the case may be, in its discretion deems necessary or
advisable to ensure compliance with such requirements. The Company shall in no
event be obligated to register the shares of common stock deliverable under the
Plan pursuant to the Securities Act of 1933, as amended, or to qualify or
register such shares under any securities laws of any state upon their issuance
under the Plan or at any time thereafter, or to take any other action in order
to cause the issuance and delivery of such shares under the Plan or any
subsequent offer, sale, or other transfer of such shares to comply with any such
law, regulation or requirement. Participants are responsible for complying with
all applicable federal and state securities and other laws, rules, and
regulations in connection with any offer, sale, or other transfer of the shares
of common stock issued under the Plan or any interest therein including, without
limitation, compliance with the registration requirements of the Securities Act
of 1933 as amended (unless an exception therefrom is available) or with the
provisions of Rule 144 promulgated thereunder, if applicable, or any successor
provisions. Certificates for shares of common stock may be legended as the
Committee shall deem appropriate.

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

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

By E. L. Russell
----------------------------
Its Chief Executive Officer

Attest:

By Philip R. Halverson
----------------------------------------
Corporate Secretary

ANNEX A

Directors' Long-Term Incentive Plan

The plan awards a maximum of 600 shares of common stock to
each outside director if, over a four-year period commencing with each
even-numbered year, total shareholders return (TSR) equals or exceeds (i) median
TSR compared to a pre-selected group of comparable utilities (listed below)
and/or (ii) the 40.0 percentile TSR compared to companies in the Standard &
Poor's 500. No awards are granted to directors if Company results are below both
of these threshold performance levels. The comparison to comparable utilities
and to the S&P 500 companies is weighted 60% and 40%, respectively.

The first comparator group is comprised of:

Midamerican Energy Company
IES Industries, Inc.
Interstate Power Company
Madison Gas & Electric Company
Northern States Power Company
Otter Tail Power Company
Wisconsin Energy Corporation
WPL Holdings, Inc.
Northwestern Public Service Company
Wisconsin Public Service Corporation

The second comparator group is the companies comprising the
S&P 500.

After calculation of the Company's TSR ranking within the
first and second comparator groups, the schedule below indicates the percent of
the Director's Performance Award Opportunity actually earned.

Utility TSR Ranking
- -------------------

-----------------------------------------------------------------
1-2 60 68 76 84 92 100
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3 48 56 64 72 80 88
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4 36 44 52 60 68 76
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5 24 32 40 48 56 64
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6 12 20 28 36 44 52
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7-11 0 8 16 24 32 40
-----------------------------------------------------------------

0-40 50 60 70 80 90

TSR Percentile Ranking in S&P 500
---------------------------------

TSR is defined as:

TSR = Stock price appreciation + reinvested dividends
-----------------------------------------------
Initial stock price

- Stock prices for the beginning and end of the period are the
closing prices on the composite reporting system on the first
and last business days of the period.

- Dividends are assumed to be reinvested on the ex-dividend
date at the closing stock prices on that date.

- Calculation of TSR for the S&P 500 group is based on the
companies included in the S&P 500 Index as of the end of the
period.

ANNEX B

Black Hills Corp.

Central & South West

CILCORP Inc.

Eastern Utilities Assoc.

Florida Progress Corp.

Hawaiian Electric Indust.

Mid American Energy

MDU Resources Group

Montana Power Co.

New England Electric Sys.

PacifiCorp

Potomac Electric Power

Public Service Enterprise

SCEcorp

TECO Energy Inc.

UtiliCorp United, Inc.

15SOY INK]