EXHIBIT 10(h)7 ALLETE 2006 Form 10-K ALLETE EXECUTIVE ANNUAL INCENTIVE PLAN FORM OF AWARD EFFECTIVE 2007 [ELIGIBLE EXECUTIVE EMPLOYEES - CORPORATE AND ENERGY] TARGET AWARD OPPORTUNITY ------------------------ Base Salary $ TIMES Award Opportunity (percent of base salary) % -------- EQUALS Target Award $ PERFORMANCE LEVELS AND AWARD AMOUNTS ------------------------------------ - -------------------------- ------------------------------- --------------------- PAYOUT AS PERCENT OF GOAL PERFORMANCE LEVEL TARGET AWARD AWARD AMOUNT - -------------------------- ------------------------------- --------------------- Superior 200% $ - -------------------------- ------------------------------- --------------------- Target 100% $ - -------------------------- ------------------------------- --------------------- Threshold 37.5% $ - -------------------------- ------------------------------- --------------------- Below Threshold 0% $ - -------------------------- ------------------------------- --------------------- GOALS ----- GOAL WEIGHTING FINANCIAL GOALS Net Income from Continuing Operations 50% Cash Flow from Operating Activities 25% STRATEGIC NON-FINANCIAL GOALS 25% ------ 100% ALLETE EXECUTIVE ANNUAL INCENTIVE PLAN FORM OF AWARD EFFECTIVE 2007 [ELIGIBLE EXECUTIVE EMPLOYEES - REAL ESTATE] FINANCIAL GOALS AND AWARD OPPORTUNITY ------------------------------------- Achievement Bonus Pool (0.0% - 0.xx% of Real Estate Land Sales) $ PLUS Incentive Bonus Pool (0.0% - 0.xx% of Total Real Estate Income) $ EQUALS -------- Bonus Pool Opportunity $ TIMES Strategic Non-financial Goals (0% - 120%) % EQUALS Annual Incentive Award $ -------- --------