MASTER SEPARATION AGREEMENT

between

ALLETE, INC.

and

ADESA, INC.

TABLE OF CONTENTS

i

ii

EXHIBITS

iii

MASTER SEPARATION AGREEMENT

        This Master Separation Agreement (this "Agreement") is dated as of June 4, 2004, 2004, between ALLETE, Inc., a Minnesota corporation ("ALLETE"), and ADESA, Inc., a Delaware corporation ("ADESA," and together with ALLETE, each a "Party," and together, the "Parties"). Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to such terms in Article IX hereof.

RECITALS

        WHEREAS, ALLETE is the beneficial owner of all the issued and outstanding common stock of ADESA;

        WHEREAS, ALLETE, through its wholly-owned subsidiary, ADESA, is engaged in the business of providing wholesale vehicle auctions and related vehicle redistribution services for the automotive industry in North America as well as short-term inventory financing for used vehicle dealers, as more completely described in the IPO Registration Statement (the "ADESA Business");

        WHEREAS, the Boards of Directors of ALLETE and ADESA have each determined that it would be appropriate and desirable to separate the ADESA Business from ALLETE by means of the Distribution;

        WHEREAS, ALLETE and ADESA currently contemplate that ADESA will make an initial public offering ("IPO") of an amount of its common stock pursuant to a registration statement on Form S-1 pursuant to the Securities Act of 1933, as amended (the "IPO Registration Statement"), that will reduce ALLETE's ownership of ADESA to not less than 80.1%; and

        WHEREAS, the Parties intend in this Agreement, including the Exhibits and Schedules hereto, to set forth the principal arrangements between them regarding the separation of the ADESA Business from ALLETE;

        NOW, THEREFORE, in consideration of the foregoing and the terms, conditions, covenants and provisions of this Agreement, ALLETE and ADESA mutually covenant and agree as follows:

ARTICLE I
SEPARATION

        Section 1.1    EFFECTIVE DATE.    Unless otherwise provided in this Agreement, or in any agreement to be executed in connection with this Agreement, the effective time and date of this Agreement shall be the earlier to occur of (i) the Debt Financing Date or (ii) the IPO Date (the "Effective Date").

ARTICLE II
DOCUMENTS AND ITEMS TO BE
DELIVERED ON THE EFFECTIVE DATE

        Section 2.1    DOCUMENTS TO BE DELIVERED BY ALLETE.    On the Effective Date ALLETE will deliver to ADESA all of the following items and agreements:

        (a)   A duly executed Tax Sharing Agreement substantially in the form attached hereto as Exhibit C (the "Tax Sharing Agreement");

        (b)   A duly executed Joint Aircraft Ownership & Management Agreement, substantially in the form attached hereto as Exhibit D (the "Joint Aircraft Agreement");

        (c)   A duly executed Employee Matters Agreement, substantially in the form attached hereto as Exhibit E (the "Employee Matters Agreement"); and

        (d)   A certificate of the Secretary or an Assistant Secretary of ALLETE in the form attached to this Agreement as Exhibit A.

        Section 2.2    DOCUMENTS TO BE DELIVERED BY ADESA.    On the Effective Date ADESA will deliver, or will cause its appropriate Subsidiaries to deliver, to ALLETE all of the following items and agreements:

        (a)   In each case where ADESA is a party to any agreement or instrument referred to in Section 2.1, a duly executed counterpart of such agreement or instrument;

        (b)   Resignations of each person identified on Schedule 2.2(b) who is an officer or director of ALLETE or its Subsidiaries, other than ADESA and its Subsidiaries, immediately prior to the Effective Date, and who will be an employee or a director of ADESA or any of its Subsidiaries from and after the Distribution Date, from such office or position of ALLETE or its Subsidiaries; PROVIDED, HOWEVER, that the individuals identified on Schedule 2.2(b) shall continue to hold the positions of ALLETE, and for such period, as indicated on such schedule; and

        (c)   A certificate of the Secretary or an Assistant Secretary of ADESA in the form attached to this Agreement as Exhibit B.

ARTICLE III
THE IPO AND ACTIONS PENDING THE IPO; DISTRIBUTION

        Section 3.1    TRANSACTIONS PRIOR TO THE IPO.    Subject to the occurrence of the events described in Section 3.4, ALLETE and ADESA currently intend to consummate the IPO and to take, or cause to be taken, the actions specified in this Section 3.1.

        (a)    REGISTRATION STATEMENT.    ADESA intends to file the IPO Registration Statement, and such amendments or supplements thereto as may be necessary in order to cause the same to become and remain effective as required by law or by the managing underwriters for the IPO (the "Underwriters"), including, without limitation, filing such amendments or supplements to the IPO Registration Statement as may be required by the underwriting agreement to be entered into among ADESA and the Underwriters (the "Underwriting Agreement"), the Securities and Exchange Commission (the "Commission") or federal, state or foreign securities laws. ALLETE and ADESA also intend to cooperate in preparing, filing with the Commission and causing to become effective a registration statement registering the common stock of ADESA under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and any registration statements or amendments thereof which are required to reflect the establishment of, or amendments to, any employee benefit and other plans necessary or appropriate in connection with the IPO, the Distribution or the other transactions contemplated by this Agreement.


 

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