Early Retirement Agreement

As Executed Exhibit 10.1


EARLY RETIREMENT AGREEMENT BETWEEN
INTERSTATE ENERGY CORPORATION ET AL. AND MICHAEL R. CHASE


This Agreement is entered into between Interstate Energy Corporation, on behalf of itself, its subsidiary Interstate Power Company, and any of their affiliates (collectively referred to herein as the "Company") and Michael R. Chase ("Employee"), this 7th day of October, 1998 (the "Agreement Date").


In consideration of this mutual Agreement, Employee and the Company hereby agree as follows:

1. Retirement. Employee hereby retires and resigns, as an employee and officer, from the service of the Company effective January 1, 1999 (the "Retirement Date"). Employee acknowledges and agrees that he will, between the Agreement Date and his Retirement Date, actively assist in the transition of his duties to his successor, assist the Company to the fullest extent with the governmental investigation of the Dubuque plant, perform any appropriate public functions with the Iowa Utilities Association, and perform, as time permits, additional transitional assistance and special projects as requested by the Chief Executive Officer of the Company. Employee agrees to provide written resignations from any ancillary positions as the Company deems necessary.


2. Financial and Benefit Matters.


a. Employee shall continue to be paid his base pay in the amount of Twenty Thousand Dollars ($20,000) per month for the remainder of 1998, will continue to be provided senior executive welfare benefits and continue to participate in all retirement plans and supplemental retirement plans on the same basis as other senior executives during this period, and will be paid his target Management Incentive Compensation Program bonus for his final year of service to the Company. These payments and benefits are the continuing employment obligations of the Company. This Agreement does not affect in any way the entitlement of Employee to pension and welfare benefits while an employee, post-retirement welfare benefits, Supplemental Executive Retirement Plan ("SERP") benefits, or qualified retirement plan benefits that are provided to Employee on account of his prior service with the Company and which are not financial accommodations pertaining to his retirement. As of Employee's Retirement Date, Employee shall be eligible to receive benefits under all of the Company's retiree welfare benefit plans available to retired senior executives of the Company as in effect on September 4, 1998. Any changes in welfare benefit plans available for retired senior executives of the Company retiring on or before January 1, 1999, that are adopted after September 4, 1998, and are generally applicable to senior executives retiring on or before January 1, 1999, shall apply to the Employee. It is understood that the Employee has selected the Interstate Power Company's Supplemental Executive Retirement Program as his SERP program and that, effective commencing on the Retirement Date, the Employee shall be entitled to the full benefits available to him under this SERP, including the right to select the date he begins to receive any benefits. The term "Compensation" for purposes of calculating the benefits under this SERP shall mean Two Hundred Forty Thousand Dollars ($240,000). All calculations under this SERP shall be made in accordance with its terms as it was interpreted in 1998 prior to September 4, 1998.


b. In consideration for the release provided in Section 6 below and for the agreements in Section 4 below, the Company shall make the payment to Employee described in this subparagraph as a replacement for and to approximate the biweekly payments that the Company would make under the Employment Agreement. Provided the Employee is living on January 1, 1999, the Company shall make a lump sum payment of Two Hundred Fifty-five Thousand Dollars ($255,000), less applicable federal and state income tax withholding and payroll tax amounts, to Employee within fifteen


(15) business days after January 1, 1999. Provided the Employee is living on January 1, 2000, the Company shall make a lump sum payment of Two Hundred Ten Thousand Seven Hundred Fifty Dollars ($210,750), less applicable federal and state income tax withholding and payroll tax amounts, to Employee within fifteen (15) business days after January 1, 2000.


c. It is mutually agreed that the common stock options to purchase shares of Interstate Energy Corporation issued to Employee on July 1, 1998, under the Company's Long Term Equity Incentive Plan should be canceled effective on the Retirement Date and that no additional common stock options shall be issued by the Company to the Employee after the Agreement Date. Employee acknowledges that the considerations contained in this Agreement fully incorporate all considerations and accruals of such Long Term Equity Incentive Plan.


d. Employee recognizes that consideration provided under this Agreement may result in taxable income to the Employee and that the Company will report such taxable income to the appropriate taxing authorities.


3. Tax Adjustment. If it is ultimately determined by a court or pursuant to a final determination by the Internal Revenue service that any portion of the payments hereunder is subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code (or any successor provision), the Company shall pay to the Employee an additional amount (the "Gross-up Payment") such that the net amount retained by the Employee after deduction of any Excise Tax and any interest charges or penalties in respect of the imposition of such Excise Tax (but not any federal, state or local income tax) on the payments hereunder, and any federal, state, and local income tax and Excise Tax upon the payment provided for by this Section 3, shall be equal to the payments hereunder. For purposes of determining the amount of the Gross-up Payment, the Employee shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-up Payment is to be made and state and local income taxes at the highest marginal rates of taxation in the state and locality of the Executive's domicile for income tax purposes on the date the Gross-up Payment is made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.


4. Certain Agreements. It is mutually agreed that the Employment Agreement entered into between the Employee and Interstate Power Company, dated April 21, 1998, is canceled and replaced by this Agreement; the Severance Agreement referenced in Section 12(f) of such Employment Agreement (i.e., an agreement dated November 8, 1995, between Employee and Interstate Power Company) is nul ...