UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-12
ALLETE, Inc.INC.
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[Photo[ALLETE LOGO]
Annual Meeting
of Medardo Salgado and Manuel [Photo of ALLETE's Ethics Handbook
Vargas buffing a Beetle at ADESA Golden on the printing press]
Gate's reconditioning facility]Shareholders
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Tuesday, May 11, 2004
Duluth, Minnesota
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2004 NOTICE AND PROXY STATEMENT
[Photo of Minnesota Power lineman [Photo of vehicle in a parking garage]
working on a power pole in Duluth, MN]
[ALLETE LOGO]
ANNUAL MEETING
OF SHAREHOLDERS
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Tuesday May 13, 2003
Duluth, Minnesota
[Photo of a transmission tower in
Duluth, MN]================================================================================
[ALLETE LOGO]
March 25, 20032004
Dear Shareholder:
WeYou are cordially invite youinvited to our 2003ALLETE's 2004 Annual Meeting of Shareholders
to be held on Tuesday, May 13, 200311, 2004 at 10:30 a.m. in the auditorium of the
Duluth Entertainment Convention Center (DECC). The DECC is located on the
waterfront of Lake Superior at 350 Harbor Drive in Duluth.Duluth, Minnesota. Free
parking is available in the adjoining lot. On behalf of the Board of Directors,
I encourage you to attend.
At this year's meeting you will be asked to elect ten Directors,eleven directors and to
ratify the appointment of PricewaterhouseCoopers LLP as independent auditors, and
approve the reservation of an additional 500,000 shares of common stock for
issuance under our employee stock purchase plan.auditors.
Standing for election to the Board of Directors for the first time this yearat the
Annual Meeting is Roger Peirce. I think you will agree that Mr. Tom Cunningham, recentlyPeirce brings an
outstanding background in business and finance to the Board. Dennis Evans has
retired from the Board. Mr. Evans has been a longdirector since 1986 and successful career at Ford Motor
Company where heall of us
have greatly benefited from his experience, commitment and many contributions to
ALLETE. Thomas Cunningham, who was responsible for Ford's used vehicle sales strategy in the
United States. His experience will be a valuable assetelected to the Board of Directors in its
oversight of our Automotive Services business. Two directors2003,
will not be standing for re-election this year. Ms. Glenda Hood resigned fromMr. Cunningham, a former Ford
Motor Company senior executive, will continue as a director of ALLETE's
automotive services businesses.
After the Board
earlier this year to avoid conflicts of interest that would result after her
appointment to the office of Secretary of State for Florida. Ms. Kathleen
Brekken declined to stand for re-election as part of a resolve to find a better
balance to the demands of her professional obligations. We thank them for their
many contributions during their tenure on the Board.
After our Annual Meeting, we invite you to visit with our directors,
officers and employees over lunch in the Lake Superior Ballroom located withinin the
DECC. If you plan to join us for lunch, please return the enclosed reservation
card.
ItYour vote is important that your shares be represented and voted whetherto us. Whether or not you plan to attend our Annual
Meeting. You canMeeting in person, your shares should be represented and voted. After reading
the enclosed Proxy Statement, please vote your shares online, by Internet, a toll-free
telephone call or by returning the enclosed Proxy Card. Please see
your Proxy Card for specificSpecific instructions on
how to vote.vote are provided on your Proxy Card.
Thank you for your investment in ALLETE.
Sincerely,
David G. Gartzke
David G. Gartzke
Chairman
President and
Chief Executive Officer
ALLETE, INC.
30 WEST SUPERIOR STREET
DULUTH, MINNESOTA 55802
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS - MAY 13, 200311, 2004
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The Annual Meeting of Shareholders of ALLETE, Inc. will be held in the
auditorium atof the Duluth Entertainment Convention Center, 350 Harbor Drive,
Duluth, Minnesota, on Tuesday, May 13, 200311, 2004 at 10:30 a.m. for the following
purposes:
1. To elect a Board of teneleven directors to serve for the ensuing year;
2. To ratify the appointment of PricewaterhouseCoopers LLP as ALLETE's
independent auditors for 2003;2004; and
3. To approve the reservation of an additional 500,000 shares of ALLETE
Common Stock for issuance under the ALLETE and Affiliated Companies
Employee Stock Purchase Plan; and
4. To transact such other business as may properly come before the meeting
or any adjournments thereof.
Shareholders of record on the books of ALLETE at the close of business on
March 14, 200312, 2004 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 Proxyproxy to constitute a quorum.
Your early response will facilitate an efficient tally of your votes. If
voting by mail, please sign, date and return the enclosed Proxy Card in the
envelope provided. Alternatively, you can follow the enclosed instructions on your Proxy
Card to vote your shares online or by phone or the Internet.a toll-free telephone call.
By order of the Board of Directors,
Philip R. Halverson
Philip R. HalversonDeborah A. Amberg
Deborah A. Amberg
Vice President, General Counsel and Secretary
Dated atMarch 25, 2004
Duluth, Minnesota
March 25, 2003
IF YOU HAVE NOT RECEIVED THE ALLETE 2002 ANNUAL REPORT, WHICH INCLUDES
FINANCIAL STATEMENTS, KINDLY NOTIFY ALLETE SHAREHOLDER SERVICES, 30 WEST
SUPERIOR STREET, DULUTH, MN 55802-2093, TELEPHONE NUMBER 1-800-535-3056 OR
1-218-723-3974, AND A COPY WILL BE SENT TO YOU.
ALLETE, INC.
30 WEST SUPERIOR STREET
DULUTH, MINNESOTA 55802
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PROXY STATEMENT
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SOLICITATION
The Proxy Card accompanying this Proxy Statement is solicited on behalf of
the Board of Directors (Board) of ALLETE, Inc. (ALLETE or Company) for use at
the Annual Meeting of Shareholders to be held on May 13, 200311, 2004 and any
adjournments thereof. The purpose of the meeting is to elect a Board of teneleven
directors to serve for the ensuing year, to ratify the appointment of
PricewaterhouseCoopers LLP (PricewaterhouseCoopers) as ALLETE's independent
auditors for 2003, to approve
the reservation of an additional 500,000 shares of ALLETE Common Stock (Common
Stock) for issuance under the ALLETE and Affiliated Companies Employee Stock
Purchase Plan,2004 and to transact such other business as may properly come
before the meeting. All properly submitted proxies received at or before the
meeting and entitled to vote will be voted at the meeting.
This Proxy Statement and the enclosed Proxy Card were first mailed on or
about March 25, 2003. Each2004.
Any shareholder giving a Proxy delivered pursuanthas the right to this solicitation is
revocablerevoke it at any time before it is votedprior
to its exercise by writtengiving notice deliveredin writing to the Secretary of ALLETE.
ALLETE expects to solicit proxies primarily by mail. Proxies also may be
solicited at a nominal cost in person and by telephone by employees or retirees
of ALLETE. 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 Georgeson Shareholder
Communications, Inc., a firm specializing in the solicitation of proxies, at a
cost to ALLETE of approximately $15,000 plus expenses. The totalfull amount of such
costs will be bornepaid by ALLETE.
OUTSTANDING SHARES AND VOTING PROCEDURES
The outstanding shares of capital stock of ALLETE as of March 14, 200312, 2004 were
86,087,75387,920,807 shares of Common Stock (withoutcommon stock, without par value)value (Common Stock).
Each share of the Common Stock of record on the books of ALLETE at the
close of business on March 14, 200312, 2004 is entitled to notice of the Annual Meeting
and to one vote.
The affirmative vote of a majority of the shares of stock entitled to vote
at the Annual Meeting is required for election of each director, and the
affirmative vote of a majority of the shares of stock present and entitled to
vote is required for approval of the other items described in thisthe Proxy
Statement to be acted upon by shareholders. An automated system administered by
Wells Fargo Bank Minnesota, N.A. 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 proposal.
Any shareholder giving a Proxy has the right to revoke it at any time
prior to its exercise by giving notice in writing to the Secretary.
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 and "FOR" ratifying the appointment of
PricewaterhouseCoopers as ALLETE's independent auditors for 2003, and "FOR"
approval of the reservation of an additional 500,000 shares of Common Stock for
issuance under the ALLETE and Affiliated Companies Employee Stock Purchase Plan.2004. If any other
business is transacted at the meeting, all shares represented by valid proxies
will be voted in accordance with the best judgment of the appointed proxies.
1
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The only person known to ALLETE who as of March 14, 200312, 2004 owned beneficially
more than 5 percent of any class of ALLETE's voting securities is American
Express Trust Company, 50765928 AXP Financial Center, Minneapolis, Minnesota,MN 55474. As of
March 14, 200312, 2004 American Express Trust Company held 8,343,8647,687,287 shares, or 9.78.7
percent, of ALLETE'sthe Common Stock in its capacity as Trustee of the Minnesota Power
and Affiliated Companies Retirement Savings and Stock Ownership Plan (RSOP).
Generally, these shares will be voted in accordance with instructions received
by American Express Trust Company from participants in the RSOP.
The following table presents the shares of Common Stock beneficially owned
by directors, nominees for director, and executive officers named in the Summary
Compensation Table which appears subsequently in this Proxy Statement, and all
directors and executive officers of ALLETE as a group, as of March 14,
2003.12, 2004.
Unless otherwise indicated, the persons shown have sole voting and investment
power over the shares listed.
Options Options
Number of Shares Exercisable Number of Shares Exercisable
Name of Beneficially within 60 days Name of Beneficially within 60 days
Beneficial Owner Owned after March 14, 200312, 2004 Beneficial Owner Owned after March 14, 200312, 2004
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Kathleen A. Brekken 13,058 7,680 Nick Smith 17,250 10,537
Wynn V. Bussmann 3,9194,907 2,250 Nick Smith 15,640 13,725
Thomas L. Cunningham 1,902 750 Bruce W. Stender 20,137 9,600
Thomas L. Cunningham 500 020,791 11,100
David G. Gartzke 58,753 189,580 Donald C. Wegmiller 24,383 9,60025,590 11,100
Dennis E. Evans 27,733 9,600 Donnie R. Crandell 38,344 89,216
David G. Gartzke 46,619 113,673 Robert D. Edwards 49,806 101,211O. Green 1,898 0 Deborah L. Weinstein 1,860 0
Peter J. Johnson 32,746 9,60038,678 11,100 James P. Hallett 32,689 88,84441,033 131,344
George L. Mayer 28,626 9,11629,053 10,616 Philip R. Halverson (retired) 32,796 30,481
Roger D. Peirce 0 0 Donald J. Shippar 16,142 28,39122,558 23,488
Jack I. Rajala 19,593 9,60020,605 11,100 James K. Vizanko 22,883 31,175
All directors and
executive officers
as a group (20): 476,959 619,565400,727 545,924
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Includes (i) shares as to which voting and investment power is shared with the person's spouse: Mr. Johnson - 28,300,36,861, and all
directors and officers as a group - 40,088;49,187; (ii) shares owned by the person's spouse: Mr. Gartzke - 10,21,107, Mr. Johnson - 323,
Mr. Mayer - 800, Mr. Smith - 50, Mr. Crandell - 8,226 and all directors and officers as a group - 24,589;21,957; (iii) shares held by the person's minor
children: Mr. Halverson - 9, and (iii)all directors and officers as a group - 213; and (iv) shares held as trustee: Mr. Mayer - 650.
Each director and executive officer owns only a fraction of 1 percent of any class
of ALLETE stock,Common Stock, and all directors and executive officers
as a group also own less than 1 percent of any class of
ALLETE stock.
Includes 15,154 options owned by Mr. Crandell's spouse that are exercisable within 60 days after March 14, 2003.Common Stock.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
ALLETE's directors and executive officers, and persons who own more than 10
percent of a registered class of ALLETE's equity securities, to file reports of
initial ownership of Common Stock and other equity securities and subsequent
changes in that ownership with the Securities and Exchange Commission (SEC) and
the New York Stock Exchange.Exchange (NYSE). Based on a review of such reports, ALLETE
believes that all such filing requirements were met during 2002,2003, except that an initialone
report (Form 3) for Mr. Donald Shippar was filed approximately
three months late and a report (Form(an amended Form 5) for Mr. Nick SmithJohnson was filed late covering one
stock
option grant was filed seven days late. Both late filings weretransaction involving the resultreceipt by his spouse of administrative error on the parta gift of the Company.Common Stock.
PROPOSALS OF SHAREHOLDERS FOR THE 20042005 ANNUAL MEETING
All proposals from shareholders to be considered for inclusion in the Proxy
Statement relating to the Annual Meeting scheduled for May 11, 200410, 2005 must be
received by the Secretary of ALLETE at 30 West Superior Street, Duluth, Minnesota, 55802,MN
55802-2093 not later than November 19, 2003.25, 2004. In addition, the persons to be
named as proxies in the Proxy Cards relating to that Annual Meeting may have the
discretion to vote their proxies in accordance with their judgment on any matter
as to which ALLETE did not have notice prior to February 8, 2004,2005, without
discussion of such matter in the Proxy Statement relating to that Annual
Meeting.
2
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ITEM NO. 1 - ELECTION OF DIRECTORS
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It is intended that the shares represented by the Proxy will be voted,
unless authority is withheld, "FOR" the election of the teneleven nominees for
director named below and on the oppositenext page. 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
thatIf any nominee
should become unavailable, which is not anticipated, the Board of Directors may
provide by resolution for a lesser number of directors, or designate substitute
nominees, who would receive the votes represented by the enclosed Proxy.
CURRENT DIRECTORS/NOMINEES FOR DIRECTOR
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[PHOTO] WYNN V. BUSSMANN, 61,62, Birmingham, MI. Member of the Audit
Committee. Senior Vice President - Global Forecasting of J.D.
Power and Associates, an international marketing information
firm. From 1994 to 2001 he was Corporate Economist for
Daimler ChryslerDaimlerChrysler Corporation, where he provided forecasts and
analysis of vehicle sales and other trends in the vehicle
industry for product strategy and planning. Chair of the Society
of Automotive Analysts and past chair of the Conference of
Business Analysts. DIRECTOR SINCE 2002.
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[PHOTO] THOMAS L. CUNNINGHAM, 57, St. Augustine, FL. Retired in 2002
from his positionDAVID G. GARTZKE, 60, Indianapolis, IN. Chairman of Director, Remarketing Strategy for Ford
Motor Company, where he was responsible for the total designALLETE, and
implementation of Ford's wholesale used vehicle sales
strategy in the United States for all the Ford and
Ford-affiliate brands. From 1989 to 2001 he was Manager,
Vehicle Remarketing for Ford, where he developed
industry-leading vehicle remarketing processes. FIRST-TIME
NOMINEE.
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[PHOTO] DENNIS E. EVANS, 64, Scottsdale, AZ. Member of the Corporate
Governance and Nominating Committee, and the Executive
Compensation Committee.Chairman, President and CEO of the Hanrow
Financial Group, Ltd., a merchant banking firm. DIRECTOR
SINCE 1986.
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[PHOTO] DAVID G. GARTZKE, 59, Duluth, MN.ALLETE Automotive Services, Inc.
From 2002 to 2004 he was Chairman, President and CEO of ALLETE.
From 2001 to 2002 he was President of ALLETE. From 1994 to 2001
he was Senior Vice President and CFO of ALLETE. Board member of Edison Electric
Institute and the Minnesota Business Partnership. DIRECTOR SINCE
2001.
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[PHOTO] DENNIS O. GREEN, 63, Beaufort, SC. Member of the Audit Committee.
Founder, Director and President of the Olive Tree Foundation, a
private charitable foundation. Managing partner of Celadon, LLC,
a real estate development firm. An organizing Director, Vice
Chairman of the Board and Chairman of the Audit Committee of
Coastal Banking Company and its subsidiary, Lowcountry National
Bank. Retired in July 1997 from his position as Chief Auditor of
Citicorp and of its principal subsidiary, Citibank, NA, where he
had been responsible for worldwide audit functions since 1990.
From 1984 to 1990 he was the General Auditor of Ford Motor
Company. DIRECTOR SINCE 2003.
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[PHOTO] PETER J. JOHNSON, 66,67, Tower, MN. Member of the Audit Committee.
Chairman and CEO of Hoover Construction Company, a highway and heavy
construction contractor. DIRECTOR SINCE 1994.
3
CURRENT DIRECTORS/NOMINEES FOR DIRECTOR
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[PHOTO] GEORGE L. MAYER, 58,59, Essex, CT. Member of the Audit Committee.
Founder and President of Manhattan Realty Group which manages
various apartment properties. Director of Schwaab, Inc., one of
the nation's largest manufacturers of handheld rubber stamps and
associated products. DIRECTOR SINCE 1996.
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3
NOMINEES FOR DIRECTOR
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[PHOTO] ROGER D. PEIRCE, 66, Mequon, WI. Corporate consultant since his
retirement in 1994 from his position as Vice Chair of the Board
and CEO of Super Steel Products Corporation, a contract
manufacturer of fabricated metal products. From 1995 to 1996 he
was President and CEO of Valuation Research Corporation, an
independent firm providing valuations of business enterprises,
securities and tangible and intangible assets. From 1961 to 1986
he was an accountant with Arthur Andersen and the managing
partner of the Tucson, Arizona office from 1985 to 1986. Director
and Chairman of the Compensation Committee of Journal
Communication, Inc. and Demco, Inc., Director of Brady
Corporation and Compensation Committee Chairman for Schwaab, Inc.
Mr. Peirce was known to one of ALLETE's non-management directors
who suggested him to the Corporate Governance and Nominating
Committee. FIRST-TIME NOMINEE.
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[PHOTO] JACK I. RAJALA, 63,64, Grand Rapids, MN. Member of the Corporate
Governance and Nominating Committee. Chairman and CEO of Rajala
Companies, and Director and President of Rajala Mill Company
which manufacturemanufactures and tradetrades lumber. Director of Grand Rapids
State Bank. Member of the Board of Regents of Concordia College
in Minnesota. DIRECTOR SINCE 1985.
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[PHOTO] NICK SMITH, 66,67, Duluth, MN. Lead Director of the ALLETE Board.
Chair of the Corporate Governance and Nominating Committee, and
member of the Executive Compensation Committee. Chairman and CEO
of Northeast Ventures Corporation, a venture capital firm
investing in northeastern Minnesota. Chairman of Community
Development Venture Capital Alliance, a national association.
Director of North Shore Bank of Commerce. DIRECTOR SINCE 1995.
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[PHOTO] BRUCE W. STENDER, 61,62, Duluth, MN. Chair of the Audit Committee,
and member of the Corporate Governance and Nominating Committee.
President and CEO of Labovitz Enterprises, Inc. which owns and
manages hotel properties.hotels and commercial real estate. Trustee of the C.K.
Blandin Foundation and member of the Chancellor's Advisory
Committee for the University of Minnesota Duluth. DIRECTOR SINCE
1995.
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[PHOTO] DONALD C. WEGMILLER, 64,65, Minneapolis, MN. ChairmanChair of the Executive
Compensation Committee. Chairman of Clark/BardesClark Consulting - Healthcare
Group, a national executive and physician compensation and
benefits consulting firm. From 1993 to 2003 he was President and
CEO of Clark Consulting - Healthcare Group. Director of LecTec Corporation, Medical Graphics
Corporation, Possis
Medical, Inc., SelectCare, Inc. and JLJ Medical Devices International, LLC.LLC, Vivius,
Inc. and ProVation Medical, Inc. DIRECTOR SINCE 1992.
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[PHOTO] DEBORAH L. WEINSTEIN, 44, Ottawa, Ontario Canada. Member of the
Executive Compensation Committee. Co-founder and partner in
LaBarge Weinstein, LLP, a business law firm. Director of Mosaid
Technologies Inc. and Dynex Semiconductor Inc. Vice Chair of the
Ottawa Centre for Research and Innovation, and Director of the
Ottawa Heart Institute Foundation. DIRECTOR SINCE 2003.
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4
CORPORATE GOVERNANCE
Corporate governance encompasses the internal policies and practices by
which ALLETE is operated and controlled on behalf of its shareholders. Sound
corporate governance starts with a strong, independent Board of Directors that
is accountable to the Company and its owners.shareholders. The role of the Board is to
effectively govern the affairs of the Company for the benefit of its
shareholders and, to the extent appropriate under Minnesota law, other
constituencies which include the Company's employees, customers, suppliers and
the communities in which it does business. SinceBecause its ultimate goal is to
better focus and direct the resources of the Company, we seeALLETE views good
corporate governance as a source of competitive advantage.
In the last year the Board reviewed its corporate governance practices.
The Board's practices already conformed with most of the requirements of new
laws, rules and proposed rules pertaining to corporate governance. However,2003 the Board and its committees took this opportunitycontinued to formalize existing practices
and policiesexamine their processes
and strengthen them as appropriate. For example, the Board adopted
Corporate Governance Guidelines which articulateadopted in
2002 were revised. Committee charters were updated in 2003 to supplement
substantial revisions adopted in 2002 to meet or exceed requirements proposed in
rulemakings then underway. The Corporate Governance Guidelines document Board
and committee rolesrules and responsibilities, guidelines for their composition, membershipBoard selection and operations,composition policies, Board
operating policies, Board committee responsibilities, director compensation guidelines and
other matters. CommitteeCurrent copies of ALLETE's Corporate Governance Guidelines and
the charters were reviewedof the Corporate Governance and amended. Self-evaluationNominating, Audit and Executive
Compensation committees are available on ALLETE's website at
http://www.allete.com.
The Board's evaluation of ALLETE's corporate governance processes were formalized
and improved. Theis
ongoing. This assures that the Board and its committees have the necessary
authority and practices in place to review and evaluate the Company's business
operations as needed, and to make decisions that are independent of the
Company's management. As examples, the Board and its committees undertake an
annual self-evaluation process, meet regularly without members of management
present, have direct access to and meet individually with members of management,
and retain their own advisors as they deem appropriate.
BOARD AND COMMITTEE MEETINGS IN 2002
During 2002DIRECTOR INDEPENDENCE
The Board has determined that all of ALLETE's directors, except the
Chairman, are "independent" under ALLETE's Corporate Governance Guidelines and
applicable SEC and NYSE rules. The Board has established responsibilities for
the lead director which include, among other things, coordinating the activities
of the Company's independent directors, advising the Chairman of the Board on
Board meeting agendas and on the effectiveness of Directors held nine meetings.the Board meeting processes.
DIRECTOR NOMINATIONS
The Corporate Governance and Nominating Committee which held eight meetings during 2002,
provides recommendationsrecommends director
candidates to the Board, with respectand will consider for such recommendations director
candidates proposed by management, other directors and shareholders. A
shareholder wishing to Board organization,
membership, function, Committee structuresuggest a candidate should provide the candidate's name
and membership, succession planning
for the executive management, and the application of corporate governance
principles. This Committee also performs the functions of a director nominating
committee, leads the Board's annual evaluationdetailed background of the Chief Executive Officer
and is authorized to exercise the authority of the Board in the intervals
between meetings. Shareholders may recommend nominees for directorcandidate's qualifications to the Corporate
Governance and Nominating Committee by addressing the Secretary of ALLETE, 30
West Superior Street, Duluth, Minnesota, 55802.MN 55802-2093.
The selection of director nominees includes consideration of factors deemed
appropriate by the Board. Factors may include integrity, achievements, judgment,
intelligence, personal character, the interplay of the candidate's relevant
experience with the experience of other Board members, the willingness of the
candidate to devote adequate time to Board duties and the likelihood that he or
she will be willing and able to serve on the Board for a sustained period. The
Corporate Governance and Nominating Committee will consider the candidate's
independence, as defined in the Corporate Governance Guidelines and the rules of
the NYSE. In connection with the selection, due consideration will be given to
the Board's overall balance of diversity of perspectives, backgrounds and
experiences. Experience, knowledge and skills to be represented on the Board
include, among other considerations, financial expertise (including an "audit
committee financial expert" within the meaning of SEC regulations), electric
utility and/or automobile industry knowledge and contacts, financing experience,
strategic planning and community leadership.
The Corporate Governance and Nominating Committee will review all
candidates, and before any contact is made with a potential candidate, will
notify the Board of its intent to do so, will provide the candidate's name and
background information, and allow time for directors to comment. The Corporate
Governance and Nominating Committee screens, personally interviews and
recommends candidates to the Board. A majority of the committee members will
interview any potential nominee before recommending that candidate to the Board.
The recommendations of the Corporate Governance and Nominating Committee will be
timed so as to allow interested Board members an opportunity to interview the
candidate prior to the nomination of the candidate.
5
BOARD AND COMMITTEE MEETINGS IN 2003
During 2003 the Board of Directors held eight meetings. The Corporate
Governance and Nominating Committee, which held seven meetings during 2003,
provides recommendations to the Board with respect to Board organization,
membership, function, committee structure and membership, succession planning
for the executive management and the application of corporate governance
principles. The Corporate Governance and Nominating Committee also performs the
functions of a director nominating committee, leads the Board's annual
evaluation of the chief executive officer and is authorized to exercise the
authority of the Board in the intervals between meetings. The Audit Committee,
which held eighteleven meetings in 2002,2003, recommends the selection of independent
auditors, reviews the independence and performance of independent auditors,
reviews and evaluates ALLETE's accounting practices, reviews periodic financial
reports to be provided to the public, and reviews and recommends approval of the
annual audit report. The Executive Compensation Committee, which held seveneleven
meetings in 2002,2003, establishes compensation and benefit arrangements for ALLETE
officers and other key executives that are intended to be equitable, competitive
in the marketplace and consistent with corporate objectives. In 2003 the Board
established the Automotive Services Strategy Committee and the Minnesota Power
Strategy Committee to focus on the strategies of these business units. All
directors attended 75 percent or more of the aggregate number of meetings of the
Board of Directors and applicable committee meetings in 2002.2003. Directors are
expected to attend the Annual Meeting, and in 2003, all directors attended.
COMMUNICATIONS BETWEEN SHAREHOLDERS AND THE BOARD OF DIRECTORS
Shareholders who wish to communicate directly with the Board may do so by
addressing the Lead Director, c/o Secretary of ALLETE, 30 West Superior Street,
Duluth, MN 55802-2093.
DIRECTOR COMPENSATION
Employee directors receive no additional compensation for their services as
directors. In 2002 ALLETE paidpays each non-employee director under the terms of the ALLETE
Director Stock Plan an annual cash retainer fee of $11,000$20,000, and annual cash
retainer fees for each committee and chair assignment as set forth below:
Committee Retainer Fees
Members Chair
-------------------------------
Audit $9,000 $6,000
Executive Compensation $7,500 $4,500
Corporate Governance and Nominating $7,500 $4,500
Automotive Services Strategy $4,000 $2,000
Minnesota Power Strategy $4,000 $2,000
In 2003 non-employee directors received a prorated portion (83.33 percent)
of cash retainer fees to reflect a change in the timing of annual director
compensation payments under the ALLETE Director Stock Plan to coincide with
annual service commencing with the election of the directors at the Annual
Meeting. Directors may elect to defer all or part of the cash portion of their
retainer under the terms of the ALLETE Director Compensation Deferral Plan.
In addition, ALLETE pays each non-employee director, other than the lead
director, annual equity compensation equal in value to $47,500. Beginning in
2004 non-employee director annual equity compensation will be paid entirely in
Common Stock. In 2003 non-employee director equity compensation was paid as
follows: 1,300 shares of Common Stock and $8,000 in cash under the terms of the
ALLETE Director Stock Plan; and 1,500 stock options and a performance share
award opportunity valued at $5,000 under the terms of the ALLETE Director
Long-Term Stock Incentive Plan.
The Board authorized Mr. Smith, as lead director, to receive an annual cash
retainer fee of $22,000 and the same annual cash retainer fees for each
committee and chair assignment as other non-employee directors. In 2003 Mr.
Smith received a prorated portion (83.33 percent) of his cash retainer fees in
the same manner as other non-employee directors. Mr. Smith also received equity
compensation in 2003 comprised of the following: 3,507 shares of Common Stock
under the terms of the ALLETE Director Stock Plan. In addition, each non-employee director was paid
$6,000 asPlan; and 3,000 stock options and a
committee retainer fee for each committee assignment. Each
non-employee director who is the chairman of a committee received an additional
$3,000 retainer. Directors may elect to defer all or a part of the cash portion
of their retainer. The shares of Common Stock paid to directors with respect to
2002 had an average market price of $25.82 per share.
Underperformance share award opportunity valued at $10,000 under the ALLETE Director
Long-Term Stock Incentive Plan, non-employee
directors receive automatic grants of 1,500 stock options every year and
performance shares valued at $10,000 every other year.Plan.
Fifty percent of the stock options granted to non-employee directors in
2003 vest and become exercisable afteron the first year,anniversary of the date of grant,
and the remaining 50 percent vest afteron the second year.anniversary. All stock options
expire on the tenth anniversary of the date of grant. The exercise price for
each grant is the closing salemarket price of Common Stock on the date of grant. The
performance periods for performance shares endended on December 31, of the year following the date of
grant.2003. Dividend
equivalents in the form of additional 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 based on Total
Shareholder Return for ALLETE in comparison to Total Shareholder Return for 16
diversified electric utilities. Any awards earned are paid out in Common Stock.
No6
During the two-year performance period endedending December 31, 2003,
shareholders of ALLETE realized Total Shareholder Return of 31.8 percent on
their investment in 2002 and therefore, no awards were earned.
The Board authorized Mr. Smith, asCommon Stock, ranking ALLETE seventh among the 16
diversified electric utilities. With this ranking, the non-employee directors,
other than the lead director, to receive the
following additional compensation in 2002: $12,667 retainer fee; 867each earned 424 shares of Common Stock and the
lead director earned 916 shares of Common Stock, awards equal to 100 percent of
the respective target performance share award. Fifty percent of this performance
share award was paid in stock at the end of the performance period. The
remaining 50 percent will be paid in stock on December 31, 2004. There will be
no new grants of stock options or performance shares issued to non-employee
directors under the Director Stock Plan; 1,875 stock options; and performance
shares valued at $6,251 under theALLETE Director Long-Term Stock Incentive Plan. The Board authorized additional paymentsshares
of $5,000Common Stock paid to Audit Committee members Mr.
Bussmann, Ms. Hood, Mr. Johnson and Mr. Mayer, and $7,500directors with respect to Audit Committee
Chair Mr. Stender in recognition2003 had an average market
price of additional responsibilities related to the
implementation of new mandates under the federal securities laws.
5
$24.90 per share.
COMPENSATION OF EXECUTIVE OFFICERS
The following information describes compensation paid in the years 20002001
through 20022003 for ALLETE's named executive officers.
SUMMARY COMPENSATION TABLE
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
----------------------- --------------------------------------------------------------- ------------------------------------------
Awards Payouts
------------------------- --------
Name------------------------------ --------- All
Restricted Securities All
andOther
Stock Underlying LTIP Other
PrincipalCompen-
Name and Salary Bonus Awards Options Payouts Comp.sation
Principal Position Year ($) ($) ($) (#) ($) ($)
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
DAVID G. GARTZKE 2003 561,846 544,002 0 74,219 302,962 61,300
Chairman; Chairman, President 2002 515,385 0 0 89,667 99,388 74,195
Chairman, President and CEO of ALLETE 2001 319,866 489,590 493,800 16,883 139,394 42,139
2000 239,927 225,523 0 24,928 11,764 35,403Automotive Services
JAMES P. HALLETT 2003 439,808 328,532 0 42,500 169,203 47,104
Executive Vice President; 2002 420,692 153,344 0 42,500 117,912 47,516
Executive Vice President;President of ADESA, Inc. 2001 361,885 890,565 0 19,350 195,531 34,664
JAMES K. VIZANKO 2003 261,679 265,825 0 23,959 95,384 26,824
Senior Vice President, 2002 240,769 0 0 23,959 87,180 29,498
CFO and Treasurer 2001 183,477 97,235 0 5,863 118,782 21,377
DONALD J. SHIPPAR 2003 263,250 235,639 0 8,371 77,759 28,380
President and CEO of 2000 288,446 319,899 0 29,520 213,396 38,697
ALLETE Automotive Services
ROBERT D. EDWARDS 2002 332,154 30,724 0 57,869 84,376 61,585
Executive Vice President; 2001 311,558 208,432 0 19,350 144,887 50,995
CEO of Minnesota Power 2000 291,193 204,902 0 30,941 30,580 46,307
DONNIE R. CRANDELL 2002 278,077 0 0 28,125 104,630 46,575
Executive Vice President; 2001 263,135 236,318 0 26,240 157,723 39,159
President of ALLETE
Water Services 2000 248,192 247,311 0 26,240 20,898 30,698
DONALD J. SHIPPAR 2002 231,041 25,132 0 8,371 52,961 29,506
President and COO 2001 194,654 104,654 0 6,136 88,524 21,336
of Minnesota Power 2000 186,373 87,897PHILIP R. HALVERSON 2003 239,429 199,105 0 9,840 17,319 18,5886,548 60,827 35,114
Retired Vice President, Secretary 2002 228,077 0 0 6,548 88,998 37,399
and General Counsel 2001 215,484 83,657 0 6,875 124,150 29,277
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
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 the Results Sharing program and the
Executive Annual Incentive Plan. For bonuses paid in Common Stock, the market value of the stock at the time of payment is
included.
Included in thisthe amount shown for Mr. Gartzke is $250,000 paid as a bonus in connection with his election to the office of
President.President of ALLETE.
Included in the amount shown for Mr. Hallett is an annual retention bonus of $102,550 for 2002 and $162,750 for 2003 paid in a
combination of Common Stock and cash.
Included in the amount shown for Mr. Vizanko is $100,000 paid as a bonus in connection with the sale of ALLETE's water services
businesses.
Included in the amount shown for Mr. Halverson is $50,000 paid as a bonus in connection with the sale of ALLETE's water
services businesses.
The amount shown represents the value of 20,000 deferred share units of Common Stock granted on December 18, 2001.
On December 31, 2002, 10,000 shares valued at $226,800 remained deferred under the terms of the grant. Mr.
Gartzke receives dividend equivalents on these deferred share units.
Includes a supplemental payment based upon significantly exceeding multi-year financial performance
targets established in 1996.
The amounts shown for 20022003 include the following ALLETE annual contributions for the named executive officers:
Contribution to the Contribution to the Above-Market Interest
Retirement Savings and Supplemental on Compensation
Stock Ownership Plan*Plan Executive Deferred Under the
Name and the Flexible Benefit Plan Retirement Plan Executive IncentiveInvestment Plan**
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
David G. Gartzke $19,800 $47,243 $7,152$21,042 $33,311 $6,947
James P. Hallett 2,000 45,5163,100 44,004 0
Robert D. Edwards 19,800 31,143 10,642
Donnie R. Crandell 19,800 26,775 0James K. Vizanko 19,342 5,550 1,932
Donald J. Shippar 17,958 9,938 1,61019,342 7,509 1,529
Philip R. Halverson 21,042 3,953 10,119
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
* In 2002 ALLETE consolidated its supplemental retirement and employee stock ownership plans into a
single Retirement Savings and Stock Ownership Plan, which combines the features of a 401(k) plan and
an employee stock ownership plan.
** ALLETE made investments in corporate-owned life insurance which will recover the cost of this above-
marketabove-market benefit, if actuarial
factors and other assumptions are realized. The policy premiums are fully paid and ALLETE has discontinued this investment
program.
67
OPTION GRANTS IN LAST FISCAL YEAR
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Individual Grants Grant Date Value
- ------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Number of % of Total
Securities Options Granted Exercise or Grant Date
Underlying to Employees in Base Price Expiration Present Value
Name Options Granted Fiscal Year ($/Sh) Date ($)
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
DAVIDDavid G. GARTZKE
New Options 77,595 9.8% 25.68 Jan. 2, 2012 521,431
Replacement Options 9,655 1.2% 27.95 Jan.Gartzke 74,219 10.8 20.51 Feb. 3, 2010 64,881
Replacement Options 2,417 0.3% 27.95 Jan. 2, 2006 16,242
JAMES2013 316,626
James P. HALLETT
New OptionsHallett 42,500 5.4% 25.68 Jan. 2, 2012 285,596
ROBERT D. EDWARDS
New Options 33,646 4.2% 25.68 Jan. 2, 2012 226,098
Replacement Options 13,667 1.7% 30.85 Jan.6.2 20.51 Feb. 3, 2010 91,841
Replacement Options 5,388 0.7% 30.85 Jan. 2, 2007 36,207
Replacement Options 5,168 0.7% 30.85 Jan. 2, 2006 34,728
DONNIE2013 181,309
James K. Vizanko 23,959 3.5 20.51 Feb. 3, 2013 102,211
Donald J. Shippar 8,371 1.2 20.51 Feb. 3, 2013 35,712
Philip R. CRANDELL
New Options 28,125 3.5% 25.68 Jan. 2, 2012 188,997
DONALD J. SHIPPAR
New Options 8,371 1.1% 25.68 Jan. 2, 2012 56,252Halverson 6,548 0.9 20.51 Feb. 3, 2013 27,934
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
New optionsOptions vest 50 percent on January 2, 2003February 3, 2004 and 50 percent on January 2, 2004.February 3, 2005. Options granted to each of the executives
listed in this table are subject to a change-in-control acceleration provision.
Replacement options (also known as ownership retention options or reload options) were granted when the executive
used his shares of Common Stock to fund the exercise price of stock options. One replacement option was granted to
replace each share that was delivered by the executive as payment for the purchase price of shares being acquired
through the exercise of a stock option. Replacement options become exercisable twelve months after their grant date
and terminate on the expiration date of the option that they replaced. The exercise price of replacement options
is equal to the closing price of Common Stock on the grant date of the replacement options. Effective January 21,
2003 the replacement option feature was removed from all outstanding stock option grants and eliminated on a going
forward basis.
The grant date dollar value of options is based on ALLETE's binomial ratio (as of January 2, 2002)February 3, 2003) of .262..208. The binomial
option valuation method is a complicated mathematical formulamodel premised on immediate exercisability and transferability of the
options, which are not features of ALLETE'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 Common Stock at a future date exceeds the
exercise price. In addition to the option exercise price, the following assumptions for modeling were used to calculate the
values shown for the options granted in 2002:2003: (i) each option remains outstanding for a period of seven years; (ii) expected
dividend yield is 4.175.51 percent (based on the most recent quarterly dividend); (iii) expected dividend increase is 2 percent;
(iv) expected stock price volatility is .283.297 (based on 504 trading days previous to January 2, 2002)February 3, 2003); and (iv)(v) the risk-free
rate of return is 5.163.81 percent (based on Treasury yields). The grant date
dollar value of the replacement options is based on an ALLETE binomial ratio determined using assumptions that are
materially similar to those applicable to the new options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at FY-End (#) Options at FY-End ($)
Shares Acquired Value Realized ---------------------------- ------------------------------------------------------- --------------------------
Name on Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
David G. Gartzke 21,327 258,671 54,363 98,088 135,704 0 0 113,673 113,017 840,029 939,756
James P. Hallett 0 0 57,919 52,175 122,106 0
Robert D. Edwards 49,232 771,490 50,490 67,544 61,221 0
Donnie R. Crandell88,844 63,750 743,715 533,375
James K. Vizanko 0 0 51,721 36,404 108,905 017,842 35,939 99,831 300,688
Donald J. Shippar 0 0 21,138 11,439 59,123 028,391 12,557 265,626 105,059
Philip R. Halverson 24,683 318,356 23,933 9,822 185,118 82,177
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
7
LONG-TERM INCENTIVE PLANS - AWARDS IN THE LAST FISCAL YEAR
- --------------------------------------------------------------------------------------------------
Number of Performance Estimated Future Payouts Under
Shares, Units or Other Non-Stock Price-Based Plans
or Other Period Until -------------------------------
Rights Maturation or Threshold Target Maximum
Name (#) Payout (#) (#) (#)
- --------------------------------------------------------------------------------------------------
David G. Gartzke 17,069 1/02 - 12/03 8,535 17,069 34,138
James P. Hallett 9,533 1/02 - 12/03 4,767 9,533 19,066
Robert D. Edwards 7,547 1/02 - 12/03 3,774 7,547 15,094
Donnie R. Crandell 6,308 1/02 - 12/03 3,154 6,308 12,616
Donald J. Shippar 4,381 1/02 - 12/03 2,191 4,381 8,762
- --------------------------------------------------------------------------------------------------
The table directly above reflects the number of shares of Common Stock
that can be earned pursuant to the Executive Long-Term Incentive Compensation
Plan for the 2002-2003 performance period if the Total Shareholder Return of the
Company 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. A threshold performance share award will be earned if the
Company's Total Shareholder Return ranks at least 11th, a target award will be
earned if the Company ranks 7th, and a maximum award will be earned if the
Company ranks 3rd. For this comparison the Total Shareholder Return ranking will
be computed over the two-year period from January 1, 2002 through December 31,
2003. 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 Common Stock after the end of the
performance period; the remaining 50 percent will be paid in Common Stock on the
second anniversary of the end of the performance period. 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.
8
RETIREMENT PLANS
The following table sets forth examples of the estimated annual retirement
benefits that would be payable to participants in ALLETE'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
Years of Service
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Remuneration 15 20 25 30 35
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
$100,000 $12,000 $16,000 $30,600 $35,600 $40,600$30,400 $35,400 $40,400
125,000 15,000 20,000 38,250 44,500 50,75038,000 44,250 50,500
150,000 18,000 24,000 45,900 53,400 60,90045,600 53,100 60,600
175,000 21,000 28,000 53,550 62,300 71,05053,200 61,950 70,700
200,000 24,000 32,000 61,200 71,200 81,20060,800 70,800 80,800
225,000 27,000 36,000 68,850 80,100 91,35068,400 79,650 90,900
250,000 30,000 40,000 76,500 89,000 101,50076,000 88,500 101,000
300,000 36,000 48,000 91,800 106,800 121,80091,200 106,200 121,200
400,000 48,000 64,000 122,400 142,400 162,400121,600 141,600 161,600
450,000 54,000 72,000 137,700 160,200 182,700136,800 159,300 181,800
500,000 60,000 80,000 153,000 178,000 203,000152,000 177,000 202,000
600,000 72,000 96,000 183,600 213,600 243,600182,400 212,400 242,400
700,000 84,000 112,000 214,200 249,200 284,200212,800 247,800 282,800
800,000 96,000 128,000 244,800 284,800 324,800243,200 283,200 323,200
900,000 108,000 144,000 275,400 320,400 365,400273,600 318,600 363,600
1,000,000 120,000 160,000 306,000 356,000 406,000304,000 354,000 404,000
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Represents the highest annualized average compensation (salary and bonus) received for 48 consecutive months during the
employee's last 15 years of service with ALLETE. 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.
TheALLETE's Retirement Plan provides that the benefit amount at retirement is
subject to adjustment in future years to reflect changes in cost of living
increases to a
maximum adjustment of 3 percent per year. As of December 31, 20022003 the executive
officers named in the Summary Compensation Table had the following years of
credited service under the plans:
David G. Gartzke 2829 years Donnie R. Crandell 22Donald J. Shippar 27 years
James P. Hallett 89 years Donald J. ShipparPhilip R. Halverson 27 years
James K. Vizanko 26 years
Robert D. Edwards 27 years
If any ofeither Mr. Gartzke Mr. Hallett, Mr. Edwards or Mr. CrandellHallett remains employed as a senior executive
with ALLETE until age 62, a defined benefit retirement plan supplements amounts
paid under other ALLETE retirement plans, so that the executive's total
retirement pay is no less than 51 percent of the executive's final pay if
retirement is at age 62 and no less than 60 percent of the executive's final pay
if retirement is at age 65. This benefit is reduced by 2.3 percent of pay for
each year under 22 years of service with ALLETE if the executive retires at age
62 and by 3 percent of pay for each of the three years between ages 62 and 65.
With certain exceptions, the Internal Revenue Code of 1986, as amended
(Code), restricts the aggregate amount of annual pension benefits which may be
paid to an employee under ALLETE's Retirement Plan to $160,000 for 2002.2003. This
amount is subject to adjustment in future years to reflect changes in cost of
living increases.living. ALLETE's Supplemental Executive Retirement Plan provides for
supplemental payments by ALLETE 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 theALLETE's Retirement Plan if benefits were not restricted by the
Code.
9
REPORT OF BOARD'S EXECUTIVE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Described below are the compensation policies of the Executive Compensation
Committee of the Board of Directors (Committee)(Compensation Committee) effective for 20022003
with respect to the executive officers of ALLETE. Composed entirely of
independent outside directors, the Compensation Committee is responsible for
recommending to the Board policies which govern the executive compensation
program of ALLETE and for administering those policies. The Compensation
Committee has retained the services of Mercer Human Resource Consulting LLC (Mercer), aoutside benefits and compensation
consulting firm,firms to assist the Compensation Committee in connection with the
performance of such responsibilities. Mercer has served in this capacity since 1995.
The role of the executive compensation program is to help ALLETE achieve
its corporate goals by motivating performance, rewarding positive results and
enhancing Total Shareholder Return.Return, as discussed below. Recognizing that the
potential impact an individual employee has on the attainment of corporate goals
tends to increase at higher levels of responsibility within ALLETE, the
executive compensation program provides greater variabilityvisibility in compensating
individuals based on results achieved as their responsibilities within ALLETE
increase. 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 recognizes that, in order to attract and retain the exceptional
executive talent needed to lead and grow ALLETE's businesses, compensation must
be competitive in the national market. To determine market levels of
compensation for executive officers in 2002,2003, the Compensation Committee relied
upon comparative information from general industrial companies in tandem with
available specific industry data (i.e., electric utility, automotive, finance,
water utility, etc.) which was provided and reviewed by Mercer.outside consultants. All data were
analyzed to determine median compensation levels for comparable positions in
comparably sized companies, as measured by revenue.
Internal Revenue
Code Section 162(m) generally disallows a tax deduction to public companies
for compensation over $1 million paid for any fiscal year to each of the
corporation's CEO and four other most highly compensated executive officers as
of the end of any fiscal year. 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 under the
Executive Long-Term Incentive Compensation Plan are intended to qualify as
performance-based compensation within the meaning of Code Section 162(m) and should therefore be fully deductible for
federal income tax purposes.. The
Compensation Committee generally intends to structure executive compensation
plans so that the Company may deduct all executive compensation, but reserves
the ability to do otherwise if it is determined to be in the best interests of
the Company and its shareholders.
As described below, executive officers of ALLETE receive a compensation
package which consists of three basic elements: base salary, performance-based
compensation and supplemental executive benefits. The CEO's compensation of ALLETE's
CEO for the year 2003 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 compensation plans, as described below,the
named executive officers' total compensation, including amounts paid under each
of the performance-based compensation plans described below, will be near the
midpoint of market compensation as described above.compensation.
PERFORMANCE-BASED COMPENSATION
The performance-based compensation plans of ALLETE are intended by the
Compensation Committee to reward executives for achieving financial and
non-financial goals whichthat the Compensation Committee determines will be required
to achieve ALLETE's strategic and budgeted goals.
Performance goals under performance-based plans are established in advance
by the Compensation Committee and the Board of Directors. Target performance
levels under the performance-based plans are achieved if the business unit
meetsexceeds its budget and if ALLETE achieves a Total Shareholder Return ranking of
7th or better compared to a peer group of 16 diversified electric utilities.
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, it is the Compensation Committee's intent that
executive compensation (including the value of stock options granted) will be
near the midpoint of the relevant market. If no performance awards are earned
and no value is attributed to the
10
stock options granted, compensation of ALLETE's executive officers would be
significantly below the midpoint market compensation level, while performance at
increments above the target level willwould result in total compensation above the
midpoint of the market.
10
ALLETE's performance-based compensation plans include:
- RESULTS SHARING. Employees of ALLETE's energy services and real estate
businesses and ALLETE's corporate group are eligible to participate in
ALLETE's Results Sharing program. The Results Sharing award opportunities
for 20022003 were based on earnings per sharenet income from continuing operations (including
gains from the sale of ALLETE's water services businesses) and business
unit operating income. Target financial performance will result in an award
of 5 percent of base salary, assuming safety and environmental protection
goals established by the Compensation Committee are also accomplished. NoThe
results sharingshown in the Summary Compensation Table reflect earned awards
were
paid to the executive officersaveraging 12 percent of the Company for 2002.base salary.
- EXECUTIVE ANNUAL INCENTIVE PLAN. The Executive Annual Incentive Plan is
intended to focus executive attention on meeting and exceeding annual
financial and non-financial business unit goals established by the
Compensation Committee. For 20022003 financial goalsperformance measures were
business unit contributions to net income from continuing operations and
operating free cash flow and earnings per
share.flow. These financial performance measures were chosen
by the Compensation Committee because of their positive correlation over
time with the Total Shareholder Return achieved by ALLETE for its
shareholders. Target level performance is earned if budgeted financial
results are achieved.exceeded. The 2003 financial and non-financial results exceeded
budgeted goals set by the Executive Compensation Committee. The results
shown onin the Summary Compensation Table reflect financial operating performance by business units in 2002 that were
below budget.earned awards ranging from
37.1 percent to 76.8 percent of base salary.
- EXECUTIVE LONG-TERM INCENTIVE COMPENSATION PLAN (LTIP). Under the Executive Long-Term
Incentive Compensation Plan,LTIP, the
executive officers of ALLETE other
than the CEO, have been awarded stock options (which are
granted annually) and performance shares (which are granted in
even-numbered years) having in the aggregate target award values ranging
from 40 percent to 100 percent of theirthe executive officers' annual base
salaries. The target award value for Mr. Hallett and Mr. Vizanko has been
allocated 70 percent to stock options and 30 percent to performance shares.
The target award value for Mr. Shippar and Mr. Halverson has been allocated
50 percent to stock options and 50 percent to performance shares. The stock
options have value only if the Common Stock price appreciates above the
price on the date of grant. The performance shares granted for the two-year
performance period ending December 31, 2003 will have value ifbecause the Total
Shareholder Return of ALLETE over the two-year period ranksranked at least 11th
in a peer group of 16 diversified electric utilities adopted by the
Compensation Committee as appropriate comparators. Dividend equivalents
accrue on performance shares during the performance period and are paid in
Common Stock only to the extent performance goals are achieved. The maximum
payout is 200 percent of the target award. If earned, the performance
shares will be paid in Common Stock with 50 percent of the award paid afterat
the end of the performance period and the remaining 50 percent on the first
anniversary thereof. For the two-year performance period ending December
31, 2003, shareholders of ALLETE realized a Total Shareholder Return of
31.8 percent on their investment in Common Stock, ranking ALLETE 7th among
the 16-member peer group. The LTIP payout for 20022003 shown in the Summary
Compensation Table includes a payment of the secondfirst 50 percent of the award
earned for the performance period ending December 31, 2001, the
first 50 percent of which was paid and reported in 2001.2003.
The Compensation Committee has determined that these awards under the
performance-based compensation plans are consistent with its philosophy of
aligning executive officers' interests with those of shareholders and to the
performance of ALLETE.
SUPPLEMENTAL EXECUTIVE BENEFITS
ALLETE has established a Supplemental Executive Retirement Plan (SERP) to
compensate certain employees, including the executive officers, equitably by
replacing benefits not provided by ALLETE's Flexible Benefit Plan and the Retirement Savings and Stock Ownership PlanRSOP
due to government-imposed limits and to provide retirement benefits which are
competitive with those offered by other businesses with which ALLETE competes
for executive 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. Effective as of January 21, 2002 theThe SERP also
provides certain executive employees with a 40 percent
11
supplemental tax benefit in the event thatif a change in control of the Company results in the
termination of the covered executive'sexecutives' employment and an immediate distribution
in full of the covered executives' SERP account and/or Executive Investment Plan
deferral account. The supplemental tax benefit applies only if the covered
executive employee is not eligible for early retirement at the time of the
change-in-control event.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Compensation Committee has endeavored to provide Mr. Gartzkeits chief executive
officer with a compensation package that is at the 50th percentile of
compensation paid by comparably-sized general industrial companies with revenue
comparable to the Company. The Compensation Committee has designed Mr. Gartzke'sthe CEO's
compensation package to provide substantial incentive to achieve and exceed the
Board's financial performance goals for the Company and Total Shareholder Return
goals for the Company's shareholders.
11
In June 20022003 the Board of Directors increased Mr. Gartzke's annual base
salary 15.84 percent to move his base salary toward the median of salaries of chief
executive officers of comparably-sized companies. In 2003 Mr. Gartzke did not earn
any awardswas
awarded $71,130, or 12.7 percent of his annual salary, under the Company'sALLETE's Results
Sharing Plan norprogram. This Results Sharing award was based 50 percent on corporate
net income from continuing operations (including gains from the sale of ALLETE's
water services businesses) and 50 percent on an average of business unit Results
Sharing awards. Under the Executive Annual Incentive Plan in 2002 because financial2003, Mr. Gartzke
earned an award of $472,872, or 82.7 percent of his annual salary, which
rewarded Mr. Gartzke for achieving 2003 corporate net income from continuing
operations (excluding gains from the sales of ALLETE's water services
businesses) that were above budget, as well as for achievement of non-financial
strategic goals underestablished by the plans were not met.
Mr. Gartzke'sCompensation Committee.
The compensation of the CEO also contains elements which motivate him to
focus on the longer-term performance of the Company. UnderIn 2003 under the Executive
Long-Term Incentive Compensation Plan,LTIP, Mr.
Gartzke was awarded annual target opportunities with a value equal to 150
percent of his base salary. This value has been allocated 70 percent to stock
options (which are granted annually) and 30 percent to performance shares (which
are granted in even-numbered years). The stock options and performance shares
have the same characteristics as those issued to other executive officers as
described above. The LTIP payout for 20022003 shown in the Summary Compensation
Table includes a payment of the secondfirst 50 percent of the award earned for the
performance period ending December 31, 2001,2003.
On January 21, 2004 the first 50 percentBoard of which was paidDirectors elected Mr. Shippar President
and reported in 2001.CEO of ALLETE. Mr. Gartzke continues to serve as Chairman of ALLETE. The
Board appointed Mr. Gartzke President and CEO of ALLETE Automotive Services as
of July 9, 2003.
March 25, 20032004
Executive Compensation Committee
Donald C. Wegmiller, Chairman
Kathleen A. Brekken
Dennis E. EvansChair
Thomas L. Cunningham
Nick Smith
Deborah L. Weinstein
12
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth the Company securities available for
issuance under the Company'sALLETE's equity compensation plans as of December 31, 2002.2003.
EQUITY COMPENSATION PLAN INFORMATION
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Number of Securities Number of Securities
to be Issued Upon Weighted-Average Remaining Available
Exercise of Exercise Price of for Future Issuance
Outstanding Options, Outstanding Options, Under Equity
Plan Category Warrants and Rights Warrants and Rights Compensation Plans
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Equity Compensation 2,292,258 $22.48 5,624,4092,284,343 $21.49 5,276,157
Plans Approved by
Security Holders
Equity Compensation 0 N/A 0
Plans Not Approved
by Security Holders
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total 2,292,258 $22.48 5,624,4092,284,343 $21.49 5,276,157
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Excludes the number of securities to be issued upon exercise of outstanding options, warrants and rights.
The amount shown includes: (i) 5,053,2284,295,019 shares available for issuance under the Executive Long-Term
Incentive Compensation Plan (LTIP)LTIP in the form of
options, rights, restricted stock, performance units and shares, or other grants as approved by the
Executive Compensation Committee; (ii) 162,672138,992 shares are available for issuance under the Director Long-Term
Stock Incentive Plan in the form of options and performance shares; (iii) 370,366364,325 shares available for
issuance under the Director Stock Plan as payment for a portion of the annual retainer payable to
non-employee directors; and (iv) 38,143477,821 shares available for issuance under the ALLETE and Affiliated
Companies Employee Stock Purchase Plan. Shares available for issuance under the LTIP may be increased by
shares purchased on the open market, tendered to exercise options or withheld to satisfy tax withholding
requirements in connection with LTIP awards.
12
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors consistsis comprised of four members
who are independent,six
non-employee directors, as requiredDirectors, each of whom has been determined by applicable listing
standardsthe Board to be
"independent" under ALLETE's Corporate Governance Guidelines and within the
meaning of the New York Stock Exchange.rules of both the NYSE and the SEC. The Board has also determined
that each member of the Audit Committee is financially literate and that Mr.
Green is an "audit committee financial expert" within the meaning of the rules
of the SEC. The Audit Committee operates pursuant to a written charter that was
amended and restated in January 2004. The current Audit Committee Charter is
attached as an Appendix to this Proxy Statement and is also available on the
Company's website at http://www.allete.com. The Audit Committee assists the
Board's oversight of the integrity of ALLETE's financial reports, compliance
with legal and regulatory requirements, the qualifications and independence of
the independent auditors, the audit process and internal controls. The Audit
Committee reviews and recommends to the Board of Directors that the audited
financial statements be included in ALLETE's Annual Report on Form 10-K.
The Audit Committee has reviewed the relevant requirements of the
Sarbanes-Oxley Act of 2002, the proposed rules of the Securities and Exchange
Commission, and the proposed new listing standards of the New York Stock
Exchange regarding audit committee procedures and responsibilities. AlthoughDuring 2003 the Audit Committee's existing procedures and responsibilities generally complied
with the requirements of these rules and standards, the Board of Directors has
adopted amendments to the Committee's charter to voluntarily implement certain
of the rules and to make explicit its adherence to others. A copy of the
Committee's amended charter is attached as an Appendix to this Proxy Statement.
During 2002 the Committee met and held separate discussions with
members of ALLETE's management and the Company's independent auditor,
PricewaterhouseCoopers, regarding certain audit activities and the plans for and
results of selected internal audits. The Audit Committee reviewed the quarterly
financial statements. It reviewed the adequacy of the systems of internal
controls, and the Company's compliance with laws and regulations. It also
reviewed the Company's process for communicating its code of business conduct
and ethics. The Audit Committee approved the appointment of
PricewaterhouseCoopers as the Company's independent auditor for the year 2003,2004,
subject to shareholder ratification. The Company's independent auditor provided
to the Audit Committee the written disclosuredisclosures required by Independence
Standards Board Standard No. 1 (Independence Discussions with Audit Committees),
and the Audit Committee discussed with the independent auditor thatthe firm's
independence.
The Audit Committee has: (i) reviewed and discussed ALLETE's audited
financial statements for the year ending December 31, 20022003 with ALLETE's
management and with ALLETE's independent auditors; (ii) met with management to
discuss all financial statements prior to their issuance and to discuss
significant accounting issues; and (iii) discussed with ALLETE's independent
auditors the matters required to be discussed by SAS 61 (Codification of
Statements on Auditing Standards) which include, among other items, matters
related to the conduct of the audit of ALLETE's financial statements. The
Committee has also discussed with the Chief Executive Officer and Chief
Financial Officer the certification process required by the Sarbanes-Oxley Act
of 2002. Management
represented to the Audit Committee that the Company's consolidated financial
statements were prepared in accordance with generally accepted accounting
principles. The Committee discussed with13
principles in the independent auditor
matters required to be discussed by Statement on Auditing Standards No. 61
(Communication with Audit Committees) as currently in effect.United States of America. Based on the above-mentioned review
and discussions, the Audit Committee recommended to the Board of Directors that
the audited financial statements be included in ALLETE's Annual Report on Form
10-K for the fiscal year ended December 31, 2002,2003, for filing with the SecuritiesSEC.
AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
The Audit Committee has implemented pre-approval policies and Exchange Commission.
Management has advisedprocedures
related to the provision of audit and non-audit services by the independent
auditor. Under these procedures, the Audit Committee pre-approves both the type
of services to be provided by the independent auditor and the estimated fees
related to these services. During the pre-approval process, the Audit Committee
considers the impact of the types of services and the related fees on the
independence of the auditor. The services and fees must be deemed compatible
with the maintenance of the auditor's independence, including compliance with
SEC rules and regulations.
The Audit Committee will, as necessary, consider and, if appropriate,
pre-approve the provision of additional audit and non-audit services by the
independent auditor that PricewaterhouseCoopers'were not encompassed by the Audit Committee's annual
pre-approval and that are not prohibited by law. The Audit Committee has
delegated to the Chair of the Audit Committee the authority to pre-approve, on a
case-by-case basis, these additional audit and non-audit services, provided that
the Chair shall report any decisions to pre-approve such services to the Audit
Committee at its next regular meeting.
AUDIT AND NON-AUDIT FEES
The following table presents fees for the year ended December 31, 2002 were as follows:
AUDIT FEES: The aggregate fees billed for professional audit services rendered
by PricewaterhouseCoopers for the audit of the Company'sALLETE's annual financial statements
for the yearyears ended December 31, 2003 and December 31, 2002, and the reviews of the financial statements included in ALLETE's
quarterly reports on Form 10-Q for 2002 were $1.1 million.
TAX CONSULTING FEES: The aggregate fees billed for
professionalother services rendered by PricewaterhouseCoopers during those periods. Certain
amounts for tax consulting2002 have been reclassified to conform to the Company2003 presentation.
2003 2002
--------------------------------
Audit Fees $1,300,000 $1,100,000
Audit Related Fees 100,000 200,000
Tax Fees 1,000,000 1,000,000
All Other Fees 0 0
--------------------------------
Total $2,400,000 $2,300,000
Audit fees consisted of audit work performed in the preparation of
financial statements, as well as work generally only the independent
auditor can reasonably be expected to provide, such as statutory audits.
Audit related fees consisted of assurance services, including audits of
employee benefit plans and special procedures related to regulatory
filings in 2002 and 2003.
Tax fees were comprised of (i) tax compliance services, including
assistance with the preparation of tax returns and claims for tax refunds,
and (ii) tax consultation and planning services, including assistance with
tax audits and appeals, tax advice relating to mergers and acquisitions
and employee benefit plans, and request for ruling or technical advice
from taxing authorities. In 2003 tax compliance services totaled $500,000,
and tax consulting and planning services totaled $500,000. In 2002 tax
compliance services totaled $600,000, and tax consulting and planning
services totaled $400,000.
All audit and non-audit services and fees for 2003 were $1.0 million.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES:
No fees were billed for professional services rendered
for financial information systems design and implementation.
ALL OTHER FEES: The aggregate fees billed for all other
professional services rendered were $0.2 million.
13
pre-approved by the
Audit Committee. We have considered and determined that the provision of the
non-audit services noted above is compatible with maintaining
PricewaterhouseCoopers' independence.
March 25, 20032004
Audit Committee
Bruce W. Stender, Chair
Wynn V. BussmanBussmann
Thomas L. Cunningham
Dennis O. Green
Peter J. Johnson
George L. Mayer
14
- --------------------------------------------------------------------------------
ITEM NO. 2 - RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The Audit Committee of the Board of Directors of ALLETE recommends
shareholder ratification of the appointment of PricewaterhouseCoopers as
independent auditors for ALLETE for the year 2004. PricewaterhouseCoopers has
acted in this capacity since October 1963.
A representative of PricewaterhouseCoopers will be present at the Annual
Meeting, 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 2003 audit, PricewaterhouseCoopers reviewed ALLETE's
annual report, examined the related financial statements, and reviewed interim
financial statements and certain filings of ALLETE with the Federal Energy
Regulatory Commission and the SEC.
The Board of Directors recommends a vote "FOR" ratifying the appointment of
PricewaterhouseCoopers as ALLETE's independent auditors for 2004.
ALLETE COMMON STOCK PERFORMANCE
The following graph compares ALLETE's cumulative Total Shareholder Return
on its Common Stock with the cumulative return of the S&P 500 Index and the
Philadelphia Stock Exchange Utility Index (Philadelphia Utility Index) and the
S&P Utilities Index - Electric.. 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 2002 ALLETE selected the Philadelphia Utility Index as
a comparative to replace the S&P Utilities Index - Electric which was
discontinued in 2001. The
Philadelphia Utility Index is a capitalization-
weightedcapitalization-weighted index of 20 utility
companies involved in the production of electrical energy, while the S&P Utilities Index - Electric was a capitalization-weighted
index of 27 stocks designed to measure the performance of the electric power
utility company sector of the S&P 500 Index.energy. The calculations
assume a $100 investment on December 31, 19971998 and reinvestment of dividends on
the ex-dividend date.
[GRAPHIC[GRAPH OMITTED - TOTAL SHAREHOLDER RETURN PERFORMANCE GRAPH]
TOTAL SHAREHOLDER RETURN FOR THE FIVE YEARS ENDING DECEMBER 31, 20022003
1997
1998 1999 2000 2001 2002 ----------------------------------------------------2003
----------------------------------------------
ALLETE $100 $106 $86$81 $126 $134 $142 $133$126 $177
S&P 500 Index $100 $121 $110 $97 $76 $97
Philadelphia Utility Index $100 $118 $97 $146 $127 $104
S&P 500 Index $100 $129 $156 $141 $125 $97
S&P Utilities Index - Electric $100 $115 $93 $143 $131 N/A$82 $124 $108 $88 $110
14
- --------------------------------------------------------------------------------
ITEM NO. 2 - RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The Audit Committee of the Board of Directors of ALLETE recommends
shareholder ratification of the appointment of PricewaterhouseCoopers as
independent auditors for ALLETE for the year 2003. PricewaterhouseCoopers has
acted in this capacity since October 1963.
A representative of PricewaterhouseCoopers 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 2002 audit, PricewaterhouseCoopers reviewed
ALLETE's annual report, examined the related financial statements, and reviewed
interim financial statements and certain filings of ALLETE with the Federal
Energy Regulatory Commission and the Securities and Exchange Commission.
The Board of Directors recommends a vote "FOR" ratifying the
appointment of PricewaterhouseCoopers as ALLETE's independent auditors for 2003.
- --------------------------------------------------------------------------------
ITEM NO. 3 - APPROVAL OF THE RESERVATION OF ADDITIONAL SHARES UNDER THE
ALLETE AND AFFILIATED COMPANIES EMPLOYEE STOCK PURCHASE PLAN
- --------------------------------------------------------------------------------
Shareholders are asked to approve an amendment to the ALLETE and
Affiliated Companies Employee Stock Purchase Plan (ESPP), to increase the number
of shares of ALLETE Common Stock authorized for issuance thereunder by 500,000
shares. On January 21, 2003 the Company's Board of Directors unanimously
approved an amendment of the ESPP, thereby providing for this increase in the
number of shares authorized for issuance under the ESPP (subject to shareholder
approval).
Approval of an amended and restated ESPP by the shareholders is not
required by the terms of the ESPP. Management requests such approval, however,
in order to ensure the availability to employees participating in the ESPP of
certain tax benefits discussed below.
The ESPP was established in 1976 and approved at its inception by the
shareholders at the Annual Meeting of Shareholders held on May 11, 1976. The
ESPP was amended and restated effective July 1, 1993, and approved again by the
shareholders at the Annual Meeting of Shareholders held on May 10, 1994. The
Company amended and restated the ESPP effective November 20, 1996, and again
effective December 21, 2000, to reflect minor changes in administration.
The ESPP is a broad-based plan that provides eligible employees of the
Company and certain of its subsidiaries with an opportunity to purchase shares
of Common Stock at a 5 percent discount through payroll deductions, optional
cash payments and dividend reinvestment. By encouraging the purchase of Common
Stock, the ESPP supports a basic principle of the Company's compensation policy
which is to align the financial interests of the employees with the financial
interests of the Company and its shareholders. The ESPP also provides the
Company with a source of capital for which there is no cost of issuance other
than the 5 percent discount from market price discussed below and minor
administrative costs. Management is eligible to purchase shares of Common Stock
through the ESPP at the 5 percent discount on the same basis as other employees.
Future benefits to management under the plan will depend on the individual
election of each manager whether to purchase under the plan and in at what
amounts. Management is subject to the annual contribution limits of the ESPP as
described below.
Currently, the total number of shares of Common Stock that are
authorized for issuance under the ESPP is 300,043. As of March 3, 2003, 17,196
shares remain available for issuance under the ESPP and, as of this same date,
1,796 employees were participating in the ESPP.
SUMMARY OF THE ESPP
The purposes of the ESPP are to encourage employees to become
shareholders in the Company, to stimulate employee interest in the affairs of
the Company, and to afford employees an opportunity to share in the profits and
growth of the Company.
15
Purchases of Common Stock under the ESPP are made directly from the
Company at a 5 percent discount from the market price at the time the purchases
are made. The purchase price is equal to 95 percent of the closing price of the
Common Stock on the New York Stock Exchange on the applicable investment date
(or the next day on which the New York Stock Exchange is open if it is closed on
the investment date). On each monthly investment date, each participating
employee is deemed to have been granted by the Company and to have
simultaneously exercised an option to purchase shares of Common Stock in an
amount equal to the participant's investment contribution divided by the
purchase price.
The ESPP is intended to qualify as an "employee stock purchase plan"
within the meaning of Section 423 of the Internal Revenue Code. Under a plan
that so qualifies, neither the grant of an option nor the acquisition of shares
upon exercise of such option will result in taxable income to the employee or a
tax deduction for the Company. Participants generally will be subject to income
tax liability upon a disposition of Common Stock acquired under the ESPP. Such
income tax liability would be based on the difference between the participant's
basis in the Common Stock and the price at which the disposition of the Common
Stock took place. The Company will be entitled to a corporate income tax
deduction in any amount equal to ordinary income realized by participants as a
result of "disqualifying dispositions" of Common Stock. In general, a
disqualifying disposition of Common Stock occurs if a participant disposes of
Common Stock acquired under the ESPP within two years of the date of purchase of
such Common Stock.
There are no fees or expenses to participants in connection with the
purchases of Common Stock under the ESPP. There also are no fees or expenses to
participants upon withdrawal from the ESPP, or upon termination of the ESPP by
the Company, except that a participant who instructs the Company to sell shares
of Common Stock held in his or her ESPP account is charged the commissions,
taxes and other applicable expenses relating to those sales. All other costs of
administration of the ESPP will be paid by the Company.
The ESPP is administered for the Company by a committee known as the
Employee Benefit Plans Committee (Benefits Committee). The Benefits Committee
consists of not less than three members appointed by the Board of Directors with
at least one member of the Benefits Committee being an officer of the Company
responsible for recording and maintaining the Benefits Committee records. The
Board of Directors has the power to remove members of the Benefits Committee
from office.
Employee participation in the ESPP is entirely voluntary. Employees of
the Company and employees of its subsidiaries whose participation in the ESPP is
approved, upon request, by the Company's Board of Directors or by the Benefits
Committee are eligible to participate in the ESPP except: (i) employees who have
been employed less than six months at the time shares would be purchased; (ii)
employees who normally work less than 1,000 hours in a calendar year; (iii)
employees who normally work less than five months in any calendar year; (iv)
employees who immediately after a purchase of shares under the ESPP would own
stock possessing 5 percent or more of the total combined voting power or value
of all classes of stock in the Company; or (v) members of the Board of Directors
who are not officers of the Company. An eligible employee may join the ESPP at
any time.
Eligible employees who participate in the ESPP are able to purchase
Common Stock through reinvested dividends, payroll deduction, optional cash
payments or a combination of all. An eligible employee may select payroll
deductions in after-tax dollars in any amount not less than $5 per payroll
period, nor more than a total of $23,750 per year. Optional cash payments cannot
be less than $10 per payment, nor more than a total of $23,750 per year. The
same amount of money need not be invested each month through optional cash
payments and there is no obligation to make an optional cash payment in any
month. Until the Company is notified of a participant's death or withdrawal from
the ESPP, the ESPP is terminated by the Company, or the participant ceases to be
a regular employee of the Company, all cash dividends paid on shares of Common
Stock in the participant's ESPP account are used to purchase additional
authorized, but unissued shares of Common Stock. In any event, the sum of
payroll deductions, optional cash payments and dividends available for
reinvestment for any participant may not exceed $23,750 per year. Any amount in
excess of $23,750 will be refunded to the participant without interest.
Each participant in the ESPP is allowed to have only one account.
Shares of Common Stock purchased for the account of each participant will be
registered in the name of the Company as "Agent" for the participant.
Each participant will receive a periodic statement of his or her
account and a statement following any transaction affecting his or her ESPP
account. Each participant also will receive copies of the same communications
sent to all holders of Common Stock, including the Company's current quarterly
Investor
16
Newsletter, the Annual Report to Shareholders, the Notice of Annual
Meeting and Proxy Statement, and Internal Revenue Service information for
reporting dividends paid.
The number of shares to be purchased pursuant to the ESPP depends upon
the amount of the participant's payroll deductions and optional cash payments,
dividends available for reinvestment, the price of the shares of Common Stock,
and the number of shares available for issuance and sale under the ESPP.
Subject to the maximum number of shares of Common Stock available for
issuance and sale under the ESPP, each participant's account will be credited
with that number of shares (including any fraction of a share computed to three
decimal places) equal to the total amount to be invested divided by the per
share purchase price of the Common Stock on the appropriate investment date.
Certificates for shares of Common Stock purchased under the ESPP will
not normally be issued to participants. The number of shares credited to an
account under the ESPP will be shown on each statement of account mailed to the
participant.
Without withdrawing from the ESPP, a participant may request the
issuance of, and the Company will issue, certificates for any number of whole
shares in the participant's ESPP account. Any remaining whole shares and any
fractional share will continue to be credited to the participant's account.
Certificates for fractional shares will not be issued under any circumstances.
Certificates for whole shares, when issued, will be registered in the name of
the account.
Shares of Common Stock credited to the account of a participant under
the ESPP may not be pledged. The right to purchase shares pursuant to the ESPP
is not transferable in any manner.
A participant may withdraw from the ESPP at any time. A participant's
death or withdrawal from the ESPP will stop all investment on an investment
date, if written notification of death or withdrawal is received not later than
five business days prior to such investment date. Any payroll deductions,
optional cash payments, or dividends available for reinvestment for which
investment has been stopped by timely notification of death or withdrawal from
the ESPP will be paid by the Company to the participant or the participant's
estate without interest.
The Company or its designated agent must be notified in writing of a
participant's death or withdrawal from the ESPP. Upon notification of a
participant's death or withdrawal from the ESPP, termination of the ESPP, or a
participant ceasing to be a regular employee of the Company, certificates for
whole shares included in the participant's ESPP account (less any shares of
Common Stock sold by the Company on behalf of the participant) will be issued
and a cash payment will be made for any fraction of a share included in the
participant's account. The cash payment for any fractional share will be based
on the net price received by the Company when such fractional share is sold.
Sales of fractional shares are combined with sales of other such fractional
shares.
For each meeting of shareholders, each participant in the ESPP will
receive a Proxy for voting shares and fractional shares included in his or her
ESPP account. If a properly signed Proxy is returned lacking full instructions
with regard to any item thereon, then all of the participant's shares included
in the participant's ESPP account will be voted with respect to such item in the
same manner as for non-participating shareholders who return proxies and do not
provide instructions, that is, in accordance with the recommendation of the
Board of Directors. If the Proxy is not returned or if it is returned unsigned,
none of the participant's shares will be voted unless the participant votes in
person.
The Board of Directors reserves the right to suspend, modify, amend or
terminate the ESPP at any time, except that the Board of Directors cannot
decrease the purchase price of the shares offered pursuant to the ESPP or make
more restrictive the eligibility requirements for employees wishing to
participate in the ESPP. All participants will receive notice of any suspension,
modification, amendment or termination of the ESPP.
The Company is authorized to take such actions to carry out the ESPP as
may be consistent with the ESPP's terms and conditions. The Company reserves the
right to interpret and regulate the ESPP as it deems desirable or necessary in
connection with the ESPP's operation.
The Board of Directors recommends that the shareholders vote "FOR"
approval of the amendment to the ESPP.
17
- --------------------------------------------------------------------------------
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.
All shareholders are asked to promptly return their Proxy in orderso that the
necessary vote may be present at the meeting. We respectfully request that you
vote your Proxy at your earliest convenience either by signing and returning the
accompanying Proxy Card by mail, or by following the enclosed instructions on the Proxy
Card to vote by phonea toll-free telephone call or the Internet.online.
By order of the Board of Directors,
Dated March 25, 2003
Philip R. Halverson
Philip R. HalversonDeborah A. Amberg
Deborah A. Amberg
Vice President, General Counsel and Secretary
18March 25, 2004
Duluth, Minnesota
DELIVERY OF PROXY MATERIALS TO HOUSEHOLDS
Only one copy of ALLETE's Proxy Statement for the 2004 Annual Meeting of
Shareholders and one copy of the 2003 ALLETE Annual Report, which includes
financial statements, will be delivered to an address where two or more related
shareholders reside, unless ALLETE has received contrary instructions from a
shareholder at the address. A separate Proxy Card and a separate notice of the
Annual Meeting of Shareholders will be delivered to each shareholder at the
shared address.
If you are a shareholder who lives at a shared address and you would like
additional copies of this Proxy Statement or the 2003 ALLETE Annual Report,
contact ALLETE Shareholder Services, 30 West Superior Street, Duluth, MN
55802-2093, telephone number 1-800-535-3056 or 1-218-723-3974, and we will
promptly mail you copies.
If you share the same address with other ALLETE shareholders and you
currently receive multiple copies of annual reports or proxy statements, you may
request delivery of a single copy of future annual reports and proxy statements
at any time by calling ALLETE Shareholder Services at 1-800-535-3056 or by
writing to ALLETE's Stock Transfer Agent, Wells Fargo Bank Minnesota, N.A.,
Shareowner Services, Attn: Householding, P.O. Box 64854, St. Paul, MN
55164-0854.
If you did not receive the 2003 ALLETE Annual Report, please notify ALLETE
Shareholder Services, 30 West Superior Street, Duluth, MN 55802-2093, telephone
number 1-800-535-3056 or 1-218-723-3974, and a copy will be sent to you.
Many brokerage firms and other holders of record have procedures for the
delivery of single copies of company documents to households with multiple
shareholders. If your family has one or more "street name" accounts under which
you beneficially own shares of ALLETE Common Stock, please contact your broker,
financial institution, or other holder of record directly if you require
additional copies of the Proxy Statement or ALLETE's 2003 Annual Report, or if
you have other questions or directions about your "street name" account.
16
APPENDIX
ALLETE, INC.
BOARD OF DIRECTORS
AUDIT COMMITTEE CHARTER
EFFECTIVE JANUARY 20, 2004
PURPOSES AND ROLE OF COMMITTEE
The purposes of the Audit Committee (Committee) of the Board of Directors
(Board) of ALLETE, Inc. (Company) are to: (A) assist the Board's oversight of
(1) the integrity of the Company's financial statements, (2) the Company's
compliance with corporate policies and procedures, (3) the Company's compliance
with legal and regulatory requirements, (3)(4) the independent auditor's
qualifications and independence, and (4)(5) the performance of the Company's
internal audit function and independent auditors; and (B) prepare the report
that Securities and Exchange Commission (Commission) rules require to be
included in the Company's annual proxy statement.
The role of the Committee is oversight. Management and the internal audit
department are responsible for maintaining and evaluating appropriate accounting
and financial reporting principles and policies, andas well as internal controls,
processes, systems, corporate policies and procedures designed to assure
compliance with accounting standards, corporate policies and applicable laws and
regulations. The independent auditors are responsible for auditing the financial
statements and assessing the Company's internal controls. Consequently, in
carrying out its oversight responsibilities, the Committee is not providing any
certification as to the independent auditors' work or the work or report of any
expert. Each member of the Committee shall be entitled to reasonably rely on the
integrity of people and organizations from whomwhich the Committee receives
information and the accuracy of such information.
COMMITTEE MEMBERSHIP
The Committee shall consist of three or more members of the Board, each of whom
(A) satisfies the requirements for independence pursuant to law and the listing
standards of the New York Stock Exchange (NYSE), and (B) is financially literate
as required by the listing standards of the NYSE. At least one Committee member
shall have accounting or related financial management expertise as required by
the listing standards of the NYSE. Committee members may not serve on audit
committees of more than two other publicly traded companies. Committee members
shall serve at the pleasure of the Board and for such term or terms as the Board
may determine.
COMMITTEE STRUCTURE AND OPERATIONS
The Board shall designate one member of the Committee as its Chair. The
Committee shall meet at least quarterly at a time and place determined by the
Board or the Committee Chair, with further meetings to occur when deemed
necessary or desirable by a majority of the Committee or its Chair. The
Committee will meet periodically in executive session without management
present.
A majority of the Committee members currently holding office constitutes a
quorum for the transaction of business. The Committee shall take action by the
affirmative vote of a majority of the Committee members present at a duly held
meeting. The Committee may meet in person or telephonically, and may act by
unanimous written consent when deemed necessary or desirable by the Committee or
its Chair. The Committee may recommend to the Board procedures to be observed in
executing its responsibilities. The Committee may invite such members of
management to its meetings as it may deem desirable or appropriate.
COMMITTEE DUTIES AND RESPONSIBILITIES
The duties and responsibilities of the Committee are to:
1. Appoint, retain and terminate, and approve fees and terms of retention of
the public accounting firm serving as the Company's independent auditors
(subject to ratification by Company shareholders if deemed appropriate).
The Committee shall be responsible for the oversight of the independent
accounting firm engaged by the Company for the purpose of preparing or
issuing an audit report or related work or
A-1
performing other audit, review or attest services, including resolution of
disagreements between
19
management and the independent accounting firm
regarding financial reporting. The Committee shall pre-approve any audit
and non-audit services by the independent auditors as required by
applicable law and the rules of the NYSE. The Committee shall directly
implement these responsibilities.
2. Instruct the independent auditors that they are to report directly to the
Committee, and provide that they are ultimately responsible to the
Committee and the Board.
3. Review with the independent auditors the scope of the prospective audit,
the estimated fees therefor and such other matters pertaining to such audit
as the Committee may deem appropriate. Receive copies of the annual
comments from the outside auditors on accounting procedures and systems of
control. Recommend to the Board the acceptance of such audits that are
accompanied by certification.
4. Meet separately, periodically, with management, with the senior internal
audit executive and with the independent auditors.
5. Review and discuss with management and the independent auditor, before
filing with the Commission, the annual audited financial statements and
quarterly financial statements, including the Company's disclosures under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
5.6. Review and discuss earnings press releases, as well as financial
information and earnings guidance provided to analysts and rating agencies.
6.7. Advise management, the internal audit department and the independent
auditors that they are expected to provide to the Committee a timely
analysis of and opportunity to discuss significant financial reporting
issues and practices, critical accounting policies,review (A) major issues regarding accounting
principles and financial statement presentations, (includingincluding any significant
changes in the Company's selection or application of accounting principles),principles,
and major issues as to the adequacy of the Company's internal controls and
any special audit steps adopted in light of material control deficiencies.
7.deficiencies;
(B) compliance with the Company's policies and procedures; (C) analyses
prepared by management and/or the independent auditor setting forth
significant financial reporting issues and judgments made in connection
with the preparation of the financial statements, including analyses of the
effects of alternative generally accepted accounting principles (GAAP)
methods on the financial statements; (D) the effect of regulatory and
accounting initiatives, as well as off balance sheet structures, on the
financial statements of the company; and (E) the type and presentation of
information to be included in earnings press releases (paying particular
attention to any use of "pro forma," or "adjusted" non-GAAP, information),
as well as review any financial information and earnings guidance provided
to analysts and rating agencies.
8. Direct management, the internal auditors and the independent auditors to
disclose to the Committee any significant risks and exposures; discuss
policies with respect to risk assessment and risk management.
8.9. Review with the independent auditors any audit problems or difficulties and
management's response.
9.response, including any restrictions on the independent
auditor's activities or on access to requested information, any accounting
adjustments that were noted or proposed by the auditor but were "passed"
(as immaterial or otherwise); any communications between the audit team and
the audit firm's national office respecting auditing or accounting issues
presented by the engagement; any "management" or "internal control" letter
issued (or proposed) by the audit firm to Company, and a discussion of the
responsibilities, budget and staffing of the Company's internal audit
function.
10. Review the action taken by management on the internal auditors' and
independent auditors' recommendations.
10.11. Review with the senior internal audit executive the annual internal audit
plan and scope of internal audits, including the procedure for assuring
implementation of accepted recommendations made by the independent
auditors. Advise the senior internal audit executive that he or she is
expected to provide the Committee with summaries of any significant
identified control issues and management's response thereto, and informseek prior
approval of the Committee offor any significant changes to the internal audit
department charter, staffing or budget.
11.A-2
12. Make or cause to be made, from time to time, such other examinations or
reviews as the Committee may deem advisable with respect to the adequacy of
the systems of internal controls and accounting practices of the Company
and its subsidiaries and with respect to current accounting trends and
developments, and take such action with respect thereto as may be deemed
appropriate.
12.13. Review the appointment, reassignment, and replacement of the senior
internal audit executive.
13.14. Set clear hiring policies for employees or former employees of the
independent auditors.
14.15. On a periodic basis, and without others present, meet separately with the
independent auditors, the senior internal audit executive, the controller,
the general counsel, and other members of management as appropriate.
15.16. Review with management, the independent auditors and the senior internal
audit executive the adequacy of and any significant changes in the internal
controls, the accounting policies procedures or practices of the Company
and its subsidiaries, and compliance with Corporatecorporate policies, directives
and applicable laws.
16.17. Ensure that the independent auditor submits on a periodic basis to the
Committee a formal written statement delineating all relationships between
the auditor and the Company that may have a bearing on
20
the auditor's
independence, engage in an active dialogue with the independent auditor
with respect to any disclosed relationships or services that may impact the
objectivity and independence of the independent auditor, and recommend to
the Board any action deemed appropriate in response to the independent
auditor's report to satisfy the Board and the Committee of the independent
auditor's independence.
17.18. Obtain and review, at least annually, a report by the independent auditor
describing: the independent auditor's internal quality-control procedures;
any material issues raised by the most recent internal quality-control
review, or peer review, of the firm, or by any inquiry or investigation by
governmental or professional authorities, within the preceding five years,
respecting one or more independent audits carried out by the firm, and any
steps taken to deal with any such issues; and (to assess the auditor's
independence) all relationships between the independent auditor and the
Company.
18.19. Establish procedures for the receipt, retention and treatment of complaints
received by the Company regarding accounting, internal accounting controls,
or auditing matters; and the confidential, anonymous submission by
employees of the Company and its affiliates of concerns regarding
questionable accounting, internal control or auditing matters.
19.20. Review the status of compliance with laws, regulations, and internal
procedures, contingent liabilities and risks that may be material to the
Company, the scope and status of systems designed to assure Company
compliance with laws, regulations and internal procedures, through
receiving reports from management, legal counsel and other third parties as
determined by the Committee on such matters, as well as major legislative
and regulatory developments which could materially impact the Company's
contingent liabilities and risks.
20.21. Prepare a report for inclusion in the annual proxy statement that specifies
the Directors who sit on the Committee, describes the Committee's
responsibilities as outlined in this Charter, and discusses how these
responsibilities were discharged during the year.
21.22. Conduct or authorize investigations into any matters within the Committee's
scope of responsibility, consistent with procedures to be adopted by the
Committee.
22.23. Review and assess the adequacy of the Committee charter annually.
COMMITTEE REPORTS
1. Report to the Board on a regular basis on the activities of the Committee
and make such recommendations with respect to the above matters as the
Committee may deem necessary or appropriate. This report shall include a
review of any issues that arise with respect to the quality or integrity of
the Company's financial statements, the Company's compliance with legal or
regulatory requirements, the performance and independence of the Company's
independent auditors, or the performance of the internal audit function.
A-3
2. Transmit to the Board notices of Committee meetings, agendas, and meeting
minutes.
3. At the time of or in advance of the Annual Directors Meeting held in May of
each year, present an annual performance evaluation of the Committee, which
shall assess the performance of the Committee in relation to its duties and
responsibilities under this charter, recommend any amendments to this
charter, and set forth the goals and objectives of the Committee for the
ensuing twelve months.
4. Report on matters required by the rules of the Commission to be disclosed
in the Company's annual proxy statement.
DELEGATION OF AUTHORITY
The Committee may, in its discretion, delegate certain of its duties and
responsibilities to a subcommittee of the Committee.
The Committee may delegate to one or more of its members the authority to grant
pre-approvals of auditing and non-audit services to be performed by the
Company's independent auditor subject to such guidelines as the Committee may
determine. Any such decisions to pre-approve shall be presented to the full
Committee at its next following regular meeting.
21
RESOURCES AND AUTHORITY OF THE COMMITTEE
The Committee shall have the resources and appropriate funding, as determined by
the Committee, to discharge its duties and responsibilities. The Committee shall
have the authority to retain and discharge, and approve fees and other terms and
conditions for retention of independent experts in accounting and auditing,
legal counsel and other experts or advisors. The Committee may direct any
officer or employee of the Company or request any employee of the Company's
independent auditors or outside legal counsel to attend a Committee meeting or
meet with any Committee members.
22A-4
"Printed with soy based inks on recycled paper containing at
least 10 percent fibers from paper recycled by consumers."
[RECYCLE LOGO] [LOGO PRINTED WITH SOY INK]
[ALLETE LOGO]
ANNUAL MEETING OF SHAREHOLDERS
TUESDAY, MAY 13, 200311, 2004
10:30 A.M.
DULUTH ENTERTAINMENT
CONVENTION CENTER
350 HARBOR DRIVE
DULUTH, MN
- --------------------------------------------------------------------------------
[ALLETE LOGO] ALLETE, INC.
30 WEST SUPERIOR STREET
DULUTH, MINNESOTA 55802-2093 PROXY
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL MEETING
ON MAY 13, 2003.11, 2004.
David G. Gartzke and Philip R. HalversonDeborah A. Amberg or either of them, with power of
substitution, are hereby appointed Proxies of the undersigned to vote all shares
of ALLETE, Inc. stock owned by the undersigned at the Annual Meeting of
Shareholders to be held in the auditorium atof the Duluth Entertainment Convention
Center, 350 Harbor Drive, Duluth, Minnesota, at 10:30 a.m. on Tuesday, May 13,
2003,11,
2004, or any adjournments thereof, with respect to the election of Directors,
ratification of the appointment of independent auditors the reservation of
additional shares of ALLETE Common Stock to be issued under the Employee Stock
Purchase Plan and any other matters
as may properly come before the meeting.
THIS PROXY CONFERS AUTHORITY TO VOTE EACH PROPOSAL LISTED ON THE OTHER SIDE
UNLESS OTHERWISE INDICATED. If any other business is transacted at said meeting,
this Proxy shall be voted in accordance with the best judgment of the Proxies.
The Board of Directors recommends a vote "FOR" each of the listed proposals.
This Proxy is solicited on behalf of the Board of Directors of ALLETE, Inc., and
may be revoked prior to its exercise. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD USING THE ENCLOSED ENVELOPE. ALTERNATIVELY, AUTHORIZE THE ABOVE-NAMED
PROXIES TO VOTE THE SHARES REPRESENTED ON THIS PROXY CARD BY PHONE OR THE
INTERNETONLINE AS
DESCRIBED ON THE OTHER SIDE. Shares cannot be voted unless these instructions
are followed, or other specific arrangements are made to have the shares
represented at the meeting. By responding promptly, you may help save the costs
of additional Proxy solicitations.
SEE REVERSE FOR VOTING INSTRUCTIONS.
----------
COMPANY #
----------
THERE ARE THREE WAYS TO VOTE YOUR PROXY ----------
COMPANY #
YOUR TELEPHONE OR INTERNET VOTE AUTHORIZES THE NAMED PROXIES TO CONTROL #
VOTE YOUR SHARES IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND ----------
RETURNED YOUR PROXY CARD.PROXY:
VOTE BY PHONE - TOLL FREE - 1-800-240-63261-800-560-1965 - QUICK --- EASY --- IMMEDIATE
- - Use any touch-tone telephone to vote your Proxy 24 hours a day, 7 days a week,
until 11:12:00 a.m.p.m. (CT) on May 12, 2003.10, 2004.
- - You will be prompted to enterPlease have your 3-digit Company Number, your 7-digit
Control Number (these numbers are located on the Proxy Card)Card and the last 4-four digits of the U.S.your Social Security
Number or Tax Identification Number for
this account. If you do not have a U.S. SSN or TIN please enter 4 zeros.
- -available. Follow the simple instructions the voice provides you.
VOTE BY INTERNETONLINE - http://www.eproxy.com/ale/ - QUICK --- EASY --- IMMEDIATE
- - Use the Internet to vote your Proxy 24 hours a day, 7 days a week, until 12:00
p.m. (CT) on May 12, 2003.10, 2004.
- - You will be prompted to enterPlease have your 3-digit Company Number, your 7-digit
Control Number (these numbers are located on the Proxy Card)Card and the last 4-digitsfour digits of the U.S.your Social Security
Number or Tax Identification Number for
this accountavailable. Follow the simple instructions to obtain your records and
create an electronic ballot.
If you
do not have a U.S. SSN or TIN please leave blank.
VOTE BY MAIL
Mark, sign and date your Proxy cardCard and return it in the postage-paid envelope
we've provided or return it to ALLETE, Inc., c/o Shareowner Services
(servicemark), P.O. Box 64873, St. Paul, MN 55164-0873.
YOUR TELEPHONE OR ONLINE VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR SHARES
IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY CARD.
IF YOU VOTE BY PHONE OR INTERNET,ONLINE, PLEASE DO NOT MAIL YOUR PROXY CARDCARD.
- PLEASE DETACH HEREHERE. -
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 2 AND 3.2.
1. Election of Directors: 01 Bussmann 02 CunninghamGartzke 03 EvansGreen 04 GartzkeJohnson
05 JohnsonMayer 06 MayerPeirce 07 Rajala 08 Smith
09 Stender 10 Wegmiller 11 Weinstein
/ / Vote FOR all nominees / / Vote WITHHELD from all nominees
(except as marked)
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY ----------------------
INDICATED NOMINEE, WRITE THE NUMBER(S) OF THE NOMINEE(S)
IN THE BOX PROVIDED TO THE RIGHT.) ----------------------
2. Ratification of the appointment of PricewaterhouseCoopers LLP as independent
auditors.
/ / For / / Against / / Abstain
3. Reservation of an additional 500,000 shares of ALLETE Common Stock for
issuance under the Employee Stock Purchase Plan.
/ / For / / Against / / Abstain
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR ITEMS 1 2 AND 3.2.
---
Address Change? Mark Box / / Date
-----------------------
Indicate changes below:
Date
------------------------------
-----------------------------------
-----------------------------------
Signature(s) in Box
Please sign exactly as your name(s)
appears on Proxy. If held in joint
tenancy, all persons must sign.
Trustees, administrators, etc.,
should include title and authority.
Corporations should provide full
name of corporation and title of
authorized officer signing the
Proxy.
- --------------------------------------------------------------------------------
YOU'RE INVITED
[ALLETE LOGO]
ANNUAL MEETING OF SHAREHOLDERS
2003 May 13th
10:30 AM
At the Duluth Entertainment Convention Center
INA.M. TUESDAY, MAY 11, 2004
DULUTH ENTERTAINMENT CONVENTION CENTER
DULUTH, MINNESOTA
Dear Shareholder:
It's my pleasure to invite you to ALLETE's Annual Meeting of Shareholders on
Tuesday, May 13 beginning at
10:30 a.m. aton Tuesday, May 11, in the Duluth Entertainment Convention Center.
Our agenda will include business highlights from 20022003 and a discussion of
strategic issues facing ALLETE.
Lunch will be served in the DECC's Lake Superior Ballroom after the meeting.
Please make plans to join us May 13.11. It will be a great opportunity to learn the
latest information about ALLETE and enjoy the camaraderie of your fellow
shareholders.
We look forward to seeing you.
Sincerely,
/s/ David G. Gartzke
David G. Gartzke
Chairman President
and Chief Executive Officer
REGISTRATION
Registration begins at 9 a.m. insideof the entrance to the DECC. Parking is free,
so be sure to tell theBoard
PARKING - Free. Tell gate attendant you're a shareholder.
When you register, you'llREGISTRATION - Begins at 9 a.m. inside DECC entrance. You'll receive a ticket
tofor lunch and a ticket for a chance to win shares of ALLETE stock.
ANNUAL MEETING
TheSCHEDULE - DECC Auditorium doors will open at 9:30 a.m. and the meeting will
begin promptly at 10:30 a.m.
LUNCH - A box lunch will be served following the meeting in the Lake Superior
Ballroom withinof the DECC.
RESERVATION INSTRUCTIONS
Please complete the card below, detach and mail. If you have questions, callQUESTIONS - Call Shareholder Services at 218-723-3974 or, toll-free,
at 1-800-535-3056, or 218-723-3974.1-800-535-3056.
CANCELLATIONS - If your plans change after you've sent in the reservation card and
you can't attend, please let us know by callingnotify Shareholder Services.
- --------------------------------------------------------------------------------
PLEASE COMPLETE AND MAIL THIS POSTAGE-PAID RESERVATION CARD-Complete and mail this postage-paid card as soon as possible.
Please do not enclose with your proxy.CARD AS SOON AS POSSIBLE.
- ---------------------------------------------------------------------------------------------------- ------------------------
Each shareholder / / Yes, I will attend the Annual Meeting and the lunch.
- -----
Each shareholderDo not enclose this
may bring one guest. Annual Meeting and lunch. card with your proxy.
- -------------------- ------------------------
Please PRINT
clearly your name and your
guest's name.
Shareholder's Name
- ---------------------------------------------------------------------------------------------------------------------------------------------
Guest's Name
- -------------------------------------------------------------------------------------------------------------------------------------
Shareholder's Name
- ----------------------------------------------------------------- [ALLETE LOGO]-------------------------------------------------------------
Guest's Name
-
-------------------------------------------------------------------
[GRAPHIC OMITTED - Fim Markings]
-----------------
NO POSTAGE
NECESSARY
IF MAILED
IN THE
UNITED STATES
-----------------
[GRAPHIC OMITTED - Solid bars
below indicia]
----------------------------------------
BUSINESS REPLY MAIL
FIRST CLASS Permit No. 74 Duluth, MN
----------------------------------------
POSTAGE WILL BE PAID BY ADDRESSEE
ALLETE
ATTN: BERNADETTE NELSON
ALLETE
30 WEST SUPERIOR STREETST
DULUTH, MINNESOTAMN 55802-9986
[GRAPHIC OMITTED - Bar Code]
April __, 20032004
Dear Shareholder:
We haveALLETE has not yet received your vote on issues to come before the 2004
Annual Meeting of ALLETE Shareholders on May 13, 2003.11, 2004. Proxy materials were sent to you
on or about March 25, 2003.2004. Please take timea few moments to review the Proxy
materials and vote the enclosed copy of your Proxyshares using one of the three options available to you:
1. BY MAIL - Complete the enclosed duplicate Proxy Card and return it in
the self-addressed stamped envelope;envelope provided;
2. BY TELEPHONE - Call the 800toll-free number listed on the Proxy Card
and follow the instructions; or
3. INTERNETONLINE - Log onto the web site listed on the Proxy Card and follow
the instructions.
WeOn behalf of the Board of Directors, we again extend to you a cordial
invitation to attend ALLETE's Annual Meeting of Shareholders to be held in the
auditorium of the Duluth Entertainment Convention Center, 350 Harbor Drive,
Duluth, Minnesota on Tuesday, May 13, 200311, 2004 at 10:30 a.m.
Your prompt response will beis appreciated.
Sincerely,
Philip R. HalversonDeborah A. Amberg
Vice President, General Counsel
and Secretary
Enclosures