SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to SectionPROXY STATEMENT PURSUANT TO SECTION 14(a) of the Securities Exchange Act ofOF THE SECURITIES EXCHANGE ACT OF 1934
(Amendment No.(AMENDMENT NO. )
Filed by the Registrant / //X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by RuleCONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
ALLETE, (legally incorporated as Minnesota Power, Inc.)
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(Name of Registrant as Specified In Itsin 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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[ALLETE LOGO] Notice
and
Proxy
Statement
Annual Meeting of ShareholdersNOTICE AND PROXY STATEMENT
[GRAPHIC OMITTED]
ANNUAL MEETING OF SHAREHOLDERS
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Tuesday, May 8, 2001
--------------------14, 2002
Duluth, Minnesota
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[ALLETE LOGO]
March 16, 2001
Dear Shareholder:
You are cordially invited to attend ALLETE's 2001 Annual Meeting of
Shareholders on Tuesday, May 8, 2001 at 10:00 a.m. in the auditorium at the
Duluth Entertainment Convention Center (DECC). The DECC is located on the
waterfront at 350 Harbor Drive in Duluth. Free parking is available in the
adjoining lot. On behalf of the Board of Directors, I encourage you to attend.
Our operating results in 2000 exceeded Company-wide goals for growth we set
for ourselves at the beginning of the year. Operating earnings per share
increased by 12 percent, beating our target of 10 percent. Once again, these
strong results were driven in large part by our growing Automotive Services
unit. Our total shareholder return (stock price appreciation plus reinvestment
of dividends) was 54 percent. Shareholders joining us will hear our strategy for
growth in 2001.
At the Shareholders Meeting, 11 nominees will stand for election to the
Board. Dutch Cragun, first elected in 1991, is retiring from service on the
Board. We thank him for his contributions to the success of the Company. Also,
shareholders will vote on a resolution to appoint PricewaterhouseCoopers LLP as
the Company's independent accountants. Finally, shareholders will vote on a
resolution to change the Company's legal name from Minnesota Power, Inc. to
ALLETE, Inc. The Company began doing business under the name ALLETE on September
1, 2000, as we were in the process of doubling the size of ADESA by acquiring 28
auto auctions. Our electric utility business unit appropriately continues to
operate under the name Minnesota Power.
After our Annual Meeting, we invite you to visit with our directors,
officers and employees over a box lunch in the Lake Superior Ballroom located
within the DECC. If you plan to attend, please return the enclosed reservation
card.
It is important that your shares be represented at the Annual Meeting.
Please sign, date and promptly return the enclosed proxy card in the envelope
provided, or, if applicable, follow the easy instructions for phone or Internet
voting.
Thank you for your investment in ALLETE.
Sincerely,
Edwin L. Russell
Edwin L. Russell
Chairman, President and
Chief Executive Officer
ALLETE, INC.
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS - MAY 8, 200114, 2002
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The Annual Meeting of Shareholders of ALLETE, Inc. will be held in the
auditorium at the Duluth Entertainment Convention Center, 350 Harbor Drive,
Duluth, Minnesota, on Tuesday, May 8, 200114, 2002 at 10:00 a.m. for the following
purposes:
1. To elect a Board of 11 directors to serve for the ensuing year;
2. To approve the appointment of PricewaterhouseCoopers LLP as the
Company'sALLETE's
independent accountants for 2001;2002;
3. To amendapprove the Company's Articlesreservation of Incorporation to changean additional three million shares of
ALLETE Common Stock for issuance under the Company's
legal name from Minnesota Power, Inc. to ALLETE, Inc.;Executive Long-Term
Incentive Compensation 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 the CompanyALLETE at the close of business
on March 9, 200115, 2002 are entitled to notice of and to vote at the Annual Meeting.
All shareholders are cordially invited and encouraged to attend the
meeting in person. The holders of a majority of the shares entitled to vote at
the meeting must be present in person or by proxy to constitute a quorum.
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, follow the enclosed instructions to vote by
phone or the Internet.
By order of the Board of Directors,
Philip R. Halverson
Philip R. Halverson
Vice President, General Counsel and Secretary
Dated at Duluth, Minnesota
March 16,26, 2002
IF YOU HAVE NOT RECEIVED THE ALLETE 2001 If you have not received theANNUAL REPORT, WHICH INCLUDES
FINANCIAL STATEMENTS, KINDLY NOTIFY ALLETE 2000 Annual Report, which includes
financial statements, kindly notify ALLETE Shareholder Services,SHAREHOLDER SERVICES, 30 West
Superior Street, Duluth,WEST
SUPERIOR STREET, DULUTH, MN 55802-2093, telephone numberTELEPHONE NUMBER 1-800-535-3056 orOR
1-218-723-3974, and a copy will be sent to you.AND A COPY WILL BE SENT TO YOU.
ALLETE, INC.
30 West Superior Street
Duluth, MinnesotaWEST SUPERIOR STREET
DULUTH, MINNESOTA 55802
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PROXY STATEMENT
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SOLICITATION
The proxy accompanying this Proxy Statement is solicited on behalf of
the Board of Directors of ALLETE, (the Company)Inc. (ALLETE) for use at the Annual Meeting of
Shareholders to be held on May 8, 200114, 2002 and any adjournments thereof. Minnesota
Power, Inc. began doing business under the name ALLETE on September 1, 2000. The
purpose of the meeting is to elect a Board of 11 directors to serve for the
ensuing year, to approve the appointment of PricewaterhouseCoopers LLP as
the
Company'sALLETE's independent accountants for 2001,2002, to approve amending the Company's
Articlesreservation of Incorporation to changean
additional three million shares of ALLETE Common Stock for issuance under the
Company's legal name from Minnesota
Power, Inc. to ALLETE, Inc.Executive Long-Term Incentive Compensation Plan 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 16, 2001.26, 2002. Each proxy delivered pursuant to this solicitation is
revocable any time before it is voted by written notice delivered to the
Secretary of the Company.
The CompanyALLETE.
ALLETE expects to solicit proxies primarily by mail. Proxies also may
be solicited in person and by telephone at a nominal cost by regularemployees or
retired
employeesretirees of the Company.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 Corporate Investor
Communications, Inc., a firm specializing in the solicitation of proxies, at a
cost to the CompanyALLETE of approximately $6,000$5,500 plus expenses. The total amount of such
costs will be borne by the Company.ALLETE.
OUTSTANDING SHARES AND VOTING PROCEDURES
The outstanding shares of capital stock of the CompanyALLETE as of March 9, 200115, 2002
were ___[75,625,063] shares of Common Stock (without par value).
Each share of the Common Stock of record on the books of the CompanyALLETE at the
close of business on March 9, 200115, 2002 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 this 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.
Unless contrary instructions are indicated on the proxy, all shares
represented by valid proxies will be voted "FOR" the election of all nominees
for director named herein, "FOR" approval of PricewaterhouseCoopers LLP as
the
Company'sALLETE's independent accountants for 2001,2002 and "FOR" approval of amending the Company's Articlesreservation
of Incorporation to changean additional three million shares of ALLETE Common Stock for issuance under
the Company's legal name from
Minnesota Power, Inc. to ALLETE, Inc.Executive Long-Term Incentive Compensation Plan. 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 the CompanyALLETE who as of March 9, 200115, 2002 owned
beneficially more than 5 percent of any class of the Company'sALLETE's voting securities is
Mellon Bank, N.A., One Mellon BankAmerican Express Trust Company, 50765 AXP Financial Center, Pittsburgh, PA 15258. Mellon Bank
holds 8,036,844Minneapolis, MN
55474. As of March 15, 2002 American Express Trust Company held [8,036,844]
shares, (__ %)or [10.6] percent, of the Company'sALLETE's Common Stock in its capacity as Trustee
of the Minnesota Power and Affiliated Companies EmployeeRetirement Savings and Stock
Ownership Plan and Trust (ESOP)(RSOP). Generally, these shares will be voted in accordance with
instructions received by Mellon BankAmerican Express Trust Company from participants in the
ESOP.RSOP.
The following table presents the shares of Common Stock beneficially
owned by directors, nominees for director, executive officers and former
executive officers named in the Summary Compensation Table appearingwhich appears
subsequently in this Proxy Statement, and all directors and executive officers
of the CompanyALLETE as a group, as of March 9, 2001.15, 2002. 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 9, 200115, 2002 Beneficial Owner Owned after March 9, 200115, 2002
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Kathleen A. Brekken 7,649 4,6806,180 Nick Smith 8,100
Wynn V. Bussmann 500 0 Bruce W. Stender 8,100
Dennis E. Evans 8,100 Donald C. Wegmiller 8,100
David G. Gartzke 75,690 Donnie R. Crandell 62,865
Glenda E. Hood 1,250 Robert D. Edwards 99,722
Peter J. Johnson 8,100 John F. Fuller 0
George L. Mayer 7,616 James P. Hallett 57,919
Jack I. Rajala 8,100 Edwin L. Russell 27,532
Arend J. Sandbulte 70,144 5,996
Merrill K. Cragun 19,256 6,600 Nick Smith 10,509 6,600
Dennis E. Evans 31,299 6,600 Bruce W. Stender 13,976 6,600
Glenda E. Hood 3,067 07,496 Donald C. Wegmiller 18,448 6,600
Peter J. Johnson 24,252 6,600 Donnie R. Crandell 24,826 36,938
George L. Mayer 17,475 6,116 Robert D. Edwards 45,794 74,577
Jack I. Rajala 14,065 6,600 John E. Fuller 19,294 61,403
Edwin L. Russell 145,927 177,974 James P. Hallett 20,457 68,676Shippar 21,138
All directors and
executive officers
as a group (26)(22): 654,327 741,642561,302
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Includes (i) shares as to which voting and investment power is shared with the person's spouse: Mr. Johnson - 24,252, Mr.
Russell - 127,482, Mr. Sandbulte - 5,170, Mr. Fuller - 2,030, and all directors and officers as a group - 189,543; (ii) shares
owned by the person's spouse: Mr. Cragun - 1,448, Mr. Smith - 50, Mr. Crandell - 3,909 and all directors and officers as a group - 26,648; (iii)
shares held beneficially for the person's children: Mr. Russell - 12,338; and (iv) shares held as trustee: Mr. Mayer - 400.
Each director and executive officer owns only a fraction of 1 percent of any class of CompanyALLETE stock and all directors and
executive officers as a group also own less than 1 percent of any class of CompanyALLETE stock.
Includes 6,60611,144 options owned by Mr. Crandell's spouse that are exercisable within 60 days after March 9, 2001.15, 2002.
SECTION 16(a)16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company'sALLETE's directors and executive officers, and persons who own more
than 10 percent of a registered class of the Company'sALLETE's equity securities, to file
reports of initial ownership of the Company'sALLETE's Common Stock and other equity
securities and subsequent changes in that ownership with the Securities and
Exchange Commission and the New York Stock Exchange. Based on a review of such
reports, the CompanyALLETE believes that all such filing requirements were met during 20002001,
except that onefor [one] report covering four transactions, all related to the exercisepurchase of Company stock options,1,000 shares of ALLETE Common
Stock by Mr. Nick Smith which was inadvertently filed less than a month
late by the Company on behalf of Ms. Brenda Flayton.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 30, 2000, the Company loaned James Hallett, Executive Vice
President of ALLETE and President and CEO of ADESA Corporation, $1 million with
interest at a rate of 8 percent per annum, so Mr. Hallett could avoid the
distraction of procuring temporary financing and thereby remain focused on
leading ADESA as it was integrating major acquisitions. The loan was repaid,
with interest, on March 16, 2001.three months late.
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 11 nominees for director
named below.on the opposite page. Pictured below, Mr. Sandbulte, Director since 1983
and former Chairman, President and CEO, will not stand for election this year
since he will retire from the Board pursuant to the Board's retirement policy.
Directors are elected to serve until the next annual election of directors and
until a successor is elected and qualified or until a director's earlier
resignation or removal. In the event that any nominee should become unavailable,
which is not anticipated, the Board of Directors may provide by resolution for a
lesser number of directors or designate substitute nominees, who would receive
the votes represented by the enclosed proxy.
CURRENT DIRECTORS
[GROUP PHOTO]
[GRAPHIC OMITTED]
1 Jack I. Rajala
2 Dennis E. Evans
3 Arend J. Sandbulte
4 George L. Mayer
5 Bruce W. Stender
6 David G. Gartzke
7 Glenda E. Hood
8 Kathleen A. Brekken
9 Nick Smith
10 Peter J. Johnson
11 Donald C. Wegmiller
3
NOMINEES FOR DIRECTOR
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Pictured from left to right: Nick Smith, Bruce W. Stender, Edwin L. Russell,
Kathleen A. Brekken.
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[GROUP PHOTO]
NICK SMITH, 64, Duluth, MN. Member of the Executive Committee and the
Executive Compensation Committee. Chairman and CEO of Northeast Ventures
Corporation, a venture firm investing in northeastern Minnesota. Chairman of
Community Development Venture Capital Alliance, a national association. Director
of North Shore Bank of Commerce. Director and founding Chair of Great Lakes
Aquarium at Lake Superior Center. Of counsel to Fryberger, Buchanan, Smith &
Frederick, P.A. DIRECTOR SINCE 1995
BRUCE W. STENDER, 59, Duluth, MN. Chairman of the Audit Committee and member of
the Executive Committee. President and CEO of Labovitz Enterprises, Inc. which
owns and manages hotel properties. Trustee of the C. K. Blandin Foundation and
member of the Chancellor's Advisory Committee for the University of Minnesota
Duluth. DIRECTOR SINCE 1995
EDWIN L. RUSSELL, 56, Duluth, MN. Chairman, President and CEO of ALLETE.
Director of Tennant Co., Edison Electric Institute, the Great Lakes Aquarium at
Lake Superior Center, and Minnesota Public Radio. DIRECTOR SINCE 1995
KATHLEEN A. BREKKEN, 51,52, Cannon Falls, MN. Member of the Executive Compensation
Committee. President and CEO of Midwest of Cannon Falls, Inc., a wholesale
distributor of seasonal gift items, exclusive collectibles and distinctive home
decor, with 15 showrooms in major markets throughout the United States and
Canada. Board of Regents of St. Olaf College in Minnesota. DIRECTOR SINCE 1997
3
Director since 1997.
WYNN V. BUSSMANN, 60, Birmingham, MI. Senior Vice President - --------------------------------------------------------------------------------
Pictured from leftGlobal Forecasting
of J.D. Power and Associates, an international marketing information firm. From
1994 to right: Peter J. Johnson, Arend J. Sandbulte, Merrill K.
Cragun, Dennis E. Evans.
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[GROUP PHOTO]
PETER J. JOHNSON, 64, Tower, MN. Member2001 was Corporate Economist for Daimler Chrysler Corporation, where he
provided forecasts and analysis of vehicle sales and other trends in the vehicle
industry for product strategy and planning. Chair of Society of Automotive
Analysts and past chair of the Audit Committee.
Chairman and CEOConference of Hoover Construction Company, a highway and heavy
construction contractor. Director of Queen City Federal Savings and of Queen
City Bancorp, Inc. DIRECTOR SINCE 1994
AREND J. SANDBULTE, 67, Duluth, MN. Former Chairman, President and CEO of
ALLETE. Member of the Executive Committee. Director of St. Mary Land and
Exploration Company, and the Community Board of Wells Fargo Bank Minnesota, N.A.
in Duluth. Chairman and Director of Iowa State University Foundation. Director
and immediate past Chairman of the Great Lakes Aquarium at Lake Superior Center.
DIRECTOR SINCE 1983
MERRILL K. CRAGUN, 68, Brainerd, MN, a director since 1991, retires from the
Board this year and is not standing for reelection at the May 8, 2001 Annual
Meeting of Shareholders.Business Analysts. First-time
nominee.
DENNIS E. EVANS, 62,63, Minneapolis, MN. Member of the Executive Committee and the
Executive Compensation Committee. President and CEO of the Hanrow Financial
Group, Ltd., a merchant banking firm. Director of Angeion Corporation. DIRECTOR
SINCE 1986
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Pictured from left to right: Jack I. Rajala, GlendaDirector
since 1986.
DAVID G. GARTZKE, 58, Chairman, President and CEO of ALLETE. Board member of
Edison Electric Institute, Minnesota Business Partnership and the College of St.
Scholastica. Director since 2001.
GLENDA E. Hood, Donald C.Wegmiller,
GeorgeHOOD, 52, Orlando, FL. Member of the Audit Committee. Mayor of
Orlando, Florida since 1992. Chief Executive Officer of Orlando's City
Administration, Chairman of the City Council and board member of the Orlando
Utilities Commission. Past President of the National League of Cities. Director
since 2000.
PETER J. JOHNSON, 65, Tower, MN. Member of the Audit Committee. Chairman and CEO
of Hoover Construction Company, a highway and heavy construction contractor.
Director since 1994.
GEORGE L. Mayer.
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[GROUP PHOTO]MAYER, 57, Essex, CT. Member of the Audit Committee. Founder and
President of Manhattan Realty Group which manages various real estate properties
located predominantly in northeastern United States. Director of Schwaab, Inc.,
one of the nation's largest manufacturers of handheld rubber stamps and
associated products. Director since 1996.
JACK I. RAJALA, 61,I.RAJALA, 62, Grand Rapids, MN. Member of the Executive Committee. Chairman
and CEO of Rajala Companies and Director and President of Rajala Mill Company,
which manufacture and trade lumber. Director of Grand Rapids State Bank. Board
of Regents of Concordia College in Minnesota. DIRECTOR
SINCE 1985
GLENDA E. HOOD, 51, Orlando, FL. MemberDirector since 1985.
NICK SMITH, 65, Duluth, MN. Chair of the Executive Committee and member of the
Executive Compensation Committee. Chairman and CEO of Northeast Ventures
Corporation, a venture firm investing in northeastern Minnesota. Chairman of
Community Development Venture Capital Alliance, a national association. Director
of North Shore Bank of Commerce. Director and founding Chair of Great Lakes
Aquarium and Freshwater Discovery Center in Duluth, MN. Of counsel to Fryberger,
Buchanan, Smith & Frederick, P.A. Director since 1995.
BRUCE W. STENDER, 60, Duluth, MN. Chair of the Audit Committee. Mayor of
Orlando, Florida, since 1992. Chief Executive Officer of Orlando's City
Administration, Chairman of the City Council,Committee and board member of the
Orlando
Utilities Commission. PastExecutive Committee. President and CEO of Labovitz Enterprises, Inc. which owns
and manages hotel properties. Trustee of the National LeagueC.K. Blandin Foundation and member
of Cities. DIRECTOR
SINCE 2000the Chancellor's Advisory Committee for the University of Minnesota Duluth.
Director since 1995.
DONALD C. WEGMILLER, 62,63, Minneapolis, MN. Chairman of the Executive Compensation
Committee. President and CEO of HealthCare Compensation Strategies,Clark/Bardes Consulting - Healthcare Group, a
national executive and physician compensation and benefits consulting firm.
Director of LecTec Corporation, Medical Graphics Corporation, Possis Medical,
Inc., SelectCare, Inc. and JLJ Medical Devices International, LLC. DIRECTOR SINCE 1992
GEORGE L. MAYER, 56, Essex, CT. Member of the Audit Committee. Founder and
President of Manhattan Realty Group which manages various real estate properties
located predominantly in northeastern United States. A consultant to the board
of directors of Schwaab, Inc., one of the nation's largest manufacturers of
handheld rubber stamps and associated products. DIRECTOR SINCE 1996Director
since 1992.
4
BOARD AND COMMITTEE MEETINGS IN 20002001
During 20002001 the Board of Directors held 5nine meetings. The Executive
Committee, which held 11nine meetings during 2000,2001, provides oversight of corporate
financial matters, 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. Shareholders may recommend nominees for director to the Executive
Committee by addressing the Secretary of the Company,ALLETE, 30 West Superior Street,
Duluth, Minnesota 55802. The Audit Committee, which held 8eight meetings in 2000,2001,
recommends the selection of independent accountants, reviews and evaluates
the Company'sALLETE'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 5five meetings in 2000,2001,
establishes compensation and benefit arrangements for CompanyALLETE officers and other
key executives, intended to be equitable, competitive with the marketplace and
consistent with corporate objectives. All directors attended 75 percent or more
of the aggregate number of meetings of the Board of Directors and applicable
committee meetings in 2000.2001.
DIRECTOR COMPENSATION
Employee directors receive no additional compensation for their
services as directors. In 2000 the Company2001 ALLETE paid each non-employee director an annual
retainer fee of $5,000 and 1,300 shares of Common Stock under the terms of the
Company's Director Stock Plan. In addition, each non-employee director was paid $1,100 for
each Board, Committee,committee and subsidiary board meeting attended, except that $500
was paid for attendance at a second meeting held the same day as another
meeting. Each non-employee director who is the Chairmanchairman of a Committeecommittee received
an additional $200 for each Committeecommittee meeting attended. A $250 fee was paid for
all conference call meetings. Directors may elect to defer all or a part of the
cash portion of their retainer and meeting fees. The shares of Common Stock paid
to directors with respect to 20002001 had an average market price of $17.24$22.17 per
share. The Board authorized payment of $25,000 each to Directors Evans and Smith
and $10,000 to Director Stender for responsibilities undertaken during the
retirement of Mr. Russell and the election of Mr. Gartzke as President of ALLETE
in 2001.
Under the Director Long-Term Stock Incentive Plan, effective January 1,
1996, non-employee
directors receive automatic grants of 1,500 stock options every year and
performance shares valued at $10,000 every other year. The stock options vest 50
percent after the first year, the remaining 50 percent after the second year and
expire on the tenth anniversary of the date of grant. The exercise price for
each grant is the closing sale price of CompanyALLETE Common Stock on the date of
grant. The performance periods for performance shares end on December 31 of the
year following the date of grant. 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 the CompanyALLETE in comparison to Total
Shareholder Return for 16 diversified electric utilities. Any awards earned are
paid out in Common Stock of ALLETE. During the Company. Notwo-year performance period
endedending December 31, 2001, shareholders of ALLETE realized Total Shareholder
Return of 64.3 percent on their investment in 2000 and, therefore, no new awards were earned.ALLETE Common Stock, ranking
ALLETE third among the 16 diversified utilities. With this ranking under the
plan, the directors each earned 1,358 shares of Common Stock, an award equal to
200 percent of their 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 the first anniversary of the
end of the performance period.
PROPOSALS OF SHAREHOLDERS FOR THE 20022003 ANNUAL MEETING
All proposals from shareholders to be considered for inclusion in the
Proxy Statement relating to the Annual Meeting scheduled for May 14, 200213, 2003 must
be received by the Secretary of the CompanyALLETE at 30 West Superior Street, Duluth,
Minnesota 55802, not later than November 19, 2001.2002. 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 the CompanyALLETE did not have notice prior to February 5, 2002,2003, without
discussion of such matter in the proxy statementProxy Statement relating to that Annual
Meeting.
5
COMPENSATION OF EXECUTIVE OFFICERS
The following information describes compensation paid in the years
19981999 through 20002001 for the Company'sALLETE's named executive officers.
SUMMARY COMPENSATION TABLE
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Annual Compensation Long-Term Compensation
--------------------- --------------------------------------------- -----------------------------------------
Awards Payouts
-------------------------- -------------------
Name Restricted Securities All
and Stock Underlying LTIP Other
Principal Salary Bonus Award(s)Awards Options Payouts Comp.
Position Year ($) ($) ($) (#) ($) ($)
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DAVID G. GARTZKE 2001 319,866 489,590 493,800 16,883 139,394 42,139
Chairman, President and 2000 239,927 225,523 0 24,928 11,764 35,403
CEO 1999 203,539 202,673 0 31,388 63,806 33,805
JAMES P. HALLETT 2001 361,885 890,565 0 19,350 195,531 34,664
Executive Vice President; 2000 288,446 319,899 0 29,520 213,396 38,697
President and CEO of 1999 271,908 276,210 0 26,004 266,107 32,963
Automotive Services
ROBERT D. EDWARDS 2001 311,558 208,432 0 19,350 144,887 50,995
Executive Vice President; 2000 291,193 204,902 0 30,941 30,580 46,307
CEO of Minnesota Power 1999 276,308 234,199 0 27,764 93,192 44,403
DONNIE R. CRANDELL 2001 263,135 236,318 0 26,240 157,723 39,159
Executive Vice President; 2000 248,192 247,311 0 26,240 20,898 30,698
President of ALLETE Water Services 1999 235,192 149,114 0 23,828 52,187 26,589
DONALD J. SHIPPAR 2001 194,654 104,654 0 6,136 88,524 21,336
President of Minnesota Power 2000 186,373 87,897 0 9,840 17,319 18,588
1999 155,412 94,423 0 6,660 39,357 17,374
EDWIN L. RUSSELL 2001 436,005 0 0 55,064 0 899,961
Retired Chairman, President 2000 512,754 764,834 0 87,466 38,458 303,564
Chairman, Presidentand CEO 1999 475,939 744,110 0 94,241 197,396 69,477
and Chief Executive Officer 1998 423,847 580,285 100,000JOHN E. FULLER 2001 301,056 418,894 40,000 347,318 63,212
JAMES P. HALLETT 2000 288,446 319,8990 29,520 213,396 38,69718,247 328,019 39,625
Retired Executive Vice President; 1999 271,908 276,2102000 274,551 471,960 0 26,004 266,107 32,96328,426 34,653 44,627
President and CEO of ADESA 1998 236,178 268,570 0 7,480 28,343 30,660
JOHN E. FULLER 2000 274,551 328,670 0 28,426 34,653 44,627
Executive Vice President; PresidentAFC 1999 254,923 265,980 0 32,046 78,539 37,672
and CEO of Automotive Finance Corp. 1998 220,231 251,450 0 6,902 28,343 30,723
ROBERT D. EDWARDS 2000 291,193 204,902 0 30,941 30,580 46,307
Executive Vice President; 1999 276,308 234,199 0 27,764 93,192 44,403
President and CEO of Minnesota Power 1998 254,885 223,356 0 8,058 214,942 36,190
DONNIE R. CRANDELL 2000 248,192 247,311 0 26,240 20,898 30,698
Executive Vice President; President, 1999 235,192 149,114 0 23,828 52,187 26,589
ALLETE Properties, Inc. 1998 207,731 134,937 0 6,494 161,444 21,065
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Amounts shown include compensation earned by the named executive officers, as well as amounts earned, but deferred at the
election of those officers. The "Bonus" column is comprised of amounts earned pursuant to Results Sharing and the Executive
Annual Incentive Plan. For bonuses paid in Common Stock, the market value of the stock is included.
Included in this amount is $108,500 representing 5,000 shares of Common Stock granted on January 3, 2000 pursuant$250,000 paid as a bonus in connection with his election to the Executive Long-Term Incentive Compensation Planoffice of President.
Included in the amount shown for Mr. Hallett in 2001 is a special bonus of $614,115 awarded at the time he assumed
responsibility for all operations under Automotive Services. Included in these amounts are $133,650 for 2001 and $108,500 for
2000 to each executive in a combination of stock and cash as aannual retention bonusbonuses. Included in the amount shown for completingMr.
Fuller for the year 2000 is $119,290 paid in January 2001 for the superior performance of service.
AFC in the year 2000 which was
inadvertantly omitted from the Compensation Table last year.
The amount shown represents the value of 5,094 shares20,000 deferred share units of restricted Common Stock granted on May 7, 1998 pursuant toDecember 18, 2001. On December
31, 2001, 20,000 shares valued at $504,000 remained deferred under the Executive Long-Term Incentive Compensation Plan. The award vested in fullterms of the grant. Mr. Gartzke receives dividend
equivalents on January 2, 2000.
these deferred share units.
Includes a supplemental payment based upon significantly exceeding multi-year financial performance targets established in
1996.
The amounts shown for 20002001 include the following CompanyALLETE annual contributions for the named executive officers:
Annual Company
Annual Company Annual Company Contribution to the Above-Market Interest
Contribution to the Contribution to the Supplemental on Compensation
Flexible Benefit/ Employee Stock Executive Deferred Under
Name 401(k) Plans Ownership Plan Retirement Plan ---------------------- ------------------- ------------------- -------------------
Edwin L. Russell* $9,180 $4,935 $86,659Executive Incentive Plan*
---------------------------------------------------------------------------------------------------------------------------
David G. Gartzke $10,880 $4,658 $22,594 $4,007
James P. Hallett 1,700 0 36,99732,964 0
Robert D. Edwards 10,880 4,658 28,930 6,527
Donnie R. Crandell 10,880 4,658 23,621 0
Donald J. Shippar 9,435 4,322 7,012 567
Edwin L. Russell** 10,095 3,328 0 0
John E. Fuller 4,080 0 40,547
Robert D. Edwards*35,545 0
---------------------------------------------------------------------------------------------------------------------------
* 9,180 4,935 27,916
Donnie R. Crandell 9,180 4,935 16,583
----------------------
*The amount shown in the Summary Compensation Table for Mr. Russell in 2000 also includes (i) $137,733
representing the benefit of the interest-free use of the non-term portion of the premium contributed by the
Company on a life insurance policy owned by Mr. Russell under a split dollar arrangement such benefit was
estimated as the present value of the interest payments which are not required to be made, assuming Mr.
Russell would not repay the premiums advanced until age 71, discounted at a market rate of 7.82%; (ii)
$33,816 representing the "economic value" premium (including tax gross-up) contributed by the Company in
connection with the life insurance policy; and (iii) $31,241 paid as a reimbursement for taxes.
**The amount shown in the Summary Compensation Table for Mr. Edwards in 2000 also includes $4,276 of
above-market interest on compensation deferred under an executive investment plan. The CompanyALLETE made investments in corporate-owned life insurance which will recover the cost of this above-market benefit if
actuarial factors and other assumptions are realized.
** The amount shown in the Summary Compensation Table for 2001 includes (i) $820,575 paid pursuant to a retirement agreement
described in the Report of the Executive Compensation Committee herein, and (ii) $37,162 of this amount represents the
"economic value" premium (including tax gross-up) contributed by ALLETE in connection with a split-dollar life insurance
policy arrangement, and $28,801 paid as a reimbursement for taxes. All rights under this policy became the property of
ALLETE at the time of Mr. Russell's retirement.
6
OPTIONSOPTION GRANTS IN LAST FISCAL YEAR
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Grant
Individual Grants Date Value
- ------------------------------------------------------------------------------------------------------------ ---------------------------------------------------------------------------------------------------------------------- ---------------
Number of % of Total
Securities Options
Underlying Granted to Exercise or Grant Date
Options Employees in Base Price Expiration Present Value
Name Granted (#) Fiscal Year ($/Sh) Date ($)
---------------- --------------- ------------ ----------- ---------- -------------- ----------------------------------------------------------------------------------------------------------------------------
David G. Gartzke 16,883 2.2 23.625 Jan. 2, 2011 90,940
James P. Hallett 19,350 2.5 23.625 Jan. 2, 2011 104,229
Robert D. Edwards 19,350 2.5 23.625 Jan. 2, 2011 104,229
Donnie R. Crandell 16,558 2.1 23.625 Jan. 2, 2011 89,190
Donald J. Shippar 6,136 0.8 23.625 Jan. 3, 2011 33,052
Edwin L. Russell 87,466 8.7 16.2555,064 7.0 23.625 Jan. 3, 2010 280,001
James P. Hallett 29,520 2.9 16.25 Jan. 3, 2010 94,5012, 2011 296,602
John E. Fuller 28,426 2.8 16.2518,247 2.3 23.625 Jan. 3, 2010 90,999
Robert D. Edwards 30,941 3.1 16.25 Jan. 3, 2010 99,050
Donnie R. Crandell 26,240 2.6 16.25 Jan. 3, 2010 84,0012, 2011 98,287
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Options vest 50 percent on January 3, 20012, 2002 and 50 percent on January 3, 2002.2, 2003. Options granted to the top 7
executiveseach of the Companyexecutives
listed in this table except Mr. Shippar include a replacement option feature and are subject to a change-in-control
acceleration provision. Replacement options (also known as ownership retention options or reload options) are intended to
encourage share ownership. They typically do not provide stock appreciation opportunity greater than the original options. In
addition, they do not result in an increase in equity position, which is the total combined number of shares and options held.
Replacement options are granted when the executive uses his shares of ALLETE Common Stock to fund the exercise price of stock
options. One replacement option is granted to replace each share that is 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 twelve12 months after
their grant date and terminate on the expiration date of the option that they replace. The exercise price of replacement
options is equal to the closing price of ALLETE's Common Stock on the grant date of the replacement options.
The grant date dollar value of options is based on ALLETE's binomial ratio (as of January 3, 2000)2, 2001) of .197..228. The binomial
method is a complicated mathematical formula premised on immediate exercisability and transferability of the options, which are
not features of the Company'sALLETE's options granted to executive officers and other employees. The values shown are theoretical and do not
necessarily reflect the actual values the recipients may eventually realize. Any actual value to the officer or other employee
will depend on the extent to which the market value of the Company'sALLETE's Common Stock at a future date exceeds the exercise price. In
addition to the option exercise price, and the 10-year term of each option, the following assumptions for modeling were used to calculate the values shown for the
options granted in 2000:2001: (i) each option remains outstanding for a period of seven years; (ii) expected dividend yield of 5.633is 4.53
percent (based on the most recent quarterly dividend),; (iii) expected stock price volatility of .200is .260 (based on 250504 trading days
previous to January 3, 2000),2, 2001); and (iv) a risk-free rate of return of 6.454.91 percent (based on Treasury yields).
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
- -------------------------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Acquired Value Realized Options at FY-End (#) Options at FY-End ($)
Shares Acquired Value Realized ------------------------------ ------------------------------
Name on Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
------------------- --------------- -------------- ----------- ------------- ----------- -------------- -------------------------------------------------------------------------------------------------------------------------------
Edwin L. RussellDavid G. Gartzke 0 0 106,296 115,411 402,878 832,74554,784 29,347 339,894 138,144
James P. Hallett 0 0 40,914 42,522 288,529 290,146
John E. Fuller 0 0 34,344 41,272 203,045 280,33035,192 291,173 33,484 34,110 111,579 162,578
Robert D. Edwards 0 0 45,224 44,823 317,668 304,84374,577 34,820 380,482 168,933
Donnie R. Crandell 29,238 216,434 30,322 29,678 100,955 143,503
Donald J. Shippar 3,762 35,928 13,150 11,056 26,134 53,698
Edwin L. Russell 221,707 874,486 27,532 0 43,363 0
34,526 38,154 229,408 258,933John E. Fuller 61,403 342,967 0 32,460 0 155,945
- -------------------------------------------------------------------------------------------------------------------------------
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 (#) (#) (#)
------------------ ------------- ------------- --------- ------ -------
Edwin L. Russell 14,769 1/00 - 12/01 7,385 14,769 29,538
James P. Hallett 4,985 1/00 - 12/01 2,493 4,985 9,970
John E. Fuller 4,800 1/00 - 12/01 2,400 4,800 9,600
Robert D. Edwards 5,225 1/00 - 12/01 2,613 5,225 10,450
Donnie R. Crandell 4,431 1/00 - 12/01 2,216 4,431 8,862
- ---------------------------------------------------------------------------------------------------------------------
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 2000-2001 performance period if the Total Shareholder Return of the
Company (and, for business unit executives, other financial measures established
for business units that correlate to Total Shareholder Return) meets goals
established by the Executive Compensation Committee. These goals are based on
the Company's ranking against a peer group of 16 diversified electric utilities.
Mr. Russell's threshold performance share award will be earned if the Company's
Total Shareholder Return ranks at least within the 3rd quartile, the target
award will be earned if the Company ranks in the 2nd quartile, and the maximum
award will be earned if the Company ranks in the 1st quartile. For this
comparison the Total Shareholder Return ranking will be computed over the 2-year
period January 1, 2000 through December 31, 2001. Twenty-five percent of the
performance share award of the other executives in the table is based on the
foregoing, and the remaining 75 percent is based on 2-year performance periods,
using other financial measures selected by the Executive Compensation Committee
because of their correlation over time with Total Shareholder Return. 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 the Company'sALLETE'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 $31,000 $36,000 $41,000$30,800 $35,800 $40,800
125,000 15,000 20,000 38,750 45,000 51,25038,500 44,750 51,000
150,000 18,000 24,000 46,500 54,000 61,50046,200 53,700 61,200
175,000 21,000 28,000 54,250 63,000 71,75053,900 62,650 71,400
200,000 24,000 32,000 62,000 72,000 82,00061,600 71,600 81,600
225,000 27,000 36,000 69,750 81,000 92,25069,300 80,550 91,800
250,000 30,000 40,000 77,500 90,000 102,50077,000 89,500 102,000
300,000 36,000 48,000 93,000 108,000 123,00092,400 107,400 122,400
400,000 48,000 64,000 124,000 144,000 164,000123,200 143,200 163,200
450,000 54,000 72,000 139,500 162,000 184,500138,600 161,100 183,600
500,000 60,000 80,000 155,000 180,000 205,000154,000 179,000 204,000
600,000 72,000 96,000 186,000 216,000 246,000184,800 214,800 244,800
700,000 84,000 112,000 217,000 252,000 287,000215,600 250,600 285,600
800,000 96,000 128,000 248,000 288,000 328,000246,400 286,400 326,400
900,000 108,000 144,000 279,000 324,000 369,000277,200 322,200 367,200
1,000,000 120,000 160,000 310,000 360,000 410,000
1,100,000 132,000 176,000 341,000 396,000 451,000
1,200,000 144,000 192,000 372,000 432,000 492,000
1,300,000 156,000 208,000 403,000 468,000 533,000
1,400,000 168,000 224,000 434,000 504,000 574,000
1,500,000 180,000 240,000 465,000 540,000 615,000308,000 358,000 408,000
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
*Represents the highest annualized average compensation (salary and bonus) received for 48 consecutive months during the employee's
last 15 years of service with the Company.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. The Retirement Plan provides that the benefit amount at
retirement is subject to adjustment in future years to reflect cost of living
increases to a maximum adjustment of 3 percent per year. As of December 31,
2000,2001, the executive officers named in the Summary Compensation Table had the
following number of years of credited service under the plan:
Edwin L. Russell 6David G. Gartzke 27 years Donnie R. Crandell 21 years
James P. Hallett 7 years Donald J. Shippar 25 years
Robert D. Edwards 2426 years
James P. Hallett 6 years Donnie R. Crandell 20Edwin L. Russell 7 years
John E. Fuller 67 years
In 2001 the Board established for ALLETE's top four executives, if
they remain employed as a senior executive with ALLETE until age 62, a defined
benefit retirement plan which 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 which may be
paid to an employee under the Retirement Plan to $135,000$140,000 for 2000.2001. This amount
is subject to adjustment in future years to reflect cost of living increases.
The Company'sALLETE's Supplemental Executive Retirement Plan provides for supplemental
payments by the
CompanyALLETE to eligible executives (including the executive officers
named in the Summary Compensation Table) in amounts sufficient to maintain total
retirement benefits upon retirement at a level which would have been provided by
the Retirement Plan if benefits were not restricted by the Code.
98
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) effective for 20002001
with respect to the executive officers of the Company.ALLETE. Composed entirely of
independent outside directors, the Executive Compensation Committee is responsible for recommending to
the Board policies which govern the executive compensation program of the
CompanyALLETE and
for administering those policies. Since 1995 the Board has retained the services
of William M. Mercer, Incorporated (Mercer), a benefits and compensation
consulting firm, to assist the Executive Compensation Committee in connection with the performance of
such responsibilities.
The role of the executive compensation program is to help the CompanyALLETE
achieve its corporate goals by motivating performance, rewarding positive
results and enhancing Total Shareholder Return. Recognizing that the potential
impact an individual employee has on the attainment of corporate goals tends to
increase at higher levels within the Company,ALLETE, the executive compensation program
provides greater variability in compensating individuals based on results
achieved as their levels within the CompanyALLETE rise. In other words, individuals with
the greatest potential impact on achieving the stated goals have the greatest
amount to gain when goals are achieved and the greatest amount at risk when
goals are not achieved.
The program recognizes that, in order to attract and retain
exceptional executive talent needed to lead and grow the Company'sALLETE's businesses,
compensation must be competitive in the national market. To determine market
levels of compensation for executive officers in 2000,2001, the Executive Compensation Committee relied upon
comparative information forfrom general industrial companies in tandem with
available specific industry data (i.e. electric utility, automotive, finance,
water utility, etc.) which was provided orand reviewed by Mercer. The Committee determined that, because of the
Company's diversified operations, general industry data is the most appropriate
market benchmark for the executive officers. All data were
analyzed to determine median compensation levels for comparable positions in
comparably sized companies, as measured by revenue.
While the companies represented in the Mercer
survey data are not the same as those in the peer group used in the performance
graph, the Committee believes that these companies are appropriate for market
compensation comparison, primarily because they are approximately the same size
as the Company as measured by 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 4four 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.
As described below, executive officers of the CompanyALLETE receive a
compensation package which consists of three basic elements: base salary,
performance-based compensation and supplemental executive benefits. The CEO's
compensation is discussed separately.
BASE SALARY
Base salaries are set at a level so that, if the target level of
performance is achieved under the performance-based plans as described below,
executive officers' total compensation, including amounts paid under each of the
performance-based compensation plans, will be near the midpoint of market
compensation as described above.
PERFORMANCE-BASED COMPENSATION
The performance-based compensation plans of the CompanyALLETE are intended by the
Executive Compensation
Committee to reward executives for achieving financial and non-financial goals
which the Committee determines will be required to achieve the Company'sALLETE's strategic
and budgeted goals.
Performance goals under performance-based plans are established in
advance by the Executive Compensation Committee and the Board of Directors. A target level of
performance under the performance-based 10
plans generally meets budget or represents a Total
Shareholder Return ranking in the top half of the peer group described below.
Total Shareholder Return is defined as stock price appreciation plus dividends
reinvested on the ex-dividend date throughout the relevant performance period,
divided by the fair market value of a share at the beginning of the performance
period. With target performance, plusit is the Committee's intent that executive
compensation (including the value of stock options granted, executive compensationgranted) will be near the
midpoint of the relevant market. If no performance awards are earned, and no
value is attributed to the stock options granted, compensation of the Company'sALLETE's
executive officers would be significantly below the midpoint market compensation
level, while performance at increments above the target level will result in
total compensation above the midpoint of the market.
The Company's9
ALLETE's performance-based compensation plans include:
- RESULTS SHARING. The Results Sharing award opportunity rewards annual
performance of the executive's responsibility area as well as overallawards are based on corporate
performance.earnings per share and business unit operating income. Awards arewere
available in 2001 to all employees in the electric, water and
corporate groups on the same percentage-of-pay basis. Target financial
performance will result in an award of 5 percent of base salary,
assuming non-financialsafety and environmental protection goals established by the
Executive Compensation Committee are also accomplished.
- 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 Executive Compensation Committee. For 2000,2001 financial goals were business unit
contributions to net income, operating cash returns on
investment, operating free cash flow and earnings per
share. These financial performance measures were chosen by the
Committee because of their positive correlation over time with the
Total Shareholder Return achieved by the CompanyALLETE for its shareholders.
Target level performance is earned if budgeted financial results are
achieved. The results shown on the Summary Compensation Table reflect
substantially above-budget
financial operating performance of the Companyby business units in 2000.2001 ranging from
below budget to substantially above budget.
- LONG-TERM INCENTIVE PLAN (LTIP). Under the Executive Long-Term
Incentive Compensation Plan, implemented in 1996, the executive officers, other than the
CEO, of the CompanyALLETE have been awarded stock options annually and
performance shares biennially having in the aggregate target award
values ranging from 25 percent to 50 percent of their annual base
salaries. The value of the award opportunity ishas been allocated between70 percent to stock options and
30 percent to performance shares. The stock options will have value
only if theALLETE's Common Stock price appreciates. The performance
shares granted to the corporate group havehad value if, in 2two years from
the grant date, the Total Shareholder Return of ALLETE, over the
Company, over a
2-yeartwo-year performance measurement period determined in advance by the
Board of Directors, ranksranked at least in the 3rd quartile of a peer
group of 16 diversified electric utilities adopted by the Executive
Compensation Committee as
appropriate comparators. Twenty-five percent of the performance share
award to business unit executives is based on the foregoing ranking
and 75 percent is based on other financial measures selected by the
Committee because of their correlation over time with Total
Shareholder Return. 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 after the end
of the performance period and the remaining 50 percent on the secondfirst
anniversary thereof. For the two-year performance period ending
December 31, 2001, shareholders of ALLETE realized a Total Shareholder
Return of 64.3 percent on their investment in ALLETE Common Stock,
ranking ALLETE third among the 16-member peer group. The LTIP payout
for 20002001 shown in the Summary Compensation Table includes a payout of
50 percent of the award earned for the performance period ending
December 31, 2001 and the final 25 percent of the award earned for the
performance period ending December 31, 1999, 5025 percent of which was
reported for 2000 and 50 percent for 1999.
For the two-year performance period beginning January 2002, the
Committee increased target opportunities for the executive officers
(other than the CEO) to a range of 50 to 100 percent of annual base
salary, to remain in line with trends in executive compensation and to
keep the total executive compensation package at the median of the
relevant market. All performance shares granted for the two-year
performance period beginning in 2002 will use Total Shareholder Return
as the performance measure and will have value only if ALLETE's Total
Shareholder Return ranks at least 11th among a peer group of 16
utilities.
The Executive Compensation Committee has determined that these awards are consistent with its
philosophy of aligning executive officers' interests with those of shareholders
and to the performance of the Company.
11
ALLETE.
SUPPLEMENTAL EXECUTIVE BENEFITS
The CompanyALLETE has established a Supplemental Executive Retirement Plan (SERP)
to compensate certain employees, including the executive officers, equitably by
replacing benefits not provided by the Company'sALLETE's Flexible Benefit Plan and the
Employee Stock Ownership Plan due to government-imposed limits and to provide
retirement benefits which are competitive with those offered by other businesses
with which the CompanyALLETE competes for executive
10
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.
RETIREMENT AGREEMENT
On August 28, 2001 the Board approved a Retirement Agreement in
connection with Mr. Russell's retirement from ALLETE, as he stepped down from
the positions of Chairman, President and CEO. Under this agreement, Mr. Russell
was paid amounts totaling $820,575, which represent payment of his salary
through the end of the year, 8/12 of his annual bonus for the year 2000 which
was paid in lieu of an annual bonus for 2001, the last 25 percent of the
Long-Term Incentive Plan award for the two-year performance period ending in
1999 (which would have been paid in February 2002 had he remained with ALLETE
through year-end) and less than $50,000 in other benefits. Also, the time-period
for exercise of Mr. Russell's stock options was extended to three years from the
date of his retirement.
CHIEF EXECUTIVE OFFICER COMPENSATION
The ExecutiveOn August 28, 2001 the Board of Directors elected Mr. Gartzke
President of ALLETE, making him the lead executive officer. In connection with
this action, the Board (i) increased Mr. Gartzke's salary from $270,000 to
$475,000, (ii) paid him a $250,000 bonus, sixty percent of which was paid in
Common Stock, and (iii) awarded him a retention grant of 20,000 deferred share
units (reported under Restricted Stock in the Summary Compensation Committee has endeavored to provideTable), half
of which will be earned if Mr. Russell
with a compensation package that is atGartzke remains ALLETE's top executive officer
through 2002 and the 50th percentileremainder of compensation paid
by general industrial companies with revenue comparable to the Company.which will be earned if he remains through
2003. The Committee has designed Mr. Russell'sGartzke's compensation package to provide
substantial incentive to achieve and exceed the Board's financial performance
goals for the
CompanyALLETE and Total Shareholder Return goals for the Company'sALLETE's shareholders.
In June 2000, the Board of Directors increased Mr. Russell's annual base
salary 7.7 percent. Approximately half of this increase was to align his base
salary with the median of comparably sized companies and the other half related
to his contributions to the performance of the Company. Under the Company'sALLETE's Results Sharing Plan, Mr. RussellGartzke was awarded $38,559,$19,352,
or 7.36 percent of his base salary paid in 2001, based 50 percent on corporate earnings
performanceper share and 50 percent on an average of business unit Results Sharing awards.
Under the Executive Annual Incentive Plan in 2000,2001, Mr. RussellGartzke earned an award
of $725,040,$220,238, or 13746 percent of his baseyear-end salary, which rewarded Mr. RussellGartzke
for achieving 20002001 corporate earnings per share results significantly abovethat were at target, as
well as for achievement of non-financial goals all established by the Executive Compensation Committee.
Mr. Russell'sGartzke's compensation also containscontained elements which motivatemotivated him
to focus on the longer-term performance of the Company.ALLETE. Under the Executive Long-Term Incentive
Compensation Plan (LTIP), Mr. Russell was awarded annualGartzke's annualized target opportunities with a value equal to 80for the
two-year performance period ending December 31, 2001 were valued at 50 percent
of his base salary. This value has beenis allocated 70 percent to stock options awarded
annually and 30 percent to performance shares awarded in even-numbered years.
The stock options and performance shares have the same characteristics as those
issued to other executive officers as described above. Mr. Gartzke's performance
share payouts are based on Total Shareholder Return. For the two-year
performance period ending December 31, 2001, shareholders of ALLETE realized a
Total Shareholder Return of 64.3 percent on their investment in ALLETE Common
Stock, ranking ALLETE third among the 16-member peer group. The LTIP payout for
20002001 shown in the Summary Compensation Table includes a final payout of 25
percent of the award earned for the performance period ending December 31, 1999
and an initial 50 percent of which was
reportedthe award earned for 1999.the performance period ending
December 31, 2001. In fiscal 2000, the Company providedrecognition of Mr. Russell a split dollar life
insurance arrangement insuring his life. This insurance program is structured so
that all the premium contributions are returnedGartzke's promotion to the Company atoffice of
chief executive officer of ALLETE in January 2002, and consistent with the
Compensation Committee's desire to motivate him to focus on increasing Total
Shareholder Return over the longer term, Mr. Russell's
attaining age 71 or at death if earlier. The arrangement covers an 8-yearGartzke's annualized LTIP target
opportunity for the two-year performance period beginningcommencing January 1, 2000 and provides that if Mr. Russell leaves prior2002 was
increased to the
end150 percent of such period, Company funding of this program will be reduced accordingly.
This arrangement is provided as an incentive for Mr. Russell's continued
employment and is in lieu of other retention considerations investigated by the
Executive Compensation Committee.his salary.
March 16, 200126, 2002
Executive Compensation Committee
Donald C. Wegmiller, Chairman Dennis E. Evans
Kathleen A. Brekken Nick Smith
1211
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors, consisting of 4
independent, non-employee directors, assists the Board in carrying out its
oversight responsibilities for the Company'sALLETE's financial reporting process, audit
process and internal controls. The responsibilities of the Audit Committee are set forth
in the Audit Committee Charter which is reproduced in the appendix of this Proxy
Statement. The Audit Committee reviews and recommends to the
Board of Directors (i) that the audited financial statements be included in
the Company'sALLETE's Annual Report on Form 10-K; and (ii) the selection of the independent
public accountants to audit the books and records of the Company.ALLETE.
The Audit Committee has (i) reviewed and discussed the Company'sALLETE's audited
financial statements for the year ending December 31, 20002001 with the Company'sALLETE's
management and with the Company'sALLETE's independent accountants; (ii) met with management
to discuss all financial statements prior to their issuance and to discuss
significant accounting issues; (iii) discussed with the Company'sALLETE's independent
accountants the matters required to be discussed by SAS 61 (Codification of
Statements on Auditing Standards) which includes,include, among other items, matters
related to the conduct of the audit of the Company'sALLETE's financial statements; and (iv)
received and discussed the written disclosures and the letter from the Company'sALLETE's
independent accountants required by Independence Standards Board Statement No. 1
(Independence(independence discussions with Auditaudit committees) which relatesrelate to the
accountants'accountant's independence from the Company.ALLETE. Based on the review and discussions with
management and the independent accountants, the Audit Committee recommended to
the Board of Directors that the audited financial statements be included in
the Company'sALLETE's Annual Report on Form 10-K for the year endingended December 31, 20002001 for
filing with the SEC.Securities and Exchange Commission.
Management has advised the Audit Committee that PricewaterhouseCoopers
LLP's fees for the year ended December 31, 2000, the Company paid2001 were as follows ($ millions):
Audit fees to PricewaterhouseCoopers LLP for services in
the following categories:
Audit Fees $1.4 million$1.1
Financial information systems design
and implementation fees $0.0
All Other Fees $1.5 millionother fees $1.2
All Other Feesother fees in the foregoing table includes $1.1are comprised of $1 million for various
tax adviceservices and tax return assistance.$0.2 million for audits of employee benefit plans, work related
to stock and debt offerings, and consultations on various accounting matters. We
have considered and determined that the provision of the non-audit services
noted in the foregoing table is compatible with maintaining
PricewaterhouseCoopers'PricewaterhouseCoopers LLP's independence.
Audit Committee
Bruce W. Stender, Chair Glenda E. Hood
Peter J. Johnson George L. Mayer
1312
ALLETE COMMON STOCK PERFORMANCE
The following graph compares the Company'sALLETE's cumulative Total Shareholder
Return on its Common Stock with the cumulative return of the S&P 500 Index and
the S&P Utilities Index, a capitalization-weighted index of 2627 stocks, which is
designed to measure the performance of the electric power utility company sector
of the S&P 500 Index. The S&P 500 Index is a capitalization-weighted index of
500 stocks designed to measure performance of the broad domestic economy through
changes in the aggregate market value of 500 stocks representing all major
industries. Because this composite index has a broad industry base, its
performance may not closely track that of a composite index comprised solely of
electric utilities. The calculations assume a $100 investment on December 31,
19951996 and reinvestment of dividends on the ex-dividend date.
[GRAPHIC MATERIAL OMITTED-PERFORMANCE GRAPH]
TOTAL SHAREHOLDER RETURN FOR THE FIVE YEARS ENDING DECEMBER 31, 20002001
1995
1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ----2001
--------------------------------------------------------------------------------
ALLETE 100.00 104.36 176.12 186.90 152.17 235.61$100 $169 $179 $146 $226 $240
S&P Utilities Index (Electric) 100.00 99.69 125.85 145.32 117.27 179.94$100 $126 $146 $118 $181 $166
S&P 500 Index 100.00 122.94 163.94 210.79 255.15 231.93$100 $133 $171 $208 $189 $166
- --------------------------------------------------------------------------------
ITEM NO. 2 - APPOINTMENT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
The Audit Committee of the Board of Directors of the CompanyALLETE has
recommended the appointment of PricewaterhouseCoopers LLP as independent
accountants for the CompanyALLETE for the year 2001.2002. PricewaterhouseCoopers LLP has acted
in this capacity since October 1963.
A representative of the accounting firm will be present at the Annual
Meeting of Shareholders, will have an opportunity to make a statement if he or
she so desires and will be available to respond to appropriate questions.
In connection with the 20002001 audit, PricewaterhouseCoopers LLP reviewed
the
Company'sALLETE's annual report, examined the related financial statements, and reviewed
interim financial statements and certain filings of the Company's filingsALLETE with the Federal
Energy Regulatory Commission and the Securities and Exchange Commission.
The Board of Directors recommends a vote "FOR" approving the
appointment of PricewaterhouseCoopers LLP as the Company'sALLETE's independent accountants
for 2001.
142002.
13
- --------------------------------------------------------------------------------
ITEM NO. 3 - AMENDAPPROVAL OF RESERVATION OF ADDITIONAL SHARES UNDER THE
ARTICLES OF INCORPORATION TO CHANGE COMPANY'S LEGAL
NAME FROM MINNESOTA POWER, INC. TO ALLETE INC.EXECUTIVE LONG-TERM INCENTIVE COMPENSATION PLAN
- --------------------------------------------------------------------------------
The BoardShareholders are asked to approve an amendment to the ALLETE Executive
Long-Term Incentive Compensation Plan (Plan) increasing the number of Directors proposes that the Company's Articlesshares of
IncorporationALLETE Common Stock authorized for issuance thereunder by a total of three
million shares. As a result, 4,252,746 shares will be amended to change the Company's legal name from Minnesota
Power, Inc. to ALLETE, Inc. On September 1, 2000, the Company began doing
businessavailable for issuance
under the namePlan. The Plan is integral to ALLETE's ability to attract and retain
talented executives and to more closely align their interests with those of the
shareholders. Approximately 390 officers and key executives of ALLETE and began trading underits
subsidiaries currently participate in the symbol ALE onPlan. The following summary of the
New
York Stock Exchange. The new name reflectsprincipal provisions of the Company's evolution fromPlan is not a Minnesota electric utility to a diversified, multi-services business with
operations across North America. We are clearly more than Minnesotacomplete description of all of its
terms and more
than power. The Company's electric utility business unit continues to operate
under the name Minnesota Power.provisions.
The Board of Directors recommends a vote "FOR" the proposed amendment.amendment to the
Plan.
GENERAL DESCRIPTION OF THE PLAN
The purpose of the Plan is to promote the success and enhance the
value of ALLETE by linking participants' personal interests to those of ALLETE's
shareholders and providing participants with an incentive for outstanding
performance. The Plan is further intended to assist ALLETE in its ability to
motivate, attract and retain the services of participants upon whom the
successful conduct of its operations is largely dependent. The Plan became
effective on January 1, 1996 and shall remain in effect, subject to the right of
the Board of Directors to terminate the Plan at any time, until all shares
subject to the Plan have been purchased or acquired. No grants may be made under
the Plan after the tenth anniversary of the effective date. The Board may, at
any time, and from time to time, alter, amend, suspend or terminate the Plan in
whole or in part; provided, however, that no amendment which requires
shareholder approval in order for the Plan to continue to comply with Rule 16b-3
under the Securities Exchange Act of 1934, as amended, will be effective unless
approved by the shareholders. The Plan is administered by the Executive
Compensation Committee of the Board of Directors (Committee), which consists
exclusively of outside directors as defined in Section 1.162-27(e)(3) of the
Treasury Regulations with respect to grants made to certain key executive
officers.
The Common Stock available for issuance under the Plan may be
increased by shares purchased on the open market or shares tendered to exercise
options or withheld to satisfy tax withholding requirements in connections with
the Plan. If any corporate transaction occurs that causes a change in the
capitalization of ALLETE, the Committee is authorized to make such adjustments
to the number and class of shares of stock delivered, and the number and class
and/or price of shares of Common Stock subject to outstanding grants made under
the Plan as it deems appropriate and equitable to prevent dilution or
enlargement of participants' rights.
Officers and key executives of ALLETE and its subsidiaries are
eligible to participate in the Plan, as determined by the Committee including
employees who are members of the Board of Directors, but excluding directors who
are not employees.
PLAN BENEFITS
During fiscal 2001, stock options to purchase shares of 151,588 Common
Stock were granted to ALLETE's named executive officers, as set forth in the
table captioned "Option Grants in Last Fiscal Year" above. Stock options were
granted during the year to all executive officers of ALLETE as a group to
purchase 208,339 shares of ALLETE Common Stock at an average weighted exercise
price of $23.625 per share. In addition, stock options were granted to all other
eligible executive employees of ALLETE as a group to purchase 573,733 shares of
ALLETE Common Stock at an average weighted exercise price of $23.625 per share.
The number of options or other awards to be granted in the future to ALLETE's
executive officers and to other employees is not determinable at this time. On
January 2, 2002 the closing price on the New York Stock Exchange of ALLETE
Common Stock was $25.68 per share.
14
GRANTS UNDER THE PLAN
STOCK OPTIONS. The Committee may grant incentive stock options (ISOs),
nonqualified stock options or a combination thereof under the Plan. The option
price for each such grant will be the closing sale price of ALLETE Common Stock
on the date of grant. Options will expire at such times as the Committee
determines at the time of grant; provided, however, that no option will be
exercisable later than the tenth anniversary of its grant. Simultaneously with
the grant of an option, a participant may receive dividend equivalents which
entitle the participant to a right to receive the value of the dividends paid
with respect to the number of shares held under option from the date of grant to
the date of exercise. The Committee will determine at the time that dividend
equivalents are granted the conditions, if any, to which the payment of such
dividend equivalents is subject.
Options granted under the Plan will be exercisable at such times and
subject to such restrictions and conditions as the Committee may approve;
provided that no option may be exercisable prior to six months following its
grant. The option exercise price is payable in cash, in shares of Common Stock
of ALLETE having a fair market value equal to the exercise price, by sharing
withholding or in a combination of the foregoing. The Committee may allow, along
with other means of exercise, cashless exercise as permitted under the Federal
Reserve Board's Regulation T, subject to the applicable securities laws. The
Committee may grant options which include an ownership retention (or reload)
provision, whereby a participant who pays the exercise of an option by
delivering shares of ALLETE Common Stock will automatically be granted an
ownership retention option (also known as a reload option) to purchase shares of
Common Stock, the number of shares subject to such ownership retention option
being equal to the number of shares tendered to exercise the original option and
the term of such ownership retention option being equal to the remaining term of
the original option. The exercise price of the ownership retention option would
be the closing price of ALLETE's Common Stock on the date the ownership
retention option is granted. The ownership retention option feature encourages
executives to exercise their options at an earlier date, thereby increasing
their stock ownership and more closely aligning their interests with those of
the shareholders. The Committee may permit a participant to defer the receipt of
shares of Common Stock of ALLETE upon the exercise of an option pursuant to an
irrevocable election which specifies the future date or event upon which such
shares will be distributed. The maximum number of shares of ALLETE Common Stock
subject to options which may be granted to any single participant during any one
calendar year is 300,000. This accommodates the number of ownership retention
options which may be issued if an executive exercises a large number of options
in a given year.
The following is a brief summary of certain of the federal income tax
consequences to ALLETE and Plan participants of the grant and exercise of
options. The tax rules may change at any time. Generally, a participant does not
recognize taxable income, and ALLETE is not entitled to a deduction, upon the
grant of an option. Upon the exercise of an option, the participant recognizes
ordinary income equal to the excess of the fair market value of the shares of
common stock acquired over the option exercise price. The amount of such excess
is generally determined by reference to the fair market value of our Common
Stock on the date of exercise. ALLETE is generally entitled to a deduction equal
to the compensation taxable to the participant as ordinary income.
STOCK APPRECIATION RIGHTS. Stock Appreciation Rights (SARs) guaranteed
under the Plan may be in the form of freestanding SARs, tandem SARs or a
combination thereof. The base value of an SAR will be equal to the closing sale
price of a share of ALLETE Common Stock on the date of grant. No SAR guaranteed
under the Plan may be exercisable prior to six months following its grant. The
term of any SAR granted under the Plan will be determined by the Committee,
provided that the term may not exceed the ten years. Freestanding SARs may be
exercised upon such terms and conditions as are imposed by the Committee and
explained in the SAR grant agreement. A tandem SAR may be exercised only with
respect to the shares of Common Stock of ALLETE for which its related option is
exercisable. Upon exercise of an SAR, a participant will receive the excess of
the fair market value of a share of ALLETE Common Stock on the date of exercise
over base value multiplied by the number of shares with respect to which the SAR
is exercised. Payment due to the participant upon exercise may be made in cash,
in shares of ALLETE Common Stock having a fair market value equal to the cash
amount, or in a combination of cash and shares, as determined by the Committee.
The maximum number of SARs which may be granted to any one participant under the
Plan in any calendar year is 40,000.
15
RESTRICTED STOCK. Restricted stock may be granted in such amounts and
subject to such terms and conditions as determined by the Committee. The
restrictions will generally lapse on the basis of the passage of time.
Participants holding restricted stock may exercise full voting rights with
respect to those shares during the restricted period and will be credited with
regular cash dividends and other distribution paid with respect to the shares.
Subject to the Committee's right to determine otherwise at the time of
grant, dividends or distributions credited during the restricted period will be
subject to the same restriction on transferability and forfeitability as the
shares of restricted stock with respect to which they were paid. All dividends
credited will be paid promptly following the vesting of the shares of
restricted stock to which the dividends or other distributions relate.
PERFORMANCE UNITS AND PERFORMANCE SHARES. Performance units and
performance shares may be granted in the amounts and subject to the terms and
conditions as determined by the Committee. The Committee will set performance
goals, which, depending on the extent to which they are met during the
performance periods established by the Committee, will determine the number
and/or value of performance units/shares that will be paid out to participants.
Performance periods will, in all cases, be at least six months in length.
Simultaneously with the grant of performance shares, the participant
may be granted dividend equivalents with respect to these performance shares.
Dividend equivalents will constitute rights to be paid amounts equal to the
dividends declared on an equal number of outstanding shares on all payment dates
occurring during the period between the grant date of the performance shares and
the date the performance shares are earned or paid out.
Participants will receive payment of the value of performance
units/shares earned after the end of the performance period, or at a later time
as the Committee may determine. Payment of performance units/shares will be made
in cash and/or shares of ALLETE Common Stock which have an aggregate fair market
value equal to the value of the earned performance units/shares after the end of
the applicable performance period, in the combination as the Committee
determines. These shares may be granted subject to any restrictions deemed
appropriate by the Committee.
Unless and until the Committee proposes a change in the goals for
shareholder vote or applicable tax and/or securities laws change to permit
Committee discretion to alter the performance goals without obtaining
shareholder approval, to avoid the limitations under Code Section 162(m), the
performance goals to be used for purposes of grants to officers and key
executives will be based upon any one or more of the following: (i) total
shareholder return (measured as the sum of share price appreciation and
dividends declared); (ii) total business unit return (a proxy for total
shareholder return at the business unit level); (iii) return on invested
capital, assets, or net assets; (iv) earnings/earnings growth; (v) cash
flow/cash flow growth; (vi) cost of services to customers; (vii) growth in
revenue, sales, operating income, net income, stock price and/or earnings per
share; (viii) return on shareholders equity; (ix) economic value created; (x)
customer satisfaction and/or customer service quality; and (xi) operating
effectiveness.
The maximum payout to any one participant with respect to (i)
performance units granted in any calendar year is 200 percent of base salary
determined at the earlier of the beginning of the performance period and the
time the performance goals are set by the Committee and (ii) performance shares
in any calendar year is 40,000.
OTHER GRANTS. The Committee may make other grants which may include,
without limitation, the grant of shares of Common Stock based upon certain
specified conditions and the payment of shares in lieu of cash under other
ALLETE incentive or bonus programs in such manner and at such times as the
Committee determines.
16
- --------------------------------------------------------------------------------
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 order
that the necessary vote may be present at the meeting. We respectfully request
that you signvote your proxy at your earliest convenience either by signing and
returnreturning the accompanying proxy card at your earliest convenience.or following the enclosed instructions to
vote by phone or the Internet.
By order of the Board of Directors,
Dated March 16, 200126, 2002
Philip R. Halverson
Philip R. Halverson
Vice President, General Counsel and Secretary
15
APPENDIX
ALLETE
CHARTER - AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
(Effective January 17, 2000)
PURPOSE
- -------
The Audit Committee's primary function is to assist the Board in fulfilling its
oversight responsibilities by reviewing the financial information which will be
provided to the shareholders and others, the system of internal controls which
management and the Board of Directors have established, and the audit process.
ORGANIZATION
- ------------
The Audit Committee shall be composed of at least 3 Directors who are
independent of the management of the Company and are free of any relationships
with the Company that, in the opinion of the Board of Directors, would interfere
with their exercise of independent judgment as a Committee member. At least 1
member of the Committee shall have accounting or related financial management
expertise.
PRIMARY RESPONSIBILITIES
- ------------------------
As delegated by the Board of Directors:
1. Review the form and content of the annual consolidated financial
statements and determine whether management and the independent
accountants are in agreement that the proposed audited financial
statements, including all necessary disclosures, were prepared in
accordance with generally accepted accounting principles, consistently
applied. Review filings with the SEC and other published documents
containing the Company's consolidated financial statements and consider
whether the information contained in these documents is consistent with
the information contained in the financial statements. Review the
quality of financial reporting with the independent accountants; for
example, clarity of financial disclosures and degree of aggressiveness
or conservatism in the Company's accounting principles.
2. Review quarterly and other financial reports and disclosures before
they are filed with the SEC.
3. Review with management, the independent accountants, and the Director
of Internal Audit the adequacy of the Company's internal controls, any
significant changes in accounting policies, procedures or practices,
and compliance with Corporate policies, directives and applicable laws.
4. Assess the qualifications, independence, and performance of the
Company's independent accountants. Review formal written statement from
the outside auditors delineating all relationships between the auditor
and the Company; actively discuss and resolve any disclosed
relationships or services that may impact the objectivity and
independence of the auditor. Recommend annually to the Board of
Directors the independent accounting firm to be nominated.
5. Review and concur with management in the appointment, replacement,
reassignment or dismissal of the Director of Internal Audit.
16
6. Review the independent accountants' scope and results of their annual
and special audits. Recommend the acceptance of such audits where
accompanied by certification.
7. Review with the Director of Internal Audit the annual audit plan and
scope of internal audits.
8. Review the action taken by management on the internal auditors' and
independent accountants' recommendations.
9. Provide sufficient opportunity for the internal and independent
auditors to meet with the members of the Audit Committee without
members of management present.
10. 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.
17
"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 STOCKHOLDERS
TUESDAY, MAY 14, 2002
10:00 A.M.
DULUTH ENTERTAINMENT
CONVENTION CENTER
350 HARBOR DRIVE
DULUTH, MN
[ALLETE LOGO] PROXY
CARD AND VOTING INSTRUCTIONS
ALLETE, INC., 30 West Superior Street, Duluth, MinnesotaWEST SUPERIOR STREET, DULUTH, MINNESOTA 55802-2093
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OFBY THE BOARD OF DIRECTORS.
Edwin L. RussellDIRECTORS FOR USE AT THE ANNUAL MEETING
ON MAY 14, 2002.
David G. Gartzke and Philip R. Halverson 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 at the Duluth Entertainment Convention
Center, 350 Harbor Drive, Duluth, Minnesota, at 10:00 a.m. on Tuesday, May 8, 2001,14,
2002, or any adjournments thereof, with respect to the election of Directors,
the appointment of independent accountants, changing the Company's legal namereservation of additional shares
of ALLETE Common Stock to ALLETE, Inc.,be issued under the Executive Long-Term Incentive
Compensation 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
INTERNET AS DESCRIBED ON THE OTHER SIDE. Shares cannot be voted unless this Proxy card
is signed and returned,these
instructions are followed, or other specific arrangements are made to have the
shares represented at the meeting. By returning your Proxyresponding promptly, you may help save the
costs of additional Proxy solicitations.
(ContinuedSee reverse for voting instructions.
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.
VOTE BY PHONE - TOLL FREE - 1-800-240-6326 - QUICK --- EASY --- IMMEDIATE
- - Use any touch-tone telephone to vote your Proxy 24 hours a day, 7 days a week,
until 11:00 a.m. (CT) on May 13, 2002.
- - You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which are located above.
- - Follow the simple instructions the voice provides you.
VOTE BY INTERNET - 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 13, 2002.
- - You will be signed on other side)
-FOLDprompted to enter your 3-digit Company Number and your 7-digit
Control Number which are located above to obtain your records and create an
electronic ballot.
VOTE BY MAIL
Mark, sign and date your Proxy card and return it in the postage-paid envelope
we've provided or return it to ALLETE, Inc., c/o Shareholder Services, P.O. Box
64873, St. Paul, MN 55164-0873.
IF YOU VOTE BY PHONE OR INTERNET, PLEASE DO NOT MAIL YOUR PROXY CARD
- PLEASE DETACH HERE -
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, AND DETACH HERE-
Please mark your vote and sign: Please mark your
votes as indicated in /X/
this example
The Board of Directors recommends a vote "FOR" the following proposals submitted
by the Board.
Proposal3.
1. Election of Directors 01 Brekken 02 Bussmann 03 Evans 04 Gartzke
05 Hood 06 Johnson 07 Mayer 08 Rajala
09 Smith 10 Stender 11 Wegmiller
/ / Vote FOR all WITHHOLD BREKKEN EVANS HOOD JOHNSON
nominees listed AUTHORITY MAYER RAJALA RUSSELL SANDBULTE/ / Vote WITHHELD from all nominees
(except as marked for all SMITH STENDER WEGMILLER
to the contrary) nominees listed
/ / / / To withhold authority to vote for any
individual nominee, strike a line through
the nominee's name in the list above.
Proposalmarked)
(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. Appointment of PricewaterhouseCoopers LLP as independent accountants.
FOR AGAINST ABSTAIN
/ / For / / Against / / ProposalAbstain
3. ChangeReservation of an additional 3 million shares of ALLETE Common Stock for
issuance under the Company's legal name to ALLETE, Inc.
FOR AGAINST ABSTAINExecutive Long-Term Incentive Compensation Plan.
/ / For / / Against / / Sign hereAbstain
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.
---
Address Change? Mark Box / / Date
Indicate changes below: -----------------------
-----------------------------------
-----------------------------------
Signature(s) in Box
Please sign exactly as your
name(s) appears on reverse side.
XProxy. 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.
- -------------------------------------------
X--------------------------------------------------------------------------------
YOU'RE INVITED! [ALLETE LOGO]
2002 ANNUAL MEETING OF SHAREHOLDERS
DEAR SHAREHOLDER:
I'M PLEASED TO INVITE YOU TO ALLETE'S ANNUAL MEETING OF SHAREHOLDERS ON
TUESDAY, MAY 14, BEGINNING AT 10 A.M. AT THE DULUTH ENTERTAINMENT CONVENTION
CENTER. LUNCH WILL BE SERVED IN THE DECC'S LAKE SUPERIOR BALLROOM AFTER THE
MEETING. OUR AGENDA THIS YEAR WILL INCLUDE A REPORT ON THE BUSINESS HIGHLIGHTS
OF 2001 AND A BRIEFING ON ALLETE'S CORPORATE STRATEGY GOING FORWARD. MUCH HAS
HAPPENED IN THE LAST YEAR, AND THIS ANNUAL MEETING WILL BE A GOOD OPPORTUNITY TO
CATCH UP ON THE LATEST INFORMATION ABOUT OUR REMARKABLE CORPORATION.
PLEASE JOIN US ON MAY 14. WE LOOK FORWARD TO SEEING YOU.
SINCERELY,
[PHOTO OMITTED]
/s/ DAVID G. GARTZKE
DAVID G. GARTZKE
CHAIRMAN, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
REGISTRATION
Registration begins at 9 a.m. inside the entrance to the DECC. Parking is free,
so be sure to tell the gate attendant you're a shareholder. When you register,
you'll receive a ticket to lunch and a ticket for a chance to win shares of
ALLETE stock.
ANNUAL MEETING
The meeting begins promptly at 10 a.m. in the DECC Auditorium. Before the
meeting, between 9 and 10 a.m. in the Auditorium, we will be showing several
informative videos about corporate business initiatives within ALLETE.
10:00 a.m., May 14, 2002
DULUTH ENTERTAINMENT CONVENTION CENTER (DECC)
LUNCH
A box lunch will be served following the meeting in the Lake Superior Ballroom
located within the DECC.
RESERVATION INSTRUCTIONS
Please complete the card below, detach and mail. If you have questions, call
Shareholder Services toll free at 1-800-535-3056, or 218-723-3974.
If your plans change after you've sent the reservation card and you can't
attend, please let us know by calling Shareholder Services.
- -------------------------------------------
Date: ,2001
-------------------------------------
Shares:
Account--------------------------------------------------------------------------------
RESERVATION CARD-COMPLETE AND MAIL THIS POSTAGE-PAID CARD AS SOON AS POSSIBLE.
PLEASE DO NOT ENCLOSE WITH YOUR PROXY
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/ / YES, I WILL ATTEND the Annual Meeting and the lunch.
Each shareholder may bring one guest. Please PRINT clearly your name and your
guest's name.
SHAREHOLDER'S NAME
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GUEST'S NAME
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SHAREHOLDER'S NAME
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GUEST'S NAME
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NO POSTAGE
NECESSARY
IF MAILED
IN THE
UNITED STATES
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below indicia]
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BUSINESS REPLY MAIL
FIRST CLASS Permit No.:
-FOLD AND DETACH HERE- 74 Duluth, MN
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POSTAGE WILL BE PAID BY ADDRESSEE
ALLETE
ATTN: BERNADETTE NELSON
30 WEST SUPERIOR STREET
DULUTH, MINNESOTA 55802-9986
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April __, 20012002
Dear Shareholder:
We have not yet received your vote on issues to come before the Annual
Meeting of ALLETE shareholders on May 8, 2001.14, 2002. Proxy materials were sent to you
on or about March 16, 2001.26, 2002. Please take time to vote the enclosed copy of your
proxy using one of the three options available to you:
1. MAIL - Complete the enclosed duplicate proxy card and return it in the
self-addressed stamped envelope;
2. TELEPHONE - Call the 800 number listed on the proxy card and follow the
instructions; or
3. INTERNET - Log onto the web site listed on the proxy card and follow the
instructions.
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 8, 200114, 2002
at 10:00 a.m.
Your prompt response will be appreciated.
Sincerely,
Philip R. Halverson
Enclosures