SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant / / 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 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.) - -------------------------------------------------------------------------------- (Name of Registrant as Specified In Its Charter) - -------------------------------------------------------------------------------- (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: ---------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: ---------------------------------------------------------------------- (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): ---------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: ---------------------------------------------------------------------- (5) Total fee paid: ---------------------------------------------------------------------- / / 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: ---------------------------------------------------------------------- (2) Form, Schedule or Registration Statement No.: ---------------------------------------------------------------------- (3) Filing Party: ---------------------------------------------------------------------- (4) Date Filed: ----------------------------------------------------------------------
- -------------------------------------------------------------------------------- [ALLETE LOGO] Notice and Proxy Statement Annual Meeting of Shareholders Tuesday, May 8, 2001 -------------------- Duluth, Minnesota - --------------------------------------------------------------------------------
[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 - -------------------------------------------------------------------------------- NOTICE OF ANNUAL MEETING OF SHAREHOLDERS - MAY 8, 2001 - -------------------------------------------------------------------------------- The Annual Meeting of Shareholders of ALLETE will be held in the auditorium at the Duluth Entertainment Convention Center, 350 Harbor Drive, Duluth, Minnesota, on Tuesday, May 8, 2001 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's independent accountants for 2001; 3. To amend the Company's Articles of Incorporation to change the Company's legal name from Minnesota Power, Inc. to ALLETE, Inc.; 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 Company at the close of business on March 9, 2001 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, 2001 If you have not received the ALLETE 2000 Annual Report, which includes financial statements, kindly notify ALLETE Shareholder Services, 30 West Superior Street, Duluth, MN 55802-2093, telephone number 1-800-535-3056 or 1-218-723-3974, and a copy will be sent to you.
ALLETE 30 West Superior Street Duluth, Minnesota 55802 - -------------------------------------------------------------------------------- PROXY STATEMENT - -------------------------------------------------------------------------------- SOLICITATION The proxy accompanying this Proxy Statement is solicited on behalf of the Board of Directors of ALLETE (the Company) for use at the Annual Meeting of Shareholders to be held on May 8, 2001 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's independent accountants for 2001, to approve amending the Company's Articles of Incorporation to change the Company's legal name from Minnesota Power, Inc. to ALLETE, Inc. 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. 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 Company expects to solicit proxies primarily by mail. Proxies also may be solicited in person and by telephone at a nominal cost by regular or retired employees of the Company. 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 Company of approximately $6,000 plus expenses. The total amount of such costs will be borne by the Company. OUTSTANDING SHARES AND VOTING PROCEDURES The outstanding shares of capital stock of the Company as of March 9, 2001 were ___ shares of Common Stock (without par value). Each share of the Common Stock of record on the books of the Company at the close of business on March 9, 2001 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's independent accountants for 2001, and "FOR" approval of amending the Company's Articles of Incorporation to change the Company's legal name from Minnesota Power, Inc. to ALLETE, Inc. 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 Company who as of March 9, 2001 owned beneficially more than 5 percent of any class of the Company's voting securities is Mellon Bank, N.A., One Mellon Bank Center, Pittsburgh, PA 15258. Mellon Bank holds 8,036,844 shares (__ %) of the Company's Common Stock in its capacity as Trustee of the Minnesota Power and Affiliated Companies Employee Stock Ownership Plan and Trust (ESOP). Generally, these shares will be voted in accordance with instructions received by Mellon Bank from participants in the ESOP. The following table presents the shares of Common Stock beneficially owned by directors, nominees for director, executive officers named in the Summary Compensation Table appearing subsequently in this Proxy Statement, and all directors and executive officers of the Company as a group, as of March 9, 2001. 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, 2001 Beneficial Owner Owned after March 9, 2001 - ---------------- ----- ------------------- ---------------- ----- ------------------- Kathleen A. Brekken 7,649 4,680 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 0 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 68,676 All directors and executive officers as a group (26): 654,327 741,642 - -------------------------- SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's directors and executive officers, and persons who own more than 10 percent of a registered class of the Company's equity securities, to file reports of initial ownership of the Company'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 Company believes that all such filing requirements were met during 2000 except that one report covering four transactions, all related to the exercise of Company stock options, 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. 2 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 Company stock and all directors and executive officers as a group also own less than 1 percent of any class of Company stock. Includes 6,606 options owned by Mr. Crandell's spouse that are exercisable within 60 days after March 9, 2001. - -------------------------------------------------------------------------------- ITEM NO. 1 - ELECTION OF DIRECTORS - -------------------------------------------------------------------------------- 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. 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. NOMINEES FOR DIRECTOR - -------------------------------------------------------------------------------- Pictured from left to right: Nick Smith, Bruce W. Stender, Edwin L. Russell, Kathleen A. Brekken. - -------------------------------------------------------------------------------- [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, 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
- -------------------------------------------------------------------------------- Pictured from left to right: Peter J. Johnson, Arend J. Sandbulte, Merrill K. Cragun, Dennis E. Evans. - -------------------------------------------------------------------------------- [GROUP PHOTO] PETER J. JOHNSON, 64, Tower, MN. Member of the Audit Committee. Chairman and CEO 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. DENNIS E. EVANS, 62, 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 - -------------------------------------------------------------------------------- Pictured from left to right: Jack I. Rajala, Glenda E. Hood, Donald C.Wegmiller, George L. Mayer. - -------------------------------------------------------------------------------- [GROUP PHOTO] JACK I. RAJALA, 61, 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. 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 DONALD C. WEGMILLER, 62, Minneapolis, MN. Chairman of the Executive Compensation Committee. President and CEO of HealthCare Compensation Strategies, 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 1996 4
BOARD AND COMMITTEE MEETINGS IN 2000 During 2000 the Board of Directors held 5 meetings. The Executive Committee, which held 11 meetings during 2000, provides oversight of corporate financial matters, performs the functions of a director nominating committee, 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, 30 West Superior Street, Duluth, Minnesota 55802. The Audit Committee, which held 8 meetings in 2000, recommends the selection of independent accountants, reviews and evaluates the Company'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 5 meetings in 2000, establishes compensation and benefit arrangements for Company 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. DIRECTOR COMPENSATION Employee directors receive no additional compensation for their services as directors. In 2000 the Company 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, 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 Chairman of a Committee received an additional $200 for each Committee 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 2000 had an average market price of $17.24 per share. 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 Company 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 Company in comparison to Total Shareholder Return for 16 diversified electric utilities. Any awards earned are paid out in Common Stock of the Company. No performance period ended in 2000 and, therefore, no new awards were earned. PROPOSALS OF SHAREHOLDERS FOR THE 2002 ANNUAL MEETING All proposals from shareholders to be considered for inclusion in the Proxy Statement relating to the Annual Meeting scheduled for May 14, 2002 must be received by the Secretary of the Company at 30 West Superior Street, Duluth, Minnesota 55802, not later than November 19, 2001. 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 Company did not have notice prior to February 5, 2002, without discussion of such matter in the proxy statement relating to that Annual Meeting. 5
COMPENSATION OF EXECUTIVE OFFICERS The following information describes compensation paid in the years 1998 through 2000 for the Company's named executive officers. SUMMARY COMPENSATION TABLE - -------------------------------------------------------------------------------------------------------------------------------- Annual Compensation
Long-Term Compensation --------------------- ---------------------- Awards Payouts -------------------------- --------- Name Restricted Securities All and Stock Underlying LTIP Other Principal Salary Bonus Award(s) Options Payouts Comp. Position Year ($) ($) ($) (#) ($) ($) - -------------------------------------------------------------------------------------------------------------------------------- EDWIN L. RUSSELL 2000 512,754 764,834 0 87,466 38,458 303,564 Chairman, President 1999 475,939 744,110 0 94,241 197,396 69,477 and Chief Executive Officer 1998 423,847 580,285 100,000 40,000 347,318 63,212 JAMES P. HALLETT 2000 288,446 319,899 0 29,520 213,396 38,697 Executive Vice President; 1999 271,908 276,210 0 26,004 266,107 32,963 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; President 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 - -------------------------------------------------------------------------------------------------------------------------------- 6 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. Included in this amount is $108,500 representing 5,000 shares of Common Stock granted on January 3, 2000 pursuant to the Executive Long-Term Incentive Compensation Plan as a retention bonus for completing the year of service. The amount shown represents the value of 5,094 shares of restricted Common Stock granted on May 7, 1998 pursuant to the Executive Long-Term Incentive Compensation Plan. The award vested in full on January 2, 2000. Includes a supplemental payment based upon significantly exceeding multi-year financial performance targets established in 1996. The amounts shown for 2000 include the following Company contributions for the named executive officers: Annual Company Annual Company Annual Company Contribution to the Contribution to the Contribution to the Supplemental Flexible Benefit/ Employee Stock Executive Name 401(k) Plans Ownership Plan Retirement Plan ---------------------- ------------------- ------------------- ------------------- Edwin L. Russell* $9,180 $4,935 $86,659 James P. Hallett 1,700 0 36,997 John E. Fuller 4,080 0 40,547 Robert D. Edwards** 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 $4,276 of above-market interest on compensation deferred under an executive investment plan. The Company made investments in corporate-owned life insurance which will recover the cost of this above-market benefit if actuarial factors and other assumptions are realized. OPTIONS GRANTS IN LAST FISCAL YEAR - ------------------------------------------------------------------------------------------------------------------------------ Grant Individual Grants Date Value - ------------------------------------------------------------------------------------------------------------ -------------- Number of % of Total Securities Options Underlying Granted to Exercise or Grant Date Options Employees in Base Price Expiration Present Value Name Granted (#)
Fiscal Year ($/Sh) Date ($) ---------------- --------------- ------------ ----------- ---------- ------------- Edwin L. Russell 87,466 8.7 16.25 Jan. 3, 2010 280,001 James P. Hallett 29,520 2.9 16.25 Jan. 3, 2010 94,501 John E. Fuller 28,426 2.8 16.25 Jan. 3, 2010 90,999 Robert D. Edwards 30,941 3.1 16.25 Jan. 3, 2010 99,050 Donnie R. Crandell 26,240 2.6 16.25 Jan. 3, 2010 84,001 - ------------------------------------------------------------------------------------------------------------------------------ AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES ------------------------------------------------------------------------------------------------------------------------------- Number of Securities Value of Unexercised Underlying Unexercised In-the-Money Shares Acquired Value Realized Options at FY-End (#) Options at FY-End ($) Name on Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable ------------------- --------------- -------------- ----------- ------------- ----------- ------------- Edwin L. Russell 0 0 106,296 115,411 402,878 832,745 James P. Hallett 0 0 40,914 42,522 288,529 290,146 John E. Fuller 0 0 34,344 41,272 203,045 280,330 Robert D. Edwards 0 0 45,224 44,823 317,668 304,843 Donnie R. Crandell 0 0 34,526 38,154 229,408 258,933 ------------------------------------------------------------------------------------------------------------------------------- 7 Options vest 50 percent on January 3, 2001 and 50 percent on January 3, 2002. Options granted to the top 7 executives of the Company 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 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 twelve 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) of .197. The binomial method is a complicated mathematical formula premised on immediate exercisability and transferability of the options, which are not features of the Company'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'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: expected dividend yield of 5.633 percent (based on the most recent quarterly dividend), expected stock price volatility of .200 (based on 250 trading days previous to January 3, 2000), a risk-free rate of return of 6.45 percent (based on Treasury yields). 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'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 $41,000 125,000 15,000 20,000 38,750 45,000 51,250 150,000 18,000 24,000 46,500 54,000 61,500 175,000 21,000 28,000 54,250 63,000 71,750 200,000 24,000 32,000 62,000 72,000 82,000 225,000 27,000 36,000 69,750 81,000 92,250 250,000 30,000 40,000 77,500 90,000 102,500 300,000 36,000 48,000 93,000 108,000 123,000 400,000 48,000 64,000 124,000 144,000 164,000 450,000 54,000 72,000 139,500 162,000 184,500 500,000 60,000 80,000 155,000 180,000 205,000 600,000 72,000 96,000 186,000 216,000 246,000 700,000 84,000 112,000 217,000 252,000 287,000 800,000 96,000 128,000 248,000 288,000 328,000 900,000 108,000 144,000 279,000 324,000 369,000 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 1,500,000 180,000 240,000 465,000 540,000 615,000 - -------------------------------------------------------------------------------------------------------------------------- *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. 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, the executive officers named in the Summary Compensation Table had the following number of years of credited service under the plan: Edwin L. Russell 6 years Robert D. Edwards 24 years James P. Hallett 6 years Donnie R. Crandell 20 years John E. Fuller 6 years 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 for 2000. This amount is subject to adjustment in future years to reflect cost of living increases. The Company's Supplemental Executive Retirement Plan provides for supplemental payments by the Company 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. 9
REPORT OF BOARD'S EXECUTIVE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION Described below are the compensation policies of the Executive Compensation Committee of the Board of Directors effective for 2000 with respect to the executive officers of the Company. 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 Company 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 Company 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, the executive compensation program provides greater variability in compensating individuals based on results achieved as their levels within the Company 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's businesses, compensation must be competitive in the national market. To determine market levels of compensation for executive officers in 2000, the Executive Compensation Committee relied upon comparative information for general industrial companies provided or 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. 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 4 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 Company 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 Company 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'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, plus the value of stock options granted, executive compensation 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'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'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 overall corporate performance. Awards are available 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-financial 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, 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 Company 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 Company in 2000. - 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 Company 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 base salaries. The value of the award opportunity is allocated between stock options and performance shares. The stock options will have value only if the Common Stock price appreciates. The performance shares granted to the corporate group have value if, in 2 years from the grant date, the Total Shareholder Return of the Company, over a 2-year performance measurement period determined in advance by the Board of Directors, ranks 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 second anniversary thereof. The LTIP payout for 2000 shown in the Summary Compensation Table includes a payout of 25 percent of the award earned for the performance period ending December 31, 1999, 50 percent of which was reported for 1999. 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
SUPPLEMENTAL EXECUTIVE BENEFITS The Company 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'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 Company competes for executive talent. The SERP also provides employees whose salaries exceed the salary limitations for tax-qualified plans imposed by the Code with additional benefits such that they receive in aggregate the benefits they would have been entitled to receive had such limitations not been imposed. CHIEF EXECUTIVE OFFICER COMPENSATION The Executive Compensation Committee has endeavored to provide Mr. Russell with a compensation package that is at the 50th percentile of compensation paid by general industrial companies with revenue comparable to the Company. The Committee has designed Mr. Russell's compensation package to provide substantial incentive to achieve and exceed the Board's financial performance goals for the Company and Total Shareholder Return goals for the Company's shareholders. 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's Results Sharing Plan, Mr. Russell was awarded $38,559, or 7.3 percent of his base salary, based 50 percent on earnings performance and 50 percent on an average of business unit Results Sharing awards. Under the Executive Annual Incentive Plan in 2000, Mr. Russell earned an award of $725,040, or 137 percent of his base salary, which rewarded Mr. Russell for achieving 2000 earnings results significantly above target, as well as for achievement of non-financial goals, all established by the Executive Compensation Committee. Mr. Russell's compensation also contains elements which motivate him to focus on the longer-term performance of the Company. Under the Executive Long-Term Incentive Compensation Plan, Mr. Russell was awarded annual target opportunities with a value equal to 80 percent of his base salary. This value has been 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. The LTIP payout for 2000 shown in the Summary Compensation Table includes a payout of 25 percent of the award earned for the performance period ending December 31, 1999, 50 percent of which was reported for 1999. In fiscal 2000, the Company provided Mr. Russell a split dollar life insurance arrangement insuring his life. This insurance program is structured so that all the premium contributions are returned to the Company at Mr. Russell's attaining age 71 or at death if earlier. The arrangement covers an 8-year period beginning January 1, 2000 and provides that if Mr. Russell leaves prior to the end 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. March 16, 2001 Executive Compensation Committee Donald C. Wegmiller, Chairman Dennis E. Evans Kathleen A. Brekken Nick Smith 12
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'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'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. The Audit Committee (i) reviewed and discussed the Company's audited financial statements for the year ending December 31, 2000 with the Company's management and with the Company'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's independent accountants the matters required to be discussed by SAS 61 (Codification of Statements on Auditing Standards) which includes, among other items, matters related to the conduct of the audit of the Company's financial statements; and (iv) received and discussed the written disclosures and the letter from the Company's independent accountants required by Independence Standards Board Statement No. 1 (Independence discussions with Audit committees) which relates to the accountants' independence from the Company. Based on the review and discussions with management and the independent accountants, the Committee recommended to the Board of Directors that the audited financial statements be included in the Company's Annual Report on Form 10-K for the year ending December 31, 2000 for filing with the SEC. Management has advised the Audit Committee that for the year ended December 31, 2000, the Company paid fees to PricewaterhouseCoopers LLP for services in the following categories: Audit Fees $1.4 million All Other Fees $1.5 million All Other Fees in the foregoing table includes $1.1 million for tax advice and tax return assistance. We have considered and determined that the provision of the non-audit services noted in the foregoing table is compatible with maintaining PricewaterhouseCoopers' independence. Audit Committee Bruce W. Stender, Chair Glenda E. Hood Peter J. Johnson George L. Mayer 13
ALLETE COMMON STOCK PERFORMANCE The following graph compares the Company'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 26 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, 1995 and reinvestment of dividends on the ex-dividend date. [GRAPHIC MATERIAL OMITTED-PERFORMANCE GRAPH] TOTAL SHAREHOLDER RETURN FOR THE FIVE YEARS ENDING DECEMBER 31, 2000 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ALLETE 100.00 104.36 176.12 186.90 152.17 235.61 S&P Utilities Index (Electric) 100.00 99.69 125.85 145.32 117.27 179.94 S&P 500 Index 100.00 122.94 163.94 210.79 255.15 231.93 - -------------------------------------------------------------------------------- ITEM NO. 2 - APPOINTMENT OF INDEPENDENT ACCOUNTANTS - -------------------------------------------------------------------------------- The Audit Committee of the Board of Directors of the Company has recommended the appointment of PricewaterhouseCoopers LLP as independent accountants for the Company for the year 2001. 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 2000 audit, PricewaterhouseCoopers LLP reviewed the Company's annual report, examined the related financial statements, and reviewed interim financial statements and certain of the Company's filings 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's independent accountants for 2001. 14
- -------------------------------------------------------------------------------- ITEM NO. 3 - AMEND THE ARTICLES OF INCORPORATION TO CHANGE COMPANY'S LEGAL NAME FROM MINNESOTA POWER, INC. TO ALLETE, INC. - -------------------------------------------------------------------------------- The Board of Directors proposes that the Company's Articles of Incorporation be amended to change the Company's legal name from Minnesota Power, Inc. to ALLETE, Inc. On September 1, 2000, the Company began doing business under the name ALLETE and began trading under the symbol ALE on the New York Stock Exchange. The new name reflects the Company's evolution from a Minnesota electric utility to a diversified, multi-services business with operations across North America. We are clearly more than Minnesota and more than power. The Company's electric utility business unit continues to operate under the name Minnesota Power. The Board of Directors recommends a vote "FOR" the proposed amendment. - -------------------------------------------------------------------------------- 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 sign and return the accompanying proxy card at your earliest convenience. By order of the Board of Directors, Dated March 16, 2001 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] PROXY CARD AND VOTING INSTRUCTIONS ALLETE 30 West Superior Street, Duluth, Minnesota 55802-2093 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. Edwin L. Russell 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 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, or any adjournments thereof, with respect to the election of Directors, the appointment of independent accountants, changing the Company's legal name to ALLETE, Inc., 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 and may be revoked prior to its exercise. PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD USING THE ENCLOSED ENVELOPE. Shares cannot be voted unless this Proxy card is signed and returned, or other specific arrangements are made to have the shares represented at the meeting. By returning your Proxy promptly, you may help save the costs of additional Proxy solicitations. (Continued and to be signed on other side) -FOLD 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. Proposal 1. Election of Directors FOR all WITHHOLD BREKKEN EVANS HOOD JOHNSON nominees listed AUTHORITY MAYER RAJALA RUSSELL SANDBULTE (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. Proposal 2. Appointment of PricewaterhouseCoopers LLP as independent accountants. FOR AGAINST ABSTAIN / / / / / / Proposal 3. Change the Company's legal name to ALLETE, Inc. FOR AGAINST ABSTAIN / / / / / / Sign here as name(s) appears on reverse side. X - ------------------------------------------- X - ------------------------------------------- Date: ,2001 ------------------------------------- Shares: Account No.: -FOLD AND DETACH HERE-
April __, 2001 Dear Shareholder: We have not yet received your vote on issues to come before the Annual Meeting of ALLETE shareholders on May 8, 2001. Proxy materials were sent to you on March 16, 2001. 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, 2001 at 10:00 a.m. Your prompt response will be appreciated. Sincerely, Philip R. Halverson Enclosures