UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-12
ALLETE, Inc.INC.
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[ALLETE LOGO]
Annual Meeting
of Shareholders
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Tuesday, May 11, 2004
Duluth, Minnesota
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2004 NOTICE AND PROXY STATEMENT
[GRAPHIC OMITTED]
ANNUAL MEETING OF SHAREHOLDERS
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Tuesday, May 14, 2002
Duluth, Minnesota================================================================================
[ALLETE LOGO]
March 26, 200225, 2004
Dear Shareholder:
WeYou are cordially invite youinvited to our 2002ALLETE's 2004 Annual Meeting of Shareholders
to be held on Tuesday, May 14, 200211, 2004 at 10:0030 a.m. in the auditorium of the
Duluth Entertainment Convention Center (DECC). The DECC is located on the
waterfront of Lake Superior at 350 Harbor Drive in Duluth.Duluth, Minnesota. Free
parking is available in the adjoining lot. On behalf of the Board of Directors,
I encourage you to attend.
At this year's meeting you will be asked to elect eleven Directors,
approvedirectors and to
ratify the appointment of PricewaterhouseCoopers LLP as independent auditors,auditors.
Standing for election to the Board of Directors for the first time at the
Annual Meeting is Roger Peirce. I think you will agree that Mr. Peirce brings an
outstanding background in business and approve reservationfinance to the Board. Dennis Evans has
retired from the Board. Mr. Evans has been a director since 1986 and all of an additional three million sharesus
have greatly benefited from his experience, commitment and many contributions to
ALLETE. Thomas Cunningham, who was elected to the Board of common stockDirectors in 2003,
will not be standing for issuance under our long-term incentive compensation plan. The accompanying
Noticere-election this year. Mr. Cunningham, a former Ford
Motor Company senior executive, will continue as a director of Meeting and Proxy Statement describe these proposals.ALLETE's
automotive services businesses.
After ourthe Annual Meeting, we invite you to visit with our directors,
officers and employees over lunch in the Lake Superior Ballroom located withinin the
DECC. If you plan to join us for lunch, please return the enclosed reservation
card.
ItYour vote is important that your shares be represented and voted whetherto us. Whether or not you plan to attend our Annual
Meeting. You canMeeting in person, your shares should be represented and voted. After reading
the enclosed Proxy Statement, please vote your shares online, by Internet,a toll-free
telephone call or by returning the enclosed Proxy Card. Please see
your Proxy Card for specificSpecific instructions on
how to vote.vote are provided on your Proxy Card.
Thank you for your investment in ALLETE.
Sincerely,
David G. Gartzke
David G. Gartzke
Chairman
President and
Chief Executive Officer
ALLETE, INC.
30 WEST SUPERIOR STREET
DULUTH, MINNESOTA 55802
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS - MAY 14, 200211, 2004
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The Annual Meeting of Shareholders of ALLETE, Inc. will be held in the
auditorium atof the Duluth Entertainment Convention Center, 350 Harbor Drive,
Duluth, Minnesota, on Tuesday, May 14, 200211, 2004 at 10:0030 a.m. for the following
purposes:
1. To elect a Board of 11eleven directors to serve for the ensuing year;
2. To approveratify the appointment of PricewaterhouseCoopers LLP as ALLETE's
independent auditors for 2002;2004; and
3. To approve the reservation of an additional three million shares of
ALLETE Common Stock for issuance under the 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 ALLETE at the close of business on
March 15, 200212, 2004 are entitled to notice of and to vote at the Annual Meeting.
All shareholders are cordially invited and encouraged to attend the meeting
in person. The holders of a majority of the shares entitled to vote at the
meeting must be present in person or by 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, you can follow the enclosed instructions on your Proxy
Card to vote your shares online or by phone or the Internet.a toll-free telephone call.
By order of the Board of Directors,
Philip R. Halverson
Philip R. HalversonDeborah A. Amberg
Deborah A. Amberg
Vice President, General Counsel and Secretary
Dated atMarch 25, 2004
Duluth, Minnesota
March 26, 2002
IF YOU HAVE NOT RECEIVED THE ALLETE 2001 ANNUAL REPORT, WHICH INCLUDES
FINANCIAL STATEMENTS, KINDLY NOTIFY ALLETE SHAREHOLDER SERVICES, 30 WEST
SUPERIOR STREET, DULUTH, MN 55802-2093, TELEPHONE NUMBER 1-800-535-3056 OR
1-218-723-3974, AND A COPY WILL BE SENT TO YOU.
ALLETE, INC.
30 WEST SUPERIOR STREET
DULUTH, MINNESOTA 55802
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PROXY STATEMENT
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SOLICITATION
The Proxy Card accompanying this Proxy Statement is solicited on behalf of
the Board of Directors (Board) of ALLETE, Inc. (ALLETE)(ALLETE or Company) for use at
the Annual Meeting of Shareholders to be held on May 14, 200211, 2004 and any
adjournments thereof. The purpose of the meeting is to elect a Board of 11eleven
directors to serve for the ensuing year, to approveratify the appointment of
PricewaterhouseCoopers LLP (PricewaterhouseCoopers) as ALLETE's independent
auditors for 2002, to approve the reservation of an
additional three million shares of ALLETE Common Stock (Common Stock) for
issuance under the Executive Long-Term Incentive Compensation Plan2004 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 26, 2002. Each25, 2004.
Any shareholder giving a Proxy delivered pursuanthas the right to this solicitation is
revocablerevoke it at any time before it is votedprior
to its exercise by writtengiving notice deliveredin writing to the Secretary of ALLETE.
ALLETE expects to solicit proxies primarily by mail. Proxies also may be
solicited at a nominal cost in person and by telephone at a nominal cost by employees or retirees
of ALLETE. The expenses of such solicitation are the ordinary ones in connection
with preparing, assembling and mailing the material, and also include charges
and expenses of brokerage houses and other custodians, nominees or other
fiduciaries for communicating with shareholders. Additional solicitation of
proxies will be made by mail, telephone and in person by Georgeson Shareholder
Communications, Inc., a firm specializing in the solicitation of proxies, at a
cost to ALLETE of approximately $5,500$15,000 plus expenses. The totalfull amount of such
costs will be bornepaid by ALLETE.
OUTSTANDING SHARES AND VOTING PROCEDURES
The outstanding shares of capital stock of ALLETE as of March 15, 200212, 2004 were
84,663,44787,920,807 shares of Common Stock (withoutcommon stock, without par value)value (Common Stock).
Each share of the Common Stock of record on the books of ALLETE at the
close of business on March 15, 200212, 2004 is entitled to notice of the Annual Meeting
and to one vote.
The affirmative vote of a majority of the shares of stock entitled to vote
at the Annual Meeting is required for election of each director, and the
affirmative vote of a majority of the shares of stock present and entitled to
vote is required for approval of the other items described in thisthe Proxy
Statement to be acted upon by shareholders. An automated system administered by
Wells Fargo Bank Minnesota, N.A. tabulates the votes. Abstentions are included
in determining the number of shares present and voting, and are treated as votes
against the particular proposal. Broker non-votes are not counted for or against
any proposal.
Unless contrary instructions are indicated on the Proxy, all shares
represented by valid proxies will be voted "FOR" the election of all nominees
for director named herein and "FOR" approvalratifying the appointment of
PricewaterhouseCoopers LLP as ALLETE's independent auditors for 2002 and "FOR" approval of the reservation
of an additional three million shares of Common Stock for issuance under the
Executive Long-Term Incentive Compensation Plan.2004. If any other
business is transacted at the meeting, all shares represented by valid proxies
will be voted in accordance with the best judgment of the appointed Proxies.
1proxies.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The only person known to ALLETE who as of March 15, 200212, 2004 owned beneficially
more than 5 percent of any class of ALLETE's voting securities is American
Express Trust Company, 50765928 AXP Financial Center, Minneapolis, MN 55474. As of
March 15, 200212, 2004 American Express Trust Company held 8,723,6707,687,287 shares, or 10.38.7
percent, of ALLETE'sthe Common Stock in its capacity as Trustee of the Minnesota Power
and Affiliated Companies Retirement Savings and Stock Ownership Plan (RSOP).
Generally, these shares will be voted in accordance with instructions received
by American Express Trust Company from participants in the RSOP.
The following table presents the shares of Common Stock beneficially owned
by directors, nominees for director, executive officers and former
executive officers named in the Summary
Compensation Table which appears subsequently in this Proxy Statement, and all
directors and executive officers of ALLETE as a group, as of March 15, 2002.12, 2004.
Unless otherwise indicated, the persons shown have sole voting and investment
power over the shares listed.
Options Options
Number of Shares Exercisable Number of Shares Exercisable
Name of Beneficially within 60 days Name of Beneficially within 60 days
Beneficial Owner Owned after March 15, 200212, 2004 Beneficial Owner Owned after March 15, 200212, 2004
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Kathleen A. Brekken 10,242 6,180 Nick Smith 14,754 8,100
Wynn V. Bussmann 500 04,907 2,250 Nick Smith 15,640 13,725
Thomas L. Cunningham 1,902 750 Bruce W. Stender 16,666 8,100
Dennis E. Evans 32,271 8,10020,791 11,100
David G. Gartzke 58,753 189,580 Donald C. Wegmiller 21,331 8,100
David G. Gartzke 43,965 75,690 Donnie R. Crandell 31,056 62,865
Glenda E. Hood 5,052 1,250 Robert D. Edwards 51,430 99,72225,590 11,100
Dennis O. Green 1,898 0 Deborah L. Weinstein 1,860 0
Peter J. Johnson 28,300 8,100 John F. Fuller 1,333 038,678 11,100 James P. Hallett 41,033 131,344
George L. Mayer 27,894 7,616 James P. Hallett 24,738 57,91929,053 10,616 Philip R. Halverson (retired) 32,796 30,481
Roger D. Peirce 0 0 Donald J. Shippar 22,558 23,488
Jack I. Rajala 16,758 8,100 Edwin L. Russell 1,407 27,532
Arend J. Sandbulte 72,455 7,496 Donald J. Shippar 13,751 21,13820,605 11,100 James K. Vizanko 22,883 31,175
All directors and
executive officers
as a group (22)(20): 534,028 561,302400,727 545,924
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Includes (i) shares as to which voting and investment power is shared with the person's spouse: Mr. Johnson - 28,300, Mr.
Sandbulte - 5,170, Mr. Fuller - .52536,861, and all
directors and officers as a group - 54,058;49,187; (ii) shares owned by the person's spouse: Mr. Gartzke - 10,21,107, Mr. Johnson - 323,
Mr. Mayer - 800, Mr. Smith - 50, Mr. Crandell - 5,879 and all directors and officers as a group - 20,037;21,957; (iii) shares held by the person's minor
children: Mr. Halverson - 9, and (iii)all directors and officers as a group - 213; and (iv) shares held as trustee: Mr. Mayer - 650.
Each director and executive officer owns only a fraction of 1 percent of any class of ALLETE stock,Common Stock, and all directors and executive officers
as a group also own less than 1 percent of any
class of ALLETE stock.
Includes 11,144 options owned by Mr. Crandell's spouse that are exercisable within 60 days after March 15, 2002.Common Stock.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
ALLETE's directors and executive officers, and persons who own more than 10
percent of a registered class of ALLETE's equity securities, to file reports of
initial ownership of Common Stock and other equity securities and subsequent
changes in that ownership with the Securities and Exchange Commission (SEC) and
the New York Stock Exchange.Exchange (NYSE). Based on a review of such reports, ALLETE
believes that all such filing requirements were met during 2001,2003, except forthat one
report (an amended Form 5) for Mr. Johnson was filed late covering one
transaction involving the purchasereceipt by his spouse of 1,000 sharesa gift of Common StockStock.
PROPOSALS OF SHAREHOLDERS FOR THE 2005 ANNUAL MEETING
All proposals from shareholders to be considered for inclusion in the Proxy
Statement relating to the Annual Meeting scheduled for May 10, 2005 must be
received by Mr. Nick Smiththe Secretary of ALLETE at 30 West Superior Street, Duluth, MN
55802-2093 not later than November 25, 2004. In addition, the persons to be
named as proxies in the Proxy Cards relating to that Annual Meeting may have the
discretion to vote their proxies in accordance with their judgment on any matter
as to which was inadvertently filed three months late.ALLETE did not have notice prior to February 8, 2005, without
discussion of such matter in the Proxy Statement relating to that Annual
Meeting.
2
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ITEM NO. 1 - ELECTION OF DIRECTORS
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It is intended that the shares represented by the Proxy will be voted,
unless authority is withheld, "FOR" the election of the 11eleven nominees for
director named below and on the oppositenext 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 thatIf any nominee
should become unavailable, which is not anticipated, the Board of Directors may
provide by resolution for a lesser number of directors, or designate substitute
nominees, who would receive the votes represented by the enclosed Proxy.
CURRENT DIRECTORS
[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
KATHLEEN A. BREKKEN, 52, Cannon Falls, MN.- --------------------------------------------------------------------------------
[PHOTO] WYNN V. BUSSMANN, 62, Birmingham, MI. Member of the Executive CompensationAudit
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.
WYNN V. BUSSMANN, 60, Birmingham, MI. Senior Vice President - Global Forecasting of J.D.
Power and Associates, an international marketing information
firm. From 1994 to 2001 he was Corporate Economist for
Daimler ChryslerDaimlerChrysler Corporation, where he provided forecasts and
analysis of vehicle sales and other trends in the vehicle
industry for product strategy and planning. Chair of the Society
of Automotive Analysts and past chair of the Conference of
Business Analysts. First-time
nominee.
DENNIS E. EVANS, 63, Minneapolis, MN. MemberDIRECTOR SINCE 2002.
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[PHOTO] DAVID G. GARTZKE, 60, Indianapolis, IN. Chairman of the Executive CommitteeALLETE, and
the
Executive Compensation Committee.Chairman, President and CEO of the Hanrow Financial
Group, Ltd., a merchant banking firm. Director of Angeion Corporation. Director
since 1986.
DAVID G. GARTZKE, 58, Duluth, MN.ALLETE Automotive Services, Inc.
From 2002 to 2004 he was Chairman, President and CEO of ALLETE.
Board
memberFrom 2001 to 2002 he was President of Edison Electric Institute, Minnesota Business PartnershipALLETE. From 1994 to 2001
he was Senior Vice President and the
CollegeCFO of St. Scholastica. Director sinceALLETE. DIRECTOR SINCE
2001.
GLENDA E. HOOD, 52, Orlando, FL.- --------------------------------------------------------------------------------
[PHOTO] DENNIS O. GREEN, 63, Beaufort, SC. Member of the Audit Committee.
MayorFounder, Director and President of Orlando, Florida since 1992. Chief Executive Officerthe Olive Tree Foundation, a
private charitable foundation. Managing partner of Orlando's City
Administration,Celadon, LLC,
a real estate development firm. An organizing Director, Vice
Chairman of the City CouncilBoard and board memberChairman of the Orlando
Utilities Commission. Past PresidentAudit Committee of
Coastal Banking Company and its subsidiary, Lowcountry National
Bank. Retired in July 1997 from his position as Chief Auditor of
Citicorp and of its principal subsidiary, Citibank, NA, where he
had been responsible for worldwide audit functions since 1990.
From 1984 to 1990 he was the National LeagueGeneral Auditor of Cities. Director
since 2000.Ford Motor
Company. DIRECTOR SINCE 2003.
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[PHOTO] PETER J. JOHNSON, 65,67, Tower, MN. Member of the Audit Committee.
Chairman and CEO of Hoover Construction Company, a highway and heavy
construction contractor. Director sinceDIRECTOR SINCE 1994.
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[PHOTO] GEORGE L. MAYER, 57,59, 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.apartment properties. Director of Schwaab, Inc., one of
the nation's largest manufacturers of handheld rubber stamps and
associated products. DIRECTOR SINCE 1996.
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3
NOMINEES FOR DIRECTOR
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[PHOTO] ROGER D. PEIRCE, 66, Mequon, WI. Corporate consultant since his
retirement in 1994 from his position as Vice Chair of the Board
and CEO of Super Steel Products Corporation, a contract
manufacturer of fabricated metal products. From 1995 to 1996 he
was President and CEO of Valuation Research Corporation, an
independent firm providing valuations of business enterprises,
securities and tangible and intangible assets. From 1961 to 1986
he was an accountant with Arthur Andersen and the managing
partner of the Tucson, Arizona office from 1985 to 1986. Director
since 1996.and Chairman of the Compensation Committee of Journal
Communication, Inc. and Demco, Inc., Director of Brady
Corporation and Compensation Committee Chairman for Schwaab, Inc.
Mr. Peirce was known to one of ALLETE's non-management directors
who suggested him to the Corporate Governance and Nominating
Committee. FIRST-TIME NOMINEE.
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[PHOTO] JACK I.RAJALA, 62,I. RAJALA, 64, Grand Rapids, MN. Member of the ExecutiveCorporate
Governance and Nominating Committee. Chairman and CEO of Rajala
Companies, and Director and President of Rajala Mill Company
which manufacturemanufactures and tradetrades lumber. Director of Grand Rapids
State Bank. Member of the Board of Regents of Concordia College
in Minnesota. Director sinceDIRECTOR SINCE 1985.
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[PHOTO] NICK SMITH, 65,67, Duluth, MN. Lead Director of the ALLETE Board.
Chair of the ExecutiveCorporate Governance and Nominating Committee, and
member of the Executive Compensation Committee. Chairman and CEO
of Northeast Ventures Corporation, a venture capital firm
investing in northeastern Minnesota. Chairman of Community
Development Venture Capital Alliance, a national association.
Director of North Shore Bank of Commerce. Director and founding Chair of Great Lakes
Aquarium and Freshwater Discovery Center in Duluth, MN. Of Counsel to Fryberger,
Buchanan, Smith & Frederick, P.A. Director sinceDIRECTOR SINCE 1995.
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[PHOTO] BRUCE W. STENDER, 60,62, Duluth, MN. Chair of the Audit Committee,
and member of the ExecutiveCorporate Governance and Nominating Committee.
President and CEO of Labovitz Enterprises, Inc. which owns and
manages hotel properties.hotels and commercial real estate. Trustee of the C.K.
Blandin Foundation and member of the Chancellor's Advisory
Committee for the University of Minnesota Duluth. Director sinceDIRECTOR SINCE
1995.
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[PHOTO] DONALD C. WEGMILLER, 63,65, Minneapolis, MN. ChairmanChair of the Executive
Compensation Committee. President and CEOChairman of Clark/BardesClark Consulting - Healthcare
Group, a national executive and physician compensation and
benefits consulting firm. From 1993 to 2003 he was President and
CEO of Clark Consulting - Healthcare Group. Director of LecTec Corporation, Medical Graphics Corporation, Possis
Medical, Inc., SelectCare, Inc. and JLJ Medical Devices International, LLC.LLC, Vivius,
Inc. and ProVation Medical, Inc. DIRECTOR SINCE 1992.
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[PHOTO] DEBORAH L. WEINSTEIN, 44, Ottawa, Ontario Canada. Member of the
Executive Compensation Committee. Co-founder and partner in
LaBarge Weinstein, LLP, a business law firm. Director since 1992.of Mosaid
Technologies Inc. and Dynex Semiconductor Inc. Vice Chair of the
Ottawa Centre for Research and Innovation, and Director of the
Ottawa Heart Institute Foundation. DIRECTOR SINCE 2003.
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4
CORPORATE GOVERNANCE
Corporate governance encompasses the internal policies and practices by
which ALLETE is operated and controlled on behalf of its shareholders. Sound
corporate governance starts with a strong, independent Board of Directors that
is accountable to the Company and its shareholders. The role of the Board is to
effectively govern the affairs of the Company for the benefit of its
shareholders and, to the extent appropriate under Minnesota law, other
constituencies which include the Company's employees, customers, suppliers and
the communities in which it does business. Because its ultimate goal is to
better focus and direct the resources of the Company, ALLETE views good
corporate governance as a source of competitive advantage.
In 2003 the Board and its committees continued to examine their processes
and strengthen them as appropriate. Corporate Governance Guidelines adopted in
2002 were revised. Committee charters were updated in 2003 to supplement
substantial revisions adopted in 2002 to meet or exceed requirements proposed in
rulemakings then underway. The Corporate Governance Guidelines document Board
rules and responsibilities, Board selection and composition policies, Board
operating policies, Board committee responsibilities, director compensation and
other matters. Current copies of ALLETE's Corporate Governance Guidelines and
the charters of the Corporate Governance and Nominating, Audit and Executive
Compensation committees are available on ALLETE's website at
http://www.allete.com.
The Board's evaluation of ALLETE's corporate governance processes is
ongoing. This assures that the Board and its committees have the necessary
authority and practices in place to review and evaluate the Company's business
operations as needed, and to make decisions that are independent of the
Company's management. As examples, the Board and its committees undertake an
annual self-evaluation process, meet regularly without members of management
present, have direct access to and meet individually with members of management,
and retain their own advisors as they deem appropriate.
DIRECTOR INDEPENDENCE
The Board has determined that all of ALLETE's directors, except the
Chairman, are "independent" under ALLETE's Corporate Governance Guidelines and
applicable SEC and NYSE rules. The Board has established responsibilities for
the lead director which include, among other things, coordinating the activities
of the Company's independent directors, advising the Chairman of the Board on
Board meeting agendas and on the effectiveness of the Board meeting processes.
DIRECTOR NOMINATIONS
The Corporate Governance and Nominating Committee recommends director
candidates to the Board, and will consider for such recommendations director
candidates proposed by management, other directors and shareholders. A
shareholder wishing to suggest a candidate should provide the candidate's name
and a detailed background of the candidate's qualifications to the Corporate
Governance and Nominating Committee by addressing the Secretary of ALLETE, 30
West Superior Street, Duluth, MN 55802-2093.
The selection of director nominees includes consideration of factors deemed
appropriate by the Board. Factors may include integrity, achievements, judgment,
intelligence, personal character, the interplay of the candidate's relevant
experience with the experience of other Board members, the willingness of the
candidate to devote adequate time to Board duties and the likelihood that he or
she will be willing and able to serve on the Board for a sustained period. The
Corporate Governance and Nominating Committee will consider the candidate's
independence, as defined in the Corporate Governance Guidelines and the rules of
the NYSE. In connection with the selection, due consideration will be given to
the Board's overall balance of diversity of perspectives, backgrounds and
experiences. Experience, knowledge and skills to be represented on the Board
include, among other considerations, financial expertise (including an "audit
committee financial expert" within the meaning of SEC regulations), electric
utility and/or automobile industry knowledge and contacts, financing experience,
strategic planning and community leadership.
The Corporate Governance and Nominating Committee will review all
candidates, and before any contact is made with a potential candidate, will
notify the Board of its intent to do so, will provide the candidate's name and
background information, and allow time for directors to comment. The Corporate
Governance and Nominating Committee screens, personally interviews and
recommends candidates to the Board. A majority of the committee members will
interview any potential nominee before recommending that candidate to the Board.
The recommendations of the Corporate Governance and Nominating Committee will be
timed so as to allow interested Board members an opportunity to interview the
candidate prior to the nomination of the candidate.
5
BOARD AND COMMITTEE MEETINGS IN 20012003
During 20012003 the Board of Directors held nineeight meetings. The ExecutiveCorporate
Governance and Nominating Committee, which held nineseven meetings during 2001,2003,
provides oversightrecommendations to the Board with respect to Board organization,
membership, function, committee structure and membership, succession planning
for the executive management and the application of corporate financial matters,governance
principles. The Corporate Governance and Nominating Committee also performs the
functions of a director nominating committee, leads the Board's annual
evaluation of the Chief Executive Officerchief 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 ALLETE, 30 West Superior Street,
Duluth, Minnesota 55802. The Audit Committee,
which held eighteleven meetings in 2001,2003, recommends the selection of independent
auditors, reviews the independence and performance of independent auditors,
reviews and evaluates ALLETE's accounting practices, reviews periodic financial
reports to be provided to the public, and reviews and recommends approval of the
annual audit report. The Executive Compensation Committee, which held fiveeleven
meetings in 2001,2003, establishes compensation and benefit arrangements for ALLETE
officers and other key executives that are intended to be equitable, competitive
within the marketplace and consistent with corporate objectives. In 2003 the Board
established the Automotive Services Strategy Committee and the Minnesota Power
Strategy Committee to focus on the strategies of these business units. All
directors attended 75 percent or more of the aggregate number of meetings of the
Board of Directors and applicable committee meetings in 2001.2003. Directors are
expected to attend the Annual Meeting, and in 2003, all directors attended.
COMMUNICATIONS BETWEEN SHAREHOLDERS AND THE BOARD OF DIRECTORS
Shareholders who wish to communicate directly with the Board may do so by
addressing the Lead Director, c/o Secretary of ALLETE, 30 West Superior Street,
Duluth, MN 55802-2093.
DIRECTOR COMPENSATION
Employee directors receive no additional compensation for their services as
directors. In 2001 ALLETE paidpays each non-employee director under the terms of the ALLETE
Director Stock Plan an annual cash retainer fee of $20,000, and annual cash
retainer fees for each committee and chair assignment as set forth below:
Committee Retainer Fees
Members Chair
-------------------------------
Audit $9,000 $6,000
Executive Compensation $7,500 $4,500
Corporate Governance and Nominating $7,500 $4,500
Automotive Services Strategy $4,000 $2,000
Minnesota Power Strategy $4,000 $2,000
In 2003 non-employee directors received a prorated portion (83.33 percent)
of cash retainer fees to reflect a change in the timing of annual director
compensation payments under the ALLETE Director Stock Plan to coincide with
annual service commencing with the election of the directors at the Annual
Meeting. Directors may elect to defer all or part of the cash portion of their
retainer under the terms of the ALLETE Director Compensation Deferral Plan.
In addition, ALLETE pays each non-employee director, other than the lead
director, annual equity compensation equal in value to $47,500. Beginning in
2004 non-employee director annual equity compensation will be paid entirely in
Common Stock. In 2003 non-employee director equity compensation was paid as
follows: 1,300 shares of Common Stock and $8,000 in cash under the terms of the
ALLETE Director Stock Plan; and 1,500 stock options and a performance share
award opportunity valued at $5,000 under the terms of the ALLETE Director
Long-Term Stock Incentive Plan.
The Board authorized Mr. Smith, as lead director, to receive an annual cash
retainer fee of $22,000 and 1,300the same annual cash retainer fees for each
committee and chair assignment as other non-employee directors. In 2003 Mr.
Smith received a prorated portion (83.33 percent) of his cash retainer fees in
the same manner as other non-employee directors. Mr. Smith also received equity
compensation in 2003 comprised of the following: 3,507 shares of Common Stock
under the terms of the ALLETE Director Stock Plan. In addition, each non-employee director was paid $1,100 for
each Board, committeePlan; and subsidiary board meeting attended, except that $500
was paid for attendance3,000 stock options and a
performance share award opportunity valued at a second meeting held$10,000 under 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 2001 had an average market price of $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,Plan.
Fifty percent of the stock options granted to non-employee directors receive automatic grants of 1,500 stock options every yearin
2003 vest and performance shares valued at $10,000 every other year. The stock options vest 50
percent afterbecome exercisable on the first year,anniversary of the date of grant,
and the remaining 50 percent aftervest on the second year andanniversary. All stock options
expire on the tenth anniversary of the date of grant. The exercise price for
each grant is the closing salemarket price of ALLETE Common Stock on the date of grant. The
performance periods for performance shares endended on December 31, of the
year following the date of grant.2003. Dividend
equivalents in the form of additional performance shares accrue during the
performance period and are paid only to the extent the underlying grant is
earned. The performance goal of each performance period is based on Total
Shareholder Return for ALLETE in comparison to Total Shareholder Return for 16
diversified electric utilities. Any awards earned are paid out in Common Stock.
6
During the two-year performance period ending December 31, 2001,2003,
shareholders of ALLETE realized Total Shareholder Return of 64.331.8 percent on
their investment in Common Stock, ranking ALLETE thirdseventh among the 16
diversified electric utilities. With this ranking, under the plan,non-employee directors,
other than the directorslead director, each earned 1,358424 shares of Common Stock an awardand the
lead director earned 916 shares of Common Stock, awards equal to 200100 percent of
theirthe respective target performance share award. Fifty percent of this performance
share award was paid in stock at the end of the performance period. The
remaining 50 percent will be paid in stock on December 31, 2004. There will be
no new grants of stock options or performance shares issued to non-employee
directors under the first anniversaryALLETE Director Long-Term Stock Incentive Plan. The shares
of the endCommon Stock paid to directors with respect to 2003 had an average market
price of the performance
period.
PROPOSALS OF SHAREHOLDERS FOR THE 2003 ANNUAL MEETING
All proposals from shareholders to be considered for inclusion in the
Proxy Statement relating to the Annual Meeting scheduled for May 13, 2003 must
be received by the Secretary of ALLETE at 30 West Superior Street, Duluth,
Minnesota 55802, not later than November 19, 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 ALLETE did not have notice prior to February 5, 2003, without
discussion of such matter in the Proxy Statement relating to that Annual
Meeting.
5
$24.90 per share.
COMPENSATION OF EXECUTIVE OFFICERS
The following information describes compensation paid in the years 19992001
through 20012003 for ALLETE's named executive officers.
SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
----------------------- ------------------------------------------------------------------- ------------------------------------------
Awards Payouts
-------------------------- ----------
Name------------------------------ --------- All
Restricted Securities All
andOther
Stock Underlying LTIP Other
PrincipalCompen-
Name and Salary Bonus Awards Options Payouts Comp.sation
Principal Position Year ($) ($) ($) (#) ($) ($)
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
DAVID G. GARTZKE 2003 561,846 544,002 0 74,219 302,962 61,300
Chairman; Chairman, President 2002 515,385 0 0 89,667 99,388 74,195
and CEO of ALLETE 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 33,805Automotive Services
JAMES P. HALLETT 2003 439,808 328,532 0 42,500 169,203 47,104
Executive Vice President; 2002 420,692 153,344 0 42,500 117,912 47,516
Vice President of ADESA, Inc. 2001 361,885 890,565 0 19,350 195,531 34,664
ExecutiveJAMES K. VIZANKO 2003 261,679 265,825 0 23,959 95,384 26,824
Senior Vice President; 2000 288,446 319,899President, 2002 240,769 0 29,520 213,396 38,6970 23,959 87,180 29,498
CFO and Treasurer 2001 183,477 97,235 0 5,863 118,782 21,377
DONALD J. SHIPPAR 2003 263,250 235,639 0 8,371 77,759 28,380
President and CEO of 1999 271,908 276,2102002 231,041 25,132 0 26,004 266,107 32,963
ALLETE 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. SHIPPAR8,371 52,961 29,506
2001 194,654 104,654 0 6,136 88,524 21,336
PHILIP R. HALVERSON 2003 239,429 199,105 0 6,548 60,827 35,114
Retired Vice 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 436,005Secretary 2002 228,077 0 0 55,0646,548 88,998 37,399
and General Counsel 2001 215,484 83,657 0 899,961
Retired Chairman, President 2000 512,754 764,834 0 87,466 38,458 303,564
and CEO 1999 475,939 744,110 0 94,241 197,396 69,477
JOHN E. FULLER 2001 301,056 418,894 0 18,247 328,019 39,625
Retired Executive Vice President; 2000 274,551 447,960 0 28,426 34,653 44,627
President and CEO of AFC 1999 254,923 265,980 0 32,046 78,539 37,6726,875 124,150 29,277
- ------------------------------------------------------------------------------------------------------------------------------------
Amounts shown include compensation earned by the named executive officers, as well as amounts earned but deferred at the
election of those officers. The "Bonus" column is comprised of amounts earned pursuant to the Results Sharing program and the
Executive Annual Incentive Plan. For bonuses paid in Common Stock, the market value of the stock at the time of payment is
included.
Included in thisthe amount shown for Mr. Gartzke is $250,000 paid as a bonus in connection with his election to the office of
President.President of ALLETE.
Included in the amount shown for Mr. Hallett in 2001 is a specialan annual retention bonus of $614,115 awarded at the time he assumed
responsibility$102,550 for all operations under Automotive Services. Included in these amounts2002 and $162,750 for Messrs. Hallett and Fuller are
$133,650 for 2001 and $108,500 for 20002003 paid to each executive in a
combination of stockCommon Stock and cash as annual retention bonuses.cash.
Included in the amount shown for Mr. Fuller forVizanko is $100,000 paid as a bonus in connection with the year 2000 is $119,290 paid in January 2001 for the superior performancesale of AFCALLETE's water services
businesses.
Included in the year 2000 which was inadvertently omitted fromamount shown for Mr. Halverson is $50,000 paid as a bonus in connection with the Compensation Table last year.
sale of ALLETE's water
services businesses.
The amount shown represents the value of 20,000 deferred share units of Common Stock granted on December 18, 2001.
On December
31, 2001, 20,000 shares valued at $504,000 remained deferred under the terms of the grant. Mr. Gartzke receives dividend
equivalents on these deferred share units.
Includes a supplemental payment based upon significantly exceeding multi-year financial performance targets established in
1996.
The amounts shown for 20012003 include the following ALLETE annual contributions for the named executive officers:
Contribution to the Above-Market Interest
Contribution to the Contribution to theAbove-Market Interest
Retirement Savings and Supplemental on Compensation
Flexible Benefit/ Employee Stock Ownership Plan Executive Deferred Under the
Name 401(k) Plans Ownershipand the Flexible Benefit Plan Retirement Plan Executive IncentiveInvestment Plan*
-------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------------------
David G. Gartzke $10,880 $4,658 $22,594 $4,007$21,042 $33,311 $6,947
James P. Hallett 1,7003,100 44,004 0
32,964 0
Robert D. Edwards 10,880 4,658 28,930 6,527
Donnie R. Crandell 10,880 4,658 23,621 0James K. Vizanko 19,342 5,550 1,932
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 35,545 0
-------------------------------------------------------------------------------------------------------------------------------19,342 7,509 1,529
Philip R. Halverson 21,042 3,953 10,119
- ------------------------------------------------------------------------------------------------------------------------------------
* ALLETE 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) $820,575policy premiums are fully paid pursuant to a retirement agreement
described in the Report of the Executive Compensation Committee herein; and (ii) $37,162 ofALLETE has discontinued 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 $28,801 paid as a reimbursement for taxes. All rights under this policy became the property of
ALLETE at the time of Mr. Russell's retirement.investment
program.
67
OPTION GRANTS IN LAST FISCAL YEAR
- -----------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Individual Grants Grant Date Value
- ------------------------------------------------------------------------------------------------------ -------------------------------------------------------------------------------------------------------------------------------------------------------
Number of % of Total
Securities Options Underlying Granted to Exercise or Grant Date
OptionsUnderlying to Employees in Base Price Expiration Present Value
Name Options Granted (#) Fiscal Year ($/Sh) Date ($)
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
David G. Gartzke 16,883 2.2 23.625 Jan. 2, 2011 90,94074,219 10.8 20.51 Feb. 3, 2013 316,626
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 89,19042,500 6.2 20.51 Feb. 3, 2013 181,309
James K. Vizanko 23,959 3.5 20.51 Feb. 3, 2013 102,211
Donald J. Shippar 6,136 0.8 23.625 Jan. 2, 2011 33,052
Edwin L. Russell 55,064 7.0 23.625 Jan. 2, 2011 296,602
John E. Fuller 18,247 2.3 23.625 Jan. 2, 2011 98,2878,371 1.2 20.51 Feb. 3, 2013 35,712
Philip R. Halverson 6,548 0.9 20.51 Feb. 3, 2013 27,934
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Options vest 50 percent on January 2, 2002February 3, 2004 and 50 percent on January 2, 2003.February 3, 2005. Options granted to each of the executives
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 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 12 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 2, 2001)February 3, 2003) of .228..208. The binomial
option valuation method is a complicated mathematical formulamodel premised on immediate exercisability and transferability of the
options, which are not features of ALLETE's options granted to executive officers and other employees. The values shown are
theoretical and do not necessarily reflect the actual values the recipients may eventually realize. Any actual value to the
officer or other employee will depend on the extent to which the market value of ALLETE's Common Stock at a future date exceeds the
exercise price. In addition to the option exercise price, the following assumptions for modeling were used to calculate the
values shown for the options granted in 2001:2003: (i) each option remains outstanding for a period of seven years; (ii) expected
dividend yield is 4.535.51 percent (based on the most recent quarterly dividend); (iii) expected dividend increase is 2 percent;
(iv) expected stock price volatility is .260.297 (based on 504 trading days previous to January 2, 2001)February 3, 2003); and (iv)(v) the risk-free
rate of return is 4.913.81 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
Options at FY-End (#) Options at FY-End ($)
Shares Acquired Value Realized ------------------------------ ------------------------------------------------------ --------------------------
Name on Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
David G. Gartzke 0 0 54,784 29,347 339,894 138,144113,673 113,017 840,029 939,756
James P. Hallett 35,192 291,173 33,484 34,110 111,579 162,578
Robert D. Edwards 0 0 74,577 34,820 380,482 168,933
Donnie R. Crandell 29,238 216,434 30,322 29,678 100,955 143,50388,844 63,750 743,715 533,375
James K. Vizanko 0 0 17,842 35,939 99,831 300,688
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 John E. Fuller 61,403 342,967 0 32,460 0 155,94528,391 12,557 265,626 105,059
Philip R. Halverson 24,683 318,356 23,933 9,822 185,118 82,177
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
78
RETIREMENT PLANS
The following table sets forth examples of the estimated annual retirement
benefits that would be payable to participants in ALLETE's Retirement Plan and
Supplemental Executive Retirement Plan after various periods of service,
assuming no changes to the plans and retirement at the normal retirement age of
65:65.
PENSION PLAN
Years of Service
- ------------------------------------------------------------------------------------------------------------------------------------
Remuneration*Remuneration 15 20 25 30 35
- ------------------------------------------------------------------------------------------------------------------------------------
$100,000 $12,000 $16,000 $30,800 $35,800 $40,800$30,400 $35,400 $40,400
125,000 15,000 20,000 38,500 44,750 51,00038,000 44,250 50,500
150,000 18,000 24,000 46,200 53,700 61,20045,600 53,100 60,600
175,000 21,000 28,000 53,900 62,650 71,40053,200 61,950 70,700
200,000 24,000 32,000 61,600 71,600 81,60060,800 70,800 80,800
225,000 27,000 36,000 69,300 80,550 91,80068,400 79,650 90,900
250,000 30,000 40,000 77,000 89,500 102,00076,000 88,500 101,000
300,000 36,000 48,000 92,400 107,400 122,40091,200 106,200 121,200
400,000 48,000 64,000 123,200 143,200 163,200121,600 141,600 161,600
450,000 54,000 72,000 138,600 161,100 183,600136,800 159,300 181,800
500,000 60,000 80,000 154,000 179,000 204,000152,000 177,000 202,000
600,000 72,000 96,000 184,800 214,800 244,800182,400 212,400 242,400
700,000 84,000 112,000 215,600 250,600 285,600212,800 247,800 282,800
800,000 96,000 128,000 246,400 286,400 326,400243,200 283,200 323,200
900,000 108,000 144,000 277,200 322,200 367,200273,600 318,600 363,600
1,000,000 120,000 160,000 308,000 358,000 408,000304,000 354,000 404,000
- ------------------------------------------------------------------------------------------------------------------------------------
*Represents Represents the highest annualized average compensation (salary and bonus) received for 48 consecutive months during the
employee's last 15 years of service with ALLETE. For determination of the pension benefit, the 48-month period for highest
average salary may be different from the 48-month period of highest aggregate bonus compensation.
Retirement benefit amounts shown are in the form of a straight-life annuity
to the employee and are based on amounts listed in the Summary Compensation
Table under the headings "Salary" and "Bonus." Retirement benefit amounts shown
are not subject to any deduction for Social Security or other offset amounts.
TheALLETE's Retirement Plan provides that the benefit amount at retirement is
subject to adjustment in future years to reflect changes in cost of living
increases to a
maximum adjustment of 3 percent per year. As of December 31, 2001,2003 the executive
officers named in the Summary Compensation Table had the following years of
credited service under the plan:plans:
David G. Gartzke 2729 years Donnie R. Crandell 21Donald J. Shippar 27 years
James P. Hallett 79 years Donald J. Shippar 25Philip R. Halverson 27 years
Robert D. EdwardsJames K. Vizanko 26 years
Edwin L. Russell 7 years
John E. Fuller 7 years
In 2001 the Board established for ALLETE's top four executives if
they remainIf either Mr. Gartzke or Mr. Hallett remains 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 benefits which may be
paid to an employee under theALLETE's Retirement Plan to $140,000$160,000 for 2001.2003. This
amount is subject to adjustment in future years to reflect changes in cost of
living increases.living. ALLETE's Supplemental Executive Retirement Plan provides for
supplemental payments by ALLETE to eligible executives (including the executive
officers named in the Summary Compensation Table) in amounts sufficient to
maintain total retirement benefits upon retirement at a level which would have
been provided by theALLETE's Retirement Plan if benefits were not restricted by the
Code.
89
REPORT OF BOARD'S EXECUTIVE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Described below are the compensation policies of the Executive Compensation
Committee of the Board of Directors (Committee)(Compensation Committee) effective for 20012003
with respect to the executive officers of ALLETE. Composed entirely of
independent outside directors, the Compensation Committee is responsible for
recommending to the Board policies which govern the executive compensation
program of ALLETE and for administering those policies. Since 1995 the BoardThe Compensation
Committee has retained the services of William M. Mercer, Incorporated (Mercer), aoutside benefits and compensation
consulting firm,firms to assist the Compensation Committee in connection with the
performance of such responsibilities.
The role of the executive compensation program is to help ALLETE achieve
its corporate goals by motivating performance, rewarding positive results and
enhancing Total Shareholder Return.Return, as discussed below. Recognizing that the
potential impact an individual employee has on the attainment of corporate goals
tends to increase at higher levels of responsibility within ALLETE, the
executive compensation program provides greater variabilityvisibility in compensating
individuals based on results achieved as their responsibilities within ALLETE
increase. In other words, individuals with the greatest potential impact on
achieving the stated goals have the greatest amount to gain when goals are
achieved and the greatest amount at risk when goals are not achieved.
The program recognizes that, in order to attract and retain the exceptional
executive talent needed to lead and grow ALLETE's businesses, compensation must
be competitive in the national market. To determine market levels of
compensation for executive officers in 2001,2003, the Compensation Committee relied
upon comparative information from general industrial companies in tandem with
available specific industry data (i.e., electric utility, automotive, finance,
water utility, etc.) which was provided and reviewed by Mercer.outside consultants. All data were
analyzed to determine median compensation levels for comparable positions in
comparably sized companies, as measured by revenue.
Internal Revenue
Code Section 162(m) generally disallows a tax deduction to public companies
for compensation over $1 million paid for any fiscal year to each of the
corporation's CEO and four other most highly compensated executive officers as
of the end of any fiscal year. Qualifying performance-based compensation will
not be subject to the deduction limit if certain requirements are met. The stock
options and performance shares granted to the executive officers under the
Executive Long-Term Incentive Compensation Plan are intended to qualify as
performance-based compensation within the meaning of Code Section 162(m). The
Compensation Committee generally intends to structure executive compensation
plans so that the Company may deduct all executive compensation, but reserves
the ability to do otherwise if it is determined to be in the best interests of
the Company and should therefore be fully deductible for
federal income tax purposes.its shareholders.
As described below, executive officers of ALLETE receive a compensation
package which consists of three basic elements: base salary, performance-based
compensation and supplemental executive benefits. The CEO's
compensation of ALLETE's
CEO for the year 2003 is discussed separately.
BASE SALARY
Base salaries are set at a level so that, if the target level of
performance is achieved under the performance-based compensation plans, as described below,the
named executive officers' total compensation, including amounts paid under each
of the performance-based compensation plans described below, will be near the
midpoint of market compensation as described above.compensation.
PERFORMANCE-BASED COMPENSATION
The performance-based compensation plans of ALLETE are intended by the
Compensation Committee to reward executives for achieving financial and
non-financial goals whichthat the Compensation Committee determines will be required
to achieve ALLETE's strategic and budgeted goals.
Performance goals under performance-based plans are established in advance
by the Compensation Committee and the Board of Directors. A target level ofTarget performance
levels under the performance-based plans meetsare achieved if the business unit
exceeds its budget or representsand if ALLETE achieves a Total Shareholder Return ranking in the top half of
the7th or better compared to a peer group described below.of 16 diversified electric utilities.
Total Shareholder Return is defined as stock price appreciation plus dividends
reinvested on the ex-dividend date throughout the relevant performance period,
divided by the fair market value of a share at the beginning of the performance
period. With target performance, it is the Compensation Committee's intent that
executive compensation (including the value of stock options granted) will be
near the midpoint of the relevant market. If no performance awards are earned
and no value is attributed to the
10
stock options granted, compensation of ALLETE's executive officers would be
significantly below the midpoint market compensation level, while performance at
increments above the target level willwould result in total compensation above the
midpoint of the market.
9
ALLETE's performance-based compensation plans include:
- RESULTS SHARING. Employees of ALLETE's energy services and real estate
businesses and ALLETE's corporate group are eligible to participate in
ALLETE's Results Sharing program. The Results Sharing awards areaward opportunities
for 2003 were based on corporate
earnings per sharenet income from continuing operations (including
gains from the sale of ALLETE's water services businesses) and business
unit operating income. Awards were
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 safety and environmental protection
goals established by the Compensation Committee are also accomplished. The
results shown in the Summary Compensation Table reflect earned awards
averaging 12 percent of base salary.
- EXECUTIVE ANNUAL INCENTIVE PLAN. The Executive Annual Incentive Plan is
intended to focus executive attention on meeting and exceeding annual
financial and non-financial business unit goals established by the
Compensation Committee. For 20012003 financial goalsperformance measures were
business unit contributions to net income from continuing operations and
operating free cash flow and earnings per
share.flow. These financial performance measures were chosen
by the Compensation Committee because of their positive correlation over
time with the Total Shareholder Return achieved by ALLETE for its
shareholders. Target level performance is earned if budgeted financial
results are achieved.exceeded. The 2003 financial and non-financial results exceeded
budgeted goals set by the Executive Compensation Committee. The results
shown onin the Summary Compensation Table reflect financial operating performance by business units in 2001earned awards ranging from
below budget37.1 percent to substantially above budget.76.8 percent of base salary.
- EXECUTIVE LONG-TERM INCENTIVE COMPENSATION PLAN (LTIP). Under the Executive Long-Term
Incentive Compensation Plan,LTIP, the
executive officers other than the
CEO, of ALLETE have been awarded stock options annually(which are
granted annually) and performance shares biennially(which are granted in
even-numbered years) having in the aggregate target award values ranging
from 2540 percent to 50100 percent of theirthe executive officers' annual base
salaries. The target award value for Mr. Hallett and Mr. Vizanko has been
allocated 70 percent to stock options and 30 percent to performance shares.
The target award value for Mr. Shippar and Mr. Halverson has been allocated
50 percent to stock options willand 50 percent to performance shares. The stock
options have value only if ALLETE'sthe Common Stock price appreciates.appreciates above the
price on the date of grant. The performance shares granted to the corporate group for the two-year
performance period ending December 31, 2001 had2003 have value ifbecause the Total
Shareholder Return of ALLETE over the two-year period ranked at least 11th
in the third
quartile of a peer group of 16 diversified electric utilities adopted by the
Compensation Committee as appropriate comparators. Twenty-five percent of
the performance share award to business unit executives was based on
the foregoing ranking and 75 percent was 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 afterat
the end of the performance period and the remaining 50 percent on the first
anniversary thereof. For the two-year performance period ending December
31, 2001,2003, shareholders of ALLETE realized a Total Shareholder Return of
64.331.8 percent on their investment in Common Stock, ranking ALLETE third7th among
the 16-member peer group. The LTIP payout for 20012003 shown in the Summary
Compensation Table includes a payoutpayment of the first 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, 25 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 eleventh among a peer group of 16
utilities.2003.
The Compensation Committee has determined that these awards under the
performance-based compensation plans are consistent with its philosophy of
aligning executive officers' interests with those of shareholders and to the
performance of ALLETE.
SUPPLEMENTAL EXECUTIVE BENEFITS
ALLETE has established a Supplemental Executive Retirement Plan (SERP) to
compensate certain employees, including the executive officers, equitably by
replacing benefits not provided by ALLETE's Flexible Benefit Plan and the Employee Stock Ownership PlanRSOP
due to government-imposed limits and to provide retirement benefits which are
competitive with those offered by other businesses with which ALLETE competes
for executive 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 approvedThe SERP also
provides certain executive employees with a Retirement Agreement40 percent
11
supplemental tax benefit if a change 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 endcontrol of the year, 8/12 of his annual bonus forCompany results in the
year 2000 which
was paid in lieu of an annual bonus for 2001, the last 25 percenttermination of the Long-Term Incentivecovered executives' employment and an immediate distribution
in full of the covered executives' SERP account and/or Executive Investment Plan
awarddeferral account. The supplemental tax benefit applies only if the covered
executive employee is not eligible for early retirement at 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,time of the
time-period
for exercise of Mr. Russell's stock options was extended to three years from the
date of his retirement.change-in-control event.
CHIEF EXECUTIVE OFFICER COMPENSATION
On 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 $270,000The Compensation Committee has endeavored to $475,000, (ii) paid him a $250,000 bonus, 60 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 Table), half of
which will be earned if Mr. Gartzke remains ALLETE's topprovide its chief executive
officer through 2002 andwith a compensation package that is at the remainder50th percentile of
which will be earned if he remains through
2003.compensation paid by comparably-sized general industrial companies with revenue
comparable to the Company. The Compensation Committee has designed Mr. Gartzke'sthe CEO's
compensation package to provide substantial incentive to achieve and exceed the
Board's financial performance goals for ALLETEthe Company and Total Shareholder Return
goals for ALLETE'sthe Company's shareholders.
Under ALLETE's Results Sharing Plan,In June 2003 the Board of Directors increased Mr. Gartzke's annual base
salary 4 percent to move his base salary toward the median of salaries of chief
executive officers of comparably-sized companies. In 2003 Mr. Gartzke was
awarded $19,352,$71,130, or 612.7 percent of his annual salary, paid in 2001,under ALLETE's Results
Sharing program. This Results Sharing award was based 50 percent on corporate
earnings
per sharenet income from continuing operations (including gains from the sale of ALLETE's
water services businesses) and 50 percent on an average of business unit Results
Sharing awards. Under the Executive Annual Incentive Plan in 2001,2003, Mr. Gartzke
earned an award of $220,238,$472,872, or 4682.7 percent of his year-endannual salary, which
rewarded Mr. Gartzke for achieving 20012003 corporate earnings per share resultsnet income from continuing
operations (excluding gains from the sales of ALLETE's water services
businesses) that were at target,above budget, as well as for achievement of non-financial
strategic goals established by the Compensation Committee.
Mr. Gartzke'sThe compensation of the CEO also containedcontains elements which motivatedmotivate him to
focus on the longer-term performance of ALLETE. Under the Long-Term Incentive
Compensation Plan (LTIP),Company. In 2003 under the LTIP, Mr.
Gartzke's annualizedGartzke was awarded annual target opportunities for the
two-year performance period ending December 31, 2001 were valued at 50with a value equal to 150
percent of his base salary. This value ishas been allocated 70 percent to stock
options awarded
annually(which are granted annually) and 30 percent to performance shares awarded(which
are granted in even-numbered years.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 20012003 shown in the Summary Compensation
Table includes a final payout of 25
percentpayment of the award earned for the performance period ending December 31, 1999
and an initialfirst 50 percent of the award earned for the
performance period ending December 31, 2001. In recognition2003.
On January 21, 2004 the Board of Directors elected Mr. Gartzke's promotionShippar President
and CEO of ALLETE. Mr. Gartzke continues to the officeserve as Chairman of chief executive officerALLETE. The
Board appointed Mr. Gartzke President and CEO 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. Gartzke's annualized LTIP target
opportunity for the two-year performance period commencing January 1, 2002 was
increased to 150 percentAutomotive Services as
of his salary.July 9, 2003.
March 26, 200225, 2004
Executive Compensation Committee
Donald C. Wegmiller, Chairman Dennis E. Evans
Kathleen A. BrekkenChair
Thomas L. Cunningham
Nick Smith
11Deborah L. Weinstein
12
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth the Company securities available for
issuance under ALLETE's equity compensation plans as of December 31, 2003.
EQUITY COMPENSATION PLAN INFORMATION
- ---------------------------------------------------------------------------------------------------------------
Number of Securities Number of Securities
to be Issued Upon Weighted-Average Remaining Available
Exercise of Exercise Price of for Future Issuance
Outstanding Options, Outstanding Options, Under Equity
Plan Category Warrants and Rights Warrants and Rights Compensation Plans
- ---------------------------------------------------------------------------------------------------------------
Equity Compensation 2,284,343 $21.49 5,276,157
Plans Approved by
Security Holders
Equity Compensation 0 N/A 0
Plans Not Approved
by Security Holders
- ---------------------------------------------------------------------------------------------------------------
Total 2,284,343 $21.49 5,276,157
- ---------------------------------------------------------------------------------------------------------------
Excludes the number of securities to be issued upon exercise of outstanding options, warrants and rights.
The amount shown includes: (i) 4,295,019 shares available for issuance under the LTIP in the form of
options, rights, restricted stock, performance units and shares, or other grants as approved by the
Executive Compensation Committee; (ii) 138,992 shares available for issuance under the Director Long-Term
Stock Incentive Plan in the form of options and performance shares; (iii) 364,325 shares available for
issuance under the Director Stock Plan as payment for a portion of the annual retainer payable to
non-employee directors; and (iv) 477,821 shares available for issuance under the ALLETE and Affiliated
Companies Employee Stock Purchase Plan. Shares available for issuance under the LTIP may be increased by
shares purchased on the open market, tendered to exercise options or withheld to satisfy tax withholding
requirements in connection with LTIP awards.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors consistingis comprised of four
independent,six
non-employee directors,Directors, each of whom has been determined by the Board to be
"independent" under ALLETE's Corporate Governance Guidelines and within the
meaning of the rules of both the NYSE and the SEC. The Board has also determined
that each member of the Audit Committee is financially literate and that Mr.
Green is an "audit committee financial expert" within the meaning of the rules
of the SEC. The Audit Committee operates pursuant to a written charter that was
amended and restated in January 2004. The current Audit Committee Charter is
attached as an Appendix to this Proxy Statement and is also available on the
Company's website at http://www.allete.com. The Audit Committee assists the
Board in carrying out itsBoard's oversight responsibilities forof the integrity of ALLETE's financial reporting process,reports, compliance
with legal and regulatory requirements, the qualifications and independence of
the independent auditors, the audit process and internal controls. The Audit
Committee reviews and recommends to the Board of Directors: (i)Directors that the audited
financial statements be included in ALLETE's Annual Report on Form 10-K;10-K.
During 2003 the Audit Committee met and (ii)held separate discussions with
members of ALLETE's management and the selectionCompany's independent auditor,
PricewaterhouseCoopers, regarding certain audit activities and the plans for and
results of selected internal audits. The Audit Committee reviewed the quarterly
financial statements. It reviewed the adequacy of the systems of internal
controls, and the Company's compliance with laws and regulations. It also
reviewed the Company's process for communicating its code of business conduct
and ethics. The Audit Committee approved the appointment of
PricewaterhouseCoopers as the Company's independent auditorsauditor for the year 2004,
subject to auditshareholder ratification. The Company's independent auditor provided
to the booksAudit Committee the written disclosures required by Independence
Standards Board Standard No. 1 (Independence Discussions with Audit Committees)
and records of ALLETE.the Audit Committee discussed with the independent auditor the firm's
independence.
The Audit Committee has: (i) reviewed and discussed ALLETE's audited
financial statements for the year ending December 31, 20012003 with ALLETE's
management and with ALLETE's independent auditors; (ii) met with management to
discuss all financial statements prior to their issuance and to discuss
significant accounting issues; and (iii) discussed with ALLETE's independent
auditors the matters required to be discussed by SAS 61 (Codification of
Statements on Auditing Standards) which include, among other items, matters
related to the conduct of the audit of ALLETE's financial statements; and (iv)
received and discussed the written disclosures and the letter from ALLETE's
independent auditors required by Independence Standards Board Statement No. 1
(independence discussions with audit committees) which relatestatements. Management
represented to the auditor's
independence from ALLETE.Audit Committee that the Company's consolidated financial
statements were prepared in accordance with generally accepted accounting
13
principles in the United States of America. Based on the above-mentioned review
and discussions, with management
and the independent auditors, the Audit Committee recommended to the Board of Directors that
the audited financial statements be included in ALLETE's Annual Report on Form
10-K for the fiscal year ended December 31, 20012003, for filing with the SecuritiesSEC.
AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
The Audit Committee has implemented pre-approval policies and Exchange Commission.
Management has advisedprocedures
related to the provision of audit and non-audit services by the independent
auditor. Under these procedures, the Audit Committee pre-approves both the type
of services to be provided by the independent auditor and the estimated fees
related to these services. During the pre-approval process, the Audit Committee
considers the impact of the types of services and the related fees on the
independence of the auditor. The services and fees must be deemed compatible
with the maintenance of the auditor's independence, including compliance with
SEC rules and regulations.
The Audit Committee will, as necessary, consider and, if appropriate,
pre-approve the provision of additional audit and non-audit services by the
independent auditor that PricewaterhouseCoopers
LLP'swere not encompassed by the Audit Committee's annual
pre-approval and that are not prohibited by law. The Audit Committee has
delegated to the Chair of the Audit Committee the authority to pre-approve, on a
case-by-case basis, these additional audit and non-audit services, provided that
the Chair shall report any decisions to pre-approve such services to the Audit
Committee at its next regular meeting.
AUDIT AND NON-AUDIT FEES
The following table presents fees for professional audit services rendered
by PricewaterhouseCoopers for the yearaudit of ALLETE's annual financial statements
for the years ended December 31, 2001 were as follows ($ millions):
Audit2003 and December 31, 2002, and fees $1.1
Financial information systems designbilled for
other services rendered by PricewaterhouseCoopers during those periods. Certain
amounts for 2002 have been reclassified to conform to the 2003 presentation.
2003 2002
--------------------------------
Audit Fees $1,300,000 $1,100,000
Audit Related Fees 100,000 200,000
Tax Fees 1,000,000 1,000,000
All Other Fees 0 0
--------------------------------
Total $2,400,000 $2,300,000
Audit fees consisted of audit work performed in the preparation of
financial statements, as well as work generally only the independent
auditor can reasonably be expected to provide, such as statutory audits.
Audit related fees consisted of assurance services, including audits of
employee benefit plans and special procedures related to regulatory
filings in 2002 and 2003.
Tax fees were comprised of (i) tax compliance services, including
assistance with the preparation of tax returns and claims for tax refunds,
and (ii) tax consultation and planning services, including assistance with
tax audits and appeals, tax advice relating to mergers and acquisitions
and employee benefit plans, and request for ruling or technical advice
from taxing authorities. In 2003 tax compliance services totaled $500,000,
and tax consulting and planning services totaled $500,000. In 2002 tax
compliance services totaled $600,000, and tax consulting and planning
services totaled $400,000.
All audit and implementation fees $0.0
All other fees $1.2
All other fees in the foregoing table are comprised of $1 million for various
taxnon-audit services and $0.2 millionfees for audits of employee benefit plans, work related
to stock and debt offerings, and consultations on various accounting matters.2003 were pre-approved by the
Audit Committee. We have considered and determined that the provision of the
non-audit services noted in the foregoing tableabove is compatible with maintaining
PricewaterhouseCoopers LLP'sPricewaterhouseCoopers' independence.
March 26, 200225, 2004
Audit Committee
Bruce W. Stender, Chair
Glenda E. HoodWynn V. Bussmann
Thomas L. Cunningham
Dennis O. Green
Peter J. Johnson
George L. Mayer
1214
- --------------------------------------------------------------------------------
ITEM NO. 2 - RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The Audit Committee of the Board of Directors of ALLETE recommends
shareholder ratification of the appointment of PricewaterhouseCoopers as
independent auditors for ALLETE for the year 2004. PricewaterhouseCoopers has
acted in this capacity since October 1963.
A representative of PricewaterhouseCoopers will be present at the Annual
Meeting, will have an opportunity to make a statement if he or she so desires
and will be available to respond to appropriate questions.
In connection with the 2003 audit, PricewaterhouseCoopers reviewed ALLETE's
annual report, examined the related financial statements, and reviewed interim
financial statements and certain filings of ALLETE with the Federal Energy
Regulatory Commission and the SEC.
The Board of Directors recommends a vote "FOR" ratifying the appointment of
PricewaterhouseCoopers as ALLETE's independent auditors for 2004.
ALLETE COMMON STOCK PERFORMANCE
The following graph compares ALLETE's cumulative Total Shareholder Return
on its Common Stock with the cumulative return of the S&P 500 Index and the
S&P UtilitiesPhiladelphia Stock Exchange Utility Index a capitalization-weighted index of 27 stocks, which is
designed to measure the performance of the electric power utility company sector
of the S&P 500 Index.(Philadelphia Utility 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
Philadelphia Utility Index is a capitalization-weighted index of 20 utility
companies involved in the production of electrical energy. The calculations
assume a $100 investment on December 31, 19961998 and reinvestment of dividends on
the ex-dividend date.
[GRAPHIC MATERIAL OMITTED-PERFORMANCE[GRAPH OMITTED - TOTAL SHAREHOLDER RETURN PERFORMANCE GRAPH]
TOTAL SHAREHOLDER RETURN FOR THE FIVE YEARS ENDING DECEMBER 31, 20012003
1996 1997
1998 1999 2000 2001 --------------------------------------------------------------------------------2002 2003
----------------------------------------------
ALLETE $100 $169 $179 $146 $226 $240
S&P Utilities Index (Electric) $100$81 $126 $146 $118 $181 $166$134 $126 $177
S&P 500 Index $100 $133 $171 $208 $189 $166$121 $110 $97 $76 $97
Philadelphia Utility Index $100 $82 $124 $108 $88 $110
- --------------------------------------------------------------------------------
ITEM NO. 2 - APPOINTMENT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The Audit Committee of the Board of Directors of ALLETE has
recommended the appointment of PricewaterhouseCoopers LLP as independent
auditors for ALLETE for the year 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 2001 audit, PricewaterhouseCoopers LLP reviewed
ALLETE's annual report, examined the related financial statements, and reviewed
interim financial statements and certain filings of ALLETE with the Federal
Energy Regulatory Commission and the Securities and Exchange Commission.
The Board of Directors recommends a vote "FOR" the appointment of
PricewaterhouseCoopers LLP as ALLETE's independent auditors for 2002.
13
- --------------------------------------------------------------------------------
ITEM NO. 3 - APPROVAL OF RESERVATION OF ADDITIONAL SHARES UNDER THE
ALLETE EXECUTIVE LONG-TERM INCENTIVE COMPENSATION PLAN
- --------------------------------------------------------------------------------
Shareholders are asked to approve an amendment to the ALLETE Executive
Long-Term Incentive Compensation Plan (Plan) increasing the number of shares of
ALLETE Common Stock authorized for issuance thereunder by a total of three
million shares. As a result, 4,252,746 shares will be available for issuance
under the Plan. 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 its
subsidiaries currently participate in the Plan. The following summary of the
principal provisions of the Plan is not a complete description of all of its
terms and provisions.
The Board of Directors recommends a vote "FOR" the 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 (Committee) of the Board of Directors, 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 connection 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 151,588 shares of 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 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 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 March 15
2002 the closing price on the New York Stock Exchange of Common Stock was
$27.95 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 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 are 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
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
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 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 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 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 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 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 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 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
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 distributions 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 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 shareholder 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 orderso that the
necessary vote may be present at the meeting. We respectfully request that you
vote your Proxy at your earliest convenience either by signing and returning the
accompanying Proxy Card by mail, or by following the enclosed
instructions on the Proxy
Card to vote by phonea toll-free telephone call or the Internet.online.
By order of the Board of Directors,
Dated March 26, 2002
Philip R. Halverson
Philip R. HalversonDeborah A. Amberg
Deborah A. Amberg
Vice President, General Counsel and Secretary
17March 25, 2004
Duluth, Minnesota
DELIVERY OF PROXY MATERIALS TO HOUSEHOLDS
Only one copy of ALLETE's Proxy Statement for the 2004 Annual Meeting of
Shareholders and one copy of the 2003 ALLETE Annual Report, which includes
financial statements, will be delivered to an address where two or more related
shareholders reside, unless ALLETE has received contrary instructions from a
shareholder at the address. A separate Proxy Card and a separate notice of the
Annual Meeting of Shareholders will be delivered to each shareholder at the
shared address.
If you are a shareholder who lives at a shared address and you would like
additional copies of this Proxy Statement or the 2003 ALLETE Annual Report,
contact ALLETE Shareholder Services, 30 West Superior Street, Duluth, MN
55802-2093, telephone number 1-800-535-3056 or 1-218-723-3974, and we will
promptly mail you copies.
If you share the same address with other ALLETE shareholders and you
currently receive multiple copies of annual reports or proxy statements, you may
request delivery of a single copy of future annual reports and proxy statements
at any time by calling ALLETE Shareholder Services at 1-800-535-3056 or by
writing to ALLETE's Stock Transfer Agent, Wells Fargo Bank Minnesota, N.A.,
Shareowner Services, Attn: Householding, P.O. Box 64854, St. Paul, MN
55164-0854.
If you did not receive the 2003 ALLETE Annual Report, please notify ALLETE
Shareholder Services, 30 West Superior Street, Duluth, MN 55802-2093, telephone
number 1-800-535-3056 or 1-218-723-3974, and a copy will be sent to you.
Many brokerage firms and other holders of record have procedures for the
delivery of single copies of company documents to households with multiple
shareholders. If your family has one or more "street name" accounts under which
you beneficially own shares of ALLETE Common Stock, please contact your broker,
financial institution, or other holder of record directly if you require
additional copies of the Proxy Statement or ALLETE's 2003 Annual Report, or if
you have other questions or directions about your "street name" account.
16
APPENDIX
ALLETE, INC.
BOARD OF DIRECTORS
AUDIT COMMITTEE CHARTER
EFFECTIVE JANUARY 20, 2004
PURPOSES AND ROLE OF COMMITTEE
The purposes of the Audit Committee (Committee) of the Board of Directors
(Board) of ALLETE, Inc. (Company) are to: (A) assist the Board's oversight of
(1) the integrity of the Company's financial statements, (2) the Company's
compliance with corporate policies and procedures, (3) the Company's compliance
with legal and regulatory requirements, (4) the independent auditor's
qualifications and independence, and (5) the performance of the Company's
internal audit function and independent auditors; and (B) prepare the report
that Securities and Exchange Commission (Commission) rules require to be
included in the Company's annual proxy statement.
The role of the Committee is oversight. Management and the internal audit
department are responsible for maintaining and evaluating appropriate accounting
and financial reporting principles and policies, as well as internal controls,
processes, systems, corporate policies and procedures designed to assure
compliance with accounting standards, corporate policies and applicable laws and
regulations. The independent auditors are responsible for auditing the financial
statements and assessing the Company's internal controls. Consequently, in
carrying out its oversight responsibilities, the Committee is not providing any
certification as to the independent auditors' work or the work or report of any
expert. Each member of the Committee shall be entitled to reasonably rely on the
integrity of people and organizations from which the Committee receives
information and the accuracy of such information.
COMMITTEE MEMBERSHIP
The Committee shall consist of three or more members of the Board, each of whom
(A) satisfies the requirements for independence pursuant to law and the listing
standards of the New York Stock Exchange (NYSE), and (B) is financially literate
as required by the listing standards of the NYSE. At least one Committee member
shall have accounting or related financial management expertise as required by
the listing standards of the NYSE. Committee members may not serve on audit
committees of more than two other publicly traded companies. Committee members
shall serve at the pleasure of the Board and for such term or terms as the Board
may determine.
COMMITTEE STRUCTURE AND OPERATIONS
The Board shall designate one member of the Committee as its Chair. The
Committee shall meet at least quarterly at a time and place determined by the
Board or the Committee Chair, with further meetings to occur when deemed
necessary or desirable by a majority of the Committee or its Chair. The
Committee will meet periodically in executive session without management
present.
A majority of the Committee members currently holding office constitutes a
quorum for the transaction of business. The Committee shall take action by the
affirmative vote of a majority of the Committee members present at a duly held
meeting. The Committee may meet in person or telephonically, and may act by
unanimous written consent when deemed necessary or desirable by the Committee or
its Chair. The Committee may recommend to the Board procedures to be observed in
executing its responsibilities. The Committee may invite such members of
management to its meetings as it may deem desirable or appropriate.
COMMITTEE DUTIES AND RESPONSIBILITIES
The duties and responsibilities of the Committee are to:
1. Appoint, retain and terminate, and approve fees and terms of retention of
the public accounting firm serving as the Company's independent auditors
(subject to ratification by Company shareholders if deemed appropriate).
The Committee shall be responsible for the oversight of the independent
accounting firm engaged by the Company for the purpose of preparing or
issuing an audit report or related work or
A-1
performing other audit, review or attest services, including resolution of
disagreements between management and the independent accounting firm
regarding financial reporting. The Committee shall pre-approve any audit
and non-audit services by the independent auditors as required by
applicable law and the rules of the NYSE. The Committee shall directly
implement these responsibilities.
2. Instruct the independent auditors that they are to report directly to the
Committee, and provide that they are ultimately responsible to the
Committee and the Board.
3. Review with the independent auditors the scope of the prospective audit,
the estimated fees therefor and such other matters pertaining to such audit
as the Committee may deem appropriate. Receive copies of the annual
comments from the outside auditors on accounting procedures and systems of
control. Recommend to the Board the acceptance of such audits that are
accompanied by certification.
4. Meet separately, periodically, with management, with the senior internal
audit executive and with the independent auditors.
5. Review and discuss with management and the independent auditor, before
filing with the Commission, the annual audited financial statements and
quarterly financial statements, including the Company's disclosures under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
6. Review and discuss earnings press releases, as well as financial
information and earnings guidance provided to analysts and rating agencies.
7. Advise management, the internal audit department and the independent
auditors that they are expected to provide to the Committee a timely
analysis of and opportunity to review (A) major issues regarding accounting
principles and financial statement presentations, including any significant
changes in the Company's selection or application of accounting principles,
and major issues as to the adequacy of the Company's internal controls and
any special audit steps adopted in light of material control deficiencies;
(B) compliance with the Company's policies and procedures; (C) analyses
prepared by management and/or the independent auditor setting forth
significant financial reporting issues and judgments made in connection
with the preparation of the financial statements, including analyses of the
effects of alternative generally accepted accounting principles (GAAP)
methods on the financial statements; (D) the effect of regulatory and
accounting initiatives, as well as off balance sheet structures, on the
financial statements of the company; and (E) the type and presentation of
information to be included in earnings press releases (paying particular
attention to any use of "pro forma," or "adjusted" non-GAAP, information),
as well as review any financial information and earnings guidance provided
to analysts and rating agencies.
8. Direct management, the internal auditors and the independent auditors to
disclose to the Committee any significant risks and exposures; discuss
policies with respect to risk assessment and risk management.
9. Review with the independent auditors any audit problems or difficulties and
management's response, including any restrictions on the independent
auditor's activities or on access to requested information, any accounting
adjustments that were noted or proposed by the auditor but were "passed"
(as immaterial or otherwise); any communications between the audit team and
the audit firm's national office respecting auditing or accounting issues
presented by the engagement; any "management" or "internal control" letter
issued (or proposed) by the audit firm to Company, and a discussion of the
responsibilities, budget and staffing of the Company's internal audit
function.
10. Review the action taken by management on the internal auditors' and
independent auditors' recommendations.
11. Review with the senior internal audit executive the annual internal audit
plan and scope of internal audits, including the procedure for assuring
implementation of accepted recommendations made by the independent
auditors. Advise the senior internal audit executive that he or she is
expected to provide the Committee with summaries of any significant
identified control issues and management's response thereto, and seek prior
approval of the Committee for any significant changes to the internal audit
department charter, staffing or budget.
A-2
12. Make or cause to be made, from time to time, such other examinations or
reviews as the Committee may deem advisable with respect to the adequacy of
the systems of internal controls and accounting practices of the Company
and its subsidiaries and with respect to current accounting trends and
developments, and take such action with respect thereto as may be deemed
appropriate.
13. Review the appointment, reassignment, and replacement of the senior
internal audit executive.
14. Set clear hiring policies for employees or former employees of the
independent auditors.
15. On a periodic basis, and without others present, meet separately with the
independent auditors, the senior internal audit executive, the controller,
the general counsel, and other members of management as appropriate.
16. Review with management, the independent auditors and the senior internal
audit executive the adequacy of and any significant changes in the internal
controls, the accounting policies procedures or practices of the Company
and its subsidiaries, and compliance with corporate policies, directives
and applicable laws.
17. Ensure that the independent auditor submits on a periodic basis to the
Committee a formal written statement delineating all relationships between
the auditor and the Company that may have a bearing on the auditor's
independence, engage in an active dialogue with the independent auditor
with respect to any disclosed relationships or services that may impact the
objectivity and independence of the independent auditor, and recommend to
the Board any action deemed appropriate in response to the independent
auditor's report to satisfy the Board and the Committee of the independent
auditor's independence.
18. Obtain and review, at least annually, a report by the independent auditor
describing: the independent auditor's internal quality-control procedures;
any material issues raised by the most recent internal quality-control
review, or peer review, of the firm, or by any inquiry or investigation by
governmental or professional authorities, within the preceding five years,
respecting one or more independent audits carried out by the firm, and any
steps taken to deal with any such issues; and (to assess the auditor's
independence) all relationships between the independent auditor and the
Company.
19. Establish procedures for the receipt, retention and treatment of complaints
received by the Company regarding accounting, internal accounting controls,
or auditing matters; and the confidential, anonymous submission by
employees of the Company and its affiliates of concerns regarding
questionable accounting, internal control or auditing matters.
20. Review the status of compliance with laws, regulations, and internal
procedures, contingent liabilities and risks that may be material to the
Company, the scope and status of systems designed to assure Company
compliance with laws, regulations and internal procedures, through
receiving reports from management, legal counsel and other third parties as
determined by the Committee on such matters, as well as major legislative
and regulatory developments which could materially impact the Company's
contingent liabilities and risks.
21. Prepare a report for inclusion in the annual proxy statement that specifies
the Directors who sit on the Committee, describes the Committee's
responsibilities as outlined in this Charter, and discusses how these
responsibilities were discharged during the year.
22. Conduct or authorize investigations into any matters within the Committee's
scope of responsibility, consistent with procedures to be adopted by the
Committee.
23. Review and assess the adequacy of the Committee charter annually.
COMMITTEE REPORTS
1. Report to the Board on a regular basis on the activities of the Committee
and make such recommendations with respect to the above matters as the
Committee may deem necessary or appropriate. This report shall include a
review of any issues that arise with respect to the quality or integrity of
the Company's financial statements, the Company's compliance with legal or
regulatory requirements, the performance and independence of the Company's
independent auditors, or the performance of the internal audit function.
A-3
2. Transmit to the Board notices of Committee meetings, agendas, and meeting
minutes.
3. At the time of or in advance of the Annual Directors Meeting held in May of
each year, present an annual performance evaluation of the Committee, which
shall assess the performance of the Committee in relation to its duties and
responsibilities under this charter, recommend any amendments to this
charter, and set forth the goals and objectives of the Committee for the
ensuing twelve months.
4. Report on matters required by the rules of the Commission to be disclosed
in the Company's annual proxy statement.
DELEGATION OF AUTHORITY
The Committee may, in its discretion, delegate certain of its duties and
responsibilities to a subcommittee of the Committee.
The Committee may delegate to one or more of its members the authority to grant
pre-approvals of auditing and non-audit services to be performed by the
Company's independent auditor subject to such guidelines as the Committee may
determine. Any such decisions to pre-approve shall be presented to the full
Committee at its next following regular meeting.
RESOURCES AND AUTHORITY OF THE COMMITTEE
The Committee shall have the resources and appropriate funding, as determined by
the Committee, to discharge its duties and responsibilities. The Committee shall
have the authority to retain and discharge, and approve fees and other terms and
conditions for retention of independent experts in accounting and auditing,
legal counsel and other experts or advisors. The Committee may direct any
officer or employee of the Company or request any employee of the Company's
independent auditors or outside legal counsel to attend a Committee meeting or
meet with any Committee members.
A-4
"Printed with soy based inks on recycled paper containing at
least 10 percent fibers from paper recycled by consumers."
[RECYCLE LOGO] [LOGO PRINTED WITH SOY INK]
[ALLETE LOGO]
ANNUAL MEETING OF SHAREHOLDERS
TUESDAY, MAY 14, 200211, 2004
10:0030 A.M.
DULUTH ENTERTAINMENT
CONVENTION CENTER
350 HARBOR DRIVE
DULUTH, MN
- --------------------------------------------------------------------------------
[ALLETE LOGO] ALLETE, INC.
30 WEST SUPERIOR STREET
DULUTH, MINNESOTA 55802-2093 PROXY
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL MEETING
ON MAY 14, 2002.11, 2004.
David G. Gartzke and Philip R. HalversonDeborah A. Amberg or either of them, with power of
substitution, are hereby appointed Proxies of the undersigned to vote all shares
of ALLETE, Inc. stock owned by the undersigned at the Annual Meeting of
Shareholders to be held in the auditorium atof the Duluth Entertainment Convention
Center, 350 Harbor Drive, Duluth, Minnesota, at 10:0030 a.m. on Tuesday, May 14,
2002,11,
2004, or any adjournments thereof, with respect to the election of Directors,
ratification of the appointment of independent accountants, the reservation of additional shares
of ALLETE Common Stock to be issued under the Executive Long-Term Incentive
Compensation Plan,auditors 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
named above.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, FOLLOWAUTHORIZE THE INSTRUCTIONSABOVE-NAMED
PROXIES TO VOTE THE SHARES REPRESENTED ON THIS PROXY CARD BY PHONE OR ONLINE AS
DESCRIBED ON THE OTHER SIDE TO RESPOND BY PHONE OR THE INTERNET.SIDE. Shares cannot be voted unless these instructions
are followed, or other specific arrangements are made to have the shares
represented at the meeting. By responding promptly, you may help save the costs
of additional Proxy solicitations.
See reverse for voting instructions.SEE REVERSE FOR VOTING INSTRUCTIONS.
----------
COMPANY #
----------
THERE ARE THREE WAYS TO VOTE YOUR PROXY ----------
COMPANY #
YOUR TELEPHONE OR INTERNET VOTE AUTHORIZES THE NAMED PROXIES TO CONTROL #
VOTE YOUR SHARES IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND ----------
RETURNED YOUR PROXY CARD.PROXY:
VOTE BY PHONE - TOLL FREE - 1-800-240-63261-800-560-1965 - QUICK --- EASY --- IMMEDIATE
- - Use any touch-tone telephone to vote your Proxy 24 hours a day, 7 days a week,
until 11:12:00 a.m.p.m. (CT) on May 13, 2002.10, 2004.
- - You will be prompted to enterPlease have your 3-digit CompanyProxy Card and the last four digits of your Social Security
Number and your 7-digit
Control Number which are located above.
- -available. Follow the simple instructions the voice provides you.
VOTE BY INTERNETONLINE - http://www.eproxy.com/ale/ - QUICK --- EASY --- IMMEDIATE
- - Use the Internet to vote your Proxy 24 hours a day, 7 days a week, until 12:00
p.m. (CT) on May 13, 2002.10, 2004.
- - You will be prompted to enterPlease have your 3-digit CompanyProxy Card and the last four digits of your Social Security
Number and your 7-digit
Control Number which are located aboveavailable. Follow the simple instructions 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 ShareholderShareowner Services
(servicemark), P.O. Box 64873, St. Paul, MN 55164-0873.
YOUR TELEPHONE OR ONLINE VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR SHARES
IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY CARD.
IF YOU VOTE BY PHONE OR INTERNET,ONLINE, PLEASE DO NOT MAIL YOUR PROXY CARDCARD.
- PLEASE DETACH HEREHERE. -
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 2, AND 3.2.
1. Election of Directors: 01 BrekkenBussmann 02 BussmannGartzke 03 EvansGreen 04 GartzkeJohnson
05 HoodMayer 06 JohnsonPeirce 07 MayerRajala 08 RajalaSmith
09 SmithStender 10 StenderWegmiller 11 WegmillerWeinstein
/ / Vote FOR all nominees / / Vote WITHHELD from all nominees
(except as marked)
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY ----------------------
INDICATED NOMINEE, WRITE THE NUMBER(S) OF THE NOMINEE(S)
IN THE BOX PROVIDED TO THE RIGHT.) ----------------------
2. AppointmentRatification of the appointment of PricewaterhouseCoopers LLP as independent
accountants.
/ / For / / Against / / Abstain
3. Reservation of an additional 3 million shares of ALLETE Common Stock for
issuance under the Executive Long-Term Incentive Compensation Plan.auditors.
/ / For / / Against / / Abstain
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.ITEMS 1 AND 2.
---
Address Change? Mark Box / / Date
Indicate changes below:
-----------------------Date
------------------------------
-----------------------------------
-----------------------------------
Signature(s) in Box
Please sign exactly as your name(s)
appears on Proxy. If held in joint
tenancy, all persons must sign.
Trustees, administrators, etc.,
should include title and authority.
Corporations should provide full
name of corporation and title of
authorized officer signing the
Proxy.
- --------------------------------------------------------------------------------
YOU'RE INVITED!
[ALLETE LOGO]
2002
ANNUAL MEETING OF SHAREHOLDERS
DEAR SHAREHOLDER:
I'M PLEASED TO INVITE YOU TO ALLETE'S ANNUAL MEETING OF SHAREHOLDERS ON10:30 A.M. TUESDAY, MAY 14, BEGINNING AT 10 A.M. AT THE11, 2004
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]CENTER
DULUTH, MINNESOTA
Dear Shareholder:
It's my pleasure to invite you to ALLETE's Annual Meeting of Shareholders at
10:30 a.m. on Tuesday, May 11, in the Duluth Entertainment Convention Center.
Our agenda will include business highlights from 2003 and a discussion of
strategic issues facing ALLETE.
Lunch will be served in the DECC's Lake Superior Ballroom after the meeting.
Please make plans to join us May 11. It will be a great opportunity to learn the
latest information about ALLETE and enjoy the camaraderie of your fellow
shareholders.
We look forward to seeing you.
Sincerely,
/s/ DAVIDDavid G. GARTZKE
DAVIDGartzke
David G. GARTZKE
CHAIRMAN, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
REGISTRATION:
Registration begins at 9 a.m. insideGartzke
Chairman of the entrance to the DECC. Parking is free,
so be sure to tell theBoard
PARKING - Free. Tell gate attendant you're a shareholder.
When you register,
you'llREGISTRATION - Begins at 9 a.m. inside DECC entrance. You'll receive a ticket
tofor lunch and a ticket for a chance to win shares of ALLETE stock.
ANNUAL MEETING
TheSCHEDULE - DECC Auditorium doors will open at 9:30 a.m. and the meeting beginswill
begin promptly at 1010:30 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 withinof the DECC.
RESERVATION INSTRUCTIONS
Please complete the card below, detach and mail. If you have questions, callQUESTIONS - Call Shareholder Services toll free at 1-800-535-3056,218-723-3974 or, 218-723-3974.toll-free,
1-800-535-3056.
CANCELLATIONS - If your plans change after you've sent in the reservation card and
you can't attend, please let us know by callingnotify Shareholder Services.
- --------------------------------------------------------------------------------
RESERVATION CARD-COMPLETEPLEASE COMPLETE AND MAIL THIS POSTAGE-PAID RESERVATION CARD AS SOON AS POSSIBLE.
PLEASE DO NOT ENCLOSE WITH YOUR PROXY
- ---------------------------------------------------------------------------------------------------- ------------------------
Each shareholder / / YES,Yes, I WILL ATTENDwill attend the Annual Meeting and the lunch.
Each shareholderDo not enclose this
may bring one guest. Annual Meeting and lunch. card with your proxy.
- -------------------- ------------------------
Please PRINT
clearly your name and your
guest's name.
SHAREHOLDER'S NAME
- --------------------------------------------------------------------------------
GUEST'S NAME
- --------------------------------------------------------------------------------
SHAREHOLDER'S NAME
-Shareholder's Name
-------------------------------------------------------------
Guest's Name
------------------------------------------------------------------
Shareholder's Name
-------------------------------------------------------------
Guest's Name
-------------------------------------------------------------------
GUEST'S NAME
- -------------------------------------------------------------------[ALLETE LOGO]
[GRAPHIC OMITTED - Fim Markings]
-----------------
NO POSTAGE
NECESSARY
IF MAILED
IN THE
UNITED STATES
-----------------
[GRAPHIC OMITTED - Solid bars
below indicia]
----------------------------------------
BUSINESS REPLY MAIL
FIRST CLASS Permit No. 74 Duluth, MN
----------------------------------------
POSTAGE WILL BE PAID BY ADDRESSEE
ALLETE
ATTN: BERNADETTE NELSON
ALLETE
30 WEST SUPERIOR STREETST
DULUTH, MINNESOTAMN 55802-9986
[GRAPHIC OMITTED - Bar Code]
April __, 20022004
Dear Shareholder:
We haveALLETE has not yet received your vote on issues to come before the 2004
Annual Meeting of ALLETE Shareholders on May 14, 2002.11, 2004. Proxy materials were sent to you
on or about March 26, 2002.25, 2004. Please take timea few moments to review the Proxy
materials and vote the enclosed copy of your proxyshares using one of the three options available to you:
1. BY MAIL - Complete the enclosed duplicate proxy cardProxy Card and return it in
the self-addressed stamped envelope;envelope provided;
2. BY TELEPHONE - Call the 800toll-free number listed on the proxy cardProxy Card
and follow the instructions; or
3. INTERNETONLINE - Log onto the web site listed on the proxy cardProxy Card and follow
the instructions.
WeOn behalf of the Board of Directors, we again extend to you a cordial
invitation to attend ALLETE's Annual Meeting of Shareholders to be held in the
auditorium of the Duluth Entertainment Convention Center, 350 Harbor Drive,
Duluth, Minnesota on Tuesday, May 14, 200211, 2004 at 10:0030 a.m.
Your prompt response will beis appreciated.
Sincerely,
Philip R. HalversonDeborah A. Amberg
Vice President, General Counsel
and Secretary
Enclosures