-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UkFUgR6htOOlB/4rbjXpHq6FZbuJaZKRvhPubtbV0uXZgbzw32EH22qp/bhMNUH7 KKZcGc7HWUJKqyHRz2/ucw== 0000066756-00-000012.txt : 20000320 0000066756-00-000012.hdr.sgml : 20000320 ACCESSION NUMBER: 0000066756-00-000012 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000509 FILED AS OF DATE: 20000317 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MINNESOTA POWER INC CENTRAL INDEX KEY: 0000066756 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 410418150 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: SEC FILE NUMBER: 001-03548 FILM NUMBER: 572229 BUSINESS ADDRESS: STREET 1: 30 W SUPERIOR ST CITY: DULUTH STATE: MN ZIP: 55802 BUSINESS PHONE: 2187222641 MAIL ADDRESS: STREET 1: 30 W SUPERIOR STREET CITY: DULUTH STATE: MN ZIP: 55802 FORMER COMPANY: FORMER CONFORMED NAME: MINNESOTA POWER & LIGHT CO DATE OF NAME CHANGE: 19920703 DEF 14A 1 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-11(c) or Section 240.14a-12 Minnesota Power, Inc. - -------------------------------------------------------------------------------- (Name of Registrant as Specified In Its Charter) - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement if other than the Registrant) Payment of Filing Fee (Check the appropriate box): /X/ No fee required. / / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11 (1) Title of each class of securities to which transaction applies: ---------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: ---------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): ---------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: ---------------------------------------------------------------------- (5) Total fee paid: ---------------------------------------------------------------------- / / Fee paid previously with preliminary materials. / / Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: ---------------------------------------------------------------------- (2) Form, Schedule or Registration Statement No.: ---------------------------------------------------------------------- (3) Filing Party: ---------------------------------------------------------------------- (4) Date Filed: ---------------------------------------------------------------------- [GRAPHIC MATERIAL OMITTED] MINNESOTA POWER, INC. NOTICE AND PROXY STATEMENT ANNUAL MEETING OF SHAREHOLDERS [LOGO] Tuesday, May 9, 2000 Duluth, Minnesota [LOGO OF MINNESOTA POWER] March 17, 2000 Dear Shareholder: You are cordially invited to attend Minnesota Power's 2000 Annual Meeting of Shareholders on Tuesday, May 9, 2000 at 10:00 a.m. in the auditorium at the Duluth Entertainment Convention Center (DECC). The DECC is located on the waterfront at 350 Harbor Drive in Duluth. Free parking is available in the adjoining lot. On behalf of the Board of Directors, I encourage you to attend. Minnesota Power's strong 1999 operating results were spurred by significant earnings growth in our automotive and water businesses. This performance reflects the successful implementation of our strategy, "The Drive Toward 2000," crafted in 1995. At our Annual Shareholders Meeting this year, we will share the exciting vision of our new five-year plan, "Horizon 2005." Our goals: market leadership in each of our four businesses, accelerated financial performance, enhanced shareholder return, and completion of our transition to a multi-services company. Now, more than ever, Minnesota Power is more than Minnesota ... and more than power. At the Shareholders Meeting, twelve nominees will stand for election to the Board. This year I am pleased to announce that Ms. Glenda Hood, Mayor of Orlando, Florida, will stand for election to the Board. Over seven years of experience leading Orlando under a strong mayor system provide her with excellent credentials for service on the Board as your representative. Also, shareholders will vote on a resolution to appoint PricewaterhouseCoopers LLP as the Company's independent accountants. After our Annual Meeting, we invite you to visit with our directors, officers and employees over a box lunch in the Lake Superior Ballroom located within the DECC. If you plan to attend, please return the enclosed reservation card. It is important that your shares be represented at the Annual Meeting. Please sign, date and promptly return the enclosed proxy card in the envelope provided, or, if applicable, follow the easy instructions for phone or Internet voting. Thank you for your investment in Minnesota Power. Sincerely, Edwin L. Russell Edwin L. Russell Chairman, President and Chief Executive Officer MINNESOTA POWER, INC. - -------------------------------------------------------------------------------- NOTICE OF ANNUAL MEETING OF SHAREHOLDERS - MAY 9, 2000 - -------------------------------------------------------------------------------- The Annual Meeting of Shareholders of Minnesota Power, Inc. will be held in the auditorium at the Duluth Entertainment Convention Center, 350 Harbor Drive, Duluth, Minnesota, on Tuesday, May 9, 2000 at 10:00 a.m. for the following purposes: 1. To elect a Board of 12 directors to serve for the ensuing year; 2. To approve the appointment of PricewaterhouseCoopers LLP as the Company's independent accountants for 2000; and 3. To transact such other business as may properly come before the meeting or any adjournments thereof. Shareholders of record on the books of the Company at the close of business on March 10, 2000 are entitled to notice of and to vote at the Annual Meeting. All shareholders are cordially invited and encouraged to attend the meeting in person. The holders of a majority of the shares entitled to vote at the meeting must be present in person or by proxy to constitute a quorum. Your early response will facilitate an efficient tally of your votes. If voting by mail, please sign, date and return the enclosed proxy card in the envelope provided. Alternatively, follow the enclosed instructions to vote by phone or the Internet. By order of the Board of Directors, Philip R. Halverson Philip R. Halverson Vice President, General Counsel and Secretary Dated at Duluth, Minnesota March 17, 2000 If you have not received the Minnesota Power 1999 Annual Report, which includes financial statements, kindly notify Minnesota Power 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. MINNESOTA POWER, INC. 30 West Superior Street Duluth, Minnesota 55802 - -------------------------------------------------------------------------------- PROXY STATEMENT - -------------------------------------------------------------------------------- SOLICITATION The proxy accompanying this Proxy Statement is solicited on behalf of the Board of Directors of Minnesota Power, Inc. (Minnesota Power or Company) for use at the Annual Meeting of Shareholders to be held on May 9, 2000 and any adjournments thereof. The purpose of the meeting is to elect a Board of 12 directors to serve for the ensuing year, to approve the appointment of PricewaterhouseCoopers LLP as the Company's independent accountants for 2000 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 17, 2000. Each proxy delivered pursuant to this solicitation is revocable any time before it is voted, by written notice delivered to the Secretary of the Company. The Company expects to solicit proxies primarily by mail. Proxies also may be solicited in person and by telephone at a nominal cost by regular or retired employees of the Company. The expenses of such solicitation are the ordinary ones in connection with preparing, assembling and mailing the material, and also include charges and expenses of brokerage houses and other custodians, nominees, or other fiduciaries for communicating with shareholders. Additional solicitation of proxies will be made by mail, telephone and in person by Corporate Investor Communications, Inc., a firm specializing in the solicitation of proxies, at a cost to the Company of approximately $6,000 plus expenses. The total amount of such costs will be borne by the Company. OUTSTANDING SHARES AND VOTING PROCEDURES The outstanding shares of capital stock of the Company as of March 10, 2000 were as follows: Preferred Stock 5% Series ($100 par value)........................113,358 shares Serial Preferred Stock A $7.125 Series (without par value)........100,000 shares Serial Preferred Stock A $6.70 Series (without par value).........100,000 shares Common Stock (without par value)...............................73,938,169 shares Each share of the Common Stock and preferred stocks of record on the books of the Company at the close of business on March 10, 2000 is entitled to notice of the Annual Meeting and to one vote. The affirmative vote of a majority of the shares of stock entitled to vote at the Annual Meeting is required for election of each director and the affirmative vote of a majority of the shares of stock present and entitled to vote is required for approval of the other items described in this Proxy Statement to be acted upon by shareholders. An automated system administered by Norwest 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" approval of PricewaterhouseCoopers LLP as the Company's independent accountants for 2000. If any other business is transacted at the meeting, all shares represented by valid proxies will be voted in accordance with the best judgment of the appointed Proxies. 1 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table lists the only persons known to the Company who owned beneficially as of March 10, 2000 more than 5 percent of any class of the Company's voting securities. Unless otherwise indicated, the beneficial owners shown have sole voting and investment power over the shares listed.
Number of Shares Percentage Title of Class Name and Address of Beneficial Owner Beneficially Owned of the Class - -------------- ------------------------------------ ------------------ ------------ Serial Preferred ISACO 150,000 75.0% Stock A c/o IDS Trust P.O. Box 1450 Minneapolis, MN 55485 - ------------------------------------------------------------------------------------------------------------------------------------ Serial Preferred HARE & Co. 30,000 15.0% Stock A c/o The Bank of New York P.O. Box 11203 New York, NY 10286 - ------------------------------------------------------------------------------------------------------------------------------------ Serial Preferred Polly & Co. 10,000 5.0% Stock A c/o The Bank of New York P.O. Box 11203 New York, NY 10286 - ------------------------------------------------------------------------------------------------------------------------------------ Serial Preferred Sigler & Co. 10,000 5.0% Stock A Chase Manhattan Bank P.O. Box 35308 Newark, NJ 07101 - ------------------------------------------------------------------------------------------------------------------------------------ Common Stock Mellon Bank, N.A. 8,178,475* 11.1%* One Mellon Bank Center Pittsburgh, PA 15258 - ------------------------------------------------------------------------------------------------------------------------------------ *Mellon Bank holds 8,178,475 shares in its capacity as Trustee of the Minnesota Power and Affiliated Companies Employee Stock Ownership Plan and Trust (ESOP). Generally, these shares will be voted in accordance with instructions received by Mellon Bank from participants in the ESOP.
The following table presents the shares of Common Stock beneficially owned by directors, nominees for director, executive officers named in the Summary Compensation Table appearing subsequently in this Proxy Statement, and all directors and executive officers of the Company as a group, as of March 10, 2000. 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 10, 2000 Beneficial Owner Owned after March 10, 2000 - ---------------- ----- -------------------- ---------------- ----- -------------------- Kathleen A. Brekken 5,763 3,180 Arend J. Sandbulte 71,560 4,496 Merrill K. Cragun 16,936 5,100 Nick Smith 9,009 5,100 Dennis E. Evans 29,777 5,100 Bruce W. Stender 11,965 5,100 Glenda E. Hood 400 0 Donald C. Wegmiller 16,221 5,100 Peter J. Johnson 20,990 5,100 John Cirello 18,717 36,495 George L. Mayer 11,688 4,616 Robert D. Edwards 42,432 45,224 Jack I. Rajala 12,050 5,100 John E. Fuller 11,250 27,990 Edwin L. Russell 140,541 58,097 James P. Hallett 14,403 40,914 All directors and executive officers as a group (26): 561,842 436,697 - ------------------------ Includes (i) shares as to which voting and investment power is shared with the person's spouse: Mr. Cragun - 1,000, Mr. Cirello - 16,717, Mr. Johnson - 20,990, Mr. Russell - 124,863, Mr. Sandbulte - 5,170, Mr. Fuller - 1,928, and all directors and officers as a group - 186,949; (ii) shares owned by the person's spouse: Mr. Cragun - 1,378, Mr. Smith - 50, and all directors and officers as a group - 24,952; and (iii) shares held beneficially for the person's children: Mr. Russell - 10,070; and (iv) shares held as trustee: Mr. Mayer - 400. Each director and executive officer owns only a fraction of 1 percent of any class of Company stock and all directors and executive officers as a group also own less than 1 percent of any class of Company stock.
2 - -------------------------------------------------------------------------------- ITEM NO. 1 - ELECTION OF DIRECTORS - -------------------------------------------------------------------------------- It is intended that the shares represented by the proxy will be voted, unless authority is withheld, "FOR" the election of the 12 nominees for director named in the following section. Directors are elected to serve until the next annual election of directors and until a successor is elected and qualified or until a director's earlier resignation or removal. In the event that any nominee should become unavailable, which is not anticipated, the Board of Directors may provide by resolution for a lesser number of directors or designate substitute nominees, who would receive the votes represented by the enclosed proxy. Nominees for Director Director Since - --------------------- -------------- PHOTO KATHLEEN A. BREKKEN, 50, Cannon Falls, MN. Member 1997 of the Executive Compensation Committee. President 1997 and CEO of Midwest of Cannon Falls, Inc., a wholesale distributor of seasonal gift items, exclusive collectibles, and distinctive home decor, with fifteen showrooms in major markets throughout the United States and Canada. Board of Regents of St. Olaf College in Minnesota. -------------------------------------------------------------------- PHOTO MERRILL K. CRAGUN, 67, Brainerd, MN. President of 1991 Cragun Corp., a resort and conference center. Director of Northern Minnesota Public Television. Vice President of the Minnesota Safety Council. -------------------------------------------------------------------- PHOTO DENNIS E. EVANS, 61, Minneapolis, MN. Member of the 1986 Executive Committee and the Executive Compensation Committee. President and CEO of the Hanrow Financial Group, Ltd., a merchant banking firm. Director of Angeion Corporation. -------------------------------------------------------------------- PHOTO GLENDA E. HOOD, 50, Orlando, FL. Mayor of Orlando - Florida, since 1992. Chief Executive Officer of Orlando's City Administration, Chairman of the City Council, and board member of the Orlando Utilities Commission. Past President of the National League of Cities. -------------------------------------------------------------------- PHOTO PETER J. JOHNSON, 63, Tower, MN. Member of the 1994 Audit Committee. Chairman and CEO of Hoover Construction Company, a highway and heavy construction contractor. Chairman of Michigan Limestone Operations, which quarries and sells limestone on the Great Lakes. Director of Queen City Federal Savings and of Queen City Bancorp, Inc. -------------------------------------------------------------------- 3 Director Since -------------- PHOTO GEORGE L. MAYER, 55, Essex, CT. Member of the Audit 1996 Committee. Founder and President of Manhattan Realty Group which manages various real estate properties located predominantly in northeastern United States. A consultant to the board of directors of Schwaab, Inc., one of the nation's largest manufacturers of handheld rubber stamps and associated products. -------------------------------------------------------------------- PHOTO JACK I. RAJALA, 60, Grand Rapids, MN. Member of the 1985 Executive Committee. Chairman and CEO of Rajala Companies and Director and President of Rajala Mill Company, which manufacture and trade lumber. Director of Grand Rapids State Bank. Board of Regents of Concordia College in Minnesota. -------------------------------------------------------------------- PHOTO EDWIN L. RUSSELL, 55, Duluth, MN. Chairman, 1995 President and CEO of Minnesota Power. Chairman of the Executive Committee. Director of Tennant Co., Edison Electric Institute, the Great Lakes Aquarium at Lake Superior Center, United Way of Greater Duluth and Minnesota Public Radio. -------------------------------------------------------------------- PHOTO AREND J. SANDBULTE, 66, Duluth, MN. Former 1983 Chairman, President and CEO of Minnesota Power. Member of the Executive Committee. Director of St. Mary Land and Exploration Company, and the Community Board of Norwest Bank Minnesota North. Chairman and Director of Iowa State University Foundation. Director and immediate past Chairman of the Great Lakes Aquarium at Lake Superior Center. -------------------------------------------------------------------- PHOTO NICK SMITH, 63, Duluth, MN. Member of the Executive 1995 Committee and the Executive Compensation Committee. Chairman and CEO of Northeast Ventures Corporation, a venture firm investing in northeastern Minnesota. Chairman of Community Development Venture Capital Alliance, a national association. Director of North Shore Bank of Commerce. Director and founding Chair of Great Lakes Aquarium at Lake Superior Center. Of counsel to Fryberger, Buchanan, Smith & Frederick, P.A. -------------------------------------------------------------------- PHOTO BRUCE W. STENDER, 58, Duluth, MN. Chairman of the 1995 Audit Committee. President and CEO of Labovitz Enterprises, Inc. which owns and manages hotel properties. Trustee of the C. K. Blandin Foundation and member of the Chancellor's Advisory Committee for the University of Minnesota Duluth. -------------------------------------------------------------------- PHOTO DONALD C. WEGMILLER, 61, Minneapolis, MN. Chairman 1992 of the Executive Compensation Committee. President and CEO of HealthCare Compensation Strategies, a national executive and physician compensation and benefits consulting firm. Director of LecTec Corporation, Medical Graphics Corporation, Possis Medical, Inc., SelectCare, Inc. and JLJ Medical Devices International, LLC. -------------------------------------------------------------------- 4 BOARD AND COMMITTEE MEETINGS IN 1999 During 1999 the Board of Directors held 5 meetings. The Executive Committee, which held 8 meetings during 1999, provides oversight of corporate financial matters, performs the functions of a director nominating committee, and is authorized to exercise the authority of the Board in the intervals between meetings. Shareholders may recommend nominees for director to the Executive Committee by addressing the Secretary of the Company, 30 West Superior Street, Duluth, Minnesota 55802. The Audit Committee, which held 7 meetings in 1999, recommends the selection of independent accountants, reviews and evaluates the Company's accounting practices, reviews periodic financial reports to be provided to the public and reviews and recommends approval of the annual audit report. The Executive Compensation Committee, which held 4 meetings in 1999, establishes compensation and benefit arrangements for Company officers and other key executives, intended to be equitable, competitive with the marketplace, and consistent with corporate objectives. All directors attended 75 percent or more of the aggregate number of meetings of the Board of Directors and applicable committee meetings in 1999. DIRECTOR COMPENSATION Employee directors receive no additional compensation for their services as directors. In 1999 the Company paid each non-employee director an annual retainer fee of $5,000 and 1,000 shares of Common Stock under the terms of the Company's Director Stock Plan. In addition, each non-employee director was paid $950 for each Board, Committee, and subsidiary board meeting attended, except that $500 was paid for attendance at a second meeting held the same day as another meeting. Each non-employee director who is the Chairman of a Committee received an additional $150 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 1999 had an average market price of $19.64 per share. Under the Director Long-Term Stock Incentive Plan, effective January 1, 1996, non-employee directors receive automatic grants of 1,500 stock options every year and performance shares valued at $10,000 every other year. The stock options vest 50 percent after the first year, the remaining 50 percent after the second year and expire on the tenth anniversary of the date of grant. The exercise price for each grant is the closing sale price of Company Common Stock on the date of grant. The performance periods for performance shares end on December 31, the year following the date of grant. Dividend equivalents in the form of additional performance shares accrue during the performance period and are paid only to the extent the underlying grant is earned. The performance goal of each performance period is based on Total Shareholder Return for the Company in comparison to Total Shareholder Return for 16 diversified electric utilities. During the four-year performance period ending December 31, 1999, shareholders of the Company realized a Total Shareholder Return of 52.2 percent on their investment in Minnesota Power Common Stock, ranking the Company number 10 among the 16 diversified utilities. With this ranking under the plan, the directors each earned 321 shares of Common Stock, an award equal to 62.5 percent of their target performance share award. Fifty percent of this performance share award was paid in stock at the end of the performance period. The remaining 50 percent will be paid in stock, half on the first anniversary of the end of the performance period and half on the second anniversary thereof. PROPOSALS OF SHAREHOLDERS FOR THE 2001 ANNUAL MEETING All proposals from shareholders to be considered for inclusion in the Proxy Statement relating to the Annual Meeting scheduled for May 8, 2001 must be received by the Secretary of the Company at 30 West Superior Street, Duluth, Minnesota 55802, not later than November 16, 2000. In addition, the persons to be named as proxies in the proxy cards relating to that Annual Meeting may have the discretion to vote their proxies in accordance with their judgment on any matter as to which the Company did not have notice prior to February 5, 2001, without discussion of such matter in the proxy statement relating to that Annual Meeting. 5 COMPENSATION OF EXECUTIVE OFFICERS The following information describes compensation paid in the years 1997 through 1999 for the Company's named executive officers. SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------------------------------------------ Annual Compensation Long-Term Compensation ----------------------- ---------------------- Awards Payouts --------------------------- ------- Name Restricted Securities All and Stock Underlying LTIP Other Principal Salary Bonus Award(s) Options Payouts Comp. Position Year ($) ($) ($) (#) ($) ($) ----------------------------------------------------------------------------------------------------------------------------------- Edwin L. Russell 1999 475,939 744,110 0 94,241 197,396 69,477 Chairman, President 1998 423,847 580,285 100,000 40,000 347,318 63,212 and Chief Executive Officer 1997 356,731 700,789 0 27,320 401,138 40,912 James P. Hallett 1999 271,908 276,210 0 26,004 266,107 32,963 Executive Vice President; 1998 236,178 268,570 0 7,480 28,343 30,660 President and CEO of ADESA 1997 209,820 193,600 0 20,432 53,182 13,556 John E. Fuller 1999 254,923 265,980 0 32,046 78,539 37,672 Executive Vice President; President 1998 220,231 251,450 0 6,902 28,343 30,723 and CEO of Automotive Finance Corp. 1997 200,731 190,820 0 15,932 53,182 9,572 Robert D. Edwards 1999 276,308 234,199 0 27,764 93,192 44,403 Executive Vice President; 1998 254,885 223,356 0 8,058 214,942 36,190 President of MP Electric 1997 232,769 176,593 0 12,144 234,233 32,926 John Cirello 1999 240,538 212,320 0 24,346 83,449 30,271 Executive Vice President; President 1998 222,731 172,591 0 7,004 46,220 25,144 and CEO of MP Water Resources 1997 209,874 112,474 109,500 10,432 86,587 26,236 - ------------------------------------------------------------------------------------------------------------------------------------ Amounts shown include compensation earned by the named executive officers, as well as amounts earned but deferred at the election of those officers. The "Bonus" column is comprised of amounts earned pursuant to Results Sharing and the Executive Annual Incentive Plan. The amount shown represents the value of 5,094 shares of restricted Common Stock granted on May 7, 1998 pursuant to the Executive Long-Term Incentive Compensation Plan. The award vested in full on January 2, 2000. On December 31, 1999, 5,094 shares, valued at $86,280, remained restricted. Mr. Russell receives non-preferential dividends on this stock. The amount shown represents the value of 8,000 shares of restricted Common Stock granted on January 2, 1997 pursuant to the Executive Long-Term Incentive Compensation Plan. The award vested in full on January 2, 2000. On December 31, 1999, 2,000 shares, valued at $33,875, remained restricted. Mr. Cirello receives non-preferential dividends on this stock. Includes a supplemental payment based upon significantly exceeding multi-year financial performance targets established in 1996. The amounts shown for 1999 include the following Company contributions for the named executive officers: Annual Company Annual Company Annual Company Contribution to the Contribution to the Contribution to the Supplemental Flexible Benefit/ Employee Stock Executive Name 401(K) Plans Ownership Plan Retirement Plan -------------------- -------------------- ------------------- ------------------- Edwin L. Russell $7,280 $3,751 $58,446 James P. Hallett 1,600 0 31,363 John E. Fuller 3,840 0 33,832 Robert D. Edwards* 7,280 3,751 25,194 John Cirello 16,056 0 14,215 -------------------- *The amount shown in the Summary Compensation Table for Mr. Edwards includes $8,178 of above-market interest on compensation deferred under an executive investment plan. The Company made investments in corporate-owned life insurance which will recover the cost of this above-market benefit if actuarial factors and other assumptions are realized.
6
OPTION GRANTS IN LAST FISCAL YEAR - --------------------------------------------------------------------------------------------------------------------------- Grant Individual Grants Date Value - ---------------------------------------------------------------------------------------------------------- ------------- Number of % of Total Securities Options Underlying Granted to Exercise or Grant Date Options Employees in Base Price Expiration Present Value Name Granted (#) Fiscal Year ($/Sh) Date ($) ----------------------- ----------- ------------ ----------- ---------- ------------- Edwin L. Russell New Options 40,000 4.6 21.9375 Jan. 4, 2009 135,132 New Options 15,890 1.8 21.5000 Jan. 4, 2009 53,681 Replacement Options 19,297 2.2 19.6250 Jan. 2, 2006 65,031 Replacement Options 19,054 2.2 19.6250 Jan. 2, 2007 67,070 James P. Hallett New Options 26,004 3.0 21.9375 Jan. 4, 2009 87,849 John E. Fuller New Options 25,692 2.9 21.9375 Jan. 4, 2009 86,795 Replacement Options 6,354 0.7 16.5625 Jan. 2, 2007 18,490 Robert D. Edwards New Options 27,764 3.2 21.9375 Jan. 4, 2009 93,795 John Cirello New Options 24,346 2.8 21.9375 Jan. 4, 2009 82,248 - --------------------------------------------------------------------------------------------------------------------------- New options vest 50 percent on January 4, 2000 and 50 percent on January 4, 2001. Options granted to the top 7 executives of the Company include a replacement option feature (see note 2 below) and are subject to a change-in-control acceleration provision. Replacement options (also known as ownership retention options or reload options) are intended to encourage share ownership. They typically do not provide stock appreciation opportunity greater than the original options. In addition, they do not result in an increase in equity position, which is the total combined number of shares and options held. Replacement options are granted when the executive uses his shares of Common Stock to fund the exercise price of stock options. One replacement option is granted to replace each share that is delivered by the executive as payment for the purchase price of shares being acquired through the exercise of a stock option. Replacement options become exercisable twelve months after their grant date and terminate on the expiration date of the option that they replace. The exercise price of replacement options is equal to the closing price of Minnesota Power's Common Stock on the grant date of the replacement options. All replacement options granted in 1999 have a replacement option feature. The grant date dollar value of the new options is based on a Minnesota Power binomial ratio (as of January 4, 1999) of .154. The binomial method is a complicated mathematical formula premised on immediate exercisability and transferability of the options, which are not features of the Company's options granted to executive officers and other employees. The values shown are theoretical and do not necessarily reflect the actual values the recipients may eventually realize. Any actual value to the officer or other employee will depend on the extent to which the market value of the Company's Common Stock at a future date exceeds the exercise price. In addition to the option exercise price, and the ten-year term of each option, the following assumptions for modeling were used to calculate the values shown for the new options granted in 1999: expected dividend yield of 4.839 percent (based on the most recent quarterly dividend), expected stock price volatility of .168 (based on 250 trading days previous to January 4, 1999), and the ten-year option term and a risk-free rate of return of 4.65 percent (based on Treasury yields). The grant date dollar value of the replacement options is based on a Minnesota Power binomial ratio determined using assumptions that are materially similar to those applicable to the new options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES - -------------------------------------------------------------------------------------------------------------------------------- Number of Securities Value of Unexercised Underlying Unexercised In-the-Money Shares Acquired Value Realized Options at FY-End (#) Options at FY-End ($) Name on Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable ----------------- --------------- -------------- ----------- ------------- ----------- ------------- Edwin L. Russell 53,780 302,781 20,000 114,241 0 0 James P. Hallett 0 0 24,172 29,744 66,404 0 John E. Fuller 7,690 22,109 11,693 35,497 26,787 2,383 Robert D. Edwards 0 0 27,313 31,793 68,711 0 John Cirello 0 0 20,820 27,848 49,970 0 - --------------------------------------------------------------------------------------------------------------------------------
7 RETIREMENT PLANS The following table sets forth examples of the estimated annual retirement benefits that would be payable to participants in the Company's Retirement Plan and Supplemental Executive Retirement Plan after various periods of service, assuming no changes to the plans and retirement at the normal retirement age of 65: PENSION PLAN Years of Service
----------------------------------------------------------------------------------------------------------------- Remuneration* 15 20 25 30 35 ----------------------------------------------------------------------------------------------------------------- $100,000 $12,000 $26,200 $31,200 $36,200 $41,200 125,000 15,000 32,750 39,000 45,250 51,500 150,000 18,000 39,300 46,800 54,300 61,800 175,000 21,000 45,850 54,600 63,350 72,100 200,000 24,000 52,400 62,400 72,400 82,400 225,000 27,000 58,950 70,200 81,450 92,700 250,000 30,000 65,500 78,000 90,500 103,000 300,000 36,000 78,600 93,600 108,600 123,600 400,000 48,000 104,800 124,800 144,800 164,800 450,000 54,000 117,900 140,400 162,900 185,400 500,000 60,000 131,000 156,000 181,000 206,000 600,000 72,000 157,200 187,200 217,200 247,200 700,000 84,000 183,400 218,400 253,400 288,400 800,000 96,000 209,600 249,600 289,600 329,600 900,000 108,000 235,800 280,800 325,800 370,800 1,000,000 120,000 262,000 312,000 362,000 412,000 1,100,000 132,000 288,200 343,200 398,200 453,200 1,200,000 144,000 314,400 374,400 434,400 494,400 ----------------------------------------------------------------------------------------------------------------- *Represents the highest annualized average compensation (salary and bonus) received for 48 consecutive months during the employee's last 15 years of service with the Company. For determination of the pension benefit, the 48-month period for highest average salary may be different from the 48-month period of highest aggregate bonus compensation.
Retirement benefit amounts shown are in the form of a straight-life annuity to the employee and are based on amounts listed in the Summary Compensation Table under the headings Salary and Bonus. Retirement benefit amounts shown are not subject to any deduction for Social Security or other offset amounts. The Retirement Plan provides that the benefit amount at retirement is subject to adjustment in future years to reflect cost of living increases to a maximum adjustment of 3 percent per year. As of December 31, 1999, the executive officers named in the Summary Compensation Table had the following number of years of credited service under the plan: Edwin L. Russell 5 years Robert D. Edwards 23 years James P. Hallett 5 years John Cirello 5 years John E. Fuller 5 years With certain exceptions, the Internal Revenue Code of 1986, as amended, (Code) restricts the aggregate amount of annual pension which may be paid to an employee under the Retirement Plan to $130,000 for 1999. This amount is subject to adjustment in future years to reflect cost of living increases. The Company's Supplemental Executive Retirement Plan provides for supplemental payments by the Company to eligible executives (including the executive officers named in the Summary Compensation Table) in amounts sufficient to maintain total retirement benefits upon retirement at a level which would have been provided by the Retirement Plan if benefits were not restricted by the Code. 8 REPORT OF BOARDS'S EXECUTIVE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION Described below are the compensation policies of the Executive Compensation Committee of the Board of Directors effective for 1999 with respect to the executive officers of the Company. Composed entirely of independent outside directors, the Executive Compensation Committee is responsible for recommending to the Board policies which govern the executive compensation program of the Company and for administering those policies. Since 1995 the Board has retained the services of William M. Mercer, Incorporated (Mercer), a benefits and compensation consulting firm, to assist the Executive Compensation Committee in connection with the performance of such responsibilities. The role of the executive compensation program is to help the Company achieve its corporate goals by motivating performance, rewarding positive results and enhancing Total Shareholder Return. Recognizing that the potential impact an individual employee has on the attainment of corporate goals tends to increase at higher levels within the Company, the executive compensation program provides greater variability in compensating individuals based on results achieved as their levels within the Company rise. In other words, individuals with the greatest potential impact on achieving the stated goals have the greatest amount to gain when goals are achieved and the greatest amount at risk when goals are not achieved. The program recognizes that, in order to attract and retain exceptional executive talent needed to lead and grow the Company's businesses, compensation must be competitive in the national market. To determine market levels of compensation for executive officers in 1999, the Executive Compensation Committee relied upon comparative information for general industrial companies provided by Mercer. The Committee determined that, because of the Company's diversified operations, general industry data is the most appropriate market benchmark for the executive officers. All data were analyzed to determine median compensation levels for comparable positions in comparably sized companies, as measured by revenue. While the companies represented in the Mercer survey data are not the same as those in the peer group used in the performance graph, the Committee believes that these companies are appropriate for market compensation comparison, primarily because they are approximately the same size as the Company as measured by revenue. Code Section 162(m) generally disallows a tax deduction to public companies for compensation over $1 million paid for any fiscal year to each of the corporation's CEO and four other most highly compensated executive officers as of the end of any fiscal year. Qualifying performance-based compensation will not be subject to the deduction limit if certain requirements are met. The stock options and performance shares granted to the executive officers under the Executive Long-Term Incentive Compensation Plan are intended to qualify as performance-based compensation within the meaning of Code Section 162(m) and should therefore be fully deductible for federal income tax purposes. As described below, executive officers of the Company receive a compensation package which consists of four basic elements: base salary, performance-based compensation, supplemental executive benefits and perquisites. The CEO's compensation is discussed separately. BASE SALARY Base salaries are set at a level so that, if the target level of performance is achieved under the performance-based plans as described below, executive officers' total compensation, including amounts paid under each of the performance-based compensation plans, will be near the midpoint of market compensation as described above. PERFORMANCE-BASED COMPENSATION The performance-based compensation plans of the Company are intended by the Executive Compensation Committee to reward executives for achieving financial and non-financial goals which the Committee determines will be required to achieve the Company's strategic and budgeted goals. Performance goals under performance-based plans are established in advance by the Executive Compensation Committee and the Board of Directors. Target performance meets budgeted financial goals and, in the case of the long-term plan, may for some executives include a Total Shareholder Return goal of at least median performance as measured 9 against the peer group companies described below. Total Shareholder Return is defined as stock price appreciation plus dividends reinvested on the ex-dividend date throughout the relevant performance period, divided by the fair market value of a share at the beginning of the performance period. With target performance, plus the value of stock options granted, executive compensation will be near the midpoint of the relevant market. If no performance awards are earned, and no value is attributed to the stock options granted, compensation of the Company's executive officers would be significantly below the midpoint market compensation level, while performance at increments above the target level will result in total compensation above the midpoint of the market. The Company's performance-based compensation plans include: - RESULTS SHARING. The Results Sharing award opportunity rewards annual performance of the executive's responsibility area as well as overall corporate performance. Awards are available to all employees in the electric, water and corporate groups on the same percentage-of-pay basis. Target financial performance will result in an award of 5 percent of base salary, assuming non-financial goals established by the Executive Compensation Committee are also accomplished. - EXECUTIVE ANNUAL INCENTIVE PLAN. The Executive Annual Incentive Plan is intended to focus executive attention on meeting and exceeding annual financial and non-financial business unit goals established by the Executive Compensation Committee. For 1999, financial goals were business unit contributions to net income, operating cash returns on investment, operating free cash flow, and earnings per share. These financial performance measures were chosen by the Committee because of their positive correlation over time with the Total Shareholder Return achieved by the Company for its shareholders. Target level performance is earned if budgeted financial results are achieved. The results shown on the Summary Compensation Table reflect substantially above-budget financial operating performance of the Company in 1999. - LONG-TERM INCENTIVE PLAN (LTIP). Under the Executive Long-Term Incentive Compensation Plan implemented in 1996, the executive officers, other than the CEO, of the Company have been awarded stock options annually and performance shares biennially having in the aggregate target award values ranging from 30 percent to 50 percent of their base salaries. The value of the award opportunity is allocated between stock options and performance shares. The stock options will have value only if the Common Stock price appreciates. The performance shares granted to the corporate group have value if, in 2 years from the grant date, the Total Shareholder Return of the Company, over a 4-year performance measurement period determined in advance by the Board of Directors, ranks at least 11th in a peer group of 16 diversified electric utilities adopted by the Executive Compensation Committee as appropriate comparators. Twenty-five percent of the performance share award to business unit executives is based on the foregoing ranking, and 75 percent is based on other financial measures selected by the Committee because of their correlation over time with Total Shareholder Return. Dividend equivalents accrue on performance shares during the performance period and are paid in Common Stock only to the extent performance goals are achieved. The maximum payout is 200 percent of the target award. If earned, the performance shares will be paid in Common Stock with 50 percent of the award paid after the end of the performance period, 25 percent on the first anniversary of the end of the performance period and 25 percent on the second anniversary. For the 4-year performance period ending December 31, 1999, shareholders of the Company realized a Total Shareholder Return of 52.2 percent on their investment in Minnesota Power Common Stock, ranking the Company number 10 among the 16-member peer group. The Executive Compensation Committee has determined that these awards are consistent with its philosophy of linking a significant portion of the executive officers' compensation to the performance of the Company as measured by Total Shareholder Return or by other measures of financial performance which correlate over time with Total Shareholder Return. SUPPLEMENTAL EXECUTIVE BENEFITS The Company has established a Supplemental Executive Retirement Plan (SERP) to compensate certain employees, including the executive officers, equitably by replacing benefits not provided by the Company's Flexible 10 Benefit Plan and the Employee Stock Ownership Plan due to government-imposed limits and to provide retirement benefits which are competitive with those offered by other businesses with which the Company competes for executive talent. The SERP also provides employees whose salaries exceed the salary limitations for tax-qualified plans imposed by the Code with additional benefits such that they receive in aggregate the benefits they would have been entitled to receive had such limitations not been imposed. CHIEF EXECUTIVE OFFICER COMPENSATION The Executive Compensation Committee has endeavored to provide Mr. Russell with a compensation package that is at the 50th percentile of compensation paid by general industrial companies with revenue comparable to the Company. The Committee has designed Mr. Russell's compensation package to provide substantial incentive to achieve and exceed the Board's financial performance goals for the Company and Total Shareholder Return goals for the Company's shareholders. In June 1999, the Board of Directors increased Mr. Russell's annual base salary 7.9 percent. Approximately half of this increase was to align his base salary with the median of comparably sized companies and the other half related to his contributions to the performance of the Company. Under the Company's Results Sharing Plan, Mr. Russell was awarded $44,738, or 9.1 percent of his base salary, based 50 percent on earnings performance and 50 percent on an average of business unit Results Sharing awards. Under the Executive Annual Incentive Plan in 1999, Mr. Russell earned an award of $699,372, or 142 percent of his base salary, which rewarded Mr. Russell for achieving 1999 earnings results significantly above target, as well as for achievement of non-financial goals, all established by the Executive Compensation Committee. Mr. Russell's compensation also contains elements which motivate him to focus on the longer-term performance of the Company. Under the Executive Long-Term Incentive Compensation Plan, Mr. Russell was awarded annual target opportunities with a value equal to 80 percent of his base salary. This value has been allocated 70 percent to stock options awarded annually and 30 percent to performance shares awarded in even-numbered years. The stock options and performance shares have the same characteristics as those issued to other executive officers as described above. For the 4-year period ending December 31, 1999, shareholders of the Company realized a Total Shareholder Return of 52.2 percent on their investment, ranking the Company number 10 among the 16-member utility peer group. As a result, Mr. Russell earned performance shares equalling 62.5 percent of the target award. March 17, 2000 Executive Compensation Committee Donald C. Wegmiller, Chairman Kathleen A. Brekken Dennis E. Evans Nick Smith 11 MINNESOTA POWER COMMON STOCK PERFORMANCE The following graph compares the Company's cumulative Total Shareholder Return on its Common Stock with the cumulative return of the S&P 500 Index and the S&P Utilities Index, a capitalization-weighted index of 26 stocks, which is designed to measure the performance of the electric power utility company sector of the S&P 500 Index. The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Because this composite index has a broad industry base, its performance may not closely track that of a composite index comprised solely of electric utilities. The calculations assume a $100 investment on December 31, 1994 and reinvestment of dividends on the ex-dividend date. [GRAPHIC MATERIAL OMITTED - PERFORMANCE GRAPH] Total Shareholder Return for the Five Years Ending December 31, 1999
1994 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- ---- Minnesota Power 100.00 121.12 126.40 213.31 226.37 184.31 S&P Utilities Index (Electric) 100.00 131.09 130.68 164.98 190.50 153.73 S&P 500 Index 100.00 137.54 169.09 225.48 289.93 350.93
- -------------------------------------------------------------------------------- ITEM NO. 2 - APPOINTMENT OF INDEPENDENT ACCOUNTANTS - -------------------------------------------------------------------------------- The Audit Committee of the Board of Directors of the Company has recommended the appointment of PricewaterhouseCoopers LLP as independent accountants for the Company for the year 2000. 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 1999 audit, PricewaterhouseCoopers LLP reviewed the Company's annual report, examined the related financial statements, and reviewed interim financial statements and certain of the Company's filings with the Federal Energy Regulatory Commission and the Securities and Exchange Commission. The Board of Directors recommends a vote "FOR" approving the appointment of PricewaterhouseCoopers LLP as the Company's independent accountants for 2000. 12 - -------------------------------------------------------------------------------- OTHER BUSINESS - -------------------------------------------------------------------------------- The Board of Directors does not know of any other business to be presented at the meeting. However, if any other matters properly come before the meeting, it is the intention of the persons named in the accompanying proxy card to vote pursuant to the proxies in accordance with their judgment in such matters. All shareholders are asked to promptly return their proxy in order that the necessary vote may be present at the meeting. We respectfully request that you sign and return the accompanying proxy card at your earliest convenience. By order of the Board of Directors, Dated March 17, 2000 Philip R. Halverson Philip R. Halverson Vice President, General Counsel and Secretary 13 "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] [LOGO OF MINNESOTA POWER] [LOGO OF MINNESOTA POWER] PROXY CARD AND VOTING INSTRUCTIONS Minnesota Power, Inc., 30 West Superior Street, Duluth, Minnesota 55802-2093 - -------------------------------------------------------------------------------- This Proxy is Solicited on Behalf of the Board of Directors. Edwin L. Russell and Philip R. Halverson or either of them, with power of substitution, are hereby appointed Proxies of the undersigned to vote all shares of Minnesota Power stock owned by the undersigned at the Annual Meeting of Shareholders to be held in the auditorium at the Duluth Entertainment Convention Center, 350 Harbor Drive, Duluth, Minnesota, at 10:00 a.m. on Tuesday, May 9, 2000, or any adjournments thereof, with respect to the election of Directors, the appointment of independent accountants, and any other matters as may properly come before the meeting. This Proxy confers authority to vote each proposal listed on the other side unless otherwise indicated. If any other business is transacted at said meeting, this Proxy shall be voted in accordance with the best judgment of the Proxies. The Board of Directors recommends a vote "FOR" each of the listed proposals. This Proxy is solicited on behalf of the Board of Directors of Minnesota Power and may be revoked prior to its exercise. Please mark, sign, date and return this Proxy card using the enclosed envelope. Shares cannot be voted unless this Proxy card is signed and returned, or other specific arrangements are made to have the shares represented at the meeting. By returning your Proxy promptly, you may help save the costs of additional Proxy solicitations. See reverse for voting instructions. COMPANY # CONTROL # There are three ways to vote your Proxy Your telephone or Internet vote authorizes the Named Proxies to vote your shares in the same manner as if you marked, signed and returned your proxy card. VOTE BY PHONE - TOLL FREE - 1-800-240-6326 - QUICK *** EASY *** IMMEDIATE - - Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a week, until 12:00 p.m. on May 8, 2000. - - You will be prompted to enter your 3-digit Company Number and your 7-digit Control Number which is located above. - - Follow the simple instructions the Voice provides you. VOTE BY INTERNET - http://www.eproxy.com/mpl/ - QUICK *** EASY *** IMMEDIATE - - Use the Internet to vote your proxy 24 hours a day, 7 days a week, until 12:00 p.m. on May 8, 2000. - - You will be prompted to enter your 3-digit Company Number and your 7-digit Control Number which is located above to obtain your records and create an electronic ballot. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we've provided or return it to Minnesota Power, Inc., c/o Shareowner Services, P.O. Box 64873, St. Paul, MN 55164-0873. If you vote by Phone or Internet, Please do not mail your Proxy Card Please detach here - -------------------------------------------------------------------------------- The Board of Directors Recommends a Vote FOR Items 1 and 2. 1. Election of Directors: 01 Brekken 05 Johnson 09 Sandbulte / / Vote FOR / / Vote WITHHELD 02 Cragun 06 Mayer 10 Smith all nominees from all 03 Evans 07 Rajala 11 Stender except as nominees 04 Hood 08 Russell 12 Wegmiller 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. Appointment of PricewaterhouseCoopers LLP as independent accountants. / / 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. --- Address Change? Mark Box / / Indicate changes below: Date: , 2000 --------------- / / Signature(s) in Box Please sign exactly as your name(s) appear 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. April __, 2000 Dear Shareholder: We have not yet received your vote on issues to come before the Annual Meeting of Minnesota Power shareholders on May 9, 2000. Proxy materials were sent to you on March 17, 2000. Please take time to vote the enclosed copy of your proxy using one of the three options available to you: 1. Mail - Complete the enclosed duplicate proxy card and return it in the self- addressed stamped envelope; 2. Telephone - Call the 800 number listed on the proxy card and follow the instructions; or 3. Internet - Log onto the web site listed on the proxy card and follow the instructions. We again extend to you a cordial invitation to attend Minnesota Power'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 9, 2000 at 10:00 a.m.. Your prompt response will be appreciated. Sincerely, Philip R. Halverson Enclosures -----END PRIVACY-ENHANCED MESSAGE-----