<PAGE>
[LOGO OF MINNESOTA POWER]
March 19, 1998
Dear Shareholder:
You are cordially invited to attend Minnesota Power's 1998 Annual
Meeting of Shareholders on Tuesday, May 12, 1998 at 10:30 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.
Come to hear the exciting story of our progress in 1997, the year in
which the value of your investment in Minnesota Power Common Stock increased 69
percent, assuming reinvestment of dividends. This compares favorably to the
S & P Electric Utility Index of 26 utilities which increased 26.2 percent in
1997. In all, the market value of Minnesota Power Common Stock increased by over
half a billion dollars in 1997.
At the Annual Meeting, our shareholders will vote on resolutions to
elect a Board of 12 directors, approve the appointment of Price Waterhouse LLP
as the Company's independent accountants, change the Company's name from
Minnesota Power & Light Company to Minnesota Power, Inc., and increase the
amount of Common Stock authorized for issuance.
While recognizing our Minnesota heritage, our proposed new name
reflects a changing identity as we transition from a traditional regional
electric utility to a diversified corporation serving customers across North
America.
After our Annual Meeting, we invite you to visit with our directors,
officers and employees over a box lunch. If you plan on attending please return
the enclosed reservation card.
It is important that your shares be represented at the Annual Meeting.
At your earliest convenience, please sign, date, and mail the enclosed proxy
card in the envelope provided.
Thank you for your investment in Minnesota Power.
Sincerely,
Edwin L. Russell
Chairman and
Chief Executive Officer
<PAGE>
MINNESOTA POWER & LIGHT COMPANY
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS - MAY 12, 1998
- --------------------------------------------------------------------------------
The Annual Meeting of Shareholders of Minnesota Power & Light Company
will be held in the auditorium at the Duluth Entertainment Convention Center,
350 Harbor Drive, Duluth, Minnesota, on Tuesday, May 12, 1998 at 10:30 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 Price Waterhouse LLP as the Company's
independent accountants for 1998;
3. To amend the Company's Articles of Incorporation to change the
Company's name from Minnesota Power & Light Company to Minnesota
Power, Inc.;
4. To amend the Company's Articles of Incorporation to increase the
amount of authorized Common Stock; and
5. 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 13, 1998 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.
We would appreciate your signing and returning the enclosed proxy card
at your earliest convenience to facilitate an efficient tally of your votes.
By order of the Board of Directors,
Philip R. Halverson
Vice President, General Counsel
and Secretary
Dated at Duluth, Minnesota
March 19, 1998
If you have not received the Minnesota Power 1997 Annual Report, which
includes financial statements, kindly notify Minnesota Power Shareholder
Services, 30 West Superior Street, Duluth, MN 55802, telephone number
1-800-535-3056 or 1-218-723-3974, and a copy will be sent to you.
<PAGE>
MINNESOTA POWER & LIGHT COMPANY
30 West Superior Street
Duluth, Minnesota 55802
- --------------------------------------------------------------------------------
PROXY STATEMENT
- --------------------------------------------------------------------------------
Solicitation
The proxy accompanying this statement is solicited on behalf of the
Board of Directors of Minnesota Power & Light Company (Minnesota Power or
Company) for use at the Annual Meeting of Shareholders to be held on May 12,
1998 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 Price Waterhouse LLP as the Company's independent accountants for 1998, to
amend the Company's Articles of Incorporation to change the Company's name from
Minnesota Power & Light Company to Minnesota Power, Inc., to amend the Company's
Articles of Incorporation to increase the amount of authorized common stock of
the Company (Common Stock), and to transact such other business as may properly
come before the meeting. All properly executed proxies received at or before the
meeting, and entitled to vote, will be voted at the meeting.
This Proxy Statement and enclosed proxy card were first mailed on or
about March 19, 1998. 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 13,
1998, 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) ..............................32,934,958 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 13, 1998 is entitled to
notice of the Annual Meeting and to one vote.
The affirmative vote of a majority of the shares of stock present and
entitled to vote at the Annual Meeting is required for election of each director
and for approval of the other items 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, "FOR" approval of Price Waterhouse LLP as the
Company's independent accountants for 1998, "FOR" amending the Company's
Articles of Incorporation to change the Company's name from Minnesota Power &
Light Company to Minnesota Power, Inc. and "FOR" amending the Company's Articles
of Incorporation to increase the amount of authorized Common Stock.
1
<PAGE>
Proposals of Shareholders for the 1999 Annual Meeting
All proposals from shareholders to be considered at the Annual Meeting
scheduled for May 11, 1999 must be received by the Secretary at 30 West
Superior Street, Duluth, Minnesota 55802, not later than November 20, 1998.
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 1, 1998 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.
<TABLE>
<CAPTION>
Number of Shares Percentage
Title of Class Name and Address of Beneficial Owner Beneficially Owned of the Class
- -------------- ------------------------------------ ------------------ ------------
<S> <C> <C> <C>
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 Bank of New York
P.O. Box 11203
New York, NY 10249
- ---------------------------------------------------------------------------------------------------
Serial Preferred Auer & Co. 10,000 5.0%
Stock A c/o Bankers Trust Co.
P.O. Box 704
New York, NY 10015
- ---------------------------------------------------------------------------------------------------
Serial Preferred Sigler & Co. 10,000 5.0%
Stock A c/o Chase Manhatten Bank, N.A.
4 New York Plaza, 11th Floor
New York, NY 10004
- ---------------------------------------------------------------------------------------------------
Common Stock Mellon Bank, N.A. [4,865,604*] [15.0%*]
One Mellon Bank Center
Pittsburgh, PA 15258
- ---------------------------------------------------------------------------------------------------
*Mellon Bank holds [4,371,481] 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.
</TABLE>
The following table presents the shares of Common Stock beneficially
owned by directors, 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 13,1998. Unless otherwise
indicated, the persons shown have sole voting and investment power over the
shares listed.
<TABLE>
<CAPTION>
Shares Stock Shares Stock
Name of Beneficial Owner Owned* Options <F1> Name of Beneficial Owner Owned* Options<F1>
- ------------------------ ----- -------- ------------------------ ----- --------
<S> <C> <C> <C> <C> <C>
Kathleen A. Brekken [ ] [ ] Bruce W. Stender [ ] [ ] 2,175
Merrill K. Cragun [ ] [ ] Edwin L. Russell [ ]<F4> [ ]
Dennis E. Evans [ ] [ ] Arend J. Sandbulte [ ]<F5> [ ]
Peter J. Johnson [ ]<F2> [ ] Donald C. Wegmiller [ ] [ ]
George L. Mayer [ ] [ ] John Cirello [ ] [ ]
Paula F. McQueen [ ] [ ] Robert D. Edwards [ ] [ ]
Robert S. Nickoloff [ ] [ ] John E. Fuller [ ] [ ]
Jack I. Rajala [ ] [ ] James P. Hallett [ ] [ ]
Nick Smith [ ]<F3> [ ]
Directors and Executive Officers as a Group (24) [ ]
- --------------------------------------------------------------------------------
*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.
- --------------------------------------------------------------------------------
<FN>
<F1> Fifty percent of stock options are currently exercisable.
<F2> Voting and investment power for all shares is shared with his spouse.
<F3> Includes [ ] shares owned by his spouse.
<F4> Includes [ ] shares for which voting and investment power are shared
with his spouse, [ ] shares held as custodian for his children and
[ ] shares of restricted stock in which voting power is shared with
his spouse.
<F5> Includes [ ] shares for which voting and investment power are shared
with his spouse.
</FN>
</TABLE>
2
<PAGE>
- --------------------------------------------------------------------------------
ITEM NO. 1 - ELECTION OF DIRECTORS
- --------------------------------------------------------------------------------
It is intended that the shares represented by the enclosed 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.
Director
Nominees for Director Since
- --------------------------------------------------------------------------------
PHOTO KATHLEEN A. BREKKEN, 48, Cannon Falls, MN. 1997
President 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 U.S. and Canada. Board of Regents
of St. Olaf College in Minnesota.
- --------------------------------------------------------------------------------
PHOTO MERRILL K. CRAGUN, 65, Brainerd, MN. President of 1991
Cragun Corp., a resort and conference center.
Director of MP Real Estate Holdings, Inc.*(MP
Real Estate).
- --------------------------------------------------------------------------------
PHOTO DENNIS E. EVANS, 59, Minneapolis, MN. Member of 1986
the Executive Committee and the Executive
Compensation Committee. President and CEO of the
Hanrow Financial Group, Ltd., a merchant banking
firm. Director of Angeion Corporation and Astrocom
Corporation.
- --------------------------------------------------------------------------------
PHOTO PETER J. JOHNSON, 61, 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 produces limestone.
Director of Queen City Federal Savings and of
Queen City Bancorp, Inc.
- --------------------------------------------------------------------------------
PHOTO GEORGE L. MAYER, 53, Essex, CT. Founder and 1996
President of Manhattan Realty Group which manages
various real estate properties located
predominantly in northeastern United States.
Director of MP Real Estate.* A consultant to the
board of directors of Schwaab, Inc., one of the
country's largest manufacturers of handheld rubber
stamps and associated products.
- --------------------------------------------------------------------------------
PHOTO PAULA F. McQUEEN, 51, Punta Gorda, FL. Member of 1993
the Executive and Audit Committees. Partner of
Webb, McQueen & Co., P.L., a certified public
accounting firm. President and CEO of Allied
Engineering & Testing Inc., an engineering and
materials testing company. Was previously Director
and President of PGI Sales Incorporated, a
southwest Florida community developer. Director of
MP Real Estate*.
3
<PAGE>
- --------------------------------------------------------------------------------
PHOTO JACK I. RAJALA, 58, Grand Rapids, MN. Member of 1985
the Executive Committee. Chairman and CEO of
Rajala Companies and Director and President of
Rajala Mill Company, which manufacture and trade
lumber. Director of Grand Rapids State Bank.
- --------------------------------------------------------------------------------
PHOTO EDWIN L. RUSSELL, 53, Duluth, MN. Chairman, 1995
President and CEO of Minnesota Power. Member
of the Executive Committee. Director of ADESA
Corporation*, MP Water Resources Group, Inc.*,
MP Real Estate*, Capital Re, Inc., Tennent Co.,
Lake Superior Center, United Way of Greater
Duluth and Advantage Minnesota. Was previously
Group Vice President of J. M. Huber Corporation,
a $1.5 billion diversified manufacturing and natural
resources company.
- --------------------------------------------------------------------------------
PHOTO AREND J. SANDBULTE, 64, Duluth, MN. Former 1983
Chairman, President and CEO of Minnesota Power.
Member of the Executive Committee. Director of St.
Mary Land and Exploration Company, Iowa State
University Foundation, and the Community Board of
Norwest Bank Minnesota North. Chairman of Lake
Superior Center.
- --------------------------------------------------------------------------------
PHOTO NICK SMITH, 61, Duluth, MN. Member of the 1995
Executive Compensation Committee. Chairman of and
attorney with Fryberger, Buchanan, Smith &
Frederick, P.A., a law firm. Director of North
Shore Bank of Commerce. Chair and CEO of Northeast
Ventures Corporation, a venture capital firm
investing in northeastern Minnesota.
- --------------------------------------------------------------------------------
PHOTO BRUCE W. STENDER, 56, Duluth, MN. Member 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.
- --------------------------------------------------------------------------------
PHOTO DONALD C. WEGMILLER, 59, Minneapolis, MN. Chairman 1992
of the Audit Committee and member of the Executive
Compensation Committee. President and CEO of
Management Compensation Group/HealthCare, a
national executive compensation and benefits
consulting firm. Was previously Vice Chairman and
President of Health Span Health System and
President and CEO of Health One Corporation,
diversified health services organizations.
Director of G. D. Searle and Co., HBO & Company,
Medical Graphics Corporation, InPhyNet Medical
Management, Inc., Life Rate Systems, Inc. and
Possis Medical, Inc.
- --------------------------------------------------------------------------------
An asterisk (*) denotes a wholly owned subsidiary of Minnesota Power.
- --------------------------------------------------------------------------------
4
<PAGE>
Board and Committee Meetings in 1997
During 1997 the Board of Directors held 5 meetings. The Executive
Committee, which held 7 meetings during 1997, 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 5 meetings in
1997, recommends the selection of independent accountants, reviews and evaluates
the Company's accounting and financial practices, and reviews and recommends
approval of the annual audit report. The Executive Compensation Committee, which
held 3 meetings in 1997, 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 1997.
Director Compensation
Employee directors receive no additional compensation for their
services as directors. In 1997 the Company paid each director an annual retainer
fee of $5,000 and 500 shares of Common Stock under the terms of the Company's
Director Stock Plan. In addition, each 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
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 fees and meeting fees. The shares of Common Stock paid to
directors with respect to 1997 had an average market price of $34.83 per share.
The Company also provides life insurance of $5,000 on the life of each director
at an aggregate cost to the Company of $320 in 1997.
For the four-year period ending December 31, 1997, directors
received a pay-out for the final four-year performance period under the
discontinued Directors' Long-Term Incentive Plan which provides
performance-based compensation based on Total Shareholder Return of the Company
on the same terms as the discontinued Executive Long-Term Incentive Plan (see
page 10), except that a director's maximum award opportunity is 600 shares of
Common Stock. Total Shareholder Return is defined as stock price appreciation
plus dividends reinvested on the ex-dividend date throughout the performance
period, divided by the fair market value of a share at the beginning of the
performance period. In the four-year performance period ending December 31,
1997, the Company's Total Shareholder Return ranked second among a peer group of
10 regional utilities and ranked at the 44th percentile among the Standard &
Poor's 500 (S&P 500) companies, resulting in an award to each non-employee
director of 378 shares of Common Stock, which is 63 percent of the maximum award
opportunity.
Under the new Director Long-Term Stock Incentive Plan, effective
January 1, 1996, non-employee directors receive automatic grants of 725 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 two-year performance period ending December 31, 1997, shareholders of
the Company realized a Total Shareholder Return of 76.1 percent on their
investment in Minnesota Power Common Stock, ranking the Company number 1 among
the 16 diversified utilities. With this "superior" ranking under the plan, the
directors each earned 794 shares of Common Stock, an award equal to 200 percent
of their target performance share award. Fifty percent of this performance share
award was paid in stock at the end of the performance period. The remaining 50
percent will be paid in stock, half on the first anniversary of the end of the
performance period and half on the second anniversary thereof.
5
<PAGE>
Compensation of Executive Officers
The following information describes compensation paid in the years 1995
through 1997 for the Company's named executive officers.
<TABLE>
SUMMARY COMPENSATION
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Annual Compensation<F1> Long-Term Compensation
----------------------------------------------------------------
Awards Payouts
------------------------ ---------
Name Restricted Securities All
and Stock Underlying LTIP Other
Principal Salary Bonus Award(s) Options Payouts Comp.<F4>
Position Year ($) ($) ($) (#) ($) ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Edwin L. Russell 1997 356,731 700,789 0 13,660 401,138 40,912
Chairman, President 1996 322,981 370,439 687,000<F2> 13,230 0 26,976
and Chief Executive Officer
Robert D. Edwards 1997 232,769 176,593 0 6,072 234,233 32,926
Executive Vice President; 1996 221,693 146,544 0 5,570 0 27,799
President-MP Electric 1995 208,481 110,132 0 0 0 16,588
James P. Hallett 1997 209,820 193,600 0 10,216 53,182 1,600
Executive Vice President; 1996 189,183 94,875 0 5,000 0 0
President and CEO of ADESA
John E. Fuller 1997 200,731 190,820 0 7,966 53,182 3,273
Sr. Vice President; President 1996 180,000 50,531 0 2,750 0 0
and CEO of Automotive
Finance Corp.
John Cirello 1997 209,874 112,474 109,500<F3> 5,216 86,587 13,433
Executive Vice President; 1996 195,000 163,056 0 5,051 0 0
President and CEO of MP 1995 81,000 40,000 0 0 0 51,218
Water Resources
<FN>
<F1> 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, Annual Incentive Plan, and other special bonuses.
<F2> The amount shown represents the value of 24,000 shares of restricted Common
Stock granted on January 2, 1996, pursuant to the Executive Long-Term
Incentive Compensation Plan. Since this award vests at a rate of 6,000
shares per year, on December 31, 1997, 12,000 shares, valued at $522,756,
remained restricted. Mr. Russell receives non-preferential dividends on
this stock.
<F3> The amount shown represents the value of 4,000 shares of restricted Common
Stock granted on January 2, 1997 pursuant to the Executive Long-Term
Incentive Compensation Plan. At December 31, 1997, Mr. Cirello held all
4,000 of the shares of restricted Common Stock valued at $174,250. Mr.
Cirello receives non-preferential dividends on this stock. This award vests
at a rate of 1,000 shares per year.
<F4> The amounts shown for 1997 include the following Company contributions for
the named executive officers:
</FN>
</TABLE>
<TABLE>
<CAPTION>
Annual Company Above-Market Interest
Annual Company Annual Company Contribution to the on Compensation
Contribution to the Contribution to the Supplemental Deferred Under
Flexible Benefit/ Employee Stock Executive Executive Incentive
Name 401(K) Plans Ownership Plan Retirement Plan Plan*
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Edwin L. Russell 7,280 4,733 28,899 0
Robert D. Edwards 7,280 4,733 14,884 6,029
James P. Hallett 1,600 0 [ ] 0
John E. Fuller 3,273 0 [ ] 0
John Cirello 13,433 0 [ ] 0
*The Company made investments in corporate-owned life insurance which will
recover the cost of these above-market benefits if actuarial factors and other
assumptions are realized.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
OPTIONS GRANTS IN LAST FISCAL YEAR
- ----------------------------------------------------------------------------------------------------------------------------
Grant
Individual Grants Date Value
- ----------------------------------------------------------------------------------------------------------------------------
Number of % of Total
Securities Options
Underlying Granted to Exercise or Grant Date
Options Employees in Base Price Expiration Present Value
Name Granted(#)<F1> Fiscal Year ($/Sh) Date $<F2>
---- -------------- ------------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Edwin L. Russell 13,660 5.6% 27.375 Jan. 2, 2007 89,336
Robert D. Edwards 6,072 2.5% 27.375 Jan. 2, 2007 39,711
James P. Hallett 10,216 4.3% 27.375 Jan. 2, 2007 66,812
John E. Fuller 7,966 3.3% 27.375 Jan. 2, 2007 52,098
John Cirello 5,216 2.2% 27.375 Jan. 2, 2007 34,113
<FN>
<F1> The stock options vest 50 percent on January 2, 1998, and 50 percent
on January 2, 1999, and are subject to a change in control acceleration
provision.
<F2> The grant date dollar value of the stock options is based on a combination
Black-Scholes, binomial price method. The blended ratio associated with the
January 2, 1997 option grants is .239, based on an average industry
Black-Scholes ratio of .366 and a Minnesota Power binomial ratio (as of
January 2, 1997) of .111. The 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 stock prices at
grant and the exercise prices, which are identical, and the ten-year term
of each option, the following assumptions for modeling were used to
calculate the values shown for the options granted on January 2, 1997:
expected dividend yield of 7.35 percent (based on most recent quarterly
dividend), expected stock price volatility of .150 (based on 250 trading
days previous to January 2, 1997), and the ten-year option term and a
risk-free rate of return of 6.3 percent (based on Treasury yields). The
assumptions and the calculations used for the model were provided by
William M. Mercer, Inc., an independent consulting firm.
</FN>
</TABLE>
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
- ---------------------------------------------------------------------------------------------------------------------------
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options Options
Shares Acquired Value Realized at FY-End (#) at FY-End ($)
Name on Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- --------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Edwin L. Russell 0 0 6,615 20,275 74,832 246,436
Robert D. Edwards 0 0 2,785 8,857 31,505 107,785
James P. Hallett 0 0 0 10,216 0 128,338
John E. Fuller 0 0 0 7,966 0 100,073
John Cirello 0 0 7,741 2,526 28,575 94,090
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
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:
<TABLE>
PENSION PLAN
Years of Service
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Remuneration* 15 20 25 30 35
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$100,000 $12,000 $26,600 $31,600 $36,600 $41,600
125,000 15,000 33,250 39,500 45,750 52,000
150,000 18,000 39,900 47,400 54,900 62,400
175,000 21,000 46,550 55,300 64,050 72,800
200,000 24,000 53,200 63,200 73,200 83,200
225,000 27,000 59,850 71,100 82,350 93,600
250,000 30,000 66,500 79,000 91,500 104,000
300,000 36,000 79,800 94,800 109,800 124,800
400,000 48,000 106,400 126,400 146,400 166,400
450,000 54,000 119,700 142,200 164,700 187,200
500,000 60,000 133,000 158,000 183,000 208,000
600,000 72,000 159,600 189,600 219,600 249,600
700,000 84,000 186,200 221,200 256,200 291,200
800,000 96,000 212,800 252,800 292,800 332,800
900,000 108,000 239,400 284,400 329,400 374,400
- ---------------------------------------------------------------------------------------------------------------
*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.
</TABLE>
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,
1997, the executive officers named in the Summary Compensation Table had the
following number of years of credited service under the plan:
Edwin L. Russell 3 years John E. Fuller 3 years
James P. Hallett 3 years John Cirello 3 years
Robert D. Edwards 21 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 $125,000 for 1997. 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.
Report of Board's Executive Compensation Committee on Executive Compensation
Described below are the compensation policies of the Executive
Compensation Committee of the Board of Directors effective for 1997 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, Inc. (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 encouraging teamwork. Recognizing that the potential
8
<PAGE>
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, compensation must be competitive in the national market when
measured against comparable companies with respect to size and business
characteristics within that market. For those executives engaged primarily or
exclusively in electric operations, the relevant market for purposes of
comparison is other electric utilities throughout the country which, on average,
are comparable in size to the Company. For those executives engaged
substantially in the Company's diversification activities, the market for
purposes of comparison includes both utilities and general industry. To
determine market levels of compensation for executive officers in 1997, the
Executive Compensation Committee relied upon comparative information provided by
Mercer, based on seven surveys including data from over 100 utilities and
several hundred general industrial companies. All data were analyzed to
determine median compensation levels for comparable positions in
comparably-sized companies. While these companies are not the same as those in
the peer group used in the performance graph, the Executive Compensation
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 sales revenue.
The performance-based compensation plans of the Company are
intended by the Executive Compensation Committee to reward executives for
creating shareholder value. The aggregate market value of the Company's Common
Stock held by shareholders in 1997 grew by over half a billion dollars. In 1997,
the value of a shareholder's investment in Minnesota Power Common Stock
increased by 68.8 percent, as measured by Total Shareholder Return. For 1996 and
1997 combined, the value of a shareholder's investment increased 76.1 percent.
This places the Company far ahead of all 26 individual electric utilities in the
Standard & Poor's (S&P) Electric Utility Index shown below in the performance
graph. The S&P Electric Index recorded a Total Shareholder Return of 26.2
percent for 1997 and 25.9 percent for 1996 and 1997 combined. 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. The
performance-based plans rewarded the executive officers for this significant
growth in value delivered to the shareholders.
Code Section 162(m) generally disallows a tax deduction to public
companies for compensation over $1 million paid to the corporation's CEO and
four other most highly compensated executive officers. Qualifying
performance-based compensation will not be subject to the deduction limit if
certain requirements are met. The stock options and performance shares granted
to the executive officers under the Executive Long-Term Incentive Compensation
Plan are intended to qualify as performance-based compensation within the
meaning of Code Section 162(m) and should therefore be fully deductible for
Federal income tax purposes. The Company currently intends to structure the
performance-based portion of its executive officer compensation to achieve
maximum deductibility under Section 162(m) so long as this can be done without
sacrificing flexibility and corporate objectives.
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. Base salaries of the executive officers were
increased by an average of 6.8 percent in 1997, reflecting market adjustments
and merit increases.
9
<PAGE>
Performance-Based Compensation
Performance goals under performance-based plans are established in
advance by the Executive Compensation Committee and the Board. A target level of
performance represents performance that is either consistent with or above
budget, or represents at least median Total Shareholder Return performance as
measured against the peer groups described below. 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 approximately 70 percent of 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. For 1997
executive officers earned awards averaging 6.6 percent of base salary.
- Annual Incentive Plan. The 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 1997 corporate executive officers were
rewarded for corporate performance as measured by earnings per share of
the Company's Common Stock. The executive officers of the real estate
business unit were rewarded for the contribution of their business unit
to earnings per share. The executive officers of the Company's
electric, water, and automotive business units were rewarded for
performance of their respective business units in 1997 as measured by
operating cash return on investment (weighted 50 to 60 percent) and
operating free cash flow (weighted 40 to 50 percent). Measures of
financial performance were chosen by the Executive Compensation
Committee because of their positive correlation with the Total
Shareholder Return achieved by the Company for its shareholders. Target
level performance is earned if budgeted financial results are achieved.
In 1997 executive officers in the Corporate group earned awards
averaging 61.5 percent of base salary because earnings per share were
significantly above budget. The top executive officers in the Company's
four business units earned awards ranging from 38.5 to 94.0 percent of
base salary by exceeding budgeted financial and non-financial goals
established by the Executive Compensation Committee.
- Long-Term Incentive Plans. The Executive Long-Term Incentive Plan is
designed to motivate long-term strategic planning and reward long-term
corporate performance, as measured by Total Shareholder Return over
four-year performance periods commencing each January. At the outset of
each performance period, the executive officers were given a maximum
award opportunity of a stated number of shares of the Company's Common
Stock. Sixty percent of the award opportunity with respect to the
four-year period ending December 31, 1997, was based upon rank among a
peer group of ten utilities operating in the same geographic region as
the Company (Upper Midwest), and 40 percent of this award opportunity
was based on rank among the S&P 500 companies. For the four-year
performance period ending December 31, 1997, the maximum award
opportunity ranged from 2,000 to 6,000 shares for the executive
officers. Up to one-half of the award may be taken in cash. The maximum
award opportunity is earned if the Company ranks first or second in the
peer group and at or above the 90th percentile among the S&P 500
companies. The Company must achieve at least a 55th percentile ranking
among a peer group of ten utilities or a 40th percentile ranking among
the S&P 500 companies for any award to be earned. For the four-year
performance period ending December 31, 1997, awards equal to 63 percent
of the maximum share opportunity were earned because the Company ranked
second among the utility peer group and at the 44th percentile among
the S&P 500 companies. Effective for 1996 no further performance
periods were initiated for executives under the discontinued Executive
Long-Term Incentive Plan.
As of January 1996, a new Executive Long-Term Incentive Compensation
Plan was implemented. Under the new plan, the executive officers other
than the CEO of the Company are awarded stock options annually and
performance shares biennially having in the aggregate target award
values ranging from 25 percent to 35 percent of their base salaries.
The value of the award opportunity is divided equally between stock
options and performance shares. The stock options will have value if
the Common Stock price
10
<PAGE>
appreciates. The performance shares will have value if, in two years
from the date of grant, the Total Shareholder Return of the Company
(or, for business unit executives, other financial measures established
for business units selected because of their correlation to Total
Shareholder Return) meets goals established by the Executive
Compensation Committee. These goals are based on the Company's ranking
against a peer group of 16 diversified electric utilities recommended
by Mercer and adopted by the Executive Compensation Committee as
appropriate comparators. Dividend equivalents accrue on performance
shares during the performance period and are paid in shares only to the
extent performance goals are achieved. The maximum payout is 200
percent of the target award. If earned, 50 percent of the performance
shares will be paid in stock after 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. For the two-year performance period ending
December 31, 1997, the Company ranked number 1 among the 16 member
utility peer group. As a result, executives in the corporate group
earned performance shares equalling 200 percent of the target award.
Top executives in the Company's business units earned performance
shares ranging from 100 percent to 200 percent of target.
These awards are consistent with the Executive Compensation Committee's
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 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 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.
Perquisites
The Company provides various perquisites to assist selected executive
officers in fulfilling their business responsibilities in a cost and time
efficient manner, to the extent they are consistent with competitive practice.
Perquisites provided by the Company to the named executive officers did not
exceed the lesser of $50,000 or 10 percent of the total salary and bonus shown
for them in the Summary Compensation Table. The perquisites provided by the
Company were reviewed by the Executive Compensation Committee and determined to
be reasonable and in line with companies of comparable size.
Chief Executive Officer Compensation
In June 1997 the Board of Directors increased Mr. Russell's annual base
salary 16.9 percent. Approximately two-thirds of this increase was to align his
base salary with the median in comparably-sized companies and one-third related
to his contributions to the performance of the Company. Under the Company's
Results Sharing Plan, Mr. Russell was awarded $26,969, or 7.1 percent of his
base salary, based 50 percent on corporate earnings per share performance and 50
percent on average of business unit results sharing awards. Mr. Russell was paid
cash bonuses totalling $260,000 and an award of restricted Common Stock valued
at $100,000, which the Executive Compensation Committee determined would be
appropriate based upon Mr. Russell's contributions to the Company's performance
in 1996 and 1997. The restricted stock award vests on January 2, 2000. Under
Minnesota Power's Annual Incentive Plan, for the Company's performance in 1997
Mr. Russell earned an award of $413,820, or 108.9 percent of his base salary,
based on a formula established in advance by the Executive Compensation
Committee which rewarded Mr. Russell, as well as other executive officers in the
Corporate group, for achieving 1997 earnings per share results above targets, as
well as for achievement of non-financial goals, all established by the Executive
Compensation Committee. Earnings per share was adopted as a measure of
performance because it is related to Total Shareholder Return. Shareholders
realized a Total Shareholder Return on their investment in the Company of 68.8
percent in 1997.
Mr. Russell's compensation plan also contains elements which motivate
him to focus on the longer-term
11
<PAGE>
performance of the Company. For the four-year performance period ending December
31, 1997, under the discontinued Executive Long-Term Incentive Plan, Mr. Russell
earned 2,756 shares of Common Stock, representing 63 percent of the maximum
award opportunity, because the Company's Total Shareholder Return ranked second
among the peer group of 10 regional utilities and at the 44th percentile among
the S&P 500 companies. Effective January 1996, no further performance periods
were initiated under the discontinued plan, and a new Executive Long-Term
Incentive Compensation Plan was implemented. Under the new plan, Mr. Russell is
awarded annual target opportunities with an average value equal to 55 percent of
his base salary. This value is divided equally between stock options awarded
annually and performance shares awarded in even numbered years. The stock
options become fully exercisable in two years and expire 10 years from the date
of grant. The options will have value if the Company's stock price appreciates.
The performance shares awarded have target value if, in two years from the date
of grant, the Total Shareholder Return realized by Company shareholders is at
the 50th percentile of a peer group of 16 diversified electric utilities
recommended by Mercer and adopted by the Executive Compensation Committee as
appropriate comparators. For the two-year performance period ending December 31,
1997, the Company's shareholders realized a Total Shareholder Return of 76.1
percent, ranking the Company number 1 among the peer group of 16 diversified
electric utilities, and resulting in a maximum payout to Mr. Russell under the
plan of 7,163 shares of Minnesota Power Common Stock.
To recruit Mr. Russell from general industry and retain his services at
Minnesota Power, the Executive Compensation Committee has endeavored to provide
Mr. Russell with a compensation package that is half-way between the midpoints
of compensation paid by electric utilities and compensation paid by general
industrial companies the approximate size of the Company. The Compensation
Committee has designed Mr. Russell's compensation package to provide substantial
incentive to achieve and exceed the Board's Total Shareholder Return goals for
the Company's shareholders.
March 19, 1998
Executive Compensation Committee
Robert S. Nickoloff, Chairman Dennis E. Evans
Donald C. Wegmiller Nick Smith
Compensation Committee Interlocks and Insider Participation
The members of the Executive Compensation Committee were, during 1997,
Robert S. Nickoloff, Chairman, Dennis E. Evans, Nick Smith, and Donald C.
Wegmiller.
Larex Economic Development Project
In 1995 Minnesota Power began developing plans for an energy park to be
located on its property adjacent to its Boswell Energy Center in Cohasset, MN.
The first tenant of the energy park was LAREX International, Inc. Larex
developed a process to extract from certain tree species a substance that is
used in a variety of commercial applications. Minnesota Power, through a
subsidiary, entered into a contract to pay M. A. Mortenson Company $1.3 million
for construction of the buildings to be occupied by Larex, and leased these
buildings to Larex until the Iron Range Resources and Rehabilitation Board
(IRRRB), a local economic development agency, purchased the buildings from
Minnesota Power's subsidiary for an amount equal to the cost of construction.
The subsidiary then assigned the building lease to the IRRRB. Minnesota Power
has entered into a separate ground lease with Larex at an economic development
rate which Minnesota Power will offer to other tenants of the energy park.
Minnesota Power has also provided financing to Larex in the amount of $200,000
under the customary terms of the Minnesota Power's Economic Development Loan
Program. This financing was used to purchase equipment in which Minnesota Power
has retained a security interest. Larex is providing quality jobs and
represented an important first step in the development of the energy park.
Larex was founded in 1993 by Medical Innovation Fund II of Minneapolis
and Northeast Ventures of Duluth. To date, Larex's owners have invested $8.6
million in Larex as follows: Medical Innovation Fund II has invested $3.5
million and holds 48.8 percent of all stock currently outstanding; Northeast
Ventures has invested $1 million and holds 15 percent of the currently issued
and outstanding stock; and the remaining investment and stock is held by various
individuals and entities including Larex International Investors Ltd. (LII), a
partnership of which Kolya Management Company is the general partner. LII has
invested $1.1 million. Medical Innovation Fund II, Northeast Ventures, and LII,
in addition to certain other investors in Larex, have received warrant rights
12
<PAGE>
based on their respective participation in specific periodic financing activity
in Larex.
Minnesota Power director Robert Nickoloff serves as a General Partner
of Medical Innovation Partners II, possessing a 20 percent ownership interest.
Medical Innovation Partners II is the general partner of Medical Innovation Fund
II. In addition, Mr. Nickoloff serves on the boards of directors of Northeast
Ventures and Larex. Northeast Ventures, together with its affiliate Iron Range
Ventures, is a $10 million venture capital fund investing in northeastern
Minnesota. Minnesota Power purchased a 21 percent interest in Northeast Ventures
for $1 million in 1989 at a time when there were no relationships between
Northeast Ventures and Minnesota Power or its directors or employees. Minnesota
Power invested in Northeast Ventures as an economic development contribution and
agreed that it would not withdraw its investment. Mr. Gregory Sandbulte, the son
of Arend Sandbulte, former Minnesota Power Chairman, CEO and President, and
current director, is currently president of Northeast Ventures and a director of
Larex. Mr. Nick Smith serves as chairman and CEO of Northeast Ventures, and is a
member of the Minnesota Power and Larex boards of directors. Mr. Gregory
Sandbulte and Mr. Smith, along with a third party, are owners of Kolya
Management Company, which is a general partner of and holds a five percent
ownership interest in LII. Mr. Bo Nickoloff, the son of Mr. Robert Nickoloff, is
an employee of Larex.
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,
1992 and reinvestment of all dividends at the time paid.
[GRAPHIC MATERIAL OMITTED - PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Minnesota Power 100.00 101.26 84.13 101.89 106.34 179.45
S&P Utilities Index (Electrics) 100.00 112.61 97.89 128.33 127.93 161.50
S&P 500 100.00 110.04 111.49 153.35 188.52 251.40
</TABLE>
- --------------------------------------------------------------------------------
ITEM NO. 2 - APPOINTMENT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
The Audit Committee of the Board of Directors of the Company has
recommended the appointment of Price Waterhouse LLP as independent accountants
for the Company for the year 1998. Price Waterhouse has acted in the same
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.
13
<PAGE>
In connection with the 1997 audit, Price Waterhouse 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 Price Waterhouse as the Company's independent accountants for
1998.
Change in Accountants
On September 3, 1996, the Board of Directors of ADESA Corporation
resolved to engage Price Waterhouse LLP as independent accountants for ADESA for
the year ending December 31, 1996, and dismiss Ernst & Young LLP (E&Y) as such
independent accountants. This change was effected for purposes of administrative
efficiency and cost effectiveness following the purchase by Minnesota Power of
the remaining 17 percent minority interest in ADESA in August 1996. During the
two fiscal years ending December 31, 1995, and the subsequent interim period
through September 3, 1996, there were no disagreements with E&Y on any matters
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedures which, if not resolved to the satisfaction of E&Y,
would have caused E&Y to make reference to the matter in their report. E&Y
reported on ADESA's financial statements for the fiscal year ending December 31,
1994, and six-month periods ending June 30, 1995, and December 31, 1995,
contained no adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty or audit scope. E&Y's letter dated September 5, 1996,
addressed to the Securities and Exchange Commission stated it agreed with the
above statements.
- --------------------------------------------------------------------------------
ITEM NO. 3 - PROPOSAL TO AMEND THE ARTICLES OF INCORPORATION TO CHANGE COMPANY
NAME FROM "MINNESOTA POWER & LIGHT COMPANY" TO "MINNESOTA POWER, INC."
- --------------------------------------------------------------------------------
The Board of Directors proposes that the Company's Articles of
Incorporation be amended to change the Company's legal name from Minnesota Power
& Light Company to Minnesota Power, Inc. The proposed new name recognizes our
transition from a traditional regional electric utility to a diversified
corporation serving a broad range of customers across North America. The new
name builds logically from our current identity and preserves our Minnesota
heritage.
The Board of Directors recommends a vote "FOR" the proposed amendment.
- --------------------------------------------------------------------------------
ITEM NO. 4 - PROPOSAL TO AMEND THE ARTICLES OF INCORPORATION TO INCREASE THE
AMOUNT OF AUTHORIZED COMMON STOCK
- --------------------------------------------------------------------------------
The Board of Directors of the Company recommends that the shareholders
approve an amendment to the first paragraph of Article III of the Company's
Restated Articles of Incorporation to increase the number of authorized shares
of Common Stock from 65,000,000 to 130,000,000. The proposed amendment was
unanimously approved by the Board of Directors at its meeting on January 27,
1998. As of December 31, 1997, 33,554,625 shares of the Company's Common Stock
were issued and outstanding, and 31,445,375 shares were unissued, including
7,117,154 shares reserved and available for issuance to satisfy the requirements
of the Company's stock plans. The Board of Directors will have full authority to
issue the entire amount of additional authorized, but unissued, Common Stock for
such proper corporate purposes and on such terms as it may determine without
further action on the part of the shareholders. However, any such issuances
would be subject to the requirements of applicable law, governmental or
regulatory bodies and of any exchange on which any securities of the Company may
be listed. The additional shares of Common Stock, if authorized, would have the
same rights and privileges as the shares of Common Stock presently outstanding.
The Company's Restated Articles of Incorporation provide that the shares of
Common Stock of the Company do not carry preemptive rights. The Board of
Directors believes that the increase in the number of authorized shares of
Common Stock will be advantageous to the Company and its shareholders because it
will provide the Company with added flexibility in effecting financings,
acquisitions, stock splits, stock dividends, stock distributions and other
transactions involving the use of stock. The Company has no present intention to
issue any of the newly authorized shares of Common Stock. Except for issuances
of the
14
<PAGE>
Common Stock which may be made in connection with the Company's dividend
reinvestment plan, the long-term incentive plans and the supplemental retirement
plan, neither the Company nor any of its officers or directors has entered into
any understandings, agreements, plans or discussions regarding the issuance and
sale of additional shares of Common Stock.
The Board of Directors recommends a vote "FOR" the proposed amendment.
- --------------------------------------------------------------------------------
OTHER BUSINESS
- --------------------------------------------------------------------------------
The Board of Directors does not know of any other business to be
presented at the meeting. However, if any other matters properly come before the
meeting, it is the intention of the persons named in the accompanying proxy card
to vote pursuant to the proxies in accordance with their judgment in such
matters.
It is important that all proxy cards be forwarded promptly 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 19, 1998
Philip R. Halverson
Vice President, General Counsel
and Secretary
15
<PAGE>
[LOGO OF MINNESOTA POWER]
PROXY CARD AND VOTING INSTRUCTIONS
Minnesota Power & Light Company, 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 10:30 a.m. on Tuesday, May 12,
1998, or any adjournments thereof, with respect to the election of Directors,
the appointment of independent accountants, changing the Company's legal name to
Minnesota Power, Inc., increasing the amount of authorized common stock, 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 judgement 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.
<PAGE>
Please mark your vote and sign:
The Board of Directors recommends a vote "FOR"
the following proposals submitted by the Board.
Proposal 1. Election of Directors.
/ / FOR all nominees listed below
(except as marked to the contrary)
Brekken, Cragun, Evans, Johnson, Mayer,
McQueen, Rajala, Russell, Sandbulte, Smith,
Stender and Wegmiller.
To withhold authority to vote for any individual
nominee, strike a line through the nominee's name
in the list above.
Proposal 2. Appoint PRICE WATERHOUSE
as independent accountants.
/ / FOR / / AGAINST / / ABSTAIN
Proposal 3. Change the Company's legal name to Minnesota
Power, Inc.
/ / FOR / / AGAINST / / ABSTAIN
Proposal 4. Increase the amount of authorized common stock of the
Company.
/ / FOR / / AGAINST / / ABSTAIN
Sign here as X
name(s) appears ------------------------------------------------------
on reverse side. X
------------------------------------------------------
Date , 1998.
-----------------------------------------------
Shares:
Account No.:
