UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
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[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
ALLETE, INC.
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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POWER PROPERTY POTENTIAL
[PHOTO OF WIND TURBINE] [PHOTO OF BLUEPRINTS] [PHOTO OF CLOUDS]
2006 NOTICE AND PROXY STATEMENT
[ALLETE LOGO]
ANNUAL MEETING OF SHAREHOLDERS
------------------------------
TUESDAY, MAY 9, 2006
DULUTH, MINNESOTA
[ALLETE LOGO]
March 21, 2006
Dear Fellow Shareholder:
You are cordially invited to the 2006 Annual
Meeting of Shareholders of ALLETE, Inc. to be held on
Tuesday, May 9, 2006 at 10:30 a.m. in the auditorium of
the Duluth Entertainment Convention Center (DECC). The
DECC is located on the waterfront of Lake Superior at
350 Harbor Drive in Duluth, Minnesota. Free parking is
available in the adjoining lot. On behalf of the ALLETE
Board of Directors, I encourage you to attend.
At this year's meeting, you will be asked to
elect ten directors and to ratify the appointment of
PricewaterhouseCoopers LLP as our independent
registered public accounting firm.
Standing for election to the Board of
Directors for the first time this year is Jim Hoolihan.
I think you will agree that Mr. Hoolihan has deep ties
to northeastern Minnesota and brings a great wealth of
business, civic, and political experience to the Board.
After the Annual Meeting, you are invited to
visit with our directors, officers, and employees over
lunch in the Lake Superior Ballroom located in the
DECC. If you plan to join us for lunch, please register
when you vote your proxy.
Your vote is important to us. Whether or not
you plan to attend our Annual Meeting in person, your
shares should be represented and voted. After reading
the enclosed Proxy Statement, please vote your shares
online, by a toll-free telephone call, or by signing,
dating, and returning the enclosed Proxy Card. Specific
instructions on how to vote are provided on your Proxy
Card.
Thank you for your investment in ALLETE.
Sincerely,
Donald J. Shippar
Donald J. Shippar
Chairman, President,
and Chief Executive Officer
ANNUAL MEETING
OF
SHAREHOLDERS
10:30 a.m.
Tuesday,
May 9, 2006
(Doors open at
9:00 a.m.)
at
Duluth
Entertainment
Convention Center
Duluth, Minnesota
Free Parking
Lunch will
follow the meeting.
REGISTER TO ATTEND
WHEN YOU VOTE
YOUR PROXY.
Questions, call
Shareholder Services
218-723-3974
or
800-535-3056
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS-MAY 9, 2006
ALLETE, INC.
30 WEST SUPERIOR STREET
DULUTH, MINNESOTA 55802
The Annual Meeting of Shareholders of ALLETE, Inc. will be held in the
auditorium of the Duluth Entertainment Convention Center, 350 Harbor Drive,
Duluth, Minnesota, on Tuesday, May 9, 2006 at 10:30 a.m. for the following
purposes:
1. To elect a Board of ten directors to serve for the ensuing year;
2. To ratify the appointment of PricewaterhouseCoopers LLP as ALLETE's
independent registered public accounting firm for 2006; 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 ALLETE at the close of business
on March 10, 2006 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.
Please follow the instructions on your Proxy Card to vote your shares online or
by a toll-free telephone call. To vote by mail, please sign, date, and return
the enclosed Proxy Card in the envelope provided.
By order of the Board of Directors,
Deborah A. Amberg
Deborah A. Amberg
Senior Vice President, General Counsel, and Secretary
March 21, 2006
Duluth, Minnesota
PROXY STATEMENT
TABLE OF CONTENTS
GENERAL INFORMATION 1
Proxy Solicitation ........................................................ 1
Purpose of the Meeting .................................................... 1
Shareholders Entitled to Vote ............................................. 1
Shareholders of Record; Beneficial Owners ................................. 1
Quorum; Required Votes .................................................... 1
How to Vote ............................................................... 2
Revocation of Proxies ..................................................... 2
Delivery of Proxy Materials to Households ................................. 2
Shareholder Proposals for the 2007 Annual Meeting ......................... 3
OWNERSHIP OF ALLETE COMMON STOCK ............................................ 3
Securities Owned by Certain Beneficial Owners ............................. 3
Securities Owned by Directors and Management .............................. 3
Equity Compensation Plan Information ...................................... 4
Section 16(a) Beneficial Ownership Reporting Compliance ................... 4
ITEM NO. 1-ELECTION OF DIRECTORS ............................................ 5
Nominees for Director ..................................................... 5
CORPORATE GOVERNANCE ........................................................ 7
Corporate Governance Guidelines ........................................... 7
Director Independence ..................................................... 7
Certain Relationships and Related Transactions ............................ 8
Director Nominations ...................................................... 8
Committee Membership, Meetings, and Functions ............................. 9
Communications Between Shareholders and the Board of Directors ............ 9
Director Compensation ..................................................... 10
Common Stock Ownership Guidelines ......................................... 10
Code of Ethics ............................................................ 10
COMPENSATION OF EXECUTIVE OFFICERS .......................................... 11
2005 Proxy Summary Compensation Table ..................................... 11
Option Grants in Last Fiscal Year ......................................... 12
Aggregated Option Exercises in Last Fiscal Year ........................... 13
Long-Term Incentive Plan Awards in Last Fiscal Year ....................... 13
Retirement Plans .......................................................... 14
Pension Plan .............................................................. 14
REPORT OF BOARD'S EXECUTIVE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION .......................................... 15
Overview of Executive Compensation Philosophy ............................. 15
Elements of Executive Compensation ........................................ 16
Chief Executive Officer Compensation ...................................... 17
REPORT OF THE AUDIT COMMITTEE ............................................... 19
Audit Committee Pre-Approval Policies and Procedures ...................... 19
Audit and Non-Audit Fees .................................................. 20
ITEM NO. 2-RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM ............................................. 21
ALLETE COMMON STOCK PERFORMANCE ............................................. 21
Total Shareholder Return for the Five Years Ending December 31, 2005 ...... 21
OTHER BUSINESS .............................................................. 22
PROXY STATEMENT
ALLETE, INC.
30 WEST SUPERIOR STREET
DULUTH, MINNESOTA 55802
GENERAL INFORMATION
PROXY SOLICITATION
These proxy materials are being delivered to shareholders of ALLETE,
Inc. (ALLETE or Company) in connection with the solicitation of proxies by the
Board of Directors to be voted at ALLETE's 2006 Annual Meeting of Shareholders
to be held at 10:30 a.m. CST on Tuesday, May 9, 2006 at the Duluth Entertainment
Convention Center, Duluth, Minnesota.
ALLETE expects to solicit proxies primarily by mail. Directors,
officers, other employees, or retirees of the Company also may solicit proxies
in person or by telephone at a nominal cost. Brokers, and other custodians,
nominees, and fiduciaries will be asked to solicit proxies or authorizations
from beneficial owners and will be reimbursed for their reasonable expenses.
ALLETE has retained Georgeson Shareholder Communications, Inc. to assist in the
solicitation of proxies. The total fees ALLETE expects to pay in connection with
the solicitation of proxies are approximately $12,000 plus expenses. The cost of
soliciting proxies will be paid by ALLETE.
This Notice of Annual Meeting, Proxy Statement, form of proxy, and
voting instructions were first mailed to shareholders on or about March 21,
2006.
PURPOSE OF THE MEETING
The purpose of the Annual Meeting is to elect a Board of ten directors
to serve for the ensuing year, to ratify the appointment of
PricewaterhouseCoopers LLP (PricewaterhouseCoopers) as ALLETE's independent
registered public accounting firm for 2006, and to transact such other business
as may properly come before the meeting.
The Board is not aware of any matter to be presented at the Annual
Meeting other than those set forth in the accompanying notice. If any other
matters properly come before the meeting, all shares represented by valid
proxies will be voted in accordance with the judgment of the appointed proxies.
SHAREHOLDERS ENTITLED TO VOTE
Each share of common stock of ALLETE, without par value (Common Stock),
of record on the books of ALLETE at the close of business on March 10, 2006 is
entitled to notice of and to vote at the Annual Meeting. As of March 10, 2006
there were 30,244,304 outstanding shares of Common Stock, each entitled to one
vote.
SHAREHOLDERS OF RECORD; BENEFICIAL OWNERS
If shares of Common Stock are registered directly in a person's name
with ALLETE's transfer agent, Wells Fargo Bank, N.A., that person is considered
the "shareholder of record" with respect to those shares and these proxy
materials have been sent directly to such persons by ALLETE.
If a person holds shares of Common Stock in a brokerage account or
through a bank or other holder of record, that person is considered the
"beneficial owner" of shares held in street name. These proxy materials have
been forwarded to the beneficial owners by the broker, bank, or other holder of
record who is considered the shareholder of record with respect to those shares.
A beneficial owner has the right to direct the broker, bank, or other holder of
record on how to vote the beneficially owned shares.
QUORUM; REQUIRED VOTES
The holders of a majority of the shares of Common Stock entitled to
vote at the meeting must be present in person or represented by proxy to
constitute a quorum.
1
The affirmative vote of a majority of the shares of Common Stock
entitled to vote at the Annual Meeting is required for the election of each
director. The affirmative vote of a majority of the shares of Common Stock
present at the Annual Meeting and entitled to vote is required for ratification
of the appointment of PricewaterhouseCoopers LLP as ALLETE's independent
registered public accounting firm for 2006.
Abstentions are included in the number of shares present and voting,
and have the same effect as votes against the particular proposal.
Broker non-votes are not counted for or against any proposal, but are
treated as present for purposes of determining a quorum. A "broker non-vote"
occurs when a broker submits a proxy card for shares to the Company but does not
indicate a vote on a particular matter because the broker has not received
timely voting instructions from the beneficial owner of the shares and the
broker does not have the authority to vote on the matter without such
instructions. Under the rules of the New York Stock Exchange (NYSE), a broker
may vote shares on Item No. 1, Item No. 2, and on other routine matters in the
absence of timely voting instructions from the beneficial owner.
An automated system administered by Wells Fargo Bank, N.A. tabulates
the votes.
HOW TO VOTE
Shareholders of record may vote their shares by proxy using any of the
following methods:
BY TELEPHONE: Vote by calling the toll-free telephone number printed on
the Proxy Card. The proxy card should be in hand when making the call.
Easy-to-follow voice prompts allow the caller to authenticate his or her
identity, vote the shares, and confirm that the instructions have been properly
recorded.
ON THE INTERNET: The website for Internet voting is
WWW.EPROXY.COM/ALE/. The proxy card should be in hand when voting online. As
with telephone voting, simple instructions allow the shareholder of record to
authenticate his or her identity, vote the shares, and confirm that the
instructions have been properly recorded.
BY MAIL: Shareholders of record may complete, sign, and date the proxy
card and return it in the prepaid envelope provided to ALLETE, Inc., c/o Wells
Fargo Bank, N.A., Shareowner Services, P.O. Box 64873, St. Paul, MN 55164-0873.
Unless contrary instructions are provided, all shares represented by
valid proxies will be voted "FOR" the election of all nominees for Director
named herein and "FOR" ratification of the appointment of PricewaterhouseCoopers
as ALLETE's independent registered public accounting firm for 2006.
REVOCATION OF PROXIES
A proxy may be revoked at any time before it is voted by giving written
notice of revocation to ALLETE, Inc., c/o Wells Fargo Bank, N.A., Shareowner
Services, P.O. Box 64873, St. Paul, MN 55164-0873, or by delivering a proxy
bearing a later date using any of the voting methods described above.
DELIVERY OF PROXY MATERIALS TO HOUSEHOLDS
Only one copy of ALLETE's 2005 Annual Report and Proxy Statement for
the 2006 Annual Meeting of Shareholders will be delivered to an address where
two or more shareholders reside unless ALLETE has received contrary instructions
from a shareholder at the address. A separate Proxy Card will be delivered to
each shareholder at the shared address.
If you are a shareholder who lives at a shared address and you would
like additional copies of the 2005 Annual Report, this Proxy Statement, or any
future annual reports or proxy statements contact ALLETE Shareholder Services,
30 West Superior Street, Duluth, MN 55802-2093, telephone number 800-535-3056 or
218-723-3974, and we will promptly mail you copies.
If you share the same address with another ALLETE shareholder and you
currently receive multiple copies of annual reports or proxy statements, you may
request delivery of a single copy of future annual reports or proxy statements
at any time by calling ALLETE Shareholder Services at 800-535-3056 or
218-723-3974, or by writing
2
to ALLETE's stock transfer agent, Wells Fargo Bank, N.A., Shareowner Services,
Attn: Householding, P.O. Box 64854, St. Paul, MN 55164-0854.
If you did not receive the 2005 ALLETE Annual Report, which includes
financial statements, please notify ALLETE Shareholder Services, 30 West
Superior Street, Duluth, MN 55802-2093, telephone number 800-535-3056 or
218-723-3974, and a copy will be sent to you.
Many brokerage firms and other shareholders of record have procedures
for the delivery of single copies of company documents to households with
multiple beneficial shareholders. If your family has one or more "street name"
accounts under which you beneficially own shares of Common Stock, please contact
your broker, financial institution, or other shareholder of record directly if
you require additional copies of this Proxy Statement or ALLETE's 2005 Annual
Report, or if you have other questions or directions concerning your "street
name" account.
SHAREHOLDER PROPOSALS FOR THE 2007 ANNUAL MEETING
All proposals from shareholders to be considered for inclusion in the
Proxy Statement relating to the Annual Meeting scheduled for May 8, 2007 must be
received by the Secretary of ALLETE at 30 West Superior Street, Duluth, MN
55802-2093 not later than November 21, 2006. In addition, the persons to be
named as proxies in the Proxy Cards relating to that Annual Meeting may have the
discretion to vote their proxies in accordance with their judgment on any matter
as to which ALLETE did not have notice prior to February 3, 2007, without
discussion of such matter in the Proxy Statement relating to that Annual
Meeting.
OWNERSHIP OF ALLETE COMMON STOCK
SECURITIES OWNED BY CERTAIN BENEFICIAL OWNERS
The only person known to ALLETE who, as of March 10, 2006, beneficially
owned more than 5 percent of any class of ALLETE's voting securities is
Ameriprise Trust Company (Ameriprise), 145 Ameriprise Financial Center,
Minneapolis, MN 55474. As of March 10, 2006 Ameriprise held 5,040,430 shares, or
17 percent, of the Common Stock in its capacity as Trustee of the Minnesota
Power and Affiliated Companies Retirement Savings and Stock Ownership Plan
(RSOP). Generally, these shares will be voted in accordance with instructions
received by Ameriprise from participants in the RSOP.
SECURITIES OWNED BY DIRECTORS AND MANAGEMENT
The following table presents the shares of Common Stock beneficially
owned as of March 10, 2006 by Directors, nominees for Director, executive
officers named in the Summary Compensation Table which appears subsequently in
this Proxy Statement, and all Directors and executive officers of ALLETE as a
group. 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, 2006 Beneficial Owner Owned after March 10, 2006
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Heidi J. Eddins 3,065 0 Donald J. Shippar 19,407 23,026
James J. Hoolihan 600 0 Nick Smith 6,831 0
Peter J. Johnson 25,062 647 Bruce W. Stender 11,174 0
Madeleine W. Ludlow 3,722 0 James K. Vizanko 15,566 9,109
George L. Mayer 16,096 3,879 Laura A. Holquist 7,918 3,977
Roger D. Peirce 2,171 0 Mark A. Schober 13,499 10,395
Jack I. Rajala 9,001 3,879 Claudia Scott Welty 10,727 14,413
All Directors and
executive officers
as a group (19): 165,942 99,925
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Includes (i) shares as to which voting and investment power is shared with the person's spouse: Mr. Johnson - 14,661, Mr.
Schober - 4,228, and Ms. Welty - 4,676; (ii) shares owned by the person's spouse: Mr. Johnson - 719, Mr. Smith - 16, Ms.
Holquist - 103, and Mr. Vizanko - 1,666; and (iii) shares held by the person's minor children: all Directors and
executive officers as a group - 72. Each Director and executive officer owns only a fraction of 1 percent of the Common
Stock, and all Directors and executive officers as a group also own less than 1 percent of the Common Stock.
3
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth the Company securities available for
issuance under ALLETE's equity compensation plans as of December 31, 2005.
EQUITY COMPENSATION PLAN INFORMATION
Number of Securities Number of Securities
to be Issued Upon Weighted-Average Remaining Available
Exercise of Exercise Price of for Future Issuance
Outstanding Options, Outstanding Options, Under Equity
Plan Category Warrants and Rights Warrants and Rights Compensation Plans
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Equity Compensation 357,827 $34.29 1,473,972
Plans Approved by
Security Holders
Equity Compensation 0 N/A 0
Plans Not Approved
by Security Holders
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Total 357,827 $34.29 1,473,972
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Excludes the number of securities to be issued upon exercise of outstanding options, warrants, and rights.
The amount shown is comprised of: (i) 1,235,401 shares available for issuance under the Executive
Long-Term Incentive Compensation Plan in the form of options, rights, restricted stock, performance units,
shares, and other grants as approved by the Executive Compensation Committee of the Board; (ii) 106,166
shares available for issuance under the Director Stock Plan as payment for a portion of the annual retainer
payable to non-employee Directors; and (iii) 132,405 shares available for issuance under the ALLETE and
Affiliated Companies Employee Stock Purchase Plan.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires Directors, executive officers, and persons who beneficially own more
than 10 percent of a registered class of ALLETE's equity securities, to file
reports of initial ownership of Common Stock and other equity securities, and
subsequent changes in that ownership with the Securities and Exchange Commission
(SEC) and the NYSE. Based on a review of such reports and the written
representations of our Directors and executive officers, ALLETE believes that
all such filing requirements were met during 2005. However, in 2006 Mr. Schober
filed one late report covering his inheritance in 1999 of a small number of
shares of Common Stock and 5 percent preferred stock, and the subsequent
redemption by the Company of those same 5 percent preferred stock shares in
2000.
4
ITEM NO. 1-ELECTION OF DIRECTORS
All shares represented by the Proxy will be voted, unless authority is
withheld, "FOR" the election of the ten nominees for Director named below and on
the following page. 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. If any nominee should become
unavailable, which is not anticipated, the Board may provide by resolution for a
lesser number of Directors, or designate substitute nominees, who would receive
the votes represented by proxies.
NOMINEES FOR DIRECTOR
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[PHOTO] HEIDI J. EDDINS, 49, of St. Augustine, Florida, has been
a Director since 2004 and is a member of the Corporate
Governance and Nominating Committee. Ms. Eddins is the
Executive Vice President, Secretary, and General Counsel of
Florida East Coast Industries, Inc., a transportation and
real estate company. Ms. Eddins joined Florida East Coast
Industries in 1999 and is responsible for all legal and
governmental affairs of the corporation in addition to
managing a variety of real estate transactions. Ms. Eddins
also serves on the Board of Governors of the Florida Chamber
of Commerce and as a Director of the Flagler Hospital
Foundation.
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[PHOTO] JAMES J. HOOLIHAN, 53, of Grand Rapids, Minnesota, is a
first-time nominee for Director. Mr. Hoolihan is the
President and CEO of the Blandin Foundation, a private,
philanthropic foundation whose mission is to strengthen
communities in rural Minnesota. From 1981 to 2004, Mr.
Hoolihan was the President of Industrial Lubricant Company,
which provides industrial supplies and services to logging,
railroad, taconite, and coal mining industries. He serves as
the Chairman of the Board of Directors of Industrial
Lubricant Company and as a Trustee of the College of St.
Scholastica in Duluth, MN. Mr. Hoolihan served as the
elected Mayor of the City of Grand Rapids from 1990 to 1995.
Mr. Hoolihan was known by one of the Company's
non-management Directors who recommended him to the
Corporate Governance and Nominating Committee.
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[PHOTO] PETER J. JOHNSON, 69, of Tower, Minnesota, has been a
Director since 1994. Mr. Johnson is a member of the Audit
Committee, and the Corporate Governance and Nominating
Committee. Mr. Johnson is the retired Chairman and CEO of
Hoover Construction Company, a highway and heavy
construction contractor. Mr. Johnson serves as a member of
the Board of Directors of the Marshall H. and Nellie Alworth
Memorial Fund, which provides college scholarships to
students from northern Minnesota.
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[PHOTO] MADELEINE W. LUDLOW, 51, of Cincinnati, Ohio, has been a
Director since 2004 and is a member of the Audit Committee
and the Executive Compensation Committee. Since January 2005
Ms. Ludlow has been a Principal of Ludlow Ward Capital
Partners, LLC, a Cincinnati-based investment banking firm
serving small and middle market companies. She was the
Chairman, CEO, and President of Cadence Network, Inc., a
web-based provider of utility expense management services
from 2000 to 2004. Ms. Ludlow was formerly the Vice
President and CFO of Cinergy Corp. She is a current Trustee
of the Darden Graduate School of Business Administration at
the University of Virginia.
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[PHOTO] GEORGE L. MAYER, 61, of Essex, Connecticut, has been a
Director since 1996. Mr. Mayer is the Chair of the Audit
Committee. Mr. Mayer is the founder and President of
Manhattan Realty Group, a real estate investment and
management company. Mr. Mayer is also a Director of Schwaab,
Inc., one of the nation's largest manufacturers of handheld
rubber stamps and associated products.
5
NOMINEES FOR DIRECTOR
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[PHOTO] ROGER D. PEIRCE, 68, of Tucson, Arizona, has been a
Director since 2004 and is a member of the Audit Committee
and of the Executive Compensation Committee. Mr. Peirce has
been a corporate consultant since 1994. Mr. Peirce serves
as: Director, Chairman of the Compensation Committee, and
member of the Audit Committee of Journal Communication,
Inc., a diversified media and communications company;
Director and member of the Compensation Committee of Demco,
Inc., which offers a wide variety of products to libraries
and schools; Director and member of the Compensation
Committee and Audit Committee of Brady Corporation, a seller
of high performance labels and signs; Compensation Committee
Chairman for Schwaab, Inc., one of the nation's largest
manufacturers of rubber stamps and associated products; and
Director and Compensation Committee member of The Wisconsin
Cheeseman, Inc., a mail order gift food company.
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[PHOTO] JACK I. RAJALA, 66, of Grand Rapids, Minnesota, has been
a Director since 1985. Mr. Rajala is the Chair of the
Executive Compensation Committee. He is the Chairman and CEO
of Rajala Companies, and Director and President of Rajala
Mill Company, both of which manufacture and trade lumber.
Mr. Rajala serves as Chairman and CEO of Boundary Company, a
forestland investment company, and as a member of the Board
of Regents of Concordia College in Minnesota.
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[PHOTO] DONALD J. SHIPPAR, 57, of Superior, Wisconsin, has been
a Director since 2004 and was named Chairman of ALLETE
effective January 2006. Mr. Shippar has been President and
CEO of ALLETE since 2004. Since joining the Company in 1976,
Mr. Shippar has served as Director of human resources, Vice
President of transmission and distribution, Senior Vice
President for customer service and delivery, Chief Operating
Officer of Minnesota Power, and President of Minnesota
Power. Mr. Shippar was named President and CEO of ALLETE in
2004.
--------------------------------------------------------------------------------
[PHOTO] NICK SMITH, 69, of Duluth, Minnesota, has been a
Director since 1995. Mr. Smith is a member of the Corporate
Governance and Nominating Committee, and of the Executive
Compensation Committee. Mr. Smith is Of Counsel at
Duluth-based Fryberger, Buchanan, Smith & Frederick, P.A. He
was the Chairman of Northeast Ventures Corporation, a
venture capital firm investing in northeastern Minnesota,
from 1990 to 2005. Mr. Smith serves as a Director and member
of the Executive Compensation and Corporate Governance and
Nominating Committees of ADESA, Inc., a provider of
wholesale used vehicle auctions and related services;
Director of Community Development Venture Capital Alliance,
a national trade association; and Director of North Shore
Bank of Commerce in Minnesota.
--------------------------------------------------------------------------------
[PHOTO] BRUCE W. STENDER, 64, of Duluth, Minnesota, has been a
Director since 1995. Mr. Stender is Lead Director, and Chair
of the Corporate Governance and Nominating Committee. Mr.
Stender served as Chairman of ALLETE from September 2004 to
January 2006. He is the President and CEO of Duluth-based
Labovitz Enterprises, Inc., which owns and manages hotels
and commercial real estate. Mr. Stender serves as Trustee of
the Blandin Foundation and as member of the Chancellor's
Advisory Committee for the University of Minnesota Duluth.
6
CORPORATE GOVERNANCE
Corporate governance refers to the internal policies and practices by
which ALLETE is operated and controlled on behalf of its shareholders. Sound
corporate governance starts with a strong, independent Board that is accountable
to the Company and its shareholders. The role of the Board is to effectively
govern the affairs of the Company for the benefit of its shareholders and, to
the extent appropriate under Minnesota law, other constituencies, including the
Company's employees, customers, suppliers, and the communities in which it does
business. Because the Company's ultimate goal is to best focus and direct the
resources of the Company, ALLETE views good corporate governance as a source of
competitive advantage.
In keeping with its practice, in 2005 the Board and its committees
continued to review and enhance its corporate governance practices. This ensures
that the Board and its committees have the necessary authority and practices in
place to review and evaluate the Company's business operations as needed, and to
make decisions that are independent of the Company's management. As examples,
the Board and its committees undertake an annual self-evaluation process, meet
regularly without members of management present, have direct access to and meet
individually with members of management, and retain their own advisors as they
deem appropriate.
In an effort to further develop the Board, Directors are asked to
attend an educational seminar each year and to share their experiences and
observations with the other Directors. In addition to seminars, the Board had
educational presentations during 2005 addressing such topics as fiduciary
responsibilities, energy law developments, and investor perspectives.
In January 2005 and again in January 2006, the Board and ALLETE senior
management met jointly with Mercer Delta Organizational Consulting to review and
discuss expectations, responsibilities, and priorities going forward. To prepare
for the discussion, Mercer Delta interviewed each Director and members of the
senior management team. The focus of the 2006 meeting was to assess the progress
over the past year in working together and in working with senior management.
The process evaluated both the performance of the Board as a whole and the work
of the Board's committees.
CORPORATE GOVERNANCE GUIDELINES
ALLETE's Corporate Governance Guidelines, initially adopted in 2002,
were revised in 2005 and the charters of each of the committees of the Board
were updated. The Corporate Governance Guidelines document Board rules and
responsibilities, Board selection and composition policies, Board operating
policies, Board committee responsibilities, Director compensation, and other
matters. Current copies of ALLETE's Corporate Governance Guidelines and the
charters of the Corporate Governance and Nominating, Audit and Executive
Compensation committees are available on ALLETE's website at WWW.ALLETE.COM.
Shareholders may request free printed copies of these documents from ALLETE
Shareholder Services, 30 West Superior Street, Duluth, MN 55802-2093.
DIRECTOR INDEPENDENCE
The Board has adopted independence standards into ALLETE's Corporate
Governance Guidelines that are consistent with the director independence
standards of the NYSE. An "independent" Director has no material relationship
with the Company (either directly or as a partner, shareholder, or officer of an
organization that has a relationship with the Company). The Board has adopted
certain categorical standards to assist in its determination of each Director's
independence. The Board considers a "material relationship" with the Company to
exist where:
- the Director has been employed by the Company within the last three
years;
- a member of the Director's immediate family has been employed by the
Company as an executive officer within the last three years;
- the Director or a member of the Director's immediate family has been
an employee or an affiliate of a present or former independent
registered public accounting firm of the Company within the last
three years;
- the Director or a member of the Director's immediate family has been
employed within the last three years as an executive officer of any
business organization for which any of the Company's executive
officers currently serves as a member of that business
organization's compensation committee;
7
- the Director has received within the last three years more than
$100,000 in any year in direct compensation from the Company (other
than Director and committee fees, pension, and other deferred
compensation);
- a member of the Director's immediate family has received within the
last three years more than $100,000 in any year in direct
compensation as an executive officer of the Company;
- the Director is a current employee, or a member of the Director's
immediate family is a current executive officer, of any business
organization that has made payments to, or received payments from,
the Company for property or services in an amount which in any of
the last three fiscal years exceeds the greater of $1,000,000, or 2
percent of the other company's consolidated gross revenues;
- the Director has been an employee within the last three years, or a
member of the Director's immediate family has been an executive
officer within the last three years, of any business organization to
which the Company was indebted at any time within the last three
years of an aggregate amount in excess of 5 percent of the Company's
total assets;
- the Director or a member of the Director's immediate family has
served within the last three years as an executive officer or a
general partner of an entity that has received an investment from
the Company or any of its subsidiaries which exceeds the greater of
$1,000,000, or 2 percent of such entities total invested capital, in
any of the last three years; or
- the Director or a member of the Director's immediate family has been
an executive officer of a foundation, university, non-profit trust
or other charitable organization within the last three years for
which contributions from the Company account or accounted for more
than the greater of $250,000, or 2 percent of such organization's
consolidated gross revenues, in any of the last three years.
The Board reviewed each of the Directors' relationships with the
Company in conjunction with these standards and affirmatively determined that
all of the Company's Directors, other than Mr. Shippar, are independent under
the Board's independence standards and under the NYSE's corporate governance
rules.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
James Hoolihan, a nominee for Director at the 2006 Annual Meeting, has
an ownership interest in Industrial Lubricant Company (ILCO), which provides
lubricant products to the Company's generation facility, Boswell Energy Center,
and ALLETE's wholly owned subsidiary, BNI Coal, Ltd. During 2005 Company
purchases from ILCO totaled $341,304. Mr. Hoolihan also has an ownership
interest in ILCO Ground Technologies LLC, which provides equipment to the mining
industry. In 2005 BNI Coal purchased equipment from ILCO Ground Technologies at
a cost of $496,831.
After discussion, the Corporate Governance and Nominating Committee
recommended to the Board that it affirmatively determine that these
relationships with the Company are not material to Mr. Hoolihan nor to any
person or organization with whom he has an affiliation.
DIRECTOR NOMINATIONS
The Corporate Governance and Nominating Committee recommends director
candidates to the Board and will consider for such recommendations director
candidates proposed by management, other Directors, search firms and
shareholders. All director candidates will be evaluated based on the criteria
identified below, regardless of the identity of the individual or the entity or
person who proposed the director candidate. A shareholder who wishes to propose
a candidate should provide the candidate's name and a detailed background of the
candidate's qualifications to the Corporate Governance and Nominating Committee,
c/o the Secretary of ALLETE, 30 West Superior Street, Duluth, MN 55802-2093.
The selection of director nominees includes consideration of factors
deemed appropriate by the Board. The Board may engage a search firm to assist in
identifying, evaluating, and conducting due diligence on potential director
nominees. Factors will include integrity, achievements, judgment, intelligence,
personal character, the interplay of the candidate's relevant experience with
the experience of other Board members, the willingness of
8
the candidate to devote adequate time to Board duties and the likelihood that he
or she will be willing and able to serve on the Board for a sustained period.
The Corporate Governance and Nominating Committee will consider the candidate's
independence, as defined in the Corporate Governance Guidelines, and the rules
of the NYSE and SEC. In connection with the selection, due consideration will be
given to the Board's overall balance of diversity of perspectives, backgrounds,
and experiences. Experience, knowledge, and skills to be represented on the
Board include, among other considerations, financial expertise (including an
"audit committee financial expert" within the meaning of the SEC's rules),
electric utility and/or real estate knowledge and contacts, financing
experience, strategic planning, business development, and community leadership.
The Corporate Governance and Nominating Committee will review all
candidates, and before any contact is made with a potential candidate, will
notify the Board of its intent to do so, will provide the candidate's name and
background information to the Board, and allow time for Directors to comment.
The Corporate Governance and Nominating Committee will screen, personally
interview, and recommend candidates to the Board. A majority of the committee
members will interview any potential nominee before recommending that candidate
to the Board. The recommendations of the Corporate Governance and Nominating
Committee will be timed so as to allow interested Board members an opportunity
to interview the candidate prior to the nomination of the candidate.
COMMITTEE MEMBERSHIP, MEETINGS, AND FUNCTIONS
The Board has three standing committees, the Corporate Governance and
Nominating Committee, the Audit Committee and the Executive Compensation
Committee.
The members of the Corporate Governance and Nominating Committee are
Mr. Stender (Chair), Ms. Eddins, Mr. Johnson, and Mr. Smith, and it held four
meetings during 2005. The Corporate Governance and Nominating Committee provides
recommendations to the Board with respect to Board organization, membership,
function, committee structure and membership, succession planning for executive
management, and the application of corporate governance principles. The
Corporate Governance and Nominating Committee also performs the functions of a
director nominating committee, leads the Board's annual evaluation of the chief
executive officer, and is authorized to exercise the authority of the Board in
the intervals between meetings.
The members of the Audit Committee are Mr. Mayer (Chair), Ms. Ludlow,
Mr. Johnson, and Mr. Peirce, and it held nine meetings in 2005. The Audit
Committee recommends the selection of an independent registered public
accounting firm, reviews the independence and performance of the independent
registered public accounting firm, reviews and evaluates ALLETE's accounting
practices, reviews periodic financial reports to be provided to the public, and
reviews and recommends approval of the annual audit report.
The members of the Executive Compensation Committee are Mr. Rajala
(Chair), Ms. Ludlow, Mr. Peirce, and Mr. Smith. The Executive Compensation
Committee held six meetings in 2005. It establishes compensation and benefit
arrangements for ALLETE's executive officers and other key executives that are
intended to be equitable, competitive in the marketplace, and consistent with
corporate objectives.
Mr. Stender, as Lead Director, is an ex-officio member of all
committees. It is anticipated that committee chairs will rotate among Directors
in the future. The Board recognizes that the practice of chair rotation provides
development for the Directors and allows a variety of perspectives in leadership
positions.
During 2005 the Board held eight meetings. All Directors attended 95
percent or more of the aggregate number of meetings of the Board and applicable
committee meetings in 2005. All Directors are expected to attend the Annual
Meeting and all Directors attended in 2005.
COMMUNICATIONS BETWEEN SHAREHOLDERS AND THE BOARD OF DIRECTORS
Shareholders who wish to communicate directly with the Board or with
the non-management Directors may do so by addressing the Lead Director, c/o
Secretary of ALLETE, 30 West Superior Street, Duluth, MN 55802-2093.
9
DIRECTOR COMPENSATION
Employee Directors receive no additional compensation for their
services as Directors. ALLETE pays each non-employee Director under the terms of
the ALLETE Director Stock Plan an annual cash retainer and an annual equity
retainer fee paid entirely in Common Stock in amounts valued as set forth below:
Annual Retainer Fee Annual Equity Retainer
----------------------------------------------
Chairman or
Lead Director $73,000 $47,500
Director $23,500 $47,500
In addition, ALLETE pays each non-employee Director, other than the
Lead Director or Chairman, annual cash retainer fees for each committee, and
chair assignment as set forth below:
Committee Retainer Fees
Member Fee Chair (Includes Member Fee)
------------------------------------------
Audit $9,000 $17,500
Executive Compensation $7,500 $13,000
Corporate Governance
and Nominating $7,500 $12,000
The amounts shown above reflect increases in Director retainer fees
that became effective May 1, 2005. The actual amounts received by Directors
during 2005 were pro-rated to reflect service under the applicable fee schedule.
Directors may elect to defer all or part of the cash portion of their
retainer fees under the terms of the ALLETE Director Compensation Deferral Plan.
Directors may also elect to receive all or part of the cash portion of their
retainer fees in ALLETE Common Stock.
COMMON STOCK OWNERSHIP GUIDELINES
The Corporate Governance and Nominating Committee has determined that
Directors and certain executive officers whose primary job responsibilities
affect all business units of the Company should have a significant equity
interest in the Company. The Committee believes that such equity ownership
aligns the interest of Directors and executive management with the interests of
the Company's shareholders. Accordingly, the Board has adopted share ownership
guidelines effective October 2005. Directors are expected to own 500 shares of
Common Stock prior to their election as Directors and 3,000 shares of Common
Stock within three years after their election as Director. The President and CEO
is expected to maintain Common Stock ownership equal in value to at least four
times his annual salary. In addition, four Senior Vice Presidents, who each have
primary job functions that affect all business units of the Company, are
required to maintain Common Stock ownership equal in value to at least two times
her or his annual salary. ALLETE allows five years for existing executives to
meet the ownership guidelines and seven years for new executives.
The Corporate Governance and Nominating Committee annually reviews the
share ownership levels of the persons subject to these guidelines. All shares
benefically owned by the individual are included in the determination of Common
Stock ownership. Stock options, including vested options, and unvested
Performance Shares are not included.
CODE OF ETHICS
ALLETE has adopted a written Code of Ethics that applies to Directors
and all Company employees, including our chief executive officer, chief
financial officer and controller. A copy of our Code of Ethics is available on
our website at WWW.ALLETE.COM and printed copies are available upon request
without charge. Any amendment to or waiver of the Code of Ethics will be
disclosed on our website at WWW.ALLETE.COM promptly following the date of such
amendment or waiver.
10
COMPENSATION OF EXECUTIVE OFFICERS
The following information describes compensation paid in the years
2005, 2004, and 2003 to ALLETE's named executive officers.
2005 PROXY SUMMARY COMPENSATION TABLE
---------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
---------------------------------------------------------------------
Awards Payouts
Other --------------------------------------- All
Annual Restricted Other
Compen- Stock Securities LTIP Compen-
Name and Salary Bonus sation Award Underlying Options Payouts sation
Principal Position Year ($) ($) ($) ($) (#) ($) ($)
---------------------------------------------------------------------------------------------------------------------------------
DONALD J. SHIPPAR 2005 445,185 527,407 10,866 0 19,618 327,874 108,393
Chairman, President, and CEO 2004 382,500 452,487 5,309 0 13,905 88,508 61,286
2003 265,964 235,639 4,175 0 7,217 77,759 26,851
JAMES K. VIZANKO 2005 276,580 315,841 24,209 0 10,057 203,620 61,421
Senior Vice President 2004 273,780 334,437 15,384 0 8,635 108,570 43,533
and Chief Financial Officer 2003 263,726 265,825 12,902 0 20,655 95,384 24,892
LAURA A. HOLQUIST 2005 193,004 242,088 20,099 0 4,516 87,417 56,713
President of ALLETE 2004 182,962 300,588 9,752 0 3,708 37,759 30,816
Properties, LLC 2003 174,503 143,679 7,009 0 3,079 33,173 25,158
MARK A. SCHOBER 2005 197,413 204,256 8,388 0 4,167 84,408 41,960
Senior Vice President 2004 194,485 217,508 3,557 0 3,579 54,123 28,050
and Controller 2003 190,420 144,663 2,654 0 4,413 47,550 17,137
CLAUDIA SCOTT WELTY 2005 205,364 172,271 7,428 0 4,338 83,920 43,663
Senior Vice President and 2004 198,679 165,661 2,956 0 3,557 41,294 30,147
Chief Administrative Officer 2003 181,696 106,568 2,690 0 3,367 36,279 18,377
---------------------------------------------------------------------------------------------------------------------------------
Amounts shown include compensation earned by the named executive officers, as well as amounts earned but deferred at the
election of those officers.
Except as otherwise indicated by footnote, the "Bonus" column is comprised of amounts earned pursuant to ALLETE's Results
Sharing program and/or Executive Annual Incentive Plan. For bonuses paid in Common Stock, the market value of the stock at
the time of payment is included.
Included in the amount shown for Mr. Vizanko is $81,600 in 2004 and $54,500 in 2005 paid as a bonus in connection with the
spin-off of ADESA, Inc. (ADESA).
Included in the amount shown for Mr. Vizanko is $100,000 paid as a bonus in connection with the sale of ALLETE's water
services businesses.
Included in the amount shown for Mr. Schober is $57,900 in 2004 and $38,600 in 2005 paid as a bonus in connection with the
spin-off of ADESA.
Included in the amount shown for Mr. Schober is $50,000 paid as a bonus in connection with the sale of ALLETE's water
services businesses.
Amounts shown are comprised of above-market interest on deferred compensation.
All outstanding ALLETE stock option awards shown for 2004 and 2003 were adjusted in connection with the September 20, 2004
spin-off of ADESA and the one-for-three reverse stock split to preserve the economic value of the awards immediately prior
to the spin-off and reverse stock split. To calculate the adjustment, the number of shares underlying the original option
award was multiplied by a ratio of .862 and the original option exercise price was divided by the same ratio.
In 2005 comprised of: (i) ALLETE contributions to the RSOP and the Flexible Benefit Plan (Mr. Shippar $26,827, Mr. Vizanko
$26,196, Ms. Holquist $23,143, Mr. Schober $24,497, Ms. Welty $25,487); and (ii) amounts earned under the Supplemental
Executive Retirement Plan (Mr. Shippar $81,566, Mr. Vizanko $35,225, Ms. Holquist $33,570, Mr. Schober $17,463, Ms. Welty
$18,176).
In 2004 comprised of: (i) ALLETE contributions to the RSOP and the Flexible Benefit Plan (Mr. Shippar $22,262, Mr. Vizanko
$21,647, Ms. Holquist $18,917, Mr. Schober $20,585, Ms. Welty $20,933); and (ii) amounts earned under the Supplemental
Executive Retirement Plan (Mr. Shippar $39,024, Mr. Vizanko $21,886, Ms. Holquist $11,899, Mr. Schober $7,465, Ms. Welty
$9,214).
In 2003 comprised of: (i) ALLETE contributions to the RSOP and the Flexible Benefit Plan (Mr. Shippar $19,342, Mr. Vizanko
$19,342, Ms. Holquist $15,043, Mr. Schober $17,137, Ms. Welty $17,504); and (ii) amounts earned under the Supplemental
Executive Retirement Plan (Mr. Shippar $7,509, Mr. Vizanko $5,550, Ms. Holquist $10,115, Ms. Welty $873).
11
OPTION GRANTS IN LAST FISCAL YEAR
---------------------------------------------------------------------------------------------------------------------------
Individual Grants Grant Date Value
---------------------------------------------------------------------------------------------------------------------------
Number of % of Total
Securities Options Granted Exercise Grant Date
Underlying to Employees in Price Expiration Present Value
Name Options Granted Fiscal Year ($/Sh) Date ($)
--------------------------------------------------------------------------------------------------------------------------
Donald J. Shippar 19,618 16.5 41.35 February 1, 2015 158,996
James K. Vizanko 10,057 8.4 41.35 February 1, 2015 81,508
Laura A. Holquist 4,516 3.8 41.35 February 1, 2015 36,600
Mark A. Schober 4,167 3.5 41.35 February 1, 2015 33,772
Claudia Scott Welty 4,338 3.6 41.35 February 1, 2015 35,158
--------------------------------------------------------------------------------------------------------------------------
Options vest in three equal installments, one on each of February 1, 2006, 2007 and 2008. The options are subject to
a change-in-control acceleration provision.
The grant date dollar value of options is based on ALLETE's binomial ratio (as of February 1, 2005) of .196 so that
each option has an indicated value of $8.10, which is the product of the grant date share price ($41.35) and the
binomial ratio. The binomial option valuation method is a mathematical model premised on immediate exercisability and
transferability of the options, which are not features of ALLETE's options granted to executive officers and other
employees. The values shown are theoretical and do not necessarily reflect the actual values the recipients may
eventually realize. Any actual value to the officer or other employee will depend on the extent to which the market
value of Common Stock at a future date exceeds the exercise price. In addition to the option exercise price, the
following assumptions for modeling were used to calculate the values shown for the options granted in 2005: (i) each
option remains outstanding for a period of seven years; (ii) dividend yield of 2.9 percent (based on the most recent
quarterly dividend paid prior to the date of grant); (iii) dividend increase of 5 percent; (iv) stock price
volatility of .20 (based on estimate of peer group analysis and historic volatility since the 2004 spin-off of
ADESA); and (v) a risk-free rate of return of 4.06 percent (based on Treasury yields).
12
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
---------------------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Acquired Value Realized Options at FY-End (#) Options at FY-End ($)
Name on Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---------------------------------------------------------------------------------------------------------------------------
Donald J. Shippar 6,129 100,752 22,365 28,888 322,192 109,871
James K. Vizanko 30,983 509,560 2,879 15,813 17,977 62,592
Laura A. Holquist 3,079 60,470 1,236 6,988 7,718 27,403
Mark A. Schober 0 0 7,813 6,553 114,773 25,941
Claudia Scott Welty 13,588 290,586 11,782 6,709 187,401 26,300
---------------------------------------------------------------------------------------------------------------------------
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
---------------------------------------------------------------------------------------------------------------------------
Estimated Future Payouts Under
Number of Shares, Performance Non-Stock Price-Based Plans
Units or Other or Other Period --------------------------------------------
Rights Until Maturation Threshold Target Maximum
Name (#) or Payout (#) (#) (#)
---------------------------------------------------------------------------------------------------------------------------
Donald J. Shippar 3,845 1/05-12/07 1,923 3,845 7,690
James K. Vizanko 1,971 1/05-12/07 986 1,971 3,942
Laura A. Holquist 885 1/05-12/07 443 885 1,770
Mark A. Schober 817 1/05-12/07 409 817 1,634
Claudia Scott Welty 850 1/05-12/07 425 850 1,700
---------------------------------------------------------------------------------------------------------------------------
The table directly above reflects the number of shares of Common Stock
that can be earned pursuant to the Executive Long-Term Incentive Compensation
Plan for the 2005-2007 performance period, if the Total Shareholder Return of
the Company meets goals established by the Executive Compensation Committee. The
goals are based on the Company's ranking against a peer group of 16 comparable
companies. A threshold performance share award will be earned if the Company's
Total Shareholder Return ranks at least 10th, a target award will be earned if
the Company ranks at least 7th, and a maximum award will be earned if the
Company ranks at least 3rd. For this comparison, the Total Shareholder Return
ranking will be computed over the three-year period from January 1, 2005 through
December 31, 2007. Dividend equivalents accrue during the performance period and
are paid in shares only to the extent performance goals are achieved. If earned,
100 percent of the performance shares will be paid in Common Stock after the end
of the performance period. Upon a change in control of the Company, payment is
accelerated at 200 percent of the target number of performance shares granted as
increased by dividend equivalents for the performance period.
13
RETIREMENT PLANS
The following table sets forth examples of the estimated annual
retirement benefits that would be payable to participants in ALLETE's Retirement
Plan and Supplemental Executive Retirement Plan after various periods of
service, assuming no changes are made to either plan and retirement at the
normal retirement age of 65.
PENSION PLAN
Years of Service
---------------------------------------------------------------------------------------------------------------------------
Remuneration 15 20 25 30 35
---------------------------------------------------------------------------------------------------------------------------
$100,000 $12,000 $16,000 $20,000 $35,000 $40,000
125,000 15,000 20,000 25,000 43,750 50,000
150,000 18,000 24,000 30,000 52,500 60,000
175,000 21,000 28,000 35,000 61,250 70,000
200,000 24,000 32,000 40,000 70,000 80,000
225,000 27,000 36,000 45,000 78,750 90,000
250,000 30,000 40,000 50,000 87,500 100,000
300,000 36,000 48,000 60,000 105,000 120,000
400,000 48,000 64,000 80,000 140,000 160,000
450,000 54,000 72,000 90,000 157,500 180,000
500,000 60,000 80,000 100,000 175,000 200,000
600,000 72,000 96,000 120,000 210,000 240,000
700,000 84,000 112,000 140,000 245,000 280,000
800,000 96,000 128,000 160,000 280,000 320,000
900,000 108,000 144,000 180,000 315,000 360,000
1,000,000 120,000 160,000 200,000 350,000 400,000
1,100,000 132,000 176,000 220,000 385,000 440,000
1,200,000 144,000 192,000 240,000 420,000 480,000
---------------------------------------------------------------------------------------------------------------------------
Represents the highest annualized average compensation (salary and Results Sharing and Executive Annual Incentive
bonuses) received for 48 consecutive months during the employee's last 15 years of service with ALLETE.
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 heading "Salary" and on amounts under the heading
"Bonus" to the extent comprised of amounts earned pursuant to ALLETE's Results
Sharing program and/or Executive Annual Incentive Plan. Retirement benefit
amounts shown are not subject to any deduction for Social Security or other
offset amounts. ALLETE's Retirement Plan provides that the benefit amount at
retirement is subject to adjustment in future years to reflect changes in cost
of living to a maximum adjustment of 3 percent per year. As of December 31, 2005
the executive officers named in the Summary Compensation Table had the following
years of credited service under the plans:
Donald J. Shippar 29 years Mark A. Schober 28 years
James K. Vizanko 28 years Claudia Scott Welty 27 years
Laura A. Holquist 19 years
With certain exceptions, the Internal Revenue Code of 1986, as amended
(Code), restricts the aggregate amount of annual pension benefits which may be
paid to an employee under ALLETE's Retirement Plan to $170,000 for 2005. This
amount is subject to adjustment in future years to reflect changes in the cost
of living. ALLETE's Supplemental Executive Retirement Plan provides for
supplemental payments by ALLETE to eligible executives (including the executive
officers named in the Summary Compensation Table) in amounts sufficient to
maintain total retirement benefits upon retirement at a level which would have
been provided by ALLETE's Retirement Plan if benefits were not restricted by the
Code.
14
REPORT OF BOARD'S EXECUTIVE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Described below are the compensation policies of the Executive
Compensation Committee of the Board (Compensation Committee) effective for 2005
with respect to the executive officers of ALLETE. Composed entirely of
independent Directors, the Compensation Committee is responsible for
recommending to the Board policies that govern the executive compensation
program of ALLETE and for administering those policies. The Compensation
Committee has retained the services of independent compensation consulting firms
to assist the Compensation Committee in connection with the performance of such
responsibilities.
OVERVIEW OF EXECUTIVE COMPENSATION PHILOSOPHY
Our executive compensation philosophy is based on employing and
retaining quality people, rewarding them for performance, and motivating them to
increase shareholder value. ALLETE strives to earn superior returns for its
shareholders by employing exceptional leadership, providing a dynamic work
environment, and challenging management to attain annual and long-term goals.
Our executive compensation philosophy is built around core values and
fundamental principles that are the basis for a sound decision-making process
for the design and administration of our executive compensation programs. These
principles include:
- Linkage of pay to performance and a clear definition of performance;
- Long-term focus that fits the Company's strategic plans for equity
growth and value creation;
- The Compensation Committee exercising its independent judgment on
behalf of shareholders;
- Transparency in the philosophical basis and the design and
implementation of compensation plans;
- A meaningful equity investment by executives in the Company and
guidelines on stock ownership; and
- Provision of fair and competitive pay.
The key components of compensation, including base salary and annual
and long-term incentives, are reviewed in the aggregate and are generally
targeted at the midpoint of market for target performance, with the potential
for above-target pay with above-target performance.
The Compensation Committee compares senior executive compensation
levels with those of a group of 16 comparable companies and comparative
information from general industrial companies in tandem with available specific
industry data including electric utility and real estate companies. This
benchmarking is done with respect to the key elements of ALLETE's executive
compensation programs as well as the compensation of individual executives where
job descriptions are sufficiently similar. In addition to reviewing compensation
levels against those of ALLETE's peer companies and comparable industry data,
the Compensation Committee also considers the level of responsibility of the
position, experience, past performance of the executive, and the CEO's
assessment of the senior executives who report directly to him.
The Compensation Committee believes that the Company's financial and
strategic objectives can best be attained by tying executive compensation to
measures of annual and long-term financial performance and to growth in
shareholder returns. ALLETE's program focuses on pay for performance by
providing a significant portion of at-risk pay (short-term and long-term
incentives). The short-term plan focuses executives on objective financial and
non-financial measures approved by the Compensation Committee. A portion of the
short-term incentives for executives is based on goals that are aligned with the
goals of the Company's broad-based incentive plan. The long-term incentive plan
consists of stock-based programs intended to align executives' interests with
shareholders' interests.
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 corporations' CEO and four other most highly compensated executive officers
as of the end of any fiscal year. Qualifying performance-based compensation is
not subject to the deduction limit if certain requirements are met. The awards
granted to the executive officers under the
15
Executive Long-Term Incentive Compensation Plan are intended to qualify as
performance-based compensation within the meaning of Code Section 162(m). The
Compensation Committee generally intends to structure executive compensation
plans so that the Company may deduct all executive compensation, but reserves
the right to do otherwise if it is determined by the Compensation Committee to
be in the best interests of the Company and its shareholders.
ELEMENTS OF EXECUTIVE COMPENSATION
As described below, executive officers of ALLETE receive a compensation
package that consists of three basic elements: base salary, performance-based
compensation, and broad-based and supplemental executive benefits. The
compensation of ALLETE's CEO for the year 2005 is discussed separately below.
BASE SALARY
The Compensation Committee annually reviews and determines the base
salaries of the CEO and other members of senior management. Salaries are also
reviewed in the case of promotions or other significant changes in
responsibilities. In each case, the Compensation Committee takes into account
the results achieved by the executive, his or her future potential, scope of
responsibilities, experience, and competitive salary practices.
ANNUAL PERFORMANCE-BASED INCENTIVE AWARDS
Annual incentives under ALLETE's performance-based compensation plans
are tied to ALLETE's overall corporate and business unit financial performance,
and achievement of operations and strategic initiatives.
- RESULTS SHARING. Approximately 50 percent of the Company's employees
are eligible to participate in ALLETE's Results Sharing program. The
Results Sharing award opportunities for 2005 were based on corporate
net income from continuing operations and business unit net income.
Target level performance is earned if budgeted goals are met. Target
performance results in an award of 5 percent of base salary, assuming
safety, customer service and reliability, and environmental
protection goals established by the Compensation Committee are also
accomplished. For all named executive officers except Ms. Holquist
who is not a participant in the Results Sharing Program, the results
shown in the Summary Compensation Table reflect earned awards in 2005
of 7.7 percent of annual base salary, based on results that exceeded
target goals.
- EXECUTIVE ANNUAL INCENTIVE PLAN. The Executive Annual Incentive Plan
is intended to focus executive attention on meeting and exceeding
annual financial and non-financial goals established by the
Compensation Committee. For 2005 financial performance measures were
business unit contributions to revenue, net income from continuing
operations, and operating free cash flow. Annual incentive awards are
determined as a percentage of each executive officer's base salary,
except for Ms. Holquist whose award is determined as a percentage of
land sales and earnings from real estate operations. For 2005 the
incentive target opportunity (not including ALLETE's CEO) ranged from
35 percent to 96 percent of the named executive officer's December 1,
2005 base salary. Target level awards are earned if financial goals
are achieved. The 2005 financial and non-financial results
substantially exceeded goals set by the Compensation Committee. The
results shown in the Summary Compensation Table reflect earned awards
ranging from 75 percent to 121 percent of December 1, 2005 base
salary.
LONG-TERM INCENTIVE AWARDS
Long-term incentive awards consisting of stock options and performance
shares are granted annually to each member of senior management under the
Executive Long-Term Incentive Compensation Plan (LTIP). The aggregate target
value of the LTIP award to the executive officers (not including ALLETE's CEO)
ranges from 35 percent to 60 percent of the executive officer's annual base
salary. The dollar value of the target award has been allocated 50 percent to
stock options and 50 percent to performance shares.
- STOCK OPTIONS. Stock options vest in three equal installments with 33
percent becoming exercisable on each anniversary of the grant date.
Stock options have a ten-year term. They are granted with an exercise
price equal to the fair market value of the ALLETE Common Stock on
the date of the grant. The stock options have value only if the
Common Stock price appreciates above the price on the date of grant.
In
16
2005 the named executive officers were awarded the number of stock
options shown in the table headed "Option Grants in Last Fiscal
Year."
- PERFORMANCE SHARES. Payments pursuant to performance share awards are
determined based on ALLETE's Total Shareholder Return relative to a
peer group of 16 comparable companies over the applicable performance
period. The peer group was determined by the Compensation Committee
based primarily on industry and size as determined by market
capitalization. The payout from the performance share award can range
from zero to 200 percent of the target award based on ALLETE's Total
Shareholder Return versus the peer group. Dividend equivalents accrue
on the performance shares during the applicable performance period
and are paid in Common Stock only to the extent the Total Shareholder
Return performance goals are achieved. If earned, performance shares
are paid in Common Stock at the end of the performance period. The
potential number of performance shares the named executive officers
can earn at the end of the three-year performance period
1/1/2005-12/31/2007 is shown in the table headed "Long-Term Incentive
Plan Awards in the Last Fiscal Year."
For the two-year performance period ending December 31, 2005,
shareholders of ALLETE realized a Total Shareholder Return of 33.8
percent on their investment in Common Stock, ranking ALLETE number
one among the peer group of 16 comparable companies. As a result, the
payout for this two-year period is 200 percent of the target award
and is included in the "LTIP Payouts" column in the Summary
Compensation Table. Certain executive officers are expected to retain
performance shares they earn until they retire or leave service from
the Company.
The Compensation Committee has determined that these awards under the
performance-based compensation plans are consistent with its philosophy of
aligning executive officers' interests with those of shareholders and with the
performance of ALLETE.
SUPPLEMENTAL EXECUTIVE BENEFITS
ALLETE has established a Supplemental Executive Retirement Plan (SERP)
to compensate certain employees, including the executive officers, by replacing
benefits not provided by the Company's Flexible Benefit Plan and the Retirement
Savings and Stock Ownership Plan due to government-imposed limits, and to
provide retirement benefits that are competitive with those offered by other
businesses with which ALLETE competes for executive talent. The SERP provides
employees whose salary and bonus exceed the salary limitations within
tax-qualified plans with additional benefits such that they receive in aggregate
the benefits they would have been entitled to receive had such limitations not
been imposed. The SERP also provides certain executive employees with a 40
percent supplemental benefit if a change in control of the Company results in
the termination of the covered executives' employment and an immediate
distribution in full of the covered executives' SERP account and/or Executive
Investment Plan deferral account. The supplemental benefit is available only if
the covered executive employee is not eligible for early retirement at the time
of the change-in-control event.
CHIEF EXECUTIVE OFFICER COMPENSATION
The independent Directors meet each year in executive session to
evaluate the performance of Mr. Shippar, ALLETE's CEO. The Compensation
Committee considers results of this evaluation in determining Mr. Shippar's
compensation consistent with the previously-described compensation philosophy.
The Compensation Committee also consults with its independent compensation
consultant in setting the CEO's compensation. The CEO's compensation package is
designed by the Compensation Committee to provide substantial incentive to
achieve and to exceed the Board's financial and strategic goals for the Company
and Total Shareholder Return goals.
In January 2005 Mr. Shippar's base salary was increased 6 percent to
$424,000 to move his base salary toward the midpoint of salaries of chief
executive officers of comparable companies. In June 2005 Mr. Shippar's base
salary was further increased 8.5 percent to $460,000 to move his base salary
closer to the midpoint of the market and to recognize his leadership and
contributions to the performance of the Company.
17
Under ALLETE's Results Sharing program, Mr. Shippar was awarded
$34,087, or 7.7 percent of his annual salary, which is consistent with the
percentage earned by all other participants. Under the Executive Annual
Incentive Plan in 2005, Mr. Shippar's target opportunity was 50 percent of his
base salary. He earned an award of $493,350, or 107.3 percent of his December 1,
2005 base salary, which rewarded Mr. Shippar for the achievement of 2005 net
income from continuing operations and operating free cash flow that were
significantly above pre-determined goals, as well as for achievement of
non-financial strategic goals established by the Compensation Committee.
The compensation of the Company's CEO also contains elements which
motivate him to focus on the longer-term performance of the Company. In 2005,
under the LTIP, Mr. Shippar was awarded target opportunity with a value equal to
75 percent of his base salary. The dollar value of the target opportunity has
been allocated 50 percent to stock options and 50 percent to performance shares
and as a result he was granted 19,618 stock options and 3,845 performance
shares. The stock options and performance shares have the same characteristics
as those issued to other executive officers as described above. The LTIP payout
for 2005 shown in the Summary Compensation Table includes a payment of the award
earned for the two-year performance period ending December 31, 2005.
March 21, 2006
Executive Compensation Committee
Jack I. Rajala, Chair
Madeleine W. Ludlow
Roger D. Peirce
Nick Smith
18
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board is comprised of four non-employee
Directors, each of whom has been determined by the Board to be "independent"
under ALLETE's Corporate Governance Guidelines, and within the meaning of the
rules of both the NYSE and the SEC. The Board has also determined that each
member of the Audit Committee is financially literate and that Mr. Peirce and
Ms. Ludlow are "audit committee financial experts" within the meaning of the
rules of the SEC. The Audit Committee operates pursuant to a written charter
adopted by the Board that was amended and restated in January 2006. The current
Audit Committee Charter is available on the Company's website at WWW.ALLETE.COM.
The Audit Committee assists the Board's oversight of the integrity of ALLETE's
financial reports, compliance with legal and regulatory requirements, the
qualifications and independence of the independent registered public accounting
firm, the audit process, and internal controls. The Audit Committee reviews and
recommends to the Board that the audited financial statements be included in
ALLETE's Annual Report on Form 10-K.
During 2005 the Audit Committee met and held separate discussions with
members of ALLETE's management and the Company's independent registered public
accounting firm, PricewaterhouseCoopers, regarding certain audit activities and
the plans for and results of selected internal audits. The Audit Committee
reviewed the quarterly financial statements. It reviewed with management and the
independent registered public accounting firm the adequacy of the systems of
internal controls, and the Company's compliance with laws and regulations. It
also reviewed the Company's process for communicating its code of business
conduct and ethics. The Audit Committee approved the appointment of
PricewaterhouseCoopers as the Company's independent registered public accounting
firm for the year 2006, subject to shareholder ratification. The Company's
independent registered public accounting firm provided to the Audit Committee
the written disclosures required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), as may be modified or
supplemented, and the Audit Committee discussed with the independent auditor the
firm's independence.
The Audit Committee has: (i) reviewed and discussed ALLETE's audited
financial statements for the year ending December 31, 2005 with ALLETE's
management and with ALLETE's independent registered public accounting firm; (ii)
met with management to discuss all financial statements prior to their issuance
and to discuss significant accounting issues; and (iii) discussed with ALLETE's
independent registered public accounting firm the matters required to be
discussed by SAS 61 (Codification of Statements on Auditing Standards) which
include, among other items, matters related to the conduct of the audit of
ALLETE's financial statements. Management represented to the Audit Committee
that the Company's consolidated financial statements were prepared in accordance
with accounting principles generally accepted in the United States of America.
Based on the above-mentioned review and discussions, the Audit
Committee recommended to the Board that the audited financial statements be
included in ALLETE's Annual Report on Form 10-K for the fiscal year ended
December 31, 2005 for filing with the SEC.
AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
The Audit Committee has pre-approval policies and procedures related to
the provision of audit and non-audit services by the independent registered
public accounting firm. Under these procedures, the Audit Committee pre-approves
both the type of services to be provided by the independent registered public
accounting firm and the estimated fees related to these services. During the
pre-approval process, the Audit Committee considers the impact of the types of
services and the related fees on the independence of the independent registered
public accounting firm. The services and fees must be deemed compatible with the
maintenance of the independence of the independent registered public accounting
firm, including compliance with the SEC's rules and regulations.
The Audit Committee will, as necessary, consider and, if appropriate,
pre-approve the provision of additional audit and non-audit services by the
independent registered public accounting firm that were not encompassed by the
Audit Committee's annual pre-approval and that are not prohibited by law. The
Audit Committee has delegated to the Chair of the Audit Committee the authority
to pre-approve, on a case-by-case basis, these additional audit and non-audit
services, provided that the Chair shall promptly report any decisions to
pre-approve such services to the Audit Committee.
19
AUDIT AND NON-AUDIT FEES
The following table presents fees for professional audit services
rendered by PricewaterhouseCoopers for the audit of ALLETE's annual financial
statements for the years ended December 31, 2005 and December 31, 2004, and fees
billed for other services rendered by PricewaterhouseCoopers during those
periods.
All audit and non-audit services and fees for 2005 were pre-approved by
the Audit Committee. We have considered and determined that the provision of the
non-audit services noted below is compatible with maintaining
PricewaterhouseCoopers' independence.
2005 2004
------------------------------------
Audit Fees $1,550,000 $1,800,000
Audit-Related Fees 0 130,000
Tax Fees 80,000 1,040,000
All Other Fees 10,000 9,000
------------------------------------
Total $1,640,000 $2,979,000
Audit fees were comprised of audit work performed on the integrated audit
of the consolidated financial statements, as well as work generally only
the independent registered public accounting firm can reasonably be
expected to provide, such as statutory audits, subsidiary audits, and
security offerings.
Audit-related fees in 2004 were comprised of assurance services, including
audits of employee benefit plans and accounting consultations. In 2005
audits of the Company's employee benefit plans were performed by another
independent registered public accounting firm.
Tax fees were comprised of tax compliance services, including assistance
with the preparation of tax returns and claims for tax refunds, and tax
consultation and planning services, including assistance with tax audits
and appeals, tax advice relating to the divestiture of ADESA, mergers and
acquisitions, and employee benefit plans, and requests for rulings or
technical advice from taxing authorities. In 2005 tax compliance services
totaled $20,000, and tax consulting and planning services totaled $60,000.
In 2004 tax compliance services totaled $500,000, and tax consulting and
planning services totaled $540,000.
Other fees were comprised of license fees and maintenance fees for internal
audit work paper software and accounting research software.
March 21, 2006
Audit Committee
George L. Mayer, Chair
Peter J. Johnson
Madeleine W. Ludlow
Roger D. Peirce
20
ITEM NO. 2-RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Audit Committee of the Board recommends shareholder ratification of
the appointment of PricewaterhouseCoopers as ALLETE's independent registered
public accounting firm for the year 2006. PricewaterhouseCoopers has acted in
this capacity since October 1963.
A representative of PricewaterhouseCoopers will be present at the
Annual Meeting, will have an opportunity to make a statement if he or she so
desires, and will be available to respond to appropriate questions.
The Board recommends a vote "FOR" ratifying the appointment of
PricewaterhouseCoopers as ALLETE's independent registered public accounting firm
for 2006.
ALLETE COMMON STOCK PERFORMANCE
The following graph compares ALLETE's cumulative Total Shareholder
Return on its Common Stock with the cumulative return of the S&P 500 Index and
the Philadelphia Stock Exchange Utility Index (Philadelphia Utility Index). The
S&P 500 Index is a capitalization-weighted index of 500 stocks designed to
measure performance of the broad domestic economy through changes in the
aggregate market value of 500 stocks representing all major industries. Because
this composite index has a broad industry base, its performance may not closely
track that of a composite index comprised solely of electric utilities. The
Philadelphia Utility Index is a capitalization-weighted index of 20 utility
companies involved in the production of electrical energy.
The calculations assume a $100 investment on December 31, 2000 and
reinvestment of dividends. The calculations further assume that the shares of
ADESA common stock received by ALLETE shareholders in connection with the
September 20, 2004 spin-off of ADESA were immediately sold and the proceeds
invested in additional Common Stock.
[GRAPH OMITTED - TOTAL SHAREHOLDER PERFORMANCE GRAPH]
TOTAL SHAREHOLDER RETURN FOR THE FIVE YEARS ENDING DECEMBER 31, 2005
2000 2001 2002 2003 2004 2005
----------------------------------------------------------------------------
ALLETE $100 $106 $100 $141 $151 $186
S&P 500 Index $100 $88 $69 $88 $98 $103
Philadelphia Utility Index $100 $87 $71 $89 $112 $132
21
OTHER BUSINESS
The Board knows of no 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 respectfully asked to vote their proxies promptly
so that the necessary vote may be present at the meeting.
By order of the Board of Directors,
Deborah A. Amberg
Deborah A. Amberg
Senior Vice President, General Counsel, and Secretary
March 21, 2006
Duluth, Minnesota
22
"Printed with soy based inks on recycled paper containing at
least 10 percent fibers from paper recycled by consumers."
[RECYCLE LOGO] [LOGO PRINTED WITH SOY INK]
[ALLETE LOGO]
ANNUAL MEETING OF SHAREHOLDERS
TUESDAY, MAY 9, 2006
10:30 A.M.
DULUTH ENTERTAINMENT
CONVENTION CENTER
350 HARBOR DRIVE
DULUTH, MN
--------------------------------------------------------------------------------
[ALLETE LOGO] ALLETE, INC.
30 WEST SUPERIOR STREET
DULUTH, MINNESOTA 55802-2093 PROXY
--------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL MEETING
ON MAY 9, 2006.
Donald J. Shippar and Deborah A. Amberg, or either of them, with power of
substitution, are hereby appointed Proxies of the undersigned to vote all shares
of ALLETE, Inc. stock owned by the undersigned at the Annual Meeting of
Shareholders to be held in the auditorium of the Duluth Entertainment Convention
Center, 350 Harbor Drive, Duluth, Minnesota, at 10:30 a.m. on Tuesday, May 9,
2006, or any adjournments thereof, with respect to the election of Directors,
ratification of the appointment of an independent registered public accounting
firm, and any other matters as may properly come before the meeting.
THIS PROXY CONFERS AUTHORITY TO VOTE EACH PROPOSAL LISTED ON THE OTHER SIDE
UNLESS OTHERWISE INDICATED. If any other business is transacted at said meeting,
this Proxy shall be voted in accordance with the best judgment of the Proxies.
The Board of Directors recommends a vote "FOR" each of the listed proposals.
This Proxy is solicited on behalf of the Board of Directors of ALLETE, Inc., and
may be revoked prior to its exercise. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD USING THE ENCLOSED ENVELOPE. ALTERNATIVELY, AUTHORIZE THE ABOVE-NAMED
PROXIES TO VOTE THE SHARES REPRESENTED ON THIS PROXY CARD BY PHONE OR ONLINE AS
DESCRIBED ON THE OTHER SIDE. Shares cannot be voted unless these instructions
are followed, or other specific arrangements are made to have the shares
represented at the meeting. By responding promptly, you may help save the costs
of additional Proxy solicitations.
SEE REVERSE FOR VOTING INSTRUCTIONS.
--------------------
COMPANY #
--------------------
THERE ARE THREE WAYS TO VOTE YOUR PROXY:
YOUR TELEPHONE OR ONLINE VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR SHARES
IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY CARD.
VOTE BY PHONE - TOLL FREE - 1-800-560-1965 - 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. (CT) on May 8, 2006.
- Please have your Proxy Card and the last four digits of your Social Security
Number or Tax Identification Number available. Follow the simple instructions
the voice provides you.
VOTE ONLINE - WWW.EPROXY.COM/ALE/ - QUICK --- EASY --- IMMEDIATE
- Use the Internet to vote your Proxy 24 hours a day, 7 days a week, until 12:00
p.m. (CT) on May 8, 2006.
- Please have your Proxy Card and the last four digits of your Social Security
Number or Tax Identification Number available. Follow the simple instructions
to obtain your records and create an electronic ballot.
VOTE BY MAIL
Mark, sign and date your Proxy Card and return it in the postage-paid envelope
we've provided or return it to ALLETE, Inc., c/o Shareowner Services
(servicemark), P.O. Box 64873, St. Paul, MN 55164-0873.
IF YOU VOTE BY PHONE OR ONLINE, PLEASE DO NOT MAIL YOUR PROXY CARD.
- DETACH BELOW AND RETURN USING THE ENVELOPE PROVIDED -
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 and 2.
1. Election of 01 Eddins 02 Hoolihan 03 Johnson 04 Ludlow
Directors: 05 Mayer 06 Peirce 07 Rajala 08 Shippar
09 Smith 10 Stender
/ / Vote FOR all nominees / / Vote WITHHELD from all nominees
(except as marked)
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY ----------------------
INDICATED NOMINEE, WRITE THE NUMBER(S) OF THE NOMINEE(S)
IN THE BOX PROVIDED TO THE RIGHT.) ----------------------
2. Ratification of the appointment of PricewaterhouseCoopers LLP as ALLETE's
independent registered public accounting firm.
/ / For / / Against / / Abstain
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR ITEMS 1 and 2.
---
Address Change? Mark Box / /
Indicate changes below:
/ / WILL ATTEND ANNUAL MEETING AND LUNCH ON MAY 9, 2006 AT 10:30 A.M.
Date
------------------------------
-----------------------------------
-----------------------------------
Signature(s) in Box
Please sign exactly as your name(s)
appears on Proxy. If held in joint
tenancy, all persons should 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 __, 2006
Dear Shareholder:
ALLETE has not yet received your vote on issues to come before the 2006
Annual Meeting of Shareholders on May 9, 2006. Proxy materials were sent to you
on or about March 21, 2006. Please take a few moments to review the Proxy
materials and vote your shares using one of the three options available to you:
1. BY MAIL - Complete the enclosed duplicate Proxy Card and return it in
the self-addressed stamped envelope provided;
2. BY TELEPHONE - Call the toll-free number listed on the Proxy Card and
follow the instructions; or
3. ONLINE - Log onto the web site listed on the Proxy Card and follow the
instructions.
On behalf of the Board of Directors, we again extend to you a cordial
invitation to attend ALLETE's Annual Meeting of Shareholders to be held in the
auditorium of the Duluth Entertainment Convention Center, 350 Harbor Drive,
Duluth, Minnesota on Tuesday, May 9, 2006 at 10:30 a.m.
Your prompt response is appreciated.
Sincerely,
Deborah A. Amberg
Senior Vice President, General
Counsel and Secretary
Enclosures