Filed Pursuant to Rule 424(b)5
Registration Statement No. 333-57104,
333-57104-01 and 333-57104-02
PROSPECTUS SUPPLEMENT
(To Prospectus dated March 28, 2001)
--------------------------------------------------------------------------------
6,500,000 Shares
[ALLETE LOGO]
COMMON STOCK
--------------------------------------------------------------------------------
Outstanding shares of common stock, without par value, together with attached
preferred share purchase rights (collectively "common stock") of ALLETE, Inc.
are, and the shares of common stock offered hereby ("Offered Stock") will be,
listed on the New York Stock Exchange (Symbol: ALE). The last reported sale
price of the common stock on the New York Stock Exchange composite tape on May
23, 2001 was $23.68 per share.
The underwriters have a 30-day option to purchase a maximum of 975,000
additional shares to cover over-allotments of shares.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS ARE TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Underwriting Proceeds to
Price to discounts and ALLETE (before
Public commissions expenses)
------------------------------------------------------ ------------ -------------- ---------------
Per Share $23.68 $0.9472 $22.7328
------------------------------------------------------ ------------ -------------- ---------------
Total $153,920,000 $6,156,800 $147,763,200
------------------------------------------------------ ------------ -------------- ---------------
Total Assuming Full Exercise of Over-Allotment Option $177,008,000 $7,080,320 $169,927,680
------------------------------------------------------ ------------ -------------- ---------------
ALLETE currently expects to deliver the Offered Stock to the underwriters in New
York City on or about May 30, 2001
UBS Warburg
Robert W. Baird & Co. Janney Montgomery Scott LLC
Prospectus Supplement dated May 24, 2001.
[ALLETE LOGO]
[GRAPH DEPICTING ASSETS BY BUSINESS SEGMENT AS OF MARCH 31, 2001]
[MAP DEPICTING LOCATION OF ALLETE OPERATIONS AS OF APRIL 30, 2001]
YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR PROVIDED IN
THIS PROSPECTUS SUPPLEMENT OR IN THE ACCOMPANYING PROSPECTUS. NEITHER ALLETE NOR
ANY UNDERWRITER HAS AUTHORIZED ANYONE ELSE TO PROVIDE YOU WITH DIFFERENT
INFORMATION. IF ANYONE PROVIDES YOU WITH DIFFERENT OR INCONSISTENT INFORMATION,
YOU SHOULD NOT RELY ON IT. NEITHER ALLETE NOR ANY UNDERWRITER IS MAKING AN OFFER
OF THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER IS NOT PERMITTED. YOU
SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT OR IN THE
ACCOMPANYING PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE
FRONT OF THOSE DOCUMENTS.
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TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUPPLEMENT
About this Prospectus Supplement.............................................S-4
Summary .....................................................................S-4
The Offering.................................................................S-4
ALLETE.......................................................................S-4
Selected Financial Information...............................................S-8
Capitalization...............................................................S-9
Use of Proceeds..............................................................S-9
Dividends and Price Range....................................................S-9
Underwriting................................................................S-10
Legal Opinions..............................................................S-12
PROSPECTUS
About this Prospectus..........................................................2
Where You Can Find More Information............................................2
Incorporation by Reference.....................................................2
Safe Harbor Statement Under the Private Securities Litigation Reform
Act of 1995..................................................................3
ALLETE.........................................................................4
ALLETE Capital II and ALLETE Capital III.......................................6
Use of Proceeds................................................................6
Consolidated Ratios of Earnings to Fixed Charges and Ratios of Earnings to
Fixed Charges and Preferred Dividends........................................7
Description of Common Stock....................................................7
Description of First Mortgage Bonds...........................................11
Description of Debt Securities................................................15
Description of Preferred Trust Securities and Common Trust Securities.........23
Description of the Guarantee..................................................30
Description of Junior Subordinated Debentures.................................33
Plan of Distribution..........................................................42
Experts.......................................................................43
Legal Opinions................................................................44
S-3
ABOUT THIS PROSPECTUS SUPPLEMENT
This document is in two parts. The first is this prospectus supplement,
which describes the specific terms of this common stock offering. The second
part, the accompanying prospectus, gives more general information, some of which
may not apply to this offering.
If the description of the offering varies between this prospectus
supplement and the accompanying prospectus, you should rely on the information
in this prospectus supplement.
This prospectus supplement contains forward looking statements. For a
description of these statements and a discussion of the factors that may cause
our actual results to differ materially from these statements see "Safe Harbor
Statement Under the Private Securities Litigation Reform Act of 1995" in the
accompanying prospectus.
SUMMARY
This summary highlights information appearing elsewhere or incorporated by
reference in this prospectus supplement and the accompanying prospectus. This
summary is not complete and does not contain all of the information that you
should consider before purchasing the Offered Stock. Unless the context requires
otherwise, references to "we", "us" or "our" refer collectively to ALLETE and
its subsidiaries.
THE OFFERING
Securities offered by ALLETE.................. 6,500,000 shares of common stock,
without par value, together
with attached preferred share
purchase rights.
Indicated current annual dividend rate........ $1.07 per share
1999-2001 price range (through May 23, 2001).. $26.13 - $14.75 (adjusted to
reflect a 2:1 stock split on
March 3, 1999)
Shares outstanding at April 30, 2001.......... 75,685,479
Listed........................................ New York Stock Exchange (Symbol:
ALE)
Use of proceeds............................... Net proceeds will be used to
repay outstanding commercial
paper and for general corporate
purposes.
ALLETE
The information in this section replaces in its entirety the information in
the "ALLETE" section beginning on page 5 of the accompanying prospectus.
ALLETE has been incorporated under the laws of the State of Minnesota since
1906. Before September 1, 2000 ALLETE did business under the name Minnesota
Power, Inc. On May 8, 2001, ALLETE legally changed its name from Minnesota
Power, Inc. to ALLETE, Inc. ALLETE is a multi-services company and has 13,800
employees in 43 states and nine Canadian provinces engaged in its four business
segments:
(1) Energy Services, which include electric and gas services, coal mining
and telecommunications;
(2) Automotive Services, which include a network of vehicle auctions, a
finance company and several subsidiaries that are integral parts of
the vehicle redistribution business;
(3) Water Services, which include water and wastewater services; and
S-4
(4) Investments, which include real estate operations, investments in
emerging technologies related to the electric utility industry and a
securities portfolio.
ENERGY SERVICES
The Energy Services segment, which includes Minnesota Power, primarily
generates, transmits, distributes, markets and trades electricity. In addition,
Energy Services include coal mining and telecommunications in and near Minnesota
Power's electric utility service area. As of March 31, 2001, Minnesota Power
supplied retail electric service to 130,000 customers in northeastern Minnesota.
Superior Water, Light and Power Company, a wholly owned subsidiary, provided
electric, natural gas, and water services to 14,000 electric customers, 12,000
natural gas customers and 10,000 water customers in northwestern Wisconsin as of
March 31, 2001. Split Rock Energy LLC, formed as an alliance between Minnesota
Power and Great River Energy, combines power supply capabilities and customer
loads to share market and supply risks and to optimize power trading
opportunities. Split Rock contracts for exclusive services from MPEX, Minnesota
Power's power marketing division.
BNI Coal, Ltd., another wholly owned subsidiary, owns and operates a
lignite mine in North Dakota. Two electric generating cooperatives, Minnkota
Power Cooperative, Inc. and Square Butte Electric Cooperative, presently consume
virtually all of BNI Coal's production of lignite coal under cost-plus coal
supply agreements expiring in 2027. Under an agreement with Square Butte,
Minnesota Power purchases approximately 71 percent of the output from the Square
Butte unit which is capable of generating up to 455 megawatts. Minnkota Power
has an option to extend its coal supply agreement to 2042.
Other subsidiaries within the Energy Services business segment include:
o Electric Outlet, Inc., doing business as Electric Odyssey, which is a
retail, catalog and e-commerce merchandiser that sells unique products
for the home, office and travel;
o Minnesota Power Telecom, Inc., which provides high reliability fiber
optic-based communication and advanced data services to businesses and
communities in Minnesota and Wisconsin; and
o Rainy River Energy Corporation, which is engaged in wholesale power
marketing.
Minnesota Power has large power contracts to sell power to 12 industrial
customers, each requiring 10 megawatts or more of generating capacity. These
contracts require the payment of minimum monthly demand charges that cover the
fixed costs associated with having capacity available to serve each of these
customers, including a return on common equity. Each contract continues past the
contract termination date unless the required four-year advance notice of
cancellation has been given.
AUTOMOTIVE SERVICES
Automotive Services include several subsidiaries which are integral parts
of the vehicle redistribution business.
ADESA Corporation, a wholly owned subsidiary, is the second largest vehicle
auction network in North America. Headquartered in Indianapolis, Indiana, ADESA
owns, or leases, and operates 54 vehicle auction facilities in the United States
and Canada through which used cars and other vehicles are sold to franchised
automobile dealers and licensed used car dealers. Sellers at ADESA's auctions
include domestic and foreign auto manufacturers, car dealers, automobile
fleet/lease companies, banks and finance companies. ADESA also owns 21 vehicle
auctions in the United States and Canada that provide "total loss" vehicle
recovery services to insurance companies.
Automotive Finance Corporation, another wholly owned subsidiary, provides
inventory financing for wholesale and retail automobile dealers who purchase
vehicles from ADESA auctions, independent auctions, other auction chains and
other outside sources.
S-5
Other subsidiaries within the Automotive Services business segment include:
o Great Rigs Incorporated, which is one of the nation's largest
independent used automobile transport carriers with more than 140
automotive carriers, the majority of which are leased;
o PAR, Inc., doing business as PAR North America, which provides
customized vehicle remarketing services to various customers such as
banks, captive finance, commercial fleets and rental car dealers in
the United States and Canada;
o AutoVIN, Inc., 90 percent owned, which provides professional field
information service to the automotive industry and the industry's
secured lenders. Services provided include vehicle condition
reporting, inventory verification auditing, program compliance
auditing and facility inspection; and
o ADESA Importation Services, Inc., which is the second largest
independent commercial registered importer of vehicles in the United
States.
WATER SERVICES
Water Services include Florida Water Services Corporation, Heater
Utilities, Inc., Georgia Water Services Corporation, Instrumentation Services,
Inc. and Americas' Water Service Corporation, each a wholly owned subsidiary.
Florida Water, the largest investor owned water supplier in Florida, owns and
operates water and wastewater treatment facilities within that state. As of
March 31, 2001, Florida Water served 153,000 water customers and 74,000
wastewater customers, and maintained 157 water and wastewater facilities
throughout Florida. As of March 31, 2001, Heater Utilities, which provides water
and wastewater treatment services in North Carolina, served 44,000 water
customers and 5,000 wastewater treatment customers. Georgia Water provides
wastewater treatment services to 1,000 customers near Atlanta, Georgia.
Instrumentation Services provides predictive maintenance and instrumentation
consulting services to water and wastewater utilities in the southeastern United
States as well as Texas and Minnesota. Americas' Water Services offers contract
management, operations and maintenance services for water and wastewater
treatment facilities to governments and industries.
INVESTMENTS
Investments consist of real estate operations, investments in emerging
technologies related to the electric utility industry and an actively traded
securities portfolio. Through subsidiaries, ALLETE owns Florida real estate
operations at Cape Coral and Lehigh Acres adjacent to Fort Myers, at Palm Coast
in northeast Florida and at Sugarmill Woods in Citrus County. Since 1985, ALLETE
has invested $39.3 million in start-up companies that are developing
technologies that may be used by the electric utility industry. As of March 31,
2001, ALLETE's trading and available-for-sale securities portfolio had a fair
value of approximately $118.4 million.
OUTLOOK
Corporate
We expect to continue to focus on attaining our strategic objectives of
substantially growing earnings, achieving market leadership in each of our
businesses, significantly enhancing total shareholder return with the objective
of increasing our market capitalization to over $4 billion by 2005 and achieving
market recognition as a multi-services company. We plan to achieve these goals
through selective acquisitions and internal growth while maintaining our credit
and security ratings within our businesses. Our $438 million investment in new
vehicle auction facilities during 2000, followed by our $62.4 million investment
in auction facilities that provide "total loss" vehicle recovery services in
January 2001, are consistent with our growth strategy. These investments are
expected to contribute to our goal of 12% earnings growth in 2001.
S-6
Energy Services
Energy Services continues to be a strong cash flow generator for us. Our
access to and ownership of low-cost power are the greatest strengths of Energy
Services and we will continue to look for opportunities to add to our low-cost
energy portfolio. We have more than adequate generation to serve our customer
base. Energy in excess of our customers' requirements is marketed through MPEX,
a division of Minnesota Power, and Split Rock Energy LLC.
Energy Services continues to pursue plans to construct in partnership with
Wisconsin Public Service Corporation a 250-mile, 345-kilovolt transmission line
from Wausau, Wisconsin to Duluth, Minnesota and pursue regional wholesale
merchant generating plant opportunities. Energy Services intends to seek
additional cost savings alternatives and efficiencies, and expand its
non-regulated services to maintain its contribution to overall net income.
Automotive Services
We anticipate earnings from Automotive Services to increase by more than
40% in 2001. This earnings growth includes a 10% to 15% increase in earnings
before interest, taxes, depreciation, amortization and lease expense from same
store ADESA auction facilities.
Vehicle sales within the auto auction industry are expected to rise at a
rate of 2% to 4% annually over the next several years. With the continuing
popularity of leasing and the high cost of new vehicles, a steady flow of
vehicles is expected to return to auction. Automotive Services also expects to
participate in the industry's growth through selective acquisitions and expanded
services. We will continue to look for accretive acquisitions in the wholesale
vehicle and "total loss" recovery auction businesses.
ADESA and Automotive Finance Corporation continue to focus on growth in the
volume of vehicles sold and financed, increased ancillary services, and
operating and technological efficiencies. Great Rigs Incorporated, PAR, Inc. and
ADESA Importation Services, Inc. plan to participate in the growth of auction
volume and enhance market share.
Water Services
Florida Water will continue to grow by selectively acquiring targeted water
systems. The strategic emphasis at Heater is growth in North Carolina. Both
Florida Water and Heater operate in states that are currently experiencing rapid
population growth, which should result in expected annual customer growth of 4%
to 7% over the next two years.
Investments
Over the last five years, sales by real estate operations have been on
average three to four times more than the acquisition cost of property sold,
creating strong cash generation and profitability. From time to time, our real
estate operations may acquire large residential community properties at low
cost, add value and sell them at current market prices in order to continue a
consistent earnings contribution from this business.
Our investments in emerging technology funds make capital available to
companies developing products and services critical to the future of the
electric utility industry. With many of these funds maturing, our investments
may add to income in the future. Our securities portfolio will continue to
concentrate in market-neutral investment strategies designed to provide stable
and acceptable returns without sacrificing needed liquidity.
S-7
SELECTED FINANCIAL INFORMATION
You should read the following table in conjunction with the financial
statements and notes incorporated by reference into this prospectus supplement
and the accompanying prospectus.
Three Months
Ended March 31, Year Ended December 31,
--------------- -----------------------
2001 2000 2000 1999 1998
---- ---- ---- ---- ----
(millions of dollars, except per share amounts)
Diluted Earnings Per Share of Common Stock
Before Capital Re and ACE Transactions..... $ 0.46 $ 0.43 $ 1.67 $ 1.49 $ 1.35
Capital Re and ACE Transactions (a)........ - - 0.44 (0.52) -
-------- -------- -------- -------- --------
Total.................................... $ 0.46 $ 0.43 $ 2.11 $ 0.97 $ 1.35
======== ======== ======== ======== ========
Operating Revenue
Energy Services............................ $ 159.4 $ 141.6 $ 589.5 $ 554.5 $ 559.8
Automotive Services........................ 211.1 119.5 546.4 406.6 328.4
Water Services............................. 29.5 28.0 118.6 112.9 95.6
Investments................................ 13.0 33.5 77.4 57.8 55.5
-------- -------- -------- -------- --------
$ 413.0 $ 322.6 $1,331.9 $1,131.8 $1,039.3
======== ======== ======== ======== ========
EBITDAL (b)
Energy Services............................ $ 37.4 $ 35.3 $ 143.7 $ 145.1 $ 150.5
Automotive Services........................ 57.8 34.4 154.0 114.6 86.9
Water Services............................. 12.0 10.7 47.8 44.7 34.7
Investments................................ 8.7 18.6 45.0 34.5 33.3
Corporate Charges.......................... (4.5) (4.4) (16.5) (14.8) (15.5)
-------- -------- -------- -------- --------
$ 111.4 $ 94.6 $ 374.0 $ 324.1 $ 289.9
======== ======== ======== ======== ========
Net Income
Energy Services............................ $ 11.9 $ 10.7 $ 43.1 $ 45.0 $ 47.4
Automotive Services........................ 17.7 11.9 48.5 39.9 25.5
Water Services............................. 3.1 2.4 13.1 12.2 7.5
Investments................................ 5.5 11.5 29.3 26.8 29.6
Corporate Charges.......................... (5.3) (6.1) (15.8) (19.7) (21.5)
-------- -------- -------- -------- --------
Net income before Capital Re and ACE
Transactions............................ 32.9 30.4 118.2 104.2 88.5
Capital Re and ACE Transactions (a)........ - - 30.4 (36.2) -
-------- -------- -------- -------- --------
$ 32.9 $ 30.4 $ 148.6 $ 68.0 $ 88.5
======== ======== ======== ======== ========
Selected Balance Sheet Data
Total assets............................... $3,097.5 $2,534.2 $2,914.0 $2,312.6 $2,208.9
Capitalization
Stockholders' equity..................... $ 917.5 $ 856.7 $ 900.8 $ 817.3 $ 797.1
Mandatorily redeemable preferred
securities of ALLETE Capital I.......... $ 75.0 $ 75.0 $ 75.0 $ 75.0 $ 75.0
Redeemable preferred stock............... - $ 10.0 - $ 20.0 $ 20.0
Long-term debt........................... $1,069.5 $ 708.9 $ 952.3 $ 712.8 $ 672.2
------------------------
(a) In May 2000 ALLETE sold its investment in ACE Limited ("ACE") common stock,
which resulted in an after-tax gain of $30.4 million, or $0.44 per share.
The ACE shares were received in December 1999 upon completion of ACE's
merger with Capital Re Corporation ("Capital Re"). During 1999 ALLETE
recorded an aggregate $36.2 million, or $0.52 per share, after-tax non-cash
charge in connection with the valuation and exchange of its investment in
Capital Re stock for the ACE shares.
(b) EBITDAL is defined as earnings before interest, taxes, depreciation,
amortization and lease expense. EBITDAL is not a measure of performance
under U.S. generally accepted accounting principles ("GAAP"). While EBITDAL
should not be considered as a substitute for net income, cash flows from
operating activities and other income or cash flow statement data prepared
in accordance with GAAP, or as a measure of profitability or liquidity,
management understands that EBITDAL is customarily used as a measure in
evaluating companies.
S-8
CAPITALIZATION
The following table summarizes the capitalization of ALLETE at March 31,
2001 and its capitalization as adjusted to reflect the issuance and sale of
6,500,000 shares of common stock (assuming no exercise of the underwriters'
over-allotment option) contemplated by this prospectus supplement and the
application of the net proceeds in the manner described in "Use of Proceeds."
As of March 31, 2001
-------------------------
Actual Adjusted
--------- --------------
(millions of dollars, except percentages)
CAPITALIZATION
Stockholders' equity..................................... $ 917.5 $1,065.3 48.21%
ALLETE obligated mandatorily redeemable preferred
securities of subsidiary ALLETE Capital I which holds
solely ALLETE Junior Subordinated Debentures............ 75.0 75.0 3.39%
Long-term debt........................................... 1,069.5 1,069.5 48.40%
-------- -------- -------
Total capitalization (excluding current maturities)........ $2,062.0 $2,209.8 100.00%
======== ======== =======
USE OF PROCEEDS
The information in this section adds to the information in the "Use of
Proceeds" section beginning on page 7 of the accompanying prospectus. Please
read these two sections together.
ALLETE will add the net proceeds from the sale of the Offered Stock to its
general funds. ALLETE expects to use its general funds to repay a portion of
ALLETE's short-term borrowings. On May 23, 2001, ALLETE had an aggregate of
approximately $269 million of short-term borrowings outstanding, which had
maturities of up to 22 days and which had a weighted average annual interest
rate of 4.79%. ALLETE will invest general funds not immediately used for this
purpose or other purposes in short-term instruments.
DIVIDENDS AND PRICE RANGE
The following table sets forth the high and low sales prices per share of
the common stock reported on the New York Stock Exchange composite tape and the
dividends paid for the indicated periods.
Price Range
----------- Dividends
High Low Per Share
---- --- ---------
1999 First Quarter......................... $22.09 $19.53 $0.2675
Second Quarter........................ 21.81 18.94 0.2675
Third Quarter......................... 19.88 16.56 0.2675
Fourth Quarter........................ 18.69 16.00 0.2675
2000 First Quarter......................... 18.06 14.75 0.2675
Second Quarter........................ 20.75 16.00 0.2675
Third Quarter......................... 24.25 17.31 0.2675
Fourth Quarter........................ 25.50 20.13 0.2675
2001 First Quarter......................... 26.00 20.19 0.2675
Second Quarter (through May 23, 2001). 26.13 23.10 -
On April 18, 2001, a quarterly dividend of $.2675 per share was declared
payable June 1, 2001 to shareholders of record on May 15, 2001. Holders of the
Offered Stock will not be entitled to this dividend.
The above stock prices are adjusted to reflect a 2:1 stock split of
ALLETE's common stock on March 3, 1999.
S-9
The last reported sale price of the common stock on the New York Stock
Exchange composite tape on May 23, 2001 was $23.68 per share.
ALLETE has paid dividends without interruption on its common stock since
1948, the date of initial distribution of the common stock by American Power &
Light Company, the former holder of all such stock.
ALLETE has a direct stock purchase and dividend reinvestment plan ("Invest
Direct"). Invest Direct provides investors with a convenient method of acquiring
shares of common stock through (i) the reinvestment in common stock of all or a
portion of the cash dividends payable on an investor's holdings of common stock,
and/or (ii) the investment of optional cash payments pursuant to the terms of
Invest Direct. ALLETE reserves the right to suspend, modify, amend or terminate
Invest Direct at any time and to interpret and regulate Invest Direct as it
deems necessary or desirable in connection with operation of Invest Direct.
Shares of common stock are offered for sale under Invest Direct only by means of
a separate prospectus available upon request from ALLETE.
UNDERWRITING
ALLETE is selling the common stock to the underwriters named in the table
below pursuant to an underwriting agreement dated the date of this prospectus
supplement. ALLETE has agreed to sell to each of the underwriters, and each of
the underwriters has severally agreed to purchase, the number of shares of
common stock set forth opposite that underwriter's name in the table below:
Underwriters Number of Shares
------------ ----------------
UBS Warburg LLC.................................................. 3,565,000
Robert W. Baird & Co. Incorporated............................... 1,200,000
Janney Montgomery Scott LLC...................................... 1,200,000
ABN AMRO Rothschild LLC.......................................... 75,000
A.G. Edwards & Sons, Inc......................................... 75,000
Dain Rauscher Incorporated....................................... 75,000
SunTrust Equitable Securities Corporation........................ 75,000
U.S. Bancorp Piper Jaffray Inc................................... 75,000
Ladenburg Thalmann & Co. Inc..................................... 32,000
NatCity Investments, Inc......................................... 32,000
Tucker Anthony Incorporated...................................... 32,000
C.E. Unterberg, Towbin........................................... 32,000
Wells Fargo Investments, LLC..................................... 32,000
---------
Total.......................................................... 6,500,000
=========
Under the terms and conditions of the underwriting agreement, the
underwriters must buy all of the shares of Offered Stock if they buy any of
them. The underwriting agreement provides that the obligations of the
underwriters pursuant thereto are subject to approval of legal matters by their
counsel, including the validity of the Offered Stock, and other conditions, such
as the receipt by the underwriters of officer's certificates and legal opinions.
If an underwriter defaults, the underwriting agreement provides that, in certain
circumstances, the purchase commitments of the non-defaulting underwriters may
be increased or the underwriting agreement may be terminated. The underwriters
will sell the Offered Stock to the public when and if the underwriters buy the
Offered Stock from ALLETE.
S-10
ALLETE has granted to the underwriters an option to purchase up to 975,000
additional shares of common stock at the public offering price, less the
underwriting discounts and commissions, set forth on the cover page of this
prospectus supplement to cover over-allotments, if any. This option is
exercisable for a period of 30 days. If the underwriters exercise their
over-allotment option, the underwriters have severally agreed, subject to
conditions, to purchase shares in approximately the same proportion as set forth
in the table above.
The underwriters propose to offer the common stock directly to the public
initially at the offering price set forth on the cover page of this prospectus
supplement. The underwriters may offer the common stock to securities dealers at
that price less a concession not in excess of $0.56 per share. Securities
dealers may reallow a concession not in excess of $0.10 per share on sales to
certain other brokers or dealers. The underwriters reserve the right to reject
any order for the purchase of shares. If all of the shares are not sold at the
public offering price, the underwriters may change the offering price and other
selling terms.
ALLETE, and each of the directors and executive officers of ALLETE, will
agree with the underwriters not to sell, offer to sell, hypothecate, grant any
option to sell, contract to sell, hedge or otherwise dispose of, directly or
indirectly, any common stock or securities convertible into or exchangeable for
shares of common stock during the period from the date of this prospectus
supplement continuing through the date 90 days after the date of this prospectus
supplement, without the prior written consent of UBS Warburg LLC, except
issuances of equity-based awards pursuant to ALLETE's director or employee
incentive plans, issuances pursuant to the exercise of outstanding stock options
and issuances under Invest Direct.
The following table provides information regarding the per share and total
underwriting discounts and commissions ALLETE will pay to the underwriters.
These amounts are shown assuming both no exercise and full exercise of the
underwriters' option to purchase up to 975,000 additional shares.
Paid By ALLETE
-----------------------------------------------
No Exercise of Full Exercise of
Over-Allotment Option Over-Allotment Option
Per Share......................... $0.9472 $0.9472
Total........................... $6,156,800 $7,080,320
ALLETE estimates that its expenses in connection with the sale of the
Offered Stock, other than underwriting discounts, will be $350,000. This
estimate includes expenses related to the filing fee for the registration
statement, printing, transfer agent fees and legal fees, among other expenses.
The underwriting agreement provides that ALLETE will indemnify the
underwriters against, or contribute to payments the underwriters may be required
to make in respect of, certain liabilities, including liabilities under the
Securities Act of 1933.
The underwriters may engage in over-allotment transactions, stabilizing
transactions, syndicate covering transactions and penalty bids in accordance
with Regulation M of the Securities Exchange Act of 1934. Over-allotment
transactions involve syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the underlying securities so long as the stabilizing bids do not exceed
a specified maximum. Syndicate covering transactions involve purchases of the
common stock in the open market after the distribution has been completed in
order to cover syndicate short positions. Penalty bids permit the underwriters
to reclaim a selling concession from a syndicate member when the common stock
originally sold by such syndicate member is purchased in a stabilizing
transaction or syndicate covering transaction to cover syndicate short
positions. These stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. Neither ALLETE nor any
underwriter is making any representation or prediction as to the effect that the
transactions described above may have on the price of the common stock. These
transactions may be effected on the New York Stock Exchange or otherwise and, if
commenced, may be discontinued at any time.
S-11
Certain of the underwriters and their affiliates engage in transactions
with, and perform services for, ALLETE and its affiliates in the ordinary course
of business and have engaged, and may in the future engage, in commercial
banking and investment banking transactions with ALLETE and its affiliates.
LEGAL OPINIONS
The legality of the Offered Stock will be passed upon for ALLETE by Philip
R. Halverson, Esq., Duluth, Minnesota, Vice President, General Counsel and
Secretary for ALLETE, and by Thelen Reid & Priest LLP, New York, New York,
counsel for ALLETE, and for the underwriters by Morrison Cohen Singer &
Weinstein, LLP. Thelen Reid & Priest LLP and Morrison Cohen Singer & Weinstein,
LLP may rely as to all matters of Minnesota law upon the opinion of Mr.
Halverson.
S-12
PROSPECTUS
$525,000,000 AGGREGATE AMOUNT
ALLETE
(LEGALLY INCORPORATED AS MINNESOTA POWER, INC.)
COMMON STOCK, FIRST MORTGAGE BONDS AND DEBT SECURITIES
ALLETE CAPITAL II
ALLETE CAPITAL III
PREFERRED TRUST SECURITIES
FULLY AND UNCONDITIONALLY GUARANTEED AS SET
FORTH HEREIN BY
ALLETE
&
1,814,000 SHARES OF COMMON STOCK
ALLETE
--------------------------------------------------------------------------------
We will provide specific terms of these securities, their offering prices
and how they will be offered in supplements to this prospectus. You should read
this prospectus and any supplement carefully before you invest.
ALLETE's common stock is listed on the New York Stock Exchange and trades
under the symbol "ALE." The last reported sale price on the New York Stock
Exchange on March 14, 2001 was $23.40.
ALLETE's principal executive offices are located at 30 West Superior
Street, Duluth, Minnesota 55802-2093, telephone number (218) 279-5000. The
principal place of business of both ALLETE Capital II and ALLETE Capital III is
c/o ALLETE, 30 West Superior Street, Duluth, Minnesota 55802-2093, telephone
number (218) 279-5000.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
March 28, 2001
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission, or SEC, using a "shelf" registration
process. Under this shelf process, we may, over a period we currently do not
expect to exceed two years, sell combinations of the securities described in
this prospectus in one or more offerings up to a total dollar amount of
$525,000,000 plus an additional 1,814,000 shares of common stock. This amount
includes 1,814,000 shares of common stock registered under an earlier
registration statement and $25,000,000 aggregate principal amount of first
mortgage bonds and debt securities registered under an earlier registration
statement. This prospectus provides you with a general description of the
securities we may offer. Each time we sell securities, we will provide a
prospectus supplement that will contain specific information about the terms of
that offering. The prospectus supplement may also add, update or change
information contained in this prospectus. You should read both this prospectus
and any prospectus supplement together with additional information described
under the heading "Where You Can Find More Information."
For more detailed information about the securities, you can read the
exhibits to the registration statement. Those exhibits have been either filed
with the registration statement or incorporated by reference to earlier SEC
filings listed in the registration statement.
WHERE YOU CAN FIND MORE INFORMATION
ALLETE files annual, quarterly and other reports and other information with
the SEC. You can read and copy any information filed by ALLETE with the SEC at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. You can obtain additional information about the Public Reference Room by
calling the SEC at 1-800-SEC-0330.
In addition, the SEC maintains an Internet site (http://www.sec.gov) that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC, including ALLETE.
ALLETE also maintains an Internet site (http://www.allete.com). Information
contained on ALLETE's Internet site does not constitute part of this prospectus.
INCORPORATION BY REFERENCE
The SEC allows ALLETE to "incorporate by reference" the information that
ALLETE files with the SEC, which means that ALLETE may, in this prospectus,
disclose important information to you by referring you to those documents. The
information incorporated by reference is an important part of this prospectus.
ALLETE is incorporating by reference the document listed below and any future
filings ALLETE makes with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, until this offering is terminated.
Information that ALLETE files in the future with the SEC will automatically
update and supersede this information.
o ALLETE's Annual Report on Form 10-K for the year ended
December 31, 2000.
You may request a copy of these documents, at no cost to you, by writing or
calling
Shareholder Services
ALLETE
30 West Superior Street
Duluth, Minnesota 55802-2093
telephone: (218) 723-3974
email: shareholder@allete.com
You should rely only on the information contained in, or incorporated by
reference in, this prospectus and any prospectus supplement. ALLETE has not, and
any underwriters, agents or dealers have not, authorized anyone else to provide
you with different information. You should not assume that the information
contained in this prospectus and any prospectus supplement is accurate as of any
date other than the date on the front of those documents.
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SAFE HARBOR STATEMENT UNDER
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, ALLETE is hereby filing cautionary statements
identifying important factors that could cause ALLETE's actual results to differ
materially from those projected in forward-looking statements (as that term is
defined in the Private Securities Litigation Reform Act of 1995) made by or on
behalf of ALLETE which are made in this prospectus or any supplement to this
prospectus, in presentations, in response to questions or otherwise. Any
statements that express, or involve discussions as to, expectations, beliefs,
plans, objectives, assumptions or future events or performance (often, but not
always, through the use of words or phrases such as "anticipates," "believes,"
"estimates," "expects," "intends," "plans," "projects," "will likely result,"
"will continue" or similar expressions) are not statements of historical facts
and may be forward-looking.
Forward-looking statements involve estimates, assumptions and uncertainties
and are qualified in their entirety by reference to, and are accompanied by, the
following important factors, which are difficult to predict, contain
uncertainties, are beyond the control of ALLETE and may cause actual results to
differ materially from those contained in forward-looking statements:
o prevailing governmental policies and regulatory actions, including
those of the United States Congress, state legislatures, the Federal
Energy Regulatory Commission, the Minnesota Public Utilities
Commission, the Florida Public Service Commission, the North Carolina
Utilities Commission, the Public Service Commission of Wisconsin and
various county regulators, about allowed rates of return, industry and
rate structure, acquisition and disposal of assets and facilities,
operation and construction of plant facilities, recovery of purchased
power and capital investments, and present or prospective wholesale
and retail competition (including but not limited to transmission
costs);
o economic and geographic factors, including political and economic
risks;
o changes in and compliance with environmental and safety laws and
policies;
o weather conditions;
o population growth rates and demographic patterns;
o competition for retail and wholesale customers;
o pricing and transportation of commodities;
o market demand, including structural market changes;
o changes in tax rates or policies or in rates of inflation;
o changes in project costs;
o unanticipated changes in operating expenses and capital expenditures;
o capital market conditions;
o competition for new energy development opportunities; and
o legal and administrative proceedings (whether civil or criminal) and
settlements that influence the business and profitability of ALLETE.
3
Any forward-looking statement speaks only as of the date on which that
statement is made, and ALLETE undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which that statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time and it is not possible for
management to predict all of those factors, nor can it assess the impact of each
of those factors on the businesses of ALLETE or the extent to which any factor,
or combination of factors, may cause actual results to differ materially from
those contained in any forward-looking statement.
ALLETE
ALLETE has been incorporated under the laws of the State of Minnesota since
1906. Before September 1, 2000 ALLETE did business under the name Minnesota
Power, Inc. ALLETE is a multi-services company with four business segments:
(1) Energy Services, which include electric and gas services, coal mining
and telecommunications;
(2) Automotive Services, which include a network of vehicle auctions, a
finance company and several subsidiaries that are integral parts of
the vehicle redistribution business;
(3) Water Services, which include water and wastewater services; and
(4) Investments, which include real estate operations, investments in
emerging technologies related to the electric utility industry and a
securities portfolio.
YEAR ENDED DECEMBER 31,
-----------------------
1998 1999 2000
---- ---- ----
(millions of dollars,
except per share amounts)
DILUTED EARNINGS PER SHARE OF COMMON STOCK
Before Capital Re and ACE Transactions $ 1.35 $ 1.49 $ 1.67
Capital Re and ACE Transactions (a)...... - (0.52) 0.44
------ ------ ------
Total.................................. $ 1.35 $ 0.97 $ 2.11
====== ====== ======
NET INCOME
Energy Services.......................... $ 47.4 $ 45.0 $ 43.1
Automotive Services...................... 25.5 39.9 48.5
Water Services........................... 7.5 12.2 13.1
Investments.............................. 29.6 26.8 29.3
Corporate Charges........................ (21.5) (19.7) (15.8)
------ ------ ------
Net Income before Capital Re and ACE
Transactions......................... 88.5 104.2 118.2
Capital Re and ACE Transactions (a)...... - (36.2) 30.4
------ ------ ------
$ 88.5 $ 68.0 $148.6
====== ====== ======
------------------------
(a) In May 2000 ALLETE sold its investment in ACE Limited ("ACE") common stock,
which resulted in an after-tax gain of $30.4 million, or $0.44 per share.
The ACE shares were received in December 1999 upon completion of ACE's
merger with Capital Re Corporation ("Capital Re"). During 1999 ALLETE
recorded an aggregate $36.2 million, or $0.52 per share, after-tax non-cash
charge in connection with the valuation and exchange of its investment in
Capital Re stock for the ACE shares.
ENERGY SERVICES
The Energy Services segment, which includes Minnesota Power, primarily
generates, transmits, distributes, markets and trades electricity. In addition,
Energy Services include coal mining and telecommunications in and near Minnesota
Power's electric utility service area. As of December 31, 2000, Minnesota Power
supplied retail electric service to 130,000 customers in northeastern Minnesota.
Superior Water, Light and Power Company, a wholly owned subsidiary, provided
electric, natural gas, and water services to 14,000 electric customers, 11,000
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natural gas customers and 10,000 water customers in northwestern Wisconsin as of
December 31, 2000. Split Rock Energy LLC, formed as an alliance between
Minnesota Power and Great River Energy, combines power supply capabilities and
customer loads to share market and supply risks and to optimize power trading
opportunities. Split Rock contracts for exclusive services from MPEX, Minnesota
Power's power marketing division.
BNI Coal, Ltd., another wholly owned subsidiary, owns and operates a
lignite mine in North Dakota. Two electric generating cooperatives, Minnkota
Power Cooperative, Inc. and Square Butte Electric Cooperative, presently consume
virtually all of BNI Coal's production of lignite coal under cost-plus coal
supply agreements expiring in 2027. Under an agreement with Square Butte,
Minnesota Power purchases approximately 71 percent of the output from the Square
Butte unit which is capable of generating up to 455 megawatts. Minnkota Power
has an option to extend its coal supply agreement to 2042.
Other subsidiaries within the Energy Services business segment include:
o Electric Outlet, Inc., doing business as Electric Odyssey, which is a
retail, catalog and e-commerce merchandiser that sells unique products
for the home, office and travel;
o Minnesota Power Telecom, Inc., which provides high reliability fiber
optic-based communication and advanced data services to businesses and
communities in Minnesota and Wisconsin; and
o Rainy River Energy Corporation, which is engaged in wholesale power
marketing.
Minnesota Power has large power contracts to sell power to 12 industrial
customers, each requiring 10 megawatts or more of generating capacity. These
contracts require the payment of minimum monthly demand charges that cover the
fixed costs associated with having capacity available to serve each of these
customers, including a return on common equity. Each contract continues past the
contract termination date unless the required four-year advance notice of
cancellation has been given.
AUTOMOTIVE SERVICES
Automotive Services include several subsidiaries which are integral parts
of the vehicle redistribution business.
ADESA Corporation, a wholly owned subsidiary, is the second largest vehicle
auction network in North America. Headquartered in Indianapolis, Indiana, ADESA
owns, or leases, and operates 54 vehicle auction facilities in the United States
and Canada through which used cars and other vehicles are sold to franchised
automobile dealers and licensed used car dealers. Sellers at ADESA's auctions
include domestic and foreign auto manufacturers, car dealers, automobile
fleet/lease companies, banks and finance companies. ADESA also owns 19 vehicle
auctions in the United States and Canada that provide "total loss" vehicle
recovery services to insurance companies.
Automotive Finance Corporation, another wholly owned subsidiary, provides
inventory financing for wholesale and retail automobile dealers who purchase
vehicles from ADESA auctions, independent auctions, other auction chains and
other outside sources.
Other subsidiaries within the Automotive Services business segment include:
o Great Rigs Incorporated, which is one of the nation's largest
independent used automobile transport carriers with more than 140
automotive carriers, the majority of which are leased;
o PAR, Inc., doing business as PAR North America, which provides
customized vehicle remarketing services to various customers such as
banks, captive finance, commercial fleets and rental car dealers in
the United States and Canada;
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o AutoVIN, Inc., 90 percent owned, which provides professional field
information service to the automotive industry and the industry's
secured lenders. Services provided include vehicle condition
reporting, inventory verification auditing, program compliance
auditing and facility inspection; and
o ADESA Importation Services, Inc., which is the second largest
independent commercial registered importer of vehicles in the United
States.
WATER SERVICES
Water Services include Florida Water Services Corporation, Heater
Utilities, Inc., Instrumentation Services, Inc., Americas' Water Service
Corporation and Georgia Water Services Corporation, each a wholly owned
subsidiary. Florida Water, the largest investor owned water supplier in Florida,
owns and operates water and wastewater treatment facilities within that state.
As of December 31, 2000, Florida Water served 152,000 water customers and 73,000
wastewater customers, and maintained 157 water and wastewater facilities
throughout Florida. As of December 31, 2000, Heater Utilities, which provides
water and wastewater treatment services in North Carolina, served 44,000 water
customers and 5,000 wastewater treatment customers. Georgia Water provides
wastewater treatment services near Atlanta, Georgia. Instrumentation Services
provides predictive maintenance and instrumentation consulting services to water
and wastewater utilities in the southeastern United States as well as Texas and
Minnesota. Americas' Water Services offers contract management, operations and
maintenance services for water and wastewater treatment facilities to
governments and industries.
INVESTMENTS
Investments consist of real estate operations, investments in emerging
technologies related to the electric utility industry and an actively traded
securities portfolio. Through subsidiaries, ALLETE owns Florida real estate
operations at Cape Coral and Lehigh Acres adjacent to Fort Myers, at Palm Coast
in northeast Florida and at Sugarmill Woods in Citrus County. Since 1985, ALLETE
has invested $38.6 million in start-up companies that are developing
technologies that may be used by the electric utility industry. As of December
31, 2000, ALLETE's trading and available-for-sale securities portfolio had a
fair value of approximately $103 million.
ALLETE CAPITAL II AND ALLETE CAPITAL III
ALLETE Capital II and ALLETE Capital III are Delaware business trusts, and
each will be referred to in this prospectus as ALLETE Capital. Each was created
pursuant to a separate trust agreement among ALLETE as depositor of ALLETE
Capital, The Bank of New York as the property trustee, The Bank of New York
(Delaware) as the Delaware trustee and one or more administrative trustees
appointed by ALLETE. Each trust agreement will be amended and restated
substantially in the form filed as an exhibit to the registration statement.
ALLETE Capital exists only to issue its preferred trust securities and common
trust securities and to hold the junior subordinated debentures of ALLETE as
trust assets. All of the common trust securities will be owned by ALLETE. The
common trust securities will represent at least three percent of the total
capital of ALLETE Capital. Payments on any distribution payment date or
redemption date will be made on the common trust securities pro rata with the
preferred trust securities, except that if on any such distribution payment date
or redemption date there is a default under the trust agreement, the common
trust securities' right to payment on such date will be subordinated to the
rights of the preferred trust securities. ALLETE Capital shall have a term of
approximately 40 years, but may dissolve earlier as provided in the trust
agreement. ALLETE Capital's business and affairs will be conducted by its
administrative trustees. The office of the Delaware trustee in the State of
Delaware is White Clay Center, Route 273, Newark, Delaware 19711.
USE OF PROCEEDS
Unless otherwise stated in the prospectus supplement, ALLETE will add the
net proceeds from the sale of the securities to its general funds. ALLETE uses
its general funds for general corporate purposes, including, without limitation,
acquisitions made by or on behalf of ALLETE or its subsidiaries, to repay
short-term borrowings and to redeem or repurchase outstanding long-term debt
obligations. ALLETE will temporarily invest any proceeds that it does not need
to use immediately in short-term instruments.
6
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES AND RATIOS OF EARNINGS TO
FIXED CHARGES AND PREFERRED DIVIDENDS
ALLETE has calculated ratios of earnings to fixed charges as follows:
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
2.12 2.46 2.65 2.76 3.71
ALLETE has calculated supplemental ratios of earnings to fixed charges as
follows:
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
1.93 2.26 2.39 2.45 3.31
ALLETE has calculated ratios of earnings to fixed charges and preferred
dividends as follows:
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
2.03 2.36 2.55 2.62 3.65
ALLETE has calculated supplemental ratios of earnings to fixed charges and
preferred dividends as follows:
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
1.86 2.18 2.31 2.35 3.26
The supplemental ratios of earnings to fixed charges and the supplemental
ratios of earnings to fixed charges and preferred dividends includes ALLETE's
obligation under a contract with Square Butte which extends through 2026, under
which ALLETE is entitled to approximately 71 percent of the output of a
455-megawatt coal-fired generating unit. ALLETE is obligated to pay its pro rata
share of Square Butte's costs based on output entitlement from the unit.
ALLETE's payment obligation is suspended if Square Butte fails to deliver any
power, whether produced or purchased, for a period of one year. Square Butte's
fixed costs consist primarily of debt service. Variable operating costs include
the price of coal purchased from BNI Coal under a long-term contract.
DESCRIPTION OF COMMON STOCK
General. The following statements describing our common stock are not
intended to be a complete description. They are qualified in their entirety by
reference to our Articles of Incorporation, Rights Plan and mortgage. See
"Description of Common Stock--Preferred Share Purchase Rights" and "Description
of First Mortgage Bonds." We also refer you to the laws of the State of
Minnesota.
7
We have the following capital stock authorized by our Articles of
Incorporation: 130,000,000 shares of common stock, without par value, and
3,616,000 shares of preferred stock. As of the date of this prospectus,
75,625,063 shares of common stock were issued and outstanding and no shares of
preferred stock were issued and outstanding.
Dividend Rights. Our common stock is entitled to dividends only after we
have provided for dividends and any sinking fund requirements on any issued and
outstanding preferred stock.
Our Articles of Incorporation contain provisions which would restrict net
income available for the payment of cash dividends on outstanding common stock
in the event that shares of ALLETE's preferred stock were outstanding and
certain common stock equity capitalization ratios were not met. Our mortgage
also contains provisions which would restrict the ability of ALLETE to declare
or pay dividends on outstanding common stock. See "Description of First Mortgage
Bonds--Dividend Covenant."
Voting Rights (Non-Cumulative Voting). Holders of our common stock are
entitled to receive notice of and to vote at any meeting of our shareholders.
Each share of our common stock, as well as each share of any of our issued and
outstanding preferred stock, is entitled to one vote. Since the holders of these
shares do not have cumulative voting rights, the holders of more than 50 percent
of the shares voting can elect all our directors. If that happens, the holders
of the remaining shares voting (less than 50 percent) cannot elect any
directors. In addition, whenever dividends on any of our preferred stock are in
default in the amount of four quarterly payments, and until all the dividends in
default are paid, the holders of our preferred stock are entitled, as one class,
to elect a majority of the directors. Our common stock, as one class, would then
elect the minority.
Our Articles of Incorporation include detailed procedures and other
provisions relating to these rights and their termination, including:
o quorums;
o terms of directors elected;
o vacancies;
o class voting;
o meetings; and
o adjournments.
Our Articles of Incorporation contain provisions that make it difficult to
obtain control of ALLETE through transactions not having the approval of our
Board of Directors. These provisions include:
o a provision requiring the affirmative vote of 75 percent of the
outstanding shares of all classes of our capital stock, present and
entitled to vote, in order to authorize certain mergers or
consolidations, or sales or leases of a significant amount of assets,
of ALLETE, and other significant transactions that may have an effect
on the control of ALLETE. Any of those transactions are required to
meet certain "fair price" and procedural requirements. Neither a 75
percent shareholder vote nor a "fair price" is required for any of
those transactions that have been approved by a majority of the
"Disinterested Directors," as that term is defined in our Articles of
Incorporation;
o a provision permitting a majority of the Disinterested Directors to
determine whether the above requirements have been satisfied; and
o a provision providing that some parts of our Articles of Incorporation
cannot be altered unless approved by 75 percent of the outstanding
shares of all classes of our capital stock, present and entitled to
vote, unless the alteration is recommended to the shareholders by a
8
majority of the Disinterested Directors. The parts of our Articles of
Incorporation that cannot be altered except as stated above include
some parts relating to:
- mergers or consolidations, or sales or leases of a significant
amount of assets, of ALLETE, and other significant transactions
that may have an effect on the control of ALLETE; and
- the number, election, terms of office and removal of directors of
ALLETE and the way in which vacancies on the Board of Directors
are filled.
Liquidation Rights. After we have satisfied creditors and the preferential
liquidation rights of any of our outstanding preferred stock, the holders of our
common stock are entitled to share ratably in the distribution of all remaining
assets.
Miscellaneous. Holders of our common stock have no preemptive or conversion
rights. Our common stock is listed on the New York Stock Exchange. The transfer
agents and registrars for our common stock are Wells Fargo Bank, N.A. and
ALLETE.
Description of Preferred Share Purchase Rights. The following statements
describing our preferred share purchase rights (each a "Right") are not intended
to be a complete description. They are qualified in their entirety by reference
to the Rights Agreement, dated as of July 24, 1996 ("Rights Plan"), between
ALLETE and ALLETE's Corporate Secretary, as Rights Agent. We also refer you to
the laws of the State of Minnesota.
In July 1996 our Board of Directors declared a dividend distribution of one
Right for each outstanding share of our common stock to shareholders of record
at the close of business on July 24, 1996 ("Record Date"). Our Board of
Directors also authorized the issuance of one Right for each share of our common
stock that becomes outstanding between the Record Date and July 23, 2006, or an
earlier date on which the Rights are redeemed. Except as described below, each
Right, when exercisable, entitles the registered holder to purchase from us one
two-hundredth of a share of Junior Serial Preferred Stock A, without par value
("Serial Preferred"), at a price of $45.00 per one two-hundredth of a share (the
"Purchase Price"). The Purchase Price is subject to adjustment.
Initially no separate Right Certificates will be distributed. Until the
Distribution Date, our common stock certificates together with a copy of the
Summary of Rights Plan are proof of the Rights. The "Distribution Date" is the
earlier to occur of:
o 10 days following a public announcement that a person or group of
affiliated or associated persons (an "Acquiring Person") has acquired,
or obtained the right to acquire, beneficial ownership of 15 percent
or more of the outstanding shares of our common stock (the "Stock
Acquisition Date"); or
o 15 business days following the commencement of (or a public
announcement of an intention to make) a tender or exchange offer where
a person or group would become the beneficial owner of 15 percent or
more of our outstanding shares of common stock. At any time before a
person becomes an Acquiring Person, our Board of Directors may extend
the 15-business day time period.
Until the Distribution Date (or the earlier redemption, expiration or
termination of the Rights), the Rights will be transferred only with our common
stock. The transfer of any certificates for our common stock, with or without a
copy of the Summary of Rights Plan, will also constitute the transfer of the
Rights associated with those common stock certificates. As soon as practicable
following the Distribution Date, we will mail separate certificates for the
Rights to holders of record of our common stock as of the close of business on
the Distribution Date. After the Distribution Date, separate certificates for
the Rights will be given as proof of the Rights.
Each whole share of our Serial Preferred will have a minimum preferential
quarterly dividend rate equal to the greater of $51 per share or, subject to
anti-dilution adjustment, 200 times the dividend declared on our common stock.
If ALLETE liquidates, no distribution will be made to the holders of our common
stock until the holders of our Serial Preferred have received a liquidation
preference of $100 per share, plus accrued and unpaid dividends. Holders of our
9
Serial Preferred will be entitled to receive notice of and to vote at any
meeting of our shareholders. Each whole share of our Serial Preferred is
entitled to one vote. These shares do not have cumulative voting rights.
Whenever dividends on any of our preferred stock are in default in the
amount of four quarterly payments, and until all the dividends in default are
paid, the holders of our Serial Preferred and other preferred stock will be
entitled, together as one class, to elect a majority of directors. Our common
stock would then elect the minority. If, in any merger or other transaction,
shares of our common stock are exchanged for or converted into other securities
and/or property, each whole share of our Serial Preferred will be entitled to
receive, subject to anti-dilution adjustment, 200 times the amount for or into
which each share of our common stock is exchanged or converted. We cannot redeem
the shares of Serial Preferred.
The Rights are not exercisable until the Distribution Date and will expire
at the earliest of:
o July 23, 2006 ("Final Expiration Date");
o the redemption of the Rights by ALLETE as described below; or
o the exchange of all Rights for our common stock as described below.
If any person (other than ALLETE, its affiliates or any person receiving
newly-issued shares of common stock directly from ALLETE) becomes the beneficial
owner of 15 percent or more of the then outstanding shares of common stock, each
holder of a Right will have a right to receive, upon exercise at the then
current exercise price of the Right, common stock (or, in the discretion of the
Board of Directors, cash, property or other securities of ALLETE) with a value
equal to two times the exercise price of the Right. The Rights Plan contains an
exemption for common stock we issue directly to any person. This exemption
applies even if the person would become the beneficial owner of 15 percent or
more of our common stock, provided that the person does not acquire any
additional shares of our common stock. Examples of situations where we might
issue common stock directly include private placements or acquisitions we make
using our common stock as consideration.
If following the Stock Acquisition Date we are acquired in a merger or
other business combination transaction, or 50 percent or more of our assets or
earning power are sold, we will make proper provision so that each holder of a
Right will, after the transaction, have the right to receive, upon exercise at
the then current exercise price of the Right, common stock of the acquiring or
surviving company with a value equal to two times the exercise price of the
Right.
If the events described in the preceding two paragraphs happen (the
"Triggering Events"), any Rights that an Acquiring Person beneficially owns or
transferred to certain persons, will immediately become null and void.
The Purchase Price payable and the number of shares of our Serial Preferred
or other securities or property issuable if the Rights are exercised, are
subject to adjustment. An adjustment would be made to prevent dilution, if there
was a stock dividend on, or a subdivision, split, combination, consolidation or
reclassification of, our Serial Preferred or our common stock, or a reverse
split of our outstanding shares of Serial Preferred or common stock.
Our Board of Directors may exchange the Rights at an exchange ratio of one
share of common stock per Right at any time that is:
o after the acquisition by a person or group of affiliated or associated
persons of beneficial ownership of 15 percent or more of the
outstanding common stock; and
o before the acquisition by that person or group of 50 percent or more
of the outstanding common stock.
This exchange ratio is subject to adjustment and does not include Rights that
have become null and void.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least one
percent in the Purchase Price. We will not be required to issue fractional
10
shares of Serial Preferred or common stock (other than fractions in multiples of
one one-hundredths of a share of Serial Preferred). Instead, we may make an
adjustment in cash based on the market price of the Serial Preferred or common
stock on the last trading date before the date of exercise.
Our Board of Directors may redeem the Rights in whole, but not in part, at
a price of $.005 per Right ("Redemption Price") anytime before a person becomes
an Acquiring Person. At our option, we may pay the Redemption Price in cash,
shares of our common stock or other consideration that our Board of Directors
deems appropriate. If we redeem the Rights, the Rights will terminate and the
only right of the holders of Rights will be to receive the Redemption Price.
If the Rights are exercised, issuance of our Serial Preferred or our common
stock will be subject to any necessary regulatory approvals. Until a Right is
exercised, the holder of the Right will have no rights as a shareholder of
ALLETE, including, without limitation, the right to vote or to receive
dividends. One million shares of our Serial Preferred were reserved for issuance
if the Rights are exercised.
We may amend the provisions of the Rights Plan. However, any amendment
adopted after the time that a person becomes an Acquiring Person may not
adversely affect the interests of holders of Rights.
The Rights have anti-takeover effects. The Rights will cause substantial
dilution to a person or group that attempts to acquire ALLETE without
conditioning the offer on the redemption of the Rights or on the acquisition of
a substantial number of Rights. The Rights beneficially owned by that person or
group may become null and void. The Rights should not interfere with any merger
or other business combination approved by our Board of Directors. This is
because, at any time before a person becomes an Acquiring Person, our Board of
Directors may redeem all of the outstanding Rights at the Redemption Price.
DESCRIPTION OF FIRST MORTGAGE BONDS
General. The following description sets forth certain general terms and
provisions of ALLETE's first mortgage bonds that ALLETE may offer by this
prospectus. ALLETE will describe the particular terms of the first mortgage
bonds, and provisions that vary from those described below, in one or more
prospectus supplements.
ALLETE may issue the first mortgage bonds from time to time in one or more
series. ALLETE will issue the first mortgage bonds under its Mortgage and Deed
of Trust, dated as of September 1, 1945, with Irving Trust Company (now The Bank
of New York) and Richard H. West (Douglas J. MacInnes, successor), as mortgage
trustees ("mortgage trustee" or "mortgage trustees"), as supplemented by
twenty-one supplemental indentures (herein collectively referred to as the
"mortgage"), all of which are exhibits to the registration statement. The
following descriptions of the first mortgage bonds offered by this prospectus
and the mortgage are qualified by references to the mortgage and you should read
the mortgage for the provisions important to you. References to certain sections
of the mortgage are included in parentheses. Whenever particular provisions or
defined terms in the mortgage are referred to under this "Description of First
Mortgage Bonds," those provisions or defined terms are incorporated by reference
in this prospectus. The mortgage is qualified under the Trust Indenture Act of
1939. You should refer to the Trust Indenture Act of 1939 for provisions that
apply to the first mortgage bonds. All first mortgage bonds issued or to be
issued under the mortgage, including the first mortgage bonds offered by this
prospectus, are referred to herein as "first mortgage bonds."
Reference is made to a prospectus supplement relating to each series of
first mortgage bonds offered by this prospectus for the following specific terms
of that series, among others:
o the designation of the series of first mortgage bonds and aggregate
principal amount of the first mortgage bonds;
o the percentage or percentages of their principal amount at which the
series will be issued;
o the date or dates on which the series will mature;
11
o the rate or rates at which the series will bear interest;
o the times at which such interest will be payable; and
o redemption terms or other specific terms.
Except as may otherwise be described in the prospectus supplement, the
covenants contained in the mortgage will not afford holders of the first
mortgage bonds protection in the event of a highly-leveraged or similar
transaction involving ALLETE or in the event of a change in control.
Form and Exchanges. The first mortgage bonds offered by this prospectus
will be issued in definitive fully registered form without coupons in
denominations of $1,000 and multiples thereof, or in other authorized
denominations, and will be transferable and exchangeable without charge (except
for stamp taxes, if any, or other governmental charges) at The Bank of New York,
in The City of New York.
Interest, Maturity and Payment. Reference is made to the prospectus
supplement for the interest rate or rates of the first mortgage bonds offered by
this prospectus and the dates on which such interest is payable. Principal and
interest are payable at The Bank of New York, in The City of New York.
Redemption and Purchase of First Mortgage Bonds. The first mortgage bonds
may be redeemable mandatorily or at the option of ALLETE upon 30 days notice at
predetermined prices. If the first mortgage bonds are redeemable, ALLETE may use
certain deposited cash and/or proceeds of released property to effect the
redemption. Reference is made to the prospectus supplement for the redemption
terms of the first mortgage bonds offered by this prospectus.
If at the time notice of redemption is given the redemption moneys are not
on deposit with The Bank of New York, as mortgage trustee, the redemption may be
made subject to their receipt before the date fixed for redemption.
Cash deposited under any provisions of the mortgage (with certain
exceptions) may generally be applied to the purchase of first mortgage bonds of
any series. (See Mortgage, Article X.)
Subject to applicable law, including United States federal securities law,
ALLETE may purchase outstanding first mortgage bonds by tender, in the open
market or by private agreement.
Sinking or Improvement Fund. Reference is made to the prospectus supplement
concerning whether or not the first mortgage bonds offered by this prospectus
are entitled to the benefit of a sinking or improvement fund or other provision
for amortization prior to maturity. None of the currently outstanding first
mortgage bonds has sinking fund or improvement fund provisions.
Replacement Fund. The first mortgage bonds offered by this prospectus are
not entitled to the benefit of any replacement fund.
Special Provisions for Retirement of First Mortgage Bonds. If, during any
12 month period, mortgaged property is disposed of by order of or to any
governmental authority resulting in the receipt of $5 million or more as
proceeds, ALLETE (subject to certain conditions) must apply such proceeds, less
certain deductions, to the retirement of first mortgage bonds. (See Mortgage,
Section 64.) Reference is made to the prospectus supplement for information
concerning whether the first mortgage bonds offered by this prospectus are
redeemable for this purpose and, if so, at what redemption prices.
Security. The first mortgage bonds offered by this prospectus and any other
first mortgage bonds now or hereafter issued under the mortgage will be secured
by the mortgage, which constitutes, in the opinion of the General Counsel for
ALLETE, a first lien on all of the electric generating plants and other
materially important physical properties of ALLETE and substantially all other
properties described in the mortgage as owned by ALLETE, other than those
expressly excepted, subject to excepted encumbrances, including defects which
ALLETE has the right to cure and which, in the opinion of such counsel, do not
impair the use of such properties by ALLETE, but such counsel has not examined
12
title to or passed upon title to reservoir lands, easements or rights of way,
any property not costing in excess of $25,000, or lands or rights held for
flowage, flooding or seepage purposes, or riparian rights. There are excepted
from the lien:
o cash and securities;
o merchandise, equipment, materials or supplies held for sale or other
disposition;
o aircraft, automobiles and other vehicles, and materials and supplies
for repairing and replacing the same;
o timber, minerals, mineral rights and royalties; and
o receivables, contracts, leases and operating agreements.
The mortgage contains provisions that impose the lien of the mortgage on
property acquired by ALLETE after the date of the mortgage, other than the
excepted property, subject to pre-existing liens. However, if ALLETE
consolidates or merges with or conveys or transfers all or substantially all of
the mortgaged property to another corporation, the lien created by the mortgage
will generally not cover the property of the successor company, other than the
property it acquires from ALLETE and improvements, replacements and additions to
that property. (See Mortgage, Section 87.)
The mortgage provides that the mortgage trustees shall have a lien upon the
mortgaged property, prior to the first mortgage bonds, for the payment of their
reasonable compensation, expenses and disbursements and for indemnity against
certain liabilities. (See Mortgage, Section 96.)
No stocks or properties of subsidiaries are subject to the mortgage.
Issuance of Additional First Mortgage Bonds. The maximum principal amount
of first mortgage bonds which may be issued under the mortgage is not limited.
First mortgage bonds of any series may be issued from time to time on the basis
of:
(1) 60 percent of property additions after adjustments to offset
retirements;
(2) retirement of first mortgage bonds or qualified lien bonds; and
(3) deposit of cash.
With certain exceptions in the case of (2) above, the issuance of first
mortgage bonds requires adjusted net earnings before income taxes for 12 out of
the preceding 15 months of at least twice the annual interest requirements on
all first mortgage bonds at the time outstanding, including the additional
issue, and on all indebtedness of prior rank. Such adjusted net earnings are
computed after provision for retirement and depreciation of property equal to
$750,000 plus, for each of the 12 calendar months selected for the net earnings
test, 1/12th of two percent of the net additions to depreciable mortgaged
property made after June 30, 1945 and prior to the beginning of the calendar
year within which that calendar month is included. It is expected that the first
mortgage bonds offered by this prospectus will be issued upon the basis of the
retirement of first mortgage bonds or property additions.
Property additions generally include electric, gas, steam or hot water
property acquired after June 30, 1945, but may not include securities, aircraft,
automobiles or other vehicles, or property used principally for the production
or gathering of natural gas. There was available, as of January 31, 2001
unfunded net property additions of approximately $30.6 million, on the basis of
which ALLETE could have issued approximately $18.4 million of first mortgage
bonds.
ALLETE has the right to amend the mortgage without any consent or other
action by holders of any series of first mortgage bonds, including the holders
of first mortgage bonds offered by this prospectus, so as to include nuclear
fuel as well as similar or analogous devices or substances as property
additions.
13
The mortgage contains certain restrictions upon the issuance of first
mortgage bonds against property subject to liens and upon the increase of the
amount of such liens. (See Mortgage, Sections 4-8, 20-30, and 46; Fifth
Supplemental, Section 2.)
Release and Substitution of Property. Property may be released upon the
basis of:
(1) deposit of cash or, to a limited extent, purchase money mortgages;
(2) property additions, after adjustments in certain cases to offset
retirement and after making adjustments for qualified lien bonds
outstanding against property additions; and/or
(3) waiver of the right to issue first mortgage bonds,
in each case without applying any earnings test. Cash may be withdrawn upon the
bases stated in (2) and (3) above.
When property released is not funded property, property additions used to
effect the release may again, in certain cases, become available as credits
under the mortgage, and the waiver of the right to issue first mortgage bonds to
effect the release may, in certain cases, cease to be effective as such a
waiver. Similar provisions are in effect as to cash proceeds of such property.
The mortgage contains special provisions with respect to qualified lien bonds
pledged, and disposition of moneys received on pledged prior lien bonds. (See
Mortgage, Sections 5, 31, 32, 37, 46-50, 59-63, 100 and 118.)
Dividend Covenant. ALLETE covenants that it will not declare or pay
dividends, other than dividends payable in common stock, on or make any other
distributions on or acquire, unless without cost to it, any of its common stock
unless:
o the provisions for depreciation and retirement of property during the
period beginning September 1, 1945 to the date of the proposed
payment, distribution or acquisition, plus
o earned surplus of ALLETE, including current net income available to be
transferred to earned surplus, remaining:
- after such payment, distribution or acquisition; and
- after deducting any remainder of the amount of earned surplus of
ALLETE as of August 31, 1945, after deducting from such amount
the charges to earned surplus subsequent to August 31, 1945,
other than charges occasioned by dividends (other than dividends
payable in common stock) on its common stock or occasioned by
other distributions on or acquisitions of its common stock and
other than charges to earned surplus with corresponding credits
to reserve for depreciation and retirement of property;
shall be at least equal to
o $1,000,000 plus, for each calendar year 1947 through 1996, $750,000
plus two percent of net additions to depreciable mortgaged property
made after June 30, 1945 through that calendar year. (See Mortgage,
Section 39.) None of ALLETE's retained earnings as of December 31,
2000 were restricted as a result of such provisions.
Modification of the Mortgage. The rights of bondholders may be modified
with the consent of the holders of 66-2/3 percent of the first mortgage bonds
and, if less than all series of first mortgage bonds are affected, the consent
also of the holders of 66-2/3 percent of the first mortgage bonds of each series
affected. In general, no modification of the terms of payment of principal and
interest, no modification of the obligations of ALLETE under Section 64 and no
modification affecting the lien or reducing the percentage required for
modification, is effective against any bondholder without his consent. (See
Mortgage, Article XIX; Twenty-first Supplemental, Section 3.)
14
Defaults and Notice Thereof. Defaults are defined as being:
o default in payment of principal;
o default for 60 days in payment of interest or of installments of funds
for retirement of first mortgage bonds;
o certain defaults with respect to qualified lien bonds and certain
events in bankruptcy, insolvency or reorganization; and
o default of 90 days after notice in other covenants. (See Mortgage,
Section 65.)
The mortgage trustees may withhold notice of default, except in payment of
principal, interest or funds for retirement of first mortgage bonds, if they
think it is in the interest of the bondholders. (See Mortgage, Section 66.)
Under the Trust Indenture Act of 1939, ALLETE is required to provide to the
mortgage trustees an annual statement by an appropriate officer as to ALLETE's
compliance with all conditions and covenants under the mortgage.
The Bank of New York, as mortgage trustee, or the holders of 25 percent of
the first mortgage bonds may declare the principal and interest due on default,
but a majority may annul such declaration if the default has been cured. (See
Mortgage, Section 67.) No holder of first mortgage bonds may enforce the lien of
the mortgage without giving the mortgage trustees written notice of a default
and unless holders of 25 percent of the first mortgage bonds have requested the
mortgage trustees to act and offered them reasonable opportunity to act and
indemnity satisfactory to the mortgage trustees and they shall have failed to
act. (See Mortgage, Section 80.) The holders of a majority of the first mortgage
bonds may direct the time, method and place of conducting any proceedings for
any remedy available to the mortgage trustees, or exercising any trust or power
conferred upon the mortgage trustees, but the mortgage trustees are not required
to follow such direction if not sufficiently indemnified for expenditures. (See
Mortgage, Section 71.)
Information about the Mortgage Trustees. The Bank of New York is the
corporate mortgage trustee and Douglas J. MacInnes is the individual mortgage
trustee. In addition to acting as mortgage trustee, The Bank of New York, as
described in this prospectus, also will act as trustee under the subordinated
indenture, property trustee under the trust agreement and the guarantee trustee
under the guarantee; The Bank of New York (Delaware) acts as the Delaware
trustee under the trust agreement. The Bank of New York acts, and may act, as
trustee under various other indentures, trusts and guarantees of ALLETE and its
affiliates. ALLETE and its affiliates maintain deposit accounts and conduct
other banking transactions with the corporate mortgage trustee in the ordinary
course of their business.
DESCRIPTION OF DEBT SECURITIES
General. The following description sets forth certain general terms and
provisions of ALLETE's unsecured debt securities that ALLETE may offer by this
prospectus. ALLETE will describe the particular terms of the debt securities,
and provisions that vary from those described below, in one or more prospectus
supplements.
The debt securities will be ALLETE's direct unsecured general obligations.
The debt securities will be senior debt securities. ALLETE may issue the debt
securities from time to time in one or more series. ALLETE will issue the debt
securities under its Indenture (for Unsecured Debt Securities) dated as of
February 1, 2001 ("indenture"), with LaSalle Bank National Association, as
trustee ("indenture trustee").
The following descriptions of the debt securities and the indenture are
summaries and are qualified by reference to the indenture. The indenture is
being filed as an exhibit to the registration statement, and you should read the
indenture for provisions that may be important to you. References to certain
sections of the indenture are included in parentheses. Whenever particular
provisions or defined terms in the indenture are referred to under this
"Description of Debt Securities," those provisions or defined terms are
incorporated by reference in this prospectus. The indenture was qualified under
the Trust Indenture Act of 1939. You should refer to the Trust Indenture Act of
1939 for provisions that apply to the debt securities.
15
The debt securities will rank equally with all of ALLETE's other senior,
unsecured and unsubordinated debt.
The prospectus supplement and an officer's certificate relating to any
series of debt securities being offered will include specific terms relating to
that offering. These terms will include any of the following terms that apply to
that series:
o the title of the debt securities;
o any limit upon the total principal amount of the debt securities;
o the date or dates on which the principal of the debt securities will
be payable and how it will be paid;
o the rate or rates at which the debt securities will bear interest, or
how such rate or rates will be determined;
o the date or dates from which interest on the debt securities will
accrue, the interest payment dates on which interest will be paid, and
the record dates for interest payments;
o the percentage, if less than 100 percent, of the principal amount of
the debt securities that will be payable if the maturity of the debt
securities is accelerated;
o any date or dates on which, and the price or prices at which, the debt
securities may be redeemed at the option of ALLETE and any
restrictions on such redemptions;
o any sinking fund or other provisions or options held by holders of
debt securities that would obligate ALLETE to repurchase or otherwise
redeem the debt securities;
o any changes or additions to the events of default under the indenture
or changes or additions to the covenants of ALLETE under the
indenture;
o if the debt securities will be issued in denominations other than
$1,000 or a multiple thereof;
o if payments on the debt securities may be made in a currency or
currencies other than United States dollars;
o any convertible feature or options regarding the debt securities;
o any rights or duties of another person to assume the obligations of
ALLETE with respect to the debt securities;
o any collateral, security, assurance or guarantee for the debt
securities;
o any rights to change or eliminate any provision of the indenture or to
add any new provision to the indenture without the consent of the
holders of the debt securities of such series; and
o any other terms of the debt securities not inconsistent with the terms
of the indenture.
(See Indenture, Section 301.)
The indenture does not limit the principal amount of debt securities that
may be issued. The indenture allows debt securities to be issued up to the
principal amount that may be authorized by ALLETE.
The debt securities may be sold at a discount below their principal amount.
United States federal income tax considerations applicable to debt securities
sold at an original issue discount may be described in the prospectus
supplement. In addition, certain United States federal income tax or other
considerations applicable to any debt securities which are denominated or
16
payable in a currency or currency unit other than United States dollars may be
described in the prospectus supplement.
Except as may otherwise be described in the prospectus supplement, the
covenants contained in the indenture will not afford holders of the debt
securities protection in the event of a highly-leveraged or similar transaction
involving ALLETE or in the event of a change in control.
Subject to applicable law, including United States federal securities law,
ALLETE may purchase outstanding debt securities by tender, in the open market or
by private agreement.
Payment and Paying Agents. Except as may be provided in the prospectus
supplement, interest, if any, on each debt security payable on each interest
payment date will be paid to the person in whose name such debt security is
registered as of the close of business on the regular record date for the
interest payment date. However, interest payable at maturity will be paid to the
person to whom the principal is paid. If there has been a default in the payment
of interest on any debt security, the defaulted interest may be paid to the
holder of such debt security as of the close of business on a date to be fixed
by the indenture trustee, which will be between 10 and 15 days prior to the date
proposed by ALLETE for payment of such defaulted interest or in any other manner
permitted by any securities exchange on which such debt security may be listed,
if the indenture trustee finds it practicable. (See Indenture, Section 307.)
Unless otherwise specified in the prospectus supplement, principal of, and
premium, if any, and interest, if any, on the debt securities at maturity will
be payable upon presentation of the debt securities at the corporate trust
office of the indenture trustee as Paying Agent for ALLETE. ALLETE may change
the place of payment on the debt securities, may appoint one or more additional
Paying Agents, including ALLETE, and may remove any Paying Agent, all at the
discretion of ALLETE. (See Indenture, Section 602.)
Registration and Transfer. Unless otherwise specified in the prospectus
supplement, the transfer of debt securities may be registered, and debt
securities may be exchanged for other debt securities of the same series of
authorized denominations and with the same terms and principal amount, at the
corporate trust office of the indenture trustee. ALLETE may change the place for
registration of transfer and exchange of the debt securities and may designate
additional places for such registration and exchange. Unless otherwise provided
in the prospectus supplement, no service charge will be made for any transfer or
exchange of the debt securities. However, ALLETE may require payment to cover
any tax or other governmental charge that may be imposed. ALLETE will not be
required to execute or to provide for the registration of transfer of, or the
exchange of,
o any debt security during a period of 15 days prior to giving any
notice of redemption or
o any debt security selected for redemption except the unredeemed
portion of any debt security being redeemed in part.
(See Indenture, Section 305.)
Satisfaction and Discharge. ALLETE will be discharged from its obligations
on the debt securities of a particular series, or any portion of the principal
amount of the debt securities of such series, if it irrevocably deposits with
the indenture trustee sufficient cash or government securities to pay the
principal, or portion of principal, interest, any premium and any other sums
when due on the debt securities of such series at their stated maturity date or
a redemption date. (See Indenture, Section 701.)
The indenture will be deemed satisfied and discharged when no debt
securities remain outstanding and when ALLETE has paid all other sums payable by
ALLETE under the indenture. (See Indenture, Section 702.)
All moneys ALLETE pays to the indenture trustee or any Paying Agent on the
debt securities which remain unclaimed at the end of two years after payments
have become due will be paid to or upon the order of ALLETE. Thereafter, the
holder of such debt security may look only to ALLETE for payment thereof. (See
Indenture, Section 603.)
17
Limitation on Liens. ALLETE will not create or allow any liens, other than
permitted liens, to be created or to exist upon shares of capital stock of
majority owned subsidiaries of ALLETE now or hereafter directly owned by ALLETE
or any of its electric utility assets or other property of ALLETE, other than
excepted property, without making effective provision whereby:
o the outstanding debt securities shall be equally and ratably secured;
or
o secured obligations shall be delivered to the indenture trustee in an
amount equal to the outstanding debt securities.
The term permitted liens includes, among others:
o non-delinquent or contested tax or construction liens;
o judgment liens in an aggregate amount less than $10 million or subject
to appeal;
o easements, leases, title defects that do not impair ALLETE's intended
use of property;
o governmental rights, mineral, timber or production rights, joint
ownership rights;
o liens fully secured by deposited money or investment securities,
purchase money liens and liens on property at the time of acquisition;
o liens securing tax-exempt financing, non-recourse liens related to the
acquisition or construction of additional property;
o the lien of the mortgage or any successor indenture secured by first
mortgage bonds;
o any lien on the capital stock of directly-held majority owned
subsidiaries of ALLETE created at the time ALLETE acquires that
capital stock, or within 270 days after that time, to secure all or a
portion of the purchase price for that capital stock;
o any lien on the capital stock of directly-held majority owned
subsidiaries of ALLETE existing at the time ALLETE acquires that
capital stock (whether or not ALLETE assumes the obligations secured
by the lien and whether or not the lien was created in contemplation
of the acquisition);
o any extensions, renewals or replacements of the liens described in the
two preceding bullet points, or of any indebtedness secured by those
liens; provided, that
- the principal amount of indebtedness secured by those liens
immediately after the extension, renewal or replacement may not
exceed the principal amount of indebtedness secured by those
liens immediately before the extension, renewal or replacement,
and
- the extension, renewal or replacement lien is limited to no more
than the same proportion of all shares of capital stock as were
covered by the lien that was extended, renewed or replaced; and
o any other liens in an aggregate amount not exceeding 2.5 percent of
ALLETE's consolidated assets.
The term excepted property includes, among others:
o cash, shares of stock other than shares of capital stock of
directly-held majority owned subsidiaries, interests in partnerships,
bonds, notes, evidence of indebtedness and other securities;
18
o contracts, leases, accounts receivable, patents, trademarks,
intangibles, vehicles, rolling stock, aircraft, inventory;
o fuel and other consumables, minerals, timber, natural gas production
and gathering assets, hydroelectric assets; and
o leaseholds.
The foregoing limitation does not limit in any manner the ability of:
o ALLETE to place liens on the excepted property;
o ALLETE to cause the transfer of its assets or those of its
subsidiaries, including the electric utility assets or capital stock
covered by the foregoing restrictions; or
o any of the direct or indirect subsidiaries of ALLETE to place liens on
any of their assets.
Consolidation, Merger, and Sale of Assets. Under the terms of the
indenture, ALLETE may not consolidate with or merge into any other entity or
convey, transfer or lease its properties and assets substantially as an entirety
to any entity, unless:
o the surviving or successor entity is organized and validly existing
under the laws of any domestic jurisdiction and it expressly assumes
ALLETE's obligations on all debt securities and under the indenture;
o immediately after giving effect to the transaction, no event of
default under the indenture and no event which, after notice or lapse
of time or both, would become an event of default under the indenture,
shall have occurred and be continuing; and
o ALLETE shall have delivered to the indenture trustee an officer's
certificate and an opinion of counsel as provided in the indenture.
The terms of the indenture do not restrict ALLETE in a merger in which ALLETE is
the surviving entity. (See Indenture, Section 1101.)
Events of Default. The term "event of default," when used in the indenture
with respect to any series of debt securities, means any of the following:
o failure to pay interest, if any, on any debt security of the
applicable series for 30 days after it is due;
o failure to pay the principal of or premium, if any, on any debt
security of the applicable series when due, whether at maturity or
upon earlier redemption;
o failure to perform any other covenant in the indenture, other than a
covenant that does not relate to that series of debt securities, that
continues for 90 days after ALLETE receives written notice from the
indenture trustee, or ALLETE and the indenture trustee receive a
written notice from 33 percent of the holders of the debt securities
of such series; however, the indenture trustee or the indenture
trustee and the holders of such principal amount of debt securities of
this series can agree to an extension of the 90 day period and such an
agreement to extend will be automatically deemed to occur if ALLETE is
diligently pursuing action to correct the default;
o certain events in bankruptcy, insolvency or reorganization of ALLETE;
or
o any other event of default included in any supplemental indenture or
officer's certificate for that series of debt securities.
19
(See Indenture, Section 801.)
The indenture trustee may withhold notice to the holders of debt securities
of any default, except default in the payment of principal, premium or interest,
if it considers such withholding of notice to be in the interests of the
holders. An event of default under the indenture for a particular series of debt
securities does not necessarily constitute an event of default under the
indenture for any other series of debt securities issued under the indenture.
Remedies
Acceleration of Maturity. If an event of default under the indenture with
respect to fewer than all the series of debt securities occurs and continues,
either the indenture trustee or the holders of at least 33 percent in principal
amount of the debt securities of any such series may declare the entire
principal amount of all the debt securities of such series, together with
accrued interest, to be due and payable immediately. However, if the event of
default under the indenture is applicable to all outstanding debt securities
under the indenture, only the indenture trustee or holders of at least 33
percent in principal amount of all outstanding debt securities of all series,
voting as one class, and not the holders of any one series, may make such a
declaration of acceleration.
At any time after a declaration of acceleration with respect to the debt
securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained, the event of default under the
indenture giving rise to such declaration of acceleration will be considered
waived, and such declaration and its consequences will be considered rescinded
and annulled, if:
o ALLETE has paid or deposited with the indenture trustee a sum
sufficient to pay:
- all overdue interest, if any, on all debt securities of the
series;
- the principal of and premium, if any, on any debt securities of
the series which have otherwise become due and interest, if any,
that is currently due;
- interest, if any, on overdue interest; and
- all amounts due to the indenture trustee under the indenture; or
o any other event of default under the indenture with respect to the
debt securities of that series has been cured or waived as provided in
the indenture.
There is no automatic acceleration, even in the event of bankruptcy, insolvency
or reorganization of ALLETE. (See Indenture, Section 802.)
Right to Direct Proceedings. Other than its duties in case of an event of
default under the indenture, the indenture trustee is not obligated to exercise
any of its rights or powers under the indenture at the request, order or
direction of any of the holders, unless the holders offer the indenture trustee
a reasonable indemnity. (See Indenture, Section 903.) If they provide a
reasonable indemnity, the holders of a majority in principal amount of any
series of debt securities will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the indenture
trustee, or exercising any power conferred upon the indenture trustee . However,
if the event of default under the indenture relates to more than one series,
only the holders of a majority in aggregate principal amount of all affected
series will have the right to give this direction. The indenture trustee is not
obligated to comply with directions that conflict with law or other provisions
of the indenture. (See Indenture, Section 812).
Limitation on Right to Institute Proceedings. No holder of debt securities
of any series will have any right to institute any proceeding under the
indenture, or to exercise any remedy under the indenture, unless:
o the holder has previously given to the indenture trustee written
notice of a continuing event of default under the indenture;
20
o the holders of a majority in aggregate principal amount of the
outstanding debt securities of all series in respect of which an event
of default under the indenture shall have occurred and be continuing
have made a written request to the indenture trustee, and have offered
reasonable indemnity to the indenture trustee to institute
proceedings; and
o the indenture trustee has failed to institute any proceeding for 60
days after notice and has not received any direction inconsistent with
the written request of holders during such period.
(See Indenture, Section 807.)
No Impairment of Right to Receive Payment. However, the limitations
described in the preceding paragraph do not apply to a suit by a holder of a
debt security for payment of the principal of or premium, if any, or interest,
if any, on a debt security on or after the applicable due date. (See Indenture,
Section 808.)
Annual Notice to Indenture Trustee. ALLETE will provide to the indenture
trustee an annual statement by an appropriate officer as to ALLETE's compliance
with all conditions and covenants under the indenture. (See Indenture, Section
606.)
Modification and Waiver. ALLETE and the indenture trustee may enter into
one or more supplemental indentures without the consent of any holder of debt
securities for any of the following purposes:
o to evidence the assumption by any permitted successor of the covenants
of ALLETE in the indenture and in the debt securities;
o to add additional covenants of ALLETE or to surrender any right or
power of ALLETE under the indenture;
o to add additional event of default under the indenture;
o to change, eliminate, or add any provision to the indenture; provided,
however, if the change, elimination, or addition will adversely affect
in any material respect the interests of the holders of debt
securities of any series, other than any series the terms of which
permit such change, elimination or addition, such change, elimination,
or addition will become effective only as to such series:
- when the consent of the holders of debt securities of such series
has been obtained in accordance with the indenture; or
- when no debt securities of such series remain outstanding under
the indenture;
o to provide collateral security for all or part of the debt securities;
o to establish the form or terms of debt securities of any other series
as permitted by the indenture;
o to provide for the authentication and delivery of bearer securities
and coupons attached thereto;
o to evidence and provide for the acceptance of appointment of a
successor indenture trustee ;
o to provide for the procedures required for use of a noncertificated
system of registration for the debt securities of all or any series;
o to change any place where principal, premium, if any, and interest
shall be payable, debt securities may be surrendered for registration
of transfer or exchange and notices to ALLETE may be served; or
21
o to cure any ambiguity or inconsistency or to make any other changes to
the provisions of the indenture or to add other provisions with
respect to matters and questions arising under the indenture; provided
that such other changes or additions shall not adversely affect the
interests of the holders of debt securities of any series in any
material respect.
(See Indenture, Section 1201.)
The holders of at least a majority in aggregate principal amount of the
debt securities of all series then outstanding may waive compliance by ALLETE
with certain restrictive provisions of the indenture. (See Indenture, Section
607.) The holders of not less than a majority in principal amount of the
outstanding debt securities of any series may waive any past default under the
indenture with respect to that series, except a default in the payment of
principal, premium, if any, or interest and certain covenants and provisions of
the indenture that cannot be modified or be amended without the consent of the
holder of each outstanding debt security of the series affected. (See Indenture,
Section 813.)
If the Trust Indenture Act of 1939 is amended after the date of the
indenture in such a way as to require changes to the indenture, the indenture
will be deemed to be amended so as to conform to such amendment of the Trust
Indenture Act of 1939. ALLETE and the indenture trustee may, without the consent
of any holders, enter into one or more supplemental indentures to evidence such
an amendment. (See Indenture, Section 1201.)
The consent of the holders of a majority in aggregate principal amount of
the debt securities of all series then outstanding is required for all other
modifications to the indenture. However, if less than all of the series of debt
securities outstanding are directly affected by a proposed supplemental
indenture, then the consent only of the holders of a majority in aggregate
principal amount of all series that are directly affected will be required. No
such amendment or modification may:
o change the stated maturity of the principal of, or any installment of
principal of or interest on, any debt security, or reduce the
principal amount of any debt security or its rate of interest or
change the method of calculating such interest rate or reduce any
premium payable upon redemption, or change the currency in which
payments are made, or impair the right to institute suit for the
enforcement of any payment on or after the stated maturity of any debt
security, without the consent of the holder;
o reduce the percentage in principal amount of the outstanding debt
securities of any series whose consent is required for any
supplemental indenture or any waiver of compliance with a provision of
the indenture or any default thereunder and its consequences, or
reduce the requirements for quorum or voting, without the consent of
all the holders of the series; or
o modify certain of the provisions of the indenture relating to
supplemental indentures, waivers of certain covenants and waivers of
past defaults with respect to the debt securities of any series,
without the consent of the holder of each outstanding debt security
affected by them.
(See Indenture, Section 1202.)
A supplemental indenture that changes the indenture solely for the benefit
of one or more particular series of debt securities, or modifies the rights of
the holders of debt securities of one or more series, will not affect the rights
under the indenture of the holders of the debt securities of any other series.
(See Indenture, Section 1202.)
The indenture provides that debt securities owned by ALLETE or anyone else
required to make payment on the debt securities shall be disregarded and
considered not to be outstanding in determining whether the required holders
have given a request or consent. (See Indenture, Section 101.)
ALLETE may fix in advance a record date to determine the required number of
holders entitled to give any request, demand, authorization, direction, notice,
consent, waiver or other such act of the holders, but ALLETE shall have no
obligation to do so. If such a record date is fixed, such request, demand,
authorization, direction, notice, consent, waiver or other act of the holders
may be given before or after such record date, but only the holders of record at
22
the close of business on that record date will be considered holders for the
purposes of determining whether holders of the required percentage of the
outstanding debt securities have authorized or agreed or consented to such
request, demand, authorization, direction, notice, consent, waiver or other act
of the holders. For that purpose, the outstanding debt securities shall be
computed as of the record date. Any request, demand, authorization, direction,
notice, consent, election, waiver or other act of a holder shall bind every
future holder of the same debt security and the holder of every debt security
issued upon the registration of transfer of or in exchange of such debt
securities. A transferee will be bound by acts of the indenture trustee or
ALLETE taken in reliance thereon, whether or not notation of such action is made
upon such debt security. (See Indenture, Section 104.)
Resignation of the Indenture Trustee. The indenture trustee may resign at
any time by giving written notice to ALLETE or may be removed at any time by act
of the holders of a majority in principal amount of all series of debt
securities then outstanding delivered to the indenture trustee and ALLETE. No
resignation or removal of the indenture trustee and no appointment of a
successor indenture trustee will be effective until the acceptance of
appointment by a successor indenture trustee. So long as no event of default
under the indenture or event which, after notice or lapse of time, or both,
would become an event of default under the indenture has occurred and is
continuing and except with respect to the indenture trustee appointed by act of
the holders, if ALLETE has delivered to the indenture trustee a resolution of
its Board of Directors appointing a successor indenture trustee and such
successor has accepted such appointment in accordance with the terms of the
indenture, the indenture trustee will be deemed to have resigned and the
successor will be deemed to have been appointed as indenture trustee in
accordance with the indenture. (See Indenture, Section 910.)
Notices. Notices to holders of debt securities will be given by mail to the
addresses of such holders as they may appear in the security register therefor.
(See Indenture, Section 106.)
Title. ALLETE, the indenture trustee, and any agent of ALLETE or the
indenture trustee, may treat the person in whose name debt securities are
registered as the absolute owner thereof, whether or not such debt securities
may be overdue, for the purpose of making payments and for all other purposes
irrespective of notice to the contrary. (See Indenture, Section 308.)
Governing Law. The indenture and the debt securities will be governed by,
and construed in accordance with, the laws of the State of New York. (See
Indenture, Section 112.)
Information about the Indenture Trustee. The indenture trustee under the
indenture is LaSalle Bank National Association. LaSalle Bank National
Association acts, and may act, as trustee under various other indentures of
ALLETE and its affiliates. ALLETE and its affiliates maintain deposit accounts
and credit and liquidity facilities and conduct other banking transactions with
the indenture trustee and its affiliates in the ordinary course of their
business.
DESCRIPTION OF PREFERRED TRUST SECURITIES AND COMMON TRUST SECURITIES
General. ALLETE Capital will issue preferred trust securities and common
trust securities under a trust agreement among ALLETE, as depositor, The Bank of
New York, as property trustee, The Bank of New York (Delaware), as Delaware
trustee, several administrative trustees and the holders of preferred trust
securities and common trust securities. The preferred trust securities will
represent preferred undivided beneficial interests in the assets of ALLETE
Capital and will entitle their holders to a preference over the common trust
securities with respect to distributions and amounts payable on redemption or
liquidation. Material terms of the trust agreement are summarized below. The
following descriptions of the preferred trust securities and the trust agreement
are summaries and are qualified by reference to the trust agreement. The form of
the trust agreement is being filed as an exhibit to the registration statement,
and you should read the trust agreement for provisions that may be important to
you. References to certain sections of the trust agreement are included in
parentheses. Whenever particular provisions or defined terms in the trust
agreement are referred to under this "Description of Preferred Trust Securities
and Common Trust Securities," those provisions or defined terms are incorporated
by reference in this prospectus. The trust agreement will be qualified under the
Trust Indenture Act of 1939. You should refer to the Trust Indenture Act of 1939
for provisions that apply to the preferred trust securities.
23
The preferred trust securities and the common trust securities issued by
ALLETE Capital will be substantially the same except that, if ALLETE Capital
fails to make required payments, the rights of ALLETE as the holder of the
common trust securities to payment of distributions and upon liquidation or
redemption will be subordinated to the rights of the holders of the preferred
trust securities. If there is a continuing event of default under the
subordinated indenture described below, holders of the preferred trust
securities may vote to appoint, remove or replace any of trustees of ALLETE
Capital except for the administrative trustees. All of the common trust
securities of ALLETE Capital will be owned by ALLETE.
ALLETE will fully and unconditionally guarantee payments due on the
preferred trust securities through a combination of the following:
o ALLETE's obligations under the junior subordinated debentures;
o the rights of holders of preferred trust securities to enforce
ALLETE's obligations under the junior subordinated debentures;
o ALLETE's agreement to pay the expenses of ALLETE Capital; and
o ALLETE's guarantee of payments due on the preferred trust securities
to the extent of ALLETE Capital's assets.
No single one of the documents listed above standing alone or operating in
conjunction with fewer than all of the other documents constitutes the guarantee
by ALLETE. It is only the combined operation of these documents that has the
effect of providing a full and unconditional guarantee by ALLETE of the
preferred trust securities.
If and to the extent described in the prospectus supplement, ALLETE may
assign its rights and obligations relating to preferred trust securities. The
obligations which ALLETE could assign would include its obligations under the
junior subordinated debentures, its agreement to pay the expenses of ALLETE
Capital and its guarantee of payments due on the preferred trust securities to
the extent of ALLETE Capital's assets. The terms and conditions and any material
United States federal income tax consequences of any permitted assignment shall
be described in the prospectus supplement relating to the preferred trust
securities of ALLETE Capital.
ALLETE Capital will use the proceeds from the sale of the preferred trust
securities and common trust securities to purchase junior subordinated
debentures from ALLETE in an aggregate principal amount equal to the aggregate
liquidation preference amount of the preferred trust securities and the common
trust securities. The junior subordinated debentures will be issued under a
subordinated indenture between ALLETE and The Bank of New York, as debenture
trustee under the subordinated indenture. The property trustee will hold the
junior subordinated debentures in trust for the benefit of the holders of the
preferred trust securities and common trust securities. (See Trust Agreement,
Section 2.09.)
A prospectus supplement relating to the preferred trust securities will
include specific terms of those securities and of the junior subordinated
debentures. For a description of some specific terms that will affect both the
preferred trust securities and the junior subordinated debentures and your
rights under each, see "Description of Junior Subordinated Debentures" below.
Distributions. The only income of ALLETE Capital available for distribution
to the holders of preferred trust securities will be payments on the junior
subordinated debentures. If ALLETE does not make interest payments on the junior
subordinated debentures (or does not pay the expenses of ALLETE Capital), ALLETE
Capital will not have funds available to pay distributions on the preferred
trust securities. The payment of distributions, if and to the extent ALLETE
Capital has sufficient funds available for the payment of such distributions, is
guaranteed on a limited basis by ALLETE.
So long as there is no default in the payment of interest on the junior
subordinated debentures, ALLETE may extend the interest payment period from time
to time on the junior subordinated debentures for one or more periods. As a
consequence, distributions on the preferred trust securities would be deferred
during any such period. Interest would, however, continue to accrue. If ALLETE
24
extends the interest period or is in default under the guarantee or with respect
to payments on the junior subordinated debentures, ALLETE may not:
o declare or pay any dividend or distribution on its capital stock,
other than dividends paid in shares of common stock of ALLETE;
o redeem, purchase, acquire or make a liquidation payment with respect
to any of its capital stock;
o redeem any indebtedness that is equal in right of payment with the
junior subordinated debentures; and
o make any guarantee payments with respect to any of the above.
Any extension period with respect to payment of interest on the junior
subordinated debentures, or any extended interest payment period in respect of
other securities issued under the subordinated indenture or on any similar
securities, will apply to all securities of the same type. Those extensions will
also apply to distributions on preferred trust securities and common trust
securities and all other securities with terms substantially the same as
preferred trust securities and common trust securities. Before an extension
period ends, ALLETE may further extend the interest payment period. No extension
period as further extended may exceed 20 consecutive quarters. After any
extension period and the payment of all amounts then due, ALLETE may select a
new extended interest payment period. No interest period may be extended beyond
the maturity of the junior subordinated debentures.
Redemption of Preferred Trust Securities and Common Trust Securities.
Whenever any of the junior subordinated debentures are repaid, whether at
maturity or earlier redemption, the proceeds will be applied to redeem a like
amount of preferred trust securities and common trust securities. Holders of
preferred trust securities and common trust securities will be given not less
than 30 nor more than 60 days' notice of any redemption.
Redemption Procedures. Preferred trust securities will be redeemed at the
redemption price plus accrued and unpaid distributions with the proceeds from
the contemporaneous redemption of junior subordinated debentures. Redemptions of
the preferred trust securities shall be made on a redemption date only if ALLETE
Capital has funds available for the payment of the redemption price plus accrued
and unpaid distributions. (See Trust Agreement, Section 4.02(c).)
Notice of redemption of preferred trust securities will be irrevocable. On
or before the redemption date, ALLETE Capital will irrevocably deposit with the
paying agent for the preferred trust securities sufficient funds and will give
the paying agent irrevocable instructions and authority to pay the redemption
price plus accrued and unpaid distributions to the holders upon surrender of
their preferred trust securities. Distributions payable on or before a
redemption date will be payable to the holders on the record date for the
distribution payment. If notice is given and funds are deposited as required,
then on the redemption date all rights of holders of the preferred trust
securities called for redemption will cease, except the right of the holders to
receive the redemption price plus accrued and unpaid distributions, and the
preferred trust securities will cease to be outstanding. No interest will accrue
on amounts payable on the redemption date. In the event that any date fixed for
redemption of preferred trust securities is not a business day, then payment
will be made on the next business day. No interest will be payable because of
any such delay. If payment of the preferred trust securities called for
redemption is improperly withheld or refused and not paid either by ALLETE
Capital or by ALLETE pursuant to the guarantee, distributions on such preferred
trust securities will continue to accrue to the date of payment. That date will
be considered the date fixed for redemption for purposes of calculating the
redemption price plus accrued and unpaid distributions. (See Trust Agreement,
Section 4.02(d).)
Subject to applicable law, including United States federal securities law,
ALLETE may purchase outstanding preferred trust securities by tender, in the
open market or by private agreement.
If preferred trust securities are partially redeemed on a redemption date
other than as a result of an event of default under the trust agreement, a
corresponding percentage of the common trust securities will be redeemed. The
particular preferred trust securities to be redeemed shall be selected not more
than 60 days before the redemption date by the property trustee by such method
as the property trustee shall deem fair, taking into account the denominations
25
in which they were issued. The property trustee shall promptly notify the
preferred trust security registrar in writing of the preferred trust securities
selected for redemption and, where applicable, the partial amount to be
redeemed. (See Trust Agreement, Section 4.02(f).)
Subordination of Common Trust Securities. Payment of distributions on, and
the redemption price, plus accrued and unpaid distributions, of, the preferred
trust securities and common trust securities shall be made proportionally based
on the liquidation preference amount. However, if on any distribution payment
date or redemption date an event of default under the trust agreement has
occurred and is continuing, no payment on any common trust security shall be
made until all payments due on the preferred trust securities have been made. In
that case, funds available to the property trustee will first be applied to the
payment in full of all distributions on, or the redemption price plus accrued
and unpaid distributions, of preferred trust securities then due and payable.
(See Trust Agreement, Section 4.03(a).)
If an event of default under the trust agreement results from an event of
default under the subordinated indenture, the holders of common trust securities
cannot take action with respect to the trust agreement default until the effect
of all defaults with respect to preferred trust securities has been cured,
waived or otherwise eliminated. Until the event of default under the trust
agreement with respect to preferred trust securities has been cured, waived or
otherwise eliminated, the property trustee shall act solely on behalf of the
holders of preferred trust securities and not the holders of the common trust
securities. Only holders of preferred trust securities will have the right to
direct the property trustee to act on their behalf. (See Trust Agreement,
Section 4.03(b).)
Liquidation Distribution upon Dissolution. ALLETE Capital will be dissolved
and shall be liquidated by the property trustee on the first to occur of:
o the expiration of the term of ALLETE Capital;
o the bankruptcy, dissolution or liquidation of ALLETE;
o redemption of all of the preferred trust securities;
o the entry of an order for dissolution of ALLETE Capital by a court of
competent jurisdiction; or
o at any time, at the election of ALLETE.
(See Trust Agreement, Sections 9.01 and 9.02.)
If a dissolution of ALLETE Capital occurs because of bankruptcy,
dissolution or liquidation of ALLETE, if all the preferred trust securities are
redeemed, or if ALLETE so elects, ALLETE Capital will be liquidated by the
property trustee as expeditiously as the property trustee determines to be
appropriate. The property trustee will provide for the satisfaction of
liabilities of creditors, if any, and distribute to each holder of the preferred
trust securities and common trust securities a proportionate amount of junior
subordinated debentures. If a distribution of junior subordinated debentures is
determined by the property trustee not to be practical, holders of the preferred
trust securities will be entitled to receive, out of the assets of ALLETE
Capital after adequate provision for the satisfaction of liabilities of
creditors, if any, an amount equal to the aggregate liquidation preference of
the preferred trust securities plus accrued and unpaid distributions thereon to
the date of payment. If this liquidation distribution can be paid only in part
because ALLETE Capital has insufficient assets available to pay in full the
aggregate liquidation distribution, then the amounts payable directly by ALLETE
Capital on the preferred trust securities shall be paid to the holders
proportionally based on the total liquidation preference amount of the preferred
trust securities they hold. ALLETE, as holder of the common trust securities,
will be entitled to receive distributions upon any dissolution proportionally
with the holders of the preferred trust securities, except that if an event of
default has occurred and is continuing under the subordinated indenture or if a
default has occurred under the subordinated indenture but has not become an
event of default solely because of the requirement that time lapse or notice be
given, the preferred trust securities shall have a preference over the common
trust securities upon dissolution of ALLETE Capital. (See Trust Agreement,
Section 9.04.)
26
Events of Default; Notice. Any one of the following events will be an event
of default under the trust agreement whether it be voluntary or involuntary or
effected by operation of law or in accordance with any judgment, decree or order
of any court or any order, rule or regulation of any administrative or
governmental body:
o the occurrence of an event of default under the subordinated
indenture;
o default by ALLETE Capital in the payment of any distribution when it
becomes due and payable, and continuation of that default for a period
of 30 days;
o default by ALLETE Capital in the payment of any redemption price, plus
accrued and unpaid distributions, of any preferred trust security or
common trust security when it becomes due and payable;
o default in the performance, or breach, in any material respect, of any
covenant or warranty of the trustees in the trust agreement which is
not dealt with above, and the continuation of that default or breach
for a period of 60 days after notice to ALLETE Capital by the holders
of preferred trust securities having at least 10 percent of the total
liquidation preference amount of the outstanding preferred trust
securities; or
o the occurrence of specified events of bankruptcy or insolvency with
respect to ALLETE Capital.
(See Trust Agreement, Section 1.01.)
Within 90 business days after the occurrence of any event of default under
the trust agreement, the property trustee will transmit to the holders of
preferred trust securities and common trust securities and ALLETE notice of any
default actually known to the property trustee, unless that default has been
cured or waived. (See Trust Agreement, Section 8.02.)
A holder of preferred trust securities may directly institute a proceeding
to enforce payment when due directly to the holder of the preferred trust
securities of the principal of or interest on junior subordinated debentures
having a principal amount equal to the aggregate liquidation preference amount
of the holder's preferred trust securities. The holders of preferred trust
securities have no other rights to exercise directly any other remedies
available to the holder of the junior subordinated debentures unless the
trustees under the trust agreement fail to do so. (See Trust Agreement, Section
6.01(a).)
Unless an event of default under the subordinated indenture has occurred
and is continuing, the holder of the common trust securities may remove the
property trustee at any time. If an event of default under the subordinated
indenture has occurred and is continuing, the holders of a majority of the total
liquidation preference amount of the outstanding preferred trust securities may
remove the property trustee. Any resignation or removal of the property trustee
will take effect only on the acceptance of appointment by the successor property
trustee. (See Trust Agreement, Section 8.10.)
Merger or Consolidation of the Property Trustee or the Delaware Trustee. If
the property trustee or the Delaware trustee merge, consolidate with another
entity, or if any entity succeeds to all or substantially all the corporate
trust business of the property trustee or the Delaware trustee, the successor or
surviving company shall be the successor to the property trustee or the Delaware
trustee under the trust agreement, so long as it is otherwise qualified and
eligible. (See Trust Agreement, Section 8.12.)
Voting Rights. Except with respect to amendments to the trust agreement and
amendments and assignment of the guarantee, the holders of preferred trust
securities will have no voting rights not otherwise required by law or the trust
agreement. (See Trust Agreement, Section 6.01(a).)
While junior subordinated debentures are held by the property trustee, the
property trustee will not:
o direct the time, method and place to conduct any proceeding for any
remedy available to the debenture trustee, or to execute any trust or
power conferred on the debenture trustee with respect to the junior
subordinated debentures,
27
o waive any past default under the subordinated indenture,
o exercise any right to rescind or annul a declaration that the
principal of all the junior subordinated debentures will be due and
payable, or
o consent to any amendment, modification or termination of the
subordinated indenture or the junior subordinated debentures, where
that consent will be required
without, in each case, obtaining the prior approval of the holders of preferred
trust securities having at least 66-2/3 percent of the liquidation preference
amount of the outstanding preferred trust securities. Where the consent of each
holder of junior subordinated debentures affected is required, no consent will
be given by the property trustee without the prior consent of each holder of the
preferred trust securities. The property trustee shall not revoke any action
previously authorized or approved by a vote of the holders of preferred trust
securities. If the property trustee fails to enforce its rights under the junior
subordinated debentures or the trust agreement, to the fullest extent permitted
by law, a holder of the preferred trust securities may institute a legal
proceeding directly against ALLETE to enforce the property trustee's rights
under the junior subordinated debentures or the trust agreement without first
instituting any legal proceeding against the property trustee or any one else.
The property trustee shall notify all holders of preferred trust securities of
any notice of default received from the debenture trustee. The property trustee
will not take any action approved by the consent of the holders of the preferred
trust securities without an opinion of counsel experienced in those matters to
the effect that ALLETE Capital will not be classified as an association taxable
as a corporation for United States federal income tax purposes on account of
that action. (See Trust Agreement, Sections 6.01(a) and 6.01(b).)
Holders of preferred trust securities may give any required approval at a
meeting convened for that purpose or by written consent without prior notice.
(See Trust Agreement, Section 6.06.) The administrative trustees will give
notice of any meeting at which holders of preferred trust securities are
entitled to vote (See Trust Agreement, Section 6.01).
No vote or consent of the holders of preferred trust securities will be
required for ALLETE Capital to redeem and cancel preferred trust securities in
accordance with the trust agreement.
Although holders of preferred trust securities are entitled to vote or
consent under any of the circumstances described above, any of the preferred
trust securities that are owned by ALLETE, any trustee under the trust agreement
or any affiliate of ALLETE, shall be treated as if they were not outstanding for
purposes of that vote or consent. (See Trust Agreement, Section 1.01.)
Holders of preferred trust securities will have no rights to appoint or
remove the administrative trustees of ALLETE Capital, who may be appointed,
removed or replaced solely by ALLETE as the holder of the common trust
securities. (See Trust Agreement, Section 8.10.)
Amendments. The trust agreement may be amended from time to time by ALLETE
and the administrative trustees, without the consent of any holders of preferred
trust securities and common trust securities or the other trustees:
o to cure any ambiguity, correct or supplement inconsistent provisions,
make any other provisions with respect to matters or questions arising
under the trust agreement that do not conflict with the other
provisions of the trust agreement or any amendments of the trust
agreement;
o to change the name of the trust; or
o to modify, eliminate or add to any provisions of the trust agreement
to the extent necessary to ensure that ALLETE Capital will not be
classified for United States federal income tax purposes as an
association taxable as a corporation at any time that any preferred
trust securities and common trust securities are outstanding or to
ensure ALLETE Capital's exemption from the status of an "investment
company" under the Investment Company Act of 1940.
28
No amendment described above may materially adversely affect the interests of
any holder of preferred trust securities or common trust securities. The
amendments of the trust agreement which cure ambiguity, correct inconsistencies
or supplement existing provisions will become effective when notice of the
amendment is given to the holders of preferred trust securities and common trust
securities.
Except as provided below, any provision of the trust agreement may be
amended by the trustees and ALLETE with:
o the consent of holders of preferred trust securities and common trust
securities representing not less than a majority in aggregate
liquidation preference amount of the preferred trust securities and
common trust securities then outstanding; and
o receipt by the trustees of an opinion of counsel to the effect that
such amendment or the exercise of any power granted to the trustees in
accordance with the amendment will not cause ALLETE Capital to be
classified for United States federal income tax purposes as an
association taxable as a corporation or affect ALLETE Capital's
exemption from status of an "investment company" under the Investment
Company Act of 1940.
Each holder of preferred trust securities or common trust securities must
consent to any amendment to the trust agreement that:
o changes the amount or timing of any distribution with respect to
preferred trust securities or common trust securities or otherwise
adversely affects the amount of any distribution required to be made
in respect of preferred trust securities and common trust securities
as of a specified date; or
o restricts the right of a holder of preferred trust securities or
common trust securities to institute suit for the enforcement of any
such payment on or after that date.
(See Trust Agreement, Section 10.03.)
Co-trustees and Separate Trustee. If no event of default under the trust
agreement has occurred and is continuing, for the purpose of meeting the legal
requirements of the Trust Indenture Act of 1939 or of any jurisdiction in which
any part of the trust property of ALLETE Capital may at the time be located,
ALLETE, as depositor, and the property trustee may appoint one or more persons
approved by the property trustee either to act as co-trustee, jointly with the
property trustee, of all or any part of the trust property, or to act as
separate trustee of any trust property. Upon the written request of the property
trustee, ALLETE, as depositor, will for that purpose join with the property
trustee in the execution, delivery and performance of all instruments necessary
or proper to make that appointment. The appointment will vest in that person or
persons in that capacity, any property, title, right or power deemed necessary
or desirable, subject to the provisions of the trust agreement. If ALLETE, as
depositor, does not join in that appointment within 15 days after the receipt by
it of a request so to do, or in case an event of default under the subordinated
indenture has occurred and is continuing, the property trustee alone shall have
power to make that appointment. (See Trust Agreement, Section 8.09.)
Form, Exchange, and Transfer. Preferred trust securities of ALLETE Capital
may be exchanged for other preferred trust securities of that trust in any
authorized denomination and with the same terms and total liquidation
preference.
Subject to the terms of the trust agreement, preferred trust securities may
be presented for exchange as provided above or for registration of transfer,
duly endorsed or accompanied by a duly executed instrument of transfer, at the
office of the preferred trust security registrar or at the office of any
transfer agent designated by ALLETE for such purpose. ALLETE may designate
itself the preferred trust security registrar. Unless otherwise provided in the
prospectus supplement, no service charge will be made for any transfer or
exchange of the preferred trust securities. However, ALLETE may require payment
to cover any tax or other governmental charge that may be imposed. In that case,
the holder requesting transfer must pay the tax or charges and give any
indemnity that ALLETE Capital or ALLETE may require. (See Trust Agreement,
Section 5.04.) A transfer or exchange will be made when the transfer agent is
29
satisfied with the documents of title and identity of the person making the
request. ALLETE may at any time designate additional transfer agents or rescind
the designation of any transfer agent or approve a change in the office through
which any transfer agent acts, except that ALLETE will be required to maintain a
transfer agent in each place of payment for preferred trust securities.
ALLETE Capital will not be required to
o issue, register the transfer of, or exchange any preferred trust
securities during the period beginning 15 calendar days before the
mailing of a notice of redemption of any preferred trust securities
called for redemption and ending at the close of business on the day
the notice is mailed or
o register the transfer of or exchange any preferred trust securities so
selected for redemption, in whole or in part, except the unredeemed
portion of any preferred trust securities being redeemed in part.
(See Trust Agreement, Section 5.04)
Registrar and Transfer Agent. Unless otherwise specified in the prospectus
supplement, The Bank of New York will act as registrar and transfer agent for
the preferred trust securities.
Registration of transfers of the preferred trust securities will be made
without charge by ALLETE Capital, unless tax or other governmental charges are
imposed. In that case, the holder requesting transfer must pay the tax or
charges and give such indemnity as ALLETE Capital or ALLETE may require.
Information about the Property Trustee and the Delaware Trustee. The
property trustee and the Delaware trustee under the trust agreement will be The
Bank of New York and The Bank of New York (Delaware), respectively. In addition
to acting as property trustee, The Bank of New York, as described in this
prospectus, also acts as trustee under the mortgage, the guarantee trustee under
the guarantee and the debenture trustee under the subordinated indenture. The
Bank of New York also acts, and may act, as trustee under various other
indentures, trusts and guarantees of ALLETE and its affiliates. ALLETE and its
affiliates maintain deposit accounts and conduct other banking transactions with
the property trustee in the ordinary course of their businesses.
Duties of the Trustees. The Delaware trustee will act as the resident
trustee in the State of Delaware and will have no other significant duties. (See
Trust Agreement, Section 2.06.) The property trustee will hold the junior
subordinated debentures on behalf of ALLETE Capital and will maintain a payment
account with respect to the preferred trust securities and common trust
securities, and will also act as trustee under the trust agreement for the
purposes of the Trust Indenture Act of 1939.
The administrative trustees of ALLETE Capital are authorized and directed
to conduct the affairs of ALLETE Capital and to operate ALLETE Capital so that
ALLETE Capital will not be deemed to be an "investment company" required to be
registered under the Investment Company Act of 1940 or taxed as a corporation
for United States federal income tax purposes and so that the junior
subordinated debentures will be treated as indebtedness of ALLETE for United
States federal income tax purposes. In this regard, the administrative trustees
are authorized to take any action, not inconsistent with applicable law, the
certificate of trust or the trust agreement, that the administrative trustees
determine in their discretion to be necessary or desirable for those purposes,
as long as the action does not materially adversely affect the interests of the
holders of the preferred trust securities. (See Trust Agreement, Section
2.07(d).)
Governing Law. The trust agreement and the preferred trust securities will
be governed by, and construed in accordance with, the laws of the State of
Delaware. (See Trust Agreement, Section 10.05.)
Miscellaneous. Holders of the preferred trust securities have no preemptive
or similar rights.
30
DESCRIPTION OF THE GUARANTEE
General. Material terms of the guarantee that ALLETE will execute and
deliver for the benefit of the holders of the preferred trust securities are
summarized below. The following description of the guarantee is a summary and is
qualified by reference to the guarantee. The form of the guarantee is being
filed as an exhibit to the registration statement, and you should read the
guarantee for provisions that may be important to you. References to certain
sections of the guarantee are included in parentheses. Whenever particular
provisions or defined terms in the guarantee are referred to under this
"Description of the Guarantee," those provisions or defined terms are
incorporated by reference in this prospectus. The guarantee will be qualified
under the Trust Indenture Act of 1939. You should refer to the Trust Indenture
Act of 1939 for provisions that apply to the debt securities.
The Bank of New York will act as guarantee trustee under the guarantee. The
guarantee trustee will hold the guarantee for the benefit of the holders of the
preferred trust securities.
General Terms of the Guarantee. ALLETE will irrevocably and unconditionally
agree to make the guarantee payments listed below in full to the holders of the
preferred trust securities if they are not made by ALLETE Capital, as and when
due, regardless of any defense, right of set-off or counterclaim that ALLETE may
have or assert. The following payments will be subject to the guarantee (without
duplication):
o any accrued and unpaid distributions required to be paid on preferred
trust securities, to the extent ALLETE Capital has funds available
therefor;
o the redemption price, plus all accrued and unpaid distributions, for
any preferred trust securities called for redemption by ALLETE
Capital, to the extent ALLETE Capital has sufficient funds for
payments; and
o upon a voluntary or involuntary dissolution, winding-up or termination
of ALLETE Capital except in connection with the distribution of junior
subordinated debentures to the holders in exchange for preferred trust
securities as provided in the trust agreement or upon a redemption of
all of the preferred trust securities upon maturity or redemption of
the junior subordinated debentures as provided in the trust agreement,
the lesser of:
- the aggregate of the liquidation preference and all accrued and
unpaid distributions on preferred trust securities to the date of
payment, to the extent that ALLETE Capital has funds available
therefor; and
- the amount of assets of ALLETE Capital remaining available for
distribution to holders of preferred trust securities in
liquidation of ALLETE Capital.
ALLETE's obligation to make a guarantee payment may be satisfied by direct
payment of the required amounts by ALLETE to the holders of preferred trust
securities or by causing ALLETE Capital to pay those amounts to those holders.
(See Guarantee Agreement, Sections 1.01 and 5.01.)
The guarantee will be a guarantee with respect to the preferred trust
securities, but will not apply to any payment of distributions if and to the
extent that ALLETE Capital does not have funds available to make those payments
or to any collection of payment.
If ALLETE does not make interest payments on the junior subordinated
debentures held by ALLETE Capital, ALLETE Capital will not have funds available
to pay distributions on the preferred trust securities. The guarantee will rank
subordinate and junior in right of payment to all liabilities of ALLETE except
liabilities that are equal in right of payment by their terms. (See Guarantee
Agreement, Section 6.01.)
ALLETE will enter into an agreement as to expenses and liabilities with
ALLETE Capital, to provide funds to ALLETE Capital as needed to pay obligations
of ALLETE Capital to parties other than holders of preferred trust securities.
The junior subordinated debentures and the guarantee, together with the
obligations of ALLETE with respect to the preferred trust securities under the
31
subordinated indenture, the trust agreement, the guarantee and the agreement as
to expenses and liabilities, constitute a full and unconditional guarantee of
the preferred trust securities by ALLETE. No single document standing alone or
operating in conjunction with fewer than all of the other documents constitutes
that guarantee. It is only the combined operation of these documents that has
the effect of providing a full and unconditional guarantee by ALLETE of the
preferred trust securities.
Amendments and Assignment. No vote is required for changes to the guarantee
that do not materially adversely affect the rights of holders of preferred trust
securities. Other terms of the guarantee may be changed only with the prior
approval of the holders of the preferred trust securities having at least 66-2/3
percent of the total liquidation preference amount of the outstanding preferred
trust securities. (See Guarantee Agreement, Section 8.02.) All guarantees and
agreements contained in the guarantee will bind the successors, assigns,
receivers, trustees and representatives of ALLETE and will inure to the benefit
of the holders of the preferred trust securities then outstanding. (See
Guarantee Agreement, Section 8.01.)
If and to the extent described in the prospectus supplement, ALLETE may
assign its obligations under the guarantee. The terms and conditions and any
material United States federal income tax consequences of any permitted
assignment shall be described in the prospectus supplement relating to the
preferred trust securities.
Events of Default. An event of default under the guarantee will occur if
ALLETE fails to perform any of its payment obligations under the guarantee. The
holders of the preferred trust securities having a majority of the liquidation
preference of the preferred trust securities have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
guarantee trustee under the guarantee or to direct the exercise of any trust or
power conferred upon the guarantee trustee under the guarantee. (See Guarantee
Agreement, Section 5.04.)
If the guarantee trustee fails to enforce the guarantee, any holder of the
preferred trust securities may enforce the guarantee, or institute a legal
proceeding directly against ALLETE to enforce the guarantee trustee's rights
under the guarantee without first instituting a legal proceeding against ALLETE
Capital, the guarantee trustee or anyone else. (See Guarantee Agreement, Section
5.04.)
Annual Notice to Guarantee Trustee. ALLETE will be required to file
annually with the guarantee trustee an officer's certificate as to ALLETE's
compliance with all conditions under the guarantee. (See Guarantee Agreement,
Section 2.04.)
Information about the Guarantee Trustee. The guarantee trustee will
undertake to perform only those duties specifically set forth in the guarantee
until a default occurs. After a default under the guarantee, the guarantee
trustee must exercise the same degree of care in its duties as a prudent
individual would exercise in the conduct of his or her own affairs. (See
Guarantee Agreement, Section 3.01(b).) Otherwise, the guarantee trustee is under
no obligation to exercise any of the powers vested in it by the guarantee at the
request of any holder of the preferred trust securities unless it is offered
reasonable indemnity against the costs, expenses and liabilities that it might
incur. (See Guarantee Agreement, Section 3.01(c).)
The guarantee trustee under the guarantee will be The Bank of New York. In
addition to acting as guarantee trustee, The Bank of New York, as described in
this prospectus, also acts as trustee under the mortgage, property trustee under
the trust agreement, the debenture trustee under the subordinated indenture; The
Bank of New York (Delaware) acts as the Delaware trustee under the trust
agreement. The Bank of New York also acts, and may act, as trustee under various
other indentures, trusts and guarantees of ALLETE and its affiliates. ALLETE and
its affiliates maintain deposit accounts and conduct other banking transactions
with the guarantee trustee in the ordinary course of their businesses.
Termination of the Guarantee. The guarantee will terminate and be of no
further force and effect upon:
o full payment of the redemption price, plus accrued and unpaid
distributions, for all the preferred trust securities;
o the distribution of junior subordinated debentures to holders of the
preferred trust securities in exchange for all of the preferred trust
securities; or
32
o full payment of the amounts payable upon liquidation of ALLETE
Capital.
The guarantee will continue to be effective or will be reinstated, as the case
may be, if at any time any holder of preferred trust securities must restore
payment of any sums paid under the preferred trust securities or the guarantee.
(See Guarantee Agreement, Section 7.01.)
Status of the Guarantee. The guarantee will be an unsecured obligation of
ALLETE and will rank:
o subordinate and junior in right of payment to all liabilities of
ALLETE, except any liabilities that are equal in right of payment by
their terms;
o equal in right of payment with the most senior preferred stock that
may be issued by ALLETE and with any guarantee that may be entered
into by ALLETE in respect of any preferred stock of any affiliate of
ALLETE; and
o senior to ALLETE's common stock.
(See Guarantee Agreement, Section 6.01.)
The trust agreement provides that by accepting preferred trust securities,
a holder agrees to the subordination provisions and other terms of the
guarantee.
The guarantee will be a guarantee of payment and not of collection, that
is, the guaranteed party may institute a legal proceeding directly against
ALLETE to enforce its rights under the guarantee without first instituting a
legal proceeding against anyone else.
Governing Law. The guarantee will be governed by and construed in
accordance with the laws of the State of New York. (See Guarantee Agreement,
Section 8.06.)
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
General. The junior subordinated debentures which the property trustee will
hold on behalf of ALLETE Capital as trust assets will be subordinated
obligations of ALLETE. The junior subordinated debentures will be issued in one
or more series under a subordinated indenture ("subordinated indenture") between
ALLETE and The Bank of New York, as debenture trustee ("debenture trustee") with
respect to the junior subordinated debentures.
The following description of the junior subordinated debentures and the
subordinated indenture are summaries and are qualified by reference to the
subordinated indenture. The form of the subordinated indenture is being filed as
an exhibit to the registration statement, and you should read the subordinated
indenture for provisions that may be important to you. References to certain
sections of the subordinated indenture are included in parentheses. Whenever
particular provisions or defined terms in the subordinated indenture are
referred to under this "Description of Junior Subordinated Debentures," those
provisions or defined terms are incorporated by reference in this prospectus.
The subordinated indenture will be qualified under the Trust Indenture Act of
1939. You should refer to the Trust Indenture Act of 1939 for provisions that
apply to the junior subordinated debentures.
The subordinated indenture provides for the issuance of junior subordinated
debentures and other subordinated debt in an unlimited amount from time to time.
The junior subordinated debentures issued to ALLETE Capital will constitute a
separate series of junior subordinated debentures under the subordinated
indenture.
The prospectus supplement and an officer's certificate relating to the
junior subordinated debentures being offered will include specific terms
relating to that offering. These terms will include any of the following terms
that apply to that series:
o the title of the junior subordinated debentures;
33
o any limit upon the total principal amount of the junior subordinated
debentures;
o the date or dates on which the principal of the junior subordinated
debentures will be payable and how it will be paid;
o the rate or rates at which the junior subordinated debentures will
bear interest, or how the rate or rates will be determined;
o the date or dates from which interest on the junior subordinated
debentures will accrue, the interest payment dates on which interest
will be paid, and the record dates for such interest payments;
o any right to extend the interest payment periods for the junior
subordinated debentures;
o the percentage, if less than 100 percent, of the principal amount of
the junior subordinated debentures which will be payable if the
maturity of the junior subordinated debentures is accelerated;
o any date or dates on which, and the price or prices at which, the
junior subordinated debentures may be redeemed at the option of ALLETE
and any restrictions on such redemptions;
o any sinking fund or other provisions or options held by holders of
junior subordinated debentures that would obligate ALLETE to
repurchase or otherwise redeem the junior subordinated debentures;
o any changes or additions to the events of default under the
subordinated indenture or changes or additions to the covenants of
ALLETE under the subordinated indenture;
o if the junior subordinated debentures will be issued in denominations
other than $25 or a multiple thereof;
o if payments on the junior subordinated debentures may be made in a
currency or currencies other than United States dollars;
o any rights or duties of another person to assume the obligations of
ALLETE with respect to the junior subordinated debentures;
o any collateral, security, assurance or guarantee for the junior
subordinated debentures;
o any rights to change, or eliminate any provision under the
subordinated indenture or to add any new provision to the subordinated
indenture without the consent of the holders of the junior
subordinated debentures of such series; and
o any other terms of the junior subordinated debentures not inconsistent
with the terms of the subordinated indenture.
(See Subordinated Indenture, Section 301.)
The junior subordinated debentures of each series will be limited in total
principal amount to the sum of the aggregate liquidation preference amount of
the preferred trust securities and the consideration paid by ALLETE for the
common trust securities of ALLETE Capital. The junior subordinated debentures
are unsecured, subordinated obligations of ALLETE which rank junior to all of
ALLETE's Senior Indebtedness. (Subordinated Indenture, Section 1501.) Senior
Indebtedness is defined in the subordinated indenture to include all notes and
other obligations, including guarantees of ALLETE, for borrowed money that is
not subordinate or junior in right of payment to any other indebtedness of
ALLETE unless by its terms it is equal in right of payment to the junior
subordinated debentures. The obligations of ALLETE under the guarantee and the
junior subordinated debentures will not be deemed to be Senior Indebtedness.
(See Subordinated Indenture, Section 101.) The amounts payable as principal and
34
interest on the junior subordinated debentures will be sufficient to provide for
payment of distributions payable on preferred trust securities and common trust
securities.
If junior subordinated debentures are distributed to holders of preferred
trust securities in a dissolution of ALLETE Capital, the junior subordinated
debentures will be issued in fully registered certificated form in the
denominations and integral multiples of the denominations in which the preferred
trust securities have been issued, and they may be transferred or exchanged at
the offices of the debenture trustee. (See Subordinated Indenture, Section 201.)
Payment and Paying Agents. Except as may be provided in the prospectus
supplement, interest, if any, on each junior subordinated debenture payable on
each interest payment date will be paid to the person in whose name such junior
subordinated debenture is registered as of the close of business on the regular
record date for the interest payment date. However, interest payable at maturity
will be paid to the person to whom the principal is paid. If there has been a
default in the payment of interest on any junior subordinated debenture, the
defaulted interest may be paid to the holder of such junior subordinated
debenture as of the close of business on a date to be fixed by the debenture
trustee, which will be between 10 and 15 days prior to the date proposed by
ALLETE for payment of such defaulted interest or in any other manner permitted
by any securities exchange on which such junior subordinated debenture may be
listed, if the debenture trustee finds it practicable. (See Subordinated
Indenture, Section 307.)
Unless otherwise specified in the prospectus supplement, principal of, and
premium, if any, and interest on the junior subordinated debentures at maturity
will be payable upon presentation of the junior subordinated debentures at the
corporate trust office of the debenture trustee as Paying Agent for ALLETE.
ALLETE may change the place of payment on the junior subordinated debentures,
may appoint one or more additional Paying Agents, including ALLETE, and may
remove any Paying Agent, all at the discretion of ALLETE. (See Subordinated
Indenture, Section 602.)
Registration and Transfer. Unless otherwise specified in the prospectus
supplement, the transfer of junior subordinated debentures may be registered,
and junior subordinated debentures may be exchanged for other junior
subordinated debentures of the same series of authorized denominations and with
the same terms and principal amount, at the corporate trust office of the
debenture trustee. ALLETE may change the place for registration of transfer and
exchange of the junior subordinated debentures and may designate additional
places for such registration and exchange. Unless otherwise provided in the
prospectus supplement, no service charge will be made for any transfer or
exchange of the junior subordinated debentures. However, ALLETE may require
payment to cover any tax or other governmental charge that may be imposed.
ALLETE will not be required to execute or to provide for the registration of
transfer of, or the exchange of,
o any junior subordinated debenture during a period of 15 days prior to
giving any notice of redemption or
o any junior subordinated debenture selected for redemption except the
unredeemed portion of any junior subordinated debenture being redeemed
in part.
(See Subordinated Indenture, Section 305.)
Optional Redemption. For so long as ALLETE Capital is the holder of all the
related outstanding junior subordinated debentures, the proceeds of any optional
redemption will be used by ALLETE Capital to redeem preferred trust securities
and common trust securities in accordance with their terms.
The debenture trustee will give notice to the holders of any optional
redemption of junior subordinated debentures, not less than 30 nor more than 60
days prior to that redemption. All notices of redemption will state the
redemption date and the redemption price plus accrued and unpaid interest. If
less than all the junior subordinated debentures are to be redeemed, the notice
will identify those to be redeemed and the portion of the principal amount of
any junior subordinated debentures to be redeemed in part. The notice will state
that on the redemption date, subject to the debenture trustee's receipt of the
redemption monies, the redemption price plus accrued and unpaid interest will
become due and payable on each junior subordinated debenture to be redeemed and
that interest thereon will cease to accrue on and after that date. It will name
the place or places where the junior subordinated debentures are to be
35
surrendered for payment of the redemption price plus accrued and unpaid
interest. (See Subordinated Indenture, Section 4.04.)
Interest. The amount of interest payable for any period will be computed on
the basis of a 360-day year of twelve 30-day months and for any period shorter
than a full month, on the basis of the actual number of days elapsed. In the
event that any date on which interest is payable on the junior subordinated
debentures is not a business day, then payment will be made on the next business
day. No interest will be paid in respect of any such delay. However, if the
delayed payment date is in the next calendar year, the payment will be made on
the last business day of the earlier year. These payments will have the same
force and effect as if made on the date the payment was originally payable. (See
Subordinated Indenture, Section 113.)
Option to Extend Interest Payment Period. So long as there is no default in
the payment of interest on the junior subordinated debentures, ALLETE may extend
the interest payment period from time to time on the junior subordinated
debentures for one or more periods. As a consequence, distributions on preferred
trust securities would be deferred during any extension period. Interest would,
however, continue to accrue. If ALLETE extends the interest period or is in
default under the guarantee or with respect to payments on the junior
subordinated debentures, ALLETE may not:
o declare or pay any dividend or distribution on its capital stock,
other than dividends paid in shares of common stock of ALLETE;
o redeem, purchase, acquire or make a liquidation payment with respect
to any of its capital stock;
o redeem any indebtedness that is equal in right of payment with the
junior subordinated debentures; or
o make any guarantee payments with respect to any of the above.
(See Subordinated Indenture, Section 608.)
Any extension period with respect to payment of interest on the junior
subordinated debentures, or any extended interest payment period in respect of
other securities issued under the subordinated indenture or on any similar
securities, will apply to all securities of the same type. Those extensions will
also apply to distributions on preferred trust securities and common trust
securities and all other securities with terms substantially the same as
preferred trust securities and common trust securities. Before an extension
period ends, ALLETE may further extend the interest payment period. No extension
period as further extended may exceed 20 consecutive quarters. After any
extension period and the payment of all amounts then due, ALLETE may select a
new extension period. No interest period may be extended beyond the maturity of
the junior subordinated debentures. ALLETE will give ALLETE Capital and the
debenture trustee notice of its election of an extension period prior to the
earlier of
o one business day before the record date for the distribution which
would occur if ALLETE did not make the election to extend or
o the date ALLETE is required to give notice to the New York Stock
Exchange or any other applicable self-regulatory organization of the
record date. ALLETE will cause ALLETE Capital to send notice of that
election to the holders of preferred trust securities.
Additional Interest. So long as any preferred trust securities remain
outstanding, if ALLETE Capital is required to pay any taxes, duties, assessments
or governmental charges imposed by the United States or any other taxing
authority on income derived from the interest payments on the junior
subordinated debentures, then ALLETE will pay as interest on the junior
subordinated debentures any additional interest that may be necessary in order
that the net amounts retained by ALLETE Capital after the payment of those
taxes, duties, assessments or governmental charges will be the same as ALLETE
Capital would have had in the absence of the payment of those taxes, duties,
assessments or governmental charges. (See Subordinated Indenture, Section 312.)
36
Assignment of Obligations. If and to the extent described in the prospectus
supplement, ALLETE may assign its obligations under the junior subordinated
debentures and the subordinated indenture. The terms and conditions and any
material United States federal income tax consequences of any permitted
assignment shall be described in the prospectus supplement relating to the
preferred trust securities.
Satisfaction and Discharge. ALLETE will be discharged from its obligations
on the junior subordinated debentures of a particular series, or any portion
thereof of the principal amount of the junior subordinated debentures of such
series, if it irrevocably deposits with the debenture trustee sufficient cash or
government securities to pay the principal, interest, any premium and any other
sums when due on the junior subordinated debentures of such series at their
stated maturity date or a redemption date. (See Subordinated Indenture, Section
701.)
The subordinated indenture will be deemed satisfied and discharged when no
junior subordinated debentures remain outstanding and when ALLETE has paid all
other sums payable by ALLETE under the subordinated indenture. (See Indenture,
Section 702.)
All moneys ALLETE pays to the debenture trustee or any Paying Agent on the
junior subordinated debentures which remain unclaimed at the end of two years
after payments have become due will be paid to or upon the order of ALLETE.
Thereafter, the holder of such junior subordinated debenture may look only to
ALLETE for payment thereof. (See Subordinated Indenture, Section 603.)
Subordination. The junior subordinated debentures will be subordinate and
junior in right of payment to all Senior Indebtedness of ALLETE. (See
Subordinated Indenture, Section 1501.) No payment of the principal of the junior
subordinated debentures (including redemption and sinking fund payments), or
interest on the junior subordinated debentures may be made until all holders of
Senior Indebtedness have been paid, if any of the following occurs:
o specified events of bankruptcy, insolvency or reorganization of
ALLETE;
o any Senior Indebtedness is not paid when due and that default
continues without waiver;
o any other default has occurred and continues without waiver pursuant
to which the holders of Senior Indebtedness have accelerated the
maturity of the indebtedness; or
o the maturity of any other series of junior subordinated debentures
under the subordinated indenture has been accelerated, because of an
event of default under the subordinated indenture which remains
uncured.
(See Subordinated Indenture, Section 1501.)
Upon any distribution of assets of ALLETE to creditors in connection with
any insolvency, bankruptcy or similar proceeding, all principal of, and premium,
if any, and interest due or to become due on all Senior Indebtedness must be
paid in full before the holders of the junior subordinated debentures are
entitled to receive or retain any payment. (See Subordinated Indenture, Section
1504.)
The subordinated indenture does not limit the aggregate amount of Senior
Indebtedness that may be issued. As of February 28, 2001 ALLETE had
approximately $1.3 billion principal amount of indebtedness for borrowed money
constituting Senior Indebtedness.
Consolidation, Merger, and Sale of Assets. Under the terms of the
subordinated indenture, ALLETE may not consolidate with or merge into any other
entity or convey, transfer or lease its properties and assets substantially as
an entirety to any entity, unless:
o the surviving or successor entity is organized and validly existing
under the laws of any domestic jurisdiction and it expressly assumes
ALLETE's obligations on all junior subordinated debentures and under
the subordinated indenture;
37
o immediately after giving effect to the transaction, no event of
default under the subordinated indenture or no event which, after
notice or lapse of time or both, would become an event of default
under the subordinated indenture, shall have occurred and be
continuing; and
o ALLETE shall have delivered to the debenture trustee an officer's
certificate and an opinion of counsel as provided in the subordinated
indenture.
The terms of the subordinated indenture do not restrict ALLETE in a merger
in which ALLETE is the surviving entity. (See Subordinated Indenture, Section
1101.)
Events of Default. The term "event of default", when used in the
subordinated indenture with respect to any series of junior subordinated
debentures, means any of the following:
o failure to pay interest, if any, on any junior subordinated debenture
for 30 days after it is due;
o failure to pay the principal of or premium, if any, on any junior
subordinated debenture when due;
o failure to perform any other covenant in the subordinated indenture,
other than a covenant that does not relate to that series of junior
subordinated debentures, that continues for 90 days after ALLETE
receives written notice from the debenture trustee or ALLETE and the
debenture trustee receives a written notice from 33 percent of the
holders of the junior subordinated debentures of that series; however,
the debenture trustee or the debenture trustee and the holders of such
principal amount of junior subordinated debentures of this series can
agree to an extension of the 90 day period and such an agreement to
extend will be automatically deemed to occur if ALLETE is diligently
pursuing action to correct the default;
o certain events in bankruptcy, insolvency or reorganization of ALLETE;
or
o any other event of default included in any supplemental indenture or
officer's certificate for that series of junior subordinated
debentures.
(See Subordinated Indenture, Section 801.)
The debenture trustee may withhold notice to the holders of junior
subordinated debentures of any default except, a default in the payment of
principal, premium or interest, if it considers such withholding of notice to be
in the interests of the holders. An event of default under the subordinated
indenture for a particular series of junior subordinated debentures does not
necessarily constitute an event of default for any other series of junior
subordinated debentures issued under the subordinated indenture.
Remedies.
Acceleration of Maturity. If an event of default under the subordinated
indenture with respect to fewer than all the series of junior subordinated
debentures occurs and continues, either the debenture trustee or the holders of
at least 33 percent in principal amount of the junior subordinated debentures of
any such series may declare the entire principal amount of all the junior
subordinated debentures of such series, together with accrued interest, to be
due and payable immediately. However, if the event of default is applicable to
all outstanding junior subordinated debentures under the subordinated indenture,
only the debenture trustee or holders of at least 33 percent in principal amount
of all outstanding junior subordinated debentures of all series, voting as one
class, and not the holders of any one series, may make that declaration of
acceleration.
At any time after a declaration of acceleration with respect to the junior
subordinated debentures of any series has been made and before a judgment or
decree for payment of the money due has been obtained, the event of default
under the subordinated indenture giving rise to such declaration of acceleration
will be considered waived, and the declaration and its consequences will be
considered rescinded and annulled, if:
o ALLETE has paid or deposited with the debenture trustee a sum
sufficient to pay:
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- all overdue interest, if any, on all junior subordinated
debentures of the series;
- the principal of and premium, if any, on any junior subordinated
debentures of the series which have otherwise become due and
interest, if any, that is currently due;
- interest, if any, on overdue interest; or
- all amounts due to the debenture trustee under the subordinated
indenture; and
o any other event of default with respect to the junior subordinated
debentures of that series has been cured or waived as provided in the
subordinated indenture.
There is no automatic acceleration, even in the event of bankruptcy, insolvency
or reorganization of ALLETE. (See Subordinated Indenture, Section 802.)
Right to Direct Proceedings. Other than its duties in case of an event of
default under the subordinated indenture, the debenture trustee is not obligated
to exercise any of its rights or powers under the subordinated indenture at the
request, order or direction of any of the holders, unless the holders offer the
debenture trustee a reasonable indemnity. (See Subordinated Indenture, Section
903). If they provide this reasonable indemnity, the holders of a majority in
principal amount of any series of junior subordinated debentures will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the debenture trustee, or exercising any power conferred
upon the debenture trustee. However, if the event of default under the
subordinated indenture relates to more than one series, only the holders of a
majority in aggregate principal amount of all affected series, voting as one
class, will have the right to give this direction. The debenture trustee is not
obligated to comply with directions that conflict with law or other provisions
of the subordinated indenture. (See Subordinated Indenture, Section 812.)
Limitation on Right to Institute Proceedings. No holder of junior
subordinated debentures of any series will have any right to institute any
proceeding under the subordinated indenture, or to exercise any remedy under the
subordinated indenture, unless:
o the holder has previously given to the debenture trustee written
notice of a continuing event of default under the subordinated
indenture;
o the holders of a majority in aggregate principal amount of the
outstanding junior subordinated debentures of all series in respect of
which an event of default under the subordinated indenture will have
occurred and be continuing have made a written request to the
debenture trustee, and have offered reasonable indemnity to the
debenture trustee to institute proceedings; and
o the debenture trustee has failed to institute any proceeding for 60
days after notice and has not received any direction inconsistent with
the written request of holders during such period.
(See Subordinated Indenture, Section 807.)
No Impairment to Right to Receive Payment. However, the limitations
described in the preceding paragraph, do not apply to a suit by a holder of a
junior subordinated debenture for payment of the principal of or premium, if
any, or interest on a subordinated junior debenture on or after the applicable
due date. (See Subordinated Indenture, Section 808.)
Annual Notice to Debenture Trustee. ALLETE will provide to the debenture
trustee an annual statement by an appropriate officer as to ALLETE's compliance
with all conditions and covenants under the subordinated indenture. (See
Subordinated Indenture, Section 606.)
Enforcement of Certain Rights by Holders of Preferred Trust Securities. If
there is an event of default under the subordinated indenture, then the holders
of preferred trust securities will rely on the property trustee or the debenture
39
trustee, acting for the benefit of the property trustee, to enforce the property
trustee's rights against ALLETE as a holder of the junior subordinated
debentures. However, a holder of preferred trust securities may enforce the
subordinated indenture directly against ALLETE to the same extent as if the
holder of preferred trust securities held a principal amount of junior
subordinated debentures equal to the aggregate liquidation preference amount of
its preferred trust securities. (See Subordinated Indenture, Section 610.)
The holders of preferred trust securities would not be able to exercise
directly against ALLETE any other rights unless the property trustee or the
debenture trustee failed to do so for 60 days. Upon that failure, the holders of
a majority of the aggregate liquidation amount of the outstanding preferred
trust securities would have the right to directly institute proceedings for
enforcement of all other rights against ALLETE to the fullest extent permitted
by law. (See Subordinated Indenture, Section 807.)
Modification and Waiver. ALLETE and the debenture trustee may enter into
one or more supplemental indentures, without the consent of any holder of junior
subordinated debentures, for any of the following purposes:
o to evidence the assumption by any permitted successor of the covenants
of ALLETE in the subordinated indenture and in the junior subordinated
debentures;
o to add additional covenants of ALLETE or to surrender any right or
power of ALLETE under the subordinated indenture;
o to add additional events of default;
o to change, eliminate or add any provision to the subordinated
indenture; provided, however, if the change, elimination or addition
will adversely affect in any material respect the interests of the
holders of junior subordinated debentures of any series, other than
any series the terms of which permit such change, elimination or
addition, such change, elimination or addition will become effective
as to such series only:
- when the consent of the holders of junior subordinated debentures
of such series has been obtained in accordance with the
subordinated indenture; or
- when no junior subordinated debentures of such series remain
outstanding under the subordinated indenture;
o to provide collateral security for all but not part of the junior
subordinated debentures;
o to establish the form or terms of junior subordinated debentures of
any other series as permitted by the subordinated indenture;
o to provide for the authentication and delivery of bearer securities
and coupons attached thereto;
o to evidence and provide for the acceptance of appointment of a
successor debenture trustee;
o to provide for the procedures required for use of a noncertificated
system of registration for the junior subordinated debentures of all
or any series;
o to change any place where principal, premium, if any, and interest
shall be payable, junior subordinated debentures may be surrendered
for registration of transfer or exchange and notices to ALLETE may be
served; or
o to cure any ambiguity or inconsistency or to make any other changes to
the provisions of the subordinated indenture or to add other
provisions with respect to matters and questions arising under the
subordinated indenture, provided that such other changes or additions
shall not adversely affect the interests of the holders of junior
subordinated debentures of any series in any material respect.
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(See Subordinated Indenture, Section 1201.)
The holders of at least a majority in aggregate principal amount of the
junior subordinated debentures of all series then outstanding may waive
compliance by ALLETE with certain restrictive provisions of the subordinated
indenture. (See Subordinated Indenture, Section 607). The holders of not less
than a majority in principal amount of the outstanding junior subordinated
debentures of any series may waive any past default under the subordinated
indenture with respect to that series, except a default in the payment of
principal, premium, if any, or interest and certain covenants and provisions of
the subordinated indenture that cannot be modified or be amended without the
consent of the holder of each outstanding junior subordinated debenture of the
series affected. (Subordinated Indenture, Section 813.)
If the Trust Indenture Act of 1939 is amended after the date of the
subordinated indenture in such a way as to require changes to the subordinated
indenture, the subordinated indenture will be deemed to be amended so as to
conform to such amendment of the Trust Indenture Act of 1939. ALLETE and the
debenture trustee may, without the consent of any holders, enter into one or
more supplemental indentures to evidence the amendment. (See Subordinated
Indenture, Section 1201.)
The consent of the holders of a majority in aggregate principal amount of
the junior subordinated debentures of all series then outstanding is required
for all other modifications to the subordinated indenture. However, if less than
all of the series of junior subordinated debentures outstanding are directly
affected by a proposed supplemental indenture, then the consent only of the
holders of a majority in aggregate principal amount of all series that are
directly affected will be required. No such amendment or modification may:
o change the stated maturity of the principal of, or any installment of
principal of or interest on, any junior subordinated debenture, or
reduce the principal amount of any junior subordinated debenture or
its rate of interest or change the method of calculating such interest
rate or reduce any premium payable upon redemption, or change the
currency in which payments are made, or impair the right to institute
suit for the enforcement of any payment on or after the stated
maturity of any junior subordinated debenture, without the consent of
the holder;
o reduce the percentage in principal amount of the outstanding junior
subordinated debentures of any series whose consent is required for
any supplemental indenture or any waiver of compliance with a
provision of the subordinated indenture or any default thereunder and
its consequences, or reduce the requirements for quorum or voting,
without the consent of all the holders of the series; or
o modify certain of the provisions of the subordinated indenture
relating to supplemental indentures, waivers of certain covenants and
waivers of past defaults with respect to the junior subordinated
debentures of any series, without the consent of the holder of each
outstanding junior subordinated debenture affected by them.
(See Subordinated Indenture, Section 1202.)
A supplemental indenture that changes the subordinated indenture solely for
the benefit of one or more particular series of junior subordinated debentures,
or modifies the rights of the holders of junior subordinated debentures of one
or more series, will not affect the rights under the subordinated indenture of
the holders of the junior subordinated debentures of any other series. So long
as any preferred trust securities remain outstanding, the debenture trustee may
not consent to a supplemental indenture without the prior consent of the holders
of a majority in aggregate liquidation preference of all preferred trust
securities or, in the case of changes described in the clauses immediately
above, 100 percent in aggregate liquidation preference of all such preferred
trust securities then outstanding which would be affected. (See Subordinated
Indenture, Section 1202.)
The subordinated indenture provides that junior subordinated debentures
owned by ALLETE or anyone else required to make payments on the junior
subordinated debentures shall be disregarded and considered not to be
outstanding in determining whether the required holders have given a request or
consent. (See Subordinated Indenture, Section 101.)
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ALLETE may fix in advance a record date to determine the required number of
holders entitled to give any request, demand, authorization, direction, notice,
consent, waiver or other such act of holders, but ALLETE shall have no
obligation to do so. If such record date is fixed, such request, demand,
authorization, direction, notice, consent, waiver or other act of the holders
may be given before or after such record date, but only the holders of record at
the close of business on record date will be considered holders for the purposes
of determining whether holders of the required percentage of the outstanding
junior subordinated debentures have authorized or agreed or consented to such
request, demand, authorization, direction, notice, consent, waiver or other act
of the holders. For that purpose, the outstanding junior subordinated debentures
shall be computed as of the record date. Any request, demand, authorization,
direction, notice, consent, election, waiver or other act of a holder shall bind
every future holder of the same junior subordinated debenture and the holder of
every junior subordinated debenture issued upon the registration of transfer of
or in exchange of such junior subordinated debentures. A transferee will be
bound by acts of the debenture trustee or ALLETE taken in reliance thereon,
whether or not notation of such action is made upon such junior subordinated
debenture. (See Subordinated Indenture, Section 104.)
Resignation of the Debenture Trustee. The debenture trustee may resign at
any time by giving written notice to ALLETE or may be removed at any time by act
of the holders of a majority in principal amount of all series of junior
subordinated debentures then outstanding delivered to the debenture trustee and
ALLETE. No resignation or removal of the debenture trustee and no appointment of
a successor trustee will be effective until the acceptance of appointment by a
successor debenture trustee. So long as no event of default under the
subordinated indenture or event which, after notice or lapse of time, or both,
would become an event of default under the subordinated indenture has occurred
and is continuing and except with respect to a debenture trustee appointed by
act of the holders, if ALLETE has delivered to the debenture trustee a
resolution of its Board of Directors appointing a successor debenture trustee
and the successor has accepted such appointment in accordance with the terms of
the subordinated indenture, the debenture trustee will be deemed to have
resigned and the successor will be deemed to have been appointed as trustee in
accordance with the subordinated indenture (See Subordinated Indenture, Section
910).
Notices. Notices to holders of junior subordinated debentures will be given
by mail to the addresses of the holders as they may appear in the security
register. (See Subordinated Indenture, Section 106.)
Title. ALLETE, the debenture trustee, and any agent of ALLETE or the
debenture trustee, may treat the person in whose name junior subordinated
debentures are registered as the absolute owner thereof, whether or not such
junior subordinated debentures may be overdue, for the purpose of making
payments and for all other purposes irrespective of notice to the contrary. (See
Subordinated Indenture, Section 308.)
Governing Law. The subordinated indenture and the junior subordinated
debentures will be governed by, and construed in accordance with, the laws of
the State of New York. (See Subordinated Indenture, Section 112.)
Information about the Debenture Trustee. The debenture trustee under the
subordinated indenture will be The Bank of New York. In addition to acting as
debenture trustee, The Bank of New York, as described in this prospectus, also
acts as trustee under the mortgage, property trustee under the trust agreement
and the guarantee trustee under the guarantee; The Bank of New York (Delaware)
acts as the Delaware trustee under the trust agreement. The Bank of New York
acts, and may act, as trustee under various other indentures, trusts and
guarantees of ALLETE and its affiliates. ALLETE and its affiliates maintain
deposit accounts and conduct other banking transactions with the debenture
trustee in the ordinary course of their business.
PLAN OF DISTRIBUTION
ALLETE and ALLETE Capital may sell the securities:
o through underwriters or dealers;
o through agents; or
o directly to one or more purchasers.
42
Through Underwriters or Dealers. If ALLETE and ALLETE Capital use
underwriters in the sale, the underwriters will acquire the securities for their
own account. The underwriters may resell the securities in one or more
transactions, including negotiated transactions, at a fixed public offering
price or at varying prices determined at the time of sale. The underwriters may
sell the securities directly or through underwriting syndicates represented by
managing underwriters. Unless otherwise stated in the prospectus supplement
relating to any of the securities, the obligations of the underwriters to
purchase the securities will be subject to certain conditions, and the
underwriters will be obligated to purchase all of the securities if they
purchase any of them. If ALLETE and ALLETE Capital use a dealer in the sale,
ALLETE and ALLETE Capital will sell the securities to the dealer as principal.
The dealer may then resell those securities at varying prices determined at the
time of resale.
Any initial public offering price and any discounts or concessions allowed
or reallowed or paid to dealers may be changed from time to time.
Through Agents. ALLETE and ALLETE Capital may designate one or more agents
to sell the securities. Unless stated in a prospectus supplement, the agents
will agree to use their best efforts to solicit purchases for the period of
their appointment.
Directly. ALLETE and ALLETE Capital may sell the securities directly to one
or more purchasers. In this case, no underwriters, dealers or agents would be
involved.
General Information. A prospectus supplement will state the name of any
underwriter, dealer or agent and the amount of any compensation, underwriting
discounts or concessions paid, allowed or reallowed to them. A prospectus
supplement will also state the proceeds to ALLETE and ALLETE Capital from the
sale of the securities, any initial public offering price and other terms of the
offering of the securities.
ALLETE and ALLETE Capital may authorize agents, underwriters or dealers to
solicit offers by certain institutions to purchase the securities from ALLETE
and ALLETE Capital at the public offering price and on terms described in the
related prospectus supplement pursuant to delayed delivery contracts providing
for payment and delivery on a specified date in the future.
ALLETE and ALLETE Capital may have agreements to indemnify agents,
underwriters and dealers against certain civil liabilities, including
liabilities under the Securities Act of 1933.
EXPERTS
The consolidated financial statements incorporated in this prospectus by
reference to ALLETE's Annual Report on Form 10-K for the year ended December 31,
2000 have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
Legal conclusions and opinions specifically attributed to General Counsel
herein under "Description of First Mortgage Bonds", the statements as to matters
of law and legal conclusions under "Description of Common Stock" and in the
documents incorporated in this prospectus by reference have been reviewed by
Philip R. Halverson, Esq., Duluth, Minnesota, Vice President, General Counsel
and Secretary of ALLETE, and are set forth or incorporated by reference herein
in reliance upon his opinion given upon his authority as an expert.
As of March 1, 2001, Mr. Halverson owned 23,220 shares of common stock of
ALLETE. Mr. Halverson is acquiring additional shares of ALLETE common stock at
regular intervals as a participant in the Employee Stock Ownership Plan and
Supplemental Retirement Plan. Under the Executive Long-Term Incentive
Compensation Plan, Mr. Halverson has:
o been granted options to purchase 45,432 shares of ALLETE common stock,
of which 33,684 options are fully vested, the remainder of which shall
vest over the next two years, and all of which will expire ten years
from the date of grant;
43
o earned approximately 461 performance shares that have not yet been
paid out under the terms of this Plan; and
o an award opportunity for up to 7,538 additional performance shares
contingent upon the attainment of certain performance goals of ALLETE
for the period January 1, 2000 through December 31, 2001.
LEGAL OPINIONS
Certain matters of Delaware law relating to the validity of the preferred
trust securities, the enforceability of the trust agreement and the creation of
ALLETE Capital are being passed upon by Richards, Layton & Finger, P.A., special
Delaware counsel for ALLETE and ALLETE Capital. The legality of the other
securities will be passed upon for ALLETE by Mr. Halverson and by Thelen Reid &
Priest LLP, New York, New York, counsel for ALLETE, and for any underwriter,
dealer or agent by Morrison Cohen Singer & Weinstein, LLP, New York, New York.
-------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT. ALLETE HAS NOT
AUTHORIZED ANYONE ELSE TO PROVIDE YOU WITH DIFFERENT INFORMATION. ALLETE IS NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER IS NOT
PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS OR ANY
PROSPECTUS SUPPLEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE
FRONT OF THOSE DOCUMENTS.
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