Information contained herein is subject to completion or
amendment. This prospectus shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any
sale of these securities in any jurisdiction in which such offer,
solicitation, or sale would be unlawful prior to registration or
qualification under the securities laws of any such jurisdiction.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED SEPTEMBER 10, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MAY 18, 1998)
2,000,000 SHARES
MINNESOTA POWER, INC.
COMMON STOCK
---------------
Outstanding shares of Common Stock, without par value, and the
preferred share purchase rights attached thereto ("Common
Stock"), of Minnesota Power, Inc. ("Company") are, and the shares
of Common Stock offered hereby ("Offered Stock") will be, listed
on the New York Stock Exchange (Symbol: MPL). The last reported
sale price of the Common Stock on the New York Stock Exchange on
September 9, 1998 was $42 7/16 per share. See "Dividends and
Price Range."
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
====================================================================
Underwriting Proceeds
Price to Discounts and to
Public Commissions(1) Company(2)
--------------------------------------------------------------------
Per Share . . . . . $ $ $
--------------------------------------------------------------------
Total . . . . . . . $ $ $
--------------------------------------------------------------------
Total Assuming Full
Exercise of
Over-Allotment
Option (3) . . . . $ $ $
====================================================================
(1) See "Underwriting."
(2) Before deducting expenses payable by the Company estimated
at $185,000.
(3) Assuming exercise in full of the 30-day option granted by
the Company to the Underwriters to purchase up to an
additional 300,000 shares of Common Stock, on the same
terms, solely to cover over-allotments. See "Underwriting."
---------------
The shares of Offered Stock are offered by the Underwriters,
subject to prior sale, when, as and if delivered to and accepted
by the Underwriters, and subject to their right to reject orders
in whole or in part. It is expected that delivery of the Offered
Stock will be made in New York City on or about
, 1998.
---------------
PAINEWEBBER INCORPORATED
ROBERT W. BAIRD & CO.
INCORPORATED
JANNEY MONTGOMERY SCOTT INC.
---------------
The date of this Prospectus Supplement is , 1998.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE
PRICE OF THE COMMON STOCK OF THE COMPANY INCLUDING OVER-
ALLOTMENT, STABILIZING AND SHORT COVERING TRANSACTIONS IN THE
COMMON STOCK, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION
WITH THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING".
SELECTED INFORMATION
The following material, which is presented herein solely to
furnish limited introductory information, is qualified in its
entirety by, and should be considered in conjunction with, the
information appearing elsewhere in this Prospectus Supplement,
the accompanying Prospectus and in the Incorporated Documents.
THE COMPANY
The Company is a broadly diversified service company with
operations in four distinct business segments. The Company has
7,000 employees and operates in 36 states and six Canadian
provinces.
. ELECTRIC OPERATIONS provide electricity to
141,000 customers in northeastern Minnesota and northwest
Wisconsin, and in 1997 had the second lowest average cost of
electricity to retail customers in the United States. Industrial
customers contributed approximately one half of 1997 electric
operating revenue and income. The Company's large power
customers include: five taconite producers (taconite is the raw
material used in the production of steel), four pulp and paper
mills, and two pipeline companies. Long-term contracts with the
Company's large power customers have termination dates ranging
from April 2001 to December 2008. The Company's MPEX division
markets low-cost wholesale electricity across the Midwest.
Electric Operations also sell water and natural gas in Wisconsin,
and own BNI Coal, Ltd., a North Dakota coal mine.
. WATER SERVICES include Florida Water Services
Corporation, which is the largest investor owned water supplier
in Florida, and Heater Utilities, Inc., located in North
Carolina. Together these two wholly owned subsidiaries provide
water and wastewater services to over 200,000 customers. Water
Services also include three non-regulated water businesses which
provide predictive maintenance, instrumentation consulting, and
contract management and operations services.
. AUTOMOTIVE SERVICES include three wholly
owned subsidiaries operating as integral parts of the vehicle
auction business.
. ADESA Corporation is tied for second place in
the United States in terms of vehicle auction network size.
ADESA owns and operates 28 vehicle auction facilities in the
United States and Canada through which used cars and other
vehicles are purchased by franchised automobile dealers and
licensed used car dealers. Sellers at ADESA's auctions include
domestic and foreign auto manufacturers, car dealers, fleet/lease
companies, banks and finance companies. ADESA does not generally
take ownership of vehicles, but specializes in bringing together
wholesale buyers and sellers.
. Automotive Finance Corporation provides
inventory financing for wholesale and retail automobile dealers
who purchase vehicles from ADESA auctions, independent auctions
and other auction chains. AFC has 84 loan production offices
located at most ADESA and ADT Automotive, Inc. auctions, as well
as at or near other independently owned auto auctions.
S-2
<PAGE>
. Great Rigs Incorporated is one of the nation's
largest independent used automobile transport carriers with 153
leased automotive carriers and 13 strategically located
transportation hubs. Customers of Great Rigs include ADESA
auctions, car dealerships, vehicle manufacturers, leasing
companies, finance companies and other auctions.
. INVESTMENTS include:
. a $190 million securities portfolio at June 30, 1998;
. a 21 percent ownership interest in Capital Re
Corporation, a New York Stock Exchange listed company engaged in
the specialty insurance and reinsurance business, which interest
consists of 6.5 million shares of Capital Re common stock with a
market value of $234 million at June 30, 1998; and
. an 80 percent ownership interest in Lehigh
Acquisition Corporation, a Florida real estate company which owns
1,600 acres of land and approximately 800 home sites near Fort
Myers, Florida; 900 home sites in Citrus County, Florida; and
2,400 home sites and 11,400 acres of residential, commercial and
industrial land at Palm Coast, Florida.
THE OFFERING
Securities Offered by the
Company (*) . . . . . . . . . 2,000,000 shares of Common
Stock, without par value,
and the preferred share
purchase rights attached
thereto.
Indicated Current Annual
Dividend Rate . . . . . . . . $2.04 per share
1996-1998 Price Range (through
September 9, 1998) . . . . . $26 - $44
Shares Outstanding at August
31, 1998 . . . . . . . . . . 33,879,967
Listed . . . . . . . . . . . New York Stock Exchange
(Symbol: MPL)
Use of Proceeds . . . . . . . Net proceeds will be used
to repay outstanding
commercial paper, to fund
the upcoming acquisition of
Palm Coast Utility
Corporation and for general
corporate purposes,
including capital
expenditures.
------------------
(*) Assumes the Underwriters' over-allotment
option is not exercised.
S-3
<PAGE>
SUMMARY FINANCIAL INFORMATION
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30
-----------------------
1998 1997
---------------------------------------------------------
Operating Revenue and Income
Electric Operations . . . . . $274.8 $261.1
Water Services . . . . . . . 45.7 43.1
Automotive Services . . . . . 161.5 124.9
Investments . . . . . . . . . 33.9 23.4
------ ------
$515.9 $452.5
====== ======
Net Income
Electric Operations . . . . . $ 19.2 $ 22.3
Water Services . . . . . . . 3.5 2.7
Automotive Services . . . . . 13.9 7.4
Investments . . . . . . . . . 15.9 12.2
Corporate Charges . . . . . . (11.2) (9.8)
------ ------
$ 41.3 $ 34.8
====== ======
-----------------------------------------------------------
Basic and Diluted
Earnings Per Share of Common $1.29 $1.12
Stock . . . . . . . . . . . .
Average Shares of Common Stock 31.2 30.4
-----------------------------------------------------------
AS OF JUNE 30, 1998
--------------------------------
ACTUAL ADJUSTED(*)
------ --------------------
Capitalization:
Common stock equity . . . . . . . .$ 673.3 $ %
Preferred stock not subject to
mandatory redemption . . . . . . . 11.5 11.5
Preferred stock subject to
mandatory redemption . . . . . . . 20.0 20.0
Company obligated mandatorily
redeemable preferred
securities of MP&L Capital I which
holds solely Company Junior
Subordinated Debentures . . . . . 75.0 75.0
Long-term debt . . . . . . . . . . 681.9 681.9
------- ------- ------
Total capitalization (excluding
current maturities) . . . . . . .$1,461.7 $ 100.0%
======= ======= ======
-------------------------
(*) Adjusted to give effect to the sale of the Offered
Stock (assuming that the Underwriters' over-allotment
option is not exercised).
S-4
<PAGE>
USE OF PROCEEDS
The Company intends to use the net proceeds to be received
from the issuance and sale of the Offered Stock to repay
outstanding commercial paper, to fund the upcoming acquisition of
Palm Coast Utility Corporation and for general corporate
purposes, including capital expenditures. Net proceeds not
immediately used for the above purposes will be invested in the
Company's securities portfolio.
LEGAL OPINIONS
The legality of the Offered Stock will be passed upon for
the Company by Philip R. Halverson, Esq., Duluth, Minnesota, Vice
President, General Counsel and Secretary for the Company, and by
Thelen Reid & Priest LLP, New York, New York, counsel for the
Company, 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.
UNDERWRITING
The Underwriters have severally agreed to purchase the
respective numbers of shares of Offered Stock indicated below
from the Company, subject to the terms and conditions set forth
in an Underwriting Agreement dated September , 1998.
---
NUMBER OF
UNDERWRITER FIRM SHARES
----------- -----------
PaineWebber Incorporated . . . . . . . . 1,200,000
Robert W. Baird & Co. Incorporated . . . 400,000
Janney Montgomery Scott Inc. . . . . . . 400,000
---------
Total . . . . . . . . . . . . . . . 2,000,000
=========
The Company has granted to the Underwriters an option,
exercisable within 30 days after the date of this Prospectus, to
purchase up to 300,000 additional shares of Common Stock solely
for the purpose of covering over-allotments, if any, at the
public offering price less the underwriting discounts and
commissions set forth on the cover page hereof. If the
Underwriters exercise this option, each Underwriter will be
committed, subject to certain conditions, to purchase an
additional number of shares of Common Stock proportionate to such
Underwriter's initial commitment.
The Offered Stock is offered subject to prior sale, when, as
and if issued by the Company and accepted by the Underwriters, to
the public at the initial offering price set forth on the cover
page hereof and to certain dealers at such price less a
concession not exceeding per share. Underwriters and dealers
---
may reallow to certain other dealers a discount not exceeding
---
per share. After the initial public offering, the public
offering price and concessions and discounts to dealers may be
changed by the Underwriters.
The Underwriting Agreement provides that the Company will
indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended.
In connection with this offering, the Underwriters may
purchase and sell shares of the Company's Common Stock in the
open market. These transactions may include over-allotment and
stabilizing transactions and purchases to cover syndicate short
positions created in connection with this offering. Stabilizing
transactions consist of certain bids or purchases for the purpose
of preventing or retarding a decline in the market price of the
Common Stock; and syndicate short positions involve the sale by
the Underwriters of a greater number of shares of Common Stock
than they are required to purchase from the Company in this
offering. The Underwriters also may impose a penalty bid,
whereby selling concessions allowed to syndicate members or other
broker-dealers in respect of the shares of Common Stock sold in
this offering for their account, may be reclaimed by the
syndicate if such shares of Common Stock are repurchased by the
syndicate in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market
price of the Common Stock, which may be higher than the price
that might otherwise prevail in the open market; and these
activities, if commenced, may be discontinued at any time. These
transactions may be effected on the New York Stock Exchange or
otherwise.
S-5
<PAGE>
PROSPECTUS
----------
3,000,000 SHARES
MINNESOTA POWER, INC.
COMMON STOCK
(WITHOUT PAR VALUE)
----------------
Minnesota Power, Inc. ("Company" or "Minnesota Power")
intends to offer from time to time not to exceed 3,000,000 shares
of its Common Stock, without par value ("Common Stock"), and the
preferred share purchase rights attached thereto ("Rights")
(collectively, the "New Stock"). The New Stock will be offered
on terms to be determined at the time of sale. This Prospectus
will be supplemented by a prospectus supplement ("Prospectus
Supplement") which will set forth, as applicable, the number of
shares, the purchase price and other specific terms of the New
Stock in respect of which this Prospectus and the Prospectus
Supplement are delivered ("Offered Stock").
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
----------------
The New Stock may be sold directly by the Company or
through agents designated from time to time or through dealers or
underwriters. If any agent of the Company or any underwriters
are involved in the sales of the New Stock, the names of such
agents or such underwriters and any applicable commissions or
discounts and the net proceeds to the Company will be set forth
in the Prospectus Supplement.
----------------
The date of this Prospectus is May 18, 1998.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended ("1934 Act") and,
in accordance therewith, files reports, proxy statements and
other information with the Securities and Exchange Commission
("Commission"). Such reports, proxy statements and other
information filed by the Company may be inspected and copied at
the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at
the following Regional Offices of the Commission: New York
Regional Office, 7 World Trade Center, 13th Floor, New York, New
York 10048; and Chicago Regional Office, Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of such material may also be obtained at prescribed rates from
the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549. The Commission maintains a
Web site (http://www.sec.gov) that contains reports, proxy
statements and other information filed electronically by the
Company. The Common Stock and the Rights are listed on the New
York Stock Exchange. Reports and other information concerning the
Company may be inspected and copied at the office of such
Exchange at 20 Broad Street, New York, New York. In addition, the
Company's 5% Preferred Stock, $100 par value, is listed on the
American Stock Exchange. Reports and other information concerning
the Company may also be inspected and copied at the office of
such Exchange at 86 Trinity Place, New York, New York.
--------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed by the Company with the
Commission pursuant to the 1934 Act, are hereby incorporated by
reference:
(1) The Company's Annual Report on Form 10-K for
the year ended December 31, 1997 ("1997 Form
10-K").
(2) The Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998.
(3) The Company's Current Report on Form 8-K
dated May 15, 1998.
Each document filed subsequent to the date of this
Prospectus pursuant to Section 13(a), 13(c), 14 or 15(d) of the
1934 Act prior to the termination of the offering made by this
Prospectus shall be deemed to be incorporated by reference in
this Prospectus and shall be a part hereof from the date of
filing of such document; provided, however, that the documents
enumerated above or subsequently filed by the Company pursuant to
Section 13 or 15(d) of the 1934 Act prior to the filing with the
Commission of the Company's most recent Annual Report on Form 10-
K shall not be incorporated by reference in this Prospectus or be
a part hereof from and after the filing of such most recent
Annual Report on Form 10-K. The documents which are incorporated
by reference in this Prospectus are sometimes hereinafter
referred to as the "Incorporated Documents."
Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other
subsequently filed document which is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus
is delivered, upon the written or oral request of any such
person, a copy of any document referred to above which has been
or may be incorporated in this Prospectus by reference, other
than exhibits to such documents (unless such exhibits are
specifically incorporated by reference into such documents).
Requests for such copies should be directed to: Shareholder
Services, Minnesota Power, 30 West Superior Street, Duluth,
Minnesota 55802, telephone number (218) 723-3974 or (800) 535-
3056.
2
<PAGE>
THE COMPANY
Minnesota Power, a broadly diversified service company
incorporated under the laws of the State of Minnesota in 1906,
has operations in four business segments: (1) Electric
Operations, which include electric and gas services, and coal
mining; (2) Water Services, which include water and wastewater
services; (3) Automotive Services, which include a network of
vehicle auctions, a finance company and an auto transport
company; and (4) Investments, which include a securities
portfolio, a 21 percent equity investment in a financial guaranty
reinsurance and insurance company, and real estate operations.
Corporate Charges represent general corporate expenses, including
interest, not specifically allocated to any one business segment.
As of March 31, 1998 the Company and its subsidiaries had
approximately 6,900 employees. The principal executive offices of
the Company are located at 30 West Superior Street, Duluth,
Minnesota 55802, telephone number (218) 722-2641.
(Unaudited)
Three Months
Ended
Year Ended December 31 March 31
---------------------- --------------
1997 1996 1995 1998 1997
-------------------------------------------------------------------------
MILLIONS
OPERATING REVENUE AND
INCOME
Electric Operations $541.9 $529.2 $503.5 $134.0 $131.5
Water Services 95.5 85.2 66.1 20.8 20.6
Automotive
Services (a) 255.5 183.9 61.6 76.7 60.5
Investments 60.9 49.9 43.7 15.2 9.5
Corporate Charges (0.2) (1.3) (2.0) (0.1) 0.0
----- ----- ----- ----- -----
$953.6 $846.9 $672.9 $246.6 $222.1
===== ===== ===== ===== =====
NET INCOME
Electric Operations $ 43.1 $ 39.4 $ 41.0 $ 9.5 $ 12.3
Water Services 8.2 5.4 (1.0) 0.7 0.4
Automotive
Services (a) 14.0 3.7 - 5.4 3.2
Investments 32.1 38.1 41.3 8.3 5.6
Corporate Charges (19.8) (17.4) (19.4) (5.4) (5.4)
----- ----- ----- ----- -----
77.6 69.2 61.9 18.5 16.1
Discontinued
Operations (b) - - 2.8 - -
----- ----- ----- ----- -----
$ 77.6 $ 69.2 $ 64.7 $ 18.5 $ 16.1
===== ===== ===== ===== =====
---------------------------------------------------------------------------
BASIC AND DILUTED
EARNINGS PER SHARE OF
COMMON STOCK
Continuing
Operations $2.47 $2.28 $2.06 $.58 $.52
Discontinued
Operations - - .10 - -
----- ----- ----- ----- -----
$2.47 $2.28 $2.16 $.58 $.52
===== ===== ===== ===== =====
AVERAGE SHARES OF COMMON
STOCK - MILLIONS 30.6 29.3 28.5 31.1 30.3
---------------------------------------------------------------------------
(a) The Company purchased 80 percent of ADESA, including AFC and
Great Rigs, on July 1, 1995, another 3 percent in January
1996 and the remaining 17 percent in August 1996.
(b) On June 30, 1995 the Company sold its interest in a paper
and pulp business to Consolidated Papers, Inc.
3
<PAGE>
ELECTRIC OPERATIONS
Electric Operations generate, transmit, distribute and
market electricity. Minnesota Power provides electricity to
123,000 customers in northeastern Minnesota. MPEX, a division of
Minnesota Power, is an expansion of the Company's inter-utility
marketing group which has been a buyer and seller of capacity and
energy for over 25 years in the wholesale power market. The
customers of MPEX are other power suppliers in the Midwest and
Canada. MPEX also contracts with its customers to provide hourly
energy scheduling and power trading services. The Company's
wholly owned subsidiary, Superior Water, Light and Power Company,
sells electricity to 14,000 customers and natural gas to 11,000
customers, and provides water to 10,000 customers in northwestern
Wisconsin. BNI Coal, Ltd. ("BNI Coal"), another wholly owned
subsidiary of the Company, owns and operates a lignite mine in
North Dakota. Two electric generating cooperatives, Minnkota
Power Cooperative, Inc. and Square Butte Electric Cooperative
("Square Butte"), presently consume virtually all of BNI Coal's
production of lignite coal under coal supply agreements extending
to 2027. Under an agreement with Square Butte, Minnesota Power
purchases about 71 percent of the output from the Square Butte
unit which is capable of generating up to 455 megawatts ("MW").
In 1997 industrial customers contributed about half of the
Company's electric operating revenue. The Company has large power
contracts to sell power to eleven industrial customers (five
taconite producers, four paper and pulp mills, and two pipeline
companies) each requiring 10 MW or more of power. These
contracts, which have termination dates ranging from April 2001
to October 2008, require the Company to have a certain amount of
generating capacity available. In turn each customer is required
to pay a minimum monthly demand charge that covers the fixed
costs associated with having capacity available to serve the
customer, including a return on common equity. Under the
contracts, industrial customers pay demand charges for the base
portion of their capacity needs on a take-or-pay basis for the
entire term of the contract, while most customers are permitted
bi-annually (coincident with each power pool season) to establish
their capacity needs above this base, thereby committing to
additional demand charges. In addition to the demand charge,
each customer is billed an energy charge for each kilowatthour
used that recovers the variable costs incurred in generating
electricity.
WATER SERVICES
Water Services include regulated and non-regulated wholly
owned subsidiaries of the Company. Florida Water Services
Corporation, which is the largest investor owned water supplier
in Florida, provides water to 119,000 customers and wastewater
treatment services to 53,000 customers. Heater Utilities, Inc.
provides water to 29,000 customers and wastewater treatment
services to 2,000 customers in North Carolina. Instrumentation
Services, Inc. ("ISI") provides predictive maintenance and
instrumentation consulting services to water and wastewater
utilities, and other industrial operations throughout the
southeastern part of the United States as well as Texas and
Minnesota. U.S. Maintenance and Management Services Corporation
("USM&M") was incorporated in 1997 to complement ISI's
operations. USM&M provides maintenance services to water and
wastewater utilities, and other industrial operations primarily
in Florida. Americas' Water Services Corporation, which is
headquartered near Chicago, Illinois, offers contract management,
operations and maintenance services to governments and industries
in the Americas.
AUTOMOTIVE SERVICES
Automotive Services include wholly owned subsidiaries
operating as integral parts of the vehicle auction business:
ADESA Corporation ("ADESA"), a network of vehicle auctions;
Automotive Finance Corporation ("AFC"), a finance company; and
Great Rigs Incorporated ("Great Rigs"), an auto transport
company. ADESA is the third largest vehicle auction network in
the United States. Headquartered in Indianapolis, Indiana, ADESA
owns and operates 25 vehicle auction facilities in the United
States and Canada through which used cars and other vehicles are
purchased and sold to franchised automobile dealers and licensed
used car dealers. In April 1998 ADESA reached agreements to
purchase three additional vehicle auctions which will increase
the number of facilities to 28. Sellers at ADESA's auctions
include domestic and foreign auto manufacturers, car dealers,
automotive fleet/lease companies, banks and finance companies.
AFC provides inventory financing for wholesale and retail
automobile dealers who purchase vehicles from ADESA auctions,
independent auctions and other auction chains. AFC is
headquartered in Indianapolis, Indiana, and has 57 loan
4
<PAGE>
production offices located at most ADESA auctions, as well as at
or near independently owned auto auctions. From these offices car
dealers obtain credit to purchase vehicles at any of the over 300
auctions approved by AFC. Great Rigs is one of the nation's
largest independent used automobile transport carriers with 140
leased automotive carriers. Headquartered in Moody, Alabama,
Great Rigs offers customers pick up and delivery service through
11 strategically located transportation hubs. Customers of Great
Rigs include ADESA auctions, car dealerships, vehicle
manufacturers, leasing companies, finance companies and other
auctions.
INVESTMENTS
Minnesota Power's securities portfolio is managed by
selected outside managers as well as internal managers. It is
intended to provide stable earnings and liquidity, and is
available for investment in existing businesses, acquisitions and
other corporate purposes. The Company's objective is to maintain
corporate liquidity between 7 percent and 10 percent of total
assets ($150 million to $200 million). The Company plans to
continue to concentrate in market-neutral investment strategies
designed to provide stable and acceptable returns without
sacrificing needed liquidity. The securities portfolio is
structured to perform at an after-tax return between 7 percent
and 9 percent. While these returns may seem modest compared to
broader market indices over the past three years, the Company
believes its investment strategy is a wise course in a volatile
economic environment. Returns will continue to be partially
dependent on general market conditions. The Company's investment
in the securities portfolio at March 31, 1998 was approximately
$190 million.
Minnesota Power owns 3.3 million shares of Capital Re
Corporation ("Capital Re"), a specialty insurance and reinsurance
business. Capital Re's product lines currently include financial
guaranty, mortgage, title, financial, credit and specialty
reinsurance, and specialty insurance through its participation in
Lloyds of London. Capital Re trades on the New York Stock
Exchange under the symbol KRE. Minnesota Power's ownership
represents 21 percent of the 16 million total outstanding shares
of Capital Re. The market value of the Company's investment in
Capital Re was $210 million at March 31, 1998 based on a
Capital Re share price of $64.25. The Company accounts for its
investment in Capital Re under the equity method and the carrying
value was $123 million at March 31, 1998.
The Company owns 80 percent of Lehigh Acquisition
Corporation ("Lehigh"), a real estate company in Florida. Lehigh
owns 2,500 acres of land and approximately 4,000 home sites near
Fort Myers, Florida; 1,000 home sites in Citrus County, Florida;
and 2,700 home sites and 12,000 acres of residential, commercial
and industrial land at Palm Coast, Florida.
USE OF PROCEEDS
The Company is offering a maximum of 3,000,000 shares of its
New Stock. The net proceeds to be received from the issuance and
sale of the New Stock will be used for general corporate purposes
which may include, among other things, acquisitions.
Reference is made to the Incorporated Documents with respect
to the Company's general capital requirements and general
financing plans and capabilities.
5
<PAGE>
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 as published in The Wall Street Journal
and the dividends paid for the indicated periods.
PRICE RANGE DIVIDENDS
-----------
HIGH LOW PER SHARE
---- --- ---------
1996 First Quarter . . . $29 3/4 $26 1/8 $ 0.51
Second Quarter . . 29 26 0.51
Third Quarter . . . 28 3/4 26 0.51
Fourth Quarter . . 28 7/8 26 3/8 0.51
1997 First Quarter . . . $29 $27 1/4 $ 0.51
Second Quarter . . 30 5/8 27 0.51
Third Quarter . . . 36 5/16 30 1/4 0.51
Fourth Quarter . . 44 35 3/16 0.51
1998 First Quarter . . . $43 7/16 $39 1/8 $ 0.51
Second Quarter
(through May 18,
1998) . . . . . . . 42 15/16 $38 11/16
The last reported sale price of the Common Stock on the New
York Stock Exchange composite tape on May 18, 1998, was $38 13/16
per share.
The Company 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.
The Company has a Dividend Reinvestment and Stock Purchase
Plan ("Plan"). The Plan provides investors ("Participants") 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 the Participant's holdings of Common
Stock and Preferred Stocks, and/or (ii) the investment of
optional cash payments pursuant to the terms of the Plan. The
Company reserves the right to suspend, modify, amend or terminate
the Plan at any time and to interpret and regulate the Plan as it
deems necessary or desirable in connection with the operation of
the Plan. Shares of Common Stock are offered for sale under the
Plan only by means of a separate prospectus available upon
request from the Company.
DESCRIPTION OF COMMON STOCK
General. The following statements relating to the Common
Stock are merely an outline and do not purport to be complete.
They are qualified in their entirety by reference to the
Company's Articles of Incorporation ("Articles of Incorporation")
and the Mortgage and Deed of Trust of the Company. Reference is
also made to the laws of the State of Minnesota.
The Company's authorized capital stock consists of
130,000,000 shares of Common Stock, without par value, 116,000
shares of 5% Preferred Stock, $100 par value, 1,000,000 shares of
Serial Preferred Stock, without par value, and 2,500,000 shares
of Serial Preferred Stock A, without par value.
Dividend Rights. The Common Stock is entitled to all
dividends after full provision for dividends on the issued and
outstanding Preferred Stocks and the sinking fund requirements of
the Serial Preferred Stock A, $7.125 Series and $6.70 Series.
The Articles of Incorporation provide that so long as any
shares of the Company's Preferred Stocks are outstanding, cash
dividends on Common Stock are restricted to 75 percent of
available net income when Common Stock equity is or would become
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<PAGE>
less than 25 percent but more than 20 percent of total
capitalization. This restriction becomes 50 percent when such
equity is or would become less than 20 percent. See Note 10 to
Consolidated Financial Statements incorporated by reference in
the Company's 1997 Form 10-K.
Voting Rights (Non-Cumulative Voting). Holders of Common
Stock are entitled to notice of and to vote at any meeting of
shareholders. Each share of Common Stock, as well as each share
of the issued and outstanding Preferred Stocks, is entitled to
one vote. Since the holders of such shares do not have
cumulative voting rights, the holders of more than 50 percent of
the shares voting can elect all the Company's directors, and in
such event the holders of the remaining shares voting (less than
50 percent) cannot elect any directors. In addition, the
Preferred Stocks are expressly entitled, as one class, to elect a
majority of the directors (the Common Stock, as one class,
electing the minority) whenever dividends on any of such
Preferred Stocks shall be in default in the amount of four
quarterly payments and thereafter until all such dividends in
default shall have been paid. The Articles of Incorporation
include detailed procedures and other provisions relating to
these rights and their termination, such as quorums, terms of
directors elected, vacancies, class voting as between Preferred
Stocks and Common Stock, meetings, adjournments and other
matters.
The Articles of Incorporation contain certain provisions
which make it difficult to obtain control of the Company through
transactions not having the approval of the Board of Directors,
including:
(1) A provision requiring the affirmative vote of 75
percent of the outstanding shares of all classes of
capital stock of the Company, present and entitled to
vote, in order to authorize certain "Business
Combinations." Any such Business Combination is
required to meet certain "fair price" and procedural
requirements. Neither a 75 percent stockholder vote
nor "fair price" is required for any Business
Combination which has been approved by a majority of
the "Disinterested Directors."
(2) A provision permitting a majority of the Disinterested
Directors to determine whether the above requirements
have been satisfied.
(3) A provision providing that certain of the Articles of
Incorporation cannot be altered unless approved by 75
percent of the outstanding shares of all classes of
capital stock, present and entitled to vote, unless
such alteration is recommended to the shareholders by a
majority of the Disinterested Directors.
Liquidation Rights. After satisfaction of creditors and of
the preferential liquidation rights of the outstanding Preferred
Stocks ($100 per share plus unpaid accumulated dividends), the
holders of the Common Stock are entitled to share ratably in the
distribution of all remaining assets.
Miscellaneous. Holders of Common Stock have no preemptive
or conversion rights.
The Common Stock is listed on the New York Stock Exchange.
The transfer agents and registrars for the Common Stock are
Norwest Bank Minnesota, N.A. and the Company.
DESCRIPTION OF PREFERRED SHARE PURCHASE RIGHTS
Reference is made to the Rights Agreement, dated as of July
24, 1996 ("Rights Plan") between the Company and the Corporate
Secretary of the Company, as Rights Agent. The description of
the Rights set forth below does not purport to be complete and is
qualified in its entirety by reference to the Rights Plan.
Reference is also made to the laws of the State of Minnesota.
On July 24, 1996 the Board of Directors of the Company
declared a dividend distribution of one Right for each
outstanding share of Common Stock to shareholders of record at
the close of business on July 24, 1996 ("Record Date") and
authorized the issuance of one Right with respect to each share
of Common Stock that becomes outstanding between the Record Date
and July 23, 2006 or such earlier time as the Rights are
7
<PAGE>
redeemed. Except as described below, each Right, when
exercisable, entitles the registered holder to purchase from the
Company one one-hundredth of a share of Junior Serial Preferred
Stock A, without par value ("Serial Preferred"), at a price of
$90 per one one-hundredth share ("Purchase Price"), subject to
adjustment.
No separate Right Certificates will be distributed. The
Rights will be evidenced by the Common Stock certificates
together with a copy of the Summary of Rights Plan and not by
separate certificates until the earlier to occur (i) 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 Common Stock
(the "Stock Acquisition Date") or (ii) 15 business days (or such
later date as may be determined by action of the Board of
Directors prior to the time that any person becomes an Acquiring
Person) following the commencement of (or a public announcement
of an intention to make) a tender or exchange offer if, upon
consummation thereof, such person or group would be the
beneficial owner of 15 percent or more of such outstanding shares
of Common Stock (the earlier of such dates being called the
"Distribution Date").
Until the Distribution Date, the Rights will be transferred
with and only with the Common Stock. Until the Distribution Date
(or earlier redemption, expiration or termination of the Rights),
the transfer of any certificates for Common Stock, with or
without a copy of the Summary of Rights Plan, will also
constitute the transfer of the Rights associated with the Common
Stock represented by such certificates. As soon as practicable
following the Distribution Date, separate certificates evidencing
the Rights ("Right Certificates") will be mailed to holders of
record of the Common Stock as of the close of business on the
Distribution Date and, thereafter, such separate Right
Certificates alone will evidence the Rights.
Each whole share of Serial Preferred will have a minimum
preferential quarterly dividend rate equal to the greater of $51
per share or, subject to anti-dilution adjustment, 100 times the
dividend declared on the Common Stock. In the event of
liquidation, no distribution will be made to the holders of
Common Stock unless, prior thereto, the holders of the Serial
Preferred have received a liquidation preference of $100 per
share, plus accrued and unpaid dividends. Holders of the Serial
Preferred will be entitled to notice of and to vote at any
meeting of the Company's shareholders. Each whole share of
Serial Preferred is entitled to one vote. Such shares do not
have cumulative voting rights. The Serial Preferred, together
with the issued and outstanding shares of the other Preferred
Stocks of the Company, will be expressly entitled, as one class,
to elect a majority of directors (the Common Stock electing the
minority) whenever dividends on any of the Preferred Stocks shall
be in default in the amount of four quarterly payments and
thereafter until all such dividends in default shall have been
paid. In the event of any merger, consolidation or other
transaction in which shares of Common Stock are exchanged for or
converted into other securities and/or property, each whole share
of Serial Preferred will be entitled to receive, subject to anti-
dilution adjustment, 100 times the amount into which or for which
each share of Common Stock is so exchanged or converted. The
shares of Serial Preferred are not redeemable by the Company.
The Rights are not exercisable until the Distribution Date
and will expire at the earliest of (i) July 23, 2006 ("Final
Expiration Date"), (ii) the redemption of the Rights by the
Company as described below, and (iii) the exchange of all Rights
for Common Stock as described below.
In the event that any person (other than the Company, its
affiliates or any person receiving newly-issued shares of Common
Stock directly from the Company) becomes the beneficial owner of
15 percent or more of the then outstanding shares of Common
Stock, each holder of a Right will thereafter have a right to
receive, upon exercise at the then current exercise price of the
Right, Common Stock (or, in certain circumstances, cash, property
or other securities of the Company) having a value equal to two
times the exercise price of the Right. The Rights Plan contains
an exemption for any issuance of Common Stock by the Company
directly to any person (for example, in a private placement or an
acquisition by the Company in which Common Stock is used as
consideration), even if that person would become the beneficial
owner of 15 percent or more of the Common Stock, provided that
such person does not acquire any additional shares of Common
Stock.
8
<PAGE>
In the event that, at any time following the Stock
Acquisition Date, the Company is acquired in a merger or other
business combination transaction or 50 percent or more of the
Company's assets or earning power are sold, proper provision will
be made so that each holder of a Right will thereafter have the
right to receive, upon exercise at the then current exercise
price of the Right, common stock of the acquiring or surviving
company having a value equal to two times the exercise price of
the Right.
Notwithstanding the foregoing, following the occurrence of
any of the events set forth in the preceding two paragraphs (the
"Triggering Events"), any Rights that are, or (under certain
circumstances specified in the Rights Plan) were, beneficially
owned by any Acquiring Person will immediately become null and
void.
The Purchase Price payable, and the number of shares of
Serial Preferred or other securities or property issuable, upon
exercise of the Rights, are subject to adjustment from time to
time to prevent dilution, among other circumstances, in the event
of a stock dividend on, or a subdivision, split, combination,
consolidation or reclassification of, the Serial Preferred or the
Common Stock, or a reverse split of the outstanding shares of
Serial Preferred or the Common Stock.
At any time 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 prior to the
acquisition by such person or group of 50 percent or more of the
outstanding Common Stock, the Board of Directors may exchange the
Rights (other than Rights owned by such person or group, which
have become void), in whole or in part, at an exchange ratio of
one share of Common Stock per Right (subject to adjustment).
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. The
Company will not be required to issue fractional shares of Serial
Preferred or Common Stock (other than fractions in multiples of
one one-hundredths of a share of Serial Preferred) and, in lieu
thereof, an adjustment in cash may be made based on the market
price of the Serial Preferred or Common Stock on the last trading
date prior to the date of exercise.
At any time after the date of the Rights Plan until the time
that a person becomes an Acquiring Person, the Board of Directors
may redeem the Rights in whole, but not in part, at a price of
$.01 per Right ("Redemption Price"), which may (at the option of
the Company) be paid in cash, shares of Common Stock or other
consideration deemed appropriate by the Board of Directors. Upon
the effectiveness of any action of the Board of Directors
ordering redemption of the Rights, the Rights will terminate and
the only right of the holders of Rights will be to receive the
Redemption Price.
Issuance of Serial Preferred or Common Stock upon exercise
of the Rights will be subject to any necessary regulatory
approvals. Until a Right is exercised, the holder thereof, as
such, will have no rights as a shareholder of the Company,
including, without limitation, the right to vote or to receive
dividends. One million shares of Serial Preferred were reserved
for issuance in the event of exercise of the Rights.
The provisions of the Rights Plan may be amended by the
Company, except that 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 certain anti-takeover effects. The Rights
will cause substantial dilution to a person or group that
attempts to acquire the Company without conditioning the offer on
the Rights being redeemed or a substantial number of Rights being
acquired, and under certain circumstances the Rights beneficially
owned by such a person or group may become void. The Rights
should not interfere with any merger or other business
combination approved by the Board of Directors because, if the
Rights would become exercisable as a result of such merger or
business combination, the Board of Directors may, at its option,
at any time prior to the time that any person becomes an
Acquiring Person, redeem all (but not less than all) of the then
outstanding Rights at the Redemption Price.
9
<PAGE>
EXPERTS
The Company's consolidated financial statements incorporated
in this Prospectus by reference to the Company's 1997 Form 10-K
have been so incorporated in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
The statements as to matters of law and legal conclusions
under "Description of Common Stock" and "Description of Preferred
Share Purchase Rights" in this Prospectus and in the Incorporated
Documents have been reviewed by Philip R. Halverson, Esq.,
Duluth, Minnesota, Vice President, General Counsel and Secretary
for Minnesota Power, and are set forth or incorporated herein by
reference in reliance upon his opinion given upon his authority
as an expert.
As of April 30, 1998 Mr. Halverson owned 7,056 shares
Minnesota Power Common Stock. Mr. Halverson is acquiring
additional shares of Minnesota Power Common Stock at regular
intervals as a participant in the Company's Employee Stock
Ownership Plan, Employee Stock Purchase Plan, Supplemental
Retirement Plan and Dividend Reinvestment and Stock Purchase
Plan. In addition, Mr. Halverson has options to purchase 7,558
shares of Minnesota Power Common Stock pursuant to the Company's
Executive Long-Term Incentive Compensation Plan.
LEGAL OPINIONS
The legality of the New Stock will be passed upon for the
Company by Mr. Halverson and by Reid & Priest LLP, New York, New
York, counsel for the Company, and for any underwriter, dealer or
agent by Morrison Cohen Singer & Weinstein, LLP. Reid & Priest
LLP and Morrison Cohen Singer & Weinstein, LLP may rely as to all
matters of Minnesota law upon the opinion of Mr. Halverson.
PLAN OF DISTRIBUTION
The Company may sell the New Stock in any of three ways: (i)
through underwriters or dealers; (ii) directly to a limited
number of institutional purchasers or to a single purchaser; or
(iii) through agents. The Prospectus Supplement relating to the
Offered Stock will set forth the terms of the offering of the
Offered Stock, including the name or names of any underwriters,
dealers or agents, the purchase price of the Offered Stock and
the net proceeds to the Company from such sale, any underwriting
discounts and other items constituting underwriters'
compensation, any initial public offering price and any discounts
or concessions allowed or reallowed or paid to dealers. Any
initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers may be changed from time
to time.
If underwriters are used in any sale of the New Stock, the
Offered Stock will be acquired by the underwriters for their own
account and may be resold from time to time 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 underwriter or underwriters with respect to a
particular underwritten offering of Offered Stock will be named
in the Prospectus Supplement relating to such offering and, if an
underwriting syndicate is used, the managing underwriter or
underwriters will be set forth on the cover page of such
Prospectus Supplement. Unless otherwise set forth in the
Prospectus Supplement, the obligations of the underwriter or
underwriters to purchase the Offered Stock will be subject to
certain conditions precedent and the underwriter or underwriters
will be obligated to purchase all the Offered Stock if any is
purchased except that, in certain cases involving a default by
one or more underwriters, less than all of the Offered Stock may
be purchased.
Offered Stock may be sold directly by the Company or through
agents designated by the Company from time to time. Any agent
involved in the offer or sale of the Offered Stock in respect of
which this Prospectus is delivered will be named, and any
commissions payable by the Company to such agent will be set
forth, in the Prospectus Supplement. Unless otherwise indicated
in the Prospectus Supplement, any such agent will be acting on a
best efforts basis for the period of its appointment.
10
<PAGE>
If so indicated in the Prospectus Supplement, the Company
will authorize agents, underwriters or dealers to solicit offers
by certain specified institutions to purchase Offered Stock from
the Company at the public offering price to be set forth in the
Prospectus Supplement pursuant to delayed delivery contracts
providing for payment and delivery on a specified date in the
future. Such contracts will be subject to those conditions set
forth in the Prospectus Supplement, and the Prospectus Supplement
will set forth the commission payable for solicitation of such
contracts.
Subject to certain conditions, agents and underwriters may
be entitled under agreements entered into with the Company to
indemnification by the Company against certain civil liabilities,
including liabilities under the Securities Act of 1933, as
amended, arising out of or based upon, among other things, any
untrue statement or alleged untrue statement of a material fact
contained in the registration statement, this Prospectus, a
Prospectus Supplement or the Incorporated Documents or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were
made, not misleading. See the Prospectus Supplement.
------------------
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=================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER. NEITHER THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUN-
DER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS SUPPLE-
MENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
REGISTERED SECURITIES TO WHICH THEY RELATE. THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
-----------------------
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUPPLEMENT
SELECTED INFORMATION . . . . . . . . . . . . . . . . . . . S-2
SUMMARY FINANCIAL INFORMATION . . . . . . . . . . . . . . . S-4
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . S-5
LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . S-5
UNDERWRITING . . . . . . . . . . . . . . . . . . . . . . . S-5
PROSPECTUS
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . 2
INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . 2
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . 3
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . 5
DIVIDENDS AND PRICE RANGE . . . . . . . . . . . . . . . . . 6
DESCRIPTION OF COMMON STOCK . . . . . . . . . . . . . . . . 6
DESCRIPTION OF PREFERRED SHARE
PURCHASE RIGHTS . . . . . . . . . . . . . . . . . . . . . 7
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . 10
LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . 10
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . 10
=================================================================
=================================================================
2,000,000 SHARES
MINNESOTA POWER, INC.
COMMON STOCK
-------------------
PROSPECTUS SUPPLEMENT
-------------------
PAINEWEBBER INCORPORATED
ROBERT W. BAIRD & CO.
INCORPORATED
JANNEY MONTGOMERY SCOTT INC.
-------------------
, 1998
=================================================================
