-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
Originator-Key-Asymmetric:
 MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen
 TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB
MIC-Info: RSA-MD5,RSA,
 VallvfNu+ZA2kYp3kYu3nVNqIlh9KmwzTXQhF8P4U1e7GJuUGPfxGhdOBWHzGRhz
 rb4IeOwyOM9kUqPDXGnstQ==

<SEC-DOCUMENT>0000066756-03-000048.txt : 20030214
<SEC-HEADER>0000066756-03-000048.hdr.sgml : 20030214
<ACCEPTANCE-DATETIME>20030214154223
ACCESSION NUMBER:		0000066756-03-000048
CONFORMED SUBMISSION TYPE:	10-K
PUBLIC DOCUMENT COUNT:		13
CONFORMED PERIOD OF REPORT:	20021231
FILED AS OF DATE:		20030214

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			ALLETE INC
		CENTRAL INDEX KEY:			0000066756
		STANDARD INDUSTRIAL CLASSIFICATION:	ELECTRIC & OTHER SERVICES COMBINED [4931]
		IRS NUMBER:				410418150
		STATE OF INCORPORATION:			MN
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-03548
		FILM NUMBER:		03567554

	BUSINESS ADDRESS:	
		STREET 1:		30 W SUPERIOR ST
		CITY:			DULUTH
		STATE:			MN
		ZIP:			55802-2093
		BUSINESS PHONE:		2182795000

	MAIL ADDRESS:	
		STREET 1:		30 W SUPERIOR STREET
		CITY:			DULUTH
		STATE:			MN
		ZIP:			55802-2093

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	MINNESOTA POWER INC
		DATE OF NAME CHANGE:	19980603

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	MINNESOTA POWER & LIGHT CO
		DATE OF NAME CHANGE:	19920703

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	ALLETE
		DATE OF NAME CHANGE:	20000901
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>arcomplete21303pm.txt
<TEXT>
 <PAGE>
                             ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------


                                    FORM 10-K

                                  United States
                       Securities and Exchange Commission
                             Washington, D.C. 20549
(Mark One)
/X/  Annual Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

     For the fiscal year ended DECEMBER 31, 2002

/ /  Transition Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

     For the transition period from ______________ to ______________

     Commission File No. 1-3548

                                  ALLETE, INC.
             (Exact name of registrant as specified in its charter)

            MINNESOTA                               41-0418150
 (State or other jurisdiction of        (I.R.S. Employer Identification No.)
  incorporation or organization)

              30 WEST SUPERIOR STREET, DULUTH, MINNESOTA 55802-2093
           (Address of principal executive offices including zip code)

                                 (218) 279-5000
              (Registrant's telephone number, including area code)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

                                                NAME OF EACH STOCK EXCHANGE
         TITLE OF EACH CLASS                        ON WHICH REGISTERED
         -------------------                        -------------------
   Common Stock, without par value                New York Stock Exchange

 8.05% Cumulative Quarterly Income
Preferred Securities of ALLETE Capital I,
      a subsidiary of ALLETE                      New York Stock Exchange

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                                      None

   Indicate  by check mark  whether  the  registrant  (1) has filed all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

   Yes  /X/    No  / /

   Indicate by check mark if disclosure of  delinquent  filers  pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /

   Indicate by check mark whether the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Act).

   Yes  /X/    No  / /

   The aggregate  market value of voting stock held by nonaffiliates on June 30,
2002 was $2,296,176,078.

   As of February 7, 2003 there were  85,715,304  shares of ALLETE Common Stock,
without par value, outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

   Portions of the Proxy  Statement for the 2003 Annual Meeting of  Shareholders
are incorporated by reference in Part III.


- --------------------------------------------------------------------------------
                                     PAGE 15


<PAGE>
                              ALLETE FORM 10-K 2002

                                TABLE OF CONTENTS



DEFINITIONS...................................................................17
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995.......................................................................18
PART I
Item 1.    Business...........................................................19
           Energy Services....................................................20
               Utility Electric Sales.........................................22
               Utility Purchased Power .......................................24
               Fuel...........................................................24
               Nonregulated Generation and
               Power Marketing................................................24
               Regulatory Issues..............................................25
               Competition....................................................26
               Franchises.....................................................26
               Environmental Matters..........................................26
           Automotive Services................................................28
               Competition....................................................28
               Environmental Matters..........................................30
           Investments and Corporate Charges..................................31
               Environmental Matters..........................................31
           Executive Officers of the Registrant...............................32
Item 2.    Properties.........................................................33
Item 3.    Legal Proceedings..................................................33
Item 4.    Submission of Matters to a Vote of Security
           Holders............................................................33
PART II
Item 5.    Market for the Registrant's Common Equity
           and Related Stockholder Matters....................................33
Item 6.    Selected Financial Data............................................34
Item 7.    Management's Discussion and Analysis
           of Financial Condition and Results
           of Operations......................................................36
           Consolidated Overview..............................................36
           Net Income.........................................................36
           2002 Compared to 2001..............................................37
           2001 Compared to 2000..............................................38
           Critical Accounting Policies.......................................39
           Outlook............................................................40
           Liquidity and Capital Resources....................................42
           Capital Requirements...............................................44
           Market Risk........................................................44
           New Accounting Standards...........................................45
Item 7A.   Quantitative and Qualitative Disclosures
           about Market Risk..................................................46
Item 8.    Financial Statements and Supplementary
           Data...............................................................46
Item 9.    Changes in and Disagreements with
           Accountants on Accounting and Financial
           Disclosure.........................................................46
PART III
Item 10.   Directors and Executive Officers
           of the Registrant..................................................47
Item 11.   Executive Compensation.............................................47
Item 12.   Security Ownership of Certain Beneficial
           Owners and Management and Related
           Stockholder Matters................................................47
Item 13.   Certain Relationships and Related
           Transactions.......................................................47
Item 14.   Controls and Procedures............................................47
PART IV
Item 15.   Exhibits, Financial Statement Schedules and
           Reports on Form 8-K................................................47
SIGNATURES     ...............................................................52
CERTIFICATIONS ...............................................................53
CONSOLIDATED FINANCIAL STATEMENTS.............................................55



                                     PAGE 16


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                                  DEFINITIONS


ABBREVIATION
OR ACRONYM                          TERM
- --------------------------------------------------------------------------------
ACE                                 ACE Limited
ADESA                               ADESA Corporation
ADESA Canada                        ADESA Canada Inc.
AFC                                 Automotive Finance Corporation
ALLETE                              ALLETE, Inc. and its subsidiaries
APB                                 Accounting Principles Board
AutoVIN                             AutoVIN, Inc.
BNI Coal                            BNI Coal, Ltd.
Boswell                             Boswell Energy Center
Capital Re                          Capital Re Corporation
CIP                                 Conservation Improvement Program(s)
Company                             ALLETE, Inc. and its subsidiaries
ComSearch                           ComSearch, Inc.
EBITDAL                             Earnings Before Interest, Taxes,
                                      Depreciation, Amortization and
                                      Lease Expense
EndTrust                            EndTrust Lease End Services, LLC
Enventis
  Telecom                           Enventis Telecom, Inc.
EPA                                 Environmental Protection Agency
ESOP                                Employee Stock Ownership Plan
EITF                                Emerging Issues Task Force
FASB                                Financial Accounting Standards Board
FERC                                Federal Energy Regulatory Commission
Florida Water                       Florida Water Services Corporation
Form 8-K                            ALLETE Current Report on Form 8-K
Form 10-K                           ALLETE Annual Report on Form 10-K
Form 10-Q                           ALLETE Quarterly Report on
                                      Form 10-Q
FPSC                                Florida Public Service Commission
FWSA                                Florida Water Service Authority
Hibbard                             M.L. Hibbard Station
Impact Auto                         Impact Auto Auctions Ltd. and
                                      Suburban Auto Parts Inc., collectively
Invest Direct                       ALLETE's Direct Stock Purchase and
                                      Dividend Reinvestment Plan
kWh                                 Kilowatthour(s)
kV                                  Kilovolt(s)
Laskin                              Laskin Energy Center
Lehigh                              Lehigh Acquisition Corporation
LTV                                 LTV Steel Mining Co.
MAPP                                Mid-Continent Area Power Pool
MBtu                                Million British thermal units
Minnesota Power                     An operating division of ALLETE, Inc.
Minnkota Power                      Minnkota Power Cooperative, Inc.
MISO                                Midwest Independent Transmission
                                      System Operator, Inc.
MPCA                                Minnesota Pollution Control Agency
MPUC                                Minnesota Public Utilities Commission
MW                                  Megawatt(s)
MWh                                 Megawatthour(s)
NCUC                                North Carolina Utilities Commission
Note ___                            Note ___ to the consolidated financial
                                      statements indexed in Item 15(a) of
                                      this Form 10-K
NPDES                               National Pollutant Discharge
                                      Elimination System
NRG Energy                          NRG Energy, Inc.
PAR                                 PAR, Inc.
PSCW                                Public Service Commission of
                                      Wisconsin
Rainy River
  Energy                            Rainy River Energy Corporation
SEC                                 Securities and Exchange Commission
SFAS                                Statement of Financial Accounting
                                      Standards No.
Split Rock
  Energy                            Split Rock Energy LLC
Square Butte                        Square Butte Electric Cooperative
SWL&P                               Superior Water, Light and Power
                                      Company
Taconite Harbor                     Taconite Harbor Energy Center
WPPI                                Wisconsin Public Power, Inc.



- --------------------------------------------------------------------------------
                                     PAGE 17


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                         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,  we are  hereby  filing  cautionary  statements
identifying  important  factors  that could  cause our actual  results to differ
materially from those projected in  forward-looking  statements (as such term is
defined in the Private  Securities  Litigation Reform Act of 1995) made by or on
behalf of ALLETE  in this  Annual  Report on Form  10-K,  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,   risks  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 our control and may cause actual  results or
outcomes  to  differ   materially  from  those   contained  in   forward-looking
statements:

   - war and acts of terrorism;
   - prevailing governmental policies and regulatory actions, including those of
     the United States  Congress,  state  legislatures,  the FERC, the MPUC, the
     FPSC, the NCUC, the PSCW and various county regulators, about allowed rates
     of  return,  financings,  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) as well as general  vehicle-related  laws,
     including vehicle brokerage and auction laws;
   - unanticipated   impacts  of  restructuring  initiatives  in   the  electric
     industry;
   - economic and geographic factors, including political and economic risks;
   - changes in and compliance with environmental and safety laws and policies;
   - weather conditions;
   - natural disasters;
   - market factors affecting supply and demand for used vehicles;
   - wholesale power market conditions;
   - population growth rates and demographic patterns;
   - the effects of competition, including competition for retail and  wholesale
     customers, as well as suppliers and purchasers of vehicles;
   - pricing and transportation of commodities;
   - changes in tax rates or policies or in rates of inflation;
   - unanticipated project delays or changes in project costs;
   - unanticipated changes in operating expenses and capital expenditures;
   - capital market conditions;
   - competition for economic expansion or development opportunities;
   - our ability to manage expansion and integrate recent acquisitions; and
   - the outcome  of  legal  and  administrative  proceedings (whether civil  or
     criminal) and settlements that  affect the business and   profitability  of
     ALLETE.

   Any  forward-looking  statement  speaks  only as of the  date on  which  such
statement is made, and we undertake 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 these  factors,  nor can it assess  the  impact of each of these
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.


- --------------------------------------------------------------------------------
                                     PAGE 18


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                                     PART 1

ITEM 1.  BUSINESS

   ALLETE is a  diversified  company  incorporated  under the laws of  Minnesota
since  1906.  References  in this report to "we" and "our" are to ALLETE and its
subsidiaries, collectively.
   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 (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  (www.allete.com) that
contains  documents as soon as  reasonably  practicable  after such  material is
electronically filed with or furnished to the SEC.
   As of December 31, 2002 we had approximately 14,000 employees, 4,600 of which
were part time. Our core  operations in 42 states,  nine Canadian  provinces and
Mexico focus on two segments:  ENERGY  SERVICES which includes  electric and gas
services,  coal mining and  telecommunications;  and  AUTOMOTIVE  SERVICES which
includes  a network of  wholesale  and total loss  vehicle  auctions,  a finance
company,  a  vehicle  remarketing  company,  a  company  that  provides  vehicle
inspection  services to the automotive  industry and its lenders,  and a company
that provides  Internet-based  parts location and insurance claim audit services
nationwide.
   INVESTMENTS  AND  CORPORATE  CHARGES  include  our  real  estate  operations,
investments in emerging  technologies  related to the electric  utility industry
and corporate charges.  Corporate charges represent general corporate  expenses,
including interest, not specifically related to any one business segment.
   In  2002  Energy  Services  completed  the  restarting  of  the  nonregulated
generating  facilities at Taconite Harbor.  We integrated our MPEX division into
Split Rock Energy and combined Minnesota Power Telecom, Inc. and Enventis,  Inc.
operations  into Enventis  Telecom.  During 2002 we also  cancelled a generation
project in Grand Rapids,  Minnesota, and indefinitely delayed one that was under
way in Superior,  Wisconsin.  The  construction  of the  transmission  line from
Duluth,   Minnesota,  to  Wausau,  Wisconsin,  has  been  delayed.  (See  Energy
Services.)
   In 2002  Automotive  Services  opened ADESA Golden Gate, the largest  vehicle
auction in California,  and ADESA Vancouver in Richmond,  British Columbia. Both
were built to replace aging facilities that were too small to efficiently  serve
our growing customer demand.  Wholesale auction  facilities in Long Island,  New
York; Atlanta,  Georgia; and Edmonton,  Alberta, are also under construction and
slated to open in 2003. A small  auction has been  initiated in Mexico at a Ford
Motor Company facility. Finally, we increased our total loss vehicle auctions by
two, buying one and building another.
   In 2002 Investments  purchased additional real estate for sale in Florida and
liquidated the trading securities portfolio.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31                           2002        2001         2000
================================================================================
<S>                                             <C>         <C>          <C>
Consolidated Operating
     Revenue - Millions                         $1,507      $1,526       $1,186
Percentage of Consolidated
     Operating Revenue
Energy Services
     Utility
         Industrial
             Taconite Producers                    10%         10%          14%
             Paper and Wood Products                4           4            5
             Pipelines and Other Industries         2           3            3
- --------------------------------------------------------------------------------
                   Total Industrial                16          17           22
         Residential                                5           4            6
         Commercial                                 5           5            6
         Wholesale                                  5           6            7
         Other Revenue                              3           3            4
- --------------------------------------------------------------------------------
                   Total Utility                   34          35           45
     Nonregulated/Nonutility                        8           5            4
- --------------------------------------------------------------------------------
         Total Energy Services                     42          40           49
Automotive Services                                56          55           44
Investments                                         2           5            7
- --------------------------------------------------------------------------------
                                                  100%        100%         100%
================================================================================
</TABLE>

   For a detailed  discussion of results of operations  and trends,  see Item 7.
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations. For business segment information, see Notes 1 and 2.
   In 2002 we executed plans developed in a 2001 strategic  review of all of the
Company's  businesses  to  identify  ways of  unlocking  shareholder  value  not
reflected in the price of our common stock. Businesses identified as having more
value if operated by potential  purchasers than by us include our Water Services
businesses in Florida,  North Carolina and Georgia,  our auto transport business
and the retail store. We sold our auto transport  business and exited our retail
store at the end of first quarter 2002.
   In 2002 Florida  Water  signed an asset  purchase  agreement  for the sale of
substantially all of its assets to the Florida Water Services  Authority (FWSA),
a  governmental  authority  formed  under the laws of the state of Florida,  for
$492.5 million.  Florida Water anticipates receiving  approximately $420 million
at closing and an  additional  $36.5  million  three years  after  closing  once
certain contingencies have been satisfied. In addition, Florida Water expects to
receive up to $36  million of future  customer  hookup  fees to be paid over the
next six years. Cash proceeds to ALLETE after taxes and

- --------------------------------------------------------------------------------
                                     PAGE 19


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                                     PART I


repayment  of existing  debt are  expected to be  approximately  $180 million in
2003, and $250 million for the entire  transaction.  The gain on the transaction
is estimated at $100 million after taxes and related  costs.  While the majority
of the cash will be received at closing,  the gain is expected to be  recognized
in future years as required by accounting rules.
   Eleven lawsuits  seeking to halt the sale of Florida Water assets to the FWSA
have been  filed,  primarily  by local  governments  which had hoped to purchase
Florida  Water's assets through a competing  buyer.  Pursuant to notice given on
January  28,  2003,  the FPSC held an agenda  conference  on February 4, 2003 in
which it ordered  Florida Water to file, in advance of closing the  transaction,
an  application  requesting  approval of the transfer of its assets to the FWSA,
and further ordered Florida Water to refrain from closing the transaction before
FPSC  approval.  Florida Water is asking a court to determine  that the FPSC may
not delay closing of the sale and is required by law to approve this transfer as
a matter of  right. Florida Water considers the lawsuits to be without merit and
is vigorously contesting these lawsuits. Litigation challenging this transaction
continues to delay its closing.
   We anticipate  selling our Water  Services  businesses in North  Carolina and
Georgia by the end of 2003.

ENERGY SERVICES

   We categorize our Energy  Services  businesses as utility,  nonregulated,  or
nonutility. Utility operations include rate regulated activities associated with
generation,  transmission and distribution of electricity under the jurisdiction
of state and federal regulatory authorities.  Nonregulated generation operations
consist  primarily  of Taconite  Harbor in  northern  Minnesota  and  generation
obtained  from a  facility  near  Chicago,  Illinois,  through a  15-year  power
purchase  agreement  with NRG Energy.  Nonregulated  generation is non-rate base
generation sold at wholesale at market-based  rates,  pursuant to authority from
the  FERC.  Coal  mining  and  telecommunications  are also  included  in Energy
Services and are categorized as nonutility.  The discussion below summarizes the
major  businesses  we include in Energy  Services.  Statistical  information  is
presented as of December 31, 2002 unless otherwise  indicated.  All subsidiaries
are wholly owned unless otherwise specifically indicated.
   MINNESOTA POWER, an operating division of ALLETE,  provides  electricity in a
26,000 square mile electric service territory located in northeastern Minnesota.
Minnesota Power supplies  utility  electric  service to 133,000 retail customers
and wholesale electric service to 16 municipalities. SWL&P sells electricity and
natural gas, and provides  water service in  northwestern  Wisconsin.  SWL&P has
14,000  electric  customers,  12,000  natural  gas  customers  and 10,000  water
customers.
   Minnesota  Power had an annual  net peak load of 1,402 MW on January 7, 2002.
Our power supply  sources are listed on the  following  page.
   We have electric transmission and distribution lines of 500 kV (8 miles), 230
kV (606 miles),  161 kV (43 miles),  138 kV (66 miles), 115 kV (1,259 miles) and
less than 115 kV (6,557 miles).  We own and operate 180 substations with a total
capacity of 8,550  megavoltamperes.  Some of our  transmission  and distribution
lines interconnect with other utilities.
   We own offices and service  buildings,  an energy  control  center and repair
shops; and lease offices and storerooms in various localities. Substantially all
of  our  electric  plant  is  subject  to  mortgages  which   collateralize  the
outstanding first mortgage bonds of Minnesota Power and of SWL&P. Generally, the
Company  holds fee interest in its real  properties  subject only to the lien of
the mortgages.  Most of our electric lines are located on land not owned in fee,
but are covered by  appropriate  easement  rights or by  necessary  permits from
governmental authorities. WPPI owns 20% of Boswell Unit 4. WPPI has the right to
use  our  transmission  line  facilities  to  transport  its  share  of  Boswell
generation. (See Note 7.)
   In early 2002 Minnesota Power  integrated its power  marketing  division into
Split Rock Energy. (See discussion of Split Rock Energy below.)
   BNI COAL owns and  operates  a lignite  mine in North  Dakota.  Two  electric
generating  cooperatives,  Minnkota  Power and Square Butte,  presently  consume
virtually all of BNI Coal's  production of lignite under  cost-plus  coal supply
agreements expiring in 2027. (See Fuel and Note 13.)
   ENVENTIS  TELECOM.  In  early  2002  our   telecommunications   subsidiaries,
Minnesota  Power  Telecom,  Inc. and Enventis,  Inc.  which was acquired in July
2001,  were  merged to  operate  as  Enventis  Telecom.  Enventis  Telecom is an
integrated data services provider  offering fiber optic-based  communication and
advanced data services to businesses and communities in Minnesota, Wisconsin and
Missouri. Enventis Telecom provides converged IP (or Internet protocol) services
that  allow  all  communications  (voice,  video  and  data)  to  use  the  same
optic-based  delivery  technology.  Enventis  Telecom  owns  or  has  rights  to
approximately  1,500 route miles of fiber optic cable. These route miles contain
multiple fibers that total  approximately  48,000 fiber miles.  Enventis Telecom
also owns optronic and data  switching  equipment that is used to "light up" the
fiber optic cable.  Enventis Telecom services customers from facilities that are
primarily leased from third parties.
   RAINY  RIVER  ENERGY  is  engaged  in  the  acquisition  and  development  of
nonregulated generation and wholesale power marketing.



- --------------------------------------------------------------------------------
                                     PAGE 20


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                                     PART I
<TABLE>
<CAPTION>
POWER SUPPLY
======================================================================================================================
                                                                                              FOR THE YEAR ENDED
                                                    UNIT          YEAR        NET WINTER       DECEMBER 31, 2002
UTILITY                                              NO.        INSTALLED     CAPABILITY     ELECTRIC REQUIREMENTS
- ----------------------------------------------------------------------------------------------------------------------
                                                                                  MW           MWH            %
<S>                                                 <C>         <C>           <C>            <C>            <C>
Steam
  Coal-Fired
       Boswell Energy Center                          1           1958             69
       near Grand Rapids, MN                          2           1960             69
                                                      3           1973            351
                                                      4           1980            425
- ----------------------------------------------------------------------------------------------------------------------
                                                                                  914         6,518,081      55.3%
- ----------------------------------------------------------------------------------------------------------------------
       Laskin Energy Center                           1           1953             55
       in Hoyt Lakes, MN                              2           1953             55
- ----------------------------------------------------------------------------------------------------------------------
                                                                                  110           622,586       5.3
- ----------------------------------------------------------------------------------------------------------------------
  Purchased Steam
       M.L. Hibbard in Duluth, MN                   3 & 4       1949, 1951         51            17,611       0.1
- ----------------------------------------------------------------------------------------------------------------------
            Total Steam                                                         1,075         7,158,278      60.7
- ----------------------------------------------------------------------------------------------------------------------
  Hydro
       Group consisting of ten stations in MN                    Various          115           555,857       4.7
- ---------------------------------------------------------------------------------------------------------------------
Purchased Power
  Square Butte burns lignite coal near Center, ND                                 322         2,320,085      19.7
  All Other - Net                                                                   -         1,763,183      14.9
- ----------------------------------------------------------------------------------------------------------------------
            Total Purchased Power                                                 322         4,083,268      34.6
- ----------------------------------------------------------------------------------------------------------------------
            Total                                                               1,512        11,797,403     100.0%
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                    UNIT               YEAR                YEAR                 NET
NONREGULATED                                         NO.            INSTALLED            ACQUIRED           CAPABILITY
- ----------------------------------------------------------------------------------------------------------------------
                                                                                                                MW
<S>                                               <C>            <C>                     <C>                <C>
Steam
  Coal-Fired
       Taconite Harbor Energy Center              1, 2 & 3       1957, 1957, 1967          2001                200
       in Taconite Harbor, MN

       Cloquet Energy Center                         5                 2001                2001                 23
       in Cloquet, MN

       Rapids Energy Center <F1>                   6 & 7               1980                2000                 30
       in Grand Rapids, MN
- ----------------------------------------------------------------------------------------------------------------------
Hydro
  Conventional Run-of-River
       Rapids Energy Center <F1>                   4 & 5               1917                2000                  1
       in Grand Rapids, MN
- ----------------------------------------------------------------------------------------------------------------------
Power Purchase Agreement
  Kendall County (RAINY RIVER ENERGY)                3                 2002                2002                275
  located southwest of Chicago, IL
======================================================================================================================
<FN>
<F1> THE NET GENERATION IS PRIMARILY DEDICATED TO THE NEEDS OF ONE CUSTOMER.
</FN>
</TABLE>
- --------------------------------------------------------------------------------
                                     PAGE 21


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                                     PART I


UTILITY ELECTRIC SALES
   Our utility operations include retail and wholesale rate regulated activities
under the jurisdiction of state and federal regulatory authorities. (See
Regulatory Issues.)

<TABLE>
UTILITY ELECTRIC SALES
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31            2002         2001         2000
================================================================================
MILLIONS OF KILOWATTHOURS
<S>                                      <C>          <C>          <C>
Retail
     Residential                          1,044          998          980
     Commercial                           1,257        1,234        1,208
     Industrial                           6,946        6,549        7,194
     Other                                   77           75           76
Wholesale
     Municipals                             820          787          779
     Others                                 987        1,299        1,494
- --------------------------------------------------------------------------------
                                         11,131       10,942       11,731
================================================================================
</TABLE>

   Minnesota  Power has wholesale  contracts with 16 municipal  customers.  (See
Regulatory Issues - Federal Energy Regulatory Commission.)
   Approximately  60% of the ore consumed by integrated  steel facilities in the
United  States  originates  from six  taconite  customers  of  Minnesota  Power.
Taconite, an iron-bearing rock of relatively low iron content that is abundantly
available in Minnesota,  is an important domestic source of raw material for the
steel  industry.  Taconite  processing  plants use large  quantities of electric
power to grind the  ore-bearing  rock,  and  agglomerate  and pelletize the iron
particles into taconite pellets.  Annual taconite production in Minnesota was 39
million  tons in 2002 (33 million tons in 2001;  47 million  tons in 2000).  The
decrease  in 2001  taconite  production  was due to the  closing  of LTV and the
reduced  demand for iron ore from the operating  mines as a result of high steel
import levels and a softer  economy.  LTV,  which was not a Large Power Customer
(defined  below),  formerly  produced  7 million to 8 million  tons of  taconite
annually.  Based on our research of the taconite  industry,  Minnesota  taconite
production  for 2003 is  anticipated to be about 37 million tons. As a result of
continuing  consolidation  in the  integrated  steel  business and its resulting
impact on  taconite  producers,  Minnesota  Power is unable to predict  taconite
production  levels for the next two to five years.  We expect any excess  energy
not used by our retail customers will be marketed  primarily  through Split Rock
Energy to the wholesale market.
   LARGE POWER  CUSTOMER  CONTRACTS.  Minnesota  Power has large power  customer
contracts with 13 customers (Large Power  Customers),  each of which requires 10
MW or more of  generating  capacity.  Large  Power  Customer  contracts  require
Minnesota Power to have a certain amount of generating capacity available.  (See
table  below.) In turn,  each Large Power  Customer is required to pay a minimum
monthly  demand charge that covers the fixed costs  associated  with having this
capacity  available to serve the customer,  including a return on common equity.
Most contracts allow customers to establish the level of megawatts  subject to a
demand charge on a biannual (power pool season) basis and require that a portion
of their megawatt needs be committed on a take-or-pay  basis for the entire term
of the agreement. In addition to the demand charge, each Large Power Customer is
billed an energy  charge for each  kilowatthour  used that recovers the variable
costs incurred in generating electricity.  Six of the Large Power Customers have
interruptible  service for a portion of their needs which  provides a discounted
demand  rate and  energy  priced at  Minnesota  Power's  incremental  cost after
serving all firm power  obligations.  Minnesota Power also provides  incremental
production  service for customer  demand  levels above the contract  take-or-pay
levels.  There is no demand  charge for this  service and energy is priced at an
increment  above  Minnesota  Power's  cost.  Incremental  production  service is
interruptible.  Contracts  with 11 of the 13 Large Power  Customers  provide for
deferral  without  interest of one-half of demand  charge  obligations  incurred
during the first  three  months of a strike or illegal  walkout at a  customer's
facilities,   with  repayment   required  over  the  12-month  period  following
resolution of the work stoppage.
   All contracts continue past the contract termination date unless the required
advance  notice  of  cancellation   has  been  given.   The  advance  notice  of
cancellation  varies from one to four years. Such contracts  minimize the impact
on  earnings  that  otherwise  would  result  from  significant   reductions  in
kilowatthour  sales to such  customers.  Large Power  Customers  are required to
purchase all electric service requirements from Minnesota Power for the duration
of their contracts. The rates and corresponding revenue associated with capacity
and energy provided under these contracts are subject to change through the same
regulatory process governing all retail electric rates. (See Regulatory Issues -
Electric Rates.)

<TABLE>
MINIMUM REVENUE AND DEMAND UNDER CONTRACT
AS OF FEBRUARY 1, 2003
<CAPTION>

                     MINIMUM                MONTHLY
                ANNUAL REVENUE <F1>        MEGAWATTS
============================================================
<S>             <C>                        <C>
2003               $85.5 million              523
2004               $62.8 million              382
2005               $46.3 million              282
2006               $32.2 million              193
2007               $29.2 million              178
============================================================
<FN>
<F1> BASED ON PAST EXPERIENCE, WE BELIEVE REVENUE FROM LARGE
     POWER CUSTOMERS WILL BE SUBSTANTIALLY IN  EXCESS OF THE
     MINIMUM CONTRACT AMOUNTS.
</FN>
</TABLE>

- --------------------------------------------------------------------------------
                                     PAGE 22


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                                     PART I

<TABLE>
CONTRACT STATUS FOR MINNESOTA POWER LARGE POWER CUSTOMERS
AS OF FEBRUARY 1, 2003
<CAPTION>
                                                                                                       EARLIEST
CUSTOMER                         INDUSTRY          LOCATION                OWNERSHIP                   TERMINATION DATE
=============================================================================================================================
<S>                              <C>               <C>                     <C>                         <C>
Eveleth Mines LLC <F1>           Taconite          Eveleth, MN             45% Rouge Steel Co.         October 31, 2008
                                                                           40% AK Steel Co.
                                                                           15% Stelco Inc.

Hibbing Taconite Co. <F2>        Taconite          Hibbing, MN             62.3% Bethlehem Steel Corp. December 31, 2008
                                                                           23% Cleveland-Cliffs Inc.
                                                                           14.7% Stelco Inc.

Ispat Inland Mining Company      Taconite          Virginia, MN            Ispat Inland Steel Company  December 31, 2007

National Steel Pellet Co. <F3>   Taconite          Keewatin, MN            National Steel Corp.        February 28, 2007

U.S. Steel Corp. <F4>            Taconite          Mt. Iron, MN            U.S. Steel Corp.            December 31, 2007

Blandin Paper Company <F5>       Paper             Grand Rapids, MN        UPM-Kymmene Corporation     April 30, 2006

Boise Paper Solutions            Paper             International Falls, MN Boise Cascade Corporation   December 31, 2008

Potlatch Corporation <F6>        Paper             Brainerd, MN            Potlatch Corporation        December 31, 2008
                                                   Grand Rapids, MN

Sappi Cloquet LLC <F6>           Paper             Cloquet, MN             Sappi Limited               December 31, 2008
Stora Enso North America,        Paper and Pulp    Duluth, MN              Stora Enso Oyj              July 31, 2008
    Duluth Paper Mill and
    Duluth Recycled Pulp Mill

USG Interiors, Inc.              Manufacturer      Cloquet, MN             USG Corporation             December 31, 2005

Enbridge Energy Company,         Pipeline          Deer River, MN          Enbridge Energy Company,    May 31, 2004
    Limited Partnership                            Floodwood, MN                 Limited Partnership

Minnesota Pipeline Company       Pipeline          Staples, MN             60% Koch Pipeline Co. L.P.  September 30, 2004

                                                   Little Falls, MN        40% Marathon Ashland
                                                   Park Rapids, MN               Petroleum LLC
=============================================================================================================================
<FN>
<F1> AS  OF FEBRUARY 7, 2003  EVELETH  MINES  LLC  HAD  ANNOUNCED THAT  APPROXIMATELY 35% OF THE  PLANT'S ANNUAL CAPACITY FOR
     TACONITE PRODUCTION IS ON ORDER FOR 2003 MAKING PLANT CLOSURE A POSSIBILITY.
<F2> IN  FEBRUARY  2003 BETHLEHEM  STEEL CORP. ACCEPTED INTERNATIONAL STEEL GROUP, INC.'S (ISG) OFFER TO BUY BETHLEHEM  STEEL
     CORP.'S MILLS AND OTHER PROPERTY FOR $1.5 BILLION.  BETHLEHEM STEEL CORP. FILED FOR BANKRUPTCY  PROTECTION UNDER CHAPTER
     11 IN 2001. THE AGREEMENT IS SUBJECT TO REVIEW BY THE U. S. BANKRUPTCY  COURT.  BETHLEHEM STEEL CORP.'S SHARE OF HIBBING
     TACONITE IS INCLUDED IN THE SALE AGREEMENT.
<F3> IN  MARCH 2002  NATIONAL  STEEL CORPORATION  FILED FOR  BANKRUPTCY PROTECTION UNDER  CHAPTER 11. ON JANUARY 30, 2003  AK
     STEEL  HOLDING  COMPANY  SIGNED AN AGREEMENT TO PURCHASE  SUBSTANTIALLY  ALL OF NATIONAL  STEEL  CORPORATION,  INCLUDING
     NATIONAL STEEL PELLET COMPANY, FOR $1.1 BILLION. THE TRANSACTION IS CONTINGENT ON APPROVAL BY THE COURTS AND REGULATORS,
     AND THE UNITED  STEELWORKERS OF AMERICA'S  WILLINGNESS TO RENEGOTIATE ITS LABOR CONTRACTS.  ON FEBRUARY 6, 2003 AK STEEL
     WAS GIVEN PRIORITY STATUS BY THE U. S. BANKRUPTCY COURT.
<F4> IN OCTOBER 2002 U.S. STEEL CORP. ANNOUNCED THE  SALE  OF 80% OF ITS TACONITE  PRODUCTION FACILITY TO AN ENTITY FORMED BY
     APOLLO  MANAGEMENT,  LP, A VENTURE  CAPITAL FIRM IN NEW YORK. WE ANTICIPATE THAT THE SALE WILL HAVE NO EFFECT ON CURRENT
     TACONITE PRODUCTION ESTIMATES OR  MINNESOTA POWER'S LARGE POWER CONTRACT WITH THE FACILITY.
<F5> IN JANUARY 2003  BLANDIN PAPER COMPANY SHUT DOWN TWO OF ITS FOUR PRODUCTION LINES REPRESENTING  APPROXIMATELY 30% OF ITS
     PRODUCTION CAPABILITIES.
<F6> IN MAY 2002  SAPPI LIMITED  PURCHASED  THE CLOQUET  PAPER MILL FROM POTLATCH CORPORATION.  MINNESOTA  POWER  SIGNED  NEW
     CONTRACTS  WITH BOTH  POTLATCH CORPORATION AND SAPPI LIMITED.

</FN>
</TABLE>

- --------------------------------------------------------------------------------
                                     PAGE 23


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                                     PART I


UTILITY PURCHASED POWER
   Minnesota  Power has  contracts to purchase  capacity and energy from various
entities.  The largest  contract is with Square Butte.  Under an agreement  with
Square Butte, expiring at the end of 2026, Minnesota Power is currently entitled
to  approximately  71% of the  output  of a 455-MW  coal-fired  generating  unit
located near Center, North Dakota. (See Note 13.)
   In October 2000 Minnesota Power entered into a power purchase  agreement with
Great River Energy.  Under this agreement,  as amended in 2002,  Minnesota Power
purchases 240 MW beginning June 2001 until April 2003 and 80 MW from May 2003 to
October 2003 from Lakefield  Junction Station, a natural gas-fired peaking plant
located in southern Minnesota.

FUEL
   Minnesota Power  purchases  low-sulfur,  sub-bituminous  coal from the Powder
River Basin coal field located in Montana. Coal consumption in 2002 for electric
generation at Minnesota Power's  Minnesota  coal-fired  generating  stations was
about 5.3 million  tons.  As of December  31,  2002  Minnesota  Power had a coal
inventory of about 635,000 tons. Minnesota Power has four coal supply agreements
with various  expiration  dates extending  through 2006.  Under these agreements
Minnesota Power has the tonnage  flexibility to procure 70% to 100% of its total
coal  requirements.  Minnesota  Power  will  obtain  coal  in 2003  under  these
agreements  and in the spot  market.  This  mix of coal  supply  options  allows
Minnesota  Power to manage market price and supply risk and to take advantage of
favorable spot market prices.  Although Minnesota Power is exploring future coal
supply options, it believes that adequate supplies of low-sulfur, sub-bituminous
coal will continue to be available.
   The Burlington  Northern and Santa Fe Railway Company transports coal by unit
train from the Powder River Basin to Minnesota Power's generating  stations.  In
2001 Minnesota Power and Burlington  Northern  entered into a 10-year  agreement
under which Burlington Northern will ship all of Minnesota Power's coal.

<TABLE>
COAL DELIVERED TO MINNESOTA POWER
<CAPTION>
YEAR ENDED DECEMBER 31               2002               2001               2000
================================================================================
<S>                                 <C>                <C>                <C>
Average Price Per Ton               $21.48             $20.52             $21.19
Average Price Per MBtu               $1.19              $1.18              $1.16
================================================================================
</TABLE>
   The Square Butte generating  unit  operated  by Minnkota  Power  burns  North
Dakota  lignite coal  supplied by BNI Coal,  in  accordance  with the terms of a
contract  expiring in 2027.  Square  Butte's cost of lignite  burned in 2002 was
approximately  61 cents per MBtu. The lignite acreage that has been dedicated to
Square Butte by BNI Coal is located on lands  essentially all of which are under
private  control  and  presently  leased by BNI  Coal.  This  lignite  supply is
sufficient to provide the fuel for the anticipated useful life of the generating
unit.

NONREGULATED GENERATION AND POWER MARKETING
   SPLIT ROCK  ENERGY.  Split Rock Energy LLC, is a joint  venture of  Minnesota
Power and Great River Energy. Great River Energy is a consumer-owned  generation
and transmission  cooperative and is Minnesota's second largest utility in terms
of generating  capacity.  The joint venture  combines the two  companies'  power
supply  capabilities and customer loads for power pool operations and generation
outage  protection.  Ownership of generation  assets and current customer supply
arrangements  have not changed for either company.  Split Rock Energy has access
to members' resources,  assets and financial support. Split Rock Energy provides
power marketing,  energy sourcing and risk management services to both Minnesota
Power and Great River Energy.  Split Rock Energy's risk management  policies are
consistent with Minnesota Power's.  In a volatile wholesale  marketplace,  Split
Rock Energy  mitigates  marketplace  risk while  creating  additional  marketing
opportunities for both Minnesota Power and Great River Energy.
   TACONITE  HARBOR.  In  2002  we  restarted  the  Taconite  Harbor  generating
facilities.  The  generation  output is  primarily  being sold in the  wholesale
market and is allocated in limited  circumstances  to Minnesota  Power's utility
customers.
   KENDALL COUNTY.  In September 1999 Rainy River Energy entered into an amended
15-year  power  purchase  agreement  (Kendall  County)  with a company  that was
subsequently purchased by NRG Energy, an independent power producer. The Kendall
County  agreement  includes  the  purchase  of the  output  of one  entire  unit
(approximately 275 MW) of a four unit (approximately 1,100 MW) natural gas-fired
combined cycle generation facility located near Chicago, Illinois.  Construction
of the generation  facility began in 2000 and was completed in 2002. Rainy River
Energy's  obligation to pay fixed capacity related charges began May 1, 2002. We
currently have two long-term  forward capacity and energy  contracts  related to
generation obtained through the Kendall County agreement. Each is for 50 MW with
one having a 10-year term and the other a 15-year term.  Our strategy is to sell
a significant portion of the remaining nonregulated generation through long-term
contracts  of various  durations.  Any  balance  will be sold in the spot market
through short-term agreements.
   OTHER.  In  2002  Minnesota  Power  canceled  plans  to  construct  a  225-MW
combined-heat-and-power  facility in Grand Rapids,  Minnesota,  because its cost
was too high.  Minnesota  Power also  indefinitely  delayed plans to build a $70
million  160-MW  natural  gas-fired  electric  generating  facility in Superior,
Wisconsin,  due to lack of growth in the region and the unsettled nature of both
the economy and wholesale power markets.  As a result of this indefinite  delay,
ALLETE's 2002 earnings  included a $5.5 million charge.
   In 2002 the  Company  sold 1.2 million MWh of  nonregulated  generation  (0.2
million in both 2001 and 2000).

- --------------------------------------------------------------------------------
                                     PAGE 24


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                                     PART I


REGULATORY ISSUES
   We are exempt from regulation under the Public Utility Holding Company Act of
1935, except as to Section 9(a)(2) which relates to acquisition of securities of
public utility companies.
   We are subject to the  jurisdiction of various  regulatory  authorities.  The
MPUC has regulatory  authority over Minnesota Power's service area in Minnesota,
retail rates,  retail  services,  issuance of securities and other matters.  The
FERC  has  jurisdiction  over  the  licensing  of  hydroelectric  projects,  the
establishment  of rates and charges for the sale of  electricity  for resale and
transmission of electricity in interstate  commerce,  and certain accounting and
record  keeping  practices.  The PSCW has  regulatory  authority over the retail
sales of  electricity,  water  and gas by  SWL&P.  The  MPUC,  FERC and PSCW had
regulatory authority over 25%, 3% and 3%, respectively, of our 2002 consolidated
operating revenue.
   ELECTRIC  RATES.  Minnesota  Power has  historically  designed  its  electric
service rates based on cost of service studies under which  allocations are made
to the various  classes of customers.  Nearly all retail sales  include  billing
adjustment  clauses which adjust electric  service rates for changes in the cost
of fuel  and  purchased  energy,  and  recovery  of  current  and  deferred  CIP
expenditures.
   In addition  to Large  Power  Customer  contracts,  Minnesota  Power also has
contracts with large industrial and commercial customers with monthly demands of
more than 2 MW but less  than 10 MW of  capacity.  The terms of these  contracts
vary depending  upon the  customer's  demand for power and the cost of extending
Minnesota Power's facilities to provide electric service.
   Minnesota Power requires that all large  industrial and commercial  customers
under contract specify the date when power is first required, and thereafter the
customer  is billed  monthly  for at least  the  minimum  power  for which  they
contracted.  These  conditions  are part of all contracts  covering  power to be
supplied  to new  large  industrial  and  commercial  customers  and to  current
customers as their contracts expire or are amended. All rates and other contract
terms are subject to approval by appropriate regulatory authorities.
   FEDERAL ENERGY  REGULATORY  COMMISSION.  The FERC has  jurisdiction  over our
wholesale  electric  service and  operations.  Minnesota  Power's  hydroelectric
facilities,  which are located in  Minnesota,  are  licensed  by the FERC.  (See
Environmental Matters - Water.)
   Minnesota  Power has  long-term  contracts  with 16 Minnesota  municipalities
receiving  wholesale  electric  service.  Two contracts are for service  through
2005,  while the other 14 are for service  through at least 2007.  All contracts
limit FERC rate increases on a cumulative  basis.  In 2002  municipal  customers
purchased 715,000 MWh from Minnesota Power.
   In  February  2001  Minnesota  Power and  SWL&P  became  members  of the MISO
pursuant to FERC's Order No. 2000 and Wisconsin  state law.  Minnesota Power and
SWL&P retain ownership of their respective  transmission assets and control area
functions,  but now  operate  their  transmission  network  under  the  regional
operational control of the MISO and take and provide  transmission service under
the MISO open access  transmission  tariff.  In December  2001 FERC approved the
MISO as the nation's first regional transmission  organization (RTO) under Order
No. 2000  criteria,  noting that it  believes  the MISO will  benefit the public
interest  by  enhancing  the  reliability  of  the  Midwest  electric  grid  and
facilitating and enhancing wholesale competition.  The MISO will accomplish this
primarily through standardization of rates, terms and conditions of transmission
service  over a broad  region  encompassing  all or parts of 20  states  and one
Canadian province,  and over 120,000 MW of generating capacity.  MISO operations
were phased in during the first half of 2002.
   The FERC is currently  developing rules for a standard market design intended
to further  define the functions and  transmission  tariff of the MISO and other
regional transmission providers. The MISO has filed proposed energy market rules
with FERC for day-ahead and real time energy markets and financial  transmission
rights. The MISO has requested assurances from FERC that all start-up costs will
be recoverable from market participants.
   Minnesota Power also participates in MAPP, a power pool operating in parts of
eight  states  in the Upper  Midwest  and in three  provinces  in  Canada.  MAPP
functions  include a regional  reliability  council  that  maintains  generation
reserve sharing requirements and a wholesale power and energy market committee.
   MINNESOTA PUBLIC  UTILITIES  COMMISSION.  Minnesota  Power's retail rates are
based on a 1994 MPUC retail rate order that allows for an 11.6% return on common
equity dedicated to utility plant.
   Minnesota  requires  investor owned electric  utilities to spend a minimum of
1.5% of gross annual retail electric revenue on CIP each year. These investments
are recovered  from retail  customers  through a billing  adjustment and amounts
included in retail base rates.  The MPUC allows  utilities to  accumulate,  in a
deferred account for future recovery, all CIP expenditures as well as a carrying
charge  on  the  deferred  account  balance.  Minnesota  Power's  2000/2001  CIP
investment  goal was $2.7 million each year with actual spending at $1.9 million
and $2.6 million, respectively.  Minnesota Power's 2002/2003 CIP investment goal
is $2.9 million each year.  During 2002  Minnesota  Power  invested $4.0 million
which  satisfied  current  spending  requirements  and all prior years' spending
shortfalls.
   PUBLIC  SERVICE  COMMISSION OF WISCONSIN.  SWL&P's  current  retail rates are
based on a September 2001 PSCW retail rate order that allows for a 12.25% return
on common  equity.
   In May 2002  SWL&P  filed an  application  with  the  PSCW for  authority  to
increase retail utility rates 4.5%. This average increase is comprised of a 6.8%
increase in gas rates, a 19.2% increase in water rates and no change in electric
rates. The

- --------------------------------------------------------------------------------
                                     PAGE 25


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                                     PART I


proposed  increases are due in part to the completion of  construction  projects
that added a second gas supply line into  Superior,  Wisconsin,  and replaced an
aging well system in the water  utility.  SWL&P is requesting a 12.25% return on
common  equity.  Hearings  have been held and a final  order is  expected in the
spring of 2003.
   Minnesota Power, the American Transmission Company (ATC) and Wisconsin Public
Service Corporation,  filed new cost estimates with the PSCW estimating that the
Wausau-to-Duluth  electric transmission line will cost $396 million. When it was
proposed,  the line had been projected to cost about $215 million. The increased
costs for the  220-mile,  345-kV  line are  attributable  to higher  prices  for
construction  materials,  increased  payments  to  landowners,  more  aggressive
environmental  safeguards and a different estimating system used by ATC. Despite
the cost increase,  Minnesota  Power and  transmission  planners  throughout the
region  believe the  transmission  line is  necessary.  Minnesota  Power will be
actively  involved in the permitting and construction  activities;  however,  it
does not intend to finance nor own the proposed line.
   The PSCW must approve the ownership,  control and operation of any affiliated
wholesale nonregulated  generating plants in Wisconsin.  (See Wholesale Electric
Sales.)

COMPETITION
   INDUSTRY RESTRUCTURING. State and federal efforts to restructure the electric
utility  industry  have  slowed  amid  concerns  fueled by  California's  retail
competition  experience  and  Enron  Corp.'s  collapse,  among  others.  At  the
wholesale level, the FERC is in the midst of a major rulemaking  called Standard
Market  Design  (SMD).  Once  implemented,   SMD  should  facilitate   wholesale
transactions  by  improving  the   functionality   of  the  wholesale   electric
transmission market.
   New federal  legislation  has been proposed  that,  among other things and in
concert with the FERC's efforts, aims to maintain reliability,  assures adequate
energy  supply  and  addresses  wholesale  price  volatility  while  encouraging
wholesale competition.  Legislation or regulation that initiates a process which
may lead to retail customer choice of their electric service provider  currently
lacks momentum in both Minnesota and  Wisconsin.  Federal and state  legislative
and regulatory activity,  as well as the actions of competitors,  affect the way
Minnesota Power strategically plans for its future. We cannot predict the timing
or substance of any future legislation or regulation.

FRANCHISES
   Minnesota  Power  holds  franchises  to  construct  and  maintain an electric
distribution and  transmission  system in 90 cities and towns located within its
electric service territory. SWL&P holds similar franchises for electric, natural
gas and/or water  systems in 15 cities and towns  within its service  territory.
The  remaining  cities and towns  served do not require a  franchise  to operate
within their boundaries.  Our exclusive  service  territories are established by
state regulatory agencies.

ENVIRONMENTAL MATTERS
   Certain  businesses  included in our Energy  Services  segment are subject to
regulation by various federal, state and local authorities of air quality, water
quality,  solid  wastes  and other  environmental  matters.  We  consider  these
businesses to be in substantial compliance with those environmental  regulations
currently  applicable to their  operations and believe all necessary  permits to
conduct such operations have been obtained.  Environmental  laws and regulations
are constantly  evolving.  Due to their  uncertainty,  the character,  scope and
ultimate  costs of  emerging  environmental  compliance  requirements  cannot be
estimated.
   AIR.  Minnesota  Power's  generating  facilities  in  Minnesota  burn  mainly
low-sulfur  western  sub-bituminous  coal and  Square  Butte,  located  in North
Dakota,  burns lignite coal. All of these facilities are equipped with pollution
control equipment such as scrubbers,  baghouses or electrostatic  precipitators.
The federal Clean Air Act  Amendments  of 1990 (Clean Air Act) created  emission
allowances for sulfur dioxide.  Each allowance is an  authorization  to emit one
ton of sulfur dioxide, and each utility must have sufficient allowances to cover
its annual emissions.  Sulfur dioxide emission  requirements are currently being
met by all of Minnesota  Power's  generating  facilities.  Most Minnesota  Power
facilities have surplus  allowances.  Taconite Harbor expects to meet its sulfur
dioxide  requirements by annually  purchasing  allowances,  since it receives no
allowance  allocation.  Square  Butte  anticipates  meeting  its sulfur  dioxide
requirements  through  increased  use of  existing  scrubbers  and  by  annually
purchasing additional allowances as necessary.
   In accordance with the Clean Air Act, the EPA has established  nitrogen oxide
limitations for electric  generating units. To meet nitrogen oxide  limitations,
Minnesota Power installed advanced low-emission burner technology and associated
control  equipment to operate the Boswell and Laskin  facilities at or below the
compliance emission limits. Nitrogen oxide limitations at Square Butte are being
met by combustion tuning.
   Minnesota Power has obtained all necessary Title V air operating permits from
the MPCA for its applicable facilities to conduct electric operations.
   In December 2000 the EPA announced its decision to regulate mercury emissions
from coal and  oil-fired  power plants  under  Section 112 of the Clean Air Act.
Section 112 will require all such power plants in the United States to adhere to
the EPA maximum  achievable  control  technology  (MACT)  standards for mercury.
Final regulations  defining control  requirements are planned for December 2004.
Cost estimates would be premature at this time.
   In May 2002 Minnesota  Power received and  subsequently  responded to a third
request from the EPA, under Section 114 of the Clean Air Act, seeking additional
information

- --------------------------------------------------------------------------------
                                     PAGE 26


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                                     PART I



regarding  capital  expenditures at all of its coal-fired  generating  stations.
This action is part of an industry-wide  investigation assessing compliance with
the New Source Review  and  the  New  Source  Performance  Standards  (emissions
standards  that apply to new and changed units) of the Clean Air Act at electric
generating  stations.  We are  unable to predict  whether  the EPA will take any
action on this matter or whether  Minnesota  Power will be required to incur any
costs as a result.
   In December  2002 the EPA issued  changes to the existing  New Source  Review
rules.  These changes are not expected to result in any  significant  additional
costs to Minnesota Power. The EPA also proposed changes  clarifying  application
of  certain  sections  of the  New  Source  Review  rules.  Minnesota  Power  is
evaluating the proposal.  After taking  comments in early 2003, the EPA plans to
go through a new rule making process over the next one to two years.
   In June 2002 Minnkota Power, the operator of Square Butte,  received a Notice
of Violation from the EPA regarding  alleged New Source Review violations at the
M.R.  Young Station which  includes the Square Butte  generating  unit.  The EPA
claims  certain  capital  projects  completed by Minnkota Power should have gone
through the New Source Review  process  potentially  resulting in new air permit
operating  conditions.  The  Company  is unable to predict  the  outcome of this
matter  or the  magnitude  of costs  should  additional  pollution  controls  be
required.  Minnesota  Power is  obligated  to pay its pro rata  share of  Square
Butte's  costs  based on  Minnesota  Power's  entitlement  to the  Square  Butte
generating unit's output. (See Note 13.)
   WATER. The Federal Water Pollution Control Act of 1972 (FWPCA), as amended by
the Clean Water Act of 1977 and the Water Quality Act of 1987,  established  the
National  Pollutant  Discharge  Elimination  System (NPDES) permit program.  The
FWPCA  requires  NPDES permits to be obtained from the EPA (or, when  delegated,
from individual state pollution control agencies) for any wastewater  discharged
into navigable waters. Minnesota Power has obtained all necessary NPDES permits,
including  NPDES storm water permits for applicable  facilities,  to conduct its
electric operations.
   Minnesota  Power holds FERC licenses  authorizing the ownership and operation
of seven  hydroelectric  generating projects with a total generating capacity of
about 115 MW. In June 1996  Minnesota  Power filed in the U.S.  Court of Appeals
for the  District  of Columbia  Circuit a petition  for review of the license as
issued by the FERC for Minnesota Power's St. Louis River Hydro Project. Separate
petitions for review were also filed by the U.S.  Department of the Interior and
the  Fond  du Lac  Band  of Lake  Superior  Chippewa  (Fond  du Lac  Band),  two
intervenors  in the  licensing  proceedings.  The court  consolidated  the three
petitions for review and suspended the briefing  schedule while  Minnesota Power
and the Fond du Lac Band negotiate the reasonable fee for use of tribal lands as
mandated  by the new  license.  Both  parties  informed  the  court  that  these
negotiations may resolve other disputed issues, and they are obligated to report
periodically  to the court the status of these  discussions.  Beginning in 1996,
and most recently in January 2002,  Minnesota Power filed requests with the FERC
for extensions of time to comply with certain plans and studies  required by the
license that might  conflict with the  settlement  discussions.  The Fond du Lac
Band and Minnesota  Power have reached a confidential  settlement  agreement for
the St. Louis River Hydro Project and have  included the U.S.  Department of the
Interior  in the  settlement  process  in an effort to  achieve a  comprehensive
agreement  with all  intervening  parties  to the  project  license.  Any  final
settlement  must be  approved  by the FERC,  who would  then  amend the  project
license in accordance with the settlement agreement.
   SOLID AND HAZARDOUS WASTE. The Resource Conservation and Recovery Act of 1976
regulates the management and disposal of solid wastes and hazardous wastes. As a
result of this  legislation,  the EPA has  promulgated  various  hazardous waste
rules. Minnesota Power is required to notify the EPA of hazardous waste activity
and routinely  submits the necessary annual reports to the EPA. The MPCA and the
Wisconsin   Department  of  Natural   Resources   (WDNR)  are   responsible  for
administering  solid and hazardous waste rules on the state level with oversight
by the EPA.
   During 2002 Minnesota Power constructed a dry ash disposal landfill to handle
ash generated from Taconite Harbor. The landfill cost approximately $800,000.
   In response to EPA Region V's request for  utilities  to  participate  in the
Great  Lakes  Initiative  by  voluntarily  removing  remaining   polychlorinated
biphenyl  (PCB)  inventories,  Minnesota  Power  has  scheduled  replacement  of
PCB-contaminated  oil by the end of 2004. The total cost is expected to be about
$2.0 million of which $1.3 million was spent through December 31, 2002.
   In May 2001 SWL&P received notice from the WDNR that the City of Superior had
found soil contamination on property  adjoining a former  Manufactured Gas Plant
(MGP) site owned and  operated by SWL&P's  predecessors  from 1889 to 1904.  The
WDNR requested an environmental investigation be initiated. The WDNR also issued
SWL&P a Responsible  Party letter in February  2002 to initiate  tracking of the
project  in  the  WDNR  database  so  that   progress  can  be  monitored.   The
environmental investigation is underway and the Company is unable to predict the
outcome of this matter at this time.

- --------------------------------------------------------------------------------
                                     PAGE 27


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                                     PART I


AUTOMOTIVE SERVICES

   Automotive Services includes several  subsidiaries that are integral parts of
the vehicle redistribution  business.  Automotive Services plans to grow through
increased sales at existing businesses, selective acquisitions in both wholesale
and total loss vehicle  auction  facilities,  integration  of total loss vehicle
services at certain  wholesale  vehicle  auction  facilities  and  expansion  of
services to customers.  The discussion  below summarizes the major businesses we
include in  Automotive  Services.  Statistical  information  is  presented as of
December 31, 2002 unless otherwise indicated.  All subsidiaries are wholly owned
unless otherwise specifically indicated.
   ADESA is the  second  largest  wholesale  vehicle  auction  network  in North
America.  Headquartered  in  Indianapolis,  Indiana,  ADESA owns (or leases) and
operates 52 wholesale 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.  Initiated in 2002,  ADESA holds auctions
in Mexico  City,  Mexico,  in  partnership  with Ford  Motor  Company  at Ford's
facilities.  Sellers at ADESA's  auctions  include  domestic  and  foreign  auto
manufacturers,  car dealers, automotive fleet/lease companies, banks and finance
companies.  During the sales  process,  ADESA does not  typically  take title to
vehicles.
   The table on the next page  lists the  wholesale  vehicle  auctions  owned or
leased by ADESA. Each auction is a multi-lane,  drive-through  facility, and has
additional buildings for reconditioning,  registration,  maintenance,  bodywork,
and other ancillary and  administrative  services.  Each auction also has secure
parking areas to store vehicles for auction.
   New facilities are under construction in Atlanta,  Georgia;  Long Island, New
York; and Edmonton,  Alberta. The new facility in Long Island is a greenfield (a
newly constructed facility in a new market), while the new facilities in Atlanta
and Edmonton will replace  aging  facilities  that are too small to  efficiently
serve our growing customer demand. All three are expected to open in 2003.
   ADESA  IMPACT in the U.S.  and  IMPACT  AUTO in  Canada,  collectively  ADESA
Impact, represent the third largest total loss vehicle service business in North
America.  They provide total loss vehicle  auction  services to the property and
casualty  insurance  industry,  and vehicle  leasing  and rental car  companies.
Buyers reclaim and recycle total loss vehicles. ADESA Impact provides total loss
vehicle claim  services such as vehicle  appraisals,  inspections,  evaluations,
titling and settlement  administration  to its clients.  Auto imaging,  Internet
bidding and vehicle enhancement  services are provided through an array of total
loss management  programs.  ADESA Impact has 25 total loss auction facilities in
the United States and Canada.  United States  operations  are  headquartered  in
Indianapolis,  Indiana,  and Canadian  operations are  headquartered in Toronto,
Ontario.
   COMSEARCH provides  professional  claim outsourcing  services to the property
and casualty insurance industry and is the nation's largest automobile  recycled
part  locating  service,  processing  over  100,000 part  searches a month.  Our
locating service has over 2,300 customers. ComSearch's services complement ADESA
Impact's business. ComSearch is headquartered in Warren, Rhode Island.
   AFC provides inventory financing for automobile dealers who purchase vehicles
from ADESA  auctions,  independent  auctions,  other auction  chains and outside
sources. AFC is headquartered in Indianapolis,  Indiana,  and, as of February 1,
2003,  has 81 loan  production  offices at or near auto  auctions  across  North
America.  These offices provide qualified dealers credit to purchase vehicles at
any of the 500 plus auctions and other outside  sources  approved by AFC.  AFC's
computer-based  system  follows each loan from  origination to payoff and allows
AFC to better manage its business,  while expediting services through its branch
network to 17,000 registered dealers.
   PAR,  which is doing  business  as PAR  North  America,  provides  customized
vehicle  remarketing  services  to various  companies  such as banks,  non-prime
finance companies,  captive finance,  leasing  companies,  commercial fleets and
rental car  companies  throughout  the United  States.  PAR's  services  include
nationwide repossessions,  remarketing, pre- and post-term lease-end management,
50-state titling services and Canadian  registrations turned to U.S. titles. PAR
offers its telemarketing  service through its affiliate company,  EndTrust.  PAR
has its headquarters in Carmel, Indiana.
   AUTOVIN provides technology-enabled vehicle inspection services and inventory
auditing  to  the  automotive  industry  and  the  industry's  secured  lenders.
AutoVIN's services include vehicle condition reporting,  inventory  verification
auditing, program compliance auditing and facility inspection.

COMPETITION
   In the wholesale  vehicle  market,  ADESA competes with Manheim  Auctions,  a
subsidiary  of Cox  Enterprises,  Inc.,  as well as  several  smaller  chains of
auctions,  and independent  auctions some of which are affiliated  through their
membership in an industry organization named ServNet(R). Due to ADESA's national
presence,  competition is strongest with Manheim for the supply of vehicles from
the national level accounts such as manufacturers,  fleet/lease companies, banks
and finance companies.  Although the supply of these vehicles is dispersed among
all of the auctions in the wholesale vehicle market, ADESA competes most heavily
with the independent  auctions (as well as Manheim and all others in the market)
for the supply of  vehicles  from both the  franchised  used car dealers and the
independent used car dealers. Due to the increased acceptance of e-business as a
standard  business  practice,  new  competition  has arisen  over the years from
Internet-based  companies and our own customers who supply vehicles for auction.
ADESA

- --------------------------------------------------------------------------------
                                     PAGE 28


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                                     PART I
<TABLE>
<CAPTION>
                                                                                           YEAR             NUMBER OF
                                                              STATE/                    OPERATIONS           AUCTION
ADESA AUCTIONS <F1>                 CITY                      PROVINCE                   COMMENCED            LANES
=======================================================================================================================
<S>                                 <C>                       <C>                       <C>                 <C>
United States
      ADESA Birmingham              Moody                     Alabama                      1987                 10
      ADESA Phoenix                 Chandler                  Arizona                      1988                 12
      ADESA Little Rock <F2>        North Little Rock         Arkansas                     1984                 10
      ADESA Los Angeles             Mira Loma                 California                   2000                  6
      ADESA Sacramento              Sacramento                California                   1997                  5
      ADESA San Diego               San Diego                 California                   1982                  6
      ADESA Golden Gate <F2>        Tracy                     California                   2002                 12
      ADESA Colorado Springs        Colorado Springs          Colorado                     1982                  5
      ADESA Clearwater <F2>         Clearwater                Florida                      1972                  4
      ADESA Jacksonville            Jacksonville              Florida                      1996                  6
      ADESA Ocala <F3>              Ocala                     Florida                      1996                  5
      ADESA Orlando-Sanford         Sanford                   Florida                      1987                  8
      ADESA Tampa                   Tampa                     Florida                      1989                  8
      ADESA Atlanta                 Newnan                    Georgia                      1986                  6
      ADESA Southern Indiana        Edinburgh                 Indiana                      1997                  3
      ADESA Indianapolis            Plainfield                Indiana                      1983                 10
      ADESA Des Moines              Grimes                    Iowa                         1967                  5
      ADESA Lexington               Lexington                 Kentucky                     1982                  6
      ADESA Ark-La-Tex              Shreveport                Louisiana                    1979                  5
      ADESA Concord                 Acton                     Massachusetts                1947                  5
      ADESA Boston <F2>             Framingham                Massachusetts                1995                 11
      ADESA Lansing                 Dimondale                 Michigan                     1976                  5
      ADESA St. Louis               Barnhart                  Missouri                     1987                  3
      ADESA Kansas City             Lee's Summit              Missouri                     1963                  7
      ADESA New Jersey              Manville                  New Jersey                   1996                  8
      ADESA Buffalo                 Akron                     New York                     1992                 10
      ADESA Charlotte <F2>          Charlotte                 North Carolina               1994                 10
      ADESA Cincinnati/Dayton       Franklin                  Ohio                         1986                  8
      ADESA Cleveland <F2>          Northfield                Ohio                         1994                  8
      ADESA Tulsa                   Tulsa                     Oklahoma                     1987                  6
      ADESA Pittsburgh              Mercer                    Pennsylvania                 1971                  8
      ADESA Knoxville <F2>          Lenoir City               Tennessee                    1984                  6
      ADESA Memphis                 Memphis                   Tennessee                    1990                  6
      ADESA Austin <F2>             Austin                    Texas                        1990                  6
      ADESA Houston                 Houston                   Texas                        1995                  8
      ADESA Dallas                  Mesquite                  Texas                        1990                  8
      ADESA San Antonio             San Antonio               Texas                        1989                  8
      ADESA Seattle                 Auburn                    Washington                   1984                  4
      ADESA Wisconsin               Portage                   Wisconsin                    1984                  5
Canada
      ADESA Calgary                 Airdrie                   Alberta                      2000                  4
      ADESA Edmonton <F2>           Edmonton                  Alberta                      1988                  3
      ADESA Vancouver <F2>          Richmond                  British Columbia             2002                  7
      CAG Vancouver <F2>            Surrey                    British Columbia             1986                  2
      ADESA Winnipeg                Winnipeg                  Manitoba                     1987                  4
      ADESA Moncton                 Moncton                   New Brunswick                1987                  2
      ADESA St. John's <F2>         St. John's                Newfoundland                 1994                  1
      ADESA Halifax                 Enfield                   Nova Scotia                  1993                  5
      ADESA Kitchener               Ayr                       Ontario                      1988                  4
      ADESA Toronto                 Brampton                  Ontario                      1987                  8
      ADESA Ottawa                  Vars                      Ontario                      1990                  5
      ADESA Montreal                St. Eustache              Quebec                       1974                 12
      ADESA Saskatoon <F2>          Saskatoon                 Saskatchewan                 1980                  2
=======================================================================================================================
<FN>
<F1> INITIATED IN  2002, ADESA HOLDS AUCTIONS IN  MEXICO CITY, MEXICO IN  PARTNERSHIP WITH FORD MOTOR COMPANY AT FORD'S
     FACILITIES.
<F2> LEASED AUCTION FACILITIES. (SEE NOTE 13.)
<F3> ADESA OWNS 51% OF THIS AUCTION BUSINESS.
</FN>
</TABLE>

- --------------------------------------------------------------------------------
                                     PAGE 29

<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                                     PART I


competes for these  customers by attempting to attract a large number of dealers
to purchase vehicles,  which ensures  competitive prices and supports the volume
of vehicles  auctioned.  ADESA is also  competitive by providing a full range of
automotive  services,  including  dealer  inventory  financing,   reconditioning
services that prepare vehicles for auction and processing of sales transactions.
   Other factors affect the  competition for supply of vehicles sold at auction.
The rental car market has yet to re-fleet up to levels  prior to  September  11,
2001,   and   manufacturer   incentives   on  new  vehicles   temporarily,   but
significantly, disrupted the price spreads between new and used vehicles. During
most of 2002 and into 2003 aggressive  financing  incentives  offered by vehicle
manufacturers have lowered the cost of owning a new vehicle, which, in turn, has
depressed  prices for  late-model  used  vehicles.  This  reduced  the number of
vehicles sold at auctions because car dealers  restocked their  inventories from
the increased  volume of  late-model  vehicles  traded in for new vehicles,  and
sellers at auction tended to hold their vehicles rather than immediately  accept
the  lower  prices.  Vehicle  manufacturers  have  also  begun  to  offer  their
end-of-term   lease  vehicles  and  other  program   vehicles  for  sale  online
electronically  prior to the  vehicles  being  offered  for  sale at a  physical
auction location. As a result, there has been a negative effect on the value and
quantity of the vehicles that are offered for sale at ADESA auction facilities.
   ADESA  utilizes  e-commerce  as another  component  in its array of services.
Dealers are  provided  training  on how to use online  products,  including  the
purchase of vehicles  online.  The dealers can also access auction  runlists and
other market report information offered on ADESA's website, www.adesa.com. ADESA
believes it has a  competitive  advantage in a small but growing  segment of the
used vehicle  market  combining  online  services  with auction  facilities  and
knowledgeable auction personnel located across North America.
   AFC is the largest  provider of dealer  floorplan  financing  to  independent
automobile dealers in North America.  AFC's competition includes other specialty
lenders,  banks and other financial  institutions.  AFC has distinguished itself
from its competitors by convenience of payment,  quality of service and scope of
services offered.
   PAR  provides  customized  remarketing  services  throughout  North  America.
Although other providers are larger in size and volume,  PAR's competition comes
from a handful of similar service providers, none of which offer as many diverse
services. PAR offers an interactive website, electronically connecting customers
with its services and includes  interactive  connection with repossession agents
and  auction  vendor  networks.  PAR's  affiliation  with  EndTrust  gives  it a
competitive  edge in gaining market share in the lease-end  management  services
arena.
   In the total loss vehicle market, ADESA Impact competes against Copart, Inc.,
Insurance  Auto  Auctions,   Inc.,  independent  auctions,  some  of  which  are
affiliated   through  their  membership  in  an  industry   organization   named
SADISCO(R),  and wholesale  vehicle auctions that regularly  remarket total loss
vehicles  in certain  locations.  Additionally,  the  dismantlers  of total loss
vehicles and internet  based  companies  have entered the market thus  providing
alternate  avenues for the suppliers to remarket their total loss  vehicles.  We
believe  through  strategic  acquisitions,  shared  facilities  with ADESA,  and
greenfield  expansion  that  ADESA  Impact  can  become a  prominent  total loss
services  provider to the insurance  industry in the United  States.  We believe
further  consolidation of the total loss vehicle auction industry will occur and
are  evaluating  various  means by which we can  continue  our growth  plan.  In
Canada, ADESA Impact is the largest provider of total loss vehicle services. Its
competitors  include auto recyclers and dismantlers,  independent auto auctions,
brokers  and  Internet   auction   companies.   ADESA  Impact   believes  it  is
strategically  positioned  in this  niche  market in  providing  a full array of
value-added  services to its  insurance  clients  including  auctions,  Internet
programs, data analyses, consultation, the services of ComSearch and other total
loss vehicle services throughout North America.

ENVIRONMENTAL MATTERS
   Certain  businesses  in  our  Automotive  Services  segment  are  subject  to
regulation  by  various  federal,  state and local  authorities  concerning  air
quality,  water  quality,  solid  wastes  and other  environmental  matters.  We
consider  these   businesses  to  be  in  substantial   compliance   with  those
environmental  regulations  currently applicable to their operations and believe
all necessary  permits to conduct such operations have been obtained.  We do not
currently  anticipate  that potential  capital  expenditures  for  environmental
matters will be material.  However,  because  environmental laws and regulations
are  constantly   evolving,   the   character,   scope  and  ultimate  costs  of
environmental compliance cannot be estimated.


- --------------------------------------------------------------------------------
                                     PAGE 30


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                                     PART I


INVESTMENTS AND CORPORATE CHARGES

   Our  Investments  and  Corporate  Charges  segment  consists  of real  estate
operations, investments in emerging technologies related to the electric utility
industry and corporate  charges.  Corporate  Charges represent general corporate
expenses,  including  interest,  not  specifically  related to any one  business
segment. The trading securities portfolio, previously a significant part of this
segment,  was liquidated  during the third quarter of 2002. The discussion below
summarizes  the  major  components  of the  Investments  and  Corporate  Charges
segment.  Statistical  information  is  presented as of December 31, 2002 unless
otherwise noted. All subsidiaries are wholly owned unless otherwise specifically
indicated.
   REAL  ESTATE  OPERATIONS.  Our real  estate  operations  include  CAPE  CORAL
HOLDINGS,  INC.; PALM COAST LAND, LLC; PALM COAST FOREST,  LLC; TOMOKA HOLDINGS,
LLC;  WINTER HAVEN CITI CENTRE,  LLC;  and an 80%  ownership in LEHIGH.  Through
subsidiaries, we own Florida real estate operations in six different locations:
   - Lehigh Acres with 1,000 acres of residential  and commercial  land, east of
     Fort Myers,  Florida;
   - Cape Coral,  located west of Fort Myers,  Florida, with 185 acres of mostly
     commercially  zoned land;
   - Palm Coast, a planned community  between St.  Augustine and  Daytona Beach,
     Florida,  with 16,000 acres of residential,commercial and industrial land;
   - Tomoka,  located near Ormand Beach, Florida with 6,200 acres of property;
   - Winter Haven, located in central Florida, with a retail shopping center and
     several  parcels of land adjacent to the shopping center that are available
     for sale; and
   - Sugarmill Woods with 330 home sites and some commercially and residentially
     zoned acreage in Citrus County,  Florida.
   Our real  estate  operations  may,  from time to time,  acquire  packages  of
diversified  properties  at low cost,  then add value through  entitlements  and
infrastructure enhancements, and sell the properties at current market prices.
   EMERGING  TECHNOLOGY  INVESTMENTS.  From 1985 through  2002 we have  invested
$49.9 million in start-up  companies which are developing  technologies that may
be utilized by the  electric  utility  industry.  We are  committed to invest an
additional $7.7 million  through 2007. The  investments  were first made through
emerging  technology funds (Funds) initiated by other electric utilities and us.
More recently,  we have made  investments  directly in privately held companies.
The  majority  of  our  direct  investments  relate  to  distributed  generation
technology,  such as micro  generation and fuel cell  technology.  Many of these
direct investments are also investments in the Funds' portfolios.
   The Funds have also made  investments  in  companies  that  develop  advanced
technologies to be used by the utility industry, including  electrotechnologies,
renewable  energy  technologies,  and software and  communications  technologies
related to utility customer support systems.
   Several of the companies in the Funds'  portfolios  completed  initial public
offerings (IPOs) in 2000. Subsequent to the public trading of the IPO companies,
the Funds will, in some instances,  distribute  publicly  tradable shares to us.
Some restrictions on sale may apply, including,  but not limited to, underwriter
lock-up  periods  that  typically  extend  for 180  days  following  an IPO.  As
companies  included in our emerging  technology  investments  are sold,  we will
recognize a gain or loss.
   Since going public,  the market value of the publicly traded  investments has
experienced significant volatility.  Our direct investment in the companies that
have gone public had a cost basis of  approximately  $10 million at December 31,
2002 ($7 million at December  31,  2001).  The  aggregate  market value of these
investments  at December 31, 2002 was  approximately  $6 million ($12 million at
December 31, 2001).
   We also have several  minority  investments  in the Funds and  privately-held
start-up  companies.  These  investments are accounted for under the cost method
and included with  Investments  on our  consolidated  balance  sheet.  The total
carrying  value of these  investments  was $38.7  million at  December  31, 2002
($40.6 million at December 31, 2001).
   Our policy is to  periodically  review these  investments  for  impairment by
assessing such factors as continued commercial viability of products,  cash flow
and earnings. Any impairment would reduce the carrying value of the investment.

ENVIRONMENTAL MATTERS
   Certain businesses  included in our Investments and Corporate Charges segment
are  subject to  regulation  by  various  federal,  state and local  authorities
concerning  air quality,  water  quality,  solid wastes and other  environmental
matters. We consider these businesses to be in substantial compliance with those
environmental  regulations  currently applicable to their operations and believe
all necessary  permits to conduct such operations have been obtained.  We do not
currently  anticipate  that potential  capital  expenditures  for  environmental
matters will be material.  However,  because  environmental laws and regulations
are  constantly   evolving,   the   character,   scope  and  ultimate  costs  of
environmental compliance cannot be estimated.


- --------------------------------------------------------------------------------
                                     PAGE 31


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                      EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>

EXECUTIVE OFFICERS                                                                                 INITIAL EFFECTIVE DATE
=========================================================================================================================
<S>                                                                                                <C>

DAVID G. GARTZKE, AGE 59
   Chairman, President and Chief Executive Officer                                                 January 23, 2002
   President                                                                                       August 28, 2001
   Senior Vice President - Finance and Chief Financial Officer                                     December 1, 1994

DONNIE R. CRANDELL, AGE 59
   Executive Vice President - ALLETE;
     President - ALLETE Water Services, Inc.; and                                                  September 6, 2001
     President and Chief Executive Officer - Florida Water
   Executive Vice President - ALLETE and President - ALLETE Properties, Inc.                       January 15, 1999
   Senior Vice President - ALLETE and President - ALLETE Properties, Inc.                          January 1, 1996

ROBERT D. EDWARDS, AGE 58
   Executive Vice President - ALLETE and
     Chief Executive Officer - Minnesota Power                                                     December 19, 2001
   Executive Vice President - ALLETE and President - Minnesota Power                               July 26, 1995

BRENDA J. FLAYTON, AGE 47
   Vice President - Human Resources                                                                July 22, 1998

JAMES P. HALLETT, AGE 49
   Executive Vice President - ALLETE and
     President and Chief Executive Officer - ALLETE Automotive Services, Inc.                      November 5, 2001
   Executive Vice President - ALLETE and Chief Executive Officer - ADESA                           October 1, 2001
   Executive Vice President - ALLETE and President and Chief Executive Officer - ADESA             April 23, 1997

PHILIP R. HALVERSON, AGE 54
   Vice President, General Counsel and Secretary                                                   January 1, 1996

MARK A. SCHOBER, AGE 47
   Vice President and Controller                                                                   April 18, 2001
   Controller                                                                                      March 1, 1993

DONALD J. SHIPPAR, AGE 53
   President and Chief Operating Officer - Minnesota Power                                         January 1, 2001

TIMOTHY J. THORP, AGE 48
   Vice President - Investor Relations and Corporate Communications                                November 16, 2001

JAMES K. VIZANKO, AGE 49
   Vice President, Chief Financial Officer and Treasurer                                           August 28, 2001
   Vice President and Treasurer                                                                    April 18, 2001
   Treasurer                                                                                       March 1, 1993

</TABLE>


- --------------------------------------------------------------------------------
                                     PAGE 32


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                                     PART I


   All of the  executive  officers  have been  employed by us for more than five
years in executive or management positions.  In the five years prior to election
to the positions  shown on the previous  page, Ms. Flayton was director of human
resources,  Mr. Shippar was Minnesota  Power's chief operating  officer,  senior
vice  president and vice president of  transmission  and  distribution,  and Mr.
Thorp was director of investor relations.
   There are no family relationships between any of the executive officers.  All
officers and directors are elected or appointed annually.
   The present term of office of the executive  officers  listed on the previous
page  extends  to the first  meeting  of our Board of  Directors  after the next
annual meeting of shareholders. Both meetings are scheduled for May 13, 2003.

ITEM 2.  PROPERTIES

   Properties  are included in the discussion of our business in Item 1. and are
incorporated by reference herein.

ITEM 3.  LEGAL PROCEEDINGS

   Material legal and regulatory  proceedings  are included in the discussion of
our business in Item 1. and are incorporated by reference herein.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

   No matters  were  submitted to a vote of security  holders  during the fourth
quarter of 2002.

- --------------------------------------------------------------------------------
                                     PART II


ITEM 5.  MARKET  FOR THE  REGISTRANT'S  COMMON  EQUITY AND  RELATED  STOCKHOLDER
         MATTERS

   We have paid dividends without interruption on our common stock since 1948. A
quarterly  dividend  of $0.2825  per share on our  common  stock will be paid on
March 1, 2003 to the holders of record on February 15, 2003. Our common stock is
listed on the New York Stock Exchange  under the symbol ALE.  Dividends paid per
share,  and the  high  and low  prices  for our  common  stock  for the  periods
indicated as reported by the New York Stock Exchange on its NYSEnet website, are
in the accompanying chart.
   The amount and timing of dividends payable on our common stock are within the
sole  discretion of our Board of  Directors.  In 2002 we paid out 66% of our per
share earnings in dividends.
   Our  Articles  of  Incorporation,  and  Mortgage  and Deed of  Trust  contain
provisions  which under  certain  circumstances  would  restrict  the payment of
common  stock  dividends.  As of December  31, 2002 no  retained  earnings  were
restricted  as a result of these  provisions.  At  January  31,  2003 there were
approximately 38,000 common stock shareholders of record.
<TABLE>
<CAPTION>

                                       PRICE RANGE
                                -------------------------          DIVIDENDS
QUARTER                          HIGH               LOW              PAID
================================================================================
<S>                             <C>               <C>              <C>
2002 - First                    $29.43            $24.25            $0.275
       Second                    31.10             27.09             0.275
       Third                     27.62             18.50             0.275
       Fourth                    23.80             18.65             0.275
- --------------------------------------------------------------------------------
       Annual Total                                                 $1.10
- --------------------------------------------------------------------------------
2001 - First                    $26.00            $20.19            $0.2675
       Second                    26.13             22.04             0.2675
       Third                     26.89             21.50             0.2675
       Fourth                    25.85             21.14             0.2675
- --------------------------------------------------------------------------------
       Annual Total                                                 $1.07
================================================================================
</TABLE>


- --------------------------------------------------------------------------------
                                     PAGE 33


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                                     PART II


ITEM 6.  SELECTED FINANCIAL DATA

   Operating  results  of our  Water  Services  businesses,  our auto  transport
business  and our retail  store are  included in  discontinued  operations  and,
accordingly,  amounts have been adjusted for all periods presented. Common share
and per share  amounts  have also been  adjusted  for all periods to reflect our
March 2, 1999 two-for-one common stock split.

<TABLE>
<CAPTION>

                                                  2002           2001          2000         1999          1998         1997
================================================================================================================================
MILLIONS

<S>                                             <C>            <C>           <C>          <C>           <C>          <C>
BALANCE SHEET

Assets
   Current Assets                               $  631.1       $  853.3      $  677.2     $  506.0      $  444.6     $  354.9
   Discontinued Operations - Current                27.3           42.2          41.5         43.7          29.1         21.9
   Property, Plant and Equipment                 1,364.9        1,323.3       1,201.1      1,003.4         955.5        948.1
   Investments                                     170.9          155.4         128.7        212.0         277.3        261.4
   Goodwill                                        499.8          494.4         472.8        181.0         169.8        158.9
   Other Assets                                    107.3          103.6          87.3         82.4          91.2         98.2
   Discontinued Operations - Other                 345.9          310.3         305.4        284.1         241.4        242.9
- --------------------------------------------------------------------------------------------------------------------------------
                                                $3,147.2       $3,282.5      $2,914.0     $2,312.6      $2,208.9     $2,086.3
- --------------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
   Current Liabilities                          $  708.8       $  658.6      $  661.9     $  366.1      $  326.3     $  317.7
   Discontinued Operations - Current                29.4           45.9          45.1         32.2          19.7         24.9
   Long-Term Debt                                  661.3          933.8         817.2        577.9         540.6        553.0
   Other Liabilities                               277.4          270.5         257.5        265.3         286.1        288.6
   Discontinued Operations - Other                 162.9          154.9         156.5        158.8         144.1        145.6
   Mandatorily Redeemable Preferred
      Securities of ALLETE Capital I                75.0           75.0          75.0         75.0          75.0         75.0
   Redeemable Preferred Stock                          -              -             -         20.0          20.0         20.0
   Shareholders' Equity                          1,232.4        1,143.8         900.8        817.3         797.1        661.5
- --------------------------------------------------------------------------------------------------------------------------------
                                                $3,147.2       $3,282.5      $2,914.0     $2,312.6      $2,208.9     $2,086.3
- --------------------------------------------------------------------------------------------------------------------------------

INCOME STATEMENT

Operating Revenue
   Energy Services                              $  630.3       $  618.7      $  586.4     $  553.1      $  558.9     $  541.2
   Automotive Services                             844.1          832.1         522.6        383.2         305.5        242.4
   Investments                                      32.5           74.8          77.4         57.8          55.5         60.7
- --------------------------------------------------------------------------------------------------------------------------------
                                                 1,506.9        1,525.6       1,186.4        994.1         919.9        844.3
- --------------------------------------------------------------------------------------------------------------------------------
Expenses
   Fuel and Purchased Power                        239.1          233.1         229.0        200.2         205.7        194.1
   Operations                                    1,008.0        1,007.3         725.3        595.8         538.7        492.8
   Interest Expense                                 62.2           74.7          58.8         49.5          54.6         53.2
- --------------------------------------------------------------------------------------------------------------------------------
                                                 1,309.3        1,315.1       1,013.1        845.5         799.0        740.1
- --------------------------------------------------------------------------------------------------------------------------------
Operating Income Before Capital Re and ACE         197.6          210.5         173.3        148.6         120.9        104.2
Income (Loss) from Investment in Capital Re
   and Related Disposition of ACE                      -              -          48.0        (34.5)         15.2         14.8
- --------------------------------------------------------------------------------------------------------------------------------
Operating Income from Continuing Operations        197.6          210.5         221.3        114.1         136.1        119.0
Distributions on Redeemable Preferred
   Securities of ALLETE Capital I                    6.0            6.0           6.0          6.0           6.0          6.0
Income Tax Expense                                  72.6           74.2          77.0         50.9          49.1         42.7
- --------------------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations                  119.0          130.3         138.3         57.2          81.0         70.3
Income from Discontinued Operations                 18.2            8.4          10.3         10.8           7.5          7.3
- --------------------------------------------------------------------------------------------------------------------------------
Net Income                                         137.2          138.7         148.6         68.0          88.5         77.6
Preferred Dividends                                    -              -           0.9          2.0           2.0          2.0
- --------------------------------------------------------------------------------------------------------------------------------
Earnings Available for Common Stock                137.2          138.7         147.7         66.0          86.5         75.6
Common Stock Dividends                              89.2           81.8          74.5         73.0          65.0         62.5
- --------------------------------------------------------------------------------------------------------------------------------
Retained (Deficit) in the Business              $   48.0       $   56.9      $   73.2     $   (7.0)     $   21.5     $   13.1
================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
                                     PAGE 34


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                                     PART II

<TABLE>
<CAPTION>

                                                2002           2001            2000           1999          1998         1997
================================================================================================================================
<S>                                            <C>            <C>             <C>            <C>           <C>         <C>
Shares Outstanding - Millions
    Year-End                                     85.6           83.9            74.7           73.5          72.3        67.1
    Average <F1>
        Basic                                    81.1           75.8            69.8           68.4          64.0        61.2
        Diluted                                  81.7           76.5            70.1           68.6          64.2        61.2
Diluted Earnings Per Share
    Continuing Operations                       $1.46 <F2>     $1.70           $1.96          $0.81         $1.23       $1.12
    Discontinued Operations                      0.22 <F3>      0.11 <F4>       0.15           0.16          0.12        0.12
- --------------------------------------------------------------------------------------------------------------------------------
                                                $1.68          $1.81           $2.11 <F5>     $0.97 <F5>    $1.35       $1.24
- --------------------------------------------------------------------------------------------------------------------------------
Return on Common Equity                         11.4%          13.3%           17.1% <F5>      8.3% <F5>    12.4%       12.1%
Common Equity Ratio                             51.7%          49.9%           46.3%          49.3%         49.9%       44.9%
Dividends Paid Per Share                        $1.10          $1.07           $1.07          $1.07         $1.02       $1.02
Dividend Payout                                   66%            59%             51% <F5>      110% <F5>      76%         83%
Book Value Per Share at Year-End               $14.39         $13.63          $12.06         $10.97        $10.86       $9.69
Market Price Per Share
    High                                       $31.10         $26.89          $25.50         $22.09        $23.13      $22.00
    Low                                        $18.50         $20.19          $14.75         $16.00        $19.03      $13.50
    Close                                      $22.68         $25.20          $24.81         $16.94        $22.00      $21.78
Market/Book at Year-End                          1.58           1.85            2.06           1.54          2.03        2.25
Price Earnings Ratio at Year-End                 13.5           13.9            11.8 <F5>      17.5 <F5>     16.3        17.6
Dividend Yield at Year-End                       4.9%           4.2%            4.3%           6.3%          4.6%        4.7%
Employees                                      14,181         13,763          12,633          8,246         7,003       6,817
Net Income
    Energy Services                            $ 41.8 <F2>    $ 51.7          $ 44.5         $ 46.0        $ 48.3      $ 44.2
    Automotive Services                          92.9           74.8            49.9           40.3          24.6        13.8
    Investments and Corporate Charges           (15.7)           3.8            43.9 <F5>     (29.1) <F5>     8.1        12.3
- --------------------------------------------------------------------------------------------------------------------------------
                                                119.0          130.3           138.3           57.2          81.0        70.3
    Discontinued Operations                      18.2 <F3>       8.4 <F4>       10.3           10.8           7.5         7.3
- --------------------------------------------------------------------------------------------------------------------------------
                                               $137.2         $138.7          $148.6          $68.0         $88.5       $77.6
- --------------------------------------------------------------------------------------------------------------------------------
Electric Customers - Thousands                  147.0          145.0           144.0          139.7         138.1       135.8
Electric Sales - Millions of MWh
    Utility                                      11.1           10.9            11.7           11.3          12.0        12.4
    Nonregulated                                  1.2            0.2             0.2              -             -           -
Regulated Power Supply - Millions of MWh
    Steam Generation                              7.2            6.9             6.4            6.2           6.3         6.1
    Hydro Generation                              0.5            0.5             0.5            0.7           0.6         0.6
    Long-Term Purchase - Square Butte             2.3            1.9             2.4            2.3           2.1         2.3
    Purchased Power                               1.8            2.3             3.1            2.6           3.2         3.8
- --------------------------------------------------------------------------------------------------------------------------------
                                                 11.8           11.6            12.4           11.8          12.2        12.8
- --------------------------------------------------------------------------------------------------------------------------------
Coal Sold - Millions of Tons                      4.6            4.1             4.4            4.5           4.2         4.2
Vehicles Sold - Thousands
    Wholesale                                   1,741          1,761           1,287          1,037           897         769
    Total Loss                                    175            148              33              -             -           -
Vehicles Financed - Thousands                     946            904             795            695           531         323
Capital Expenditures - Millions                $205.8         $153.0          $168.7          $99.7         $80.8       $72.2
================================================================================================================================
<FN>
<F1> EXCLUDES UNALLOCATED ESOP SHARES.
<F2> INCLUDED  A $5.5 MILLION, OR $0.07 PER SHARE, CHARGE RELATED  TO THE INDEFINITE DELAY OF A GENERATION PROJECT IN  SUPERIOR,
     WISCONSIN.
<F3> INCLUDES $3.9 MILLION, OR $0.05 PER SHARE, IN CHARGES TO COMPLETE THE  EXIT FROM THE AUTO TRANSPORT BUSINESS AND THE RETAIL
     STORE.
<F4> INCLUDED A $4.4 MILLION, OR $0.06 PER SHARE, ESTIMATED CHARGE TO EXIT THE AUTO TRANSPORT BUSINESS.
<F5> IN 2000 WE RECORDED A $30.4 MILLION, OR $0.44 PER SHARE, GAIN ON THE SALE OF 4.7 MILLION SHARES OF  ACE THAT WE RECEIVED IN
     1999 WHEN CAPITAL RE MERGED WITH ACE. AS  A RESULT OF THE  MERGER, IN 1999 WE RECORDED A $36.2 MILLION, OR $0.52 PER SHARE,
     CHARGE. EXCLUDING THE CAPITAL RE AND  ACE TRANSACTIONS, DILUTED EARNINGS PER SHARE  WERE $1.67 IN 2000 ($1.49 IN 1999), THE
     RETURN ON COMMON EQUITY WAS 13.6% IN 2000 (12.9% IN 1999), THE  DIVIDEND  PAYOUT WAS  64% IN  2000 (72% IN 1999), THE PRICE
     EARNINGS RATIO WAS 14.9 IN 2000 (11.4 IN 1999) AND NET INCOME FROM  INVESTMENTS AND CORPORATE CHARGES  WAS $29.3 MILLION IN
     2000 ($26.8 MILLION IN 1999).
</FN>
</TABLE>

- --------------------------------------------------------------------------------
                                     PAGE 35


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                                    PART II


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

<TABLE>
CONSOLIDATED OVERVIEW
<CAPTION>

                                               2002                    2001                2000
===================================================================================================
MILLIONS EXCEPT
   PER SHARE AMOUNTS

<S>                                          <C>                     <C>                 <C>
Operating Revenue
   Energy Services                           $  630.3                $  618.7            $  586.4
   Automotive Services                          844.1                   832.1               522.6
   Investments                                   32.5                    74.8                77.4
- ---------------------------------------------------------------------------------------------------
                                             $1,506.9                $1,525.6            $1,186.4
- ---------------------------------------------------------------------------------------------------
Operating Expenses
   Energy Services                           $  562.4                $  532.2            $  510.7
   Automotive Services                          691.8                   713.1               438.6
   Investments and
     Corporate Charges                           55.1                    69.8                63.8
- ---------------------------------------------------------------------------------------------------
                                             $1,309.3                $1,315.1            $1,013.1
- ---------------------------------------------------------------------------------------------------
Net Income
   Energy Services                             $ 41.8                  $ 51.7              $ 44.5
   Automotive Services                           92.9                    74.8                49.9
   Investments and
     Corporate Charges                          (15.7)                    3.8                43.9
- ---------------------------------------------------------------------------------------------------
   Continuing Operations                        119.0                   130.3               138.3
   Discontinued Operations                       18.2                     8.4                10.3
- ---------------------------------------------------------------------------------------------------
Net Income                                     $137.2                  $138.7              $148.6
- ---------------------------------------------------------------------------------------------------
     ADJUSTMENTS <F1>                             9.4                     4.4               (30.4)
- ---------------------------------------------------------------------------------------------------
     PRO FORMA                                 $146.6                  $143.1              $118.2
- ---------------------------------------------------------------------------------------------------
Diluted Average Shares
  of Common Stock                                81.7                    76.5                70.1
- ---------------------------------------------------------------------------------------------------
Diluted Earnings Per Share
  of Common Stock
  Continuing Operations                         $1.46                   $1.70               $1.96
  Discontinued Operations                        0.22                    0.11                0.15
- ---------------------------------------------------------------------------------------------------
Diluted Earnings Per Share                      $1.68                   $1.81               $2.11
- ---------------------------------------------------------------------------------------------------
     ADJUSTMENTS <F1>                            0.12                    0.06               (0.44)
- ---------------------------------------------------------------------------------------------------
     PRO FORMA                                  $1.80                   $1.87               $1.67
- ---------------------------------------------------------------------------------------------------
Return on Common Equity                         11.4%                   13.3%               17.1% <F1>
===================================================================================================
<FN>
<F1> INCLUDED INCOME AND EXPENSE ITEMS RELATED TO SIGNIFICANT EXIT AND DISPOSAL ACTIVITIES.
     2002 ENERGY  SERVICES  INCLUDED A $5.5  MILLION,  OR  $0.07 PER SHARE,  CHARGE  RELATED TO THE
          INDEFINITE DELAY OF A GENERATION  PROJECT IN SUPERIOR, WISCONSIN. DISCONTINUED OPERATIONS
          INCLUDED $3.9 MILLION, OR $0.05 PER SHARE, OF CHARGES TO EXIT THE AUTO TRANSPORT BUSINESS
          AND THE RETAIL STORE.
     2001 DISCONTINUED  OPERATIONS INCLUDED A $4.4 MILLION,  OR $0.06 PER SHARE, CHARGE TO EXIT THE
          AUTO TRANSPORT BUSINESS.
     2000 INVESTMENTS AND CORPORATE CHARGES  INCLUDED A $30.4 MILLION,  OR $0.44 PER SHARE, GAIN ON
          THE SALE OF ACE  COMMONSTOCK. EXCLUDING THIS GAIN, 2000 NET INCOME  FROM INVESTMENTS  AND
          CORPORATE CHARGES WAS $13.5 MILLION AND THE RETURN ON EQUITY WAS 13.6%. (SEE NOTE 6.)
</FN>
</TABLE>

   During 2002 we accomplished several important goals. We began simplifying our
Company  by  exiting  non-strategic   businesses  and  liquidating  the  trading
securities portfolio.  In doing so we will strengthen our balance sheet. We also
made  progress on the sale of our Water  Services  businesses  and continued our
efforts to communicate to investors our focus on our two core businesses, Energy
Services and Automotive Services.
   Net income and earnings per share for 2002 decreased 1% and 7%, respectively,
from the same period in 2001.  Factors  reflected in the comparison of 2002 with
2001 include:
   -   CHARGES. Net income for  2002 included $9.4 million of charges related to
       our exit  from non-strategic  businesses  and the  indefinite  delay of a
       generation project in Superior, Wisconsin ($4.4 million in 2001).
   -   GOODWILL. Earnings for 2001 included $11.3 million, or  $0.15  per share,
       of  goodwill  amortization expense. As  required  by  SFAS 142,  goodwill
       amortization was discontinued in 2002.
   -   REAL ESTATE TRANSACTION. Earnings for 2001 included an $11.1 million,  or
       $0.15 per share, gain associated with our largest ever single real estate
       transaction.
   -   COMMON STOCK ISSUANCE. The decrease in earnings per share was in part due
       to the issuance of 6.6 million shares of our common stock in  the  second
       quarter of 2001.
   We measure  performance  of our  operations  through  careful  budgeting  and
monitoring of contributions to consolidated net income by each business segment.

NET INCOME

   ENERGY SERVICES. Net income was down $9.9 million, or 19%, in 2002. Excluding
a charge  related to the indefinite  delay of a generation  project in Superior,
Wisconsin,  net income was down $4.4 million,  or 8%. The decrease was primarily
due to weak wholesale  power prices which  negatively  impacted  wholesale power
marketing activities. In 2001 our wholesale power marketing activities were more
profitable  due to warmer summer  weather and overall  market  conditions.  Weak
wholesale  power prices in 2002 more than offset the  positive  impact of an 11%
increase in megawatthour  sales.  Total  megawatthour sales were 12.3 million in
2002 (11.1 million in 2001; 11.9 million in 2000). The megawatthour increase was
mainly  attributable to about 500 MW of nonregulated  wholesale  generation that
came online in 2002; 1.2 million  megawatthours of nonregulated  generation were
sold in 2002 (0.2  million  in both 2001 and 2000).  Megawatthour  sales in 2001
reflected decreased sales to our taconite customers because of planned shutdowns
and reduced taconite  production.  Net income in 2001 also included the recovery
of $2.6 million for 1998 CIP lost margins.
   AUTOMOTIVE SERVICES. Net income in 2002 increased $18.1 million, or 24%, over
2001.  The  continued  growth in net  income  during  2002 was due to a mandated
goodwill amortization accounting change, lower interest expense and

- --------------------------------------------------------------------------------
                                     PAGE 36


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                                     PART II


improved  operating  efficiencies,  while during 2001 and 2000  acquisitions and
increased sales at both ADESA and AFC were the contributing factors. During 2001
ADESA  acquired or opened 13 auction  facilities (10 in 2000) that provide total
loss vehicle services to insurance  companies,  and added one wholesale  vehicle
auction facility (28 in 2000).
   At ADESA wholesale auction  facilities 1.7 million vehicles were sold in 2002
(1.8 million in 2001;  1.3 million in 2000).  Volumes were lower in 2002 because
the rental car market has yet to  re-fleet  up to levels  prior to the events of
September 11, 2001, and manufacturer incentives on new vehicles temporarily, but
significantly,  disrupted  the  price  spreads  between  new and used  vehicles.
Aggressive  financing  incentives offered by vehicle  manufacturers  lowered the
cost of owning a new vehicle,  which, in turn,  depressed  prices for late-model
used vehicles.  This reduced the number of vehicles sold at auctions because car
dealers  restocked  their  inventories  from the increased  volume of late-model
vehicles traded in for new vehicles, and sellers at auction tended to hold their
vehicles  rather than  immediately  accept the lower prices.  In 2001  increased
costs and  reduced  sales  volumes  because of  inclement  weather in early 2001
hampered  financial  results,  as did the  events of  September  11. For 2001 we
estimated  that the  impact of the events of  September  11  resulted  in a $3.5
million decrease to net income.  Costs of assimilating the 28 wholesale  vehicle
auction facilities acquired or opened in 2000 also impacted 2001 results.
   Conversion rates are the percentage of vehicles sold from those that were run
through  auction  lanes.  We  achieved  a 59%  conversion  rate  related  to our
wholesale vehicles sold for 2002 (58% for 2001; 59% for 2000).
   Despite unseasonably dry weather conditions in 2002 which usually means fewer
total loss  vehicles,  the  number of  vehicles  sold at our total loss  vehicle
auction  facilities  was higher in 2002  reflecting  expansion into new markets,
which  included  adding  total loss  auctions at some of our  wholesale  vehicle
auction  facilities.  At our total loss vehicle  auctions  175,000 vehicles were
sold in 2002 (148,000 in 2001; 33,000 in 2000).
   AFC contributed  38% of the net income from Automotive  Services in 2002 (40%
in 2001;  47% in 2000).  AFC has 81 loan  production  offices (82 in 2001; 86 in
2000). The growth of AFC's dealer/customer base from 15,000 in 2000 to 17,000 in
2002 has enabled AFC to finance more vehicles; 946,000 vehicles in 2002 (904,000
in 2001;  795,000 in 2000).  AFC managed  total  receivables  of $495 million at
December 31, 2002 ($500  million at December 31, 2001;  $436 million at December
31, 2000).
   INVESTMENTS AND CORPORATE  CHARGES  reported $19.5 million less net income in
2002 due to smaller real estate  transactions in 2002 and the liquidation of the
trading securities portfolio in the second half of 2002. In 2001 our real estate
operations  reported  stronger  sales  including  an $11.1  million  gain on its
largest single sale ever.  Our trading  securities  portfolio  earned a negative
1.5%  after-tax  annualized  return prior to  liquidation  in 2002 compared to a
positive 5.6% in 2001 (7.0% in 2000). The 2001 return on our trading  securities
portfolio reflected earnings on a lower average balance.  During 2000 we reduced
the size of our trading  securities  portfolio  to  partially  fund  significant
acquisitions made by Automotive  Services.  Net income in 2000 reflected a $30.4
million, or $0.44 per share, after-tax gain on the sale of 4.7 million shares of
ACE that we received in 1999 when Capital Re merged with ACE.
   Corporate  charges in 2002 and 2001 reflected  higher  interest  expense as a
result of debt issued to fund  strategic  initiatives  in early 2001.  Incentive
compensation expenses,  however, were lower in 2002. The decrease was attributed
in part to lower 2002  earnings.  Also,  2001 included  additional  expenses for
severance  packages.  In 2000  financial  results  reflected  the  resolution of
various federal and state tax issues which increased net income.
   DISCONTINUED  OPERATIONS included the operating results of our Water Services
businesses,  which are currently held for sale, our auto transport  business and
our retail store.
   Income from  discontinued  operations was up $9.8 million from 2001 primarily
due to the suspension of depreciation on our Water Services  assets. Income from
discontinued  operations included $7.5 million of depreciation expense after tax
in 2001 ($8.1 million in 2000).
   Our Water Services  businesses  reported an 8% increase in water  consumption
during 2002 as a result of drier weather  conditions  and  increased  customers.
Organic  customer growth was 4.5% in 2002.  Strategic  acquisitions and customer
growth  since  1999  within  our Water  Services  businesses  helped  temper the
negative  financial  impact  of  above-average  rainfall  in  Florida  and North
Carolina  during the majority of 2001 and  conservation  efforts in Florida.  In
addition,  operating  results for Water Services  reflected gains related to the
disposal of certain assets in 2001, an October 2000 rate increase implemented by
Heater Utilities, Inc. and regulatory relief granted in Florida in 2000.
   Income from  discontinued  operations  also  reflected  $3.9  million of exit
charges associated with the auto transport business and the retail store in 2002
and a $4.4 million charge to exit the auto transport business in 2001.

2002 COMPARED TO 2001

ENERGY SERVICES
   Utility  operations  include retail and wholesale  rate regulated  activities
under  the   jurisdiction   of  state  and   federal   regulatory   authorities.
Nonregulated/nonutility  operations consist of nonregulated  electric generation
(non-rate base generation sold at wholesale at market-based  rates), coal mining
and telecommunications  activities.  Nonregulated  generation operations consist
primarily  of  Taconite  Harbor in northern  Minnesota  and  generation  secured
through the

- --------------------------------------------------------------------------------
                                     PAGE 37


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                                     PART II


Kendall County power purchase agreement,  a 15-year agreement with NRG Energy at
a  facility  near  Chicago,  Illinois.
   OPERATING REVENUE in total was up $11.6 million,  or 2%, in 2002 as increased
revenue  from  nonregulated/nonutility  operations  was  partially  offset  by a
decrease in utility revenue.  Despite a slight increase in utility  megawatthour
sales,  utility revenue  decreased $33.1 million,  or 6%, due to lower wholesale
prices and fuel clause recoveries. Fuel clause recoveries decreased due to lower
purchased power costs in 2002. Total utility  megawatthour sales were up 2% over
the prior year  reflecting  increased  retail  sales to taconite  customers.  In
addition, utility revenue in 2001 included the recovery of $4.5 million for 1998
CIP lost margins.  Nonregulated/nonutility  revenue increased $44.7 million,  or
56%, in 2002  primarily as a result of about 500 MW of  nonregulated  generation
that came online in 2002.  There were 1.2 million  megawatthours of nonregulated
generation sold in 2002.
   OPERATING  EXPENSES  in  total  increased  $30.2  million,  or 6%,  in  2002.
Excluding the charge related to the indefinite delay of a generation  project in
Superior,  Wisconsin,  total operating expenses increased $20.7 million,  or 4%,
over 2001. The increase was attributable to additional expenses for nonregulated
generation that came online in 2002 which were partially offset by lower utility
operating  expenses.  Utility operating expenses were down $36.3 million, or 8%,
in 2002 primarily due to lower  purchased  power costs.  Lower  purchased  power
costs resulted from both lower wholesale  prices and a reduction in the quantity
of power purchased.  Extended planned  maintenance  outages in 2001 necessitated
higher  quantities  of  purchased  power  last  year.  Nonregulated/  nonutility
operating expenses  increased $66.5 million,  or 88%, over the prior year mainly
due to  expenses  for  nonregulated  generation  that came  online in 2002.  The
increase in  nonregulated/nonutility  operating  expenses also included the $9.5
million  charge related to the  indefinite  delay of the  generation  project in
Superior, Wisconsin.

AUTOMOTIVE SERVICES
   OPERATING  REVENUE was up $12.0 million,  or 1%, in 2002. At ADESA  wholesale
auction  facilities  the number of  vehicles  sold in 2002 were  similar to 2001
because  the rental car market  has yet to  re-fleet  up to levels  prior to the
events of  September  11,  2001,  and  manufacturer  incentives  on new vehicles
temporarily, but significantly, disrupted the price spreads between new and used
vehicles.
   Despite unseasonably dry weather conditions in 2002 which usually means fewer
total loss vehicles,  vehicles sold at our total loss vehicle auction facilities
were up 18% reflecting  expansion into new markets,  which included adding total
loss auctions at some of our wholesale  vehicle  auction  facilities.  Operating
revenue  from AFC was higher in 2002 due to a 5% increase  in vehicles  financed
through our loan production offices.
   OPERATING  EXPENSES  were down $21.3  million,  or 3%, in 2002 due to reduced
interest expense ($14.1 million) as a result of lower interest rates and a lower
debt balance,  the discontinuance of goodwill  amortization  ($13.7 million) and
improved  operating  efficiencies.  These decreases were partially  offset by an
increase in operating  expenses  incurred to  standardize  operations at all our
total loss  auction  facilities  and  expenditures  for  information  technology
initiatives.

INVESTMENTS AND CORPORATE CHARGES
   OPERATING REVENUE was down $42.3 million,  or 57%, in 2002 primarily due to a
large real estate transaction  recorded in 2001. Five large real estate sales in
2002  contributed  $8.5 million to revenue,  while in 2001 six large real estate
sales  contributed  $37.5  million to revenue,  one of which was our real estate
operations'  largest single  transaction  ever.  Operating  revenue in 2002 also
reflected  less  income  from  our  trading   securities   portfolio  which  was
substantially   liquidated   during  the  second   half  of  the  year  and  had
significantly lower returns during the year.
   OPERATING  EXPENSES  were down  $14.7  million,  or 21%,  in 2002  because of
expenses  associated  with  larger  real  estate  sales in 2001.  Also,  in 2001
additional expenses were incurred for incentive compensation.

2001 COMPARED TO 2000

ENERGY SERVICES
   OPERATING  REVENUE in total was up $32.3 million,  or 6%, in 2001  reflecting
increased revenue from nonregulated/  nonutility operations,  as well as a small
increase in utility revenue.  Despite a decrease in utility  megawatthour sales,
utility revenue increased $6.6 million,  or 1%, due to improved wholesale market
conditions  and higher fuel clause  recoveries,  as well as more demand  revenue
from Large Power Customers.  Total utility  megawatthour sales decreased 7% from
the prior  year  mainly due to  planned  shutdowns  and  reduced  production  by
taconite customers.  In addition,  utility revenue in 2001 included the recovery
of $4.5  million  for  1998 CIP lost  margins.  Nonregulated/nonutility  revenue
increased  $25.7 million,  or 47%, in 2001  primarily due to the  acquisition of
Enventis, Inc. which was acquired in July 2001 and accounted for as a pooling of
interests.
   OPERATING  EXPENSES in total increased  $21.5 million,  or 4%, in 2001 mainly
due  to  additional  nonregulated/nonutility  expenses.  Nonregulated/nonutility
operating expenses  increased $22.9 million,  or 43%, over 2000 primarily due to
the inclusion of Enventis, Inc.

AUTOMOTIVE SERVICES
   Both operating  revenue and expenses for Automotive  Services were up in 2001
due to significant  acquisitions made in 2000 and early 2001.  Financial results
for 2001  included 12 full months of  operations  from 28 wholesale and 10 total
loss vehicle auction facilities acquired or opened primarily in the

- --------------------------------------------------------------------------------
                                     PAGE 38


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                                     PART II


second half of 2000 and results from acquisitions made in January and May 2001.
   OPERATING  REVENUE was up $309.5  million,  or 59%, in 2001  reflecting a 37%
increase in vehicles sold at ADESA wholesale auction  facilities,  the inclusion
of revenue related to total loss vehicle services and a 14% increase in vehicles
financed at AFC's loan production offices.  Sales volumes in 2001, however, were
negatively  impacted by the events of September 11 and the impact of  aggressive
new  vehicle  financing  incentives  offered  by  vehicle  manufacturers.  Also,
inclement  weather  earlier in the year  resulted in both low  attendance at and
canceled auctions.
   OPERATING  EXPENSES  were  up  $274.5  million,  or 63%,  in 2001  reflecting
additional  expenses  associated  with  increased  vehicle  sales and  financing
activity.  Expenses in 2001  included  increased  direct costs  associated  with
processing  vehicles  multiple  times that did not sell as a result of depressed
wholesale  prices  resulting  from the events of September 11 and aggressive new
vehicle  financing  incentives  offered  by  vehicle  manufacturers.   Operating
expenses in 2001 also included  integration  costs,  additional  amortization of
goodwill,  additional  interest  expense  related to debt issued in late 2000 to
finance acquisitions,  higher utility expense and more labor costs incurred as a
result of inclement weather in early 2001.

INVESTMENTS AND CORPORATE CHARGES
   OPERATING  REVENUE  was down $2.6  million,  or 3%, in 2001  reflecting  less
revenue from our trading securities portfolio,  partially due to a lower average
balance for most of the year.  The  decrease in revenue was also  attributed  to
$4.9 million less from our emerging technology  investments as a result of fewer
sales of  these  investments  in 2001.  Our  real  estate  operations,  however,
reported stronger sales in 2001, including its largest sale ever. Six large real
estate sales in 2001 contributed  $37.5 million to revenue,  while in 2000 seven
large real estate sales contributed $31.9 million to revenue.
   OPERATING  EXPENSES  in 2001  were up $6.0  million,  or 9%,  as a result  of
increased interest expense and additional  expenses for incentive  compensation.
These increases were tempered by lower expenses at our real estate operations.

CRITICAL ACCOUNTING POLICIES

   Certain   accounting   measurements   under  applicable   generally  accepted
accounting principles involve management's judgment about subjective factors and
estimates,  the  effects  of  which  are  inherently  uncertain.  The  following
summarizes  those  accounting  measurements  we believe are most critical to our
reported results of operations and financial condition.

<TABLE>
<CAPTION>
ACCOUNTING              JUDGMENTS/UNCERTAINTIES              SEE ADDITIONAL
POLICY                   AFFECTING APPLICATION                 DISCUSSION
================================================================================
<S>                  <C>                                     <C>
Uncollectible        -  Economic conditions                  Liquidity and
Receivables and         affecting customers,                 Capital
Allowance for           suppliers and market prices          Resources -
Doubtful             -  Outcome of negotiations,             Off-Balance
Accounts                ligigation and bankruptcy            Sheet
                        proceedings                          Arrangements on
                                                             page 42
                     -  Current sales, payment and
                        write off histories
- --------------------------------------------------------------------------------
 Impairment of       -  Economic conditions                  Note 2. on
 Goodwill and           affecting market valuations          page 63 and
 Long-Lived          -  Changes in business strategy         Note 3. on
 Assets              -  Forecast of future operating         page 65
                        cash flows and earnings
- --------------------------------------------------------------------------------
Pension and          -  Expected long-term rates of          Note 18.
Postretirement          return on assets                     on page 74
Health and Life      -  Discount rates
Actuarial
Assumptions
- --------------------------------------------------------------------------------
Valuation of         -  Continued commercial                 Market Risk
Investments             viability of products                on page 44
                     -  Projected earnings and cash flow

================================================================================
</TABLE>

   The allowance for doubtful accounts and related bad debt expense is primarily
attributable  to the  financing  activities  of AFC.  In  establishing  a proper
allowance for doubtful  accounts,  AFC's  evaluation  includes  consideration of
historical  charge-off  experience and current economic  conditions.  Changes to
historical   charge-off   experience  or  existing  economic   conditions  would
necessitate a  corresponding  increase or decrease in the allowance for doubtful
accounts.  The credit quality of AFC's finance receivable portfolio has remained
strong and the total  amount of the  allowance  for  doubtful  accounts  has not
changed  materially  over the last three years.  A 10% increase in AFC's current
allowance for doubtful accounts would increase bad debt expense by approximately
$1 million  after tax;  likewise,  a 10% decrease in the current  allowance  for
doubtful accounts would decrease expense by aproximately $1 million after tax.
   An  important  actuarial  assumption  for  pension  and other  postretirement
benefit  plans is the  expected  long-term  rate of  return on plan  assets.  In
establishing this assumption,  we consider the allocation and diversification of
our plan assets,  current  economic  conditions,  actual  historical  investment
performance,  the  historical  performance  of  equity  and debt  securities  in
general,  and our  performance  versus  similar  sized plans.  Our pension asset
allocation is  approximately  70% equity and 30% fixed-rate  securities.  Equity
securities  consist  of a mix of market  capitalization  sizes and also  include
investments in real estate and venture  capital.  In response to changing market
conditions,  we have lowered our actuarial assumption for the expected long-term
rate of return and used


- --------------------------------------------------------------------------------
                                     PAGE 39


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                                     PART II


9.5% in the  September  30, 2002 pension  actuarial  study (10% at September 30,
2001;  10.25% at September 30, 2000). We annually review our expected  long-term
rate of return  assumption,  and will  continue  to adjust it to  respond to any
changing  market  conditions.  A 1% decrease in the expected  long-term  rate of
return would  increase the annual  expense for pension and other  postretirement
benefits by approximately $2 million after tax;  likewise,  a 1% increase in the
expected  long-term rate of return would decrease  expense by  approximately  $2
million after tax.

OUTLOOK

   CORPORATE.  Our operations in 42 states,  nine Canadian  provinces and Mexico
employ approximately  14,000 employees.  Since 1980 our annual total shareholder
return  averaged  16%.  Approximately  50% of this  average  was  attributed  to
dividends.  By comparison,  the Standard & Poor's 500 Index averaged 12% for the
same  period,  of which  approximately  25% of the  average  was  attributed  to
dividends.
   We remain focused on  continuously  improving the performance of our two core
businesses, Energy and Automotive Services, and monetizing those businesses that
are  non-strategic  or non-core.  Our two core businesses  remain strong and are
poised for earnings growth in their  respective  markets as economic  conditions
improve.
   Once we have sold our Water  Services  businesses in Florida,  North Carolina
and Georgia,  we will have further  simplified our Company.  The pending sale of
Florida  Water for $492.5  million has been  delayed by legal  challenges.  Cash
proceeds to ALLETE after taxes and repayment of existing debt are expected to be
approximately $180 million in 2003, and $250 million for the entire transaction.
The gain on the transaction is estimated at $100 million after taxes and related
costs.  While the majority of the cash will be received at closing,  the gain is
expected to be recognized in future years as required by accounting  rules.  The
proceeds  from the sale will give us the  ability  to reduce  debt,  which  will
further  strengthen our balance sheet. We anticipate  selling our Water Services
businesses in North Carolina and Georgia in 2003. (See Item 1.)
   Our Board of Directors and management remain committed to unlocking the value
of ALLETE. In 2002 we undertook an examination of the benefits of separating our
Energy and Automotive businesses into separate companies.  At that time we chose
not to separate because all of the businesses of our Company  benefited from the
cash  flow  and  credit  position  of the  consolidated  company.  We are  again
reviewing this issue both internally and with outside advisors.
   ENERGY SERVICES  continues to generate strong cash flow from  operations.  We
anticipate,  however,  net  income for 2003 from  Energy  Services  to  decrease
slightly from 2002 levels.  If wholesale power prices  improve,  so too will our
profitability  from Energy Services.  To combat  continuing  depressed prices in
wholesale energy markets, minimal growth in our service area and uncertain state
and national economies,  we will focus on cost reductions while seeking new ways
to maintain or enhance revenue.
   Our access to and ownership of low-cost power are Energy  Services'  greatest
strengths.  We have adequate generation to serve our native load. Power over and
above our customers'  requirements is and will continue to be marketed primarily
through Split Rock Energy.
   Over one-half of Minnesota  Power's  utility power sales are made to taconite
mines, paper producers and oil pipeline  operators.  Minnesota Power's paper and
taconite customers supply industries that are undergoing  significant structural
change in the face of continued  globalization and  consolidation.  For taconite
producers,  the ongoing  consolidation of the domestic integrated steel industry
has  both  positive  and  negative  implications.   As  steel  companies  divest
themselves  of raw  material  operations  and  address  decades  of legacy  cost
accumulation,  they will use  acquisitions  to  position  themselves  for future
successes  in  a  worldwide  steel  market  that  rewards  low-cost,   efficient
producers.
   Unfortunately,  the process of rationalizing  steel  production  capacity may
lead to a reduction  in the number of iron ore mines  required to supply  United
States and Canadian  blast  furnaces.  The near term impacts of a taconite plant
closure would be significant for Minnesota Power and northeastern  Minnesota. In
the long term,  however,  improving  the cost  competitiveness  of the  domestic
integrated  steelmakers  is critical to  assuring a stable  production  base for
Minnesota iron ore once steel import tariff  protections are lifted.  The annual
taconite production in Minnesota was 39 million tons in 2002 (33 million tons in
2001; 47 million tons in 2000).  Based on our research of the taconite industry,
Minnesota  taconite  production  for 2003 is  anticipated to be about 37 million
tons. As a result of continuing  consolidation  in the integrated steel business
and its resulting  impact on taconite  producers,  Minnesota  Power is unable to
predict  taconite  production  levels for the next two to five years.  Minnesota
Power  believes it is  positioned  to mitigate the impacts of reduced  load,  if
necessary,  by selling any excess  low-cost  generation in the  wholesale  power
marketplace.
   The paper manufacturing  business is also weathering  significant  structural
change as  international  consolidation  continues and North American  producers
aggressively  cut costs and look for an end to the  current  down cycle in paper
pricing.  Three  of  Minnesota  Power's  four  major  pulp and  paper  producing
customers  are  now  owned  by  international  firms.  As  these  firms  seek to
rationalize world production capacity with demand, they are removing older paper
machines from their asset  portfolios  and focusing on improving  efficiency and
cost  competitiveness  at their newer and larger  machines.  Actions by Potlatch
Corporation and UPM-Kymmene  Corporation (the owner of Blandin Paper Company) to
stop producing paper from their oldest and

- --------------------------------------------------------------------------------
                                     PAGE 40


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                                     PART II


smallest  machines  in 2002 and 2003  reflect  this trend.  We believe  that the
papermaking  assets that remain in our service  area have the ability to be cost
competitive  in the  region or global  markets  they  serve.  Minnesota  Power's
ongoing  focus has been and will  continue to be on  providing  energy at prices
that enable these mills to maintain or improve their competitive positions.
   Nonregulated generation operations, which began in 2002 at Taconite Harbor in
northern Minnesota and generation  obtained through a 15-year agreement with NRG
Energy at the Kendall  County  facility near  Chicago,  Illinois,  help position
Minnesota Power to generate more electricity,  move it more readily, manage more
transactions with less risk and benefit system reliability.
   Plans to construct a 220-mile,  345-kV Duluth-to-Wausau electric transmission
line proposed by Minnesota Power,  American  Transmission  Company and Wisconsin
Public Service Corporation continue to be developed.  The new line addresses the
pressing  need  for more  dependable  electricity  in  Wisconsin  and the  Upper
Midwest. (See Item 1. - Energy Services - Regulatory Issues.)
   Our telecommunications  business,  Enventis Telecom, grew its revenue in 2002
by  approximately  19%  despite  the  challenging  economy  and drop in  overall
information  technology  spending.  Enventis  Telecom is well  recognized in the
Upper Midwest as one of the leading  integrated data services providers offering
a mix  of  transport,  complex  network  integration,  and  related  application
development  services.  Our  plan  is to  continue  to  leverage  our  excellent
reputation and key industry partners to further our success in the marketplace.
   AUTOMOTIVE SERVICES continues to be our largest contributor to net income. We
anticipate  earnings from Automotive  Services to increase by about 15% in 2003.
While we believe that the volume of used  vehicles  sold within the auto auction
industry  will  rise  at a rate  of 2%  compounded  annually  through  2007,  we
anticipate vehicles sold through our wholesale and total loss auction facilities
combined will increase by 4% to 7% in 2003,  and vehicles  financed  through AFC
will increase by about 11% in 2003.  Automotive  Services  continues to focus on
growth  in the  volume  of  vehicles  sold  and  financed,  increased  ancillary
services, and operating and technological efficiencies.  Selective fee increases
will also be considered.
   By offering an  expanding  circle of  customers  new levels of service in the
vehicle remarketing industry, Automotive Services expects to expand its presence
in the North  American auto  industry.  In 2002 we opened ADESA Golden Gate, the
largest vehicle auction facility in California, and ADESA Vancouver in Richmond,
British  Columbia.  Both were built to replace  aging  facilities  that were too
small to efficiently  serve our growing customer demand.  New wholesale  auction
facilities in Long Island, New York; Atlanta,  Georgia;  and Edmonton,  Alberta,
are also under construction and slated to open in 2003. The new facility in Long
Island is a greenfield (a newly constructed facility in a new market), while the
new  facilities  in Atlanta and  Edmonton  will  replace  aging  facilities.  In
addition  to  internally  growing our  existing  auctions  and dealer  floorplan
financing business, we will continue to consider accretive  acquisitions in both
the wholesale and total loss vehicle auction  businesses.  We will also consider
greenfield  sites as  appropriate  and the  integration  of total  loss  vehicle
services at certain  wholesale  vehicle auction  facilities.  We believe further
consolidation  of the total loss  vehicle  auction  industry  will occur and are
evaluating various means by which we can continue our growth plan.
   ADESA's  leadership  expects to adapt to  changing  used  vehicle  markets by
better serving used vehicle  dealers,  who are the bread and butter of wholesale
vehicle auctions and the backbone of AFC's customer base. The number of vehicles
coming off lease is expected to slow down in mid-2003,  which will place an even
higher premium on catering to individual dealers seeking to replenish  inventory
at auctions.
   The  vehicle  remarketing  industry  has been  challenged  by the  events  of
September  11,  2001,  by a  softening  economy  and by lower  wholesale  prices
resulting from high used vehicle  inventories and zero-percent  financing on new
vehicles.  The  rental  car market  has yet to  re-fleet  up to levels  prior to
September  11, and  manufacturer  incentives  on new vehicles  temporarily,  but
significantly,  disrupted  the  price  spreads  between  new and used  vehicles.
Aggressive  financing  incentives offered by vehicle  manufacturers  lowered the
cost of owning a new vehicle,  which, in turn,  depressed  prices for late-model
used vehicles.  This reduced the number of vehicles sold at auctions because car
dealers  restocked  their  inventories  from the increased  volume of late-model
vehicles traded in for new vehicles, and sellers at auction tended to hold their
vehicles rather than immediately accept the lower prices.
   If the economy improves,  retail demand should improve as well, and this will
allow a welcome  resumption  of the used vehicle  sales growth we saw earlier in
2002.
   INVESTMENTS  AND CORPORATE  CHARGES.  We anticipate  net income from our real
estate operations to remain stable in 2003, while corporate charges are expected
to  reflect  less  unallocated  interest  expense  as a  result  of  lower  debt
obligations.
   Revenue from property sales by real estate  operations  continues to be three
to four times more than the  acquisition  cost,  creating strong cash generation
and  profitability.  Our real estate operations may, from time to time,  acquire
packages of diversified  properties at low cost, add value through  entitlements
and  infrastructure  enhancements,  and sell the  properties  at current  market
prices.


- --------------------------------------------------------------------------------
                                     PAGE 41


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                                     PART II


LIQUIDITY AND CAPITAL RESOURCES

CASH FLOW ACTIVITIES
   A primary goal of our strategic plan is to improve cash flow from operations.
Our strategy  includes  growing the  businesses  both  internally  with expanded
facilities,  services and operations (see Capital Requirements),  and externally
through acquisitions.
   During 2002 strong cash flow from operating  activities  reflected  operating
results  and  continued  focus on  working  capital  management.  Cash flow from
operating  activities was higher in 2002 due to the  substantial  liquidation of
the trading  securities  portfolio  and the timing of the  collection of certain
finance  receivables  outstanding at December 31, 2001. Also, in 2001 additional
trading  securities  were purchased with a portion of the proceeds from a common
stock  issuance.  Cash flow from  operations  was also  affected  by a number of
factors representative of normal operations.
   WORKING  CAPITAL.  At December 31, 2002 working  capital needs  included $275
million of long-term debt due in 2003.  Additional working capital,  if and when
needed,  generally is provided by the sale of commercial  paper.  During 2002 we
liquidated our trading securities  portfolio and used the proceeds to reduce our
short-term debt.  Approximately  4.6 million original issue shares of our common
stock are  available  for  issuance  through  INVEST  DIRECT,  our direct  stock
purchase  and dividend  reinvestment  plan.  ALLETE's  $175 million bank line of
credit provides credit support for our commercial paper program.  The amount and
timing of future sales of our securities will depend upon market  conditions and
our specific  needs.  We may sell  securities to meet capital  requirements,  to
provide for the retirement or early  redemption of issues of long-term  debt, to
reduce short-term debt and for other corporate purposes.
   A substantial amount of ADESA's working capital is generated  internally from
payments for services provided. ADESA, however, has arrangements to use proceeds
from the sale of commercial  paper issued by ALLETE to meet  short-term  working
capital  requirements  arising from the timing of payment obligations to vehicle
sellers and the availability of funds from vehicle purchasers.  During the sales
process, ADESA does not typically take title to vehicles.

OFF-BALANCE SHEET ARRANGEMENTS
   In July 2001 ADESA  entered into a lease  agreement for the ADESA Golden Gate
facility in Tracy, California, which was completed in the third quarter of 2002.
The term of the lease is through July 2006 with no renewal options.  The cost to
the lessor of the facility was approximately  $45 million.  ADESA has guaranteed
up to $38 million of any deficiency in sales  proceeds that the lessor  realizes
in disposing of the leased  property.  ADESA will receive any sales  proceeds in
excess of cost.
   ADESA has  guaranteed the payment of principal and interest up to $38 million
on the lessor's indebtedness. Terms of the mortgage notes payable require, among
other things,  that ADESA maintain certain minimum  financial  ratios. It is not
practical to estimate the fair value of the guarantee;  however,  ADESA does not
anticipate  that it will  incur  losses as a result of this  guarantee.  We have
guaranteed ADESA's obligation under this lease.
   In April 2000 leases for three ADESA auction  facilities  (Boston,  Charlotte
and Knoxville)  were  refinanced in a $28.4 million lease  transaction.  The new
lease is treated as an  operating  lease for  financial  reporting  purposes and
expires in April 2010 with no renewal  options.  ADESA has  guaranteed up to $23
million  of any  deficiency  in sales  proceeds  that  the  lessor  realizes  in
disposing  of the leased  properties.  ADESA is  entitled  to receive  any sales
proceeds in excess of $29.3 million.
   ADESA has  guaranteed the payment of principal and interest up to $23 million
on the lessor's  indebtedness,  which  consists of $28.4 million  mortgage notes
payable,  due April 1, 2020. Terms of the mortgage notes payable require,  among
other things, that ADESA maintain certain minimum financial ratios.  Interest on
the notes  varies and is payable  monthly.  It is not  practical to estimate the
fair value of the guarantee;  however,  ADESA does not  anticipate  that it will
incur  losses  as a  result  of  this  guarantee.  We  have  guaranteed  ADESA's
obligations under this lease.
   AFC offers  short-term  on-site  financing  for dealers to purchase  vehicles
mostly at auctions  in exchange  for a security  interest in each  vehicle.  The
financing  is  provided  through  the  earlier of the date the dealer  sells the
vehicle or a general  borrowing term of 30 to 45 days. AFC has  arrangements  to
use  proceeds  from the sale of  commercial  paper  issued by ALLETE to meet its
short-term working capital requirements.
   AFC,  through a wholly owned  subsidiary,  sells certain finance  receivables
through a revolving private  securitization  structure.  In May 2002 AFC and its
subsidiary entered into a revised  securitization  agreement that allows for the
revolving  sale by the  subsidiary  to third  parties  of up to $500  million in
undivided  interests  in eligible  finance  receivables.  The revised  agreement
expires in 2005.  The  securitization  agreement  in place prior to May 31, 2002
limited the sale of undivided interests to $325 million. In accordance with SFAS
140,   "Accounting   for  Transfers  and  Servicing  of  Financial   Assets  and
Extinguishments  of Liabilities,"  which became applicable to AFC upon amendment
of  the  securitization   agreement,   AFC,  for  accounting   purposes,   began
consolidating  the subsidiary  used in the  securitization  structure on June 1,
2002.  Previously,  AFC's interest in this  subsidiary was recorded by ALLETE as
residual  interest in other  current  assets ($103 million at December 31, 2001)
net of the subsidiary's allowance for doubtful accounts. The residual interest

- --------------------------------------------------------------------------------
                                     PAGE 42


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                                     PART II


previously  reflected  in prior  periods  has been  reclassified  by  ALLETE  to
accounts receivable to conform to current year presentations.
   AFC managed total  receivables of $495.1 million at December 31, 2002 ($500.2
million at December 31, 2001);  $191.3 million represent  receivables which were
included  in accounts  receivable  on our  consolidated  balance  sheet  ($233.2
million at December 31, 2001) and $303.8 million  represent  receivables sold in
undivided  interests  through the  securitization  agreement  ($267.0 million at
December 31, 2001) which are off-balance  sheet. AFC's proceeds from the sale of
the  receivables to third parties were used to repay  borrowings from ALLETE and
fund new loans to AFC's  customers.  AFC and the  subsidiary  must each maintain
certain  financial  covenants such as minimum  tangible net worth to comply with
the terms of the securitization agreement. AFC has historically performed better
than the covenant thresholds set forth in the securitization  agreement.  We are
not  currently  aware  of any  changing  circumstances  that  would  put  AFC in
noncompliance with the covenants.

SECURITIES
   In March 2001 ALLETE, ALLETE Capital II and ALLETE Capital III, jointly filed
a registration  statement with the SEC pursuant to Rule 415 under the Securities
Act of 1933. The registration  statement,  which has been declared  effective by
the SEC,  relates to the possible  issuance of a remaining  aggregate  amount of
$387 million of securities which may include ALLETE common stock, first mortgage
bonds and other debt  securities,  and ALLETE  Capital II and ALLETE Capital III
preferred  trust  securities.   ALLETE  also  previously  filed  a  registration
statement,  which  has  been  declared  effective  by the SEC,  relating  to the
possible  issuance  of $25  million  of first  mortgage  bonds  and  other  debt
securities.  We may sell all or a portion of the remaining registered securities
if warranted by market  conditions and our capital  requirements.  Any offer and
sale  of the  above  mentioned  securities  will  be made  only  by  means  of a
prospectus  meeting the requirements of the Securities Act of 1933 and the rules
and regulations thereunder.

INVESTMENTS
   As investments in emerging technology companies are sold, we recognize a gain
or loss. Our direct investment in the companies that have gone public,  which we
account for as available-for-sale  securities, had a cost basis of approximately
$10  million at  December  31,  2002 ($7  million at  December  31,  2001).  The
aggregate market value of our investment in these companies at December 31, 2002
was $6 million  ($12 million at December  31,  2001).  We believe the decline in
market value that has occurred since second  quarter 2002 is temporary.  We have
the  ability  and intent to hold these  investments  until the market  recovers.
These investments provide us with access to developing technologies before their
commercial  debut,  as well  as  potential  financial  returns.  We  view  these
investments as a source of capital for redeployment in existing businesses.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                         PAYMENTS DUE BY PERIOD
                                          ------------------------------------------------------------------------------------
CONTRACTUAL OBLIGATIONS                     TOTAL      LESS THAN 1 YEAR    1 TO 3 YEARS    4 TO 5 YEARS       AFTER 5 YEARS
==============================================================================================================================
MILLIONS
<S>                                       <C>          <C>                 <C>             <C>                <C>
Long-Term Debt                            $  945.0          $283.7            $108.9          $344.6             $207.8
Quarterly Income Preferred Securities         75.0               -                 -               -               75.0
Operating Lease Obligations                  120.0            17.5              34.5            15.6               52.4
Unconditional Purchase Obligations           772.6            75.1             128.5            77.2              491.8
- ------------------------------------------------------------------------------------------------------------------------------
                                          $1,912.6          $376.3            $271.9          $437.4             $827.0
==============================================================================================================================
</TABLE>

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
   Our long-term debt obligations, including long-term debt due within one year,
represent the principal  amount of bonds,  notes and loans which are recorded on
our consolidated balance sheet.
   Quarterly  Income Preferred  Securities  represent all of the preferred trust
securities  issued by ALLETE  Capital I, a wholly owned  statutory  trust of the
Company. ALLETE owns all of the common trust securities issued by ALLETE Capital
I. (See Note 14.)
   Unconditional  purchase  obligations  represent  our Square Butte and Kendall
County power purchase  agreements,  and minimum purchase  commitments under coal
and rail contracts.
   Under our power  purchase  agreement  with Square Butte that extends  through
2026, we are  obligated to pay our pro rata share of Square  Butte's costs based
on our entitlement to the output of Square Butte's 455 MW coal-fired  generating
unit near Center,  North Dakota.  Our 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.  The
table  above  reflects  our share of future  debt  service  based on our current
output  entitlement  of 71%.  After 2005 Minnkota Power has the option to reduce
our entitlement by 5% annually, to a minimum of 50%. (See Note 13.)
   Under the Kendall County  agreement,  we pay a fixed capacity  charge for the
right,  but not the  obligation,  to  utilize  one 275 MW  generating  unit near
Chicago,  Illinois. We are responsible for arranging the natural gas fuel supply
and are entitled to the electricity produced. (See Note 13.)

- --------------------------------------------------------------------------------
                                     PAGE 43


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                                     PART II


   SPLIT ROCK ENERGY.  We provide up to $50.0 million in credit support,  in the
form of letters of credit and  financial  guarantees,  to  facilitate  the power
marketing  activities  of Split Rock Energy.  At December 31, 2002 $10.5 million
was used to support actual  obligations ($3.4 million at December 31, 2001). The
credit support generally expires within one year from the date of issuance.
   EMERGING TECHNOLOGY INVESTMENTS. We have investments in emerging technologies
through the  minority  ownership  of  preferred  stock,  common stock and equity
interests  in  limited  liability   companies.   The  investments  are  in  both
privately-held and publicly-held  entities. We have committed to make additional
investments in certain emerging technology holdings. The total future commitment
was $7.7 million at December 31, 2002 ($11.0  million at December 31, 2001).  We
expect approximately $1 million of the future commitment to be invested in 2003,
with the balance to be invested at various times through 2007.

CREDIT RATINGS
   Our  securities  have been rated by  Standard & Poor's  Ratings  Services,  a
division of The McGraw-Hill  Companies,  Inc. (Standard & Poor's) and by Moody's
Investors Service, Inc. (Moody's).  On January 27, 2003 Standard & Poor's placed
our BBB+ corporate credit rating on CREDITWATCH  DEVELOPING following our public
acknowledgement  that we are  considering a major corporate  restructuring  that
could  ultimately  result in a  separation  of our two core  businesses.  We are
unable to predict if such a separation  would have a  significant  effect on our
credit quality.

<TABLE>
<CAPTION>
                                     STANDARD &
CREDIT RATINGS                         POOR'S           MOODY'S
=================================================================
<S>                                  <C>                <C>
Issuer Credit Rating                   BBB+              Baa2
Commercial Paper                       A-2               P-2
Senior Secured
   First Mortgage Bonds                A                 Baa1
   Pollution Control Bonds             A                 Baa1
Senior Unsecured
   Senior Notes                        BBB               Baa2
   Unsecured Debt                      BBB               Baa2
Quarterly Income Preferred
   Securities                          BBB-              Baa3
=================================================================
</TABLE>
   Rating agencies use both quantitative and qualitative measures in determining
a company's credit rating. These measures include business risk, liquidity risk,
competitive position,  capital mix, financial condition,  predictability of cash
flows,  management  strength  and  future  direction.  Some of the  quantitative
measures  can  be  analyzed  through  a few  key  financial  ratios,  while  the
qualitative ones are more subjective.  The disclosure of these credit ratings is
not a recommendation to buy, sell or hold our securities. Ratings are subject to
revision or withdrawal at any time by the assigning  rating  organization.  Each
rating should be evaluated independently of any other rating.

PAYOUT RATIO
   In 2002 we paid out 66% (59% in 2001;  51% in 2000) of our per share earnings
in dividends. Excluding the gain related to the ACE transaction, in 2000 we paid
out 64% of our per share earnings in dividends.

CAPITAL REQUIREMENTS

   Consolidated  capital  expenditures  totaled  $205.8  million in 2002 ($153.0
million in 2001;  $168.7 million in 2000).  Expenditures for 2002 included $80.9
million for Energy  Services,  $71.1  million for  Automotive  Services and $5.7
million  for  Investments  and  Corporate  Charges.  Expenditures  for 2002 also
included  $48.1 million  related to  Discontinued  Operations  ($44.2 million to
maintain our Water  Services  businesses  while they are in the process of being
sold; $3.9 million to buy previously leased auto transport  trucks).  Internally
generated funds were the primary source of funding for these expenditures.
   Capital  expenditures are expected to be $134 million in 2003 and total about
$400 million for 2004 through 2007. Capital  expenditures through 2007 are lower
than in the past because we anticipate no new major  construction of facilities.
The 2003 amount  includes  $74 million for Energy  Services  and $55 million for
Automotive  Services.  Energy  Services'  expenditures  are for system component
replacement and upgrades,  telecommunication  fiber and coal handling equipment.
Automotive   Services'   expenditures  are  for  new  auctions  currently  under
construction,  expansions and on-going  improvements at existing vehicle auction
facilities and  associated  computer  systems.  The 2003 amount also includes $5
million to maintain our Water Services  businesses  until they are sold in 2003.
We expect to finance a $33 million  investment  in new coal  handling  equipment
with an existing long-term line of credit and use internally  generated funds to
fund all other capital expenditures.

MARKET RISK

SECURITIES INVESTMENTS
   Our securities  investments include certain securities held for an indefinite
period of time which are  accounted  for as  available-for-sale  securities  and
recorded at fair value. At December 31, 2002 our  available-for-sale  securities
portfolio consisted of minority interests in the common stock of publicly-traded
corporations  held in our Emerging  Technology  portfolio,  and  securities in a
grantor   trust   established   to   fund   certain   employee   benefits.   Our
available-for-sale  securities  portfolio  had a fair value of $20.9  million at
December 31, 2002 ($26.5 million at December 31, 2001).
   As part of our Emerging Technology  portfolio,  we also have several minority
investments  in venture  capital funds and  privately-held  start-up  companies.
These  investments  are  accounted  for under the cost method and included  with
Investments on our consolidated balance sheet. The total carrying value of these
investments was $38.7 million at

- --------------------------------------------------------------------------------
                                     PAGE 44



<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                                     PART II

<TABLE>
<CAPTION>

INTEREST RATE SENSITIVE                                         PRINCIPAL CASH FLOW BY EXPECTED MATURITY DATE
FINANCIAL INSTRUMENTS                         ---------------------------------------------------------------------------------
                                                                                                                        FAIR
DECEMBER 31, 2002                              2003       2004        2005    2006      2007   THEREAFTER   TOTAL       VALUE
===============================================================================================================================
DOLLARS IN MILLIONS

<S>                                           <C>         <C>         <C>     <C>      <C>     <C>          <C>        <C>
Long-Term Debt
   Fixed Rate                                  $28.1       $5.1       $0.7    $91.4    $165.7    $336.0     $627.0     $673.4
   Average Interest Rate - %                     6.5        6.5        7.8      7.7       7.3       7.1        7.2          -
   Variable Rate                              $255.6      $10.5       $0.7     $0.5      $3.0     $47.7     $318.0     $318.2
   Average Interest Rate - % <F1>                4.1        3.5        3.2      3.2       2.0       1.9        3.7          -
Mandatorily Redeemable Preferred
 Securities of Subsidiary                          -          -          -        -         -     $75.0      $75.0      $75.5
   Average Distribution Rate - %                   -          -          -        -         -      8.05       8.05          -
===============================================================================================================================
<FN>
<F1> ASSUMES RATE IN EFFECT AT DECEMBER 31, 2002 REMAINS CONSTANT THROUGH REMAINING TERM.
</FN>
</TABLE>

December  31,  2002  ($40.6  million at  December  31,  2001).  Our policy is to
periodically  review these  investments for impairment by assessing such factors
as  continued  commercial  viability of products,  cash flow and  earnings.  Any
impairment would reduce the carrying value of the investment.

INTEREST RATE SWAP
   In October  2001 we  entered  into an  interest  rate swap  agreement  with a
notional  amount of $250  million to hedge $250  million of  floating  rate debt
issued in  October  2000.  Under the  15-month  swap  agreement,  we made  fixed
quarterly  payments  based on a fixed rate of 3.2% and  received  payments  at a
floating  rate based on LIBOR (1.8% at December 31,  2002).  The swap expired in
January  2003 and the  Company  did not enter  into any new  interest  rate swap
agreements.

FOREIGN CURRENCY
   Our foreign  currency  exposure  is limited to the  conversion  of  operating
results of our Canadian and Mexican  subsidiaries.  We have not entered into any
foreign  exchange  contracts to hedge the  conversion of our Canadian or Mexican
operating results into United States dollars.  Mexican operations which began in
2002 were not material.

POWER MARKETING
   Minnesota  Power  purchases  power for retail sales in our  electric  utility
service  territory and sells excess  generation in the wholesale market. We have
about 500 MW of  nonregulated  generation  available  for sale to the  wholesale
market. Our nonregulated  generation  includes about 225 MW from Taconite Harbor
in northern Minnesota that was acquired in October 2001. It also includes 275 MW
of generation obtained through a 15-year agreement, which commenced in May 2002,
with NRG Energy at the Kendall County facility near Chicago, Illinois. Under the
Kendall County agreement,  we pay a fixed capacity charge for the right, but not
the  obligation,  to utilize one 275 MW generating  unit. We are responsible for
arranging  the  natural  gas fuel  supply and are  entitled  to the  electricity
produced.  Our  strategy  is to  sell  a  significant  portion  of  nonregulated
generation through long-term contracts of various durations. The balance will be
sold in the spot market  through  short-term  agreements.  We currently have two
long-term forward capacity and energy contracts  related to generation  obtained
through  the  Kendall  County  agreement.  Each is for 50 MW,  with one having a
10-year term and the other a 15-year term.
   The services of Split Rock Energy are used to fulfill  purchase  requirements
for retail load and to market excess generation. We own 50% of Split Rock Energy
which was formed in 2000 with Great  River  Energy to provide us with least cost
supply, maximize the value of our generation assets and maximize power marketing
revenue within  prescribed  limits.  Split Rock Energy operates in the wholesale
energy markets, and engages in marketing activities by entering into forward and
option  contracts for the purchase and sale of electricity.  These contracts are
primarily  short-term in nature with maturities of less than one year.  Although
Split Rock Energy generally attempts to balance its purchase and sale positions,
commodity  price risk  sometimes  exists or is  created.  This risk is  actively
managed through a risk management program that includes policies, procedures and
limits established by the Split Rock Energy Board of Governors.  Minnesota Power
holds two seats on this four member Board.

NEW ACCOUNTING STANDARDS

   SFAS  143,  "Accounting  for  Asset  Retirement  Obligations,"  requires  the
recognition of a liability for an asset  retirement  obligation in the period in
which it is incurred.  When the  liability is initially  recorded,  the carrying
amount of the related long-lived asset is correspondingly  increased. Over time,
the  liability  is  accreted to its  present  value and the related  capitalized
charge is depreciated  over the useful life of the asset.  SFAS 143 is effective
for fiscal  years  beginning  after June 15,  2002.  Currently,  decommissioning
amounts  collected  in  Minnesota  Power's  rates are  reported  in  accumulated
depreciation, which upon adoption of SFAS 143

- --------------------------------------------------------------------------------
                                     PAGE 45


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                                     PART II


by the Company will require a reclassification to a liability.  We are reviewing
what additional assets, if any, may have associated  retirement costs as defined
by SFAS 143 and  anticipate  no material  impact on our  financial  position and
results of operations.
   In  November  2002  the  FASB  issued  Interpretation  No.  45,  "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees of Indebtedness  of Others." The  Interpretation  expands  disclosure
requirements for certain  guarantees and requires the recognition of a liability
for the fair value of an  obligation  assumed  under a guarantee.  The liability
recognition  provisions  apply on a prospective  basis to  guarantees  issued or
modified after December 31, 2002, and the disclosure  provisions apply to fiscal
years  ending after  December  15, 2002.  We do not believe the adoption of this
Interpretation  will have a material impact on our financial position or results
of operations.
   In January  2003 the FASB issued  Interpretation  No. 46,  "Consolidation  of
Variable Interest  Entities." In general, a variable interest entity is one with
equity  investors  that do not have voting  rights or do not provide  sufficient
financial  resources  for the entity to support  its  activities.  Under the new
rules,  variable  interest  entities will be  consolidated  by the party that is
subject to the  majority of the risk of loss or entitled to the  majority of the
residual returns. The new rules are effective  immediately for variable interest
entities  created  after  January 31, 2003 and in the third  quarter of 2003 for
previously existing variable interest entities. We are reviewing certain auction
facility  lease  agreements  entered  into by  ADESA  prior to  January  2003 to
determine (1) if the lessor is a variable interest entity,  and (2) if we should
consolidate  the lessor.  If it is  ultimately  determined  that the lessor is a
variable  interest entity that should be included in our consolidated  financial
statements,  we  estimate  that we will  record  approximately  $73  million  in
property,   plant  and  equipment,  and  $73  million  in  long-term  debt.  Any
recognition of these amounts would first occur in the third quarter of 2003.
   In October 2002 the FASB's  Emerging  Issues Task Force  rescinded EITF Issue
98-10,  "Accounting for Contracts Involved in Energy Trading and Risk Management
Activities."  The ruling took effect January 1, 2003 for existing  contracts and
immediately for contracts entered into after October 25, 2002. Early adoption is
permitted.  In general,  EITF 98-10  required  energy  trading  contracts  to be
marked-to-market with resulting gains and losses recognized in income. Any gains
or losses  recognized under the provisions of EITF 98-10 through the end of 2002
will be reversed under the transitional  provisions contained in the rescission.
We were required to account for the Kendall  County  agreement  under EITF 98-10
which  resulted in the  recognition  of $4.7 million of  mark-to-market  pre-tax
income in the second quarter of 2002 ($0 in 2001).  We adopted the rescission of
EITF 98-10 in the fourth quarter of 2002 and reversed the mark-to-market  income
recognized earlier in the year. The Kendall County agreement is not a derivative
under SFAS 133, "Accounting for Derivative Investments and Hedging Activities."
                         ------------------------------
   READERS  ARE  CAUTIONED  THAT  FORWARD-LOOKING  STATEMENTS,  INCLUDING  THOSE
CONTAINED ABOVE,  SHOULD BE READ IN CONJUNCTION  WITH OUR DISCLOSURES  UNDER THE
HEADING:  "SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES  LITIGATION REFORM
ACT OF 1995" LOCATED ON PAGE 18 OF THIS FORM 10-K.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   See Item 7. Management's Discussion and Analysis of Results of Operations and
Financial  Condition - Market Risk for information  related to quantitative  and
qualitative disclosure about market risk.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

   See our  consolidated  financial  statements as of December 31, 2002 and 2001
and for each of the three  years in the period  ended  December  31,  2002,  and
supplementary data, also included, which are indexed in Item 15(a).

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

   Not applicable.

- --------------------------------------------------------------------------------
                                     PAGE 46


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                                    PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

   The information  required for this Item is  incorporated by reference  herein
and will be set forth under the  "Election  of  Directors"  section in our Proxy
Statement for the 2003 Annual Meeting of  Shareholders,  except for  information
with respect to executive officers which is set forth in Part I hereof. The 2003
Proxy  Statement will be filed with the SEC within 120 days after the end of our
2002 fiscal year.

ITEM 11. EXECUTIVE COMPENSATION

   The information  required for this Item is  incorporated by reference  herein
from the "Compensation of Executive Officers" section in our Proxy Statement for
the 2003 Annual Meeting of Shareholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDER MATTERS

   The information  required for this Item is  incorporated by reference  herein
from the "Security of Ownership of  Beneficial  Owners and  Management"  and the
"Equity  Compensation Plan Information"  sections in our Proxy Statement for the
2003 Annual Meeting of Shareholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   None.

ITEM 14. CONTROLS AND PROCEDURES

   We  maintain  a  system  of  controls  and  procedures  designed  to  provide
reasonable assurance as to the reliability of the financial statements and other
disclosures  included  in  this  report,  as well as to  safeguard  assets  from
unauthorized  use or disposition.  We evaluated the  effectiveness of the design
and operation of our disclosure  controls and procedures  under the  supervision
and with the participation of management,  including our chief executive officer
and chief  financial  officer,  within 90 days prior to the filing  date of this
report.  Based  upon that  evaluation,  our chief  executive  officer  and chief
financial  officer  concluded  that our  disclosure  controls and procedures are
effective  in  timely  alerting  them to  material  information  required  to be
included in our periodic SEC filings.  No  significant  changes were made to our
internal  controls  or other  factors  that  could  significantly  affect  these
controls subsequent to the date of their evaluation.

- --------------------------------------------------------------------------------
                                     PART IV


ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Certain Documents Filed as Part of this Form 10-K.

(1) Financial Statements                                                  PAGE
      ALLETE
      Report of Independent Accountants.....................................56
      Consolidated Balance Sheet at
       December 31, 2002 and 2001...........................................57
      For the Three Years Ended December 31, 2002
       Consolidated Statement of Income.....................................58
       Consolidated Statement of Cash Flows.................................59
       Consolidated Statement of Shareholders' Equity.......................60
      Notes to Consolidated Financial Statements.........................61-77

(2) Financial Statement Schedules
      Report of Independent Accountants on
       Financial Statement Schedule.........................................78
      Schedule II - ALLETE Valuation and
       Qualifying Accounts and Reserves.....................................78

    All other schedules have been omitted either because the
    information is not required to be reported by ALLETE  or
    because the information is included in  the consolidated
    financial statements or the notes.

(3) Exhibits including those incorporated by reference


- --------------------------------------------------------------------------------
                                     PAGE 47


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                                    PART IV


EXHIBIT NUMBER
- --------------------------------------------------------------------------------
      *2 - Amendment and Restatement of Asset Purchase  Agreement by and between
           Florida  Water  Services   Corporation  and  Florida  Water  Services
           Authority  dated as of  December  20, 2002 (filed as Exhibit 2 to the
           December 20, 2002 Form 8-K, File No. 1-3548).

  *3(a)1 - Articles of Incorporation, amended  and  restated as  of  May 8, 2001
           (filed as  Exhibit  3(b) to the March 31,  2001 Form  10-Q,  File No.
           1-3548).

  *3(a)2 - Amendment to Certificate  of Assumed  Name, filed with the  Minnesota
           Secretary of State on May 8, 2001 (filed as Exhibit 3(a) to the March
           31, 2001 Form 10-Q, File No. 1-3548).

   *3(b) - Bylaws, as amended effective May 8, 2001 (filed  as  Exhibit 3(c)  to
           the March 31, 2001 Form 10-Q, File No. 1-3548).

  *4(a)1 - Mortgage and Deed of Trust, dated  as  of  September 1, 1945, between
           Minnesota Power & Light Company (now ALLETE) and The Bank of New York
           (formerly Irving Trust Company) and Douglas J. MacInnes (successor to
           Richard H. West), Trustees (filed as Exhibit 7(c), File No. 2-5865).

  *4(a)2 - Supplemental Indentures to ALLETE's Mortgage and Deed of Trust:

NUMBER              DATED AS OF                   REFERENCE FILE         EXHIBIT
- --------------------------------------------------------------------------------
First               March 1, 1949                 2-7826                 7(b)
Second              July 1, 1951                  2-9036                 7(c)
Third               March 1, 1957                 2-13075                2(c)
Fourth              January 1, 1968               2-27794                2(c)
Fifth               April 1, 1971                 2-39537                2(c)
Sixth               August 1, 1975                2-54116                2(c)
Seventh             September 1, 1976             2-57014                2(c)
Eighth              September 1, 1977             2-59690                2(c)
Ninth               April 1, 1978                 2-60866                2(c)
Tenth               August 1, 1978                2-62852                2(d)2
Eleventh            December 1, 1982              2-56649                4(a)3
Twelfth             April 1, 1987                 33-30224               4(a)3
Thirteenth          March 1, 1992                 33-47438               4(b)
Fourteenth          June 1, 1992                  33-55240               4(b)
Fifteenth           July 1, 1992                  33-55240               4(c)
Sixteenth           July 1, 1992                  33-55240               4(d)
Seventeenth         February 1, 1993              33-50143               4(b)
Eighteenth          July 1, 1993                  33-50143               4(c)
Nineteenth          February 1, 1997              1-3548
                                                  (1996 Form 10-K)       4(a)3
Twentieth           November 1, 1997              1-3548
                                                  (1997 Form 10-K)       4(a)3
Twenty-first        October 1, 2000               333-54330              4(c)3

  *4(b)1 - Indenture (for Unsecured  Debt  Securities), dated  as of February 1,
           2001,  between  ALLETE and  LaSalle  Bank  National  Association,  as
           Trustee (filed as Exhibit 4(d)1,  File Nos.  333-57104,  333-57104-01
           and 333-57104-02).

  *4(b)2 - Officer's  Certificate,  dated  February  21, 2001,  establishing the
           terms of the 7.80% Senior  Notes,  due  February 15, 2008,  of ALLETE
           (filed as  Exhibit  4(d)2,  File  Nos.  333-57104,  333-57104-01  and
           333-57104-02).

  *4(c)1 - Mortgage and Deed  of  Trust, dated  as  of  March 1,  1943,  between
           Superior  Water,  Light and Power  Company and Chemical  Bank & Trust
           Company and Howard B. Smith, as Trustees, both succeeded by U.S. Bank
           Trust N.A., as Trustee (filed as Exhibit 7(c), File No. 2-8668).

  *4(c)2 - Supplemental Indentures  to Superior Water, Light and Power Company's
           Mortgage and Deed of Trust:

NUMBER              DATED AS OF                   REFERENCE FILE         EXHIBIT
- --------------------------------------------------------------------------------

First               March 1, 1951                 2-59690                2(d)(1)
Second              March 1, 1962                 2-27794                2(d)1
Third               July 1, 1976                  2-57478                2(e)1
Fourth              March 1, 1985                 2-78641                4(b)
Fifth               December 1, 1992              1-3548
                                                  (1992 Form 10-K)       4(b)1
Sixth               March 24, 1994                1-3548
                                                  (1996 Form 10-K)       4(b)1
Seventh             November 1, 1994              1-3548
                                                  (1996 Form 10-K)       4(b)2
Eighth              January 1, 1997               1-3548
                                                  (1996 Form 10-K)       4(b)3

  *4(d)1 - Indenture, dated as of  March  1,  1993,  between   Southern   States
           Utilities,   Inc.  (now  Florida  Water  Services   Corporation)  and
           Nationsbank  of Georgia,  National  Association  (now SunTrust  Bank,
           Central Florida, N.A.), as Trustee (filed as Exhibit 4(d) to the 1992
           Form 10-K, File No. 1-3548).

  *4(d)2 - Supplemental  Indentures  to  Florida  Water  Services  Corporation's
           Indenture:

NUMBER              DATED AS OF                   REFERENCE FILE         EXHIBIT
- --------------------------------------------------------------------------------
First               March 1, 1993                 1-3548
                                                  (1996 Form 10-K)       4(c)1
Second              March 31, 1997                1-3548
                                                  (March 31, 1997
                                                  Form 10-Q)             4
Third               May 28, 1997                  1-3548
                                                  (June 30, 1997
                                                  Form 10-Q)             4


- --------------------------------------------------------------------------------
                                     PAGE 48


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                                    PART IV


EXHIBIT NUMBER
- --------------------------------------------------------------------------------

   *4(e) - Amended  and  Restated Trust Agreement, dated  as  of  March 1, 1996,
           relating to MP&L (now ALLETE) Capital I's 8.05% Cumulative  Quarterly
           Income Preferred Securities,  between the Company, as Depositor,  and
           The Bank of New  York,  The Bank of New York  (Delaware),  Philip  R.
           Halverson,  David G. Gartzke and James K. Vizanko, as Trustees (filed
           as Exhibit 4(a) to the March 31, 1996 Form 10-Q, File No. 1-3548), as
           modified by  Amendment  No. 1, dated April 11, 1996 (filed as Exhibit
           4(b) to the  March 31,  1996 Form  10-Q,  File No.  1-3548  and First
           Amendment [2000] dated August 23, 2000 (filed as Exhibit 4(f)2,  File
           No. 333-54330).

   *4(f) - Indenture, dated as of March 1, 1996,  relating  to Minnesota Power &
           Light  Company's (now ALLETE) 8.05% Junior  Subordinated  Debentures,
           Series A, Due 2015,  between the Company and The Bank of New York, as
           Trustee (filed as Exhibit 4(c) to the March 31, 1996 Form 10-Q,  File
           No. 1-3548).

   *4(g) - Guarantee Agreement, dated as of March 1, 1996, relating to MP&L (now
           ALLETE)  Capital  I's 8.05%  Cumulative  Quarterly  Income  Preferred
           Securities,  between Minnesota Power & Light Company (now ALLETE), as
           Guarantor,  and The Bank of New York,  as  Trustee  (filed as Exhibit
           4(d) to the March 31, 1996 Form 10-Q, File No. 1-3548).

   *4(h) - Agreement as to Expenses and Liabilities, dated as of March 20, 1996,
           relating to MP&L (now ALLETE) Capital I's 8.05% Cumulative  Quarterly
           Income Preferred Securities,  between Minnesota Power & Light Company
           (now ALLETE) and MP&L (now  ALLETE)  Capital I (filed as Exhibit 4(e)
           to the March 31, 1996 Form 10-Q, File No. 1-3548).

   *4(i) - Officer's Certificate, dated March 20, 1996, establishing  the  terms
           of the  8.05%  Junior  Subordinated  Debentures,  Series  A, Due 2015
           issued in  connection  with the  8.05%  Cumulative  Quarterly  Income
           Preferred Securities of MP&L (now ALLETE) Capital I (filed as Exhibit
           4(i) to the 1996 Form 10-K, File No. 1-3548).

   *4(j) - Rights Agreement, dated as of July 24, 1996, between  Minnesota Power
           & Light  Company  (now  ALLETE) and the  Corporate  Secretary  of the
           Company,  as Rights  Agent  (filed as Exhibit 4 to the August 2, 1996
           Form 8-K, File No. 1-3548).

   *4(k) - Indenture (for Unsecured Debt Securities), dated as of  May 15, 1996,
           between  ADESA  Corporation  and The Bank of New  York,  as  Trustee,
           relating to the ADESA Corporation's 7.70% Senior Notes, Series A, Due
           2006,  and its  8.10%  Senior  Notes,  Series  B, Due 2010  (filed as
           Exhibit 4(k) to the 1996 Form 10-K, File No. 1-3548).

   *4(l) - Guarantee of the Company,  dated as of May 30, 1996, relating  to the
           ADESA  Corporation's 7.70% Senior Notes, Series A, Due 2006 (filed as
           Exhibit 4(l) to the 1996 Form 10-K, File No. 1-3548).

   *4(m) - ADESA  Corporation Officer's Certificate  1-D-1, dated  May 30, 1996,
           relating to the ADESA Corporation's 7.70% Senior Notes, Series A, Due
           2006 (filed as Exhibit 4(m) to the 1996 Form 10-K, File No. 1-3548).

   *4(n) - Guarantee of Minnesota Power, Inc.(now ALLETE), dated as of March 30,
           2000,  relating to ADESA  Corporation's 8.10% Senior Notes, Series B,
           Due 2010 (filed as Exhibit 4(a) to the March 31, 2000 Form 10-Q, File
           No. 1-3548).

   *4(o) - ADESA Corporation Officer's Certificate 2-D-2, dated  as of March 30,
           2000,  relating to ADESA  Corporation's 8.10% Senior Notes, Series B,
           Due 2010 (filed as Exhibit 4(b) to the March 31, 2000 Form 10-Q, File
           No. 1-3548).

  *10(a) - Participation  Agreement, dated  as  of  March 31, 2000,  among Asset
           Holdings III, L.P., as Lessor, ADESA Corporation, as Lessee, SunTrust
           Bank,  as Credit Bank,  and  Cornerstone  Funding  Corporation  I, as
           Issuer (filed as Exhibit 10(a) to the March 31, 2000 Form 10-Q,  File
           No. 1-3548).

  *10(b) - Lease Agreement, dated as of March 31, 2000, between  Asset  Holdings
           III,  L.P.,  as Lessor,  and ADESA  Corporation,  as Lessee (filed as
           Exhibit 10(b) to the March 31, 2000 Form 10-Q, File No. 1-3548).

  *10(c) - Reimbursement Agreement, dated as of March 31, 2000, between SunTrust
           Bank, as Credit Bank,  and Asset Holdings III, L.P., as Lessor (filed
           as Exhibit 10(c) to the March 31, 2000 Form 10-Q, File No. 1-3548).

  *10(d) - Appendix  I   to   Participation   Agreement,  Lease  Agreement   and
           Reimbursement  Agreement,  all which are dated as of March 31,  2000,
           relating to the Lease  Financing for ADESA  Corporation  Auto Auction
           Facilities  (filed as Exhibit  10(d) to the March 31, 2000 Form 10-Q,
           File No. 1-3548).

- --------------------------------------------------------------------------------
                                     PAGE 49



<PAGE>
                             ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                                    PART IV


EXHIBIT NUMBER
- --------------------------------------------------------------------------------

  *10(e) - Assignment of Lease and Rents (without Exhibit A) entered  into as of
           March 31, 2000, by and between Asset  Holdings III,  L.P., as Lessor,
           and  SunTrust  Bank,  as Credit Bank  (filed as Exhibit  10(e) to the
           March 31, 2000 Form 10-Q, File No. 1-3548).

  *10(f) - Limited Guaranty of  Minnesota  Power, Inc. (now ALLETE), dated as of
           March 31, 2000, relating to the Lease Financing for ADESA Corporation
           Auto Auction Facilities (filed as Exhibit 10(f) to the March 31, 2000
           Form 10-Q, File No. 1-3548).

  *10(g) - Master Agreement (without Exhibits), dated as of July 30, 2001, among
           ADESA Corporation, as a Guarantor, ADESA California, Inc. and certain
           subsidiaries  of ADESA  Corporation  that may hereafter  become party
           hereto,  as  Lessees,  Atlantic  Financial  Group,  Ltd.,  as Lessor,
           certain  financial  institutions  parties  hereto,  as  Lenders,  and
           SunTrust  Bank,  as Agent  (filed as  Exhibit  10(g) to the 2001 Form
           10-K, File No. 1-3548).

  *10(h) - Master Lease Agreement (without Exhibits), dated as of July 30, 2001,
           between  Atlantic   Financial  Group,  Ltd.,  as  Lessor,  and  ADESA
           California, Inc. and certain other subsidiaries of ADESA Corporation,
           as Lessees  (filed as Exhibit  10(h) to the 2001 Form 10-K,  File No.
           1-3548).

  *10(i) - Loan Agreement, dated as of  July 30, 2001, among Atlantic  Financial
           Group, Ltd., as Lessor and Borrower, the financial institutions party
           hereto,  as Lenders,  and SunTrust  Bank,  as Agent (filed as Exhibit
           10(i) to the 2001 Form 10-K, File No. 1-3548).

  *10(j) - Guaranty Agreement from ALLETE, dated  as of July 30, 2001,  relating
           to the Master Agreement,  dated as of July 30, 2001 (filed as Exhibit
           10(j) to the 2001 Form 10-K, File No. 1-3548).

   10(k) - Trust Indenture (without  Exhibits) between  Development Authority of
           Fulton County and SunTrust Bank, as Trustee,  dated as of December 1,
           2002.

   10(l) - Bond Purchase Agreement (without  Exhibits), dated  December 1, 2002,
           for the  Development  Authority  of Fulton  County  Taxable  Economic
           Development Revenue Bonds (ADESA Atlanta, LLC Project) Series 2002.

   10(m) - Lease  Agreement (without Exhibits) between Development Authority  of
           Fulton County and ADESA Atlanta, LLC, dated as of December 1, 2002.

  *10(n) - Receivables  Purchase Agreement dated  as  of May 31, 2002, among AFC
           Funding Corporation,  as Seller,  Automotive Finance Corporation,  as
           Servicer,  Fairway Finance  Corporation,  as initial  Purchaser,  BMO
           Nesbitt  Burns Corp.,  as initial  Agent and as  Purchaser  Agent for
           Fairway Finance Corporation and XL Capital Assurance Inc., as Insurer
           (filed as  Exhibit  10(a) to the June 30,  2002 Form  10-Q,  File No.
           1-3548).

  *10(o) - Amended and Restated Purchase and Sale Agreement dated  as of May 31,
           2002,   between  AFC  Funding   Corporation  and  Automotive  Finance
           Corporation  (filed as Exhibit  10(b) to the June 30, 2002 Form 10-Q,
           File No. 1-3548).

  *10(p) - Wholesale Power Coordination and Dispatch Operating  Agreement, dated
           April 14, 2000,  between Minnesota Power, Inc. (now ALLETE) and Split
           Rock  Energy LLC (filed as  Exhibit  10(a) to the June 30,  2000 Form
           10-Q, File No. 1-3548).

  *10(q) - Letter addressed to  the Federal Energy Regulatory  Commission, dated
           April  21,  2000,  amending  the  Wholesale  Power  Coordination  and
           Dispatch Operating Agreement, dated April 14, 2000, between Minnesota
           Power,  Inc. (now ALLETE) and Split Rock Energy LLC (filed as Exhibit
           10(b) to the June 30, 2000 Form 10-Q, File No. 1-3548).

  *10(r) - Guarantee  Agreement,  dated  August 16,  2000,  made  by  and  among
           Minnesota Power,  Inc. (now ALLETE),  CoBank,  ACB and ABN AMRO Bank,
           N.V.  (filed as Exhibit 10 to the September 30, 2000 Form 10-Q,  File
           No. 1-3548).

  *10(s) - Power Purchase and Sale Agreement, dated as of  May 29, 1998, between
           Minnesota  Power,   Inc.  (now  ALLETE)  and  Square  Butte  Electric
           Cooperative (filed as Exhibit 10 to the June 30, 1998 Form 10-Q, File
           No. 1-3548).

   10(t) - Second  Amended  and   Restated  Committed Facility   Letter (without
           Exhibits),  dated  December  24,  2002,  to ALLETE from  LaSalle Bank
           National Association, as Agent.

+*10(u)1 - Minnesota  Power (now  ALLETE)   Executive   Annual  Incentive  Plan,
           effective  January 1, 1996  (filed as Exhibit  10(a) to the 1995 Form
           10-K, File No. 1-3548).

 +10(u)2 - Amendments  through January  2003 to the Minnesota Power (now ALLETE)
           Executive Annual Incentive Plan.

- --------------------------------------------------------------------------------
                                     PAGE 50


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                                     PART IV


EXHIBIT NUMBER
- --------------------------------------------------------------------------------
 +*10(v) - Minnesota Power (now  ALLETE) and  Affiliated  Companies Supplemental
           Executive Retirement Plan, as amended and restated,  effective August
           1, 1994  (filed as  Exhibit  10(b) to the 1995  Form  10-K,  File No.
           1-3548).

 +*10(w) - Executive Investment  Plan-I,  as  amended  and  restated,  effective
           November 1, 1988 (filed as Exhibit 10(c) to the 1988 Form 10-K,  File
           No. 1-3548).

 +*10(x) - Executive  Investment  Plan-II,  as amended and  restated,  effective
           November 1, 1988 (filed as Exhibit 10(d) to the 1988 Form 10-K,  File
           No. 1-3548).

 +*10(y) - Deferred Compensation  Trust  Agreement,  as  amended  and  restated,
           effective  January 1, 1989  (filed as Exhibit  10(f) to the 1988 Form
           10-K, File No. 1-3548).

+*10(z)1 - Minnesota   Power   (now  ALLETE)   Executive   Long-Term   Incentive
           Compensation Plan,  effective January 1, 1996 (filed as Exhibit 10(a)
           to the June 30, 1996 Form 10-Q, File No. 1-3548).

 +10(z)2 - Amendments through January 2003 to the  Minnesota  Power (now ALLETE)
           Executive Long-Term Incentive  Compensation Plan.

 +*10(aa)- Minnesota Power (now ALLETE) Director Stock  Plan, effective  January
           1, 1995 (filed as  Exhibit 10 to the March 31, 1995  Form 10-Q,  File
           No. 1-3548).

+*10(ab) - Minnesota Power (now ALLETE) Director Long-Term Stock Incentive Plan,
           effective  January 1, 1996  (filed as  Exhibit  10(b) to the June 30,
           1996 Form 10-Q, File No. 1-3548).

 +10(ac) - Minnesota  Power  (now ALLETE)  Director  Compensation  Deferral Plan
           Amended and Restated,  effective  January 1, 1990.

      12 - Computation of Ratios  of  Earnings to Fixed Charges and Supplemental
           Ratios of Earnings to Fixed Charges. (Included  as  page  79  of this
           document.)

     *21 - Subsidiaries of the Registrant  (reference is  made to  ALLETE's Form
           U-3A-2 for the year ended December 31, 2002, File No. 69-78).

   23(a) - Consent  of   Independent  Accountants.

   23(b) - Consent of General Counsel.

   99(a) - Certification of Annual  Report dated  February 14, 2003,  signed  by
           David  G.  Gartzke.

   99(b) - Certification  of  Annual  Report  dated February 14, 2003, signed by
           James K. Vizanko.
- ------------------------------------------------
*  INCORPORATED HEREIN BY REFERENCE AS INDICATED.

+  MANAGEMENT  CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO BE FILED
   AS AN EXHIBIT TO THIS REPORT PURSUANT TO ITEM 15(C) OF FORM 10-K.

(b) Reports on Form 8-K.

    Report on Form 8-K filed October 18, 2002 with  respect to Item 7. Financial
    Statements and Exhibits.

    Report on  Form  8-K filed December 10, 2002 with  respect  to Item 5. Other
    Events and Regulation FD Disclosure.

    Report on Form 8-K  filed  December 20, 2002  with  respect to Item 5. Other
    Events and Regulation FD Disclosure,  and Item 7. Financial Statements,  Pro
    Forma Financial Information and Exhibits.

    Report on Form 8-K filed December 30, 2002 with  respect  to  Item 5.  Other
    Events and Regulation FD Disclosure.

    Report on Form 8-K filed January 24, 2003 with respect to  Item 7. Financial
    Statements, Pro Forma Financial Information and Exhibits.



- --------------------------------------------------------------------------------
                                     PAGE 51


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                                   SIGNATURES


   Pursuant  to  the  requirements  of  Section  13  or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                                     ALLETE, INC.

   Dated: February 14, 2003    By                 David G. Gartzke
                                 -----------------------------------------------
                                                  David G. Gartzke
                                 Chairman, President and Chief Executive Officer

   Pursuant to  the requirements  of the  Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
                SIGNATURE                                       TITLE                                  DATE
- -----------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                                              <C>
            David G. Gartzke                          Chairman, President,                       February 14, 2003
- ----------------------------------------------
            David G. Gartzke                    Chief Executive Officer and Director

            James K. Vizanko                             Vice President,                         February 14, 2003
- ----------------------------------------------
            James K. Vizanko                    Chief Financial Officer and Treasurer

             Mark A. Schober                      Vice President and Controller                  February 14, 2003
- ----------------------------------------------
             Mark A. Schober

           Kathleen A. Brekken                              Director                             February 14, 2003
- ----------------------------------------------
           Kathleen A. Brekken

            Wynn V. Bussmann                                Director                             February 14, 2003
- ----------------------------------------------
            Wynn V. Bussmann

             Dennis E. Evans                                Director                             February 14, 2003
- ----------------------------------------------
             Dennis E. Evans

            Peter J. Johnson                                Director                             February 14, 2003
- ----------------------------------------------
            Peter J. Johnson

             George L. Mayer                                Director                             February 14, 2003
- ----------------------------------------------
             George L. Mayer

             Jack I. Rajala                                 Director                             February 14, 2003
- ----------------------------------------------
             Jack I. Rajala

               Nick Smith                                   Director                             February 14, 2003
- ----------------------------------------------
               Nick Smith

            Bruce W. Stender                                Director                             February 14, 2003
- ----------------------------------------------
            Bruce W. Stender

           Donald C. Wegmiller                              Director                             February 14, 2003
- ----------------------------------------------
           Donald C. Wegmiller

</TABLE>

- --------------------------------------------------------------------------------
                                     PAGE 52


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                                 CERTIFICATIONS


     I, David G. Gartzke, certify that:

1.   I have reviewed this annual report on Form 10-K of ALLETE, Inc.;

2.   Based  on  my  knowledge,  this  annual  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;

3.   Based  on  my knowledge,  the  financial  statements, and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The  registrant's  other  certifying  officers  and  I  are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a.   Designed  such  disclosure controls  and  procedures  to  ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is being prepared;

     b.   Evaluated  the  effectiveness  of the registrant's disclosure controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     c.   Presented   in   this   annual   report  our  conclusions  about   the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying officers and I  have disclosed, based  on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

     a.   All significant deficiencies in the  design or  operation of  internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     b.   Any fraud, whether or not material, that  involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The registrant's other  certifying  officers  and I  have indicated in this
     annual report whether there were significant  changes in internal  controls
     or in other  factors  that could  significantly  affect  internal  controls
     subsequent  to the  date  of our  most  recent  evaluation,  including  any
     corrective  actions with regard to  significant  deficiencies  and material
     weaknesses.


Date:   February 14, 2003                       David G. Gartzke
                                ------------------------------------------------
                                                David G. Gartzke
                                Chairman, President and Chief Executive Officer


- --------------------------------------------------------------------------------
                                     PAGE 53


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                                 CERTIFICATIONS


     I, James K. Vizanko, certify that:

1.   I have reviewed this annual report on Form 10-K of ALLETE, Inc.;

2.   Based  on  my knowledge, this  annual report  does not  contain any  untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;

3.   Based  on  my  knowledge, the  financial  statements, and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The  registrant's  other  certifying  officers  and  I  are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the  registrant  and have:

     a.   Designed such  disclosure  controls  and  procedures  to  ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is being prepared;

     b.   Evaluated the effectiveness of  the  registrant's disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     c.   Presented   in   this  annual   report   our  conclusions  about   the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying  officers and I have  disclosed, based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

     a.   All significant deficiencies in the design or  operation  of  internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     b.   Any fraud, whether or not material, that involves  management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The  registrant's  other  certifying  officers and I have indicated in this
     annual report whether there were significant  changes in internal  controls
     or in other  factors  that could  significantly  affect  internal  controls
     subsequent  to the  date  of our  most  recent  evaluation,  including  any
     corrective  actions with regard to  significant  deficiencies  and material
     weaknesses.


     Date:   February 14, 2003                          James K. Vizanko
                                                 -------------------------------
                                                        James K. Vizanko
                                                 Vice President, Chief Financial
                                                      Officer and Treasurer


- --------------------------------------------------------------------------------
                                     PAGE 54

<PAGE>
                              ALLETE FORM 10-K 2002




                                               CONSOLIDATED FINANCIAL STATEMENTS
                                                             FOR THE YEARS ENDED
                                                DECEMBER 31, 2002, 2001 AND 2000
                                          WITH REPORT OF INDEPENDENT ACCOUNTANTS
                                                        AND REPORT OF MANAGEMENT






                                     PAGE 55


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                                     REPORTS


INDEPENDENT ACCOUNTANTS
                                       [PRICEWATERHOUSECOOPERS LLP LOGO OMITTED]
To the Shareholders and
Board of Directors of ALLETE, Inc.

   In our opinion,  the accompanying  consolidated balance sheet and the related
consolidated  statements of income,  of cash flows and of  shareholders'  equity
present fairly, in all material respects, the financial position of ALLETE, Inc.
and its  subsidiaries  at December  31, 2002 and 2001,  and the results of their
operations  and their cash flows for each of the three years in the period ended
December 31, 2002, in conformity with accounting  principles  generally accepted
in  the  United  States  of  America.   These   financial   statements  are  the
responsibility of ALLETE, Inc.'s management; our responsibility is to express an
opinion on these  financial  statements  based on our audits.  We conducted  our
audits of these  statements in  accordance  with  auditing  standards  generally
accepted in the United  States of America which require that we plan and perform
the audit to obtain reasonable  assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence  supporting the amounts and  disclosures  in the financial  statements,
assessing the  accounting  principles  used and  significant  estimates  made by
management,  and evaluating the overall  financial  statement  presentation.  We
believe  that our audits  provide a reasonable  basis for the opinion  expressed
above.
   As discussed in Notes 2 and 3 to the consolidated  financial statements,  the
Company adopted Statement of Financial Accounting Standards,  No. 142, "Goodwill
and Other Intangible Assets" on January 1, 2002.

PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Minneapolis, Minnesota
January 20, 2003

- --------------------------------------------------------------------------------

MANAGEMENT

   The consolidated  financial  statements and other financial  information were
prepared by management,  who is responsible for their integrity and objectivity.
The  financial  statements  have been  prepared  in  conformity  with  generally
accepted  accounting  principles and  necessarily  include some amounts that are
based on informed judgments and best estimates and assumptions of management.
   To meet management's  responsibilities with respect to financial information,
we maintain  and enforce a system of internal  accounting  controls  designed to
provide assurance,  on a cost effective basis, that transactions are carried out
in accordance with management's  authorizations  and that assets are safeguarded
against  loss from  unauthorized  use or  disposition.  The system  includes  an
organizational   structure   that  provides  an   appropriate   segregation   of
responsibilities,  careful selection and training of personnel, written policies
and  procedures,  and periodic  reviews by our  internal  audit  department.  In
addition,  we have  personnel  policies that require all employees to maintain a
high standard of ethical  conduct.  Management  believes the system is effective
and provides  reasonable  assurance that all transactions are properly  recorded
and have been executed in accordance with management's authorization. Management
modifies and improves our system of internal  accounting controls in response to
changes in business  conditions.  Our  internal  audit staff is charged with the
responsibility for determining compliance with our procedures.
   Four  of our  directors,  not  members  of  management,  serve  as the  Audit
Committee.  Our  Board of  Directors,  through  the  Audit  Committee,  oversees
management's responsibilities for financial reporting. The Audit Committee meets
regularly with management, the internal auditors and the independent accountants
to discuss  auditing and  financial  matters and to assure that each is carrying
out  their   responsibilities.   The  internal   auditors  and  the  independent
accountants have full and free access to the Audit Committee without  management
present.  PricewaterhouseCoopers  LLP, independent  accountants,  are engaged to
express an opinion on the  financial  statements.  Their audit is  conducted  in
accordance with generally  accepted auditing  standards and includes a review of
internal  controls and tests of  transactions  to the extent  necessary to allow
them to report on the fairness of our operating results and financial condition.


David G. Gartzke

David G. Gartzke
Chairman, President and Chief Executive Officer



James Vizanko

James K. Vizanko
Chief Financial Officer



- --------------------------------------------------------------------------------
                                     PAGE 56


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                        CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
ALLETE CONSOLIDATED BALANCE SHEET
<CAPTION>
DECEMBER 31                                                                         2002                          2001
==============================================================================================================================
MILLIONS
<S>                                                                              <C>                           <C>
Assets
Current Assets
     Cash and Cash Equivalents                                                   $  194.0                      $  220.2
     Trading Securities                                                               1.8                         155.6
     Accounts Receivable                                                            384.4                         431.2
     Inventories                                                                     36.8                          32.0
     Prepayments and Other                                                           14.1                          14.3
     Discontinued Operations                                                         27.3                          42.2
- ------------------------------------------------------------------------------------------------------------------------------
        Total Current Assets                                                        658.4                         895.5
Property, Plant and Equipment                                                     1,364.9                       1,323.3
Investments                                                                         170.9                         155.4
Goodwill                                                                            499.8                         494.4
Other Intangible Assets                                                              39.8                          34.8
Other Assets                                                                         67.5                          68.8
Discontinued Operations                                                             345.9                         310.3
- ------------------------------------------------------------------------------------------------------------------------------
Total Assets                                                                     $3,147.2                      $3,282.5
- ------------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Liabilities
Current Liabilities
     Accounts Payable                                                            $  202.6                      $  239.8
     Accrued Taxes, Interest and Dividends                                           36.4                          38.1
     Notes Payable                                                                   74.5                         267.4
     Long-Term Debt Due Within One Year                                             283.7                           6.9
     Other                                                                          111.6                         106.4
     Discontinued Operations                                                         29.4                          45.9
- ------------------------------------------------------------------------------------------------------------------------------
        Total Current Liabilities                                                   738.2                         704.5
Long-Term Debt                                                                      661.3                         933.8
Accumulated Deferred Income Taxes                                                   139.8                         107.0
Other Liabilities                                                                   137.6                         163.5
Discontinued Operations                                                             162.9                         154.9
Commitments and Contingencies
- ------------------------------------------------------------------------------------------------------------------------------
        Total Liabilities                                                         1,839.8                       2,063.7
- ------------------------------------------------------------------------------------------------------------------------------
Company Obligated Mandatorily Redeemable Preferred Securities of
     Subsidiary ALLETE Capital I Which Holds Solely Company Junior
     Subordinated Debentures                                                         75.0                          75.0
- ------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity
Common Stock Without Par Value, 130.0 Shares Authorized
     85.6 and 83.9 Shares Outstanding                                               814.9                         770.3
Unearned ESOP Shares                                                                (49.0)                        (52.7)
Accumulated Other Comprehensive Loss                                                (22.2)                        (14.5)
Retained Earnings                                                                   488.7                         440.7
- ------------------------------------------------------------------------------------------------------------------------------
        Total Shareholders' Equity                                                1,232.4                       1,143.8
- ------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity                                       $3,147.2                      $3,282.5
==============================================================================================================================

                           The accompanying notes are an integral part of these statements.
</TABLE>

- --------------------------------------------------------------------------------
                                     PAGE 57


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                        CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
ALLETE CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31                                              2002                  2001               2000
==============================================================================================================================
MILLIONS EXCEPT PER SHARE AMOUNTS
<S>                                                                      <C>                    <C>               <C>
Operating Revenue
    Energy Services
       Utility                                                           $  505.6               $  538.7          $  532.1
       Nonregulated/Nonutility                                              124.7                   80.0              54.3
    Automotive Services                                                     844.1                  832.1             522.6
    Investments                                                              32.5                   74.8              77.4
- ------------------------------------------------------------------------------------------------------------------------------
       Total Operating Revenue                                            1,506.9                1,525.6           1,186.4
- ------------------------------------------------------------------------------------------------------------------------------
Operating Expenses
    Fuel and Purchased Power
       Utility                                                              205.0                  233.1             229.0
       Nonregulated/Nonutility                                               34.1                      -                 -
    Operations
       Utility                                                              197.0                  204.1             208.9
       Nonregulated/Nonutility                                              107.5                   74.9              51.7
       Automotive and Investments                                           703.5                  728.3             464.7
    Interest                                                                 62.2                   74.7              58.8
- ------------------------------------------------------------------------------------------------------------------------------
       Total Operating Expenses                                           1,309.3                1,315.1           1,013.1
- ------------------------------------------------------------------------------------------------------------------------------
Operating Income Before ACE                                                 197.6                  210.5             173.3

Income from Disposition of Investment in ACE                                    -                      -              48.0
- ------------------------------------------------------------------------------------------------------------------------------
Operating Income from Continuing Operations                                 197.6                  210.5             221.3

Distributions on Redeemable
    Preferred Securities of ALLETE Capital I                                  6.0                    6.0               6.0

Income Tax Expense                                                           72.6                   74.2              77.0
- ------------------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations                                           119.0                  130.3             138.3

Income from Discontinued Operations                                          18.2                    8.4              10.3
- ------------------------------------------------------------------------------------------------------------------------------
Net Income                                                               $  137.2               $  138.7          $  148.6
- ------------------------------------------------------------------------------------------------------------------------------
Average Shares of Common Stock
    Basic                                                                    81.1                   75.8              69.8
    Diluted                                                                  81.7                   76.5              70.1
- ------------------------------------------------------------------------------------------------------------------------------
Earnings Per Share of Common Stock
    Basic
       Continuing Operations                                                $1.47                  $1.72             $1.97
       Discontinued Operations                                               0.22                   0.11              0.15
- ------------------------------------------------------------------------------------------------------------------------------
                                                                            $1.69                  $1.83             $2.12
- ------------------------------------------------------------------------------------------------------------------------------
    Diluted
       Continuing Operations                                                $1.46                  $1.70             $1.96
       Discontinued Operations                                               0.22                   0.11              0.15
- ------------------------------------------------------------------------------------------------------------------------------
                                                                            $1.68                  $1.81             $2.11
- ------------------------------------------------------------------------------------------------------------------------------
Dividends Per Share of Common Stock                                         $1.10                  $1.07             $1.07
==============================================================================================================================

                             The accompanying notes are an integral part of these statements.
</TABLE>



- --------------------------------------------------------------------------------
                                     PAGE 58


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                        CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>

ALLETE CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31                                             2002                2001                   2000
==============================================================================================================================
MILLIONS
<S>                                                                      <C>                 <C>                     <C>
Operating Activities
    Net Income                                                           $ 137.2             $ 138.7                 $ 148.6
    Gain from Disposition of Investment in ACE                                 -                   -                   (48.0)
    Depreciation and Amortization                                           82.1               101.6                    86.7
    Deferred Income Taxes                                                   26.9                10.3                    (6.6)
    Changes in Operating Assets and Liabilities - Net of the
         Effects of Acquisitions
              Trading Securities                                           153.8               (64.8)                   88.9
              Accounts Receivable                                           74.9               (82.4)                  (77.7)
              Inventories                                                   (3.8)               (3.0)                   (2.2)
              Prepayments and Other Current Assets                           2.0                (9.2)                    3.5
              Accounts Payable                                             (38.0)              (23.9)                   92.7
              Other Current Liabilities                                     (7.8)               16.4                   (30.0)
    Other - Net                                                             25.7                19.9                    19.6
- ------------------------------------------------------------------------------------------------------------------------------
              Cash from Operating Activities                               453.0               103.6                   275.5
- ------------------------------------------------------------------------------------------------------------------------------
Investing Activities
    Proceeds from Sale of Investments                                        1.9                 2.6                   146.0
    Additions to Investments                                               (24.5)              (11.2)                  (42.5)
    Additions to Property, Plant and Equipment                            (205.8)             (153.0)                 (168.7)
    Acquisitions - Net of Cash Acquired                                    (32.7)             (157.1)                 (453.0)
    Other - Net                                                             16.7                21.3                    24.4
- ------------------------------------------------------------------------------------------------------------------------------
              Cash for Investing Activities                               (244.4)             (297.4)                 (493.8)
- ------------------------------------------------------------------------------------------------------------------------------
Financing Activities
    Issuance of Long-Term Debt                                              18.4               125.2                   306.3
    Issuance of Common Stock                                                43.2               189.2                    23.6
    Changes in Notes Payable - Net                                        (200.5)                5.5                   177.8
    Reductions of Long-Term Debt                                           (14.5)              (18.1)                  (58.8)
    Redemption of Preferred Stock                                              -                   -                   (31.5)
    Dividends on Preferred and Common Stock                                (89.2)              (81.8)                  (75.4)
- ------------------------------------------------------------------------------------------------------------------------------
              Cash from (for) Financing Activities                        (242.6)              220.0                   342.0
- ------------------------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash                                      2.7               (11.3)                   (5.9)
- ------------------------------------------------------------------------------------------------------------------------------
Change in Cash and Cash Equivalents                                        (31.3)               14.9                   117.8

Cash and Cash Equivalents at Beginning of Period <F1>                      234.2               219.3                   101.5
- ------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period <F1>                          $ 202.9             $ 234.2                 $ 219.3
- ------------------------------------------------------------------------------------------------------------------------------
Supplemental Cash Flow Information
    Cash Paid During the Period for
         Interest - Net of Capitalized                                     $71.9               $84.2                   $66.3
         Income Taxes                                                      $49.2               $60.5                  $107.1
==============================================================================================================================
<FN>
<F1> INCLUDED $8.9 MILLION OF CASH FROM DISCONTINUED OPERATIONS AT DECEMBER 31, 2002 ($14.0 MILLION AT DECEMBER 31, 2001).
</FN>
                                   The accompanying notes are an integral part of these statements.
</TABLE>




- --------------------------------------------------------------------------------
                                     PAGE 59


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                        CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
ALLETE CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<CAPTION>
                                                                               ACCUMULATED
                                                  TOTAL                           OTHER        UNEARNED                 CUMULATIVE
                                              SHAREHOLDERS'   RETAINED        COMPREHENSIVE      ESOP         COMMON     PREFERRED
                                                 EQUITY       EARNINGS        INCOME (LOSS)     SHARES        STOCK       STOCK
====================================================================================================================================
MILLIONS
<S>                                           <C>             <C>             <C>              <C>            <C>       <C>
Balance at December 31, 1999                    $  817.3      $ 310.6            $  2.4        $(59.2)        $552.0      $ 11.5

Comprehensive Income
   Net Income                                      148.6        148.6
   Other Comprehensive Income - Net of Tax
      Unrealized Losses on Securities - Net         (0.7)                          (0.7)
      Foreign Currency Translation Adjustments      (5.9)                          (5.9)
                                                --------
         Total Comprehensive Income                142.0
Common Stock Issued - Net                           24.9                                                        24.9
Redemption of Cumulative Preferred Stock           (11.5)                                                                  (11.5)
Dividends Declared                                 (75.4)       (75.4)
ESOP Shares Earned                                   3.5                                          3.5
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000                       900.8        383.8              (4.2)        (55.7)         576.9           -

Comprehensive Income
   Net Income                                      138.7        138.7
   Other Comprehensive Income - Net of Tax
      Unrealized Gains on Securities - Net           2.5                            2.5
      Interest Rate Swap                            (1.5)                          (1.5)
      Foreign Currency Translation Adjustments     (11.3)                         (11.3)
                                                --------
         Total Comprehensive Income                128.4
Common Stock Issued - Net                          193.4                                                       193.4
Dividends Declared                                 (81.8)       (81.8)
ESOP Shares Earned                                   3.0                                           3.0
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001                     1,143.8        440.7             (14.5)         (52.7)        770.3           -

Comprehensive Income
   Net Income                                      137.2        137.2
   Other Comprehensive Income - Net of Tax
      Unrealized Losses on Securities - Net         (8.1)                          (8.1)
      Interest Rate Swap                             1.3                            1.3
      Foreign Currency Translation Adjustments       2.6                            2.6
      Additional Pension Liability                  (3.5)                          (3.5)
                                                --------
         Total Comprehensive Income                129.5
Common Stock Issued - Net                           44.6                                                        44.6
Dividends Declared                                 (89.2)       (89.2)
ESOP Shares Earned                                   3.7                                           3.7
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2002                    $1,232.4      $ 488.7            $(22.2)        $(49.0)       $814.9      $    -
====================================================================================================================================

                                   The accompanying notes are an integral part of these statements.
</TABLE>

- --------------------------------------------------------------------------------
                                     PAGE 60


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                          NOTES TO FINANCIAL STATEMENTS

1  BUSINESS SEGMENTS
<TABLE>
<CAPTION>
MILLIONS                                                                                                          INVESTMENTS
                                                                                                                      AND
                                                                             ENERGY            AUTOMOTIVE          CORPORATE
FOR THE YEAR ENDED DECEMBER 31                      CONSOLIDATED            SERVICES            SERVICES            CHARGES
==============================================================================================================================
<S>                                                 <C>                     <C>                <C>                 <C>
2002
Operating Revenue                                     $1,506.9                $630.3               $844.1 <F1>       $ 32.5
Operation and Other Expense                            1,137.9                 491.6                613.5              32.8
Depreciation and Amortization Expense                     81.7                  48.8                 32.8               0.1
Lease Expense                                             27.5                   3.2                 24.3                 -
Interest Expense                                          62.2                  18.8                 21.2              22.2
- ------------------------------------------------------------------------------------------------------------------------------
Operating Income (Loss)                                  197.6                  67.9                152.3             (22.6)
Distributions on Redeemable
     Preferred Securities of Subsidiary                    6.0                   2.4                  -                 3.6
Income Tax Expense (Benefit)                              72.6                  23.7                 59.4             (10.5)
- ------------------------------------------------------------------------------------------------------------------------------
Income (Loss) from Continuing Operations                 119.0                $ 41.8               $ 92.9            $(15.7)
                                                                              ------------------------------------------------
Income from Discontinued Operations                       18.2
- --------------------------------------------------------------
Net Income                                            $  137.2
EBITDAL from Continuing Operations                      $369.0                $138.7               $230.6             $(0.3)
Total Assets                                          $3,147.2 <F3>         $1,150.9             $1,472.8 <F2>       $150.3
Property, Plant and Equipment                         $1,364.9                $876.4               $484.4              $4.1
Accumulated Depreciation and Amortization               $879.8                $727.6               $150.0              $2.2
Capital Expenditures                                    $205.8 <F3>            $80.9                $71.1              $5.7
- ------------------------------------------------------------------------------------------------------------------------------
2001
Operating Revenue                                     $1,525.6                $618.7               $832.1 <F1>        $74.8
Operation and Other Expense                            1,124.6                 463.5                610.9              50.2
Depreciation and Amortization Expense                     88.9                  45.9                 42.7               0.3
Lease Expense                                             26.9                   2.7                 24.2                 -
Interest Expense                                          74.7                  20.1                 35.3              19.3
- ------------------------------------------------------------------------------------------------------------------------------
Operating Income                                         210.5                  86.5                119.0               5.0
Distributions on Redeemable
     Preferred Securities of Subsidiary                    6.0                   2.4                    -               3.6
Income Tax Expense (Benefit)                              74.2                  32.4                 44.2              (2.4)
- ------------------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations                        130.3                $ 51.7               $ 74.8             $ 3.8
                                                                              ------------------------------------------------
Income from Discontinued Operations                        8.4
- --------------------------------------------------------------
Net Income                                            $  138.7
EBITDAL from Continuing Operations                      $401.0                $155.2               $221.2             $24.6
Total Assets                                          $3,282.5 <F3>         $1,049.1             $1,515.4 <F2>       $365.5
Property, Plant and Equipment                         $1,323.3                $872.4               $446.7              $4.2
Accumulated Depreciation and Amortization               $828.7                $693.0               $133.4              $2.3
Capital Expenditures                                    $153.0 <F3>            $59.9                $61.0                 -
- ------------------------------------------------------------------------------------------------------------------------------
2000
Operating Revenue                                     $1,186.4                $586.4               $522.6 <F1>        $77.4
Operation and Other Expense                              860.3                 440.6                370.8              48.9
Depreciation and Amortization Expense                     72.9                  46.2                 26.2               0.5
Lease Expense                                             21.1                   2.8                 18.3                 -
Interest Expense                                          58.8                  21.1                 23.3              14.4
- ------------------------------------------------------------------------------------------------------------------------------
Operating Income Before ACE                              173.3                  75.7                 84.0              13.6
Income from Disposition of ACE                            48.0                     -                    -              48.0
Distributions on Redeemable
     Preferred Securities of Subsidiary                    6.0                   2.0                    -               4.0
Income Tax Expense                                        77.0                  29.2                 34.1              13.7
- ------------------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations                        138.3                $ 44.5               $ 49.9             $43.9
                                                                              ------------------------------------------------
Income from Discontinued Operations                       10.3
- --------------------------------------------------------------
Net Income                                            $  148.6
EBITDAL from Continuing Operations                      $326.1                $145.8               $151.8             $28.5
Total Assets                                          $2,914.0 <F3>           $942.8             $1,339.0 <F2>       $285.3
Property, Plant and Equipment                         $1,201.1                $787.3               $409.4              $4.4
Accumulated Depreciation and Amortization               $745.6                $661.5                $81.9              $2.2
Capital Expenditures                                    $168.7 <F3>            $63.9                $74.2              $0.2
==============================================================================================================================
<FN>
<F1> INCLUDED $141.9 MILLION OF CANADIAN OPERATING REVENUE IN 2002 ($139.4 MILLION IN 2001; $107.4 MILLION IN 2000).
<F2> INCLUDED $184.7 MILLION OF CANADIAN ASSETS IN 2002 ($187.6 MILLION IN 2001; $215.6 MILLION IN 2000).
<F3> DISCONTINUED OPERATIONS REPRESENTED $373.2 MILLION OF TOTAL ASSETS IN 2002 ($352.5 MILLION IN 2001; $346.9 MILLION IN 2000) AND
     $48.1 MILLION OF CAPITAL EXPENDITURES IN 2002 ($32.1 MILLION IN 2001; $30.4 MILLION IN 2000).
</FN>
</TABLE>
- --------------------------------------------------------------------------------
                                     PAGE 61


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                          NOTES TO FINANCIAL STATEMENTS


2  OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

   FINANCIAL STATEMENT PREPARATION.  References in this report to "we" and "our"
are to ALLETE  and its  subsidiaries,  collectively.  We prepare  our  financial
statements in conformity with generally accepted  accounting  principles.  These
principles  require  management to make informed  judgments,  best estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue and
expenses. Actual results could differ from those estimates.
   PRINCIPLES OF CONSOLIDATION.  Our consolidated  financial  statements include
the accounts of ALLETE and all of our majority owned subsidiary  companies.  All
material   intercompany  balances  and  transactions  have  been  eliminated  in
consolidation.  Information  for prior periods has been  reclassified to present
comparable information for all periods.
   BUSINESS  SEGMENTS.  Energy  Services and Automotive  Services  segments were
determined based on products and services provided. The Investment and Corporate
Charges segment was determined based on short-term corporate liquidity needs and
the need to provide financial flexibility to pursue strategic initiatives in the
other  business  segments.  We measure  performance  of our  operations  through
careful  budgeting and monitoring of contributions to consolidated net income by
each business segment. Discontinued operations included operating results of our
Water Services businesses, our auto transport business and our retail store.
   ENERGY SERVICES.  Through  Minnesota Power, an operating  division of ALLETE,
Energy Services is engaged in the  generation,  transmission,  distribution  and
marketing of electricity.  In addition,  nonregulated/nonutility  operations are
conducted through BNI Coal,  Enventis Telecom and Rainy River Energy, all wholly
owned subsidiaries.
   Utility   electric  service  is  provided  to  147,000  retail  customers  in
northeastern Minnesota and northwestern Wisconsin.  Approximately 50% of utility
electric  sales are to large power  customers  (which  consists of five taconite
producers,   five  paper  and  pulp  mills,  two  pipeline   companies  and  one
manufacturer) under  all-requirements  contracts with expiration dates extending
from September 2004 through December 2008.  Utility electric rates are under the
jurisdiction of various state and federal regulatory  authorities.  Billings are
rendered  on a cycle  basis.  Revenue is accrued for  service  provided  but not
billed.  Utility electric rates include  adjustment  clauses that bill or credit
customers for fuel and purchased  energy costs above or below the base levels in
rate  schedules  and  that  bill  retail  customers  for  the  recovery  of  CIP
expenditures not collected in base rates.
   Minnesota Power, along with Rainy River Energy,  also engages in nonregulated
electric  generation and power  marketing.  Nonregulated  generation is non-rate
base generation sold at market-based rates to the wholesale market.
   Split Rock  Energy is a joint  venture  of  Minnesota  Power and Great  River
Energy which combines the two companies' power supply  capabilities and customer
loads for power pool operations and generation outage protection. We account for
our 50%  ownership  interest  in Split Rock  Energy  under the equity  method of
accounting.  For the year ended  December 31, 2002 our equity  income from Split
Rock Energy was $7.3  million  ($3.6  million in 2001;  $0 million in 2000).  We
received $2.6 million in cash distributions from Split Rock Energy in 2002 ($2.1
million in 2001; $0 million in 2000).  We purchase  power from Split Rock Energy
to serve  native load  requirements  and sell  generation  to Split Rock Energy.
Purchases and sales are at market rates.  In 2002 we made power  purchases  from
Split Rock Energy of $34.3  million  ($56.1  million in 2001;  $25.1  million in
2000) and power sales to Split Rock Energy of $14.5  million  ($13.3  million in
2001; $11.7 million in 2000).
   BNI  Coal  mines  and  sells  lignite  coal to two  North  Dakota  mine-mouth
generating  units,  one  of  which  is  Square  Butte.   Square  Butte  supplies
approximately  71% (323 MW) of its output to  Minnesota  Power under a long-term
contract. (See Note 13.)
   Enventis  Telecom is our  telecommunications  business which is an integrated
data services  provider  offering fiber  optic-based  communication and advanced
data  services  to  businesses  and  communities  in  Minnesota,  Wisconsin  and
Missouri.
   AUTOMOTIVE  SERVICES.   Automotive  Services  include  several  wholly  owned
subsidiaries operating as integral parts of the vehicle redistribution business.
   ADESA is the  second  largest  wholesale  vehicle  auction  network  in North
America. ADESA owns or leases, and operates 52 wholesale vehicle auctions 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,
automotive fleet/lease companies,  banks and finance companies. ADESA Impact has
25 auction  facilities  in the United  States and Canada that provide total loss
vehicle  services to insurance,  vehicle  leasing and rental car companies.  AFC
provides  inventory  financing for wholesale and retail  automobile  dealers who
purchase vehicles at auctions. AFC has 81 loan production offices located across
the United States and Canada.  These offices provide qualified dealers credit to
purchase  vehicles at any of the 500 plus  auctions  and other  outside  sources
approved by AFC. PAR provides customized vehicle remarketing services, including
nationwide  repossessions and the liquidation of off-lease vehicles,  to various
businesses with fleet operations.  AutoVIN provides  technology-enabled  vehicle
inspection  services and inventory auditing to the automotive  industry.  ADESA,
ADESA Impact,  PAR and AutoVIN  recognize  revenue when services are  performed.
AFC's revenue is comprised of gains on sales

- --------------------------------------------------------------------------------
                                     PAGE 62


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                          NOTES TO FINANCIAL STATEMENTS

of  receivables,  and  interest,  fee and servicer  income.  As is customary for
finance  companies,  AFC's  revenue is reported net of interest  expense of $1.3
million in 2002 ($3.4  million in 2001;  $2.7  million in 2000).  AFC  generally
sells its United States dollar denominated finance receivables through a private
securitization  structure.   Gains  and  losses  on  such  sales  are  generally
recognized at the time of settlement  based on the difference  between the sales
proceeds and the allocated basis of the finance  receivables sold,  adjusted for
transaction fees. AFC also retains the right to service receivables sold through
securitization and receives a fee for doing so.
   INVESTMENTS AND CORPORATE CHARGES.  Investments and Corporate Charges include
real estate  operations,  investments  in emerging  technologies  related to the
electric utility industry and general corporate  expenses,  including  interest,
not specifically related to any one business segment. Our real estate operations
include several wholly owned  subsidiaries  and an 80% ownership in Lehigh.  All
are Florida  companies,  which  through their  subsidiaries,  own real estate in
Florida.  Real estate revenue is recognized on the accrual basis.  Also included
in Investments and Corporate Charges was our trading securities  portfolio which
was liquidated during the second half of 2002.
   DEPRECIATION. Property, plant and equipment are recorded at original cost and
are reported on the balance sheet net of accumulated depreciation.  Expenditures
for additions and significant  replacements  and  improvements  are capitalized;
maintenance  and repair costs are expensed as incurred.  Expenditures  for major
plant  overhauls are also accounted for using this same policy.  When nonutility
property,  plant and  equipment  are retired or otherwise  disposed of, gains or
losses are recognized in revenue. When utility property, plant and equipment are
retired or otherwise disposed of, no gain or loss is recognized.
   Depreciation  is computed  using the  estimated  useful  lives of the various
classes  of  plant.  In 2002  average  depreciation  rates  for the  energy  and
automotive services segments were 3.1% and 4.3% (3.0% and 4.0% in 2001; 3.3% and
3.7% in 2000).
   ASSET  IMPAIRMENTS.  We  periodically  review our long-lived  assets whenever
events indicate the carrying amount of the assets may not be recoverable.  As of
December 31, 2002 and 2001 no write-downs were required.
   ACCOUNTS  RECEIVABLE.  Accounts  receivable are reported on the balance sheet
net of an  allowance  for  doubtful  accounts.  The  allowance  is  based on our
evaluation of the receivable portfolio under current conditions, the size of the
portfolio, overall portfolio quality, review of specific problems and such other
factors that in our judgment deserve recognition in estimating losses.
   AFC,  through a wholly owned  subsidiary,  sells certain finance  receivables
through a revolving private  securitization  structure.  On May 31, 2002 AFC and
its subsidiary entered into a revised  securitization  agreement that allows for
the revolving  sale by the  subsidiary to third parties of up to $500 million in
undivided  interests  in eligible  finance  receivables.  The revised  agreement
expires in 2005.  The  securitization  agreement  in place prior to May 31, 2002
limited the sale of undivided interests to $325 million. In accordance with SFAS
140   "Accounting   for  Transfers   and  Servicing  of  Financial   Assets  and
Extinguishments  of Liabilities,"  which became applicable to AFC upon amendment
of  the  securitization   agreement,   AFC,  for  accounting   purposes,   began
consolidating  the subsidiary  used in the  securitization  structure on June 1,
2002.  Previously,  AFC's interest in this  subsidiary was recorded by ALLETE as
residual  interest in other  current  assets ($103 million at December 31, 2001)
net of the subsidiary's  allowance for doubtful accounts.  The residual interest
previously  reflected  in prior  periods  has been  reclassified  by  ALLETE  to
accounts receivable to conform to current year presentations.
   AFC managed total  receivables of $495.1 million at December 31, 2002 ($500.2
million at December 31, 2001);  $191.3 million represent  receivables which were
included  in accounts  receivable  on our  consolidated  balance  sheet  ($233.2
million at December 31, 2001) and $303.8 million  represent  receivables sold in
undivided  interests  through the  securitization  agreement  ($267.0 million at
December 31, 2001) which are off-balance  sheet. AFC's proceeds from the sale of
the  receivables to third parties were used to repay  borrowings from ALLETE and
fund new loans to AFC's  customers.  AFC and the  subsidiary  must each maintain
certain  financial  covenants such as minimum  tangible net worth to comply with
the terms of the securitization agreement. AFC has historically performed better
than the covenant thresholds set forth in the securitization  agreement.  We are
not  currently  aware  of any   changing  circumstances  that  would  put AFC in
noncompliance with the covenants.

<TABLE>
ACCOUNTS RECEIVABLE
<CAPTION>
DECEMBER 31                                       2002                   2001
================================================================================
MILLIONS
<S>                                              <C>                    <C>
Trade Accounts Receivable                        $215.2                 $216.8
 Less: Allowance for Doubtful Accounts              8.8                    6.1
- --------------------------------------------------------------------------------
                                                  206.4                  210.7
- --------------------------------------------------------------------------------
Finance Receivables                               199.7                  243.7
 Less: Allowance for Doubtful Accounts             21.7                   23.2
- --------------------------------------------------------------------------------
                                                  178.0                  220.5
- --------------------------------------------------------------------------------
Total Accounts Receivable                        $384.4                 $431.2
================================================================================
</TABLE>
   INVENTORIES.  Inventories,  which  include fuel,  material and supplies,  are
stated at the lower of cost or market.  Cost is  determined  by the average cost
method.
   GOODWILL.  All  goodwill  relates  to the  Automotive  Services  segment  and
represents  the excess of cost over  identifiable  tangible and  intangible  net
assets of businesses acquired. As

- --------------------------------------------------------------------------------
                                     PAGE 63


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                          NOTES TO FINANCIAL STATEMENTS


required by SFAS 142,  "Goodwill and Other  Intangible  Assets,"  goodwill is no
longer  amortized  after  2001.  Prior  to  2002  we  amortized  goodwill  on  a
straight-line basis over 40 years.
   UNAMORTIZED  EXPENSE,  DISCOUNT  AND PREMIUM ON DEBT.  Expense,  discount and
premium on debt are deferred and amortized over the lives of the related issues.
   CASH AND  CASH  EQUIVALENTS.  We  consider  all  investments  purchased  with
maturities  of  three  months  or less to be cash  equivalents.
   ACCOUNTING  FOR  STOCK-BASED  COMPENSATION.  We have  elected to account  for
stock-based  compensation in accordance with APB Opinion No. 25, "Accounting for
Stock Issued to Employees."  Accordingly,  no expense is recognized for employee
stock options granted.  Had we applied the fair value recognition  provisions of
SFAS 123,  "Accounting for Stock-Based  Compensation,"  in 2002 we estimate that
stock-based  compensation  expense would have increased $1.5 million  after-tax,
and basic and diluted  earnings per share would have decreased  $0.02 (basic and
diluted  earnings per share would have been impacted by  approximately  $0.01 in
2001 and 2000);  these amounts were calculated  using the  Black-Scholes  option
pricing model.  Expense is recognized for performance share awards, and amounted
to approximately $4 million after-tax in 2002 ($5 million in 2001; $3 million in
2000).
   FOREIGN  CURRENCY  TRANSLATION.   Results  of  operations  for  our  Canadian
subsidiaries  are  translated  into  United  States  dollars  using the  average
exchange rates during the period.  Assets and  liabilities  are translated  into
United States dollars using the exchange rate on the balance sheet date,  except
for  intangibles  and fixed assets,  which are  translated at historical  rates.
Resulting  translation   adjustments  are  recorded  in  the  Accumulated  Other
Comprehensive Loss section of Shareholders'  Equity on our consolidated  balance
sheet.
   INCOME TAXES. ALLETE and its subsidiaries file a consolidated  federal income
tax return. Income taxes are allocated to each subsidiary based on their taxable
income.  We account for income taxes using the liability method as prescribed by
SFAS 109,  "Accounting for Income Taxes." Under the liability  method,  deferred
income tax liabilities are established for all temporary differences in the book
and tax basis of assets and  liabilities  based upon  enacted tax laws and rates
applicable to the periods in which the taxes become payable.
   NEW  ACCOUNTING  STANDARDS.   SFAS  143,  "Accounting  for  Asset  Retirement
Obligations,"  requires the  recognition of a liability for an asset  retirement
obligation  in the  period  in  which it is  incurred.  When  the  liability  is
initially  recorded,  the  carrying  amount of the related  long-lived  asset is
correspondingly  increased.  Over time, the liability is accreted to its present
value and the related  capitalized charge is depreciated over the useful life of
the asset. SFAS 143 is effective for fiscal years beginning after June 15, 2002.
Currently,  decommissioning  amounts  collected in Minnesota  Power's  rates are
reported in  accumulated  depreciation,  which upon  adoption of SFAS 143 by the
Company will require a  reclassification  to a liability.  We are reviewing what
additional  assets,  if any, may have associated  retirement costs as defined by
SFAS 143 and anticipate no material impact on our financial position and results
of operations.
   In  November  2002  the  FASB  issued  Interpretation  No.  45,  "Guarantor's
Accounting  and  Disclosure  requirements  for  Guarantees,  Including  Indirect
Guarantees of Indebtedness  of Others." The  Interpretation  expands  disclosure
requirements for certain guarantees, and requires the recognition of a liability
for the fair value of an  obligation  assumed  under a guarantee.  The liability
recognition  provisions  apply on a prospective  basis to  guarantees  issued or
modified after December 31, 2002, and the disclosure  provisions apply to fiscal
years  ending after  December  15, 2002.  We do not believe the adoption of this
Interpretation  will have a material impact on our financial position or results
of operations.
   In January  2003 the FASB issued  Interpretation  No. 46,  "Consolidation  of
Variable Interest  Entities." In general, a variable interest entity is one with
equity  investors  that do not have voting  rights or do not provide  sufficient
financial  resources  for the entity to support  its  activities.  Under the new
rules,  variable  interest  entities will be  consolidated  by the party that is
subject to the  majority of the risk of loss or entitled to the  majority of the
residual returns. The new rules are effective  immediately for variable interest
entities  created  after  January 31, 2003 and in the third  quarter of 2003 for
previously existing variable interest entities. We are reviewing certain auction
facility  lease  agreements  entered  into by  ADESA  prior to  January  2003 to
determine (1) if the lessor is a variable interest entity,  and (2) if we should
consolidate  the lessor.  If it is  ultimately  determined  that the lessor is a
variable  interest entity that should be included in our consolidated  financial
statements,  we  estimate  that we will  record  approximately  $73  million  in
property,   plant  and  equipment,  and  $73  million  in  long-term  debt.  Any
recognition of these amounts would first occur in the third quarter of 2003.
   In October 2002 the FASB's  Emerging  Issues Task Force  rescinded EITF Issue
98-10,  "Accounting for Contracts Involved in Energy Trading and Risk Management
Activities."  The ruling took effect January 1, 2003 for existing  contracts and
immediately for contracts entered into after October 25, 2002. Early adoption is
permitted.  In general,  EITF 98-10  required  energy  trading  contracts  to be
marked-to-market with resulting gains and losses recognized in income. Any gains
or losses  recognized under the provisions of EITF 98-10 through the end of 2002
will be reversed under the transitional  provisions contained in the rescission.
We were required to account for the Kendall  County  agreement  under EITF 98-10
which  resulted in the  recognition  of $4.7 million of  mark-to-market  pre-tax
income in the second quarter of 2002 ($0 in 2001).  We adopted the rescission of
EITF 98-10 in the fourth quarter of 2002 and reversed the mark-to-market  income
recognized earlier in the year. The Kendall County agreement is not a derivative
under SFAS 133, "Accounting for Derivative Instruments and Hedging Activities."


- --------------------------------------------------------------------------------
                                     PAGE 64


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                          NOTES TO FINANCIAL STATEMENTS


3  GOODWILL AND OTHER INTANGIBLES

   The table below sets forth what  reported  net income and  earnings per share
would have been in all periods  presented,  exclusive  of  amortization  expense
recognized in those periods related to goodwill or other intangible  assets that
are no longer being amortized.  All goodwill  amortization related to continuing
operations.

<TABLE>
<CAPTION>
                                          2002           2001            2000
================================================================================
MILLIONS EXCEPT PER SHARE AMOUNTS
<S>                                      <C>            <C>             <C>
Net Income
     Reported                            $137.2         $138.7          $148.6
     Goodwill Amortization                    -           11.3             7.2
- --------------------------------------------------------------------------------
     Adjusted                            $137.2         $150.0          $155.8
- --------------------------------------------------------------------------------
Earnings Per Share
     Basic
        Reported                          $1.69          $1.83           $2.12
        Goodwill Amortization                 -           0.15            0.10
- --------------------------------------------------------------------------------
        Adjusted                          $1.69          $1.98           $2.22
- --------------------------------------------------------------------------------
     Diluted
        Reported                          $1.68          $1.81           $2.11
        Goodwill Amortization                 -           0.15            0.10
- --------------------------------------------------------------------------------
        Adjusted                          $1.68          $1.96           $2.21
================================================================================
</TABLE>
   We completed the required goodwill impairment testing in the first quarter of
2002 with no resulting  impairment.  No event or change has occurred  that would
indicate the carrying amount has been impaired since our annual test.

<TABLE>
GOODWILL
<CAPTION>
================================================================================
MILLIONS
<S>                                                                   <C>
Carrying Value, January 1, 2000                                       $472.8
Acquired During Year                                                    35.9
Amortization                                                           (14.3)
- --------------------------------------------------------------------------------
Carrying Value, December 31, 2001                                      494.4
Acquired During Year                                                     5.4
- --------------------------------------------------------------------------------
Carrying Value, December 31, 2002                                     $499.8
================================================================================
</TABLE>
<TABLE>
OTHER INTANGIBLE ASSETS
<CAPTION>
DECEMBER 31                                      2002                   2001
================================================================================
MILLIONS
<S>                                             <C>                    <C>
Customer Relationships                          $29.6                  $22.4
Computer Software                                32.6                   25.1
Other                                             6.8                    7.5
Accumulated Amortization                        (29.2)                 (20.2)
- --------------------------------------------------------------------------------
Total                                           $39.8                  $34.8
================================================================================
</TABLE>
   Other  Intangible  Assets are amortized using the  straight-line  method over
periods of two to forty years.  Amortization expense for Other Intangible Assets
was $10.2  million in 2002 ($8.5  million in 2001;  $4.7 million in 2000) and is
expected to be about $10 million per year until fully amortized.

4  ACQUISITIONS

   ADESA AUCTION FACILITIES.  In January 2001 we acquired all of the outstanding
stock of ComSearch in exchange for ALLETE common stock and paid cash to purchase
all of the assets of Auto  Placement  Center (now ADESA Impact) in  transactions
with an aggregate value of $62.4 million. In May 2001 ADESA purchased the assets
of the I-44 Auto Auction in Tulsa,  Oklahoma.  ADESA Impact and ADESA Tulsa were
accounted for using the purchase method and financial results have been included
in our consolidated  financial statements since the date of purchase.  Pro forma
financial results were not material. ComSearch was accounted for as a pooling of
interests. Financial results for prior periods have not been restated to reflect
this pooling due to immateriality.
   In February 2000 ADESA  purchased the Mission City Auto Auction in San Diego,
California. In May 2000 ADESA Canada purchased the remaining 27% of Impact Auto.
ADESA Canada  acquired 20% of Impact Auto on October 1, 1995,  27% in March 1999
and  another  26% in  January  2000.  In June  2000  ADESA  acquired  all of the
outstanding  common shares of Auction Finance Group,  Inc. (AFG). AFG owned CAAG
Auto Auction  Holdings Ltd., which was doing business as Canadian Auction Group.
In August 2000 ADESA acquired  Beebe Auto  Exchange,  Inc. and 51% of Interstate
Auto  Auction.  In October 2000 ADESA  purchased  nine auction  facilities  from
Manheim  Auctions,  Inc.  These  transactions  had a combined  purchase price of
approximately $438 million and resulted in goodwill of $298 million. We used the
purchase  method of accounting for these  transactions.  Financial  results have
been included in our  consolidated  financial  statements since the date of each
purchase. Pro forma financial results were not material.
   ACQUISITION OF ENVENTIS, INC. In July 2001 we acquired Enventis, Inc., a data
network systems  provider  headquartered  in the  Minneapolis-St.  Paul area. In
connection  with this  acquisition,  we issued  310,878  shares of ALLETE common
stock.  Enventis was accounted for as a pooling of interests.  Financial results
for  prior  periods  have not been  restated  to  reflect  this  pooling  due to
immateriality.
   ACQUISITION  OF  GENERATING  FACILITY.  In October  2001 we acquired  certain
non-mining  properties from LTV and  Cleveland-Cliffs  Inc. for $75 million. The
non-mining  properties  included  a  225  MW  nonregulated  electric  generating
facility.
   REAL  ESTATE  ACQUISITIONS.  In  December  2002  our real  estate  subsidiary
purchased  additional  land  near  Palm  Coast,  Florida.  The  transaction  was
accounted for using the purchase method.
   In  September  2001 our real estate  subsidiary  purchased  Winter Haven Citi
Centre, a retail shopping center.  In December 2001 and January 2002 real estate
subsidiaries   purchased   additional  land  in  Palm  Coast,   Florida.   These
transactions had a combined purchase price of approximately $31 million and were
accounted for using the purchase method.


- --------------------------------------------------------------------------------
                                     PAGE 65


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                          NOTES TO FINANCIAL STATEMENTS


5  FINANCIAL INSTRUMENTS

   SECURITIES  INVESTMENTS.  During  the  second  half of 2002 we  substantially
liquidated  our trading  securities  portfolio  and used the  proceeds to reduce
short-term  debt.  Prior  to  liquidation,   the  trading  securities  portfolio
consisted primarily of the common stock of various publicly traded companies and
was  included  in  current  assets at fair  value.  Changes  in fair  value were
recognized in earnings,  and the net unrealized gain included in 2001 income was
$0.9 million ($2.3 million loss in 2000).
   Investments includes certain securities held for an indefinite period of time
and  accounted  for as  available-for-sale.  Available-for-sale  securities  are
recorded at fair value with unrealized  gains and losses included in accumulated
other  comprehensive  income, net of tax.  Unrealized losses that are other than
temporary are recognized in earnings.  Available-for-sale  securities consist of
minority interests in the common stock of  publicly-traded  corporations held in
our Emerging Technology portfolio, and securities in a grantor trust established
to fund certain  employee  benefits.  In 2000, we sold 4.7 million shares of ACE
Limited which we had accounted for as available-for-sale.

<TABLE>
AVAILABLE-FOR-SALE SECURITIES
<CAPTION>
================================================================================
MILLIONS
                                             GROSS
                                           UNREALIZED                FAIR
AT DECEMBER 31           COST         GAIN        (LOSS)             VALUE
- --------------------------------------------------------------------------------
<S>                     <C>           <C>         <C>                <C>
2002                    $25.4          $0.7        $(5.2)            $20.9
2001                    $18.1         $10.3        $(1.9)            $26.5
2000                    $10.8         $14.5            -             $25.3
- --------------------------------------------------------------------------------
<CAPTION>
                                                                       NET
                                                                   UNREALIZED
                                                                   GAIN (LOSS)
                                           GROSS                    IN OTHER
YEAR ENDED              SALES             REALIZED                COMPREHENSIVE
DECEMBER 31            PROCEEDS        GAIN       (LOSS)             INCOME
- --------------------------------------------------------------------------------
<S>                    <C>            <C>         <C>             <C>
2002                    $12.1          $1.0          -              $(11.8)
2001                        -             -          -                $3.6
2000                   $129.9         $49.1          -               $(0.5)
================================================================================
</TABLE>
   As part of our Emerging Technology  portfolio,  we also have several minority
investments  in venture  capital funds and  privately-held  start-up  companies.
These  investments  are  accounted  for under the cost method and included  with
Investments on our consolidated balance sheet. The total carrying value of these
investments  was $38.7  million at December 31, 2002 ($40.6  million at December
31, 2001). Our policy is to periodically review these investments for impairment
by assessing such factors as continued  commercial  viability of products,  cash
flow and  earnings.  Any  impairment  would  reduce  the  carrying  value of the
investment.
   FINANCIAL INSTRUMENTS AND OFF-BALANCE SHEET RISKS. In October 2001 we entered
into an interest rate swap agreement  with a notional  amount of $250 million to
hedge $250  million of  floating  rate debt  issued in October  2000.  Under the
15-month swap agreement,  we made fixed quarterly payments based on a fixed rate
of 3.2% and  received  payments  at a  floating  rate  based  on LIBOR  (1.8% at
December 31, 2002). The swap was recorded on the balance sheet at fair value and
treated as a cash flow  hedge  with  unrealized  gains and  losses  included  in
accumulated other comprehensive income. The swap expired in January 2003 and the
Company did not enter into any new interest rate swap agreements.
   Prior to liquidating the trading securities  portfolio,  we sold common stock
short in strategies designed to reduce market risk.  Unrealized gains and losses
on short sales were recognized in earnings.
   The fair value of  off-balance  sheet  financial  instruments  reflected  the
estimated  amounts that we would receive or pay if the contracts were terminated
at December 31. This fair value represents the difference  between the estimated
future  receipts  and  payments  under  the  terms  of each  instrument,  and is
estimated by obtaining  quoted market prices or by using common pricing  models.
These fair values should not be viewed in  isolation,  but rather in relation to
the fair value of the underlying hedged transaction.

<TABLE>
<CAPTION>
OFF-BALANCE SHEET RISKS
================================================================================
MILLIONS
                                                                   FAIR VALUE
                                               CONTRACT            RECEIVABLE
DECEMBER 31                                     AMOUNT              (PAYABLE)
- --------------------------------------------------------------------------------
<S>                                            <C>                 <C>
2002
Interest Rate Swap                              $250.0               $(0.2)
- --------------------------------------------------------------------------------
2001
Short Stock Sales Outstanding                    $19.8               $(0.8)
Interest Rate Swap                              $250.0               $(2.5)
================================================================================
</TABLE>
   FAIR VALUE OF FINANCIAL  INSTRUMENTS.  With the exception of the items listed
below,  the estimated fair values of all financial  instruments  approximate the
carrying amount. The fair values for the items below were based on quoted market
prices for the same or similar instruments.

<TABLE>
FINANCIAL INSTRUMENTS
<CAPTION>

                                    CARRYING                   FAIR
DECEMBER 31                          AMOUNT                    VALUE
================================================================================
MILLIONS
<S>                                 <C>                       <C>
Long-Term Debt
     2002                            $945.0                   $991.6
     2001                            $940.7                   $966.9

Quarterly Income Preferred
  Securities
     2002                             $75.0                    $75.5
     2001                             $75.0                    $74.7
================================================================================
</TABLE>


- --------------------------------------------------------------------------------
                                     PAGE 66


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                          NOTES TO FINANCIAL STATEMENTS


   CONCENTRATION  OF CREDIT  RISK.  Financial  instruments  that  subject  us to
concentrations  of  credit  risk  consist  primarily  of  accounts   receivable.
Minnesota Power sells electricity to about 15 customers in northern  Minnesota's
taconite,  pipeline, paper and wood products industries.  Receivables from these
customers totaled  approximately $10 million at December 31, 2002 ($9 million at
December  31,  2001).  Minnesota  Power  does not obtain  collateral  to support
utility receivables, but monitors the credit standing of major customers.
   Due to the nature of our Automotive  Services'  business,  substantially  all
trade and finance  receivables  are due from  automobile  dealers and  insurance
companies.   We  have   possession   of   automobiles   or   automobile   titles
collateralizing a significant portion of the trade and finance receivables.

6  INVESTMENT IN ACE

   In May 2000 we recorded a $30.4 million,  or $0.44 per share,  after-tax gain
on the sale of 4.7 million shares of ACE Limited. We received 4.7 million shares
of ACE plus $25.1  million in December  1999 when Capital Re merged with ACE. At
the time of the merger we owned 7.3 million shares, or 20%, of Capital Re.

7  JOINTLY OWNED ELECTRIC FACILITY

   We own 80% of the 531-MW Boswell Energy Center Unit 4 (Boswell Unit 4). While
we operate the plant,  certain  decisions about the operations of Boswell Unit 4
are subject to the  oversight  of a committee on which we and  Wisconsin  Public
Power,  Inc.  (WPPI),  the owner of the other 20% of Boswell  Unit 4, have equal
representation and voting rights.  Each of us must provide our own financing and
is obligated to pay our ownership share of operating  costs. Our share of direct
operating  expenses of Boswell  Unit 4 is included in  operating  expense on our
consolidated statement of income. Our 80% share of the original cost included in
electric  plant at December 31, 2002 was $310 million  ($309 million at December
31, 2001). The corresponding  accumulated  depreciation balance was $170 million
at December 31, 2002 ($163 million at December 31, 2001).

8  REGULATORY MATTERS

   We file for periodic  rate  revisions  with the  Minnesota  Public  Utilities
Commission  (MPUC),  the Federal  Energy  Regulatory  Commission and other state
regulatory  authorities.  Interim  rates in  Minnesota  are placed into  effect,
subject to refund with  interest,  pending a final  decision by the  appropriate
commission.  In 2002 31% of our consolidated operating revenue (31% in 2001; 41%
in 2000) was under regulatory authority.  The MPUC had regulatory authority over
approximately  25% in 2002  (25%  in  2001;  33% in  2000)  of our  consolidated
operating revenue.
   ELECTRIC  RATES.  New  federal  legislation  and FERC  regulations  have been
proposed that aim to maintain  reliability,  assure adequate energy supply,  and
address  wholesale price volatility  while  encouraging  wholesale  competition.
Legislation  or  regulation  that  initiates a process  which may lead to retail
customer choice of their electric service  provider  currently lacks momentum in
both Minnesota and Wisconsin. Legislative and regulatory activity as well as the
actions of competitors  affect the way Minnesota Power  strategically  plans for
its future. We cannot predict the timing or substance of any future  legislation
or regulation.
   DEFERRED  REGULATORY CHARGES AND CREDITS.  Our utility operations are subject
to the  provisions of SFAS 71,  "Accounting  for the Effects of Certain Types of
Regulation." We capitalize as deferred  regulatory  charges incurred costs which
are probable of recovery in future utility rates.  Deferred  regulatory  credits
represent  amounts  expected  to be  credited to  customers  in rates.  Deferred
regulatory   charges  and  credits  are  included  in  other  assets  and  other
liabilities on our consolidated  balance sheet.

<TABLE>
DEFERRED REGULATORY CHARGES AND CREDITS
<CAPTION>
DECEMBER 31                                      2002                2001
================================================================================
MILLIONS
<S>                                             <C>                 <C>
Deferred Charges
    Income Taxes                                $ 11.8              $ 12.8
    Conservation Improvement Programs              0.1                 0.3
    Premium on Reacquired Debt                     3.9                 4.5
    Other                                          4.2                 0.4
- --------------------------------------------------------------------------------
                                                  20.0                18.0
Deferred Credits
    Income Taxes                                  39.5                63.2
- --------------------------------------------------------------------------------
Net Deferred Regulatory Liabilities             $(19.5)             $(45.2)
================================================================================

</TABLE>

- --------------------------------------------------------------------------------
                                     PAGE 67


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                          NOTES TO FINANCIAL STATEMENTS


9  DISCONTINUED OPERATIONS

   In  September  2001 we  began a  process  of  systematically  evaluating  our
businesses to determine  the  strategic  value of our assets and explore ways to
unlock that value. As a result, our management and Board of Directors  committed
to a plan to sell our Water Services  businesses.  Water Services includes water
and  wastewater  services  operated  by several  wholly  owned  subsidiaries  in
Florida, North Carolina and Georgia. During the first half of 2002 we exited our
nonregulated  water  subsidiaries,  our auto  transport  business and our retail
store. The financial results for all of these businesses have been accounted for
as  discontinued  operations.  Accordingly,  we  ceased  depreciation  of assets
related to these businesses in the fourth quarter of 2001.  Depreciation expense
in 2001 was $7.5 million after tax ($8.1 million after tax for 2000).
     In  September  2002  Florida  Water  entered  into an agreement to sell its
assets to FWSA, a governmental  authority that was  established by an interlocal
agreement between the cities of Gulf Breeze and Milton, Florida. On December 20,
2002 Florida  Water signed an amended  asset  purchase  agreement  adjusting the
sales  price for the sale of  substantially  all of its assets to the FWSA.  The
sales price was adjusted to $456.5  million from $471 million.  This  adjustment
was made to reflect primarily higher interest rates on bonds to be issued by the
FWSA to finance the transaction.
   Florida Water anticipates receiving approximately $420 million at closing and
an additional $36.5 million three years after closing once certain contingencies
have been  satisfied.  In addition,  Florida  Water expects to receive up to $36
million of future customer  hookup fees to be paid over the next six years.  The
revised purchase price, combined with the additional payments,  brings the total
amount  expected to be  received  in the  transaction  to $492.5  million.  Cash
proceeds to ALLETE after taxes and repayment of existing debt are expected to be
approximately $180 million in 2003, and $250 million for the entire transaction.
The gain on the transaction is estimated at $100 million after taxes and related
costs.  While the majority of the cash will be received at closing,  the gain is
hoped to be recognized in future years as required by accounting rules.
   Eleven lawsuits  seeking to halt the sale of Florida Water assets to the FWSA
have been  filed,  primarily  by local  governments  which had hoped to purchase
Florida  Water's assets through a competing  buyer.  Pursuant to notice given on
January  28,  2003,  the FPSC held an agenda  conference  on February 4, 2003 in
which it ordered  Florida Water to file, in advance of closing the  transaction,
an  application  requesting  approval of the transfer of its assets to the FWSA,
and further ordered Florida Water to refrain from closing the transaction before
FPSC  approval.  Florida Water is asking a court to determine  that the FPSC may
not delay closing of the sale and is required by law to approve this transfer as
a matter of right.  Florida Water considers the lawsuits to be without merit and
is vigorously contesting these lawsuits. Litigation challenging this transaction
continues to delay its closing.
   We are using an  investment  banking  firm to  facilitate  the sale of Heater
Utilities,  Inc. and Georgia Water Services  Corporation  and  discussions  with
prospective  buyers are in process.  We expect to sell these businesses in 2003.

<TABLE>
SUMMARY OF DISCONTINUED OPERATIONS
================================================================================
MILLIONS
<CAPTION>
INCOME STATEMENT

YEAR ENDED DECEMBER 31               2002             2001              2000
- --------------------------------------------------------------------------------
<S>                                 <C>              <C>               <C>
Operating Revenue                   $123.9           $149.3            $145.5

Pre-Tax Income
    from Operations                  $36.4            $21.5             $17.8
Income Tax Expense                    14.3              8.7               7.5
- --------------------------------------------------------------------------------
                                      22.1             12.8              10.3
- --------------------------------------------------------------------------------
Loss on Disposal                      (5.8)            (6.8)                -
Income Tax Benefit                    (1.9)            (2.4)                -
- --------------------------------------------------------------------------------
                                      (3.9)            (4.4)                -
- --------------------------------------------------------------------------------
Income from
    Discontinued Operations          $18.2            $ 8.4             $10.3
- --------------------------------------------------------------------------------
<CAPTION>
BALANCE SHEET INFORMATION

DECEMBER 31                                           2002             2001
- --------------------------------------------------------------------------------
<S>                                                  <C>               <C>
Assets of Discontinued Operations
    Cash and Cash Equivalents                        $  8.9            $ 14.0
    Other Current Assets                               18.4              28.2
    Property, Plant and Equipment                     311.4             280.8
    Other Assets                                       34.5              29.5
- --------------------------------------------------------------------------------
                                                     $373.2            $352.5
- --------------------------------------------------------------------------------
Liabilities of Discontinued Operations
    Current Liabilities                              $ 29.4            $ 45.9
    Long-Term Debt                                    125.8             128.7
    Other Liabilities                                  37.1              26.2
- --------------------------------------------------------------------------------
                                                     $192.3            $200.8
================================================================================
</TABLE>


- --------------------------------------------------------------------------------
                                     PAGE 68


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                          NOTES TO FINANCIAL STATEMENTS


10  LONG-TERM DEBT

<TABLE>
LONG-TERM DEBT
<CAPTION>
DECEMBER 31                                                       2002                    2001
=================================================================================================
MILLIONS
<S>                                                              <C>                     <C>
First Mortgage Bonds
     Floating Rate Due 2003                                      $250.0                  $250.0
     6 1/4% Series Due 2003                                        25.0                    25.0
     6.68% Series Due 2007                                         20.0                    20.0
     7% Series Due 2007                                            60.0                    60.0
     7 1/2% Series Due 2007                                        35.0                    35.0
     7 3/4% Series Due 2007                                        50.0                    50.0
     7% Series Due 2008                                            50.0                    50.0
     6% Pollution Control Series E Due 2022                       111.0                   111.0

Senior Notes
     7.70% Series A Due 2006                                       90.0                    90.0
     7.80% Due 2008                                               125.0                   125.0
     8.10% Series B Due 2010                                       35.0                    35.0

Variable Demand Revenue Refunding
     Bonds Series 1997 A, B, C and D
     Due 2007 - 2020                                               39.0                    39.0

Other Long-Term Debt, 2.5 - 9.0%
     Due 2003 - 2026                                               55.0                    50.7
- -------------------------------------------------------------------------------------------------
Total Long-Term Debt                                              945.0                   940.7

Less Due Within One Year                                         (283.7)                   (6.9)
- -------------------------------------------------------------------------------------------------
Net Long-Term Debt                                               $661.3                  $933.8
=================================================================================================
</TABLE>
   The aggregate amount of long-term debt maturing during 2003 is $283.7 million
($15.6  million in 2004;  $1.4 million in 2005;  $91.9  million in 2006;  $168.7
million  in 2007;  and  $383.7  million  thereafter).  Substantially  all of our
electric  plant is subject to the lien of the mortgages  securing  various first
mortgage bonds.
   At December 31, 2002 we had long-term bank lines of credit  aggregating $39.7
million ($5.0 million at December 31,  2001).  Drawn  portions on these lines of
credit were $5.5 million in 2002 ($0 million in 2001).
   The 6.68% Series Due 2007 and the 7% Series Due 2007 cannot be redeemed prior
to maturity.  The 7 1/2% Series Due 2007 are redeemable after August 1, 2005 and
the 7% Series Due 2008 are redeemable  after March 1, 2006. The remaining  bonds
may be redeemed in whole or in part at our option  according to the terms of the
obligations.

11  SHORT-TERM BORROWINGS AND COMPENSATING BALANCES

   We have bank lines of credit  aggregating  $217.0 million  ($264.5 million at
December 31, 2001), which make financing available through short-term bank loans
and provide credit support for commercial  paper.  At December 31, 2002,  $210.3
million was available  for use ($234 million at December 31, 2001).  At December
31,  2002 we had issued  commercial  paper  with a face  value of $74.0  million
($238.2 million in 2001), with support provided by bank lines of credit.
   Certain lines of credit require a commitment  fee of 0.0150%.  Interest rates
on commercial  paper and borrowings  under the lines of credit ranged from 1.75%
to 1.85% at  December  31,  2002  (2.75% to 3.10% at  December  31,  2001).  The
weighted average interest rate on short-term borrowings at December 31, 2002 was
1.79% (2.96% at December 31, 2001). The total amount of compensating balances at
December 31, 2002 and 2001, was immaterial.

12  PREFERRED STOCK

   In 2000 we redeemed  all of our  outstanding  Preferred  Stock and  Preferred
Stock A with proceeds from the sale of a portion of our securities portfolio and
internally generated funds.
   All 100,000 shares of Serial  Preferred  Stock A, $7.125 Series were redeemed
in April 2000 for an  aggregate  of $10  million.  All 100,000  shares of Serial
Preferred  Stock A, $6.70 Series were  redeemed in July 2000 for an aggregate of
$10 million.  All 113,358  shares of 5% Preferred  Stock were redeemed in August
2000 at $102.50 per share plus  accrued and unpaid  dividends of $0.75 per share
for an aggregate of $11.7 million.



- --------------------------------------------------------------------------------
                                     PAGE 69



<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                          NOTES TO FINANCIAL STATEMENTS


13  COMMITMENTS, GUARANTEES AND CONTINGENCIES

   SQUARE BUTTE POWER PURCHASE  AGREEMENT.  Minnesota Power has a power purchase
agreement with Square Butte that extends through 2026 (Agreement). It provides a
long-term  supply  of  low-cost  energy to  customers  in our  electric  service
territory and enables  Minnesota Power to meet power pool reserve  requirements.
Square Butte, a North Dakota cooperative  corporation,  owns a 455-MW coal-fired
generating  unit (Unit) near  Center,  North  Dakota.  The Unit is adjacent to a
generating unit owned by Minnkota Power, a North Dakota cooperative  corporation
whose Class A members are also members of Square Butte. Minnkota Power serves as
the operator of the Unit and also purchases power from Square Butte.
   Minnesota Power is entitled to  approximately  71% of the Unit's output under
the Agreement.  After 2005 and upon  compliance  with a two-year  advance notice
requirement,  Minnkota has the option to reduce Minnesota Power's entitlement by
5% annually,  to a minimum of 50%.  Minnesota  Power is obligated to pay its pro
rata share of Square  Butte's costs based on Minnesota  Power's  entitlement  to
Unit output.  Minnesota Power'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.  At December
31, 2002 Square Butte had total debt outstanding of $281.9 million. Total annual
debt  service for Square  Butte is expected to be $23.6  million in 2003 through
2007.  Variable  operating  costs include the price of coal  purchased  from BNI
Coal, our subsidiary, under a long-term contract.
   Minnesota  Power's cost of power  purchased from Square Butte during 2002 was
$60.9 million ($63.3  million in 2001 and $58.7 million in 2000).  This reflects
Minnesota  Power's pro rata share of total  Square  Butte costs based on the 71%
output entitlement in 2002, 2001 and 2000. Included in this amount was Minnesota
Power's  pro rata  share of  interest  expense of $13.7  million in 2002  ($14.2
million in 2001;  $14.8 million in 2000).  Minnesota  Power's payments to Square
Butte are approved as purchased  power expense for  ratemaking  purposes by both
the MPUC and FERC.
   LEASING AGREEMENTS. In July 2001 ADESA entered into a lease agreement for the
ADESA  Golden Gate  facility in Tracy,  California,  which was  completed in the
third  quarter  of 2002.  The term of the  lease is  through  July  2006 with no
renewal options.  The cost to the lessor of the facility was  approximately  $45
million.  ADESA has  guaranteed  up to $38  million of any  deficiency  in sales
proceeds  that the lessor  realizes in disposing of the leased  property.  ADESA
will receive any sales proceeds in excess of cost.
   ADESA has  guaranteed the payment of principal and interest up to $38 million
on the lessor's indebtedness. Terms of the mortgage notes payable require, among
other things,  that ADESA maintain certain minimum  financial  ratios. It is not
practical to estimate the fair value of the guarantee;  however,  ADESA does not
anticipate  that it will  incur  losses as a result of this  guarantee.  We have
guaranteed ADESA's obligation under this lease.
   In April 2000 leases for three ADESA auction  facilities  (Boston,  Charlotte
and Knoxville)  were  refinanced in a $28.4 million lease  transaction.  The new
lease is treated as an  operating  lease for  financial  reporting  purposes and
expires in April 2010 with no renewal  options.  ADESA has  guaranteed up to $23
million  of any  deficiency  in sales  proceeds  that  the  lessor  realizes  in
disposing  of the leased  properties.  ADESA is  entitled  to receive  any sales
proceeds in excess of $29.3 million.
   ADESA has  guaranteed the payment of principal and interest up to $23 million
on the lessor's indebtedness,  which consists of $28.4 million in mortgage notes
payable,  due April 1, 2020. Terms of the mortgage notes payable require,  among
other things, that ADESA maintain certain minimum financial ratios.  Interest on
the notes  varies and is payable  monthly.  It is not  practical to estimate the
fair value of the guarantee;  however,  ADESA does not  anticipate  that it will
incur  losses  as a  result  of  this  guarantee.  We  have  guaranteed  ADESA's
obligations under this lease.
   We lease other  properties  and  equipment  in addition to those listed above
under operating lease agreements with terms expiring through 2010. The aggregate
amount of future  minimum  lease  payments for  operating  leases during 2003 is
$17.5 million  ($13.9  million in 2004;  $11.2 million in 2005;  $9.4 million in
2006;  $9.0 million in 2007; and $59.0 million  thereafter).  Total rent expense
was $27.5 million in 2002 ($26.9 million in 2001; $21.1 million in 2000).
   SPLIT ROCK ENERGY.  We provide up to $50.0 million of credit support,  in the
form of letters of credit and  financial  guarantees,  to  facilitate  the power
marketing  activities  of Split Rock Energy.  At December 31, 2002 $10.5 million
was used to support actual  obligations ($3.4 million at December 31, 2001). The
credit support generally expires within one year from the date of issuance.


- --------------------------------------------------------------------------------
                                     PAGE 70


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                          NOTES TO FINANCIAL STATEMENTS


   KENDALL  COUNTY  POWER  PURCHASE  AGREEMENT.   We  have  secured  275  MW  of
nonregulated  generation (non rate-base generation sold at market-based rates to
the wholesale  market) through a tolling  agreement with NRG Energy that extends
through  September 2017.  Under the agreement we pay a fixed capacity charge for
the right, but not the obligation,  to utilize one 275 MW generating unit at NRG
Energy's  Kendall  County  facility  near  Chicago,  Illinois.  The annual fixed
capacity  charge is $21.8  million.  We are also  responsible  for arranging the
natural gas fuel supply.
   Our  strategy  is to enter into  long-term  contracts  to sell a  significant
portion of the 275 MW from the Kendall County facility; the balance will be sold
in the spot market through  short-term  agreements.  We currently have two 50 MW
long-term  forward  capacity and energy sales  contracts for the Kendall  County
generation,  with one  expiring in April 2012 and the other in  September  2017.
Neither  the  Kendall  County  agreement  nor the related  sales  contracts  are
derivatives under SFAS 133,  "Accounting for Derivative  Instruments and Hedging
Activities."
   EMERGING TECHNOLOGY INVESTMENTS. We have investments in emerging technologies
through the  minority  ownership  of  preferred  stock,  common stock and equity
interests  in  limited  liability   companies.   The  investments  are  in  both
privately-held  and  publicly-traded   entities.   We  have  committed  to  make
additional investments in certain emerging technology holdings. The total future
commitment  was $7.7 million at December 31, 2002 ($11.0 million at December 31,
2001).  We expect  approximately  $1  million  of the  future  commitment  to be
invested in 2003, with the balance to be invested at various times through 2007.
   ENVIRONMENTAL  MATTERS.  Some of our  businesses are subject to regulation by
various federal, state and local authorities  concerning  environmental matters.
We do not currently  anticipate that potential  expenditures  for  environmental
matters will be material.

14  MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY

   ALLETE Capital I (Trust) was established as a wholly owned statutory trust of
the Company for the purpose of issuing  common and preferred  securities  (Trust
Securities).  In March  1996 the  Trust  publicly  issued  three  million  8.05%
Cumulative Quarterly Income Preferred Securities (QUIPS), representing preferred
beneficial interests in the assets held by the Trust. The proceeds from the sale
of the QUIPS, and from common securities of the Trust issued to us, were used by
the  Trust to  purchase  from us $77.5  million  of  8.05%  Junior  Subordinated
Debentures,  Series  A, Due 2015  (Subordinated  Debentures),  resulting  in net
proceeds to us of $72.3  million.  Holders of the QUIPS are  entitled to receive
quarterly distributions at an annual rate of 8.05% of the liquidation preference
value of $25 per security.  We have the right to defer interest  payments on the
Subordinated   Debentures   which  would  result  in  the  similar  deferral  of
distributions  on  the  QUIPS  during  extension  periods  up to 20  consecutive
quarters.  We  are  the  owner  of all of the  common  trust  securities,  which
constitute approximately 3% of the aggregate liquidation amount of all the Trust
Securities. The sole asset of the Trust is the Subordinated Debentures, interest
on which is  deductible  by us for  income  tax  purposes.  The  Trust  will use
interest payments  received on the Subordinated  Debentures it holds to make the
quarterly cash distributions on the QUIPS.
   The  QUIPS  are  subject  to  mandatory  redemption  upon  repayment  of  the
Subordinated  Debentures at maturity or upon  redemption.  We have the option to
redeem the Subordinated Debentures at any time.
   We  have  guaranteed,  on  a  subordinated  basis,  payment  of  the  Trust's
obligations.


- --------------------------------------------------------------------------------
                                     PAGE 71


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                          NOTES TO FINANCIAL STATEMENTS


15  COMMON STOCK AND EARNINGS PER SHARE

   Our Articles of Incorporation  and mortgages  contain  provisions that, under
certain circumstances,  would restrict the payment of common stock dividends. As
of December 31, 2002 no retained  earnings were  restricted as a result of these
provisions.

<TABLE>
<CAPTION>
SUMMARY OF COMMON STOCK                            SHARES              EQUITY
================================================================================
MILLIONS
<S>                                                <C>                 <C>
Balance at December 31, 1999                        73.5               $552.0
2000   Employee Stock Purchase Plan                  0.1                  1.1
       Invest Direct <F1>                            1.0                 18.8
       Other                                         0.1                  5.0
- --------------------------------------------------------------------------------
Balance at December 31, 2000                        74.7                576.9
2001   Public Offering                               6.6                150.0
       Employee Stock Purchase Plan                  0.1                  1.4
       Invest Direct <F1>                            0.8                 18.9
       Other                                         1.7                 23.1
- --------------------------------------------------------------------------------
Balance at December 31, 2001                        83.9                770.3
2002   Employee Stock Purchase Plan                  0.1                  1.4
       Invest Direct <F1>                            0.8                 19.6
       Other                                         0.8                 23.6
- --------------------------------------------------------------------------------
Balance at December 31, 2002                        85.6               $814.9
================================================================================
<FN>
<F1> INVEST DIRECT IS ALLETE'S DIRECT STOCK  PURCHASE AND  DIVIDEND REINVESTMENT
     PLAN.
</FN>
</TABLE>
   COMMON STOCK ISSUANCE. In May and June 2001 we sold 6.6 million shares of our
common  stock in a public  offering at $23.68 per share.  Total net  proceeds of
approximately  $150  million  were  used to repay a  portion  of our  short-term
borrowings with the remainder invested in short-term instruments.
   SHAREHOLDER RIGHTS PLAN. In 1996 we adopted a rights plan that provides for a
dividend  distribution  of one  preferred  share  purchase  right  (Right) to be
attached to each share of common stock.
   The Rights,  which are currently not exercisable or  transferable  apart from
our common stock, entitle the holder to purchase one two-hundredth of a share of
ALLETE's  Junior  Serial  Preferred  Stock A, without par value,  at an exercise
price of $45.  These  Rights  would  become  exercisable  if a  person  or group
acquires beneficial  ownership of 15% or more of our common stock or announces a
tender offer which would increase the person's or group's  beneficial  ownership
interest to 15% or more of our common stock,  subject to certain exceptions.  If
the 15%  threshold  is met,  each  Right  entitles  the holder  (other  than the
acquiring   person  or  group)  to  purchase   common   stock  (or,  in  certain
circumstances, cash, property or other securities of ours) having a market price
equal to twice the exercise  price of the Right.  If we are acquired in a merger
or business combination, or 50% or more of our assets or earning power are sold,
each  exercisable  Right  entitles  the holder to purchase  common  stock of the
acquiring or surviving  company having a value equal to twice the exercise price
of  the  Right.  Certain  stock  acquisitions  will  also  trigger  a  provision
permitting  the Board of Directors  to exchange  each Right for one share of our
common stock.
   The Rights which expire on July 23, 2006,  are  nonvoting and may be redeemed
by us at a price of $0.005 per Right at any time they are not  exercisable.  One
million shares of Junior Serial  Preferred  Stock A have been authorized and are
reserved for issuance under the plan.
   EARNINGS PER SHARE.  The  difference  between basic and diluted  earnings per
share arises from outstanding stock options and performance share awards granted
under our Executive and Director Long-Term Incentive Compensation Plans.

<TABLE>
<CAPTION>
RECONCILIATION OF
BASIC AND DILUTED                       BASIC        DILUTIVE        DILUTED
EARNINGS PER SHARE                       EPS        SECURITIES         EPS
================================================================================
<S>                                    <C>          <C>              <C>
2002
Income from
  Continuing Operations                $119.0             -          $119.0
Common Shares                            81.1           0.6            81.7
Per Share from
  Continuing Operations                 $1.47             -           $1.46
- --------------------------------------------------------------------------------
2001
Income from
  Continuing Operations                $130.3             -          $130.3
Common Shares                            75.8           0.7            76.5
Per Share from
  Continuing Operations                 $1.72             -           $1.70
- --------------------------------------------------------------------------------
2000
Income from
  Continuing Operations                $138.3             -          $138.3
Less: Dividends on
  Preferred Stock                         0.9             -             0.9
- --------------------------------------------------------------------------------
                                       $137.4             -          $137.4
Common Shares                            69.8           0.3            70.1
Per Share from
  Continuing Operations                 $1.97             -           $1.96
================================================================================
</TABLE>


- --------------------------------------------------------------------------------
                                     PAGE 72


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                          NOTES TO FINANCIAL STATEMENTS


16  INCOME TAX EXPENSE

<TABLE>
INCOME TAX EXPENSE
<CAPTION>
YEAR ENDED DECEMBER 31                   2002           2001            2000
================================================================================
MILLIONS
<S>                                      <C>            <C>             <C>
Current Tax Expense
   Federal                               $36.7          $52.2           $69.9
   Foreign                                12.6            7.6             8.0
   State                                   7.2            7.8             6.5
- --------------------------------------------------------------------------------
                                          56.5           67.6            84.4
Deferred Tax Expense (Benefit)
   Federal                                14.8            6.9            (6.0)
   Foreign                                 0.1            0.2             0.9
   State                                   0.7           (0.1)           (2.7)
- --------------------------------------------------------------------------------
                                          15.6            7.0            (7.8)
Change in Valuation Allowance              1.9            1.0             1.8
- --------------------------------------------------------------------------------
Deferred Tax Credits                      (1.4)          (1.4)           (1.4)
- --------------------------------------------------------------------------------
Income Taxes on
   Continuing Operations                  72.6           74.2            77.0
Income Taxes on
   Discontinued Operations                12.4            6.3             7.5
- --------------------------------------------------------------------------------
Total Income Tax Expense                 $85.0          $80.5           $84.5
================================================================================
</TABLE>

<TABLE>
RECONCILIATION OF TAXES
FROM FEDERAL STATUTORY
RATE TO TOTAL INCOME
TAX EXPENSE
<CAPTION>
YEAR ENDED DECEMBER 31                   2002           2001            2000
================================================================================
MILLIONS
<S>                                      <C>            <C>             <C>
Tax Computed at Federal
   Statutory Rate                        $77.8          $76.7           $81.6
Increase (Decrease) in Tax
   State Income Taxes -- Net of
     Federal Income Tax Benefit            9.8            8.6             4.4
   Foreign Taxes                           3.0            1.9             2.1
   Other                                  (5.6)          (6.7)           (3.6)
- --------------------------------------------------------------------------------
Total Income Tax Expense                 $85.0          $80.5           $84.5
================================================================================
</TABLE>

<TABLE>
INCOME BEFORE INCOME TAXES
<CAPTION>
YEAR ENDED DECEMBER 31                   2002           2001            2000
================================================================================
MILLIONS
<S>                                     <C>            <C>             <C>
United States                           $191.4         $197.3          $213.6
Canadian                                  30.8           21.9            19.5
- --------------------------------------------------------------------------------
Total                                   $222.2         $219.2          $233.1
================================================================================
</TABLE>

<TABLE>
DEFERRED TAX ASSETS AND LIABILITIES
<CAPTION>
DECEMBER 31                                            2002             2001
================================================================================
MILLIONS
<S>                                                   <C>              <C>
Deferred Tax Assets
   Employee Benefits and Compensation                  $45.2            $41.9
   Property Related                                     22.0             30.9
   Investment Tax Credits                               15.8             16.8
   Allowance for Bad Debts                              11.5             11.3
   State NOL Carryover                                   8.6              7.2
   Other                                                30.2             18.7
- --------------------------------------------------------------------------------
     Gross Deferred Tax Assets                         133.3            126.8
Deferred Tax Asset Valuation Allowance                  (7.8)            (6.0)
- --------------------------------------------------------------------------------
Total Deferred Tax Assets                              125.5            120.8
- --------------------------------------------------------------------------------
Deferred Tax Liabilities
   Property Related                                    222.8            192.4
   Investment Tax Credits                               22.4             23.7
   Employee Benefits and Compensation                    9.0              6.1
   Other                                                11.1              5.6
- --------------------------------------------------------------------------------
Total Deferred Tax Liabilities                         265.3            227.8
- --------------------------------------------------------------------------------
Accumulated Deferred Income Taxes                     $139.8           $107.0
================================================================================
</TABLE>
   The Deferred Tax Asset Valuation  Allowance is for state net operating losses
that the Company  believes  more  likely  than not will  expire  before they are
utilized. These state net operating losses expire between 2003 and 2021.
   UNDISTRIBUTED  EARNINGS.  Undistributed  earnings of our foreign subsidiaries
were approximately $28.8 million at December 31, 2002 ($36.3 million at December
31, 2001).  Since this amount has been or will be reinvested in property,  plant
and working capital,  the Company has not recorded the deferred taxes associated
with the remittance of these investments.



- --------------------------------------------------------------------------------
                                     PAGE 73



<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                          NOTES TO FINANCIAL STATEMENTS


17  OTHER COMPREHENSIVE INCOME

<TABLE>
OTHER COMPREHENSIVE INCOME
<CAPTION>
                                                 PRE-TAX                TAX EXPENSE              NET-OF-TAX
YEAR ENDED DECEMBER 31                           AMOUNT                  (BENEFIT)                 AMOUNT
============================================================================================================
MILLIONS
<S>                                              <C>                    <C>                      <C>
2002
Unrealized Gain (Loss) on Securities
      Loss During the Year                       $(11.8)                   $(4.3)                   $(7.5)
      Less: Gain Included in Net Income             1.0                      0.4                      0.6
- ------------------------------------------------------------------------------------------------------------
         Net Unrealized Loss on Securities        (12.8)                    (4.7)                    (8.1)
Interest Rate Swap                                  2.3                      1.0                      1.3
Foreign Currency Translation Adjustments            2.6                        -                      2.6
Additional Pension Liability                       (6.0)                    (2.5)                    (3.5)
- ------------------------------------------------------------------------------------------------------------
Other Comprehensive Loss                         $(13.9)                   $(6.2)                   $(7.7)
- ------------------------------------------------------------------------------------------------------------
2001
Unrealized Gain (Loss) on Securities
      Gain During the Year                       $  3.6                    $ 1.1                   $  2.5
      Less: Gain Included in Net Income               -                        -                        -
- ------------------------------------------------------------------------------------------------------------
         Net Unrealized Gain on Securities          3.6                      1.1                      2.5
Interest Rate Swap                                 (2.5)                    (1.0)                    (1.5)
Foreign Currency Translation Adjustments          (11.3)                       -                    (11.3)
- ------------------------------------------------------------------------------------------------------------
Other Comprehensive Loss                         $(10.2)                   $ 0.1                   $(10.3)
- ------------------------------------------------------------------------------------------------------------
2000
Unrealized Gain (Loss) on Securities
      Gain During the Year                        $47.8                    $17.4                    $30.4
      Less: Gain Included in Net Income            49.1                     18.0                     31.1
- ------------------------------------------------------------------------------------------------------------
      Net Unrealized Loss on Securities            (1.3)                    (0.6)                    (0.7)
Foreign Currency Translation Adjustments           (5.9)                       -                     (5.9)
- ------------------------------------------------------------------------------------------------------------
Other Comprehensive Loss                          $(7.2)                   $(0.6)                   $(6.6)
============================================================================================================
</TABLE>

<TABLE>
ACCUMULATED OTHER COMPREHENSIVE INCOME
<CAPTION>
DECEMBER 31                                                 2002                       2001
============================================================================================================
MILLIONS
<S>                                                       <C>                         <C>
Unrealized Gain (Loss) on Securities                      $ (2.8)                     $  5.3
Interest Rate Swap Loss                                     (0.2)                       (1.5)
Foreign Currency Translation Loss                          (15.7)                      (18.3)
Additional Pension Liability                                (3.5)                          -
- ------------------------------------------------------------------------------------------------------------
                                                          $(22.2)                     $(14.5)
============================================================================================================
</TABLE>

18  PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

   Certain eligible employees of ALLETE are covered by  noncontributory  defined
benefit  pension  plans.  At December 31, 2002  approximately  8% of the defined
benefit  pension plan assets were invested in our common stock.  We have defined
contribution pension plans covering eligible employees,  for which the aggregate
annual  cost was $8.0  million in 2002 ($7.1  million in 2001;  $5.7  million in
2000). We provide  certain health care and life insurance  benefits for eligible
retired employees.
   The assumed  health care cost trend rate  declines  gradually  to an ultimate
rate of 5% by 2008. For postretirement  health and life benefits,  a 1% increase
in the assumed health care cost trend rate would result in a $13.4 million and a
$1.3 million  increase in the benefit  obligation and total service and interest
costs,  respectively;  a 1% decrease  would  result in a $11.0  million and $1.1
million decrease in the benefit obligation and total service and interest costs,
respectively.


- --------------------------------------------------------------------------------
                                     PAGE 74


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                          NOTES TO FINANCIAL STATEMENTS

<TABLE>
PENSION
=========================================================================================================
MILLIONS
<CAPTION>
PLAN STATUS
AT SEPTEMBER 30                                                          2002                   2001
- ---------------------------------------------------------------------------------------------------------
<S>                                                                     <C>                    <C>
Change in Benefit Obligation
    Obligation, Beginning of Year                                       $249.2                 $228.5
    Service Cost                                                           5.3                    4.2
    Interest Cost                                                         18.7                   17.7
    Actuarial Loss                                                        30.8                   13.6
    Benefits Paid                                                        (15.2)                 (14.8)
- ---------------------------------------------------------------------------------------------------------
    Obligation, End of Year                                              288.8                  249.2
Change in Plan Assets
    Fair Value, Beginning of Year                                        281.9                  309.8
    Actual Return on Assets                                               (3.3)                 (14.7)
    Benefits Paid                                                        (15.2)                 (14.8)
    Other                                                                  2.3                    1.6
- ---------------------------------------------------------------------------------------------------------
    Fair Value, End of Year                                              265.7                  281.9
Funded Status                                                            (23.1)                  32.7
    Unrecognized Amounts
       Net (Gain) Loss                                                    42.2                  (19.5)
       Prior Service Cost                                                  6.5                    5.2
       Transition Obligation                                               0.4                    0.7
- ---------------------------------------------------------------------------------------------------------
Net Asset Recognized                                                    $ 26.0                 $ 19.1
- ---------------------------------------------------------------------------------------------------------
Amounts Recognized in Consolidated
    Balance Sheet Consist of:
       Prepaid Pension Cost                                             $ 27.8                 $ 19.1
       Accrued Benefit Liability                                         (11.2)                     -
       Intangible Asset                                                    3.4                      -
       Accumulated Other
         Comprehensive Income                                              6.0                      -
- ---------------------------------------------------------------------------------------------------------
Net Asset Recognized                                                    $ 26.0                 $ 19.1
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
BENEFIT EXPENSE (INCOME)
YEAR ENDED DECEMBER 31                           2002                    2001                   2000
- ---------------------------------------------------------------------------------------------------------
<S>                                             <C>                     <C>                    <C>
Service Cost                                    $  5.3                  $  4.2                 $  4.1
Interest Cost                                     18.7                    17.6                   16.5
Expected Return on Assets                        (30.4)                  (29.6)                 (27.5)
Amortized Amounts
    Unrecognized Gain                             (1.4)                   (2.5)                  (2.3)
    Prior Service Cost                             0.6                     0.5                    0.5
    Transition Obligation                          0.2                     0.2                    0.2
- ---------------------------------------------------------------------------------------------------------
Net Pension Income                              $ (7.0)                 $ (9.6)                $ (8.5)
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
ACTUARIAL ASSUMPTIONS
AT SEPTEMBER 30                                                           2002                2001
- ---------------------------------------------------------------------------------------------------------
<S>                                                                    <C>                 <C>
Discount Rate                                                               6.75%               7.75%
Expected Return on Plan Assets                                               9.5%               10.0%
Rate of Compensation Increase                                          3.5 - 4.5%          3.5 - 4.5%
- ---------------------------------------------------------------------------------------------------------
   The aggregate  projected  benefit  obligation,  accumulated benefit obligation and fair  value of plan
assets for a pension plan with accumulated  benefit obligations in excess of plan assets were as follows:
<CAPTION>
AT SEPTEMBER 30                                                          2002                   2001
- ---------------------------------------------------------------------------------------------------------
<S>                                                                     <C>                     <C>
Projected Benefit Obligation                                            $114.1                  $97.8
Accumulated Benefit Obligation                                           $99.8                  $85.7
Fair Value of Plan Assets                                                $88.6                  $94.4
=========================================================================================================
</TABLE>

<TABLE>
HEALTH AND LIFE
=========================================================================================================
MILLIONS
<CAPTION>
PLAN STATUS
AT SEPTEMBER 30                                                          2002                   2001
- ---------------------------------------------------------------------------------------------------------
<S>                                                                     <C>                    <C>
Change in Benefit Obligation
    Obligation, Beginning of Year                                       $ 78.5                 $ 67.6
    Service Cost                                                           2.9                    2.7
    Interest Cost                                                          5.9                    5.3
    Actuarial Loss                                                        15.0                    5.8
    Participant Contributions                                              1.1                    0.9
    Benefits Paid                                                         (3.9)                  (3.8)
- ---------------------------------------------------------------------------------------------------------
    Obligation, End of Year                                               99.5                   78.5

Change in Plan Assets
    Fair Value, Beginning of Year                                         38.7                   41.8
    Actual Return on Assets                                               (1.5)                  (2.0)
    Employer Contribution                                                  5.1                    1.8
    Participant Contributions                                              1.1                    0.9
    Benefits Paid                                                         (3.9)                  (3.8)
- ---------------------------------------------------------------------------------------------------------
    Fair Value, End of Year                                               39.5                   38.7

Funded Status                                                            (60.0)                 (39.8)
    Unrecognized Amounts
       Net (Gain) Loss                                                    15.1                   (5.7)
       Transition Obligation                                              25.0                   27.4
- ---------------------------------------------------------------------------------------------------------
Accrued Cost                                                            $(19.9)                $(18.1)
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
BENEFIT EXPENSE (INCOME)
YEAR ENDED DECEMBER 31                                  2002              2001                   2000
- ---------------------------------------------------------------------------------------------------------
<S>                                                    <C>               <C>                    <C>
Service Cost                                           $ 2.9             $ 2.7                  $ 2.7
Interest Cost                                            5.9               5.3                    4.8
Expected Return on Assets                               (3.9)             (3.5)                  (2.8)
Amortized Amounts
    Unrecognized Gain                                   (0.2)             (0.9)                  (0.9)
    Transition Obligation                                2.4               2.4                    2.4
- ---------------------------------------------------------------------------------------------------------
Net Expense                                            $ 7.1             $ 6.0                  $ 6.2
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
ACTUARIAL ASSUMPTIONS
AT SEPTEMBER 30                                                         2002                    2001
- ---------------------------------------------------------------------------------------------------------
<S>                                                                   <C>                   <C>
Discount Rate                                                              6.75%                  7.75%
Expected Return on Plan Assets                                        7.6 - 9.5%            8.0 - 10.0%
Rate of Compensation Increase                                         3.5 - 4.5%             3.5 - 4.5%
Health Care Cost Trend Rate                                                  10%                    10%
=========================================================================================================
</TABLE>

- --------------------------------------------------------------------------------
                                     PAGE 75


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                          NOTES TO FINANCIAL STATEMENTS


19  EMPLOYEE STOCK AND INCENTIVE PLANS

   EMPLOYEE  STOCK  OWNERSHIP  PLAN.  We  sponsor  a  leveraged  employee  stock
ownership  plan (ESOP) within the  Retirement  Savings and Stock  Ownership Plan
that covers certain eligible employees.  In 1989 the ESOP used the proceeds from
a $16.5  million  third-party  loan  guaranteed  by us, to purchase  1.2 million
shares of our common stock on the open market.  The remaining  principal balance
on the loan was refinanced in 2002. The refinanced loan has a variable  interest
rate based on LIBOR and matures on December 31, 2004.  In 1990 the ESOP issued a
$75 million note (term not to exceed 25 years at 10.25%) to us as  consideration
for 5.6 million  shares of our newly  issued  common  stock.  The Company  makes
annual contributions to the ESOP equal to the ESOP's debt service less available
dividends  received by the ESOP. The majority of dividends  received by the ESOP
are  used  to  pay  debt  service,  with  the  balance  distributed  to  certain
participants. The ESOP shares were initially pledged as collateral for its debt.
As the debt is repaid,  shares are released  from  collateral  and  allocated to
participants,  based on the  proportion  of debt service  paid in the year.  The
third-party  debt of the ESOP is  recorded  as  long-term  debt  and the  shares
pledged as collateral are reported as unearned ESOP shares in the Balance Sheet.
As shares are released from collateral, the Company reports compensation expense
equal  to the  current  market  price  of the  shares,  and  the  shares  become
outstanding  for  earnings-per-share  computations.  Dividends on allocated ESOP
shares are recorded as a reduction of retained earnings;  available dividends on
unallocated  ESOP  shares  are  recorded  as a  reduction  of debt  and  accrued
interest.  ESOP  compensation  expense was $3.9 million in 2002 ($2.6 million in
2001; $2.3 million in 2000).

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31                   2002          2001           2000
================================================================================
MILLIONS
<S>                                     <C>          <C>             <C>
Shares
    Allocated Shares                      3.8           3.9             3.9
    Unreleased Shares                     3.7           4.0             4.2
- --------------------------------------------------------------------------------
    Total ESOP Shares                     7.5           7.9             8.1
- --------------------------------------------------------------------------------
Fair Value of Unreleased Shares         $84.0        $100.3          $104.6
================================================================================
</TABLE>
   STOCK  OPTION  AND AWARD  PLANS.  We have an  Executive  Long-Term  Incentive
Compensation Plan (Executive Plan) and a Director Long-Term Stock Incentive Plan
(Director  Plan).  The Executive  Plan allows for the grant of up to 9.7 million
shares of our common stock to key  employees.  To date,  these grants have taken
the form of stock options, performance share awards and restricted stock awards.
The Director Plan allows for the grant of up to 0.3 million shares of our common
stock to nonemployee  directors.  Each nonemployee  director  receives an annual
grant of 1,500 stock options and a biennial grant of performance shares equal to
$10,000  in  value of  common  stock at the date of  grant.  Stock  options  are
exercisable  at the market  price of common  shares on the date the  options are
granted,  and vest in equal annual  installments  over two years with expiration
ten years from the date of grant.  Performance shares are earned over multi-year
time periods and are contingent upon the attainment of certain performance goals
of ALLETE.  Restricted stock vests once certain periods of time have elapsed. At
December  31, 2002 4.3  million and 0.2 million  shares were held in reserve for
future issuance under the Executive Plan and Director Plan, respectively.
   We  have  elected  to  account  for our  stock-based  compensation  plans  in
accordance with the Accounting  Principles  Board Opinion No. 25 "Accounting for
Stock Issued to Employees," and accordingly,  compensation  expense has not been
recognized for stock options  granted.  Compensation  expense is recognized over
the vesting  periods for  performance  and restricted  share awards based on the
market value of our common stock,  and was  approximately $6 million in 2002 ($9
million in 2001; $5 million in 2000).

<TABLE>
<CAPTION>
                                                                       AVERAGE
                                                                       EXERCISE
STOCK OPTION ACTIVITY                               OPTIONS             PRICE
================================================================================
OPTIONS IN MILLIONS
<S>                                                 <C>                <C>
2002
Outstanding, Beginning of Year                        2.3              $20.18
Granted                                               0.8              $25.92
Exercised                                            (0.7)             $18.70
Canceled                                             (0.1)             $23.77
- --------------------------------------------------------------------------------
Outstanding, End of Year                              2.3              $22.48
- --------------------------------------------------------------------------------
Exercisable, End of Year                              1.3              $20.23
Fair Value of Options Granted
    During the Year                                 $4.55
- --------------------------------------------------------------------------------
2001
Outstanding, Beginning of Year                        2.4              $18.52
Granted                                               0.8              $23.63
Exercised                                            (0.8)             $18.39
Canceled                                             (0.1)             $21.05
- --------------------------------------------------------------------------------
Outstanding, End of Year                              2.3              $20.18
- --------------------------------------------------------------------------------
Exercisable, End of Year                              1.2              $19.55
Fair Value of Options Granted
    During the Year                                 $3.89
- --------------------------------------------------------------------------------
2000
Outstanding, Beginning of Year                        1.6              $19.77
Granted                                               1.0              $16.33
Exercised                                            (0.1)             $14.91
Canceled                                             (0.1)             $18.85
- --------------------------------------------------------------------------------
Outstanding, End of Year                              2.4              $18.52
- --------------------------------------------------------------------------------
Exercisable, End of Year                              1.1              $19.42
Fair Value of Options Granted
    During the Year                                 $1.81
================================================================================
</TABLE>

- --------------------------------------------------------------------------------
                                     PAGE 76


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                          NOTES TO FINANCIAL STATEMENTS


   At December  31, 2002  options  outstanding  consisted of 0.4 million with an
exercise  price of $13.69 to $16.25,  and 1.9 million with an exercise  price of
$21.63 to $25.68. The options with an exercise price of $13.69 to $16.25 have an
average remaining  contractual life of 6.3 years with 0.4 million exercisable on
December  31, 2002 at an average  price of $15.73.  The options with an exercise
price of $21.63 to $25.68  have an  average  remaining  contractual  life of 7.7
years with 0.9 million  exercisable  on December 31, 2002 at an average price of
$22.45.
   A total of 0.3 million  performance share grants were awarded in 2002 for the
performance period ending December 31, 2003. The ultimate issuance is contingent
upon the  attainment of certain  future  performance  goals of ALLETE during the
performance  period.  The grant date fair value of the performance  share awards
was $7.8 million.
   A total of 0.6 million performance share grants were awarded in 2000 and 2001
for the performance period ended December 31, 2001. The grant date fair value of
the share  awards was $9.9  million.  At December 31, 2002 50% of the shares had
been issued, with the balance to be issued in early 2003.
   In  January  2003 we granted  stock  options to  purchase  approximately  0.7
million shares of common stock (exercise price of $20.51 per share).
   EMPLOYEE  STOCK  PURCHASE  PLAN. We have an Employee Stock Purchase Plan that
permits eligible  employees to buy up to $23,750 per year of our common stock at
95% of the market  price.  At December  31,  2002,  1.3 million  shares had been
issued  under  the plan and  38,143  shares  were  held in  reserve  for  future
issuance.

20  QUARTERLY FINANCIAL DATA (UNAUDITED)

   Information for any one quarterly period is not necessarily indicative of the
results  which may be  expected  for the year.  Financial  results for the first
quarter of 2002  included  charges of $1.6  million,  or $0.02 per share and the
second  quarter of 2002 included $2.3  million,  or $0.03 per share,  of charges
related to exiting  our auto  transport  business  and retail  store.  Financial
results for the fourth  quarter of 2002  included a $5.5  million,  or $0.07 per
share,  charge  related  to the  indefinite  delay of a  generation  project  in
Superior, Wisconsin. Financial results for the fourth quarter of 2001 included a
$4.4 million, or $0.06 per share, charge to exit the auto transport business.

<TABLE>
<CAPTION>
QUARTER ENDED                                     MAR. 31       JUN. 30     SEPT. 30      DEC. 31
=====================================================================================================
MILLIONS EXCEPT
  EARNINGS PER SHARE
<S>                                               <C>           <C>         <C>           <C>
2002

Operating Revenue                                  $373.0        $377.6       $390.0      $366.3
Operating Income from
      Continuing Operations                         $56.4         $57.7        $62.1       $21.4
Net Income
      Continuing Operations                         $33.4         $34.0        $38.3       $13.3
      Discontinued Operations                         1.8           4.8          6.8         4.8
- -----------------------------------------------------------------------------------------------------
                                                    $35.2         $38.8        $45.1       $18.1
Earnings Available for
      Common Stock                                  $35.2         $38.8        $45.1       $18.1
Earnings Per Share of
      Common Stock
Basic
      Continuing Operations                         $0.42         $0.42        $0.47       $0.16
      Discontinued Operations                        0.02          0.06         0.08        0.06
- -----------------------------------------------------------------------------------------------------
                                                    $0.44         $0.48        $0.55       $0.22
Diluted
      Continuing Operations                         $0.42         $0.41        $0.47       $0.16
      Discontinued Operations                        0.02          0.06         0.08        0.06
- -----------------------------------------------------------------------------------------------------
                                                    $0.44         $0.47        $0.55       $0.22

2001
Operating Revenue                                  $376.9        $405.1       $383.1      $360.5
Operating Income from
      Continuing Operations                         $52.4         $67.3        $53.3       $37.5
Net Income
      Continuing Operations                         $30.7         $39.5        $35.3       $24.8
      Discontinued Operations                         2.2           3.0          2.5         0.7
- -----------------------------------------------------------------------------------------------------
                                                    $32.9         $42.5        $37.8       $25.5
Earnings Available for
      Common Stock                                  $32.9         $42.5        $37.8       $25.5
Earnings Per Share of
      Common Stock
Basic
      Continuing Operations                         $0.43         $0.54        $0.45       $0.30
      Discontinued Operations                        0.03          0.04         0.03        0.01
- -----------------------------------------------------------------------------------------------------
                                                    $0.46         $0.58        $0.48       $0.31
Diluted
      Continuing Operations                         $0.43         $0.53        $0.44       $0.30
      Discontinued Operations                        0.03          0.04         0.03        0.01
- -----------------------------------------------------------------------------------------------------
                                                    $0.46         $0.57        $0.47       $0.31
=====================================================================================================
</TABLE>


- --------------------------------------------------------------------------------
                                     PAGE 77


<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------



REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
                                       [PRICEWATERHOUSECOOPERS LLP LOGO OMITTED]
To the Board of Directors
of ALLETE, Inc.

     Our audits of the  consolidated  financial  statements  referred  to in our
report  dated  January  20,  2003  appearing  on page 56 of this  Form 10-K also
included an audit of the Financial  Statement  Schedule  listed in Item 15(a) of
this Form 10-K.  In our  opinion,  the  Financial  Statement  Schedule  presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.

PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Minneapolis, Minnesota
January 20, 2003

- --------------------------------------------------------------------------------
<TABLE>
                                                                     SCHEDULE II

ALLETE
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<CAPTION>
                                                                            ADDITIONS
                                              BALANCE AT           -------------------------       DEDUCTIONS      BALANCE AT
                                               BEGINNING            CHARGED           OTHER           FROM           END OF
FOR THE YEAR ENDED DECEMBER 31                  OF YEAR            TO INCOME         CHANGES      RESERVES <F1>      PERIOD
==============================================================================================================================
MILLIONS
<S>                                           <S>                  <C>               <C>          <C>              <C>
Reserve Deducted from Related Assets
 Reserve For Uncollectible Accounts
   2002  Trade Accounts Receivable               $6.1                $5.7               -            $3.0              $8.8
         Finance Receivables                     23.2                17.6               -            19.1              21.7
   2001  Trade Accounts Receivable                5.1                 4.4               -             3.4               6.1
         Finance Receivables                     22.4                 3.8               -             3.0              23.2
   2000  Trade Accounts Receivable                7.2                 2.4               -             4.5               5.1
         Finance Receivables                     18.6                 4.4               -             0.6              22.4
 Deferred Asset Valuation Allowance
   2002  Deferred Tax Assets                      6.0                 1.8               -               -               7.8
   2001  Deferred Tax Assets                      5.0                 1.0               -               -               6.0
   2000  Deferred Tax Assets                      3.2                 1.8               -               -               5.0
==============================================================================================================================
<FN>
<F1> RESERVE FOR UNCOLLECTIBLE ACCOUNTS INCLUDES BAD DEBTS WRITTEN OFF.
</FN>
</TABLE>


- --------------------------------------------------------------------------------
                                     PAGE 78

<PAGE>
                              ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------
                                  EXHIBIT INDEX

EXHIBIT
NUMBER
- --------------------------------------------------------------------------------

   10(k)  -    Trust Indenture (without Exhibits) between Development  Authority
               of Fulton  County and  SunTrust  Bank,  as  Trustee,  dated as of
               December 1, 2002.

   10(l)  -    Bond Purchase  Agreement  (without  Exhibits),  dated December 1,
               2002,  for the  Development  Authority of Fulton  County  Taxable
               Economic  Development Revenue Bonds (ADESA Atlanta,  LLC Project)
               Series 2002.

   10(m)  -    Lease Agreement (without Exhibits) between  Development Authority
               of Fulton County and ADESA Atlanta,  LLC, dated as of December 1,
               2002.

   10(t)  -    Second  Amended and Restated Committed Facility  Letter  (without
               Exhibits),  dated  December 24, 2002, to ALLETE from LaSalle Bank
               National Association, as Agent.

 +10(u)2  -    Amendments  through  January  2003  to  the  Minnesota Power (now
               ALLETE) Executive Annual Incentive Plan.

 +10(z)2  -    Amendments  through  January  2003  to  the  Minnesota Power (now
               ALLETE) Executive Long-Term Incentive Compensation Plan.

 +10(ac)  -    Minnesota Power (now ALLETE) Director Compensation Deferral  Plan
               Amended and Restated, effective January 1, 1990.

      12  -    Computation  of  Ratios  of  Earnings   to  Fixed   Charges   and
               Supplemental Ratios of Earnings to Fixed Charges.

   23(a)  -    Consent of Independent Accountants.

   23(b)  -    Consent of General Counsel.

   99(a)  -    Certification of Annual Report dated  February 14,  2003,  signed
               by David G. Gartzke.

   99(b)  -    Certification of Annual Report  dated February  14,  2003, signed
               by James K. Vizanko.




</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>3
<FILENAME>exhibit10k.txt
<DESCRIPTION>EX-10(K) TRUST INDENTURE-ADESA ATLANTA, LLC
<TEXT>
<PAGE>

                                                                   Exhibit 10(k)


                                 TRUST INDENTURE

                                     between

                     DEVELOPMENT AUTHORITY OF FULTON COUNTY


                                       and


                                  SUNTRUST BANK
                                   as Trustee


                          Dated as of December 1, 2002


                           Authorizing the Issuance of
                  $40,000,000 in Aggregate Principal Amount of
                     Development Authority of Fulton County
                   Taxable Economic Development Revenue Bonds
                          (ADESA Atlanta, LLC Project)
                                   Series 2002


<PAGE>


                                TABLE OF CONTENTS
                                                                            Page

ARTICLE I - DEFINITIONS.......................................................5
         Section 101.  Definitions............................................5
         Section 102.  Miscellaneous Use of Words............................10

ARTICLE II - THE BONDS.......................................................11
         Section 201.  Authorized Amount of Bonds............................11
         Section 202.  Issuance of 2002 Bonds................................11
         Section 203.  Execution; Limited Obligation.........................13
         Section 204.  Authentication........................................14
         Section 205.  Form of Bonds.........................................14
         Section 206.  Mutilated, Lost, Stolen or Destroyed Bonds............15
         Section 207.  Registration and Exchange of Bonds....................15
         Section 208.  Issuance of Additional Bonds..........................16
         Section 209.  Payment of 2002 Bonds in Installments.................18

ARTICLE III - REDEMPTION OF 2002 BONDS BEFORE MATURITY.......................19
         Section 301.  Optional Redemption...................................19
         Section 302.  [Intentionally Omitted]...............................19
         Section 303.  Notice of Redemption..................................19
         Section 304.  Redemption Payments...................................20
         Section 305.  Principal and Redemption Payment Credits..............20
         Section 306.  Partial Redemption....................................20
         Section 307.  Cancellation..........................................21

ARTICLE IV - GENERAL COVENANTS...............................................22
         Section 401.  Payment of Principal and Interest.....................22
         Section 402.  Performance of Covenants by Issuer....................22
         Section 403.  Ownership; Instruments of Further Assurance...........22
         Section 404.  Payment of Taxes and Related Charges..................23
         Section 405.  Maintenance and Repair................................23
         Section 406.  Recordation of the Lease Financing Statement..........23
         Section 407.  Inspection of Project Books...........................23
         Section 408.  Priority of Pledge....................................23
         Section 409.  Rights Under Lease and Bond Purchase Agreement........23
         Section 410.  Payment for Extraordinary Expenses....................24

ARTICLE V - REVENUES AND FUNDS...............................................25
         Section 501.  Source of Payment of Bonds............................25
         Section 502.  Creation of the Bond Fund; Pledge of Same.............25
         Section 503.  Payments into the Bond Fund...........................25
         Section 504.  Use of Monies in the Bond Fund........................25
         Section 505.  Non-Presentment of Bonds..............................26
         Section 506.  Fees, Charges and Expenses of Paying Agent,
                        Bond Registrar, Authenticating Agent and Trustee.....26
         Section 507.  Monies to be Held in Trust............................26
         Section 508.  Insurance and Condemnation Proceeds...................26
         Section 509.  Repayment to the Lessee from the Bond Fund............26


<PAGE>

ARTICLE VI - CUSTODY AND APPLICATION OF PROCEEDS OF BONDS....................28
         Section 601.   Disposition of Accrued Interest; Disposition
                         of Bond Proceeds....................................28
         Section 602.  Construction Fund; Disbursements......................28
         Section 603.  Completion and Occupancy of Project...................28
         Section 604.  Surplus Money in Project Fund.........................28

ARTICLE VII - INVESTMENTS; CUSTODIANS OF MONIES AND SECURITY FOR DEPOSIT.....30
         Section 701.  Project Fund Investments..............................30
         Section 702.  Bond Fund Investments.................................30
         Section 703.  Deposit of Funds......................................30

ARTICLE VIII - SUBORDINATION TO RIGHTS OF THE LESSEE.........................31
         Section 801.  Subordination to Rights of the Lessee.................31
         Section 802.  Release of Portions of the Project....................31
         Section 803.  Release of Equipment..................................31
         Section 804.  Granting of Easements.................................31
         Section 805.  Further Assurances....................................31

ARTICLE IX - DISCHARGE OF LIEN...............................................32
         Section 901.  Discharge of Lien.....................................32
         Section 902.  Provision for Payment of Bonds........................32

ARTICLE X - DEFAULT PROVISIONS AND REMEDIES OF BONDHOLDERS...................33
         Section 1001.  Defaults.............................................33
         Section 1002.  Acceleration.........................................33
         Section 1003.  Other Remedies.......................................33
         Section 1004.  Rights of Bondholders................................34
         Section 1005.  Application of Monies................................34
         Section 1006.  Termination of Proceedings...........................36
         Section 1007.  Notice of Defaults; Opportunity of the Issuer
                        and Lessee to Cure Defaults..........................36
         Section 1008.  Waivers of Default...................................36
         Section 1009.  Right of Holders of the Bonds to Direct Proceedings..37
         Section 1010.  Rights and Remedies Vested in Trustee................37
         Section 1011.  Rights and Remedies of Owners of the Bonds...........37

ARTICLE XI - SUPPLEMENTAL RESOLUTIONS........................................39
         Section 1101.  Supplemental Indentures Not Requiring Consent
                        of Bondholders.......................................39
         Section 1102.  Supplemental Indentures Requiring Consent
                        of Bondholders.......................................39
         Section 1103.  Execution of Supplemental Indentures.................41

ARTICLE XII - AMENDMENT OF LEASE DOCUMENTS...................................42
         Section 1201.  Amendments to Lease Documents Not Requiring Consent
                        of Bondholders.......................................42
         Section 1202.  Amendments to Lease Documents Requiring Consent
                        of Bondholders.......................................42

ARTICLE XIII - THE TRUSTEE...................................................43
         Section 1301.  Acceptance of the Trusts.............................43
         Section 1302.  Notice to Owners of Bonds If Default Occurs..........46

<PAGE>

         Section 1303.  Intervention by Trustee..............................46
         Section 1304.  Successor Trustee....................................46
         Section 1305.  Resignation by the Trustee...........................47
         Section 1306.  Removal of the Trustee...............................47
         Section 1307.  Appointment of Successor Trustee; Temporary Trustee..47
         Section 1308.  Concerning Any Successor Trustee.....................47
         Section 1309.  Rights of Trustee to Pay Taxes and Other Charges.....48
         Section 1310.  Trustee Protected in Relying Upon Resolutions, etc...48
         Section 1311.  Successor Trustee as Paying Agent, Authenticating
                        Agent and Bond Registrar.............................48
         Section 1312.  Trust Estate May Be Vested in Co-Trustee.............48
         Section 1313.  Continuation Statements..............................49

ARTICLE XIV - IMMUNITY OF MEMBERS, OFFICERS AND EMPLOYEES OF THE ISSUER
AND TRUSTEE .................................................................50

ARTICLE XV - MISCELLANEOUS...................................................51
         Section 1501.  Consents of Bondholders..............................51
         Section 1502.  Limitation of Rights.................................51
         Section 1503.  Severability.........................................52
         Section 1504.  Notices..............................................52
         Section 1505.  Payments Due on Saturdays, Sundays and Holidays......53
         Section 1506.  Laws Governing Resolution............................53
         Section 1507.  Counterparts.........................................53
         Section 1508.  Designation of Trustee, Authenticating Agent and
                        Bond Registrar.......................................53


EXHIBIT A         Form of Bond

<PAGE>


                                 TRUST INDENTURE
                                 ---------------


         THIS TRUST  INDENTURE (the  "Indenture")  dated as of December 1, 2002,
made and entered into by and between the DEVELOPMENT AUTHORITY OF FULTON COUNTY,
a public body  corporate and politic  created and existing under the laws of the
State of Georgia (the "Issuer") and SUNTRUST  BANK, a state banking  corporation
organized and existing  under the laws of the State of Georgia  having power and
authority  to accept and execute  trusts,  and having its  principal  offices in
Atlanta, Georgia (the "Trustee").

                              W I T N E S S E T H:
                             - - - - - - - - - - -

         WHEREAS,  the Issuer has been duly  created and is existing as a public
body corporate and politic and an  instrumentality of the State of Georgia and a
public  corporation  pursuant  to the  provisions  of the  Act  (as  hereinafter
defined); and

         WHEREAS,  the Issuer has been created pursuant to the provisions of the
Act to develop  and  promote  for the public  good and  general  welfare  trade,
commerce,  industry  and  employment  opportunities  and to promote  the general
welfare of the State of Georgia; and in furtherance of such purposes, the Issuer
is empowered to issue its revenue  obligations,  in accordance  with the Act for
the purpose of acquiring,  constructing and installing any "project" (as defined
in the  Act)  for  lease  or  sale  to  prospective  tenants  or  purchasers  in
furtherance of the public purposes for which it was created; and

         WHEREAS,   after  careful  study  and   investigation  the  Issuer,  in
furtherance  of the purposes for which it was created,  has entered into a lease
agreement (the "Lease"), dated as of even date herewith, with ADESA Atlanta, LLC
(the "Lessee"),  a limited  liability  company  organized and existing under the
laws of the State of New  Jersey  pursuant  to which the  Issuer  has  agreed to
acquire,  construct and install the Project (as defined in the Lease), including
the real property  owned by the Issuer,  for the use and occupancy of the Lessee
under the Lease and in  consideration  of which the Lessee has agreed to pay the
Issuer specified rental payments and other payments; and

         WHEREAS,  after  careful  investigation,  the Issuer has found and does
hereby declare that it is in the best interest of the citizens of Fulton County,
that the Project be acquired,  constructed,  installed  and leased to the Lessee
for the purposes stated in the Lease, all in keeping with the public purpose for
which the Issuer was created; and

         WHEREAS, Plans and Specifications for the Project have been prepared by
the Lessee, and it is estimated that the amount necessary to finance the cost of
the Project, including expenses incidental thereto, will not exceed $40,000,000;
and

         WHEREAS,  the most feasible method of financing the cost of the Project
is through the issuance  hereunder of  Development  Authority of Fulton  County,
Taxable Economic  Development Revenue Bonds, (ADESA Atlanta, LLC Project) Series
2002, in the aggregate


<PAGE>

notational principal of $40,000,000,  provided that said may be reduced based on
the  aggregate  total amount of any and all payments  made by the  Purchaser (as
hereinafter  defined)  in  consideration  of the sale of such  Bonds  under  and
pursuant to the Bond Purchase Agreement (the "2002 Bonds"); and

         WHEREAS,  it is anticipated that additional  moneys may be necessary to
finance  the  cost  of  (a)  completing  the   acquisition,   construction   and
installation  of the Project,  (b) providing for the  enlargement,  improvement,
expansion or  replacement  of the Project,  (c) refunding any bonds issued under
this Indenture, or (d) any combination of the foregoing, and provision should be
made for the  issuance  from time to time of  Additional  Bonds  which  shall be
equally and ratably  secured  hereunder  with the 2002 Bonds (the 2002 Bonds and
such  Additional  Bonds  being  hereinafter  collectively  referred  to  as  the
"Bonds"); and

         WHEREAS,  the  2002  Bonds  will be  delivered  to and  paid for by the
Purchaser in multiple  installments  as and when moneys are required to complete
the  acquisition,   construction  and  installation  of  the  Project,  and  the
provisions of this  Indenture are to be liberally read and construed in a manner
which facilitates such approach to delivery and payment; and

         WHEREAS,  the Issuer will receive  rental  payments and other  payments
from the Lessee,  which  revenues,  together with all other rents,  revenues and
receipts  arising out of or in  connection  with the  Issuer's  ownership of the
Project,   shall  be  pledged  together  with  the  Lease  (except  for  certain
"Unassigned  Rights" as hereinafter  defined) as security for the payment of the
principal of, premium, if any, and interest on the 2002 Bonds; and

         WHEREAS,   all  things   necessary   to  make  the  2002  Bonds,   when
authenticated  by the  Trustee  and issued and  delivered  as in this  Indenture
provided,  the valid, binding and legal obligations of the Issuer,  according to
the import  thereof,  and to create a valid  assignment and pledge of the rental
payments  and  other  payments  derived  from the  Lease to the  payment  of the
principal of and interest on the Bonds and a valid  assignment of all the right,
title and interest of the Issuer in the Lease, have been done and performed, and
the execution and delivery of this  Indenture  and the  execution,  issuance and
delivery of the 2002 Bonds,  subject to the terms  hereof,  have in all respects
been duly authorized;

                                      -2-

<PAGE>


         NOW,  THEREFORE,  KNOW  ALL  MEN   BY  THESE  PRESENTS, THIS  INDENTURE
WITNESSETH:

         The Issuer,  in  consideration  of the premises and of the purchase and
acceptance of the 2002 Bonds by the holders and owners  thereof,  and of the sum
of ONE DOLLAR ($1.00),  lawful money of the United States of America, to it duly
paid by the Trustee,  at or before the execution and delivery of these presents,
and for other good and valuable  consideration,  the receipt and  sufficiency of
which are hereby  acknowledged,  in order to secure the payment of the principal
of,  premium,  if any, and  interest on such Bonds  according to their tenor and
effect and to insure the  performance  and  observance  by the Issuer of all the
covenants  expressed  or implied  herein and in the Bonds,  has given,  granted,
bargained, sold, conveyed, transferred, pledged, and assigned, and does by these
presents,  give, grant, bargain, sell, convey,  transfer,  pledge, and assign to
the Trustee  for the benefit of the holders  from time to time of the 2002 Bonds
and any Additional Bonds to be issued hereunder and their successors and assigns
forever:

                              GRANTING CLAUSE FIRST

         All right,  title and  interest of the Issuer in the Lease  (except for
Unassigned  Rights)  and  the  Bond  Purchase  Agreement,  and  all  amendments,
modifications and renewals thereof.

                             GRANTING CLAUSE SECOND

         All rental  payments and other payments to be received  pursuant to the
Lease, together with all other rents, revenues and receipts arising out of or in
connection  with the Issuer's  ownership of the Project  (except for  Unassigned
Rights), and all amendments, modifications and renewals thereof.

                              GRANTING CLAUSE THIRD

         All amounts on deposit  from time to time in the  Project  Fund and the
Bond  Fund,  subject  to  the  provisions  of  this  Indenture   permitting  the
application  thereof for the purposes and on the terms and  conditions set forth
herein.

                             GRANTING CLAUSE FOURTH

         Any and all other property of every name and nature (including, without
limitation,  any additional  lease or leases  covering the Project) from time to
time hereafter by delivery or by writing of any kind, given,  granted,  pledged,
assigned,  conveyed,  mortgaged or transferred,  as and for additional  security
hereunder, by the Issuer or by anyone in its behalf or with its written consent,
to the Trustee,  which is hereby authorized to receive any and all such property
at any and all times and to hold and apply the same subject to the terms hereof.

         TO HAVE AND TO HOLD all and singular the same with all  privileges  and
appurtenances  hereby granted,  bargained,  sold, conveyed,  assigned,  pledged,
mortgaged and

                                      -3-

<PAGE>

transferred  or agreed or  intended  so to be,  whether  now owned or  hereafter
acquired,  to the  Trustee  and its  successors  in said  trusts and to them and
assigns;

         IN TRUST  NEVERTHELESS,  upon the terms  herein set forth for the equal
and  proportionate  benefit,  security and  protection of all present and future
holders and owners of the 2002 Bonds and any Additional Bonds without privilege,
priority or distinction as to the lien or security  interest or otherwise of any
holder of any of the 2002 Bonds and any  Additional  Bonds over any other holder
thereof except as herein  expressly  provided,  and such pledged  property shall
immediately be subject to the security interest,  charge and lien hereof without
any physical  delivery  thereof or any further act, and said security  interest,
charge and lien shall be valid and  binding  against  the Issuer and against all
parties  having  claims of any kind against the Issuer  whether such claims have
arisen in contract,  tort or otherwise and  irrespective of whether such parties
have  notice  thereof,  and  said  security  interest,  charge  and  lien  shall
constitute a first security  interest,  charge, and lien securing the payment of
the principal of, premium, if any, and interest on the Bonds;

         PROVIDED, HOWEVER, that if the Issuer, its successors or assigns, shall
well and truly pay, or cause to be paid, the principal of, premium,  if any, and
interest  on the 2002 Bonds and any  Additional  Bonds,  at the times and in the
manner  mentioned in the 2002 Bonds and any  Additional  Bonds  according to the
true intent and meaning thereof,  or shall provide, as permitted hereby, for the
payment  thereof  and shall well and truly  keep,  perform  and  observe all the
covenants  and  conditions  pursuant to the terms of this  Indenture to be kept,
performed  and observed by it, then upon such final  payment this  Indenture and
the rights hereby granted and liens hereby created shall cease,  determine,  and
be void;  otherwise this Indenture and said rights and liens to be and remain in
full force and effect.

         THIS INDENTURE FURTHER WITNESSETH,  and it is expressly declared,  that
the 2002 Bonds and any Additional  Bonds issued and secured  hereunder are to be
issued and delivered,  and all said property,  rights, and interest,  including,
without  limitation,  the amounts hereby  assigned and pledged,  are to be dealt
with  and  disposed  of,  under,  upon and  subject  to the  terms,  conditions,
stipulations,  covenants,  agreements,  trusts,  uses and  purposes  hereinafter
expressed,  and the Issuer has agreed and covenanted,  and does hereby agree and
covenant,  with the Trustee and the respective holders and owners,  from time to
time, of the 2002 Bonds and any Additional Bonds, as follows:


                                      -4-

<PAGE>


                                    ARTICLE I

                                   DEFINITIONS

         Section  101.  DEFINITIONS.  Capitalized  terms not  otherwise  defined
herein  shall have the  meanings  assigned to them in the Lease.  The  following
words and phrases and others evidently intended as the equivalent thereof shall,
in the absence of clear  implication  herein  otherwise,  be given the following
meanings:

         "ACT" means the  Development Authorities Law (O.C.G.A. Sections 36-62-1
ET SEQ.), as heretofore and hereafter amended.


         "ADDITIONAL BONDS" means any additional bonds authorized and  issued by
the Issuer pursuant to Section 208 hereof.

         "AUTHENTICATING   AGENT"  means  the  Authenticating  Agent  designated
pursuant to Section 1508 hereof.

         "BOND AGENTS" means the Paying Agent,  the  Authenticating  Agent,  the
Bond  Registrar,  the  Trustee,  any  co-trustee  and any other  similar  agents
appointed  by the Issuer or the Trustee  with the prior  written  consent of the
Lessee.  Any  Person  may  serve in the  capacity  of more than one of such Bond
Agents.

         "BOND  COUNSEL"  means  Alston  & Bird  LLP,  Atlanta,  Georgia  or its
successors,  or if such firm is no longer a  nationally  recognized  firm in the
area of  municipal  finance,  or declines to serve in such  capacity,  then said
other counsel which is  nationally  recognized in the area of municipal  finance
selected by the Issuer and acceptable to the Lessee and the Trustee.

         "BOND FUND" means the fund created by Section 502 of this Indenture.

         "BOND  PURCHASE  AGREEMENT"  means the  contract of even date  herewith
among the Issuer,  the Lessee and the Purchaser pursuant to which the Issuer has
agreed to sell,  and the  Purchaser has agreed to purchase,  the 2002 Bonds,  in
accordance  with  the  provisions  thereof,  as  the  same  may  be  amended  or
supplemented in accordance with its terms.

         "BONDS" means collectively, the 2002 Bonds and any Additional Bonds.

         "BONDHOLDER",  "HOLDER" or "OWNER" when used with respect to the Bonds,
means the registered owner of any Bond.

         "BOND  REGISTRAR"  means  the  Trustee  designated  as  Bond  Registrar
pursuant to Section 1508 hereof, or any other Person designated by the Issuer as
successor Bond Registrar pursuant to the terms hereof.

                                      -5-
<PAGE>

         "BUSINESS  DAY" means any day other than a Saturday,  Sunday or a legal
holiday  or a day on  which  banking  institutions  in the  City  in  which  the
principal office of the Trustee,  the Lessee or Paying Agent are not required or
authorized by law to close.

         "CLOSING DATE" means the date of the original  issuance and sale of any
series of Bonds.

         "CODE" means the Internal  Revenue  Code of 1986,  as amended,  and all
applicable   rulings  and   regulations   (including   temporary   and  proposed
regulations) thereunder.

         "COUNSEL"  means an  attorney or firm  thereof who is duly  licensed to
practice  before the highest court of at least one state in the United States of
America.

         "COUNTY" means Fulton County,  Georgia, a political  subdivision of the
State of Georgia,  and any public  entity,  body or issuer to which is hereafter
transferred or delegated by law the duties, powers, authorities, obligations, or
liabilities of the present political subdivision.

         "EVENT OF DEFAULT" means any Event of Default under this Indenture,  as
specified in and defined by Section 1001 hereof.

         "EXTRAORDINARY  SERVICES" and  "EXTRAORDINARY  EXPENSES" means services
and expenses  hereunder  other than  Ordinary  Services,  or Ordinary  Expenses,
respectively.

         "FIXED RATE" means five percent (5%) per annum.

         "GOVERNMENTAL  OBLIGATIONS"  means (a) direct obligations of the United
States of America  for  payment of which the full faith and credit of the United
States of America is pledged,  or (b) obligations  issued by a person controlled
or  supervised  by and  acting as an  instrumentality  of the  United  States of
America, the payment of the principal of, premium, if any, and interest on which
is fully and unconditionally guaranteed as a full faith and credit obligation by
the United States of America.

         "HOME OFFICE PAYMENT AGREEMENT" means any home office payment agreement
entered into in accordance with the provisions of Section 202(c) hereof,  as the
same may be amended or supplemented in accordance with its terms.

         "INDEPENDENT AUDITOR" means an independent certified public accountant,
or firm thereof,  of recognized standing who or which does not devote his or her
or its full time to either  the  Issuer or the  Lessee  (but who or which may be
regularly retained by either).

         "INTEREST PAYMENT DATE"   means   the   first  day  of  each  December,
commencing on December 1, 2003.

         "ISSUER"  means the  Development  Authority  of Fulton  County,  a body
corporate  and  politic,  duly  created  and  existing  under  the Act,  and its
successors and assigns.

                                      -6-
<PAGE>

         "LEASE" means that certain Lease Agreement dated as of December 1, 2002
between the Issuer and the Lessee, as the same may be amended or supplemented in
accordance with its terms.

         "LEASE DOCUMENTS" means the Lease, the Guaranty,  the Security Deed and
the Bond Purchase Agreement,  as the same may hereafter be modified,  amended or
supplemented in accordance with their respective terms.

         "LESSEE"  means  ADESA  Atlanta,  LLC,  a  limited  liability  company,
organized  and  existing  under  the  laws of the  State of New  Jersey  and its
permitted successors and assigns under the Lease.

         "MATURITY DATE" means December 1, 2017.

         "NATIONALLY  RECOGNIZED  BOND  COUNSEL"  means an attorney or a firm of
attorneys  of  nationally  recognized  standing  in  matters  pertaining  to the
tax-exempt  nature of  interest  on bonds  issued by states and their  political
subdivisions,  duly  admitted to the practice of law before the highest court of
any state of the United States of America.

         "ORDINARY  SERVICES"  and  "ORDINARY  EXPENSES"  means  those  services
normally  rendered  and  those  expenses  normally  incurred  by a Person in the
capacity of a trustee under instruments  similar to this Indenture and for which
no payment  over and above any agreed  payment  schedule  from the Issuer or the
Lessee to the Trustee is required.

         "OUTSTANDING"  or "BONDS  OUTSTANDING"  means all Bonds which have been
issued pursuant to this Indenture, except:

                  (a) Bonds canceled in accordance with Section 307 hereof prior
to maturity;

                  (b) portions of Bonds to the extent that partial redemption or
cancellation  thereof  has  been noted  thereon in  accordance with  Section 306
hereof;

                  (c) Bonds for the payment or redemption of which cash funds or
Government  Obligations  shall have been theretofore  deposited with the Trustee
(whether  upon or prior to the maturity or  redemption  date of any such Bonds);
provided,  that if such Bonds are to be redeemed prior to the maturity  thereof,
notice of such redemption shall have been given or arrangements  satisfactory to
the Trustee shall have been made therefor, or waiver of such notice satisfactory
in form to the Trustee shall have been filed with the Trustee; and

                  (d) Bonds  in  lieu of  which others  have  been authenticated
under Section 207 hereof.

         "PAYING  AGENT" means the Paying Agent  designated  pursuant to Section
1508 hereof,  or any other Person  designated by the Issuer as successor  Paying
Agent pursuant to the terms hereof.

                                      -7-
<PAGE>

         "PAYMENT  OFFICE" means the payment  office of the Trustee set forth in
Section 1504  hereof,  and any  different  office  designated  by the Trustee in
accordance  with the provisions of Section 1504 hereof,  which shall be used for
the payment of the Bonds.

         "PERMITTED INVESTMENTS" means any of the following which at the time of
investment are legal  investments under the laws of the State of Georgia for the
monies proposed to be invested therein:

                  (a) bonds or  obligations of  the State of  Georgia, or of any
county, municipality or political subdivision of the State of Georgia;

                  (b) bonds  or  other  obligations  of  the  United  States  or
subsidiary  corporations  of  the  United  States  government  which  are  fully
guaranteed by such government;

                  (c) obligations  of agencies of  the United States  government
issued by the  Federal  Land  Bank,  the  Federal  Home Loan Bank,  the  Federal
Intermediate Credit Bank and the Central Bank for Cooperatives;

                  (d) bonds or  other obligations  issued by  any public housing
agency or municipality in the United States, which such bonds or obligations are
fully  secured as to the payment of both  principal  and interest by a pledge of
annual  contributions under an annual  contributions  contract or contracts with
the United  States  government,  or project  notes issued by any public  housing
agency,  urban renewal agency,  or municipality in the United States and secured
as to payment of both principal and interest by a requisition,  loan, or payment
agreement with the United States government;

                  (e) certificates of deposit of national or state banks located
within the State of Georgia which have deposits  insured by the Federal  Deposit
Insurance  Corporation  and  certificates of deposit of federal savings and loan
associations  and  state  building  and loan or  savings  and loan  associations
located  within the State of Georgia which have deposits  insured by the Federal
Savings and Loan  Insurance  Corporation  or the Georgia  Credit  Union  Deposit
Insurance  Corporation  (including  the  certificates  of  deposit  of any bank,
savings  and loan  association,  or  building  and loan  association  acting  as
custodian or trustee for any proceeds of the Bonds); provided, however, that the
portion of such  certificates  of deposit in excess of the amount insured by the
Federal Deposit  Insurance  Corporation,  the Federal Savings and Loan Insurance
Corporation,  or the Georgia Credit Union Deposit Insurance Corporation, if any,
shall be secured by deposit with the Federal  Reserve Bank of Atlanta,  Georgia,
or with any national or state bank or federal  savings and loan  association  or
state  building  and loan or savings  and loan  association  located  within the
State,  of one or more of the  following  securities  in an aggregate  principal
amount  equal  at  least  to the  amount  of such  excess:  direct  and  general
obligations of the State of Georgia, or of any county,  municipality corporation
in the State of Georgia, or obligations included in subsections (b), (c), or (d)
above;
                                      -8-
<PAGE>

                  (f) securities of or other interests in  any no-load, open-end
management  type investment  company or investment  trust  registered  under the
Investment  Company  Act of 1940,  as from time to time  amended,  or any common
trust fund  maintained by any bank or trust company which holds such proceeds as
trustee or by an affiliate thereof so long as:

                      (1) the portfolio of such investment company or investment
trust  or  common  trust  fund  is  limited  to the  obligations  referenced  in
subsection (b) above and repurchase  agreements fully collateralized by any such
obligations;

                      (2) such investment company or investment trust or  common
trust fund takes  delivery  of such  collateral  either  directly  or through an
authorized custodian;

                      (3) such investment  company or investment trust or common
trust  fund is  managed so as to  maintain  its  shares at a constant  net asset
value; and

                      (4) securities  of or  other interests in such  investment
company or investment trust or common trust fund are purchased and redeemed only
through the use of national or state banks  having  corporate  trust  powers and
located within the State of Georgia;

                  (g) repurchase agreements relating to  obligations included in
subsection (b) above to the extent authorized by O.C.G.A. Section 50-17-2; and

                  (h) any other investments  to the extent at the time permitted
by then applicable law for the investment of public funds.

         "Person"  or  "person"  means any natural  person,  firm,  association,
corporation or public body.

         "Principal  Amount" or "principal amount" means, with reference  to the
Bond or Bonds  outstanding,  the total amount of installment  purchase  payments
made  by the  Purchaser  pursuant  to the  Bond  Purchase  Agreement,  less  all
principal  amounts  thereof  previously  paid,  redeemed  or  cancelled,  all as
reflected on the 2002 Bond.

         "PROJECT" means the land, buildings, furniture, fixtures, equipment and
other  facilities and  improvements  leased under the Lease,  as they may at any
time exist.

         "PROJECT FUND" means the fund created by Section 602 hereof.

         "PURCHASE PERIOD"  means  the  period  during  which  the Purchaser  is
obligated  to  make  installment  purchase  payments  under  the  Bond  Purchase
Agreement  which shall  commence on the Closing  Date and end on the  Completion
Date.

         "PURCHASER" means ADESA Atlanta, LLC, and its successors and assigns.

                                      -9-
<PAGE>

         "RECORD DATE" means, with respect to the 2002 Bonds, the  fifteenth day
of the month immediately preceding each Interest Payment Date.

         "SECURITY DEED" means the  Deed to  Secure Debt and  Security Agreement
dated as of  December  1,  2002 from the  Issuer,  as  grantor,  in favor of the
Trustee,  as  grantee,  as the  same  may  hereafter  be  modified,  amended  or
supplemented in accordance with its terms.

         "2002 BONDS" means any  of the  Development Authority  of Fulton County
Taxable Economic  Development Revenue Bonds (ADESA Atlanta,  LLC Project) Series
2002 authorized and issued pursuant to Section 202 hereof.

         "TRUST ESTATE" means the property  described in Granting Clauses First,
Second, Third and Fourth of this Indenture.

         "TRUSTEE" means  SunTrust Bank,  or  any  successor  trustee  appointed
pursuant to Section 1308 hereof.

         "UNASSIGNED RIGHTS"  means  the  rights  of  the Issuer to  receive (i)
rental payments under Section 5.3(c) of the Lease,  (ii)  indemnification  under
Section 6.4 of the Lease, (iii) repayments of advances made by the Issuer,  plus
interest,  as provided in Section 6.5 of the Lease, and (iv) attorneys' fees and
expenses payable to the Issuer under Section 10.4 of the Lease.

         Section 102. MISCELLANEOUS  USE   OF     WORDS.   "Herein,"   "hereby,"
"hereunder," "hereof," "hereinbefore,"  "hereinafter" and other equivalent words
refer to this  Indenture  and not solely to the  particular  portion  thereof in
which any such word is used.  The  definitions  set forth in Section  101 hereof
include both  singular and plural.  Whenever  used herein,  any pronoun shall be
deemed to  include  both  singular  and  plural  and to cover all  genders.  Any
percentage of Bonds,  specified herein for any purpose,  is to be figured on the
unpaid principal amount thereof then outstanding.

                                      -10-

<PAGE>

                                   ARTICLE II

                                    THE BONDS

         Section 201. AUTHORIZED AMOUNT OF BONDS. The  Bonds  may  be  issued in
different series and each Bond shall have an appropriate series designation. All
of the Bonds shall be equally and ratably  secured by this  Indenture and by the
pledge  herein  made,  it being  expressly  understood  and agreed that no Bonds
issued hereunder shall be prior to any other Bonds thereafter  issued hereunder,
but  shall  be on a  parity  therewith,  with  respect  to the  pledge  of  this
Indenture.  The Bonds may be issued at one or more  times in  principal  amounts
designated by the Issuer and approved by the Lessee.

         Section 202. ISSUANCE OF 2002 BONDS.

         (a) The 2002 Bonds shall be designated "Development Authority of Fulton
County,  Taxable Economic Development Revenue Bonds (ADESA Atlanta, LLC Project)
Series  2002."  The  2002  Bonds  shall be  issued  in the  original  notational
aggregate  principal amount of $40,000,000.  The 2002 Bonds shall be issuable as
fully registered bonds without coupons in any denomination and shall be numbered
consecutively  from  R-1  upward,  in order of  authentication,  with any  other
designation as the Trustee deems appropriate.

         (b) The 2002 Bonds  shall be dated  as of  December 1, 2002. Each  2002
Bond shall bear interest from the interest  payment date next preceding its date
of  authentication,  or if  authenticated  on an interest payment date, it shall
bear  interest   from  its  date  of   authentication;   provided,   however  if
authenticated  prior to the first Interest  Payment Date, it shall bear interest
from  the  Closing  Date;  and  provided  further,  that  if,  on  the  date  of
authentication of any 2002 Bond, interest on the 2002 Bonds shall be in default,
2002 Bonds issued in exchange for 2002 Bonds  surrendered  for  registration  of
transfer or exchange  shall bear  interest  from the date to which  interest has
been paid in full on the 2002 Bonds surrendered.

         The 2002 Bonds shall bear interest on the Principal Amount at the Fixed
Rate per annum.  Interest  on the 2002 Bonds shall be computed on the basis of a
360-day year  composed of twelve 30-day  months.  The 2002 Bonds shall mature on
the Maturity Date. The 2002 Bonds are subject to redemption  pursuant to Article
III hereof.

         Interest on the 2002  Bonds shall accrue on the Principal Amount of the
Bonds outstanding commencing on the Closing Date. The interest on the 2002 Bonds
shall be  payable  annually  on the first  day of each  Interest  Payment  Date,
commencing  December  1, 2003  until  payment  in full of the  principal  amount
thereof,  by check or draft drawn on the  Trustee  and mailed to the  registered
owner at his  address as it appears on the bond  registration  books kept by the
Bond Registrar on the fifteenth day of the month (whether or not a Business Day)
before each interest payment date. Payment of interest on the 2002 Bonds may, at
the option of any holder of 2002 Bonds in an  aggregate  principal  amount of at
least  $1,000,000,  be transmitted by electronic  transfer to such holder to the
bank  account  number  on file  with the  Trustee  in  accordance  with  written
instructions  received by the Trustee prior to the fifteenth day next  preceding
any interest

                                      -11-
<PAGE>

payment date. Any such instructions shall contain the name of the recipient bank
(which  must be located  in the  continental  United  States),  such  bank's ABA
routing number and the  acknowledgment  of the Bondholder that a transfer charge
may be charged by the Trustee to the Bondholder for such  electronic  transfers.
Payment of the principal and redemption  price,  including any premium,  of each
2002 Bond upon  maturity  thereof  shall be made upon  surrender  thereof at the
Payment  Office of the  Trustee,  except that in the event the  Purchaser is the
holder of any 2002 Bond at the maturity  date, no surrender of such Bond will be
required  for the  payment of such Bond.  All  payments  shall be made in lawful
money of the United States of America.

         (c)      Any provision  hereof  to the  contrary  notwithstanding,  the
Trustee will, at the written request of the registered holder of all outstanding
Bonds, enter into a home office payment agreement with such holder providing for
the payment of the  interest on such Bond or Bonds and the  redemption  price of
any partial redemption of the principal thereof at a place and in a manner other
than as  provided  in this  Section  202 or in such Bond or Bonds,  but any such
agreement shall be subject to the following conditions:

                  (i)     The  terms  and conditions of such agreement shall  be
reasonably satisfactory to the Trustee;

                  (ii)    The final payment of the principal of and  premium (if
any) on such Bond or Bonds shall be made only upon the surrender  thereof to the
Trustee; and

                  (iii)   If such agreement provides for the  partial redemption
of the principal of such Bond or Bonds without the surrender thereof in exchange
for  one or more  new  Bonds  in an  aggregate  principal  amount  equal  to the
unredeemed portion of such Bond or Bonds, then such agreement:

                          (A) shall  provide  that the holder  of such  Bond  or
Bonds will not sell,  pledge,  transfer or otherwise  dispose of the same unless
prior to the delivery  thereof it shall (I) surrender the same to the Trustee in
exchange for a new Bond or Bonds in an aggregate  principal  amount equal to the
aggregate  unpaid  principal of such Bond or Bonds or (II) notify the Trustee in
writing of such sale,  pledge,  transfer or other disposition and deliver to the
Trustee a certificate  certifying to the Trustee that  endorsement has been made
on such Bond or Bonds, or on a record of partial redemption appertaining to each
such Bond and  constituting a part thereof,  of all portions of the principal of
each such Bond which have been redeemed; and

                          (B) shall  provide  (I) that, to  the  extent  of  the
payment  to the  holder  of such  Bond or Bonds of the  redemption  price of any
portion  thereof  called for  redemption,  the  Issuer  and the Lessee  shall be
released from liability  with respect to such Bond or Bonds,  and (II) that such
holder will  indemnify and hold harmless the Issuer,  the Lessee and the Trustee
against  any  liability  arising  from the  failure  of such  holder to make any
endorsement on such Bond or Bonds  required by the preceding  clause (A) or from
an error or omission in such endorsement; and

                                      -12-

<PAGE>

                          (C) shall provide that if monies are on deposit in the
Bond Fund,  on or before  any  interest  payment  date or any  redemption  date,
sufficient to pay the interest on the Bonds due on such interest payment date or
the redemption price of any Bonds called for redemption on such redemption date,
as the case may be,  then the failure of the holder of any such Bonds to receive
in a timely manner any payment due such holder on such interest  payment date or
redemption  date,  as the  case may be,  because  of a  mistake,  delay or other
failure in the implementation of the method of payment prescribed by such holder
in such  agreement  shall not  constitute  a default  hereunder,  provided  such
mistake, delay or other failure is not due to the negligence of the Issuer.

         (d)      The  initial  sale  and  delivery  of  the 2002  Bonds to  the
purchasers  thereof shall be subject to satisfaction of following  conditions on
or prior to the Closing Date:

                  (i)     A final judgment of  validation  with respect  to  the
2002 Bonds shall have been  rendered by the Superior  Court of Fulton  County as
provided by the Act.

                  (ii)    There shall have been filed with the Issuer a  request
and  authorization  to the  Issuer  on  behalf of the  Lessee  and  signed by an
Authorized  Lessee   Representative  to  cause  the   Authenticating   Agent  to
authenticate  and deliver the 2002 Bonds to the purchaser or purchasers  thereof
or its or their  representative or representatives upon payment to the Issuer of
the sum specified in such request and authorization.

                  (iii)   The  Issuer   shall  have  received  the   unqualified
approving  opinion  of Alston & Bird LLP,  Atlanta,  Georgia,  addressed  to the
Issuer, the Trustee and the Lessee, as to the legality of the 2002 Bonds and the
proceedings of the Issuer and the issuance thereof.

                  (iv)    The Issuer  and  Bond Counsel  shall have received the
unqualified  approving  opinion of Nelson,  Mullins,  Riley & Scarborough,  LLP,
Atlanta,  Georgia,  as counsel  to the  Issuer,  addressed  to the  Issuer,  the
Trustee,  the Lessee,  the Purchaser  and Bond  Counsel,  as to the legality and
binding effect on the Issuer of this Indenture and the Lease.

                  (v)     The Issuer shall have received an executed copy of the
Bond Purchase Agreement.

         Section 203. EXECUTION; LIMITED OBLIGATION. The  2002  Bonds  shall  be
executed on behalf of the Issuer with the manual or  facsimile  signature of its
Chairman or Vice-Chairman,  and attested by the manual or facsimile signature of
its Secretary or Assistant  Secretary,  and shall have  impressed,  imprinted or
otherwise  reproduced  thereon  the  corporate  seal  of the  Issuer.  Any  such
facsimiles shall have the same force and effect as if manually  signed.  In case
any officer  whose  signature  shall  appear on the 2002 Bonds shall cease to be
such  officer  before the delivery of such 2002 Bonds,  such  signature or other
facsimile shall nevertheless be valid and sufficient for all purposes,  the same
as if such officer had remained in office until such delivery.

         THE 2002 BONDS ISSUED PURSUANT TO THIS INDENTURE SHALL NOT BE DEEMED TO
CONSTITUTE  A DEBT OF THE  COUNTY,  THE STATE OF GEORGIA OR ANY OTHER  POLITICAL
SUBDIVISION  THEREOF,  OR A

                                      -13-
<PAGE>

PLEDGE OF THE FAITH AND CREDIT OF THE COUNTY,  THE STATE OF GEORGIA OR ANY OTHER
POLITICAL  SUBDIVISION THEREOF, BUT SUCH 2002 BONDS SHALL BE LIMITED OBLIGATIONS
OF THE ISSUER  PAYABLE  SOLELY FROM THE BOND FUND  PROVIDED FOR HEREIN,  AND THE
ISSUANCE  OF THE 2002 BONDS  SHALL NOT  DIRECTLY,  INDIRECTLY,  OR  CONTINGENTLY
OBLIGATE  THE COUNTY,  THE STATE OF GEORGIA OR ANY OTHER  POLITICAL  SUBDIVISION
THEREOF,  TO LEVY OR TO PLEDGE ANY FORM OF TAXATION WHATEVER THEREFOR OR TO MAKE
ANY  APPROPRIATION FOR THE PAYMENT THEREFOR;  PROVIDED,  HOWEVER,  FUNDS FOR THE
PAYMENT OF THE 2002 BONDS MAY BE RECEIVED FROM ANY OTHER SOURCE  DECLARED BY THE
ACT TO BE AVAILABLE AND MAY BE USED FOR THE LESSEE'S PAYMENT  OBLIGATIONS  UNDER
THE LEASE. THE ISSUER HAS NO TAXING POWER.

         Section 204. AUTHENTICATION. No 2002 Bond  shall be valid or obligatory
for any  purpose or entitled to any  security  or benefit  under this  Indenture
unless and until a certificate of authentication on such 2002 Bond substantially
in the form set forth on Exhibit A attached hereto shall have been duly executed
by the Authenticating Agent, and such executed certificate of the Authenticating
Agent upon any such 2002 Bond shall be  conclusive  evidence that such 2002 Bond
has been  authenticated and delivered under this Indenture.  The  Authenticating
Agent's  certificate of  authentication on any 2002 Bond shall be deemed to have
been executed by the Authenticating  Agent if signed by an authorized  signatory
of the Authenticating Agent, but it shall not be necessary that the same officer
execute the certificate of authentication on all of the 2002 Bonds.

         Section 205. FORM OF BONDS. The 2002  Bonds shall  be in  substantially
the form set forth in Exhibit A hereto,  each with such appropriate  variations,
omissions,  substitutions  and  insertions  as are permitted or required by this
Indenture  and may have such letters,  numbers or other marks of  identification
and such legends and endorsements  placed thereon,  as may be required to comply
with  any  applicable  laws or  rules  or  regulations,  or as  may,  consistent
herewith,  be determined by the officers  executing  such Bonds.  The definitive
Bonds shall have endorsed thereon,  until such time as the Authenticating  Agent
shall have been advised in writing to the contrary,  as hereinafter  provided, a
legend or text in substantially the following form:

                               TRANSFER RESTRICTED

         THIS BOND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT  OF
         1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE OR
         JURISDICTION,  AND MAY NOT BE  SOLD OR  OTHERWISE  TRANSFERRED
         WITHOUT AN OPINION OF COUNSEL  ACCEPTABLE  TO THE ISSUER,  THE
         TRUSTEE AND THE LESSEE OF THE PROJECT REFERRED TO IN THIS BOND
         TO THE EFFECT THAT SUCH TRANSFER  WILL NOT VIOLATE  APPLICABLE
         SECURITIES LAWS.

At such time as the  Authenticating  Agent is advised in writing by Counsel  for
the  Lessee  or the  Issuer  that  such a  legend  is no  longer  required,  the
Authenticating  Agent,  on  presentation  of any Bond,  will strike  through the
legend and execute a certificate  to the effect that the legend has been removed
by the  Authenticating  Agent  with the  consent of the Issuer and the Lessee or
shall  issue a new Bond or Bonds of  authorized  denomination  or  denominations
without such legend.

                                      -14-
<PAGE>

         Section 206. MUTILATED, LOST, STOLEN OR  DESTROYED BONDS. If  any  2002
Bond is mutilated, lost, stolen or destroyed, the Issuer may execute and deliver
a new 2002 Bond of like  maturity and tenor in lieu of and in  substitution  for
the 2002 Bond mutilated,  lost, stolen or destroyed;  provided that, in the case
of any mutilated 2002 Bond,  such mutilated 2002 Bond shall first be surrendered
to the Bond  Registrar,  and in the case of any lost,  stolen or destroyed  2002
Bond, there shall be first furnished to the Bond Registrar evidence satisfactory
to the Bond Registrar of the ownership of such 2002 Bond and of such loss, theft
or destruction,  together with indemnity  satisfactory to it, the Lessee and the
Issuer;  provided that if the holder thereof is an Affiliate of the Lessee, such
indemnity may take the form of an unsecured promise or indemnity by such holder.
If any such 2002 Bond shall have matured or a redemption date pertaining thereto
shall have  passed,  instead of issuing a new 2002 Bond,  the Issuer may pay the
same.  The  Issuer may charge the holder or owner of such 2002 Bond with its and
the Bond Registrar's reasonable fees and expenses in this connection.

         Section 207. REGISTRATION AND EXCHANGE OF  BONDS.  Upon  surrender  for
registration  of  transfer  of  any  Bond  at the  Payment  Office  of the  Bond
Registrar,  duly  endorsed  by,  or  accompanied  by  a  written  instrument  or
instruments  of transfer in form  satisfactory  to the Bond  Registrar  and duly
executed by the registered owner or his attorney duly authorized in writing, the
Issuer shall execute and the Authenticating Agent shall authenticate and deliver
in the name of the transferee or transferees a new fully registered 2002 Bond or
2002 Bonds of the same series and same maturity for a like  aggregate  principal
amount.  2002 Bonds may be exchanged at said office of the Bond  Registrar for a
like  aggregate  principal  amount  of 2002  Bonds of the same  series  and same
maturity for a like aggregate principal amount. The Issuer shall execute and the
Authenticating  Agent shall  authenticate and deliver 2002 Bonds bearing numbers
not contemporaneously then outstanding.  The execution by the Issuer of any 2002
Bond of any  denomination  shall  constitute full and due  authorization of such
denomination  and the  Authenticating  Agent  shall  thereby  be  authorized  to
authenticate  and deliver  such 2002 Bond.  The Issuer shall cause books for the
registration  and for the registration of transfer of the 2002 Bonds as provided
in this Indenture to be kept by the Bond Registrar. The Bond Registrar shall not
be  required to register  the  transfer of or exchange  any 2002 Bond during the
period of fifteen  days next  preceding  any  interest  payment date of the 2002
Bonds nor to  register  the  transfer  of or  exchange  any 2002 Bond  after the
mailing of notice calling any 2002 Bond for redemption has been made, nor during
the period of fifteen days next  preceding  mailing of a notice of redemption of
any 2002 Bonds.  Prior to delivering any 2002 Bonds hereunder,  the Issuer shall
cause the validation certificate thereon to be appropriately executed.

         As to any 2002 Bond, the Person in  whose name such 2002 Bond  shall be
registered  shall be deemed and regarded as the absolute  owner  thereof for all
purposes, and payment of or on account of either principal of or interest on any
2002  Bond  shall be made  only to or upon the  order  of the  registered  owner
thereof or his legal  representative,  but such  registration  may be changed as
hereinabove provided.  All such payments shall be valid and effectual to satisfy
and discharge the liability upon such 2002 Bond to the extent of the sum or sums
so paid.

                                      -15-

<PAGE>

         The cost of  any services  rendered or  other expenses incurred by  the
Bond Registrar in connection with any exchange or registration of transfer shall
be treated  in the  arrangement  for  services  between  the Issuer and the Bond
Registrar as Ordinary Services or Ordinary  Expenses of the Bond Registrar,  and
shall be reimbursed as such pursuant to the provisions in the Lease.

         Notwithstanding the  foregoing, in  the case  any Bond  to be exchanged
bears the restrictive legend described in Section 205 hereof, no registration of
transfer thereof shall be effected unless there shall have been delivered to the
Trustee the legal  opinion  described  in such legend or a legal  opinion to the
effect  that such  legend is no longer  required  as  described  in Section  205
hereof.

         In the event that any  Bondholder fails to  provide a  correct taxpayer
identification number to the Trustee, the Trustee may make a charge against such
holder sufficient to pay any governmental charge required to be paid as a result
of such failure. In compliance with Section 3406 of the Code, this amount may be
deducted by the Trustee from amounts payable to the Bondholder.

         On or after the delivery to the Trustee of the  Completion Certificate,
any  holder of a 2002 Bond  bearing a stated  principal  amount in excess of the
Principal  Amount  of said  Bond,  may  surrender  such Bond to the  Trustee  in
exchange  of a new  2002  Bond  having a stated  principal  amount  equal to the
Principal Amount of the Bond surrendered.

         Section 208.  ISSUANCE OF ADDITIONAL BONDS.

         (a)      Subject to the requirements of applicable  law, so long as the
Lease is in effect and the Lessee  shall not be in  default  thereunder,  one or
more series of  Additional  Bonds may be  authorized by resolution of the Issuer
and thereupon  issued and  delivered  for the purposes and under the  conditions
stated in this Section and in Section 4.2 of the Lease and upon  compliance with
the provisions of this Section and Section 4.2 of the Lease. Any such Additional
Bonds  shall  rank PARI PASSU  with the 2002  Bonds as to the  security  for the
payment thereof and interest thereon.

         (b)      Additional Bonds may be  issued at  any time and from time  to
time in one or more series for the purpose of: (i) financing  the  completion of
the  Project to the extent the  proceeds of the 2002 Bonds are  insufficient  to
provide  for  completion  of  the  Project,   (ii)  financing  any   extensions,
improvements,  repairs, renovations,  replacements or extensions of the Project,
including,   without  limitation,   the  acquisition  of  any  additional  land,
improvements,  equipment,  or other  real or  personal  property  in  connection
therewith  (collectively  herein  called  "Additional  Improvements"),  or (iii)
refunding all or any portion of any series of outstanding Bonds.

         (c)      Additional Bonds may be in such denomination or denominations,
shall bear interest  payable at such  intervals,  on such dates in each year, at
such rate or rates,  shall mature on such dates in such  amounts and years,  and
shall be in such form and may contain such  provisions for  redemption  prior to
maturity,  all as may be provided in the  resolution  under which such Bonds are
issued.

                                      -16-
<PAGE>

         (d)      The proceeds from the issuance of any  Additional  Bonds shall
be used  solely for the payment or  reimbursement  of the costs  (including  the
costs of  issuing  such  bonds,  legal  fees and other  related  costs)  for the
purposes described in subsection (b) of this Section.

         (e)      The Issuer may  execute  and deliver to  the  Trustee and  the
Trustee  shall  authenticate  and  deliver  Additional  Bonds  for the  purposes
specified above upon receipt by the Trustee of the following:

                  (1) A written statement of  the Lessee  executed on  behalf of
the Lessee by any Authorized  Lessee  Representative of the Lessee (i) approving
the  terms,  conditions,  manner  of  issuance,  purchase  price,  delivery  and
contemplated  disposition of the proceeds of the sale of such Additional  Bonds,
and (ii)  certifying  that no Default has occurred and is  continuing  under the
Lease or, to the best of such officer's knowledge, this Indenture;

                  (2) A copy, duly  certified  by  the  Secretary  or  Assistant
Secretary of the Issuer,  of the  resolution  adopted and approved by the Issuer
authorizing the issuance of such Additional Bonds and the execution and delivery
of the supplemental indenture providing for the terms and conditions under which
such Additional Bonds shall be issued,  together with an executed counterpart of
such supplemental indenture;

                  (3) A  separate  lease  or  an   executed  counterpart  of  an
amendment  of the Lease  expressly  providing  for the payment of rentals by the
Lessee in amounts  sufficient  to pay the  principal  of,  premium,  if any, and
interest on such Additional Bonds;

                  (4) Copies  of  Financing  Statements  filed  to  protect  the
security  interests  created in the  supplemental  indenture with respect to the
Additional Bonds;

                  (5) An  opinion of  Bond  Counsel  to  the  effect  that  this
Indenture,  as supplemented,  creates a valid lien on and pledge of the revenues
thereby conveyed and pledged,  and all filings and/or recordings of any document
required  in order to perfect and  preserve  such lien and pledge have been duly
accomplished.  The Trustee may rely on such  opinion as to the  sufficiency  and
filing of the Financing Statements referred to in (4) above;

                  (6) An opinion of Bond  Counsel  to the  effect  that  (i) the
issuance of such Additional Bonds has been duly authorized and the terms thereof
comply with the  requirements of this Indenture and the Constitution and laws of
the  State  of  Georgia;  (ii) all  conditions  precedent  provided  for in this
Indenture  relating to the  authentication and delivery of such Additional Bonds
have been  satisfied;  (iii) upon the issuance of such  Additional  Bonds,  they
shall be valid and binding obligations of the Issuer entitled to the benefits of
and secured by this Indenture;  and (iv) such other matters as may be reasonably
required by the Issuer or the Trustee; and

                  (7) A written  request and  authorization  to  the  Trustee on
behalf of the Issuer and signed by the Chairman or Vice  Chairman and  Secretary
of the Issuer to authenticate and

                                      -17-

<PAGE>

deliver such Additional Bonds to the purchaser or purchasers  therein identified
upon  payment to the  Trustee,  but for the  account of the  Issuer,  of the sum
specified  in such  request  and  authorization  plus  accrued  interest on such
Additional Bonds to the date of delivery thereof.

         The  proceeds  of  such  Additional  Bonds  shall be deposited with the
Trustee and held and  disbursed  by the Trustee as provided in the  supplemental
indenture providing for the issuance of such Additional Bonds.

         (f) The  Issuer shall assign  and pledge such separate or  supplemental
Lease and all  revenues  derived or to be derived  therefrom as security for the
payment of the Outstanding Bonds, including the Additional Bonds.

         (g) Any subsequent proceedings  authorizing the  issuance of Additional
Bonds,  including any supplemental  indenture as provided in this Section, shall
not conflict with the terms and provisions of this Indenture but shall,  for all
legal purposes, ratify and reaffirm all the applicable covenants, agreements and
provisions  of this  Indenture  for the  equal  protection  and  benefit  of all
Bondholders.

         (h) The Additional Bonds and  the security therefor  shall be validated
in accordance with the laws of the State of Georgia.

         Section 209. PAYMENT OF  2002  BONDS IN  INSTALLMENTS. Under  the  Bond
Purchase  Agreement,  the  Purchaser  is  required to make  certain  installment
payments with respect to the Bonds.  The 2002 Bonds shall be initially issued as
one Bond in the principal  amount of  $40,000,000,  provided that such principal
amount  may be  reduced  based  on the  aggregate  total  amount  of any and all
installment  payments made by the Purchaser in consideration of the sale of such
Bonds under and  pursuant to the Bond  Purchase  Agreement  during the  Purchase
Period.  If the  Trustee is holding the Bond,  the  Trustee  agrees that upon an
installment  payment  under the Bond  Purchase  Agreement it will endorse in the
space  provided on the table  attached to such Bond, the amount and date of each
such installment payment.

                                      -18-

<PAGE>
                                   ARTICLE III

                    REDEMPTION OF 2002 BONDS BEFORE MATURITY

         Section 301. OPTIONAL  REDEMPTION.  The  2002  Bonds  are   subject  to
optional  redemption  at the  direction  of the  Lessee  prior to  their  stated
maturity  in whole or in part at any time and from time to time at a  redemption
price equal to the  principal  amount of the Bonds to be redeemed,  plus accrued
interest to the redemption date. Notice of any such optional redemption shall be
given to the  Trustee by the Lessee not less than ten (10) days but no more than
sixty (60) days before the  redemption  date.  Any such notice for redemption in
part shall specify the principal amount of the Bonds to be redeemed.

         Section 302.  [INTENTIONALLY OMITTED].

         Section 303. NOTICE OF REDEMPTION.

         (a) Notice of  the  call for any such  redemption identifying  the 2002
Bonds  to be  redeemed  shall  be given  by the  Trustee  mailing  a copy of the
redemption  notice by first class mail,  postage  prepaid at least ten (10) days
but no more than sixty (60) days prior to the redemption  date to the registered
owner of each 2002 Bond to be redeemed at the address shown on the  registration
books.  Such  notice  must (i)  specify  the  2002  Bonds  to be  redeemed,  the
redemption  date, the redemption price and the place or places where amounts due
upon redemption must be payable and (ii) state that on the redemption  date, the
2002 Bonds to be redeemed will cease to bear interest;  provided,  however, that
failure to give such notice by mailing, or any defect therein,  shall not affect
the validity of any proceeding for the redemption of the 2002 Bonds.

         (b) In addition to  the foregoing notice, to the  extent the 2002 Bonds
are owned by five (5) or more  holders  who are not  Affiliates  of the  Lessee,
further notice shall be given by the Trustee as set out below,  but no defect in
said  further  notice nor any failure to give all or any portion of such further
notice shall in any manner defeat the  effectiveness of a call for redemption if
notice thereof is given as prescribed in subsection (a) above.

             (i) Each further notice of redemption given hereunder shall contain
the  information  required in  subsection  (a) above for an  official  notice of
redemption plus (1) the CUSIP numbers of all 2002 Bonds being redeemed, but only
to the extent any such numbers have been assigned;  (2) the date of issue of the
2002 Bonds as  originally  issued;  (3) the rate of interest  borne by each 2002
Bond being redeemed; (4) the maturity date of each 2002 Bond being redeemed; and
(5) any other  descriptive  information  needed to identify  accurately the 2002
Bonds being redeemed.

             (ii) Each further  notice of redemption  shall be sent at least two
Business Days before the  redemption  date by  registered  or certified  mail or
overnight  delivery  service  to  all  of the  following  registered  securities
custodians then in the business of holding  substantial  amounts of bonds of the
type  comprising the 2002 Bonds (such  custodians now being The Custodian  Trust

                                      -19-
<PAGE>

Company of New York,  New York,  Midwest  Securities  Trust  Company of Chicago,
Illinois and Philadelphia Custodian Trust Company of Philadelphia, Pennsylvania)
and to one or more national  information  services that  disseminate  notices of
redemption of bonds such as the 2002 Bonds (such as Financial Information Inc.'s
Financial  Daily  Called  Bond  Service,  Interactive  Data  Corporation's  Bond
Service,  Kenny Information  Service's Called Bond Service and Standard & Poor's
Called Bond Record).

         (c) Any   notice   sent  as  provided  in  this  Section 303  shall  be
conclusively  presumed to have been given whether or not the addressee  receives
such notice.

         Section 304. REDEMPTION  PAYMENTS.  Prior  to   the   date  fixed   for
redemption,  the  Lessee on behalf of the  Issuer  shall  place (or caused to be
placed) funds with the Trustee in the Bond Fund Redemption  Account,  sufficient
to pay the principal amount of the Bonds called for redemption, accrued interest
thereon to the redemption date and the required redemption premium, if any. Upon
the happening of the above  conditions,  the Bonds so designated  for redemption
shall, on the redemption  date designated in such notice,  become and be due and
payable as hereinabove  specified,  and from and after the date of redemption so
designated,  unless  default  shall  be  made in the  payment  of the  Bonds  so
designated  for  redemption,  interest on the Bonds so designated for redemption
shall  cease to  accrue,  and the same  shall no  longer  be  protected  by this
Indenture and shall not be deemed to be Outstanding under the provisions of this
Indenture.

         Section 305. PRINCIPAL AND  REDEMPTION PAYMENT CREDITS. Nothing  herein
contained  shall be  construed  to limit the right of the Issuer to purchase any
Bonds,  at the written  direction of the Lessee,  in the open  market,  with any
excess monies in the Bond Fund, at a price not  exceeding the  redemption  price
set forth in this Article,  as a credit against its Bond Fund principal  payment
obligations, or its redemption payment obligations.  Any such Bonds so purchased
may not be reissued and shall be disposed of as is hereinafter  provided in this
Indenture.

         Section 306. PARTIAL REDEMPTION. The 2002 Bonds may be redeemed in  any
denomination.  Upon  surrender of any 2002 Bond for redemption in part only, the
Issuer shall execute and the Authenticating Agent shall authenticate and deliver
to the holder  thereof a new 2002 Bond or 2002 Bonds of the same series and same
maturity,  in the aggregate  principal amount equal to the unredeemed portion of
the 2002  Bond  surrendered.  At the  option of any  Bondholder,  upon a partial
redemption  of a Bond,  the  Bondholder  may  endorse  on the  Table of  Partial
Redemptions  appearing  on such  Bond,  the  amount  and  date  of such  partial
redemption  and  shall  immediately  forward  a  written  confirmation  of  such
endorsement to the Trustee, unless the Trustee is holding such Bond on behalf of
such  owner,  in which case the  Trustee  shall make such  endorsement  upon the
payment  thereof;  and each  Bondholder,  by  acceptance  of its  Bonds,  hereby
indemnifies the Paying Agent and the Trustee,  and holds them harmless,  against
all damages,  claims,  actions or expenses  arising from such owner's failure to
make or forward notice of such endorsement.  In the event less than all the 2002
Bonds are to be  redeemed,  the Bonds to be  redeemed  shall be  redeemed in the
principal amount designated by the Lessee.

                                      -20-
<PAGE>

         Notwithstanding  anything  else  contained  herein, the  provisions  of
Sections  303,  304 or 306 hereof may be amended or modified  pursuant to a Home
Office  Payment  Agreement  entered into pursuant to Section  202(c) hereof with
respect  to some or all of the  Bonds  which  are  subject  to the terms of such
agreement.

         Section 307. CANCELLATION. All 2002  Bonds which  have been surrendered
for the purpose of payment  (including 2002 Bonds which have been redeemed prior
to maturity and those  voluntarily  surrendered with  instructions to cancel the
same) shall be  immediately  canceled  and  periodically  cremated or  otherwise
destroyed  by the  Trustee  and  shall not be  reissued,  and a  certificate  of
cremation or  destruction  evidencing  such  cremation or  destruction  shall be
furnished  by the  Trustee  to the  Issuer.  All  2002  Bonds  which  have  been
surrendered for  cancellation  prior to maturity or early redemption shall cease
to accrue  interest  on and after the  surrender  thereof  and the same shall no
longer be protected by this  Indenture and shall not be deemed to be Outstanding
under the provisions hereof.

                                      -21-

<PAGE>
                                   ARTICLE IV

                                GENERAL COVENANTS

         Section 401. PAYMENT OF PRINCIPAL  AND INTEREST. The  Issuer  covenants
that it will  promptly  pay the  principal  of  (whether at maturity or upon any
redemption or acceleration),  premium, if any, and interest on the 2002 Bonds at
the place,  on the dates,  and in the manner  provided herein and in the form of
the 2002 Bonds according to the true intent and meaning hereof and thereof.  The
principal of, premium, if any, and interest on the 2002 Bonds are payable solely
from rental  payments  and other  payments  received  from the Lessee  under the
Lease,  together with all other revenues,  rents, and earnings arising out of or
in  connection  with the  Issuer's  interest  in the  Project,  which  payments,
revenues,  rents and earnings (excepting those subject to the Unassigned Rights)
are hereby  specifically  pledged to the payment of principal of and interest on
the 2002 Bonds in the manner and to the extent herein  specified.  The principal
of, premium,  if any, and interest on the 2002 Bonds are payable solely from the
Bond Fund established pursuant to Section 502 hereof.

         Section 402. PERFORMANCE OF COVENANTS BY ISSUER. The  Issuer  covenants
that it will faithfully perform at all times any and all covenants,  agreements,
undertakings,  stipulations and provisions  contained in this Indenture,  in any
and every Bond, and in all  proceedings of the Issuer  pertaining  thereto.  The
Issuer warrants and represents that it is duly authorized under the Constitution
and laws of the State of  Georgia to issue the 2002 Bonds and to enter into this
Indenture and to assign the rental payments and other payments received from the
Lessee  under the Lease  together  with all other  revenues,  rents and earnings
arising out of or in  connection  with its interest in the Project in the manner
and to the extent herein set forth; that all action on its part for the issuance
of the  2002  Bonds  and  the  authorization,  execution  and  delivery  of this
Indenture has been duly and effectively  taken;  and that the 2002 Bonds are and
will be valid and enforceable obligations of the Issuer in accordance with their
terms.

         Section 403. OWNERSHIP;  INSTRUMENTS OF  FURTHER ASSURANCE. The  Issuer
covenants that it lawfully owns and is lawfully possessed of the Project,  or on
and as of the date of the Closing Date of the 2002 Bonds,  it will  lawfully own
and be possessed and have good and marketable  title in and to the Project.  The
Issuer  covenants that it will do, execute,  acknowledge and deliver or cause to
be done,  executed,  acknowledged and delivered,  such resolution or resolutions
supplemental  hereto and such further  acts,  instruments,  and transfers as the
Trustee or the holders of a majority in aggregate  principal amount of the Bonds
then  outstanding  may  reasonably  require  for the  better  giving,  granting,
pledging,  assigning,  conveying,   mortgaging,   transferring,   assuring,  and
confirming  unto Trustee for the benefit of the Bondholders all and singular the
rents and other payments under the Lease and other revenues, rents, and earnings
arising out of or in connection with the Issuer's  interest in the Project,  and
pledged hereby to the payment of the principal of and interest on the Bonds. The
Issuer covenants that,  except as herein and in the Lease provided,  it will not
sell,  convey,  mortgage,  encumber  or  otherwise  dispose  of any  part of the
Project.

                                      -22-
<PAGE>

         Section 404. PAYMENT  OF  TAXES AND  RELATED CHARGES. Pursuant  to  the
provisions of Section 6.3 of the Lease,  the Lessee has agreed to pay all lawful
taxes,  assessments,  and charges at any time levied or assessed upon or against
the  Project  which  might  impair or  prejudice  the lien and  priority of this
Indenture;  provided,  however, that nothing contained in this Section 404 shall
require the payment of any such taxes,  assessments  and charges not required to
be paid under Section 6.3 of the Lease.

         Section 405. MAINTENANCE AND  REPAIR. Pursuant  to  the  provisions  of
Section 6.1 of the Lease,  the Lessee has agreed at its own expense to cause the
Project to be  maintained,  preserved  and kept in  reasonably  good  condition,
repair, and working order, and that it will, from time to time, cause to be made
all needed repairs  thereto,  and that the Lessee may, at it own expense,  make,
from time to time,  additions,  modifications  and  improvements  to the Project
under the terms and conditions set forth in the Lease.

         Section 406. RECORDATION  OF  THE   FINANCING   STATEMENT.  The  Issuer
covenants  that it will cause such  financing  statements  as are  necessary  to
perfect the assignment of rentals to be received under the Lease (excepting only
any Unassigned  Rights), to the Trustee as security for the payment of principal
of and  interest  on the Bonds to be filed and  recorded  in the  records of the
office of the Clerk of the Superior Court of Fulton County, Georgia.

         Section 407. INSPECTION OF PROJECT BOOKS. The Issuer covenants that all
books and  documents  in its  possession  relating to the Project and the rents,
revenues  and earnings  derived  from the Project  shall at all times be open to
inspection by such accountant or other agents as the Trustee or the holders of a
majority in aggregate  principal  amount of the Bonds then outstanding may, from
time to time, designate.

         Section 408. PRIORITY OF PLEDGE. The pledge and  assignment herein made
of the rental  payments and other  payments  received  from the Lessee under the
Lease,  excepting  only any  Unassigned  Rights,  together with all other rents,
revenues and earnings arising out of or in connection with the Issuer's interest
in the Project,  is a first and prior  pledge  thereof and shall not be impaired
directly or indirectly  by the Issuer or the Trustee and neither such  payments,
rents,  revenues and  earnings  nor the Project or the Issuer's  interest in the
Lease  shall  otherwise  be pledged  and no person  shall  have any rights  with
respect thereto except as provided herein and in the Lease.

         Section 409. RIGHTS UNDER LEASE AND BOND PURCHASE AGREEMENT. The  Lease
sets forth the respective  obligations of the Issuer and the Lessee  relating to
the  acquisition,  construction,   installation  and  leasing  of  the  Project.
Reference  is  hereby  made  to  the  Lease  for a  detailed  statement  of  the
obligations and rights of the Lessee thereunder;  and the Issuer agrees that the
Trustee in its own name or in the name of the Issuer may  enforce  all rights of
the Issuer and all obligations of the Lessee under and pursuant to the Lease for
and on  behalf of the  owners  of the  Bonds,  whether  or not the  Issuer is in
default under the Lease or this Indenture.

         The Bond Purchase  Agreement sets  forth the respective  obligations of
the Issuer,  the Lessee and the Purchaser relating to the purchase of the Bonds.
Reference is hereby made to the

                                      -23-
<PAGE>

Bond Purchase  Agreement for a detailed  statement of the obligations and rights
of the  Purchaser  and the Lessee  thereunder;  and the Issuer  agrees  that the
Trustee in its own name or in the name of the Issuer may  enforce  all rights of
the  Issuer  and all  obligations  of the  Lessee  and the  Purchaser  under and
pursuant to the Bond  Purchase  Agreement for and on behalf of the owners of the
Bonds,  whether  or not  the  Issuer  is in  default  under  the  Lease  or this
Indenture.

         Section 410. PAYMENT  FOR  EXTRAORDINARY  EXPENSES.  Anything  to   the
contrary  herein or in the Lease  notwithstanding,  neither  the  Issuer nor the
Lessee  shall be liable for  payment of any  Extraordinary  Expenses  or for any
Extraordinary Services unless the same was approved in writing in advance by the
Lessee  pursuant to Section 506 hereof and  Section  5.3(b) of the Lease,  which
approval shall not be unreasonably withheld.

                                      -24-
<PAGE>

                                    ARTICLE V

                               REVENUES AND FUNDS

         SECTION 501. SOURCE OF PAYMENT OF BONDS. THE  OBLIGATION OF  THE ISSUER
TO PAY THE  PRINCIPAL  OF,  PREMIUM,  IF ANY, AND INTEREST ON THE BONDS IS NOT A
GENERAL  OBLIGATION OF THE ISSUER BUT IS A LIMITED OBLIGATION PAYABLE SOLELY OUT
OF THE BOND FUND FROM THE RENTAL  PAYMENTS AND OTHER PAYMENTS  RECEIVED FROM THE
LESSEE  UNDER THE LEASE,  EXCEPTING  ONLY  PAYMENTS  PURSUANT TO ANY  UNASSIGNED
RIGHTS,  TOGETHER WITH ALL OTHER RENTS, REVENUES, AND EARNINGS ARISING OUT OF OR
IN CONNECTION  WITH THE ISSUER'S  OWNERSHIP OF THE PROJECT AND AS AUTHORIZED AND
PROVIDED HEREIN.

         The  Project  has  been leased under the Lease and the  rental payments
provided  for in Section  5.3 of the Lease are to be paid to the Trustee for the
benefit of the Bondholders and are to be deposited in the Bond Fund provided for
in Section 502 hereof,  except as provided in any Home Office Payment Agreement.
Such rental  payments are sufficient in amount and become due in a timely manner
so as to insure the prompt  payment of the  principal of,  premium,  if any, and
interest on the Bonds.

         Section 502. CREATION OF THE BOND FUND; PLEDGE OF SAME. There is hereby
created by the Issuer and ordered  established  with the Trustee a trust fund to
be designated  "Development  Authority of Fulton County Bond Fund ADESA Atlanta,
LLC Project" which shall be used only to pay the principal of, premium,  if any,
and interest on the Bonds. There shall now be established within the Bond Fund a
Principal  and  Interest  Account  and  a  Redemption  Account;  such  Accounts,
together,  shall  comprise  the Bond Fund.  In  accordance  with the  provisions
hereof,  the Bond Fund is hereby  pledged to and charged with the payment of (i)
the interest on the Bonds as such  interest  shall  become due and payable,  and
(ii) the  principal  and premium,  if any, of the Bonds as the same shall become
due and payable.

         Section 503. PAYMENTS INTO THE BOND FUND. There  shall be paid into the
Principal and Interest  Account all rental payments  specified in Section 5.3(a)
of the  Lease.  There  shall be paid into the  Redemption  Account,  as and when
received, (a) all monies required to be remitted to the Trustee or paid into the
Bond Fund pursuant to Sections 5.3, 7.1 or 7.2 of the Lease,  and (b) all monies
required to be so  deposited  pursuant to Section 304 hereof.  All other  monies
received by the Trustee under and pursuant to any of the provisions of the Lease
or this Indenture shall be deposited into the Principal and Interest  Account or
the Redemption  Account in accordance with the direction  accompanying  any such
monies. The Issuer covenants that so long as any of the Bonds are outstanding it
will pay, or cause to be paid, into the Bond Fund from the available  sources of
payment  described in Section 501 hereof  sufficient  monies to pay promptly the
principal of, premium,  if any, and interest on the Bonds as the same become due
and payable.

         Section  504.  USE OF MONIES IN THE BOND FUND.  Except as  provided  in
Section 509 hereof, monies in the Bond Fund shall be used solely for the payment
of the principal of,  premium,  if any, and interest on the Bonds and redemption
price of Bonds redeemed prior to maturity.  No part of the rental payments under
the Lease required to be paid into the Bond Fund

                                      -25-

<PAGE>

(excluding  prepayments  under Section 9.5 of the Lease) shall be used to redeem
Bonds prior to maturity.  Monies held in the Redemption  Account may be used for
the purchase of Bonds in the manner provided in Section 305 hereof.

         Section 505. NON-PRESENTMENT OF BONDS. Unless  otherwise  provided in a
Home Office  Payment  Agreement,  if any Bond shall not be presented for payment
when the principal  thereof becomes due, either at maturity or at the redemption
date, provided monies sufficient to pay such Bond shall have been made available
to the  Trustee  and are held in the Bond  Fund for the  benefit  of the  holder
thereof,  all  liability of the Issuer to the holder  thereof for the payment of
such Bond shall forthwith  cease,  determine and be completely  discharged,  and
thereupon,  subject to Section  509(b) and the laws having to do with  unclaimed
property  in the State of  Georgia,  it shall be the duty of the Trustee to hold
such monies,  without  liability  for interest  thereon,  for the benefit of the
holder of such Bond who  shall  thereafter  be  restricted  exclusively  to such
monies for any claim of whatever  nature on his part under this Indenture or on,
or with respect to, such Bond.

         Section 506. FEES, CHARGES AND EXPENSES OF BOND AGENTS. Pursuant to the
terms of the Lease,  the Lessee has agreed to pay  directly  to each of the Bond
Agents, until the principal of, premium, if any, and interest on the Bonds shall
have been  paid in full:  (i) an amount  equal to the  annual  fees of such Bond
Agents, if any, for their Ordinary Services rendered and their Ordinary Expenses
incurred  under  this  Indenture,  and (ii) to the  extent  that  they have been
approved in writing by the Lessee,  the reasonable fees and charges of such Bond
Agents,  if any, for  Extraordinary  Services rendered by them and Extraordinary
Expenses incurred by them under this Indenture, as and when the same become due,
subject to the provisions of Section 410 hereof.  As specified in Section 5.3(b)
of the Lease, the Lessee may contest the validity,  necessity or  reasonableness
for any such Extraordinary  Services and Extraordinary  Expenses and the fees or
charges referred to therein.

         Section 507. MONIES TO BE HELD IN TRUST. All  monies  paid  over to the
Trustee for the account of the Bond Fund under any  provision of this  Indenture
shall be held in trust by the  Trustee  for the  benefit  of the  holders of the
Bonds entitled to be paid therefrom.

         Section 508. INSURANCE AND CONDEMNATION PROCEEDS. Reference  is  hereby
made to  Sections  7.1,  7.2  and  7.3 of the  Lease  for  provisions  as to the
disposition of net proceeds of insurance and condemnation awards.

         Section 509.  REPAYMENT TO THE LESSEE FROM THE BOND FUND.

         (a)      Any amounts remaining in  the Bond Fund after payment  in full
of all Bonds (taking into  consideration  that sufficient  monies or obligations
such as are described in Section 902 hereof must be retained in the Bond Fund to
pay all  principal of,  premium,  if any, and interest then due and payable with
respect to each Bond not yet  presented  for payment  and to pay all  principal,
premium,  if any,  and  interest  relating to each Bond which is not yet due and
payable but with respect to which the lien of this  Indenture  has been defeased
upon compliance  with Article IX hereof),  and after payment of all of the fees,
charges and expenses of the Bond Agents which have accrued and which will accrue
and all other items required to be paid hereunder,  if

                                      -26-

<PAGE>

any,  shall be paid to the Lessee upon the  expiration or sooner  termination of
the term of the Lease as provided in Article XI of the Lease.

         (b)      Any moneys held by the Trustee  in the Bond  Fund in trust for
the payment of the principal of or interest on any Bond remaining  unclaimed for
two years after such principal,  premium, if any, or interest has become due and
payable  shall  be paid  to the  Lessee,  and the  holder  of  such  Bond  shall
thereafter,  as an unsecured general  creditor,  look only to the Lessee for the
payment  thereof and all  liability  of the Trustee  with  respect to such trust
money shall thereupon cease.

                                      -27-
<PAGE>

                                   ARTICLE VI

                  CUSTODY AND APPLICATION OF PROCEEDS OF BONDS

         Section 601. DISPOSITION  OF  ACCRUED  INTEREST;  DISPOSITION  OF  BOND
PROCEEDS.  The  proceeds  from  the  sale  of  the  2002  Bonds  (including  all
installment payments made pursuant to the Bond Purchase Agreement) shall be paid
into the hereinafter defined Project Fund.

         Section 602.  PROJECT FUND; DISBURSEMENTS.

         (a)      A special fund  is  hereby created  by the  Issuer and ordered
established with the Trustee to be designated  "Development  Authority of Fulton
County Project Fund ADESA Atlanta, LLC Project."

         (b)      Monies in the Project  Fund shall  be disbursed in  accordance
with the Lease, particularly Section 4.3 thereof.

         (c)      All payments from the Project Fund shall  be  made as directed
by an Authorized Lessee Representative upon checks signed or wire transfers,  or
in  such  other  manner  as may be  provided  for in  any  Home  Office  Payment
Agreement.

         (d)      All monies in and all securities held  for the  credit of  the
Project  Fund shall be  subject to a lien and charge in favor of the  holders of
the Bonds and shall be held for the security of such  holders  until paid out in
the manner provided for hereinabove.

         (e)      The Trustee shall maintain adequate records  pertaining to the
Project  Fund and all  disbursements  therefrom,  and after the Project has been
completed  and the  Completion  Certificate  has been filed with the  Trustee as
provided in Section 603 hereof,  the Trustee  shall file an  accounting  thereof
with the Lessee.

         Section 603. COMPLETION AND OCCUPANCY OF  PROJECT. If  the  acquisition
and  installation of the Project has not occurred prior to the Closing Date, the
Completion  Date  shall  be  evidenced  to the  Issuer  and the  Trustee  by the
Completion  Certificate  executed and delivered by the Lessee in accordance with
Section 4.5 of the Lease.

         Section 604. SURPLUS MONEY IN PROJECT FUND. Upon receipt by the Trustee
of the Completion  Certificate  pursuant to Section 4.5 of the Lease, all monies
remaining in the Project  Fund  (including  monies  earned on  investments  made
pursuant to the provisions of Section 701 hereof),  except for amounts  retained
in the Project  Fund for the payment of Project  Costs not then due and payable,
shall be paid into the Bond Fund and used by the  Trustee for the payment of the
principal  of Bonds or for the  purchase  of the Bonds in the open market in the
manner provided under Article III hereof. Any amounts paid into the Project Fund
after  the  delivery  of the  Completion  Certificate  in  accordance  with  the
requirements  of Section 4.5 of the Lease,  except for  amounts  retained in the
Project Fund for the payment of Project Costs not then due and payable, shall be
used for the payment of the  principal  of the Bonds or for the  purchase of the

                                      -28-

<PAGE>

Bonds in the open market in the same manner heretofore  provided in this Section
for amounts remaining on the Completion Date.

                                      -29-
<PAGE>

                                   ARTICLE VII

                          INVESTMENTS; DEPOSIT OF FUNDS

         Section 701. PROJECT FUND INVESTMENTS. Any monies held as a part of the
Project Fund shall be invested in obligations  which are Permitted  Investments.
Such  investments  shall be made upon the  written  direction  of an  Authorized
Lessee  Representative.  Each  written  investment  direction  given  under this
Section shall include a certification that such investments constitute Permitted
Investments under the terms of this Indenture. Such investments shall be held by
or under the  control of the  Trustee and shall be deemed at all times a part of
the Project  Fund and the  interest  accruing  thereon and any profit  resulting
therefrom shall be credited to the Project Fund and any loss resulting therefrom
shall be charged to the Project Fund. The Trustee may make any such  investments
through its own  investment  department  or that of any Affiliate of the Trustee
and shall not have any liability for any loss resulting from any investment made
and administered in accordance with this Section.

         Section 702. BOND FUND INVESTMENTS. Monies  held   in  the  Bond   Fund
Redemption and Principal and Interest  Accounts shall, at the written  direction
of an  Authorized  Lessee  Representative,  be invested  and  reinvested  by the
Trustee in Permitted Investments in accordance with the treatment prescribed for
Project  Fund  monies in Section 701 hereof.  Investments  shall  mature at such
times and in such  amounts  as will  permit the  timely  payment of the  amounts
required  to be paid from the Bond Fund.  Such  investments  shall be held by or
under the  control of the Trustee and shall be deemed at all times a part of the
Redemption  Account or the Principal and Interest  Account,  as the case may be,
and the interest  accruing  thereon and any profit  realized  therefrom shall be
credited to the Redemption Account or the Principal and Interest Account, as the
case may be, and any loss resulting therefrom shall be charged to the Redemption
Account or the Principal and Interest  Account,  as the case may be. The Trustee
is directed to sell and convert to cash a sufficient  amount of such investments
in the Bond Fund  whenever  the cash held in the Bond  Fund is  insufficient  to
provide for the payment of the  principal  of (whether at the  maturity  date or
redemption date prior to maturity),  premium,  if any, and interest on the Bonds
as the same become due and  payable.  The Trustee may make any such  investments
through its own  investment  department  or that of any Affiliate of the Trustee
and  shall  not be  liable  for any  investment,  or the sale  thereof,  made in
accordance with the provisions of this Article VII.

         Section 703. DEPOSIT OF FUNDS. All  monies  received  by the  Issuer in
connection  with the issuance of the Bonds or otherwise  in  connection  with or
arising out of the Issuer's  interest in the Project shall be deposited with the
Trustee in accordance with the provisions of Article VI of this  Indenture.  All
monies  deposited  shall be  applied  in  accordance  with the terms and for the
purposes  herein set forth and shall not be subject to lien or attachment by any
creditor of the Issuer.

                                      -30-

<PAGE>
                                  ARTICLE VIII

                      SUBORDINATION TO RIGHTS OF THE LESSEE

         Section 801. SUBORDINATION TO RIGHTS OF THE LESSEE. This Indenture  and
the rights,  options and  privileges of the Trustee and the holders of the Bonds
hereunder and under the Lease, are specifically  made subject to and subordinate
to the rights, options, and privileges of the Lessee set forth in the Lease, and
the Lessee  shall be  suffered  and  permitted  to possess,  use,  and enjoy the
Project  and its  appurtenances  so as to carry  out its  obligations  under the
Lease.

         Section 802. RELEASE OF PORTIONS OF THE PROJECT. Reference  is  made to
the provisions of the Lease,  including,  without  limitation,  Sections 6.2 and
11.2 thereof,  wherein the Lessee has been granted the right to remove,  dispose
of and/or acquire certain portions of the Project upon compliance with the terms
and  conditions  of the Lease.  The Issuer and the Lessee have agreed  under the
Lease that upon  compliance  with the  conditions  applicable  to the release of
certain  portions of the  Project,  any such  portions of the Project  which are
released  shall  automatically  cease to be  subject  to the Lease and by virtue
thereof this Indenture and shall be released  therefrom and herefrom without the
necessity of any further  action by the Issuer,  the Lessee,  the Trustee or any
other Person.

         Section 803. RELEASE OF EQUIPMENT. Reference is  made to the provisions
of the Lease, including,  without limitation,  Section 6.2 thereof,  wherein the
Lessee has been granted the right to remove from the Project  items of Equipment
upon compliance  with the terms and conditions of the Lease.  The Issuer and the
Lessee  have agreed  under the Lease that upon  compliance  with the  conditions
applicable  to the release of items of  Equipment,  any such items of  Equipment
which are released shall  automatically  cease to be subject to the Lease and by
virtue  thereof  this  Indenture  and shall be released  therefrom  and herefrom
without the  necessity  of any further  action by the  Issuer,  the Lessee,  the
Trustee or any other Person.

         Section 804. GRANTING OF EASEMENTS. Reference is made to the provisions
of the Lease, including,  without limitation,  Section 8.5 thereof,  wherein the
Lessee  has  reserved  the right to grant or  release  easements  and take other
action upon  compliance  with the terms and conditions of the Lease.  The Issuer
agrees to confirm in writing any action  taken by the Lessee  under said Section
8.5 upon compliance with the provisions of the Lease.

         Section 805. FURTHER ASSURANCES. The Trustee, at the written request of
the Issuer or the Lessee,  shall (i)  confirm in writing  that all rights to and
liens on the Project or any part thereof  which may be released  pursuant to the
terms of the Lease which may be afforded under this Indenture  shall be released
and terminated  upon  compliance with the terms of the Lease and (ii) execute or
cause to be executed any and all instruments  reasonably requested by the Issuer
or the Lessee to  effectuate a conveyance  of the Project or any part thereof or
the release of any lien or security interest therein.

                                      -31-

<PAGE>
                                   ARTICLE IX

                                DISCHARGE OF LIEN

         Section 901. DISCHARGE OF LIEN. If the Issuer shall  pay or cause to be
paid the principal of,  premium,  if any, and interest on the Bonds at the times
and in the manner stipulated  therein and herein,  and if the Issuer shall keep,
perform and observe all and singular the covenants  and  agreements in the Bonds
and in this Indenture  expressed as to be kept,  performed and observed by it or
on its part, then the lien of this Indenture shall cease, determine and be void.
The Trustee shall thereupon  execute and deliver to the Issuer such  instruments
in writing as shall be required to evidence the same, and reconvey to the Issuer
the Trust  Estate,  and  assign  and  deliver to the Issuer so much of the Trust
Estate as may be in its possession or subject to its control,  except for monies
and securities  held in the Bond Fund for the purpose of paying Bonds which have
not yet been  presented for payment and monies and  obligations in the Bond Fund
required to be paid to the Lessee pursuant to Section 509 hereof.

         Section 902. PROVISION FOR PAYMENT OF BONDS. The Bonds shall  be deemed
to have been paid within the meaning of Section 901 hereof if:

         (a)      (1) there shall have been irrevocably deposited into  the Bond
Fund or in a separate escrow fund expressly  created for such purpose either (i)
monies in an amount,  and/or (ii)  Governmental  Obligations  the  principal of,
premium,  if any,  and  interest on which when due,  will  provide  monies in an
amount which, without further investment or reinvestment,  and together with the
monies,  if any,  deposited  with or held by the  Trustee  at the same  time and
available for such purpose  pursuant to this  Indenture,  shall be sufficient to
pay the  principal  of and  interest due and to become due on the Bonds at their
respective  maturities  (as  evidenced by a  certification  to such effect by an
Independent Auditor delivered to the Trustee), and there shall have been paid to
each of the Bond  Agents  all of the fees and  expenses  due or to become due to
such parties,  in connection with the discharge of their respective  obligations
in connection  with the payment or redemption  of the Bonds,  or otherwise  with
respect thereto, or there shall have been made arrangements satisfactory to said
Bond  Agents for such  payment  or (2) there  shall  have been  surrendered  for
cancellation  all  outstanding  Bonds in accordance  with Section  9.6(c) of the
Lease; and

         (b)      in case the Bonds are to be redeemed prior to  their maturity,
the Issuer shall have given to the Trustee in form  satisfactory  to the Trustee
irrevocable  instructions to redeem the Bonds on the date or dates indicated and
either evidence satisfactory to the Trustee that all redemption notices required
hereunder have been given or irrevocable  power  authorizing the Trustee to give
such redemption notices. As a condition to any such payment,  the Trustee in its
discretion may require the delivery of a certification by an Independent Auditor
of the  sufficiency  of any such deposit,  provided  that no such  certification
shall  be  required  if all of the  Bonds  are  held by the  Lessee  and/or  its
Affiliates.

                                      -32-
<PAGE>

                                    ARTICLE X

                 DEFAULT PROVISIONS AND REMEDIES OF BONDHOLDERS

         Section 1001. DEFAULTS.  If  any  of  the  following   events   occurs,
subject  to the  terms of  Section  1007  hereof,  it is hereby  defined  as and
declared to be and to constitute an "Event of Default" under this Indenture:

         (a)      default in the due and punctual payment of any interest on any
Bond and the  continuance  of such default for a period of thirty (30)  calendar
days; or

         (b)      default in the due and punctual payment of the principal of or
redemption  premium,  if any, on any Bond,  whether at the maturity  date or the
redemption  date prior to maturity  and the  continuance  of such  default for a
period of thirty (30) calendar days; or

         (c)      default in the performance or observance of  any other of  the
covenants,  agreements,  or  conditions  on the part of the  Issuer  under  this
Indenture or in the Bonds contained; or

         (d)      the  occurrence of  any event  of default  under the  Lease as
provided in Section 10.1 thereof and receipt by the Trustee of a written request
to  accelerate  the  principal  amount of the Bonds  then  Outstanding  from the
holders  of more  than 50% in  aggregate  principal  amount  of the  Bonds  then
Outstanding;  provided  that no such written  request shall be required upon the
occurrence of an event of default under  subsections  (d) or (e) of Section 10.1
of the Lease.

         Section 1002. ACCELERATION. Upon   the  occurrence   and    during  the
continuance of any Event of Default hereunder, the Trustee may, and upon receipt
of written instructions from the holders of more than 50% in aggregate principal
amount of Bonds then  outstanding,  shall, by notice in writing delivered to the
Issuer,  declare the principal of all Bonds and the interest  accrued thereon to
the date of such  acceleration to be immediately  due and payable,  and the same
shall thereupon  become and be immediately due and payable;  provided,  however,
the Bonds then Outstanding  shall be accelerated  automatically  and without the
necessity  of any  declaration  or the  taking  of any  other  action  upon  the
occurrence of an event of default under subsection (d) or (e) of Section 10.1 of
the Lease.

         Section 1003. OTHER  REMEDIES. Upon  the  occurrence  and   during  the
continuance of any Event of Default hereunder,  the Trustee shall have the power
to proceed with any right or remedy granted under the Lease  Documents or by the
Constitution  and laws of the State of Georgia,  as it may deem best,  including
any suit,  action or  special  proceeding  in equity or at law for the  specific
performance of any covenant or agreement contained herein or for the enforcement
of any proper legal or equitable remedy as the Trustee shall deem most effectual
to protect the rights  aforesaid,  insofar as such may be authorized by law, and
the right to the  appointment,  as a matter of right and  without  regard to the
sufficiency of the security  afforded by the Trust Estate, of a receiver for all
or any part of the Trust Estate. In the event all the 2002 Bonds are held by the
Purchaser or one or more Affiliates of the Purchaser, the Trustee shall exercise
no rights or

                                      -33-
<PAGE>

remedies  and shall not  authorize  the Issuer to  exercise  any right or remedy
without  providing  such holders at least five Business  Days'  advance  written
notice thereof.  In the event the holders of at least 50% in aggregate principal
amount of said Bonds instruct the Trustee and the Issuer to take no action,  the
Trustee and the Issuer  shall comply with such  instructions  and shall incur no
liability as a result of such  compliance.  The rights here  specified are to be
cumulative  to all other  available  rights,  remedies,  or powers and shall not
exclude any such  rights,  remedies or powers.  Without  intending  to limit the
foregoing  rights,  remedies  and  powers by virtue of such  specification,  the
Trustee is authorized to further assign the Issuer's  right,  title and interest
in the Lease to a third party,  provided that the Trustee shall provide  written
notice of such  assignment  to the Issuer at least one business day prior to the
effective date of any such assignment.

         Section 1004. RIGHTS OF BONDHOLDERS. Upon the occurrence  of any  Event
of  Default  and if  requested  to do so by the  holders  of  more  than  50% in
principal amount of the Bonds Outstanding and indemnified as provided in Section
1301(m)  hereof,  the  Trustee  shall be obliged  to  exercise  such  rights and
remedies  conferred by this  Indenture and the Lease as the holders of the Bonds
shall have instructed the Trustee, subject to the following:

         (a)      No right or remedy by the  terms of  this Indenture  conferred
upon or  reserved  to the  Trustee or the holders of the Bonds is intended to be
exclusive of any other right or remedy, but each and every such right and remedy
shall be cumulative  and shall be in addition to any other right or remedy given
to the  Bondholders  or now or  hereafter  existing  at law,  in  equity,  or by
statute.

         (b)      No delay or omission to exercise any right or remedy  accruing
upon any Event of  Default  hereunder  shall  impair any such right or remedy or
shall be construed  to be a waiver of any such Event of Default or  acquiescence
therein;  and every such right and remedy may be exercised from time to time and
as often as may be deemed expedient.

         (c)      No waiver of any Event of Default hereunder shall extend to or
shall  affect any  subsequent  Event of  Default  or shall  impair any rights or
remedies consequent thereon.

         Section 1005. APPLICATION OF MONIES.

         (a)      All monies received pursuant to  any  right  given  or  action
taken under the provisions of this Article and any monies available in the funds
and accounts  shall,  after payment of the costs and expenses of the proceedings
resulting in the collection of such monies and of the expenses,  liabilities and
advances  incurred or made by the Trustee in connection  therewith and all other
amounts  due and  payable  to the  Trustee  hereunder  or under  the  Lease,  be
deposited in the Principal and Interest  Account,  on a pro rata basis,  and all
monies in the Bond Fund shall be applied as follows:

                  (i)     Unless the principal  of  all  the  Bonds  shall  have
become or shall have been  declared  due and  payable,  all such monies shall be
applied by the Trustee:

                                      -34-

<PAGE>

                           First - To  the  payment  to   the  Persons  entitled
thereto  of all  installments  of  interest  then due on the Bonds  (other  than
installments of interest on Bonds with respect to the payment of which monies or
securities  are set  aside in the  respective  Bond  Fund),  in the order of the
maturity of the installments of such interest and, if the amount available shall
not be sufficient to pay in full any particular installment, then to the payment
ratably,  according  to the  amounts  due on such  installment,  to the  Persons
entitled thereto, without any discrimination or privilege; and

                           Second - To  the  payment  to  the  Persons  entitled
thereto of the unpaid  principal of any of the Bonds which shall have become due
(other than  principal  of Bonds with  respect to the payment of which monies or
securities  are set aside in the Bond  Fund),  in the order of their due  dates,
with interest on such Bonds from the respective dates upon which they become due
and, if the amount available shall not be sufficient to pay in full Bonds due on
any particular date,  together with such interest,  then to the payment ratably,
according to the amount of principal due on such date,  to the Persons  entitled
thereto without any discrimination or privilege.

                  (ii)     If the principal of all the Bonds  shall have  become
due or shall  have been  declared  due and  payable,  all such  monies  shall be
applied to the payment of the  principal  and interest  then due and unpaid upon
the Bonds  (other than  principal  of and  interest on Bonds with respect to the
payment of which monies or securities  are set aside in the Bond Fund),  without
preference or priority of principal  and interest one over the other,  or of any
installment of interest over any other  installment of interest,  or of any Bond
over any other Bond,  ratably,  according  to the amounts due  respectively  for
principal  and  interest,   to  the  Persons   entitled   thereto   without  any
discrimination or privilege.

If the principal of all the Bonds shall have been declared due and payable,  and
if such declaration  shall thereafter have been rescinded and annulled under the
provisions of this Article then,  subject to the provisions of paragraph (ii) of
this  subsection  (a),  in the event that the  principal  of all the Bonds shall
later become due or be declared due and payable,  the monies shall be applied in
accordance with the provisions of paragraph (i) of this subsection (a).

         (b)      Whenever monies are to  be applied pursuant to  the provisions
of this  Section,  such monies shall be applied at such times,  and from time to
time,  as the Trustee shall  determine,  having due regard to the amount of such
monies  available  for  application  and the  likelihood  of  additional  monies
becoming  available  for such  application  in the future.  Whenever the Trustee
shall  apply  such  funds,  it shall fix the date  (which  shall be an  interest
payment date unless it shall deem another  date more  suitable)  upon which such
application  is to be made  and  upon  such  date  interest  on the  amounts  of
principal to be paid on such dates shall cease to accrue. The Trustee shall give
such notice as it may deem appropriate of the deposit with it of any such monies
and of the fixing of any such date, and shall not be required to make payment to
the holder of any Bond until such Bond shall be  presented  to the  Trustee  for
appropriate endorsement or for cancellation if paid in full.

                                      -35-
<PAGE>

         (c)      Whenever all Bonds and interest thereon have been  paid  under
the  provisions of this Section and all expenses and charges of the Bond Agents,
if any, have been paid, any balance  remaining in the Bond Fund shall be paid to
the Lessee as provided in Section 509 hereof.

         Section 1006. TERMINATION OF PROCEEDINGS. In  case  the Trustee  or any
Bondholder  shall  have  proceeded  to  enforce  any right or remedy  under this
Indenture by the  appointment of a receiver,  by entry,  or otherwise,  and such
proceedings  shall have been  discontinued or abandoned for any reason, or shall
have been  determined  adversely,  then and in every such case the  Issuer,  the
Trustee and the  Bondholders  shall be restored to their  former  positions  and
rights hereunder with respect to the Trust Estate, and all rights,  remedies and
powers  of  the  Trustee  and  the  Bondholders  shall  continue  as if no  such
proceedings had been taken.

         Section 1007.  NOTICE OF EVENTS OF DEFAULT; OPPORTUNITY  OF THE  ISSUER
AND LESSEE TO CURE DEFAULTS.

         (a)      No Event  of  Default specified in  subsection  1001(c) hereof
shall  constitute  an Event of Default  hereunder  until notice of such Event of
Default by  registered  or  certified  mail shall be given by the Trustee to the
Issuer  and the  Lessee,  and the Issuer  shall have had thirty  (30) days after
receipt of such  notice to correct  said Event of Default or cause said Event of
Default to be corrected,  and the Issuer shall not have  corrected said Event of
Default or caused said Event of Default to be  corrected  within the  applicable
period;  provided  further,  that  if an  Event  of  Default  specified  in said
subsection  1001(c) be such that it can be  corrected  but not within the period
specified  herein,  it shall not  constitute  the  basis of an Event of  Default
hereunder if  corrective  action  capable of remedying  such Event of Default is
instituted by the Issuer within the  applicable  period and  diligently  pursued
until the Event of Default is  corrected,  unless,  by such action,  the lien or
charge hereof on any part of the Trust Estate shall be materially  endangered or
the Project or the revenue  therefrom  or any part  thereof  shall be subject to
loss or forfeiture.

         (b)      With regard to any Event of Default concerning which notice is
given to the Lessee or the Issuer under the provisions of this Section 1007, the
Issuer hereby grants to the Lessee full  authority to perform any obligation the
performance  of which by the Issuer is alleged in such  notice to be in default,
such  performance  by the Lessee to be in the name and stead of the Issuer  with
full power to do any and all things and acts to the same  extent that the Issuer
could do and perform any such things and acts and with power of substitution.

         Section 1008. WAIVERS OF EVENTS OF DEFAULT. The Trustee (a) may  in its
discretion waive any Event of Default hereunder and its consequences and rescind
any acceleration of maturity of principal and its consequences, if such Event of
Default  has been cured and there is no longer  continuing  any Event of Default
hereunder,  and  (b)  shall  waive  any  Event  of  Default  hereunder  and  its
consequences  and rescind any  acceleration  of maturity of principal,  upon the
written  request of the owners of a majority  in  principal  amount of the Bonds
outstanding;  provided, however, that there shall not be waived (i) any Event of
Default  pertaining to the payment of the  principal or premium,  if any, of any
Bond at its maturity date or any prepayment date prior to maturity,  or (ii) any
Event of Default pertaining to the payment when due of the interest on any Bond,
unless  prior to such  waiver or  rescission,  all  arrears  of  principal  (due
otherwise  than by

                                      -36-
<PAGE>

acceleration)  and interest,  with interest (to the extent  permitted by law) at
the rate borne by the Bonds on overdue  installments of principal,  premium,  if
any, and interest and all arrears of payments of principal when due, as the case
may be,  and all  expenses  of the  Trustee  in  connection  with such  Event of
Default, shall have been paid or provided for, and in case of any such waiver or
rescission,  or in case any  proceeding  taken by the  Trustee on account of any
such Event of Default  shall have been  discontinued  or abandoned or determined
adversely, then and in every such case the Issuer, the Trustee and the owners of
the Bonds shall be  restored  to their  former  positions  and rights  hereunder
respectively, but no such waiver or rescission shall extend to any subsequent or
other Event of Default, or impair any right consequent thereon.

         Section 1009. RIGHT  OF  HOLDERS OF THE  BONDS  TO  DIRECT PROCEEDINGS.
Anything in this Indenture to the contrary  notwithstanding,  but subject to the
provisions of Section 1301(m) hereof,  the owners of not less than a majority in
principal amount of Bonds  outstanding  shall have the right, at any time, by an
instrument or instruments in writing  executed and delivered to the Trustee,  to
direct  the  method  and  place of  conducting  all  proceedings  to be taken in
connection  with the  enforcement of the terms and conditions of this Indenture,
or for  the  appointment  of a  receiver  or any  other  proceedings  hereunder;
provided, that such direction shall not be otherwise than in accordance with the
provisions of law and of this Indenture.

         Section 1010. RIGHTS AND REMEDIES  VESTED IN  TRUSTEE. Subject  to  the
provisions of Section 1004, all rights and remedies (including the right to file
proof of claims) under this  Indenture or under any of the Bonds may be enforced
by the Trustee  without  the  possession  of any of the Bonds or the  production
thereof in any trial or other proceedings  relating thereto and any such suit or
proceeding  instituted  by the  Trustee  shall be brought in its name as Trustee
without the necessity of joining as  plaintiffs or defendants  any owners of the
Bonds, and any recovery of judgment shall be for the equal benefit of the owners
of the Bonds.

         Section 1011. RIGHTS AND REMEDIES OF OWNERS OF THE BONDS. No  owner  of
any Bonds shall have any right to institute  any suit,  action or  proceeding in
equity or at law for the enforcement of this Indenture, for the execution of any
trust thereof or for the appointment of a receiver or to enforce any other right
or  remedy  hereunder,  unless an Event of  Default  has  occurred  of which the
Trustee has been notified as provided in subsection  (h) of Section 1301 hereof,
or of which by said  subsection  it is deemed to have notice,  and the owners of
not less than a majority in  principal  amount of Bonds  outstanding  shall have
made  written  request  to  the  Trustee  and  shall  have  offered   reasonable
opportunity either to proceed to exercise the powers hereinbefore  granted or to
institute such action,  suit or proceeding in its own name, nor unless also such
owners have offered to the Trustee indemnity as provided in Section 1301 hereof,
nor unless  also the Trustee  shall  thereafter  fail or refuse to exercise  the
powers hereinbefore  granted, or to institute such action, suit or proceeding in
its,  his or their own name or names.  Such  notification,  request and offer of
indemnity  are hereby  declared in every case at the option of the Trustee to be
conditions precedent to the execution of the powers and trusts of this Indenture
and to any action or cause of action for the enforcement of this  Indenture,  or
for the appointment of a receiver or for any other right or remedy hereunder; it
being understood and intended that no one or more owners of the Bonds shall have
any right in any manner  whatsoever to affect,  disturb or prejudice the lien of
this  Indenture  by its,  his or their  action or to enforce any right or remedy

                                      -37-

<PAGE>

hereunder except in the manner herein provided,  and that all proceedings at law
or in equity  shall be  instituted,  had and  maintained  in the  manner  herein
provided and for the equal  benefit of the owners of all Bonds.  Nothing in this
Indenture contained shall,  however,  affect or impair the right of any owner of
the Bonds to enforce the  payment of the  principal  of,  premium,  if any,  and
interest on any Bond at and after the maturity thereof, or the obligation of the
Issuer to pay the  principal  of,  premium,  if any, and interest on each of the
Bonds issued hereunder to the respective  owners hereof at the time, place, from
the source and in the manner expressed in the Bonds.

                                      -38-


<PAGE>

                                   ARTICLE XI

                             SUPPLEMENTAL INDENTURES

         Section 1101. SUPPLEMENTAL  INDENTURES   NOT   REQUIRING   CONSENT   OF
BONDHOLDERS.  The Issuer  may,  without the consent of, or notice to, any of the
Bondholders,  adopt an indenture or indentures supplemental to this Indenture as
shall not be  inconsistent  with the terms and provisions  hereof for any one or
more of the following purposes:

                  (a)     to cure any ambiguity or formal defect or  omission in
this Indenture;

                  (b)     to  grant  to  or  confer  for  the  benefit  of   the
Bondholders  any additional  rights,  remedies,  powers or authorities  that may
lawfully be granted to or conferred upon the Bondholders;

                  (c)     to subject to the lien and  pledge of  this  Indenture
additional rents, revenues, receipts, properties or collateral;

                  (d)     to issue and to secure the payment of Additional Bonds
as provided in Section 208 hereof; and

                  (e)     in connection  with any  other  changes  hereto  which
shall be deemed necessary or desirable for the purpose of modifying or altering,
amending,  adding  to or  rescinding,  in any  particular,  any of the  terms or
provisions  contained  herein  which  do  not  prejudice  the  interests  of the
Bondholders.

         Section 1102. SUPPLEMENTAL INDENTURES REQUIRING CONSENT OF BONDHOLDERS.
Exclusive of supplemental  indentures covered by Section 1101 hereof and subject
to the terms and provisions  contained in this Section,  and not otherwise,  the
holders of not less than two-thirds  (2/3) in principal amount of the Bonds then
outstanding shall have the right, from time to time,  anything contained in this
Indenture  to the  contrary  notwithstanding,  to  consent  to and  approve  the
adoption by the Issuer of such other indenture or indentures supplemental hereto
as shall be deemed  necessary  or  desirable  by the Issuer  for the  purpose of
modifying,  altering,  amending, adding to or rescinding, in any particular, any
of the terms or provisions  contained in this  Indenture or in any  supplemental
indenture;  provided,  however, that nothing in this Section shall permit, or be
construed as permitting  (in each case,  without the consent of the  Bondholders
affected thereby):

         (a)      an extension of the maturity date on which  the principal  of,
premium, if any, or interest on any Bond is, or is to become, due and payable;

         (b)      a reduction in the principal amount of any Bond or  Bonds, the
rate of interest thereon, or any redemption premium;

         (c)      a privilege or priority  of  any  Bond or Bonds over any other
Bond or Bonds;

                                      -39-

<PAGE>

         (d)      a reduction in the principal amount of the  Bonds required for
consent to any supplemental indenture;

         (e)      an alteration of the date fixed in  any  of the Bonds for  the
payment of the principal of,  premium,  if any, or interest on any Bond or other
modification of the terms of payment of the principal at maturity of or interest
or redemption  premium, if any, on any Bond or imposition of any conditions with
respect to such  payment or  adversely  affecting  the right of the owner of any
Bond, which is absolute and unconditional, to institute suit for the enforcement
of any such payment as provided herein;

         (f)      any action affecting the rights of the owners of less than all
of the Bonds then outstanding;

         (g)      any action to increase the percentage of the principal  amount
of Bonds the  action of the owners of which  shall be  required  to declare  all
outstanding  Bonds to be due pursuant to the  provisions of Section 1002 hereof;
or

         (h)      the creation of any lien or charge on any of  the Trust Estate
prior to or  superior  to the lien or  charge  created  on the  Trust  Estate as
security for the payment of the Bonds and any Additional  Bonds hereafter issued
pursuant to the provisions of this Indenture.

         If the  Issuer  shall  request  the  Trustee  to  enter  into  any such
supplemental  indenture for any of the purposes of this Section, upon receipt of
satisfactory  indemnity with respect to the expenses to be incurred, the Trustee
shall cause notice of the proposed  execution of such supplemental  indenture to
be given in writing by  registered  or  certified  mail  postage  prepaid to the
registered owners of all Bonds Outstanding.  Such notice shall briefly set forth
the nature of the proposed  supplemental  indenture  and shall state that copies
thereof are on file at the principal office of the Trustee for inspection by all
Bondholders.  If,  within  sixty (60) days,  or such  longer  period as shall be
prescribed by the Issuer,  following the mailing of such notice,  the holders of
not less than  two-thirds  (2/3) in  principal  amount of the Bonds  shall  have
consented to and approved the execution of such supplemental indenture as herein
provided,  no  holder of any Bond  shall  have the right to object to any of the
terms and provisions  contained  therein,  or the operation  thereof,  or in any
manner to question  the  propriety  of the  execution  thereof,  or to enjoin or
restrain the Issuer from  executing the same or from taking any action  pursuant
to the provisions thereof. Upon the execution of any such supplemental indenture
as in this Section permitted and provided,  this Indenture shall be modified and
amended in accordance therewith.

         Anything  herein  to  the  contrary  notwithstanding,   a  supplemental
indenture under this Article XI shall not become  effective unless and until the
Lessee shall have  consented to the execution and delivery of such  supplemental
indenture.  In this  regard,  the  Trustee  shall cause  notice of the  proposed
execution and delivery of any such supplemental  indenture  together with a copy
of the  proposed  supplemental  indenture to be delivered to the Lessee at least
fifteen  (15)  days  prior  to the  proposed  date  of  execution  of  any  such
supplemental indenture.

                                      -40-

<PAGE>

         Section 1103. EXECUTION OF SUPPLEMENTAL INDENTURES. As a  condition  to
executing any  supplemental  indenture  pursuant to this Article XI, the Trustee
shall be  entitled to receive,  and shall be fully  protected  in relying on, an
opinion of Counsel  stating that the  supplemental  indenture is authorized  and
permitted  by this  Indenture  and all  conditions  precedent  to the  execution
thereof have been  satisfied.  The Trustee  may, but shall not be obligated  to,
enter into any such  supplemental  indenture  that  affects  the  Trustee's  own
rights, duties, or immunities under this Indenture or otherwise.

                                      -41-

<PAGE>

                                   ARTICLE XII

                          AMENDMENT OF LEASE DOCUMENTS

         Section 1201. AMENDMENTS TO  LEASE  DOCUMENTS NOT  REQUIRING CONSENT OF
BONDHOLDERS. Any amendment, change or modification of the Lease Documents as may
be required (i) by the provisions of the Lease or this  Indenture,  (ii) for the
purpose  of curing  any  ambiguity  or formal  defect or  omission  in the Lease
Documents,  (iii) in  connection  with the  property  included in the Project as
described and defined in the Lease so as to more precisely  identify the same or
substitute  additional  property  acquired  with the  proceeds  of the  Bonds in
accordance  with the  provisions  of  Sections  4.2(b)  and 6.2 of the  Lease or
release  portions  of the Project  pursuant  to the terms of the Lease,  (iv) in
connection  with additional real estate which pursuant to the Lease is to become
part of the Land or (v) in connection with any other changes thereto which shall
be deemed necessary or desirable and which do not prejudice the interests of the
Bondholders,  may be  effected  without  the  consent  of,  or  notice  to,  the
Bondholders.

         Section 1202. AMENDMENTS  TO  LEASE  DOCUMENTS  REQUIRING  CONSENT   OF
BONDHOLDERS.  Except for the amendments, changes or modifications as provided in
Section  1201  hereof,  no  amendment,  change,  or  modification  of the  Lease
Documents  shall be effected  unless the Trustee has given notice thereof to the
Bondholders  and has received the written  approval or consent of the holders of
not less  than  two-thirds  (2/3) in  principal  amount of the Bonds at the time
Outstanding  in the manner set forth in Section 1102 hereof.  If at any time the
Issuer and the Lessee shall desire to effect any proposed  amendment,  change or
modification  of any of the Lease  Documents,  the Trustee shall cause notice of
such proposed amendment,  change or modification to be mailed in the same manner
as  provided  by Section  1102  hereof  with  respect to  proposed  supplemental
indentures.  Such notice  shall  briefly  set forth the nature of such  proposed
amendment,  change or modification and shall state that copies of the instrument
embodying  the same  are on file at the  principal  office  of the  Trustee  for
inspection by Bondholders.

                                      -42-

<PAGE>

                                  ARTICLE XIII

                                   THE TRUSTEE

         Section 1301. ACCEPTANCE OF THE TRUSTS. The Trustee  hereby accepts the
trusts  imposed  upon it by this  Indenture,  but only upon and  subject  to the
following express terms and conditions:

         (a)      The Trustee, prior to the occurrence  of an  Event of  Default
and  after  the  curing  of all  Events  of  Default  which  may have  occurred,
undertakes to perform such duties and only such duties as are  specifically  set
forth in this Indenture,  and no implied  covenants or obligations shall be read
into this Indenture against the Trustee. Following the occurrence of an Event of
Default  and prior to the curing of all Events of  Default,  the  Trustee  shall
exercise such of the rights and powers vested in it by this  Indenture,  and use
the same  degree of care and  skill in their  exercise,  as a prudent  man would
exercise or use under the circumstances in the conduct of his own affairs.

         (b)      The Trustee may execute any of the trusts or powers hereof and
perform  any of  its  duties  by or  through  attorneys,  agents,  receivers  or
employees but shall be answerable for the conduct of the same in accordance with
the  standard  specified  above,  and shall be  entitled  to  advice of  Counsel
concerning all matters of trust hereof and the duties hereunder,  and may in all
cases pay such reasonable compensation to all such attorneys,  agents, receivers
and  employees  as may  reasonably  be  employed in  connection  with the trusts
hereof.  The Trustee may act upon the opinion or advice of any attorney (who may
be the  attorney or  attorneys  for the Issuer or the  Lessee),  approved by the
Trustee in the exercise of reasonable care. The Trustee shall not be responsible
for any loss or damage  resulting from any action or non-action in good faith in
reliance upon such opinion or advice.

         (c)      The Trustee shall not be responsible for  any recital  herein,
or in the Bonds  (except  in respect to the  authentication  certificate  of the
Trustee endorsed on the Bonds), or for the recording or re-recording,  filing or
re-filing of this  Indenture,  or the Lease, or for insuring the Trust Estate or
any part of the Project or collecting any insurance  moneys, or for the validity
of the execution by the Issuer of this Indenture or of any supplements hereto or
instruments of further assurance, or for the sufficiency of the security for the
Bonds,  or for the value of or title in and to the  Trust  Estate or any part of
the Project or otherwise as to the maintenance of the security  hereof;  but the
Trustee may require of the Issuer or the Lessee full  information  and advice as
to the performance of the covenants,  agreements and conditions aforesaid and as
to the condition of the Trust Estate.

         (d)      Except to the extent herein specifically provided, the Trustee
shall not be accountable  for the use of any of the Bond  proceeds.  The Trustee
may  become the owner of Bonds  with the same  rights  which it would have if it
were not Trustee.

         (e)      The  Trustee  shall be  protected  in acting  upon any notice,
request, consent, certificate, order, affidavit, letter, telegram or other paper
or documents  believed to be genuine

                                      -43-

<PAGE>

and correct and to have been signed or sent by the proper Person or Persons. Any
action  taken by the  Trustee,  pursuant  to this  Indenture  upon the  request,
authority  or consent of any  Person who at the time of making  such  request or
giving such  authority or consent is the owner of any Bond,  shall be conclusive
and  binding  upon all future  owners of the same Bond and upon Bonds  issued in
exchange therefor or in place thereof.

         (f)      As to  the existence or  non-existence of  any  fact or as  to
the sufficiency or validity of any instrument,  paper or proceeding, the Trustee
shall be entitled to rely upon a  certificate  signed on behalf of the Issuer by
the  Chairman or Vice  Chairman of the Issuer and  attested by the  Secretary or
Assistant  Secretary of the Issuer as  sufficient  evidence of the facts therein
contained,  and prior to the  occurrence  of a Default of which the  Trustee has
been notified as provided in subsection (h) of this Section, or of which by said
subsection  it is deemed to have  notice,  shall  also be at liberty to accept a
similar  certificate to the effect that any particular  dealing,  transaction or
action is necessary or expedient,  but may at its discretion secure such further
evidence deemed necessary or advisable,  but shall in no case be bound to secure
the same.  The Trustee may accept a  certificate  of the  Secretary or Assistant
Secretary of the Issuer  under its seal to the effect that a  resolution  in the
form  therein set forth has been  adopted by the Issuer as  conclusive  evidence
that such resolution has been duly adopted, and is in full force and effect.

         (g)      Except   as   expressly   provided   otherwise   herein,   any
discretionary  rights  conferred  upon the  Trustee  shall not be  construed  as
imposing  upon the Trustee an  affirmative  duty or obligation to act or abstain
from acting,  and the Trustee  shall not be  answerable  for such other than its
gross negligence or willful default.

         (h)      The Trustee shall not be required to take notice or be  deemed
to have notice of any default or Event of Default  hereunder  or under the Lease
except  failure  by the  Issuer to cause to be made any of the  payments  to the
Trustee  required  to be made by Section 501 hereof and failure by the Lessee to
make the rental and other  payments  required to be made under  Article V of the
Lease and except with  respect to any default  under  Section  10.1 of the Lease
written  notice as to which has been given to the  Trustee,  unless the  Trustee
shall be specifically notified in writing of such Event of Default by the Issuer
or by the owners of at least  twenty-five  percent (25%) in principal  amount of
the Bonds.  All notices or other  instruments  required by this  Indenture to be
delivered to the Trustee  must,  in order to be  effective,  be delivered at the
principal  corporate  trust  office of the  Trustee,  and in the absence of such
notice so  delivered  the Trustee may  conclusively  assume there is no Event of
Default except as aforesaid.

         (i)      The Trustee shall not  be  personally  liable  for  any  debts
contracted  or  for  damages  to  persons  or  property,   or  for  salaries  or
non-fulfillment  of  contracts  during  any  period  in  which  it may be in the
possession of or managing the Project as in this Indenture provided.

         (j)      At  reasonable  times  the  Trustee,  and  its duly authorized
agents, attorneys,  experts, engineers,  accountants and representatives who are
acceptable to the Lessee,  and  accompanied by an official of the Lessee,  shall
have the right, but no duty, to inspect the Project as well as all books, papers
and records of the Issuer  pertaining to the Project and the Bonds,  and to take

                                      -44-
<PAGE>

copies of such  memoranda  from and in regard  thereto only as required from the
books, papers and records of the Issuer.

         (k)      The Trustee shall not be required to give any  bond or  surety
in respect of the  execution  of the said  trusts  and  powers or  otherwise  in
respect of the premises.

         (l)      Notwithstanding   anything   elsewhere   in   this   Indenture
contained,  the  Trustee  shall have the right,  but shall not be  required,  to
demand,  in respect of the  authentication  of any Bonds,  the withdrawal of any
cash, the release of any property,  or any action  whatsoever within the purview
of this Indenture,  any showings,  certificates,  opinions,  appraisals or other
information, or corporate action or evidence thereof, in addition to that by the
terms hereof  required as a condition of such action by the Trustee  relevant to
the  authentication  of any Bonds,  the withdrawal of any cash, or the taking of
any other action by the Trustee.

         (m)      Before taking any remedial action hereunder following an Event
of Default,  the Trustee may request an opinion of Counsel or may require that a
satisfactory  indemnity bond be furnished for the  reimbursement of all expenses
to which it may be put and to protect it against all liability, except liability
which is adjudicated to have resulted from the negligence or willful  default of
the Trustee by reason of any action so taken.  None of the provisions  contained
in this  Indenture  shall require the Trustee to expend or risk its own funds or
otherwise to incur  financial  liability in the performance of any of its duties
or the exercise of any of its rights or powers hereunder.

         (n)      All moneys  received  by the Trustee  or any Trustee  for  the
Bonds shall,  until used or applied or invested as herein  provided,  be held in
trust for the purpose for which they were  received  but need not be  segregated
from other funds  except to the extent  required  herein or by law.  Neither the
Trustee nor any such Trustee  shall be under any  liability  for interest on any
moneys  received  hereunder  except  such as may be agreed upon under a separate
written agreement.

         (o)      As to the existence or non-existence of any fact or  as to the
sufficiency  or validity of any  instrument,  paper or  proceeding,  the Trustee
shall be entitled to rely upon a  certificate  signed on behalf of the Lessee by
an Authorized Lessee  Representative as sufficient evidence of the facts therein
contained,  and  prior to the  occurrence  of an Event of  Default  of which the
Trustee has been notified as provided in subsection  (h) of this Section,  or of
which by said  subsection it is deemed to have notice,  shall also be at liberty
to accept a similar  certificate  to the  effect  that any  particular  dealing,
transaction  or action is  necessary  or  expedient,  but may at its  discretion
secure such further evidence deemed necessary or advisable, but shall in no case
be bound to  secure  the same.  The  Trustee  may  accept a  certificate  of the
Secretary of the Lessee  under its seal to the effect that a  resolution  in the
form  therein set forth has been  adopted by the Lessee as  conclusive  evidence
that such resolution has been duly adopted, and is in full force and effect.

         (p)      The Trustee shall be  under no obligation to  exercise any  of
the rights or powers vested in it by this Indenture  other than the  application
of moneys  received for deposit into the

                                      -45-

<PAGE>

Funds and Accounts  hereunder  and the payment of debt service on the Bonds from
moneys in the Bond Fund,  whether  at the  request  or  direction  of any of the
Bondholders pursuant to this Indenture or otherwise, unless the Bondowners shall
have offered to the Trustee  reasonable  security or indemnity  acceptable to it
against the fees,  advances,  costs,  expenses  and  liabilities  (except as may
result from the Trustee's  own gross  negligence  or willful  misconduct)  which
might be incurred  by it in  connection  with such rights or powers,  including,
without  limitation,  in connection  with  environmental  contamination  and the
cleanup thereof.

         (q)      The Trustee may elect not  to  proceed  in accordance with the
directions of the Bondholders (except any direction provided pursuant to Section
1002 and 1003 hereof) without  incurring any liability to the Bondholders if the
Trustee reasonable determines that such direction would materially and adversely
subject  the  Trustee  in its  individual  capacity  to  environmental  or other
liability  for which the Trustee  has not  received  indemnity  pursuant to this
Section  from the  Bondholders,  and the  Trustee  may rely upon an  opinion  of
Counsel  addressed  to the Issuer and the  Trustee in  determining  whether  any
action directed by Bondholders may result in such liability.

         (r)      The  Trustee  may  inform  the  Bondholders  of  environmental
hazards  that the Trustee has reason to believe  exist,  and the Trustee has the
right to take no further  action  and,  in such event no  fiduciary  duty exists
which  imposes any  obligation  for further  action,  with  respect to the Trust
Estate or any  portion  thereof  if the  Trustee,  in its  individual  capacity,
determines  that any such action  would  materially  and  adversely  subject the
Trustee  to  environmental  or other  liability  to which  the  Trustee  has not
received indemnity pursuant to this Section.

         Section 1302. NOTICE TO  OWNERS OF BONDS IF EVENT OF DEFAULT OCCURS. If
an Event of Default  occurs of which the Trustee is by subsection (h) of Section
1301 hereof  required to take notice then the Trustee shall give written  notice
thereof by certified or registered mail to the registered  owners of Bonds, and,
as to Events of Default  described in Section 1001(c) hereof,  to the Issuer and
the registered owners of Bonds by certified or registered mail.

         Section 1303. INTERVENTION BY TRUSTEE. In  any  judicial  proceeding to
which  the  Issuer is a party  which,  in the  opinion  of the  Trustee  and its
Counsel,  has a substantial  bearing on the interest of the owners of the Bonds,
the  Trustee  shall  give the  Bondholders  written  notice  thereof  and  shall
intervene on behalf of the owners of the Bonds if so requested in writing by the
owners of at least a majority in principal amount of the Bonds then Outstanding.
The rights and  obligations of the Trustee under this Section are subject to the
approval of a court of competent jurisdiction.

         Section 1304. SUCCESSOR TRUSTEE. Any  corporation  or association  into
which  the  Trustee  may  be  converted  or  merged,  or  with  which  it may be
consolidated,  or to which it may sell or transfer its corporate  trust business
or  assets  as a whole  or  substantially  as a  whole,  or any  corporation  or
association resulting from any such conversion,  merger, consolidation,  sale or
transfer  to which it is a party,  IPSO  FACTO,  shall be and  become  successor
Trustee  hereunder  and vested with all of the title to the Trust Estate and all
the trusts, powers, discretions, immunities, privileges and all other matters as
was its  predecessor,  without the execution or filing of any

                                      -46-
<PAGE>

instrument  or any further  act,  deed or  conveyance  on the part of any of the
parties hereto, anything herein to the contrary notwithstanding.

         Section 1305. RESIGNATION BY THE TRUSTEE. The Trustee and any successor
Trustee may at any time resign from the trusts  hereby  created by giving  sixty
(60) days'  written  notice to the Issuer and the Lessee and by first class mail
to each registered owner of Bonds, and such resignation shall take effect on the
later  to  occur  of (i) the end of such  sixty  (60)  day  period,  or (ii) the
appointment of a successor  Trustee by the owners of the Bonds or by the Issuer.
Such  notice to the Issuer may be served  personally  or sent by  registered  or
certified mail.

         Section 1306. REMOVAL OF THE TRUSTEE. The Trustee may be removed at any
time, by an instrument or  concurrent  instruments  in writing  delivered to the
Trustee and to the Issuer,  and signed by either (i) the owners of a majority in
principal amount of the Bonds then Outstanding or (ii) the Lessee, so long as no
event of default exists under Section 10.1 of the Lease.

         Section 1307. APPOINTMENT  OF SUCCESSOR  TRUSTEE; TEMPORARY TRUSTEE. If
the Trustee  hereunder shall resign, be removed,  be dissolved,  be in course of
dissolution  or  liquidation,  or shall  otherwise  become  incapable  of acting
hereunder or in case it shall be taken under the control of any public  officer,
officers or a receiver appointed by a court, a successor may be appointed by (i)
the Lessee,  unless an event of default  exists under Section 10.1 of the Lease,
or (ii) the  owners  of a  majority  in  principal  amount of the  Bonds,  by an
instrument or  concurrent  instruments  in writing  signed by the Lessee or such
owners,  or by their  attorneys  in fact,  as the case may be, duly  authorized;
provided, nevertheless, that in case of such vacancy the Issuer by an instrument
signed by the  Chairman  or Vice  Chairman  of the  Issuer and  attested  by the
Secretary  or Assistant  Secretary  of the Issuer under its seal,  may appoint a
temporary  Trustee  to fill such  vacancy  until a  successor  Trustee  shall be
appointed by the Lessee or the owners of the Bonds in the manner above provided;
and any such  temporary  Trustee shall  immediately  and without  further act be
superseded by the Trustee so appointed by the Lessee or the owners of the Bonds.
Every such Trustee appointed pursuant to the provisions of this Section shall be
a trust  company  or bank  (having  trust  powers) in good  standing,  within or
outside the State of Georgia,  having  individually or together with its banking
Affiliates  an  unimpaired  capital and  surplus of not less than fifty  million
dollars  ($50,000,000),  if there be such an institution willing,  qualified and
able to accept the trust upon reasonable or customary terms.

         Section 1308. CONCERNING ANY SUCCESSOR TRUSTEE. Every successor Trustee
appointed  hereunder  shall execute,  acknowledge and deliver to its predecessor
and also to the Issuer an  instrument  in  writing  accepting  such  appointment
hereunder,  and  thereupon  such  successor,  without any further  act,  deed or
conveyance, shall become fully vested with all the estates, properties,  rights,
powers, trusts, duties and obligations of its predecessor;  but such predecessor
shall, nevertheless,  on the written request of the Issuer, or of its successor,
execute and deliver an instrument transferring to such successor Trustee all the
estates,  properties,  rights, powers and trusts of such predecessor  hereunder;
and every predecessor Trustee shall deliver all securities and moneys held by it
as Trustee hereunder to its successor. Should any instrument in writing from the
Issuer be required by any successor Trustee in order to more fully and certainly
vest in such successor the estates, properties, rights, powers and trusts hereby
vested or intended to be

                                      -47-

<PAGE>

vested in the  predecessor  any and all such  instruments in writing  shall,  on
request, be executed,  acknowledged and delivered by the Issuer. The resignation
of any  Trustee  and the  instrument  or  instruments  removing  any Trustee and
appointing a successor  hereunder,  together with all other instruments provided
for in this Article,  shall be filed and/or recorded by the successor Trustee in
each recording office where the Indenture and Lease shall have been filed and/or
recorded.

         Section 1309. RIGHT OF TRUSTEE TO PAY TAXES AND  OTHER CHARGES. If  any
tax,  assessment  or  governmental  or other  charge  upon any part of the Trust
Estate or the Project is not paid as required  herein,  the Trustee may pay such
tax,  assessment or charge,  without  prejudice,  however,  to any rights of the
Trustee or the owners of the Bonds  hereunder  arising  in  consequence  of such
failure;  and any amount at any time so paid under this  Section,  with interest
thereon from the date of payment at the rate per annum borne by the Bonds, shall
become so much additional  indebtedness secured by this Indenture,  and the same
shall be given a preference in payment over the principal of and interest on the
Bonds and shall be paid out of the revenues and receipts  from the Trust Estate,
if not  otherwise  caused  to be  paid;  but  the  Trustee  shall  not be  under
obligation  to and shall  not make any such  payment  unless it shall  have been
requested to do so by the owners of a majority in principal  amount of the Bonds
and shall have been  provided with  sufficient  moneys for the purpose of making
such payment.

         Section 1310. TRUSTEE PROTECTED IN  RELYING UPON  RESOLUTIONS, ETC. The
resolutions,  opinions,  certificates and other instruments provided for in this
Indenture may be accepted by the Trustee as conclusive evidence of the facts and
conclusions  stated therein and shall be full warrant,  protection and authority
to the  Trustee  for the  release  of  property  and the  withdrawal  of  moneys
hereunder.

         Section 1311. SUCCESSOR TRUSTEE  AS  PAYING AGENT, AUTHENTICATING AGENT
AND BOND  REGISTRAR.  In the event of a change in the  office  of  Trustee,  the
predecessor Trustee which has resigned or has been removed shall cease to be the
owner of the Project Fund and Bond Fund and shall cease serving as Paying Agent,
Authenticating  Agent and Bond Registrar,  to the extent the Trustee was at such
time serving in one or more of such capacities,  and the successor Trustee shall
become automatically such owner and such Paying Agent, Authenticating Agent, and
Bond  Registrar,  to the extent the Trustee  was at such time  serving in one or
more of such capacities.

         Section 1312. TRUST ESTATE MAY  BE  VESTED  IN  CO-TRUSTEE. It  is  the
purpose of this  Indenture  that there shall be no  violation  of any law of any
jurisdiction  (including  particularly the laws of the State of Georgia) denying
or restricting  the right of banking  corporations  or  associations to transact
business as a trustee in such  jurisdiction.  It is  recognized  that in case of
litigation under this Indenture,  and in particular in case of the occurrence of
a Default, it may be necessary that the Trustee appoint an additional individual
or institution as a separate Trustee or Co-Trustee.  The following provisions of
this Section 1312 are adapted to these ends.

         In the event of the incapacity or lack of authority of the  Trustee, by
reason of any present or future law of any jurisdiction,  to exercise any of the
rights,  powers and trusts herein granted to the Trustee or to hold title to the
Trust  Estate or take any other  action  which may be  necessary or desirable in
connection  therewith,  the Issuer  with the consent of the Lessee may appoint a

                                      -48-
<PAGE>

separate Trustee or Co-Trustee and each and every remedy,  power,  right, claim,
demand, cause of action, immunity, estate, title, interest and lien expressed or
intended by this  Indenture  to be  exercised by or vested in or conveyed to the
Trustee with respect  thereto shall be  exercisable by and vest in such separate
Trustee or  Co-Trustee  but only to the extent  necessary to enable the separate
Trustee or  Co-Trustee  to exercise  such rights,  powers and trusts,  and every
covenant  and  obligation  necessary to the  exercise  thereof by such  separate
Trustee or Co-Trustee shall run to and be enforceable by either of them.

         Should any deed, conveyance or instrument in writing from the Issuer be
required by the separate  Trustee or  Co-Trustee  so appointed by the Trustee in
order  to  more  fully  and  certainly  vest  in and  confirm  to him or it such
properties,  rights,  powers,  trusts, duties and obligations,  any and all such
deeds, conveyances and instruments shall, on request, be executed,  acknowledged
and  delivered by the Issuer.  In case any separate  Trustee or  Co-Trustee or a
successor  to  either,  shall die,  become  incapable  of  acting,  resign or be
removed,  all the  estates,  properties,  rights,  powers,  trusts,  duties  and
obligations of such separate Trustee or Co-Trustee,  so far as permitted by law,
shall vest in and be exercised  by the Trustee  until the  appointment  of a new
Trustee or successor to such separate Trustee or Co-Trustee.

         Section 1313. CONTINUATION   STATEMENTS.   The   Trustee   shall   file
continuation  statements  for  the  purpose  of  continuing  without  lapse  the
effectiveness  of (i) those Financing  Statements which shall have been filed at
or prior to the  issuance of the Bonds in  connection  with the security for the
Bonds pursuant to the authority of the applicable  Uniform  Commercial Code, and
(ii) any previously filed continuation statements which shall have been filed as
herein required.  The Issuer agrees to sign such continuation  statements as may
be requested of it from time to time by the Lessee or the Trustee.

                                      -49-
<PAGE>

                                   ARTICLE XIV

                          IMMUNITY OF MEMBERS, OFFICERS
                     AND EMPLOYEES OF THE ISSUER AND TRUSTEE

         No  recourse  shall  be  had  for  the  payment  of  the  principal of,
redemption  premium,  if any or  interest  on the Bonds,  or for any claim based
thereon or  otherwise  in respect  thereof  or of the  indebtedness  represented
thereby,  or upon any  obligation  covenant,  or  agreement  of this  Indenture,
against  any  member,  officer,  employee or agent,  as such,  past,  present or
future,  of the Issuer or the Trustee or of any  successor,  either  directly or
through  the Issuer or the  Trustee or any  successor,  whether by virtue of any
constitutional  provision,  statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise,  it being  expressly  agreed and  understood
that this  Indenture and the Bonds are solely  limited  obligations  and that no
personal  liability  whatsoever  shall attach to, or be incurred by, any member,
officer,  employee or agent, as such, past,  present or future, of the Issuer or
the  Trustee or any  successor,  either  directly  or through  the Issuer or the
Trustee or any successor,  because of the incurring of any  indebtedness  hereby
authorized or under or by reason of any of the obligations,  covenants, promises
or  agreements  contained  in this  Indenture  or in the Bonds or to be  implied
herefrom or therefrom, and that all liability, if any, of that character against
every such member, officer,  employee and agent, by the acceptance of any of the
Bonds and as a condition of, and as part of the consideration  for, the adoption
of this Indenture and the issuance of the Bonds,  expressly waived and released.
This immunity  shall not apply to gross  negligence,  intentional  misconduct or
acts or omissions taken or suffered in bad faith.

                                      -50-


<PAGE>

                                   ARTICLE XV

                                  MISCELLANEOUS

         Section 1501.  CONSENTS OF BONDHOLDERS.

         (a)      Any  request,  demand,   authorization,   direction,   notice,
consent, waiver, or other action provided by this Indenture to be given or taken
by  Bondholders  may be embodied in and evidenced by one or more  instruments of
substantially  similar  tenor signed by such  Bondholders  in person or by their
agents duly  appointed in writing;  and,  except as herein  otherwise  expressly
provided, such action shall become effective when such instrument or instruments
are delivered to the Issuer, and, where it is expressly required,  to the Issuer
and the  Lessee.  Proof of  execution  of any such  instrument  or of a  writing
appointing  any such agent shall be sufficient for any purpose of this Indenture
and conclusive if made in the manner provided in this Section.

         (b)      The fact and  date of the  execution by any Person of any such
instrument  or  writing  may be proved  by the  affidavit  of a witness  of such
execution or by the certificate of any notary public or other officer authorized
by law to take acknowledgments of deeds,  certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by an officer of a  corporation  or a member of a  partnership,  on
behalf of such  corporation or partnership,  such certificate or affidavit shall
also constitute proof of his authority.

         (c)      The fact and date of  execution  of  any  such  instrument  or
writing  may  also  be  proved  in any  other  manner  which  the  Issuer  deems
sufficient,  and the  Issuer  or the  Trustee,  as the case  may be,  may in any
instance require further proof with respect to any of the matters referred to in
this Section.

         (d)      The  ownership of  Bonds shall be  proved by the  registration
books  kept by the  Bond  Registrar.

         (e)      Any   request,  demand,   authorization,  direction,   notice,
consent,  waiver,  or other  action by any  Bondholder  shall bind every  future
holder of the same Bond in respect of  anything  done or  suffered to be done by
any Trustee or the Issuer in reliance  thereon,  whether or not notation of such
action is made upon such Bond.

         Section 1502. LIMITATION OF RIGHTS. With the exception of rights herein
expressly  conferred,  nothing  expressed  or mentioned in or to be implied from
this  Indenture  or the Bonds is intended or shall be  construed  to give to any
Person other than the Issuer,  the Trustee,  the Lessee,  and the holders of the
Bonds, any legal or equitable right, remedy or claim under or in respect of this
Indenture  or  any  covenants,  agreements,  conditions  and  provisions  herein
contained; this Indenture and all of the covenants,  agreements,  conditions and
provisions  hereof being intended to be and being for the sole exclusive benefit
of the Issuer,  the Trustee,  the Lessee, and the holders of the Bonds as herein
provided.

                                      -51-

<PAGE>

         Section 1503. SEVERABILITY. If any provision of this Indenture shall be
held or deemed to be or shall,  in fact,  be  inoperative  or  unenforceable  as
applied in any particular case in any jurisdictions or in all jurisdictions,  or
in all cases because it conflicts with any other provision or provisions  hereof
or any  Constitution  or  statute  or rule of  public  policy,  or for any other
reason,  such circumstances shall not have the effect of rendering the provision
in question  inoperative or unenforceable in any other case or circumstance,  or
of  rendering  any other  provision  or  provisions  herein  contained  invalid,
inoperative or unenforceable to any extent whatever.

         Section 1504. NOTICES. It  shall be  sufficient service of  any notice,
request,  complaint,  demand or other  paper if the same shall be duly mailed by
registered  or  certified  mail,  return  receipt  requested,  postage  prepaid,
addressed as follows:


         (a)      If to the Issuer -

                  Development Authority of Fulton County
                  141 Pryor Street, S.W.
                  Suite 5001
                  Atlanta, Georgia  30303


                  with a copy to:

                  Nelson, Mullins, Riley & Scarborough
                  999 Peachtree Street, N.E.
                  Suite 1400
                  Atlanta, Georgia  30309
                  Attn:  Lewis C. Horne, Jr., Esq.
                  Facsimile Number: (404) 817-6050


         (b)      If to the Lessee -

                  ADESA Atlanta, LLC
                  310 E. 96th Street
                  Suite 400
                  Indianapolis, Indiana  46240
                  Facsimile Number: (317) 815-3656
                  Attn:  General Counsel


                                      -52-

<PAGE>


                  with a copy to:

                  Alston & Bird LLP
                  1201 West Peachtree Street
                  Atlanta, Georgia  30309
                  Attn:  Glenn R. Thomson, Esq.
                  Facsimile Number: (404) 253-8145

         (c)      If to the Trustee -

                  SunTrust Bank
                  25 Park Place, 24th Floor
                  Atlanta, Georgia  30303-2900
                  Facsimile Number:  (404) 588-7335

A  duplicate  copy of each  notice,  certificate  or other  communication  given
hereunder  by any of the  Issuer,  the  Lessee or the  Trustee to any one of the
others shall also be given to all of the others.  The Issuer, the Lessee and the
Trustee  may, by notice  given  hereunder,  designate  any further or  different
addresses to which  subsequent  notices,  certificates  or other  communications
shall be sent.

         Section 1505. PAYMENTS DUE ON  SATURDAYS, SUNDAYS AND HOLIDAYS. In  any
case where the date of maturity of  principal of or interest on the Bonds or the
date  fixed for  redemption  of any Bonds  shall be, in the city of  payment,  a
Saturday,  Sunday or a legal holiday or a day on which banking  institutions are
authorized  by law to close,  then payment of principal or interest  need not be
made on such date in such city but may be made on the next  succeeding  business
day not a Saturday, Sunday, legal holiday or day upon which banking institutions
are  authorized by law to close with the same force and effect as if made on the
date of maturity or the date fixed for redemption,  and no interest shall accrue
for the period after such date.

         Section 1506. LAWS GOVERNING RESOLUTION. The effect and meaning of this
Indenture  and the rights of all parties  hereunder  shall be  governed  by, and
construed according to, the laws of the State of Georgia.

         Section 1507. COUNTERPARTS. Any   person  entitled  to  rely  on   this
Indenture may  conclusively  rely on a counterpart  hereof duly certified by the
Secretary  of the  Issuer  for any  purpose  and  any  such  counterpart  may be
introduced in evidence in any court  proceedings or in any other proceedings for
the enforcement hereof to the same extent as if such counterpart constituted the
original  record of  proceedings  of the  Issuer  where this  Indenture  and the
adoption hereof is recorded.

         Section 1508. DESIGNATION OF PAYING  AGENT,  AUTHENTICATING  AGENT  AND
BOND  REGISTRAR.  The Trustee is hereby  designated as the initial Paying Agent,
Authenticating  Agent and Bond  Registrar.  The Issuer shall at the direction of
the Lessee,  and may from time to time and with the prior consent of the Lessee,
designate a successor or  successors  to the Paying Agent,  Bond

                                      -53-

<PAGE>

Registrar, or Authenticating Agent, whereupon any such successor shall undertake
its responsibility in such capacity,  but only in compliance with the provisions
of this  Indenture.  Each such party may be removed at any time by the Lessee by
an instrument in writing delivered to the Issuer and such party, such removal to
take effect upon the  appointment  of a successor  thereto and the acceptance by
such successor of its duties and obligations hereunder.


                  [Remainder of page intentionally left blank]

                                      -54-
<PAGE>



         IN WITNESS  WHEREOF,  the  parties  hereto  have  executed,  sealed and
delivered   this   Indenture    through   their   respective   duly   authorized
representatives as of the date first above written.

                                            DEVELOPMENT AUTHORITY OF
                                              FULTON COUNTY



                                            By: /s/Robert J. Shaw
                                               --------------------------
                                                Chairman



                                            ATTEST:


                                                /s/Lewis C. Horne, Jr.
                                               --------------------------
                                                Asst. Secretary

                                                        (SEAL)












                       [Signature Page - Trust Indenture]



                                      -55-
<PAGE>


                                            SUNTRUST BANK



                                            By:  /s/Jack Ellerin
                                               ---------------------------------
                                               Name:  Jack Ellerin
                                               Title:  Assistant Vice President










                       [Signature Page - Trust Indenture]

                                      -56-



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>4
<FILENAME>exhibit10l.txt
<DESCRIPTION>EX-10(L) BOND PURCHASE AGREEMENT-ADESA ATLANTA, LLC
<TEXT>
<PAGE>
                                                                   Exhibit 10(l)



                             BOND PURCHASE AGREEMENT
                             -----------------------


                     DEVELOPMENT AUTHORITY OF FULTON COUNTY
                   Taxable Economic Development Revenue Bonds
                          (ADESA Atlanta, LLC Project)
                                   Series 2002


         THIS BOND PURCHASE  AGREEMENT  dated as of December 1, 2002,  among the
DEVELOPMENT  AUTHORITY OF FULTON  COUNTY,  a public body  corporate  and politic
organized under the laws of the State of Georgia (the "Issuer"),  ADESA ATLANTA,
LLC, a New Jersey  limited  liability  company,  in its  capacity  as  Purchaser
hereunder  (the  "Purchaser")  and ADESA  ATLANTA,  LLC,  a New  Jersey  limited
liability  company,  in its capacity as lessee under the  hereinafter  mentioned
Lease (the "Lessee").

         1.       BACKGROUND
                  ----------

                  (a) The  Issuer proposes  to  issue  and  sell  not to  exceed
$40,000,000 in aggregate  principal amount of its Taxable  Economic  Development
Revenue Bonds (ADESA  Atlanta,  LLC  Project),  Series 2002 (the  "Bonds"),  the
proceeds  of  which  shall be used to  finance  the  acquisition,  construction,
development  and  equipping  of  a  wholesale   vehicle   auction   facility  on
approximately 280 acres of land, which facility  consists of certain  buildings,
structures,  machinery,  equipment  and all related real and  personal  property
deemed  necessary or desirable in  connection  therewith  (the  "Project").  The
Project is located in Fulton County,  Georgia,  and will be leased to the Lessee
and used primarily as a wholesale automobile auction facility.  The Project will
be leased by the  Issuer to the Lessee  under the terms of a Lease,  dated as of
December 1, 2002 (the "Lease")  between the Issuer and the Lessee  requiring the
Lessee to pay to the Issuer  rental and other  payments  in such  amounts and at
such times as shall be  required  to pay the  principal  of and  interest on the
Bonds as and when the same  become  due.  The Bonds  shall be  issued  under and
secured by a Trust  Indenture  dated as of  December  1, 2002 (the  "Indenture")
between  the  Issuer and  SunTrust  Bank,  Atlanta,  Georgia,  as  Trustee  (the
"Trustee"),  under the terms of which the Issuer's interest in the Lease and the
rents, revenues and receipts to be derived by the Issuer under the Lease will be
assigned and pledged to the Trustee as security for the payment of the Bonds.

                  (b) The Issuer proposes to sell the Bonds to the Purchaser and
the Purchaser proposes to purchase the Bonds for its own investment purposes and
not with a view towards any resale or public distribution thereof.

<PAGE>

                  (c) The  proceeds of the Bonds are to be  applied to pay costs
incurred in connection with the  acquisition,  construction  and installation of
the Project as contemplated by the Lease and the Indenture.

                  (d) The parties hereto contemplate that the  interest paid  on
the Bonds will be  includable in the gross income of the recipient or recipients
thereof for federal  income tax purposes  because of the  application of certain
provisions of the Internal Revenue Code of 1986, as amended,  and that, as such,
the Bonds may not be offered for sale to the public without  registration  under
the  Securities  Act of 1933,  as amended,  unless the  Trustee has  received an
opinion of counsel satisfactory to the Trustee, the Issuer and the Lessee to the
effect that failure to register the Bonds will not violate the Securities Act of
1933.  The Issuer will  cooperate  fully at the  request of the  Lessee,  and at
Lessee's expense,  in effecting such registration and in taking such other steps
as may be deemed  necessary or appropriate with respect to the Bonds, the Lease,
the Indenture or this Bond Purchase Agreement to effect such registration in the
event of any future public sale or disposition of the Bonds.

                  (e) The parties contemplate  that the  purchase  price of  the
Bonds may be paid by the  Purchaser in  installments  as provided in Paragraph 2
hereof.

         2.       PURCHASE, SALE AND CLOSING.
                  --------------------------

                  (a) Subject to the terms and conditions and in reliance on the
representations, warranties and covenants herein set forth, the Purchaser agrees
to purchase  from the Issuer all of the Bonds,  and the Issuer  hereby agrees to
sell to the  Purchaser  all of the  Bonds,  at a price of 100% of the  principal
amount of the Bonds.  The parties agree that the aggregate  principal  amount of
Bonds to be sold and purchased  hereunder shall not exceed the principal  amount
specified in Paragraph  1(a) hereof.  Such purchase  price shall be deemed to be
paid on and as of the date of the initial  issuance  of the Bonds (the  "Closing
Date") by (i) the payment of any amount under and pursuant to  subparagraph  (b)
of this  Paragraph  as is paid on the  Closing  Date and  (ii)  the  Purchaser's
obligation evidenced hereby to make payments in the future under and pursuant to
subparagraph (b) of this Paragraph 2. The Bonds shall bear interest at the fixed
rate determined as provided in Section 202 of the Indenture.

                  (b) Pursuant to  Section 4.3 of the Lease  and Section 602  of
the  Indenture,  the Lessee shall from time to time submit  requisitions  to the
Trustee  in  an  aggregate  amount  not  to  exceed  $40,000,000.   Unless  such
requisition  does not  clearly  indicate  that a copy of it has been sent to the
Purchaser,  the Trustee  shall,  upon  receipt  and review of each  requisition,
promptly  transmit to the  Purchaser  by telecopy to the  telecopier  number set
forth in Paragraph 9 hereof a letter directing the Purchaser to make payment for
the Bonds in the amount of such requisition, in immediately available funds. The
Purchaser  shall  within  three  (3)  days  of its  receipt  of a copy  of  such
requisition  from the  Lessee or such  letter  of  direction  from the  Trustee,
whichever arrives earlier,  pay to the Trustee the amount indicated thereon, and
each such payment shall be deemed to be, and shall be, an installment payment of
the Bonds.  Such payments  shall be made in such manner,  until the  Purchaser's
payment  obligations  under this Agreement shall have been

                                      -2-

<PAGE>

discharged  in full as provided in  subparagraph  (d) below.  The Trustee  shall
deposit all such  payments  received  from the  Purchaser  in the  Project  Fund
created under the Indenture.

                  (c) The  Issuer  shall  be  obligated, upon  the  maturity  or
earlier  redemption  of  the  Bonds,  to pay to  the  Purchaser  only  up to the
aggregate of all installments  payments made hereunder as shall have been funded
pursuant to the preceding subparagraph and accrued and unpaid interest, if any.

                  (d) The  Purchaser's payment obligations under  this Agreement
shall be  discharged  in full on the earlier of (i) the date when the sum of the
aggregate  payments made hereunder equals  $40,000,000 or (ii) the date when any
and all directions for payment made pursuant to subparagraph(b) hereinabove made
on or prior to the commencement of the Completion Date (as defined in the Lease)
have been paid in full.

                  (e) All  Bonds issued by the  Issuer are  to be  sold  to  the
Purchaser  under and pursuant to this Bond  Purchase  Agreement and shall not be
sold to any other  purchaser  or  pursuant  to any other  agreement  without  an
agreement in writing signed by the Issuer, the Trustee and such purchaser.

         3.       PRIVATE SALE. The  Purchaser agrees that it is  purchasing the
Bonds for its own  investment  account and not with a view towards any direct or
indirect resale or public distribution thereof and agrees to execute and deliver
to the Trustee on the Closing  Date an  investment  letter in the form  attached
hereto as Exhibit "D".

         4.       ISSUER'S REPRESENTATIONS AND  WARRANTIES. The Issuer makes the
following representations and warranties to the Purchaser:

                  (a) The Issuer is a public body  corporate and politic created
by and existing under the laws of the State of Georgia.

                  (b) The  Issuer  has  full   power  and  authority  under  the
Constitution  and laws of the State of Georgia  (i) to  acquire,  construct  and
install  the  Project,  (ii)  to  finance  the  acquisition,   construction  and
installation of the Project by issuing and selling the Bonds, (iii) to lease the
Project  to the  Lessee as  provided  in the  Lease,  (iv) to pledge  the rents,
revenues and receipts  derived  pursuant to the Lease to the Trustee as provided
in the  Indenture,  (v) to  execute,  deliver  and  perform  this Bond  Purchase
Agreement,  the Lease and the  Indenture  in  accordance  with their  respective
terms, and (vi) to carry out and consummate all other transactions  contemplated
by each of the aforesaid documents.

                  (c) The Issuer  has duly  authorized all actions and  complied
with  all  provisions  of law  with  respect  to  the  execution,  delivery  and
performance of this Bond Purchase  Agreement,  the Lease and the Indenture,  and
has taken all actions  necessary or  appropriate  to insure that such  documents
constitute  valid and legally  binding  obligations  of the Issuer in accordance
with their respective terms.

                                      -3-
<PAGE>

                  (d) When  delivered  to  and  paid  for  by  the  Purchaser in
accordance with the terms of this Bond Purchase  Agreement,  the Bonds will have
been duly  authorized,  executed,  authenticated  and issued and will constitute
legal,  valid and  binding  limited  obligations  of the Issuer  enforceable  in
accordance  with their  terms and  entitled to the  benefits  of the  Indenture,
except to the extent  that their  enforceability  may be limited by  bankruptcy,
insolvency  or other  laws  affecting  creditor's  rights,  and  subject  to the
application of principles of equity, if equitable remedies are sought.

                  (e) Except for Additional Bonds (as defined in the Indenture),
the  Issuer has not and will not issue or sell any other  bonds or  obligations,
the  principal  of and/or  interest  on which  shall be payable  from the rents,
revenues and receipts  derived from the Project or pledged or assigned  pursuant
to the  Indenture  or  which  shall  be  secured  by any  lien  upon  any of the
properties constituting the Project.

                  (f) The   execution  and   delivery  of  this  Bond   Purchase
Agreement,  the Bonds,  the Lease and the Indenture and the compliance  with the
provisions  thereof, do not and will not conflict with or constitute on the part
of the Issuer a violation of,  breach of or default  (with or without  notice or
lapse of time or both) under any constitutional provision,  statute,  indenture,
mortgage,  deed of trust,  resolution,  note  agreement  or other  agreement  or
instrument  to which the  Issuer is a party or by which the Issuer or any of its
assets is presently  bound,  or, to the  knowledge  of the Issuer,  any existing
order,  rule or  regulation of any court or  governmental  agency or body having
jurisdiction  over the Issuer or any of its  activities  and  property;  and all
consents,  approvals,  authorizations  and orders of  governmental or regulatory
authorities, if any, which are required for the consummation of the transactions
contemplated in this Bond Purchase Agreement have been obtained.

                  (g) There  is   no  action,   suit,  proceeding,  inquiry   or
investigation,  at law or in  equity,  before or by any court,  public  board or
body, known to be pending or threatened  against or affecting the Issuer, nor to
the best of the knowledge of the Issuer is there any basis therefor,  wherein an
unfavorable  decision,  ruling or finding would materially  adversely affect the
transactions  contemplated by this Bond Purchase Agreement,  or which in any way
would adversely affect the validity or  enforceability  of the Bonds, the Lease,
the  Indenture,  this Bond Purchase  Agreement or any agreement or instrument to
which  the  Issuer  is a  party  and is  used  or  contemplated  for  use in the
consummation of the transactions contemplated by this Bond Purchase Agreement.

                  (h) Neither  the  Issuer  nor  anyone  acting  on  its  behalf
(including  the Lessee) has directly or indirectly  offered for sale or sold any
of the Bonds or any similar security of the Issuer to, or solicited any offer to
buy any of the same from,  anyone other than the  Purchaser.  Neither the Issuer
nor anyone  else  acting on its behalf  will after the date  hereof  directly or
indirectly offer any of the Bonds or any other  securities  under  circumstances
which  would  subject  this  issue  and sale of the Bonds to the  provisions  of
Section 5 of the Securities Act of 1933, as amended.

                                      -4-

<PAGE>

                  (i) The  Issuer  has  filed  any  and  all  reports  with  any
governmental  or public  agency as may be  required by law,  including,  without
limitation,  all reports  required to be filed with the  Georgia  Department  of
Community Affairs pursuant to O.C.G.A. Section 36-82-10.

         5.       LESSEE'S REPRESENTATIONS AND WARRANTIES. The Lessee makes the
following representations and warranties to the Issuer and the Purchaser:

                  (a) The Lessee  is a limited  liability company organized  and
existing  and in good  standing  under the laws of the State of New  Jersey  and
authorized  to transact  business  in the State of Georgia.  The Lessee has full
corporate  power,  authority  and  legal  right to engage  in the  business  and
activities  conducted  or proposed  to be  conducted  by it with  respect to the
Project,  to  execute,  deliver  and  perform  the Lease and this Bond  Purchase
Agreement and to perform its obligations thereunder and hereunder, including the
making of payments as provided in the Lease.

                  (b) The  Lessee   has  duly  authorized  all  action  for  the
execution,  delivery  and  performance  of the  Lease  and  this  Bond  Purchase
Agreement and has taken all actions necessary or appropriate to insure that such
documents,  when executed and delivered by the Lessee, will constitute valid and
legally binding obligations of the Lessee,  enforceable in accordance with their
respective terms, except to the extent that their  enforceability may be limited
by bankruptcy, insolvency or other laws affecting creditors' rights, and subject
to the application of principles of equity, if equitable remedies are sought.

                  (c) The execution and delivery of this Bond Purchase Agreement
and the Lease and the compliance  with the provisions  hereof and thereof by the
Lessee,  do not conflict with or constitute on the part of the Lessee a material
violation of, breach of or default  under (i) the Articles of  Incorporation  or
By-Laws of the Lessee, (ii) any indenture,  mortgage, deed of trust, lease, note
agreement or other  agreement or instrument to which the Lessee is a party or by
which the Lessee is presently  bound, or (iii) any  constitutional  provision or
statute  or any  order,  rule or  regulation  of any  court or  governmental  or
regulatory authorities, applicable to the Lessee.

                  (d) There   is  no   action,  suit,  proceeding,  inquiry   or
investigation,  at law or in  equity,  before or by any court,  public  board or
body,  pending,  or, to the Lessee's  knowledge,  threatened  against the Lessee
which  could  reasonably  be  expected  to  result  in a  decision  which  would
materially adversely affect the transactions  contemplated by this Bond Purchase
Agreement  or the Lease or the  validity  or  enforceability  of the Bonds,  the
Lease, this Bond Purchase Agreement, or any agreement or instrument to which the
Lessee is a party,  and used or contemplated  for use in the consummation of the
transactions contemplated by this Bond Purchase Agreement or the Lease.

         6.       LESSEE'S COVENANTS. The Lessee covenants and  agrees  that  it
 will:

                  (a) Refrain from  taking  or omitting to take any action which
action or  omission  would in any way cause  the  proceeds  from the sale of the
Bonds to be applied in a

                                      -5-

<PAGE>

manner  contrary to that  provided for in the Lease or in the  Indenture,  as in
effect from time to time.

                  (b) Pay or cause to be paid, all reasonable expenses and costs
incident to the authorization,  issuance,  printing,  sale and delivery,  as the
case may be, of the  Bonds,  the Lease,  the  Indenture  and this Bond  Purchase
Agreement,  including  without  limitation  (i)  all  filing,  registration  and
recording fees and expenses;  (ii)  Trustees'  fees and expenses  (including the
reasonable  fees and  expenses of its  counsel);  and (iii) fees and expenses of
Bond Counsel and Counsel to the Issuer.

         7.       CONDITIONS  OF   PURCHASER'S   OBLIGATIONS.  The   Purchaser's
obligation  to purchase  and pay for the Bonds which is to be  delivered  as the
initial  installment  hereunder is subject to the  fulfillment  of the following
conditions at or before such delivery, any one or more of which may be waived by
the Purchaser:

                  (a) The Lease, the Indenture and  this Bond Purchase Agreement
shall  have been duly  authorized,  executed  and  delivered  by the  respective
parties  thereto,   in  substantially  the  forms  heretofore  approved  by  the
Purchaser,  with only such changes therein as the Purchaser,  the Issuer and the
Lessee shall mutually agree upon;

                  (b) The  Bond  to be  initially delivered shall have been duly
authorized,  executed and authenticated in accordance with the provisions of the
Indenture;

                  (c) The Purchaser shall have received the following documents:

                      (i) Executed counterparts of the Lease and the Indenture;

                      (ii) Opinions dated as of the date of delivery of the Bond
                  to be  initially  delivered  of (A)  Counsel for the Issuer in
                  substantially  the form of that  which is  attached  hereto as
                  Exhibit  "A"; (B) Bond  Counsel in  substantially  the form of
                  that which is attached  hereto as Exhibit "B"; and (C) Counsel
                  for the  Lessee  in  substantially  the form of that  which is
                  attached hereto as Exhibit "C";

                      (iii) A certificate  dated  as  of the date of delivery of
                  the Bond to be initially delivered,  signed by the Chairman or
                  Vice  Chairman and the Secretary of the Issuer and in form and
                  substance satisfactory to the Purchaser, to the effect that to
                  the best of the  information,  knowledge  and  belief  of such
                  officers, each of the representations and warranties set forth
                  in  Paragraph 4 hereof and in the Lease is true,  accurate and
                  complete in all  material  respects as of the date of delivery
                  of the Bond to be initially  delivered and that the Issuer has
                  complied with each of its covenants and agreements required in
                  this Bond  Purchase  Agreement to be complied with at or prior
                  to the date of delivery of the Bond to be initially delivered;
                  and

                                      -6-

<PAGE>

                      (iv) Such  additional  opinions, certificates, instruments
                  and  other  documents  as the  Purchaser  or its  counsel  may
                  reasonably request to evidence compliance with applicable law,
                  as of the  date  of  delivery  of  the  Bond  to be  initially
                  delivered.

         The Purchaser's  obligation to purchase and pay for any of the Bonds at
any time or from time to time  after the  delivery  of the Bond to be  initially
delivered,  as herein provided, is subject to the due execution,  authentication
and delivery to the Purchaser of such pertinent Bond.

         8.       HOME  OFFICE  PAYMENT. The  Issuer  agrees  that  all  amounts
payable to the  Purchaser  with respect to any Bond held by the Purchaser or its
nominee may be made to the Purchaser  (without any presentment  thereof,  except
upon payment of the final  installment of principal,  and with a notation of any
principal  payment  being made  thereon  by the  Purchaser)  pursuant  to and in
accordance  with the terms of a Home Office  Payment  Agreement  entered into in
accordance  with Section  202(c) of the  Indenture.  In the event the  Purchaser
enters into a Home Office Payment  Agreement,  the Purchaser  agrees that (a) if
any Bonds are sold or transferred it will notify the Issuer, the Trustee and the
Lessee of the name and  address  of the  transferee,  and  include a copy of the
notation  referred to  hereafter  in this  sentence and (b) prior to delivery of
such Bonds, a notation shall be made on such Bonds of the date to which interest
has been paid  thereon and of the amount of any  prepayments  made on account of
the principal thereof. The Purchaser agrees to indemnify the Trustee and hold it
harmless  from any loss,  claim,  action,  damage or expense  arising out of the
Purchaser's  failure to give the notice or, if it is holding such Bonds, to make
the  notation  with  respect to  prepayment  of the Bonds,  as  required  in the
immediately  preceding  sentence.  The rights and obligations of the Issuer, the
Lessee and the Purchaser under this Paragraph 8 shall not be assignable upon any
partial transfer of the Bonds.

         9.       NOTICES AND  OTHER  ACTIONS. Except  as  set  forth  elsewhere
herein, all notices, demands and formal actions hereunder will be in writing and
sent by certified or registered mail to:

         The Issuer -               Development Authority of Fulton County
         ----------                 141 Pryor Street, S.W.
                                    Suite 5001
                                    Atlanta, Georgia  30303


         with copies to:            Lewis C. Horne, Jr., Esq.
         ---------------            Nelson, Mullins, Riley & Scarborough
                                    999 Peachtree Street, N.E.
                                    Suite 1400
                                    Atlanta, Georgia  30309
                                    Telecopy No.:  (404) 817-6050


                                      -7-

<PAGE>


         The Lessee -               ADESA Atlanta, LLC
         ----------                 310 E. 96th Street, Suite 400
                                    Indianapolis, Indiana  46240
                                    Attn:  General Counsel
                                    Telecopy No.:  (317) 815-3656


         with copies to:            Glenn R. Thomson, Esq.
         ---------------            Alston & Bird LLP
                                    One Atlantic Center
                                    1201 West Peachtree Street
                                    Atlanta, Georgia  30309-3424
                                    Telecopy No.:  (404) 253-8266


         The Purchaser -            ADESA Atlanta, LLC
         -------------              310 E. 96th Street, Suite 400
                                    Indianapolis, Indiana  46240
                                    Attn:  General Counsel
                                    Telecopy No.:  (317) 815-3656


         The Trustee -              SunTrust Bank
         -----------                25 Park Place, 24th Floor
                                    Atlanta, Georgia  30303
                                    Attn:  Corporate Trust Department
                                    Telecopy No.:  (404) 588-7335


         The Issuer, the  Lessee, the  Purchaser and  the Trustee may, by notice
given  hereunder,  designate  any further or different  addresses or  telecopier
numbers to which  subsequent  notices,  certifications  or other  communications
shall be sent.

         10.      SURVIVAL    OF    REPRESENTATIONS    AND    AGREEMENTS.    All
representations,  warranties  and  agreements  of  the  Issuer  and  the  Lessee
contained  herein shall remain operative and in full force and shall survive (a)
the execution and delivery of this Bond Purchase Agreement, and (b) the purchase
of any or all of the Bonds hereunder.

         11.      COUNTERPARTS. This Bond Purchase Agreement  may be executed in
any  number of  counterparts  with each  executed  counterpart  constituting  an
original but all of which together shall constitute one and the same instrument.

         12.      SUCCESSORS; GOVERNING LAW. This  Bond  Purchase Agreement will
inure to the  benefit  of and be  binding  upon the  parties  hereto  and  their
successors and assigns.  This Bond Purchase  Agreement  shall be governed by and
construed in accordance with the laws of the State of Georgia.

                                      -8-

<PAGE>


         IN WITNESS WHEREOF, each of the parties hereto have executed and sealed
this Agreement  through its duly  authorized  representative  as of the date and
year first above written.


                                    ISSUER

                                    DEVELOPMENT AUTHORITY OF
                                    FULTON COUNTY
(SEAL)


                                    By:   /s/ Robert J. Shaw
                                        ----------------------------------------
                                          Chairman
Attest:



  /s/ Lewis C. Horne, Jr.
- --------------------------
    Assistant Secretary














                   [Signature page - Bond Purchase Agreement]


                                      -9-
<PAGE>




                                    LESSEE

                                    ADESA ATLANTA, LLC
(SEAL)

                                    By:  /s/ Paul J. Lips
                                       -----------------------------------------
                                    Name:  Paul J. Lips
                                         ---------------------------------------
                                    Title: Treasurer
                                          --------------------------------------


Attest:



  /s/ Karen C. Turner
- ----------------------
   Karen C. Turner
   ---------------
   Secretary



















                   [Signature Page - Bond Purchase Agreement]


                                      -10-
<PAGE>


                                    PURCHASER

                                    ADESA ATLANTA, LLC

(SEAL)

                                    By:  /s/ Paul J. Lips
                                       -----------------------------------------
                                    Name:  Paul J. Lips
                                         ---------------------------------------
Attest:                             Title: Treasurer
                                          --------------------------------------


/s/ Karen C. Turner
- -------------------
Karen C. Turner
- ---------------
Secretary














                   [Signature Page - Bond Purchase Agreement]


                                      -11-

<PAGE>

                            ACKNOWLEDGMENT OF TRUSTEE

         The undersigned  Trustee acknowledges receipt of and  agrees to perform
those functions required of it pursuant to the provisions of Sections 2 and 8 of
this Bond Purchase Agreement:

                                    SUNTRUST BANK, as Trustee
(SEAL) SUNTRUST BANK
         CORPORATE
           SEAL                     By:  /s/ Jack Ellerin
         GEORGIA                       -----------------------------------------
                                         Jack Ellerin
                                         Assistant Vice President

Attest:


  /s/ Muriel Shaw
- --------------------------
Name:   MURIEL SHAW
      --------------------
Title:   TRUST OFFICER
       -------------------















                   [Signature Page - Bond Purchase Agreement]


                                      -12-


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>5
<FILENAME>exhibit10m.txt
<DESCRIPTION>EX-10(M) LEASE AGREEMENT-ADESA ATLANTA, LLC
<TEXT>
<PAGE>
                                                                   Exhibit 10(m)





                                 LEASE AGREEMENT

                                     between

                     DEVELOPMENT AUTHORITY OF FULTON COUNTY


                                       and


                               ADESA ATLANTA, LLC


                          Dated as of December 1, 2002



                     The interest of Development  Authority
                     of Fulton  County  (the  "Issuer")  in
                     this Lease Agreement has been assigned
                     to  SunTrust  Bank,  as  trustee  (the
                     "Trustee")  under the Trust  Indenture
                     dated as of December 1, 2002,  between
                     the Issuer and the Trustee as security
                     for the payment of the  principal  of,
                     premium, if any, and interest on those
                     certain Taxable  Economic  Development
                     Revenue  Bonds,  (ADESA  Atlanta,  LLC
                     Project)    Series   2002,   and   any
                     Additional   Bonds  issued  under  the
                     Indenture.


This Instrument was prepared by:

Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia  30309-3424


<PAGE>


                                    CONTENTS
                                                                            Page
                                                                            ----

ARTICLE I - DEFINITIONS.......................................................1

     Section 1.1    Definitions...............................................1
     Section 1.2    Certain Rules of  Interpretation..........................7

ARTICLE II - REPRESENTATIONS..................................................7

     Section 2.1    Representations by the Issuer.............................7
     Section 2.2    Representations by the Lessee.............................8

ARTICLE III - DEMISING CLAUSES AND WARRANTY OF TITLE..........................8

     Section 3.1    Demise of the Project.....................................8
     Section 3.2    Warranty of Title.........................................8
     Section 3.3    Quiet Enjoyment...........................................8

ARTICLE IV - COMMENCEMENT AND COMPLETION OF THE
     PROJECT; ISSUANCE OF THE BONDS; ADDITIONAL BONDS.........................9

     Section 4.1    Agreement to Construct and Equip the Project;
             Appointment of Lessee as Construction Agent......................9
     Section 4.2    Agreement to Issue the Bonds; Application of Bond
             Proceeds; Additional Bonds.......................................10
     Section 4.3    Disbursements from the Construction Fund..................11
     Section 4.4    Obligation of the Parties to Cooperate in Furnishing
             Documents to Trustee.............................................12
     Section 4.5    Establishment of Completion Date and Date of Beneficial
             Occupancy........................................................12
     Section 4.6    Lessee Required to pay Construction and Equipment
             Costs in Event Construction Fund Insufficient....................13
     Section 4.7    Issuer to Pursue Remedies Against Contractor
             and Subcontractors and Their Sureties............................13
     Section 4.8    Investment of Construction Fund and Bond Fund
             Moneys Permitted.................................................14

ARTICLE V - EFFECTIVE DATE OF THIS LEASE; DURATION OF LEASE TERM; RENTAL
     PROVISIONS...............................................................14

     Section 5.1    Effective Date of This Lease, Duration of Lease Term..... 14
     Section 5.2    Delivery and Acceptance of Possession.....................14
     Section 5.3    Rents and Other Amounts Payable...........................15
     Section 5.4    Place of Payments.........................................16
     Section 5.5    Obligations of Lessee Hereunder Unconditional.............16

                                      -i-


<PAGE>

ARTICLE VI - MAINTENANCE, MODIFICATIONS, TAXES AND INSURANCE..................17

     Section 6.1    Maintenance and Modification of Project by Lessee.........17
     Section 6.2    Removal of Equipment......................................18
     Section 6.3    Taxes, Other Governmental Charges and Utility Charges.....19
     Section 6.4    Insurance and Indemnity...................................20
     Section 6.5    Advances by Issuer to Trustee.............................20

ARTICLE VII - DAMAGE, DESTRUCTION AND CONDEMNATION............................21

     Section 7.1    Damage and Destruction....................................21
     Section 7.2    Condemnation..............................................21
     Section 7.3    Condemnation of Excluded Property.........................22

ARTICLE VIII - SPECIAL COVENANTS..............................................23

     Section 8.1    No Warranty of Design, Condition or Suitability
             by the Issuer....................................................23
     Section 8.2    Inspection of the Project.................................23
     Section 8.3    Lessee to Maintain its Existence; Conditions
             Under Which Exceptions Permitted.................................23
     Section 8.4    Qualification in Georgia..................................23
     Section 8.5    Granting of Easements and Leasehold Mortgages.............23
     Section 8.6    Waiver of Landlord's Lien.................................28
     Section 8.7    Granting of Mortgages by Issuer...........................28
     Section 8.8    Estoppel Certificates.....................................28
     Section 8.9    Authorized Issuer Representative..........................29
     Section 8.10   Authorized Lessee Representative..........................29

ARTICLE IX - ASSIGNMENT, SUBLEASING, PLEDGING, AND SELLING, REDEMPTION;
     RENT PREPAYMENT AND ABATEMENT............................................29

     Section 9.1    Assignment and Subleasing.................................29
     Section 9.2    Assignment and Pledge of Revenues by Issuer...............30
     Section 9.3    Restrictions on Sale of Project by Issuer.................30
     Section 9.4    Redemption of Bonds.......................................30
     Section 9.5    Prepayment of Rents.......................................30
     Section 9.6    Presentment of Bonds for Cancellation.....................30
     Section 9.7    Lessee Entitled to Certain Rent Abatements if
             Bonds Paid Prior to Maturity.....................................31
     Section 9.8    Reference to Bonds Ineffective After Bonds Paid...........31

ARTICLE X - EVENTS OF DEFAULT AND REMEDIES....................................31

     Section 10.1   Events of Default Defined.................................31
     Section 10.2   Remedies on Default.......................................33
     Section 10.3   No Remedy Exclusive.......................................34


                                      -ii-

<PAGE>

     Section 10.4   Agreement to Pay Reasonable Attorneys' Fees and
             Expenses.........................................................34
     Section 10.5   No Additional Waiver Implied by One Waiver................34
     Section 10.6   Rescission of Remedies....................................35

ARTICLE XI - OPTIONS IN FAVOR OF LESSEE.......................................35

     Section 11.1   General Option to Purchase Project........................35
     Section 11.2   Option to Purchase a Portion of the Project...............36
     Section 11.3   Conveyance on Purchase....................................37
     Section 11.4   Relative Position of Options and Indenture................38
     Section 11.5   Lessee's Option to Terminate..............................38
     Section 11.6   Conveyance of Project at End of Lease Term................38

ARTICLE XII - MISCELLANEOUS...................................................39

     Section 12.1   Notices...................................................39
     Section 12.2   Binding Effect............................................39
     Section 12.3   Severability..............................................40
     Section 12.4   Amounts Remaining in Funds................................40
     Section 12.5   Amendments, Changes and Modifications.....................40
     Section 12.6   Execution Counterparts....................................41
     Section 12.7   Captions..................................................41
     Section 12.8   Recording of Lease........................................41
     Section 12.9   Law Governing Construction of Lease.......................41
     Section 12.10  Net Lease.................................................41
     Section 12.11  Survival of Purchase Options..............................41

EXHIBIT A - Land
EXHIBIT B - The Project

                                     -iii-

<PAGE>

STATE OF GEORGIA
COUNTY OF FULTON

         THIS LEASE AGREEMENT made and entered into as of December 1, 2002 (this
"Lease") by and between  DEVELOPMENT  AUTHORITY OF FULTON COUNTY  (herein called
the  "Issuer"),  a public body corporate and politic duly organized and existing
under the laws of the State of  Georgia,  as  Lessor,  and  ADESA  ATLANTA,  LLC
(herein called the "Lessee"), a limited liability corporation duly organized and
existing under the laws of the State of New Jersey, as Lessee.

                                   WITNESSETH:

         WHEREAS,  the Issuer was  created  for the  purpose  of  expanding  and
developing  trade,  commerce,  industry and employment  opportunities  in Fulton
County, Georgia (the "County"),  and in furtherance of such purposes, the Issuer
has the  power to issue its  revenue  bonds to  provide  funds to be used by the
Issuer  to  finance  construction,  installation,  modification,  renovation  or
rehabilitation of land, buildings, structures, facilities and other improvements
and fixtures, machinery,  equipment,  furniture and other property of any nature
whatsoever  used in  connection  therewith,  as  determined by a majority of the
members of the Issuer for lease or sale to  prospective  tenants or  purchasers;
and

         WHEREAS,  the  Issuer  proposes  to  acquire,  construct  and equip the
Project (as  hereinafter  defined)  within the Issuer's area of authority and to
lease the same to the Lessee in a manner  consistent  with its stated purpose of
expanding and developing trade, commerce,  industry and employment opportunities
in the County.

         NOW, THEREFORE, in consideration of the respective  representations and
agreements herein contained and such other good and valuable consideration,  the
receipt and  sufficiency  of which is hereby  acknowledged,  the parties  hereto
agree as  follows  (provided,  that any  obligation  of the  Issuer to pay money
created by or  arising  out of this  Lease  shall be  payable  solely out of the
proceeds  derived from this Lease,  the sale of the Bonds referred to in Section
2.1 hereof,  the insurance and  condemnation  awards as herein  provided and any
other revenues  arising out of or in connection  with its ownership,  leasing or
sale of the Project as hereinafter defined):

                                    ARTICLE I
                                    ---------

                                   DEFINITIONS
                                   -----------

         Section 1.1   DEFINITIONS. In addition to the words and terms elsewhere
defined  herein,  the  following  words and terms as used herein  shall have the
following  meanings  unless the  context  or use  clearly  indicates  another or
different  meaning  or  intent,  and any other  words and terms  defined  in the
Indenture  shall have the same meanings when used



<PAGE>

herein as  assigned  them in the  Indenture  unless the  context or use  clearly
indicates another or different meaning or intent:

         "ACT" means the Development Authorities Law (O.C.G.A. 36-62-1 ET SEQ.),
as now or hereafter amended.

         "ADDITIONAL  BONDS"  means  additional  parity Bonds  authorized  to be
issued by the Issuer pursuant to Section 208 of the Indenture.

         "ADDITIONS" shall have the meaning given in Section 6.1 hereof.

         "AFFILIATE"  means,  with  respect to any Person,  any other Person (i)
directly or indirectly  controlling or controlled by or under direct or indirect
common  control  with such  Person,  or (ii)  directly or  indirectly  owning or
holding  five percent  (5%) or more of the equity  interest in such Person.  For
purposes  of this  definition,  "control"  when used with  respect to any Person
means the power to direct the management  and policies of such Person,  directly
or indirectly,  whether through the ownership of voting securities,  by contract
or  otherwise;  and the  terms  "controlling"  and  "controlled"  have  meanings
correlative to the foregoing.

         "AGREEMENT  TERM"  means the period  beginning  on the date  hereof and
continuing until the expiration of the Lease Term.

         "AUTHORIZED ISSUER  REPRESENTATIVE"  means the person or persons at the
time designated to act on behalf of the Issuer by written certificate  furnished
to the Lessee and the Trustee  containing the specimen  signature of such person
or persons and signed on behalf of the Issuer by its Chairman or Vice  Chairman.
Any such  person  shall be  subject to the  approval  of the Lessee and shall be
replaced by the Issuer upon the written request of the Lessee.

         "AUTHORIZED LESSEE  REPRESENTATIVE"  means the person or persons at the
time designated to act on behalf of the Lessee by written certificate  furnished
to the Issuer and the Trustee  containing the specimen  signature of such person
or persons and signed on behalf of the Lessee by the Chairman of the Board,  the
President or any Vice President of the Lessee.

         "BONDS" means the 2002  Bonds and any Additional  Bonds  issued by  the
Issuer pursuant to the Indenture.

         "BOND FUND" means the fund created by Section 502 of the Indenture.

         "CLOSING DATE" means the date of the original  issuance and sale of the
Bonds.

         "COMPLETION DATE" shall have the meaning given such term in Section 4.5
hereof.

                                       -2-
<PAGE>

         "CONSTRUCTION  FUND"  means  the fund  created  by  Section  602 of the
Indenture.

         "CONSTRUCTION  PERIOD"  means  the  period  between  the  beginning  of
construction  of the Project or the date on which the Bonds are first  delivered
to the  original  purchaser  thereof  (whichever  is  earlier)  and the  Date of
Beneficial Occupancy.

         "COUNTY" means Fulton County,  Georgia, a political  subdivision of the
State of Georgia, and any public entity, body or authority to which is hereafter
transferred or delegated by law the duties, powers, authorities,  obligations or
liabilities of the present political subdivision.

         "DATE OF BENEFICIAL  OCCUPANCY"  shall have the meaning given such term
in Section 4.5 hereof.

         "EQUIPMENT"  means  those  items  of  machinery,  equipment  and  other
tangible personal property acquired with the proceeds from the sale of the Bonds
or the  proceeds  from any payment by the Lessee  pursuant to Section 4.6 hereof
and  installed as part of the Project and any item of  machinery,  equipment and
other tangible personal property acquired and installed in substitution  thereof
and renewals and  replacements  thereof  pursuant to the  provisions of Sections
4.1,  6.2(a),  7.1 and 7.2  hereof,  less such  machinery,  equipment  and other
tangible  personal  property  as may be  released  from this Lease  pursuant  to
Section  6.2(b)  hereof or damaged or destroyed  and not restored as provided in
Section 7.1 or taken by the exercise of the power of eminent  domain as provided
in Section 7.2 hereof, but not including any Excluded Property or any machinery,
equipment and other tangible personal property installed under the provisions of
Section 6.1(b) hereof.

         "EXCLUDED  PROPERTY"  means  all  personal  property  (other  than such
property as is included in the  definition of  Equipment)  and all real property
(other  than  such  property  as is  included  in the  definition  of  Land  and
Improvements) which is not purchased or acquired,  directly or indirectly,  with
the  proceeds of the Bonds or expressly  transferred  to the Issuer by a bill of
sale or similar instrument,  and all renewals and replacements therefor, in each
case whether now owned or hereafter  acquired by the Lessee or any other Person,
and  whether or not  installed  or located on the Land as  described  in Section
6.1(b) hereof.

         "FORCE MAJEURE EVENT" means, without limitation, the following: acts of
God; strikes, lockouts or other industrial disturbances; acts of public enemies;
orders of any kind of the  government  of the  United  States or of the State of
Georgia or any of their  departments,  agencies,  or officials,  or any civil or
military authority;  insurrections;  riots;  epidemics;  landslides;  lightning;
earthquakes;  fire; hurricanes;  storms; floods;  washouts;  droughts;  arrests;
restraint of government and people; civil disturbance;  explosions;  breakage or
accident to machinery,  transmission pipes or canals;  partial or entire failure
of utilities;  or any other cause or event not reasonably  within the control of
the  Lessee.   The  settlement  of  strikes,   lockouts  and  other   industrial
disturbances  shall be entirely

                                      -3-

<PAGE>

within the  discretion  of the Lessee,  and the Lessee  shall not be required to
make  settlement  of strikes,  lockouts  and other  industrial  disturbances  by
acceding to the demands of the opposing  party or parties when such course is in
the judgment of the Lessee unfavorable to the Lessee.

         "GOVERNMENT  OBLIGATIONS"  means (a) direct  obligations  of the United
States of  America  for the  payment  of which the full  faith and credit of the
United  States of  America is  pledged,  or (b)  obligations  issued by a person
controlled  or  supervised  by and  acting as an  instrumentality  of the United
States of  America,  the  payment of the  principal  of,  premium,  if any,  and
interest on which is fully and  unconditionally  guaranteed  as a full faith and
credit obligation by the United States of America.

         "GOVERNMENTAL  AUTHORITY"  means any federal,  state,  local or foreign
court or governmental agency, authority, instrumentality or regulatory body.

         "IMPROVEMENTS"  means those  certain  buildings,  facilities  and other
improvements to real property provided for in the Plans and Specifications which
are  located on the Land and which do not  constitute  a part of the  Equipment,
including, without limitation, all facilities,  roads, parking areas, utilities,
fences,  lighting  and other  site  improvements,  as such may from time to time
exist.

         "ISSUER" means  Development  Authority of Fulton County,  a public body
corporate and politic duly organized and existing under the laws of the State of
Georgia, and its lawful successors and assigns.

         "LAND" means the real estate and interests in real estate  described in
Exhibit "A"  attached  hereto and by this  reference  made a part of this Lease,
plus  such  real  estate  and  interests  in real  estate as may be added to the
provisions of this Lease pursuant to Section 12.5 hereof,  less such real estate
and  interests  in real  estate as may be released  from this Lease  pursuant to
Sections  8.5 and 11.3  hereof or taken by the  exercise of the power of eminent
domain as provided in Section 7.2 hereof.

         "LEASE"  means  this  Lease  Agreement  as it now  exists and as it may
hereafter  be  amended  pursuant  to the terms  hereof  and  Article  XII of the
Indenture.

         "LEASE TERM" means the duration of the Lessee's beneficial occupancy of
the Project as provided in Section 5.1 hereof, including any applicable Extended
Lease Term (as therein defined).

         "LEASEHOLD  MORTGAGE"  shall having the meaning given in Section 8.5(b)
hereof.

         "LESSEE"  means  ADESA  Atlanta,  LLC, a New Jersey  limited  liability
company,  and its successors and assigns  including any surviving,  resulting or
transferee corporation as provided in Section 8.3 hereof.

                                      -4-

<PAGE>

         "MORTGAGE" shall have the meaning given in Section 8.7 hereof.

         "NET PROCEEDS" when used with respect to any insurance or  condemnation
award,  means the gross proceeds from the insurance or  condemnation  award with
respect  to which that term is used  remaining  after  payment  of all  expenses
incurred in the collection of such gross proceeds.

         "PERMITTED  ENCUMBRANCES"  means, as of any particular  time, (a) liens
for ad valorem taxes and special assessments not then delinquent or permitted to
exist as provided in Section 6.3 hereof,  (b) the Lease Documents,  (c) utility,
access and other easements, licenses, rights-of-way,  restrictions, reservations
and  exceptions  which,  according to the  certificate  of an Authorized  Lessee
Representative,  will not  materially  interfere  with or impair the  operations
being  conducted  at the  Project  (or,  if no  operations  are being  conducted
therein,  the operations  for which the Project was designed or last  modified),
(d) unfiled and inchoate  mechanics',  materialmen's  or other similar liens for
construction  work  in  progress,  (e)  mechanics',  laborers',   materialmen's,
suppliers'  and vendors'  liens or other similar  liens in  connection  with the
Project  Construction or the  acquisition,  construction and installation of any
Additions (as defined in Section 6.1 hereof), (f) such defects,  irregularities,
encumbrances,  easements,  rights-of-way  and clouds on title as do not,  in the
aggregate,  and in the opinion of the  Lessee,  materially  impair the  property
affected  thereby for the  purpose  for which it was  acquired or is held by the
Issuer, (g) the rights of sublessees and other tenants having an interest in all
or any portion of the  Project,  and (h) any Lessee  Liens and Issuer  Liens (as
such terms are defined in Section 8.5(b) hereof).

         "PERSON"  means  any  individual,  partnership,  joint  venture,  firm,
corporation,  limited liability company, association,  trust or other enterprise
(whether or not incorporated) or any Governmental Authority.

         "PLANS AND SPECIFICATIONS" means the plans and specifications  prepared
by or on behalf  of the  Lessee  for the  Project,  as the same may be  amended,
modified  or  supplemented  from time to time by the Lessee in  accordance  with
Section 4.1 hereof.

         "PROJECT"  means the facilities,  including the Land, the  Improvements
and  the  Equipment,  acquired  or to be  acquired,  constructed  and  installed
pursuant  to  Plans  and   Specifications,   which   facilities,   as  presently
contemplated,  are generally  described in Exhibit "B" hereto, and all Additions
described  in Section  6.1(b) to the extent the Issuer has  received  the notice
and/or bill of sale or other  transfer  documents  as required by said  Section;
provided,  however,  that the  term  "Project"  and the  lesser  included  terms
"Improvements"  and  "Equipment"  shall not be deemed to include any part of the
Excluded  Property except where those terms are used in the definitions of "Date
of Beneficial Occupancy," "Construction Period," "Plans and Specifications," and
"Project  Costs," in Sections 2.1(a) and 2.1(d) and Article IV hereof and in any
other  provision  of this  Lease  dealing  specifically  with  the  acquisition,
construction, installation or equipping of property.

                                      -5-
<PAGE>

         "PROJECT  CONSTRUCTION"  means the  design,  development,  acquisition,
construction,  installation,  equipping and placing into service of the Project,
including,  without limitation,  the design and construction of all Improvements
and the acquisition, installation and testing of all Equipment.

         "PROJECT COSTS" shall include the following:

                  (a) all  costs of  construction, purchase, or  other forms  of
acquisition;

                  (b) all costs of real or personal  property  required  for the
purpose of the Project and all facilities  related  thereto,  including land and
any rights or undivided interests therein, easements,  franchises, water rights,
fees, permits,  approvals,  licenses,  and certificates and the securing of such
franchises, permits, approvals, licenses and certificates and the preparation of
applications therefor;

                  (c) all machinery, equipment, initial fuel, and other supplies
required for the Project;

                  (d) financing  charges  and  interest  prior  to  the  Date of
Beneficial Occupancy;

                  (e) costs of engineering, architectural and legal services;

                  (f) fees paid to fiscal  agents for financial and other advice
or supervision;

                  (g) costs  of  Plans  and  Specifications  and  all   expenses
necessary or  incidental to the  construction,  purchase or  acquisition  of the
Project or to determining the feasibility or practicability of the Project;

                  (h) any  fund or  funds  for the  creation  of a debt  service
reserve,  a renewal or  replacement  reserve  and such other  reserves as may be
reasonably required by the Issuer with respect to the financing and operation of
the Project and as may be authorized by the Indenture; and

                  (i) administrative  expenses and such other expenses as may be
necessary or  incidental  to the  financing of the Project as  authorized in the
Act.

         The foregoing costs and expenses include costs and expenses incurred by
the  Issuer or the  Lessee  pursuant  to the  Inducement  Agreement  dated as of
October 22, 2002, between the Issuer and the Lessee (the "Inducement Agreement")
and include repayment of any loans made by the Lessee for the advance payment of
any part of such costs, including interest thereon.

                                      -6-
<PAGE>

         "2002  BONDS"  means the Taxable  Economic  Development  Revenue  Bonds
(ADESA Atlanta,  LLC Project) Series 2002,  issued by the Issuer pursuant to the
Indenture.

         Section 1.2  CERTAIN RULES OF INTERPRETATION. The definitions set forth
in Section 1.1 shall be equally applicable to both the singular and plural forms
of the terms therein defined and shall cover all genders.

         "Herein," "hereby," "hereunder," "hereof," "hereinbefore," hereinafter"
and other  equivalent words refer to this Lease and not solely to the particular
Article, Section or subdivision hereof in which such word is used.

         Reference  herein to an Article number (e.g.,  Article IV) or a Section
number  (e.g.,  Section  6.8)  shall  be  construed  to be a  reference  to  the
designated  Article  number or section  number  hereof unless the context or use
clearly indicates another or different meaning or intent.

         The table of contents, titles and headings of the articles and sections
of this Lease  Agreement have been inserted for  convenience  and reference only
and are not to be  considered  a part  hereof and shall not in any way modify or
restrict any of the terms or provisions  hereof and shall never be considered or
given  any  effect  in  construing  this  Lease or any  provision  hereof  or in
ascertaining intent, if any question of intent should arise.

         This Lease and all the terms and  provisions  hereof shall be liberally
construed  to  effectuate  the  purposes  set forth  herein and to  sustain  the
validity of this Lease.

                                   ARTICLE II
                                   ----------

                                 REPRESENTATIONS
                                 ---------------

         Section  2.1 REPRESENTATIONS  BY THE  ISSUER.  The  Issuer  makes   the
following  representations  as the basis for the undertakings on its part herein
contained:

                  (a) The Issuer is a public body  corporate  and  politic  duly
organized and existing  under the provisions of the Act. Under the provisions of
the Act, the Issuer has the power to enter into the transactions contemplated by
this Lease and to carry out its obligations hereunder. The Issuer has determined
by majority vote of its members that the Project  constitutes a "project" within
the  meaning  of the Act.  By  proper  corporate  action,  the  Issuer  has duly
authorized the execution and delivery of this Lease.

                  (b) The Issuer  proposes to acquire,  construct  and equip the
Project in accordance with the Plans and  Specifications,  and proposes to lease
the Project to the Lessee,  all for the purpose of  promoting  trade,  commerce,
industry and employment opportunities in the County and the State of Georgia.

                                      -7-
<PAGE>

                  (c) The Bonds are to be issued under the  Indenture,  pursuant
to which the  Issuer's  interest in this Lease and the rents and other  revenues
derived by the Issuer from its  ownership  and  leasing of the  Project  will be
assigned  and pledged to the  Trustee,  all as  security  for the payment of the
principal of, premium, if any, and interest on the Bonds.

         Section  2.2  REPRESENTATIONS  BY THE  LESSEE.  The  Lessee  makes  the
following  representations  as the basis for the undertakings on its part herein
contained:

                  (a) The Lessee, a limited liability company duly incorporated,
existing  and in good  standing  under the laws of the State of New Jersey,  and
qualified to do business  under the laws of the State of Georgia,  has the power
to enter into this Lease and to perform its obligations  contained  herein,  and
has been duly authorized to execute and deliver this Lease.

                  (b) The  Lessee  is not  subject  to any  provision  under its
Certificate of Formation,  as amended or its Operating Agreement, as amended, or
any contractual  limitation or provision of any nature  whatsoever  which in any
way limits,  restricts or prevents the Lessee from  entering  into this Lease or
performing any of its obligations hereunder.

                  (c) All of the Project will be located in the County.


                                   ARTICLE III
                                   -----------

                                DEMISING CLAUSES
                              AND WARRANTY OF TITLE
                              ---------------------

         Section 3.1  DEMISE OF THE PROJECT.  Commencing on the Closing Date and
during the Lease Term, the Issuer agrees to demise and lease to the Lessee,  and
the Lessee hereby agrees to lease from the Issuer, the Project at the rental set
forth in Section 5.3 hereof and in accordance with the provisions of this Lease,
subject to Permitted Encumbrances.

         Section 3.2  WARRANTY OF TITLE. The  Issuer  acknowledges  that it  has
received  from the Lessee a Limited  Warranty  Deed with respect to the Land and
warrants for itself and its successors and assigns to the Lessee, its successors
and assigns,  that the Issuer has not and shall not take any actions which would
result in the  imposition  of any liens or  encumbrances  on the Land except (i)
Permitted  Encumbrances or (ii) those liens or  encumbrances  created by or with
the written consent of the Lessee.

         Section 3.3  QUIET  ENJOYMENT.  The Issuer covenants and agrees that it
will  warrant  and  defend  the  Lessee in the  quiet  enjoyment  and  peaceable
possession of the

                                      -8-

<PAGE>

Project  free from all claims of all Persons  claiming by or through the Issuer,
throughout  the Lease Term, so long as the Lessee shall  perform the  covenants,
conditions  and  agreements to be performed by it  hereunder,  or so long as the
period for remedying any default in such performance shall not have expired.

                                   ARTICLE IV
                                   ----------

                   COMMENCEMENT AND COMPLETION OF THE PROJECT;
                     ISSUANCE OF THE BONDS; ADDITIONAL BONDS
                     ---------------------------------------

         Section 4.1  AGREEMENT TO CONSTRUCT AND EQUIP THE PROJECT;  APPOINTMENT
OF LESSEE AND  CONSTRUCTION AGENT.

         (a) The Issuer, to the maximum  extent  permitted by law, hereby makes,
constitutes and appoints the Lessee as its true,  lawful and exclusive agent for
the Project  Construction,  and the Lessee hereby accepts such agency to act and
do all things on behalf of the Issuer,  to exercise  all  rights,  remedies  and
powers of the Issuer in connection therewith, including, without limitation, the
following:

             (i)    negotiate,  enter into, perform  and  enforce all contracts,
purchase or supply  orders and other  arrangements  with  respect to the Project
Construction  (collectively,  the  "Construction  Contracts")  on such terms and
conditions as are customary and reasonable  under the  circumstances  and as are
reasonably  consistent  with local and national  standards  and  practices  with
respect to similar facilities;

             (ii)   apply  for  and  obtain in  its own name or the  name of the
Issuer all necessary permits, licenses,  consents,  approvals,  entitlements and
other  authorizations which may be required for the Project Construction and the
use and occupancy of the Project or any part thereof;

             (iii)  supervise  or  negotiate,  enter  into,  perform and enforce
contracts for the supervision of the Project Construction;

             (iv)   prepare, execute and  file with the Trustee all requisitions
and other  requests  required under the terms hereof and of the Indenture and to
obtain and use monies in the Construction  Fund for the payment or reimbursement
of Project Costs; and

             (v)    maintain the Plans and Specifications and adequate books and
records with respect to the Project Construction.

         The Issuer hereby  ratifies and confirms all actions of the Lessee with
respect to the Project prior to the date hereof.  This appointment of the Lessee
to act as agent and all authority  hereby  conferred or granted is conferred and
granted  irrevocably,  until  all  activities  in  connection  with the  Project
Construction shall have been completed, and

                                      -9-

<PAGE>

shall not be  terminated  prior  thereto  unless by the mutual  agreement of the
Issuer and the Lessee.

         (b) The Issuer agrees that it will enter into, or accept the assignment
of, such Construction Contracts as the Lessee may request in order to effectuate
the purposes of this Section;  provided that, unless waived by the Issuer,  each
such Construction Contract shall be expressly non-recourse to the Issuer.

         (c) The Lessee agrees to  use its best  efforts to cause  the Plans and
Specifications  to be  prepared  and  completed  as soon as  practicable  and in
accordance with the requirements of all applicable Governmental Authorities.  In
addition, to the extent not covered by said Plans and Specifications, the Lessee
agrees to prepare the list of Equipment  for  installation  in the Project which
Equipment  shall be necessary or  desirable in the  discretion  of the Lessee in
connection  with the use,  occupancy  and  operation of the Project.  The Issuer
agrees  that the  Lessee  may at any time  and  from  time to time,  in its sole
discretion,  change the Plans and  Specifications;  provided,  however,  no such
change or changes  shall  singly or in the  aggregate  result in the Project not
constituting  a "project" as defined in the Act or shall,  without prior written
notice to the Issuer,  substantially  change the character of the Project or the
type of business operations to be conducted at the Project. The Improvements and
the Equipment shall be titled in the name of the Issuer and subject to the terms
of this Lease.

         (d) The Lessee agrees to  use its best efforts to (i) cause the Project
Construction to be commenced as promptly as practicable  after the Closing Date,
(ii)  to  continue  said  Project  Construction  with  all  reasonable  dispatch
thereafter, and (iii) to cause said Project Construction to be completed as soon
as practicable. Notwithstanding anything else herein contained, the Lessee shall
not be deemed in default of its duties and  obligations  under this  Section 4.1
during any period that the Lessee is unable, in whole or part, to carry out such
duties and  obligations  by reason of a Force  Majeure  Event.  If said  Project
Construction is not completed within the time herein contemplated there shall be
no  resulting  liability on the part of the Issuer or the Lessee and there shall
be no diminution or postponement in the payment of the rents required in Section
5.3 hereof by the Lessee.

         (e) Upon  the  request  of  the Lessee, the  Issuer  will assign to the
Lessee  all  warranties  and  guaranties  of  all  contractors,  subcontractors,
suppliers,  architects and engineers for the  furnishing of labor,  materials or
equipment or supervision or design in connection with the Project and any rights
or causes of action  arising  from or  against  any of the  foregoing  under the
Construction Contracts or otherwise.

         Section 4.2  AGREEMENT  TO  ISSUE  THE   BONDS;  APPLICATION  OF   BOND
PROCEEDS; ADDITIONAL BONDS.

         (a) In order to provide  funds for payment of  the  Project Costs,  the
Issuer agrees that it will sell,  issue and cause to be  delivered,  pursuant to
the Indenture, the 2002

                                      -10-

<PAGE>

Bonds, bearing interest,  maturing and having the other terms and provisions set
forth in the  Indenture.  Upon receipt of the proceeds  derived from the sale of
2002  Bonds,  the  Issuer  will  cause  said  proceeds  to be  deposited  in the
Construction Fund.

         (b) The Issuer agrees  to authorize  the  issuance of  Additional Bonds
upon the terms and conditions  provided herein and in the Indenture.  Additional
Bonds may be authorized for the purpose of financing Project Costs to the extent
such  costs  exceed  the  amount in the  Construction  Fund,  such  excess to be
evidenced  by a  certificate  signed by the  Authorized  Lessee  Representative,
subject to the  limitations  contained in Section 208 of the  Indenture.  If the
Lessee is not in default hereunder, the Issuer agrees, on request of the Lessee,
from time to time,  to use its best  efforts to issue  Additional  Bonds in such
amounts,  maturing on such  dates,  bearing  such rate or rates of interest  and
redeemable  at such  times and prices as may be  specified  by the Lessee and as
shall be permitted  within the limits and under the conditions  specified  above
and in the  Indenture;  provided,  that (i) the Lessee and the Issuer shall have
entered  into  an  amendment  to  this  Lease  or a  separate  lease  containing
substantially  the same  terms as this  Lease to  provide  for the  lease of any
additional  properties not constituting  Excluded  Property to the Lessee and to
include a  description  of such  additional  properties,  to provide  for rental
payments  to be paid by the Lessee to the Issuer as shall be  sufficient  to pay
the principal of and premium,  if any, and interest on the  Additional  Bonds as
provided to be paid in the  supplemental  bond  resolution  with respect to such
Additional  Bonds,  and to extend  the Lease  Term or in the case of a  separate
lease,  provide  for a lease term of at least ten years if the  maturity  of any
Additional  Bonds would occur after the  expiration of the Lease Term,  and (ii)
the Issuer shall have  otherwise  complied with the  provisions of the Indenture
with respect to the issuance of such  Additional  Bonds.  Any  amendment to this
Lease  entered  into  pursuant  to clause (i) above will  provide  that any such
additional  properties  shall be included under this Lease upon terms equivalent
to those  pertaining  to the Project.  The Issuer will deposit the proceeds from
the sale of  Additional  Bonds in the same manner as provided in  paragraph  (a)
above.

         (c) Upon request of the Lessee,  the Issuer agrees to authorize and use
its best efforts to issue,  and if issued to deposit the proceeds  from the sale
of, any  refunding  bonds for the purpose of  refunding  all or a portion of the
outstanding Bonds.

         Section 4.3  DISBURSEMENTS   FROM   THE   CONSTRUCTION   FUND. In   the
Indenture, the Issuer has authorized and directed the Trustee that moneys in the
Construction  Fund shall be used to pay the Project  Costs,  or to reimburse the
Issuer or the Lessee for any Project Costs paid or incurred by the Issuer or the
Lessee either  before or after  execution of this Lease and delivery of the 2002
Bonds. Such payments shall be made by the Trustee upon receipt of a requisition,
signed by the  Authorized  Lessee  Representative,  stating with respect to each
payment to be made:

         (1) the requisition number;

                                      -11-
<PAGE>

         (2) if other than the Lessee, the  name  and address of  the person  to
whom payment is due;

         (3) the amount to be paid; and

         (4) that each  obligation  mentioned therein constitutes a Project Cost
and has not been the basis of any previous requisition.

         In the Indenture, the  Issuer  has  authorized and  directed  that  all
moneys remaining in the Construction  Fund (including  moneys earned pursuant to
the  provisions  of Section  4.8  hereof)  upon  receipt  by the  Trustee of the
Construction Completion Certificate described in Section 4.5(b) hereof, shall at
the written  direction of the Lessee, be (i) used by the Issuer for the purchase
of Bonds for the purpose of  cancellation;  or (ii) paid into the Bond Fund;  or
(iii) a combination of (i) and (ii) as is provided in such  direction,  provided
that amounts approved by the Authorized Lessee  Representative shall be retained
in the  Construction  Fund  (whether  or not then on deposit or to be  deposited
pursuant to a subsequent  requisition) for payment of Project Costs not then due
and payable.  Any balance remaining of such retained funds after full payment of
all such Project Costs shall be used by the Trustee as directed by the Lessee in
the manner specified in clauses (i), (ii) and (iii) of this paragraph.

         In making any  such payment from the Construction Fund, the Trustee may
rely on any such requisitions and certificates  delivered to it pursuant to this
Section and the  Trustee  shall be relieved  of all  liability  with  respect to
making such  payments in  accordance  with such  requisitions  and  certificates
without inspection of the Project or any other investigation.

         Section 4.4  OBLIGATION  OF  THE  PARTIES  TO  COOPERATE IN  FURNISHING
DOCUMENTS TO TRUSTEE.  The Issuer and the Lessee  agree to  cooperate  with each
other in  furnishing  to the  Trustee the  documents  referred to in Section 4.3
hereof that are required to effect payments out of the Construction Fund, and to
cause such  requisitions  to be directed to the Trustee as may be  necessary  to
effect  payments out of the  Construction  Fund in  accordance  with Section 4.3
hereof.

         Section 4.5  ESTABLISHMENT  OF  COMPLETION DATE AND  DATE OF BENEFICIAL
OCCUPANCY.  The  Completion  Date  shall  be  evidenced  to  the  Trustee  by  a
certificate executed by the Authorized Lessee  Representative (the "Construction
Completion  Certificate")  stating that as of a date  certain  (the  "Completion
Date") the Project  Construction  was  completed  and that the Issuer and/or the
Lessee  received  all  consents,  approvals  or other  licenses  for  applicable
Governmental  Authorities  required for the use,  occupancy and operation of the
Project. The Construction  Completion  Certificate shall be delivered within ten
(10) days of the Completion Date as determined by the Lessee.

         The Date of Beneficial Occupancy shall be evidenced to the Trustee by a
certificate  signed by the Authorized  Lessee  Representative  (the  "Beneficial
Occupancy

                                      -12-
<PAGE>

Certificate")  stating that the Date of  Beneficial  Occupancy  has occurred and
specifying said date. The "Date of Beneficial Occupancy" shall mean the earliest
to  occur  of (i)  the  Completion  Date or (ii)  the  day on  which  commercial
operations at the Project have begun. The Beneficial Occupancy Certificate shall
be delivered  within ten (10) days of the date of the  occurrence of the Date of
Beneficial Occupancy.

         Notwithstanding the  foregoing, the Construction Completion Certificate
and the Beneficial Occupancy Certificate shall state that they are given without
prejudice to any rights of the Issuer or the Lessee  against third parties which
exist on the date of such certificate or which may subsequently come into being.
The Issuer and the Lessee agree to cooperate in causing such  certificates to be
furnished to the Trustee.

         Section 4.6  LESSEE REQUIRED TO PAY CONSTRUCTION AND EQUIPMENT COSTS IN
EVENT  CONSTRUCTION  FUND  INSUFFICIENT. In   the   event  the   moneys  in  the
Construction  Fund  available  for  payment of the Project  Costs  should not be
sufficient to pay such costs in full and the Lessee has not  requested  that the
Issuer issue  Additional  Bonds for such purpose,  the Lessee agrees to complete
the Project Construction and to pay all that portion of the Project Costs as may
be in excess of the moneys  available  therefor or in the  Construction  Fund by
making payments  directly to the  construction  contractor or contractors or the
suppliers of materials  and  equipment as the same shall become due or by paying
into the Construction Fund the moneys necessary to complete the Project in which
case the Issuer will proceed to complete the Project  Construction  and the cost
thereof will be paid from the  Construction  Fund.  The Issuer does not make any
warranty, either express or implied, that the moneys which will be paid into the
Construction  Fund and  which,  under  the  provisions  of this  Lease,  will be
available  for payment of the Project  Costs will be  sufficient to pay all such
Project Costs.  The Lessee agrees that if, after exhaustion of the moneys in the
Construction  Fund,  the Lessee  should pay any  portion  of the  Project  Costs
pursuant  to the  provisions  of this  Section,  it shall not be entitled to any
reimbursement  therefor  from the Issuer or from the Trustee or from the holders
of any of the Bonds (except to the extent that Additional Bonds may be issued to
pay such excess Project Costs) nor shall it be entitled to any diminution of the
rents  payable under Section 5.3 hereof.  All Land,  Improvements  and Equipment
acquired with funds provided by the Lessee as provided herein shall be titled in
the name of the Issuer and subject to the terms of this Lease.

         Section 4.7  ISSUER  TO  PURSUE  REMEDIES   AGAINST   CONTRACTORS   AND
SUBCONTRACTORS AND THEIR SURETIES.  In the event of any default of any supplier,
contractor or  subcontractor  under any  Construction  Contract  entered into in
connection  with the Project  Construction or in the event of breach of warranty
with respect to any material,  workmanship or performance guaranty,  the Issuer,
at the  request  and sole  cost of the  Lessee,  will  promptly  proceed  either
separately or in conjunction with others,  to exhaust the remedies of the Issuer
against any defaulting  supplier,  contractor or  subcontractor  and against any
surety thereof or for the  performance  of any contract made in connection  with
the Project.  Unless the Lessee  shall  request the Issuer to proceed in another
manner,  the Issuer shall  proceed,  in connection  with any such default,  only
through the Lessee as

                                      -13-

<PAGE>

agent  for the  Issuer;  and the  Lessee,  as such  agent and in the name of the
Issuer,  shall prosecute,  defend or settle any action or proceeding or take any
other action  involving any such supplier,  contractor,  subcontractor or surety
which the Lessee deems  reasonably  necessary.  Any amounts  recovered by way of
damages,  refunds,  adjustments  or otherwise in  connection  with the foregoing
prior to the Completion Date shall be paid into the Construction  Fund and after
the  Completion  Date shall be applied in the manner  specified  in Section  4.3
hereof.

         Section 4.8  INVESTMENT OF  CONSTRUCTION  FUND  AND  BOND  FUND  MONEYS
PERMITTED.  Any moneys held as a part of the Construction  Fund or the Bond Fund
shall be invested or  reinvested  by the  Trustee  upon the written  request and
direction of the Lessee in only those investments permitted under the Indenture.
Notwithstanding the foregoing,  the Issuer acknowledges and agrees that pursuant
to the Bond Purchase Agreement, payment of the Bonds may be made in installments
commencing on the Closing Date.

                                    ARTICLE V
                                    ---------

                          EFFECTIVE DATE OF THIS LEASE;
                    DURATION OF LEASE TERM; RENTAL PROVISIONS
                    -----------------------------------------

         Section 5.1  EFFECTIVE DATE OF THIS LEASE, DURATION OF  LEASE TERM. The
agreements contained in this Lease shall become effective and the Agreement Term
shall begin as of the dated date hereof. The Lease Term shall not commence until
the Date of  Beneficial  Occupancy.  Unless  sooner  terminated  or  extended in
accordance  with the  provisions  of this  Lease,  this Lease and the Lease Term
shall expire at midnight on the tenth  anniversary  of the  thirty-first  day of
December  of the  year  immediately  following  the  year in  which  the Date of
Beneficial  Occupancy occurs;  provided,  however,  if for any reason the entire
Project has not been  transferred  to the Lessee  pursuant to Article XI hereof,
then the Lease Term shall  continue  until such Project has been so  transferred
(such  period  after the  Stated  Termination  Date  shall  herein be called the
"Extended Lease Term").

         Section 5.2  DELIVERY AND ACCEPTANCE OF POSSESSION. The  Issuer  agrees
to deliver to the Lessee sole and exclusive  possession of the Project  (subject
to the right of the  Issuer  or the  Trustee  to enter  thereon  for  inspection
purposes  and to the other  provisions  of  Section  8.2  hereof) on the Date of
Beneficial  Occupancy and the Lessee agrees to accept  possession of the Project
upon such  delivery;  provided,  however,  that the Lessee shall be permitted to
enter the Project prior to the Date of  Beneficial  Occupancy for the purpose of
fulfilling its duties and obligations as agent for the Issuer in connection with
the  Project  Construction  as  provided in Article IV hereof and to install and
maintain its own equipment..

                                      -14-

<PAGE>

         Section 5.3  RENTS AND OTHER AMOUNTS PAYABLE.

         (a) The Lessee shall make payments to the  Trustee during the Agreement
Term for the  account  of the  Issuer in such  amounts  and at such times as are
sufficient  to pay (i) the  principal  of and  premium,  if  any,  on the  Bonds
(whether  due and  payable at maturity  or upon the  redemption  (in whole or in
part) or acceleration  of the Bonds) and (ii) accrued  interest on the Bonds. In
any event each rental  payment under this Section shall be sufficient to pay the
total amount of the principal of, premium,  if any, and interest  payable on the
Bonds and if at any time the  balance in the Bond Fund is  insufficient  to make
required payments of the principal of, premium,  if any, and interest due on the
Bonds on such date, the Lessee shall forthwith pay any such deficiency.

         Anything herein to the contrary notwithstanding, any amount at any time
deposited in the Bond Fund shall be credited against the next succeeding payment
and shall  reduce the payment to be made by the Lessee to the extent such amount
is in excess of the amount required for payment of the principal of and premium,
if any, on Bonds theretofore  called for redemption and past due interest in all
cases where such Bonds have not been presented for payment;  and further, if the
amount held by the Trustee in the Bond Fund should be  sufficient  to pay at the
times required the principal of, premium, if any, and interest on the Bonds then
remaining unpaid, the Lessee shall not be obligated to make any further payments
under the provisions of this Section.

         The payments due and payable during the Extended Lease Term (as defined
in Section 5.1 hereof) shall be $1.00 per year.

         (b) The Lessee agrees  to  pay to  the Trustee (to the extent not  paid
from the  Construction  Fund)  until the  principal  of,  premium,  if any,  and
interest on the Bonds shall have been fully paid,  its  reasonable and necessary
fees, charges and expenses  (including  reasonable fees and expenses of counsel)
as provided in the Indenture,  as and when the same become due. In addition, the
Lessee agrees to pay the reasonable and necessary fees,  charges and expenses of
the  Trustee  appointed  with the consent of the Lessee in  accordance  with the
Indenture.  The Lessee may, without creating a default  hereunder,  withhold any
payment  required  to be made under this  subsection  (b) in order to contest in
good faith the validity,  necessity or reasonableness of any such fees,  charges
or expenses.

         (c) The Lessee agrees  to  pay  the reasonable and  necessary  expenses
(including  attorneys'  fees and expenses)  not  otherwise  provided for in this
Lease,  which may be incurred by the Issuer,  or for which the Issuer may in any
way  become  liable,  as a result  of  issuing  any of the  Bonds,  the  Project
Construction  and the leasing of the Project to the Lessee,  or being a party to
this Lease or the Indenture, or issuing the Bonds.

         (d) In the event the Lessee should  fail to make  any of  the  payments
required in this Section,  the item or  installment so in default shall continue
as an obligation of the Lessee until the amount in default shall have been fully
paid, and the Lessee agrees to pay

                                      -15-

<PAGE>

the same with interest  thereon at the rate of interest borne by the Bonds until
paid.  The  provisions  of this Section  shall be subject to the  provisions  of
Section 9.7 hereof.

         Section 5.4  PLACE OF PAYMENTS. The  payments  provided for in  Section
5.3(a)  hereof shall  either be paid  directly to the Trustee for the account of
the Issuer and  deposited in the Bond Fund or be paid  directly to the holder or
holders of Bonds in accordance with a home office payment agreement entered into
pursuant  to Section  202(c) of the  Indenture.  The  payments  provided  for in
Section 5.3(b) and (c) hereof shall be paid directly to the parties to whom such
payments are due.

         Section 5.5  OBLIGATIONS OF LESSEE HEREUNDER UNCONDITIONAL. Subject  to
the provisions of Section 9.7 hereof,  the obligations of the Lessee to make the
payments  required in Section 5.3(a) hereof shall be absolute and  unconditional
and shall not be subject to  diminution by set-off,  counterclaim,  abatement or
otherwise. Until such time as the principal of, premium, if any, and interest on
the Bonds shall have been fully paid or provision for the payment  thereof shall
have been made in accordance with the Indenture, the Lessee (i) will not suspend
or discontinue any payments  provided for in Section 5.3(a) hereof except to the
extent the same have been prepaid,  and (ii) except as provided in Sections 11.1
and 11.5 hereof, will not terminate the Agreement Term for any cause, including,
without  limiting  the  generality  of the  foregoing,  failure of the Issuer to
complete the Project Construction,  failure of the Issuer's title to the Project
or any part thereof,  any acts or circumstances  that may constitute  failure of
consideration,  eviction or constructive  eviction,  destruction of or damage to
the Project,  commercial  frustration of purpose, any change in the tax or other
laws of the United States of America or of the State of Georgia or any political
subdivision  of either  thereof or any  failure  of the  Issuer to  perform  and
observe any agreement,  whether  express or implied,  or any duty,  liability or
obligation  arising out of or connected  with this Lease.  Nothing  contained in
this Section  shall be construed to release the Issuer from the  performance  of
any of the agreements on its part herein contained;  and in the event the Issuer
should fail to perform any such  agreement on its part, the Lessee may institute
such  action  against  the  Issuer as the Lessee  may deem  necessary  to compel
performance  or recover its damages  for  nonperformance  so long as such action
shall not do violence to the  agreements on the part of the Lessee  contained in
the preceding  sentence.  The Lessee may, however,  at its own cost and expenses
and in its own name or in the name of the Issuer, prosecute or defend any action
or proceeding or take any other action  involving third persons which the Lessee
deems reasonably necessary in order to insure the acquisition,  construction and
equipping  of the  Project  or to secure  or  protect  its right of  possession,
occupancy  and use  hereunder,  and in such  event the Issuer  hereby  agrees to
cooperate  fully with the Lessee and to take all action  necessary to effect the
substitution  of the Lessee for the Issuer in any such action or  proceeding  if
the Lessee shall so request.

                                      -16-

<PAGE>

                                   ARTICLE VI
                                   ----------

                           MAINTENANCE, MODIFICATIONS,
                               TAXES AND INSURANCE
                               -------------------

         Section 6.1  MAINTENANCE AND MODIFICATIONS OF PROJECT BY LESSEE.

         (a) The Lessee agrees  that during the  Lease Term  it  will at its own
expense (i) keep the Project in as reasonably  safe  condition as its operations
shall  permit and (ii) keep the  Improvements  and the  Equipment  and all other
facilities  and  improvements  forming a part of the Project in reasonably  good
repair and in good operating condition.

         (b) The Lessee may from time to time, in its sole discretion and at its
own expense,  make any additions,  modifications or improvements to the Project,
including  (i) the  acquisition  of  additional  real  property or any interests
therein,  (ii)  the  acquisition,   construction  and  equipping  of  additional
buildings,  utilities, parking facilities and other improvements on or under the
Land, and (iii) the  installation of additional  machinery,  equipment and other
tangible  personal  property in the  Project,  on the Land or in any  additional
buildings and improvements (collectively,  the "Additions");  provided, however,
no such Additions  shall  materially  impair the effective use of the Project or
result in any part of the Project  not being a  "project"  within the meaning of
the  Act.  The  Lessee  shall  furnish  to the  Issuer  the  plans  for any such
Additions.  The Issuer  shall not be  obligated  to pay any costs or expenses in
connection  with the design,  acquisition,  construction  or installation of any
such Additions.

         At any  time and  from  time to time, the  Lessee  may elect by  giving
notice thereof to the Issuer to include any such  Additions or portions  thereof
as a part of the Project (collectively,  herein called "Project  Improvements");
provided  that to the  extent any such  Project  Improvements  include  personal
property,  such notice shall be  accompanied  by a bill of sale,  assignment  or
other  instrument   transferring  title  thereof  to  the  Issuer.  No  transfer
instrument  shall be  required  in the case of the  Project  Improvements  which
constitute  real  property and upon the giving of such notice to the Issuer such
Project  Improvements  shall be deemed a part of the  Project  and titled in the
name of the Issuer. If no such notice is given by the Lessee to the Issuer, such
Additions shall be deemed Excluded Property.

         Any  such Additions constituting Excluded  Property, may be  removed by
the  Lessee at any time and from time to time;  provided  that any damage to the
Project  occasioned  by such removal  shall be repaired by the Lessee at its own
expense.  All  Excluded  Property,  whether or not  installed  in the Project or
located on or adjacent to the Land,  shall remain the sole property of the owner
thereof  in which  the  Issuer  shall  not have any  interest,  and shall not be
subject to the provisions of this Lease or the  Indenture.  The Issuer agrees to
execute and deliver at the request of the Lessee or any other  Person  having an
interest in the Project or any part  thereof  any  landlord's  waivers and other

                                      -17-

<PAGE>

releases in connection with the  acquisition,  construction  and installation of
such Excluded Property.

         Nothing contained in  the preceding  provisions of  this Section 6.1(b)
shall  prevent the Lessee from  granting  any deeds to secure  debt,  mortgages,
security  agreements or other similar liens or encumbrances or entering into any
sale/leaseback  transactions with respect to any Additions  (whether in the form
of a conditional  sale,  financing  lease or otherwise) and the Issuer agrees to
execute  and  deliver at the  request of the  Lessee any  instruments,  waivers,
releases,  financing  statements or other documents  necessary or appropriate to
confirm any such grant.  These  provisions shall be in addition to the rights of
the Lessee set forth in Sections 8.5 and 8.7 hereof.

         (c) Subject to the Lessee's  usual safety and  security requirements of
persons located on the Land, the Issuer,  the Trustee and their  respective duly
authorized agents shall have the right, upon giving the Lessee at least 48 hours
prior written notice,  to enter upon any part of the Land during normal daylight
business hours, and examine and inspect the same as may be reasonably  necessary
for the  purpose of  determining  whether the Lessee is in  compliance  with its
obligations  under this  Section 6.1;  provided  that no such  inspection  shall
interfere with the business operations at the Project.

         Section 6.2  REMOVAL OF EQUIPMENT. The  Issuer  shall not be under  any
obligation  to renew,  repair or replace  any  inadequate,  obsolete,  worn out,
unsuitable,  undesirable  or  unnecessary  Equipment.  In any instance where the
Lessee in its sole discretion determines that any items of Equipment have become
inadequate,  obsolete,  worn out,  unsuitable,  undesirable or unnecessary,  the
Lessee may remove such items of Equipment  and (on behalf of the Issuer),  sell,
trade-in,  exchange  or  otherwise  dispose  of them (as a whole or in part) and
retain all proceeds or consideration  received in connection  therewith  without
any  responsibility or  accountability to the Issuer therefor,  provided that in
the event that any such removal  shall result in the Project not being deemed to
constitute a "project"  under the Act, the Lessee  shall  substitute  (either by
direct  payment  of the costs  thereof or by  advancing  to the Issuer the funds
necessary  therefor) and install other  machinery or equipment or otherwise take
such additional  actions which would cause the Project to constitute a "project"
under the Act.

         The removal from the Project of any  portion of the Equipment  pursuant
to the  provisions of this Section shall not entitle the Lessee to any abatement
or diminution in amount of the rents payable under Section 5.3 hereof.

         The Lessee  will  not remove  or  permit the  removal  of  any  of  the
Equipment  except in accordance  with the  provisions  of this  Section.  At the
request of the Lessee, the Issuer shall execute such bills of sale,  releases or
other  documents  reasonably  required by the Lessee in order to accomplish  any
sale,  trade-in,  exchange or other  disposition  of Equipment  pursuant to this
Section.

                                      -18-
<PAGE>

         Section 6.3  TAXES, OTHER GOVERNMENTAL CHARGES AND UTILITY CHARGES.

         (a) The Issuer and  the Lessee  acknowledge that  under  present law no
part of the Project  owned by the Issuer will be subject to ad valorem  taxation
by the State of Georgia or by any political or taxing subdivision  thereof,  and
that under  present  law the income and  profits (if any) of the Issuer from the
Project  are not  subject  to either  Federal or  Georgia  taxation.  The Issuer
further acknowledges that it has entered into this Lease to enable the Lessee to
enjoy a  reduction  in ad valorem  taxation  afforded  by the  reduced  value of
Lessee's  interest in the Project,  as set forth in that certain  Memorandum  of
Agreement  Regarding Lease  Structure and Valuation of Leasehold  Interest among
the  Issuer,  the Lessee  and the  Fulton  County  Board of Tax  Assessors  (the
"Property Tax Memorandum").  Pursuant to the Property Tax Memorandum, the Issuer
agrees  that the Lessee  will not be  required  to make any  payments in lieu of
taxes or other similar payments,  provided that the Lessee will pay, as the same
respectively become lawfully due and payable,  (i) all ad valorem taxes assessed
with respect to the Lessee's  leasehold interest in the Project during the Lease
Term;  (ii) all taxes and  governmental  charges of any kind  whatsoever upon or
with  respect  to the  Project or any  machinery,  equipment  or other  property
installed  or  brought by the Lessee  therein  or  thereon  (including,  without
limiting the generality of the foregoing,  any taxes levied upon or with respect
to the income or profits of the Issuer from the Project which, if not paid, will
become a lien on the Project or a charge on the revenues and receipts  therefrom
prior to or on a parity  with the lien or  charge  of the  Indenture;  (iii) all
utility and other charges incurred in the operation, maintenance, use, occupancy
and upkeep of the Project; and (iv) all assessments and charges lawfully made by
any governmental body for public improvements that may be secured by lien on the
Project;   provided,   that  with  respect  to  special   assessments  or  other
governmental  charges that may lawfully be paid in installments over a period of
years,  the  Lessee  shall be  obligated  to pay only such  installments  as are
required to be paid during the Lease Term.

         (b) It is the understanding and intent of the parties that the Issuer's
acquisition of title to the Project, including but not limited to the Equipment,
shall be solely for the  purpose of leasing  the same to the Lessee  pursuant to
the terms  hereof.  It is further  the  understanding  and intent of the parties
that,  for purposes of the sales and use taxes  imposed by Article 8 of Title 48
of the Official Code of Georgia Annotated, the conveyance to the Issuer of title
to the Project or any portion thereof by the Lessee as contemplated herein shall
not be a taxable  transaction  for sales and use tax purposes in accordance with
the holding of FOOTPRESS CORPORATION V. STRICKLAND,  242 Ga. 686, 251 S.E.2d 278
(1978).

         (c) The Lessee may, at its  own expense and in  its own name and behalf
or in the name and behalf of the Issuer,  in good faith  contest any such taxes,
assessments and other charges and, in the event of any such contest,  may permit
the taxes, assessments or other charges so contested to remain unpaid during the
period of such contest and any appeal therefrom. The Issuer will cooperate fully
with the Lessee in any such contest.

                                      -19-
<PAGE>

         Section 6.4  INSURANCE AND INDEMNITY.

         (a) During the Project Construction  and throughout the Agreement Term,
the Lessee shall, in its own name or in the name of the Issuer, keep the Project
continuously  insured  against such risks and in such amounts as are customarily
insured  against  by the Lessee and in such  amounts as is  consistent  with the
Lessee's  customary  practices,  paying as the same  become due all  premiums in
respect  thereto;  provided that the Lessee may satisfy the requirements of this
Section through  self-insurance  in accordance  with its customary  practices at
other  locations.  Any  policies of  insurance  so obtained by the Lessee  shall
include the Issuer as a named  insured,  as its  interest  may  appear,  if such
endorsement is obtainable  and customary.  The Lessee may, in its own name or in
the name of the Issuer,  prosecute or defend any action or  proceeding,  or take
any other action involving claims against the carrier of the insurance  required
hereby,  including  the  settlement  of such  claims,  which  the  Lessee  deems
necessary or desirable under the circumstances.

         (b) The Lessee  shall also  indemnify  and  defend  the Issuer and  the
Trustee,  and  their  respective  officers,  directors,   employees  and  agents
(collectively the "Indemnified Parties" or individually an "Indemnified Party"),
and hold the same  harmless  against all  liabilities,  loses,  suits,  actions,
damages,  penalties,  costs and expenses  (collectively,  "Indemnified  Losses")
incurred in  connection  with or with respect to (i) the issuance or sale of the
Bonds, (ii) the Project  Construction,  or (iii) the operation of the Project by
the Lessee; provided, however, that the indemnification required by this Section
6.4 shall not include  indemnification for Indemnified Losses resulting directly
or indirectly from the gross negligence,  bad faith or willful misconduct of any
Indemnified  Party; and provided,  further,  that the indemnity provided in this
Section shall be effective only to the extent of any Indemnified  Loss in excess
of the Net Proceeds of any insurance carried with respect to the loss sustained.
Unless  the Lessee  shall  request  an  Indemnified  Party to proceed in another
manner,  an Indemnified Party shall proceed in connection with any claim against
which  indemnification is provided  hereunder,  only through the Lessee as agent
for such Indemnified  Party unless there is a conflict;  and the Lessee, as such
agent and in the name of such Indemnified Party, shall defend or settle any such
claim, action or proceeding or take any other action with respect thereto as the
Lessee shall deem reasonably necessary and appropriate.

         (c) The provisions of this Section 6.4 shall survive the termination of
this Agreement and the Indenture and the resignation or removal of the Trustee.

         Section 6.5  ADVANCES BY ISSUER OR TRUSTEE. In   the  event the  Lessee
shall (i) fail to maintain the insurance coverage required by Section 6.4 hereof
or (ii) fail to correct or repair any  hazardous  condition at the Project which
poses an immediate threat of injury to or death of any Person,  and such failure
shall  continue  for thirty (30) days after  receipt of written  notice from the
Issuer or the Trustee demanding that such failure be remedied and indicating the
intent of such party to cure such  failure at the  expense  of the  Lessee,  the
Issuer or the Trustee may (but unless satisfactorily  indemnified shall be under
no

                                      -20-

<PAGE>

obligation to) take out the required  policies of insurance and pay the premiums
on the same or take appropriate actions to correct such hazardous condition; and
all amounts so advanced  therefor,  by the Issuer or the Trustee shall become an
additional obligation of the Lessee to said party, which amounts,  together with
interest  thereon  at the  rate of  interest  borne by the  Bonds  from the date
thereof, the Lessee agrees to pay.


                                   ARTICLE VII
                                   -----------

                      DAMAGE, DESTRUCTION AND CONDEMNATION
                      ------------------------------------

         Section 7.1  DAMAGE AND DESTRUCTION. Unless  the Lessee shall  elect to
exercise  its option to purchase  the  Project  pursuant  to the  provisions  of
Section 11.1 hereof,  if prior to full  payment of the Bonds (or  provision  for
payment  thereof  having  been made in  accordance  with the  provisions  of the
Indenture)  the Project is destroyed (in whole or in part) or is damaged by fire
or other  casualty  all Net Proceeds of  insurance  received by the Issuer,  the
Lessee or the Trustee resulting from claims for such losses shall be paid to the
Lessee and applied in one or more of the following  ways at the sole  discretion
of the Lessee:

         (a) The restoration by the  Lessee, as agent for and  on behalf of  the
Issuer, of the property damaged or destroyed to substantially the same condition
as it existed prior to the event causing such damage or  destruction,  with such
changes, alterations, and modifications (including the substitution and addition
of other  property)  as may be  desired  by the  Lessee  and will not impair the
utility of the Project; or

         (b) Payment into the Bond Fund to  be applied by the Trustee toward the
redemption of the principal of any of the Bonds,  in whole or in part,  together
with accrued interest thereon to the date of redemption; or

         (c) Payment to the Lessee for any other purpose.

         The Lessee shall not be obligated to report the use of such proceeds to
the Issuer or the Trustee or to make any  accounting  with respect to the use of
any such Net Proceeds.  The Issuer hereby  makes,  constitutes  and appoints the
Lessee as its agent with power of  substitution,  and the Lessee hereby  accepts
such  agency,  to repair,  rebuild or restore the  property  damaged as provided
above.

         Section 7.2  CONDEMNATION. Unless the  Lessee  shall elect  to exercise
its option to purchase the Project  pursuant to the  provisions  of Section 11.1
hereof,  if prior to full payment of the Bonds (or provision for payment  having
been made in accordance  with the provisions of the Indenture)  title to, or the
temporary  use of, the  Project  or any part  thereof  shall be taken  under the
exercise  of the  power of  eminent  domain by any  governmental  body or by any
person,  firm  or  corporation  acting  under  governmental  authority,  the Net
Proceeds received by the Issuer, the Lessee, the Trustee or any of them,

                                      -21-

<PAGE>

from any award made in such  eminent  domain  proceedings,  shall be paid to the
Lessee and applied in one or more of the following  ways at the sole  discretion
of the Lessee:

         (a) The restoration of the improvements of the Project to substantially
the same  condition as they  existed  prior to the exercise of the said power of
eminent domain, with such changes, alterations, and modifications (including the
substitution and addition of other property) as may be desired by the Lessee and
will not impair the utility of the Project;

         (b) The acquisition, by  the Issuer  at the  request of the  Lessee  of
other machinery,  equipment or other tangible personal property suitable for the
Lessee's  operation of the Project (which property shall be deemed a part of the
Project and available for use and occupancy by the Lessee without the payment of
any rent other than herein provided to the same extent as if such other property
were  specifically  described  herein and demised hereby);  provided,  that such
property  shall be  acquired by the Issuer  subject to no liens or  encumbrances
other than those approved by the Lessee.

         (c) Payment into the Bond Fund to be  applied by the Trustee toward the
redemption  of the  principal of the Bonds,  in whole or in part,  together with
accrued interest thereon to the date of redemption; or

         (d) Payment to the Lessee for any other purpose.

         The Lessee  shall not  be  obligated  to  report to  the Issuer or  the
Trustee or to make any accounting therefor.

         The Issuer shall cooperate  fully with  the Lessee in the  handling and
conduct of any  prospective or pending  condemnation  proceeding with respect to
the Project or any part  thereof and will,  to the extent it may lawfully do so,
permit the Lessee to litigate in any such  proceeding  in the name and behalf of
the Issuer.  In no event will the Issuer  voluntarily  settle, or consent to the
settlement of, any prospective or pending  condemnation  proceeding with respect
to the Project or any part thereof without the written consent of the Lessee.

         Section 7.3  CONDEMNATION OF EXCLUDED PROPERTY. The Lessee  shall  also
be entitled to the Net  Proceeds of any  condemnation  award or portion  thereof
made for damages to or takings of its own  property or for damages on account of
the taking of or  interference  with the Lessee's  rights to possession,  use or
occupancy of the Project.

                                      -22-

<PAGE>

                                  ARTICLE VIII
                                  ------------

                                SPECIAL COVENANTS
                                -----------------

         Section 8.1  NO WARRANTY OF  DESIGN, CONDITION  OR  SUITABILITY  BY THE
ISSUER.  THE ISSUER  MAKES NO  WARRANTY,  EITHER  EXPRESS OR IMPLIED,  AS TO THE
DESIGN OR  CONDITION OF THE PROJECT OR THAT IT WILL BE SUITABLE FOR THE LESSEE'S
PURPOSES OR NEEDS.

         Section 8.2  INSPECTION OF  THE  PROJECT. During  the  Lease  Term, the
Lessee  agrees  that upon  receipt  by the  Lessee  of at least two days'  prior
written notice from the Issuer,  the Issuer and its duly  authorized  agents who
are  reasonably  acceptable to the Lessee shall have the right at all reasonable
times during business  hours,  subject to the Lessee's usual safety and security
requirements,  to enter upon the Land and to examine  and  inspect  the  Project
without interference or prejudice to the Lessee's operations.

         Section 8.3  LESSEE TO MAINTAIN ITS EXISTENCE; CONDITIONS  UNDER  WHICH
EXCEPTIONS PERMITTED. The Lessee agrees that during the  Agreement Term it  will
maintain  its  existence,  will not  dissolve  or  otherwise  dispose  of all or
substantially  all of its  assets  and will not  consolidate  with or merge into
another Person or permit one or more other Persons to consolidate  with or merge
into  it;  provided,  that the  Lessee  may,  without  violating  the  agreement
contained in this  Section,  consolidate  with or merge into  another  Person or
permit  one or more  other  Persons  to  consolidate  with or merge  into it, or
transfer all or substantially  all of its assets to another Person,  but only on
condition that the Person resulting from or surviving such merger (if other than
the Lessee) or  consolidation  or the Person to which such  transfer is made (i)
shall  expressly  assume and agree in writing  to  perform  all of the  Lessee's
obligations  under this Lease,  and (ii) if an entity,  shall be  organized  and
existing  under the laws of one of the states of the United States of America or
the  District of Columbia or, if not,  shall  appoint and maintain a local agent
for service of process in the State of Georgia.

         Section 8.4  QUALIFICATION IN GEORGIA. The Lessee covenants that  it is
and  throughout  the Agreement  Term it will continue to be either  organized or
qualified to do business under the laws of the State of Georgia.

         Section 8.5  GRANTING OF EASEMENTS AND LEASEHOLD MORTGAGES.

         (a) The Lessee may at any time or times cause to be  granted easements,
licenses,  rights-of-way (temporary or perpetual and including the dedication of
public  highways) and other rights or privileges in the nature of easements with
respect to any property  included in the Project,  or the Lessee may cause to be
released  existing  easements,  licenses,  rights-of-way  and  other  rights  or
privileges  in the  nature of  easements,  held  with  respect  to any  property
included in the Project with or without consideration and the Issuer agrees that
at the  request  of the  Lessee it shall  execute  and

                                      -23-

<PAGE>

deliver any instrument  necessary or appropriate to confirm and grant or release
any such easements, license, right-of-way or other right or privilege.

         (b) The Lessee shall at all times and from  time to time have the right
to encumber all of the Lessee's  right,  title and interest  under this Lease by
mortgage, deed to secure debt, security agreement,  assignment or other security
instrument,  including, without limitation,  assignment of the rents, issues and
profits  from  the  Project,  as  security  for any  debt of the  Lessee,  (such
mortgage,  deed to secure debt or other instrument(s) being hereinafter referred
to as a  "Leasehold  Mortgage",  and  the  holder(s)  from  time to time of such
Leasehold Mortgage being hereinafter referred to as a "Leasehold Mortgagee").

         In the event that a Leasehold  Mortgagee shall provide the  Issuer  and
the Trustee with written  notice of its name and address (a "Notice of Leasehold
Mortgage"),  then,  following  receipt by the Issuer of such Notice of Leasehold
Mortgage and for so long as such Leasehold  Mortgage shall remain unsatisfied of
record or until written notice of  satisfaction  of such  Leasehold  Mortgage is
given by the Leasehold  Mortgagee to the Issuer,  the provisions of this Section
8.5 shall apply to each such Leasehold  Mortgagee.  Upon written request of such
Leasehold  Mortgagee,  the  Issuer  shall  acknowledge  receipt  of a Notice  of
Leasehold  Mortgage by an instrument  in recordable  form provided to the Issuer
and the Trustee by the Leasehold Mortgagee.  In the event of any assignment of a
Leasehold  Mortgage  or in the  event  of a change  of  address  of a  Leasehold
Mortgagee or of an assignee of such Leasehold  Mortgagee  written notice of such
new name and/or address shall be promptly provided to the Issuer.

         No cancellation, rejection, surrender, amendment or modification (other
than by  expiration  of the Lease  Term) of this  Lease or release of the Lessee
hereunder shall be effective as to any Leasehold  Mortgagee  (provided that such
Leasehold  Mortgagee has given a Notice of Leasehold  Mortgage) unless consented
to in writing by such Leasehold  Mortgagee.  Without  limiting the generality of
the  foregoing,  no  rejection  of this  Lease  by  Lessee  or by a  trustee  in
bankruptcy  for the Lessee  shall be  effective  as to any  Leasehold  Mortgagee
(provided  that  such  Leasehold  Mortgagee  has  given a  Notice  of  Leasehold
Mortgage) unless consented to in writing by such Leasehold Mortgagee.

         The Issuer and the Trustee shall, on serving the Lessee with any notice
of any default under this Lease, simultaneously serve a copy of such notice upon
each Leasehold  Mortgagee  (provided  that such Leasehold  Mortgagee has given a
Notice of Leasehold Mortgage).  No such notice by the Issuer to the Lessee shall
be deemed to have been duly given  unless and until a copy  thereof  has been so
provided to every Leasehold  Mortgagee in the manner  specified herein (provided
that such Leasehold  Mortgagee has given a Notice of Leasehold  Mortgage).  From
and after the date such  notice has been given to a  Leasehold  Mortgagee,  each
such Leasehold  Mortgagee shall have the same period,  after its receipt of such
notice,  for remedying any default  specified in such notice or causing the same
to be remedied as is given to the Lessee  after the giving of such notice to the
Lessee to  remedy,  commence  remedying  or cause to be  remedied  the  defaults
specified  in

                                      -24-

<PAGE>

any such notice,  but Leasehold  Mortgagee shall in no manner be obligated to do
so. The Issuer and the Trustee  shall accept such cure by or at the  instigation
of the Leasehold  Mortgagee as if the same had been performed by the Lessee. The
Lessee hereby  authorizes each Leasehold  Mortgagee to take any such action that
such  Leasehold  Mortgagee  deems  necessary  to cure any such  default and does
hereby authorize entry upon the Project by each such Leasehold Mortgagee for the
purpose of curing such defaults.

         (c) In  the  event  that  the  Issuer or  the  Trustee shall  elect  to
terminate  this Lease by reason of any  default of the Lessee  under  Article X,
such Leasehold  Mortgagee shall have the right,  which right shall be exercised,
if at all,  within fifteen (15) days after such Leasehold  Mortgagee is notified
of the  Issuer's  election to  terminate  the Lease,  to postpone and extend the
specified  date for the  termination of this Lease as fixed by the Issuer in its
notice of  termination  for a period of not more than six (6)  months,  provided
that such Leasehold  Mortgagee shall,  during such six (6) month period, (A) pay
or cause to be paid any Annual Rental and other payments and charges as the same
become due and  continue  its good faith  efforts to perform all of the Lessee's
other obligations  under this Lease,  excepting (i) obligations of the Lessee to
satisfy or otherwise  discharge any lien, charge or encumbrance against Lessee's
interest  in this  Lease or the  Project  provided  that  such  lien,  charge or
encumbrance  is  junior in  priority  to the lien of the  mortgage  held by such
Leasehold  Mortgagee and does not effect the Issuer's fee simple interest in the
Project,  and  (ii)  past  non-monetary  obligations  then  in  default  and not
reasonably  susceptible of being cured by such Leasehold  Mortgagee,  and (B) if
not enjoined or stayed,  take steps to acquire or sell the Lessee's  interest in
this Lease by foreclosure of the Leasehold  Mortgage or other  appropriate means
and prosecute the same to completion with due diligence.

         If at the end of such six (6) month  period such Leasehold Mortgagee is
complying with the immediately  preceding paragraph and such Leasehold Mortgagee
is  prohibited  by any process or  injunction  issued by any court of  competent
jurisdiction  or by reason of any action in any court of competent  jurisdiction
from commencing or prosecuting  foreclosure or other appropriate  proceedings in
the  nature  thereof,  this  Lease  shall not then  terminate,  and the time for
completion by such Leasehold Mortgagee of its proceedings shall continue so long
as such Leasehold  Mortgagee is enjoined or stayed and thereafter for so long as
such  Leasehold  Mortgagee  proceeds  in good  faith and with due  diligence  to
complete  steps  to  acquire  or sell the  Lessee's  interest  in this  Lease by
foreclosure of the Leasehold Mortgage or by other appropriate means.  Nothing in
this  paragraph,  however,  shall be  construed  to extend this Lease beyond the
original  Lease  Term,  nor  to  require  a  Leasehold   Mortgagee  to  continue
foreclosure  proceedings  after a default has been cured. In the event that such
default  shall be cured  and the  Leasehold  Mortgagee  shall  discontinue  such
foreclosure  proceedings,  this Lease shall continue in full force and effect as
if the Lessee had not defaulted under this Lease.

         In the event that a  Leasehold Mortgagee  complies with this subsection
8.5(c) and Leasehold  Mortgagee  acquires the Lessee's  right title and interest
herein by foreclosure or

                                      -25-

<PAGE>

otherwise,  then, upon the acquisition of the Lessee's right, title and interest
herein by such Leasehold  Mortgagee or its designee,  or any other  purchaser or
assignee at a foreclosure  sale or otherwise,  this Lease shall continue in full
force and effect as if the Lessee had not defaulted under this Lease.

         The granting of a Leasehold Mortgage shall not be deemed to  constitute
an  assignment  or  transfer  of this Lease or of the  leasehold  estate  hereby
created,  and any conveyance of the leasehold  estate created hereby from Lessee
to a  Leasehold  Mortgagee  by  foreclosure  or  otherwise,  or  from  Leasehold
Mortgagee  as  attorney-in-fact  of the Lessee to a purchaser  at a  foreclosure
sale,  shall not be deemed to constitute an assignment or transfer of this Lease
or of the  leasehold  estate  hereby  created  requiring  the  assumption of the
obligations  of the Lessee  hereunder,  but such  purchaser  or assignee of this
Lease and of the leasehold  estate hereby created shall be deemed to have agreed
to perform all of the terms,  covenants and conditions on the part of the Lessee
to be  performed  hereunder  from  and  after  the  date  of such  purchase  and
assignment.  Upon such  conveyance,  the Issuer and the Trustee shall  recognize
such  Leasehold  Mortgagee,  or any other  purchaser or assignee,  as the Lessee
hereunder. From and after the date of such sale or assignment, the holder of any
Leasehold  Mortgage then existing or thereafter  placed on the leasehold  estate
hereby created shall be considered a Leasehold Mortgagee as contemplated by this
Lease, and the Leasehold  Mortgagee  thereunder shall be entitled to receive the
benefit of any and all  provisions  of this Lease  intended for the benefit of a
Leasehold  Mortgagee,  subject to the  obligations  and duties of the  Leasehold
Mortgagee under this Lease.

         (d) In  the  event  that this Lease is  terminated  as a  result of any
default  by  the  Lessee  hereunder  or  any  other  cause  (including,  without
limitation,  a rejection  of this Lease by the  Lessee's  trustee in  bankruptcy
pursuant  to  11 U.S.C. Section 365  or  any equivalent  provision of  law), the
Issuer shall provide each  Leasehold  Mortgagee  (provided  that such  Leasehold
Mortgagee has given a Notice of Leasehold Mortgage) with written notice that the
Lease has been terminated,  together with a statement of all sums which would at
that time be due under  this  Lease but for such  termination,  and of all other
defaults,  if any,  then known to the Issuer.  The Issuer shall enter into a new
lease  (hereinafter  referred  to as the "New  Lease") of the  Project  with any
Leasehold  Mortgagee or its designee for the remainder of the term of this Lease
with  the  same  covenants,   conditions  and  agreements  (including,   without
limitation,  any and all options to extend or renew the term of this Lease,  but
excluding  any  requirements  which have been  satisfied  by the Lessee prior to
termination)  as are  contained  herein,  subject only to (i) the  conditions of
title as the Project are subject to on the date of the execution of the original
Lease,  (ii) the right, if any, of any parties then in possession of any part of
the Project by, through or under Lessee,  and (iii) the lien and  encumbrance of
any security  instrument  encumbering  the  Issuer's fee simple  interest in the
Project  upon  receipt by the Issuer of a written  request  from such  Leasehold
Mortgagee on or before sixty (60) days after the date of the Issuer's  notice of
termination given pursuant to this subsection 8.5(d) and thereafter,  the lessee
under the New Lease shall have the same right,  title and interest in and to the
Project as

                                      -26-

<PAGE>

the Lessee had under this Lease.  The  obligations of the Issuer to enter into a
New Lease shall be subject to the following conditions:

             (i)    Such Leasehold Mortgagee or its designee  shall pay or cause
to be paid to the Issuer at the time of the  execution  and delivery of such New
Lease any and all sums which would at the time of execution and delivery thereof
be due pursuant to this Lease but for such termination and, in addition thereto,
all reasonable expenses,  including reasonable attorney's fees, which the Issuer
shall  have  incurred  by  reason of the  Lessee's  default  of which  Leasehold
Mortgagee has been notified and provided an  opportunity  to cure as required by
this Lease, and such termination and the execution and delivery of the New Lease
and which have not otherwise  been received by the Issuer from the Lessee or any
other party in interest under the Lessee.  Upon the execution of such New Lease,
the Issuer  shall allow the Lessee named  therein as an offset  against the sums
otherwise due under this  subsection  8.5(d),  an amount equal to the net income
derived  by the Issuer  from the  Project  during  the  period  from the date of
termination  of this  Lease  to the  date of  beginning  of the term of such New
Lease; and

             (ii)   Such  Leasehold Mortgagee  or its  designees shall agree  to
cure any defaults of the Lessee under the  terminated  Lease of which the Issuer
shall have notified  Leasehold  Mortgagee  other than a default  existing  under
subsections 10.01(c), (d) or (e) hereof.

         The new lessee under such New Lease shall, upon  entering into such New
Lease,  acquire all of the right, title and interest of the Lessee in and to any
and all subleases of all or any part of the Project.

         (e) So  long  as  any  Leasehold Mortgage is  in existence, unless  all
Leasehold Mortgagees shall otherwise expressly consent in writing, the fee title
to the Project and the leasehold  estate of the Lessee herein  created shall not
merge but shall remain separate and distinct, notwithstanding the acquisition of
said fee title and said leasehold estate by the Issuer or by the Lessee, or by a
third party, by purchase or otherwise.

         (f) Notices from the Issuer to  the Leasehold Mortgagee shall be mailed
to the address  furnished the Issuer  pursuant to Notice of Leasehold  Mortgage,
and those from the  Leasehold  Mortgagee  to the  Issuer  shall be mailed to the
address  designated  pursuant to the  provisions  of Section 12.1 of this Lease.
Such  notices,  demands and requests  shall be given in the manner  described in
Section  12.1 of this  Lease  and  shall  in all  respects  be  governed  by the
provisions of that section.

         (g) The Issuer shall, on request in  connection with  the  financing or
refinancing  of  the  Lessee's  leasehold  interest  in  the  Project,  execute,
acknowledge and deliver to a Leasehold  Mortgagee an agreement,  prepared at the
sole cost and  expense of the  Lessee,  in form  satisfactory  to the  Leasehold
Mortgagee  and the  Issuer  among  the  Issuer,  the  Lessee  and the  Leasehold
Mortgagee,  agreeing to all the provisions of this Article XI. In

                                      -27-

<PAGE>

addition,  the Lessee shall  reimburse the Issuer for any reasonable  attorneys'
fees and expenses actually incurred in reviewing such agreement.

         Section 8.6  WAIVER OF LANDLORD'S LIEN.

         (a) The Issuer hereby waives any right to distrain Excluded Property or
any other  personal  property of the Lessee or any other  Person  which does not
constitute a part of the Project,  and any landlord's  lien or similar lien upon
Lessee and any landlord's lien or similar lien upon Excluded Property, any other
personal property of Lessee or any other Person and any alterations belonging to
any Person,  regardless of whether such lien is created by statute or otherwise.
The Issuer  agrees,  at the  request of the  Lessee,  to execute a waiver of any
landlord's  or similar lien for the benefit of any present or future holder of a
security  interest  in, or lessor of, any of the  Excluded  Property,  any other
personal property of any Person or any alterations belonging to any Person.

         (b) The Issuer acknowledges, and agrees in  the future  to  acknowledge
(in a written form reasonably  satisfactory to the Lessee),  to such Persons, at
such times and for such purposes as the Lessee may reasonably request,  that any
property  included in Excluded  Property is not subject to this Lease and do not
constitute  fixtures or  improvements  (regardless  of whether or to what extent
such Excluded  Property is affixed to the  Project),  and that the Issuer has no
right, title or interest in or to any Excluded Property.

         Section 8.7  GRANTING OF MORTGAGES BY ISSUER. Upon the written  request
of the Lessee and with the consent of the holders of not less than a majority in
the aggregate principal amount of the Bonds then outstanding,  the Issuer agrees
to execute and  deliver to any Person  specified  by the Lessee (a  "Mortgagee")
with or without receipt of consideration and at all times and from time to time,
any  mortgage,  deed to secure debt,  security  agreement,  assignment  or other
security  instrument  (herein called a "Mortgage")  encumbering the Issuer's fee
simple  interest in the Project as security  for any debt of Lessee or any other
Person.

         In  addition, upon  the  written  request of  the Lessee  and with  the
consent of the holders of not less than a majority in aggregate principal amount
of the Bonds then  outstanding,  the Issuer and the  Trustee  shall  execute and
deliver  such   subordination   agreements,   consents  or  other  documents  or
instruments  in recordable  form having the effect of  subordinating  all or any
part of their  respective  interests  in the  Project,  this Lease and the Trust
Estate to the interests of the holder or holders of any Mortgage.

         Section 8.8  ESTOPPEL CERTIFICATES. The  Issuer and  the Trustee shall,
without  charge,  at any time and from time to time  hereafter,  within five (5)
days after written request of the Lessee to do so, certify by written instrument
duly  executed  and  acknowledged  to  any  Leasehold  Mortgagee,  Mortgagee  or
purchaser, or proposed Leasehold Mortgagee,  Mortgagee or proposed purchaser, or
any other  Person,  firm or  corporation  specified in such  request:  (i) as to
whether this Lease has been  supplemented

                                      -28-

<PAGE>

or amended, and if so, the substance and manner of such supplement or amendment;
(ii) as to the  existence  of any default  hereunder  known to the Issuer or the
Trustee;  (iii) as to the  existence of any offsets,  counterclaims  or defenses
hereto on the part of the Lessee known to the Issuer or the Trustee;  (iv) as to
the  commencement  and expiration dates of the term of this Lease; and (v) as to
any other matters as may be reasonably so requested. Any such certificate may be
relied upon by the Lessee and any other person,  firm or corporation to whom the
same may be addressed,  and the contents of such certificate shall be binding on
the  Issuer  and the  Trustee  as to the  Lessee  and the  addressee(s)  of such
certificate.

         Section 8.9  AUTHORIZED   ISSUER   REPRESENTATIVE.   Unless   otherwise
specified  herein,  whenever  under the  provisions  hereof the  approval of the
Issuer is  required or the Issuer is required to take some action at the request
of the  Lessee,  such  approval  may be made or such  action may be taken by the
Authorized  Issuer  Representative;  and the  Lessee  or the  Trustee  shall  be
authorized  to act on any such  approval or action and the Issuer  shall have no
complaint  against  the  Lessee or the  Trustee  as a result of any such  action
taken.

         Section 8.10 AUTHORIZED   LESSEE   REPRESENTATIVE.   Unless   otherwise
specified  herein,  whenever  under the  provisions  hereof the  approval of the
Lessee is  required or the Lessee is required to take some action at the request
of the  Issuer,  such  approval  may be made or such  action may be taken by the
Authorized  Lessee  Representative;  and the  Issuer  or the  Trustee  shall  be
authorized  to act on any such  approval or action and the Lessee  shall have no
complaint  against  the  Issuer or the  Trustee  as a result of any such  action
taken.

                                   ARTICLE IX
                                   ----------

                        ASSIGNMENT, SUBLEASING, PLEDGING
                            AND SELLING; REDEMPTION;
                          RENT PREPAYMENT AND ABATEMENT
                          -----------------------------

         Section 9.1  ASSIGNMENT AND SUBLEASING. This Lease may  be  assigned in
whole or in part, and the Project may be subleased as a whole or in part, by the
Lessee without the necessity of obtaining the consent of the Issuer, the Trustee
or any other Person;  provided,  however, except as provided below no assignment
(other than pursuant to Section 8.3 hereof) or sublease shall relieve the Lessee
from primary liability for any of its obligations  hereunder.  The Lessee agrees
to cause any  sublessee  of the  Project or any  portion  thereof to operate the
Project as a "project" as defined in the Act. Notwithstanding the foregoing, the
Lessee shall be relieved of liability hereunder in the event of an assignment of
its interest in this Agreement if (i) the assignee  expressly assumes and agrees
in writing to perform all of the Lessee's  obligations under this Lease and (ii)
if the assignee is a foreign Person (i.e. a natural Person residing  outside the
United States of America or an entity not organized and existing  under the laws
of one of

                                      -29-

<PAGE>

the states of the United  States of America or the District of  Columbia),  such
Person  shall  appoint and maintain an agent for service of process in the State
of Georgia.

         Section 9.2  ASSIGNMENT AND PLEDGE OF REVENUES BY  ISSUER. Pursuant  to
the  Indenture,  the Issuer has  assigned and pledged its interest in any moneys
receivable  under this Lease,  excluding  payments  pursuant to Sections 5.3(b),
5.3(c) and 6.4 hereof, as security for the payment of the principal of, premium,
if any,  and  interest on the Bonds,  but such  assignment  and pledge  shall be
subject and subordinate to this Lease.

         Section 9.3  RESTRICTIONS ON  SALE  OF PROJECT  BY  ISSUER. The  Issuer
agrees that,  except as otherwise  expressly  permitted  under the terms of this
Lease or the Indenture, it will not sell, assign, transfer or convey the Project
during the  Agreement  Term and that it will not take any other action which may
reasonably  be construed as tending to cause or induce the levy or assessment of
additional ad valorem  taxes on the Project.  If the laws of Georgia at the time
shall permit such action to be taken,  nothing  contained in this Section  shall
prevent the  consolidation  of the Issuer with, or merger of the Issuer into, or
transfer of the Project as an entirety to, any public corporation whose property
and income are not  subject to taxation  and which has  corporate  authority  to
carry on the business of owning and leasing the Project;  provided,  (i) that no
such  action  shall be taken  without the prior  written  consent of the Lessee,
unless  such  action  shall be  required  by law,  and (ii)  that  upon any such
consolidation, merger or transfer, the due and punctual payment of the principal
of, premium, if any, and interest on the Bonds according to their tenor, and the
due and punctual performance and observance of all the agreements and conditions
of this Lease to be kept and performed by the Issuer, shall be expressly assumed
in writing by the  corporation  resulting from such  consolidation  or surviving
such merger or to which the Project shall be transferred as an entirety.

         Section 9.4  REDEMPTION OF BONDS. The Issuer, at  the  request  at  any
time of the Lessee and if the same are then redeemable, shall forthwith take all
steps that may be necessary  under the applicable  redemption  provisions of the
Indenture to effect redemption of all or part of the then outstanding  Bonds, as
may be specified by the Lessee,  on the earliest  redemption  date on which such
redemption  may be made  under  such  provisions  or upon  the  date set for the
redemption by the Lessee pursuant to Sections 7.1, 7.2 or 11.1 hereof or Article
III of the Indenture.

         Section 9.5  PREPAYMENT OF RENTS. There  is expressly  reserved to  the
Lessee the right,  and the Lessee is authorized and permitted at any time it may
choose,  to prepay all or any part of the rents  payable  under  Section  5.3(a)
hereof,  and the Issuer agrees to accept such  prepayment of rents when the same
are tendered by the Lessee. All rents so prepaid shall be credited on the rental
payments specified in Section 5.3(a) hereof, in the order of their due dates and
at the election of the Lessee shall be used for the  redemption  of  outstanding
Bonds in the manner and to the extent provided in the Indenture.

         Section 9.6  PRESENTMENT  OF   BONDS   FOR   CANCELLATION.  The  Lessee
expressly  reserves the right and is authorized to present any principal  amount
of  Bonds  to  the  Issuer

                                      -30-

<PAGE>

or the Trustee for  cancellation.  If all of the outstanding Bonds are presented
to the Issuer or the Trustee for cancellation,  then, upon payment to the Issuer
or the Trustee of any amounts  payable to the Issuer due  hereunder  (other than
the payments  pursuant to Section 5.3(a)  hereof),  this Lease may be terminated
upon  notice  given  pursuant  to Section  11.5(b)  hereof.  If a portion of the
Outstanding  Bonds are presented to the Issuer or the Trustee for  cancellation,
the  resulting  reduction in the amount of Bonds  outstanding  shall entitle the
Lessee to an  appropriate  reduction in the payments  required by Section 5.3(a)
hereof on all  succeeding  rental  payment  dates.  All Bonds so  presented  and
canceled shall thereafter no longer be considered outstanding for any purpose of
the Indenture or this Lease, including the calculation of payments under Section
5.3(a)  hereof.  The Lessee  may  present  Bonds for  partial  cancellation  and
reissuance  of  new  Bonds  for  the  portions  not  canceled,  or  for  partial
cancellation and notation thereof on such Bonds, such notation to be made on the
Table of Partial  Redemptions  on such Bonds in the same manner as provided  for
partial redemptions in Section 306 of the Indenture.

         Section 9.7  LESSEE ENTITLED  TO CERTAIN  RENT ABATEMENTS IF BONDS PAID
PRIOR TO MATURITY. If at any time the aggregate moneys in the Bond Fund shall be
sufficient to retire in accordance  with the  provisions of the Indenture all of
the  Bonds at the time  outstanding,  and to pay all  fees  and  charges  of the
Trustee  due or to become due through the date on which the last of the Bonds is
retired under  circumstances not resulting in termination of the Lease Term, and
if the Lessee is not at the time  otherwise in default  under Article VI hereof,
the Lessee  shall be  entitled  to use and occupy the  Project  from the date on
which such  aggregate  moneys are in the hands of the  Trustee to and  including
midnight on the last day of the Lease  Term,  without the payment of the amounts
required by Section  5.3(a) during that interval (but otherwise on the terms and
conditions hereof).

         Section 9.8  REFERENCE  TO BONDS  INEFFECTIVE  AFTER BONDS  PAID.  Upon
payment in full of the Bonds (or provision for payment  thereof having been made
in accordance  with the provisions of the Indenture) and all fees and charges of
the Trustee,  all references in this Lease to the Bonds shall be ineffective and
the holders of any of the Bonds shall not thereafter have any rights  hereunder,
saving and excepting those that shall have theretofore  vested.  For purposes of
this Lease,  the Bonds shall be deemed fully paid when so paid  according to the
provisions of Article IX of the Indenture.

                                    ARTICLE X
                                    ---------

                         EVENTS OF DEFAULT AND REMEDIES
                         ------------------------------

         Section 10.1 EVENTS OF DEFAULT DEFINED. The following  shall be "events
of default" under this Lease and the terms "event of default" or "default" shall
mean,  whenever  they are used in this Lease,  any one or more of the  following
events:

                 (a)  Failure by the Lessee to pay  when due the  portion of the
payments required to be paid under Section 5.3(a) hereof representing payment of
the principal of,

                                      -31-

<PAGE>

and premium,  if any, on the Bonds and the  continuance  thereof for a period of
ten (10)  calendar  days after  receipt by the Lessee of written  notice of such
failure;

                 (b)  Failure by the Lessee to  pay when due  the portion of the
payments required to be paid under Section 5.3(a) hereof  representing  payments
of interest on the Bonds,  and the continuance  thereof for a period of ten (10)
calendar days after receipt by the Lessee of written notice of such failure;

                 (c)  Failure by the Lessee to observe and perform any covenant,
condition or agreement  on its part to be observed or  performed,  other than as
referred to in subsections  (a) and (b) of this Section,  for a period of thirty
(30) days after written notice specifying such failure and requesting that it be
remedied,  given to the Lessee by the Issuer,  unless the Issuer  shall agree in
writing to an extension of such time prior to its expiration; provided, however,
if the failure stated in such notice cannot  practically be corrected within the
applicable  period,  it shall not be an event of default if the Lessee initiates
appropriate  corrective  measures  during  such  period  and such  measures  are
thereafter diligently pursued by the Lessee;

                 (d)  A  proceeding  or  case shall  be  commenced, without  the
application  or  consent of the  Lessee in any court of  competent  jurisdiction
seeking (i) liquidation, reorganization,  dissolution, winding-up or composition
or adjustment of debts of Lessee,  (ii) the appointment of a trustee,  receiver,
custodian,  liquidator  or the like of the  Lessee or of all or any  substantial
part  of its  assets,  or  (iii)  similar  relief  under  any  law  relating  to
bankruptcy, insolvency, reorganization,  winding-up or composition or adjustment
of debts, and such proceeding or cause shall continue undismissed,  or an order,
judgment,  or decree approving or ordering any of the foregoing shall be entered
and shall  continue in effect for a period of ninety (90) days;  or an order for
relief against the Lessee shall be entered  against the Lessee in an involuntary
case under the United States  Bankruptcy Code (as now or hereafter in effect) or
other  applicable  law and shall  continue in effect for a period of ninety (90)
days; or

             (e) The  Lessee  shall admit  in writing its  inability to pay  its
debts  generally  as they  become  due or shall  file a  petition  in  voluntary
bankruptcy  or  shall  make  any  general  assignment  for  the  benefit  of its
creditors,  or shall consent to the  appointment of a receiver or trustee of all
or substantially  all of its property,  or shall commence a voluntary case under
the United States Bankruptcy Code (as now or hereafter in effect), or shall file
in any court of competent  jurisdiction a petition  seeking to take advantage of
any other law relating to bankruptcy, insolvency, reorganization,  winding-up or
composition  or adjustment of debts,  or shall fail to controvert in a timely or
appropriate manner, or acquiesce in writing to, any petition filed against it in
an involuntary case under such United States Bankruptcy Code or other applicable
law.

         The term "liquidation, reorganization  or dissolution of the Lessee" as
used in this subsection,  shall not be construed to include the cessation of the
existence of the Lessee  resulting from a merger or  consolidation of the Lessee
into or with  another  Person or a

                                      -32-

<PAGE>

dissolution  or  liquidation  of  the  Lessee  following  a  transfer  of all or
substantially all of its assets as an entirety,  under the conditions permitting
such actions contained in Section 8.3 hereof.

         The foregoing provisions of this  Section are subject to  the following
limitations: if by reason of a Force Majeure Event the Lessee is unable in whole
or in part to carry out the agreements on its part herein contained,  other than
the  obligations  on the part of the Lessee  contained in Article V and Sections
6.3, 6.4 and 8.6 hereof,  the Lessee  shall not be deemed in default  during the
continuance of such inability.

         Section 10.2 REMEDIES  ON  DEFAULT. Whenever  any   event  of   default
referred to in Section 10.1 hereof shall have  happened  and be  subsisting  and
subject to the  provisions of this Section 10.2,  the Issuer may take any one or
more of the following remedial steps:

                 (a)  The Issuer may, at its option, declare all amounts payable
under  Section  5.3(a)  hereof for the  remainder  of the  Agreement  Term to be
immediately due and payable, whereupon the same shall become immediately due and
payable.  If the Issuer  elects to exercise the remedy  afforded in this Section
10.2(a) and  accelerates all amounts payable under Section 5.3(a) hereof for the
remainder of the Agreement  Term,  the amount then due and payable by the Lessee
as accelerated  rents shall be the sum of (1) the aggregate  principal amount of
the outstanding Bonds, and (2) all interest and redemption  premium,  if any, on
the  Bonds  accruing  to the date of such  acceleration.  Such  sums as may then
become  payable shall be paid into the Bond Fund and after the Bonds and accrued
interest  thereon have been fully paid and any costs  occasioned by such default
have been satisfied, any excess moneys in the Bond Fund shall be returned to the
Lessee as an overpayment of rents; provided,  however, upon the occurrence of an
event of default described in subsections (d) or (e) of Section 10.1 hereof, all
amounts  payable under Section  5.3(a) hereof for the remainder of the Agreement
Term shall be deemed  automatically  accelerated  without the  necessity  of any
declaration or the taking of any other action whatsoever.

                 (b)  The Issuer or the Trustee may re-enter and take possession
of the Project without  terminating this Lease, and sublease the Project for the
account of the Lessee,  holding the Lessee liable for the difference in the rent
and other amounts payable by such sublessee in such subleasing and the rents and
other amounts payable by the Lessee hereunder.

                 (c)  The Issuer  may  terminate  the  Lease  Term, exclude  the
Lessee from  possession  of the  Project  and use its best  efforts to lease the
Project to another for the account of the Issuer,  holding the Lessee liable for
all rent and other payments due up to the effective date of such leasing.

                 (d)  In  the  event  any  of  the  Bonds  shall at the  time be
outstanding  and  unpaid,  the  Issuer  or the  Trustee  may have  access to and
inspect,  examine  and make copies of all books and records of the Lessee to the
Project.

                                      -33-

<PAGE>

                 (e)  The  Issuer may take  whatever action at law or in  equity
may appear necessary or desirable to collect the rent then due and thereafter to
become  due,  or to  enforce  performance  and  observance  of  any  obligation,
agreement or covenant of the Lessee under this Lease.

         Any amounts collected pursuant to action taken under this Section shall
be paid into the Bond Fund and applied in accordance  with the provisions of the
Indenture  or, if the Bonds  have been  fully  paid (or  provision  for  payment
thereof has been made in accordance  with the provisions of the  Indenture),  to
the Lessee.

         Notwithstanding  anything  else  herein  contained, the Issuer and  the
Trustee shall be prohibited  from  accelerating  rental  payments  hereunder and
exercise  any other rights or remedies  provided  herein,  at law or  otherwise,
unless and until the Issuer or the Trustee  shall have given the Lessee not less
than thirty (30) days' prior written notice of its intent to declare an event of
default,  accelerate rental payments and/or exercise any such rights or remedies
and the  Lessee  shall have  failed to cure said  event of default  prior to the
expiration  of said 30-day  period.  Any such notice shall be a separate  notice
from any notice  given  pursuant to Section  10.1 hereof and shall  specify with
particularity  the  event or  events  of  default  that  have  occurred  and are
continuing  and which  actions are proposed to be taken by the Issuer and/or the
Trustee as a result of any such event of default.

         Section 10.3 NO REMEDY EXCLUSIVE. No  remedy herein  conferred upon  or
reserved to the Issuer is intended to be exclusive of any other available remedy
or remedies,  but each and every such remedy shall be cumulative and shall be in
addition  to every  other  remedy  given  under this  Lease or now or  hereafter
existing at law or in equity or by statute. No delay or omission to exercise any
right or power accruing upon any default shall impair any such right or power or
shall be construed to be a waiver  thereof,  but any such right and power may be
exercised from time to time and as often as may be deemed expedient. In order to
entitle the Issuer to exercise  any remedy  reserved to it in this  Article,  it
shall not be  necessary  to give any  notice,  other than such  notice as may be
herein expressly  required.  Such rights and remedies as are given to the Issuer
hereunder  shall  also  extend to the  holders  of the Bonds who shall be deemed
third party beneficiaries of all covenants and agreements herein contained.

         Section 10.4 AGREEMENT TO PAY REASONABLE ATTORNEYS' FEES AND  EXPENSES.
In the event the Lessee should default under any of the provisions of this Lease
and the Issuer or the Trustee  should employ  attorneys or incur other  expenses
for the  collection of rent or the  enforcement  of performance or observance of
any  obligation  or agreement on the part of the Lessee  herein  contained,  the
Lessee agrees that it will on demand  therefor pay to the Issuer the  reasonable
fees of such  attorneys  and such other  reasonable  expenses so incurred by the
Issuer or the Trustee.

         Section 10.5 NO ADDITIONAL WAIVER IMPLIED BY ONE WAIVER. In  the  event
any  agreement  contained  in this Lease  should be breached by either party and
thereafter

                                      -34-

<PAGE>

waived by the other party, such waiver shall be limited to the particular breach
so waived and shall not be deemed to waive any other breach hereunder.

         Section 10.6 RESCISSION  OF  REMEDIES. Notwithstanding  anything   else
herein  contained,  the Lessee  may at any time after an event of default  under
Section  10.1  hereof,  cure said  default by the payment of all amounts due and
payable  (other than  amounts  payable as a result of any  acceleration)  or the
performance  of any duty or  obligation  then in default  and upon said cure the
Issuer and the  Trustee  shall (i) rescind  and annul any  acceleration  of rent
payable  hereunder  and (ii)  cease  the  exercise  of any  rights  or  remedies
initiated  as a result of such event of  default,  and take such steps as may be
necessary to place the Lessee in the same position as it was prior to such event
of default,  and the rights of the Lessee  hereunder shall be fully restored and
reinstated as if such event of default never occurred.

                                   ARTICLE XI
                                   ----------

                           OPTIONS IN FAVOR OF LESSEE
                           --------------------------

         Section 11.1 GENERAL OPTION TO PURCHASE PROJECT. The Lessee shall have,
and is hereby  granted,  the option to purchase the entire  Project  (less those
portions  which have  already  been  purchased  by Lessee,  if any,  as provided
herein) at any time  during the  Agreement  Term and  whether or not an Event of
Default has occurred and is continuing.

         To exercise  such option, the Lessee shall give written  notice to  the
Issuer and to the Trustee,  if any of the Bonds shall then be unpaid,  and shall
specify therein the date of closing such purchase,  which date shall be not less
than fifteen days from the date such notice is mailed.  The purchase price which
shall be paid to the  Issuer by the Lessee in the event of its  exercise  of the
option granted in this Section shall be the sum of the following:

                 (1)  an amount of money which will be sufficient (or Government
Obligations  the  principal  of and the  interest on which when due will provide
moneys which,  together with the moneys, if any, deposited with the Trustee will
be sufficient),  when added to any amount already on deposit in the Construction
Fund and the Bond Fund, to pay the interest on the then outstanding  Bonds until
the earliest permissible  redemption date following the closing of such purchase
and to pay the principal of and interest on all of the Bonds on such  redemption
date;

                 (2)  an amount of money equal  to the fees and expenses of  the
Trustee under the Indenture  accrued and to accrue  (including  counsel fees and
expenses) until such final payment and redemption of the Bonds; plus

                 (3)  the sum of $10.00 which shall be paid by the Lessee to the
Issuer.

                                      -35-

<PAGE>

In the event of the  exercise  of the option  granted in this  Section,  any Net
Proceeds of insurance or condemnation shall be paid directly to the Lessee.

         Section 11.2 OPTION TO PURCHASE A  PORTION OF THE  PROJECT. The  Lessee
shall  have and is hereby  granted  an option to  purchase  any  portion  of the
Project at any time and from time to time and whether or not an Event of Default
has occurred and is  continuing,  provided that it furnishes the Issuer with the
following:

                 (a)  A notice in  writing  containing (i) a description of that
portion of the Project with respect to which such option is to be exercised  and
(ii) a statement that the Lessee intends to exercise its option to purchase such
portion of the Project on a date  stated,  which shall not be less than ten (10)
nor more than ninety (90) days from the date of such notice.

                 (b)  A  certificate  of the  Authorized Lessee  Representative,
dated not more than  ninety days prior to the date of the  purchase  and stating
that, in the opinion of the person signing such certificate,  (i) the portion of
the Project with respect to which the option is exercised are not needed for the
operation of the remaining  portion of the Project or that sufficient  right and
title is reserved to the Issuer to fulfill said needs,  (ii) the  purchase  will
not impair the  usefulness of the remaining  portion of the Project and will not
destroy the means of ingress thereto and egress therefrom.

                 (c)  A  statement  setting  forth  the  original  Project Costs
attributable  to  such  portion  of the  Project,  as  depreciated  using  rates
calculated in accordance with generally accepted accounting principles.

The Issuer  agrees that upon receipt of the notice and  certificate  required in
this  Section to be  furnished  to it by the Lessee and the amount  specified in
subsection (c) of this Section, the portion of the Project with respect to which
the  Lessee  shall have  exercised  the option  granted  in this  Section  shall
automatically  cease to be a portion of the Project leased hereunder on the date
stated in such certificate and on such date shall automatically be released from
the  provisions  of this Lease and the  Indenture  without the  necessity of any
further  action by the  Issuer or the  Lessee.  In the  event the  Lessee  shall
exercise  the option  granted to it under this  Section the Lessee  shall not be
entitled to any  abatement or  diminution of the rents payable under Section 5.3
hereof.

         If the Lessee purchases any unimproved  part of the Project pursuant to
the provisions of the preceding paragraph,  the Lessee and the Issuer agree that
all walls  presently  standing  or  hereafter  erected on or  contiguous  to the
boundary  line of the Land so  purchased  by the Lessee shall be party walls and
each party grants the other a 10-foot  easement  adjacent to any such party wall
for the purpose of inspection,  maintenance,  repair and replacement thereof and
the tying-in of new construction.  If the Lessee utilizes any party wall for the
purpose of tying-in new construction  that will be utilized under common control
with the Project,  the Lessee may also tie-in to the utility  facilities  on the
Land  for the  purpose  of  serving  the new  construction  and may  remove  any
non-

                                      -36-

<PAGE>

loadbearing  wall  panels  in the party  wall;  provided,  however,  that if the
property  so  purchased  ceases to be operated  under  common  control  with the
Project,  the Lessee covenants that it will install  non-loadbearing wall panels
similar in quality to those that have been  removed  and will  provide  separate
utility  services  for the new  construction.  No wall may be so utilized by the
Lessee unless prior thereto the Issuer has been  furnished with a certificate of
the Authorized Lessee Representative  stating that the proposed utilization will
not impair the  usefulness  of the  Project  for the  purposes  for which it was
designed to be used.

         The  purchase  price  payable by  the  Lessee  in  connection with  the
purchase of a portion of the Project in  accordance  with this Section  shall be
deposited in the Bond Fund and used to pay the principal of the Bonds.

         If and to the extent under any particular circumstances there is deemed
any  inconsistency  between the  provisions  of this Section and  provisions  of
Section  6.2, the  provisions  of Section 6.2 shall be held as  controlling  and
shall supersede the provisions of this Section.

         Section 11.3 CONVEYANCE ON PURCHASE. At  the  closing of  the  purchase
pursuant to the exercise of any option to purchase granted in this Article,  the
Issuer will, upon receipt of the applicable  purchase price (if any), deliver to
the Lessee the following:

                 (a)  If the Indenture shall not at the time have been satisfied
in full,  a release by the Issuer from the  provisions  of the  Indenture of the
property with respect to which such option was exercised.

                 (b)  Documents  (including,  without   limitation,  a   limited
warranty deed and a bill of sale)  customarily  used in  commercial  real estate
transactions  involving  improved  property  conveying  to the  Lessee  good and
marketable  title to the Project with respect to which such option was exercised
as such  Project  then  exists,  subject to the  following:  (i) those liens and
encumbrances  (if any) to which title to said property was subject when conveyed
to the Issuer; (ii) those liens and encumbrances created by the Lessee or to the
creation or  suffering  of which the Lessee  consented  in writing;  (iii) those
liens and  encumbrances  resulting  from the failure of the Lessee to perform or
observe any of the agreements on its part  contained in this Lease;  and (iv) if
the option is exercised while any condemnation  proceeding is pending the rights
and title of the condemning authority.

         Notwithstanding  the  foregoing, in order to facilitate the transfer of
the  Project to the Lessee upon the  Lessee's  exercise of an option to purchase
provided  in this  Article  XI, the Issuer  agrees to execute and deliver to the
Trustee,  as escrow  agent,  on the date of execution and delivery of this Lease
the  documents  referred  to in  subsection  (b) above to be held  pursuant to a
Documents  Escrow  Agreement dated as of December 1, 2002 among the Issuer,  the
Lessee  and  the  Trustee.   The  Issuer  hereby  appoints  the  Lessee  as  its
attorney-in-fact for the purpose of dating, completing and filing such documents
upon

                                      -37-

<PAGE>

satisfaction  by the Lessee of any and all  conditions  to the  exercise of such
purchase  option as  provided  herein,  and  acknowledges  and agrees  that such
appointment is irrevocable and coupled with an interest.

         Section 11.4 RELATIVE POSITION OF  OPTIONS AND  INDENTURE. The  options
respectively granted to the Lessee in this Article shall be and remain prior and
superior to the Indenture  and may be exercised  whether or not the Lessee is in
default   hereunder,   provided  that  such  default  will  not  result  in  the
nonfulfillment of any condition to the exercise of any such option.

         Section 11.5 LESSEE'S OPTION  TO TERMINATE. The Lessee  shall have  the
following  options to terminate this  Agreement  whether or not the Lessee is in
default hereunder or there exists an Event of Default hereunder:

                 (a)  At any time  prior to payment in  full of the Bonds within
the meaning of the Indenture,  and particularly  Article IX thereof,  the Lessee
may  terminate  the Agreement  Term by  irrevocably  depositing in the Bond Fund
moneys which will be sufficient,  or Government Obligations the principal of and
interest on which when due will provide  moneys which,  together with any moneys
on deposit in the Bond Fund, will be sufficient,  according to the provisions of
Article IX of the Indenture,  to pay in full all of the Bonds then  outstanding,
and fees and expenses due or to become due to the Trustee and by making adequate
provision for the  publication of any redemption  notice that may be required by
the Indenture.

                 (b)  At any time after payment in full of the Bonds  within the
meaning of the Indenture,  and particularly  Article IX thereof,  the Lessee may
terminate  the Agreement  Term by giving the Issuer notice in writing,  and such
termination shall become effective forthwith.

         Notwithstanding  anything else  herein contained, the purchase  of  the
Project  by the  Lessee  pursuant  to any option  provided  in this Lease  shall
automatically terminate the Lease Term, if not previously terminated.

         Section 11.6. CONVEYANCE   OF   PROJECT   AT   END   OF   LEASE   TERM.
Notwithstanding  anything else herein contained, the Issuer shall have the right
and option on or after the Stated  Termination Date to convey the Project to the
Lessee, with or without receipt of any consideration  therefor, by executing any
recording  documents  conveying to the Lessee good and  marketable  title to the
Project  subject  to such liens and  encumbrances  as are  described  in Section
11.3(b)(i) through (iv).

                                      -38-

<PAGE>


                                   ARTICLE XII
                                   -----------

                                  MISCELLANEOUS
                                  -------------

         Section 12.1  NOTICES.   All   notices,    certificates    or     other
communications  hereunder shall be sufficiently  given and shall be deemed given
when mailed by registered or certified  mail return receipt  requested,  postage
prepaid, addressed as follows:

          if to the Issuer:         Development Authority of Fulton County
                                    141 Pryor Street, S.W.
                                    Suite 5001
                                    Atlanta, Georgia  30303

              with a copy to:       Nelson, Mullins, Riley & Scarborough
                                    999 Peachtree Street, N.E.
                                    Suite 1400
                                    Atlanta, Georgia  30309
                                    Attn:  Lewis C. Horne, Jr., Esq.

          if to the Lessee:         ADESA Atlanta, LLC
                                    310 E. 96th Street, Suite 400
                                    Indianapolis, Indiana  46240
                                    Attn:  General Counsel

              with a copy to:       Alston & Bird LLP
                                    1201 West Peachtree Street
                                    Atlanta, Georgia  30309
                                    Attn:  Glenn R. Thomson, Esq.

         if to the Trustee:         SunTrust Bank
                                    25 Park Place, 24th Floor
                                    Atlanta, Georgia  30303

         A  duplicate copy of  each notice, certificate or  other  communication
given  hereunder  by either the Issuer or the Lessee to the other  shall also be
given to the  Trustee.  The Issuer,  the Lessee and the  Trustee  may, by notice
given  hereunder,   designate  any  further  or  different  addresses  to  which
subsequent notices, certificates or other communications shall be sent.

         Section 12.2  BINDING EFFECT. Lease shall inure  to the  benefit of and
shall be binding upon the Issuer, the Lessee and their respective successors and
assigns, subject, however, to the limitations contained in Section 8.3, 9.1, 9.2
and 9.3 hereof.

                                      -39-

<PAGE>

         Section 12.3  SEVERABILITY. In the  event any provision  of this  Lease
shall be held invalid or unenforceable  by any court of competent  jurisdiction,
such holding shall not invalidate or render  unenforceable  any other  provision
hereof.

         Section 12.4  AMOUNTS REMAINING IN FUNDS. It is agreed  by the  parties
hereto that any  amounts  remaining  in the Bond Fund and the Project  Fund upon
expiration  or sooner  termination  of the Lease Term as provided in this Lease,
after payment in full of the Bonds (or provision for payment thereof having been
made in accordance  with the provisions of the Indenture) and the fees,  charges
and expenses of the Trustee in accordance with the Indenture shall belong to and
be paid to the Lessee by the Issuer as overpayment of rents.

         Section 12.5  AMENDMENTS,CHANGES AND MODIFICATIONS. Except as otherwise
provided in this Lease or in the Indenture,  subsequent to the initial  issuance
of Bonds  and  prior to their  payment  in full (or  provision  for the  payment
thereof having been made in accordance  with the  provisions of the  Indenture),
this  Lease  may not be  effectively  amended,  changed,  modified,  altered  or
terminated without the concurring written consent of the Trustee,  which consent
shall not be unreasonably withheld.

         Notwithstanding  anything to the contrary contained herein, this  Lease
may be amended  without  the  consent of the Trustee or of the holders of any of
the Bonds for the purpose of subjecting  additional real or personal property to
the  provisions  hereof.  Any such  addition  shall  become  effective  upon the
delivery by the Lessee and the acceptance by the Issuer of the following:

                 (a)   a certificate  of  the  Authorized  Lessee Representative
setting out a description  of the real or personal  property to be added to this
Lease and stating that the Lessee owns such real or personal  property  free and
clear of any and all liens,  mortgages,  encumbrances and clouds on title except
such as would constitute Permitted Encumbrances; and

                 (b)   documents conveying  to the  Issuer good  and  marketable
title to the real or personal property described in the certificate  referred to
above and  identifying  said real or personal  property as being  subject to the
provisions of this Lease.

         Upon the  delivery and  acceptance of the foregoing documents, the real
or personal  property  so added shall  become part of the Project and this Lease
shall ipso facto be amended to include such  property,  without the necessity of
any further  amendatory  instrument,  subject to all of the  provisions  of this
Lease,  and the  Lessee  shall  be  entitled  to the use and  occupancy  of such
additional  property  without  increase in the amounts payable under Section 5.3
hereof so long as such  additional  property is acquired  without expense to the
Issuer. The Issuer will, however,  execute such instruments amendatory hereto as
shall be requested by the Lessee to confirm the addition of any such property to
the provisions hereof.

                                      -40-

<PAGE>

         Section 12.6  EXECUTION COUNTERPARTS. This Lease may be  simultaneously
executed in several counterparts,  each of which shall be an original and all of
which shall constitute but one and the same instrument.

         Section 12.7  CAPTIONS. The  captions or headings in this Lease are for
convenience only and in no way define,  limit or describe the scope or intent of
any provisions of this Lease.

         Section 12.8  RECORDING OF LEASE. This  Lease  or  at the option of the
Lessee,  a memorandum  hereof in form and substance  satisfactory to the Lessee,
and every  assignment  hereof  shall be  recorded  in the office of the Clerk of
Superior Court of Fulton County,  Georgia,  or in such other office as may be at
the time provided by law as the proper place for such recordation.

         Section 12.9  LAW GOVERNING CONSTRUCTION OF LEASE. This  Lease shall be
governed by, and construed in accordance with, the laws of the State of Georgia.

         Section 12.10 NET LEASE. This Lease shall be  deemed a "net lease," and
the Lessee shall pay absolutely net during the Lease Term the rent and all other
payments required hereunder, without abatement,  deduction or set-off other than
those herein expressly provided.

         Section 12.11 SURVIVAL OF  PURCHASE  OPTIONS. Notwithstanding  anything
else herein contained,  the purchase options granted to the Lessee hereunder and
the provisions of Sections 5.3(b) and 6.4 hereof shall survive the expiration or
earlier termination of the Agreement Term.

                                      -41-
<PAGE>



         IN WITNESS WHEREOF, the Issuer and the Lessee have caused this Lease to
be executed in their respective  corporate names and their respective  corporate
seals to be hereunto affixed and attested by their duly authorized officers, all
as of the date first above written.

Signed, sealed and delivered                       DEVELOPMENT AUTHORITY OF
in the presence of:                                 FULTON COUNTY


  /s/ Carmen Vaughn                                By:  /s/ Robert J. Shaw
- ---------------------------------                     --------------------------
Unofficial Witness                                      Chairman

                                                                (SEAL)
  /s/ Ruanne E. Clay
- ---------------------------------
Notary                                             Attest:


My commission expires                                /s/ Lewis C. Horne, Jr.
                                                   -----------------------------
March 20, 2003                                       Asst. Secretary
- ---------------------------------


         (NOTARIAL SEAL)














                            [Signature Page - Lease]


                                      -42-
<PAGE>



Signed, sealed and delivered                    ADESA ATLANTA, LLC
in the presence of:



  /s/ Scott Anderson                            By:  /s/ Paul J. Lips
- -------------------------------------               ----------------------------
Unofficial Witness                                   Paul J. Lips, Treasurer

                                                            (SEAL)
  /s/ Cheryl A. Shrader
- -------------------------------------
Notary                                          Attest:

My commission expires                             /s/ Karen C. Turner
                                                --------------------------------
       9/24/08                                  Karen C. Turner, Secretary
- -------------------------------------
    CHERYL SHRADER, Notary Public
 Resident of Tipton County, Indiana
  My Commission Expires: 9-24-2008
          (NOTARIAL SEAL)















                            [Signature Page - Lease]

                                      -43-


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>6
<FILENAME>exhibit10t.txt
<DESCRIPTION>EX-10(T) COMMITTED FACILITY LETTER
<TEXT>
<PAGE>
                                                                   Exhibit 10(t)





              SECOND AMENDED AND RESTATED COMMITTED FACILITY LETTER

                                December 24, 2002

ALLETE, Inc.
30 West Superior Street
Duluth, Minnesota 55802
Attn: Corporate Treasurer

Ladies and Gentlemen:

          Reference  is  hereby  made  to  that  certain  Amended  and  Restated
Committed Facility Letter among the banks party thereto,  ABN AMRO Bank N.V., as
agent for such banks and yourselves dated as of December 28, 2000, as amended by
that certain First  Amendment to Committed  Facility Letter dated as of December
27, 2001, and that certain Second  Amendment to Committed  Facility Letter dated
as of February 7, 2002  (together  with all  exhibits,  schedules,  attachments,
appendices and amendments  thereof,  the "EXISTING  COMMITTED FACILITY LETTER").
The parties to the Existing  Committed  Facility Letter desire that the Existing
Committed  Facility  Letter be amended  and  restated in its  entirety,  without
constituting  a  novation,  all on the terms and  conditions  contained  herein.
Accordingly, in consideration of the premises and the agreements, provisions and
covenants  contained herein,  the Existing  Committed  Facility Letter is hereby
amended and restated in its entirety to be and to read as follows:

          LaSalle Bank National  Association (the "Agent" and, in its individual
capacity, a "Bank") and the other Banks (as defined below) are pleased to advise
ALLETE,  Inc. (the  "Company")  that the Banks  (defined  below) have  severally
approved,  subject to the conditions outlined in this letter, a committed credit
facility (the  "Facility").  The amount  available  under the Facility shall not
exceed at any time the aggregate sum of the Commitments  (defined  below).  This
Facility  shall  terminate on December 23, 2003 (the  "TERMINATION  DATE").  The
Facility shall be available  under the following  terms and conditions  (certain
capitalized  terms being used and not otherwise  defined as set forth in SECTION
8):

     1.   LOANS.

          The Company may from time to time before the  Termination  Date borrow
Eurodollar  Loans,  or if one or more  conditions  exist as set forth in Section
3(b) or Section 3(c) hereof, Prime Rate Loans. The aggregate  outstanding amount
of the Loans shall not at any time exceed the aggregate sum of the  Commitments.
The Company may borrow, repay and reborrow in accordance with the terms hereof.

          a.      BORROWING PROCEDURES

                  i.     PRIME RATE LOANS. Each  Prime  Rate Loan  shall  be  on
          prior  telephonic  notice  (promptly  confirmed  in writing)  from any
          Authorized  Officer  received  by the Agent not later  than 11:00 a.m.
          (Chicago,  Illinois  time),  on the
<PAGE>

ALLETE
December 24, 2002
Page 2


          day such Loan is to be made.  Each  such  Notice  of  Borrowing  shall
          specify (i) the borrowing date, which shall be a Banking Day, and (ii)
          the amount of the Loan. Each Prime Rate Loan shall be in the amount of
          $5,000,000 or a higher integral  multiple of $1,000,000.  A Prime Rate
          Loan shall only be available if the Agent has given written  notice to
          the Company that one or more conditions  exist as set forth in Section
          3(b) or Section 3(c) hereof.

                  ii.    EURODOLLAR LOANS. Each Eurodollar Loan  shall  be  made
          upon at least three Banking  Days' prior written or telephonic  notice
          from any Authorized  Officer received by the Agent not later than 3:00
          p.m.  (Chicago,  Illinois  time).  Each such Notice of Borrowing shall
          specify (i) the borrowing date, which shall be a Banking Day, (ii) the
          amount of such Loan, and (iii) the Interest Period for such Loan. Each
          Eurodollar  Loan  shall be in the  amount  of  $5,000,000  or a higher
          integral multiple of $1,000,000.

                  iii.   The Agent shall  give  prompt  telephonic  or  telecopy
          notice to each Bank of the contents of each Notice of Borrowing and of
          such Bank's share of such Loan.

                  iv.    Not later than  11:00 a.m. (Chicago time) (or 1:00 p.m.
          (Chicago time) in the case of any Prime Rate Loan) on the date of each
          borrowing,  each Bank participating  therein shall (except as provided
          in subsection  (v) of this  Section) make  available its share of such
          Loan, in Federal or other funds immediately  available in Chicago,  to
          the Agent at its address set forth next to its signature below. Unless
          the  Agent  is  notified  by a  Bank  that  any  applicable  condition
          specified in Section 4 has not been satisfied, the Agent will make the
          funds  so  received  from  the  Banks  available  to  the  Company  by
          depositing such funds in the manner specified in the related Notice of
          Borrowing.

                  v.     Unless the Agent shall have received notice from a Bank
          prior  to the  date of any  borrowing  that  such  Bank  will not make
          available to the Agent such Bank's  share of such Loan,  the Agent may
          assume  that such Bank has made such share  available  to the Agent on
          the date of such borrowing in accordance  with subsection (iv) of this
          Section 1(a), and the Agent may, in reliance upon such assumption (but
          shall not be obligated to), make available to the Company on such date
          a corresponding  amount. If and to the extent that such Bank shall not
          have so made such  share  available  to the  Agent,  such Bank and the
          Company severally agree to repay to the Agent forthwith on demand such
          corresponding amount together with interest thereon, for each day from
          the date such amount is made  available to the Company  until the date
          such amount is repaid to the Agent, at (i) in the case of the Company,
          a rate per annum equal to the higher of (x) the Prime Rate and (y) the
          interest rate applicable  thereto  pursuant to Section  1(b)(ii),  and
          (ii) in the case of such  Bank,  the Prime  Rate.  If such Bank  shall
          repay to the

<PAGE>

ALLETE
December 24, 2002
Page 3

          Agent   such  corresponding  amount,  such  amount  so   repaid  shall
          constitute such Bank's Loan included in such Loan for purposes of this
          Agreement.

          b.      INTEREST

                  i.     PRIME RATE LOANS. The unpaid  principal of  each  Prime
          Rate Loan shall bear  interest  prior to  maturity at a rate per annum
          equal  to the  Prime  Rate  in  effect  from  time to  time  plus  the
          Applicable  Margin.  Accrued  interest  on Prime Rate  Loans  shall be
          payable  quarterly on the 30th day of each December,  March,  June and
          September and at maturity.

                  ii.    EURODOLLAR LOANS. The unpaid  principal  amount of each
          Eurodollar  Loan shall bear  interest  prior to maturity at a rate per
          annum equal to LIBOR in effect for the Interest Period with respect to
          such Eurodollar Loan plus the Applicable  Margin.  Accrued interest on
          each  Eurodollar Loan shall be payable on the last day of the Interest
          Period  applicable  to such Loan and, if such  Interest  Period  shall
          exceed three months,  at three month  intervals  after the date of the
          Eurodollar Loan.

                  iii.   INTEREST  AFTER  MATURITY. Any  principal of  any  Loan
          which is not paid when  due,  whether  at the  stated  maturity,  upon
          acceleration or otherwise,  shall bear interest from and including the
          date such  principal  shall have become due to (but not including) the
          date of payment thereof in full at a rate per annum equal to the Prime
          Rate from time to time in effect  plus the  Applicable  Margin plus 2%
          per annum (but until the end of any  Interest  Period for a Eurodollar
          Rate  Loan,  not  less  than  2 % in  excess  of  the  rate  otherwise
          applicable for such Loan).  After maturity,  accrued interest shall be
          payable on demand.

                  iv.    MAXIMUM RATE. In  no  event  shall  the  interest  rate
          applicable to any amount outstanding hereunder exceed the maximum rate
          of interest  allowed by applicable  law, as amended from time to time.
          Any payment of interest or in the nature of interest in excess of such
          limitation  shall be  credited  as a payment of  principal  unless the
          Company shall request the return of such amount.

                  v.     METHOD OF CALCULATING  INTEREST AND  FEES. Interest  on
          each Loan shall be computed on the basis of a year  consisting  of (i)
          365 days for Prime Rate Loans, and (ii) 360 days for Eurodollar Loans,
          and paid for actual days elapsed.  Fees shall be computed on the basis
          of a year consisting of 360 days and paid for actual days elapsed.

          c.      DISBURSEMENTS AND PAYMENTS

          The Agent shall  transfer the proceeds of  each Loan as directed by an
Authorized Officer.  Each Eurodollar Loan shall be payable on the earlier of the
last day of the Interest Period

<PAGE>

ALLETE
December 24, 2002
Page 4

applicable  thereto  or the  Termination  Date.  Each  Prime  Rate Loan shall be
payable on the Termination  Date. All payments to the Banks shall be made to the
Agent at LaSalle  Bank  National  Association  ABA No. 071 000 505,  Account No.
1378018,  reference ALLETE not later than 2:00 p.m., Chicago,  Illinois time, on
the date  when due and  shall be made in lawful  money of the  United  States of
America (in freely  transferable  U.S.  dollars)  and in  immediately  available
funds. Any payment that shall be due on a day, which is not a Banking Day, shall
be payable on the next  Banking  Day,  subject to the  definition  of  "Interest
Period".

          d.      PREPAYMENT; COMMITMENT REDUCTIONS

          The Company may  prepay any Loan in whole or in part from time to time
(but, if in part, in an amount not less than  $1,000,000 and integral  multiples
of  $1,000,000 in excess  thereof)  without  premium or penalty  (subject to the
following  paragraph) upon (i) 3 Business Days prior written notice to the Agent
with respect to any Eurodollar  Loan and (ii) prior written notice  delivered to
the  Agent  prior to 10:00  a.m.  (Chicago,  Illinois  time) on the date of such
prepayment with respect to any Prime Rate Loan.

          If  the  Company shall prepay any  Loan, it shall  pay to the Agent at
the time of each prepayment,  or at such later time designated by the Agent, any
and all costs described in Section 3(g) hereof.

          The Company may reduce the  amount of Commitments from time to time in
amounts not less than $1,000,000 and integral  multiples of $1,000,000 in excess
thereof without premium or penalty upon (i) 3 Business Days prior written notice
to the Agent, provided that the aggregate amount of Commitments shall not exceed
the aggregate  principal  amount of Loans then  outstanding.  Any such reduction
shall  be  applied  ratably  to the  Commitments  of the  Banks  and  may not be
reinstated.

          e.      NOTE

          The Company's obligations with respect to the Loans shall be evidenced
by a note for each Bank in the form  attached as EXHIBIT A (each,  a "Note" and,
collectively,  the "Notes").  The amount, the rate of interest for each Loan and
the Interest Period (if applicable)  shall be endorsed by the respective Bank on
the  schedule  attached to its Note,  or at any Bank's  option,  in its records,
which schedule or records shall be conclusive,  absent manifest error, PROVIDED,
HOWEVER,  that the  failure  of any Bank to record any of the  foregoing  or any
error in any such record shall not limit or otherwise  affect the  obligation of
the  Company  to repay all Loans  made to it  hereunder  together  with  accrued
interest thereon.

<PAGE>

ALLETE
December 24, 2002
Page 5

     2.   FEES.

          a.      CERTAIN FEES

          The  Company shall pay, or cause to be paid, to the Agent certain fees
set forth in the Fee Letter at the time  specified in the Fee Letter for payment
of such amounts.

          b.      FACILITY FEE

          The Company agrees  to pay to the Banks a facility fee at the Fee Rate
on the amount of the Facility  (whether or not used). Such facility fee shall be
payable by the Company  quarterly on the 30th day of each December,  March, June
and September after the date hereof and on the Termination  Date as set forth in
Section 1(c) hereof.

          c.      UTILIZATION FEE

          For each day the aggregate amount of Loans outstanding  exceeds 33% of
the  Commitments  as in  effect on such day,  the  Company  agrees to pay to the
Banks, in addition to any other amounts payable hereunder,  a utilization fee on
the aggregate outstanding amount of Loans on such date at a rate per annum equal
to the  Utilization  Fee Rate.  Such  utilization  fee shall be  payable  by the
Company  on the date  when the next  interest  payment  on such  Loans is due in
accordance with Section 1(b) hereof and on the Termination  Date as set forth in
Section 1(c) hereof.

     3.   ADDITIONAL PROVISIONS RELATING TO LOANS.

          a.      INCREASED COST

          The Company agrees to reimburse each Bank for any increase in the cost
to such Bank of, or any  reduction in the amount of any sum  receivable  by such
Bank in respect of, making or maintaining  any Eurodollar  Loans  (including the
imposition,  modification or deemed  applicability of any reserves,  deposits or
similar requirements). The additional amount required to compensate any Bank for
such  increased  cost or reduced  amount shall be payable by the Company to such
Bank within five days of the Company's  receipt of written notice from such Bank
specifying  such  increased  cost or reduced  amount and the amount  required to
compensate  such Bank therefor,  which notice shall,  in the absence of manifest
error, be conclusive and binding on the Company.  In determining such additional
amount, a Bank may use reasonable averaging, attribution and allocation methods.

          b.      DEPOSITS   UNAVAILABLE   OR  INTEREST   RATE  UNASCERTAINABLE;
IMPRACTICABILITY

          If  the  Company has notified the Agent of its intention  to borrow  a
Eurodollar  Loan for an  Interest  Period  and the Agent or any Bank  determines
(which determination shall be conclusive and binding on the Company) that:

<PAGE>

ALLETE
December 24, 2002
Page 6

                         (1) deposits of  the necessary amount for such Interest
                  Period are not available to such Bank in the London  interbank
                  market or, by reason of  circumstances  affecting such market,
                  adequate and  reasonable  means do not exist for  ascertaining
                  the Eurodollar Rate for such Interest Period; or

                         (2) LIBOR  will not adequately and  fairly  reflect the
                  cost to the Bank of making or  funding a  Eurodollar  Loan for
                  such Interest Period; or

                         (3)  the  making  or  funding  of  Eurodollar Loans has
                  become  impracticable as a result of any event occurring after
                  the date of this Agreement  which, in the opinion of the Bank,
                  materially  and adversely  affects such Loans or the interbank
                  eurodollar market;

then any notice of a Eurodollar Loan previously given by the Company and not yet
borrowed shall be deemed to be a notice to make a Prime Rate Loan.

          c.      CHANGES IN LAW RENDERING EURODOLLAR LOANS UNLAWFUL

          If at any  time due to  the adoption  of, or change in, any law, rule,
regulation,  treaty or  directive  or in the  interpretation  or  administration
thereof by any court,  central  bank,  governmental  authority  or  governmental
agency charged with the  interpretation  or administration  thereof,  or for any
other reason arising  subsequent to the date hereof, it shall become (or, in the
good faith judgment of any Bank,  raise a substantial  question as to whether it
is) unlawful for such Bank to make or fund any Eurodollar Loan, Eurodollar Loans
shall not be made  hereunder  for the duration of such  illegality.  If any such
event  shall make it  unlawful  for any Bank to continue  any  Eurodollar  Loans
previously made by it hereunder, the Company shall, after being notified by such
Bank of the occurrence of such event, on such date as shall be specified in such
notice,  either convert such  Eurodollar  Loan to a Prime Rate Loan or prepay in
full such Eurodollar Loan,  together with accrued interest thereon,  without any
premium or penalty (except as provided in Section 3(g)).

          d.      DISCRETION OF THE BANKS AS TO MANNER OF FUNDING

          Each Bank shall be entitled to fund and maintain its funding of all or
any part of the Loans in any manner it sees fit; it being  understood,  however,
that for purposes of this Note, all determinations hereunder shall be made as if
such Bank had actually  funded and maintained  each  Eurodollar  Loan during the
Interest Period for such Eurodollar Loan through the purchase of deposits having
a term  corresponding to such Interest Period and bearing an interest rate equal
to LIBOR for such Interest Period.

          e.      TAXES

          All payments by  the Company of  principal  of, and  interest on,  the
Loans and all other amounts  payable  hereunder  shall be made free and clear of
and  without  deduction  for any  present  or future  income,  excise,  stamp or
franchise taxes and other taxes, fees, duties,

<PAGE>

ALLETE
December 24, 2002
Page 7

withholdings  or other  charges of any nature  whatsoever  imposed by any taxing
authority,  but  excluding  franchise  taxes and taxes imposed on or measured by
each  respective  Bank's net income or receipts (such  non-excluded  items being
called "Taxes").  If any withholding or deduction from any payment to be made by
the  Company  hereunder  is  required  in respect of any Taxes  pursuant  to any
applicable law, rule or regulation, then the Company will

                  i.     pay directly  to the relevant authority the full amount
          required to be so withheld or deducted;

                  ii.    promptly  forward  to each  Bank an official receipt or
          other documentation  satisfactory to such Bank evidencing such payment
          to such authority; and

                  iii.   pay to each Bank such additional  amount or amounts  as
          is necessary to ensure that the net amount  actually  received by such
          Bank will equal the full amount such Bank would have  received  had no
          such withholding or deduction been required.

Moreover,  if any Taxes are directly asserted against any Bank or on any payment
received  by such Bank  hereunder,  such Bank may pay such Taxes and the Company
will promptly pay such  additional  amount  (including any penalty,  interest or
expense)  as is  necessary  in order that the net amount  received  by such Bank
after the payment of such Taxes (including any Taxes on such additional  amount)
shall  equal the amount  such Bank would  have  received  had no such Taxes been
asserted.

          If  the  Company fails to  pay  any  Taxes when due to the appropriate
taxing  authority or fails to remit to any Bank the  required  receipts or other
required  documentary  evidence,  the Company shall  indemnify such Bank for any
incremental  Tax,  interest,  penalty or expense that may become payable by such
Bank as a result of any such failure.

          f.      INCREASED CAPITAL COSTS

          If   any change  in,  or  the  introduction,  adoption, effectiveness,
interpretation,   reinterpretation  or  phase-in  of,  any  law  or  regulation,
directive,  guideline,  decision or request  (whether or not having the force of
law) of any court,  central  bank,  regulator  or other  governmental  authority
affects  or would  affect  the  amount of capital  required  or  expected  to be
maintained  by any Bank or any  entity  controlling  any  Bank,  and  such  Bank
determines (in its sole and absolute  discretion) that the rate of return on its
or such controlling  entity's capital as a consequence of the Loans made by such
Bank or the  commitment  hereunder  is reduced to a level  below that which such
Bank or such  controlling  entity could have achieved but for the  occurrence of
any such circumstance,  then, in any such case, upon notice from time to time by
any Bank to the Company, the Company shall immediately pay directly to such Bank
additional amounts sufficient to compensate such Bank or such controlling entity
for such reduction in rate

<PAGE>

ALLETE
December 24, 2002
Page 8

of return.  A statement of any Bank as to any such additional  amount or amounts
(including  calculations  thereof in reasonable detail) shall, in the absence of
manifest  error, be conclusive and binding on the Company.  In determining  such
amount,  each Bank may use  reasonable  averaging,  attribution  and  allocation
methods.

          g.      FUNDING LOSSES

          The Company will indemnify  the Banks  upon demand against any loss or
expense which any Bank may sustain or incur (including,  without limitation, any
loss or expense  sustained or incurred in  obtaining,  liquidating  or employing
deposits or other  funds  acquired  to effect,  fund or maintain  any Loan) as a
consequence  of (i) any failure of the  Company to make any payment  when due of
any amount due hereunder,  (ii) any failure of the Company to borrow a Loan on a
date specified therefor in a notice thereof, or (iii) any payment (including any
payment  upon  any  Bank's  acceleration  of the  Loans)  or  prepayment  of any
Eurodollar  Loan on a date  other than the last day of the  Interest  Period for
such Loan.

     4.   CONDITIONS PRECEDENT.

          a.      INITIAL LOAN

          The obligation of each Bank to  make the initial Loan shall be subject
to the prior or  concurrent  satisfaction  of each of the  following  conditions
precedent:

                  i.     The  Company  shall  have  delivered  to  the  Agent  a
          certificate  dated the date of the initial  Loan of its  Secretary  or
          Assistant  Secretary as to (i)  resolutions  of its Board of Directors
          then in full force and effect authorizing the execution,  delivery and
          performance of this Agreement,  the Notes,  and each of the other Loan
          Documents;  and (ii) the  incumbency  and  signatures  of those of its
          officers  authorized to act with respect to this  Agreement,  the Note
          and each of the Loan Documents  executed by it, upon which certificate
          the Banks may conclusively rely until it shall have received a further
          certificate  of the  Secretary or  Assistant  Secretary of the Company
          canceling or amending such prior certificate.

                  ii.    Each Bank shall  have received its respective Note duly
          executed and delivered by the Company.

                  iii.   The Agent shall have received an opinion dated the date
          of the initial Loan from  counsel to the Company in form  satisfactory
          to the Agent.

                  iv.    The  Company  shall  have  paid to  the  Agent, for the
          account of the Banks, a renewal fee equal to 0.20% of the  Commitments
          in effect on the date hereof,  such fee to be distributed to the Banks
          based upon their share of the Commitments on the date hereof.

<PAGE>

ALLETE
December 24, 2002
Page 9

          b.      EACH LOAN

          The obligation of each Bank to make any  Loan (including  the  initial
Loan) shall be subject to the following statements being true and correct before
and after giving effect to such Loan: (i) the representations and warranties set
forth in  Section 5 shall be true and  correct  with the same  effect as if then
made  (unless  stated to relate  solely to an earlier  date,  in which case such
representations  and  warranties  shall be true and  correct as of such  earlier
date);  and (ii) no Event of Default or  Unmatured  Event of Default  shall have
occurred and be continuing.

          Each request for a Loan  shall  be  deemed  a  representation  by  the
Company, as to the matters set forth in this Section.

     5.   REPRESENTATIONS.

          The Company represents and warrants to the Banks that:

          a.      ORGANIZATION

          It is a corporation duly organized and in good standing under the laws
of its  state  of  organization  and  duly  qualified  to do  business  in  each
jurisdiction where such qualification is necessary.

          b.      AUTHORIZATION

          The execution and delivery of  this Agreement, the Note  and the other
Loan Documents and the performance by the Company of its  obligations  hereunder
and thereunder are within the Company's  powers and have been duly authorized by
all necessary  action on the Company's  part, and do not and will not contravene
or conflict with the Company's organizational documents or violate or constitute
a default under any law, rule or regulation any presently  existing  requirement
or   restriction   imposed  by   judicial,   arbitral   or  other   governmental
instrumentality  or any agreement,  instrument or indenture by which the Company
is bound.

          c.      ENFORCEABILITY

          This Agreement is the Company's  legal, valid and  binding obligation,
enforceable in accordance with its terms.

          d.      FINANCIAL STATEMENTS

          The audited financial statements  of  the  Company as at  December 31,
2001 and the interim  financial  statements  of the Company as at September  30,
2002,  copies of which have been  furnished to the Agent,  have been prepared in
accordance with generally accepted accounting  principles  consistently applied,
and present fairly the financial condition of the

<PAGE>

ALLETE
December 24, 2002
Page 10

Company at the date  thereof  and the results of its  operations  for the period
then ended. Since the date of such interim financial statements,  there has been
no Material Adverse Change.

          e.      USE OF PROCEEDS

          The Company agrees that proceeds of any  Loan shall be used solely for
the purpose of providing  liquidity  support with  respect to  commercial  paper
borrowings of the Company or for other valid general corporate purposes.

     6.   COVENANTS.

          From the date  of this  Agreement and thereafter until the termination
of the Facility and until the  Obligations  are paid in full, the Company agrees
that it will:

          a.      FINANCIAL INFORMATION. Furnish to the Agent:

                  i.     As soon as  available and  in any event within  60 days
          after  the end of each of the  first  three  fiscal  quarters  of each
          fiscal  year  of  the  Company,  consolidated  balance  sheets  of the
          Company,  and  internally  prepared  unaudited  consolidating  balance
          sheets of the Company and its subsidiaries, each as at the end of such
          fiscal  quarter,  and  statements  of  earnings  and cash  flow of the
          Company, and internally prepared unaudited consolidating statements of
          earnings of the Company and its  subsidiaries,  each for such  quarter
          and for the period commencing at the beginning of such fiscal year and
          ending with the end of such quarter,  certified by the chief financial
          officer of the Company;

                  ii.    as soon as  available and in  any event within 120 days
          after the end of each fiscal year of the Company, a copy of the annual
          audit report for such fiscal year for the Company,  including  balance
          sheets of the Company as of the end of such fiscal year and statements
          of earnings and cash flow for such fiscal year, in each case certified
          in a manner acceptable to the Agent by independent  public accountants
          acceptable  to  the  Agent  together  with  the  internally   prepared
          unaudited  (a)  consolidating  balance  sheets  as of the  end of such
          fiscal year, and (b) statements of earnings for the period  commencing
          at the  beginning  of such fiscal year and ending with the end of such
          fiscal year, of the Company and its subsidiaries;

                  iii.   upon the occurrence of a Unmatured Event of Default or
          Event of Default,  notice of such Unmatured  Event of Default or Event
          of Default; and

                  iv.    such other information with respect to the condition or
          operations,  financial  or  otherwise,  of the Company as any Bank may
          from time to time reasonably request.

<PAGE>

ALLETE
December 24, 2002
Page 11

          b.      FURTHER RESTRICTIONS ON USE OF PROCEEDS

          Not, and not permit any Subsidiary or affiliate of the Company to, use
the  proceeds  of any Loan,  directly  or  indirectly,  for the  purpose  of (i)
purchasing  any  securities   underwritten  or  privately  placed  by  ABN  AMRO
Incorporated  ("AAI"),  an affiliate of the Agent,  (ii) purchasing from AAI any
securities in which AAI makes a market or (iii)  refinancing or making  payments
of principal,  interest or dividends on any securities issued by the Company, or
any Subsidiary or affiliate of the Company,  and underwritten,  privately placed
or dealt in by AAI.

          c.      PROHIBITION OF FUNDAMENTAL CHANGES. The Company shall not:

                  i.     Enter into any transaction of  merger of  consolidation
          or amalgamation,  or liquidate,  wind up or dissolve itself (or suffer
          any liquidation or dissolution); or

                  ii.    Convey, sell, lease, transfer or otherwise dispose  of,
          in one transaction or a series of  transactions,  all or a substantial
          portion of its business or property  without the prior written consent
          of the  Required  Banks,  which  consent  shall  not  be  unreasonably
          withheld.

Notwithstanding the foregoing provisions of this subsection (c), the Company may
merge or  consolidate  with any other  Person if the  Company  is the  surviving
corporation or the surviving  corporation assumes the liabilities of the Company
by operation of law or otherwise.

          d.      MAXIMUM RATIO OF FUNDED DEBT TO TOTAL CAPITAL

          The Company shall at all times, measured as of the end of each
fiscal quarter of the Company, maintain a maximum ratio of Funded Debt to Total
Capital of .60 to 1.0.

          e.      INTEREST COVERAGE RATIO

          The Company shall maintain at all times an Interest Coverage  Ratio of
not less than 3.00 to 1.00, as  determined at the end of each fiscal  quarter of
the Company.

     7.   EVENTS OF DEFAULT.

          a.      EVENTS. Each  of  the  following  shall constitute an Event of
Default:

                  i.     The Company fails to pay when due any principal of, or
          interest on, any Loan or any other amount  payable  hereunder or under
          any Note;

                  ii.    Any material representation or warranty of the  Company
          made  or  deemed  made   hereunder  or  under  any  other  writing  or
          certificate  furnished by or

<PAGE>

ALLETE
December 24, 2002
Page 12


          on  behalf of the  Company  to the  Agent  for the  purposes  of or in
          connection  with this  Agreement  shall  prove to have  been  false or
          misleading in any material respect when made or deemed made;

                  iii.   The  Company  defaults  in   the  due  performance   or
          observance  of Section  6(b)  hereof or the  Company  defaults  in any
          material  respect in the due  performance  or  observance of any other
          agreement  contained  herein or in any other  Loan  Document  and such
          default  shall  continue for 30 days after notice  thereof  shall have
          been given to the Company from the Agent;

                  iv.    The maturity of  any indebtedness of  the Company under
          any agreement or obligation in an aggregate principal amount exceeding
          $5,000,000 shall be accelerated,  or any default shall occur under one
          or more agreements or instruments under which such indebtedness may be
          issued or created and such default shall continue for a period of time
          sufficient to permit the holder or beneficiary of such indebtedness or
          a trustee  therefor to cause the  acceleration of the maturity of such
          indebtedness  or any  mandatory  unscheduled  prepayment,  purchase or
          funding thereof;

                  v.     Judgments or orders for the payment of money in  excess
          of $5,000,000 shall be rendered against the Company and such judgments
          or orders shall continue  unsatisfied  and unstayed for a period of 30
          days:

                  vi.    The Company or any Subsidiary shall

                         (1) become insolvent or generally fail to pay, or admit
                  in writing its  inability or  unwillingness  to pay,  debts as
                  they become due;

                         (2) apply   for,  consent  to   or  acquiesce  in   the
                  appointment  of a  trustee,  receiver,  sequestrator  or other
                  custodian  for the Company or any  Subsidiary  or any property
                  thereof,  or make a  general  assignment  for the  benefit  of
                  creditors;

                         (3) in  the  absence of  such application,  consent  or
                  acquiescence,  permit or suffer to exist the  appointment of a
                  trustee,  receiver,  sequestrator  or other  custodian for the
                  Company or any  Subsidiary  or for a  substantial  part of the
                  property thereof, and such trustee, receiver,  sequestrator or
                  other custodian shall not be discharged within 30 days;

                         (4) permit or suffer  to exist  the commencement of any
                  bankruptcy,  reorganization, debt arrangement or other case or
                  proceeding  under any  bankruptcy  or  insolvency  law, or any
                  dissolution,  winding up or liquidation proceeding, in respect
                  of the  Company  or any  Subsidiary  and,  if any such case or
                  proceeding is not commenced by the Company or such Subsidiary,
                  such case or proceeding shall be consented to or acquiesced in

<PAGE>

ALLETE
December 24, 2002
Page 13

                  by the Company or such Subsidiary or shall result in the entry
                  of  an  order  for   relief  or  shall   remain  for  60  days
                  undismissed; or

                         (5) take any action authorizing, or  in furtherance of,
                  any of the foregoing; or

                  vii. any Material Adverse Change shall have occurred.

          b.      REMEDIES

          Upon the occurrence of an Event of Default under Section 7(a)(vi), the
commitment of the Banks to make Loans shall be terminated  and the Notes and all
other  obligations  hereunder shall become  immediately due and payable in full;
and upon the  occurrence  of any other Event of Default,  the  commitment of the
Banks to make Loans may be  terminated  by the Banks and the Agent tray  declare
the Notes and the principal of and accrued  interest on each Loan, and all other
amounts payable hereunder, to be forthwith due and payable in full.

     8.   DEFINITIONS.

          As used in this Agreement:

          "AGENT" means LaSalle  Bank  National Association, in its capacity  as
 Agent for the Banks hereunder, and its successors in such capacity.

          "APPLICABLE  MARGIN" means (i) with respect to Eurodollar  Loans,  (a)
0.525% per annum for any day Level I Status exists; (b) 0.750% per annum for any
day Level II Status  exists;  (c)  0.850% per annum for any day Level III Status
exists;  (d) 1.300% per annum for any day Level IV Status exists; and (e) 2.000%
per annum for any day Level V Status exists; and (ii) with respect to Prime Rate
Loans,  (a) 0.000% per annum for any day Level I Status  exists;  (b) 0.000% per
annum for any day Level II Status exists; (c) 0.000% per annum for any day Level
III Status exists;  (d) 0.500% per annum for any day Level IV Status exists; and
(e) 1.500% per annum for any day Level V Status exists.

          "AUTHORIZED OFFICER" means each officer or employee of the Company who
is  authorized to request  Loans,  to confirm in writing any such request and to
agree to rates of interest,  as set forth on the schedule of Authorized Officers
most recently delivered by the Company to the Agent.

          "BANK" means each bank listed on the signature  page hereof,  or which
subsequently becomes a party hereto by execution of a Joinder Agreement, and its
successors and assigns.

<PAGE>

ALLETE
December 24, 2002
Page 14

          "BANKING DAY" means any day other than a Saturday, Sunday or other day
on which the Banks are  required  or  permitted  to close in Chicago  and,  with
respect to Eurodollar  Loans on which  dealings in Dollars are carried on in the
London interbank market.

          "COMMITMENT"  means,  with respect to each Bank,  the amount set forth
opposite the name of such Bank on the signature  pages  hereof,  or on a Joinder
Agreement, as applicable.

          "CONSOLIDATED  EBITDA" means, for any period,  for the Company and its
subsidiaries (which for purposes of this definition shall include any subsidiary
consolidated  into the  financial  statements  of the Company  other than ALLETE
Water  Services,  Inc. and any other  subsidiary  of the Company as to which the
Company has announced on or prior to December 15, 2002 that it will  discontinue
the operations of such  subsidiary) on a consolidated  basis, (A) the sum of the
amounts  for such  period of (i)  Consolidated  Net  Income,  (ii) to the extent
deducted in arriving at Consolidated  Net Income,  net federal,  state and local
income taxes in respect of such period, (iii) to the extent deducted in arriving
at Consolidated Net Income,  Consolidated  Interest Expense,  (iv) to the extent
deducted in  arriving at  Consolidated  Net Income,  the amount  charged for the
amortization  of intangible  assets,  (v) to the extent  deducted in arriving at
Consolidated Net Income,  the amount charged for the depreciation of assets, and
(vi)  to  the  extent   deducted  in  arriving  at   Consolidated   Net  Income,
extraordinary  losses,  less (B) the  amount  for such  period of, to the extent
added in  arriving  at  Consolidated  Net Income,  extraordinary  gains,  all as
determined on a consolidated basis in accordance with GAAP.

          "CONSOLIDATED INTEREST EXPENSE" means, with reference to any period of
the Company and its  subsidiaries  (which for purposes of this definition  shall
include any subsidiary consolidated into the financial statements of the Company
other than ALLETE Water Services,  Inc. and any other  subsidiary of the Company
as to which the Company has  announced  on or prior to December 15, 2002 that it
will discontinue the operations of such subsidiary), the sum of (i) all interest
charges (including  capitalized interest,  imputed interest charges with respect
to  capitalized  leases and all  amortization  of debt  discount and expense and
other  deferred  financing  charges) of the Company  and its  subsidiaries  on a
consolidated  basis, and (ii) all commitment or other fees payable in respect of
the  issuance of standby  letters of credit or other credit  facilities  for the
account of the Company or its subsidiaries,  all as determined on a consolidated
basis in accordance with GAAP.

          "CONSOLIDATED NET INCOME" means, for any period of the Company and its
subsidiaries (which for purposes of this definition shall include any subsidiary
consolidated  into the  financial  statements  of the Company  other than ALLETE
Water  Services,  Inc. and any other  subsidiary  of the Company as to which the
Company has announced on or prior to December 15, 2002 that it will  discontinue
the operations of such  subsidiary),  the amount for such period of consolidated
net income (or net loss) of the Company and its subsidiaries, as determined on a
consolidated basis in accordance with GAAP.

<PAGE>

ALLETE
December 24, 2002
Page 15

          "EURODOLLAR LOAN" means any  Loan  which  bears  interest  at  a  rate
determined with reference to LIBOR (plus the Applicable Margin).

          "EVENT OF DEFAULT" means an event described in Section 7(a).

          "FACILITY" has the meaning set forth in  the initial paragraph of this
Agreement.

          "FEDERAL  FUNDS  RATE"  means,  the per annum rate at which  overnight
federal  funds  are from  time to time  offered  to the Agent by any bank in the
interbank market, as stated by the Agent.

          "FEE  LETTER"  means that  certain  letter  between the  Borrower  and
LaSalle Bank National Association and its affiliates relating to certain fees to
be paid by the Borrower to, and solely for the account of, LaSalle Bank National
Association and its affiliates, as such letter may from time to time be amended.

          "FEE  RATE"  means a rate per annum  equal to (i) 0.100% per annum for
any day Level I Status exists; (ii) 0.125% per annum for any day Level II Status
exists;  (iii) 0.150% per annum for any day Level III Status exists; (iv) 0.200%
per annum for any day Level IV Status  exists;  and (v) 0.500% per annum for any
day Level V Status exists.

          "FUNDED DEBT" means,  for any entity on a consolidated  basis (without
duplication):  (i) all indebtedness of such entity for borrowed money;  (ii) the
deferred  and  unpaid  balance of the  purchase  price  owing by such  entity on
account of any assets or services purchased (other than trade payables and other
accrued  liabilities  incurred in the ordinary  course of business  that are not
overdue by more than 180 days  unless  being  contested  in good  faith) if such
purchase  price is (A) due more than nine months from the date of  incurrence of
the  obligation  in  respect  thereof  or (B)  evidenced  by a note or a similar
written   instrument;   (iii)  all  capitalized  lease  obligations;   (iv)  all
indebtedness secured by a Lien on any property owned by such entity,  whether or
not such  indebtedness has been assumed by such entity or is nonrecourse to such
entity; (v) notes payable and drafts accepted representing  extensions of credit
whether or not  representing  obligations  for  borrowed  money (other than such
notes or drafts from the  deferred  purchase  price of assets or services to the
extent  such  purchase   price  is  excluded  from  clause  (ii)  above);   (vi)
indebtedness evidenced by bonds, notes or similar written instrument;  (vii) the
face amount of all  letters of credit and  bankers'  acceptances  issued for the
account of such entity,  and without  duplication,  all drafts drawn  thereunder
(other  than such  letters of credit,  bankers'  acceptances  and drafts for the
deferred  purchase price of assets or services to the extent such purchase price
is under  interest rate  agreements  or currency  agreements);  (viii)  guaranty
obligations  of such entity with respect to  indebtedness  for borrowed money of
another entity (including affiliates) in excess of $25,000,000 in the aggregate;
provided, however, that in no event shall any calculation of Funded Debt include
(a) deferred taxes,  (b) securitized  trade  receivables,  (c) deferred  credits
including  regulatory assets and  contributions in aid of construction,  (d) the
lease obligations for Lake Superior Paper, Inc. relating to paper mill

<PAGE>

ALLETE
December 24, 2002
Page 16

equipment as provided for under an operating  lease extending to 2012 or (e) 75%
of the indebtedness associated with Square Butte.

          "GAAP" means generally accepted accounting  principles as in effect in
the United States from time to time,  applied by the Company and any  subsidiary
on a basis consistent with the preparation of the Company's financial statements
furnished to the Agent.

          "INTEREST  COVERAGE RATIO" means,  for any period of four  consecutive
fiscal  quarters of the Company  ending with the most  recently  completed  such
fiscal  quarter,  the  ratio  of (A)  Consolidated  EBITDA  to (B)  Consolidated
Interest Expense for such period.

          "INTEREST PERIOD" means for any Eurodollar Loan, a period of one, two,
three or six months,  as designated by the Company,  in each case  commencing on
the date of such Loan.  Each Interest  Period that would  otherwise end on a day
which is not a Banking Day shall end on the next  succeeding  Banking Day unless
such next Banking Day would be the first Banking Day in the next calendar month,
in which case such Interest  Period shall end on the preceding  Banking Day. Any
Interest  Period for a Eurodollar Loan which begins on the last Banking Day of a
calendar month (or on a day for which there is no numerically  corresponding day
in the calendar month at the end of such Interest  Period) shall end on the last
Banking  Day of the  calendar  month  at the end of  such  Interest  Period.  No
Interest Period shall extend beyond the Termination  Date, and in such case, the
Termination Date shall be deemed the end of the Interest Period.

          "JOINDER  AGREEMENT"  means a joinder  agreement in the form  attached
hereto as Exhibit "B."

          "LEVEL I STATUS" means, subject to Section 9(r) hereof, the S&P Rating
is A- or higher and the Moody's Rating is A3 or higher.

          "LEVEL II  STATUS"  means,  subject to Section  9(r)  hereof,  Level I
Status  does not exist,  but the S&P  Rating is BBB+ or higher  and the  Moody's
Rating is Baa1 or higher.

          "LEVEL III STATUS"  means,  subject to Section  9(r)  hereof,  neither
Level I Status nor Level II Status  exists,  but the S&P Rating is BBB or higher
and the Moody's rating is Baa2 or higher.

          "LEVEL IV STATUS" means, subject to Section 9(r) hereof, none of Level
I Status,  Level II Status  nor Level III Status  exists,  but the S&P Rating is
BBB- or higher and the Moody's Rating is Baa3 or higher.

          "LEVEL V STATUS" means,  subject to Section 9(r) hereof, none of Level
I Status, Level II Status, Level III Status nor Level IV Status exists.

<PAGE>

ALLETE
December 24, 2002
Page 17


          "LIBOR"  means a rate of  interest  equal  to the  per  annum  rate of
interest at which United States dollar  deposits in an amount  comparable to the
principal balance of the Eurodollar Loan to be made by the Agent in its capacity
as a Bank and for a period equal to the relevant  Interest Period are offered in
the London Interbank  Eurodollar market at 11:00 a.m. (London time) two Business
Days prior to the  commencement  of each  Interest  Period,  as displayed in the
Bloomberg  Financial Markets system, or other  authoritative  source selected by
the  Agent in its  reasonable  discretion,  divided  by a number  determined  by
subtracting from 1.00 the maximum reserve percentage for determining reserves to
be maintained  by member banks of the Federal  Reserve  System for  Eurocurrency
liabilities,  such rate to remain fixed for such  Interest  Period.  The Agent's
determination of LIBOR shall be conclusive, absent manifest error.

          "LOAN" means a loan made pursuant to Section 1.

          "LOAN  DOCUMENTS"  means  this  Agreement,  the Notes  and each  other
agreement, document or instrument delivered in connection with this Agreement.

          "MATERIAL   ADVERSE   CHANGE"   means  any  change  in  the  business,
organization,  assets,  properties  or  condition  (financial  or  other) of the
Company which could  materially  and adversely  affect the Company's  ability to
perform hereunder including,  without limitation,  representations,  warranties,
covenants and payment of Obligations.

          "MOODY'S  RATING"  means the  rating  assigned  by  Moody's  Investors
Service,  Inc. and any successor thereto that is a nationally  recognized rating
agency  to  the  outstanding  senior  unsecured  non-credit  enhanced  long-term
indebtedness of the Company (or if neither Moody's Investors  Service,  Inc. nor
any such successor shall be in the business of rating long-term indebtedness,  a
nationally  recognized  rating agency in the U.S. as mutually agreed between the
Agent and the Company).  Any reference in this Agreement to any specific  rating
is a reference to such rating as currently defined by Moody's Investors Service,
Inc. (or such a successor) and shall be deemed to refer to the equivalent rating
if such rating system changes.

          "NOTE" has the meaning set forth in SECTION 1.5.

          "NOTICE OF  BORROWING"  means a notice  from the  Company to the Agent
requesting  the  making of a Loan and which is  delivered  pursuant  to  Section
1(a)(i) or Section 1(a)(ii) hereof.

          "OBLIGATIONS"  means all  obligations  (monetary or  otherwise) of the
Company arising under or in connection  with this Agreement,  the Notes and each
of the other Loan Documents.

          "PRIME  RATE" means a floating  rate of  interest  equal to the higher
(redetermined  daily) of (i) the per annum  rate of  interest  announced  by the
Agent from time to time at its principal office in Chicago as its prime rate for
Dollar loans or (ii) the Federal Funds Rate plus 0.5%.  (The "prime rate" is set
by the Agent based upon  various  factors  and is used as a reference

<PAGE>

ALLETE
December 24, 2002
Page 18

point for pricing some loans.  It is not  necessarily the best rate available to
the Agent's customers at any point in time.)

          "PRIME  RATE  LOAN"  means any Loan  which  bears  interest  at a rate
determined by reference to the Prime Rate.

          "REQUIRED  BANKS" means, at any time, Banks having at least 66-2/3% of
the aggregate amount of the Commitments.

          "S&P RATING"  means the rating  assigned by Standard & Poor's  Ratings
Group, a division of The McGraw-Hill  Companies,  Inc. and any successor thereto
that  is a  nationally  recognized  rating  agency  to  the  outstanding  senior
unsecured  non-credit  enhanced  long-term  indebtedness  of the Company (or, if
neither  such  division  nor any  successor  shall be in the  business of rating
long-term  indebtedness,  a nationally  recognized  rating agency in the U.S. as
mutually  agreed  between  the Agent and the  Company).  Any  reference  in this
Agreement  to any  specific  rating is a reference  to such rating as  currently
defined by  Standard & Poor's  Ratings  Group,  a  division  of The  McGraw-Hill
Companies,  Inc.  (or such a  successor)  and  shall be  deemed  to refer to the
equivalent rating if such rating system changes.

          "SUBSIDIARY" means ALLETE Automotive Services, Inc.

          "TAXES" has the meaning set forth in Section 3(e).

          "TOTAL  CAPITAL"  means the sum of  retained  earnings,  stockholders'
equity (including preferred stock and QUIPs), all determined with respect to the
Company and its  subsidiaries  on a consolidated  basis in accordance  with GAAP
consistently applied, and Funded Debt.

          "UNMATURED  EVENT OF DEFAULT"  means an event which with  notice,  the
lapse of time or both would constitute an Event of Default.

          "UTILIZATION  FEE RATE" means a rate equal to (i) 0.125% per annum for
any day Level I Status exists; (ii) 0.125% per annum for any day Level II Status
exists;  (iii) 0.125% per annum for any day Level III Status exists; (iv) 0.250%
per annum for any day Level IV Status  exists;  and (v) 0.500% per annum for any
day Level V Status exists.

     9.   GENERAL.

          a.      INSTRUCTIONS

          The  Company  hereby  authorizes  the Agent and each Bank to rely upon
telephonic,  written or facsimile instructions of any person identifying himself
or herself as an Authorized  Officer and upon any  signature  which the Agent or
such Bank believes to be genuine,  and the Company shall be bound thereby in the
same manner as if such person were  authorized

<PAGE>

ALLETE
December 24, 2002
Page 19

or such  signature  were genuine.  The Company agrees to indemnify the Agent and
each Bank from and against all losses and expenses arising out of the Agent's or
such Bank's reliance on said instructions or signatures.

          b.      PAYMENTS

          Payments  hereunder  and under the Note  shall be made in  immediately
available funds in Dollars without off-set, counter-claim or other deduction.

          c.      COSTS

          The  Company  shall  pay all costs of the Agent  with  respect  to the
negotiation, preparation, execution and delivery of this Agreement and the other
Loan Documents, any amendments,  waivers, consents or modifications with respect
thereto  and all  costs of the Agent  and each  Bank in  connection  with the of
enforcement  or  collection  of every  kind,  including  but not  limited to all
reasonable  attorneys' fees,  court costs and expenses  incurred by the Agent or
any Bank in connection  with  collection or  protection  or  enforcement  of any
rights hereunder whether or not any lawsuit is ever filed.

          d.      INDEMNIFICATION

          In  consideration  of the execution and delivery of this  Agreement by
the Agent and each Bank and the  extension  of  credit  hereunder,  the  Company
hereby indemnifies, exonerates and holds the Agent and each Bank and each of its
respective  officers,  directors,   employees  and  agents  (collectively,   the
"Indemnified  Parties")  free and harmless from and against any and all actions,
causes of action,  suits, losses,  costs,  liabilities and damages, and expenses
incurred in connection therewith (irrespective of whether such Indemnified Party
is a party  to the  action  for  which  indemnification  hereunder  is  sought),
including  reasonable  attorneys'  fees  and  disbursements  (collectively,  the
"Indemnified  Liabilities"),  incurred by the Indemnified Parties or any of them
as a result of, or arising out of, or relating to any transaction financed or to
be financed in whole or in part,  directly or  indirectly,  with the proceeds of
any  Loan  or  any  investigation,  litigation  or  proceeding  related  to  any
environmental  cleanup,  audit,  compliance  or  other  matter  relating  to the
protection  of the  environment  or the release by the Company of any  hazardous
material, except for any such Indemnified Liabilities arising for the account of
a particular  Indemnified  Party by reason of the relevant  Indemnified  Party's
gross negligence or willful misconduct.  If and to the extent that the foregoing
undertaking may be  unenforceable  for any reason,  the Company hereby agrees to
make the  maximum  contribution  to the payment in  satisfaction  of each of the
Indemnified Liabilities which is permissible under applicable law.

          e.      NOTICES

          All  notices and  other communications provided  to  any party  hereto
under  this  Agreement  or any other  Loan  Document  shall be in  writing or by
facsimile and  addressed,  delivered or transmitted to such party at its address
or facsimile number set forth below its

<PAGE>

ALLETE
December 24, 2002
Page 20

signature  hereto  or at  such  other  address  or  facsimile  number  as may be
designated by such party in a notice to the other parties. Any notice, if mailed
and  properly  addressed  with postage  prepaid  shall be deemed given five days
after  mailed.  Any notice sent by courier  service  shall be deemed  given when
received.  Any notice,  if transmitted by facsimile,  shall be deemed given when
transmitted.

          f.      SURVIVAL

          The Obligations of the Company under Sections 2(b),  3(a), 3(e), 3(f),
3(g),  9(c), 9(d) and 10(g) hereof shall survive any payment of the principal of
and interest on the Loans and the termination of this Agreement.

          g.      COUNTERPARTS

          This Agreement may be executed in any number of separate counterparts,
each of which when so executed and delivered shall be an original,  and all such
counterparts shall together constitute one and the same instrument.  Delivery of
an executed  counterpart  via facsimile or other method shall be as effective as
delivery of an original executed counterpart.

          h.      AMENDMENT AND WAIVER

          Any  provision  of this  Agreement  or any other Loan  Document may be
amended or waived if, but only if, such amendment or waiver is in writing and is
signed by the Company and the  Required  Banks (and,  if the rights or duties of
the Agent are affected thereby, by the Agent);  PROVIDED that no such amendment,
waiver or  modification  shall,  unless signed by all the Banks,  (i) change the
Commitment of any Bank (except for a ratable  decrease in the Commitments of all
Banks)  or  subject  any Bank to any  additional  obligation,  (ii)  reduce  the
principal  of or rate of  interest  on any  Loan or any  fees  hereunder,  (iii)
postpone  the date fixed for any payment of principal of or interest on any Loan
or any fees hereunder or (iv) change the percentage of the Commitments or of the
aggregate unpaid  principal  amount of the Notes, or the number of Banks,  which
shall be  required  for the Banks or any of them to take any  action  under this
Section or any other provision of this Agreement. Any waiver by the Agent or any
Bank of any  rights  hereunder  or under  any  other  Loan  Document  shall  not
constitute  a waiver of any other rights of the Agent and the Banks from time to
time.

          i.      JURISDICTION

          ANY  LITIGATION  BASED  HEREON,  OR  ARISING  OUT  OF,  UNDER,  OR  IN
CONNECTION  WITH,  THIS  AGREEMENT OR THE NOTE OR ANY OTHER LOAN DOCUMENT OR ANY
COURSE OF CONDUCT, COURSE OF DEALING,  STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OF THE AGENT,  ANY BANK OR THE COMPANY  SHALL BE BROUGHT AND  MAINTAINED
EXCLUSIVELY  IN THE  COURTS OF THE STATE OF  ILLINOIS  OR IN THE  UNITED  STATES
DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS;  PROVIDED,  HOWEVER,  THAT
ANY

<PAGE>

ALLETE
December 24, 2002
Page 21

SUIT  SEEKING  ENFORCEMENT  AGAINST  ANY  COLLATERAL  OR OTHER  PROPERTY  MAY BE
BROUGHT,  AT THE AGENT'S OPTION,  IN THE COURTS OF ANY  JURISDICTION  WHERE SUCH
COLLATERAL  OR OTHER  PROPERTY MAY BE FOUND.  THE COMPANY  HEREBY  EXPRESSLY AND
IRREVOCABLY  SUBMITS TO THE  JURISDICTION OF THE COURTS OF THE STATE OF ILLINOIS
AND OF THE UNITED STATES  DISTRICT  COURT FOR THE NORTHERN  DISTRICT OF ILLINOIS
FOR THE  PURPOSE  OF ANY SUCH  LITIGATION  AS SET FORTH  ABOVE  AND  IRREVOCABLY
CONSENTS  TO  PERSONAL  SERVICE  WITHIN OR WITHOUT  THE STATE OF  ILLINOIS.  THE
COMPANY HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY LAW, ANY  OBJECTION  WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF
VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY
CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE
EXTENT  THAT  THE  COMPANY  HAS OR  HEREAFTER  MAY  ACQUIRE  ANY  IMMUNITY  FROM
JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS  (WHETHER THROUGH SERVICE OR
NOTICE,  ATTACHMENT  PRIOR  TO  JUDGMENT,  ATTACHMENT  IN  AID OF  EXECUTION  OR
OTHERWISE)  WITH  RESPECT  TO  ITSELF  OR  ITS  PROPERTY,   THE  COMPANY  HEREBY
IRREVOCABLY  WAIVES  SUCH  IMMUNITY  IN  RESPECT OF ITS  OBLIGATIONS  UNDER THIS
AGREEMENT, THE NOTE AND EACH OTHER LOAN DOCUMENT.

          j.      WAIVER OF JURY TRIAL

          THE  COMPANY,  THE AGENT  AND THE BANKS  WAIVE ANY RIGHT TO A TRIAL BY
JURY IN ANY ACTION OR  PROCEEDING  TO  ENFORCE  OR DEFEND ANY RIGHTS  UNDER THIS
AGREEMENT,  THE NOTE OR ANY OTHER LOAN DOCUMENT,  AND THE COMPANY, THE AGENT AND
THE BANKS AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT
AND NOT A JURY.

          k.      CONFIDENTIALITY

          The Company, the Agent and the Banks hereby agree and acknowledge that
all  information  relating  to the  Company  or  any  subsidiary,  which  is (i)
furnished  by the  Company to the Agent and the Banks  pursuant  hereto and (ii)
non-public, confidential or proprietary in nature, shall be kept confidential by
the Agent and the Banks in accordance with  applicable  law,  PROVIDED that such
information and other  information  relating to the Company and its subsidiaries
may be  distributed  by the Agent  and each  Bank to the  Agent and such  Bank's
respective directors, officers, employees,  attorneys,  affiliates, auditors and
regulators (and, upon the order of any court or other governmental agency having
jurisdiction  over the Agent or any Bank,  to any other  person or entity).  The
provisions of this Section 9(k) shall survive the termination of this Agreement.

<PAGE>

ALLETE
December 24, 2002
Page 22

          l.      APPLICABLE LAW

          This  Agreement,  the  Notes and each  other  Loan  Document  shall be
governed by the internal  laws of the State of Illinois  applicable to contracts
made and to be performed entirely within such State.

          m.      SHARING OF SET-OFFS

          Each Bank agrees that if it shall,  by exercising any right of set-off
or counterclaim  or otherwise,  receive payment of a proportion of the aggregate
amount of  principal  and interest due with respect to any Note held by it which
is  greater  than the  proportion  received  by any other Bank in respect of the
aggregate  amount of principal and interest due with respect to any Note held by
such other Bank, the Bank receiving such  proportionately  greater payment shall
purchase  such  participations  in the Notes held by the other  Banks,  and such
other adjustments shall be made, as may be required so that all such payments of
principal  and  interest  with  respect to the Notes held by the Banks  shall be
shared by the Banks pro rata; PROVIDED that nothing in this Section shall impair
the right of any Bank to exercise  any right of set-off or  counterclaim  it may
have  and to apply  the  amount  subject  to such  exercise  to the  payment  of
indebtedness  of the Company other than its  indebtedness  under the Notes.  The
Company agrees,  to the fullest extent it may effectively do so under applicable
law, that each Bank and any holder of a participation in a Note,  whether or not
acquired pursuant to the foregoing arrangements,  may exercise rights of set-off
or counterclaim  and other rights under applicable law, and with respect to such
holder of such a  participation  as fully as if such  holder of a  participation
were a direct creditor of the Company in the amount of such participation.

          n.      PARTICIPATIONS

          Any  Bank  may at  any  time  grant  to one or  more  banks  or  other
institutions (each a "PARTICIPANT") participating interests in its Commitment or
any or all of  its  Loans.  In the  event  of  any  such  grant  by a Bank  of a
participating  interest  to a  Participant,  whether  or not upon  notice to the
Company  and the  Agent,  such Bank  shall  remain  solely  responsible  for the
performance of its  obligations  hereunder,  and the Company and the Agent shall
continue  to deal solely and  directly  with such Bank in  connection  with such
Bank's rights and obligations  under this Agreement.  Any agreement  pursuant to
which any Bank may grant such a  participating  interest shall provide that such
Bank shall retain the sole right and  responsibility  to enforce the obligations
of the Company hereunder including, without limitation, the right to approve any
amendment,  modification  or  waiver of any  provision  of this  Agreement.  The
Company  agrees  that each  Participant  shall,  to the extent  provided  in its
participation  agreement,  be entitled to the benefits of Section 3 with respect
to its participating interest.

<PAGE>

ALLETE
December 24, 2002
Page 23

          o.      ASSIGNMENTS

          Any  Bank  may at any  time  assign  to one or  more  banks  or  other
financial institutions (each an "ASSIGNEE") all, or a proportionate part of all,
of its  rights and  obligations  under this  Agreement  and the Notes,  and such
Assignee  shall  assume  such  rights  and  obligations,  pursuant  to a Joinder
Agreement  in  substantially  the  form of  Exhibit  B hereto  executed  by such
Assignee and such transferor Bank, with (and subject to) the subscribed  consent
of the Company,  which shall not be unreasonably  withheld, and the Agent, which
shall not be unreasonably withheld; PROVIDED that if an Assignee is an affiliate
of such transferor Bank or was a Bank immediately  prior to such assignment,  no
such consent of the Company  shall be required;  and PROVIDED  FURTHER  that, if
such assignment is in respect of a proportionate  part of the transferor  Bank's
rights and obligations  hereunder and under the Notes, the amount of such Bank's
Commitment  (together with the Commitment of any affiliate of such Bank),  after
taking into account such assignment,  is at least an amount equal to $5,000,000.
Upon  execution and delivery of such  instrument and payment by such Assignee to
such  transferor  Bank of an amount equal to the purchase  price agreed  between
such transferor  Bank and such Assignee,  such Assignee shall be a Bank party to
this  Agreement and shall have all the rights and  obligations  of a Bank with a
Commitment as set forth in such  instrument of  assumption,  and the  transferor
Bank shall be released from its obligations hereunder to a corresponding extent,
and no  further  consent  or  action by any party  shall be  required.  Upon the
consummation of any assignment  pursuant to this Subsection 9(o), the transferor
Bank, the Agent and the Company shall make appropriate  arrangements so that, if
required,  a new Note is issued to the  Assignee.  In  connection  with any such
assignment, the transferor Bank shall pay to the Agent an administrative fee for
processing such assignment in the amount of $3,500.

          p.      FEDERAL RESERVE BANKS

          Any Bank may at any time assign all or any portion of its rights under
this  Agreement  and its Note to one or more of the Federal  Reserve Banks which
comprise  the Federal  Reserve  System.  No such  assignment  shall  release the
transferor Bank from its obligations hereunder.

          q.      IDENTITY OF HOLDERS

          The Agent and the Company  may,  for all  purposes of this  Agreement,
treat any Bank as the  holder of any Note  drawn to its order  (and owner of the
Loans evidenced  thereby) until written notice of assignment,  participation  or
other transfer shall have been received by them.

          r.      SPLIT-RATINGS

          In the event the Company's S&P Rating  and Moody's  Rating do not fall
within the same Level Status,  then (1) if the S&P Rating's Level Status and the
Moody's Rating's Level

<PAGE>

ALLETE
December 24, 2002
Page 24

Status are in consecutive Level Status categories,  the lower Level Status shall
be deemed to apply for  purposes of this  Agreement  or (2) if the S&P  Rating's
Level Status and the Moody's Rating's Level Status are not in consecutive  Level
Status categories,  then the Level Status immediately above the lower of the S&P
Rating's  Level Status and the Moody's  Rating's Level Status shall be deemed to
apply for purposes of this Agreement.  For purposes of this  Agreement,  Level I
Status  shall be  deemed  the  highest  and Level V Status  shall be deemed  the
lowest.

          s.      CONTINUED EFFECT; NO NOVATION

          Notwithstanding  anything  contained  herein,  this  Agreement  is not
intended to and does not serve to effect a novation of the Obligations. Instead,
it is the express  intention of the parties hereto to reaffirm the  indebtedness
which is outstanding as of the date hereof created under the Existing  Committed
Facility Letter which is evidenced by the notes provided for therein.

          t.      ADDITIONAL LENDERS

          The  Company  may,  upon the  approval  of the Agent,  add  additional
lenders as Banks hereto (each a "NEW BANK"), PROVIDED that if as a result of the
addition  of any New Bank the  aggregate  amount of  Commitments  then in effect
would exceed  $200,000,000,  the  approval of the  Required  Banks shall also be
required  prior to adding  any such New  Bank.  Costs  incurred  by the Agent in
connection with adding any New Bank shall be paid by the Company,  and the legal
documentation  pursuant  to which  any New  Bank is  added  shall be in form and
substance reasonably satisfactory to the Agent.

          u.      RESIGNATION OF ABN AMRO

          The parties  acknowledge that effective as of the date hereof ABN AMRO
Bank N.V.  is no longer the Agent  under the  Facility  and its  Commitment  has
terminated.

     10.  THE AGENT.

          a.      APPOINTMENT AND AUTHORIZATION

          Each Bank  irrevocably  appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise  such powers under this  Agreement
and the Notes as are  delegated  to the Agent by the  terms  hereof or  thereof,
together with all such powers as are reasonably incidental thereto.

          b.      AGENTS FEE

          The  Company  shall pay to the Agent for its own  account  fees in the
amounts  and at the times  previously  agreed  upon  between the Company and the
Agent.

<PAGE>

ALLETE
December 24, 2002
Page 25

          c.      AGENT AND AFFILIATES

          LaSalle  Bank  National  Association  shall  have the same  rights and
powers  under this  Agreement as any other Bank and may exercise or refrain from
exercising  the same as though it were not the Agent,  and LaSalle Bank National
Association  and its  affiliates may accept  deposits  from,  lend money to, and
generally  engage in any kind of business  with the Company or  affiliate of the
Company as if it were not the Agent hereunder.

          d.      ACTION BY AGENT

          The  obligations of the Agent  hereunder are only those  expressly set
forth herein. Without limiting the generality of the foregoing,  the Agent shall
not be required to take any action with respect to any Event of Default,  except
as expressly  provided in Section 7(b). The Agent's  duties  hereunder and under
the other Loan  Documents are only those  expressly set forth herein and therein
and  nothing  herein  or  therein  shall be  deemed  to  impose on the Agent any
fiduciary obligation to any Bank or the Company.

          e.      CONSULTATION WITH EXPERTS

          The Agent may consult  with legal  counsel (who may be counsel for the
Company),  independent  public  accountants and other experts selected by it and
shall not be liable  for any  action  taken or omitted to be taken by it in good
faith in accordance with the advice of such counsel, accountants or experts.

          f.      LIABILITY OF AGENT

          Neither  the  Agent nor any of its  directors,  officers,  agents,  or
employees shall be liable to any Bank for any action taken or not taken by it in
connection herewith (i) with the consent or at the request of the Required Banks
or (ii) in the  absence  of its own  gross  negligence  or  willful  misconduct.
Neither the Agent nor any of its directors,  officers, agents or employees shall
be  responsible  to any Bank  for or have  any  duty to any  Bank to  ascertain,
inquire into or verify (i) any  statement,  warranty or  representation  made in
connection with this Agreement or any borrowing hereunder;  (ii) the performance
or observance  of any of the  covenants or agreements of the Company;  (iii) the
satisfaction of any condition  specified in Article III, except receipt of items
required to be delivered to the Agent;  (iv) the existence or  continuance of an
Event of Default;  or (iv) the validity,  effectiveness  or  genuineness of this
Agreement,  the  Notes,  the other Loan  Documents  or any other  instrument  or
writing  furnished  in  connection  herewith.  The  Agent  shall  not  incur any
liability  by  acting  in  reliance  upon  any  notice,  consent,   certificate,
statement, or other writing (which may be a bank wire, telex or similar writing)
believed  by it in good faith to be genuine or to be signed by the proper  party
or parties.

<PAGE>

ALLETE
December 24, 2002
Page 26

          g.      INDEMNIFICATION

          Each Bank shall, ratably in accordance with its Commitment,  indemnify
the Agent (to the  extent  not  reimbursed  by the  Company)  against  any cost,
expense (including counsel fees and disbursements),  claim, demand, action, loss
or liability (except such as result from the Agent's gross negligence or willful
misconduct) that the Agent may suffer or incur in connection with this Agreement
or any action taken or omitted by the Agent hereunder.

          h.      CREDIT DECISION

          Each Bank acknowledges that it has, independently and without reliance
upon the Agent or any other Bank, and based on such documents and information as
it has deemed  appropriate,  made its own credit  analysis and decision to enter
into this Agreement. Each Bank also acknowledges that it will, independently and
without  reliance upon the Agent or any other Bank,  and based on such documents
and information as it shall deem  appropriate at the time,  continue to make its
own credit decisions in taking or not taking any action under this Agreement.

          i.      SUCCESSOR AGENT

          The Agent may resign at any time by giving  written  notice thereof to
the Banks and the Company.  Upon any such resignation,  the Required Banks shall
have the right to appoint a  successor  Agent,  which  successor  Agent shall be
satisfactory to the Company.  If no successor Agent shall have been so appointed
by the Required Banks, and shall have accepted such appointment,  within 30 days
after the retiring  Agent gives notice of  resignation,  then the retiring Agent
may,  on behalf  of the  Banks,  appoint a  successor  Agent,  which  shall be a
commercial  bank  organized or licensed  under the laws of the United  States of
America or of any State thereof and having a combined  capital and surplus of at
least $100,000,000 and shall otherwise be subject to the consent of the Company,
which consent shall not be  unreasonably  withheld.  Upon the  acceptance of its
appointment as Agent hereunder by a successor Agent,  such successor Agent shall
thereupon  succeed  to and become  vested  with all the rights and duties of the
retiring  Agent,  and the retiring Agent shall be discharged from its duties and
obligations  hereunder.  After any  retiring  Agent's  resignation  hereunder as
Agent,  the  provisions  of this  Article  shall  inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent.

<PAGE>

Agreed to this 24th day of December, 2002

ALLETE, INC.

By:            James Vizanko
       ------------------------------

Title: Vice President, Chief Financial
       ------------------------------
       Officer, and Treasurer

Address:  30 West Superior Street
          Duluth, Minnesota 55802
          Attention: Corporate Treasurer

Facsimile No.: (218) 723-3912








                  Signature Page to Committed Facility Letter


<PAGE>





                  Please acknowledge your agreement to the foregoing by  signing
and returning a copy of this letter.


Commitment:  $40,000,000        LASALLE BANK NATIONAL ASSOCIATION, individually
                                as a Bank and as Agent.

                                By:    /s/ Denis J. Campbell IV
                                     -----------------------------------------
                                Title:   Senior Vice President
                                       ---------------------------------------



                       Address: LaSalle Bank National Association
                                Syndications Unit
                                135 South LaSalle Street, Suite 1425
                                Chicago, Illinois 60603
                                Attention: Damatria Gilbert
                                Facsimile: (312) 904-4448
                                Telephone: (312) 904-8277

                                With copies to:

                                LaSalle Bank National Association
                                135 South LaSalle Street
                                Chicago, Illinois 60603
                                Attention: Chip Campbell
                                Facsimile: (312) 904-1994
                                Telephone: (312) 904-4497





<PAGE>



  Commitment:  $40,000,000      BANK ONE


                                By:  /s/ Sharon K. Webb
                                   ---------------------------------------------
                                Name:  Sharon K. Webb
                                     -------------------------------------------
                                Title: Associate Director
                                      ------------------------------------------



<PAGE>


Commitment:  $40,000,000        SUNTRUST BANK


                                By:  /s/ Paul M. Sunerall
                                   ---------------------------------------------
                                Name:  PAUL M. SUNERALL
                                     -------------------------------------------
                                Title:  VICE PRESIDENT






<PAGE>


Commitment:  $30,000,000        WELLS FARGO BANK,
                                NATIONAL ASSOCIATION


                                By:            /s/ Mark Halldorson
                                   ---------------------------------------------
                                Name:            Mark H. Halldorson
                                     -------------------------------------------
                                Title:        Assistant Vice President
                                      ------------------------------------------

                                By:            /s/ James D. Heinz
                                   ---------------------------------------------
                                Name:              James D. Heinz
                                     -------------------------------------------
                                Title:          Senior Vice President
                                      ------------------------------------------
                                        Wells Fargo Bank, National Association


<PAGE>



Commitment:  $25,000,000        U.S. BANK NATIONAL ASSOCIATION


                                By:  /s/ Robert E. Grover
                                   ---------------------------------------------
                                Name:    Robert E. Grover
                                     -------------------------------------------
                                Title:   Senior Vice President
                                      ------------------------------------------




</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>7
<FILENAME>exhibit10u2.txt
<DESCRIPTION>EX-10(U)2 AMENDMENT TO THE EXECUTIVE ANNUAL INCENTIVE PLAN
<TEXT>
<PAGE>
                                                                  Exhibit 10(u)2


                                    AMENDMENT
                                     TO THE
                                 MINNESOTA POWER
                         EXECUTIVE ANNUAL INCENTIVE PLAN


     The Minnesota  Power  Executive  Annual  Incentive  Plan (the "Plan") dated
January 1, 1999, is amended as follows:

1.   Effective September 1, 2000, Section 1.1, is amended to read as follows:

     ESTABLISHMENT  OF THE PLAN.  ALLETE,  Inc.,  a Minnesota  corporation,
     formerly Minnesota Power & Light Company  (hereinafter  referred to as
     the "Company"),  hereby  establishes an annual incentive  compensation
     plan (the "Plan"), as set forth in this document.  The Plan allows for
     annual cash payments to  Participants  based on the  Company's  annual
     performance relative to both financial and non-financial goals.

2.   Effective  September 1, 2000, the title of the  Plan is  amended to  be the
ALLETE Executive Annual Incentive Plan.

3.   Effective January 23, 2002, Section 2.11 is amended to read as follows:

     "RETIREMENT"  shall,  with respect to a Participant,  have the meaning
     ascribed to such term in the tax qualified  retirement plan maintained
     by the Company or subsidiary for the benefit of such  Participant.  In
     the event  Participant  is eligible for  benefits  under more than one
     such tax qualified  retirement  plan, the earliest date provided under
     any of said plans shall be the meaning ascribed under this Plan.


                                             ALLETE, Inc., formerly
                                             Minnesota Power, Inc., formerly
                                             Minnesota Power & Light Company


                                    By:      /s/ Philip R. Halverson
                                             -----------------------------------
                                             Philip R. Halverson
                                             Corporate Secretary, Vice President
                                             and General Counsel


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>8
<FILENAME>exhibit10z2.txt
<DESCRIPTION>EX-10(Z)2 AMNTS TO EXECUTIVE LT INCENTIVE COMPENSATION PLAN
<TEXT>
<PAGE>
                                                                  Exhibit 10(z)2


                                   AMENDMENTS
                                     TO THE
                                 MINNESOTA POWER
                 EXECUTIVE LONG TERM INCENTIVE COMPENSATION PLAN


     Set forth below are amendments to the Minnesota  Power Executive  Long Term
Incentive  Compensation Plan (the "Plan") dated January 1, 1996, each authorized
and effective as of the date indicated:

1.   Effective May 11, 1999, Section 4.1 is amended to read as follows:

     Subject to Section 4.2 herein,  the total  number of Shares  available
     for grant under the Plan shall not exceed (a) two million, one hundred
     thousand  (2,100,000)  Shares as constituted at the time of the annual
     meeting of stockholders on May 14, 1996, (before the two-for-one stock
     split which became effective March 2, 1999) plus (b) two million, five
     hundred thousand  (2,500,000) Shares as constituted at the time of the
     annual meeting of stockholders on May 11, 1999,  reduced by the number
     of Shares as to which  Options or Shares  have been  granted or issued
     since that time.  Shares may be (i) authorized but unissued  Shares of
     common  stock,  or (ii) Shares  purchased on the open  market.  Shares
     underlying  lapsed or  forfeited  Grants,  Grants that are not paid in
     stock,  previously  acquired  Shares tendered to exercise an Option or
     Shares  withheld  in  accordance  with  Section  16.2 to  satisfy  tax
     withholding  obligations  may be  re-used  for  other  Grants.  Shares
     purchased  on the open  market  shall  increase  the  number of Shares
     available for grant under the Plan.

2.   Effective May 11, 1999 Section 6.1 is amended to read as follows:

     GRANT OF  OPTIONS.  Subject to the terms and  conditions  of the Plan,
     Options  may be granted to an  Eligible  Employee at any time and from
     time to time, as shall be determined by the  Committee.  The Committee
     shall have  complete  discretion in  determining  the number of Shares
     subject to Options granted to each  participant  (subject to Article 4
     herein) and consistent with the provisions of the Plan, in determining
     the terms and

                                        1
<PAGE>

     conditions pertaining to such Options; PROVIDED,  HOWEVER, the maximum
     number of Shares subject to Options which may be granted to any single
     Participant  during any one calendar  year is three  hundred  thousand
     (300,000).  The  Committee  may  grant  ISOs,  NQSOs or a  combination
     thereof.

3.   Effective May 11, 1999, the second  paragraph of  Section 7.1 is amended to
read as follows:

     The Committee shall have complete discretion in determining the number
     of SARs granted to each Participant (subject to Article 4 herein) and,
     consistent  with the provisions of the Plan, in determining  the terms
     and conditions pertaining to such SARs; PROVIDED, HOWEVER, the maximum
     number of SARs which may be granted to any single  Participant  during
     any one calendar year is forty thousand (40,000).

4.   Effective May 11, 1999, Section 9.1 is amended to read as follows:

     GRANT OF  PERFORMANCE  UNITS AND  PERFORMANCE  SHARES.  Subject to the
     terms of the Plan,  Performance Units and/or Performance Shares may be
     granted to an Eligible  Employee at any time and from time to time, as
     shall  be  determined  by the  Committee.  The  Committee  shall  have
     complete  discretion in determining  the number of  Performance  Units
     and/or  Performance  Shares  granted to each  Participant  (subject to
     Article 4 herein) and,  consistent with the provisions of the Plan, in
     determining  the  terms  and  conditions  pertaining  to such  Grants;
     PROVIDED,  HOWEVER,  the maximum payout to any single Participant with
     respect to Performance Units granted in any one calendar year shall be
     200% of base salary  determined at the earlier of the beginning of the
     Performance  Period and at the time the  performance  goals are set by
     the  Committee and with respect to  Performance  Shares shall be forty
     thousand (40,000) Shares.

                                       2

<PAGE>


5.   Effective  with  respect  to Options exercised  on  or after July 1, 1999 a
second paragraph of Section 6.1 is added to read as follows:

     The Committee may provide that a Participant who exercises all or part
     of an Option by payment of the Option Price with already owned Shares,
     shall  be  granted  an  additional  Option  (an  "Ownership  Retention
     Option") for a number of Shares of stock equal to the number of Shares
     tendered to exercise the previously  granted Option.  As determined by
     the Committee,  each Ownership Retention Option shall (a) have a grant
     date which is the date as of which the  previously  granted  Option is
     exercised, and (b) be exercisable on the terms and condition as set by
     the Committee,  except that the Option Price shall be determined as of
     the Ownership Retention Option grant date.

6.   Effective  with respect to  Options exercised on or after July 1, 1999, the
third paragraph of Section 6.6 is amended to read as follows:

     The Option  Price upon  exercise of any Option shall be payable to the
     Company  in  full  either:  (a)  in  cash  or its  equivalent,  (b) by
     tendering,  either  by  actual or  constructive  delivery,  previously
     acquired  Shares having an aggregate  fair market value at the time of
     exercise  equal to the total  Option Price  (provided  that the Shares
     which are tendered must have been held by the Participant for at least
     six months prior to their tender to satisfy the Option Price),  (c) by
     Share withholding or (d) by a combination of (a), (b), and/or (c).

7.   Effective  with  respect  to  Grants  exercised  on  or after July 1, 1999,
Section 12 is amended to read as follows:

     The  Committee may permit a  Participant  to defer such  Participant's
     receipt of the  payment of cash or the  delivery  of Shares that would
     otherwise be due such Participant by virtue of (1) the exercise of any
     SAR or Option or (2) the  satisfaction  of any  requirements  or goals
     with  respect  to  any  Grants.  If  any  such  deferral  election  is
     permitted, the Committee

                                       3
<PAGE>

     shall, in its sole discretion, establish rules and procedures for such
     payment deferrals.

8.   Effective with respect to Grants on  or after July 1, 1999, Section 18.6 is
added to read as follows:

     CODE SECTION  162(m).  The Committee may provide in a Grant  Agreement
     that, in the event Code Section  162(m),  or any  successor  provision
     relating to excessive employee remuneration, would operate to disallow
     a  deduction  by the Company for all or part of any payment of a Grant
     under the Plan, a Participant's  receipt of the portion that would not
     be  deductible  by the  Company  shall  be  deferred  until  the  next
     succeeding  year or  years  in which  the  Participant's  remuneration
     either does not exceed the limit set forth in Code  Section  162(m) or
     is not subject to Code Section 162(m).

9.   Effective September 1, 2000, the first paragraph of Section 1.1, is amended
to read as follows:

     ESTABLISHMENT  OF THE PLAN.  ALLETE,  Inc.,  a Minnesota  corporation,
     formerly Minnesota Power & Light Company  (hereinafter  referred to as
     the "Company"),  hereby establishes an outside incentive  compensation
     plan  to be  known  as  the  "ALLETE  Executive  Long  Term  Incentive
     Compensation  Plan"  (hereinafter  referred to as the "Plan"),  as set
     forth in this  document.  The Plan  permits the grant of  nonqualified
     stock  options   (NQSO),   incentive   stock  options   (ISO),   stock
     appreciation  rights  (SAR),  restricted  stock,   performance  units,
     performance shares and other grants.

10.  Effective September 1, 2000, Section 2.7 is amended to read as follows:

     "COMPANY" means ALLETE, Inc., a Minnesota corporation,  formerly known
     as  Minnesota  Power & Light  Company,  or any  successor  thereto  as
     provided in Article 17 herein.

                                       4

<PAGE>


11.  Effective January 23, 2002, Section 2.31 is amended to read as follows:

     "RETIREMENT"  shall,  with respect to a Participant,  have the meaning
     ascribed to such term in the tax qualified  retirement plan maintained
     by the Company or subsidiary for the benefit of such  Participant.  In
     the event  Participant  is eligible for  benefits  under more than one
     such tax qualified  retirement  plan, the earliest date provided under
     any of said plans shall be the meaning ascribed under this Plan.

12.  Effective May 14, 2002, Section 4.1 is amended to read as follows:

     Subject to Section 4.2 herein,  the total  number of Shares  available
     for grant under the Plan shall not exceed (a) two million, one hundred
     thousand  (2,100,000)  Shares as constituted at the time of the annual
     meeting of stockholders on May 14, 1996 (before the two-for-one  stock
     split which  became  effective  March 2, 1999),  plus (b) two million,
     five hundred thousand (2,500,000) Shares as constituted at the time of
     the annual  meeting of  stockholders  on May 11, 1999,  plus (c) three
     million  (3,000,000)  Shares as  constituted at the time of the annual
     meeting  of  shareholders  on May 14,  2002  reduced  by the number of
     Shares as to which  Options or Shares have been  granted or  exercised
     since that time.  Shares may be (i) authorized but unissued  Shares of
     common  stock,  or (ii) Shares  purchased on the open  market.  Shares
     underlying  lapsed or  forfeited  Grants,  Grants that are not paid in
     stock,  previously  acquired  Shares tendered to exercise an Option or
     Shares  withheld  in  accordance  with  Section  16.2 to  satisfy  tax
     withholding  obligations  may be  re-used  for  other  Grants.  Shares
     purchased  on the open  market  shall  increase  the  number of Shares
     available for grant under the Plan.

13.  Effective  October 16, 2002, Section 2.12 is  amended to  remove the  words
"full time" from the definition of Employee.

                                       5
<PAGE>

14.  Effective January 22, 2003, the 2nd  Paragraph  of  Section 6.1, which  was
added to the Plan  effective for Options  exercised on or after July 1, 1999, is
deleted in its  entirety,  thereby  terminating  the  availability  of Ownership
Retention Options.



                                    ALLETE, Inc.
                                    formerly Minnesota Power & Light Company


                                    By:      /s/ Philip R. Halverson
                                             -----------------------------------
                                             Philip R. Halverson
                                             Corporate Secretary, Vice President
                                             and General Counsel




                                       6


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>9
<FILENAME>exhibit10ac.txt
<DESCRIPTION>EX-10(AC) DIRECTOR COMPENSATION DEFERRAL PLAN
<TEXT>
<PAGE>
                                                                  Exhibit 10(ac)









                                Minnesota Power
                                ---------------


                      Director Compensation Deferral Plan
                      ------------------------------------


                              Amended and Restated
                              --------------------

                                   Effective
                                   ---------

                                 January 1,1990
                                 --------------









<PAGE>


                               TABLE OF CONTENTS
                               -----------------

SECTION 1     ESTABLISHMENT AND PURPOSE.......................................1
SECTION 2     ELIGIBILITY FOR PARTICIPATION...................................1
SECTION 3     DEFERRALS.......................................................2
    3.1       Permitted Deferrals.............................................2
    3.2       Deferral Election Form..........................................2
    3.3       Election to Defer Irrevocable...................................3
SECTION 4     DEFERRAL ACCOUNT
    4.1       Establishment of Deferral Accounts..............................3
    4.2       Crediting of Deferral Accounts..................................3
    4.3       Statement of Accounts...........................................4
    4.4       Contractual Obligation..........................................4
SECTION 5     PAYMENT OF BENEFITS.............................................5
    5.1       Form of Payment of Benefits.....................................5
    5.2       Recipients of Payments..........................................5
    5.3       Generation-Skipping Tax.........................................6
SECTION 6     CHANGE OF LAW ANDALTERNATIVE
              PAYMENT FORM....................................................7
SECTION 7     NON-TRANSFERABILITY.............................................8
SECTION 8     ADMINISTRATION AND CLAIMS PROCEDURES............................9
    8.1       Administration..................................................9
    8.2       Filing a Claim..................................................9
    8.3       Expenses........................................................9
    8.4       Tax Withholding.................................................9
SECTION 9     AMENDMENT AND TERMINATION.......................................10
SECTION 10    APPLICABLE LAW..................................................10
SECTION 11    BINDING AGREEMENT...............................................11


<PAGE>


                                MINNESOTA POWER
                                ---------------

                       DIRECTOR COMPENSATION DEFERRAL PLAN
                       -----------------------------------

                 Amended and Restated Effective January 1, 1990

                                    SECTION 1
                                    ---------
                           ESTABLISHMENT AND PURPOSE
                           -------------------------

     Minnesota Power & Light Company,  sometimes known as Minnesota Power,  (the
"Company")  established,  effective  as of June 1982, a plan for the deferral of
director's fees in order to provide certain members of the Board of Directors of
the Company the opportunity to defer payment of certain Director's compensation.
The Company  hereby  amends said plan by adopting the Minnesota  Power  Director
Compensation Deferral Plan, amended and restated effective as of January 1, 1990
(the "Plan").  It is intended  that this Plan be exempt from the  participation,
vesting,  funding,  and  fiduciary  requirements  of  Title  1 of  the  Employee
Retirement Income Security Act of 1974.


                                   SECTION 2
                                   ---------
                         ELIGIBILITY FOR PARTICIPATION
                         -----------------------------

     A Director of the Company who is not an employee of the Company is eligible
to participate in the Plan.



<PAGE>


                                   SECTION 3
                                   ---------
                                   DEFERRALS
                                   ---------

3.1 Permitted Deferrals.
    -------------------

     Any  Director of the Company  may, by making a Deferral  Election  prior to
December  31 of any  year,  defer  all or part of his or her  compensation  as a
Director  payable by the Company in cash during the ensuing year. A new Director
who did not sit on the Board as of December 1 of the preceding year may, as soon
as he or she is elected to the Board,  make a Deferral  Election with respect to
cash compensation expected to be received in the current year. Compensation paid
in stock and any expense  reimbursement or travel allowance may not be deferred.
If less  than  all of a  Director's  anticipated  annual  cash  compensation  is
deferred,  the amount to be deferred shall be in increments of 10% of the amount
anticipated to be available for deferral.

     An election shall be effective only if it is timely filed with and accepted
by the Company, and if all the terms and conditions of the Plan are satisfied in
full.  If a Deferral  Election  Form is not returned by December 31 of any year,
the  Director  shall be deemed to have  irrevocably  elected to continue for the
ensuing year the deferral  elections  made on the last  Deferral  Election  Form
turned in and accepted by the Company for a preceding year.


3.2 Deferral Election Form.
    ----------------------

     Deferral  Elections  shall be made by duly  completing a Deferral  Election
Form provided by the Company. This form shall specify the benefit payment option
elected by the Director from the following


                                       2

<PAGE>


options allowed under this Plan: it shall permit deferral for a stated number of
years,  deferral until  retirement from active service on the Board, or deferral
until a  certain  age is  reached,  provided  that in no event  may  payment  of
benefits commence later than age 70 1/2.

3.3 Election to Defer Irrevocable.
    -----------------------------

     Except as otherwise  expressly provided in this Plan, a Director's election
to defer any  amounts  pursuant to the Plan shall be  irrevocable  when made and
accepted by the Company and shall not be subject to amendment or modification in
any manner whatsoever thereafter.



                                   SECTION 4
                                   ---------
                                DEFERRAL ACCOUNT
                                ----------------

4.1 Establishment of Deferral Accounts.
    ----------------------------------

     The Company shall  establish a Deferral  Account for each Director making a
Deferral  Election.  All such Deferral  Accounts  shall be utilized  solely as a
means for the  measurement  and  determination  of the  benefits to be paid to a
Director  pursuant to the Plan.  Deferral Accounts shall not be funded and shall
neither  constitute  nor be treated as a trust fund or any  interest in specific
assets or properties of the Company.

4.2 Crediting of Deferral Accounts.
    ------------------------------

     Each  Deferral  Account  will be credited  with any  amounts  deferred by a
Director pursuant to this Plan as such amounts are earned.  The Company shall at
the appropriate time deduct from all compensation  paid or deferred any federal,
state or local tax required

                                       3
<PAGE>

by law to be  withheld,  including  any  required  deduction  of FICA  taxes  on
compensation  earned  during  the  current  year  even  though  receipt  of such
compensation is in part deferred until a future year.  Each January,  before any
distribution  of Benefits,  each  Deferral  Account shall also be credited at an
annual  rate of  return  equal to the  overall  percentage   return  on  capital
(long-term  debt,  preferred  stock,  and common  equity) of the Company for the
calendar  year.  This  return  shall be  calculated  by dividing  the  Company's
"Consolidated  Income Before Interest  Charges" by  consolidated  capitalization
which shall include notes payable.  A sample  calculation is attached  hereto as
Exhibit A. With  respect to amounts in an account  for part of a year,  interest
shall be computed on the basis of a 360 day year with 12 months of 30 days.

4.3 Statement of Accounts.
    ---------------------

     A Statement of Account in such form as the Company deems desirable  setting
forth the balance to the credit each  Director  in his or her  Deferral  Account
shall be provided to each participating Director at least annually.

4.4 Contractual Obligation.
    ----------------------

     It is intended  that the Company is under a  contractual obligation to make
payments  to  Directors  from the  general  funds and assets of  the  Company in
accordance  with the terms and conditions of the Plan.  Payments will reduce the
balance shown on a Director's Deferral Account.  A Director shall have no rights
to such payments, other than as a general, unsecured creditor of the Company.

                                       4

<PAGE>


                                   SECTION 5
                                   ---------
                              PAYMENT OF BENEFITS
                              -------------------

5.1 Form of Payment of Benefits.
    ---------------------------

     The amount held in the Deferral Account pursuant to each Deferral  Election
shall be paid in accordance with such Deferral  Election.  Such Benefits will be
paid either in a lump sum or in equal annual  installments over a term of two to
ten  years.  Benefits  shall be paid each  January,  beginning  with  the  first
January that all  requirements  and conditions for payment under the Plan and on
the Deferral  Election Form shall have been satisfied  (i.e. stated age has been
reached, stated period of years has elapsed, or termination of membership on the
Board has occurred).

5.2 Recipients of Payments: Designation of Beneficiary.
    --------------------------------------------------

     All payments of Benefits to be made by the Company  under the Plan shall be
made to the  participating  Director,  if living.  Except as otherwise  provided
herein,  in the event of a  Director's  death prior to the receipt of any or all
Benefit payments  hereunder,  all subsequent  payments to be made under the Plan
shall  be  made to the  Beneficiary  designated  by the  Director,  and,  unless
otherwise specified in the Director's  Beneficiary  designation,  in the event a
Beneficiary dies before receiving all payments due to such Beneficiary  pursuant
to this  Plan,  the then  remaining  amounts  shall be paid in a lump sum to the
legal representatives of the Beneficiary's estate.

                                       5

<PAGE>


     The participating Director shall designate a Beneficiary,  or during his or
her  lifetime  change  such  designation,  by  filing a  written  notice of such
designation  with  the  Company  in such  form  and  subject to  such  rules and
regulations as the Company may prescribe. If no Beneficiary designation shall be
in effect at the time when any  benefits  payable  under this Plan shall  become
due,  the  remaining  amounts  shall  be  paid  in  a  lump  sum  to  the  legal
representative of the Director's estate.

     If the Director's  compensation  constitutes  community property,  then any
Beneficiary  designation  made by the Director  other than a designation of such
Director's   spouse  shall  not  be  effective  if  any  such   Beneficiary   or
beneficiaries  are to receive  more than fifty  percent  (50%) of the  aggregate
benefits payable hereunder, unless such spouse shall approve such designation in
writing.

     In the event a benefit is payable to a minor or person declared incompetent
or to a person incapable of handling the disposition of his or her property, the
Company may determine to pay such benefit to the guardian,  legal representative
or person having the care or custody of such minor,  incompetent or person.  The
Company may require proof of  incompetency,  minority or  guardianship as it may
deem appropriate prior to distribution of the benefit.  Such distribution  shall
completely  discharge  the  Company  from all  liability   with  respect to such
benefit.

5.3 Generation-Skipping Tax
    -----------------------

     Notwithstanding  any  provisions in this Plan to the contrary,  the Company
may withhold any benefits payable to a Beneficiary as a result

                                       6

<PAGE>

of the death of the Director (or the death of any Beneficiary  designated by the
Director)  until  such time as (i) the  Company is able to  determine  whether a
generation-skipping  transfer  tax,  as defined  in  Chapter 13 of the  Internal
Revenue Code of 1986, or any substitute  provision  therefor,  is payable by the
Company;  and (ii) the Company has determined the amount of generation- skipping
transfer  tax  that is due,  including  interest  thereon.  If any  such  tax is
payable,  the Company shall reduce the benefits  otherwise  payable hereunder to
such  Beneficiary  by the amount  necessary to provide said  Beneficiary  with a
benefit  equal to the  amounts  that  would have been  payable  if the  original
benefits had been calculated on the basis of a value for the Director's Deferral
Account reduced by an amount equal to the  generation-skipping  transfer tax and
any interest  thereon that is payable as a result of the death in question.  The
Company may also withhold from distribution by further reduction of the then net
value of  benefits  calculated  in  accordance  with the  terms of the  previous
sentence  such  amounts as the Company  feels are  reasonably  necessary  to pay
additional  generation-skipping  transfer tax and interest  thereon from amounts
initially  calculated to be due. Any amounts so withheld,  and not actually paid
as a generation-skipping  transfer tax or interest thereon,  shall be payable as
soon as there is a final determination of the applicable generation-skipping tax
and interest thereon.

                                   SECTION 6
                                   ---------

                   CHANGE OF LAW AND ALTERNATIVE PAYMENT FORM
                   ------------------------------------------

     The  Company  may make  payments  to any  Director  or  Beneficiary  of any
benefits or deferred amounts to be paid under the Plan, in

                                       7



<PAGE>


advance of the date when otherwise due, if, based on a change in federal tax law
or  regulation,  published  rulings or  similar  announcements  by the  Internal
Revenue  Service,  decision by a court of competent  jurisdiction  involving the
Plan, a Director or a  Beneficiary,  or a closing  agreement  made under Section
7121 of the Internal  Revenue Code of 1986 that involves the Plan, a Director or
a  Beneficiary,  it determines  that a Director or  Beneficiary  will  recognize
income  for  federal  income tax  purposes  with  respect  to  amounts  that are
otherwise  not then  payable  under the  Plan.  The  Company  may also make such
payments to any Director or  Beneficiary  in advance of the date when  otherwise
due if it shall be determined  that the Plan is subject to the  requirements  of
Parts  2 and 3 of  Subtitle  B of  Title  I of the  Employee  Retirement  Income
Security  Act of 1974,  because such Plan is not  maintained  primarily  for the
purpose of providing  deferred  compensation for a select group of management or
highly compensated employees.

                                   SECTION 7
                                   ---------

                              NON-TRANSFERABILITY
                              -------------------

     In no event  shall  the  Company  make any  payment  under  the Plan to any
assignee or creditor of a Director  or a  Director's  Beneficiary.  Prior to the
time of payment hereunder, a Director or Beneficiary shall have no rights by way
of  anticipation  or otherwise  to assign or  otherwise  dispose of any interest
under the Plan nor shall such rights be assigned or  transferred by operation of
law.

                                       8


<PAGE>


                                   SECTION 8
                                   ---------
                      ADMINISTRATION AND CLAIMS PROCEDURES
                      ------------------------------------

8.1 Administration.
    --------------

     This Plan shall be administered by the officers of the Company. The Company
may from time to time establish  rules for the  administration  of the Plan that
are not inconsistent with the provisions of the Plan.

8.2 Filing a Claim.
    --------------

     Any Director or Beneficiary,  or his or her authorized representative,  may
make a claim  for  benefits  due him or her  under  the Plan by making a written
request  therefor to the Company,  setting forth with  specificity the facts and
events  which  give rise to the  claim.  The  Company  shall  promptly  respond,
consistent with any legal requirements that may apply.

8.3 Expenses.
    --------

     The cost of payment from the Plan and the expense of administering the Plan
shall be borne by the Company.

8.4 Tax Withholding.
    ---------------

     The  Company  shall have the right to deduct  from all  payments to be made
under the Plan, any federal,  state or local taxes or other charges  required by
law to be withheld with respect to such payments.

                                       9

<PAGE>

                                   SECTION 9
                                   ---------

                           AMENDMENT AND TERMINATION
                           -------------------------

     The Company expects the Plan to be permanent,  but since future  conditions
affecting  the Company  cannot be  anticipated  or  foreseen,  the Company  must
necessarily  and does hereby  reserve the right to amend,  modify, terminate  or
partially  terminate the Plan at any time and in any manner whatsoever by action
of the Board of the Company.  Any such amendment,  modification,  termination or
partial  termination of the Plan that does not  materially  increase the cost of
the Plan to the  Company,  may occur by action of the  Company  with the written
concurrence of the Chairman of the Board; provided, however, that only the Board
shall have the power to terminate or partially  terminate the Plan or change the
Plan Crediting  Rate,  which shall be changed on a prospective  basis only; and,
provided  further,  no amendment,  termination or other change in the Plan shall
reduce the amounts   credited  to a Director's  Deferral  Account on the date of
such  amendment,  termination  or other  change,  which shall be payable to such
Director or such Director's beneficiary as otherwise provided herein.



                                   SECTION 10
                                   ----------
                                 APPLICABLE LAW
                                 --------------

     The Plan shall be governed and construed in accordance with the laws of the
State  of  Minnesota.  The  invalidity  of any  portion of the  Plan  shall  not
invalidate the remainder hereof and said remainder shall continue in full force.
The captions and other titles herein are

                                       10


<PAGE>

designed for  convenience  only and are not to be resorted to for the purpose of
interpreting any provision of the Plan.

                                   SECTION 11
                                   ----------
                               BINDING AGREEMENT
                               -----------------

     The  provisions of the Plan shall be binding upon the Director,  his or her
heirs,  personal  representatives  and beneficiaries,  and subject to the rights
granted to amend or terminate the Plan, the provisions of the Plan shall also be
binding upon the Company, its successors and assigns.


     Pursuant  to a  resolution  duly  adopted  by the Board on April 25,  1990,
Minnesota Power has caused this instrument to be executed by its duly authorized
officers this     day of July, 1990.



                                                         MINNESOTA POWER

                                                         By: /s/ A. J. Sandbulte
                                                            --------------------
                                                                  Chairman

ATTEST:

By:   /s/ Thomas A. Micheletti
     --------------------------
            Secretary

                                       11



<PAGE>


                                                                       Exhibit A

                 DIRECTOR'S FEES INVESTMENT RETURN CALCULATION



INVESTMENT RETURN = CONSOLIDATED INCOME BEFORE INTEREST CHARGES
                    -------------------------------------------
                    AVERAGE CONSOLIDATED CAPITALIZATION
                    (TO INCLUDE NOTES PAYABLE)

EXAMPLE CALCULATION (1988):

  CONSOLIDATED INCOME B/4 INTEREST 1/ =   $114,969 = 11.08%
  -----------------------------------   ----------
  AVERAGE CONSOLIDATED CAPITAL    2/    $1,037,180

1/ SOURCE: 1988 ANNUAL REPORT
2/ BASED ON LAST TWO YEAR'S ENDING CAPITALIZATION TO INCLUDE
   NOTES PAYABLE:

                                          1987          1988          AVG
                                       ----------    ----------    ----------
   TOTAL CAPITALIZATION                $1,011,405    $1,057,561    $1,034,483
   NOTES PAYABLE                            4,994           400         2,697
                                       ----------    ----------    ----------

      TOTAL                            $1,016,399    $1,057,961    $1,037,180



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12
<SEQUENCE>10
<FILENAME>exhibit12.txt
<DESCRIPTION>EX-12 FIXED CHARGES RATIO
<TEXT>
<PAGE>
                             ALLETE FORM 10-K 2002
- --------------------------------------------------------------------------------

                                                                      EXHIBIT 12
<TABLE>
ALLETE
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES AND
SUPPLEMENTAL RATIOS OF EARNINGS TO FIXED CHARGES (UNAUDITED)
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31                                      2002          2001          2000         1999       1998
==============================================================================================================================
MILLIONS EXCEPT RATIOS
<S>                                                                <C>           <C>           <C>          <C>        <C>
Income from Continuing Operations Before Income Taxes              $191.6        $204.5        $215.3       $108.1     $130.1

Add (Deduct)
   Undistributed Income from Less than 50%
      Owned Equity Investments                                          -             -             -         (0.6)     (14.1)
   Minority Interest                                                    -           0.1             -          1.8        2.0
- ------------------------------------------------------------------------------------------------------------------------------
                                                                    191.6         204.6         215.3        109.3      118.0
- ------------------------------------------------------------------------------------------------------------------------------
Fixed Charges
   Interest on Long-Term Debt                                        67.9          74.0          54.5         48.4       48.5
   Capitalized Interest                                               0.8           1.0           0.9          0.7        1.0
   Other Interest Charges - Net                                       5.3          12.9          15.9         12.0       17.1
   Interest Component of All Rentals                                  9.9          10.4           8.5          4.8        5.7
   Distributions on Redeemable Preferred Securities of Subsidiary     6.0           6.0           6.0          6.0        6.0
- ------------------------------------------------------------------------------------------------------------------------------
      Total Fixed Charges                                            89.9         104.3          85.8         71.9       78.3
- ------------------------------------------------------------------------------------------------------------------------------
Earnings Before Income Taxes and Fixed Charges
   (Excluding Capitalized Interest)                                $280.7        $307.9        $300.2       $180.5     $195.3
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of Earnings to Fixed Charges                                   3.12          2.95          3.50         2.51       2.49
- ------------------------------------------------------------------------------------------------------------------------------
Earnings Before Income Taxes and Fixed Charges
   (Excluding Capitalized Interest)                                $280.7        $307.9        $300.2       $180.5     $195.3
Supplemental Charges                                                 13.6          14.2          14.8         15.4       14.5
- ------------------------------------------------------------------------------------------------------------------------------
Earnings Before Income Taxes and Fixed
   and Supplemental Charges (Excluding Capitalized Interest)       $294.3        $322.1        $315.0       $195.9     $209.8
- ------------------------------------------------------------------------------------------------------------------------------
Total Fixed Charges                                                $ 89.9        $104.3        $ 85.8        $71.9      $78.3
Supplemental Charges                                                 13.6          14.2          14.8         15.4       14.5
- ------------------------------------------------------------------------------------------------------------------------------
   Fixed and Supplemental Charges                                  $103.5        $118.5        $100.6        $87.3      $92.8
- ------------------------------------------------------------------------------------------------------------------------------
Supplemental Ratio of Earnings to Fixed Charges <F1>                 2.84          2.72          3.13         2.24       2.26
==============================================================================================================================
<FN>
<F1> THE SUPPLEMENTAL RATIO OF EARNINGS TO FIXED CHARGES INCLUDES  MINNESOTA POWER'S  OBLIGATION  UNDER A CONTRACT WITH SQUARE
     BUTTE WHICH EXTENDS THROUGH 2026, PURSUANT TO WHICH MINNESOTA  POWER  IS ENTITLED TO APPROXIMATELY 71% OF THE OUTPUT OF A
     455-MEGAWATT COAL-FIRED GENERATING UNIT (UNIT). MINNESOTA POWER IS OBLIGATED TO PAY ITS  PRO RATA SHARE OF SQUARE BUTTE'S
     COSTS BASED ON UNIT  OUTPUT  ENTITLEMENT.  MINNESOTA POWER'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.
     (SEE NOTE 13.)
</FN>
</TABLE>

- --------------------------------------------------------------------------------
                                       79


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>11
<FILENAME>exhibit23a.txt
<DESCRIPTION>EX-23(A) CONSENT OF INDEPENDENT ACCOUNTANTS
<TEXT>
<PAGE>

                                                                   EXHIBIT 23(a)



                       CONSENT OF INDEPENDENT ACCOUNTANTS


     We hereby  consent to the  incorporation  by reference in the  Registration
Statements  on  Form  S-8  (Nos.  33-51989,  333-26755,   333-16445,  333-16463,
333-82901,  333-91348)  of ALLETE,  Inc.  of our report  dated  January 20, 2003
relating to the consolidated  financial statements,  which appears on page 56 of
this  Annual  Report on Form  10-K.  We also  consent  to the  incorporation  by
reference  of our report  dated  January  20,  2003  relating  to the  financial
statement schedule, which appears on page 78 of this Form 10-K.


     We  also  consent  to the  incorporation  by  reference  in the  Prospectus
constituting  part of the Registration  Statements on Form S-3 (Nos.  333-02109,
333-40797,  333-58945, 333-41882, 333-54330, 333-57104, 333-71320, 333-91346) of
ALLETE,  Inc. of our report dated January 20, 2003 relating to the  consolidated
financial  statements,  which  appears on page 56 of this Annual  Report on Form
10-K.  We also  consent to the  incorporation  by  reference of our report dated
January 20, 2003 relating to the financial statement schedule,  which appears on
page 78 of this Form 10-K.

PricewaterhouseCoopers LLP

PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota
February 13, 2003



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>12
<FILENAME>exhibit23b.txt
<DESCRIPTION>EX-23(B) CONSENT OF GENERAL COUNSEL
<TEXT>
<PAGE>

                                                                   EXHIBIT 23(b)

                           CONSENT OF GENERAL COUNSEL


     The  statements of law and legal  conclusions  under "Item 1.  Business" in
ALLETE's  Annual  Report on Form 10-K for the year ended  December 31, 2002 have
been  reviewed by me and are set forth therein in reliance upon my opinion as an
expert.

     I hereby consent to the  incorporation  by reference of such  statements of
law and legal conclusions in Registration  Statement Nos. 333-02109,  333-40797,
333-58945, 333-41882, 333-54330, 333-57104, 333-71320 and 333-91346 on Form S-3,
and  Registration  Statement Nos.  33-51989,  333-26755,  333-16445,  333-16463,
333-82901 and 333-91348 on Form S-8.


Philip R. Halverson

Philip R. Halverson
Duluth, Minnesota
February 13, 2003



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>13
<FILENAME>exhibit99a.txt
<DESCRIPTION>EX-99(A) CERTIFICATION BY CEO-DAVID G. GARTZKE
<TEXT>
<PAGE>


                                                                   EXHIBIT 99(a)


                        CERTIFICATION OF ANNUAL REPORT

I, David G. Gartzke, Chairman,  President and Chief Executive Officer of ALLETE,
Inc.  (Company),  certify pursuant to Section 906 of the  Sarbanes-Oxley  Act of
2002, 18 U.S.C. Section 1350, that:

1.   The Annual  Report on Form 10-K of the Company for the year ended  December
     31, 2002 (Report) fully complies with the  requirements of Section 13(a) of
     the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

2.   The information contained in  the Report fairly  presents, in  all material
     respects, the financial condition and results of operations of the Company.

Dated:  February 14, 2003





                                                        David G. Gartzke
                                                        ------------------------

                                                        David G. Gartzke
                                                        Chairman, President and
                                                        Chief Executive Officer



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>14
<FILENAME>exhibit99b.txt
<DESCRIPTION>EX-99(B) CERTIFICAITON BY CFO-JAMES K. VIZANKO
<TEXT>
<PAGE>



                                                                   EXHIBIT 99(b)


                        CERTIFICATION OF ANNUAL REPORT

I, James K. Vizanko,  Vice President,  Chief Financial  Officer and Treasurer of
ALLETE,  Inc.  (Company),  certify pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, 18 U.S.C. Section 1350, that:

1.   The Annual Report on Form 10-K of  the Company for the  year ended December
     31, 2002 (Report) fully complies with the  requirements of Section 13(a) of
     the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

2.   The  information contained  in the Report fairly  presents, in all material
     respects, the financial condition and results of operations of the Company.

Dated:  February 14, 2003



                                                 James Vizanko
                                                 -------------------------------

                                                 James K. Vizanko
                                                 Vice President, Chief Financial
                                                 Officer and Treasurer



</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
