File No. 70-____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________
FORM U-1
__________________________________
APPLICATION OR DECLARATION
under the
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
* * *
AMERICAN ELECTRIC POWER COMPANY, INC.
1 Riverside Plaza, Columbus, Ohio 43215
APPALACHIAN POWER COMPANY
40 Franklin Road, Roanoke, Virginia 24022
INDIANA MICHIGAN POWER COMPANY
One Summit Square, Fort Wayne, Indiana 46801
OHIO POWER COMPANY
301 Cleveland Avenue, S.W., Canton, Ohio 44702
(Name of company or companies filing this statement
and addresses of principal executive offices)
* * *
AMERICAN ELECTRIC POWER COMPANY, INC.
1 Riverside Plaza, Columbus, Ohio 43215
(Name of top registered holding company
parent of each applicant or declarant)
* * *
G. P. Maloney, Executive Vice President
AMERICAN ELECTRIC POWER SERVICE CORPORATION
1 Riverside Plaza, Columbus, Ohio 43215
John F. Di Lorenzo, Jr., Associate General Counsel
AMERICAN ELECTRIC POWER SERVICE CORPORATION
1 Riverside Plaza, Columbus, Ohio 43215
(Names and addresses of agents for service)
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION
American Electric Power Company, Inc. ("AEP"), a New York
corporation and a holding company registered under the Public
Utility Holding Company Act of 1935 ("1935 Act"), and Appalachian
Power Company ("APCo"), a Virginia corporation, Indiana Michigan
Power Company ("I&M"), an Indiana corporation, and Ohio Power
Company ("OPCo"), an Ohio corporation (APCo, I&M and OPCo are
sometimes collectively referred to herein as the "Subsidiaries"),
request authority (i) for each of the Subsidiaries to solicit
proxies from the holders of their respective shares of preferred
stock and common stock; (ii) for each of the Subsidiaries to amend
their respective Articles (as defined herein); (iii) for AEP to
make an offer to the holders of each series of the Subsidiaries'
outstanding preferred stock to acquire for cash any and all shares
of the Subsidiaries' outstanding preferred stock; (iv) for AEP to
sell to the Subsidiaries any preferred stock so acquired at AEP's
purchase price plus expenses; and (v) to increase the short-term
debt authority of AEP to $550,000,000, as more fully described
herein. AEP, APCo, I&M and OPCo are sometimes collectively
referred to herein as "Applicants".
A. Introduction
1. APCo Proxy Solicitation and Tender Offer
APCo proposes to solicit proxies from the holders of its
outstanding shares of preferred stock and common stock ("APCo Proxy
Solicitation") for use at a special meeting of its stockholders
("APCo Special Meeting") to consider a proposed amendment to APCo's
restated articles of incorporation ("APCo Articles") that would
eliminate in its entirety Article V, Clause 7(B)(b) of the APCo
Articles, a provision restricting the amount of debt issuable by
APCo ("APCo Proposed Amendment"). If the APCo Proposed Amendment
is adopted, APCo proposes to make a special cash payment to each
preferred stockholder who voted his or her shares of preferred
stock in favor of the APCo Proposed Amendment, provided that such
shares have not been tendered pursuant to the concurrent cash
tender offer described below.
Concurrently with the APCo Proxy Solicitation, AEP
proposes to make an offer ("APCo Offer") to the holders of APCo's
outstanding preferred stock of each series to acquire for cash any
and all shares of APCo outstanding preferred stock of each series,
at cash purchase prices which AEP anticipates will include a market
premium for each series. AEP anticipates that the APCo Offer for
each series of preferred stock will be scheduled to expire at 5:00
P.M. (New York City time) on February 28, 1997, the date of the
APCo Special Meeting ("APCo Expiration Date"), unless the APCo
Offer is extended. Preferred Stockholders who wish to tender their
preferred shares pursuant to the APCo Offer are not required to
vote in favor of the APCo Proposed Amendment; however, among the
conditions of the APCo Offer is that the APCo Proposed Amendment be
approved and adopted at the APCo Special Meeting.
2. I&M Proxy Solicitation and Tender Offer
I&M proposes to solicit proxies from the holders of its
outstanding shares of preferred stock and common stock ("I&M Proxy
Solicitation") for use at a special meeting of its stockholders
("I&M Special Meeting") to consider a proposed amendment to I&M's
amended articles of acceptance ("I&M Articles") that would
eliminate in its entirety Article 6(A), Subparagraph 7(B)(c) of
I&M's Articles, a provision restricting the amount of unsecured
debt issuable by I&M ("I&M Proposed Amendment"). If the I&M
Proposed Amendment is adopted, I&M proposes to make a special cash
payment to each preferred stockholder who voted his or her shares
of preferred stock in favor of the I&M Proposed Amendment, provided
that such shares have not been tendered pursuant to the concurrent
cash tender offer described below.
Concurrently with the I&M Proxy Solicitation, AEP
proposes to make an offer ("I&M Offer") to the holders of I&M's
outstanding preferred stock of each series to acquire for cash any
and all shares of I&M outstanding preferred stock of each series,
at cash purchase prices which AEP anticipates will include a market
premium for shares of each series. AEP anticipates that the I&M
Offer for each series of preferred stock will be scheduled to
expire at 5:00 P.M. (New York City time) on February 28, 1997, the
date of the I&M Special Meeting ("I&M Expiration Date"), unless the
I&M Offer is extended. Preferred Stockholders who wish to tender
their preferred shares pursuant to the I&M Offer are not required
to vote in favor of the I&M Proposed Amendment; however, among the
conditions of the I&M Offer is that the I&M Proposed Amendment be
approved and adopted at the I&M Special Meeting.
3. OPCo Proxy Solicitation and Tender Offer
OPCo proposes to solicit proxies from the holders of its
outstanding shares of preferred stock and common stock ("OPCo Proxy
Solicitation") for use at a special meeting of its stockholders
("OPCo Special Meeting") to consider a proposed amendment to OPCo's
amended articles of incorporation ("OPCo Articles") that would
eliminate Article FOURTH, Clause 7(B)(b) of OPCo's Articles, a
provision restricting the amount of unsecured debt issuable by OPCo
("OPCo Proposed Amendment"). If the OPCo Proposed Amendment is
adopted, OPCo proposes to make a special cash payment to each
preferred stockholder who voted his or her shares of preferred
stock in favor of the OPCo Proposed Amendment, provided that such
shares have not been tendered pursuant to the concurrent cash
tender offer described below.
Concurrently with the OPCo Proxy Solicitation, AEP
proposes to make an offer ("OPCo Offer") to the holders of OPCo's
outstanding preferred stock of each series to acquire for cash any
and all shares of OPCo outstanding preferred stock of each series,
at cash purchase prices which AEP anticipates will include a market
premium for each series. AEP anticipates that the OPCo Offer for
each series of preferred stock will be scheduled to expire at 5:00
P.M. (New York City time) on February 28, 1997, the date of the
OPCo Special Meeting ("OPCo Expiration Date"), unless the OPCo
Offer is extended. Preferred Stockholders who wish to tender their
preferred shares pursuant to the OPCo Offer are not required to
vote in favor of the OPCo Proposed Amendment; however, among the
conditions of the OPCo Offer is that the OPCo Proposed Amendment be
approved and adopted at the OPCo Special Meeting.FN1
FN1 The APCo Proxy Solicitation, I&M Proxy Solicitation and OPCo
Proxy Solicitation are sometimes referred to herein
individually as a "Proxy Solicitation" and collectively as the
"Proxy Solicitations"; the APCo Special Meeting, I&M Special
Meeting and the OPCo Special Meeting are sometimes referred to
herein individually as a "Special Meeting" and collectively as
the "Special Meetings"; the APCo Articles, I&M Articles and
OPCo Articles are sometimes referred to herein individually
and collectively as the "Articles"; the APCo Proposed
Amendment, I&M Proposed Amendment and OPCo Proposed Amendment
are sometimes referred to herein individually as a "Proposed
Amendment" and collectively as the "Proposed Amendments"; the
APCo Offer, I&M Offer and OPCo Offer are sometimes referred to
herein individually as an "Offer" and collectively as the
"Offers"; and the APCo Expiration Date, I&M Expiration Date
and OPCo Expiration Date are sometimes referred to herein
individually as an "Expiration Date" and collectively as the
"Expiration Dates."
Applicants request that the Commission issue a public
notice of the proposed transactions and order authorizing the Proxy
Solicitations (collectively, "Proxy Solicitation Order") on January
29, 1997, thereby both affording the Subsidiaries sufficient time
to solicit proxies in advance of the Special Meetings and, because
the Proxy Solicitations and the Offers will be effected by means of
a combined proxy statement and issuer tender offer statement with
respect to each Subsidiary pursuant to the Securities Exchange Act
of 1934 ("Exchange Act") and applicable rules and regulations
thereunder, facilitating commencement of the Offers. Applicants
further request that as soon as practicable after the Proxy
Solicitation Order, but in any event not later than Tuesday,
February 25, 1997, the Commission issue an order authorizing the
Proposed Amendments and Cash Payments (as defined herein) together
with AEP's proposed acquisition of any and all shares of the
Subsidiaries' preferred stock pursuant to the Offers.
B. Background:
As discussed below, the purpose of the Proxy
Solicitations is to eliminate the provision in each Subsidiary's
Articles restricting the ability of the Subsidiary to incur certain
indebtedness. AEP and each Subsidiary considers this restriction
a significant impediment to their ability to adapt to an
increasingly competitive market for electricity, maintain financial
flexibility and minimize their financing costs. The competitive
advantages, financing flexibility and cost benefits resulting from
the elimination of these provisions outweigh the one-time cost of
the Offers and the Proxy Solicitations. Applicants further believe
that the terms of purchase for the outstanding shares of the
Subsidiaries' preferred stock pursuant to the Offers will benefit
not only tendering preferred stockholders (given the proposed per
share purchase price) but also, taking into account all related
transaction costs, AEP's investors and the AEP System utility
customers by (1) contributing to the elimination of the onerous
provisions concerning indebtedness (with the attendant benefits
described above) and (2) resulting in the acquisition and
retirement of outstanding shares of the Subsidiaries' preferred
stock and their potential replacement with comparatively less
expensive financing alternatives, such as debt or so-called "hybrid
securities".
C. Proposed Transactions: Proxy Solicitation and Proposed
Amendment
1. Terms of Proxy Solicitation and Proposed Amendment
a. APCo
APCo has outstanding 13,499,500 shares of common stock,
no par value per share ("APCo Common Stock"), all of which are held
by AEP. APCo's outstanding preferred stock consists of 2,198,150
shares of cumulative preferred stock, no par value per share
(collectively, "APCo Preferred Stock"), issued in five series
(each, an "APCo Series")FN2, all of which are traded over-the-
counter, except for the 4-1/2% Series, which is traded on the
Philadelphia Stock Exchange. The APCo Common Stock and APCo
Preferred Stock of each APCo Series are entitled to one vote per
share on the matters described herein and constitute APCo's only
outstanding securities entitled to vote on the APCo Proposed
Amendment. APCo has outstanding no other class of equity
securities.
FN2 The five series of APCo Preferred Stock consist of a 4-1/2%
series, of which 298,150 shares are outstanding ("4-1/2%
Series"); a 5.90% series, of which 500,000 shares are
outstanding ("5.90% Series"); a 5.92% series, of which 600,000
shares are outstanding ("5.92% Series"); a 6.85% series, of
which 300,000 shares are outstanding ("6.85% Series"); and a
7.80% series, of which 500,000 shares are outstanding ("7.80%
Series").
Article V, Clause 7(B)(b) of the APCo Articles currently
provides that, so long as any shares of APCo's cumulative preferred
stock of any Series are outstanding, without the consent of the
holders of a majority of the total number of votes which holders of
the outstanding shares of APCo Preferred Stock of all series are
entitled to cast, APCo shall not issue or assume any evidence of
indebtedness, secured or unsecured (other than for purposes of
refunding or renewing outstanding evidences of indebtedness or
redeeming or otherwise retiring all outstanding shares of APCo
Preferred Stock and other than first mortgage bonds and certain
secured indebtedness) if, immediately after such issue or
assumption, (a) the total principal amount of all such indebtedness
issued or assumed by APCo and then outstanding would exceed 20% of
the aggregate of (1) the total principal amount of all then-
outstanding bonds or other secured debt of APCo (other than certain
bonds issued under a mortgage) and (2) the stated capital and
surplus of APCo as stated on APCo's books; or (b) the total
principal amount of all unsecured debt would exceed 20% of the
aggregate of (1) the total principal amount of all then-outstanding
bonds or other secured debt of APCo and (2) the stated capital and
surplus of APCo as stated on APCo's books; or (c) the total
outstanding principal amount of all unsecured debt of maturities of
less than ten years would exceed 10% of the aggregate of (1) the
total principal amount of all then-outstanding bonds or other
secured debt of APCo and (2) the stated capital and surplus of APCo
as stated on APCo's books ("APCo Restriction Provision"). The APCo
Proposed Amendment would eliminate the APCo Restriction Provision
by deleting it in its entirety from the APCo Articles.
If the APCo Proposed Amendment is adopted, APCo proposes
to make a special cash payment of $1.00 per share (each, an "APCo
Cash Payment") to each APCo Preferred Stockholder of any APCo
Series, any of whose shares of APCo Preferred Stock (each, an "APCo
Share") are properly voted at the APCo Special Meeting (in person
by ballot or by proxy) in favor of the APCo Proposed Amendment,
provided that such APCo Shares are not tendered pursuant to the
APCo Offer. APCo will disburse APCo Cash Payments out of its
general funds, promptly after adoption of the APCo Proposed
Amendment.
b. I&M
I&M has outstanding 1,400,000 shares of common stock, par
value $100 per share ("I&M Common Stock"), all of which are held by
AEP. I&M's outstanding preferred stock consists of 1,569,767
shares of cumulative preferred stock, par value $100 per share
("I&M Preferred Stock"), issued in seven series (each, an "I&M
Series")FN3, all of which are traded over-the-counter, except for
the 4-1/8% Series, which is traded on the Chicago Stock Exchange.
The I&M Common Stock and I&M Preferred Stock of each I&M Series are
entitled to one vote per share on the matters described herein and
constitute I&M's only outstanding securities entitled to vote on
the I&M Proposed Amendment. I&M has outstanding no other class of
equity securities.
FN3 The seven series of I&M Preferred Stock consist of a 4-1/8%
series, of which 119,767 shares are outstanding ("4-1/8%
Series"); a 4.12% series, of which 40,000 shares are
outstanding ("4.12% Series"); a 4.56% series, of which 60,000
shares are outstanding ("4.56% Series"); a 5.90% series, of
which 400,000 shares are outstanding ("5.90% Series"); a 6-
1/4% series, of which 300,000 shares are outstanding ("6-1/4%
Series"); a 6-7/8% series, of which 300,000 shares are
outstanding ("6-7/8% Series"); and a 6.30% series, of which
350,000 shares are outstanding ("6.30% Series").
Article 6(A), Subparagraph 7(B)(c) of the I&M Articles
currently provides that, so long as any shares of I&M cumulative
preferred stock of any Series are outstanding, without the consent
of the holders entitled to cast a majority of the total number of
votes which holders of the outstanding I&M Preferred Stock of all
series are entitled to cast, I&M shall not issue or assume any
unsecured debt securities (other than for purposes of the
reacquisition, redemption or other retirement of any evidences of
indebtedness theretofore issued or assumed by I&M or the
reacquisition, redemption or other retirement of all outstanding
shares of I&M Preferred Stock) if, immediately after such issue or
assumption, the total principal amount of all unsecured debt
securities (other than the principal amount of all long-term
unsecured debt securities not in excess of 10% of the
capitalization of I&M)FN4 issued or assumed by I&M and then
outstanding would exceed 10% of the capitalization of I&M ("I&M
Restriction Provision"). The I&M Proposed Amendment would
eliminate the I&M Restriction Provision by deleting it in its
entirety from the I&M Articles.
FN4 "Capitalization" means an amount equal to the sum of (i) the
total principal amount of all bonds or other secured debt
securities issued or assumed by I&M outstanding at the time of
determination and (ii) the aggregate of the stated capital of
all classes of I&M stock outstanding at the time of
determination and surplus of I&M at such time.
If the I&M Proposed Amendment is adopted, I&M proposes
to make a special cash payment of $1.00 per share (each, an "I&M
Cash Payment") to each I&M Preferred Stockholder of any I&M Series,
any of whose shares of I&M Preferred Stock (each, an "I&M Share")
are properly voted at the I&M Special Meeting (in person by ballot
or by proxy) in favor of the I&M Proposed Amendment, provided that
such I&M Shares are not tendered pursuant to the I&M Offer. I&M
will disburse I&M Cash Payments out of its general funds, promptly
after adoption of the I&M Proposed Amendment.
c. OPCo
OPCo has outstanding 27,952,473 shares of common stock,
no par value per share ("OPCo Common Stock"), all of which are held
by AEP. OPCo's outstanding preferred stock consists of 1,484,316
shares of cumulative preferred stock, par value $100 per share
("OPCo Preferred Stock"), issued in seven series (each, an "OPCo
Series")FN5, all of which are traded over-the-counter. The OPCo
Common Stock and OPCo Preferred Stock of each OPCo Series are
entitled to one vote per share on the matters described herein and
constitute OPCo's only outstanding securities entitled to vote on
the OPCo Proposed Amendment. OPCo has outstanding no other class
of equity securities.
FN5 The seven series of OPCo Preferred Stock consist of a 4-1/2%
series, of which 202,403 shares are outstanding ("4-1/2%
Series"); a 4.08% series, of which 42,575 shares are
outstanding ("4.08% Series"); a 4.20% series, of which 51,975
shares are outstanding ("4.20% Series"); a 4.40% series, of
which 88,363 shares are outstanding ("4.40% Series"); a 5.90%
series, of which 404,000 shares are outstanding ("5.90%
Series"); a 6.02% series, of which 395,000 shares are
outstanding ("6.02% Series"); and a 6.35% series, of which
300,000 shares are outstanding ("6.35% Series").
Article FOURTH, Clause 7(B)(b) of the OPCo Articles
currently provides that, so long as any shares of OPCo's cumulative
preferred stock are outstanding, without the consent of the holders
of a majority of the total number of votes which holders of the
outstanding OPCo Preferred Stock of all series are entitled to
cast, OPCo shall not issue or assume any unsecured debt securities
(other than for purposes of the reacquisition, redemption or other
retirement of any evidences of indebtedness theretofore issued or
assumed by OPCo or the reacquisition, redemption or other
retirement of all outstanding shares of OPCo Preferred Stock) if,
immediately after such issue or assumption, the total principal
amount of all unsecured debt securities (other than the principal
amount of all long-term unsecured debt securities not in excess of
10% of the capitalization of OPCo)FN6 issued or assumed by OPCo and
then outstanding would exceed 10% of the capitalization of OPCo
("OPCo Restriction Provision"). The OPCo Proposed Amendment would
eliminate the OPCo Restriction Provision by deleting it in its
entirety from the OPCo Articles.FN7
FN6 "Capitalization" means an amount equal to the sum of (i) the
total principal amount of all bonds or other secured debt
securities issued or assumed by OPCo outstanding at the time
of determination and (ii) the aggregate of the stated capital
of all classes of OPCo stock outstanding at the time of
determination and surplus of OPCo at such time.
FN7 The APCo Series, I&M Series and OPCo Series are sometimes
referred to herein individually and collectively as the
"Series" and the APCo Restriction Provision, I&M Restriction
Provision and OPCo Restriction Provision are sometimes
referred to herein individually as a "Restriction Provision"
and collectively as the "Restriction Provisions."
If the OPCo Proposed Amendment is adopted, OPCo proposes
to make a special cash payment of $1.00 per share (each, an "OPCo
Cash Payment") to each OPCo Preferred Stockholder of any OPCo
Series, any of whose shares of OPCo Preferred Stock (each, an "OPCo
Share") are properly voted at the OPCo Special Meeting (in person
by ballot or by proxy) in favor of the OPCo Proposed Amendment,
provided that such OPCo Shares are not tendered pursuant to the
OPCo Offer. OPCo will disburse OPCo Cash Payments out of its
general funds, promptly after adoption of the OPCo Proposed
Amendment.FN8
FN8 The APCo Cash Payment, I&M Cash Payment and OPCo Cash Payment
are sometimes referred to herein individually as a "Cash
Payment" and collectively as the "Cash Payments" and the APCo
Shares, I&M Shares and OPCo Shares are sometimes referred to
herein individually and collectively as the "Shares".
d. Miscellaneous
Adoption of an amendment to the Articles, including the
Proposed Amendments, requires the affirmative vote at a
Subsidiary's Special Meeting (in person by ballot or by proxy) of
the holders of not less than two-thirds of the outstanding shares
of each of (1) the Preferred Stock of all Series, voting together
as one class, and (2) the Common Stock. AEP will vote its shares
of APCo Common Stock, I&M Common Stock and OPCo Common Stock,
respectively, in favor of the Proposed Amendments. Abstentions and
broker non-votes in respect of the Proposed Amendments will have
the effect of votes against the Proposed Amendments.
Votes at the Special Meetings will be tabulated
preliminarily by First Chicago Trust Company of New York ("First
Chicago"). Inspectors of election, duly appointed by the presiding
officer at the Special Meetings, will definitively count and
tabulate the votes and determine and announce the results at the
meeting.
The Subsidiaries have engaged Morrow & Co., Inc.
("Morrow") to act as information agent in connection with the Proxy
Solicitations for a fee and reimbursement of reasonable out-of-
pocket expenses expected not to exceed approximately $27,500.
2. Benefits of Proposed Amendment
The Subsidiaries believe that regulatory, legislative,
technological and market developments are likely to lead to a more
competitive environment in the electric utility industry. The
Subsidiaries and AEP's other electric utility subsidiaries believe
that they currently have a favorable competitive position because
of their relatively low costs. As competition intensifies,
flexibility and cost reduction will be even more crucial to
success. Because the electric utility industry is extremely
capital intensive, control and minimization of financing costs are
of particular importance. In response to the competitive forces
and regulatory changes faced by the Subsidiaries and AEP's other
electric utility subsidiaries, AEP and its public utility
subsidiaries have from time to time considered, and expect to
continue to consider, various strategies designed to enhance their
competitive position and to increase their ability to adapt to and
anticipate changes in their utility business.
The Subsidiaries believe that adoption of the Proposed
Amendments is key to financial flexibility and capital cost
reduction. Historically, the Subsidiaries' debt financing
generally has been accomplished through the issuance of long-term
first mortgage bonds, a modest amount of short-term debt and long-
term installment purchase contracts for pollution control bonds.
First mortgage bonds represent secured indebtedness placing a first
priority lien on substantially all of the Subsidiaries' assets.
The Mortgage and Deed of Trust between each Subsidiary and its
bondholders contains certain restrictive covenants with respect to,
among other things, the disposition of assets and the ability to
issue additional first mortgage bonds. Unsecured debt generally
has fewer restrictions than first mortgage bonds. Short-term debt,
a low cost form of debt available to the Subsidiaries, represents
one type of unsecured indebtedness. Pollution control bond
financing, a favorable type of financing due to its tax-exempt
status, is available only for very limited purposes.
The Proposed Amendments will not only allow the
Subsidiaries to issue a greater amount of unsecured debt, but also
will allow the Subsidiaries to issue a greater amount of total
debt. The Subsidiaries, however, presently have no intention of
issuing a greater amount of total debt than they would have issued
absent the adoption of the Proposed Amendments, except that APCo
and I&M expect to, and OPCo may, issue additional unsecured debt to
fund the purchase of the Shares from AEP. Rather, it is each of
the Subsidiaries' intention to attain flexibility in the mix of its
outstanding debt and therefore have the option to use more short-
term and unsecured debt and fewer first mortgage bonds.
Inasmuch as the Restriction Provisions contained in the
Articles limit the Subsidiaries' flexibility in planning and
financing their business activities, the Subsidiaries believe they
ultimately will be at a competitive disadvantage if the Restriction
Provisions are not eliminated. The industry's new competitors (for
example, power marketers, exempt wholesale generators, independent
power producers and owners of cogeneration facilities) generally
are not subject to the type of financing restrictions the Articles
impose upon the Subsidiaries. Recently, several other utilities
with the same or similar charter restrictions have successfully
eliminated such provisions by soliciting their shareholders for the
same or similar amendments.FN9 In addition, some potential utility
competitors, and other AEP public utility subsidiaries, including
Columbus Southern Power Company and Kentucky Power Company, have no
comparable provision restricting the use of unsecured debt.
Although the Subsidiaries sell relatively low-cost power,
they must continue to explore new ways of reducing costs and
enhancing flexibility. The Subsidiaries believe that the adoption
of the Proposed Amendments will be in the best long-term
competitive interests of their customers and shareholders.
FN9 The Commission has authorized utility subsidiaries of
registered holding companies to solicit their shareholders for
similar charter amendments with respect to unsecured debt
limitations. See, e.g., Cincinnati Gas & Electric Co., Rel.
No. 35-26569 (September 11, 1996); Blackstone Valley Electric
Company, Rel. No. 35-26320 (June 28, 1995); Alabama Power
Company, Rel. No. 35-26118 (Sept. 7, 1994).
a. Financial Flexibility
If the Proposed Amendment is adopted, the Subsidiaries
will have increased flexibility (i) to choose among different types
of debt financing and (ii) to finance projects using the most cost
effective means. The Subsidiaries believe that various types of
unsecured debt alternatives will increase in importance as an
option in financing their construction programs and refinancing
first mortgage bonds. The availability and flexibility of
unsecured debt is necessary to take full advantage of changing
conditions in securities markets. As a result, the Subsidiaries
may increase the amount of unsecured debt to more than 20% of
capitalization.
In addition, although the Subsidiaries' earnings
currently are sufficient to meet the earnings coverage tests that
must be satisfied before issuing additional first mortgage bonds
and Preferred Stock, there is no guarantee that this will be true
in the future. Other utilities have been unable to issue first
mortgage bonds during certain periods because of restrictive
covenants in their mortgages. The Subsidiaries' inability to issue
first mortgage bonds or Preferred Stock in the future, combined
with the inability to issue additional unsecured debt, would limit
the Subsidiaries' financing options to more costly options,
including additional common equity. Moreover, continued reliance
on the issuance of first mortgage bonds under the Subsidiaries'
Mortgages and Deeds of Trust could limit their ability in the
future to strategically redeploy their assets.
Under the Restrictive Provisions, the Subsidiaries' use
of unsecured short-term debt is presently restricted. However, the
Subsidiaries believe that the prudent use of such debt in excess of
these provisions is vital to effective financial management of
their respective businesses. Not only is unsecured short-term debt
generally one of the least expensive forms of capital, it also
provides flexibility in meeting seasonal fluctuations in cash
requirements, acts as a bridge between issues of permanent capital,
and can be used when unfavorable conditions prevail in the market
for long-term capital.
b. Lower Costs
As stated above, the Subsidiaries' short-term debt
issuances generally represent one of their lowest-cost forms of
financing. The Subsidiaries are reassessing their historically
modest use of short-term debt. By increasing their use of short-
term debt, the Subsidiaries may be able to lower their respective
cost structures further, thereby making their products more
competitive and reducing their business risks. However, with the
Restriction Provisions in place, the availability and corresponding
benefits of short-term debt diminish. And although short-term debt
may expose the borrower to more volatility in interest rates, it
should be noted that the cost of short-term debt seldom exceeds the
cost of other forms of capital available at the same time.
Under the Restriction Provisions, APCo, I&M and OPCo have
available only approximately $230 million, $172 million and $212
million, respectively, of unsecured debt capacity (short-term or
otherwise), based on capitalization as of September 30, 1996.
Reference is made to Exhibits B-1, B-2 and B-3 (draft
Proxy Statement and Offer to Purchase), B-4 (draft Notice of
Special Meeting) and B-5 (draft form of Proxy) for more detailed
information with respect to the Proxy Solicitations and Proposed
Amendments.
D. Proposed Transactions: Offer
1. Terms of Offer
Concurrently with the commencement of the Proxy
Solicitations, subject to the terms and conditions stated in the
Offer to Purchase and Proxy Statements, the proxies and the
accompanying Letters of Transmittal (see Exhibits B-1, B-2, B-3, B-
5 and B-6) (collectively, "Offer Documents"), AEP proposes to make
the Offers, pursuant to which it will offer to acquire from the
holders of the Preferred Stock of each Series any and all Shares of
that Series at the following cash purchase prices:
(i) APCo - $__ per share, in the case of the 4-1/2%
Series; $__ per share, in the case of the 5.90% Series; $___
per share, in the case of the 5.92% Series; $___ per share, in
the case of the 6.85% Series; and $__ per share, in the case
of the 7.80% Series (each, an "APCo Purchase Price").
(ii) I&M - $__ per share, in the case of the 4-1/8%
Series; $__ per share, in the case of the 4.12% Series; $___
per share, in the case of the 4.56% Series; $___ per share, in
the case of the 5.90% Series; $__ per share, in the case of
the 6-1/4% Series; $__ per share, in the case of the 6-7/8%
Series; and $__ per share, in the case of the 6.30% Series
(each, an "I&M Purchase Price").
(iii) OPCo - $__ per share, in the case of the 4-1/2%
Series; $__ per share, in the case of the 4.08% Series; $__
per share, in the case of the 4.20% Series; $__ per share, in
the case of the 4.40% Series; $__ per share, in the case of
the 5.90% Series; $__ per share, in the case of the 6.02%
Series; and $__ per share, in the case of the 6.35% Series
(each, an "OPCo Purchase Price")FN10.
AEP anticipates that the Offer for each Series of Preferred Stock
will be scheduled to expire at 5:00 P.M. (New York City time) on
the date of the Special Meetings (i.e., February 28, 1997). As
noted below, the Expiration Date may be extended under certain
circumstances.
FN10 The APCo Purchase Price, I&M Purchase Price and OPCo Purchase
Price are sometimes referred to herein individually as a
"Purchase Price" and collectively as the "Purchase Prices".
The Offers consist of separate offers for each of the
five APCo Series, the seven I&M Series and the seven OPCo Series,
with the offer for any one Series being independent of the offer
for any other Series. The applicable Purchase Price and the other
terms and conditions of the Offers apply equally to all Preferred
Stockholders of the respective Series. The Offers are not
conditioned upon any minimum number of Shares of the applicable
Series being tendered, but are conditioned, among other things, on
the Proposed Amendments being adopted at the respective Special
Meetings.
To tender shares in accordance with the terms of the
Offer Documents, the tendering Preferred Stockholder must either
(1) send to First Chicago, in its capacity as depositary for the
Offers ("Depositary"), a properly completed and duly executed
Letter of Transmittal and Proxy or facsimile thereof for that
Series, together with any required signature guarantees and any
other documents required by the Letter of Transmittal and Proxy,
and either (a) certificates for the Shares to be tendered must be
received by the Depositary at one of its addresses specified in the
Offer Documents, or (b) such Shares must be delivered pursuant to
the procedures for book-entry transfer described in the Offer
Documents (and a confirmation of such delivery must be received by
the Depositary), in each case by the Expiration Date; or (2) comply
with a guaranteed delivery procedure specified in the Offer
Documents.FN11 Tenders of Shares made pursuant to an Offer may be
withdrawn at any time prior to the Expiration Date. Thereafter,
such tenders are irrevocable, subject to certain exceptions
identified in the Offer Documents.
FN11 Preferred Stockholders will not be under any obligation to
tender Shares pursuant to the Offer; the Offer will not
constitute a notice of redemption of any Series pursuant to
the Articles. Nor will the Offer operate to waive any option
the Subsidiaries have to redeem Shares. For a summary of the
redemption provisions of the APCo Preferred Stock, I&M
Preferred Stock and OPCo Preferred Stock, please see Exhibit
A-7.
AEP's obligation to proceed with the Offers and to accept
for payment and to pay for any Shares tendered is made in
accordance with Rule 51 under the 1935 Act and is subject to
various conditions enumerated in the Offer Documents, including,
among other conditions, that the Proposed Amendments be adopted at
the Special Meetings and that the Commission issue an order under
the 1935 Act authorizing the proposed transactions.
At any time or from time to time, AEP may extend the
Expiration Date applicable to any Series by giving notice of such
extension to the Depositary, without extending the Expiration Date
for any other Series. During any such extension, all Shares of the
applicable Series previously tendered will remain subject to the
Offer, and may be withdrawn at any time prior to the Expiration
Date as extended.
Conversely, AEP may elect in its sole discretion to
terminate one or more Offers prior to the scheduled Expiration Date
and not accept for payment and pay for any Shares tendered, subject
to applicable provisions of Rule 13e-4 under the Exchange Act
requiring AEP either to pay the consideration offered or to return
the Shares tendered promptly after the termination or withdrawal of
an Offer, upon the occurrence of any of the conditions to closing
enumerated in the Offer Documents, by giving notice of such
termination to the Depositary and making a public announcement
thereof.
Subject to compliance with applicable law, AEP further
reserves the right in the Offer Documents, in its sole discretion,
to amend one or more Offers in any respect by making a public
announcement thereof. If AEP materially changes the terms of an
Offer or the information concerning an Offer, or if AEP waives a
material condition of an Offer (such as the condition that the
Proposed Amendment be adopted at the Special Meeting), AEP will
extend the Expiration Date to the extent required by the applicable
provisions of Rule 13e-4 under the Exchange Act. Those provisions
require that the minimum period during which an issuer tender offer
must remain open following material changes in the terms of the
offer or information concerning the offer (other than a change in
price or change in percentage of securities sought) will depend on
the facts and circumstances, including the relative materiality of
such terms or information. If an Offer is scheduled to expire at
any time earlier than the expiration of a period ending on the
tenth business day from, and including, the date that AEP notifies
Preferred Stockholders that it will (a) decrease the number of
Shares of any Series of Preferred being sought, (b) increase or
decrease the consideration being offered in the Offer to holders of
any Series of Preferred or (c) increase or decrease the soliciting
dealers' fees, the Expiration Date will be extended until the
expiration of such period of ten business days.
Shares validly tendered to the Depositary pursuant to an
Offer and not withdrawn in accordance with the procedures set forth
in the Offer Documents will be held by AEP until the Expiration
Date (or returned in the event the Offer is terminated). Subject
to the terms and conditions of an Offer, as promptly as practicable
after the Expiration Date, AEP will accept for payment (and thereby
purchase) and pay for Shares validly tendered and not withdrawn.
AEP will pay for Shares that it has purchased pursuant to the Offer
by depositing the applicable Purchase Price with the Depositary,
which will act as agent for the tendering Preferred Stockholders
for the purpose of receiving payment from AEP and transmitting
payment to tendering Preferred Stockholders. AEP will pay all
stock transfer taxes, if any, payable on account of its acquisition
of Shares pursuant to an Offer, except in certain circumstances
where special payment or delivery procedures are utilized in
conformance with the applicable Letters of Transmittal and Proxy.
With respect to Shares validly tendered and accepted for
payment by AEP, each tendering Preferred Stockholder will be
entitled to receive as consideration from AEP only the applicable
Purchase Price (which AEP anticipates will reflect a premium over
the current market price at the commencement of the Offers). Any
such holder will not be entitled to receive with respect to such
tendered Shares additional consideration in the form of a Cash
Payment. As stated above in Item 1.C, the latter payment is
payable by a Subsidiary solely in respect of Shares voted by
Preferred Stockholders at such Subsidiary's Special Meeting in
favor of the Proposed Amendment, provided that (a) such Shares have
not been tendered pursuant to an Offer and (b) the Proposed
Amendment is adopted at the Subsidiary's Special Meeting.
Preferred Stockholders who wish to tender their Shares pursuant to
an Offer are not required to vote in favor of the Proposed
Amendment; however, the Offer is conditioned upon the Proposed
Amendment being adopted at the Special Meeting.
As noted immediately above, subject to the terms and
conditions of an Offer, Shares validly tendered and not withdrawn
will be accepted for payment and paid for by AEP as promptly as
practicable after the Expiration Date.
If a Proposed Amendment is not adopted at the Special
Meeting, AEP may elect, but is not obligated, to waive such
condition, subject to applicable law.FN12 In that case, as
promptly as practicable after AEP's waiver thereof and purchase of
any Shares validly tendered pursuant to the Offers, the effected
Subsidiary anticipates that it would call another special meeting
of its common and preferred stockholders and solicit proxies
therefrom for the same purpose as in the instant proceeding, i.e.,
to secure the requisite two-thirds affirmative vote of stockholders
to amend the Articles to eliminate the Restriction Provision. At
that meeting, AEP would vote any Shares acquired by it pursuant to
the Offer or otherwise FN13 (as well as all of its shares of Common
Stock) to eliminate the Restriction Provision. If the proposed
amendment is adopted at that meeting, and in any event within one
year from the Expiration Date (including any potential extension
thereto pursuant to the Offer), AEP will promptly after such
meeting or at the expiration of such one-year period, as
applicable, sell the Shares to the Subsidiary at the Purchase Price
plus expenses paid therefor pursuant to the Offer, and the
Subsidiary will thereupon retire and cancel such Shares.
FN12 In this regard, as noted above, if AEP waives a material
condition of an Offer (such as the condition that a Proposed
Amendment be adopted at the Special Meeting), AEP will extend
the Expiration Date to the extent required by the applicable
provisions of Rule 13e-4 under the Exchange Act. Those
provisions require that the minimum period during which an
issuer tender offer must remain open following material
changes in the terms of the offer or information concerning
the offer (other than a change in price or change in
percentage of securities sought) will depend on the facts and
circumstances, including the relative materiality of such
terms or information.
FN13 Following the Expiration Date and the consummation of the
purchase of Shares pursuant to an Offer, AEP may determine to
purchase additional Shares on the open market, in privately
negotiated transactions, through one or more tender offers or
otherwise. AEP will not undertake any such transactions
without receipt of any required Commission authorizations
under the 1935 Act in one or more separate proceedings.
Likewise, in the event such a further special meeting is
necessary, the effected Subsidiary would not undertake any
associated proxy solicitation and proposed Articles amendment
prior to receipt of any required Commission authorizations
under the 1935 Act in a separate proceeding.
Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Salomon Brothers Inc will act as dealer managers for AEP in
connection with the Offers. AEP has agreed to pay the dealer
managers a fee of $.50 per Share for any Shares tendered, accepted
for payment and paid for pursuant to the Offers and the
Subsidiaries have agreed to pay the dealer managers a fee of $.50
per Share for any Shares that are not tendered pursuant to the
Offers but which vote in favor of the Proposed Amendment, and AEP
has agreed to reimburse the dealer managers for their reasonable
out-of-pocket expenses, including attorneys' fees.
In addition, AEP has agreed to pay soliciting brokers and
dealers a separate fee of (i) $1.50 per Share for any Shares of the
APCo 4-1/2% Series, the I&M 4-1/8% Series, 4.12% Series and 4.56%
Series, and the OPCo 4-1/2% Series, 4.08% Series, 4.20% Series and
4.40% Series, tendered, accepted for payment and paid for pursuant
to the Offers (except that for transactions with beneficial owners
equal to or exceeding 5,000 Shares, AEP will pay a solicitation fee
of $1.00 per Share for Shares of such Series), and (ii) $.50 per
Share for the remaining Series. The Subsidiaries will pay a
separate fee of $.50 per Share for any Shares of the APCo 4-1/2%
Series, the I&M 4-1/8% Series, 4.12% Series and 4.56% Series, and
the OPCo 4-1/2% Series, 4.08% Series, 4.20% Series and 4.40% Series
that are not tendered pursuant to the Offers but which are voted in
favor of the Proposed Amendment. As set forth in Item 2, AEP
proposes to pay the Depositary a fee estimated at approximately
$50,000.
2. Benefits of Offer; Utilization of AEP rather than
the Subsidiaries as Offeror
The proposed acquisition by AEP of Shares pursuant to the
Offers will benefit AEP's utility system customers, shareholders
and Preferred Stockholders. The Offers allow Preferred
Stockholders who may not favor the elimination of the Restriction
Provisions an option to sell their Preferred Stock at a price that
AEP anticipates will be a premium to the market price and without
the usual transaction costs associated with a sale. AEP System
utility customers and AEP shareholders will benefit from, among
other things, the Subsidiaries lowering their cost of capital
through the anticipated reduction in the aggregate amount payable
of Preferred Stock dividends and, to the extent Preferred Stock is
replaced with debt, realizing benefits from the tax deductibility
of interest since preferred stock dividends are not deductible for
tax purposes. Moreover, as discussed above in Item 1.C.2,
elimination of the Restriction Provisions will (among other
benefits) permit the Subsidiaries to redeem and replace a portion
of its high-coupon debt with lower cost short-term debt, resulting
in additional cost savings.
More specifically, assuming only a 50% overall success
rate for the Offers, the estimated cash savings to the Subsidiaries
thereafter amount to between $____ million each year (based on
purchased shares being refinanced entirely with short-term debt at
prevailing rates on the date hereof) and $____ million each year
(based on purchased Shares being refinanced entirely by long-term
tax-deductible preferred securities), after taxes and excluding
expenses incurred in connection with the Offers and the Proxy
Solicitations. On a cumulative net present value savings basis,
assuming (x) a 50% overall success rate for the Offers (and that
25% of all Preferred Stockholders do not tender their Shares
pursuant to the Offer but do vote in favor of the Proposed
Amendments at the Special Meeting), (y) refinancing of Shares
acquired and paid for pursuant to the Offers with a combination of
long-term tax deductible hybrid securities and short-term debt at
prevailing rates at the date hereof, and (z) a discount rate equal
to the new securities after-tax weighted average cost of capital,
the proposed transactions are anticipated to yield total after-tax,
present value cash savings of about $____ million over
approximately the original remaining lives of the Series of
Preferred, net of cash expenditures incurred in the Offers and
Proxy Solicitations (i.e., Cash Payments, the applicable Purchase
Prices paid for validly tendered and accepted Shares, and the other
fees and expenses listed in Item 2). A success rate for the Offers
higher than the 50% rate assumed above has the potential to
generate even further cash savings.
Given the significant benefits that will accrue from
elimination of the Restriction Provisions, Applicants are committed
to using their best efforts to secure that result. A principal aim
of the proposed transactions is to accomplish that objective in a
cost-effective manner. However, there can be no assurance of
success.
In that regard, as stated above in Item 1.D.1, in the
event any one or more Proposed Amendments are not adopted at the
Special Meeting, AEP may elect, subject to applicable law, to waive
the Offer condition that such Proposed Amendment be adopted at the
Special Meeting. In that case, as promptly as practicable after
AEP's waiver thereof and purchase of Shares validly tendered
pursuant to the Offer, the relevant Subsidiary anticipates that it
would call another special meeting of its common and preferred
stockholders and solicit proxies for the same purpose to secure the
requisite vote of both classes of stockholders to amend the
Articles to eliminate the Restriction Provision. At that meeting,
AEP would vote any Shares previously acquired by it pursuant to the
Offer or otherwise (together with shares held by it of Common
Stock) in favor of such proposed amendment to the Articles, thereby
maximizing its prospects for adoption in that event. By contrast,
if a Subsidiary, rather than AEP, had acquired its Shares pursuant
to the Offer, upon acquisition thereof by such Subsidiary any such
Shares would be deemed treasury shares under applicable state law
and, as such, the Subsidiary would be precluded from voting those
Shares under any circumstance.
E. Short-term Debt
The Commission previously authorized AEP to incur short-
term indebtedness, from time to time prior to December 31, 2000, up
to a maximum amount of $150 million.FN14 To finance the purchase
of any Shares tendered, accepted for payment and paid for pursuant
to the Offer, AEP hereby requests the Commission to authorize AEP
to use its general funds and/or incur short-term indebtedness in an
amount sufficient to pay the Purchase Price for all tendered
Shares, an amount not expected to exceed $540 million. The $550
million authorization requested by AEP for short-term indebtedness
is in addition to the authority granted to AEP in Rel. No. 35-26516
in File No. 70-8429 (May 20, 1996).FN15 The additional $400
million of short-term borrowing authority ("New Borrowings") shall
decrease by the amount paid to AEP by the Subsidiaries for the
repurchase of Shares therefrom, and shall expire no later than
February 28, 1998.
FN14 American Electric Power Company, Inc., et al., Rel. No. 35-
26424 (December 8, 1995).
FN15 Rel. No. 35-26516 authorized AEP to incur short-term
indebtedness up to 50% of its consolidated retained earnings
and to use the proceeds to invest in EWGs and FUCOs.
As noted in Part I(C), supra, the Restriction Provisions
require a vote of the holders of the outstanding Preferred Stock of
each Series to issue any short-term unsecured debt securities if
immediately after such issue the total principal amount of all
short-term unsecured debt securities issued and then outstanding
would exceed 10% of capitalization. Unless the Proposed Amendments
are adopted, APCo, I&M and OPCo, as the case may be, will at no
time issue short-term unsecured debt securities in excess of the
Restriction Provision even if the amount of short-term indebtedness
authorized in this transaction exceeds such Restriction Provision.
Notes to Banks and Commercial Paper in Connection with
New Borrowings -- It is proposed that such notes and commercial
paper with respect to the New Borrowings will be issued from time
to time and be renewed from time to time prior to February 28,
1998, as funds may be required, provided that no such notes or
commercial paper shall mature later than August 28, 1998.
Notes to be issued to banks pursuant to the credit
arrangements will mature not more than 270 days after the date of
issuance or renewal thereof. Credit arrangements with the banks
generally require the payment of a commitment fee. Commitment fees
for shared lines of credit or revolving credit obligations are
generally borne by AEP and participating subsidiaries in proportion
to their respective projected maximum need for such credit
facilities.
The total annual cost of borrowings under all such bank
lines is estimated to be not greater than the effective rate for
borrowings bearing interest at the prime commercial rate with
compensating balances of up to 10% of the line of credit. Although
existing financial conditions do not necessitate the maintenance of
such compensating balances, because of the volatility of the
financial markets in the recent past, the maintenance of such
above-described compensating balances may be required during the
time period for which authorization is sought herein. The maximum
effective annual interest cost under any of the above arrangements,
assuming full use of the line of credit, is estimated not to exceed
125% of the prime commercial rate in effect from time to time, or
not more than 10.94% on the basis of a prime commercial rate of
8.75%.
AEP may, from time to time, negotiate increases to
existing credit arrangements or implementation of new agreements.
AEP will seek additional authorization from the Commission by Post-
Effective Amendment of any request for an increase in the maximum
amount of short-term indebtedness it proposes to incur.
Commercial paper will be sold directly by AEP to dealers
in commercial paper. The commercial paper will be in the form of
promissory notes in denominations of not less than $50,000, and of
varying maturities, with no maturity more than 270 days after the
date of issue. Such notes will not be prepayable prior to maturity
and will be sold at a discount rate not in excess of the discount
rate per annum prevailing at the time of issuance for commercial
paper of comparable quality and maturity. AEP has designated
Lehman Commercial Paper Incorporated as one of its commercial paper
dealers to purchase and resell their commercial paper. AEP may
designate different or additional commercial paper dealers to
purchase and resell its commercial paper.
The commercial paper dealers will reoffer the commercial
paper to investors, generally at a discount rate of up to 1/8 of 1%
per annum less than the discount rate at which such commercial
paper notes were purchased from AEP. It is expected that the
investors of the dealers will hold the commercial paper notes to
maturity. However, if any such investor wishes to resell the
commercial paper prior to maturity, the dealers generally will
repurchase such commercial paper sold by them and reoffer it to
other investors under substantially the same terms and conditions
as are herein described.
AEP believes that by having flexibility to allocate
short-term borrowings between sales of notes to banks and sales of
commercial paper to dealers, AEP will be able to realize economies
in meeting its short-term financing requirements, and AEP proposes,
in general, taking appropriate long and short-term considerations
into account, to utilize the most economical means available at any
time to meet its short-term financing requirements.
F. Purchase of Shares from AEP by the Subsidiaries
As noted above, subject to the terms and conditions of an
Offer, Shares validly tendered and not withdrawn will be accepted
for payment and paid for by AEP as promptly as practicable after
the Expiration Date. If a Proposed Amendment is adopted at a
Subsidiary's Special Meeting, promptly after consummation of the
Offer the Subsidiary will purchase the Shares sold to AEP pursuant
to the Offer at the relevant Purchase Price plus expenses incurred
in the Offer, and the Subsidiary will thereupon retire and cancel
such Shares.
G. Additional Matter for OPCo Meeting
In addition, OPCo proposes to solicit proxiesFN16 with
respect to and, if adopted, to add the following paragraph to the
end of ARTICLE FOURTH, Clause 3:
The Corporation may from time to time, by action of its Board
of Directors and without action by the holders of the Common Stock
or any class of the Cumulative Preferred Stock, purchase or
otherwise acquire shares of any class of the Cumulative Preferred
Stock in such manner, upon such terms and in such amounts as the
Board of Directors shall determine; subject, however, to such
limitations or restrictions, if any, as are contained in the
express terms of any class of the Cumulative Preferred Stock
outstanding at the time of the purchase or acquisition in question.
FN16 Morrow will act as information agent with respect to the
solicitation of proxies.
The affirmative vote of the holders of at least a majority of the
outstanding shares of OPCo's common stock and cumulative preferred
stock, the common stock and preferred stock voting together as one
class, is required to approve this amendment.
OPCo has proposed this amendment because it believes that
to the extent possible (i) the scope of the authority of the Board
of Directors set forth in the OPCo Articles, including the
authority of the Board of Directors to purchase or otherwise
acquire shares of any series of cumulative preferred stock, should
be stated as clearly as possible and (ii) any ambiguity in the OPCo
Articles regarding such authority should be eliminated.
Under Ohio corporation law, which governs OPCo, a
corporation by its directors may purchase its stock only in limited
circumstances, including (i) when the articles of incorporation
authorize the redemption of such shares and do not prohibit such
purchase and (ii) when the articles of incorporation authorize such
purchase. The OPCo Articles do not limit or prohibit OPCo's
purchase of its Preferred Stock, and the OPCo Articles currently
authorize the redemption of the 4-1/2% Series, the 4.08% Series,
the 4.20% Series and the 4.40% Series, but not the 5.90% Series,
the 6.02% Series and the 6.35% Series. The OPCo Articles do not
otherwise address the purchase of the OPCo Preferred Stock. As
such, although the OPCo Board of Directors believes that it has the
authority to repurchase the OPCo Preferred Stock, in light of the
magnitude of the purchase contemplated, OPCo prefers to clearly
establish that the Board of Directors' authority to purchase shares
of cumulative preferred stock is circumscribed only by the express
terms of any class of the cumulative preferred stock set forth in
the OPCo Articles. The adoption of this amendment would remove any
doubt regarding the Board of Directors' authority to purchase
shares of the cumulative preferred stock.
H. Compliance with Rule 54
Rule 54 provides that in determining whether to approve
certain transactions other than those involving exempt wholesale
generators ("EWG") or foreign utility companies ("FUCO"), as
defined in the 1935 Act, the Commission will not consider the
effect of the capitalization or earnings of any subsidiary which is
an EWG or FUCO if Rule 53(a), (b) and (c) are satisfied. The
requirements of Rule 53(a), (b) and (c) are satisfied.
Rule 53(a)(1). Nanyang General Light Electric Co. Ltd.
("Nanyang"), an indirect subsidiary of AEP, is a FUCO. As of
December 31, 1996, AEP, through its subsidiary, AEP Resources,
Inc., and through AEP Resources' subsidiary, AEP Pushan Power LDC,
had invested $700,000 in Nanyang. This investment represents less
than 1% of $1,473,000,000, the average of the consolidated retained
earnings of AEP reported on Form 10-K or Form 10-Q, as applicable,
for the four consecutive quarters ended September 30, 1996.
Rule 53(a)(2). Nanyang will maintain books and records
and make available the books and records required by Rule 53(a)(2).
Rule 53(a)(3). No more than 2% of the employees of the
operating company subsidiaries of AEP will, at any one time,
directly or indirectly, render services to Nanyang.
Rule 53(a)(4). AEP has submitted and will submit a copy
of Item 9 and Exhibits G and H of AEP's Form U5S to each of the
public service commissions having jurisdiction over the retail
rates of AEP's operating company subsidiaries.
Rule 53(b). (i) Neither AEP nor any subsidiary of AEP is
the subject of any pending bankruptcy or similar proceeding; (ii)
AEP's average consolidated retained earnings for the four most
recent quarterly periods ($1,473,000,000) represented an increase
of approximately $117,000,000 (or 8.6%) in the average consolidated
retained earnings from the previous four quarterly periods
($1,356,000,000); and (iii) for the year ended December 31, 1995,
there were no losses attributable to AEP's investments in Nanyang.
Rule 53(c). Rule 53(c) is inapplicable because the
requirements of Rule 53(a) and (b) have been satisfied.
ITEM 2. FEES, COMMISSIONS AND EXPENSES
Other than the Cash Payments and the applicable Purchase
Prices described in Item 1, the fees, commissions and expenses
(each, a "fee") to be incurred, directly or indirectly, by the
Applicants or any associate company thereof in connection with the
proposed transactions, assuming the tender and acceptance of 100%
of the Shares, are estimated as follows:
SEC filing fees $ 160,000
American Electric Power Service Corporation fees 50,000
Outside counsel fees 300,000
Information agent fees 27,500
Dealer manager fees 2,630,000
Depositary fees 50,000
Broker/dealer fees 3,610,000
Printing, mailing, stock transfer taxes and
miscellaneous fees 82,500
TOTAL $6,910,000
ITEM 3. APPLICABLE STATUTORY PROVISIONS
Section 12(e) of the 1935 Act and Rules 62 and 65
thereunder are applicable to the Proxy Solicitations. Section
12(e) of the 1935 Act and Rule 65 thereunder are and Section
6(a)(2) may be deemed applicable to Cash Payments. Section 6(a)(2)
of the 1935 Act is applicable to the Proposed Amendments. Sections
6(a) and 6(b) of the 1935 Act are applicable to the issuance and
sale of short-term indebtedness by AEP. Sections 9(a) and 10 of
the 1935 Act and Rule 51 thereunder are applicable to the
acquisition by AEP of Shares pursuant to the Offers; AEP hereby
represents that the conditions of Rule 51 will be satisfied in
respect of the acquisition by AEP of Shares pursuant to the Offers.
Sections 12(c) and 12(d) of the 1935 Act and Rules 43 and 44
thereunder are applicable to the sale to the Subsidiaries of the
Shares acquired by AEP pursuant to the Offer. The Subsidiaries
anticipate that any issuances or sales by them of unsecured debt
following adoption of the Proposed Amendments will be exempt from
Section 9(a) of the 1935 Act by virtue of Rule 52 thereunder. Rule
54 under the 1935 act is also applicable to the proposed
transactions. To the extent that the Commission's "Statement of
Policy Regarding Preferred Stock Subject to the Public Utility
Holding Company Act of 1935"FN17 may be applicable to the Proposed
Amendments, the Applicants hereby request that an exception for
such Statement of Policy be granted.
FN17 Rel. No. 35-13106 (February 16, 1956) (the "Statement of
Policy").
ITEM 4. REGULATORY APPROVAL
Other than the jurisdiction of the Commission under the
1935 Act and the Exchange Act, no state or federal regulatory
agency has jurisdiction over the proposed transactions.
Except for exemptions from the requirements of Rule 13e-3
and Regulation 14A available to the Applicants, Applicants will
comply fully with all requirements of the Exchange Act and the
rules and regulations thereunder applicable to the Proxy
Solicitations, the Offer and the additional OPCo amendment, and
acknowledge that any Commission authorization granted under the
1935 Act is conditioned upon such compliance.
ITEM 5. PROCEDURE
As stated in Item 1, the Special Meetings are scheduled
to take place on or about Friday, February 28, 1997. The
Subsidiaries need to secure a two-thirds affirmative vote of their
respective Preferred Stockholders to secure passage of the Proposed
Amendments.
In order to afford the Subsidiaries sufficient time in
advance of the Special Meetings to solicit proxies and to maximize
the prospect for adoption of the Proposed Amendments at the Special
Meetings, Applicants request that the Commission issue and publish
not later than January 29, 1997 the requisite notice under Rule 23
with respect to the filing of this Application-Declaration,
together with an order under Section 12(e) and Rule 62 permitting
the Subsidiaries to solicit proxies pursuant to the Proxy
Solicitations and the additional OPCo amendment. As explained in
Item 1, concurrently with the commencement of the Proxy
Solicitations, AEP intends to commence the Offers using a combined
issuer tender offer statement/proxy statement under the Exchange
Act.
Applicants further request that the Proxy Solicitation
Order specify a date not later than Friday, February 23, 1997 as
the date after which the Commission may issue an order granting and
permitting to become effective the other transactions for which
authorization is sought herein, namely, the Proposed Amendments and
Cash Payments together with AEP's acquisition of Shares pursuant to
the Offers. Applicants request that the Commission issue this
second order by not later than Tuesday, February 25, 1997 (i.e.,
three business days before the Special Meetings/Expiration Date).
Applicants waive any recommended decision by a hearing
officer of or by any other responsible officer of the Commission
and waive the 30-day waiting period between the issuance of the
Commission's order and the date it is to become effective, since it
is desired that the Commission's order, when issued, becomes
effective forthwith. Applicants consent to the Staff of the
Division of Investment Management assisting in the preparation of
the Commission's decision and/or orders in this matter, unless the
Staff opposes the matters covered by this Application or
Declaration.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS
(a) Exhibits:
A-1 Restated Articles of Incorporation of APCo as
amended (filed as Exhibit 3(c) to APCo's 1994
Annual Report on Form 10-K in File No. 1-3457 and
hereby incorporated by reference).
A-2 By-Laws of APCo (filed as Exhibit 3(d) to APCo's
1995 Annual Report on Form 10-K in File No. 1-3457
and hereby incorporated by reference).
A-3 Amended Articles of Acceptance of I&M as amended
(filed as Exhibit 3(b) to I&M's 1993 Annual Report
on Form 10-K in File No. 1-3570 and hereby
incorporated by reference).
A-4 By-Laws of I&M (filed as Exhibit 3(c) to I&M's 1995
Annual Report on Form 10-K in File No. 1-3570 and
hereby incorporated by reference).
A-5 Amended Articles of Incorporation of OPCo as
amended (filed as Exhibit 3(c) to OPCo's 1994
Annual Report on Form 10-K in File No. 1-6543 and
hereby incorporated by reference).
A-6 Code of Regulations of OPCo (filed as Exhibit 3(d)
to OPCo's 1990 Annual Report on Form 10-K in File
No. 1-6543 and hereby incorporated by reference).
A-7 Redemption Provisions of APCo Preferred Stock, I&M
Preferred Stock and OPCo Preferred Stock
B-1 Draft Offer to Purchase and Proxy Statement for
APCo.
B-2 Draft Offer to Purchase and Proxy Statement for
I&M.
B-3 Draft Offer to Purchase and Proxy Statement for
OPCo.
B-4 Draft Notice of Special Meeting (attached as part
of Exhibit B-1 (APCo), B-2 (I&M) and B-3 (OPCo)).
B-5 Form of Proxy.
B-6 Draft Form of Letter of Transmittal.
F Preliminary opinion of counsel (to be filed by
amendment.)
G Form of notice and order permitting proxy
solicitation.
(b) Financial Statements:
Balance Sheets and Statements of Income per books and pro
forma, as of and for the 12 months ended September 30,
1996, and Retained Earnings per book for the 12 months
ended September 30, 1996, of the Applicants and of AEP
and its subsidiaries consolidated, together with journal
entries reflecting the proposed transaction will be filed
by amendment.
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.
It is believed that the proposed transactions will not have
any environmental effects which would require an environmental
impact statement under Section 102(c)(2) of the National
Environmental Policy Act. No other federal agency has prepared or
is preparing an environmental impact statement with respect to the
proposed transactions.
SIGNATURES
Pursuant to the requirements of the Public Utility
Holding Company Act of 1935, the undersigned companies have duly
caused this statement to be signed on its behalf by the undersigned
thereunto duly authorized.
AMERICAN ELECTRIC POWER COMPANY, INC.
APPALACHIAN POWER COMPANY
INDIANA MICHIGAN POWER COMPANY
OHIO POWER COMPANY
By /s/ G. P. Maloney
Vice President
Date: January 29, 1997
EXHIBIT A-7
Redemption Provisions
of
APCo Preferred Stock, I&M Preferred Stock and OPCo Preferred Stock
Appalachian Power Company
The 4-1/2% Series is not subject to mandatory redemption but
presently is callable at $110.00 per Share; commencing in 2003 and
continuing through the year 2007, a sinking fund for the 5.90% Series
will require the redemption of 25,000 Shares on November 1 of each year
and the redemption of the remaining Shares outstanding on November 1,
2008, in each case at $100 per Share; commencing in 2003 and continuing
through the year 2007, a sinking fund for the 5.92% Series will require
the redemption of 30,000 Shares on November 1 of each year and the
redemption of the remaining Shares outstanding on November 1, 2008, in
each case at $100 per Share; commencing in 2000 and continuing through
the date of redemption, a sinking fund for the 6.85% Series will
require the redemption of 60,000 Shares on August 1 of each year, in
each case at $100 per Share, and APCo has the noncumulative option to
redeem up to 60,000 additional Shares on any sinking fund date at a
redemption price of $100 per Share; and commencing in 1998, a sinking
fund for the 7.80% Series will require the redemption of 25,000 Shares
at $100 per Share on or before May 1 in each year, and APCo has the
noncumulative option to redeem up to 25,000 additional Shares on any
sinking fund date at a redemption price of $100 per Share. The APCo
Shares of each Series have no preemptive or conversion rights.
Indiana Michigan Power Company
The 4-1/8% Series, 4.12% Series and 4.56% Series are not subject
to mandatory redemption, but are callable at $106.125 per Share,
$102.728 per Share and $102.00 per Share, respectively. Commencing in
2004 and continuing through the year 2008, a sinking fund for the 5.90%
Series will require the redemption of 20,000 Shares on January 1 of
each year and the redemption of the remaining Shares outstanding on
January 1, 2009, in each case at $100 per Share; commencing in 2004 and
continuing through the year 2008, a sinking fund for the 6-1/4% Series
will require the redemption of 15,000 Shares on April 1 of each year
and the redemption of the remaining Shares outstanding on April 1,
2009, in each case at $100 per Share; commencing in 2004 and continuing
through the year 2008, a sinking fund for the 6.30% Series will require
the redemption of 17,500 Shares on July 1 of each year and the
redemption of the remaining Shares outstanding on July 1, 2009, in each
case at $100 per Share; and commencing in 2003 and continuing through
the year 2007, a sinking fund for the 6-7/8% Series will require the
redemption of 15,000 Shares on April 1 of each year and the redemption
of the remaining Shares outstanding on April 1, 2008, in each case at
$100 per Share. The I&M Shares of each Series have no preemptive or
conversion rights.
Ohio Power Company
The 4-1/2% Series, 4.08% Series, 4.20% Series and 4.40% Series are
not subject to mandatory redemption, but are callable at $110.00 per
Share, $103.00 per Share, $103.20 per Share and $104.00 per Share,
respectively. Commencing in 2004 and continuing through the year 2008,
a sinking fund for the 5.90% Series will require the redemption of
22,500 Shares on January 1 of each year and the redemption of the
remaining Shares outstanding on January 1, 2009, in each case at $100
per Share; commencing in 2003 and continuing through the year 2007, a
sinking fund for the 6.02% Series will require the redemption of 20,000
Shares on December 1 of each year and the redemption of the remaining
Shares outstanding on December 1, 2008, in each case at $100 per Share;
commencing in 2003 and continuing through the year 2007, a sinking fund
for the 6.35% Series will require the redemption of 15,000 Shares on
June 1 of each year and the redemption of the remaining Shares
outstanding on June 1, 2008, in each case at $100 per Share. The OPCo
Shares of each Series have no preemptive or conversion rights.
<PAGE> 1
OFFER TO PURCHASE AND PROXY STATEMENT
AMERICAN ELECTRIC POWER COMPANY, INC.
OFFER TO PURCHASE FOR CASH
ANY AND ALL OUTSTANDING SHARES OF THE FOLLOWING SERIES OF
CUMULATIVE PREFERRED STOCK OF
APPALACHIAN POWER COMPANY
298,150 SHARES, CUMULATIVE PREFERRED STOCK, 4- 1/2% SERIES AT A PURCHASE PRICE
OF $ . PER SHARE, CUSIP NUMBER 037735 107
500,000 SHARES, CUMULATIVE PREFERRED STOCK, 5.90% SERIES AT A PURCHASE PRICE OF
$ . PER SHARE, CUSIP NUMBER 037735 842
600,000 SHARES, CUMULATIVE PREFERRED STOCK, 5.92% SERIES AT A PURCHASE PRICE OF
$ . PER SHARE, CUSIP NUMBER 037735 859
300,000 SHARES, CUMULATIVE PREFERRED STOCK, 6.85% SERIES AT A PURCHASE PRICE OF
$ . PER SHARE, CUSIP NUMBER 037735 834
500,000 SHARES, CUMULATIVE PREFERRED STOCK, 7.80% SERIES AT A PURCHASE PRICE OF
$ . PER SHARE, CUSIP NUMBER 037735 867
------------------------
APPALACHIAN POWER COMPANY
PROXY STATEMENT
WITH RESPECT TO ITS COMMON STOCK AND CUMULATIVE PREFERRED STOCK
------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON FRIDAY, FEBRUARY 28, 1997, UNLESS THE OFFER IS EXTENDED.
------------------------
American Electric Power Company, Inc., a New York corporation ("AEP"),
invites the holders of each series of cumulative preferred stock listed above
(each a "Series of Preferred," and the holder thereof a "Preferred Shareholder")
of Appalachian Power Company, a Virginia corporation and direct utility
subsidiary of AEP ("APCo"), to tender any and all of their shares of a Series of
Preferred ("Shares") for purchase at the purchase price per Share listed above
plus accrued and unpaid dividends for the Shares tendered, net to the seller in
cash, upon the terms and subject to the conditions set forth in this Offer to
Purchase and Proxy Statement and in the accompanying Letter of Transmittal
(which together constitutes the "Offer"). AEP will purchase all Shares validly
tendered and not withdrawn, upon the terms and subject to the conditions of the
Offer. See "Terms of the Offer -- Certain Conditions of the Offer" and "Terms of
the Offer -- Extension of Tender Period; Termination; Amendments."
THE OFFER FOR A SERIES OF PREFERRED IS NOT CONDITIONED UPON ANY MINIMUM
NUMBER OF SHARES OF SUCH SERIES OF PREFERRED BEING TENDERED AND IS INDEPENDENT
OF THE OFFER FOR ANY OTHER SERIES OF PREFERRED. THE OFFER, HOWEVER, IS
CONDITIONED UPON, AMONG OTHER THINGS, THE PROPOSED AMENDMENT, AS DESCRIBED
BELOW, BEING APPROVED AND ADOPTED AT THE SPECIAL MEETING. SEE "TERMS OF THE
OFFER -- CERTAIN CONDITIONS OF THE OFFER."
Concurrently with the Offer, the Board of Directors of APCo is soliciting
proxies for use at the Special Meeting of Shareholders of APCo to be held at
AEP's principal office, 1 Riverside Plaza, Columbus, Ohio 43215, on February 28,
1997 at 4:00 p.m., or any adjournment or postponement of such meeting (the
"Special Meeting"). The Special Meeting is being held to consider an amendment
(the "Proposed Amendment") to APCo's Amended Articles of Incorporation (the
"Articles") which would remove a provision of the Articles that limits APCo's
ability to issue debt. WHILE PREFERRED SHAREHOLDERS WHO WISH TO TENDER THEIR
SHARES PURSUANT TO THE OFFER NEED NOT VOTE IN FAVOR OF THE PROPOSED AMENDMENT,
THE OFFER IS CONDITIONED UPON THE PROPOSED AMENDMENT BEING APPROVED AND ADOPTED
AT THE SPECIAL MEETING. IN ADDITION, PREFERRED SHAREHOLDERS OF RECORD HAVE THE
RIGHT TO VOTE FOR OR AGAINST THE PROPOSED AMENDMENT REGARDLESS OF WHETHER THEY
TENDER THEIR SHARES. IF THE PROPOSED AMENDMENT IS APPROVED AND ADOPTED BY APCO'S
SHAREHOLDERS, APCO WILL MAKE A SPECIAL CASH PAYMENT IN THE AMOUNT OF $1.00 PER
SHARE TO EACH PREFERRED SHAREHOLDER WHO VOTED IN FAVOR OF THE PROPOSED
AMENDMENT, PROVIDED THAT SUCH SHARES HAVE NOT BEEN TENDERED PURSUANT TO THE
OFFER. THOSE PREFERRED SHAREHOLDERS WHO VALIDLY TENDER THEIR SHARES WILL BE
ENTITLED ONLY TO THE PURCHASE PRICE PER SHARE LISTED ABOVE.
------------------------
The Company will pay to a Soliciting Dealer (as defined herein) a
solicitation fee of $1.50 for any Shares tendered, accepted for payment and paid
for pursuant to the Offer, subject to certain conditions. See "Fees and Expenses
Paid to Dealers."
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "SEC") NOR HAS THE SEC PASSED UPON THE FAIRNESS OR
MERITS OF THIS TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------
NEITHER AEP, APCO, THEIR RESPECTIVE BOARDS OF DIRECTORS, NOR ANY OF THEIR
RESPECTIVE OFFICERS MAKES ANY RECOMMENDATION TO ANY PREFERRED SHAREHOLDER AS TO
WHETHER TO TENDER ANY OR ALL SHARES. EACH PREFERRED SHAREHOLDER MUST MAKE HIS OR
HER OWN DECISION AS TO WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO
TENDER.
APCO'S BOARD OF DIRECTORS RECOMMENDS VOTING FOR THE PROPOSED AMENDMENT.
------------------------
This Offer to Purchase and Proxy Statement is first being mailed to
Preferred Shareholders on or about January 30, 1997.
------------------------
Questions or requests for assistance may be directed to Morrow & Co., Inc.
("Morrow" or the "Information Agent") or to Merrill Lynch & Co. ("Merrill
Lynch") and Salomon Brothers Inc ("Salomon Brothers") (Merrill Lynch and Salomon
Brothers collectively the "Dealer Managers") at their respective telephone
numbers and addresses set forth on the back cover of this Offer to Purchase and
Proxy Statement. Requests for additional copies of this Offer to Purchase and
Proxy Statement, the Letter of Transmittal or other tender offer or proxy
materials may be directed to the Information Agent, and such copies will be
furnished promptly at the companies' expense. Preferred Shareholders may also
contact their local broker, dealer, commercial bank or trust company for
assistance concerning the Offer.
------------------------
The Dealer Managers for the Offer are:
MERRILL LYNCH & CO. SALOMON BROTHERS INC
------------------------
The date of this Offer to Purchase and Proxy Statement is January 30, 1997.
<PAGE> 2
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF AEP
OR APCO AS TO WHETHER PREFERRED SHAREHOLDERS SHOULD TENDER OR REFRAIN FROM
TENDERING SHARES OF ANY SERIES OF PREFERRED PURSUANT TO THE OFFER. NO PERSON HAS
BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN
CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED HEREIN OR IN THE RELATED
LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH RECOMMENDATION AND SUCH
INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY AEP OR APCO.
IMPORTANT
Any Preferred Shareholder desiring to accept the Offer and tender all or
any portion of his or her Shares should either (i) request his or her broker,
dealer, commercial bank, trust company or nominee to effect the transaction for
him or her, or (ii) complete and sign the Letter of Transmittal in accordance
with the instructions in the Letter of Transmittal, mail or deliver the same and
any other required documents to First Chicago Trust Company of New York (the
"Depositary"), and deliver the certificates for such Shares to the Depositary,
along with the Letter of Transmittal, or tender such Shares pursuant to the
procedure for book-entry transfer set forth below under "Terms of the
Offer -- Procedure for Tendering Shares," on or prior to the Expiration Date (as
defined below). A Preferred Shareholder whose Shares are registered in the name
of a broker, dealer, commercial bank, trust company or nominee must contact such
broker, dealer, commercial bank, trust company or nominee if he or she desires
to tender such Shares. Any Preferred Shareholder who desires to tender Shares
and whose certificates for such Shares are not immediately available, or who
cannot comply in a timely manner with the procedure for book-entry transfer,
should tender such Shares by following the procedures for guaranteed delivery
set forth below under "Terms of the Offer -- Procedure for Tendering Shares."
EACH SERIES OF PREFERRED HAS ITS OWN LETTER OF TRANSMITTAL, AND ONLY THE
APPLICABLE LETTER OF TRANSMITTAL FOR SUCH SERIES OF PREFERRED OR A NOTICE OF
GUARANTEED DELIVERY MAY BE USED TO TENDER SHARES OF SUCH SERIES OF PREFERRED.
------------------------
Each Series of Preferred is traded in the over-the-counter market (the
"OTC") and is not listed on any national securities exchange, except for the
4- 1/2% Series, which is traded on the Philadelphia Stock Exchange (the "PSE").
On January 28, 1997, the last reported sale prices as reported by the National
Quotation Bureau, Inc. were $ for the 4- 1/2% Series of Preferred (on
, 199 ); $ for the 5.90% Series of Preferred (on
, 199 ); $ for the 5.92% Series of Preferred (on , 199 );
$ for the 6.85% Series of Preferred (on , 199 ); and
$ for the 7.80% Series of Preferred (on , 199 ). Preferred
Shareholders are urged to obtain a current market quotation, if available, for
the Shares. On January 29, 1997, there were issued and outstanding 298,150
Shares of the 4- 1/2% Series of Preferred; 500,000 Shares of the 5.90% Series of
Preferred; 600,000 Shares of the 5.92% Series of Preferred; 300,000 Shares of
the 6.85% Series of Preferred; and 500,000 Shares of the 7.80% Series of
Preferred.
2
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SUMMARY............................................................................... 4
TERMS OF THE OFFER.................................................................... 7
Number of Shares; Purchase Prices; Expiration Date; Dividends....................... 7
Procedure for Tendering Shares...................................................... 7
Withdrawal Rights................................................................... 10
Acceptance of Shares for Payment and Payment of Purchase Price and Dividends........ 10
Certain Conditions of the Offer..................................................... 11
Extension of Tender Period; Termination; Amendments................................. 12
PROPOSED AMENDMENT AND PROXY SOLICITATION............................................. 13
Introduction........................................................................ 13
Voting Securities, Rights and Procedures............................................ 13
Proxies............................................................................. 14
Special Cash Payments............................................................... 14
Security Ownership of Certain Beneficial Owners and Management...................... 15
Business to Come Before the Special Meeting......................................... 16
Explanation of the Proposed Amendment............................................... 16
Reasons for the Proposed Amendment.................................................. 17
Relationship with Independent Public Accountants.................................... 19
PRICE RANGE OF SHARES; DIVIDENDS...................................................... 19
PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER.................................... 20
CERTAIN FEDERAL INCOME TAX CONSEQUENCES............................................... 23
SOURCE AND AMOUNT OF FUNDS............................................................ 25
TRANSACTIONS AND AGREEMENTS CONCERNING THE SHARES..................................... 25
FEES AND EXPENSES PAID TO DEALERS..................................................... 25
CERTAIN INFORMATION REGARDING AEP AND APCO............................................ 26
SUMMARY OF CONSOLIDATED FINANCIAL INFORMATION......................................... 27
MISCELLANEOUS......................................................................... 28
</TABLE>
3
<PAGE> 4
SUMMARY
The following summary is provided solely for the convenience of the
Preferred Shareholders. This summary is not intended to be complete and is
qualified in its entirety by reference to the full text and more specific
details contained in this Offer to Purchase and Proxy Statement and the Letter
of Transmittal and any amendments hereto or thereto. Preferred Shareholders are
urged to read this Offer to Purchase and Proxy Statement and the Letter of
Transmittal in their entirety. Each of the capitalized terms used in this
summary and not defined herein has the meaning set forth elsewhere in this Offer
to Purchase and Proxy Statement.
The Companies.............. AEP, 1 Riverside Plaza, Columbus, Ohio 43215, is a
registered holding company under the Public Utility
Holding Company Act of 1935, as amended (the
"Holding Company Act"), which owns, directly or
indirectly, all of the outstanding common stock of
its electric utility subsidiaries, including APCo.
The service area of AEP's electric utility
subsidiaries covers portions of Indiana, Kentucky,
Michigan, Ohio, Tennessee, Virginia and West
Virginia. APCo, 40 Franklin Road, Roanoke, Virginia
24022, is a utility primarily engaged in the
generation, purchase, transmission and distribution
of electric power to approximately 859,000
customers in Virginia and West Virginia, and in
supplying electric power at wholesale to other
electric utility companies and municipalities.
The Shares................. 4- 1/2% Cumulative Preferred Stock (no par value)
5.90% Cumulative Preferred Stock (no par value)
5.92% Cumulative Preferred Stock (no par value)
6.85% Cumulative Preferred Stock (no par value)
7.80% Cumulative Preferred Stock (no par value)
The Offer and Purchase
Price...................... Offer to purchase any or all shares of each Series
of Preferred at the price set forth below.
$ . per 4- 1/2% Share
$ . per 5.90% Share
$ . per 5.92% Share
$ . per 6.85% Share
$ . per 7.80% Share
Independent Offer.......... The Offer for one Series of Preferred is
independent of the Offer for any other Series of
Preferred. The Offer is not conditioned upon any
minimum number of Shares of the applicable Series
of Preferred being tendered. Preferred Shareholders
who wish to tender their Shares are not required to
vote in favor of the Proposed Amendment. The Offer
is subject, however, to shareholder approval of the
Proposed Amendment and certain other conditions.
Expiration Date of the
Offer...................... The Offer expires at 5:00 p.m., New York City time,
February 28, 1997, unless extended (the "Expiration
Date").
How to Tender Shares....... See "Terms of the Offer -- Procedure for Tendering
Shares". For further information, call the
Information Agent or the Dealer Managers or consult
your broker for assistance.
Withdrawal Rights.......... Tendered Shares of any Series of Preferred may be
withdrawn at any time until the Expiration Date
with respect to such Series of Preferred and,
unless previously accepted for payment, may also be
withdrawn after March 28, 1997. See "Terms of the
Offer -- Withdrawal Rights."
4
<PAGE> 5
Purpose of the Offer....... AEP is making the Offer because AEP believes that
the purchase of Shares is economically attractive
to APCo and indirectly to AEP and its shareholders.
In addition, the Offer gives Preferred Shareholders
the opportunity to sell their Shares at a price
which AEP believes to be a premium over the market
price and without the usual transaction costs
associated with a market sale. See "Purpose of the
Offer; Certain Effects of the Offer."
Dividends.................. APCo has declared the regular quarterly dividend on
each Series of Preferred to be paid on February 1,
1997 to holders of record as of the close of
business on January 9, 1997 (the "February 1997
Dividend"). A tender and purchase of Shares
pursuant to the Offer will not deprive a Preferred
Shareholder of his or her right to receive the
February 1997 Dividend on his or her Shares held of
record as of the close of business on January 9,
1997. Tendering Preferred Shareholders will be
entitled to any dividends accrued prior to the
Payment Date (as defined herein) in respect of any
later dividend periods (or any portion thereof).
Brokerage Commissions...... Not payable by Preferred Shareholders.
Solicitation Fee........... AEP will pay to each designated Soliciting Dealer
(as defined herein) a solicitation fee of $1.50 per
Share for any Shares tendered, accepted for payment
and paid for pursuant to the Offer (except that for
transactions for beneficial owners equal to or
exceeding 5,000 Shares, AEP will pay a solicitation
fee of (i) $1.00 per Share for Shares of the
4- 1/2% Series and (ii) $.50 per Share for the
remaining Series) and APCo will pay a separate fee
of $.50 per Share for any Shares of the 4 1/2%
Series that are not tendered pursuant to the Offer
but which are voted in favor of the Proposed
Amendment. A Soliciting Dealer will not be entitled
to a solicitation fee or a separate fee for Shares
beneficially owned by such Soliciting Dealer;
provided that, with respect to solicitation fees
paid with respect to transactions for beneficial
owners equal to or exceeding 5,000 shares, at least
twenty percent (20%) of each such fee shall be paid
to the Dealer Managers.
Proposed Amendment......... Concurrently with the Offer, the Board of Directors
of APCo is soliciting proxies for use at the
Special Meeting of Shareholders of APCo. The
Special Meeting is being held to consider an
amendment to APCo's Articles which would remove a
provision that limits APCo's ability to issue debt.
If the Proposed Amendment is approved by the
shareholders, the clause of the Articles that
places restrictions on APCo's ability to issue or
assume indebtedness will be eliminated with respect
to any Shares that remain outstanding after the
consummation of the Offer. See "Purpose of the
Offer; Certain Effects of the Offer."
Record Date................ January 27, 1997
Special Cash Payment....... Preferred Shareholders of record have the right to
vote for or against the Proposed Amendment
regardless of whether they tender their Shares. If
the Proposed Amendment is approved and adopted by
APCo's shareholders, APCo will make a special cash
payment of $1.00 per Share to each Preferred
Shareholder who voted in favor of the Proposed
Amendment but who did not tender his or her Shares
(the "Special Cash Payment"). Preferred
Shareholders who validly tender their Shares will
be entitled only to the purchase price per Share
listed on the front cover
5
<PAGE> 6
of this Offer to Purchase and Proxy Statement plus
an amount in cash equivalent to any dividends
accrued prior to the Payment Date.
Stock Transfer Tax......... Except as described herein, AEP will pay or cause
to be paid any stock transfer taxes with respect to
the sale and transfer of any Shares to it or its
order pursuant to the Offer. See Instruction 6 of
the applicable Letter of Transmittal. See "Terms of
the Offer -- Acceptance of Shares for Payment of
Purchase Price and Dividends."
Payment Date............... Promptly after the Expiration Date or any extension
thereof.
Further Information........ Additional copies of this Offer to Purchase and
Proxy Statement and the applicable Letter of
Transmittal may be obtained by contacting Morrow,
909 Third Avenue, New York, NY 10022-4799,
telephone (800) 566-9061 (toll-free) and (212)
754-8000 (brokers and dealers). Questions about the
Offer should be directed to Merrill Lynch at (888)
ML4-TNDR (toll free) (888-654-8637 (toll free)) or
to Salomon Brothers at (800) 558-3745 (toll free).
6
<PAGE> 7
TERMS OF THE OFFER
NUMBER OF SHARES; PURCHASE PRICES; EXPIRATION DATE; DIVIDENDS
Upon the terms and subject to the conditions described herein and in the
applicable Letter of Transmittal, AEP will purchase any and all Shares that are
validly tendered on or prior to the applicable Expiration Date (and not properly
withdrawn in accordance with "Terms of the Offer -- Withdrawal Rights") at the
purchase price per Share listed on the front cover of this Offer to Purchase and
Proxy Statement for the Shares tendered, plus accrued and unpaid dividends for
the Shares tendered to the Payment Date, net to the seller in cash. See "Terms
of the Offer -- Certain Conditions of the Offer" and "Terms of the Offer --
Extension of Tender Period; Termination."
THE OFFER FOR A SERIES OF PREFERRED IS NOT CONDITIONED UPON ANY MINIMUM
NUMBER OF SHARES OF SUCH SERIES OF PREFERRED BEING TENDERED AND IS INDEPENDENT
OF THE OFFER FOR ANY OTHER SERIES OF PREFERRED. THE OFFER, HOWEVER, IS
CONDITIONED UPON, AMONG OTHER THINGS, THE PROPOSED AMENDMENT, AS DESCRIBED
HEREIN, BEING APPROVED AND ADOPTED AT THE SPECIAL MEETING. SEE "TERMS OF THE
OFFER -- CERTAIN CONDITIONS OF THE OFFER."
The Offer is being sent to all persons in whose names Shares are registered
on the books of APCo as of the close of business on January 27, 1997 and
transferees of such persons. Only a record holder of Shares on the Record Date
(as defined herein) may vote in person or by proxy at the Special Meeting. No
record date is fixed for determining which persons are permitted to tender
Shares. Any person who is the beneficial owner but not the record holder of
Shares must arrange for the record transfer of such Shares prior to tendering.
With respect to each Series of Preferred, the Expiration Date is the later
of 5:00 p.m. New York City time, on February 28, 1997 or the latest time and
date to which the Offer with respect to such Series of Preferred is extended.
AEP expressly reserves the right, in its sole discretion, and at any time and/or
from time to time, to extend the period of time during which the Offer for any
Series of Preferred is open, by giving oral or written notice of such extension
to the Depositary and making a public announcement thereof, without extending
the period of time during which the Offer for any other Series of Preferred is
open. There is no assurance whatsoever that AEP will exercise its right to
extend the Offer for any Series of Preferred. If AEP decides, in its sole
discretion, to (i) decrease the number of Shares of any Series of Preferred
being sought, (ii) increase or decrease the consideration offered in the Offer
to holders of any Series of Preferred or (iii) increase or decrease the
Soliciting Dealers' fees and, at the time that notice of such increase or
decrease is first published, sent or given to holders of such Series of
Preferred in the manner specified herein, the Offer for such Series of Preferred
is scheduled to expire at any time earlier than the tenth business day from the
date that such notice is first so published, sent or given, such Offer will be
extended until the expiration of such ten-business-day period. For purposes of
the Offer, a "business day" means any day other than a Saturday, Sunday or
federal holiday and consists of the time period from 12:00 a.m. through 11:59
p.m., New York City time.
NO ALTERNATIVE, CONDITIONAL OR CONTINGENT TENDERS WILL BE ACCEPTED.
The February 1997 Dividend has been declared on each Series of Preferred,
payable February 1, 1997 to holders of record as of the close of business on
January 9, 1997. A tender and purchase of Shares pursuant to the Offer will not
deprive such Preferred Shareholder of his or her right to receive the February
1997 Dividend on his or her Shares, regardless of when such tender is made.
Tendering Preferred Shareholders will be entitled to any dividends accrued prior
to the Payment Date in respect of any later dividend periods (or any portion
thereof).
PROCEDURE FOR TENDERING SHARES
To tender Shares pursuant to the Offer, the tendering owner of Shares must
either:
(a) send to the Depositary (at one of its addresses set forth on the
back cover of this Offer to Purchase and Proxy Statement) a properly
completed and duly executed Letter of Transmittal, together with any
required signature guarantees and any other documents required by the
Letter of Transmittal
7
<PAGE> 8
and either (i) certificates for the Shares to be tendered must be received
by the Depositary at one of such addresses or (ii) such Shares must be
delivered pursuant to the procedures for book-entry transfer described
herein (and a confirmation of such delivery must be received by the
Depositary), in each case by the Expiration Date; or
(b) comply with the guaranteed delivery procedure described under
"Guaranteed Delivery Procedure" below.
A tender of Shares made pursuant to any method of delivery set forth herein
or in the Letter of Transmittal will constitute a binding agreement between the
tendering holder and AEP upon the terms and subject to the conditions of the
Offer.
The Depositary will establish an account with respect to the Shares at The
Depository Trust Company and the Philadelphia Depository Trust Company (each a
"Book-Entry Transfer Facility") for purposes of the Offer within two business
days after the date of this Offer to Purchase and Proxy Statement, and any
financial institution that is a participant in the system of a Book-Entry
Transfer Facility may make delivery of Shares by causing the Book-Entry Transfer
Facility to transfer such Shares into the Depositary's account in accordance
with the procedures of such Book-Entry Transfer Facility. Although delivery of
Shares may be effected through book-entry transfer, such delivery must be
accompanied by either (i) a properly completed and duly executed Letter of
Transmittal, together with any required signature guarantees and any other
required documents or (ii) an Agent's Message (as hereinafter defined) and, in
any case, must be received by the Depositary at one of its addresses set forth
on the back cover of this Offer to Purchase and Proxy Statement on or prior to
the Expiration Date. DELIVERY OF SUCH LETTER OF TRANSMITTAL AND ANY OTHER
REQUIRED DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY OR TO AEP DOES NOT
CONSTITUTE DELIVERY TO THE DEPOSITARY.
The term "Agent's Message" means a message, transmitted by a Book-Entry
Transfer Facility, received by the Depositary and forming a part of the
book-entry transfer when a tender is initiated, which states that such
Book-Entry Transfer Facility has received an express acknowledgment from a
participant tendering Shares that such participant has received and agrees to be
bound by the terms of the Letter of Transmittal and that AEP may enforce such
agreement against such participant.
Except as otherwise provided below, all signatures on a Letter of
Transmittal must be guaranteed by a firm that is a member of a registered
national securities exchange or the National Association of Securities Dealers,
Inc., or by a commercial bank or trust company having an office or correspondent
in the United States that is a participant in an approved Signature Guarantee
Medallion Program (each of the foregoing being referred to as an "Eligible
Institution"). Signatures on a Letter of Transmittal need not be guaranteed if
(a) the Letter of Transmittal is signed by the registered owner of the shares
tendered therewith and such owner has not completed the box entitled "Special
Payment Instructions" or the box entitled "Special Delivery Instructions" on the
Letter of Transmittal or (b) such Shares are tendered for the account of an
Eligible Institution. See Instructions 1 and 5 of the Letter of Transmittal. If
Shares are registered in the name of a person other than the signatory on the
Letter of Transmittal, or if unpurchased Shares are to be issued to a person
other than the registered holder(s), the certificates must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name or names of the registered holder(s) appear on the Shares with the
signature(s) on the Shares or stock powers guaranteed as stated above. See
Instructions 4, 6 and 7 to the Letter of Transmittal.
Guaranteed Delivery Procedure. If a Preferred Shareholder desires to
tender Shares pursuant to the Offer and such Preferred Shareholder's
certificates are not immediately available or the procedures for book-entry
transfer cannot be completed on a timely basis or time will not permit all
required documents to reach the Depositary prior to the Expiration Date, such
Shares may nevertheless be tendered if all of the following guaranteed delivery
procedures are complied with:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by AEP and APCo herewith, is
received (with any required signatures or signature guarantees) by the
Depositary as provided below on or prior to the Expiration Date; and
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<PAGE> 9
(iii) the certificates for all tendered Shares in proper form for
transfer or a Book-Entry Confirmation with respect to all tendered Shares,
together with a properly completed and duly executed Letter of Transmittal
and any other documents required by the Letter of Transmittal, are received
by the Depositary no later than 5:00 p.m., New York City time, within three
business days after the date of execution of such Notice of Guaranteed
Delivery.
THE NOTICE OF GUARANTEED DELIVERY MAY BE DELIVERED BY HAND OR MAILED TO THE
DEPOSITARY AND MUST INCLUDE AN ENDORSEMENT BY AN ELIGIBLE INSTITUTION IN THE
FORM SET FORTH IN SUCH NOTICE OF GUARANTEED DELIVERY.
In all cases, Shares shall not be deemed validly tendered unless a properly
completed and duly executed Letter of Transmittal or, if applicable, an Agent's
Message, is received by the Depositary.
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer in all cases will be made only after timely
receipt by the Depositary of certificates for (or an Agent's Message with
respect to) such Shares, a Letter of Transmittal, properly completed and duly
executed, with any required signature guarantees, and all other documents
required by the Letter of Transmittal.
THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE
OPTION AND RISK OF THE TENDERING PREFERRED SHAREHOLDER. IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
BECAUSE IT IS THE TIME OF RECEIPT, NOT THE TIME OF MAILING, WHICH DETERMINES
WHETHER A TENDER HAS BEEN MADE PRIOR TO THE EXPIRATION DATE, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY.
TO AVOID FEDERAL INCOME TAX BACKUP WITHHOLDING EQUAL TO 31% OF THE GROSS
PAYMENTS MADE PURSUANT TO THE OFFER, EACH TENDERING PREFERRED SHAREHOLDER WHO IS
A UNITED STATES PERSON MUST NOTIFY THE DEPOSITARY OF SUCH PREFERRED
SHAREHOLDER'S CORRECT TAXPAYER IDENTIFICATION NUMBER AND PROVIDE CERTAIN OTHER
INFORMATION BY PROPERLY COMPLETING AND EXECUTING THE SUBSTITUTE FORM W-9
INCLUDED IN THE LETTER OF TRANSMITTAL (OR, IN THE CASE OF A FOREIGN PREFERRED
SHAREHOLDER, FORM W-8 OBTAINABLE FROM THE DEPOSITARY). SEE "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES."
EACH PREFERRED SHAREHOLDER IS URGED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR REGARDING THE TAX CONSEQUENCES OF THE OFFER.
All questions as to the form of documents and the validity, eligibility
(including the time of receipt) and acceptance for payment of any tender of
Shares will be determined by AEP, in its sole discretion, and its determination
will be final and binding. AEP reserves the absolute right to reject any or all
tenders of Shares that (i) it determines are not in proper form or (ii) the
acceptance for payment of or payment for which may, in the opinion of AEP's
counsel, be unlawful. AEP also reserves the absolute right to waive any defect
or irregularity in any tender of Shares. None of AEP, APCo, the Dealer Managers,
the Depositary, the Information Agent or any other person will be under any duty
to give notice of any defect or irregularity in tenders, nor shall any of them
incur any liability for failure to give any such notice.
WITHDRAWAL RIGHTS
Tenders of Shares made pursuant to the Offer may be withdrawn at any time
prior to the Expiration Date. Thereafter, such tenders are irrevocable, except
that they may be withdrawn after March 28, 1997, unless previously accepted for
payment as provided in this Offer to Purchase and Proxy Statement.
To be effective, a written notice of withdrawal must be timely received by
the Depositary, at one of its addresses set forth on the back cover of this
Offer to Purchase and Proxy Statement, and must specify the name of the person
who tendered the Shares to be withdrawn and the number of Shares to be
withdrawn. If the Shares to be withdrawn have been delivered to the Depositary,
a signed notice of withdrawal with
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<PAGE> 10
signatures guaranteed by an Eligible Institution (except in the case of Shares
tendered by an Eligible Institution) must be submitted prior to the release of
such Shares. In addition, such notice must specify, in the case of Shares
tendered by delivery of certificates, the name of the registered owner (if
different from that of the tendering Preferred Shareholder) and the serial
numbers shown on the particular certificates evidencing the Shares to be
withdrawn or, in the case of Shares tendered by book-entry transfer, the name
and number of the account at the Book-Entry Transfer Facility to be credited
with the withdrawn Shares and the name of the registered holder (if different
from the name of such account). Withdrawals may not be rescinded, and Shares
withdrawn will thereafter be deemed not validly tendered for purposes of the
Offer. However, withdrawn Shares may be re-tendered by again following one of
the procedures described in "Terms of the Offer -- Procedure for Tendering
Shares" at any time prior to the Expiration Date.
All questions as to the form and validity (including time of receipt) of
any notice of withdrawal will be determined by AEP, in its sole discretion, and
its determination will be final and binding. None of AEP, APCo, the Dealer
Managers, the Depositary, the Information Agent or any other person will be
under any duty to give notification of any defect or irregularity in any notice
of withdrawal or will incur any liability for failure to give any such
notification.
ACCEPTANCE OF SHARES FOR PAYMENT AND PAYMENT OF PURCHASE PRICE AND DIVIDENDS
Upon the terms and subject to the conditions of the Offer, and as promptly
as practicable after the Expiration Date, AEP will accept for payment (and
thereby purchase) and pay for Shares validly tendered and not withdrawn as
permitted in "Terms of the Offer -- Withdrawal Rights." Thereafter, payment for
all Shares validly tendered on or prior to the Expiration Date and accepted
pursuant to the Offer will be made by the Depositary by check as promptly as
practicable after the Expiration Date. In all cases, payment for Shares accepted
for payment pursuant to the Offer will be made promptly but only after timely
receipt by the Depositary of certificates for such Shares (or of an Agent's
Message), a properly completed and duly executed Letter of Transmittal and any
other required documents.
For purposes of the Offer, AEP will be deemed to have accepted for payment
(and thereby purchased) Shares that are validly tendered and not withdrawn as,
if and when it gives oral or written notice to the Depositary of its acceptance
for payment of such Shares. AEP will pay for Shares that it has purchased
pursuant to the Offer by depositing the purchase price therefor plus accrued and
unpaid dividends thereon with the Depositary, which will act as agent for
tendering Preferred Shareholders for the purpose of receiving payment from AEP
and transmitting payment to tendering Preferred Shareholders. Under no
circumstances will interest be paid on amounts to be paid to tendering Preferred
Shareholders, regardless of any delay in making such payment.
Certificates for all Shares not validly tendered will be returned or, in
the case of Shares tendered by book-entry transfer, such Shares will be credited
to an account maintained with the Book-Entry Transfer Facility, as promptly as
practicable, without expense to the tendering Preferred Shareholder.
If certain events occur, AEP may not be obligated to purchase Shares
pursuant to the Offer. See "Terms of the Offer -- Certain Conditions of the
Offer."
AEP will pay or cause to be paid any stock transfer taxes with respect to
the sale and transfer of any Shares to it or its order pursuant to the Offer.
If, however, payment of the purchase price is to be made to, or Shares not
tendered or not purchased are to be registered in the name of, any person other
than the registered owner, or if tendered Shares are registered in the name of
any person other than the person signing the Letter of Transmittal, the amount
of any stock transfer taxes (whether imposed on the registered owner, such other
person or otherwise) payable on account of the transfer to such person will be
deducted from the purchase price unless satisfactory evidence of the payment of
such taxes, or exemption therefrom, is submitted. See Instruction 6 of the
accompanying Letter of Transmittal.
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<PAGE> 11
CERTAIN CONDITIONS OF THE OFFER
AEP WILL NOT BE REQUIRED TO ACCEPT FOR PAYMENT OR PAY FOR ANY SHARES
TENDERED IF THE PROPOSED AMENDMENT IS NOT APPROVED AND ADOPTED AT THE SPECIAL
MEETING.
PREFERRED SHAREHOLDERS OF RECORD HAVE THE RIGHT TO VOTE FOR OR AGAINST THE
PROPOSED AMENDMENT REGARDLESS OF WHETHER THEY TENDER THEIR SHARES. IF THE
PROPOSED AMENDMENT IS APPROVED AND ADOPTED, APCO WILL MAKE A SPECIAL CASH
PAYMENT TO EACH PREFERRED SHAREHOLDER WHO VOTED IN FAVOR OF THE PROPOSED
AMENDMENT, PROVIDED THAT THEIR SHARES HAVE NOT BEEN TENDERED PURSUANT TO THE
OFFER. PREFERRED SHAREHOLDERS WHO TENDER THEIR SHARES WILL ONLY BE ENTITLED TO
THE PURCHASE PRICE PER SHARE LISTED ON THE FRONT COVER OF THIS OFFER TO PURCHASE
AND PROXY STATEMENT.
In addition, notwithstanding any other provision of the Offer, AEP will not
be required to accept for payment or pay for any Shares tendered, and may
terminate or amend the Offer (by oral or written notice to the Depositary and
timely public announcement) or may postpone (subject to the requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") for prompt
payment for or return of Shares) the acceptance for payment of, or payment for,
Shares tendered, if at any time after January 29, 1997, and at or before the
Expiration Date, any of the following shall have occurred (which shall not have
been waived by AEP):
(a) there shall have been threatened, instituted or pending any action
or proceeding by any government or governmental, regulatory or
administrative agency, authority or tribunal or any other person, domestic
or foreign, or before any court, authority, agency or tribunal that (i)
challenges the acquisition of Shares pursuant to the Offer or otherwise in
any manner relates to or affects the Offer or (ii) in the reasonable
judgment of AEP, would or might materially and adversely affect the
business, condition (financial or otherwise), income, operations or
prospects of AEP and its subsidiaries taken as a whole, or otherwise
materially impair in any way the contemplated future conduct of the
business of AEP or any of its subsidiaries or materially impair the Offer's
contemplated benefits to AEP;
(b) there shall have been any action threatened, pending or taken, or
approval withheld, or any statute, rule, regulation, judgment, order or
injunction threatened, proposed, sought, promulgated, enacted, entered,
amended, enforced or deemed to be applicable to the Offer or AEP or any of
its subsidiaries, by any legislative body, court, authority, agency or
tribunal that, in AEP's reasonable judgment, would or might directly or
indirectly (i) make the acceptance for payment of, or payment for, some or
all of the Shares illegal or otherwise restrict or prohibit consummation of
the Offer; (ii) delay or restrict the ability of AEP, or render AEP unable,
to accept for payment or pay for some or all of the Shares; (iii)
materially impair the contemplated benefits of the Offer to AEP or APCo
(including materially increasing the effective interest cost of certain
types of unsecured debt); or (iv) materially affect the business, condition
(financial or otherwise), income, operations or prospects of AEP and its
subsidiaries taken as a whole, or otherwise materially impair in any way
the contemplated future conduct of the business of AEP or any of its
subsidiaries;
(c) there shall have occurred (i) any significant decrease in the
market price of the Shares; (ii) any change in the general political,
market, economic or financial conditions in the United States or abroad
that, in the reasonable judgment of AEP, would or might have a material
adverse effect on AEP's business, operations, prospects or ability to
obtain financing generally or the trading in the Shares or other equity
securities of AEP; (iii) the declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or any
limitation on, or any event that, in AEP's reasonable judgment, would or
might affect the extension of credit by lending institutions in the United
States; (iv) the commencement of war, armed hostilities or other
international or national calamity directly or indirectly involving the
United States; (v) any general suspension of trading in, or limitation on
prices for, securities on any national securities exchange or in the
over-the-counter market; (vi) in the case of any of
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<PAGE> 12
the foregoing existing at the time of the commencement of the Offer, in
AEP's reasonable judgment, a material acceleration or worsening thereof;
(vii) any decline in either the Dow Jones Industrial Average or the
Standard and Poor's Composite 500 Stock Index by an amount in excess of 15%
measured from the close of business on January 29, 1997; or (viii) a
decline in the ratings accorded any of AEP's or APCo's securities by
Standard & Poor's Rating Services ("S&P"), Moody's Investors Service, Inc.
("Moody's") or Duff & Phelps, Inc. ("D&P") or that S&P, Moody's or D&P has
announced that it has placed any such rating under surveillance or review
with negative implications.
(d) any tender or exchange offer with respect to some or all of the
Shares (other than the Offer) or other equity securities of AEP, or a
merger, acquisition or other business combination proposal for AEP, shall
have been proposed, announced or made by any person or entity;
(e) there shall have occurred any event or events that have resulted,
or, in AEP's reasonable judgment, may result, in an actual or threatened
change in the business, condition (financial or otherwise), income,
operations, stock ownership or prospects of AEP and its subsidiaries; or
(f) the Securities and Exchange Commission (the "SEC") shall have
withheld approval, under the Holding Company Act, of the acquisition of the
Shares by AEP pursuant to the Offer or the approval and adoption of the
Proposed Amendment at the Special Meeting or the issuance of short-term
debt by AEP and/or APCo;
and, in the sole judgment of AEP, such event or events make it undesirable or
inadvisable to proceed with the Offer or with such acceptance for payment or
payment. With respect to the approval of the SEC referenced in clause (f) above,
the SEC must find that the acquisition of the Shares by AEP is not detrimental
to the public interest or the interests of the investors or consumers, and that
the consideration paid in connection with the acquisition and the adoption of
the Proposed Amendment, including fees, commissions and other remuneration, is
reasonable.
The foregoing conditions (including the condition that the Proposed
Amendment be approved and adopted at the Special Meeting) are for the sole
benefit of AEP and may be asserted by AEP regardless of the circumstances
(including any action or inaction by AEP) giving rise to any such condition, and
any such condition may be waived by AEP, in whole or in part, at any time and
from time to time in its sole discretion. A decision by AEP to terminate or
otherwise amend any Offer, following the occurrence of any of the foregoing,
with respect to one Series of Preferred will not create an obligation on behalf
of AEP to terminate or otherwise amend in a similar manner the Offer with
respect to any other Series of Preferred. The failure by AEP at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time. Any determination by AEP concerning the
events described above will be final and binding on all parties.
EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENTS
AEP expressly reserves the right, in its sole discretion, and at any time
and/or from time to time prior to the Expiration Date, to extend the period of
time during which the Offer for any Series of Preferred is open by giving oral
or written notice of such extension to the Depositary, without extending the
period of time during which the Offer for any other Series of Preferred is open.
There can be no assurance, however, that AEP will exercise its right to extend
the Offer for any Series of Preferred. During any such extension, all Shares of
the subject Series of Preferred previously tendered will remain subject to the
Offer, except to the extent that such Shares may be withdrawn as set forth in
"Terms of the Offer -- Withdrawal Rights."
AEP also expressly reserves the right, in its sole discretion, to, among
other things, terminate the Offer and not accept for payment or pay for any
Shares tendered, subject to Rule 13e-4(f)(5) under the Exchange Act, which
requires AEP either to pay the consideration offered or to return the Shares
tendered promptly after the termination or withdrawal of the Offer upon the
occurrence of any of the conditions specified in "Terms of the Offer -- Certain
Conditions of the Offer" by giving oral or written notice of such termination to
the Depositary, and making a public announcement thereof.
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<PAGE> 13
Subject to compliance with applicable law, AEP further reserves the right,
in its sole discretion, to amend the Offer in any respect. Amendments to the
Offer may be made at any time and/or from time to time effected by public
announcement thereof, such announcement, in the case of an extension, to be
issued no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date. Any public announcement made
pursuant to the Offer will be disseminated promptly to Preferred Shareholders
affected thereby in a manner reasonably designed to inform such Preferred
Shareholders of such change. Without limiting the manner in which AEP may choose
to make a public announcement, except as required by applicable law, AEP shall
have no obligation to publish, advertise or otherwise communicate any such
public announcement other than by making a release to the Dow Jones News
Service.
If AEP materially changes the terms of the Offer or the information
concerning the Offer, or if it waives a material condition of the Offer, AEP
will extend the Offer to the extent required by Rules 13e-4(d)(2) and
13e-4(e)(2) under the Exchange Act. Those rules require that the minimum period
during which the Offer must remain open following material changes in the terms
of the Offer or information concerning the Offer (other than a change in price,
a change in percentage of securities sought or a change in the dealer's
solicitation fee) will depend on the facts and circumstances, including the
relative materiality of such terms or information. The SEC has stated that, in
its view, an offer should remain open for a minimum of five business days from
the date that a notice of such a material change is first published, sent or
given. If the Offer is scheduled to expire at any time earlier than the
expiration of a period ending on the tenth business day from, and including, the
date that AEP publishes, sends or gives to Preferred Shareholders a notice that
it will (i) increase or decrease the price it will pay for Shares, (ii) decrease
the percentage of Shares it seeks, or (iii) increase or decrease the soliciting
dealers' fees, the Offer will be extended until the expiration of such period of
ten business days. THE OFFER FOR EACH SERIES OF PREFERRED IS INDEPENDENT OF THE
OFFER FOR ANY OTHER SERIES OF PREFERRED. IF AEP EXTENDS OR AMENDS ANY OFFER WITH
RESPECT TO ONE SERIES OF PREFERRED FOR ANY REASON, AEP WILL HAVE NO OBLIGATION
TO EXTEND THE OFFER FOR ANY OTHER SERIES OF PREFERRED.
PROPOSED AMENDMENT AND PROXY SOLICITATION
INTRODUCTION
This Offer to Purchase and Proxy Statement is first being mailed on or
about January 30, 1997 to the shareholders of APCo in connection with the
solicitation of proxies by the Board of Directors of APCo (the "Board") for use
at the Special Meeting. At the Special Meeting, the shareholders of record of
APCo will vote upon the Proposed Amendment to the Articles.
While Preferred Shareholders who wish to tender their Shares pursuant to
the Offer are not required to vote in favor of or against the Proposed
Amendment, the Offer is conditioned upon the Proposed Amendment being approved
and adopted at the Special Meeting. In addition, Preferred Shareholders of
record have the right to vote for or against the Proposed Amendment regardless
of whether they tender their Shares. If the Proposed Amendment is approved and
adopted by APCo's shareholders, APCo will make a special cash payment in the
amount of $1.00 per Share (the "Special Cash Payment") to each Preferred
Shareholder of record who voted in favor of the Proposed Amendment, provided
that such Shares have not been tendered pursuant to the Offer. If a Preferred
Shareholder votes against the Proposed Amendment or abstains, such Preferred
Shareholder shall not be entitled to the Special Cash Payment (regardless of
whether the Proposed Amendment is approved and adopted). Those Preferred
Shareholders who validly tender their Shares will be entitled only to the
purchase price per Share listed on the front cover of this Offer to Purchase and
Proxy Statement.
VOTING SECURITIES, RIGHTS AND PROCEDURES
Only holders of record of APCo's voting securities at the close of business
on January 27, 1997 (the "Record Date") will be entitled to vote in person or by
proxy at the Special Meeting. The outstanding voting securities of APCo are
divided into two classes: common stock and cumulative preferred stock. The class
of cumulative preferred stock has been issued in the five Series of Preferred
with the record holders of all Shares
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<PAGE> 14
of the cumulative preferred stock voting together as one class. The shares
outstanding as of the Record Date, and the vote to which each share is entitled
in consideration of the Proposed Amendment, are as follows:
<TABLE>
<CAPTION>
CLASS SHARES OUTSTANDING VOTES PER SHARE
- ------------------------------------------------------------- ------------------ ---------------
<S> <C> <C>
Common Stock (No Par Value).................................. 13,499,500 1 vote
Cumulative Preferred Stock (No Par Value).................... 2,198,150 1 vote
</TABLE>
The affirmative vote of the holders of more than two-thirds of the
outstanding shares of each of APCo's (i) common stock and (ii) cumulative
preferred stock, all series voting together as one class, is required to approve
the Proposed Amendment to be presented at the Special Meeting. Abstentions and
broker non-votes will have the effect of votes against the Proposed Amendment.
AEP HAS ADVISED APCO THAT IT INTENDS TO VOTE ALL OF THE OUTSTANDING SHARES OF
COMMON STOCK OF APCO IN FAVOR OF THE PROPOSED AMENDMENT.
Votes at the Special Meeting will be tabulated preliminarily by the
Depositary. Inspectors of Election, duly appointed by the presiding officer of
the Special Meeting, will definitively count and tabulate the votes and
determine and announce the results at the Special Meeting. APCo has no
established procedure for confidential voting. There are no rights of appraisal
in connection with the Proposed Amendment.
PROXIES
THE ENCLOSED PROXY IS SOLICITED BY APCO'S BOARD, WHICH RECOMMENDS VOTING
FOR THE PROPOSED AMENDMENT. ALL SHARES OF APCO'S COMMON STOCK WILL BE VOTED IN
FAVOR OF THE PROPOSED AMENDMENT. Shares of APCo's cumulative preferred stock
represented by properly executed proxies received at or prior to the Special
Meeting will be voted in accordance with the instructions thereon. If no
instructions are indicated, duly executed proxies will be voted in accordance
with the recommendation of the Board. It is not anticipated that any other
matters will be brought before the Special Meeting. However, the enclosed proxy
gives discretionary authority to the proxy holders named therein should any
other matters be presented at the Special Meeting, and it is the intention of
the proxy holders to act on any other matters in accordance with their best
judgment.
Execution of a proxy will not prevent a shareholder from attending the
Special Meeting and voting in person. Any shareholder giving a proxy may revoke
it at any time before it is voted by delivering to the Secretary of APCo written
notice of revocation bearing a later date than the proxy, by delivering a duly
executed proxy bearing a later date, or by voting in person by ballot at the
Special Meeting. Withdrawal of Shares tendered pursuant to the Offer will not
revoke a properly executed proxy.
APCo will bear the cost of the solicitation of proxies by the Board. APCo
has engaged Morrow & Co., Inc. to act as Information Agent in connection with
the solicitation of proxies for a fee of $5,900 plus reimbursement of reasonable
out-of-pocket expenses. Proxies will be solicited by mail or by telephone. In
addition, officers and employees of APCo may also solicit proxies personally or
by telephone; such persons will receive no additional compensation for these
services. The Information Agent has not been retained to make, and will not
make, solicitations or recommendations in connection with the Proposed
Amendment.
APCo has requested that brokerage houses and other custodians, nominees and
fiduciaries forward solicitation materials to the beneficial owners of shares of
APCo's cumulative preferred stock held of record by such persons and will
reimburse such brokers and other fiduciaries for their reasonable out-of-pocket
expenses incurred in connection therewith.
The solicitation of proxies has been approved by the SEC under the Holding
Company Act. An application has been filed with the SEC under the Holding
Company Act requesting approval of the Proposed Amendment and the acquisition of
the Shares by AEP pursuant to the Offer.
SPECIAL CASH PAYMENTS
Subject to the terms and conditions set forth in this Offer to Purchase and
Proxy Statement, if (but only if) the Proposed Amendment is approved and adopted
by the shareholders of APCo, APCo will make a Special Cash Payment to each
Preferred Shareholder who voted in favor of the Proposed Amendment, in person by
ballot or by proxy, at the Special Meeting in the amount of $1.00 for each Share
held by such
14
<PAGE> 15
Preferred Shareholder on the Record Date which is so voted, provided that such
Shares have not been tendered pursuant to the Offer. SPECIAL CASH PAYMENTS WILL
BE MADE TO PREFERRED SHAREHOLDERS AS OF THE RECORD DATE (IF SUCH SHARES HAVE NOT
BEEN TENDERED PURSUANT TO THE OFFER) ONLY IN RESPECT OF EACH SHARE WHICH IS
VOTED FOR THE ADOPTION OF THE PROPOSED AMENDMENT; PROVIDED, HOWEVER, THAT THOSE
PREFERRED SHAREHOLDERS WHO VALIDLY TENDER THEIR SHARES WILL BE ENTITLED ONLY TO
THE PURCHASE PRICE PER SHARE LISTED ON THE FRONT COVER OF THIS OFFER TO PURCHASE
AND PROXY STATEMENT. If the Proposed Amendment is approved and adopted, Special
Cash Payments will be paid out of APCo's general funds, promptly after the
Proposed Amendment shall have become effective. However, no accrued interest
will be paid on the Special Cash Payments regardless of any delay in making such
payments.
Only Preferred Shareholders on the Record Date (or their legal
representatives or attorneys-in-fact) are entitled to vote at the Special
Meeting and to receive Special Cash Payments from APCo. Any beneficial holder of
Shares who is not the registered holder of such Shares as of the Record Date (as
would be the case for any beneficial holder whose Shares are registered in the
name of such holder's broker, dealer, commercial bank, trust company or other
nominee) must arrange with the record Preferred Shareholder to execute and
deliver a proxy form on such beneficial owner's behalf. If a beneficial holder
of Shares intends to attend the Special Meeting and vote in person, such
beneficial holder must obtain a legal proxy form from his or her broker, dealer,
commercial bank, trust company or other nominee.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As noted above, AEP owns all the outstanding common stock of APCo.
Pursuant to Section 13(d) of the Exchange Act, a beneficial owner of a
security is any person who directly or indirectly has or shares voting or
investment power over such security. No person or group is known by management
of APCo to be the beneficial owner of more than 5% of APCo's cumulative
preferred stock as of the Record Date.
APCo's directors and executive officers do not beneficially own any Shares
as of the Record Date. The beneficial ownership of AEP's common stock held by
each director, as well as directors and executive officers as a group, as of
December 31, 1996, is set forth in the following table.
<TABLE>
<CAPTION>
NAME (1) SHARES
------------------------------------------------------------------------- --------
<S> <C>
P. J. DeMaria............................................................ ,
E. L. Draper, Jr. ....................................................... ,
H. W. Fayne.............................................................. ,
W. J. Lhota.............................................................. ,
G. P. Maloney............................................................ ,
J. J. Markowsky.......................................................... ,
J. H. Vipperman.......................................................... ,
All directors and executive officers as a group (representing % of
the class)............................................................. ,
</TABLE>
- ---------------
(1) No individual listed beneficially owned more than 0. % of the outstanding
shares of common stock of AEP.
15
<PAGE> 16
BUSINESS TO COME BEFORE THE SPECIAL MEETING
The following Proposed Amendment to the Articles is the only item of
business expected to be presented at the Special Meeting:
To remove in its entirety ARTICLE V, Clause 7(B)(b), limiting APCo's
ability to issue indebtedness.
THE FOLLOWING STATEMENTS, UNLESS THE CONTEXT OTHERWISE REQUIRES, ARE
SUMMARIES OF THE SUBSTANCE OR GENERAL EFFECT OF A PROVISION OF THE ARTICLES, AND
ARE QUALIFIED IN THEIR ENTIRETY BY THE ARTICLES AND CLAUSE 7(B)(B) (AS DESCRIBED
BELOW).
EXPLANATION OF THE PROPOSED AMENDMENT
Article V, Clause 7(B)(b) of the Articles currently provides that, so long
as any shares of APCo's cumulative preferred stock of any series are
outstanding, without the consent of the holders of a majority of the total
number of votes which holders of the outstanding shares of APCo Cumulative
Preferred Stock of all series are entitled to cast, APCo shall not issue or
assume any evidence of indebtedness, secured or unsecured (other than for
purposes of refunding or renewing outstanding evidences of indebtedness or
redeeming or otherwise retiring all outstanding shares of APCo Cumulative
Preferred Stock and other than first mortgage bonds and certain other secured
indebtedness) if, immediately after such issue or assumption:
(a) the total principal amount of all such indebtedness issued or assumed
by APCo and then outstanding would exceed 20% of the aggregate of (1) the
total principal amount of all then-outstanding bonds or other secured debt
of APCo (other than certain bonds issued under a mortgage) and (2) the
stated capital and surplus of APCo as stated on APCo's books; or
(b) the total principal amount of all unsecured debt would exceed 20% of
the aggregate of (1) the total principal amount of all then-outstanding
bonds or other secured debt of APCo and (2) the stated capital and surplus
of APCo as stated on APCo's books; or
(c) the total outstanding principal amount of all unsecured debt of
maturities of less than ten years would exceed 10% of the aggregate of (1)
the total principal amount of all then-outstanding bonds or other secured
debt of APCo and (2) the stated capital and surplus of APCo as stated on
APCo's books (the "Debt Limitation Provision").
The Proposed Amendment, if adopted, would eliminate in its entirety clause
7(B)(b), as set forth below, from the Articles. Unless otherwise defined,
capitalized terms used in Clause 7(B) are used as defined in the Articles.
Article V, Clause 7(B) of the Articles states:
"(B) So long as any shares of the Cumulative Preferred Stock of any
series are outstanding, the Corporation shall not, without the consent
(given by vote at a meeting called for that purpose) of the holders of a
majority of the total number of votes which holders of the outstanding
shares of the Cumulative Preferred Stock of all series are entitled to
cast, unless the consent of the holders of shares having some greater
proportion of the total vote is required:
(b) Issue or assume any evidences of indebtedness, secured or
unsecured, other than bonds or other securities representing
indebtedness of the character described hereafter in (1), (2), (3), (4),
(5) and (6) of this clause (b), for purposes other than the refunding or
renewing of outstanding evidences of indebtedness theretofore issued or
assumed by the Corporation resulting in equal or longer maturities or
redeeming or otherwise retiring all outstanding shares of the Cumulative
Preferred Stock, if, immediately after such issue or assumption, (I) the
total principal amount of all such indebtedness issued or assumed by the
Corporation and then outstanding (including the evidences of
indebtedness then to be issued or assumed) would exceed twenty per
centum (20%) of the aggregate of (i) the total principal amount of all
bonds or other securities representing indebtedness of the character
described hereafter in (1), (2), (3), (4), (5) and (6) of this
16
<PAGE> 17
clause (b), issued or assumed by the Corporation and then to be
outstanding, and (ii) the stated capital and surplus of the Corporation
as then to be stated on the books of account of the Corporation, unless
such evidences of indebtedness are (1) bonds of the Corporation issued
under the Mortgage of the Corporation to Bankers Trust Company and R.
Gregory Page, as Trustees, dated as of December 1, 1940 (hereinafter
referred to as the "bonds of the Corporation"), or (2) any bonds issued
under a new mortgage replacing said Mortgage, dated as of December 1,
1940, or (3) any bonds issued under any other new mortgage of the
Corporation provided that said Mortgage, dated as of December 1, 1940,
or any mortgage replacing it, shall have been irrevocably closed against
the authentication of additional bonds thereunder, or (4) any
indebtedness secured by bonds of the Corporation or by bonds issued
under any such new mortgage, in either case in a principal amount not in
excess of the principal amount of such pledged bonds, or (5) any
indebtedness secured by bonds issued under a mortgage existing at the
time of acquisition on property acquired by the Corporation, whether by
consolidation, merger, exchange, purchase, lease, or in any other way
whatsoever, provided that said mortgage, or any mortgage replacing it,
shall be irrevocably closed against the authentication of additional
bonds thereunder, or (6) obligations to pay the purchase price of
material or equipment made in the ordinary course of the Corporation's
business, or (II) the total outstanding principal amount of all
unsecured notes, debentures or other securities representing unsecured
debt of the Corporation (other than obligations of the character
described in (6) of this clause (b)) would thereby exceed twenty per
centum (20%) of the aggregate of (i) the total principal amount of all
bonds or other secured indebtedness of the Corporation, and (ii) the
stated capital and surplus of the Corporation as then to be stated on
the books of account of the Corporation, or (III) the total outstanding
principal amount of all unsecured notes, debentures or other securities
representing unsecured indebtedness of the Corporation (other than
obligations of the character described in (6) of this clause (b)) of
maturities of less than 10 years would thereby exceed ten per centum
(10%) of the aggregate of (i) the total principal amount of all bonds or
other secured indebtedness of the Corporation, and (ii) the stated
capital and surplus of the Corporation as then to be stated on the books
of account of the Corporation; provided, that, for purposes of this
clause (b) only, the payment due upon the maturity of unsecured debt
having an original single maturity of 10 or more years or the payment
due upon the final maturity of any unsecured serial debt which had
original maturities of 10 or more years shall not be regarded as
unsecured debt of a maturity of less than 10 years until such payment
shall be required to be made within 3 years;"
REASONS FOR THE PROPOSED AMENDMENT
APCo believes that regulatory, legislative, technological and market
developments are likely to lead to a more competitive environment in the
electric utility industry. APCo and AEP's other electric utility subsidiaries
believe that they currently have a favorable competitive position because of
their relatively low costs. As competition intensifies, flexibility and cost
reduction will be even more crucial to success. Because the electric utility
industry is extremely capital intensive, control and minimization of financing
costs are of particular importance. In response to the competitive forces and
regulatory changes faced by APCo and AEP's other electric utility subsidiaries,
AEP and its public utility subsidiaries have from time to time considered, and
expect to continue to consider, various strategies designed to enhance their
competitive position and to increase their ability to adapt to and anticipate
changes in their utility business.
APCo believes that adoption of the Proposed Amendment is key to financial
flexibility and capital cost reduction. If adopted, the Debt Limitation
Provision will be eliminated. Historically, APCo's debt financing generally has
been accomplished through the issuance of long-term first mortgage bonds, a
modest amount of unsecured short-term debt and long-term installment purchase
contracts for pollution control bonds. First mortgage bonds represent secured
indebtedness placing a first priority lien on substantially all of APCo's
assets. The Mortgage and Deed of Trust between APCo and its bondholders contains
certain restrictive covenants with respect to, among other things, the
disposition of assets and the ability to issue additional first mortgage bonds.
Unsecured debt generally has fewer restrictions than first mortgage bonds.
Short-term debt, a low cost form of debt available to APCo, represents one type
of unsecured indebtedness. Pollution control
17
<PAGE> 18
bond financing, a favorable type of financing due to its tax-exempt status, is
available only for very limited purposes.
The Proposed Amendment will not only allow APCo to issue a greater amount
of unsecured debt, but also will allow APCo to issue a greater amount of total
debt. APCo, however, presently has no intention of issuing a greater amount of
total debt than it would have issued absent the adoption of the Proposed
Amendment, except that APCo expects to issue additional unsecured debt to fund
the purchase of the Shares from AEP. Rather, it is APCo's intention to attain
flexibility in the mix of its outstanding debt and therefore have the option to
use more short-term and other unsecured debt and less first mortgage bonds.
Inasmuch as the Debt Limitation Provision contained in the Articles limits
APCo's flexibility in planning and financing its business activities, APCo
believes it ultimately will be at a competitive disadvantage if the Debt
Limitation Provision is not eliminated. The industry's new competitors (for
example, power marketers, exempt wholesale generators, independent power
producers and cogeneration facilities) generally are not subject to the type of
financing restrictions the Articles impose on APCo. Recently, several other
utilities with the same or similar charter restrictions have successfully
eliminated such provisions by soliciting their shareholders for the same or
similar amendments. In addition, some potential utility competitors, and other
AEP public utility subsidiaries, including Columbus Southern Power Company and
Kentucky Power Company, have no comparable provision restricting the issuance of
unsecured debt.
Although APCo sells relatively low-cost power, APCo must continue to
explore new ways of reducing costs and enhancing flexibility. APCo believes that
the adoption of the Proposed Amendment will be in the best long-term competitive
interests of its shareholders.
Financial Flexibility. If the Proposed Amendment is adopted, APCo will
have increased flexibility (i) to choose among different types of debt financing
and (ii) to finance projects using the most cost effective means. APCo believes
that various types of unsecured debt alternatives will increase in importance as
an option in financing its construction program and refinancing first mortgage
bonds. The availability and flexibility of unsecured debt is necessary to take
full advantage of changing conditions in securities markets. As a result, APCo
may increase the amount of unsecured debt to more than 20% of capitalization.
In addition, although APCo's earnings currently are sufficient to meet the
earnings coverage tests that must be satisfied before issuing additional first
mortgage bonds and preferred stock, there is no guarantee that this will be true
in the future. Other utilities have been unable to issue first mortgage bonds
during certain periods because of restrictive covenants in their mortgages.
APCo's inability to issue first mortgage bonds or preferred stock in the future,
combined with the inability to issue additional unsecured debt, would limit
APCo's financing options to more costly options, including additional common
equity. Moreover, continued reliance on the issuance of first mortgage bonds
under APCo's Mortgage and Deed of Trust could limit APCo's ability in the future
to strategically redeploy its assets.
Under the Debt Limitation Provision, APCo's use of unsecured short-term
debt is presently restricted. However, APCo believes that the prudent use of
such debt in excess of this provision is vital to effective financial management
of its business. Not only is unsecured short-term debt generally one of the
least expensive forms of capital, it also provides flexibility in meeting
seasonal and business cycle fluctuations in cash requirements, acts as a bridge
between issues of permanent capital and can be used when unfavorable conditions
prevail in the market for long-term capital.
Lower Costs. As previously mentioned, APCo's short-term debt issuances
generally represent one of its lowest-cost forms of financing. APCo is
reassessing its historically modest use of short-term debt. By increasing its
use of short-term debt, APCo may be able to lower its cost structure further,
thereby making its products more competitive and reducing its business risks.
However, with the Debt Limitation Provision in place, the availability and
corresponding benefits of short-term debt diminish. And although short-term debt
may expose the borrower to more volatility in interest rates, it should be noted
that the cost of short-term debt seldom exceeds the cost of other forms of
capital available at the same time.
IT IS FOR ALL THE ABOVE REASONS THAT APCO'S BOARD BELIEVES THE BEST
LONG-TERM INTERESTS OF SHAREHOLDERS ARE SERVED BY, AND ENCOURAGES SHAREHOLDERS
TO VOTE FOR, THE ADOPTION OF THE PROPOSED AMENDMENT.
18
<PAGE> 19
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Upon recommendation of the Audit Committee of AEP's board of directors,
such board employed on January 31, 1996 Deloitte & Touche LLP as independent
public accountants for AEP and its subsidiaries, including APCo, for the year
1996. A representative of Deloitte & Touche LLP will not be present at the
Special Meeting unless prior to the day of the Special Meeting the Secretary of
APCo has received written notice from a Preferred Shareholder addressed to the
Secretary at 1 Riverside Plaza, Columbus, Ohio 43215, that such Preferred
Shareholder will attend the Special Meeting and wishes to ask questions of a
representative of Deloitte & Touche LLP.
PRICE RANGE OF SHARES; DIVIDENDS
APCo's Cumulative Preferred Stock 4- 1/2% Series is traded on the PSE under
the symbol "APPWM", and the 5.90% Series, 5.92% Series, 6.85% Series and 7.80%
Series are traded in the over-the-counter market under the symbols "APWRO",
"APWRP", "APWRN" and "APPWD", respectively. The last reported sale price on the
PSE and the over-the-counter market, as the case may be, as of the close of
business on January 28, 1997, for each of the Series of Preferred is shown on
the inside front cover of this Offer to Purchase and Proxy Statement. However,
Preferred Shareholders should be aware that there is no established trading
market for the Shares (other than the 4 1/2% Series) and that the Shares of each
Series of Preferred only trade sporadically and, therefore, the last reported
sales price may not necessarily reflect the market value of the Shares.
PREFERRED SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS, IF
AVAILABLE, FOR THE SHARES.
The following table sets forth the high and low sales prices of each Series
of Preferred on the PSE or in the over-the-counter market, as the case may be,
as reported by the National Quotation Bureau, Inc., and the cash dividends paid
thereon for the fiscal quarters indicated.
DIVIDENDS AND PRICE RANGES OF CUMULATIVE PREFERRED STOCK
BY QUARTERS (1996 AND 1995)
<TABLE>
<CAPTION>
1996 -- QUARTERS 1995 -- QUARTERS
------------------------------------- -------------------------------------
1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CUMULATIVE PREFERRED STOCK
4 1/2% Series
Dividends Paid Per Share.................... $ 1.125 $ 1.125 $ 1.125 $ 1.125 $ 1.125 $ 1.125 $ 1.125 $ 1.125
Market Price -- $ Per Share (PSE)
Ask -- High............................... 62 61 59 -- 56 1/2 56 1/2 56 1/2 --
-- Low................................ 61 58 1/4 58 1/2 -- 51 53 3/4 56 1/2 --
Bid -- High............................... 61 1/2 58 3/4 57 58 3/4 54 56 1/2 56 1/2 59 3/8
-- Low................................. 58 3/4 56 5/8 56 1/2 57 48 50 55 55
5.90% Series
Dividends Paid Per Share.................... $ 1.475 $ 1.475 $ 1.475 $ 1.475 $ 1.475 $ 1.475 $ 1.475 $ 1.475
Market Price -- $ Per Share
(OTC) -- Quotations not available
5.92% Series
Dividends Paid Per Share.................... $ 1.48 $ 1.48 $ 1.48 $ 1.48 $ 1.48 $ 1.48 $ 1.48 $ 1.48
Market Price -- $ Per Share
(OTC) -- Quotations not available
6.85% Series
Dividends Paid Per Share.................... $1.7125 $1.7125 $1.7125 $1.7125 $1.7125 $1.7125 $1.7125 $1.7125
Market Price -- $ Per Share
(OTC) -- Quotations not available
7.80% Series
Dividends Paid Per Share.................... $ 1.95 $ 1.95 $ 1.95 $ 1.95 $ 1.95 $ 1.95 $ 1.95 $ 1.95
Market Price -- $ Per Share
(OTC) -- Quotations not available
</TABLE>
- ---------------
PSE -- Philadelphia Stock Exchange
OTC -- Over-the-Counter
Note -- The above bid and asked quotations represent prices between dealers and
do not represent actual transactions
Market quotations provided by National Quotation Bureau, Inc.
Dash indicates quotation not available
19
<PAGE> 20
Dividends for a Series of Preferred are payable when, as and if declared by
APCo's Board of Directors at the rate per annum included in such title of the
Series of Preferred listed on the front cover of this Offer to Purchase and
Proxy Statement. The February 1997 Dividend has been declared on each Series of
Preferred, payable February 1, 1997 to holders of record as of the close of
business on January 9, 1997. A tender and purchase of Shares pursuant to the
Offer will not deprive such Preferred Shareholder of his or her right to receive
the February 1997 Dividend. Tendering Preferred Shareholders will be entitled to
any dividends accrued and unpaid prior to the Payment Date in respect of any
later dividend periods (or any portion thereof).
PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER
AEP believes that the purchase of the Shares at this time represents an
attractive economic opportunity that will benefit AEP, its shareholders, and
APCo. In addition, the Offer gives Preferred Shareholders the opportunity to
sell their Shares at a price which AEP believes to be a premium to the market
price on the date of the announcement of the Offer and without the usual
transaction costs associated with a sale.
After the consummation of the Offer, AEP or APCo may purchase additional
Shares on the open market, in privately negotiated transactions, through one or
more tender offers or otherwise. Any such purchases may be on the same terms as,
or on terms which are more or less favorable to holders of Shares than, the
terms of the Offer. However, Rule 13e-4(f)(6) under the Exchange Act prohibits
AEP and its affiliates (including APCo) from purchasing any Shares of a Series
of Preferred, other than pursuant to the Offer, until at least ten business days
after the Expiration Date with respect to that Series of Preferred. Any future
purchases of Shares by AEP or APCo would depend on many factors, including the
market price of the Shares, AEP's business and financial position, legal
restrictions on AEP's ability to purchase Shares as well as general economic and
market conditions.
Preferred Shareholders are not under any obligation to tender Shares
pursuant to the Offer. The Offer does not constitute notice of redemption of any
Series of Preferred pursuant to APCo's Articles, nor does AEP or APCo intend to
effect any such redemption by making the Offer. Further, the Offer does not
constitute a waiver by APCo of any option it has to redeem Shares. The 4- 1/2%
Series is not subject to mandatory redemption but presently is callable at
$110.00 per Share; commencing in 2003 and continuing through the year 2007, a
sinking fund for the 5.90% Series will require the redemption of 25,000 Shares
on November 1 of each year and the redemption of the remaining Shares
outstanding on November 1, 2008, in each case at $100 per Share; commencing in
2003 and continuing through the year 2007, a sinking fund for the 5.92% Series
will require the redemption of 30,000 Shares on November 1 of each year and the
redemption of the remaining Shares outstanding on November 1, 2008, in each case
at $100 per Share; commencing in 2000 and continuing through the date of
redemption, a sinking fund for the 6.85% Series will require the redemption of
60,000 Shares on August 1 of each year, in each case at $100 per Share, and APCo
has the noncumulative option to redeem up to 60,000 additional Shares on any
sinking fund date at a redemption price of $100 per Share; and commencing in
1998, a sinking fund for the 7.80% Series will require the redemption of 25,000
Shares at $100 per Share on or before May 1 in each year, and APCo has the
noncumulative option to redeem up to 25,000 additional Shares on any sinking
fund date at a redemption price of $100 per Share. The Shares of each Series of
Preferred have no preemptive or conversion rights.
Upon liquidation or dissolution of APCo, owners of the Shares would be
entitled to receive an amount equal to the liquidation preference per share
($100) plus all accrued and unpaid dividends (whether or not earned or declared)
thereon to the date of payment, prior to the payment of any amounts to the
holders of APCo's common stock.
Shares validly tendered to the Depositary pursuant to the Offer and not
withdrawn in accordance with the procedures set forth herein shall be held until
the Expiration Date (or returned to the extent the Offer is terminated in
accordance herewith). To the extent that the Proposed Amendment is approved and
the Shares tendered are accepted for payment and paid for in accordance with the
terms hereof, AEP intends to sell its Shares to APCo and, at that time, it is
expected that APCo will retire and cancel the Shares. However, in the event the
Proposed Amendment is not adopted at the Special Meeting, AEP may elect, but is
not obligated to, waive, subject to applicable law, such condition. In that
case, subsequent to AEP's waiver and purchase of the Shares, APCo anticipates,
as promptly as practicable thereafter, that it would call another special
meeting of
20
<PAGE> 21
its shareholders and solicit proxies therefrom for an amendment substantially
similar to the Proposed Amendment. At that meeting, AEP would vote any Shares
acquired by it pursuant to the Offer or otherwise (together with its shares of
common stock) in favor of such amendment, thereby maximizing the prospects for
the adoption of the amendment. Any such purchase of Shares by AEP will reduce
the number of Shares of each of the Series of Preferred that might otherwise
trade publicly or become available for purchase and/or sale and likely will
reduce the number of owners of Shares of each of the Series of Preferred, which
could adversely affect the liquidity and sale value of the Shares not purchased
in the Offer.
Liquidity of Trading Market. To the extent that Shares of any Series of
Preferred are tendered and accepted for payment in the Offer, the trading market
for Shares of such Series of Preferred that remain outstanding may be
significantly more limited, which might adversely affect the liquidity, market
value and price volatility of such Shares. Equity securities with a smaller
outstanding market value available for trading (the "float") may command a lower
price than would comparable equity securities with a greater float. Therefore,
the market price for Shares that are not tendered in the Offer may be affected
adversely to the extent that the amount of Shares purchased pursuant to the
Offer reduces the float. The reduced float may also make the trading price of
the Shares that are not tendered and accepted for payment more volatile.
Preferred Shareholders of the remaining Shares may attempt to obtain quotations
for the Shares from their brokers; however, there can be no assurance that any
trading market will exist for such Shares following consummation of the Offer.
To the extent a market continues to exist for the Shares after the Offer, the
Shares may trade at a discount compared to present trading depending on the
market for Shares with similar features, the performance of APCo, and other
factors. There is no assurance that an active market in the Shares will exist
and no assurance as to the prices at which the Shares may trade.
4- 1/2% Series. Depending on the number of Shares tendered and purchased
pursuant to the Offer, the 4- 1/2% Series may no longer meet the requirements of
the PSE for trading, which may adversely affect the market for the Shares of the
4- 1/2% Series. According to its published guidelines, the PSE would consider
delisting the 4- 1/2% Series if, among other things, (i) the number of
publicly-held Shares of the 4- 1/2% Series should fall below 200,000, (ii) the
number of Preferred Shareholders owning Shares of the 4- 1/2% Series should fall
below 400 (or 300 round lot shareholders), or (iii) the aggregate market value
of the 4- 1/2% Series should fall below $1,000,000. If, as a result of the
purchase of Shares pursuant to the Offer or otherwise, the 4- 1/2% Series no
longer meets the requirements of the PSE for continued listing and the listing
of the 4- 1/2% Series is discontinued, the market for the 4- 1/2% Series could
be adversely affected.
In the event of the delisting of the 4- 1/2% Series currently listed on the
PSE, it is possible that such Series would continue to trade on another
securities exchange or in the over-the-counter market and that price quotations
would be reported by such exchange, by the National Association of Securities
Dealers, Inc. ("NASD") through the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") or by other sources. The extent of the
public market for the 4- 1/2% Series and the availability of quotations,
however, would depend upon such factors as the number of shareholders remaining
at such time, the interest in maintaining a market in the 4- 1/2% Series on the
part of securities firms, the possible termination of registration under the
Exchange Act as described below, and other factors.
The Shares of the 4- 1/2% Series are presently "margin securities" under
the regulations of the Board of Governors of the Federal Reserve System (the
"Federal Reserve"), which has the effect, among other things, of allowing
brokers to extend credit on the collateral of such Shares. If the 4- 1/2% Series
remains listed on the PSE, the Shares of the 4- 1/2% Series will continue to be
"margin securities." If the 4- 1/2% Series is delisted, depending upon factors
similar to those described above, the 4- 1/2% Series might no longer constitute
"margin securities" for purposes of the margin regulations of the Federal
Reserve, in which case, the Shares of the 4- 1/2% Series could no longer be used
as collateral for loans made by brokers.
In addition, the 4- 1/2% Series is currently registered under Section 12(b)
of the Exchange Act. Registration of the Shares of the 4- 1/2% Series under the
Exchange Act may be terminated upon the application by APCo to the SEC if such
Shares are no longer listed on a national securities exchange. Termination of
registration of the Shares of the 4- 1/2% Series under the Exchange Act would
substantially
21
<PAGE> 22
reduce the information required to be furnished by APCo to Preferred
Shareholders and could make certain provisions of the Exchange Act no longer
applicable to APCo. If registration of the 4- 1/2% Series under the Exchange Act
were terminated, Shares of the 4- 1/2% Series would no longer be "margin
securities" or be eligible for NASDAQ reporting. As of December 31, 1996, there
were 1,773 registered holders of the 4- 1/2% Series.
OTC Series. The purchase of Shares of the 5.90% Series, 5.92% Series, the
6.85% Series and the 7.80% Series (collectively, the "OTC Series") pursuant to
the Offer will reduce the number of holders of Shares of the OTC Series and the
number of such Shares that might otherwise trade publicly, and, depending upon
the number of Shares so purchased, such reduction could adversely affect the
liquidity and market value of the remaining Shares of the OTC Series held by the
public. The extent of the public market for the Shares of the OTC Series and the
availability of price quotations would, however, depend upon such factors as the
number of stockholders remaining at such time, the interest in maintaining a
market in the Shares of the OTC Series on the part of securities firms and other
factors. As of December 31, 1996, there was 1 registered holder of the 5.90%
Series, 2 registered holders of the 5.92% Series, 1 registered holder of the
6.85% Series and 3 registered holders of the 7.80% Series.
Other Potential Effects of the Proposed Amendment on Preferred Shareholders
who do not Tender. If the Proposed Amendment becomes effective, Preferred
Shareholders of Shares that are not tendered and purchased pursuant to the Offer
will no longer be entitled to the benefits of the Debt Limitation Provision,
which will have been deleted by the Proposed Amendment. As discussed above, the
Debt Limitation Provision places restrictions on APCo's ability to issue or
assume indebtedness. Although APCo's debt instruments may contain certain
restrictions on APCo's ability to issue or assume debt, any such restrictions
may be waived and the increased flexibility afforded APCo by the deletion of the
Debt Limitation Provision may permit APCo to take certain actions that may
increase the credit risks with respect to APCo, adversely affecting the market
price and credit rating of the remaining Shares or otherwise be materially
adverse to the interests of the remaining Preferred Shareholders. In addition,
to the extent that APCo elects to fund its purchase of the Shares by issuing
additional unsecured debt, the remaining Preferred Shareholders relative
position in APCo's capital structure could be perceived to decline, which in
turn could adversely affect the market price and credit rating of the remaining
Shares. To this end, Moody's has advised APCo that Moody's might reconsider its
rating of APCo's preferred stock, absent some mitigating factors, and
particularly in light of APCo's plan to fund the purchase of Shares from AEP
through the issuance of additional unsecured debt.
Following the consummation of the Offer, the business and operations of
APCo will be continued substantially as they are currently being conducted.
Except as disclosed in this Offer to Purchase and Proxy Statement, AEP and APCo
currently have no plans or proposals that relate to or would result in: (a) the
acquisition by any person or entity of additional securities of APCo or the
disposition of securities of APCo, other than in the ordinary course of
business; (b) an extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving APCo or any of its subsidiaries other
than APCo's plan to merge certain inactive and immaterial coal subsidiaries; (c)
a sale or transfer of a material amount of assets of APCo or any of its
subsidiaries; (d) any change in the present Board or management of APCo; (e) any
material change in the present dividend rate or policy, or indebtedness or
capitalization of APCo; (f) any other material change in APCo's corporate
structure or business; (g) any change in APCo's Articles or By-Laws or any
actions that may impede the acquisition of control of APCo by any person; (h) a
class of equity securities of APCo being delisted from a national securities
exchange; (i) a class of equity securities of APCo becoming eligible for
termination of registration pursuant to Section 12(g)(4) of the Exchange Act; or
(j) the suspension of APCo's obligation to file reports pursuant to Section
15(d) of the Exchange Act.
NEITHER AEP, APCO, THEIR RESPECTIVE BOARDS OF DIRECTORS, NOR ANY OF THEIR
RESPECTIVE OFFICERS MAKES ANY RECOMMENDATION TO ANY PREFERRED SHAREHOLDER AS TO
WHETHER TO TENDER ALL OR ANY SHARES. EACH PREFERRED SHAREHOLDER MUST MAKE HIS OR
HER OWN DECISION AS TO WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO
TENDER.
22
<PAGE> 23
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Simpson Thacher & Bartlett, tax counsel to AEP and APCo,
the following summary describes the principal United States federal income tax
consequences of sales of Shares pursuant to the Offer and the receipt of Special
Cash Payments in connection with the approval and adoption of the Proposed
Amendment. This summary is based on the Internal Revenue Code of 1986, as
amended to the date hereof (the "Code"), administrative pronouncements, judicial
decisions and existing and proposed Treasury Regulations, changes to any of
which subsequent to the date of this Offer to Purchase and Proxy Statement may
adversely affect the tax consequences described herein, possibly on a
retroactive basis. This summary is addressed to Preferred Shareholders who hold
Shares as capital assets within the meaning of Section 1221 of the Code. This
summary does not discuss all of the tax consequences that may be relevant to a
Preferred Shareholder in light of such Preferred Shareholder's particular
circumstances or to Preferred Shareholders subject to special rules (including
certain financial institutions, tax-exempt organizations, insurance companies,
dealers in securities or currencies, foreign persons or entities selling Shares
pursuant to the Offer who own or have owned, actually or constructively, more
than five percent of such Shares, Preferred Shareholders who acquired their
Shares pursuant to the exercise of stock options or other compensation
arrangements with APCo or Preferred Shareholders holding the Shares as part of a
conversion transaction, as part of a hedge or hedging transaction, or as a
position in a straddle for tax purposes). Preferred Shareholders should consult
their tax advisors with regard to the application of the United States federal
income tax laws to their particular situations as well as any tax consequences
arising under the laws of any state, local or foreign taxing jurisdiction.
As used herein, the term "United States Holder" means an owner of a Share
that is (i) for United States federal income tax purposes a citizen or resident
of the United States; (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof; (iii) an estate the income of which is subject to United
States federal income taxation regardless of its source; or (iv) any trust if a
court within the United States is able to exercise primary supervision over the
administration of such trust and one or more United States fiduciaries have the
authority to control all substantial decisions of such trust. A "Non-United
States Holder" is a Preferred Shareholder that is not a United States Holder.
Tax Considerations for Tendering Preferred Shareholders
Characterization of the Sale. A sale of Shares by a Preferred Shareholder
pursuant to the Offer will be a taxable transaction for Federal income tax
purposes.
United States Holders. A United States Holder will recognize gain or loss
equal to the difference between the tax basis of such Holder's Shares and the
amount of cash received in exchange therefor. A United States Holder's gain or
loss will be long-term capital gain or loss if the holding period for the Shares
is more than one year as of the date of the sale of such Shares. The excess of
net long-term capital gains over net short-term capital losses is taxed at a
lower rate than ordinary income for certain non-corporate taxpayers. The
distinction between capital gain or loss and ordinary income or loss is also
relevant for purposes of, among other things, limitations on the deductibility
of capital losses.
Non-United States Holders. Any gain realized upon the sale of Shares by a
Non-United States Holder pursuant to the Offer generally will not be subject to
United States Federal income tax unless (i) such gain is effectively connected
with a trade or business in the United States of the Non-United States Holder or
(ii) in the case of a Non-United States Holder who is an individual, such
individual is present in the United States for 183 days or more in the taxable
year of such sale and certain other conditions are met.
A Non-United States Holder described in clause (i) above will be taxed on
the net gain derived from the sale at regular graduated United States Federal
income tax rates. If a Non-United States Holder that is a foreign corporation
falls under clause (i) above, it may also be subject to an additional "branch
profits tax" at a 30% rate (or such lower rate as may be specified by an
applicable income tax treaty). Unless an applicable tax treaty provides
otherwise, an individual Non-United States Holder described in clause (ii) above
will be
23
<PAGE> 24
subject to a flat 30% tax on the gain derived from the sale, which may be offset
by United States capital losses (notwithstanding the fact that the individual is
not considered a resident of the United States).
Tax Considerations for Non-Tendering Preferred Shareholders
Preferred Shareholders, whether or not they receive Special Cash Payments,
will not recognize any taxable gain or loss with respect to the Shares as a
result of the modification of the Articles by the Proposed Amendment.
United States Holders. There is no direct authority concerning the Federal
income tax consequences of the receipt of Special Cash Payments. APCo will, for
information reporting purposes, treat Special Cash Payments as ordinary
non-dividend income to recipient United States Holders.
Non-United States Holders. APCo will treat Special Cash Payments paid to a
Non-United States Holder of Shares as subject to withholding of United States
Federal income tax at a 30% rate. However, Special Cash Payments that are
effectively connected with the conduct of a trade or business by the Non-United
States Holder within the United States are not subject to the withholding tax
(provided such Non-United States Holder provides two originals of Internal
Revenue Service ("IRS") Form 4224 stating that such Special Cash Payments are so
effectively connected), but instead are subject to United States Federal income
tax on a net income basis at applicable graduated individual or corporate rates.
Any such effectively connected Special Cash Payments received by a foreign
corporation may, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate (or such lower rate as may be specified by an
applicable income tax treaty).
A Non-United States Holder of Shares eligible for a reduced rate of United
States withholding tax pursuant to an income tax treaty may obtain a refund of
any excess amounts withheld by filing an appropriate claim for refund with the
IRS.
Backup Withholding. ANY TENDERING PREFERRED SHAREHOLDER WHO FAILS TO
COMPLETE AND SIGN THE SUBSTITUTE FORM W-9 THAT IS INCLUDED IN THE APPLICABLE
LETTER OF TRANSMITTAL (OR, IN THE CASE OF A FOREIGN PREFERRED SHAREHOLDER, FORM
W-8 OBTAINABLE FROM THE DEPOSITARY) MAY BE SUBJECT TO A REQUIRED FEDERAL INCOME
TAX BACKUP WITHHOLDING OF 31% OF THE GROSS PROCEEDS PAYABLE TO SUCH PREFERRED
SHAREHOLDER PURSUANT TO THE OFFER. To prevent backup United States Federal
income tax withholding with respect to the purchase price of Shares purchased
pursuant to the Offer, a United States Holder must provide the Depositary with
the Preferred Shareholder's correct taxpayer identification number and certify
that the Preferred Shareholder is not subject to backup withholding of Federal
income tax by completing the Substitute Form W-9 included in the applicable
Letter of Transmittal. Certain Preferred Shareholders (including, among others,
all corporations and certain foreign shareholders) are exempt from backup
withholding. For a corporate United States Holder to qualify for such exemption,
such Preferred Shareholder must provide the Depositary with a properly completed
and executed Substitute Form W-9 attesting to its exempt status. In order for a
foreign Preferred Shareholder to qualify as an exempt recipient, the foreign
holder must submit a Form W-8, Certificate of Foreign Status, signed under
penalties of perjury, attesting to that Preferred Shareholder's exempt status. A
copy of Form W-8 may be obtained from the Depositary.
Unless a Preferred Shareholder provides the appropriate certification,
under the applicable law and regulations concerning "backup withholding" of
Federal United States income tax, the Depositary will be required to withhold,
and will withhold, 31% of the gross proceeds otherwise payable to such Preferred
Shareholder. The amount of any backup withholding from a payment to a Preferred
Shareholder will be allowed as a credit against such Preferred Shareholder's
United States federal income tax liability and may entitle such Preferred
Shareholder to a refund, provided that the required information is furnished to
the IRS.
24
<PAGE> 25
SOURCE AND AMOUNT OF FUNDS
Assuming that AEP purchases all outstanding Shares pursuant to the Offer,
the total amount required by AEP to purchase such Shares will be approximately
$231 million, exclusive of the accrued and unpaid dividends payments, but
including fees and other expenses. AEP intends to fund the Offer through the use
of its general funds (which, in the ordinary course, include funds from APCo)
and funds borrowed pursuant to AEP's commercial paper program and committed
lines of credit, including any bank revolving credit agreements.
AEP and APCo sell commercial paper directly to commercial paper dealers who
reoffer the commercial paper to investors and issue and sell short-term notes to
several domestic and foreign banks through various credit arrangements,
including revolving credit agreements or shared lines of credit. AEP and its
significant subsidiaries, including APCo, have $500 million of committed lines
of credit available for use by AEP and such subsidiaries. If necessary, AEP and
its significant subsidiaries may negotiate increases to existing credit
arrangements in order to fund the Offer.
TRANSACTIONS AND AGREEMENTS CONCERNING THE SHARES
Each of AEP and APCo has been advised by its directors and executive
officers that no directors or executive officers of the respective companies own
any Shares. Based upon the companies' records and upon information provided to
each company by its directors and executive officers, neither company nor, to
the knowledge of either, any of their subsidiaries, affiliates, directors or
executive officers, or associates of the foregoing, has engaged in any
transactions involving Shares during the 40 business days preceding the date
hereof. Neither company nor, to the knowledge of either, any of its directors or
executive officers or an associate of the foregoing is a party to any contract,
arrangement, understanding or relationship relating directly or indirectly to
the Offer with any other person or entity with respect to any securities of
APCo.
FEES AND EXPENSES PAID TO DEALERS
Dealer Manager Fees. Merrill Lynch and Salomon Brothers will act as Dealer
Managers for AEP in connection with the Offer. AEP has agreed to pay the Dealer
Managers a fee of $.50 per Share for any Shares tendered, accepted for payment
and paid for pursuant to the Offer and a fee of $.50 per Share for any Shares
that are not tendered pursuant to the Offer but which vote in favor of the
Proposed Amendment. The Dealer Managers will also be reimbursed by AEP for their
reasonable out-of-pocket expenses, including attorneys' fees, and will be
indemnified against certain liabilities, including certain liabilities under the
federal securities laws, in connection with the Offer. The Dealer Managers have
rendered, are currently rendering and are expected to continue to render various
investment banking and other advisory services to AEP and APCo. The Dealer
Managers have received, and will continue to receive, customary compensation
from AEP and APCo for such services. AEP has retained First Chicago Trust
Company of New York as Depositary and Morrow & Co., Inc. as Information Agent in
connection with the Offer. The Depositary and Information Agent will receive
reasonable and customary compensation for their services and will also be
reimbursed for reasonable out-of-pocket expenses, including attorney fees. AEP
has agreed to indemnify the Depositary and Information Agent against certain
liabilities, including certain liabilities under the federal securities law, in
connection with the Offer. Neither the Depositary nor the Information Agent has
been retained to make solicitations or recommendations in connection with the
Offer.
Solicited Tender Fees and Separate Fees. Pursuant to Instruction 10 of the
accompanying Letter of Transmittal, AEP will pay to designated brokers and
dealers a solicitation fee of $1.50 per Share for any Shares tendered, accepted
for payment and paid for pursuant to the Offer (except that for transactions for
beneficial owners equal to or exceeding 5,000 Shares, AEP will pay a
solicitation fee of (i) $1.00 per Share for Shares of the 4- 1/2% Series and
(ii) $.50 per Share for Shares of the remaining Series) and APCo will pay a
separate fee of $.50 per Share for any Shares of the 4 1/2% Series that are not
tendered pursuant to the Offer but which are voted in favor of the Proposed
Amendment with respect to the entity obtaining the tender or proxy, if the
Letter of Transmittal shall include the name of (a) any broker or dealer in
securities, including a Dealer
25
<PAGE> 26
Manager in its capacity as a dealer or broker, which is a member of any national
securities exchange or of the National Association of Securities Dealers, Inc.
("NASD"), (b) any foreign broker or dealer not eligible for membership in the
NASD which agrees to conform to the NASD's Rules of Fair Practice in soliciting
tenders outside the United States to the same extent as though it were an NASD
member, or (c) any bank or trust company (each of which is referred to herein as
a "Soliciting Dealer"); provided that, with respect to solicitation fees paid
with respect to transactions for beneficial owners equal to or exceeding 5,000
shares, at least twenty percent (20%) of each such fee shall be paid to the
Dealer Managers. No solicitation fee or separate fee shall be payable to a
Soliciting Dealer with respect to the tender of Shares or the vote of Shares by
a holder unless the Letter of Transmittal or proxy accompanying such tender or
vote, as the case may be, designates such Soliciting Dealer. No solicitation fee
or separate fee shall be payable to a Soliciting Dealer in respect of Shares
registered in the name of such Soliciting Dealer unless such Shares are held by
such Soliciting Dealer as nominee and such Shares are being tendered or voted
for the benefit of one or more beneficial owners identified on the Letter of
Transmittal or on the Notice of Solicited Tenders. No solicitation fee or
separate fee shall be payable to a Soliciting Dealer if such Soliciting Dealer
is required for any reason to transfer the amount of such fee to a depositing
holder (other than itself). No solicitation fee shall be paid to a Soliciting
Dealer with respect to Shares tendered for such Soliciting Dealer's own account
and no separate fee shall be paid to a Soliciting Dealer with respect to Shares
voted for such Soliciting Dealer's own account. Soliciting Dealers will not be
entitled to a solicitation fee or a separate fee for Shares beneficially owned
by such Soliciting Dealer. No broker, dealer, bank, trust company or fiduciary
shall be deemed to be the agent of AEP, APCo, the Depositary, the Information
Agent or the Dealer Managers for purposes of the Offer.
Soliciting Dealers will include any of the organizations described in
clauses (a), (b) and (c) above even when the activities of such organizations in
connection with the Offer consist solely of forwarding to clients materials
relating to the Offer, including the Letter of Transmittal and tendering Shares
as directed by beneficial owners thereof. No Soliciting Dealer is required to
make any recommendation to holders of Shares as to whether to tender or refrain
from tendering in the Offer. No assumption is made, in making payment to any
Soliciting Dealer, that its activities in connection with the Offer included any
activities other than those described above, and for all purposes noted in all
materials relating to the Offer, the term "solicit" shall be deemed to mean no
more than "processing shares tendered" or "forwarding to customers materials
regarding the Offer."
Stock Transfer Taxes. AEP will pay all stock transfer taxes, if any,
payable on account of the acquisition of Shares by AEP pursuant to the Offer,
except in certain circumstances where special payment or delivery procedures are
utilized pursuant to Instruction 6 of the accompanying Letter of Transmittal.
CERTAIN INFORMATION REGARDING AEP AND APCO
APCo is an operating utility primarily engaged in the generation,
transmission and distribution of electric power to approximately 865,000
customers in Virginia and West Virginia, and in supplying electric power at
wholesale to other electric utility companies and municipalities. All of the
common stock of APCo is owned, directly or indirectly, by AEP, a registered
holding company under the Holding Company Act. The service area of AEP's
electric utility subsidiaries covers portions of Indiana, Kentucky, Michigan,
Ohio, Tennessee, Virginia and West Virginia.
AEP and APCo are subject to the informational requirements of the Exchange
Act and in accordance therewith file reports and other information with the SEC.
Such reports and other information may be inspected and copied at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549; 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511; and Seven World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material can be obtained from the Public Reference Section of the
SEC, 450 Fifth Street, N.W., Washington D.C. 20549 at prescribed rates. The SEC
maintains a Web site at http://www.sec.gov containing reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC, including AEP and APCo. Reports, proxy materials
and other information about AEP are also available at the offices of the New
York
26
<PAGE> 27
Stock Exchange, 20 Broad Street, New York, New York 10005. Reports, proxy
materials and other information about APCo are also available at the offices of
the PSE, 1900 Market Street, Philadelphia, Pennsylvania 19103. In connection
with the Offer AEP has filed an Issuer Tender Offer Statement on Schedule 13E-4
with the SEC that includes certain additional information relating to the Offer.
AEP's Schedule 13E-4 will not be available at the SEC's regional offices.
SUMMARY OF CONSOLIDATED FINANCIAL INFORMATION
Set forth below is certain consolidated historical financial information of
APCo and its subsidiaries. The historical financial information (other than the
ratios of earnings to fixed charges) was derived from the audited consolidated
financial statements included in APCo's Annual Report on Form 10-K for the year
ended December 31, 1995 and from the unaudited consolidated financial statements
included in APCo's Quarterly Reports on Form 10-Q for the periods ended
September 30, 1996 and September 30, 1995.
CONDENSED INCOME STATEMENT DATA:
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- -------------------------
1995 1994 1996 1995
---------- ---------- ---------- ----------
(THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C>
Operating Revenues........................ $1,545,039 $1,535,500 $1,214,656 $1,151,259
Operating Income.......................... 227,102 205,218 188,115 163,344
Allowance for Borrowed and Equity Funds
Used During Construction................ 1,120 1,353 1,254 476
Net Income................................ 115,900 102,345 106,369 78,801
Preferred Stock Dividend Requirements..... 16,405 15,660 12,300 12,303
Earnings Applicable to Common Stock....... 99,495 86,685 94,069 66,498
Ratio of Earnings to Fixed Charges........ 2.54 2.37 2.84(a) 2.32(a)
</TABLE>
- ---------------
(a) Ratio for the twelve months ended September 30.
CONDENSED BALANCE SHEET DATA (AT END OF PERIOD):
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, SEPTEMBER 30,
------------------------- -------------------------
1995 1994 1996 1995
---------- ---------- ---------- ----------
(THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS:
Net Utility Plant In Service.............. $2,783,299 $2,707,422 $2,808,718 $2,763,750
Construction Work In Progress............. 80,391 63,453 81,106 67,576
Cash and Cash Equivalents................. 8,664 5,297 9,825 6,791
Other Current Assets...................... 338,608 296,467 327,245 296,708
Other Assets.............................. 524,416 575,156 503,248 511,972
---------- ---------- ---------- ----------
$3,735,378 $3,647,795 $3,730,142 $3,646,797
========== ========== ========== ==========
LIABILITIES:
Common Equity............................. $ 984,530 $ 971,227 $1,022,999 $ 978,057
Cumulative Preferred Stock................ 245,085 245,300 220,082 245,300
Long-term Debt (less amounts due within
one year)............................... 1,278,433 1,228,911 1,365,637 1,278,298
Current Liabilities....................... 372,437 346,532 270,288 301,409(a)
Other Liabilities......................... 854,893 855,825 851,136 843,733(a)
---------- ---------- ---------- ----------
$3,735,378 $3,647,795 $3,730,142 $3,646,797
========== ========== ========== ==========
</TABLE>
- ---------------
(a) Certain amounts reclassified to conform with current-period presentation.
27
<PAGE> 28
The financial statements of AEP and APCo and related information included
in their Annual Reports on Form 10-K for the year ended December 31, 1995, and
their Quarterly Reports on Form 10-Q for the periods ended March 31, June 30,
and September 30, 1996, and APCo's Current Reports on Form 8-K dated March 19,
1996 and January 22, 1997, each as filed with the SEC, are hereby incorporated
by reference. All documents subsequently filed by AEP and APCo pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Offer to Purchase and Proxy Statement and prior to the Expiration Date (or any
extension thereof) shall be deemed to be incorporated by reference in this Offer
to Purchase and Proxy Statement and to be a part hereof from the date of filing
of such documents. Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Offer to Purchase and Proxy Statement to the
extent that a statement contained herein or in any other subsequently filed
documents which is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Offer to Purchase and Proxy Statement.
AEP and APCo will provide without charge to each person to whom a copy of
this Offer to Purchase and Proxy Statement has been delivered, on the written or
oral request of any such person, a copy of any or all of the documents described
above which have been incorporated by reference in this Offer to Purchase and
Proxy Statement, other than exhibits to such documents. Written requests for
copies of such documents should be addressed to Mr. G. C. Dean, American
Electric Power Service Corporation, 1 Riverside Plaza, Columbus, Ohio 43215
(telephone 614-223-1000). The information relating to AEP and APCo contained in
this Offer to Purchase and Proxy Statement does not purport to be comprehensive
and should be read together with the information contained in the documents
incorporated by reference.
MISCELLANEOUS
The Offer is not being made to, nor will AEP accept tenders from, owners of
Shares in any jurisdiction in which the Offer or its acceptance would not be in
compliance with the laws of such jurisdiction. AEP is not aware of any
jurisdiction where the making of the Offer or the tender of Shares would not be
in compliance with applicable law. If AEP becomes aware of any jurisdiction
where the making of the Offer or the tender of Shares is not in compliance with
any applicable law, AEP will make a good faith effort to comply with such law.
If, after such good faith effort, AEP cannot comply with such law, the Offer
will not be made to (nor will tenders be accepted from or on behalf of) the
owners of Shares residing in such jurisdiction. In any jurisdiction in which the
securities, blue sky or other laws require the Offer to be made by a licensed
broker or dealer, the Offer will be deemed to be made on AEP's behalf by one or
more registered brokers or dealers licensed under the laws of such jurisdiction.
AMERICAN ELECTRIC POWER COMPANY, INC.
APPALACHIAN POWER COMPANY
28
<PAGE> 29
Facsimile copies of the Letter of Transmittal will not be accepted. The
Letter of Transmittal and, if applicable, certificates for Shares should be sent
or delivered by each tendering or voting Preferred Shareholder of APCo or his or
her broker, dealer, bank or trust company to the Depositary at one of its
addresses set forth below.
THE DEPOSITARY IS:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
<TABLE>
<S> <C> <C>
By Mail: By Hand: By Overnight Courier:
Tender & Exchange Department Tenders & Exchanges Tenders & Exchanges
P.O. Box 2569 c/o The Depositary Trust Company 14 Wall Street, 8th Floor
Suite 4660 55 Water Street, DTC TAD Suite 4680
Jersey City, New Jersey 07303-2569 Vietnam Veterans Memorial Plaza New York, New York 10005
New York, New York 10041
</TABLE>
Any questions or requests for assistance may be directed to the Information
Agent or the Dealer Managers at their respective telephone numbers and addresses
listed below. Requests for additional copies of this Offer to Purchase and Proxy
Statement, the Letter of Transmittal or other tender offer or proxy materials
may be directed to the Information Agent and such copies will be furnished
promptly at the companies' expense. Preferred Shareholders may also contact
their local broker, dealer, commercial bank or trust company for assistance
concerning the Offer.
THE INFORMATION AGENT:
MORROW & CO., INC.
909 Third Avenue
New York, New York 10022-4799
(212) 754-8000 (Call Collect)
or
(800) 566-9061 (Call Toll-Free)
THE DEALER MANAGERS:
<TABLE>
<S> <C>
MERRILL LYNCH & CO. SALOMON BROTHERS INC
World Financial Center Seven World Trade Center
250 Vesey Street New York, New York 10048
New York, New York 10281 1-800-558-3745 (toll-free)
1-888-ML4-TNDR (toll free)
(1-888-654-8637 (toll free))
</TABLE>
29
<PAGE> 1
OFFER TO PURCHASE AND PROXY STATEMENT
AMERICAN ELECTRIC POWER COMPANY, INC.
OFFER TO PURCHASE FOR CASH
ANY AND ALL OUTSTANDING SHARES OF THE FOLLOWING SERIES OF
CUMULATIVE PREFERRED STOCK OF
INDIANA MICHIGAN POWER COMPANY
119,767 SHARES, CUMULATIVE PREFERRED STOCK, 4- 1/8% SERIES AT A PURCHASE PRICE
OF $ . PER SHARE, CUSIP NUMBER 454889 304
40,000 SHARES, CUMULATIVE PREFERRED STOCK, 4.12% SERIES AT A PURCHASE PRICE OF
$ . PER SHARE, CUSIP NUMBER 454889 205
60,000 SHARES, CUMULATIVE PREFERRED STOCK, 4.56% SERIES AT A PURCHASE PRICE OF
$ . PER SHARE, CUSIP NUMBER 454889 825
400,000 SHARES, CUMULATIVE PREFERRED STOCK, 5.90% SERIES AT A PURCHASE PRICE OF
$ . PER SHARE, CUSIP NUMBER 454889 858
300,000 SHARES, CUMULATIVE PREFERRED STOCK, 6- 1/4% SERIES AT A PURCHASE PRICE
OF $ . PER SHARE, CUSIP NUMBER 454889 841
300,000 SHARES, CUMULATIVE PREFERRED STOCK, 6- 7/8% SERIES AT A PURCHASE PRICE
OF $ . PER SHARE, CUSIP NUMBER 454889 866
350,000 SHARES, CUMULATIVE PREFERRED STOCK, 6.30% SERIES AT A PURCHASE PRICE OF
$ . PER SHARE, CUSIP NUMBER 454889 833
------------------------
INDIANA MICHIGAN POWER COMPANY
PROXY STATEMENT
WITH RESPECT TO ITS COMMON STOCK AND CUMULATIVE PREFERRED STOCK
------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON FRIDAY, FEBRUARY 28, 1997, UNLESS THE OFFER IS EXTENDED.
------------------------
American Electric Power Company, Inc., a New York corporation ("AEP"),
invites the holders of each series of cumulative preferred stock listed above
(each a "Series of Preferred," and the holder thereof a "Preferred Shareholder")
of Indiana Michigan Power Company, an Indiana corporation and direct utility
subsidiary of AEP ("I&M"), to tender any and all of their shares of a Series of
Preferred ("Shares") for purchase at the purchase price per Share listed above
plus accrued and unpaid dividends for the Shares tendered, net to the seller in
cash, upon the terms and subject to the conditions set forth in this Offer to
Purchase and Proxy Statement and in the accompanying Letter of Transmittal
(which together constitutes the "Offer"). AEP will purchase all Shares validly
tendered and not withdrawn, upon the terms and subject to the conditions of the
Offer. See "Terms of the Offer -- Certain Conditions of the Offer" and "Terms of
the Offer -- Extension of Tender Period; Termination; Amendments."
THE OFFER FOR A SERIES OF PREFERRED IS NOT CONDITIONED UPON ANY MINIMUM
NUMBER OF SHARES OF SUCH SERIES OF PREFERRED BEING TENDERED AND IS INDEPENDENT
OF THE OFFER FOR ANY OTHER SERIES OF PREFERRED. THE OFFER, HOWEVER, IS
CONDITIONED UPON, AMONG OTHER THINGS, THE PROPOSED AMENDMENT, AS DESCRIBED
BELOW, BEING APPROVED AND ADOPTED AT THE SPECIAL MEETING. SEE "TERMS OF THE
OFFER -- CERTAIN CONDITIONS OF THE OFFER."
Concurrently with the Offer, the Board of Directors of I&M is soliciting
proxies for use at the Special Meeting of Shareholders of I&M to be held at
AEP's principal office, 1 Riverside Plaza, Columbus, Ohio 43215, on February 28,
1997 at 4:15 p.m., or any adjournment or postponement of such meeting (the
"Special Meeting"). The Special Meeting is being held to consider an amendment
(the "Proposed Amendment") to I&M's Amended Articles of Acceptance (the
"Articles") which would remove a provision of the Articles that limits I&M's
ability to issue unsecured debt. WHILE PREFERRED SHAREHOLDERS WHO WISH TO TENDER
THEIR SHARES PURSUANT TO THE OFFER NEED NOT VOTE IN FAVOR OF THE PROPOSED
AMENDMENT, THE OFFER IS CONDITIONED UPON THE PROPOSED AMENDMENT BEING APPROVED
AND ADOPTED AT THE SPECIAL MEETING. IN ADDITION, PREFERRED SHAREHOLDERS OF
RECORD HAVE THE RIGHT TO VOTE FOR OR AGAINST THE PROPOSED AMENDMENT REGARDLESS
OF WHETHER THEY TENDER THEIR SHARES. IF THE PROPOSED AMENDMENT IS APPROVED AND
ADOPTED BY I&M'S SHAREHOLDERS, I&M WILL MAKE A SPECIAL CASH PAYMENT IN THE
AMOUNT OF $1.00 PER SHARE TO EACH PREFERRED SHAREHOLDER WHO VOTED IN FAVOR OF
THE PROPOSED AMENDMENT, PROVIDED THAT SUCH SHARES HAVE NOT BEEN TENDERED
PURSUANT TO THE OFFER. THOSE PREFERRED SHAREHOLDERS WHO VALIDLY TENDER THEIR
SHARES WILL BE ENTITLED ONLY TO THE PURCHASE PRICE PER SHARE LISTED ABOVE.
------------------------
The Company will pay to a Soliciting Dealer (as defined herein) a
solicitation fee of $1.50 for any Shares Tendered, accepted for payment and paid
for pursuant to the Offer, subject to certain conditions. See "Fees and Expenses
Paid to Dealers."
------------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "SEC") NOR HAS THE SEC PASSED UPON THE FAIRNESS OR
MERITS OF THIS TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------
NEITHER AEP, I&M, THEIR RESPECTIVE BOARDS OF DIRECTORS, NOR ANY OF THEIR
RESPECTIVE OFFICERS MAKES ANY RECOMMENDATION TO ANY PREFERRED SHAREHOLDER AS TO
WHETHER TO TENDER ANY OR ALL SHARES. EACH PREFERRED SHAREHOLDER MUST MAKE HIS OR
HER OWN DECISION AS TO WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO
TENDER.
I&M BOARD OF DIRECTORS RECOMMENDS VOTING FOR THE PROPOSED AMENDMENT.
------------------------
This Offer to Purchase and Proxy Statement is first being mailed to
Preferred Shareholders on or about January 30, 1997.
------------------------
Questions or requests for assistance may be directed to Morrow & Co., Inc.
("Morrow" or the "Information Agent") or to Merrill Lynch & Co. ("Merrill
Lynch") and Salomon Brothers Inc ("Salomon Brothers") (Merrill Lynch and Salomon
Brothers collectively the "Dealer Managers") at their respective telephone
numbers and addresses set forth on the back cover of this Offer to Purchase and
Proxy Statement. Requests for additional copies of this Offer to Purchase and
Proxy Statement, the Letter of Transmittal or other tender offer or proxy
materials may be directed to the Information Agent, and such copies will be
furnished promptly at the companies' expense. Preferred Shareholders may also
contact their local broker, dealer, commercial bank or trust company for
assistance concerning the Offer.
------------------------
The Dealer Managers for the Offer are:
MERRILL LYNCH & CO. SALOMON BROTHERS INC
The date of this Offer to Purchase and Proxy Statement is January 30, 1997.
<PAGE> 2
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF AEP
OR I&M AS TO WHETHER PREFERRED SHAREHOLDERS SHOULD TENDER OR REFRAIN FROM
TENDERING SHARES OF ANY SERIES OF PREFERRED PURSUANT TO THE OFFER. NO PERSON HAS
BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN
CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED HEREIN OR IN THE RELATED
LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH RECOMMENDATION AND SUCH
INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY AEP OR I&M.
IMPORTANT
Any Preferred Shareholder desiring to accept the Offer and tender all or
any portion of his or her Shares should either (i) request his or her broker,
dealer, commercial bank, trust company or nominee to effect the transaction for
him or her, or (ii) complete and sign the Letter of Transmittal, in accordance
with the instructions in the Letter of Transmittal, mail or deliver the same and
any other required documents to First Chicago Trust Company of New York (the
"Depositary"), and deliver the certificates for such Shares to the Depositary,
along with the Letter of Transmittal, or tender such Shares pursuant to the
procedure for book-entry transfer set forth below under "Terms of the
Offer -- Procedure for Tendering Shares," on or prior to the Expiration Date (as
defined below). A Preferred Shareholder whose Shares are registered in the name
of a broker, dealer, commercial bank, trust company or nominee must contact such
broker, dealer, commercial bank, trust company or nominee if he or she desires
to tender such Shares. Any Preferred Shareholder who desires to tender Shares
and whose certificates for such Shares are not immediately available, or who
cannot comply in a timely manner with the procedure for book-entry transfer,
should tender such Shares by following the procedures for guaranteed delivery
set forth below under "Terms of the Offer -- Procedure for Tendering Shares."
EACH SERIES OF PREFERRED HAS ITS OWN LETTER OF TRANSMITTAL, AND ONLY THE
APPLICABLE LETTER OF TRANSMITTAL FOR SUCH SERIES OF PREFERRED OR A NOTICE OF
GUARANTEED DELIVERY MAY BE USED TO TENDER SHARES OF SUCH SERIES OF PREFERRED.
Each Series of Preferred is traded in the over-the-counter market (the
"OTC") and is not listed on any national securities exchange, except for the
4- 1/8%, which is traded on the Chicago Stock Exchange ("CSE"). On January 28,
1997 (the last trading day prior to the commencement of the Offer), the last
reported sale prices as reported by the National Quotation Bureau, Inc. were
$ for the 4- 1/8% Series of Preferred (on , 199 );
$ for the 4.12% Series of Preferred (on , 199 );
$ for the 4.56% Series of Preferred (on , 199 );
$ for the 5.90% Series of Preferred (on , 199 );
$ for the 6- 1/4% Series of Preferred (on , 199 );
$ for the 6- 7/8% Series of Preferred (on , 199 ); and
$ for the 6.30% Series of Preferred (on , 199 ). Preferred
Shareholders are urged to obtain a current market quotation, if available, for
the Shares. On January 29, 1997, there were issued and outstanding 119,767
Shares of the 4- 1/8% Series of Preferred; 40,000 Shares of the 4.12% Series of
Preferred; 60,000 Shares of the 4.56% Series of Preferred; 400,000 Shares of the
5.90% Series of Preferred; 300,000 Shares of the 6- 1/4% Series of Preferred;
300,000 Shares of the 6- 7/8% Series of Preferred; and 350,000 Shares of the
6.30% Series of Preferred.
2
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY............................................................................... 4
TERMS OF THE OFFER.................................................................... 7
Number of Shares; Purchase Prices; Expiration Date; Dividends.................... 7
Procedure for Tendering Shares................................................... 7
Withdrawal Rights................................................................ 9
Acceptance of Shares for Payment and Payment of Purchase Price and Dividends..... 10
Certain Conditions of the Offer.................................................. 11
Extension of Tender Period; Termination; Amendments.............................. 12
PROPOSED AMENDMENT AND PROXY SOLICITATION............................................. 13
Introduction..................................................................... 13
Voting Securities, Rights and Procedures......................................... 13
Proxies.......................................................................... 14
Special Cash Payments............................................................ 15
Security Ownership of Certain Beneficial Owners and Management................... 15
Business to Come Before the Special Meeting...................................... 16
Explanation of the Proposed Amendment............................................ 16
Reasons for the Proposed Amendment............................................... 17
Relationship with Independent Public Accountants................................. 18
PRICE RANGE OF SHARES; DIVIDENDS...................................................... 18
PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER.................................... 20
CERTAIN FEDERAL INCOME TAX CONSEQUENCES............................................... 22
SOURCE AND AMOUNT OF FUNDS............................................................ 24
TRANSACTIONS AND AGREEMENTS CONCERNING THE SHARES..................................... 25
FEES AND EXPENSES PAID TO DEALERS..................................................... 25
CERTAIN INFORMATION REGARDING AEP AND I&M............................................. 26
SUMMARY OF CONSOLIDATED FINANCIAL INFORMATION......................................... 26
MISCELLANEOUS......................................................................... 28
</TABLE>
3
<PAGE> 4
SUMMARY
The following summary is provided solely for the convenience of the
Preferred Shareholders. This summary is not intended to be complete and is
qualified in its entirety by reference to the full text and more specific
details contained in this Offer to Purchase and Proxy Statement and the Letter
of Transmittal and any amendments hereto or thereto. Preferred Shareholders are
urged to read this Offer to Purchase and Proxy Statement and the Letter of
Transmittal in their entirety. Each of the capitalized terms used in this
summary and not defined herein has the meaning set forth elsewhere in this Offer
to Purchase and Proxy Statement.
The Companies.............. AEP, 1 Riverside Plaza, Columbus, Ohio 43215, is a
registered holding company under the Public Utility
Holding Company Act of 1935, as amended (the
"Holding Company Act"), which owns, directly or
indirectly, all of the outstanding common stock of
its electric utility subsidiaries, including I&M.
The service area of AEP's electric utility
subsidiaries covers portions of Indiana, Kentucky,
Michigan, Ohio, Tennessee, Virginia and West
Virginia. I&M, One Summit Square, Fort Wayne,
Indiana 46801, is a utility primarily engaged in
the generation, purchase, transmission and
distribution of electric power to approximately
537,000 customers in Indiana and Michigan, and in
supplying electric power at wholesale to other
electric utility companies and municipalities.
The Shares................. 4- 1/8% Cumulative Preferred Stock (par value $100
per share)
4.12% Cumulative Preferred Stock (par value $100
per share)
4.56% Cumulative Preferred Stock (par value $100
per share)
5.90% Cumulative Preferred Stock (par value $100
per share)
6- 1/4% Cumulative Preferred Stock (par value $100
per share)
6- 7/8% Cumulative Preferred Stock (par value $100
per share)
6.30% Cumulative Preferred Stock (par value $100
per share)
The Offer and Purchase
Price...................... Offer to purchase any or all shares of each Series
of Preferred at the price set forth below.
$ . per 4- 1/8% Share
$ . per 4.12% Share
$ . per 4.56% Share
$ . per 5.90% Share
$ . per 6- 1/4% Share
$ . per 6- 7/8% Share
$ . per 6.30% Share
Independent Offer.......... The Offer for one Series of Preferred is
independent of the Offer for any other Series of
Preferred. The Offer is not conditioned upon any
minimum number of Shares of the applicable Series
of Preferred being tendered. Preferred Shareholders
who wish to tender their Shares are not required to
vote in favor of the Proposed Amendment. The Offer
is subject, however, to shareholder approval of the
Proposed Amendment and certain other conditions.
Expiration Date of the
Offer...................... The Offer expires at 5:00 p.m., New York City time
February 28, 1997, unless extended (the "Expiration
Date").
How to Tender Shares....... See "Terms of the Offer -- Procedure for Tendering
Shares". For further information, call the
Information Agent or the Dealer Managers or consult
your broker for assistance.
4
<PAGE> 5
Withdrawal Rights.......... Tendered Shares of any Series of Preferred may be
withdrawn at any time until the Expiration Date
with respect to such Series of Preferred and,
unless previously accepted for payment, may also be
withdrawn after March 28, 1997. See "Terms of the
Offer -- Withdrawal Rights."
Purpose of the Offer....... AEP is making the Offer because AEP believes that
the purchase of Shares is economically attractive
to I&M and indirectly to AEP and its shareholders.
In addition, the Offer gives Preferred Shareholders
the opportunity to sell their Shares at a price
which AEP believes to be a premium over the market
price and without the usual transaction costs
associated with a market sale. See "Purpose of the
Offer; Certain Effects of the Offer."
Dividends.................. I&M declared and paid the regular quarterly
dividend on each Series of Preferred payable on
January 2, 1997 to holders of record as of the
close of business on December 6, 1996 (the "January
1997 Dividend"). Tendering Preferred Shareholders
will be entitled to any dividends accrued prior to
the Payment Date (as defined herein), in respect of
any later dividend periods (or any portion
thereof).
Brokerage Commissions...... Not payable by Preferred Shareholders.
Solicitation Fee........... AEP will pay to each designated Soliciting Dealer
(as defined herein) a solicitation fee of $1.50 per
Share for any Shares tendered, accepted for payment
and paid for pursuant to the Offer (except that for
transactions for beneficial owners equal to or
exceeding 5,000 Shares, AEP will pay a solicitation
fee of (i) $1.00 per Share for Shares of the
4- 1/8% Series, 4.12% Series and the 4.56% Series
and (ii) $.50 per Share for the remaining Series)
and I&M will pay a separate fee of $.50 per Share
for any Shares of the 4- 1/8 Series, the 4.12%
Series and the 4.56% Series that are not tendered
pursuant to the Offer but which are voted in favor
of the Proposed Amendment. A Soliciting Dealer will
not be entitled to a solicitation fee or a separate
fee for Shares beneficially owned by such
Soliciting Dealer; provided that, with respect to
solicitation fees paid with respect to transactions
for beneficial owners equal to or exceeding 5,000
shares, at least twenty percent (20%) of each such
fee shall be paid to the Dealer Managers.
Proposed Amendment......... Concurrently with the Offer, the Board of Directors
of I&M is soliciting proxies for use at the Special
Meeting of Shareholders of I&M. The Special Meeting
is being held to consider an amendment to I&M's
Articles which would remove a provision that limits
I&M's ability to issue unsecured debt. If the
Proposed Amendment is approved by the shareholders,
the clause of the Articles that places restrictions
on I&M's ability to issue or assume indebtedness
will be eliminated with respect to any Shares that
remain outstanding after the consummation of the
Offer. See "Purpose of the Offer; Certain Effects
of the Offer."
Record Date................ January 27, 1997.
Special Cash Payment....... Preferred Shareholders of record have the right to
vote for or against the Proposed Amendment
regardless of whether they tender their Shares. If
the Proposed Amendment is approved and adopted by
I&M's shareholders, I&M will make a special cash
payment of $1.00 per Share to each Preferred
Shareholder who voted in favor of the Proposed
Amendment but who did not tender his or her Shares
(the "Special Cash Payment").
5
<PAGE> 6
Preferred Shareholders who validly tender their
Shares will be entitled only to the purchase price
per Share listed on the front cover of this Offer
to Purchase and Proxy Statement plus an amount in
cash equivalent to any dividends accrued prior to
the Payment Date.
Stock Transfer Tax......... Except as described herein, AEP will pay or cause
to be paid any stock transfer taxes with respect to
the sale and transfer of any Shares to it or its
order pursuant to the Offer. See Instruction 6 of
the applicable Letter of Transmittal. See "Terms of
the Offer -- Acceptance of Shares for Payment of
Purchase Price and Dividends."
Payment Date............... Promptly after the Expiration Date or any extension
thereof.
Further Information........ Additional copies of this Offer to Purchase and
Proxy Statement and the applicable Letter of
Transmittal may be obtained by contacting Morrow,
909 Third Avenue, New York, NY 10022-4799,
telephone (800)-566-9061 (toll-free) and (212)
754-8000 (brokers and dealers). Questions about the
Offer should be directed to Merrill Lynch at (888)
ML4-TNDR (toll free) (888-654-8637 (toll free)) or
to Salomon Brothers at (800) 558-3745 (toll free).
6
<PAGE> 7
TERMS OF THE OFFER
NUMBER OF SHARES; PURCHASE PRICES; EXPIRATION DATE; DIVIDENDS
Upon the terms and subject to the conditions described herein and in the
applicable Letter of Transmittal, AEP will purchase any and all Shares that are
validly tendered on or prior to the applicable Expiration Date (and not properly
withdrawn in accordance with "Terms of the Offer -- Withdrawal Rights") at the
purchase price per Share listed on the front cover of this Offer to Purchase and
Proxy Statement for the Shares tendered, plus accrued and unpaid dividends for
the Shares tendered to the Payment Date, net to the seller in cash. See "Terms
of the Offer -- Certain Conditions of the Offer" and "Terms of the Offer --
Extension of Tender Period; Termination."
THE OFFER FOR A SERIES OF PREFERRED IS NOT CONDITIONED UPON ANY MINIMUM
NUMBER OF SHARES OF SUCH SERIES OF PREFERRED BEING TENDERED AND IS INDEPENDENT
OF THE OFFER FOR ANY OTHER SERIES OF PREFERRED. THE OFFER, HOWEVER, IS
CONDITIONED UPON, AMONG OTHER THINGS, THE PROPOSED AMENDMENT, AS DESCRIBED
HEREIN, BEING APPROVED AND ADOPTED AT THE SPECIAL MEETING. SEE "TERMS OF THE
OFFER -- CERTAIN CONDITIONS OF THE OFFER."
The Offer is being sent to all persons in whose names Shares are registered
on the books of I&M as of the close of business on January 27, 1997 and
transferees of such persons. Only a record holder of Shares on the Record Date
(as defined herein) may vote in person or by proxy at the Special Meeting. No
record date is fixed for determining which persons are permitted to tender
Shares. Any person who is the beneficial owner but not the record holder of
Shares must arrange for the record transfer of such Shares prior to tendering.
With respect to each Series of Preferred, the Expiration Date is the later
of 5:00 p.m. New York City time, on February 28, 1997 or the latest time and
date to which the Offer with respect to such Series of Preferred is extended.
AEP expressly reserves the right, in its sole discretion, and at any time and/or
from time to time, to extend the period of time during which the Offer for any
Series of Preferred is open, by giving oral or written notice of such extension
to the Depositary and making a public announcement thereof, without extending
the period of time during which the Offer for any other Series of Preferred is
open. There is no assurance whatsoever that AEP will exercise its right to
extend the Offer for any Series of Preferred. If AEP decides, in its sole
discretion, to (i) decrease the number of Shares of any Series of Preferred
being sought, (ii) increase or decrease the consideration offered in the Offer
to holders of any Series of Preferred or (iii) increase or decrease the
Soliciting Dealers' fees and, at the time that notice of such increase or
decrease is first published, sent or given to holders of such Series of
Preferred in the manner specified herein, the Offer for such Series of Preferred
is scheduled to expire at any time earlier than the tenth business day from the
date that such notice is first so published, sent or given, such Offer will be
extended until the expiration of such ten-business-day period. For purposes of
the Offer, a "business day" means any day other than a Saturday, Sunday or
federal holiday and consists of the time period from 12:00 a.m. through 11:59
p.m., New York City time.
NO ALTERNATIVE, CONDITIONAL OR CONTINGENT TENDERS WILL BE ACCEPTED.
The January 1997 Dividend was declared on each Series of Preferred and was
paid on January 2, 1997 to holders of record as of the close of business on
December 6, 1996. Tendering Preferred Shareholders will be entitled to any
dividends accrued prior to the Payment Date in respect of any later dividend
periods (or any portion thereof).
PROCEDURE FOR TENDERING SHARES
To tender Shares pursuant to the Offer, the tendering owner of Shares must
either:
(a) send to the Depositary (at one of its addresses set forth on the
back cover of this Offer to Purchase and Proxy Statement) a properly
completed and duly executed Letter of Transmittal, together with any
required signature guarantees and any other documents required by the
Letter of Transmittal and either (i) certificates for the Shares to be
tendered must be received by the Depositary at one of such addresses or
(ii) such Shares must be delivered pursuant to the procedures for
book-entry transfer
7
<PAGE> 8
described herein (and a confirmation of such delivery must be received by
the Depositary), in each case by the Expiration Date; or
(b) comply with the guaranteed delivery procedure described under
"Guaranteed Delivery Procedure" below.
A tender of Shares made pursuant to any method of delivery set forth herein
or in the Letter of Transmittal will constitute a binding agreement between the
tendering holder and AEP upon the terms and subject to the conditions of the
Offer.
The Depositary will establish an account with respect to the Shares at The
Depository Trust Company and the Philadelphia Depository Trust Company (each a
"Book Entry Transfer Facility") for purposes of the Offer within two business
days after the date of this Offer to Purchase and Proxy Statement, and any
financial institution that is a participant in the system of a Book-Entry
Transfer Facility may make delivery of Shares by causing the Book-Entry Transfer
Facility to transfer such Shares into the Depositary's account in accordance
with the procedures of such Book-Entry Transfer Facility. Although delivery of
Shares may be effected through book-entry transfer, such delivery must be
accompanied by either (i) a properly completed and duly executed Letter of
Transmittal, together with any required signature guarantees and any other
required documents or (ii) an Agent's Message (as hereinafter defined) and, in
any case, must be received by the Depositary at one of its addresses set forth
on the back cover of this Offer to Purchase and Proxy Statement on or prior to
the Expiration Date. DELIVERY OF SUCH LETTER OF TRANSMITTAL AND ANY OTHER
REQUIRED DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY OR TO AEP DOES NOT
CONSTITUTE DELIVERY TO THE DEPOSITARY.
The term "Agent's Message" means a message, transmitted by a Book-Entry
Transfer Facility, received by the Depositary and forming a part of the
book-entry transfer when a tender is initiated, which states that such
Book-Entry Transfer Facility has received an express acknowledgment from a
participant tendering Shares that such participant has received and agrees to be
bound by the terms of the Letter of Transmittal and that AEP may enforce such
agreement against such participant.
Except as otherwise provided below, all signatures on a Letter of
Transmittal must be guaranteed by a firm that is a member of a registered
national securities exchange or the National Association of Securities Dealers,
Inc., or by a commercial bank or trust company having an office or correspondent
in the United States that is a participant in an approved Signature Guarantee
Medallion Program (each of the foregoing being referred to as an "Eligible
Institution"). Signatures on a Letter of Transmittal need not be guaranteed if
(a) the Letter of Transmittal or is signed by the registered owner of the shares
tendered therewith and such owner has not completed the box entitled "Special
Payment Instructions" or the box entitled "Special Delivery Instructions" on the
Letter of Transmittal or (b) such Shares are tendered for the account of an
Eligible Institution. See Instructions 1 and 5 of the Letter of Transmittal. If
Shares are registered in the name of a person other than the signatory on the
Letter of Transmittal, or if unpurchased Shares are to be issued to a person
other than the registered holder(s), the certificates must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name or names of the registered holder(s) appear on the Shares with the
signature(s) on the Shares or stock powers guaranteed as stated above. See
Instructions 4, 6 and 7 to the Letter of Transmittal.
Guaranteed Delivery Procedure. If a Preferred Shareholder desires to
tender Shares pursuant to the Offer and such Preferred Shareholder's
certificates are not immediately available or the procedures for book-entry
transfer cannot be completed on a timely basis or time will not permit all
required documents to reach the Depositary prior to the Expiration Date, such
Shares may nevertheless be tendered if all of the following guaranteed delivery
procedures are complied with:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by AEP and I&M herewith, is
received (with any required signatures or signature guarantees) by the
Depositary as provided below on or prior to the Expiration Date; and
8
<PAGE> 9
(iii) the certificates for all tendered Shares in proper form for
transfer or a Book-Entry Confirmation with respect to all tendered Shares,
together with a properly completed and duly executed Letter of Transmittal
and any other documents required by the Letter of Transmittal, are received
by the Depositary no later than 5:00 p.m., New York City time, within three
business days after the date of execution of such Notice of Guaranteed
Delivery.
THE NOTICE OF GUARANTEED DELIVERY MAY BE DELIVERED BY HAND OR MAILED TO THE
DEPOSITARY AND MUST INCLUDE AN ENDORSEMENT BY AN ELIGIBLE INSTITUTION IN THE
FORM SET FORTH IN SUCH NOTICE OF GUARANTEED DELIVERY.
In all cases, Shares shall not be deemed validly tendered unless a properly
completed and duly executed Letter of Transmittal or, if applicable, an Agent's
Message, is received by the Depositary.
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer in all cases will be made only after timely
receipt by the Depositary of certificates for (or an Agent's Message with
respect to) such Shares, a Letter of Transmittal, properly completed and duly
executed, with any required signature guarantees and all other documents
required by the Letter of Transmittal.
THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE
OPTION AND RISK OF THE TENDERING PREFERRED SHAREHOLDER. IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
BECAUSE IT IS THE TIME OF RECEIPT, NOT THE TIME OF MAILING, WHICH DETERMINES
WHETHER A TENDER HAS BEEN MADE PRIOR TO THE EXPIRATION DATE, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY.
TO AVOID FEDERAL INCOME TAX BACKUP WITHHOLDING EQUAL TO 31% OF THE GROSS
PAYMENTS MADE PURSUANT TO THE OFFER, EACH TENDERING PREFERRED SHAREHOLDER WHO IS
A UNITED STATES PERSON MUST NOTIFY THE DEPOSITARY OF SUCH PREFERRED
SHAREHOLDER'S CORRECT TAXPAYER IDENTIFICATION NUMBER AND PROVIDE CERTAIN OTHER
INFORMATION BY PROPERLY COMPLETING AND EXECUTING THE SUBSTITUTE FORM W-9
INCLUDED IN THE LETTER OF TRANSMITTAL (OR, IN THE CASE OF A FOREIGN PREFERRED
SHAREHOLDER, FORM W-8 OBTAINABLE FROM THE DEPOSITARY). SEE "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES."
EACH PREFERRED SHAREHOLDER IS URGED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR REGARDING THE TAX CONSEQUENCES OF THE OFFER.
All questions as to the form of documents and the validity, eligibility
(including the time of receipt) and acceptance for payment of any tender of
Shares will be determined by AEP, in its sole discretion, and its determination
will be final and binding. AEP reserves the absolute right to reject any or all
tenders of Shares that (i) it determines are not in proper form or (ii) the
acceptance for payment of or payment for which may, in the opinion of AEP's
counsel, be unlawful. AEP also reserves the absolute right to waive any defect
or irregularity in any tender of Shares. None of AEP, I&M, the Dealer Managers,
the Depositary, the Information Agent or any other person will be under any duty
to give notice of any defect or irregularity in tenders, nor shall any of them
incur any liability for failure to give any such notice.
WITHDRAWAL RIGHTS
Tenders of Shares made pursuant to the Offer may be withdrawn at any time
prior to the Expiration Date. Thereafter, such tenders are irrevocable, except
that they may be withdrawn after March 28, 1997, unless previously accepted for
payment as provided in this Offer to Purchase and Proxy Statement.
To be effective, a written notice of withdrawal must be timely received by
the Depositary, at one of its addresses set forth on the back cover of this
Offer to Purchase and Proxy Statement, and must specify the name of the person
who tendered the Shares to be withdrawn and the number of Shares to be
withdrawn. If the Shares to be withdrawn have been delivered to the Depositary,
a signed notice of withdrawal with
9
<PAGE> 10
signatures guaranteed by an Eligible Institution (except in the case of Shares
tendered by an Eligible Institution) must be submitted prior to the release of
such Shares. In addition, such notice must specify, in the case of Shares
tendered by delivery of certificates, the name of the registered owner (if
different from that of the tendering Preferred Shareholder) and the serial
numbers shown on the particular certificates evidencing the Shares to be
withdrawn or, in the case of Shares tendered by book-entry transfer, the name
and number of the account at the Book-Entry Transfer Facility to be credited
with the withdrawn Shares and the name of the registered holder (if different
from the name of such account). Withdrawals may not be rescinded, and Shares
withdrawn will thereafter be deemed not validly tendered for purposes of the
Offer. However, withdrawn Shares may be re-tendered by again following one of
the procedures described in "Terms of the Offer -- Procedure for Tendering
Shares" at any time prior to the Expiration Date.
All questions as to the form and validity (including time of receipt) of
any notice of withdrawal will be determined by AEP, in its sole discretion, and
its determination will be final and binding. None of AEP, I&M, the Dealer
Managers, the Depositary, the Information Agent or any other person will be
under any duty to give notification of any defect or irregularity in any notice
of withdrawal or will incur any liability for failure to give a any such
notification.
ACCEPTANCE OF SHARES FOR PAYMENT AND PAYMENT OF PURCHASE PRICE AND DIVIDENDS
Upon the terms and subject to the conditions of the Offer, and as promptly
as practicable after the Expiration Date, AEP will accept for payment (and
thereby purchase) and pay for Shares validly tendered and not withdrawn as
permitted in "Terms of the Offer -- Withdrawal Rights." Thereafter, payment for
all Shares validly tendered on or prior to the Expiration Date and accepted
pursuant to the Offer will be made by the Depositary by check as promptly as
practicable after the Expiration Date. In all cases, payment for Shares accepted
for payment pursuant to the Offer will be made promptly but only after timely
receipt by the Depositary of certificates for such Shares (or of an Agent's
Message), a properly completed and duly executed Letter of Transmittal and any
other required documents.
For purposes of the Offer, AEP will be deemed to have accepted for payment
(and thereby purchased) Shares that are validly tendered and not withdrawn as,
if and when it gives oral or written notice to the Depositary of its acceptance
for payment of such Shares. AEP will pay for Shares that it has purchased
pursuant to the Offer by depositing the purchase price therefor plus accrued and
unpaid dividends thereon with the Depositary, which will act as agent for
tendering Preferred Shareholders for the purpose of receiving payment from AEP
and transmitting payment to tendering Preferred Shareholders. Under no
circumstances will interest be paid on amounts to be paid to tendering Preferred
Shareholders, regardless of any delay in making such payment.
Certificates for all Shares not validly tendered will be returned or, in
the case of Shares tendered by book-entry transfer, such Shares will be credited
to an account maintained with the Book-Entry Transfer Facility, as promptly as
practicable, without expense to the tendering Preferred Shareholder.
If certain events occur, AEP may not be obligated to purchase Shares
pursuant to the Offer. See "Terms of the Offer -- Certain Conditions of the
Offer."
AEP will pay or cause to be paid any stock transfer taxes with respect to
the sale and transfer of any Shares to it or its order pursuant to the Offer.
If, however, payment of the purchase price is to be made to, or Shares not
tendered or not purchased are to be registered in the name of, any person other
than the registered owner, or if tendered Shares are registered in the name of
any person other than the person signing the Letter of Transmittal, the amount
of any stock transfer taxes (whether imposed on the registered owner, such other
person or otherwise) payable on account of the transfer to such person will be
deducted from the purchase price unless satisfactory evidence of the payment of
such taxes, or exemption therefrom, is submitted. See Instruction 6 of the
accompanying Letter of Transmittal.
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<PAGE> 11
CERTAIN CONDITIONS OF THE OFFER
AEP WILL NOT BE REQUIRED TO ACCEPT FOR PAYMENT OR PAY FOR ANY SHARES
TENDERED IF THE PROPOSED AMENDMENT IS NOT APPROVED AND ADOPTED AT THE SPECIAL
MEETING.
PREFERRED SHAREHOLDERS OF RECORD HAVE THE RIGHT TO VOTE FOR OR AGAINST THE
PROPOSED AMENDMENT REGARDLESS OF WHETHER THEY TENDER THEIR SHARES. IF THE
PROPOSED AMENDMENT IS APPROVED AND ADOPTED, I&M WILL MAKE A SPECIAL CASH PAYMENT
TO EACH PREFERRED SHAREHOLDER WHO VOTED IN FAVOR OF THE PROPOSED AMENDMENT,
PROVIDED THAT THEIR SHARES HAVE NOT BEEN TENDERED PURSUANT TO THE OFFER.
PREFERRED SHAREHOLDERS WHO TENDER THEIR SHARES WILL ONLY BE ENTITLED TO THE
PURCHASE PRICE PER SHARE LISTED ON THE FRONT COVER OF THIS OFFER TO PURCHASE AND
PROXY STATEMENT.
In addition, notwithstanding any other provision of the Offer, AEP will not
be required to accept for payment or pay for any Shares tendered, and may
terminate or amend the Offer (by oral or written notice to the Depositary and
timely public announcement) or may postpone (subject to the requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") for prompt
payment for or return of Shares) the acceptance for payment of, or payment for,
Shares tendered, if at any time after January 29, 1997, and at or before the
Expiration Date, any of the following shall have occurred (which shall not have
been waived by AEP):
(a) there shall have been threatened, instituted or pending any action
or proceeding by any government or governmental, regulatory or
administrative agency, authority or tribunal or any other person, domestic
or foreign, or before any court, authority, agency or tribunal that (i)
challenges the acquisition of Shares pursuant to the Offer or otherwise in
any manner relates to or affects the Offer or (ii) in the reasonable
judgment of AEP, would or might materially and adversely affect the
business, condition (financial or otherwise), income, operations or
prospects of AEP and its subsidiaries taken as a whole, or otherwise
materially impair in any way the contemplated future conduct of the
business of AEP or any of its subsidiaries or materially impair the Offer's
contemplated benefits to AEP;
(b) there shall have been any action threatened, pending or taken, or
approval withheld, or any statute, rule, regulation, judgment, order or
injunction threatened, proposed, sought, promulgated, enacted, entered,
amended, enforced or deemed to be applicable to the Offer or AEP or any of
its subsidiaries, by any legislative body, court, authority, agency or
tribunal that, in AEP's reasonable judgment, would or might directly or
indirectly (i) make the acceptance for payment of, or payment for, some or
all of the Shares illegal or otherwise restrict or prohibit consummation of
the Offer; (ii) delay or restrict the ability of AEP, or render AEP unable,
to accept for payment or pay for some or all of the Shares; (iii)
materially impair the contemplated benefits of the Offer to AEP or I&M
(including materially increasing the effective interest cost of certain
types of unsecured debt); or (iv) materially affect the business, condition
(financial or otherwise), income, operations or prospects of AEP and its
subsidiaries taken as a whole, or otherwise materially impair in any way
the contemplated future conduct of the business of AEP or any of its
subsidiaries;
(c) there shall have occurred (i) any significant decrease in the
market price of the Shares, (ii) any change in the general political,
market, economic or financial conditions in the United States or abroad
that, in the reasonable judgment of AEP, would or might have a material
adverse effect on AEP's business, operations, prospects or ability to
obtain financing generally or the trading in the Shares or other equity
securities of AEP; (iii) the declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or any
limitation on, or any event that, in AEP's reasonable judgment, would or
might affect the extension of credit by lending institutions in the United
States; (iv) the commencement of war, armed hostilities or other
international or national calamity directly or indirectly involving the
United States; (v) any general suspension of trading in, or limitation on
prices for, securities on any national securities exchange or in the
over-the-counter market; (vi) in the case of any of the foregoing existing
at the time of the commencement of the Offer, in AEP's reasonable judgment,
a material acceleration or worsening thereof; (vii) any decline in either
the Dow Jones Industrial Average
11
<PAGE> 12
or the Standard and Poor's Composite 500 Stock Index by an amount in excess
of 15% measured from the close of business on January 29, 1997; or (viii) a
decline in the ratings accorded any of AEP's or I&M's securities by
Standard & Poor's Rating Services ("S&P"), Moody's Investors Service, Inc.
("Moody's") or Duff & Phelps, Inc. ("D&P") or that S&P, Moody's or D&P has
announced that it has placed any such rating under surveillance or review
with negative implications.
(d) any tender or exchange offer with respect to some or all of the
Shares (other than the Offer) or other equity securities of AEP, or a
merger, acquisition or other business combination proposal for AEP, shall
have been proposed, announced or made by any person or entity;
(e) there shall have occurred any event or events that have resulted,
or in AEP's reasonable judgment, may result, in an actual or threatened
change in the business, condition (financial or otherwise), income,
operations, stock ownership or prospects of AEP and its subsidiaries; or
(f) the Securities and Exchange Commission (the "SEC") shall have
withheld approval, under the Holding Company Act, of the acquisition of the
Shares by AEP pursuant to the Offer or the approval and adoption of the
Proposed Amendment at the Special Meeting or the issuance of short-term
debt by AEP and/or I&M;
and, in the sole judgment of AEP, such event or events make it undesirable or
inadvisable to proceed with the Offer or with such acceptance for payment or
payment. With respect to the approval of the SEC referenced in clause (f) above,
the SEC must find that the acquisition of the Shares by AEP is not detrimental
to the public interest or the interests of the investors or consumers, and that
the consideration paid in connection with the acquisition and the adoption of
the Proposed Amendment, including fees, commissions and other remuneration, is
reasonable.
The foregoing conditions (including the condition that the Proposed
Amendment be approved and adopted at the Special Meeting) are for the sole
benefit of AEP and may be asserted by AEP regardless of the circumstances
(including any action or inaction by AEP) giving rise to any such condition, and
any such condition may be waived by AEP, in whole or in part, at any time and
from time to time in its sole discretion. A decision by AEP to terminate or
otherwise amend any Offer, following the occurrence of any of the foregoing,
with respect to one Series of Preferred will not create an obligation on behalf
of AEP to terminate or otherwise amend in a similar manner the Offer with
respect to any other Series of Preferred. The failure by AEP at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time. Any determination by AEP concerning the
events described above will be final and binding on all parties.
EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENTS
AEP expressly reserves the right, in its sole discretion, and at any time
and/or from time to time prior to the Expiration Date, to extend the period of
time during which the Offer for any Series of Preferred is open by giving oral
or written notice of such extension to the Depositary, without extending the
period of time during which the Offer for any other Series of Preferred is open.
There can be no assurance, however, that AEP will exercise its right to extend
the Offer for any Series of Preferred. During any such extension, all Shares of
the subject Series of Preferred previously tendered will remain subject to the
Offer, except to the extent that such Shares may be withdrawn as set forth in
"Terms of the Offer -- Withdrawal Rights."
AEP also expressly reserves the right, in its sole discretion, to, among
other things, terminate the Offer and not accept for payment or pay for any
Shares tendered, subject to Rule 13e-4(f)(5) under the Exchange Act, which
requires AEP either to pay the consideration offered or to return the Shares
tendered promptly after the termination or withdrawal of the Offer upon the
occurrence of any of the conditions specified in "Terms of the Offer -- Certain
Conditions of the Offer" by giving oral or written notice of such termination to
the Depositary, and making a public announcement thereof.
Subject to compliance with applicable law, AEP further reserves the right,
in its sole discretion, to amend the Offer in any respect. Amendments to the
Offer may be made at any time and/or from time to time
12
<PAGE> 13
effected by public announcement thereof, such announcement, in the case of an
extension, to be issued no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. Any public
announcement made pursuant to the Offer will be disseminated promptly to
Preferred Shareholders affected thereby in a manner reasonably designed to
inform such Preferred Shareholders of such change. Without limiting the manner
in which AEP may choose to make a public announcement, except as required by
applicable law, AEP shall have no obligation to publish, advertise or otherwise
communicate any such public announcement other than by making a release to the
Dow Jones News Service.
If AEP materially changes the terms of the Offer or the information
concerning the Offer, or if it waives a material condition of the Offer, AEP
will extend the Offer to the extent required by Rules 13e-4(d)(2) and
13e-4(e)(2) under the Exchange Act. Those rules require that the minimum period
during which the Offer must remain open following material changes in the terms
of the Offer or information concerning the Offer (other than a change in price,
a change in percentage of securities sought or a change in the dealer's
solicitation fee) will depend on the facts and circumstances, including the
relative materiality of such terms or information. The SEC has stated that, in
its view, an offer should remain open for a minimum of five business days from
the date that a notice of such a material change is first published, sent or
given. If the Offer is scheduled to expire at any time earlier than the
expiration of a period ending on the tenth business day from, and including, the
date that AEP publishes, sends or gives to Preferred Shareholders a notice that
it will (i) increase or decrease the price it will pay for Shares, (ii) decrease
the percentage of Shares it seeks, or (iii) increase or decrease the soliciting
dealers' fees the Offer will be extended until the expiration of such period of
ten business days. THE OFFER FOR EACH SERIES OF PREFERRED IS INDEPENDENT OF THE
OFFER FOR ANY OTHER SERIES OF PREFERRED. IF AEP EXTENDS OR AMENDS ANY OFFER WITH
RESPECT TO ONE SERIES OF PREFERRED FOR ANY REASON, AEP WILL HAVE NO OBLIGATION
TO EXTEND THE OFFER FOR ANY OTHER SERIES OF PREFERRED.
PROPOSED AMENDMENT AND PROXY SOLICITATION
INTRODUCTION
This Offer to Purchase and Proxy Statement is first being mailed on or
about January 30, 1997 to the shareholders of I&M in connection with the
solicitation of proxies by the Board of Directors of I&M (the "Board") for use
at the Special Meeting. At the Special Meeting, the shareholders of record of
I&M will vote upon the Proposed Amendment to the Articles.
While Preferred Shareholders who wish to tender their Shares pursuant to
the Offer are not required to vote in favor of or against the Proposed
Amendment, the Offer is conditioned upon the Proposed Amendment being approved
and adopted at the Special Meeting. In addition, Preferred Shareholders of
record have the right to vote for or against the Proposed Amendment regardless
of whether they tender their Shares. If the Proposed Amendment is approved and
adopted by I&M's shareholders, I&M will make a special cash payment in the
amount of $1.00 per Share (the "Special Cash Payment") to each Preferred
Shareholder of record who voted in favor of the Proposed Amendment, provided
that such Shares have not been tendered pursuant to the Offer. If a Preferred
Shareholder votes against the Proposed Amendment or abstains, such Preferred
Shareholder shall not be entitled to the Special Cash Payment (regardless of
whether the Proposed Amendment is approved and adopted). Those Preferred
Shareholders who validly tender their Shares will be entitled only to the
purchase price per Share listed on the front cover of this Offer to Purchase and
Proxy Statement.
VOTING SECURITIES, RIGHTS AND PROCEDURES
Only holders of record of I&M's voting securities at the close of business
on January 27, 1997 (the "Record Date") will be entitled to vote in person or by
proxy at the Special Meeting. The outstanding voting securities of I&M are
divided into two classes: common stock and cumulative preferred stock. The class
of cumulative preferred stock has been issued in the seven Series of Preferred
with the record holders of all
13
<PAGE> 14
Shares of the cumulative preferred stock voting together as one class. The
shares outstanding as of the Record Date, and the vote to which each share is
entitled in consideration of the Proposed Amendment, are as follows:
<TABLE>
<CAPTION>
SHARES VOTES PER
CLASS OUTSTANDING SHARE
--------------------------------------------------------- ------------- -----------
<S> <C> <C>
Common Stock (No Par Value).............................. 1,400,000 1 vote
Cumulative Preferred Stock (Par Value $100 Per Share).... 1,569,767 1 vote
</TABLE>
The affirmative vote of the holders of at least two-thirds of the
outstanding shares of each of I&M's (i) common stock and (ii) cumulative
preferred stock, all series voting together as one class, is required to approve
the Proposed Amendment to be presented at the Special Meeting. Abstentions and
broker non-votes will have the effect of votes against the Proposed Amendment.
AEP HAS ADVISED I&M THAT IT INTENDS TO VOTE ALL OF THE OUTSTANDING SHARES OF
COMMON STOCK OF I&M IN FAVOR OF THE PROPOSED AMENDMENT.
Votes at the Special Meeting will be tabulated preliminarily by the
Depositary. Inspectors of Election, duly appointed by the presiding officer of
the Special Meeting, will definitively count and tabulate the votes and
determine and announce the results at the Special Meeting. I&M has no
established procedure for confidential voting. There are no rights of appraisal
in connection with the Proposed Amendment.
PROXIES
THE ENCLOSED PROXY IS SOLICITED BY I&M'S BOARD, WHICH RECOMMENDS VOTING FOR
THE PROPOSED AMENDMENT. ALL SHARES OF I&M'S COMMON STOCK WILL BE VOTED IN FAVOR
OF THE PROPOSED AMENDMENT. Shares of I&M's cumulative preferred stock
represented by properly executed proxies received at or prior to the Special
Meeting will be voted in accordance with the instructions thereon. If no
instructions are indicated, duly executed proxies will be voted in accordance
with the recommendation of the Board. It is not anticipated that any other
matters will be brought before the Special Meeting. However, the enclosed proxy
gives discretionary authority to the proxy holders named therein should any
other matters be presented at the Special Meeting, and it is the intention of
the proxy holders to act on any other matters in accordance with their best
judgment.
Execution of a proxy will not prevent a shareholder from attending the
Special Meeting and voting in person. Any shareholder giving a proxy may revoke
it at any time before it is voted by delivering to the Secretary of I&M written
notice of revocation bearing a later date than the proxy, by delivering a duly
executed proxy bearing a later date, or by voting in person by ballot at the
Special Meeting. Withdrawal of Shares tendered pursuant to the Offer will not
revoke a properly executed proxy.
I&M will bear the cost of the solicitation of proxies by the Board. I&M has
engaged Morrow & Co., Inc. to act as Information Agent in connection with the
solicitation of proxies for a fee of $5,800, plus reimbursement of reasonable
out-of-pocket expenses. Proxies will be solicited by mail or by telephone. In
addition, officers and employees of I&M may also solicit proxies personally or
by telephone; such persons will receive no additional compensation for these
services. The Information Agent has not been retained to make, and will not
make, solicitations or recommendations in connection with the Proposed
Amendment.
I&M has requested that brokerage houses and other custodians, nominees and
fiduciaries forward solicitation materials to the beneficial owners of shares of
I&M's cumulative preferred stock held of record by such persons and will
reimburse such brokers and other fiduciaries for their reasonable out-of-pocket
expenses incurred in connection therewith.
The solicitation of proxies has been approved by the SEC under the Holding
Company Act. An application has been filed with the SEC under the Holding
Company Act requesting approval of the Proposed Amendment and the acquisition of
the Shares by AEP pursuant to the Offer.
14
<PAGE> 15
SPECIAL CASH PAYMENTS
Subject to the terms and conditions set forth in this Offer to Purchase and
Proxy Statement, if (but only if) the Proposed Amendment is approved and adopted
by the shareholders of I&M, I&M will make a Special Cash Payment to each
Preferred Shareholder who voted in favor of the Proposed Amendment, in person by
ballot or by proxy, at the Special Meeting in the amount of $1.00 for each Share
held by such Preferred Shareholder on the Record Date which is so voted,
provided that such Shares have not been tendered pursuant to the Offer. SPECIAL
CASH PAYMENTS WILL BE MADE TO PREFERRED SHAREHOLDERS AS OF THE RECORD DATE (IF
SUCH SHARES HAVE NOT BEEN TENDERED PURSUANT TO THE OFFER) ONLY IN RESPECT OF
EACH SHARE WHICH IS VOTED FOR THE ADOPTION OF THE PROPOSED AMENDMENT; PROVIDED,
HOWEVER, THAT THOSE PREFERRED SHAREHOLDERS WHO VALIDLY TENDER THEIR SHARES WILL
BE ENTITLED ONLY TO THE PURCHASE PRICE PER SHARE LISTED ON THE FRONT COVER OF
THIS OFFER TO PURCHASE AND PROXY STATEMENT. If the Proposed Amendment is
approved and adopted, Special Cash Payments will be paid out of I&M's general
funds, promptly after the Proposed Amendment shall have become effective.
However, no accrued interest will be paid on the Special Cash Payments
regardless of any delay in making such payments.
Only Preferred Shareholders on the Record Date (or their legal
representatives or attorneys-in-fact) are entitled to vote at the Special
Meeting and to receive Special Cash Payments from I&M. Any beneficial holder of
Shares who is not the registered holder of such Shares as of the Record Date (as
would be the case for any beneficial holder whose Shares are registered in the
name of such holder's broker, dealer, commercial bank, trust company or other
nominee) must arrange with the record Preferred Shareholder to execute and
deliver a proxy form on such beneficial owner's behalf. If a beneficial holder
of Shares intends to attend the Special Meeting and vote in person, such
beneficial holder must obtain a legal proxy form from his or her broker, dealer,
commercial bank, trust company or other nominee.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As noted above, AEP owns all the outstanding common stock of I&M.
Pursuant to Section 13(d) of the Exchange Act, a beneficial owner of a
security is any person who directly or indirectly has or shares voting or
investment power over such security. No person or group is known by management
of I&M to be the beneficial owner of more than 5% of I&M's cumulative preferred
stock as of the Record Date.
I&M's directors and executive officers do not beneficially own any Shares
as of the Record Date. The beneficial ownership of AEP's common stock held by
each director, as well as directors and executive officers as a group, as of
December 31, 1996, is set forth in the following table.
<TABLE>
<CAPTION>
NAME(1) SHARES
-------------
<S> <C>
C. R. Boyle.................................................. ____,____
G. A. Clark.................................................. ____,____
P. J. DeMaria................................................ ____,____
W. N. D'Onofrio.............................................. ____,____
E. L. Draper, Jr............................................. ____,____
W. J. Lhota.................................................. ____,____
G. P. Maloney................................................ ____,____
J. J. Markowsky.............................................. ____,____
A. H. Potter................................................. ____,____
D. B. Synowiec............................................... ____,____
D. M. Trenary................................................ ____,____
J. H. Vipperman.............................................. ____,____
W. E. Walters................................................ ____,____
All directors and executive officers as a group (representing
% of the class)....................................... ____,____
</TABLE>
- ---------------
(1) No individual listed beneficially owned more than 0. % of the
outstanding shares of common stock of AEP.
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<PAGE> 16
BUSINESS TO COME BEFORE THE SPECIAL MEETING
The following Proposed Amendment to the Articles is the only item of
business expected to be presented at the Special Meeting:
To remove in its entirety ARTICLE 6(A), Subparagraph 7(B)(c), limiting
I&M's ability to issue unsecured indebtedness.
THE FOLLOWING STATEMENTS, UNLESS THE CONTEXT OTHERWISE REQUIRES, ARE
SUMMARIES OF THE SUBSTANCE OR GENERAL EFFECT OF A PROVISION OF THE ARTICLES, AND
ARE QUALIFIED IN THEIR ENTIRETY BY THE ARTICLES AND SUBPARAGRAPH 7(B)(C) (AS
DESCRIBED BELOW).
EXPLANATION OF THE PROPOSED AMENDMENT
ARTICLE 6(A), Subparagraph 7(B)(c) of the Articles currently provides that,
so long as any shares of I&M's cumulative preferred stock of any series are
outstanding, I&M shall not, without the consent of the holders of such shares
entitled to cast a majority of the total number of votes which holders of the
cumulative preferred stock then outstanding are entitled to cast, issue or
assume any unsecured debt securities (other than for purposes of the
reacquisition, redemption or other retirement of any evidences of indebtedness
theretofore issued or assumed by I&M or the reacquisition, redemption or other
retirement of all outstanding shares of I&M preferred stock) if, immediately
after such issue or assumption, the total principal amount of all unsecured debt
securities (other than the principal amount of all long-term unsecured debt
securities not in excess of 10% of the capitalization of I&M) issued or assumed
by I&M and then outstanding would exceed 10% of the capitalization of I&M (the
"Debt Limitation Provision").
The Proposed Amendment, if adopted, would eliminate in its entirety
Subparagraph 7(B)(c), as set forth below, from the Articles. Unless otherwise
defined, capitalized terms used in Paragraph 7(B) are used as defined in the
Articles.
ARTICLE 6(A), Paragraph 7(B) of the Articles states:
"(B) So long as any shares of the Cumulative Preferred Stock of any
series are outstanding, the Corporation shall not, without the consent
(given by vote at a meeting called for that purpose) of the holders of such
shares entitled to cast a majority of the total number of votes which
holder of the Cumulative Preferred Stock then outstanding are entitled to
cast:
(c) Issue or assume any unsecured debt securities for purposes other than
(i) the reacquisition, redemption or other retirement of any evidences of
indebtedness theretofore issued or assumed by the Corporation, or
(ii) the reacquisition, redemption or other retirement of all
outstanding shares of the Cumulative Preferred Stock,
if, immediately after such issue or assumption, the total principal amount of
all unsecured debt securities (other than the principal amount of all long-term
unsecured debt securities not in excess of 10% of the Capitalization of the
Corporation) issued or assumed by the Corporation and then outstanding would
exceed 10% of the Capitalization of the Corporation.
For purposes of this subparagraph (c) only:
(I) "unsecured debt securities" shall be deemed to mean any unsecured
notes, debentures, or other securities representing unsecured indebtedness,
but shall not include contractual commitments and agreements for the
purchase of property, materials, power, energy or equipment to be used,
consumed or resold in the ordinary course of the Corporation's business;
(II) "long-term unsecured debt securities" shall be deemed to mean all
unsecured debt securities outstanding, as of any specified time of
computation, other than (x) unsecured debt securities maturing by their
terms on a date less than ten years subsequent to such time of computation,
and (y) the principal amount required under any sinking fund or other debt
retirement provision, to be reacquired, redeemed or
16
<PAGE> 17
otherwise retired by the Corporation on a date less than ten years
subsequent to such time of computation; provided, however, that the
principal amount of any class of unsecured debt securities, which at the
time of issuance or assumption by the Corporation matured by its terms on a
date ten or more years subsequent to such issuance or assumption, and which
at the time of such computation (aa) is not required to be reacquired,
redeemed or otherwise retired, through sinking fund or other debt
retirement provision, prior to maturity of such class or (bb) represents
the final maturity of a series of maturities within such class, shall
continue to be deemed to be long-term unsecured debt securities until such
final requirement or maturity shall occur on a date less than five years
subsequent to such time of computation; and
(III) the "Capitalization of the Corporation" shall be deemed to mean,
as of any specified time of computation, an amount equal to the sum of the
total principal amount of all bonds or other debt securities representing
secured indebtedness issued or assumed by the Corporation and then to be
outstanding, and the aggregate of the par value of, or stated capital
represented by, the outstanding shares of all classes of stock and of the
surplus of the Corporation, paid in, earned and other, if any;"
REASONS FOR THE PROPOSED AMENDMENT
I&M believes that regulatory, legislative, technological and market
developments are likely to lead to a more competitive environment in the
electric utility industry. I&M and AEP's other electric utility subsidiaries
believe that they currently have a favorable competitive position because of
their relatively low costs. As competition intensifies, flexibility and cost
reduction will be even more crucial to success. Because the electric utility
industry is extremely capital intensive, control and minimization of financing
costs are of particular importance. In response to the competitive forces and
regulatory changes faced by I&M and AEP's other electric utility subsidiaries,
AEP and its public utility subsidiaries have from time to time considered, and
expect to continue to consider, various strategies designed to enhance their
competitive position and to increase their ability to adapt to and anticipate
changes in their utility business.
I&M believes that adoption of the Proposed Amendment is key to financial
flexibility and capital cost reduction. If adopted, the Debt Limitation
Provision will be eliminated. Historically, I&M's debt financing generally has
been accomplished through the issuance of long-term first mortgage bonds, a
modest amount of unsecured short-term debt and long-term installment purchase
contracts for pollution control bonds. First mortgage bonds represent secured
indebtedness placing a first priority lien on substantially all of I&M's assets.
The Mortgage and Deed of Trust between I&M and its bondholders contains certain
restrictive covenants with respect to, among other things, the disposition of
assets and the ability to issue additional first mortgage bonds. Unsecured debt
generally has fewer restrictions than first mortgage bonds. Short-term debt, a
low cost form of debt available to I&M, represents one type of unsecured
indebtedness. Pollution control bond financing, a favorable type of financing
due to its tax-exempt status, is available only for very limited purposes.
The Proposed Amendment will not only allow I&M to issue a greater amount of
unsecured debt, but also will allow I&M to issue a greater amount of total debt.
I&M, however, presently has no intention of issuing a greater amount of total
debt than it would have issued absent the adoption of the Proposed Amendment,
except that I&M expects to issue additional unsecured debt to fund the purchase
of the Shares from AEP. Rather, it is I&M's intention to attain flexibility in
the mix of its outstanding debt and therefore have the option to use more
short-term and other unsecured debt and less first mortgage bonds.
Inasmuch as the Debt Limitation Provision contained in the Articles limits
I&M's flexibility in planning and financing its business activities, I&M
believes it ultimately will be at a competitive disadvantage if the Debt
Limitation Provision is not eliminated. The industry's new competitors (for
example, power marketers, exempt wholesale generators, independent power
producers and cogeneration facilities) generally are not subject to the type of
financing restrictions the Articles impose on I&M. Recently, several other
utilities with the same or similar charter restrictions have successfully
eliminated such provisions by soliciting their shareholders for the same or
similar amendments. In addition, some potential utility competitors, and other
AEP public utility subsidiaries, including Columbus Southern Power Company and
Kentucky Power Company, have no comparable provision restricting the issuance of
unsecured debt.
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<PAGE> 18
Although I&M sells relatively low-cost power, I&M must continue to explore
new ways of reducing costs and enhancing flexibility. I&M believes that the
adoption of the Proposed Amendment will be in the best long-term competitive
interests of its shareholders.
Financial Flexibility. If the Proposed Amendment is adopted, I&M will have
increased flexibility (i) to choose among different types of debt financing and
(ii) to finance projects using the most cost effective means. I&M believes that
various types of unsecured debt alternatives will increase in importance as an
option in financing its construction program and refinancing first mortgage
bonds. The availability and flexibility of unsecured debt is necessary to take
full advantage of changing conditions in securities markets. As a result, I&M
may increase the amount of unsecured debt to more than 20% of capitalization.
In addition, although I&M's earnings currently are sufficient to meet the
earnings coverage tests that must be satisfied before issuing additional first
mortgage bonds and preferred stock, there is no guarantee that this will be true
in the future. Other utilities have been unable to issue first mortgage bonds
during certain periods because of restrictive covenants in their mortgages.
I&M's inability to issue first mortgage bonds or preferred stock in the future,
combined with the inability to issue additional unsecured debt, would limit
I&M's financing options to more costly options, including additional common
equity. Moreover, continued reliance on the issuance of first mortgage bonds
under I&M's Mortgage and Deed of Trust could limit I&M's ability in the future
to strategically redeploy its assets.
Under the Debt Limitation Provision, I&M's use of unsecured short-term debt
is presently restricted. However, I&M believes that the prudent use of such debt
in excess of this provision is vital to effective financial management of its
business. Not only is unsecured short-term debt generally one of the least
expensive forms of capital, it also provides flexibility in meeting seasonal and
business cycle fluctuations in cash requirements, acts as a bridge between
issues of permanent capital and can be used when unfavorable conditions prevail
in the market for long-term capital.
Lower Costs. As previously mentioned, I&M's short-term debt issuances
generally represent one of its lowest-cost forms of financing. I&M is
reassessing its historically modest use of short-term debt. By increasing its
use of short-term debt, I&M may be able to lower its cost structure further,
thereby making its products more competitive and reducing its business risks.
However, with the Debt Limitation Provision in place, the availability and
corresponding benefits of short-term debt diminish. And although short-term debt
may expose the borrower to more volatility in interest rates, it should be noted
that the cost of short-term debt seldom exceeds the cost of other forms of
capital available at the same time.
IT IS FOR ALL THE ABOVE REASONS THAT I&M'S BOARD BELIEVES THE BEST
LONG-TERM INTERESTS OF SHAREHOLDERS ARE SERVED BY, AND ENCOURAGES SHAREHOLDERS
TO VOTE FOR, THE ADOPTION OF THE PROPOSED AMENDMENT.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Upon recommendation of the Audit Committee of AEP's board of directors,
such board employed on January 31, 1996 Deloitte & Touche LLP as independent
public accountants for AEP and its subsidiaries, including I&M, for the year
1996. A representative of Deloitte & Touche LLP will not be present at the
Special Meeting unless prior to the day of the Special Meeting the Secretary of
I&M has received written notice from a Preferred Shareholder addressed to the
Secretary at 1 Riverside Plaza, Columbus, Ohio 43215, that such Preferred
Shareholder will attend the Special Meeting and wishes to ask questions of a
representative of Deloitte & Touche LLP.
PRICE RANGE OF SHARES; DIVIDENDS
I&M's Cumulative Preferred Stock 4- 1/8% is traded on the CSE under the
symbol "IMIGO", and the 4.12% Series, 4.56% Series, 5.90% Series, 6- 1/4%
Series, 6- 7/8% Series and 6.30% Series are traded in the over-the-counter
market under the symbols "IMIGP", "IMIGN", "IMIGL", "IMIGH", "IMIGM", and
"IMIGI", respectively. The last reported sale price on the CSE and in the
over-the-counter market, as the case may be, as of the close of business on
January 28, 1997, for each of the Series of Preferred is shown on the inside
front cover of this Offer to Purchase and Proxy Statement. However, Preferred
Shareholders should be aware that there is no established trading market for the
Shares (other than the 4 1/8% Series) and that the Shares of each Series of
Preferred only trade sporadically and, therefore, the last reported sales price
may not necessarily reflect the market value of the Shares.
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<PAGE> 19
PREFERRED SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS, IF
AVAILABLE, FOR THE SHARES.
The following table sets forth the high and low sales prices of each Series
of Preferred on the CSE or in the over-the-counter market, as the case may be,
as reported by the National Quotation Bureau, Inc., and the cash dividends paid
thereon for the fiscal quarters indicated.
DIVIDENDS AND PRICE RANGES OF CUMULATIVE PREFERRED STOCK
BY QUARTERS (1996 AND 1995)
<TABLE>
<CAPTION>
1996 -- QUARTERS 1995 -- QUARTERS
----------------------------------------- -----------------------------------------
1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CUMULATIVE PREFERRED STOCK
($100 Par Value)
4- 1/8% Series
Dividends Paid Per Share................. $1.03125 $1.03125 $1.03125 $1.03125 $1.03125 $1.03125 $1.03125 $1.03125
Market Price -- $ Per Share
(CSE) -- Quotations not available
4.56% Series
Dividends Paid Per Share................. $1.14 $1.14 $1.14 $1.14 $1.14 $1.14 $1.14 $1.14
Market Price -- $ Per Share (OTC)
Ask -- High/Low........................ -- -- -- -- -- -- -- --
Bid -- High............................ 51 51 1/4 52 52 46 5/8 47 1/4 47 1/2 49 1/2
-- Low.............................. 49 3/8 51 51 1/4 52 45 1/2 46 1/4 47 1/4 47 1/2
4.12% Series
Dividends Paid Per Share................. $1.03 $1.03 $1.03 $1.03 $1.03 $1.03 $1.03 $1.03
Market Price -- $ Per Share (OTC)
Ask -- High/Low........................ -- -- -- -- -- -- -- --
Bid -- High............................ 51 49 49 3/4 50 46 1/2 47 51 51
-- Low.............................. 48 1/4 48 3/4 49 49 3/4 43 46 46 46
5.90% Series
Dividends Paid Per Share................. $1.475 $1.475 $1.475 $1.475 $1.475 $1.475 $1.475 $1.475
Market Price -- $ Per Share
(OTC) -- Quotations not available
6- 1/4% Series
Dividends Paid Per Share................. $1.5625 $1.5625 $1.5625 $1.5625 $1.5625 $1.5625 $1.5625 $1.5625
Market Price -- $ Per Share
(OTC) -- Quotations not available
6.30% Series
Dividends Paid Per Share................. $1.575 $1.575 $1.575 $1.575 $1.575 $1.575 $1.575 $1.575
Market Price -- $ Per Share
(OTC) -- Quotations not available
6- 7/8% Series
Dividends Paid Per Share................. $1.71875 $1.71875 $1.71875 $1.71875 $1.71875 $1.71875 $1.71875 $1.71875
Market Price -- $ Per Share
(OTC) -- Quotations not available
</TABLE>
- ---------------
CSE -- Chicago Stock Exchange.
OTC -- Over-the-Counter.
Note -- The above bid and asked quotations represent prices between dealers and
do not represent actual transactions.
Market quotations provided by National Quotation Bureau, Inc.
Dash indicates quotation not available.
Dividends for a Series of Preferred are payable when, as and if declared by
I&M's Board of Directors at the rate per annum included in such title of the
Series of Preferred listed on the front cover of this Offer to Purchase and
Proxy Statement. The January 1997 Dividend was declared on each Series of
Preferred and was paid on January 2, 1997 to holders of record as of the close
of business on December 6, 1996. Tendering Preferred Shareholders will be
entitled to any dividends accrued and unpaid prior to the Payment Date in
respect of any later dividend periods (or any portion thereof).
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<PAGE> 20
PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER
AEP believes that the purchase of the Shares at this time represents an
attractive economic opportunity that will benefit AEP, its shareholders, and
I&M. In addition, the Offer gives Preferred Shareholders the opportunity to sell
their Shares at a price which AEP believes to be a premium to the market price
on the date of the announcement of the Offer and without the usual transaction
costs associated with a sale.
After the consummation of the Offer, AEP or I&M may purchase additional
Shares on the open market, in privately negotiated transactions, through one or
more tender offers or otherwise. Any such purchases may be on the same terms as,
or on terms which are more or less favorable to holders of Shares than, the
terms of the Offer. However, Rule 13e-4(f)(6) under the Exchange Act prohibits
AEP and its affiliates (including I&M) from purchasing any Shares of a Series of
Preferred, other than pursuant to the Offer, until at least ten business days
after the Expiration Date with respect to that Series of Preferred. Any future
purchases of Shares by AEP or I&M would depend on many factors, including the
market price of the Shares, AEP's business and financial position, legal
restrictions on AEP's ability to purchase Shares as well as general economic and
market conditions.
Preferred Shareholders are not under any obligation to tender Shares
pursuant to the Offer. The Offer does not constitute notice of redemption of any
Series of Preferred pursuant to I&M's Articles, nor does AEP or I&M intend to
effect any such redemption by making the Offer. Further, the Offer does not
constitute a waiver by I&M of any option it has to redeem Shares. The 4- 1/8%
Series, 4.12% Series and 4.56% Series are not subject to mandatory redemption,
but presently are callable at $106.125 per Share, $102.728 per Share and $102.00
per Share, respectively. Commencing in 2004 and continuing through the year
2008, a sinking fund for the 5.90% Series will require the redemption of 20,000
Shares on January 1 of each year and the redemption of the remaining Shares
outstanding on January 1, 2009, in each case at $100 per Share; commencing in
2004 and continuing through the year 2008, a sinking fund for the 6- 1/4% Series
will require the redemption of 15,000 Shares on April 1 of each year and the
redemption of the remaining Shares outstanding on April 1, 2009, in each case at
$100 per Share; commencing in 2004 and continuing through the year 2008, a
sinking fund for the 6.30% Series will require the redemption of 17,500 Shares
on July 1 of each year and the redemption of the remaining Shares outstanding on
July 1, 2009, in each case at $100 per Share; and commencing in 2003 and
continuing through the year 2007, a sinking fund for the 6-7/8% Series will
require the redemption of 15,000 Shares on April 1 of each year and the
redemption of the remaining Shares outstanding on April 1, 2008, in each case at
$100 per Share. The Shares of each Series of Preferred have no preemptive or
conversion rights.
Upon liquidation or dissolution of I&M, owners of the Shares would be
entitled to receive an amount equal to the liquidation preference per share
($100) plus all accrued and unpaid dividends (whether or not earned or declared)
thereon to the date of payment, prior to the payment of any amounts to the
holders of I&M's common stock.
Shares validly tendered to the Depositary pursuant to the Offer and not
withdrawn in accordance with the procedures set forth herein shall be held until
the Expiration Date (or returned to the extent the Offer is terminated in
accordance herewith). To the extent that the Proposed Amendment is approved and
the Shares tendered are accepted for payment and paid for in accordance with the
terms hereof, AEP intends to sell its Shares to I&M and, at that time, it is
expected that I&M will retire and cancel the Shares. However, in the event the
Proposed Amendment is not adopted at the Special Meeting, AEP may elect, but is
not obligated to, waive, subject to applicable law, such condition. In that
case, subsequent to AEP's waiver and purchase of the Shares, I&M anticipates, as
promptly as practicable thereafter, that it would call another special meeting
of its shareholders and solicit proxies therefrom for an amendment substantially
similar to the Proposed Amendment. At that meeting, AEP would vote any Shares
acquired by it pursuant to the Offer or otherwise (together with its shares of
common stock) in favor of such amendment, thereby maximizing the prospects for
the adoption of the amendment. Any such purchase of Shares by AEP will reduce
the number of Shares of each of the Series of Preferred that might otherwise
trade publicly or become available for purchase and/or sale and likely will
reduce the number of owners of Shares of each of the Series of Preferred, which
could adversely affect the liquidity and sale value of the Shares not purchased
in the Offer.
20
<PAGE> 21
Liquidity of Trading Market. To the extent that Shares of any Series of
Preferred are tendered and accepted for payment in the Offer, the trading market
for Shares of such Series of Preferred that remain outstanding may be
significantly more limited, which might adversely affect the liquidity, market
value and price volatility of such Shares. Equity securities with a smaller
outstanding market value available for trading (the "float") may command a lower
price than would comparable equity securities with a greater float. Therefore,
the market price for Shares that are not tendered in the Offer may be affected
adversely to the extent that the amount of Shares purchased pursuant to the
Offer reduces the float. The reduced float may also make the trading price of
the Shares that are not tendered and accepted for payment more volatile.
Preferred Shareholders of the remaining Shares may attempt to obtain quotations
for the Shares from their brokers; however, there can be no assurance that any
trading market will exist for such Shares following consummation of the Offer.
To the extent a market continues to exist for the Shares after the Offer, the
Shares may trade at a discount compared to present trading depending on the
market for Shares with similar features, the performance of I&M, and other
factors. There is no assurance that an active market in the Shares will exist
and no assurance as to the prices at which the Shares may trade.
4- 1/8% Series. Depending on the number of Shares tendered and purchased
pursuant to the Offer, the 4- 1/8% Series may no longer meet the requirements of
the CSE for trading, which may adversely affect the market for the Shares of the
4- 1/8% Series. According to its published guidelines, the CSE would consider
delisting the 4- 1/8% Series if, among other things, (i) the number of
publicly-held Shares of the 4- 1/8% Series should fall below 50,000 or (ii) the
number of Preferred Shareholders of the 4- 1/8% Series should fall below 500.
If, as a result of the purchase of Shares pursuant to the Offer or otherwise,
the 4-1/8% Series no longer meets the requirements of the CSE for continued
listing and the listing of the 4- 1/8% Series is discontinued, the market for
the 4- 1/8% Series could be adversely affected.
In the event of the delisting of the 4- 1/8% Series currently listed on the
CSE, it is possible that such Series would continue to trade on another
securities exchange or in the over-the-counter market and that price quotations
would be reported by such exchange, by the National Association of Securities
Dealers, Inc. ("NASD") through the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") or by other sources. The extent of the
public market for the 4 1/8% Series and the availability of quotations, however,
would depend upon such factors as the number of share holders remaining at such
time, the interest in maintaining a market in the 4- 1/8% Series on the part of
securities firms, the possible termination of registration under the Exchange
Act as described below and other factors.
The Shares of the 4- 1/8% Series are presently "margin securities" under
the regulations of the Board of Governors of the Federal Reserve System (the
"Federal Reserve"), which has the effect, among other things, of allowing
brokers to extend credit on the collateral of such Shares. If the 4- 1/8% Series
remains listed on the CSE, the Shares of the 4- 1/8% Series will continue to be
"margin securities." If the 4- 1/8% Series is delisted, depending upon factors
similar to those described above, the 4- 1/8% Series might no longer constitute
"margin securities" for purposes of the margin regulations of the Federal
Reserve, in which case, the Shares of the 4- 1/8% Series could no longer be used
as collateral for loans made by brokers.
In addition, the 4- 1/8% Series is currently registered under Section 12(b)
of the Exchange Act. Registration of the Shares of the 4- 1/8% Series under the
Exchange Act may be terminated upon the application by I&M to the SEC if such
Shares are no longer listed on a national securities exchange. Termination of
registration of the Shares of the 4- 1/8% Series under the Exchange Act would
substantially reduce the information required to be furnished by I&M to
Preferred Shareholders and could make certain provisions of the Exchange Act no
longer applicable to I&M. If registration of the 4- 1/8% Series under the
Exchange Act were terminated, Shares of the 4- 1/8% Series would no longer be
"margin securities" or be eligible for NASDAQ reporting. As of December 31,
1996, there were 712 registered holders of the 4 1/8% Series.
OTC Series. The purchase of Shares of the 4.12% Series, 4.56% Series, the
5.90% Series, the 6- 1/4% Series, the 6- 7/8% Series and the 6.30% Series
(collectively, the "OTC Series") pursuant to the Offer will reduce the number of
holders of Shares of the OTC Series and the number of such Shares that might
otherwise trade publicly, and, depending upon the number of Shares so purchased,
such reduction could
21
<PAGE> 22
adversely affect the liquidity and market value of the remaining Shares of the
OTC Series held by the public. The extent of the public market for the Shares of
the OTC Series and the availability of price quotations would, however, depend
upon such factors as the number of stockholders remaining at such time, the
interest in maintaining a market in the Shares of the OTC Series on the part of
securities firms and other factors. As of December 31, 1996, there were 95
registered holders of the 4.12% Series, 68 registered holders of the 4.56%
Series, 1 registered holder of the 5.90% Series, 1 registered holder of the
6- 1/4% Series, 1 registered holder of the 6- 7/8% Series and 1 registered
holder of the 6.30% Series.
Other Potential Effects of the Proposed Amendment on Preferred Shareholders
who do not Tender. If the Proposed Amendment becomes effective, Preferred
Shareholders of Shares that are not tendered and purchased pursuant to the Offer
will no longer be entitled to the benefits of the Debt Limitation Provision,
which will have been deleted by the Proposed Amendment. As discussed above, the
Debt Limitation Provision places restrictions on I&M's ability to issue or
assume unsecured indebtedness. Although I&M's debt instruments may contain
certain restrictions on I&M's ability to issue or assume debt, any such
restrictions may be waived and the increased flexibility afforded I&M by the
deletion of the Debt Limitation Provision may permit I&M to take certain actions
that may increase the credit risks with respect to I&M, adversely affecting the
market price and credit rating of the remaining Shares or otherwise be
materially adverse to the interests of the remaining Preferred Shareholders. In
addition, to the extent that I&M elects to fund its purchase of the Shares by
issuing additional unsecured debt, the remaining Preferred Shareholders'
relative position in I&M's capital structure could be perceived to decline,
which in turn could adversely affect the market price and credit rating of the
remaining Shares. To this end, Moody's has advised I&M that Moody's Investor
Service might reconsider its rating of I&M's preferred stock, absent some
mitigating factors, and particularly in light of I&M's plan to fund the purchase
of shares from AEP through the issuance of additional unsecured debt.
Following the consummation of the Offer, the business and operations of I&M
will be continued substantially as they are currently being conducted. Except as
disclosed in this Offer to Purchase and Proxy Statement, AEP and I&M currently
have no plans or proposals that relate to or would result in: (a) the
acquisition by any person or entity of additional securities of I&M or the
disposition of securities of I&M, other than in the ordinary course of business;
(b) an extraordinary corporate transaction, such as a merger, reorganization or
liquidation, involving I&M or any of its subsidiaries; (c) a sale or transfer of
a material amount of assets of I&M or any of its subsidiaries; (d) any change in
the present Board or management of I&M; (e) any material change in the present
dividend rate or policy, or indebtedness or capitalization of I&M; (f) any other
material change in I&M's corporate structure or business; (g) any change in
I&M's Articles or By-Laws or any actions that may impede the acquisition of
control of I&M by any person; (h) a class of equity securities of I&M being
delisted from a national securities exchange; (i) a class of equity securities
of I&M becoming eligible for termination of registration pursuant to Section
12(g)(4) of the Exchange Act; or (j) the suspension of I&M's obligation to file
reports pursuant to Section 15(d) of the Exchange Act.
NEITHER AEP, I&M, THEIR RESPECTIVE BOARDS OF DIRECTORS, NOR ANY OF THEIR
RESPECTIVE OFFICERS MAKES ANY RECOMMENDATION TO ANY PREFERRED SHAREHOLDER AS TO
WHETHER TO TENDER ALL OR ANY SHARES. EACH PREFERRED SHAREHOLDER MUST MAKE HIS OR
HER OWN DECISION AS TO WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO
TENDER.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Simpson Thacher & Bartlett, tax counsel to AEP and I&M,
the following summary describes the principal United States federal income tax
consequences of sales of Shares pursuant to the Offer and the receipt of Special
Cash Payments in connection with the approval and adoption of the Proposed
Amendment. This summary is based on the Internal Revenue Code of 1986, as
amended to the date hereof (the "Code"), administrative pronouncements, judicial
decisions and existing and proposed Treasury Regulations, changes to any of
which subsequent to the date of this Offer to Purchase and Proxy Statement may
adversely affect the tax consequences described herein, possibly on a
retroactive basis. This summary is addressed to Preferred Shareholders who hold
Shares as capital assets within the meaning of Section 1221 of
22
<PAGE> 23
the Code. This summary does not discuss all of the tax consequences that may be
relevant to a Preferred Shareholder in light of such Preferred Shareholder's
particular circumstances or to Preferred Shareholders subject to special rules
(including certain financial institutions, tax-exempt organizations, insurance
companies, dealers in securities or currencies, foreign persons or entities
selling Shares pursuant to the Offer who own or have owned, actually or
constructively, more than five percent of such Shares, Preferred Shareholders
who acquired their Shares pursuant to the exercise of stock options or other
compensation arrangements with I&M or Preferred Shareholders holding the Shares
as part of a conversion transaction, as part of a hedge or hedging transaction,
or as a position in a straddle for tax purposes). Preferred Shareholders should
consult their tax advisors with regard to the application of the United States
federal income tax laws to their particular situations as well as any tax
consequences arising under the laws of any state, local or foreign taxing
jurisdiction.
As used herein, the term "United States Holder" means an owner of a Share
that is (i) for United States federal income tax purposes a citizen or resident
of the United States; (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof; (iii) an estate the income of which is subject to United
States federal income taxation regardless of its source; or (iv) any trust if a
court within the United States is able to exercise primary supervision over the
administration of such trust and one or more United States fiduciaries have the
authority to control all substantial decisions of such trust. A "Non-United
States Holder" is a Preferred Shareholder that is not a United States Holder.
Tax Considerations for Tendering Preferred Shareholders
Characterization of the Sale. A sale of Shares by a Preferred Shareholder
pursuant to the Offer will be a taxable transaction for Federal income tax
purposes.
United States Holders. A United States Holder will recognize gain or loss
equal to the difference between the tax basis of such Holder's Shares and the
amount of cash received in exchange therefor. A United States Holder's gain or
loss will be long-term capital gain or loss if the holding period for the Shares
is more than one year as of the date of the sale of such Shares. The excess of
net long-term capital gains over net short-term capital losses is taxed at a
lower rate than ordinary income for certain non-corporate taxpayers. The
distinction between capital gain or loss and ordinary income or loss is also
relevant for purposes of, among other things, limitations on the deductibility
of capital losses.
Non-United States Holders. Any gain realized upon the sale of Shares by a
Non-United States Holder pursuant to the Offer generally will not be subject to
United States Federal income tax unless (i) such gain is effectively connected
with a trade or business in the United States of the Non-United States Holder,
or (ii) in the case of a Non-United States Holder who is an individual, such
individual is present in the United States for 183 days or more in the taxable
year of such sale and certain other conditions are met.
A Non-United States Holder described in clause (i) above will be taxed on
the net gain derived from the sale at regular graduated United States Federal
income tax rates. If a Non-United States Holder that is a foreign corporation
falls under clause (i) above, it may also be subject to an additional "branch
profits tax" at a 30% rate (or such lower rate as may be specified by an
applicable income tax treaty). Unless an applicable tax treaty provides
otherwise, an individual Non-United States Holder described in clause (ii) above
will be subject to a flat 30% tax on the gain derived from the sale, which may
be offset by United States capital losses (notwithstanding the fact that the
individual is not considered a resident of the United States).
Tax Considerations for Non-Tendering Preferred Shareholders
Preferred Shareholders, whether or not they receive Special Cash Payments,
will not recognize any taxable gain or loss with respect to the Shares as a
result of the modification of the Articles by the Proposed Amendment.
United States Holders. There is no direct authority concerning the Federal
income tax consequences of the receipt of Special Cash Payments. I&M will, for
information reporting purposes, treat Special Cash Payments as ordinary
non-dividend income to recipient United States Holders.
23
<PAGE> 24
Non-United States Holders. I&M will treat Special Cash Payments paid to a
Non-United States Holder of Shares as subject to withholding of United States
Federal income tax at a 30% rate. However, Special Cash Payments that are
effectively connected with the conduct of a trade or business by the Non-United
States Holder within the United States are not subject to the withholding tax
(provided such Non-United States Holder provides two originals of Internal
Revenue Service ("IRS") Form 4224 stating that such Special Cash Payments are so
effectively connected), but instead are subject to United States Federal income
tax on a net income basis at applicable graduated individual or corporate rates.
Any such effectively connected Special Cash Payments received by a foreign
corporation may, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate (or such lower rate as may be specified by an
applicable income tax treaty).
A Non-United States Holder of Shares eligible for a reduced rate of United
States withholding tax pursuant to an income tax treaty may obtain a refund of
any excess amounts withheld by filing an appropriate claim for refund with the
IRS.
Backup Withholding. ANY TENDERING PREFERRED SHAREHOLDER WHO FAILS TO
COMPLETE AND SIGN THE SUBSTITUTE FORM W-9 THAT IS INCLUDED IN THE APPLICABLE
LETTER OF TRANSMITTAL (OR, IN THE CASE OF A FOREIGN PREFERRED SHAREHOLDER, FORM
W-8 OBTAINABLE FROM THE DEPOSITARY) MAY BE SUBJECT TO A REQUIRED FEDERAL INCOME
TAX BACKUP WITHHOLDING OF 31% OF THE GROSS PROCEEDS PAYABLE TO SUCH PREFERRED
SHAREHOLDER PURSUANT TO THE OFFER. To prevent backup United States Federal
income tax withholding with respect to the purchase price of Shares purchased
pursuant to the Offer, a United States Holder must provide the Depositary with
the Preferred Shareholder's correct taxpayer identification number and certify
that the Preferred Shareholder is not subject to backup withholding of Federal
income tax by completing the Substitute Form W-9 included in the applicable
Letter of Transmittal. Certain Preferred Shareholders (including, among others,
all corporations and certain foreign shareholders) are exempt from backup
withholding. For a corporate United States Holder to qualify for such exemption,
such Preferred Shareholder must provide the Depositary with a properly completed
and executed Substitute Form W-9 attesting to its exempt status. In order for a
foreign Preferred Shareholder to qualify as an exempt recipient, the foreign
holder must submit a Form W-8, Certificate of Foreign Status, signed under
penalties of perjury, attesting to that Preferred Shareholder's exempt status. A
copy of Form W-8 may be obtained from the Depositary.
Unless a Preferred Shareholder provides the appropriate certification,
under the applicable law and regulations concerning "backup withholding" of
Federal United States income tax, the Depositary will be required to withhold,
and will withhold, 31% of the gross proceeds otherwise payable to such Preferred
Shareholder or other payee. The amount of any backup withholding from a payment
to a Preferred Shareholder will be allowed as a credit against such Preferred
Shareholder's United States federal income tax liability and may entitle such
Preferred Shareholder to a refund, provided that the required information is
furnished to the IRS.
SOURCE AND AMOUNT OF FUNDS
Assuming that AEP purchases all outstanding Shares pursuant to the Offer,
the total amount required by AEP to purchase such Shares will be approximately
$162 million, exclusive of the accrued and unpaid dividends payments, but
including fees and other expenses. AEP intends to fund the Offer through the use
of its general funds (which, in the ordinary course, include funds from I&M) and
funds borrowed pursuant to AEP's commercial paper program and committed lines of
credit, including any bank revolving credit agreements.
AEP and I&M sell commercial paper directly to commercial paper dealers who
reoffer the commercial paper to investors and issue and sell short-term notes to
several domestic and foreign banks through various credit arrangements,
including revolving credit agreements or shared lines of credit. AEP and its
significant subsidiaries, including I&M, have $500 million of committed lines of
credit available for use by AEP and such
24
<PAGE> 25
subsidiaries. If necessary, AEP and its significant subsidiaries may negotiate
increases to existing credit arrangements in order to fund the Offer.
TRANSACTIONS AND AGREEMENTS CONCERNING THE SHARES
Each of AEP and I&M has been advised by its directors and executive
officers that no directors or executive officers of the respective companies own
any Shares. Based upon the companies' records and upon information provided to
each company by its directors and executive officers, neither company nor, to
the knowledge of either, any of their subsidiaries, affiliates, directors or
executive officers, or associates of the foregoing, has engaged in any
transactions involving Shares during the 40 business days preceding the date
hereof. Neither company nor, to the knowledge of either, any of its directors or
executive officers or an associate of the foregoing is a party to any contract,
arrangement, understanding or relationship relating directly or indirectly to
the Offer with any other person or entity with respect to any securities of I&M.
FEES AND EXPENSES PAID TO DEALERS
Dealer Manager Fees. Merrill Lynch and Salomon Brothers will act as Dealer
Managers for AEP in connection with the Offer. AEP has agreed to pay the Dealer
Managers a fee of $.50 per Share for any Shares tendered, accepted for payment
and paid for pursuant to the Offer and a fee of $.50 per Share for any Shares
that are not tendered pursuant to the Offer but which vote in favor of the
Proposed Amendment. The Dealer Managers will also be reimbursed by AEP for their
reasonable out-of-pocket expenses, including attorneys' fees, and will be
indemnified against certain liabilities, including certain liabilities under the
federal securities laws, in connection with the Offer. The Dealer Managers have
rendered, are currently rendering and are expected to continue to render various
investment banking and other advisory services to AEP and I&M. The Dealer
Managers have received, and will continue to receive, customary compensation
from AEP and I&M for such services. AEP has retained First Chicago Trust Company
of New York as Depositary and Morrow & Co., Inc. as Information Agent in
connection with the Offer. The Depositary and Information Agent will receive
reasonable and customary compensation for their services and will also be
reimbursed for reasonable out-of-pocket expenses, including attorney fees. AEP
has agreed to indemnify the Depositary and Information Agent against certain
liabilities, including certain liabilities under the federal securities law, in
connection with the Offer. Neither the Depositary nor the Information Agent has
been retained to make solicitations or recommendations in connection with the
Offer.
Solicited Tender Fees Separate Fees. Pursuant to Instruction 10 of the
accompanying Letter of Transmittal, AEP will pay to designated brokers and
dealers a solicitation fee of $1.50 per Share for any Shares tendered, accepted
for payment and paid for pursuant to the Offer (except that for transactions for
beneficial owners equal to or exceeding 5,000 Shares, AEP will pay a
solicitation fee of (i) $1.00 per Share for Shares of the 4- 1/8% Series, the
4.12% Series and the 4.56% Series and (ii) $.50 per Share for Shares of the
remaining Series) and I&M will pay a separate fee of $.50 per Share for any
Shares of the 4- 1/8% Series, the 4.12% Series and the 4.56% Series that are not
tendered pursuant to the Offer but which are voted in favor of the Proposed
Amendment with respect to the entity obtaining the tender or proxy, if the
Letter of Transmittal shall include the name of (a) any broker or dealer in
securities, including a Dealer Manager in its capacity as a dealer or broker,
which is a member of any national securities exchange or of the National
Association of Securities Dealers, Inc. ("NASD"), (b) any foreign broker or
dealer not eligible for membership in the NASD which agrees to conform to the
NASD's Rules of Fair Practice in soliciting tenders outside the United States to
the same extent as though it were an NASD member, or (c) any bank or trust
company (each of which is referred to herein as a "Soliciting Dealer"); provided
that, with respect to solicitation fees paid with respect to transactions for
beneficial owners equal to or exceeding 5,000 shares, at least twenty percent
(20%) of each such fee shall be paid to the Dealer Managers.. No solicitation
fee or separate fee shall be payable to a Soliciting Dealer with respect to the
tenders of Shares or the vote of Shares by a holder unless the Letter of
Transmittal or proxy accompanying such tender or vote, as the case may be,
designates such Soliciting Dealer. No solicitation fee or separate fee shall be
payable to a Soliciting Dealer in respect of Shares registered in the name of
such Soliciting Dealer unless such Shares are held by such Soliciting Dealer as
nominee and such Shares are being tendered or voted for the benefit of one or
more beneficial owners identified on the Letter of Transmittal or on the Notice
of Solicited Tenders. No solicitation fee or separate fee shall be payable to a
25
<PAGE> 26
Soliciting Dealer if such Soliciting Dealer is required for any reason to
transfer the amount of such fee to a depositing holder (other than itself). No
solicitation fee shall be paid to a Soliciting Dealer with respect to Shares
tendered for such Soliciting Dealer's own account and no separate fee shall be
paid to a Soliciting Dealer with respect to Shares voted for such Soliciting
Dealer's own account. A Soliciting Dealer shall not be entitled to a
solicitation fee or a separate fee for Shares beneficially owned by such
Soliciting Dealer. No broker, dealer, bank, trust company or fiduciary shall be
deemed to be the agent of AEP, the Depositary, the Dealer Managers or the
Information Agent for purposes of the Offer.
Soliciting Dealers will include any of the organizations described in
clauses (a) (b) and (c) above even when the activities of such organizations in
connection with the Offer consist solely of forwarding to clients materials
relating to the Offer, including the Letter of Transmittal and tendering Shares
as directed by beneficial owners thereof. No Soliciting Dealer is required to
make any recommendation to holders of Shares as to whether to tender or refrain
from tendering in the Offer. No assumption is made, in making payment to any
Soliciting Dealer, that its activities in connection with the Offer included any
activities other than those described above, and for all purposes noted in all
materials relating to the Offer, the term "solicit" shall be deemed to mean no
more than "processing shares tendered" or "forwarding to customers materials
regarding the Offer."
Stock Transfer Taxes. AEP will pay all stock transfer taxes, if any,
payable on account of the acquisition of Shares by AEP pursuant to the Offer,
except in certain circumstances where special payment or delivery procedures are
utilized pursuant to Instruction 6 of the accompanying Letter of Transmittal.
CERTAIN INFORMATION REGARDING AEP AND I&M
I&M is an operating utility primarily engaged in the generation,
transmission and distribution of electric power to approximately 537,000
customers in Indiana and Michigan, and in supplying electric power at wholesale
to other electric utility companies and municipalities. All of the common stock
of I&M is owned, directly or indirectly, by AEP, a registered holding company
under the Holding Company Act. The service area of AEP's electric utility
subsidiaries covers portions of Indiana, Kentucky, Michigan, Ohio, Tennessee,
Virginia and West Virginia.
AEP and I&M are subject to the informational requirements of the Exchange
Act and in accordance therewith file reports and other information with the SEC.
Such reports and other information may be inspected and copied at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549; 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511; and Seven World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material can be obtained from the Public Reference Section of the
SEC, 450 Fifth Street, N.W., Washington D.C. 20549 at prescribed rates. The SEC
maintains a Web site at http://www.sec.gov containing reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC, including AEP and I&M. Reports, proxy materials and
other information about AEP are also available at the offices of the New York
Stock Exchange, 20 Broad Street, New York, New York 10005. Reports, proxy
materials and other information about I&M are also available at the offices of
the CSE, One Financial Place, 440 South LaSalle Street, Chicago, Illinois 60605.
In connection with the Offer AEP has filed an Issuer Tender Offer Statement on
Schedule 13E-4 with the SEC that includes certain additional information
relating to the Offer. AEP's Schedule 13E-4 will not be available at the SEC's
regional offices.
SUMMARY OF CONSOLIDATED FINANCIAL INFORMATION
Set forth below is certain consolidated historical financial information of
I&M and its subsidiaries. The historical financial information (other than the
ratios of earnings to fixed charges) was derived from the audited consolidated
financial statements included in I&M's Annual Report on Form 10-K for the year
ended December 31, 1995 and from the unaudited consolidated financial statements
included in I&M's Quarterly Reports on Form 10-Q for the periods ended September
30, 1996 and September 30, 1995.
26
<PAGE> 27
CONDENSED INCOME STATEMENT DATA:
<TABLE>
<CAPTION>
(UNAUDITED)
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
----------------------- ---------------------
1995 1994 1996 1995
--------- --------- -------- --------
(THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C>
Operating Revenues........................... $1,283,157 $1,251,309 $993,224 $969,843
Operating Income............................. 205,723 221,969 164,571 162,097
Allowance for Borrowed and Equity Funds Used
During Construction........................ 2,755 3,441 2,000 1,886
Net Income................................... 141,092 157,502 113,820 109,572
Preferred Stock Dividend Requirements........ 11,791 11,681 8,264 8,843
Earnings Applicable to Common Stock.......... 129,301 145,821 105,556 100,729
Ratio of Earnings to Fixed Charges........... 2.31 2.23 2.45(a) 2.23(a)
</TABLE>
- ---------------
(a) Ratio for the twelve months ended September 30.
CONDENSED BALANCE SHEET DATA (AT END OF PERIOD):
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, SEPTEMBER 30,
----------------------- -----------------------
1995 1994 1996 1995
--------- --------- --------- ---------
(THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS:
Net Utility Plant In Service.............. $2,477,012 $2,534,443 $2,449,422 $2,484,117
Construction Work In Progress............. 90,587 74,923 79,103 80,718
Cash and Cash Equivalents................. 13,723 9,907 8,120 6,210
Other Current Assets...................... 271,513 264,247 268,133 256,276(a)
Other Assets.............................. 1,075,502 994,515 1,071,233 1,048,555(a)
--------- --------- --------- ---------
$3,928,337 $3,878,035 $3,876,011 $3,875,876
========= ========= ========= =========
LIABILITIES:
Common Equity............................. $1,022,793 $1,006,892 $1,044,080 $1,021,876
Cumulative Preferred Stock................ 187,000 187,000 156,977 187,000
Long-term Debt (less amounts due within
one year)............................... 1,034,048 929,887 1,039,819 1,037,790
Current Liabilities....................... 350,827 441,206 283,375 295,609(a)
Other Liabilities......................... 1,333,669 1,313,050 1,351,760 1,333,601(a)
--------- --------- --------- ---------
$3,928,337 $3,878,035 $3,876,011 $3,875,876
========= ========= ========= =========
</TABLE>
- ---------------
(a) Certain amounts reclassified to conform with current-period presentation.
The financial statements of AEP and I&M and related information included in
their Annual Reports on Form 10-K for the year ended December 31, 1995, and
their Quarterly Reports on Form 10-Q for the periods ended March 31, June 30,
and September 30, 1996 and I&M's Current Report on Form 8-K dated January 22,
1997, each as filed with the SEC, are hereby incorporated by reference. All
documents subsequently filed by AEP and I&M pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Offer to Purchase and Proxy
Statement and prior to the Expiration Date (or any extension thereof) shall be
deemed to be incorporated by reference in this Offer to Purchase and Proxy
Statement and to be a part hereof from the date of filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Offer to Purchase and Proxy Statement to the extent that a statement
contained herein or in any other subsequently filed documents which is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Offer to Purchase and Proxy
Statement.
27
<PAGE> 28
AEP and I&M will provide without charge to each person to whom a copy of
this Offer to Purchase and Proxy Statement has been delivered, on the written or
oral request of any such person, a copy of any or all of the documents described
above which have been incorporated by reference in this Offer to Purchase and
Proxy Statement, other than exhibits to such documents. Written requests for
copies of such documents should be addressed to Mr. G. C. Dean, American
Electric Power Service Corporation, 1 Riverside Plaza, Columbus, Ohio 43215
(telephone 614-223-1000). The information relating to AEP and I&M contained in
this Offer to Purchase and Proxy Statement does not purport to be comprehensive
and should be read together with the information contained in the documents
incorporated by reference.
MISCELLANEOUS
The Offer is not being made to, nor will AEP accept tenders from, owners of
Shares in any jurisdiction in which the Offer or its acceptance would not be in
compliance with the laws of such jurisdiction. AEP is not aware of any
jurisdiction where the making of the Offer or the tender of Shares would not be
in compliance with applicable law. If AEP becomes aware of any jurisdiction
where the making of the Offer or the tender of Shares is not in compliance with
any applicable law, AEP will make a good faith effort to comply with such law.
If, after such good faith effort, AEP cannot comply with such law, the Offer
will not be made to (nor will tenders be accepted from or on behalf of) the
owners of Shares residing in such jurisdiction. In any jurisdiction in which the
securities, blue sky or other laws require the Offer to be made by a licensed
broker or dealer, the Offer will be deemed to be made on AEP's behalf by one or
more registered brokers or dealers licensed under the laws of such jurisdiction.
AMERICAN ELECTRIC POWER COMPANY, INC.
INDIANA MICHIGAN POWER COMPANY
28
<PAGE> 29
Facsimile copies of the Letter of Transmittal not will be accepted. The
Letter of Transmittal and, if applicable, certificates for Shares should be sent
or delivered by each tendering or voting Preferred Shareholder of I&M or his or
her broker, dealer, bank or trust company to the Depositary at one of its
addresses set forth below.
THE DEPOSITARY IS:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
<TABLE>
<S> <C> <C>
By Mail: By Hand: By Overnight Courier:
Tenders & Exchanges Tenders & Exchanges Tenders & Exchanges
P.O. Box 2569 c/o The Depositary Trust Company 14 Wall Street, 8th Floor
Suite 4660 55 Water Street, DTC TAD Suite 4680
Jersey City, New Jersey 07303-2569 Vietnam Veterans Memorial Plaza New York, New York 10005
New York, New York 10041
</TABLE>
Any questions or requests for assistance may be directed to the Information
Agent or the Dealer Managers at their respective telephone numbers and addresses
listed below. Requests for additional copies of this Offer to Purchase and Proxy
Statement, the Letter of Transmittal and Proxy or other tender offer or proxy
materials may be directed to the Information Agent, and such copies will be
furnished promptly at the companies' expense. Preferred Shareholders may also
contact their local broker, dealer, commercial bank or trust company for
assistance concerning the Offer.
THE INFORMATION AGENT:
MORROW & CO., INC.
909 Third Avenue
New York, New York 10022-4799
(212) 754-8000 (Call Collect)
or
(800) 566-9061 (Call Toll-Free)
THE DEALER MANAGERS:
<TABLE>
<S> <C>
MERRILL LYNCH & CO. SALOMON BROTHERS INC
World Financial Center Seven World Trade Center
250 Vesey Street New York, New York 10048
New York, New York 10281 (800) 558-3745 (toll free)
1-888-ML4-TNDR (toll free)
(1-888-654-8637 (toll free))
</TABLE>
29
<PAGE> 1
OFFER TO PURCHASE AND PROXY STATEMENT
AMERICAN ELECTRIC POWER COMPANY, INC.
OFFER TO PURCHASE FOR CASH
ANY AND ALL OUTSTANDING SHARES OF THE FOLLOWING SERIES OF
CUMULATIVE PREFERRED STOCK OF
OHIO POWER COMPANY
202,403 SHARES, CUMULATIVE PREFERRED STOCK, 4- 1/2% SERIES AT A PURCHASE PRICE
OF $ . PER SHARE, CUSIP NUMBER 677415 408
42,575 SHARES, CUMULATIVE PREFERRED STOCK, 4.08% SERIES AT A PURCHASE PRICE OF
$ . PER SHARE, CUSIP NUMBER 677415 101
51,975 SHARES, CUMULATIVE PREFERRED STOCK, 4.20% SERIES AT A PURCHASE PRICE OF
$ . PER SHARE, CUSIP NUMBER 677415 200
88,363 SHARES, CUMULATIVE PREFERRED STOCK, 4.40% SERIES AT A PURCHASE PRICE OF
$ . PER SHARE, CUSIP NUMBER 677415 309
404,000 SHARES, CUMULATIVE PREFERRED STOCK, 5.90% SERIES AT A PURCHASE PRICE OF
$ . PER SHARE, CUSIP NUMBER 677415 796
395,000 SHARES, CUMULATIVE PREFERRED STOCK, 6.02% SERIES AT A PURCHASE PRICE OF
$ . PER SHARE, CUSIP NUMBER 677415 812
300,000 SHARES, CUMULATIVE PREFERRED STOCK, 6.35% SERIES AT A PURCHASE PRICE OF
$ . PER SHARE, CUSIP NUMBER 677415 820
------------------------
OHIO POWER COMPANY
PROXY STATEMENT
WITH RESPECT TO ITS COMMON STOCK AND CUMULATIVE PREFERRED STOCK
------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON FRIDAY, FEBRUARY 28, 1997, UNLESS THE OFFER IS EXTENDED.
------------------------
American Electric Power Company, Inc., a New York corporation ("AEP"),
invites the holders of each series of cumulative preferred stock listed above
(each a "Series of Preferred," and the holder thereof a "Preferred Shareholder")
of Ohio Power Company, an Ohio corporation and direct utility subsidiary of AEP
("OPCo"), to tender any and all of their shares of a Series of Preferred
("Shares") for purchase at the purchase price per Share listed above plus
accrued and unpaid dividends for the Shares tendered, net to the seller in cash,
upon the terms and subject to the conditions set forth in this Offer to Purchase
and Proxy Statement and in the accompanying Letter of Transmittal (which
together constitutes the "Offer"). AEP will purchase all Shares validly tendered
and not withdrawn, upon the terms and subject to the conditions of the Offer.
See "Terms of the Offer -- Certain Conditions of the Offer" and "Terms of the
Offer -- Extension of Tender Period; Termination; Amendments."
THE OFFER FOR A SERIES OF PREFERRED IS NOT CONDITIONED UPON ANY MINIMUM
NUMBER OF SHARES OF SUCH SERIES OF PREFERRED BEING TENDERED AND IS INDEPENDENT
OF THE OFFER FOR ANY OTHER SERIES OF PREFERRED. THE OFFER, HOWEVER, IS
CONDITIONED UPON, AMONG OTHER THINGS, THE PROPOSED AMENDMENT, AS DESCRIBED
BELOW, BEING APPROVED AND ADOPTED AT THE SPECIAL MEETING. SEE "TERMS OF THE
OFFER -- CERTAIN CONDITIONS OF THE OFFER."
Concurrently with the Offer, the Board of Directors of OPCo is soliciting
proxies for use at the Special Meeting of Shareholders of OPCo to be held at
AEP's principal office, 1 Riverside Plaza, Columbus, Ohio 43215, on February 28,
1997 at 4:30 p.m., or any adjournment or postponement of such meeting (the
"Special Meeting"). The Special Meeting is being held (i) to consider an
amendment (the "Proposed Amendment") to OPCo's Amended Articles of Incorporation
(the "Articles") which would remove a provision of the Articles that limits
OPCo's ability to issue unsecured debt and (ii) to consider an amendment (the
"Second Proposed Amendment") to the Articles which would clarify the authority
of the Board of Directors to purchase or otherwise acquire Shares. WHILE
PREFERRED SHAREHOLDERS WHO WISH TO TENDER THEIR SHARES PURSUANT TO THE OFFER
NEED NOT VOTE IN FAVOR OF THE PROPOSED AMENDMENT, THE OFFER IS CONDITIONED UPON
THE PROPOSED AMENDMENT BEING APPROVED AND ADOPTED AT THE SPECIAL MEETING. IN
ADDITION, PREFERRED SHAREHOLDERS OF RECORD HAVE THE RIGHT TO VOTE FOR OR AGAINST
THE PROPOSED AMENDMENT REGARDLESS OF WHETHER THEY TENDER THEIR SHARES. IF THE
PROPOSED AMENDMENT IS APPROVED AND ADOPTED BY OPCO'S SHAREHOLDERS, OPCO WILL
MAKE A SPECIAL CASH PAYMENT IN THE AMOUNT OF $1.00 PER SHARE TO EACH PREFERRED
SHAREHOLDER WHO VOTED IN FAVOR OF THE PROPOSED AMENDMENT, PROVIDED THAT SUCH
SHARES HAVE NOT BEEN TENDERED PURSUANT TO THE OFFER. THOSE PREFERRED
SHAREHOLDERS WHO VALIDLY TENDER THEIR SHARES WILL BE ENTITLED ONLY TO THE
PURCHASE PRICE PER SHARE LISTED ABOVE. THE SECOND PROPOSED AMENDMENT IS
INDEPENDENT OF THE OFFER AND THE PROPOSED AMENDMENT, AND NEITHER THE OFFER NOR
THE PROPOSED AMENDMENT IS IN ANY WAY CONDITIONED UPON THE SECOND PROPOSED
AMENDMENT BEING APPROVED AND ADOPTED AT THE SPECIAL MEETING.
------------------------
The Company will pay to a Soliciting Dealer (as defined herein) a
solicitation fee of $1.50 for any shares tendered, accepted for payment and paid
for pursuant to the Offer, subject to certain conditions. See "Fees and Expenses
Paid to Dealers."
------------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "SEC") NOR HAS THE SEC PASSED UPON THE FAIRNESS OR
MERITS OF THIS TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------
NEITHER AEP, OPCO, THEIR RESPECTIVE BOARDS OF DIRECTORS, NOR ANY OF THEIR
RESPECTIVE OFFICERS MAKES ANY RECOMMENDATION TO ANY PREFERRED SHAREHOLDER AS TO
WHETHER TO TENDER ANY OR ALL SHARES. EACH PREFERRED SHAREHOLDER MUST MAKE HIS OR
HER OWN DECISION AS TO WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO
TENDER.
OPCO'S BOARD OF DIRECTORS RECOMMENDS VOTING FOR THE PROPOSED AMENDMENT.
------------------------
This Offer to Purchase and Proxy Statement is first being mailed to
Preferred Shareholders on or about January 30, 1997.
------------------------
Questions or requests for assistance may be directed to Morrow & Co., Inc.
("Morrow" or the "Information Agent") or to Merrill Lynch & Co. ("Merrill
Lynch") and Salomon Brothers Inc ("Salomon Brothers") (Merrill Lynch and Salomon
Brothers collectively the "Dealer Managers") at their respective telephone
numbers and addresses set forth on the back cover of this Offer to Purchase and
Proxy Statement. Requests for additional copies of this Offer to Purchase and
Proxy Statement, the Letter of Transmittal or other tender offer or proxy
materials may be directed to the Information Agent, and such copies will be
furnished promptly at the companies' expense. Preferred Shareholders may also
contact their local broker, dealer, commercial bank or trust company for
assistance concerning the Offer.
------------------------
The Dealer Managers for the Offer are:
MERRILL LYNCH & CO. SALOMON BROTHERS INC
The date of this Offer to Purchase and Proxy Statement is January 30, 1997.
<PAGE> 2
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF AEP
OR OPCO AS TO WHETHER PREFERRED SHAREHOLDERS SHOULD TENDER OR REFRAIN FROM
TENDERING SHARES OF ANY SERIES OF PREFERRED PURSUANT TO THE OFFER. NO PERSON HAS
BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN
CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED HEREIN OR IN THE RELATED
LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH RECOMMENDATION AND SUCH
INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY AEP OR OPCO.
IMPORTANT
Any Preferred Shareholder desiring to accept the Offer and tender all or
any portion of his or her Shares should either (i) request his or her broker,
dealer, commercial bank, trust company or nominee to effect the transaction for
him or her, or (ii) complete and sign the Letter of Transmittal in accordance
with the instructions in the Letter of Transmittal, mail or deliver the same and
any other required documents to First Chicago Trust Company of New York (the
"Depositary"), and deliver the certificates for such Shares to the Depositary,
along with the Letter of Transmittal, or tender such Shares pursuant to the
procedure for book-entry transfer set forth below under "Terms of the Offer --
Procedure for Tendering Shares," on or prior to the Expiration Date (as defined
below). A Preferred Shareholder whose Shares are registered in the name of a
broker, dealer, commercial bank, trust company or nominee must contact such
broker, dealer, commercial bank, trust company or nominee if he or she desires
to tender such Shares. Any Preferred Shareholder who desires to tender Shares
and whose certificates for such Shares are not immediately available, or who
cannot comply in a timely manner with the procedure for book-entry transfer,
should tender such Shares by following the procedures for guaranteed delivery
set forth below under "Terms of the Offer -- Procedure for Tendering Shares."
EACH SERIES OF PREFERRED HAS ITS OWN LETTER OF TRANSMITTAL, AND ONLY THE
APPLICABLE LETTER OF TRANSMITTAL FOR SUCH SERIES OF PREFERRED OR A NOTICE OF
GUARANTEED DELIVERY MAY BE USED TO TENDER SHARES OF SUCH SERIES OF PREFERRED.
------------------------
Each Series of Preferred is traded in the over-the-counter market (the
"OTC") and is not listed on any national securities exchange. On January 28,
1997 (the last trading day prior to the commencement of the Offer), the last
reported sale prices as reported by the National Quotation Bureau, Inc. were
$ for the 4- 1/2% Series of Preferred (on , 199 );
$ for the 4.08% Series of Preferred (on , 199 ); $
for the 4.20% Series of Preferred (on , 199 ); $ for the
4.40% Series of Preferred (on , 199 ); $ for the 5.90% Series
of Preferred (on , 199 ); $ for the 6.02% Series of Preferred
(on , 199 ); and $ for the 6.35% Series of Preferred (on
, 199 ). Preferred Shareholders are urged to obtain a current market
quotation, if available, for the Shares. On January 29, 1997, there were issued
and outstanding 202,403 Shares of the 4- 1/2% Series of Preferred; 42,575 Shares
of the 4.08% Series of Preferred; 51,975 Shares of the 4.20% Series of
Preferred; 88,363 Shares of the 4.40% Series of Preferred; 404,000 Shares of the
5.90% Series of Preferred; 395,000 Shares of the 6.02% Series of Preferred; and
300,000 Shares of the 6.35% Series of Preferred.
2
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SUMMARY............................................................................... 4
TERMS OF THE OFFER.................................................................... 7
Number of Shares; Purchase Prices; Expiration Date; Dividends....................... 7
Procedure for Tendering Shares...................................................... 7
Withdrawal Rights................................................................... 9
Acceptance of Shares for Payment and Payment of Purchase Price and Dividends........ 10
Certain Conditions of the Offer..................................................... 11
Extension of Tender Period; Termination; Amendments................................. 12
PROPOSED AMENDMENT AND PROXY SOLICITATION............................................. 13
Introduction........................................................................ 13
Voting Securities, Rights and Procedures............................................ 14
Proxies............................................................................. 14
Special Cash Payments............................................................... 15
Security Ownership of Certain Beneficial Owners and Management...................... 15
Business to Come Before the Special Meeting......................................... 16
Explanation of the Proposed Amendment............................................... 16
Reasons for the Proposed Amendment.................................................. 17
Relationship with Independent Public Accountants.................................... 20
PRICE RANGE OF SHARES; DIVIDENDS...................................................... 20
PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER.................................... 21
CERTAIN FEDERAL INCOME TAX CONSEQUENCES............................................... 24
SOURCE AND AMOUNT OF FUNDS............................................................ 26
TRANSACTIONS AND AGREEMENTS CONCERNING THE SHARES..................................... 26
FEES AND EXPENSES PAID TO DEALERS..................................................... 26
CERTAIN INFORMATION REGARDING AEP AND OPCO............................................ 27
SUMMARY OF CONSOLIDATED FINANCIAL INFORMATION......................................... 28
MISCELLANEOUS......................................................................... 29
</TABLE>
3
<PAGE> 4
SUMMARY
The following summary is provided solely for the convenience of the
Preferred Shareholders. This summary is not intended to be complete and is
qualified in its entirety by reference to the full text and more specific
details contained in this Offer to Purchase and Proxy Statement and the Letter
of Transmittal and any amendments hereto or thereto. Preferred Shareholders are
urged to read this Offer to Purchase and Proxy Statement and the Letter of
Transmittal in their entirety. Each of the capitalized terms used in this
summary and not defined herein has the meaning set forth elsewhere in this Offer
to Purchase and Proxy Statement.
The Companies.............. AEP, 1 Riverside Plaza, Columbus, Ohio 43215, is a
registered holding company under the Public Utility
Holding Company Act of 1935, as amended (the
"Holding Company Act"), which owns, directly or
indirectly, all of the outstanding common stock of
its electric utility subsidiaries, including OPCo.
The service area of AEP's electric utility
subsidiaries covers portions of Indiana, Kentucky,
Michigan, Ohio, Tennessee, Virginia and West
Virginia. OPCo, 301 Cleveland Avenue, S.W., Canton,
Ohio 44702, is a utility primarily engaged in the
generation, purchase, transmission and distribution
of electric power to approximately 668,000
customers in Ohio, and in supplying electric power
at wholesale to other electric utility companies
and municipalities.
The Shares................. 4- 1/2% Cumulative Preferred Stock (par value $100
per share)
4.08% Cumulative Preferred Stock (par value $100
per share)
4.20% Cumulative Preferred Stock (par value $100
per share)
4.40% Cumulative Preferred Stock (par value $100
per share)
5.90% Cumulative Preferred Stock (par value $100
per share)
6.02% Cumulative Preferred Stock (par value $100
per share)
6.35% Cumulative Preferred Stock (par value $100
per share)
The Offer and Purchase
Price...................... Offer to purchase any or all shares of each Series
of Preferred at the price set forth below.
$ . per 4- 1/2% Share
$ . per 4.08% Share
$ . per 4.20% Share
$ . per 4.40% Share
$ . per 5.90% Share
$ . per 6.02% Share
$ . per 6.35% Share
Independent Offer.......... The Offer for one Series of Preferred is
independent of the Offer for any other Series of
Preferred. The Offer is not conditioned upon any
minimum number of Shares of the applicable Series
of Preferred being tendered. Preferred Shareholders
who wish to tender their Shares are not required to
vote in favor of the Proposed Amendment. The Offer
is subject, however, to shareholder approval of the
Proposed Amendment and certain other conditions.
Expiration Date of the
Offer...................... The Offer expires at 5:00 p.m., New York City time
February 28, 1997, unless extended (the "Expiration
Date").
How to Tender Shares....... See "Terms of the Offer -- Procedure for Tendering
Shares". For further information, call the
Information Agent or the Dealer Managers or consult
your broker for assistance.
4
<PAGE> 5
Withdrawal Rights.......... Tendered Shares of any Series of Preferred may be
withdrawn at any time until the Expiration Date
with respect to such Series of Preferred and,
unless previously accepted for payment, may also be
withdrawn after March 28, 1997. See "Terms of the
Offer -- Withdrawal Rights."
Purpose of the Offer....... AEP is making the Offer because AEP believes that
the purchase of Shares is economically attractive
to OPCo and indirectly to AEP and its shareholders.
In addition, the Offer gives Preferred Shareholders
the opportunity to sell their Shares at a price
which AEP believes to be a premium over the market
price and without the usual transaction costs
associated with a market sale. See "Purpose of the
Offer; Certain Effects of the Offer."
Dividends.................. OPCo has declared the regular quarterly dividend on
each Series of Preferred to be paid on March 1,
1997 to holders of record as of the close of
business on February 12, 1997 (the "March 1997
Dividend"). A tender and purchase of Shares
pursuant to the Offer will not deprive a Preferred
Shareholder of his or her right to receive the
March 1997 Dividend on his or her Shares held of
record as of the close of business on February 12,
1997. Tendering Preferred Shareholders will be
entitled to any dividends accrued prior to the
Payment Date (as defined herein), in respect of any
later dividend periods (or any portion thereof).
Brokerage Commissions...... Not payable by Preferred Shareholders.
Solicitation Fee........... AEP will pay to each designated Soliciting Dealer
(as defined herein) a solicitation fee of $1.50 per
Share for any Shares tendered, accepted for payment
and paid for pursuant to the Offer (except that for
transactions for beneficial owners equal to or
exceeding 5,000 Shares, AEP will pay a solicitation
fee of (i) $1.00 per Share for Shares of the
4- 1/2% Series, the 4.08% Series, the 4.20% Series
and the 4.40% Series, and (ii) $.50 per Share for
the remaining Series) and OPCo will pay a separate
fee of $.50 per Share for any Shares of the 4- 1/2%
Series, the 4.08% Series, the 4.20% Series and the
4.40% Series that are not tendered pursuant to the
Offer but which are voted in favor of the Proposed
Amendment. A Soliciting Dealer will not be entitled
to a solicitation fee or a separate fee for Shares
beneficially owned by such Soliciting Dealer;
provided that, with respect to solicitation fees
paid with respect to transactions for beneficial
owners equal to or exceeding 5,000 shares, at least
twenty percent (20%) of each such fee shall be paid
to the Dealer Managers..
Proposed Amendment......... Concurrently with the Offer, the Board of Directors
of OPCo is soliciting proxies for use at the
Special Meeting of Shareholders of OPCo. The
Special Meeting is being held to consider an
amendment to OPCo's Articles which would remove a
provision that limits OPCo's ability to issue
unsecured debt. If the Proposed Amendment is
approved by the shareholders, the clause of the
Articles that places restrictions on OPCo's ability
to issue or assume indebtedness will be eliminated
with respect to any Shares that remain outstanding
after the consummation of the Offer. See "Purpose
of the Offer; Certain Effects of the Offer."
Record Date................ January 27, 1997
Special Cash Payment....... Preferred Shareholders of record have the right to
vote for or against the Proposed Amendment
regardless of whether they tender their Shares.
5
<PAGE> 6
If the Proposed Amendment is approved and adopted
by OPCo's shareholders, OPCo will make a special
cash payment of $1.00 per Share to each Preferred
Shareholder who voted in favor of the Proposed
Amendment but who did not tender his or her Shares
(the "Special Cash Payment"). Preferred
Shareholders who validly tender their Shares will
be entitled only to the purchase price per Share
listed on the front cover of this Offer to Purchase
and Proxy Statement plus an amount in cash
equivalent to any dividends accrued prior to the
Payment Date.
Stock Transfer Tax......... Except as described herein, AEP will pay or cause
to be paid any stock transfer taxes with respect to
the sale and transfer of any Shares to it or its
order pursuant to the Offer. See Instruction 6 of
the applicable Letter of Transmittal. See "Terms of
the Offer -- Acceptance of Shares for Payment of
Purchase Price and Dividends."
Payment Date............... Promptly after the Expiration Date or any extension
thereof.
Further Information........ Additional copies of this Offer to Purchase and
Proxy Statement and the applicable Letter of
Transmittal may be obtained by contacting Morrow,
909 Third Avenue, New York, NY 10022-4799,
telephone (800) 566-9061 (toll-free) and (212)
754-8000 (brokers and dealers). Questions about the
Offer should be directed to Merrill Lynch at (888)
ML4-TNDR (toll-free) (888-654-8637 (toll-free)) or
to Salomon Brothers at (800) 558-3745 (toll free).
6
<PAGE> 7
TERMS OF THE OFFER
NUMBER OF SHARES; PURCHASE PRICES; EXPIRATION DATE; DIVIDENDS
Upon the terms and subject to the conditions described herein and in the
applicable Letter of Transmittal, AEP will purchase any and all Shares that are
validly tendered on or prior to the applicable Expiration Date (and not properly
withdrawn in accordance with "Terms of the Offer -- Withdrawal Rights") at the
purchase price per Share listed on the front cover of this Offer to Purchase and
Proxy Statement for the Shares tendered, plus accrued and unpaid dividends for
the Shares tendered to the Payment Date, net to the seller in cash. See "Terms
of the Offer -- Certain Conditions of the Offer" and "Terms of the Offer --
Extension of Tender Period; Termination."
THE OFFER FOR A SERIES OF PREFERRED IS NOT CONDITIONED UPON ANY MINIMUM
NUMBER OF SHARES OF SUCH SERIES OF PREFERRED BEING TENDERED AND IS INDEPENDENT
OF THE OFFER FOR ANY OTHER SERIES OF PREFERRED. THE OFFER, HOWEVER, IS
CONDITIONED UPON, AMONG OTHER THINGS, THE PROPOSED AMENDMENT, AS DESCRIBED
HEREIN, BEING APPROVED AND ADOPTED AT THE SPECIAL MEETING. SEE "TERMS OF THE
OFFER -- CERTAIN CONDITIONS OF THE OFFER."
The Offer is being sent to all persons in whose names Shares are registered
on the books of OPCo as of the close of business on January 27, 1997 and
transferees of such persons. Only a record holder of Shares on the Record Date
(as defined herein) may vote in person or by proxy at the Special Meeting. No
record date is fixed for determining which persons are permitted to tender
Shares. Any person who is the beneficial owner but not the record holder of
Shares must arrange for the record transfer of such Shares prior to tendering.
With respect to each Series of Preferred, the Expiration Date is the later
of 5:00 p.m. New York City time, on February 28, 1997 or the latest time and
date to which the Offer with respect to such Series of Preferred is extended.
AEP expressly reserves the right, in its sole discretion, and at any time and/or
from time to time, to extend the period of time during which the Offer for any
Series of Preferred is open, by giving oral or written notice of such extension
to the Depositary and making a public announcement thereof, without extending
the period of time during which the Offer for any other Series of Preferred is
open. There is no assurance whatsoever that AEP will exercise its right to
extend the Offer for any Series of Preferred. If AEP decides, in its sole
discretion, to (i) decrease the number of Shares of any Series of Preferred
being sought, (ii) increase or decrease the consideration offered in the Offer
to holders of any Series of Preferred or (iii) increase or decrease the
Soliciting Dealers' fees and, at the time that notice of such increase or
decrease is first published, sent or given to holders of such Series of
Preferred in the manner specified herein, the Offer for such Series of Preferred
is scheduled to expire at any time earlier than the tenth business day from the
date that such notice is first so published, sent or given, such Offer will be
extended until the expiration of such ten-business-day period. For purposes of
the Offer, a "business day" means any day other than a Saturday, Sunday or
federal holiday and consists of the time period from 12:00 a.m. through 11:59
p.m., New York City time.
NO ALTERNATIVE, CONDITIONAL OR CONTINGENT TENDERS WILL BE ACCEPTED.
The March 1997 Dividend has been declared on each Series of Preferred,
payable March 1, 1997 to holders of record as of the close of business on
February 12, 1997. A tender and purchase of Shares pursuant to the Offer will
not deprive such Preferred Shareholder of his or her right to receive the March
1, 1997 Dividend on his or her Shares, regardless of when such tender is made.
Tendering Preferred Shareholders will be entitled to any dividends accrued prior
to the Payment Date in respect of any later dividend periods (or any portion
thereof).
PROCEDURE FOR TENDERING SHARES
To tender Shares pursuant to the Offer, the tendering owner of Shares must
either:
(a) send to the Depositary (at one of its addresses set forth on the
back cover of this Offer to Purchase and Proxy Statement) a properly
completed and duly executed Letter of Transmittal, together with any
required signature guarantees and any other documents required by the
Letter of Transmittal
7
<PAGE> 8
and either (i) certificates for the Shares to be tendered must be received
by the Depositary at one of such addresses or (ii) such Shares must be
delivered pursuant to the procedures for book-entry transfer described
herein (and a confirmation of such delivery must be received by the
Depositary), in each case by the Expiration Date; or
(b) comply with the guaranteed delivery procedure described under
"Guaranteed Delivery Procedure" below.
A tender of Shares made pursuant to any method of delivery set forth herein
or in the Letter of Transmittal will constitute a binding agreement between the
tendering holder and AEP upon the terms and subject to the conditions of the
Offer.
The Depositary will establish an account with respect to the Shares at The
Depository Trust Company and the Philadelphia Depository Trust Company (each a
"Book-Entry Transfer Facility") for purposes of the Offer within two business
days after the date of this Offer to Purchase and Proxy Statement, and any
financial institution that is a participant in the system of a Book-Entry
Transfer Facility may make delivery of Shares by causing the Book-Entry Transfer
Facility to transfer such Shares into the Depositary's account in accordance
with the procedures of such Book-Entry Transfer Facility. Although delivery of
Shares may be effected through book-entry transfer, such delivery must be
accompanied by either (i) a properly completed and duly executed Letter of
Transmittal, together with any required signature guarantees and any other
required documents or (ii) an Agent's Message (as hereinafter defined) and, in
any case, must be received by the Depositary at one of its addresses set forth
on the back cover of this Offer to Purchase and Proxy Statement on or prior to
the Expiration Date. DELIVERY OF SUCH LETTER OF TRANSMITTAL AND ANY OTHER
REQUIRED DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY OR TO AEP DOES NOT
CONSTITUTE DELIVERY TO THE DEPOSITARY.
The term "Agent's Message" means a message, transmitted by a Book-Entry
Transfer Facility, received by the Depositary and forming a part of the
book-entry transfer when a tender is initiated, which states that such
Book-Entry Transfer Facility has received an express acknowledgment from a
participant tendering Shares that such participant has received and agrees to be
bound by the terms of the Letter of Transmittal and that AEP may enforce such
agreement against such participant.
Except as otherwise provided below, all signatures on a Letter of
Transmittal must be guaranteed by a firm that is a member of a registered
national securities exchange or the National Association of Securities Dealers,
Inc., or by a commercial bank or trust company having an office or correspondent
in the United States that is a participant in an approved Signature Guarantee
Medallion Program (each of the foregoing being referred to as an "Eligible
Institution"). Signatures on a Letter of Transmittal need not be guaranteed if
(a) the Letter of Transmittal is signed by the registered owner of the shares
tendered therewith and such owner has not completed the box entitled "Special
Payment Instructions" or the box entitled "Special Delivery Instructions" on the
Letter of Transmittal or (b) such Shares are tendered for the account of an
Eligible Institution. See Instructions 1 and 5 of the Letter of Transmittal. If
Shares are registered in the name of a person other than the signatory on the
Letter of Transmittal, or if unpurchased Shares are to be issued to a person
other than the registered holder(s), the certificates must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name or names of the registered holder(s) appear on the Shares with the
signature(s) on the Shares or stock powers guaranteed as stated above. See
Instructions 4, 6 and 7 to the Letter of Transmittal.
Guaranteed Delivery Procedure. If a Preferred Shareholder desires to
tender Shares pursuant to the Offer and such Preferred Shareholder's
certificates are not immediately available or the procedures for book-entry
transfer cannot be completed on a timely basis or time will not permit all
required documents to reach the Depositary prior to the Expiration Date, such
Shares may nevertheless be tendered if all of the following guaranteed delivery
procedures are complied with:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by AEP and OPCo herewith, is
received (with any required signatures or signature guarantees) by the
Depositary as provided below on or prior to the Expiration Date; and
8
<PAGE> 9
(iii) the certificates for all tendered Shares in proper form for
transfer or a Book-Entry Confirmation with respect to all tendered Shares,
together with a properly completed and duly executed Letter of Transmittal
and any other documents required by the Letter of Transmittal, are received
by the Depositary no later than 5:00 p.m., New York City time, within three
business days after the date of execution of such Notice of Guaranteed
Delivery.
THE NOTICE OF GUARANTEED DELIVERY MAY BE DELIVERED BY HAND OR MAILED TO THE
DEPOSITARY AND MUST INCLUDE AN ENDORSEMENT BY AN ELIGIBLE INSTITUTION IN THE
FORM SET FORTH IN SUCH NOTICE OF GUARANTEED DELIVERY.
In all cases, Shares shall not be deemed validly tendered unless a properly
completed and duly executed Letter of Transmittal or, if applicable, an Agent's
Message, is received by the Depositary.
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer in all cases will be made only after timely
receipt by the Depositary of certificates for (or an Agent's Message with
respect to) such Shares, a Letter of Transmittal, properly completed and duly
executed, with any required signature guarantees and all other documents
required by the Letter of Transmittal.
THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE
OPTION AND RISK OF THE TENDERING PREFERRED SHAREHOLDER. IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
BECAUSE IT IS THE TIME OF RECEIPT, NOT THE TIME OF MAILING, WHICH DETERMINES
WHETHER A TENDER HAS BEEN MADE PRIOR TO THE EXPIRATION DATE, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY.
TO AVOID FEDERAL INCOME TAX BACKUP WITHHOLDING EQUAL TO 31% OF THE GROSS
PAYMENTS MADE PURSUANT TO THE OFFER, EACH TENDERING PREFERRED SHAREHOLDER WHO IS
A UNITED STATES PERSON MUST NOTIFY THE DEPOSITARY OF SUCH PREFERRED
SHAREHOLDER'S CORRECT TAXPAYER IDENTIFICATION NUMBER AND PROVIDE CERTAIN OTHER
INFORMATION BY PROPERLY COMPLETING AND EXECUTING THE SUBSTITUTE FORM W-9
INCLUDED IN THE LETTER OF TRANSMITTAL (OR, IN THE CASE OF A FOREIGN PREFERRED
SHAREHOLDER, FORM W-8 OBTAINABLE FROM THE DEPOSITARY). SEE "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES."
EACH PREFERRED SHAREHOLDER IS URGED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR REGARDING THE TAX CONSEQUENCES OF THE OFFER.
All questions as to the form of documents and the validity, eligibility
(including the time of receipt) and acceptance for payment of any tender of
Shares will be determined by AEP, in its sole discretion, and its determination
will be final and binding. AEP reserves the absolute right to reject any or all
tenders of Shares that (i) it determines are not in proper form or (ii) the
acceptance for payment of or payment for which may, in the opinion of AEP's
counsel, be unlawful. AEP also reserves the absolute right to waive any defect
or irregularity in any tender of Shares. None of AEP, OPCo, the Dealer Managers,
the Depositary, the Information Agent or any other person will be under any duty
to give notice of any defect or irregularity in tenders, nor shall any of them
incur any liability for failure to give any such notice.
WITHDRAWAL RIGHTS
Tenders of Shares made pursuant to the Offer may be withdrawn at any time
prior to the Expiration Date. Thereafter, such tenders are irrevocable, except
that they may be withdrawn after March 28, 1997, unless previously accepted for
payment as provided in this Offer to Purchase and Proxy Statement.
To be effective, a written notice of withdrawal must be timely received by
the Depositary, at one of its addresses set forth on the back cover of this
Offer to Purchase and Proxy Statement, and must specify the name of the person
who tendered the Shares to be withdrawn and the number of Shares to be
withdrawn. If the Shares to be withdrawn have been delivered to the Depositary,
a signed notice of withdrawal with
9
<PAGE> 10
signatures guaranteed by an Eligible Institution (except in the case of Shares
tendered by an Eligible Institution) must be submitted prior to the release of
such Shares. In addition, such notice must specify, in the case of Shares
tendered by delivery of certificates, the name of the registered owner (if
different from that of the tendering Preferred Shareholder) and the serial
numbers shown on the particular certificates evidencing the Shares to be
withdrawn or, in the case of Shares tendered by book-entry transfer, the name
and number of the account at the Book-Entry Transfer Facility to be credited
with the withdrawn Shares and the name of the registered holder (if different
from the name of such account). Withdrawals may not be rescinded, and Shares
withdrawn will thereafter be deemed not validly tendered for purposes of the
Offer. However, withdrawn Shares may be re-tendered by again following one of
the procedures described in "Terms of the Offer -- Procedure for Tendering
Shares" at any time prior to the Expiration Date.
All questions as to the form and validity (including time of receipt) of
any notice of withdrawal will be determined by AEP, in its sole discretion, and
its determination will be final and binding. None of AEP, OPCo, the Dealer
Managers, the Depositary, the Information Agent or any other person will be
under any duty to give notification of any defect or irregularity in any notice
of withdrawal or will incur any liability for failure to give any such
notification.
ACCEPTANCE OF SHARES FOR PAYMENT AND PAYMENT OF PURCHASE PRICE AND DIVIDENDS
Upon the terms and subject to the conditions of the Offer, and as promptly
as practicable after the Expiration Date, AEP will accept for payment (and
thereby purchase) and pay for Shares validly tendered and not withdrawn as
permitted in "Terms of the Offer -- Withdrawal Rights." Thereafter, payment for
all Shares validly tendered on or prior to the Expiration Date and accepted
pursuant to the Offer will be made by the Depositary by check as promptly as
practicable after the Expiration Date. In all cases, payment for Shares accepted
for payment pursuant to the Offer will be made promptly but only after timely
receipt by the Depositary of certificates for such Shares (or of an Agent's
Message), a properly completed and duly executed Letter of Transmittal and any
other required documents.
For purposes of the Offer, AEP will be deemed to have accepted for payment
(and thereby purchased) Shares that are validly tendered and not withdrawn as,
if and when it gives oral or written notice to the Depositary of its acceptance
for payment of such Shares. AEP will pay for Shares that it has purchased
pursuant to the Offer by depositing the purchase price therefor plus accrued and
unpaid dividends thereon with the Depositary, which will act as agent for
tendering Preferred Shareholders for the purpose of receiving payment from AEP
and transmitting payment to tendering Preferred Shareholders. Under no
circumstances will interest be paid on amounts to be paid to tendering Preferred
Shareholders, regardless of any delay in making such payment.
Certificates for all Shares not validly tendered will be returned or, in
the case of Shares tendered by book-entry transfer, such Shares will be credited
to an account maintained with the Book-Entry Transfer Facility, as promptly as
practicable, without expense to the tendering Preferred Shareholder.
If certain events occur, AEP may not be obligated to purchase Shares
pursuant to the Offer. See "Terms of the Offer -- Certain Conditions of the
Offer."
AEP will pay or cause to be paid any stock transfer taxes with respect to
the sale and transfer of any Shares to it or its order pursuant to the Offer.
If, however, payment of the purchase price is to be made to, or Shares not
tendered or not purchased are to be registered in the name of, any person other
than the registered owner, or if tendered Shares are registered in the name of
any person other than the person signing the Letter of Transmittal, the amount
of any stock transfer taxes (whether imposed on the registered owner, such other
person or otherwise) payable on account of the transfer to such person will be
deducted from the purchase price unless satisfactory evidence of the payment of
such taxes, or exemption therefrom, is submitted. See Instruction 6 of the
accompanying Letter of Transmittal.
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<PAGE> 11
CERTAIN CONDITIONS OF THE OFFER
AEP WILL NOT BE REQUIRED TO ACCEPT FOR PAYMENT OR PAY FOR ANY SHARES
TENDERED IF THE PROPOSED AMENDMENT IS NOT APPROVED AND ADOPTED AT THE SPECIAL
MEETING.
PREFERRED SHAREHOLDERS OF RECORD HAVE THE RIGHT TO VOTE FOR OR AGAINST THE
PROPOSED AMENDMENT REGARDLESS OF WHETHER THEY TENDER THEIR SHARES. IF THE
PROPOSED AMENDMENT IS APPROVED AND ADOPTED, OPCO WILL MAKE A SPECIAL CASH
PAYMENT TO EACH PREFERRED SHAREHOLDER WHO VOTED IN FAVOR OF THE PROPOSED
AMENDMENT, PROVIDED THAT THEIR SHARES HAVE NOT BEEN TENDERED PURSUANT TO THE
OFFER. PREFERRED SHAREHOLDERS WHO TENDER THEIR SHARES WILL ONLY BE ENTITLED TO
THE PURCHASE PRICE PER SHARE LISTED ON THE FRONT COVER OF THIS OFFER TO PURCHASE
AND PROXY STATEMENT.
In addition, notwithstanding any other provision of the Offer, AEP will not
be required to accept for payment or pay for any Shares tendered, and may
terminate or amend the Offer (by oral or written notice to the Depositary and
timely public announcement) or may postpone (subject to the requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") for prompt
payment for or return of Shares) the acceptance for payment of, or payment for,
Shares tendered, if at any time after January 29, 1997, and at or before the
Expiration Date, any of the following shall have occurred (which shall not have
been waived by AEP):
(a) there shall have been threatened, instituted or pending any action
or proceeding by any government or governmental, regulatory or
administrative agency, authority or tribunal or any other person, domestic
or foreign, or before any court, authority, agency or tribunal that (i)
challenges the acquisition of Shares pursuant to the Offer or otherwise in
any manner relates to or affects the Offer or (ii) in the reasonable
judgment of AEP, would or might materially and adversely affect the
business, condition (financial or otherwise), income, operations or
prospects of AEP and its subsidiaries taken as a whole, or otherwise
materially impair in any way the contemplated future conduct of the
business of AEP or any of its subsidiaries or materially impair the Offer's
contemplated benefits to AEP;
(b) there shall have been any action threatened, pending or taken, or
approval withheld, or any statute, rule, regulation, judgment, order or
injunction threatened, proposed, sought, promulgated, enacted, entered,
amended, enforced or deemed to be applicable to the Offer or AEP or any of
its subsidiaries, by any legislative body, court, authority, agency or
tribunal that, in AEP's reasonable judgment, would or might directly or
indirectly (i) make the acceptance for payment of, or payment for, some or
all of the Shares illegal or otherwise restrict or prohibit consummation of
the Offer; (ii) delay or restrict the ability of AEP, or render AEP unable,
to accept for payment or pay for some or all of the Shares; (iii)
materially impair the contemplated benefits of the Offer to AEP or OPCo
(including materially increasing the effective interest cost of certain
types of unsecured debt); or (iv) materially affect the business, condition
(financial or otherwise), income, operations or prospects of AEP and its
subsidiaries taken as a whole, or otherwise materially impair in any way
the contemplated future conduct of the business of AEP or any of its
subsidiaries;
(c) there shall have occurred (i) any significant decrease in the
market price of the Shares, (ii) any change in the general political,
market, economic or financial conditions in the United States or abroad
that, in the reasonable judgment of AEP, would or might have a material
adverse effect on AEP's business, operations, prospects or ability to
obtain financing generally or the trading in the Shares or other equity
securities of AEP; (iii) the declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or any
limitation on, or any event that, in AEP's reasonable judgment, would or
might affect the extension of credit by lending institutions in the United
States; (iv) the commencement of war, armed hostilities or other
international or national calamity directly or indirectly involving the
United States; (v) any general suspension of trading in, or limitation on
prices for, securities on any national securities exchange or in the
over-the-counter market; (vi) in the case of any of
11
<PAGE> 12
the foregoing existing at the time of the commencement of the Offer, in
AEP's reasonable judgment, a material acceleration or worsening thereof;
(vii) any decline in either the Dow Jones Industrial Average or the
Standard and Poor's Composite 500 Stock Index by an amount in excess of 15%
measured from the close of business on January 29, 1997; or (viii) a
decline in the ratings accorded any of AEP's or OPCo's securities by
Standard & Poor's Rating Services ("S&P"), Moody's Investors Service, Inc.
("Moody's") or Duff & Phelps, Inc. ("D&P") or that S&P, Moody's or D&P has
announced that it has placed any such rating under surveillance or review
with negative implications.
(d) any tender or exchange offer with respect to some or all of the
Shares (other than the Offer) or other equity securities of AEP, or a
merger, acquisition or other business combination proposal for AEP, shall
have been proposed, announced or made by any person or entity;
(e) there shall have occurred any event or events that have resulted,
or, in AEP's reasonable judgment, may result, in an actual or threatened
change in the business, condition (financial or otherwise), income,
operations, stock ownership or prospects of AEP and its subsidiaries; or
(f) the Securities and Exchange Commission (the "SEC") shall have
withheld approval, under the Holding Company Act, of the acquisition of the
Shares by AEP pursuant to the Offer or the approval and adoption of the
Proposed Amendment at the Special Meeting or the issuance of short-term
debt by AEP and/or OPCo;
and, in the sole judgment of AEP, such event or events make it undesirable or
inadvisable to proceed with the Offer or with such acceptance for payment or
payment. With respect to the approval of the SEC referenced in clause (f) above,
the SEC must find that the acquisition of the Shares by AEP is not detrimental
to the public interest or the interests of the investors or consumers, and that
the consideration paid in connection with the acquisition and the adoption of
the Proposed Amendment, including fees, commissions and other remuneration, is
reasonable.
The foregoing conditions (including the condition that the Proposed
Amendment be approved and adopted at the Special Meeting) are for the sole
benefit of AEP and may be asserted by AEP regardless of the circumstances
(including any action or inaction by AEP) giving rise to any such condition, and
any such condition may be waived by AEP, in whole or in part, at any time and
from time to time in its sole discretion. A decision by AEP to terminate or
otherwise amend any Offer, following the occurrence of any of the foregoing,
with respect to one Series of Preferred will not create an obligation on behalf
of AEP to terminate or otherwise amend in a similar manner the Offer with
respect to any other Series of Preferred. The failure by AEP at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time. Any determination by AEP concerning the
events described above will be final and binding on all parties.
EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENTS
AEP expressly reserves the right, in its sole discretion, and at any time
and/or from time to time prior to the Expiration Date, to extend the period of
time during which the Offer for any Series of Preferred is open by giving oral
or written notice of such extension to the Depositary, without extending the
period of time during which the Offer for any other Series of Preferred is open.
There can be no assurance, however, that AEP will exercise its right to extend
the Offer for any Series of Preferred. During any such extension, all Shares of
the subject Series of Preferred previously tendered will remain subject to the
Offer, except to the extent that such Shares may be withdrawn as set forth in
"Terms of the Offer -- Withdrawal Rights."
AEP also expressly reserves the right, in its sole discretion, to, among
other things, terminate the Offer and not accept for payment or pay for any
Shares tendered, subject to Rule 13e-4(f)(5) under the Exchange Act, which
requires AEP either to pay the consideration offered or to return the Shares
tendered promptly after the termination or withdrawal of the Offer upon the
occurrence of any of the conditions specified in "Terms of the Offer -- Certain
Conditions of the Offer" by giving oral or written notice of such termination to
the Depositary, and making a public announcement thereof.
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<PAGE> 13
Subject to compliance with applicable law, AEP further reserves the right,
in its sole discretion, to amend the Offer in any respect. Amendments to the
Offer may be made at any time and/or from time to time effected by public
announcement thereof, such announcement, in the case of an extension, to be
issued no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date. Any public announcement made
pursuant to the Offer will be disseminated promptly to Preferred Shareholders
affected thereby in a manner reasonably designed to inform such Preferred
Shareholders of such change. Without limiting the manner in which AEP may choose
to make a public announcement, except as required by applicable law, AEP shall
have no obligation to publish, advertise or otherwise communicate any such
public announcement other than by making a release to the Dow Jones News
Service.
If AEP materially changes the terms of the Offer or the information
concerning the Offer, or if it waives a material condition of the Offer, AEP
will extend the Offer to the extent required by Rules 13e-4(d)(2) and
13e-4(e)(2) under the Exchange Act. Those rules require that the minimum period
during which the Offer must remain open following material changes in the terms
of the Offer or information concerning the Offer (other than a change in price,
a change in percentage of securities sought or a change in the dealer's
solicitation fee) will depend on the facts and circumstances, including the
relative materiality of such terms or information. The SEC has stated that, in
its view, an offer should remain open for a minimum of five business days from
the date that a notice of such a material change is first published, sent or
given. If the Offer is scheduled to expire at any time earlier than the
expiration of a period ending on the tenth business day from, and including, the
date that AEP publishes, sends or gives to Preferred Shareholders a notice that
it will (i) increase or decrease the price it will pay for Shares, (ii) decrease
the percentage of Shares it seeks or (iii) increase or decrease the soliciting
dealers' Fees, the Offer will be extended until the expiration of such period of
ten business days. THE OFFER FOR EACH SERIES OF PREFERRED IS INDEPENDENT OF THE
OFFER FOR ANY OTHER SERIES OF PREFERRED. IF AEP EXTENDS OR AMENDS ANY OFFER WITH
RESPECT TO ONE SERIES OF PREFERRED FOR ANY REASON, AEP WILL HAVE NO OBLIGATION
TO EXTEND THE OFFER FOR ANY OTHER SERIES OF PREFERRED.
PROPOSED AMENDMENT AND PROXY SOLICITATION
INTRODUCTION
This Offer to Purchase and Proxy Statement is first being mailed on or
about January 30, 1997 to the shareholders of OPCo in connection with the
solicitation of proxies by the Board of Directors of OPCo (the "Board") for use
at the Special Meeting. At the Special Meeting, the shareholders of record of
OPCo will vote upon the Proposed Amendment to the Articles and the Second
Proposed Amendment to the Articles. The Second Proposed Amendment is Independent
of the Offer and the Proposed Amendment, and neither the Offer nor the Proposed
Amendment is in any way conditioned upon the Second Proposed Amendment being
approved and adopted at the Special Meeting.
While Preferred Shareholders who wish to tender their Shares pursuant to
the Offer are not required to vote in favor of or against the Proposed
Amendment, the Offer is conditioned upon the Proposed Amendment being approved
and adopted at the Special Meeting. In addition, Preferred Shareholders of
record have the right to vote for or against the Proposed Amendment regardless
of whether they tender their Shares. If the Proposed Amendment is approved and
adopted by OPCo's shareholders, OPCo will make a special cash payment in the
amount of $1.00 per Share (the "Special Cash Payment") to each Preferred
Shareholder of record who voted in favor of the Proposed Amendment, provided
that such Shares have not been tendered pursuant to the Offer. If a Preferred
Shareholder votes against the Proposed Amendment or abstains, such Preferred
Shareholder shall not be entitled to the Special Cash Payment (regardless of
whether the Proposed Amendment is approved and adopted). Those Preferred
Shareholders who validly tender their Shares will be entitled only to the
purchase price per Share listed on the front cover of this Offer to Purchase and
Proxy Statement.
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<PAGE> 14
VOTING SECURITIES, RIGHTS AND PROCEDURES
Only holders of record of OPCo's voting securities at the close of business
on January 27, 1997 (the "Record Date") will be entitled to vote in person or by
proxy at the Special Meeting. The outstanding voting securities of OPCo are
divided into two classes: common stock and cumulative preferred stock. The class
of cumulative preferred stock has been issued in the seven Series of Preferred
with the record holders of all Shares of the cumulative preferred stock voting
together as one class. The shares outstanding as of the Record Date, and the
vote to which each share is entitled in consideration of the Proposed Amendment
and the Second Proposed Amendment, are as follows:
<TABLE>
<CAPTION>
CLASS SHARES OUTSTANDING VOTES PER SHARE
- ------------------------------------------------------------- ------------------ ---------------
<S> <C> <C>
Common Stock (No Par Value).................................. 27,952,473 1 vote
Cumulative Preferred Stock (Par Value $100 Per Share)........ 1,484,316 1 vote
</TABLE>
The affirmative vote of the holders of at least two-thirds of the
outstanding shares of each of OPCo's (i) common stock and (ii) cumulative
preferred stock, all series voting together as one class, is required to approve
the Proposed Amendment to be presented at the Special Meeting. Abstentions and
broker non-votes will have the effect of votes against the Proposed Amendment.
AEP HAS ADVISED OPCO THAT IT INTENDS TO VOTE ALL OF THE OUTSTANDING SHARES OF
COMMON STOCK OF OPCO IN FAVOR OF THE PROPOSED AMENDMENT.
The affirmative vote of the holders of at least a majority of the
outstanding shares of OPCo's common stock and cumulative preferred stock, the
common stock and preferred stock voting together as one class, is required to
approve the Second Proposed Amendment to be presented at the Special Meeting.
Abstentions and broker non-votes will have the effect of votes against the
Second Proposed Amendment. AEP HAS ADVISED OPCO THAT IT INTENDS TO VOTE ALL OF
THE OUTSTANDING SHARES OF COMMON STOCK OF OPCO IN FAVOR OF THE SECOND PROPOSED
AMENDMENT.
Votes at the Special Meeting will be tabulated preliminarily by the
Depositary. Inspectors of Election, duly appointed by the presiding officer of
the Special Meeting, will definitively count and tabulate the votes and
determine and announce the results at the Special Meeting. OPCo has no
established procedure for confidential voting. There are no rights of appraisal
in connection with the Proposed Amendment, or the Second Proposed Amendment.
PROXIES
THE ENCLOSED PROXY IS SOLICITED BY OPCO'S BOARD, WHICH RECOMMENDS VOTING
FOR THE PROPOSED AMENDMENT AND THE SECOND PROPOSED AMENDMENT. ALL SHARES OF
OPCO'S COMMON STOCK WILL BE VOTED IN FAVOR OF THE PROPOSED AMENDMENT AND THE
SECOND PROPOSED AMENDMENT. Shares of OPCo's cumulative preferred stock
represented by properly executed proxies received at or prior to the Special
Meeting will be voted in accordance with the instructions thereon. If no
instructions are indicated, duly executed proxies will be voted in accordance
with the recommendation of the Board. It is not anticipated that any other
matters will be brought before the Special Meeting. However, the enclosed proxy
gives discretionary authority to the proxy holders named therein should any
other matters be presented at the Special Meeting, and it is the intention of
the proxy holders to act on any other matters in accordance with their best
judgment.
THE SECOND PROPOSED AMENDMENT IS INDEPENDENT OF THE OFFER AND THE PROPOSED
AMENDMENT, AND NEITHER THE OFFER NOR THE PROPOSED AMENDMENT IS ANY WAY
CONDITIONED UPON THE SECOND PROPOSED AMENDMENT BEING APPROVED AND ADOPTED AT THE
SPECIAL MEETING.
Execution of a proxy will not prevent a shareholder from attending the
Special Meeting and voting in person. Any shareholder giving a proxy may revoke
it at any time before it is voted by delivering to the Secretary of OPCo written
notice of revocation bearing a later date than the proxy, by delivering a duly
executed proxy bearing a later date, or by voting in person by ballot at the
Special Meeting. Withdrawal of Shares tendered pursuant to the Offer will not
revoke a properly executed proxy.
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<PAGE> 15
OPCo will bear the cost of the solicitation of proxies by the Board. OPCo
has engaged Morrow & Co., Inc. to act as Information Agent in connection with
the solicitation of proxies for a fee of $5,800, plus reimbursement of
reasonable out-of-pocket expenses. Proxies will be solicited by mail or by
telephone. In addition, officers and employees of OPCo may also solicit proxies
personally or by telephone; such persons will receive no additional compensation
for these services. The Information Agent has not been retained to make, and
will not make, solicitations or recommendations in connection with the Proposed
Amendment.
OPCo has requested that brokerage houses and other custodians, nominees and
fiduciaries forward solicitation materials to the beneficial owners of shares of
OPCo's cumulative preferred stock held of record by such persons and will
reimburse such brokers and other fiduciaries for their reasonable out-of-pocket
expenses incurred in connection therewith.
The solicitation of proxies has been approved by the SEC under the Holding
Company Act. An application has been filed with the SEC under the Holding
Company Act requesting approval of the Proposed Amendment, the Second Proposed
Amendment and the acquisition of the Shares by AEP pursuant to the Offer.
SPECIAL CASH PAYMENTS
Subject to the terms and conditions set forth in this Offer to Purchase and
Proxy Statement, if (but only if) the Proposed Amendment is approved and adopted
by the shareholders of OPCo, OPCo will make a Special Cash Payment to each
Preferred Shareholder who voted in favor of the Proposed Amendment, in person by
ballot or by proxy, at the Special Meeting in the amount of $1.00 for each Share
held by such Preferred Shareholder on the Record Date which is so voted,
provided that such Shares have not been tendered pursuant to the Offer. SPECIAL
CASH PAYMENTS WILL BE MADE TO PREFERRED SHAREHOLDERS AS OF THE RECORD DATE (IF
SUCH SHARES HAVE NOT BEEN TENDERED PURSUANT TO THE OFFER) ONLY IN RESPECT OF
EACH SHARE WHICH IS VOTED FOR THE ADOPTION OF THE PROPOSED AMENDMENT; PROVIDED,
HOWEVER, THAT THOSE PREFERRED SHAREHOLDERS WHO VALIDLY TENDER THEIR SHARES WILL
BE ENTITLED ONLY TO THE PURCHASE PRICE PER SHARE LISTED ON THE FRONT COVER OF
THIS OFFER TO PURCHASE AND PROXY STATEMENT. If the Proposed Amendment is
approved and adopted, Special Cash Payments will be paid out of OPCo's general
funds, promptly after the Proposed Amendment shall have become effective.
However, no accrued interest will be paid on the Special Cash Payments
regardless of any delay in making such payments.
Only Preferred Shareholders on the Record Date (or their legal
representatives or attorneys-in-fact) are entitled to vote at the Special
Meeting and to receive Special Cash Payments from OPCo. Any beneficial holder of
Shares who is not the registered holder of such Shares as of the Record Date (as
would be the case for any beneficial holder whose Shares are registered in the
name of such holder's broker, dealer, commercial bank, trust company or other
nominee) must arrange with the record Preferred Shareholder to execute and
deliver a proxy form on such beneficial owner's behalf. If a beneficial holder
of Shares intends to attend the Special Meeting and vote in person, such
beneficial holder must obtain a legal proxy form from his or her broker, dealer,
commercial bank, trust company or other nominee.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As noted above, AEP owns all the outstanding common stock of OPCo.
Pursuant to Section 13(d) of the Exchange Act, a beneficial owner of a
security is any person who directly or indirectly has or shares voting or
investment power over such security. No person or group is known by management
of OPCo to be the beneficial owner of more than 5% of OPCo's cumulative
preferred stock as of the Record Date.
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<PAGE> 16
OPCo's directors and executive officers do not beneficially own any Shares
as of the Record Date. The beneficial ownership of AEP's common stock held by
each director, as well as directors and executive officers as a group, as of
December 31, 1996, is set forth in the following table.
<TABLE>
<CAPTION>
NAME (1) SHARES
------------------------------------------------------------------------- --------
<S> <C>
P. J. DeMaria............................................................ ,
E. L. Draper, Jr. ....................................................... ,
H. W. Fayne.............................................................. ,
W. J. Lhota.............................................................. ,
G. P. Maloney............................................................ ,
J. J. Markowsky.......................................................... ,
J. H. Vipperman.......................................................... ,
All directors and executive officers as a group (representing % of the
class)................................................................. ,
</TABLE>
- ---------------
(1) No individual listed beneficially owned more than 0. % of the outstanding
shares of common stock of AEP.
BUSINESS TO COME BEFORE THE SPECIAL MEETING
The following Proposed Amendment to the Articles is one of two items of
business expected to be presented at the Special Meeting:
To remove in its entirety ARTICLE FOURTH, Clause 7(B)(b), limiting OPCo's
ability to issue unsecured indebtedness.
The following Second Proposed Amendment to the Articles is the second of
two items of business expected to be presented at the Special Meeting:
To add a paragraph to the end of ARTICLE FOURTH, Clause 3, clarifying the
authority of the Board of Directors to purchase or otherwise acquire
Shares.
THE FOLLOWING STATEMENTS, UNLESS THE CONTEXT OTHERWISE REQUIRES, ARE
SUMMARIES OF THE SUBSTANCE OR GENERAL EFFECT OF A PROVISION OF THE ARTICLES, AND
ARE QUALIFIED IN THEIR ENTIRETY BY THE ARTICLES AND CLAUSE 7(B)(B) (AS DESCRIBED
BELOW).
EXPLANATION OF THE PROPOSED AMENDMENT
ARTICLE FOURTH, Clause 7(B)(b) of the Articles currently provides that, so
long as any shares of OPCo's cumulative preferred stock are outstanding, OPCo
shall not, without the consent of the holders of a majority of the total number
of votes which holders of the outstanding shares of OPCo cumulative preferred
stock are entitled to cast, issue or assume any unsecured debt securities (other
than for purposes of the reacquisition, redemption or other retirement of any
evidences of indebtedness theretofore issued or assumed by OPCo or the
reacquisition, redemption or other retirement of all outstanding shares of OPCo
cumulative preferred stock) if, immediately after such issue or assumption, the
total principal amount of all unsecured debt securities (other than the
principal amount of all long-term unsecured debt securities not in excess of 10%
of the capitalization of OPCo) issued or assumed by OPCo and then outstanding
would exceed 10% of the capitalization of OPCo (the "Debt Limitation
Provision").
The Proposed Amendment, if adopted, would eliminate in its entirety clause
7(B)(b), as set forth below, from the Articles. Unless otherwise defined,
capitalized terms used in Clause 7(B) are used as defined in the Articles.
ARTICLE FOURTH, Clause 7(B) of the Articles states:
"(B) So long as any shares of the Cumulative Preferred Stock are
outstanding, the Corporation shall not, without the consent (given by vote
at a meeting called for that purpose) of the holders of a majority of the
total number of votes which holders of the outstanding shares of Cumulative
Preferred Stock are entitled to cast, voting together for such purpose as a
single class:
16
<PAGE> 17
. . .
(b) Issue or assume any unsecured debt securities for purposes
other than
(i) the reacquisition, redemption or other retirement of any
evidences of indebtedness theretofore issued or assumed by the
Corporation, or
(ii) the reacquisition, redemption or other retirement of all
outstanding shares of the Cumulative Preferred Stock,
if, immediately after such issue or assumption, the total principal
amount of all unsecured debt securities (other than the principal
amount of all long-term unsecured debt securities not in excess of
10% of the Capitalization of the Corporation) issued or assumed by
the Corporation and then outstanding would exceed 10% of the
Capitalization of the Corporation.
For purposes of this subparagraph (b) only:
(I) "unsecured debt securities" shall be deemed to mean any
unsecured notes, debentures, or other securities representing
unsecured indebtedness, but shall not include contractual
commitments and agreements for the purchase of property,
materials, power, energy or equipment to be used, consumed or
resold in the ordinary course of the Corporation's business;
(II) "long-term unsecured debt securities" shall be deemed
to mean all unsecured debt securities outstanding, as of any
specified time of computation, other than (x) unsecured debt
securities maturing by their terms on a date less than ten years
subsequent to such time of computation, and (y) the principal
amount required under any sinking fund or other debt retirement
provision, to be reacquired, redeemed or otherwise retired by the
Corporation on a date less than ten years subsequent to such time
of computation; provided, however, that the principal amount of
any class of unsecured debt securities, which at the time of
issuance or assumption by the Corporation matured by its terms on
a date ten or more years subsequent to such issuance or
assumption, and which at the time of such computation (aa) is not
required to be reacquired, redeemed or otherwise retired, through
sinking fund or other debt retirement provision, prior to
maturity of such class or (bb) represents the final maturity of a
series of maturities within such class, shall continue to be
deemed to be long-term unsecured debt securities until such final
requirement or maturity shall occur on a date less than five
years subsequent to such time of computation; and
(III) the "Capitalization of the Corporation" shall be
deemed to mean, as of any specified time of computation, an
amount equal to the sum of the total principal amount of all
bonds or other debt securities representing secured indebtedness
issued or assumed by the Corporation and then to be outstanding,
and the aggregate of the par value of, or stated capital
represented by, the outstanding shares of all classes of stock
and of the surplus of the Corporation, paid in, earned and other,
if any;"
REASONS FOR THE PROPOSED AMENDMENT
OPCo believes that regulatory, legislative, technological and market
developments are likely to lead to a more competitive environment in the
electric utility industry. OPCo and AEP's other electric utility subsidiaries
believe that they currently have a favorable competitive position because of
their relatively low costs. As competition intensifies, flexibility and cost
reduction will be even more crucial to success. Because the electric utility
industry is extremely capital intensive, control and minimization of financing
costs are of particular importance. In response to the competitive forces and
regulatory changes faced by OPCo and AEP's other electric utility subsidiaries,
AEP and its public utility subsidiaries have from time to time considered, and
expect to continue to consider, various strategies designed to enhance their
competitive position and to increase their ability to adapt to and anticipate
changes in their utility business.
17
<PAGE> 18
OPCo believes that adoption of the Proposed Amendment is key to financial
flexibility and capital cost reduction. If adopted, the Debt Limitation
Provision will be eliminated. Historically, OPCo's debt financing generally has
been accomplished through the issuance of long-term first mortgage bonds, a
modest amount of unsecured short-term debt and long-term installment purchase
contracts for pollution control bonds. First mortgage bonds represent secured
indebtedness placing a first priority lien on substantially all of OPCo's
assets. The Mortgage and Deed of Trust between OPCo and its bondholders contains
certain restrictive covenants with respect to, among other things, the
disposition of assets and the ability to issue additional first mortgage bonds.
Unsecured debt generally has fewer restrictions than first mortgage bonds.
Short-term debt, a low cost form of debt available to OPCo, represents one type
of unsecured indebtedness. Pollution control bond financing, a favorable type of
financing due to its tax-exempt status, is available only for very limited
purposes.
The Proposed Amendment will not only allow OPCo to issue a greater amount
of unsecured debt, but also will allow OPCo to issue a greater amount of total
debt. OPCo, however, presently has no intention of issuing a greater amount of
total debt than it would have issued absent the adoption of the Proposed
Amendment, except that OPCo may issue additional unsecured debt to fund the
purchase of the Shares from AEP. Rather, it is OPCo's intention to attain
flexibility in the mix of its outstanding debt and therefore have the option to
use more short-term and other unsecured debt and less first mortgage bonds.
Inasmuch as the Debt Limitation Provision contained in the Articles limits
OPCo's flexibility in planning and financing its business activities, OPCo
believes it ultimately will be at a competitive disadvantage if the Debt
Limitation Provision is not eliminated. The industry's new competitors (for
example, power marketers, exempt wholesale generators, independent power
producers and cogeneration facilities) generally are not subject to the type of
financing restrictions the Articles impose on OPCo. Recently, several other
utilities with the same or similar charter restrictions have successfully
eliminated such provisions by soliciting their shareholders for the same or
similar amendments. In addition, some potential utility competitors, and other
AEP public utility subsidiaries, including Columbus Southern Power Company and
Kentucky Power Company, have no comparable provision restricting the issuance of
unsecured debt.
Although OPCo sells relatively low-cost power, OPCo must continue to
explore new ways of reducing costs and enhancing flexibility. OPCo believes that
the adoption of the Proposed Amendment will be in the best long-term competitive
interests of its shareholders.
Financial Flexibility. If the Proposed Amendment is adopted, OPCo will
have increased flexibility (i) to choose among different types of debt financing
and (ii) to finance projects using the most cost effective means. OPCo believes
that various types of unsecured debt alternatives will increase in importance as
an option in financing its construction program and refinancing first mortgage
bonds. The availability and flexibility of unsecured debt is necessary to take
full advantage of changing conditions in securities markets. As a result, OPCo
may increase the amount of unsecured debt to more than 20% of capitalization.
In addition, although OPCo's earnings currently are sufficient to meet the
earnings coverage tests that must be satisfied before issuing additional first
mortgage bonds and preferred stock, there is no guarantee that this will be true
in the future. Other utilities have been unable to issue first mortgage bonds
during certain periods because of restrictive covenants in their mortgages.
OPCo's inability to issue first mortgage bonds or preferred stock in the future,
combined with the inability to issue additional unsecured debt, would limit
OPCo's financing options to more costly options, including additional common
equity. Moreover, continued reliance on the issuance of first mortgage bonds
under OPCo's Mortgage and Deed of Trust could limit OPCo's ability in the future
to strategically redeploy its assets.
Under the Debt Limitation Provision, OPCo's use of unsecured short-term
debt is presently restricted. However, OPCo believes that the prudent use of
such debt in excess of this provision is vital to effective financial management
of its business. Not only is unsecured short-term debt generally one of the
least expensive forms of capital, it also provides flexibility in meeting
seasonal and business cycle fluctuations in cash requirements, acts as a bridge
between issues of permanent capital and can be used when unfavorable conditions
prevail in the market for long-term capital.
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<PAGE> 19
Lower Costs. As previously mentioned, OPCo's short-term debt issuances
generally represent one of its lowest-cost forms of financing. OPCo is
reassessing its historically modest use of short-term debt. By increasing its
use of short-term debt, OPCo may be able to lower its cost structure further,
thereby making its products more competitive and reducing its business risks.
However, with the Debt Limitation Provision in place, the availability and
corresponding benefits of short-term debt diminish. And although short-term debt
may expose the borrower to more volatility in interest rates, it should be noted
that the cost of short-term debt seldom exceeds the cost of other forms of
capital available at the same time.
IT IS FOR ALL THE ABOVE REASONS THAT OPCO'S BOARD BELIEVES THE BEST
LONG-TERM INTERESTS OF SHAREHOLDERS ARE SERVED BY, AND ENCOURAGES SHAREHOLDERS
TO VOTE FOR, THE ADOPTION OF THE PROPOSED AMENDMENT.
EXPLANATION OF THE SECOND PROPOSED AMENDMENT
ARTICLE FOURTH, Clause 3, concerning OPCo's authority to redeem the
cumulative preferred stock, expressly provides that the redemption provisions
thereof do not limit any right of OPCo to purchase or otherwise acquire shares
of the cumulative preferred stock, provided that OPCo shall not purchase or
otherwise acquire any shares of any series of cumulative preferred stock during
any period when OPCo is in default in the payment of dividends on any series of
the cumulative preferred stock, unless all shares of the cumulative preferred
stock then outstanding are concurrently redeemed, purchased or otherwise
acquired or unless such redemption purchase or acquisition shall have been
ordered, permitted or approved by the SEC.
The Second Proposed Amendment, if adopted, would add a paragraph to the end
of ARTICLE FOURTH, Clause 3, that would resolve any question concerning the
scope of the authority of the Board of Directors to purchase or otherwise
acquire shares of the cumulative preferred stock. The adoption of the Second
Proposed Amendment will not affect in any way the dividend, voting rights and
other rights of the shares of the cumulative preferred stock that are now issued
and outstanding. Unless otherwise defined, capitalized terms used in the
Paragraph are used as defined in the Articles.
If adopted, the Second Proposed Amendment would add the following paragraph
to the end of ARTICLE FOURTH, Clause 3:
The Corporation may from time to time, by action of its Board of Directors
and without action by the holders of the Common Stock or any class of the
Cumulative Preferred Stock, purchase or otherwise acquire shares of any class of
the Cumulative Preferred Stock in such manner, upon such terms and in such
amounts as the Board of Directors shall determine; subject, however, to such
limitations or restrictions, if any, as are contained in the express terms of
any class of the Cumulative Preferred Stock outstanding at the time of the
purchase or acquisition in question.
REASONS FOR THE SECOND PROPOSED AMENDMENT
OPCO has proposed the Second Proposed Amendment because the Board of
Directors believes that to the extent possible (i) the scope of the authority of
the Board of Directors set forth in the Articles, including the authority of the
Board of Directors to purchase or otherwise acquire shares of any series of the
cumulative preferred stock, should be stated as clearly as possible and (ii) any
ambiguity in the Articles regarding such authority should be eliminated.
Under Ohio corporation law, which governs OPCo, a corporation by its
directors may purchase its stock only in limited circumstances, including (i)
when the articles of incorporation authorize the redemption of such shares and
do not prohibit such purchase and (ii) when the articles of incorporation
authorize such purchase. OPCo's Articles do not limit or prohibit OPCo's
purchase of its Preferred Shares, and the Articles currently authorize the
redemption of the 4 1/2% Series, the 4.08% Series, the 4.20% Series and the
4.40% Series, but not the 5.90% Series, the 6.02% Series and the 6.35% Series.
The Articles do not otherwise address the purchase of the Preferred Shares. As
such, although the Board of Directors believes that it has the authority to
repurchase such Preferred Shares, in light of the magnitude of the purchase
contemplated, the Board of Directors prefers to clearly establish that its
autority to purchase shares of cumulative preferred stock is circumscribed only
by the express terms of any class of the cumulative preferred stock set forth in
the
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<PAGE> 20
Articles. The adoption of the Second Proposed Amendment would clarify the scope
of the Board of Directors' authority to purchase the shares of the cumulative
preferred stock.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Upon recommendation of the Audit Committee of AEP's board of directors,
such board employed on January 31, 1996 Deloitte & Touche LLP as independent
public accountants for AEP and its subsidiaries, including OPCo, for the year
1996. A representative of Deloitte & Touche LLP will not be present at the
Special Meeting unless prior to the day of the Special Meeting the Secretary of
OPCo has received written notice from a Preferred Shareholder addressed to the
Secretary at 1 Riverside Plaza, Columbus, Ohio 43215, that such Preferred
Shareholder will attend the Special Meeting and wishes to ask questions of a
representative of Deloitte & Touche LLP.
PRICE RANGE OF SHARES; DIVIDENDS
OPCo's Cumulative Preferred Stock 4- 1/2% Series, 4.08% Series, 4.20%
Series, 4.40% Series, 5.90% Series, 6.02% Series and 6.35% Series are traded in
the over-the-counter market under the symbols "OHIPM", "OHIPP", "OHIPO",
"OHIPN","OHIPI","OHPOP" and "OHIPH", respectively. The last reported sale price
in the over-the-counter market, as of the close of business on January 28, 1997,
for each of the Series of Preferred is shown on the inside front cover of this
Offer to Purchase and Proxy Statement. However, Preferred Shareholders should be
aware that there is no established trading market for the Shares and that the
Shares of each Series of Preferred only trade sporadically and, therefore, the
last reported sales price may not necessarily reflect the market value of the
Shares.
PREFERRED SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS, IF
AVAILABLE, FOR THE SHARES.
The following table sets forth the high and low sales prices of each Series
of Preferred in the over-the-counter market as reported by the National
Quotation Bureau, Inc. and the cash dividends paid thereon for the fiscal
quarters indicated.
DIVIDENDS AND PRICE RANGES OF CUMULATIVE PREFERRED STOCK
BY QUARTERS (1996 AND 1995)
<TABLE>
<CAPTION>
1996 - QUARTERS 1995 - QUARTERS
------------------------------------ ------------------------------------
1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CUMULATIVE PREFERRED STOCK ($100
Par Value)
4.08% Series
Dividends Paid Per Share......... $1.02 $1.02 $1.02 $1.02 $1.02 $1.02 $1.02 $1.02
Market Price -- $ Per Share
(OTC)
Ask -- High/Low................ -- -- -- -- -- -- -- --
Bid -- High.................... 50- 1/4 50 50 50 45- 1/4 47- 1/2 47- 3/4 49- 3/4
-- Low...................... 49- 3/4 50 49 49 43- 1/2 44- 1/2 45 46- 3/8
4- 1/2% Series
Dividends Paid Per Share......... $1.125 $1.125 $1.125 $1.125 $1.125 $1.125 $1.125 $1.125
Market Price -- $ Per Share
(OTC)
Ask -- High.................... 62- 1/2 59 59 -- -- -- -- --
-- Low...................... 62- 1/2 58- 1/2 59 -- -- -- -- --
Bid -- High.................... 61- 5/8 58- 3/4 57 57- 1/2 53- 1/4 54- 1/2 56- 1/2 59- 3/8
-- Low...................... 56.5 57 57 57 48 50- 1/2 53 53
</TABLE>
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<PAGE> 21
<TABLE>
<CAPTION>
1996 - QUARTERS 1995 - QUARTERS
------------------------------------ ------------------------------------
1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
4.20% Series
Dividends Paid Per Share......... $1.05 $1.05 $1.05 $1.05 $1.05 $1.05 $1.05 $1.05
Market Price -- $ Per Share
(OTC)
Ask -- High/Low................ -- -- -- -- -- -- -- --
Bid -- High.................... 55 55 52- 3/8 52- 5/8 47- 3/4 50- 1/2 51 53- 1/4
-- Low...................... 52- 5/8 52- 3/8 52- 3/8 52- 3/8 45- 1/4 47- 1/4 47- 1/4 49- 5/8
4.40% Series
Dividends Paid Per Share......... $1.10 $1.10 $1.10 $1.10 $1.10 $1.10 $1.10 $1.10
Market Price -- $ Per Share
(OTC)
Ask -- High.................... 61- 1/4 -- -- -- -- -- -- --
-- Low...................... 61 -- -- -- -- -- -- --
Bid -- High.................... 60- 1/2 57 56 56- 1/2 51- 3/8 54- 1/2 55- 1/4 58- 1/2
-- Low...................... 55- 1/4 56 56 56 47- 1/2 49- 1/2 52- 5/8 52- 5/8
5.90% Series
Dividends Paid Per Share......... $1.475 $1.475 $1.475 $1.475 $1.475 $1.475 $1.475 $1.475
Market Price -- $ Per Share
(OTC) -- Quotations not
available
6.02% Series
Dividends Paid Per Share......... $1.505 $1.505 $1.505 $1.505 $1.505 $1.505 $1.505 $1.505
Market Price -- $ Per Share
(OTC) -- Quotations not
available
6.35% Series
Dividends Paid Per Share......... $1.5875 $1.5875 $1.5875 $1.5875 $1.5875 $1.5875 $1.5875 $1.5875
Market Price -- $ Per Share
(OTC) -- Quotations not
available
</TABLE>
- ---------------
OTC -- Over-the-Counter
Note -- The above bid and asked quotations represent prices between dealers and
do not represent actual transactions.
Market quotations provided by National Quotation Bureau, Inc.
Dash indicates quotes not available.
Dividends for a Series of Preferred are payable when, as and if declared by
OPCo's Board of Directors at the rate per annum included in such title of the
Series of Preferred listed on the front cover of this Offer to Purchase and
Proxy Statement. The March 1997 Dividend has been declared on each Series of
Preferred, payable March 1, 1997 to holders of record as of the close of
business on February 12, 1997. A tender and purchase of Shares pursuant to the
Offer will not deprive such Preferred Shareholder of his or her right to receive
the March 1, 1997 Dividend on his or her Shares, regardless when such tender is
made. Tendering Preferred Shareholders will be entitled to any dividends accrued
prior to the Payment Date in respect of any later dividend periods (or any
portion thereof).
PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER
AEP believes that the purchase of the Shares at this time represents an
attractive economic opportunity that will benefit AEP, its shareholders, and
OPCo. In addition, the Offer gives Preferred Shareholders the opportunity to
sell their Shares at a price which AEP believes to be a premium to the market
price on the date of the announcement of the Offer and without the usual
transaction costs associated with a sale.
After the consummation of the Offer, AEP or OPCo may purchase additional
Shares on the open market, in privately negotiated transactions, through one or
more tender offers or otherwise. Any such purchases may be on the same terms as,
or on terms which are more or less favorable to holders of Shares than, the
terms of the Offer. However, Rule 13e-4(f)(6) under the Exchange Act prohibits
AEP and its affiliates (including OPCo) from purchasing any Shares of a Series
of Preferred, other than pursuant to the Offer, until at least ten business days
after the Expiration Date with respect to that Series of Preferred. Any future
21
<PAGE> 22
purchases of Shares by AEP or OPCo would depend on many factors, including the
market price of the Shares, AEP's business and financial position, legal
restrictions on AEP's ability to purchase Shares as well as general economic and
market conditions.
Preferred Shareholders are not under any obligation to tender Shares
pursuant to the Offer. The Offer does not constitute notice of redemption of any
Series of Preferred pursuant to OPCo's Articles, nor does AEP or OPCo intend to
effect any such redemption by making the Offer. Further, the Offer does not
constitute a waiver by OPCo of any option it has to redeem Shares. The 4- 1/2%
Series, 4.08% Series, 4.20% Series and 4.40% Series are not subject to mandatory
redemption, but presently are callable at $110.00 per Share, $103.00 per Share,
$103.20 per Share and $104.00 per Share, respectively. Commencing in 2004 and
continuing through the year 2008, a sinking fund for the 5.90% Series will
require the redemption of 22,500 Shares on January 1 of each year and the
redemption of the remaining Shares outstanding on January 1, 2009, in each case
at $100 per Share; commencing in 2003 and continuing through the year 2007, a
sinking fund for the 6.02% Series will require the redemption of 20,000 Shares
on December 1 of each year and the redemption of the remaining Shares
outstanding on December 1, 2008, in each case at $100 per Share; commencing in
2003 and continuing through the year 2007, a sinking fund for the 6.35% Series
will require the redemption of 15,000 Shares on June 1 of each year and the
redemption of the remaining Shares outstanding on June 1, 2008, in each case at
$100 per Share. The Shares of each Series of Preferred have no preemptive or
conversion rights.
Upon liquidation or dissolution of OPCo, owners of the Shares would be
entitled to receive an amount equal to the liquidation preference per share
($100) plus all accrued and unpaid dividends (whether or not earned or declared)
thereon to the date of payment, prior to the payment of any amounts to the
holders of OPCo's common stock.
Shares validly tendered to the Depositary pursuant to the Offer and not
withdrawn in accordance with the procedures set forth herein shall be held until
the Expiration Date (or returned to the extent the Offer is terminated in
accordance herewith). To the extent that the Proposed Amendment is approved and
the Shares tendered are accepted for payment and paid for in accordance with the
terms hereof, AEP intends to sell its Shares to OPCo and, at that time, it is
expected that OPCo will retire and cancel the Shares. However, in the event the
Proposed Amendment is not adopted at the Special Meeting, AEP may elect, but is
not obligated to, waive, subject to applicable law, such condition. In that
case, subsequent to AEP's waiver and purchase of the Shares, OPCo anticipates,
as promptly as practicable thereafter, that it would call another special
meeting of its shareholders and solicit proxies therefrom for an amendment
substantially similar to the Proposed Amendment. At that meeting, AEP would vote
any Shares acquired by it pursuant to the Offer or otherwise (together with its
shares of common stock) in favor of such amendment, thereby maximizing the
prospects for the adoption of the amendment. Any such purchase of Shares by AEP
will reduce the number of Shares of each of the Series of Preferred that might
otherwise trade publicly or become available for purchase and/or sale and likely
will reduce the number of owners of Shares of each of the Series of Preferred,
which could adversely affect the liquidity and sale value of the Shares not
purchased in the Offer.
Liquidity of Trading Market. To the extent that Shares of any Series of
Preferred are tendered and accepted for payment in the Offer, the trading market
for Shares of such Series of Preferred that remain outstanding may be
significantly more limited, which might adversely affect the liquidity, market
value and price volatility of such Shares. Equity securities with a smaller
outstanding market value available for trading (the "float") may command a lower
price than would comparable equity securities with a greater float. Therefore,
the market price for Shares that are not tendered in the Offer may be affected
adversely to the extent that the amount of Shares purchased pursuant to the
Offer reduces the float. The reduced float may also make the trading price of
the Shares that are not tendered and accepted for payment more volatile.
Preferred Shareholders of the remaining Shares may attempt to obtain quotations
for the Shares from their brokers; however, there can be no assurance that any
trading market will exist for such Shares following consummation of the Offer.
To the extent a market continues to exist for the Shares after the Offer, the
Shares may trade at a discount compared to present trading depending on the
market for Shares with similar features, the performance of APCo, and other
factors. There is no assurance that an active market in the Shares will exist
and no assurance as to the prices at which the Shares may trade.
22
<PAGE> 23
The 4- 1/2% Series is currently registered under Section 12(g) of the
Exchange Act. Registration of the Shares of the 4- 1/2% Series under the
Exchange Act may be terminated upon the application by OPCo to the SEC if such
Shares are neither listed on a national securities exchange nor held by more
than 300 holders of record. Termination of registration of the Shares of the
4- 1/2% Series under the Exchange Act would substantially reduce the information
required to be furnished by OPCo to Preferred Shareholders and could make
certain provisions of the Exchange Act no longer applicable to OPCo.
The purchase of Shares of each Series of Preferred Stock pursuant to the
Offer will reduce the number of holders of Shares and the number of such Shares
that might otherwise trade publicly, and, depending upon the number of Shares so
purchased, such reduction could adversely affect the liquidity and market value
of the remaining Shares of each such Series of Preferred Stock held by the
public. The extent of the public market for such Shares and the availability of
price quotations would, however, depend upon such factors as the number of
stockholders remaining at such time, the interest in maintaining a market in the
Shares on the part of securities firms and other factors. As of December 31,
1996, there were 1,867 registered holders of the 4- 1/2% Series, 83 registered
holders of the 4.08% Series, 123 registered holders of the 4.20% Series, 178
registered holders of the 4.40% Series, 1 registered holder of the 5.90% Series,
1 registered holder of the 6.02% Series and 2 registered holders of the 6.35%
Series.
Other Potential Effects of the Proposed Amendment on Preferred Shareholders
who do not Tender. If the Proposed Amendment becomes effective, Preferred
Shareholders of Shares that are not tendered and purchased pursuant to the Offer
will no longer be entitled to the benefits of the Debt Limitation Provision,
which will have been deleted by the Proposed Amendment. As discussed above, the
Debt Limitation Provision places restrictions on OPCo's ability to issue or
assume unsecured indebtedness. Although OPCo's debt instruments may contain
certain restrictions on OPCo's ability to issue or assume debt, any such
restrictions may be waived and the increased flexibility afforded OPCo by the
deletion of the Debt Limitation Provision may permit OPCo to take certain
actions that may increase the credit risks with respect to OPCo, adversely
affecting the market price and credit rating of the remaining Shares or
otherwise be materially adverse to the interests of the remaining Preferred
Shareholders. In addition, to the extent that OPCo elects to fund its purchase
of the Shares by issuing additional unsecured debt, the remaining Preferred
Shareholders' relative position in OPCo's capital structure could be perceived
to decline, which in turn could adversely affect the market price and credit
rating of the remaining Shares. To this end, Moody's has advised OPCo that
Moody's might reconsider its rating of OPCo's preferred stock, absent some
mitigating factors, and particularly if OPCo funds the purchase of Shares from
AEP through the issuance of additional unsecured debt.
Following the consummation of the Offer, the business and operations of
OPCo will be continued substantially as they are currently being conducted.
Except as disclosed in this Offer to Purchase and Proxy Statement, AEP and OPCo
currently have no plans or proposals that relate to or would result in: (a) the
acquisition by any person or entity of additional securities of OPCo or the
disposition of securities of OPCo, other than in the ordinary course of
business; (b) an extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving OPCo or any of its subsidiaries other
than OPCo's continuing studies of its active coal subsidiaries which might
result in an extraordinary corporate transaction and OPCo's plan to merge
Central Coal Company, an inactive and immaterial coal subsidiary; (c) a sale or
transfer of a material amount of assets of OPCo or any of its subsidiaries; (d)
any change in the present Board or management of OPCo; (e) any material change
in the present dividend rate or policy, or indebtedness or capitalization of
OPCo; (f) any other material change in OPCo's corporate structure or business;
(g) any change in OPCo's Articles or Regulations or any actions that may impede
the acquisition of control of OPCo by any person; (h) a class of equity
securities of OPCo being delisted from a national securities exchange; (i) a
class of equity securities of OPCo becoming eligible for termination of
registration pursuant to Section 12(g)(4) of the Exchange Act; or (j) the
suspension of OPCo's obligation to file reports pursuant to Section 15(d) of the
Exchange Act.
NEITHER AEP, OPCO, THEIR RESPECTIVE BOARDS OF DIRECTORS, NOR ANY OF THEIR
RESPECTIVE OFFICERS MAKES ANY RECOMMENDATION TO ANY PREFERRED SHAREHOLDER AS TO
WHETHER TO TENDER ALL OR ANY SHARES. EACH PREFERRED SHARE-
23
<PAGE> 24
HOLDER MUST MAKE HIS OR HER OWN DECISION AS TO WHETHER TO TENDER SHARES AND, IF
SO, HOW MANY SHARES TO TENDER.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Simpson Thacher & Bartlett, tax counsel to AEP and OPCo,
the following summary describes the principal United States federal income tax
consequences of sales of Shares pursuant to the Offer and the receipt of Special
Cash Payments in connection with the approval and adoption of the Proposed
Amendment. This summary is based on the Internal Revenue Code of 1986, as
amended to the date hereof (the "Code"), administrative pronouncements, judicial
decisions and existing and proposed Treasury Regulations, changes to any of
which subsequent to the date of this Offer to Purchase and Proxy Statement may
adversely affect the tax consequences described herein, possibly on a
retroactive basis. This summary is addressed to Preferred Shareholders who hold
Shares as capital assets within the meaning of Section 1221 of the Code. This
summary does not discuss all of the tax consequences that may be relevant to a
Preferred Shareholder in light of such Preferred Shareholder's particular
circumstances or to Preferred Shareholders subject to special rules (including
certain financial institutions, tax-exempt organizations, insurance companies,
dealers in securities or currencies, foreign persons or entities selling Shares
pursuant to the Offer who own or have owned, actually or constructively, more
than five percent of such Shares, Preferred Shareholders who acquired their
Shares pursuant to the exercise of stock options or other compensation
arrangements with OPCo or Preferred Shareholders holding the Shares as part of a
conversion transaction, as part of a hedge or hedging transaction, or as a
position in a straddle for tax purposes). Preferred Shareholders should consult
their tax advisors with regard to the application of the United States federal
income tax laws to their particular situations as well as any tax consequences
arising under the laws of any state, local or foreign taxing jurisdiction.
As used herein, the term "United States Holder" means an owner of a Share
that is (i) for United States federal income tax purposes a citizen or resident
of the United States; (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof; (iii) an estate the income of which is subject to United
States federal income taxation regardless of its source; or (iv) any trust if a
court within the United States is able to exercise primary supervision over the
administration of such trust and one or more United States fiduciaries have the
authority to control all substantial decisions of such trust. A "Non-United
States Holder" is a Preferred Shareholder that is not a United States Holder.
Tax Considerations for Tendering Preferred Shareholders
Characterization of the Sale. A sale of Shares by a Preferred Shareholder
pursuant to the Offer will be a taxable transaction for Federal income tax
purposes.
United States Holders. A United States Holder will recognize gain or loss
equal to the difference between the tax basis of such Holder's Shares and the
amount of cash received in exchange therefor. A United States Holder's gain or
loss will be long-term capital gain or loss if the holding period for the Shares
is more than one year as of the date of the sale of such Shares. The excess of
net long-term capital gains over net short-term capital losses is taxed at a
lower rate than ordinary income for certain non-corporate taxpayers. The
distinction between capital gain or loss and ordinary income or loss is also
relevant for purposes of, among other things, limitations on the deductibility
of capital losses.
Non-United States Holders. Any gain realized upon the sale of Shares by a
Non-United States Holder pursuant to the Offer generally will not be subject to
United States Federal income tax unless (i) such gain is effectively connected
with a trade or business in the United States of the Non-United States Holder,
or (ii) in the case of a Non-United States Holder who is an individual, such
individual is present in the United States for 183 days or more in the taxable
year of such sale and certain other conditions are met.
A Non-United States Holder described in clause (i) above will be taxed on
the net gain derived from the sale at regular graduated United States Federal
income tax rates. If a Non-United States Holder that is a
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<PAGE> 25
foreign corporation falls under clause (i) above, it may also be subject to an
additional "branch profits tax" at a 30% rate (or such lower rate as may be
specified by an applicable income tax treaty). Unless an applicable tax treaty
provides otherwise, an individual Non-United States Holder described in clause
(ii) above will be subject to a flat 30% tax on the gain derived from the sale,
which may be offset by United States capital losses (notwithstanding the fact
that the individual is not considered a resident of the United States).
Tax Considerations for Non-Tendering Preferred Shareholders
Preferred Shareholders, whether or not they receive Special Cash Payments,
will not recognize any taxable gain or loss with respect to the Shares as a
result of the modification of the Articles by the Proposed Amendment.
United States Holders. There is no direct authority concerning the Federal
income tax consequences of the receipt of Special Cash Payments. OPCo will, for
information reporting purposes, treat Special Cash Payments as ordinary
non-dividend income to recipient United States Holders.
Non-United States Holders. OPCo will treat Special Cash Payments paid to a
Non-United States Holder of Shares as subject to withholding of United States
Federal income tax at a 30% rate. However, Special Cash Payments that are
effectively connected with the conduct of a trade or business by the Non-United
States Holder within the United States are not subject to the withholding tax
(provided such Non-United States Holder provides two originals of Internal
Revenue Service ("IRS") Form 4224 stating that such Special Cash Payments are so
effectively connected), but instead are subject to United States Federal income
tax on a net income basis at applicable graduated individual or corporate rates.
Any such effectively connected Special Cash Payments received by a foreign
corporation may, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate (or such lower rate as may be specified by an
applicable income tax treaty).
A Non-United States Holder of Shares eligible for a reduced rate of United
States withholding tax pursuant to an income tax treaty may obtain a refund of
any excess amounts withheld by filing an appropriate claim for refund with the
IRS.
Backup Withholding. ANY TENDERING PREFERRED SHAREHOLDER WHO FAILS TO
COMPLETE AND SIGN THE SUBSTITUTE FORM W-9 THAT IS INCLUDED IN THE APPLICABLE
LETTER OF TRANSMITTAL (OR, IN THE CASE OF A FOREIGN PREFERRED SHAREHOLDER, FORM
W-8 OBTAINABLE FROM THE DEPOSITARY) MAY BE SUBJECT TO A REQUIRED FEDERAL INCOME
TAX BACKUP WITHHOLDING OF 31% OF THE GROSS PROCEEDS PAYABLE TO SUCH PREFERRED
SHAREHOLDER PURSUANT TO THE OFFER. To prevent backup United States Federal
income tax withholding with respect to the purchase price of Shares purchased
pursuant to the Offer, a United States Holder must provide the Depositary with
the Preferred Shareholder's correct taxpayer identification number and certify
that the Preferred Shareholder is not subject to backup withholding of Federal
income tax by completing the Substitute Form W-9 included in the applicable
Letter of Transmittal. Certain Preferred Shareholders (including, among others,
all corporations and certain foreign shareholders) are exempt from backup
withholding. For a corporate United States Holder to qualify for such exemption,
such Preferred Shareholder must provide the Depositary with a properly completed
and executed Substitute Form W-9 attesting to its exempt status. In order for a
foreign Preferred Shareholder to qualify as an exempt recipient, the foreign
holder must submit a Form W-8, Certificate of Foreign Status, signed under
penalties of perjury, attesting to that Preferred Shareholder's exempt status. A
copy of Form W-8 may be obtained from the Depositary.
Unless a Preferred Shareholder provides the appropriate certification,
under the applicable law and regulations concerning "backup withholding" of
Federal United States income tax, the Depositary will be required to withhold,
and will withhold, 31% of the gross proceeds otherwise payable to such Preferred
Shareholder or other payee. The amount of any backup withholding from a payment
to a Preferred Shareholder will be allowed as a credit against such Preferred
Shareholder's United States federal income tax liability and may entitle such
Preferred Shareholder to a refund, provided that the required information is
furnished to the IRS.
25
<PAGE> 26
SOURCE AND AMOUNT OF FUNDS
Assuming that AEP purchases all outstanding Shares pursuant to the Offer,
the total amount required by AEP to purchase such Shares will be approximately
$151 million, exclusive of the accrued and unpaid dividends payments, but
including fees and other expenses. AEP intends to fund the Offer through the use
of its general funds (which, in the ordinary course, include funds from OPCo)
and funds borrowed pursuant to AEP's commercial paper program and committed
lines of credit, including any bank revolving credit agreements.
AEP and OPCo sell commercial paper directly to commercial paper dealers who
reoffer the commercial paper to investors and issue and sell short-term notes to
several domestic and foreign banks through various credit arrangements,
including revolving credit agreements or shared lines of credit. AEP and its
significant subsidiaries, including OPCo, have $500 million of committed lines
of credit available for use by AEP and such subsidiaries. If necessary, AEP and
its significant subsidiaries may negotiate increases to existing credit
arrangements in order to fund the Offer.
TRANSACTIONS AND AGREEMENTS CONCERNING THE SHARES
Each of AEP and OPCo has been advised by its directors and executive
officers that no directors or executive officers of the respective companies own
any Shares. Based upon the companies' records and upon information provided to
each company by its directors and executive officers, neither company nor, to
the knowledge of either, any of their subsidiaries, affiliates, directors or
executive officers, or associates of the foregoing, has engaged in any
transactions involving Shares during the 40 business days preceding the date
hereof. Neither company nor, to the knowledge of either, any of its directors or
executive officers or an associate of the foregoing is a party to any contract,
arrangement, understanding or relationship relating directly or indirectly to
the Offer with any other person or entity with respect to any securities of
OPCo.
FEES AND EXPENSES PAID TO DEALERS
Dealer Manager Fees. Merrill Lynch and Salomon Brothers will act as Dealer
Managers for AEP in connection with the Offer. AEP has agreed to pay the Dealer
Managers a fee of $.50 per Share for any Shares tendered, accepted for payment
and paid for pursuant to the Offer and a fee of $.50 per Share for any Shares
that are not tendered pursuant to the Offer but which vote in favor of the
Proposed Amendment. The Dealer Managers will also be reimbursed by AEP for their
reasonable out-of-pocket expenses, including attorneys' fees, and will be
indemnified against certain liabilities, including certain liabilities under the
federal securities laws, in connection with the Offer. The Dealer Managers have
rendered, are currently rendering and are expected to continue to render various
investment banking and other advisory services to AEP and OPCo. The Dealer
Managers have received, and will continue to receive, customary compensation
from AEP and OPCo for such services. AEP has retained First Chicago Trust
Company of New York as Depositary and Morrow & Co., Inc. as Information Agent in
connection with the Offer. The Depositary and Information Agent will receive
reasonable and customary compensation for their services and will also be
reimbursed for reasonable out-of-pocket expenses, including attorney fees. AEP
has agreed to indemnify the Depositary and Information Agent against certain
liabilities, including certain liabilities under the federal securities law, in
connection with the Offer. Neither the Depositary nor the Information Agent has
been retained to make solicitations or recommendations in connection with the
Offer.
Solicited Tender Fees Separate Fees. Pursuant to Instruction 10 of the
accompanying Letter of Transmittal, AEP will pay to designated brokers and
dealers a solicitation fee of $1.50 per Share for any Shares tendered, accepted
for payment and paid for pursuant to the Offer (except that for transactions for
beneficial owners equal to or exceeding 5,000 Shares, AEP will pay a
solicitation fee of (i) $1.00 per Share for Shares of the 4- 1/2% Series, the
4.08% Series, the 4.20% Series and the 4.40% Series, and (ii) $.50 per Share for
Shares of the remaining Series), and OPCo will pay a separate fee of $.50 per
Share for any Shares of the 4- 1/2% Series, the 4.08 Series, the 4.20% Series
and the 4.40% Series that are not tendered pursuant to the Offer but which are
voted in favor of the Proposed Amendment with respect to the entity obtaining
the tender
26
<PAGE> 27
or proxy, if the Letter of Transmittal shall include the name of (a) any broker
or dealer in securities, including a Dealer Manager in its capacity as a dealer
or broker, which is a member of any national securities exchange or of the
National Association of Securities Dealers, Inc. ("NASD"), (b) any foreign
broker or dealer not eligible for membership in the NASD which agrees to conform
to the NASD's Rules of Fair Practice in soliciting tenders outside the United
States to the same extent as though it were an NASD member, or (c) any bank or
trust company (each of which is referred to herein as a "Soliciting Dealer");
provided that, with respect to solicitation fees paid with respect to
transactions for beneficial owners equal to or exceeding 5,000 shares, at least
twenty percent (20%) of each such fee shall be paid to the Dealer Managers. No
solicitation fee or separate fee shall be payable to a Soliciting Dealer with
respect to the tender of Shares or the vote of Shares by a holder unless the
Letter of Transmittal or proxy accompanying such tender or vote, as the case may
be, designates such Soliciting Dealer. No solicitation fee or separate fee shall
be payable to a Soliciting Dealer in respect of Shares registered in the name of
such Soliciting Dealer unless such Shares are held by such Soliciting Dealer as
nominee and such Shares are being tendered or voted for the benefit of one or
more beneficial owners identified on the Letter of Transmittal or on the Notice
of Solicited Tenders. No solicitation fee or separate fee shall be payable to a
Soliciting Dealer if such Soliciting Dealer is required for any reason to
transfer the amount of such fee to a depositing holder (other than itself). No
solicitation fee shall be paid to a Soliciting Dealer with respect to Shares
tendered for such Soliciting Dealer's own account and no separate fee shall be
paid to a Soliciting Dealer with respect to Shares voted for such Soliciting
Dealer's own account. A Soliciting Dealer shall not be entitled to a
solicitation fee or a separate fee for Shares beneficially owned by such
Soliciting Dealer. No broker, dealer, bank, trust company or fiduciary shall be
deemed to be the agent of AEP, the Depositary, the Dealer Managers or the
Information Agent for purposes of the Offer.
Soliciting Dealers will include any of the organizations described in
clauses (a), (b) and (c) above even when the activities of such organizations in
connection with the Offer consist solely of forwarding to clients materials
relating to the Offer, including the Letter of Transmittal and tendering Shares
as directed by beneficial owners thereof. No Soliciting Dealer is required to
make any recommendation to holders of Shares as to whether to tender or refrain
from tendering in the Offer. No assumption is made, in making payment to any
Soliciting Dealer, that its activities in connection with the Offer included any
activities other than those described above, and for all purposes noted in all
materials relating to the Offer, the term "solicit" shall be deemed to mean no
more than "processing shares tendered" or "forwarding to customers materials
regarding the Offer."
Stock Transfer Taxes. AEP will pay all stock transfer taxes, if any,
payable on account of the acquisition of Shares by AEP pursuant to the Offer,
except in certain circumstances where special payment or delivery procedures are
utilized pursuant to Instruction 6 of the accompanying Letter of Transmittal.
CERTAIN INFORMATION REGARDING AEP AND OPCO
OPCo is an operating utility primarily engaged in the generation,
transmission and distribution of electric power to approximately 668,000
customers in Ohio, and in supplying electric power at wholesale to other
electric utility companies and municipalities. All of the common stock of OPCo
is owned, directly or indirectly, by AEP, a registered holding company under the
Holding Company Act. The service area of AEP's electric utility subsidiaries
covers portions of Indiana, Kentucky, Michigan, Ohio, Tennessee, Virginia and
West Virginia.
AEP and OPCo are subject to the informational requirements of the Exchange
Act and in accordance therewith file reports and other information with the SEC.
Such reports and other information may be inspected and copied at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549; 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511; and Seven World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material can be obtained from the Public Reference Section of the
SEC, 450 Fifth Street, N.W., Washington D.C. 20549 at prescribed rates. The SEC
maintains a Web site at http://www.sec.gov containing reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC, including AEP and OPCo. Reports, proxy materials
and other information about AEP are also available at the offices of the New
York Stock Exchange, 20 Broad Street, New York, New York 10005. In connection
with the Offer AEP has filed
27
<PAGE> 28
an Issuer Tender Offer Statement on Schedule 13E-4 with the SEC that includes
certain additional information relating to the Offer. AEP's Schedule 13E-4 will
not be available at the SEC's regional offices.
SUMMARY OF CONSOLIDATED FINANCIAL INFORMATION
Set forth below is certain consolidated historical financial information of
OPCo and its subsidiaries. The historical financial information (other than the
ratios of earnings to fixed charges) was derived from the audited consolidated
financial statements included in OPCo's Annual Report on Form 10-K for the year
ended December 31, 1995 and from the unaudited consolidated financial statements
included in OPCo's Quarterly Reports on Form 10-Q for the periods ended
September 30, 1996 and September 30, 1995.
CONDENSED INCOME STATEMENT DATA:
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------- -----------------------
1995 1994 1996 1995
--------- --------- --------- ---------
(THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C>
Operating Revenues...................... $1,822,997 $1,738,726 $1,438,081 $1,360,319
Operating Income........................ 272,160 244,873 224,379 203,477
Allowance for Borrowed and Equity Funds
Used During Construction.............. 1,265 3,944 1,121 1,273
Net Income.............................. 189,447 162,626 165,405 142,348
Preferred Stock Dividend Requirements... 14,668 15,301 6,681 11,578
Earnings Applicable to Common Stock..... 174,779 147,325 158,724 130,770
Ratio of Earnings to Fixed Charges...... 2.95 3.28 3.30(a) 2.92(a)
</TABLE>
- ---------------
(a) Ratio for the twelve months ended September 30.
CONDENSED BALANCE SHEET DATA (AT END OF PERIOD):
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, SEPTEMBER 30,
----------------------- -------------------------
1995 1994 1996 1995
--------- --------- --------- ---------
(THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C>
ASSETS:
Net Utility Plant In Service.......... $2,764,796 $2,810,606 $2,702,574 $2,778,638
Construction Work In Progress......... 59,278 49,889 71,981 65,077
Cash and Cash Equivalents............. 44,000 30,700 72,967 18,651
Other Current Assets.................. 489,099 445,202 487,636 475,959
Other Assets.......................... 799,391 814,743 721,550 761,774
--------- --------- --------- ---------
$4,156,564 $4,151,140 $4,056,708 $4,100,099
========= ========= ========= =========
LIABILITIES:
Common Equity......................... $1,298,704 $1,267,523 $1,351,369 $1,291,968
Cumulative Preferred Stock............ 156,240 241,240 153,532 241,240
Long-term Debt (less amounts due
within one year).................... 1,138,425 1,188,319 1,002,495 1,089,278
Current Liabilities................... 489,103 425,222 462,568 416,037(a)
Other Liabilities..................... 1,074,092 1,028,836 1,086,744 1,061,576(a)
--------- --------- --------- ---------
$4,156,564 $4,151,140 $4,056,708 $4,100,099
========= ========= ========= =========
</TABLE>
- ---------------
(a) Certain amounts reclassified to conform with current-period presentation.
28
<PAGE> 29
The financial statements of AEP and OPCo and related information included
in their Annual Reports on Form 10-K for the year ended December 31, 1995 and
their Quarterly Reports on Form 10-Q for the periods ended March 31, June 30,
and September 30, 1996 and OPCo's Current Report on Form 8-K dated January 22,
1997, each as filed with the SEC, are hereby incorporated by reference. All
documents subsequently filed by AEP and OPCo pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this Offer to Purchase and
Proxy Statement and prior to the Expiration Date (or any extension thereof)
shall be deemed to be incorporated by reference in this Offer to Purchase and
Proxy Statement and to be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Offer to Purchase and Proxy Statement to the extent that a
statement contained herein or in any other subsequently filed documents which is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Offer to
Purchase and Proxy Statement.
AEP and OPCo will provide without charge to each person to whom a copy of
this Offer to Purchase and Proxy Statement has been delivered, on the written or
oral request of any such person, a copy of any or all of the documents described
above which have been incorporated by reference in this Offer to Purchase and
Proxy Statement, other than exhibits to such documents. Written requests for
copies of such documents should be addressed to Mr. G. C. Dean, American
Electric Power Service Corporation, 1 Riverside Plaza, Columbus, Ohio 43215
(telephone 614-223-1000). The information relating to AEP and OPCo contained in
this Offer to Purchase and Proxy Statement does not purport to be comprehensive
and should be read together with the information contained in the documents
incorporated by reference.
MISCELLANEOUS
The Offer is not being made to, nor will AEP accept tenders from, owners of
Shares in any jurisdiction in which the Offer or its acceptance would not be in
compliance with the laws of such jurisdiction. AEP is not aware of any
jurisdiction where the making of the Offer or the tender of Shares would not be
in compliance with applicable law. If AEP becomes aware of any jurisdiction
where the making of the Offer or the tender of Shares is not in compliance with
any applicable law, AEP will make a good faith effort to comply with such law.
If, after such good faith effort, AEP cannot comply with such law, the Offer
will not be made to (nor will tenders be accepted from or on behalf of) the
owners of Shares residing in such jurisdiction. In any jurisdiction in which the
securities, blue sky or other laws require the Offer to be made by a licensed
broker or dealer, the Offer will be deemed to be made on AEP's behalf by one or
more registered brokers or dealers licensed under the laws of such jurisdiction.
AMERICAN ELECTRIC POWER COMPANY, INC.
OHIO POWER COMPANY
29
<PAGE> 30
Facsimile copies of the Letter of Transmittal will not be accepted. The
Letter of Transmittal and, if applicable, certificates for Shares should be sent
or delivered by each tendering or voting Preferred Shareholder of OPCo or his or
her broker, dealer, bank or trust company to the Depositary at one of its
addresses set forth below.
THE DEPOSITARY IS:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
<TABLE>
<S> <C> <C>
By Mail: By Hand: By Overnight Courier:
Tenders & Exchanges Tenders & Exchanges Tenders & Exchanges
P.O. Box 2569 c/o The Depositary Trust Company 14 Wall Street, 8th Floor
Suite 4660 55 Water Street, DTC TAD Suite 4680
Jersey City, New Jersey 07303-2569 Vietnam Veterans Memorial Plaza New York, New York 10005
New York, New York 10041
</TABLE>
Any questions or requests for assistance may be directed to the Information
Agent or the Dealer Managers at their respective telephone numbers and addresses
listed below. Requests for additional copies of this Offer to Purchase and Proxy
Statement, the Letter of Transmittal or other tender offer or proxy materials
may be directed to the Information Agent, and such copies will be furnished
promptly at the companies' expense. Preferred Shareholders may also contact
their local broker, dealer, commercial bank or trust company for assistance
concerning the Offer.
THE INFORMATION AGENT:
MORROW & CO., INC.
909 Third Avenue
New York, New York 10022-4799
(212) 754-8000 (Call Collect)
or
(800) 566-9061 (Call Toll-Free)
THE DEALER MANAGERS:
<TABLE>
<S> <C>
MERRILL LYNCH & CO. SALOMON BROTHERS INC
World Financial Center Seven World Trade Center
250 Versey Street New York, New York 10048
New York, New York 10281 800-558-3745 (toll free)
1-888-ML4-TNDR (toll free)
(1-888-654-8637 (toll free))
</TABLE>
30
<PAGE> 1
APPALACHIAN POWER COMPANY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE SPECIAL MEETING
TO BE HELD FEBRUARY 28, 1997
SOLICITED FEES
Pursuant to the terms of the Offer to Purchase and Proxy Statement,
APCO will pay to designated brokers and dealers a solicitation fee of
$.50 per share for any shares that (i) are not tendered pursuant to
the Offer but which are voted in favor of the Proposed Amendment and
P (ii) are voted by or on behalf of a beneficial owner holding less than
R 5000 shares. No such fee shall be payable to a broker or dealer with
O respect to the vote of shares by a holder unless the Proxy
X accompanying the vote designates such broker or dealer. However,
Y soliciting brokers and dealers will not be entitled to a solicitation
fee for Shares beneficially owned by such broker or dealer.
The abovesigned represents that the Soliciting Dealer which solicited
and obtained this vote in favor of the proposed amendment is:
Name of Firm:
---------------------------------------------------------
Please Print
Name of Individual Broker or Financial Consultant:
-------------------
Telephone Number of Broker or Financial Consultant:
-------------------
Identification Number (if known):
-------------------------------------
Address:
--------------------------------------------------------------
Include Zip Code
The following to be completed ONLY if Shares held in nominee name
vote in favor of Proposed Amendment.
<TABLE>
<S> <C>
NAME OF BENEFICIAL OWNER NUMBER OF SHARES VOTED IN FAVOR OF PROPOSED AMENDMENT
(Attach Additional List if Necessary)
----------------------------------------------------- -----------------------------------------------------
----------------------------------------------------- -----------------------------------------------------
</TABLE>
The acceptance of compensation by such broker or dealer will
constitute a representation by it that (a) it has complied with the
applicable requirement as the Securities Exchange Act of 1934, as
amended and the applicable rules and regulations thereunder, in
connection with such solicitation; (b) it is entitled to such
compensation for such solicitation under the terms and conditions of
the Offer to Purchase and Proxy Statement; (c) in soliciting votes of
shares it has used no solicitation materials other than those
furnished by AEP; and (d) if it is a foreign broker or dealer not
eligible for membership in the National Association of Securities
Dealers, Inc. (the NASD), it has agreed to conform to the NASD's Rules
of Fair Practice in making solicitations.
The payment of compensation to any broker or dealer is dependent on
such broker or dealer returning a Notice of Solicited Tenders to the
Depositary.
SEE REVERSE SIDE
<PAGE> 2
[X] Please mark your
votes as in this
example.
The proxy contained herein, when properly executed, will be voted in the manner
directed herein by the undersigned shareholder(s). If no direction is made, the
proxy will be voted FOR Item 1. An abstention is the equivalent of a vote
AGAINST the proposed amendment.
Indicate your vote by an (X). The Board of Directors recommends voting FOR
Item 1.
FOR AGAINST ABSTAIN
ITEM 1. TO REMOVE FROM THE AMENDED ARTICLES OF [ ] [ ] [ ]
INCORPORATION ARTICLE V. CLAUSE 7(B)(b) IN ITS
ENTIRETY, WHICH LIMITS APCO'S ABILITY TO ISSUE
INDEBTEDNESS.
Please check box if you plan to attend this Special Meeting. [ ]
Beneficial holders must obtain a legal proxy form from their
Broker or Bank Nominee.
The undersigned hereby appoints Armando A. Pena, John D. Di Lorenzo, and Bette
Jo Rozsa, or any of them, as proxies for the undersigned, with power of
substitution, and hereby authorizes them to represent and to vote as designated
above, and in their discretion with respect to any other business properly
brought before the Special Meeting, all the shares of cumulative preferred
stock of Appalachian Power Company which the undersigned is entitled to vote at
the Special Meeting of Shareholders to be held on February 28, 1997, or any
adjournment(s) or postponement(s) thereof.
ALL HOLDERS OF RECORD SHOULD VOTE THIS PROXY, EVEN IF YOU ARE NOT TENDERING YOUR
SHARES. IF YOU ARE VOTING, BUT NOT TENDERING SHARES, DO NOT SEND CERTIFICATES
WITH THIS PROXY AND YOU MAY IGNORE THE SEPARATE LETTER OF TRANSMITTAL.
AMERICAN ELECTRIC POWER COMPANY INC. ("AEP") WILL NOT BE REQUIRED TO ACCEPT FOR
PAYMENT OR PAY FOR ANY SHARES TENDERED IF THE PROPOSED AMENDMENT IS NOT APPROVED
AND ADOPTED AT THE SPECIAL MEETING. PREFERRED SHAREHOLDERS OF RECORD HAVE THE
RIGHT TO VOTE FOR OR AGAINST THE PROPOSED AMENDMENT, REGARDLESS OF WHETHER THEY
TENDER THEIR SHARES, BY CASTING THEIR VOTE AND SIGNING THIS PROXY, OR BY VOTING
IN PERSON AT THE SPECIAL MEETING. IF THE PROPOSED AMENDMENT IS APPROVED AND
ADOPTED BY APCO'S SHAREHOLDERS, APCO WILL MAKE A SPECIAL CASH PAYMENT TO EACH
PREFERRED SHAREHOLDER WHO VOTED IN FAVOR OF THE PROPOSED AMENDMENT, PROVIDED
THAT THEIR SHARES ARE NOT TENDERED PURSUANT TO THE OFFER.
REMEMBER THAT THE PROXY CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS
CARD.
Please sign exactly as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
___________________________________, 1997
___________________________________, 1997
SIGNATURE(S) DATE
Daytime Area Code
and Telephone Number_____________________
If the address on this proxy is incorrect,
please provide the correct address here:
_________________________________________
_________________________________________
<PAGE> 1
LETTER OF TRANSMITTAL
TO ACCOMPANY
SHARES OF 4- 1/2% SERIES CUMULATIVE PREFERRED STOCK
CUSIP NUMBER 037735 107
OF
APPALACHIAN POWER COMPANY
TENDERED PURSUANT TO THE OFFER TO PURCHASE FOR CASH
BY
AMERICAN ELECTRIC POWER COMPANY, INC.
DATED JANUARY 30, 1997, FOR PURCHASE AT A
PURCHASE PRICE OF $ . PER SHARE
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON FRIDAY, FEBRUARY 28, 1997, UNLESS THE OFFER IS EXTENDED.
TO: FIRST CHICAGO TRUST COMPANY OF NEW YORK, DEPOSITARY
<TABLE>
<S> <C> <C>
BY MAIL: BY HAND: BY OVERNIGHT COURIER:
Tenders & Exchanges Tenders & Exchanges Tenders & Exchanges
P.O. Box 2569 c/o The Depository Trust Company 14 Wall Street, 8th
Suite 4660 55 Water Street, DTC TAD Floor
Jersey City, NJ 07303-2569 Vietnam Veterans Memorial Plaza Suite 4680
New York, NY 10041 New York, NY 10005
</TABLE>
AMERICAN ELECTRIC POWER COMPANY, INC. ("AEP") WILL NOT BE REQUIRED TO
ACCEPT FOR PAYMENT OR PAY FOR ANY SHARES TENDERED IF THE PROPOSED AMENDMENT IS
NOT APPROVED AND ADOPTED AT THE SPECIAL MEETING. PREFERRED SHAREHOLDERS OF
RECORD HAVE THE RIGHT TO VOTE FOR OR AGAINST THE PROPOSED AMENDMENT REGARDLESS
OF WHETHER THEY TENDER THEIR SHARES BY CASTING THEIR VOTE AND SIGNING THE PROXY
ENCLOSED HEREWITH OR BY VOTING IN PERSON AT THE SPECIAL MEETING. IF THE PROPOSED
AMENDMENT IS APPROVED AND ADOPTED BY APCO'S SHAREHOLDERS, APCO WILL MAKE A
SPECIAL CASH PAYMENT TO EACH PREFERRED SHAREHOLDER WHO VOTED IN FAVOR OF THE
PROPOSED AMENDMENT, PROVIDED THAT THEIR SHARES ARE NOT TENDERED PURSUANT TO THE
OFFER.
- --------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDERS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
NOTE: IF SHARES ARE BEING TENDERED, THE REMAINDER OF THIS LETTER OF TRANSMITTAL
MUST BE COMPLETED, INCLUDING, IF APPLICABLE, THE SUBSTITUTE FORM W-9
BELOW.
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. YOU MUST SIGN THIS LETTER OF
TRANSMITTAL IN THE APPROPRIATE SPACE THEREFOR PROVIDED AND, IF YOU ARE TENDERING
ANY SHARES, COMPLETE THE SUBSTITUTE FORM W-9 SET FORTH BELOW OR A FORM W-8, AS
APPLICABLE. SEE INSTRUCTION 8 AND "IMPORTANT TAX INFORMATION" BELOW.
DO NOT SEND ANY CERTIFICATES TO MERRILL LYNCH & CO., SALOMON BROTHERS INC,
MORROW & CO., INC., AMERICAN ELECTRIC POWER COMPANY, INC. OR APPALACHIAN POWER
COMPANY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. QUESTIONS REGARDING
AND REQUESTS FOR COPIES OF THE OFFER TO PURCHASE AND PROXY STATEMENT OR THIS
LETTER OF TRANSMITTAL MAY BE DIRECTED TO MORROW & CO., INC., THE INFORMATION
AGENT, AT 909 THIRD AVENUE, NEW YORK, NEW YORK 10022-4799 OR TELEPHONE (800)
566-9061.
This Letter of Transmittal is to be used (a) if certificates are to be
forwarded to the First Chicago Trust Company of New York ("Depositary") or (b)
if delivery of tendered Shares (as defined below) is to be made by book-entry
transfer to the Depositary's account at The Depository Trust Company ("DTC") or
the Philadelphia Depository Trust Company ("PDTC") (hereinafter collectively
referred to as the "Book-Entry Transfer Facilities") pursuant to the procedures
set forth under the heading "Terms of the Offer -- Procedure for Tendering
Shares" in the Offer to Purchase and Proxy Statement (as defined below).
Preferred Shareholders (as defined below) who wish to tender Shares but who
cannot deliver their Shares and all other documents required hereby to the
Depositary by the Expiration Date (as defined in the Offer to Purchase and Proxy
Statement) must tender their Shares pursuant to the guaranteed delivery
procedure set forth under the heading "Terms of the Offer -- Procedure for
Tendering Shares" in the Offer to Purchase and Proxy Statement. See Instruction
2. DELIVERY OF DOCUMENTS TO AMERICAN ELECTRIC POWER COMPANY, INC., APPALACHIAN
POWER COMPANY OR THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE A VALID
DELIVERY.
- --------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
(IF TENDERING SHARES, PLEASE FILL IN EXACTLY AS INFORMATION APPEARS ON
CERTIFICATE(S))
(ATTACH ADDITIONAL SIGNED LIST IF NECESSARY)
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL NUMBER OF SHARES
CERTIFICATE NUMBER(S)* REPRESENTED BY CERTIFICATE(S) NUMBER OF SHARES TENDERED**
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by shareholders tendering by book-entry transfer.
** Unless otherwise indicated, it will be assumed that all Shares represented by
any certificates delivered to the Depositary are being tendered. See
Instruction 4.
If any of your certificate(s) for Shares have been lost, stolen or
destroyed, please call the Depositary at 1-800- - . In addition, you
should advise the Depositary of any certificate(s) you have in your possession.
You will need to complete an Affidavit of Loss with respect to the lost
certificate(s) (which will be provided by the Depositary) and pay an indemnity
bond premium fee.
(BOXES BELOW FOR USE BY ELIGIBLE INSTITUTIONS ONLY)
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
TO THE DEPOSITARY'S ACCOUNT AT A BOOK-ENTRY TRANSFER FACILITY AND
COMPLETE THE FOLLOWING:
Name of tendering institution
Account No.
Transaction Code No.
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO
A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE
DEPOSITARY AND COMPLETE THE FOLLOWING:
Name(s) of tendering shareholder(s)
Date of execution of Notice of Guaranteed Delivery
Name of institution that guaranteed delivery
If delivery is by book-entry transfer:
Name of tendering institution
Account no.
Transaction Code No.
<PAGE> 3
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
Ladies and Gentlemen:
The undersigned hereby tenders to American Electric Power Company, Inc., a
New York corporation ("AEP"), the shares in the amount set forth in the box
above designated "Description of Shares Tendered" pursuant to AEP's offer to
purchase any and all of the outstanding shares of the series of cumulative
preferred stock of Appalachian Power Company, a Virginia corporation, and direct
utility subsidiary of AEP ("APCo"), shown on the first page hereof as to which
this Letter of Transmittal is applicable (the "Shares") at the purchase price
per Share shown on the first page hereof plus accrued and unpaid dividends
thereon, net to the seller in cash, upon the terms and subject to the conditions
set forth in the Offer to Purchase and Proxy Statement, dated January 30, 1997
(the "Offer to Purchase and Proxy Statement"), receipt of which is hereby
acknowledged, and in this Letter of Transmittal (which as to the Shares,
together with the Offer to Purchase and Proxy Statement, constitutes the
"Offer"). WHILE PREFERRED SHAREHOLDERS WHO WISH TO TENDER THEIR SHARES PURSUANT
TO THE OFFER NEED NOT VOTE IN FAVOR OF THE PROPOSED AMENDMENT TO APCO'S AMENDED
ARTICLES OF INCORPORATION, AS SET FORTH IN THE OFFER TO PURCHASE AND PROXY
STATEMENT (THE "PROPOSED AMENDMENT"), THE OFFER IS CONDITIONED UPON THE PROPOSED
AMENDMENT BEING APPROVED AND ADOPTED AT THE SPECIAL MEETING (AS DEFINED IN THE
OFFER TO PURCHASE AND PROXY STATEMENT). See "Proposed Amendment and Proxy
Solicitation", "Terms of the Offer -- Extension of Tender Period; Termination;
Amendments" and "Terms of the Offer -- Certain Conditions of the Offer" in the
Offer to Purchase and Proxy Statement.
Subject to, and effective upon, acceptance for payment of and payment for
the Shares tendered herewith in accordance with the terms and subject to the
conditions of the Offer (including, if the Offer is extended or amended, the
terms and conditions of any such extension or amendment), the undersigned hereby
sells, assigns and transfers to, or upon the order of, AEP all right, title and
interest in and to all the Shares that are being tendered hereby and hereby
constitutes and appoints First Chicago Trust Company of New York (the
"Depositary") the true and lawful agent and attorney-in-fact of the undersigned
with respect to such Shares, with full power of substitution (such power of
attorney being an irrevocable power coupled with an interest), to (a) deliver
certificates for such Shares, or transfer ownership of such Shares on the
account books maintained by the Book-Entry Transfer Facilities, together, in any
such case, with all accompanying evidences of transfer and authenticity, to or
upon the order of AEP, (b) present such Shares for registration and transfer on
the books of APCo and (c) receive all benefits and otherwise exercise all rights
of beneficial ownership of such Shares, all in accordance with the terms of the
Offer. The Depositary will act as agent for tendering stockholders for the
purpose of receiving payment from AEP and transmitting payment to tendering
stockholders.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Shares
tendered hereby and that, when and to the extent the same are accepted for
payment by AEP, AEP will acquire good, marketable and unencumbered title
thereto, free and clear of all liens, restrictions, charges, encumbrances,
conditional sales agreements or other obligations relating to the sale or
transfer thereof, and the same will not be subject to any adverse claims. The
undersigned will, upon request, execute and deliver any additional documents
deemed by the Depositary or AEP to be necessary or desirable to complete the
sale, assignment and transfer of the Shares tendered hereby.
<PAGE> 4
All authority herein conferred or agreed to be conferred shall not be
affected by, and shall survive the death, bankruptcy or incapacity of the
undersigned, and any obligations of the undersigned hereunder shall be binding
upon the heirs, legal representatives, successors, assigns, executors and
administrators of the undersigned. Except as stated in the Offer, this tender is
irrevocable.
The undersigned understands that tenders of Shares pursuant to any one of
the procedures described under the heading "Terms of the Offer -- Procedure for
Tendering Shares" in the Offer to Purchase and Proxy Statement and in the
instructions hereto will constitute the undersigned's acceptance of the terms
and conditions of the Offer, including the undersigned's representation and
warranty that (a) the undersigned has a net long position in the Shares being
tendered within the meaning of Rule 14e-4 promulgated under the Securities
Exchange Act of 1934, as amended, and (b) the tender of such Shares complies
with such Rule 14e-4. AEP's acceptance for payment of Shares tendered pursuant
to the Offer will constitute a binding agreement between the undersigned and AEP
upon the terms and subject to the conditions of the Offer.
The undersigned recognizes that, under certain circumstances set forth in
the Offer to Purchase and Proxy Statement, AEP may terminate or amend the Offer
or may not be required to purchase any of the Shares tendered hereby. In either
event, the undersigned understands that certificate(s) for any Shares not
tendered or not purchased will be returned to the undersigned.
Unless otherwise indicated in the box below under the heading "Special
Payment Instructions", please issue the check for the purchase price of any
Shares purchased, and/or return any Shares not tendered or not purchased, in the
name(s) of the undersigned (and, in the case of Shares tendered by book-entry
transfer, by credit to the account at a Book-Entry Transfer Facility designated
above). Similarly, unless otherwise indicated in the box below under the heading
"Special Delivery Instructions", please mail the check for the purchase price of
any Shares purchased and/or any certificates for Shares not tendered or not
purchased (and accompanying documents, as appropriate) to the undersigned at the
address shown below the undersigned signature(s). In the event that both
"Special Payment Instructions" and "Special Delivery Instructions" are
completed, please issue the check for the purchase price of any Shares purchased
and/or return any Shares not tendered or not purchased in the name(s) of, and
mail said check and/or any certificates to, the person(s) so indicated. The
undersigned recognizes that AEP has no obligation, pursuant to the "Special
Payment Instructions", to transfer any Shares from the name of the registered
holder(s) thereof if AEP does not accept for payment any of the Shares so
tendered.
------------------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 4, 5 AND 7)
To be completed ONLY if the check for the purchase price of Shares
purchased and/or certificates for Shares not tendered or not purchased are
to be issued in the name of someone other than the undersigned.
Issue: [ ] check and/or
[ ] certificate(s) to:
Name
----------------------------------------------------
(PLEASE PRINT)
Address
--------------------------------------------------
------------------------------------------------------------
(INCLUDE ZIP CODE)
------------------------------------------------------------
(TAXPAYER IDENTIFICATION OR
SOCIAL SECURITY NUMBER)
------------------------------------------------------------
<PAGE> 5
------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4, 6 AND 7)
To be completed ONLY if the check for the purchase price of Shares
purchased and/or certificates for Shares not tendered or not purchased are
to be mailed to someone other than the undersigned or to the undersigned
at an address other than that shown below the undersigned's signature(s).
Mail: [ ] check and/or
[ ] certificate(s) to:
Name
----------------------------------------------------
(PLEASE PRINT)
Address
--------------------------------------------------
------------------------------------------------------------
(INCLUDE ZIP CODE)
------------------------------------------------------------
------------------------------------------------------------
<PAGE> 6
SIGNATURE(S) OF OWNER(S)
X
- --------------------------------------------------------------------------------
X
- --------------------------------------------------------------------------------
Dated: , 1997
Name(s):
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (full title):
Address:
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
DAYTIME Area Code and Telephone No.:
(Must be signed by the registered holder(s) exactly as name(s) appear(s) on the
stock certificate(s) or on a security position listing or by person(s)
authorized to become registered holder(s) by certificates and documents
transmitted herewith. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation or other person acting in a
fiduciary or representative capacity, please set forth full title and see
Instruction 5.)
GUARANTEE OF SIGNATURE(S) (SEE INSTRUCTIONS 1 AND 5)
Authorized Signature:
Name:
Name of Firm:
Address of Firm:
Area Code and Telephone No.:
Dated: , 1997
IF SHARES ARE BEING TENDERED, PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW OR
A FORM W-8, AS APPLICABLE.
<PAGE> 7
SOLICITED TENDERS
(SEE INSTRUCTION 10)
As provided in Instruction 10, AEP will pay to any Soliciting Dealer, as
defined in Instruction 10, a solicitation fee of $1.50 per Share (except that
for transactions for beneficial owners equal to or exceeding 5,000 Shares, AEP
will pay a solicitation fee of $1.00 per Share) for any Shares tendered,
accepted for payment and paid pursuant to the Offer. However, Soliciting Dealers
will not be entitled to a solicitation fee for Shares beneficially owned by such
Soliciting Dealer.
The abovesigned represents that the Soliciting Dealer which solicited and
obtained this tender is:
Name of Firm:
(PLEASE PRINT)
Name of Individual Broker
or Financial Consultant:
Telephone Number of Broker
or Financial Consultant:
Identification Number (if known):
Address:
(INCLUDE ZIP CODE)
The following to be completed ONLY if customer's Shares held in nominee
name are tendered.
<TABLE>
<S> <C>
NAME OF BENEFICIAL OWNER NUMBER OF SHARES TENDERED
(ATTACH ADDITIONAL LIST IF NECESSARY)
- --------------------------------------------- ---------------------------------------------
- --------------------------------------------- ---------------------------------------------
- --------------------------------------------- ---------------------------------------------
</TABLE>
The acceptance of compensation by such Soliciting Dealer will constitute a
representation by it that (a) it has complied with the applicable requirements
of the Securities Exchange Act of 1934, as amended, and the applicable rules and
regulations thereunder, in connection with such solicitation; (b) it is entitled
to such compensation for such solicitation under the terms and conditions of the
Offer to Purchase and Proxy Statement; (c) in soliciting tenders of Shares, it
has used no solicitation materials other than those furnished by AEP; and (d) if
it is a foreign broker or dealer not eligible for membership in the National
Association of Securities Dealers, Inc. (the "NASD"), it has agreed to conform
to the NASD's Rules of Fair Practice in making solicitations.
The payment of compensation to any Soliciting Dealer is dependent on such
Soliciting Dealer returning a Notice of Solicited Tenders to the Depositary.
THIS LETTER OF TRANSMITTAL IS TO BE USED FOR THE TENDER OF SHARES OF THE
4- 1/2% SERIES (AS DEFINED IN THE OFFER TO PURCHASE AND PROXY STATEMENT) ONLY.
ANY PERSON DESIRING TO TENDER SHARES OF ANY OTHER SERIES OF CUMULATIVE PREFERRED
STOCK FOR WHICH AEP IS MAKING A TENDER OFFER MUST SUBMIT A LETTER OF TRANSMITTAL
RELATING TO THAT SPECIFIC SERIES.
<PAGE> 8
INSTRUCTIONS
FORMING PART OF THE
TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by a firm that is a
member of a registered national securities exchange or the National Association
of Securities Dealers, Inc., or by a commercial bank or trust company having an
office or correspondent in the United States which is a participant in an
approved Signature Guarantee Medallion Program (each of the foregoing being
referred to as an "Eligible Institution"). Signatures on this Letter of
Transmittal need not be guaranteed (a) if this Letter of Transmittal is signed
by the registered holder(s) of the Shares (which term, for purposes of this
document, shall include any participant in a Book-Entry Transfer Facility whose
name appears on a security position listing as the owner of Shares) tendered
herewith and such holder(s) has not completed the box above under the heading
"Special Payment Instructions" or the box above under the heading "Special
Delivery Instructions" on this Letter of Transmittal, or (b) if such Shares are
tendered for the account of an Eligible Institution. See Instruction 5.
2. DELIVERY OF LETTER OF TRANSMITTAL AND SHARES. This Letter of
Transmittal is to be used if (a) certificates are to be forwarded herewith or,
(b) delivery of Shares is to be made by book-entry transfer pursuant to the
procedures set forth under the heading "Terms of the Offer -- Procedure for
Tendering Shares" in the Offer to Purchase and Proxy Statement. Certificates for
all physically delivered Shares, or a confirmation of a book-entry transfer into
the Depositary's account at a Book-Entry Transfer Facility of all Shares
delivered electronically, as well as a properly completed and duly executed
Letter of Transmittal, and any other documents required by this Letter of
Transmittal, must be received by the Depositary at one of its addresses set
forth on the front page of this Letter of Transmittal on or prior to the
Expiration Date (as defined in the Offer to Purchase and Proxy Statement) with
respect to all Shares. Preferred Shareholders who wish to tender their Shares
yet who cannot deliver their Shares and all other required documents to the
Depositary on or prior to the Expiration Date must tender their Shares pursuant
to the guaranteed delivery procedure set forth under the heading "Terms of the
Offer -- Procedure for Tendering Shares" in the Offer to Purchase and Proxy
Statement. Pursuant to such procedure: (a) such tender must be made by or
through an Eligible Institution, (b) a properly completed and duly executed
Notice of Guaranteed Delivery in the form provided by AEP (with any required
signature guarantees) must be received by the Depositary on or prior to the
applicable Expiration Date and (c) the certificates for all physically delivered
Shares, or a confirmation of a book-entry transfer into the Depositary's account
at a Book-Entry Transfer Facility of all Shares delivered electronically,
together with a properly completed and duly executed Letter of Transmittal and
any other documents required by this Letter of Transmittal must be received by
the Depositary by 5:00 p.m. (New York City time) within three New York Stock
Exchange trading days after the date of execution of such Notice of Guaranteed
Delivery, all as provided under the heading "Terms of the Offer -- Procedure for
Tendering Shares" in the Offer to Purchase and Proxy Statement.
THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE
OPTION AND RISK OF THE TENDERING PREFERRED SHAREHOLDER. IF CERTIFICATES FOR
SHARES ARE SENT BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED, IS RECOMMENDED.
No alternative, conditional or contingent tenders will be accepted. See
"Terms of the Offer -- Number of Shares; Purchase Prices; Expiration Date;
Dividends" in the Offer to Purchase and Proxy Statement. By executing this
Letter of Transmittal, the tendering stockholder waives any right to receive any
notice of the acceptance for payment of the Shares.
3. VOTING. WHILE PREFERRED SHAREHOLDERS WHO WISH TO TENDER THEIR SHARES
PURSUANT TO THE OFFER NEED NOT VOTE IN FAVOR OF THE PROPOSED AMENDMENT TO APCO'S
AMENDED ARTICLES OF INCORPORATION, AS SET FORTH IN THE OFFER TO PURCHASE AND
PROXY STATEMENT (THE "PROPOSED AMENDMENT"), THE OFFER IS CONDITIONED UPON THE
PROPOSED AMENDMENT BEING APPROVED AND ADOPTED AT THE SPECIAL MEETING (AS DEFINED
IN THE OFFER TO PURCHASE AND PROXY STATEMENT). In addition, Preferred
Shareholders have the right to vote for or against the Proposed Amendment
regardless of whether they tender their Shares by casting their vote and duly
executing
<PAGE> 9
the proxy enclosed herewith or by voting in person at the Special Meeting. By
executing a Notice of Guaranteed Delivery, a Preferred Shareholder is deemed to
have tendered the Shares described in such Notice of Guaranteed Delivery and to
have voted such Shares in accordance with the proxy returned therewith, if any.
If no vote is indicated on an otherwise properly executed proxy, then all Shares
in respect of such proxy will be voted in favor of the Proposed Amendment. See
"Proposed Amendment and Proxy Solicitation" in the Offer to Purchase and Proxy
Statement. The Offer is being sent to all persons in whose names Shares are
registered on the books of APCo on the Record Date (as defined in the Offer to
Purchase and Proxy Statement) and transferees thereof. Only a record holder of
Shares on the Record Date may vote in person or by proxy at the Special Meeting.
No record date is fixed for determining which persons are permitted to tender
Shares. Any person who is the beneficial owner but not the record holder of
Shares must arrange for the record transfer of such Shares prior to tendering.
4. PARTIAL TENDERS (NOT APPLICABLE TO SHAREHOLDERS WHO TENDER BY
BOOK-ENTRY TRANSFER). If fewer than all the Shares represented by any
certificate delivered to the Depositary are to be tendered, fill in the number
of Shares that are to be tendered in the box above under the heading
"Description of Shares Tendered". In such case, a new certificate for the
remainder of the Shares represented by the old certificate will be sent to the
person(s) signing this Letter of Transmittal, unless otherwise provided in the
box above under the heading "Special Payment Instructions" or "Special Delivery
Instructions", as promptly as practicable following the expiration or
termination of the Offer. All Shares represented by certificates delivered to
the Depositary will be deemed to have been tendered unless otherwise indicated.
5. SIGNATURES ON THIS LETTER OF TRANSMITTAL AND/OR NOTICE OF GUARANTEED
DELIVERY; STOCK POWERS AND ENDORSEMENTS. If either this Letter of Transmittal
or the Notice of Guaranteed Delivery (together, the "Tender Documents") is
signed by the registered holder(s) of the Shares tendered hereby, the
signature(s) must correspond with the name(s) as written on the face of the
certificates without alteration, enlargement or any change whatsoever.
If any of the Shares tendered under either Tender Document is held of
record by two or more persons, all such persons must sign such Tender Document.
If any of the Shares tendered under either Tender Document is registered in
different names or different certificates, it will be necessary to complete,
sign and submit as many separate applicable Tender Documents as there are
different registrations or certificates.
If either Tender Document is signed by the registered holder(s) of the
Shares tendered hereby, no endorsements of certificates or separate stock powers
are required unless payment of the purchase price is to be made to, or Shares
not tendered or not purchased are to be registered in the name of, any person
other than the registered holder(s). Signatures on any such certificates or
stock powers must be guaranteed by an Eligible Institution. See Instruction 1.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares tendered hereby, certificates must be
endorsed or accompanied by appropriate stock powers, in either case, signed
exactly as the name(s) of the registered holder(s) appear(s) on the certificates
for such Shares. Signature(s) on any such certificates or stock powers must be
guaranteed by an Eligible Institution. See Instruction 1.
If either Tender Document or any certificate or stock power is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and proper evidence satisfactory to
AEP of the authority of such person so to act must be submitted.
6. STOCK TRANSFER TAXES. Except as set forth in this Instruction 6, AEP
will pay or cause to be paid any stock transfer taxes with respect to the sale
and transfer of any Shares to it or its order pursuant to the Offer. If,
however, payment of the purchase price is to be made to, or Shares not tendered
or not purchased are to be registered in the name of, any person other than the
registered holder(s), or if tendered
<PAGE> 10
Shares are registered in the name of any person other than the person(s) signing
this Letter of Transmittal, the amount of any stock transfer taxes (whether
imposed on the registered holder(s), such other person or otherwise) payable on
account of the transfer to such person will be deducted from the purchase price
unless satisfactory evidence of the payment of such taxes, or exemption
therefrom, is submitted. See "Terms of the Offer -- Acceptance of Shares for
Payment and Payment of Purchase Price and Dividends" in the Offer to Purchase
and Proxy Statement. EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE
NECESSARY TO AFFIX TRANSFER TAX STAMPS TO THE CERTIFICATES REPRESENTING SHARES
TENDERED HEREBY.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If the check for the
purchase price of any Shares purchased is to be issued in the name of, and/or
any Shares not tendered or not purchased are to be returned to, a person other
than the person(s) signing this Letter of Transmittal or if the check and/or any
certificate for Shares not tendered or not purchased are to be mailed to someone
other than the person(s) signing this Letter of Transmittal or to an address
other than that shown in the box above under the heading "Name(s) and
Address(es) of Registered Holder(s)", then the "Special Payment Instructions"
and/or "Special Delivery Instructions" on this Letter of Transmittal should be
completed. Preferred Shareholders tendering Shares by book-entry transfer will
have any Shares not accepted for payment returned by crediting the account
maintained by such Preferred Shareholder at the Book-Entry Transfer Facility.
8. SUBSTITUTE FORM W-9 AND FORM W-8. The tendering Preferred Shareholder
is required to provide the Depositary with either a correct Taxpayer
Identification Number ("TIN") on Substitute Form W-9, which is provided under
"Important Tax Information" below, or a properly completed Form W-8. Failure to
provide the information on either Substitute Form W-9 or Form W-8 may subject
the tendering Preferred Shareholder to a $50 penalty imposed by the Internal
Revenue Service and to 31% federal income tax backup withholding on the payment
of the purchase price for the Shares. The box in Part 2 of Substitute Form W-9
may be checked if the tendering Preferred Shareholder has not been issued a TIN
and has applied for a number or intends to apply for a number in the near
future. If the box in Part 2 is checked and the Depositary is not provided with
a TIN by the time of payment, the Depositary will withhold 31% on all payments
of the purchase price for the Shares thereafter until a TIN is provided to the
Depositary.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Any questions or
requests for assistance may be directed to the Information Agent or the Dealer
Managers at their respective telephone numbers and addresses listed below.
Requests for additional copies of the Offer to Purchase and Proxy Statement,
this Letter of Transmittal or other tender offer materials may be directed to
the Information Agent and such copies will be furnished promptly at AEP's
expense. Preferred Shareholders may also contact their local broker, dealer,
commercial bank or trust company for assistance concerning the Offer.
10. SOLICITED TENDERS. AEP will pay a solicitation fee of $1.50 per Share
(except that for transactions for beneficial owners tendering more than 5,000
Shares, AEP will pay a solicitation fee of $1.00 per Share) for any Shares
tendered, accepted for payment and paid pursuant to the Offer, covered by the
Letter of Transmittal which designates, under the heading "Solicited Tenders",
as having solicited and obtained the tender, the name of (a) any broker or
dealer in securities, including a Dealer Manager in its capacity as a dealer or
broker, which is a member of any national securities exchange or of the National
Association of Securities Dealers, Inc. (the "NASD"), (b) any foreign broker or
dealer not eligible for membership in the NASD which agrees to conform to the
NASD's Rules of Fair Practice in soliciting tenders outside the United States to
the same extent as though it were an NASD member, or (c) any bank or trust
company (each of which is referred to herein as a "Soliciting Dealer"); provided
that, with respect to solicitation fees paid with respect to transactions for
beneficial owners equal to or exceeding 5,000 Shares, at least twenty percent
(20%) of each such fee shall be paid to the Dealer Managers. No such fee shall
be payable to a Soliciting Dealer with respect to the tender of Shares by a
holder unless the Letter of Transmittal accompanying such tender designates such
Soliciting Dealer. No such fee shall be payable to a Soliciting Dealer in
respect of Shares registered in the name of such Soliciting Dealer unless such
Shares are held by such Soliciting Dealer as nominee and such Shares are being
tendered for the benefit of one or more beneficial owners identified on the
Letter of Transmittal or on the Notice of Solicited Tenders (included in the
materials provided to brokers and dealers). No such fee shall be payable to a
Soliciting Dealer with respect to the tender
<PAGE> 11
of Shares by the holder of record, for the benefit of the beneficial owner,
unless the beneficial owner has designated such Soliciting Dealer. If tendered
Shares are being delivered by book-entry transfer, the Soliciting Dealer must
return a Notice of Solicited Tenders to the Depositary within three business
days after expiration of the Offer to receive a solicitation fee. No such fee
shall be payable to a Soliciting Dealer if such Soliciting Dealer is required
for any reason to transfer the amount of such fee to a depositing holder (other
than itself). No such fee shall be paid to a Soliciting Dealer with respect to
Shares tendered for such Soliciting Dealer's own account. No broker, dealer,
bank, trust company or fiduciary shall be deemed to be the agent of AEP, the
Depositary, the Information Agent or the Dealer Managers for purposes of the
Offer.
Soliciting Dealers will include any organizations described in clauses (a),
(b) or (c) above even when the activities of such organization in connection
with the Offer consist solely of forwarding to clients materials relating to the
Offer, including this Letter of Transmittal, and rendering Shares as directed by
beneficial owners thereof. No Soliciting Dealer is required to make any
recommendation to holders of Shares as to whether to tender or refrain from
tendering in the Offer. No assumption is made, in making payment to any
Soliciting Dealer, that its activities in connection with the Offer included any
activities other than those described above, and for all purposes noted in all
materials relating to the Offer, the term "solicit" shall be deemed to mean no
more than "processing shares tendered" or "forwarding to customers materials
regarding the Offer."
11. IRREGULARITIES. All questions as to the form of documents and the
validity, eligibility (including time of receipt) and acceptance of any tender
of Shares will be determined by AEP, in its sole discretion, and its
determination shall be final and binding. AEP reserves the absolute right to
reject any and all tenders of Shares that it determines are not in proper form
or the acceptance for payment of or payment for Shares that may, in the opinion
of AEP's counsel, be unlawful. AEP also reserves the absolute right to waive any
of the conditions to the Offer or any defect or irregularity in any tender of
Shares and AEP's interpretation of the terms and conditions of the Offer
(including these instructions) shall be final and binding. Unless waived, any
defects or irregularities in connection with tenders must be cured within such
time as AEP shall determine. None of AEP, APCo, the Dealer Managers, the
Depositary, the Information Agent or any other person shall be under any duty to
give notice of any defect or irregularity in tenders, nor shall any of them
incur any liability for failure to give any such notice. Tenders will not be
deemed to have been made until all defects and irregularities have been cured or
waived.
12. LOST, DESTROYED OR STOLEN CERTIFICATES. If any of your certificate(s)
for Shares have been lost, stolen or destroyed, please call the Depositary at
1-800- - . In addition, you should advise the Depositary of any
certificate(s) you have in your possession. You will need to complete an
Affidavit of Loss with respect to the lost certificate(s) (which will be
provided by the Depositary) and pay an indemnity bond premium fee. The tender of
Shares pursuant to this Letter of Transmittal will not be valid unless prior to
the Expiration Date: (a) such procedures have been completed and a replacement
certificate for the Shares has been delivered to the Depositary or (b) a Notice
of Guaranteed Delivery has been delivered to the Depositary. See Instruction 2.
IMPORTANT: THIS LETTER OF TRANSMITTAL, DULY EXECUTED, TOGETHER WITH, IF
APPLICABLE, CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER, AND ALL OTHER
REQUIRED DOCUMENTS MUST BE RECEIVED BY THE DEPOSITARY, OR, IF APPLICABLE, THE
NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY, ON OR PRIOR TO
THE APPLICABLE EXPIRATION DATE.
IMPORTANT TAX INFORMATION
Under federal income tax law, a Preferred Shareholder whose tendered Shares
are accepted for payment is required to provide the Depositary (as payer) with
either such Preferred Shareholder's correct TIN on Substitute Form W-9 below or
a properly completed Form W-8. If such Preferred Shareholder is an individual,
the TIN is his or her social security number. For businesses and other entities,
the number is the federal employer identification number. If the Depositary is
not provided with the correct TIN or properly completed Form W-8, the Preferred
Shareholder may be subject to a $50 penalty imposed by the Internal
<PAGE> 12
Revenue Code. In addition, payments that are made to such Preferred Shareholder
with respect to Shares purchased pursuant to the Offer may be subject to 31%
backup withholding.
Certain Preferred Shareholders (including, among others, all corporations
and certain foreign individuals) are exempt from backup withholding. For a
corporate United States Holder to qualify for such exemption, such Preferred
Shareholder must provide the Depositary with a properly completed and executed
Substitute Form W-9 attesting to its exempt status. In order for a foreign
Preferred Shareholder to qualify as an exempt recipient, such Preferred
Shareholder must submit to the Depositary a properly completed Internal Revenue
Service Form W-8 (a "Form W-8"), signed under penalties of perjury, attesting to
that Preferred Shareholder exempt status. A Form W-8 can be obtained from the
Depositary. See the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional instructions.
If federal income tax backup withholding applies, the Depositary is
required to withhold 31% of any payments made to the Preferred Shareholder.
Backup withholding is not an additional tax. Rather, the Federal income tax
liability of persons subject to backup withholding will be reduced by the amount
of the tax withheld. If withholding results in an overpayment of taxes, a refund
may be obtained from the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9 AND FORM W-8
To avoid backup withholding on payments that are made to a Preferred
Shareholder with respect to Shares purchased pursuant to the Offer, the
Preferred Shareholder is required to notify the Depositary of his or her correct
TIN by completing the Substitute Form W-9 attached hereto certifying that the
TIN provided on Substitute Form W-9 is correct and that (a) the Preferred
Shareholder has not been notified by the Internal Revenue Service that he or she
is subject to federal income tax backup withholding as a result of failure to
report all interest or dividends or (b) the Internal Revenue Service has
notified the Preferred Shareholder that he or she is no longer subject to
federal income tax backup withholding. Foreign Preferred Shareholders must
submit a properly completed Form W-8 in order to avoid the applicable backup
withholding.
WHAT NUMBER TO GIVE THE DEPOSITARY
The Preferred Shareholder is required to give the Depositary the social
security number or employer identification number of the registered owner of the
Shares. If the Shares are in more than one name or are not in the name of the
actual owner, consult the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional guidance on which
number to report.
<PAGE> 13
<TABLE>
<C> <S> <C>
PAYER'S NAME: FIRST CHICAGO TRUST COMPANY OF NEW YORK
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
Part 1 -- PLEASE PROVIDE YOUR TIN IN THE Social Security Number OR
BOX AT RIGHT AND CERTIFY BY SIGNING AND Employer Identification Number
DATING BELOW. TIN ______________________________
---------------------------------------------------------------------------------------
SUBSTITUTE Name (Please Print)
Address Part 2 --
City State _____ Zip Code _____ Awaiting TIN [ ]
---------------------------------------------------------------------------------------
FORM W-9 Part 3 -- CERTIFICATION -- UNDER THE PENALTIES OF PERJURY. I CERTIFY THAT: (1) the
DEPARTMENT OF THE TREASURY number shown on the form is my correct taxpayer identification number (or a TIN has not
INTERNAL REVENUE SERVICE been issued to me but I have mailed or delivered an application to receive a TIN or
intend to do so in the near future). (2) I am not subject to backup withholding either
because I have not been notified by the Internal Revenue Service (the "IRS") that I am
subject to backup withholding as a result of a failure to report all interest or
dividends or the IRS has notified me that I am no longer subject to backup withholding
and (3) all other information provided on this form is true, correct and complete.
SIGNATURE DATE_____________________ 1997
You must cross out item (2) above if you have been notified by the IRS that you are
currently subject to backup withholding because of underreporting interest or dividends
on your tax return.
---------------------------------------------------------------------------------------
PAYER'S REQUEST FOR TAXPAYER NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31%
IDENTIFICATION NUMBER ("TIN") OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED
AND CERTIFICATION GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE
BOX IN PART 2 OF SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has not been
issued to me and either (1) I have mailed or delivered an application to receive a
taxpayer identification number to the appropriate Internal Revenue Service Center or
Social Security Administration Office or (2) I intend to do so in the near future. I
understand that if I do not provide a taxpayer identification number by the time of
payment, 31% of all payments of the purchase price made to me will be withheld until I
provide a number.
SIGNATURE Date: _____________________ 1997.
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE DEALER MANAGERS:
<TABLE>
<S> <C>
MERRILL LYNCH & CO. SALOMON BROTHERS INC
World Financial Center Seven World Trade Center
250 Vesey Street New York, New York 10048
New York, New York 10281 (800) 558-3745 (toll-free)
(888) ML4-TNDR (toll free)
((888) 654-8637 (toll free))
</TABLE>
THE INFORMATION AGENT:
MORROW & CO., INC.
909 Third Avenue
New York, New York 10022-4799
(212) 754-8000 (call collect)
(800) 566-9061 (call toll free)
Exhibit G
American Electric Power Company, Inc., Appalachian Power Company,
Indiana Michigan Power Company and Ohio Power Company
Notice of Proposal to Amend Articles and Acquire Preferred Shares
pursuant to Cash Tender Offer; Order Authorizing Proxy Solicitation
American Electric Power Company, Inc. ("AEP"), a registered
holding company, and its utility subsidiaries, Appalachian Power
Company, a Virginia corporation ("APCo"), Indiana Michigan Power
Company, an Indiana corporation ("I&M"), and Ohio Power Company, an
Ohio corporation ("OPCo") (APCo, I&M and OPCo sometimes hereinafter
collectively, the "Subsidiaries"), have filed an application-
declaration under sections 6(a), 9(a) and 10 of the 1935 Act and
rules 62 and 65 thereunder.
APCo has outstanding 13,499,500 shares of common stock, no par
value per share ("APCo Common Stock"), all of which are held by
AEP. APCo's outstanding preferred stock consists of 2,198,150
shares of cumulative preferred stock, no par value per share
(collectively, "APCo Preferred Stock"), issued in five series
(each, an "APCo Series"), all of which are traded over-the-counter,
except for the 4-1/2% Series (as defined herein), which is traded
on the Philadelphia Stock Exchange. The five series of APCo
Preferred Stock consist of a 4-1/2% series, of which 298,150 shares
are outstanding ("4-1/2% Series"); a 5.90% series, of which 500,000
shares are outstanding ("5.90% Series"); a 5.92% series, of which
600,000 shares are outstanding ("5.92% Series"); a 6.85% series, of
which 300,000 shares are outstanding ("6.85% Series"); and a 7.80%
series, of which 500,000 shares are outstanding ("7.80% Series").
APCo has outstanding no other class of equity securities.
APCo's Articles of Incorporation ("APCo Articles") currently
provide that, without the consent of the holders of a majority of
the total number of votes which holders of the outstanding shares
of APCo Preferred Stock of all series are entitled to cast, APCo
shall not issue or assume any evidence of indebtedness, secured or
unsecured (other than for purposes of refunding or renewing
outstanding evidences of indebtedness or redeeming or otherwise
retiring all outstanding shares of APCo Preferred Stock) if,
immediately after such issue or assumption, (a) the total principal
amount of all such indebtedness issued or assumed by APCo and then
outstanding would exceed 20% of the aggregate of (1) the total
principal amount of all then-outstanding bonds or other secured
debt of APCo (other than certain bonds issued under a mortgage) and
(2) the stated capital and surplus of APCo as stated on APCo's
books, or (b) the total principal amount of all unsecured debt
would exceed 20% of the aggregate of (1) the total principal amount
of all then-outstanding bonds or other secured debt of APCo and (2)
the stated capital and surplus of APCo as stated on APCo's books,
or (c) the total outstanding principal amount of all unsecured debt
of maturities of less than ten years would exceed 10% of the
aggregate of (1) the total principal amount of all then-outstanding
bonds or other secured debt of APCo and (2) the stated capital and
surplus of APCo as stated on APCo's books ("APCo Restriction
Provision").
I&M has outstanding 1,400,000 shares of common stock, par
value $100 per share ("I&M Common Stock"), all of which are held by
AEP. I&M's outstanding preferred stock consists of 1,569,767
shares of cumulative preferred stock, par value $100 per share
("I&M Preferred Stock"), issued in seven series (each, an "I&M
Series"), all of which are traded over-the-counter, except for the
4-1/8% Series (as defined herein), which is traded on the Chicago
Stock Exchange. The seven series of I&M Preferred Stock consist of
a 4-1/8% series, of which 119,767 shares are outstanding ("4-1/8%
Series"); a 4.12% series, of which 40,000 shares are outstanding
("4.12% Series"); a 4.56% series, of which 60,000 shares are
outstanding ("4.56% Series"); a 5.90% series, of which 400,000
shares are outstanding ("5.90% Series"); a 6-1/4% series, of which
300,000 shares are outstanding ("6-1/4% Series"); a 6-7/8% series,
of which 300,000 shares are outstanding ("6-7/8% Series"); and a
6.30% series, of which 350,000 shares are outstanding ("6.30%
Series"). I&M has outstanding no other class of equity securities.
I&M's Articles of Acceptance ("I&M Articles") currently
provide that, without the consent of the holders entitled to cast
a majority of the total number of votes which holders of the
outstanding I&M Preferred Stock of all series are entitled to cast,
I&M shall not issue or assume any unsecured debt securities (other
than for purposes of the reacquisition, redemption or other
retirement of any evidences of indebtedness theretofore issued or
assumed by I&M or the reacquisition, redemption or other retirement
of all outstanding shares of I&M Preferred Stock) if, immediately
after such issue or assumption, the total principal amount of all
unsecured debt securities (other than the principal amount of all
long-term unsecured debt securities not in excess of 10% of the
capitalization of I&M) issued or assumed by I&M and then
outstanding would exceed 10% of the capitalization of I&M ("I&M
Restriction Provision").
OPCo has outstanding 27,952,473 shares of common stock, no par
value per share ("OPCo Common Stock"), all of which are held by
AEP. OPCo's outstanding preferred stock consists of 1,484,316
shares of cumulative preferred stock, par value $100 per share
("OPCo Preferred Stock"), issued in seven series (each, an "OPCo
Series"), all of which are traded over-the-counter. The seven
series of OPCo Preferred Stock consist of a 4-1/2% series, of which
202,403 shares are outstanding ("4-1/2% Series"); a 4.08% series,
of which 42,575 shares are outstanding ("4.08% Series"); a 4.20%
series, of which 51,975 shares are outstanding ("4.20% Series"); a
4.40% series, of which 88,363 shares are outstanding ("4.40%
Series"); a 5.90% series, of which 404,000 shares are outstanding
("5.90% Series"); a 6.02% series, of which 395,000 shares are
outstanding ("6.02% Series"); and a 6.35% series, of which 300,000
shares are outstanding ("6.35% Series"). OPCo has outstanding no
other class of equity securities.
OPCo's Articles of Incorporation ("OPCo Articles") currently
provide that, without the consent of the holders of a majority of
the total number of votes which holders of the outstanding OPCo
Preferred Stock of all series are entitled to cast, OPCo shall not
issue or assume any unsecured debt securities (other than for
purposes of the reacquisition, redemption or other retirement of
any evidences of indebtedness theretofore issued or assumed by OPCo
or the reacquisition, redemption or other retirement of all
outstanding shares of OPCo Preferred Stock) if, immediately after
such issue or assumption, the total principal amount of all
unsecured debt securities (other than the principal amount of all
long-term unsecured debt securities not in excess of 10% of the
capitalization of OPCo) issued or assumed by OPCo and then
outstanding would exceed 10% of the capitalization of OPCo ("OPCo
Restriction Provision").
Each Subsidiary proposes to solicit proxies (a "Proxy
Solicitation") from the holders of its outstanding shares of
Preferred Stock of each Series and Common Stock for use at a
special meeting of its stockholders to be held on or about February
28, 1997 ("Special Meeting") (i) to consider a proposed amendment
to its Articles that would eliminate the Subsidiary's Restriction
Provision (the "Proposed Amendment") and (ii) in the case of OPCo
only, to consider an amendment (the "OPCo Second Proposed
Amendment") to the OPCo Articles which would clarify the authority
of the board of directors to purchase or otherwise acquire
cumulative preferred stock. Adoption of a Proposed Amendment
requires the affirmative vote at a Subsidiary's Special Meeting (in
person by ballot or by proxy) of the holders of not less than two-
thirds of the outstanding shares of each of (1) the Preferred Stock
of all Series, voting together as one class, and (2) the Common
Stock. Adoption of the OPCo Second Proposed Amendment requires the
affirmative vote at OPCo's Special Meeting (in person by ballot or
by proxy) of the holders of at least a majority of the outstanding
shares of the OPCo Preferred Stock and OPCo Common Stock, the OPCo
Preferred Stock and OPCo Common Stock voting together as one class.
AEP will vote its shares of Common Stock in favor of the Proposed
Amendments and the OPCo Second Proposed Amendment. The
Subsidiaries have engaged Morrow & Co., Inc. to act as information
agent in connection with the Proxy Solicitations for a fee plus
reimbursement of reasonable out-of-pocket expenses.
If a Proposed Amendment is adopted, APCo, I&M and OPCo, as the
case may be, will make a special cash payment of $1.00 per share (a
"Special Cash Payment") to each Preferred Stockholder of any
Series, any of whose shares of Preferred Stock (each a "Share") are
properly voted at the Special Meeting (in person by ballot or by
proxy) in favor of such Proposed Amendment, provided that such
Shares have not been tendered pursuant to the concurrent cash
tender offer described below. APCo, I&M and OPCo will disburse
Special Cash Payments out of their general funds, promptly after
adoption of a Proposed Amendment.
If adopted, the OPCo Second Proposed Amendment would add the
following paragraph to the end of ARTICLE FOURTH, Clause 3:
The Corporation may from time to time, by action of its
Board of Directors and without action by the holders of
the Common Stock or any class of the Cumulative Preferred
Stock, purchase or otherwise acquire shares of any class
of the Cumulative Preferred Stock in such manner, upon
such terms and in such amounts as the Board of Directors
shall determine; subject, however, to such limitations or
restrictions, if any, as are contained in the express
terms of any class of the Cumulative Preferred Stock
outstanding at the time of the purchase or acquisition in
question.
The OPCo Second Proposed Amendment is independent of the Offer (as
defined below) and the OPCo Proposed Amendment, and neither the
Offer nor the OPCo Proposed Amendment is in any way conditioned
upon the OPCo Second Proposed Amendment being approved and adopted
at the Special Meeting.
OPCo has proposed the OPCo Second Proposed Amendment in order
to clarify the scope of the authority of the Board of Directors to
purchase or otherwise acquire shares of any series of the
cumulative preferred stock. Although the Board of Directors
believes that it has the authority to repurchase such Preferred
Shares, in light of the magnitude of the purchase contemplated, the
Board of Directors prefers to clearly establish that its authority
to purchase shares of cumulative preferred stock, including the
Shares, is circumscribed only by the express terms of any class of
the cumulative preferred stock set forth in the Articles.
Concurrently with the commencement of the Proxy Solicitations,
subject to the terms and conditions stated in the relevant offering
documents/1/, AEP proposes to make offers (each an "Offer") to the
holders of APCo's, I&M's and OPCo's Preferred Stock of each Series,
pursuant to which AEP will offer to acquire from the holders of the
APCo, I&M and OPCo Preferred Stock of each Series any and all
Shares of that Series at the cash purchase prices to be specified
in the Offer (subject to potential increase or decrease pursuant to
the terms of the Offer) together with an amount in cash the
equivalent of accrued and unpaid dividends to the date of payment
for Shares tendered (each such purchase price and, when applicable,
accrued dividend cash-equivalent amount, collectively, a "Purchase
Price"). AEP anticipates that the Offer for each Series of
Preferred Stock will be scheduled to expire at 5:00 P.M. (New York
City time) on the date of the Special Meeting, i.e., on or about
February 28, 1997 (the "Expiration Date").
The Offer consists of separate offers for each of the five
Series of the APCo Preferred Stock, the seven Series of the I&M
Preferred Stock and the seven Series of the OPCo Preferred Stock,
with the offer for any one Series being independent of the offer
for any other Series. The applicable Purchase Price and the other
terms and conditions of the Offers apply equally to all Preferred
Stockholders of the respective Series. The Offers are not
conditioned upon any minimum number of Shares of the applicable
Series being tendered, but are conditioned, among other things, on
the Proposed Amendments being adopted at the respective Special
Meetings. Subject to the terms of the offering documents, AEP will
purchase at the applicable Purchase Price any and all Shares of any
Series that are validly tendered and not withdrawn prior to the
Expiration Date.
To tender Shares in accordance with the terms of the offering
documents, the tendering Preferred Stockholder must either (1) send
to First Chicago Trust Company of New York, in its capacity as
depositary for the Offer ("Depositary"), a properly completed and
duly executed Letter of Transmittal for that Series and proxy (if
not voting at the Special Meeting in person by ballot), together
with any required signature guarantees and any other documents
required by the Letter of Transmittal, and either (a) certificates
for the Shares to be tendered must be received by the Depositary at
one of its addresses specified in the offering documents, or (b)
such Shares must be delivered pursuant to the procedures for book-
entry transfer described in the offering documents (and a
confirmation of such delivery must be received by the Depositary),
in each case by the Expiration Date; or (2) comply with a
guaranteed delivery procedure specified in the offering documents.
Tenders of Shares made pursuant to an Offer may be withdrawn at any
time prior to the Expiration Date. Thereafter, such tenders are
irrevocable, subject to certain exceptions identified in the
offering documents.
AEP's obligation to proceed with the Offers and to accept for
payment and to pay for any Shares tendered is subject to various
conditions enumerated in the offering documents, including, among
other conditions, that the Proposed Amendments be adopted at the
Special Meetings and that the Commission issue an order under the
1935 Act authorizing the proposed transactions.
At any time or from time to time, AEP may extend the
Expiration Date applicable to any Series by giving notice of such
extension to the Depositary, without extending the Expiration Date
for any other Series. During any such extension, all Shares of the
applicable Series previously tendered will remain subject to the
Offer, and may be withdrawn at any time prior to the Expiration
Date as extended.
Conversely, AEP may elect in its sole discretion to terminate
the Offer prior to the scheduled Expiration Date and not accept for
payment and pay for any Shares tendered, subject to applicable
provisions of Rule 13e-4 under the Exchange Act requiring AEP
either to pay the consideration offered or to return the Shares
tendered promptly after the termination or withdrawal of the Offer,
upon the occurrence of any of the conditions to closing enumerated
in the offering documents, by giving notice of such termination to
the Depositary and making a public announcement thereof.
Subject to compliance with applicable law, AEP further
reserves the right in the offering documents, in its sole
discretion, to amend one or more Offers in any respect by making a
public announcement thereof. If AEP materially changes the terms
of an Offer or the information concerning an Offer, or if it waives
a material condition of an Offer, AEP will extend the Expiration
Date to the extent required by the applicable provisions of Rule
13e-4 under the Exchange Act. Those provisions require that the
minimum period during which an issuer tender offer must remain open
following material changes in the terms of the offer or information
concerning the offer (other than a change in price or change in
percentage of securities sought) will depend on the facts and
circumstances, including the relative materiality of such terms or
information. If an Offer is scheduled to expire at any time
earlier than the expiration of a period ending on the tenth
business day from, and including, the date that AEP notifies
Preferred Stockholders that it will (a) increase or decrease the
price it will pay for Shares, (b) decrease the percentage of Shares
it seeks or (c) increase or decrease soliciting dealer's fees, the
Expiration Date will be extended until the expiration of such
period of ten business days.
Shares validly tendered to the Depositary pursuant to an Offer
and not withdrawn in accordance with the procedures set forth in
the offering documents will be held by AEP until the Expiration
Date (or returned in the event the Offer is terminated). Subject
to the terms and conditions of the Offer, as promptly as
practicable after the Expiration Date, AEP will accept for payment
(and thereby purchase) and pay for Shares validly tendered and not
withdrawn. AEP will pay for Shares that it has purchased pursuant
to the Offer by depositing the applicable Purchase Price with the
Depositary, which will act as agent for the tendering Preferred
Stockholders for the purpose of receiving payment from AEP and
transmitting payment to tendering Preferred Stockholders. AEP will
pay all stock transfer taxes, if any, payable on account of its
acquisition of Shares pursuant to the Offer, except in certain
circumstances where special payment or delivery procedures are
utilized in conformance with the applicable Letters of Transmittal.
With respect to Shares validly tendered and accepted for
payment by AEP, each tendering Preferred Stockholder will be
entitled to receive as consideration from AEP only the applicable
Purchase Price (which AEP anticipates will reflect a premium over
the current market price at the commencement of the Offers). Any
such holder will not be entitled to receive with respect to such
tendered Shares additional consideration in the form of a Special
Cash Payment.
As noted above, subject to the terms and conditions of the
Offer, Shares validly tendered and not withdrawn will be accepted
for payment and paid for by AEP as promptly as practicable after
the Expiration Date. If a Proposed Amendment is adopted at a
Subsidiary's Special Meeting, promptly after consummation of the
Offer the Subsidiary will purchase the Shares sold to AEP pursuant
to the Offer at the relevant Purchase Price plus expenses incurred
in the Offer, and the Subsidiary will thereupon retire and cancel
such Shares.
If a Proposed Amendment is not adopted at the Special Meeting,
AEP may elect, but is not obligated, to waive such condition,
subject to applicable law. In that case, as promptly as
practicable after AEP's waiver thereof and purchase of any Shares
validly tendered pursuant to the Offers, the effected Subsidiary
anticipates that it would call another special meeting of its
common and preferred stockholders and solicit proxies therefrom for
the same purpose as in the instant proceeding, i.e., to secure the
requisite two-thirds affirmative vote of stockholders to amend the
Articles to eliminate the Restriction Provision. At that meeting,
AEP would vote any Shares acquired by it pursuant to the Offer or
otherwise/2/ (as well as all of its shares of Common Stock) in
favor of the proposed Articles amendment to eliminate the
Restriction Provision./3/ If the proposed amendment is adopted at
that meeting, and in any event within one year from the Expiration
Date (including any potential extension thereto pursuant to the
Offer), AEP will promptly after such meeting or at the expiration
of such one-year period, as applicable, sell the Shares to the
Subsidiary at the Purchase Price plus expenses paid therefor
pursuant to the Offer, and the Subsidiary will thereupon retire and
cancel such Shares.
To finance its purchase of any Shares tendered, accepted for
payment and paid for pursuant to the Offer, AEP intends to use its
general funds and/or incur short-term indebtedness in an amount
sufficient to pay the Purchase Price for all tendered Shares. The
Commission previously authorized AEP to incur short-term
indebtedness, from time to time prior to January 1, 2001, up to a
maximum amount of $150 million./4/ To finance the purchase of any
Shares tendered, accepted for payment and paid for pursuant to the
Offer, AEP hereby requests the Commission to authorize AEP to use
its general funds and/or incur short-term indebtedness in an amount
up to $550 million. The $550 million authorization requested by
AEP for short-term indebtedness is in addition to the authority
granted to AEP in Rel. No. 35-26516 in File No. 70-8429 (May 20,
1996).
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Salomon
Brothers Inc will act as dealer managers for AEP in connection with
the Offers. AEP proposes to agree to pay the dealer managers a fee
for Shares tendered, accepted for payment and paid for pursuant to
the Offer and a fee for any Shares that are not tendered pursuant
to the Offers but which vote in favor of the Proposed Amendment,
and to reimburse the dealer managers for their reasonable out-of-
pocket expenses, including attorneys' fees. In addition, AEP
proposes to pay soliciting brokers and dealers a separate fee for
any Shares tendered, accepted for payment and paid for pursuant to
the Offer and a separate fee for any Shares that are not tendered
pursuant to the Offers but which vote in favor of the Proposed
Amendment.
The Subsidiaries state that they consider the Restriction
Provisions a significant impediment to their ability to maintain
financial flexibility and minimize their financing costs, to the
detriment of their utility customers and, indirectly, AEP's
shareholders. AEP and the Subsidiaries assert that the ongoing
financing flexibility and cost benefits to be gained by the
Subsidiaries as a result of elimination of the Restriction
Provisions outweigh the one-time cost of the Special Cash Payments
and the other costs of the Proxy Solicitation. AEP and the
Subsidiaries further represent that the terms of purchase of Shares
pursuant to the Offers will benefit not only tendering Preferred
Stockholders (by affording Preferred Stockholders who may not favor
the elimination of the Restriction Provision an option to exit the
Preferred Stock at a premium to the market price and without the
usual transaction costs associated with a sale) but also, taking
into account all related transaction costs, AEP's shareholders and
system utility customers by (1) contributing to the elimination of
the Restriction Provisions and (2) resulting in the acquisition and
retirement of outstanding Shares and their potential replacement
with comparatively less expensive financing alternatives, such as
short-term debt.
As noted, the Subsidiaries propose to submit the Proposed
Amendment for consideration and action at special meetings of
stockholders scheduled to take place on or about February 28, 1997
and, in connection therewith, to solicit proxies from the holders
of their capital stock. The Subsidiaries request that the
effectiveness of the application-declaration with respect to the
solicitation of proxies for voting by their stockholders on the
Proposed Amendments be permitted to become effective forthwith,
pursuant to Rule 62(d).
It appearing to the Commission that the application-
declaration regarding the proposed solicitation of proxies should
be permitted to become effective forthwith, pursuant to Rule 62(d):
IT IS ORDERED, that the application-declaration regarding the
proposed solicitation of proxies be, and it hereby is, permitted to
become effective forthwith pursuant to Rule 62 and subject to the
terms and conditions prescribed in Rule 24 under the 1935 Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
ENDNOTES
/1/ The Proxy Solicitation and the Offer will be effected by
means of the same core document - a combined proxy statement and
issuer tender offer statement under the Securities Exchange Act of
1934 ("Exchange Act") and applicable rules and regulations
thereunder.
/2/ Following the Expiration Date and the consummation of the
purchase of Shares pursuant to the Offer, AEP or one or more
Subsidiaries may determine to purchase additional Shares on the
open market, in privately negotiated transactions, through one or
more tender offers or otherwise. AEP will not undertake any such
transactions without receipt of any required Commission
authorizations under the 1935 Act in one or more separate
proceedings. Likewise, in the event such a further special meeting
is necessary, the Subsidiaries would not undertake any associated
proxy solicitation and proposed Articles amendment prior to receipt
of any required Commission authorizations under the 1935 Act in a
separate proceeding.
/3/ By contrast, if a Subsidiary, rather than AEP, had
acquired Shares pursuant to the Offer, upon acquisition thereof by
such Subsidiary any such Shares would be deemed treasury shares
under Indiana, Ohio and Virginia law, as the case may be, and, as
such, the Subsidiary would be precluded from voting those Shares
under any circumstances.
/4/ American Electric Power Company, Inc., et al., Rel. No.
35-26424 (December 8, 1995).
