Rule 424(b)(2)
File No. 33-50521
CUSIP No.: 45489H AT 4
Pricing Supplement No. 5 Dated February 5, 1997
(To Prospectus dated October 8, 1993 and
Prospectus Supplement dated February 4, 1997)
$190,000,000
INDIANA MICHIGAN POWER COMPANY
First Mortgage Bonds, Designated Secured Medium Term Notes
Due From Nine Months to Forty-Two Years from Date of Issue
Principal Amount: $48,000,000
Issue Price: 99.65%
Original Issue Date: 02-19-97
Stated Maturity: 03-01-2000
Interest Rate: 6.40%
Form: Book-Entry
Agent's Discount or Commission: 0.35%
Public Offering Price: 100%
Redemption: The Notes are not redeemable prior to maturity.
The Company sold $24,000,000 principal amount of the Notes to
Salomon Brothers Inc and $24,000,000 principal amount of the Notes
to Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated as principals in this transaction for resale to one or
more investors at the Public Offering Price stated above.
<PAGE>
American Electric Power
1 Riverside Plaza
Columbus, OH 43215-2373
Writer's Direct Dial No.
(614) 223-1649
February 5, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Attn: Filing Desk, Stop 1-4
Washington, D.C. 20549-1004
Re: Indiana Michigan Power Company
Registration Statement on Form S-3
File No. 33-50521
Gentlemen:
Pursuant to Rule 424(b)(3) and on behalf of Indiana Michigan Power
Company (the "Company"), submitted herewith is the Prospectus,
dated October 8, 1993, as supplemented by the Prospectus
Supplement, dated February 4, 1997, to be used in connection with
the anticipated public offering by the Company of $60,000,000 First
Mortgage Bonds, Designated Secured Medium Term Notes.
Very truly yours,
/s/ Ann B. Graf
Ann B. Graf
ABG:scc
Enclosure
<PAGE>
PROSPECTUS SUPPLEMENT
(To Prospectus Dated October 8, 1993)
$190,000,000
Indiana Michigan Power Company
First Mortgage Bonds, Designated Secured Medium Term Notes
Due From Nine Months to Forty-two Years from Date of Issue
Indiana Michigan Power Company (the "Company") may from time to
time offer its First Mortgage Bonds, Designated Secured Medium Term
Notes (the "Notes"), in the aggregate principal amount of up to
$190,000,000, subject to reduction as a result of the sale of other
Debt Securities as described in the accompanying Prospectus. Each
Note will mature from nine months to forty-two years from its date
of issue.
Each Note will bear interest at a fixed rate. Unless otherwise
indicated in a pricing supplement to this Prospectus Supplement (a
"Pricing Supplement"), interest on each Note will be payable
semiannually in arrears on each February 1 and August 1 and at
redemption, if any, or Stated Maturity.
The interest rate, Issue Price, Stated Maturity, Interest Payment
Dates, redemption provisions, if any, and certain other terms with
respect to each Note will be established at the time of issuance
and set forth in a Pricing Supplement.
Each series of Notes will be represented by a global Note ("Global
Note") registered in the name of a nominee of The Depository Trust
Company, as Depository, or another depository (such a Note, so
represented, being called a "Book-Entry Note"). Beneficial
interests in Global Notes representing Book-Entry Notes will be
shown on, and transfers thereof will be effected only through,
records maintained by the Depository's participants. Book-Entry
Notes will not be issuable as Certificated Notes except under the
circumstances described herein. See "Supplemental Description of
the Notes--Book-Entry Notes".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS SUPPLEMENT, ANY PRICING SUPPLEMENT HERETO OR THE
ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
_________________________________________________________________
Price to Agents' Proceeds to
Public(1) Commissions(2) Company(2)(3)
Per Note ..... 100.000% .125%-.750% 99.875%-99.250%
Total ........ $190,000,000 $237,500-$1,425,000 $189,762,500-
$188,575,000
_________________________________________________________________
(1) Unless otherwise specified in the applicable Pricing
Supplement, the price to the public will be 100% of the
principal amount.
(2) The Company will pay to Salomon Brothers Inc and Merrill Lynch
& Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
each as agent (together, the "Agents"), a commission of from
.125% to .750% of the principal amount of any Note, depending
upon its Stated Maturity, sold through an Agent. The Company
may also sell Notes to any Agent, as principal, at a discount
for resale to one or more investors or to another broker-
dealer (acting as principal for purposes of resale) at varying
prices related to prevailing market prices at the time of
resale, as determined by such Agent. Unless otherwise
indicated in the applicable Pricing Supplement, any Note sold
to an Agent as principal shall be purchased by such Agent at
a price equal to 100% of the principal amount thereof less the
percentage equal to the commission applicable to an agency
sale of a Note of identical maturity and may be resold by such
Agent. The Notes may also be sold by the Company directly to
investors, in which case no commission will be payable to the
Agents. The Company has agreed to indemnify the Agents for
certain liabilities, including certain liabilities under the
Securities Act of 1933, as amended. See "Plan of
Distribution" herein.
(3) Before deduction of expenses payable by the Company estimated
at $411,375, including reimbursement of certain expenses of
the Agents.
The Notes are being offered on a continuous basis by the Company
through the Agents which have agreed to use their reasonable best
efforts to solicit offers to purchase Notes. The Company may sell
Notes at a discount to either Agent, as principal, for resale to
one or more investors or other purchasers at varying prices related
to prevailing market prices at the time of resale, as determined by
such Agent. The Company also may sell Notes directly to investors
on its own behalf. The Notes will not be listed on any securities
exchange, and there is no assurance that the maximum amount of
Notes offered by this Prospectus Supplement will be sold or that
there will be a secondary market for the Notes. The Company
reserves the right to withdraw, cancel or modify the offer made
hereby without notice. The Company or an Agent may reject an
order, whether or not solicited, in whole or in part. See "Plan of
Distribution" herein.
SALOMON BROTHERS INC MERRILL LYNCH & CO.
The date of this Prospectus Supplement is February 4, 1997.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE AGENTS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES
OF THE NOTES OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
____________________
RECENT DEVELOPMENTS
On January 30, 1997, American Electric Power Company, Inc. ("AEP")
and the Company filed with the Securities and Exchange Commission
and mailed to the registered holders of the Company's cumulative
preferred stock their Offer to Purchase and Proxy Statement. AEP
has offered to purchase all the outstanding shares of the Company's
cumulative preferred stock (the "AEP Offer"). Concurrently with
the AEP Offer, the Board of Directors of the Company is soliciting
proxies for use at a special meeting of shareholders of the Company
on February 28, 1997. The special meeting is being held to
consider an amendment (the "Proposed Amendment") to the Company's
Amended Articles of Acceptance (the "Articles"). The Proposed
Amendment, if approved, would eliminate in its entirety
Subparagraph 7(B)(c) of Article 6(A) of the Articles, which is
described on pages 7, 8 and 9 of the accompanying Prospectus. Upon
the elimination of Article 6(A), Subparagraph 7(B)(c), the
restrictions upon the Company's ability to issue or assume
additional indebtedness contained therein would be lifted. See
"Description of Debt Securities -- Other Restrictions Upon Creation
and/or Issuance of Senior Securities" in the accompanying
Prospectus. The limitation upon the issuance of debt securities
contained in an agreement under which unsecured debentures of the
Company were issued and which is described on page 7 of the
accompanying Prospectus is no longer in effect as all of the
debentures have been redeemed or have matured. Under a
reimbursement agreement with a commercial bank in connection with
a letter of credit to secure payment of certain pollution control
revenue bonds, the Company may not create, incur, assume or suffer
to exist any indebtedness (as defined) if the total of all its
indebtedness exceeds 65% of total capitalization (as defined).
USE OF PROCEEDS
The Company proposes to use the proceeds from the sale of the Debt
Securities to refund, directly or indirectly, long-term debt and
cumulative preferred stock and to repay short-term unsecured
indebtedness incurred in connection with any such refunding and for
working capital. The Company's First Mortgage Bonds, 8.75% Series
due 2022 ($50,000,000 principal amount outstanding), may be
redeemed at their regular redemption price of 106.57% on or after
May 29, 1997. Such Bonds may also be redeemed at a lower special
redemption price (but not lower than 100% of the principal amount
thereof) through the application of cash deposited with the Trustee
(as defined below), pursuant to certain provisions of the Mortgage
and Deed of Trust, dated as of June 1, 1939 made by the Company to
The Bank of New York (formerly Irving Trust Company), as Trustee.
The Company may redeem some or all of said series if it can be
refunded at a lower effective cost.
RATIO OF EARNINGS TO FIXED CHARGES
Below is set forth the ratio of earnings to fixed charges for each
of the years in the period 1991 through 1995 and for the twelve
months ended September 30, 1996. Ratios for the period December
31, 1991 have been restated to reflect the merger of Michigan Power
Company into the Company on February 29, 1992, which was accounted
for as a pooling of interests.
PERIOD ENDED RATIO
December 31, 1991 2.08
December 31, 1992 1.89
December 31, 1993 2.06
December 31, 1994 2.23
December 31, 1995 2.31
September 30, 1996 2.45
SUPPLEMENTAL DESCRIPTION OF THE NOTES
The following description of the particular terms of the Notes
supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the Debt
Securities set forth under "Description of Debt Securities" in the
accompanying Prospectus, to which description reference is hereby
made. Certain capitalized terms used herein are defined under
"Description of Debt Securities" in the accompanying Prospectus.
The following description of the Notes will apply unless otherwise
specified in a Pricing Supplement.
GENERAL
The Notes will be issued in one or more series of Debt Securities
under the Mortgage. The Notes will be limited in aggregate
principal amount to $190,000,000, subject to reduction as a result
of the sale of other Debt Securities as described in the
accompanying Prospectus.
The Notes will be issued in fully registered form only, without
coupons. Each series of Notes will be issued initially as a Book-
Entry Note. Except as set forth herein under "Book-Entry Notes" or
in any Pricing Supplement relating to specific Notes, the Notes
will not be issuable as Certificated Notes. The authorized
denominations of Global Notes will be $1,000 and any integral
multiple thereof up to $150,000,000.
Each Note will mature from 9 months to 42 years from its date of
issue, as selected by the purchaser and agreed to by the Company.
Each Note may also be subject to redemption at the option of the
Company prior to its Stated Maturity (as defined below).
The Pricing Supplement relating to a Note will describe the
following terms: (i) the price (expressed as a percentage of the
aggregate principal amount thereof) at which such Note will be
issued (the "Issue Price"); (ii) the date on which such Note will
be issued (the "Original Issue Date"); (iii) the date on which such
Note will mature (the "Stated Maturity"); (iv) the rate per annum
at which such Note will bear interest, and the Interest Payment
Dates (as defined below); (v) any applicable discounts or
commissions; (vi) whether such Note may be redeemed at the option
of the Company prior to Stated Maturity and, if so, the provisions
relating to such redemption; and (vii) any other terms of such Note
not inconsistent with the provisions of the Mortgage.
"Business Day" with respect to any Note means any day, other than
a Saturday or Sunday, which is not a day on which banking
institutions or trust companies in The City of New York, New York
or the city in which is located any office or agency maintained for
the payment of principal of or premium, if any, or interest on such
Note are authorized or required by law, regulation or executive
order to remain closed.
PAYMENT OF PRINCIPAL AND INTEREST
Payments of interest on the Notes (other than interest payable at
redemption, if any, or Stated Maturity) will be made, except as
provided below, in immediately available funds to the Owners of
such Notes (which, in the case of Global Notes representing Book-
Entry Notes, will be a nominee of the Depository, as defined below)
as of the Regular Record Date (as defined below) for each Interest
Payment Date; PROVIDED, HOWEVER, that if the Original Issue Date of
a Note issued as a Global Note is after a Regular Record Date and
before the corresponding Interest Payment Date, interest for the
period from and including the Original Issue Date for such Note to
but excluding such Interest Payment Date will be paid on the next
succeeding Interest Payment Date to the Owner of such Note on the
related Regular Record Date.
Unless otherwise specified in the applicable Pricing Supplement,
the principal of the Notes and any premium and interest thereon
payable at redemption, if any, or Stated Maturity will be paid in
immediately available funds upon surrender thereof at the office of
The Bank of New York at 101 Barclay Street in New York, New York.
Should any Note be issued other than as a Global Note, interest
(other than interest payable at redemption or Stated Maturity) may,
at the option of the Company, be paid to the person entitled
thereto by check mailed to any such person. See "Book-Entry Notes"
herein.
If, with respect to any Note, any Interest Payment Date, redemption
date or Stated Maturity is not a Business Day, payment of amounts
due on such Note on such date may be made on the next succeeding
Business Day, and, if such payment is made or duly provided for on
such Business Day, no interest shall accrue on such amounts for the
period from and after such Interest Payment Date, redemption date
or Stated Maturity, as the case may be, to such Business Day.
The "REGULAR RECORD DATE" with respect to a Note (unless otherwise
specified in the applicable Pricing Supplement) will be the January
15 or July 15, as the case may be, next preceding an Interest
Payment Date for Notes or if such January 15 or July 15 is not a
Business Day, the next preceding Business Day.
Each Note issued as a Global Note will bear interest from its
Original Issue Date at the fixed interest rate per annum stated on
the face thereof until the principal amount thereof is paid or made
available for payment. Unless otherwise set forth in the
applicable Pricing Supplement, interest on each Note will be
payable semiannually in arrears on each February 1 and August 1
(each such date, an "INTEREST PAYMENT DATE") and at redemption, if
any, or Stated Maturity. Each payment of interest in respect of an
Interest Payment Date shall include interest accrued through the
day before such Interest Payment Date. Interest on Notes will be
computed on the basis of a 360-day year of twelve 30-day months.
REDEMPTION
The Pricing Supplement relating to each Note will indicate either
that such Note cannot be redeemed prior to Stated Maturity or that
such Note will be redeemable at the option of the Company in whole
or in part, under the terms and conditions and at the prices
specified therein, together with accrued interest to the date of
redemption. Any such redemption may be made upon not less than 30
days' notice.
BOOK-ENTRY NOTES
Except under the circumstances described below, the Notes will be
issued in whole or in part in the form of one or more Global Notes
that will be deposited with, or on behalf of, The Depository Trust
Company, New York, New York ("DTC"), or such other depository as
may be subsequently designated (the "DEPOSITORY"), and registered
in the name of a nominee of the Depository.
Book-Entry Notes represented by a Global Note will not be
exchangeable for Certificated Notes and, except under the
circumstances described below, will not otherwise be issuable as
Certificated Notes.
So long as the Depository, or its nominee, is the registered owner
of a Global Note, such Depository or such nominee, as the case may
be, will be considered the sole owner of the individual Book-Entry
Notes represented by such Global Note for all purposes under the
Mortgage. Payments of principal of and premium, if any, and any
interest on individual Book-Entry Notes represented by a Global
Note will be made to the Depository or its nominee, as the case may
be, as the Owner of such Global Note. Except as set forth below,
owners of beneficial interests in a Global Note will not be
entitled to have any of the individual Book-Entry Notes represented
by such Global Note registered in their names, will not receive or
be entitled to receive physical delivery of any such Book-Entry
Notes and will not be considered the Owners thereof under the
Mortgage, including, without limitation, for purposes of consenting
to any amendment thereof or supplement thereto.
If the Depository is at any time unwilling or unable to continue as
depository and a successor depository is not appointed, the Company
will issue individual Certificated Notes in exchange for the Global
Note or Notes representing the corresponding Book-Entry Notes. In
addition, the Company may at any time and in its sole discretion
determine not to have any Notes represented by one or more Global
Notes and, in such event, will issue individual Certificated Notes
in exchange for the Global Notes representing the corresponding
Book-Entry Notes. In any such instance, an owner of a Book-Entry
Note represented by a Global Note will be entitled to physical
delivery of individual Certificated Notes equal in principal amount
to such Book-Entry Note and to have such Certificated Notes
registered in its name. Individual Certificated Notes so issued
will be issued as registered Notes in denominations, unless
otherwise specified by the Company, of $1,000 and integral
multiples thereof.
DTC has confirmed to the Company and the Agents the following
information:
1. DTC will act as securities depository for the Global Notes.
The Notes will be issued as fully-registered securities registered
in the name of Cede & Co. (DTC's partnership nominee). One fully-
registered Global Note will be issued for each series of the Notes,
each in the aggregate principal amount of such series, and will be
deposited with DTC. If, however, the aggregate principal amount of
any series of Notes exceeds $150,000,000, one certificate will be
issued with respect to each $150,000,000 of principal amount and an
additional certificate will be issued with respect to any remaining
principal amount of such series.
2. DTC is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of
the New York Banking Law, a member of the Federal Reserve System,
a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934.
DTC holds securities that its participants ("Participants") deposit
with DTC. DTC also facilitates the settlement among Participants
of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry
changes in Participants' accounts, thereby eliminating the need for
physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies,
clearing corporations, and certain other organizations. DTC is
owned by a number of its Direct Participants and by the New York
Stock Exchange, Inc., the American Stock Exchange, Inc., and the
National Association of Securities Dealers, Inc. Access to the DTC
system is also available to others such as securities brokers and
dealers, banks, and trust companies that clear through or maintain
a custodial relationship with a Direct Participant, either directly
or indirectly ("Indirect Participants"). The Rules applicable to
DTC and its Participants are on file with the Securities and
Exchange Commission.
3. Purchases of Notes under the DTC system must be made by or
through Direct Participants, which will receive a credit for the
Notes on DTC's records. The ownership interest of each actual
purchaser of each Note ("Beneficial Owner") is in turn to be
recorded on the Direct and Indirect Participants' records.
Beneficial Owners will not receive written confirmation from DTC of
their purchase, but Beneficial Owners are expected to receive
written confirmations providing details of the transaction, as well
as periodic statements of their holdings, from the Direct or
Indirect Participant through which the Beneficial Owner entered
into the transaction. Transfers of ownership interests in the
Notes are to be accomplished by entries made on the books of
Participants acting on behalf of Beneficial Owners. Beneficial
Owners will not receive certificates representing their ownership
interests in Notes, except in the event that use of the book-entry
system for the Notes is discontinued.
4. To facilitate subsequent transfers, all Notes deposited by
Participants with DTC are registered in the name of DTC's
partnership nominee, Cede & Co. The deposit of Notes with DTC and
their registration in the name of Cede & Co. effect no change in
beneficial ownership. DTC has no knowledge of the actual
Beneficial Owners of the Notes; DTC's records reflect only the
identity of the Direct Participants to whose accounts such Notes
are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their
holdings on behalf of their customers.
5. Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and
by Direct Participants and Indirect Participants to Beneficial
Owners will be governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect from time
to time.
6. Redemption notices shall be sent to Cede & Co. If less than
all of the Notes within an issue are being redeemed, DTC's practice
is to determine by lot the amount of the interest of each Direct
Participant in such issue to be redeemed.
7. Neither DTC nor Cede & Co. will consent or vote with respect to
the Notes. Under its usual procedures, DTC mails an Omnibus Proxy
to the Company as soon as possible after the record date. The
Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to
those Direct Participants to whose accounts the Notes are credited
on the record date (identified in a listing attached to the Omnibus
Proxy).
8. Principal and interest payments on the Notes will be made to
DTC. DTC's practice is to credit Direct Participants' accounts on
the date on which interest is payable in accordance with their
respective holdings shown on DTC's records unless DTC has reason to
believe that it will not receive payment on such date. Payments by
Participants to Beneficial Owners will be governed by standing
instructions and customary practices, as is the case with
securities held for the accounts of customers in bearer form or
registered in "street name", and will be the responsibility of such
Participant and not of DTC, the Agents or the Company, subject to
any statutory or regulatory requirements as may be in effect from
time to time. Payment of principal and interest to DTC is the
responsibility of the Company or the Trustee, disbursement of such
payments to Direct Participants shall be the responsibility of DTC,
and disbursement of such payments to the Beneficial Owners shall be
the responsibility of Direct and Indirect Participants.
9. DTC may discontinue providing its services as securities
depository with respect to the Notes at any time by giving
reasonable notice to the Company and the Trustee. Under such
circumstances, in the event that a successor securities depository
is not obtained, Certificated Notes are required to be printed and
delivered.
10. The Company may decide to discontinue use of the system of
book-entry transfers through DTC (or a successor securities
depository). In that event, Certificated Notes will be printed and
delivered.
The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that the Company believes to
be reliable, but the Company takes no responsibility for the
accuracy thereof.
The Agents are Direct Participants of DTC.
None of the Company, the Trustee or any agent for payment on or
registration of transfer or exchange of any Global Note will have
any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial interests in
such Global Note or for maintaining, supervising or reviewing any
records relating to such beneficial interests.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary describes certain material United States
federal income tax consequences of the ownership of Notes as of the
date hereof. Except where noted, it deals only with Notes held by
initial purchasers who have purchased Notes at the initial offering
price thereof and who hold such Notes as capital assets and does
not deal with special situations, such as those of dealers in
securities or currencies, financial institutions, life insurance
companies, persons holding Notes as a part of a hedging or
conversion transaction or a straddle, United States Holders (as
defined below) whose "functional currency" is not the U.S. dollar,
or Non-United States Holders (as defined below) owning (actually or
constructively) ten percent or more of the combined voting power of
all classes of voting stock of the Company. Persons considering
the purchase, ownership or disposition of Notes should consult
their own tax advisors concerning the federal income tax
consequences in light of their particular situations as well as any
consequences arising under the laws of any other taxing
jurisdiction. Furthermore, the discussion below is based upon the
provisions of the Internal Revenue Code of 1986, as amended (the
"Code") and regulations, rulings and judicial decisions thereunder
as of the date hereof, and such authorities may be repealed,
revoked or modified so as to result in federal income tax
consequences different from those discussed below. Any special
United States federal income tax considerations relevant to a
particular series of the Notes will be provided in the applicable
Pricing Supplement.
UNITED STATES HOLDERS
As used herein, a "United States Holder" of a Note means a holder
that is a citizen or resident of the United States, a corporation,
partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, or
an estate the income of which is subject to United States federal
income taxation regardless of its source, or any trust if a court
within the United States is able to exercise primary jurisdiction
over the administration of the trust and one or more U.S.
fiduciaries have the authority to control all substantial decisions
of the trust. A "Non-United States Holder" is a holder that is not
a United States Holder.
PAYMENTS OF INTEREST. Except as set forth below, interest on a
Note will generally be taxable to a United States Holder as
ordinary income from domestic sources at the time it is paid or
accrued in accordance with the United States Holder's method of
accounting for tax purposes.
Notes with a maturity of one year or less will be subject to
special tax rules that apply to the timing of inclusion in income
of interest on such obligations ("Short-Term Notes"). An
obligation which is issued for an amount less than its "stated
redemption price at maturity" will generally be considered to be
issued at a discount for federal income tax purposes. Under
Treasury Regulations involving original issue discount ("OID"), all
payments (including all stated interest) with respect to a Short-
Term Note will be included in the stated redemption price at
maturity and, thus, holders will be taxable on discount in lieu of
stated interest. This discount will be equal to the excess of the
stated redemption price at maturity over the initial offering price
to the public at which a substantial amount of the Notes is sold
(for purposes of this section of the Prospectus Supplement, the
"issue price"), unless a holder elects to compute this discount as
acquisition discount using tax basis instead of issue price. In
general, individual and certain other cash method holders of a
Short-Term Note are not required to include accrued discount in
income before receiving cash unless an election is made to do so.
United States Holders who report income for federal income tax
purposes on the accrual method and certain other holders, including
banks and dealers in securities, are required to include discount
on such Short-Term Notes in income on a straight-line method (as
ordinary income) unless an election is made based on daily
compounding. The amount of discount which accrues in respect of a
Short-Term Note while held by a holder will be added to such
holder's tax basis for such Note to the extent included in income.
SALE, EXCHANGE AND RETIREMENT OF NOTES. Upon the sale, exchange or
retirement of a Note, a United States Holder will recognize gain or
loss equal to the difference between the amount realized upon the
sale, exchange or retirement (excluding any amount attributable to
accrued but unpaid "qualified stated interest") and the adjusted
tax basis of the Note. A United States Holder's tax basis in a
Note will, in general, be the United States Holder's cost therefor,
increased by any discount included in income by the United States
Holder and reduced by any cash payments on the Note other than
"qualified stated interest" payments. (In general, "qualified
stated interest" includes interest at a single fixed rate
unconditionally payable at least annually, other than interest on
Short-Term Notes.) Except as described below with respect to
certain Short-Term Notes and except to the extent of any accrued
but unpaid qualified stated interest, such gain or loss will be
capital gain or loss and will be long-term capital gain or loss if
at the time of sale, exchange or retirement the Note has been held
for more than one year. Under current law, net capital gains are,
under certain circumstances, taxed at lower rates than items of
ordinary income. The deductibility of capital losses is subject to
limitations.
In the case of a cash basis holder who does not include discount
income currently, any gain realized on the sale, exchange or
retirement of the Short-Term Note will be ordinary interest income
to the extent of the discount accrued on a straight-line basis (or,
if elected, according to a constant yield method based on daily
compounding) through the date of sale, exchange or retirement. In
addition, such non-electing holders which are not subject to the
current inclusion requirement described above will be required to
defer deductions for any interest paid on indebtedness incurred or
continued to purchase or carry such Short-Term Notes in an amount
not exceeding the deferred interest income, until such deferred
interest income is realized.
NON-UNITED STATES HOLDERS
Non-United States Holders will not be subject to United States
federal income taxes, including withholding taxes, on the interest
income (including any OID) on, or gain from the sale or disposition
of, any Note provided that (1) the interest income or gain is not
effectively connected with the conduct by the Non-United States
Holder of a trade or business within the United States, (2) the
Non-United States Holder is not a controlled foreign corporation
related to the Company through stock ownership, (3) the Non-United
States Holder is not a bank whose receipt of interest on a Note is
described in Code Section 881(c)(3)(A), (4) with respect to any
gain, the Non-United States Holder, if an individual, is not
present in the United States for 183 days or more during the
taxable year and (5) the Non-United States Holder provides the
correct certification of his status (which may generally be
satisfied by providing an Internal Revenue Service Form W-8
certifying that the beneficial owner is not a United States Holder
and providing the name and address of the beneficial owner).
An individual holder of a Note who is not a citizen or resident of
the United States at the time of the holder's death will not be
subject to United States federal estate tax as a result of the
holder's death, as long as any interest received on the Note, if
received by the holder at the time of the holder's death, would not
be effectively connected with the conduct of a trade or business by
such individual in the United States.
BACKUP WITHHOLDING
In general, if a holder other than a corporate holder fails to
furnish a correct taxpayer identification number or certification
of foreign or other exempt status, fails to report dividend and
interest income in full, or fails to certify that such holder has
provided a correct taxpayer identification number and that the
holder is not subject to backup withholding, a 31 percent federal
backup withholding tax may be withheld from amounts paid to such
holder. An individual's taxpayer identification number is such
individual's social security number. The backup withholding tax is
not an additional tax and may be credited against a holder's
regular federal income tax liability or refunded by the Internal
Revenue Service where applicable.
LEGAL OPINIONS
Opinions with respect to the legality of the Notes will be rendered
by Simpson Thacher & Bartlett (a partnership which includes
professional corporations), 425 Lexington Avenue, New York, N.Y.,
and 1 Riverside Plaza, Columbus, Ohio, counsel for the Company, and
by Dewey Ballantine, 1301 Avenue of the Americas, New York, N.Y.,
counsel for any agents, underwriters or dealers. Simpson Thacher &
Bartlett and Dewey Ballantine will rely as to matters of Indiana
law upon the opinion of Baker & Daniels, special Indiana counsel to
the Company, and as to matters of Michigan law, upon the opinion of
Mollison Law Offices, P.C., special Michigan counsel to the
Company. From time to time, Dewey Ballantine acts as counsel to
affiliates of the Company in connection with certain matters.
PLAN OF DISTRIBUTION
The Notes are being offered on a continuous basis by the Company
through the Agents, which have agreed to use their reasonable best
efforts to solicit offers to purchase Notes. Initial purchasers
may propose certain terms of the Notes, but the Company will have
the right to accept offers to purchase Notes and may reject
proposed purchases in whole or in part. The Agents will have the
right, in their discretion reasonably exercised and without notice
to the Company, to reject any proposed purchase of Notes in whole
or in part. The Company will pay each Agent a commission of from
.125% to .750% of the principal amount of Notes sold through it,
depending upon Stated Maturity. The Company also may sell Notes to
any Agent, acting as principal, at a discount to be agreed upon at
the time of sale, for resale to one or more investors or to another
broker-dealer (acting as principal for purposes of resale) at
varying prices related to prevailing market prices at the time of
such resale, as determined by such Agent. An Agent may resell a
Note purchased by it as principal to another broker-dealer at a
discount, provided such discount does not exceed the commission or
discount received by such Agent from the Company in connection with
the original sale of such Note. The Company may also sell Notes
directly to investors on its own behalf at a price to be agreed
upon at the time of sale or through negotiated underwritten
transactions with one or more underwriters. In the case of sales
made directly by the Company, no commission or discount will be
paid or allowed.
No Note will have an established trading market when issued. The
Notes will not be listed on any securities exchange. The Agents
may make a market in the Notes, but the Agents are not obligated to
do so and may discontinue any market-making at any time without
notice. There can be no assurance of a secondary market for any
Notes, or that the Notes will be sold.
The Agents, whether acting as agent or principal, may be deemed to
be "underwriters" within the meaning of the Securities Act of 1933,
as amended (the "SECURITIES ACT"). The Company has agreed to
indemnify the Agents against certain liabilities, including certain
liabilities under the Securities Act.
Salomon Brothers Inc and Merrill Lynch, Pierce, Fenner & Smith
Incorporated and certain affiliates thereof engage in transactions
with and perform services for the Company and its affiliates in the
ordinary course of business.
<PAGE>
PROSPECTUS
Indiana Michigan Power Company
$190,000,000
Debt Securities
__________
Indiana Michigan Power Company (the "Company") intends to
offer from time to time up to $190,000,000 aggregate principal
amount of its Debt Securities consisting of First Mortgage Bonds
(the "new Bonds") in one or more series and/or First Mortgage
Bonds, Designated Secured Medium Term Notes (the "Notes"), in one
or more series, at prices and on terms to be determined at the time
or times of sale (the new Bonds and the Notes are hereinafter
collectively referred to as the "Debt Securities"). The aggregate
principal amount, rate and time of payment of interest, maturity,
initial public offering price, if any, redemption provisions, if
any, credit enhancement, if any, improvement fund, if any, dividend
restrictions, in addition to those described herein, if any, and
other specific terms of each series of Debt Securities in respect
of which this Prospectus is being delivered will be set forth in an
accompanying prospectus or pricing supplement ("Prospectus
Supplement").
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
_______________
The Company may sell the Debt Securities through underwriters,
dealers or agents, or directly to one or more institutional
purchasers. A Prospectus Supplement will set forth the names of
underwriters or agents, if any, any applicable commissions or
discounts and the net proceeds to the Company from any such sale.
_______________
THE DATE OF THIS PROSPECTUS IS OCTOBER 8, 1993
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN
THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS
PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT RELATING HERETO AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY
UNDERWRITER, AGENT OR DEALER. NEITHER THIS PROSPECTUS NOR THIS
PROSPECTUS AS SUPPLEMENTED BY ANY PROSPECTUS SUPPLEMENT CONSTITUTES
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, BY ANY
UNDERWRITER, AGENT OR DEALER IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL FOR SUCH UNDERWRITER, AGENT OR DEALER TO MAKE SUCH AN
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS OR
THIS PROSPECTUS AS SUPPLEMENTED BY ANY PROSPECTUS SUPPLEMENT NOR
ANY SALE MADE THEREUNDER SHALL CREATE, UNDER ANY CIRCUMSTANCES, ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THEREOF.
AVAILABLE INFORMATION
THE COMPANY IS SUBJECT TO THE INFORMATIONAL REQUIREMENTS OF
THE SECURITIES EXCHANGE ACT OF 1934 (THE "1934 ACT") AND IN
ACCORDANCE THEREWITH FILES REPORTS AND OTHER INFORMATION WITH THE
SECURITIES AND EXCHANGE COMMISSION (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.; NORTHWESTERN ATRIUM CENTER, 500 WEST
MADISON STREET, SUITE 1400, CHICAGO, ILLINOIS; AND 7 WORLD TRADE
CENTER, 13TH FLOOR, NEW YORK, NEW YORK. 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.
CERTAIN OF THE COMPANY'S SECURITIES ARE LISTED ON THE NEW YORK
STOCK EXCHANGE, INC. AND ON THE MIDWEST STOCK EXCHANGE, WHERE
REPORTS, INFORMATION STATEMENTS AND OTHER INFORMATION CONCERNING
THE COMPANY CAN ALSO BE INSPECTED.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the SEC are
incorporated in this Prospectus by reference:
-- The Company's Annual Report on Form 10-K for the year
ended December 31, 1992; and
-- The Company's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1993 and June 30, 1993.
All documents subsequently filed by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the 1934 Act after the date of
this Prospectus and prior to the termination of the offering made
by this Prospectus shall be deemed to be incorporated by reference
in this Prospectus and to be a part hereof from the date of filing
of such documents; provided, however, that the documents enumerated
above or subsequently filed by the Company pursuant to Section 13
of the 1934 Act prior to the filing of the Company's most recent
Form 10-K with the SEC shall not be incorporated by reference in
this Prospectus or be a part hereof from and after the filing of
such Form 10-K.
Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other
subsequently filed document which is deemed to be incorporated by
reference herein or in a Prospectus Supplement modifies or
supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM
A COPY OF THIS PROSPECTUS HAS BEEN DELIVERED, UPON 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 PROSPECTUS, 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 NUMBER: 614-223-1000). THE
INFORMATION RELATING TO THE COMPANY CONTAINED IN THIS PROSPECTUS OR
ANY PROSPECTUS SUPPLEMENT RELATING HERETO DOES NOT PURPORT TO BE
COMPREHENSIVE AND SHOULD BE READ TOGETHER WITH THE INFORMATION
CONTAINED IN THE DOCUMENTS INCORPORATED BY REFERENCE.
THE COMPANY
The Company is engaged in the generation, purchase,
transmission and distribution of electric power to approximately
520,000 customers in northern and east central Indiana and
southwestern Michigan and in supplying electric power at wholesale
to other electric utility companies, rural electric cooperatives
and municipalities. Its principal executive offices are located at
One Summit Square, P.O. Box 60, Fort Wayne, Indiana 46801
(telephone number: 219-425-2111). The Company is a subsidiary of
American Electric Power Company, Inc. ("AEP") and is a part of the
AEP integrated utility system (the "AEP System"). The executive
offices of AEP are located at 1 Riverside Plaza, Columbus, Ohio
43215 (telephone number: 614-223-1000).
USE OF PROCEEDS
The Company proposes to use the proceeds from the sale of the
Debt Securities to refund, directly or indirectly, long-term debt
and to repay short-term unsecured indebtedness incurred in
connection with any such refunding. The Company's First Mortgage
Bonds, 8-3/4% Series due 2017 ($100,000,000 principal amount
outstanding), may be redeemed at their regular redemption price of
105.95% and its First Mortgage Bonds, 8-3/8% Series due 2003
($40,000,000 principal amount outstanding), may be redeemed at
their regular redemption price of 102.04% up to December 1, 1993
and at 101.63% on or after December 1, 1993. Such Bonds may also
be redeemed at a lower special redemption price (but not lower than
100% of the principal amount thereof) through the application of
cash deposited with the Trustee (as defined below), pursuant to
certain provisions of the Mortgage (as defined below). The Company
may redeem some or all of said series if they can be refunded at a
lower effective cost. The Company's 8-7/8% Series due 2000
($50,000,000 principal amount) were redeemed at their regular
redemption price of 102.11% on September 1, 1993. The Company's
First Mortgage Bonds 7-7/8% Series due 1997 ($50,000,000 principal
amount outstanding) have been called for redemption on October 30,
1993 at their regular redemption price of 101.06%.
RATIO OF EARNINGS TO FIXED CHARGES
Below is set forth the ratio of earnings to fixed charges for
each of the years in the period 1988 through 1992 and for the
twelve months ended June 30, 1993. Ratios for the periods through
December 31, 1991 have been restated to reflect the merger of
Michigan Power Company into the Company on February 29, 1992, which
was accounted for as a pooling of interests.
PERIOD ENDED RATIO
December 31, 1988 2.31
December 31, 1989 2.19
December 31, 1990 1.97
December 31, 1991 2.09
December 31, 1992 1.91
June 30, 1993 1.84
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will be issued under the Mortgage and Deed
of Trust, dated as of June 1, 1939, made by the Company to The Bank
of New York (formerly Irving Trust Company), New York, N.Y., as
Trustee, as heretofore supplemented and amended and as to be
further supplemented (the "Mortgage"). All First Mortgage Bonds
(including the Debt Securities) issued and to be issued under the
Mortgage are herein sometimes referred to as "Bonds". Copies of
the Mortgage, including the form of Supplemental Indenture pursuant
to which each series of the Debt Securities will be issued (the
"new Supplemental Indenture") are filed as exhibits to the
Registration Statement.
The following statements include brief summaries of certain
provisions of instruments under which securities of the Company,
including Bonds, have been issued. Certain of these instruments
apply to the issuance of Debt Securities. Such instruments,
including amendments and supplements thereto, have been filed by
the Company as exhibits to the Registration Statement. Such
summaries do not purport to be complete and reference is made to
such instruments for complete statements of such provisions. Such
summaries are qualified in their entirety by such reference and do
not relate or give effect to the provisions of statutory or common
law.
FORM AND EXCHANGE
Unless otherwise set forth in a Prospectus Supplement, the
Debt Securities in definitive form will be issued only as
registered Bonds without coupons in denominations of $1,000 and in
multiples thereof authorized by the Company. Debt Securities will
be exchangeable for a like aggregate principal amount of the same
series of Debt Securities of other authorized denominations, and
will be transferable, at the office or agency of the Company in New
York City, and at such other office or agency of the Company as the
Company may from time to time designate, in either case without
payment, until further action by the Company, of any charge other
than for any tax or taxes or other governmental charge required to
be paid by the Company. The Bank of New York is to be designated
by the Company as agent for payment, registration, transfer and
exchange of the Debt Securities in New York City.
MATURITY, INTEREST, PAYMENT, REDEMPTION, CREDIT ENHANCEMENT,
IMPROVEMENT FUND AND ADDITIONAL DIVIDEND RESTRICTIONS
Information concerning the maturity, interest, payment,
redemption provisions, if any, credit enhancement, if any,
improvement fund, if any, and any additional dividend restrictions
with respect to any series of the Debt Securities will be contained
in a Prospectus Supplement.
SECURITY
The Debt Securities will be secured, pari passu with Bonds of
all other series now or hereafter issued, by the lien of the
Mortgage which constitutes, in the opinion of counsel for the
Company, except as noted below, a first lien on substantially all
of the fixed physical property and franchises of the Company
subject to (i) the conditions and limitations in the instruments
through which the Company claims title to its properties and (ii)
"excepted encumbrances", as defined in Section 6 of the Mortgage.
Counsel for the Company expresses no opinion, however, with respect
to the priority, under the laws of the State of Indiana, of the
lien of the Mortgage, as said lien may relate to series of Bonds
issued hereafter, including the Debt Securities, over judgment
liens in existence on the date of the issuance of any such series.
The Mortgage contains an after-acquired property clause, but
property hereafter acquired may be subject to liens, ranking prior
to the Mortgage, existing thereon at the time of acquisition of
such property. The provisions of the Mortgage, in substance,
permit releases of property from the lien and the withdrawal of
cash proceeds of property released from the lien, not only against
new property then becoming subject to the lien, but also against
property already subject to the Mortgage unless such property was
owned at December 31, 1938, or has been made the basis of the issue
of Bonds or a credit under Section 20 of the Mortgage.
Accordingly, any increase in the amount of the mortgaged and
pledged property as a result of the after-acquired property clause
may be eliminated by means of such releases and withdrawals.
ISSUANCE OF ADDITIONAL BONDS
Additional Bonds of any series may be issued in a principal
amount equal to:
1. 60% of the cost or the then fair value, whichever is
less, of unfunded property additions after deductions for
retirements;
2. The principal amount of Bonds or prior lien bonds retired
or then to be retired; and
3. The amount of cash deposited with the Trustee;
but, except as otherwise provided in the Mortgage, only if the net
earnings (as defined in Section 7 of the Mortgage) are at least
twice the annual interest requirements on all outstanding Bonds and
indebtedness having an equal or prior lien, including the
additional issue. However, no Bonds may be issued against property
additions (as defined in Section 4 of the Mortgage) subject to
prior liens (as defined in Section 6 of the Mortgage) if, among
other things, the principal amount of all Bonds theretofore issued
on such basis and continuing on such basis, and the amount of
certain other items representing deposited cash withdrawn or
property released on such basis, in the aggregate, exceed 15% of
the aggregate principal amount of all Bonds theretofore issued
including the additional issue. (See Sections 4, 6 and 7 and
Articles V, VI and VII of the Mortgage and "Modification of the
Mortgage" below.)
The requirement, referred to above, that net earnings be at
least twice the annual interest requirements on all outstanding
Bonds and indebtedness having an equal or prior lien, including a
proposed additional issue of Bonds, is not applicable under certain
circumstances where additional Bonds are issued in a principal
amount equal to the principal amount of Bonds or prior lien bonds
retired or then to be retired. (See Section 29 of the Mortgage.)
In calculating earnings coverages under the provisions of its
Mortgage, the Company includes, as a component of earnings,
revenues being collected subject to refund and, to the extent not
limited by the terms of the Mortgage, an allowance for funds used
during construction, including amounts positioned and classified as
an allowance for borrowed funds used during construction.
It is estimated that as of September 30, 1993, the Company had
available, for use in connection with the authentication of Bonds,
approximately $790,800,000 of unbonded bondable property additions.
The Company expects that the Debt Securities will be authenticated
upon the basis of Bonds retired or to be retired and/or property
additions.
OTHER RESTRICTIONS UPON CREATION AND/OR ISSUANCE OF SENIOR
SECURITIES
There are, in addition to the foregoing restrictions, a number
of additional limitations upon the creation and/or issuance by the
Company of long-term debt securities and of shares of stock
ranking, as to dividends and distributions of assets, prior to the
common stock equity of the Company.
One limitation upon the issuance of long-term debt securities,
contained in the agreement under which unsecured debentures of the
Company are from time to time issued, consists of a covenant by the
Company that it will not incur any Funded Debt, as defined, (a)
unless, after giving effect to such additional Funded Debt and to
the application of all proceeds thereof, the ratio of the Funded
Debt of the Company to its Capitalization, as defined, does not
exceed 65% (or such higher percentage as shall be authorized by the
SEC, or any successor commission thereto, under the Public Utility
Holding Company Act of 1935 (the "1935 Act")) and the ratio of
Common Stock Equity, as defined, of the Company to its
Capitalization equals or exceeds 30% (or such lower percentage as
shall be authorized by the SEC, or any successor commission
thereto, under the 1935 Act), and (b) unless, with certain
specified exceptions, the adjusted net earnings of the Company,
calculated as therein provided, are not less than twice the annual
interest requirements upon all Funded Debt of the Company,
including the additional issue. This limitation is more
restrictive than the net earnings requirement referred to above
under the heading "Issuance of Additional Bonds" but is not
applicable in certain instances to issues of long-term debt
securities issued to refund outstanding debt securities. Although
the Company has been able to issue significant amounts of Bonds in
recent years, earnings coverage requirements did at certain times
limit the amount of Bonds (except for refunding purposes) which
could have been issued. The debt coverage of the Company under
this provision, calculated as of June 30, 1993, based on the
amounts then recorded in the accounts of the Company was at least
3.67. In calculating earnings coverages under the provisions of
its debenture indenture, the Company includes, as a component of
earnings, revenues being collected subject to refund and, to the
extent not limited by the terms of the indenture, an allowance for
funds used during construction, including amounts positioned and
classified as an allowance for borrowed funds used during
construction.
The agreement under which unsecured debentures of the Company
are from time to time issued also provides that the Company shall
not incur any short-term indebtedness if, after giving effect to
such indebtedness and the application of the proceeds thereof, the
aggregate of all short-term indebtedness exceeds (i) 10% of the
Capitalization of the Company, as defined, or (ii) such larger
percentage as shall be authorized by the SEC.
The issuance of additional securities is also limited by
provisions of the Amended Articles of Acceptance of the Company
which require the consent of the holders of the Cumulative
Preferred Stock then outstanding prior to certain corporate
actions.
The consent of holders of shares entitled to cast at least
two-thirds of the total number of votes entitled to be cast by the
holders of the Cumulative Preferred Stock then outstanding is
required (a) to create, authorize or issue any stock ranking prior
to or on a parity with the Cumulative Preferred Stock as to
dividends or distributions, or any security convertible into shares
of any such stock, or (b) to change any of the express terms of the
Cumulative Preferred Stock or any outstanding series thereof in a
manner substantially prejudicial to the holders thereof. Stock or
convertible securities authorized under clause (a) can only be
issued within 180 days after the vote on the issuance thereof.
Under clause (b), if less than all series are adversely affected,
only the consent of the holders of shares entitled to cast two-
thirds of the total number of votes entitled to be cast by the
holders of shares of all series so affected is required. (See
Amended Articles of Acceptance, Article 6, Paragraph (7)(A).)
The consent of the holders of shares entitled to cast a
majority of the total number of votes entitled to be cast by the
holders of the Cumulative Preferred Stock then outstanding is
required prior to any of the following corporate actions:
(a) an increase in the total authorized amount of Cumulative
Preferred Stock;
(b) any merger or consolidation, unless such action has been
approved by the SEC or by a successor regulatory authority;
(c) the issue or assumption of unsecured debt securities, as
defined (for purposes other than the reacquisition, redemption
or retirement (i) of evidences of indebtedness previously
issued or assumed by the Company or (ii) of all outstanding
shares of 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 Company, as defined) issued or
assumed by the Company and then outstanding would exceed 10%
of the Capitalization of the Company; and
(d) the issue, sale or other disposition of any shares of the
Cumulative Preferred Stock (i) unless the net income of the
Company determined in accordance with generally accepted
accounting practices to be available for the payment of
dividends for a period of 12 consecutive calendar months
within the 15 calendar months immediately preceding such
action (but in any event after deducting any Depreciation
Deficiency, as defined, for said period) shall have been at
least equal to twice the annual dividend requirements on all
outstanding shares of the Cumulative Preferred Stock,
including the shares to be issued; (ii) unless the gross
income of the Company for the same period determined in
accordance with generally accepted accounting practices (but
in any event after deducting the amount for said period
charged by the Company on its books to depreciation expense
and in addition thereto any Depreciation Deficiency, as
defined, for said period) to be available for the payment of
interest, shall have been at least one and one-half times the
sum of (I) the annual interest charges on all interest-bearing
indebtedness of the Company and (II) the annual dividend
requirements on all outstanding shares of Cumulative Preferred
Stock and of all other classes of stock ranking prior to or on
a parity with the Cumulative Preferred Stock as to dividends
or distributions, including the shares to be issued; and (iii)
unless the aggregate of the capital of the Company applicable
to Common Stock and of the surplus of the Company immediately
after such issuance, sale or other disposition, less any
Depreciation Deficiency, as defined, for the period from
December 31, 1952 to such date, shall be not less than the
amount payable upon the involuntary dissolution, liquidation
or winding up of the Company to the holders of the Cumulative
Preferred Stock, excluding from the foregoing computation all
stock which is to be retired in connection with such
additional issue. No dividends may be paid on Common Stock
which would result in the reduction of capital and surplus
below the requirements of the above clause (d)(iii). (See
Paragraph (7)(B).)
The restrictions and limitations described or referred to
above, which are designed to protect the relative positions of the
holders of outstanding senior securities of the Company, can
operate in such manner as to limit substantially the additional
amounts of senior securities which can be issued by the Company.
The Company believes that its ability to issue short and long-term
debt securities and preferred stock in the amounts required to
finance its operations and construction program will depend upon
the timely approval of future rate increase applications. If the
Company is unable to continue the issue and sale of such securities
on an orderly basis, the Company will be required to consider the
obtaining of additional amounts of common equity, the use of
possibly more costly alternative financing arrangements, if
available, or the curtailment of its construction program and other
outlays.
MAINTENANCE AND REPLACEMENT PROVISIONS
Section 20 of the Mortgage provides in Part II(a) thereof for
the annual deposit (which the Mortgage requires to be made so long
as any of the Bonds (other than Bonds of any Series issued after
December 31, 1992, unless otherwise disclosed in a Prospectus
Supplement) are outstanding) by the Company with the Trustee on or
before May 1 of each year of an amount in cash or principal amount
of Bonds of any series equal to the excess of the product of a
specified percentage (currently 2.95%) and the average of the
Depreciable Property (as defined) of the Company at the first and
the last day of the preceding calendar year over the sum of (i) the
aggregate amount expended during the preceding calendar year for
property substituted for retired property, and (ii) any credit
applicable to prior years. The Company may under this covenant
certify to the Trustee, in lieu of depositing cash or Bonds,
property additions which are not then funded property (which
thereupon become funded property) at cost or fair value, whichever
is less.
RELEASE AND SUBSTITUTION OF PROPERTY
The Mortgage permits property to be released from the lien of
the Mortgage upon compliance with the provisions thereof. Such
provisions require that, in certain specified cases, cash be
deposited with the Trustee in an amount equal to the excess of the
fair value of the property to be released over the aggregate of
certain computations required by the Mortgage. (See Article XI of
the Mortgage.) The Mortgage also contains certain requirements
relating to the withdrawal of release moneys. (See Section 61 of
the Mortgage.)
MODIFICATION OF THE MORTGAGE
Article XVIII of the Mortgage provides for modifying or
altering the Mortgage with the consent of the Company and by vote
of the holders of 75% in principal amount of the outstanding Bonds
which are affected by the proposed modification or alteration. No
modification or alteration, without the consent of the holder of a
Bond, may modify the terms of payment of the principal amount of or
interest on such Bond or create an equal or prior lien or deprive
such holder of a lien on the mortgaged property or reduce the above
percentage.
The Supplemental Indenture dated as of March 1, 1978 amended
Article XVIII to provide that the Mortgage may at a future date be
amended to delete the 15% limit on Bonds issued on the basis of
property additions subject to prior liens as described under
"Description of Debt Securities--Issuance of Additional Bonds",
upon compliance with the provisions of the Mortgage but without the
vote or consent of holders of Bonds issued after February 28, 1978,
including the Debt Securities.
RESTRICTION ON COMMON STOCK DIVIDENDS
Various restrictions on the use of retained earnings for cash
dividends on Common Stock and other purposes are contained in or
result from other covenants in the Company's Mortgage relating to
other series of Bonds and in its debenture and bank loan
agreements, its Amended Articles of Acceptance, as amended, and
orders of regulatory authorities. At June 30, 1993, the Company's
consolidated retained earnings amounted to $161,460,000 of which
approximately $45,900,000 were so restricted.
CONCERNING THE TRUSTEE
AEP System companies, including the Company, utilize many of
the banking services offered by The Bank of New York in the normal
course of their businesses. Among such services are the making of
loans, generally at rates related to the prime commercial interest
rate; acting as a depositary; and acting as trustee under the
American Electric Power System Retirement Plan.
The Trustee or the holders of 25% in principal amount of the
Bonds may declare the principal amount of the Bonds due upon
occurrence of a completed default, but the holders of a majority in
principal amount of the Bonds may annul such declaration if the
default has been cured. (See Section 65 of the Mortgage.) The
holders of a majority in principal amount of the Bonds may direct
the time, method and place of conducting any proceeding for the
enforcement of the Mortgage. (See Sections 69 and 100A of the
Mortgage.) No bondholder has the right to institute any
proceedings for the enforcement of the Mortgage unless such holder
shall have given the Trustee written notice of a completed default,
the holders of 25% in principal amount of the Bonds shall have
offered to the Trustee indemnity against costs, expenses and
liabilities, requested the Trustee to take action and given the
Trustee reasonable opportunity to take such action. The foregoing
does not affect or impair the right of a holder of a Bond to
enforce the payment of the principal of and interest on such Bond
on the respective due dates. (See Section 79 of the Mortgage.)
The Trustee is entitled to be indemnified before taking action to
enforce the lien at the request of such bondholders. (See Section
68 of the Mortgage.)
DEFAULTS
The following are defined as "completed defaults": default in
the payment of principal; default for 60 days in the payment of
interest; default in payment of principal or interest on
outstanding prior lien bonds in certain cases; certain events of
bankruptcy, insolvency or reorganization; and default for 60 days
after notice in the performance of any other covenant. (See
Section 65 of the Mortgage.) A failure to provide money for the
redemption of Bonds called for redemption also constitutes a
completed default. (See Section 53 of the Mortgage.) The Company
is required to furnish annually to the Trustee a certificate as to
compliance with all conditions and covenants under the Mortgage.
LEGAL OPINIONS
Opinions with respect to the legality of the Debt Securities
will be rendered by Simpson Thacher & Bartlett (a partnership which
includes professional corporations), 425 Lexington Avenue, New
York, N.Y., and 1 Riverside Plaza, Columbus, Ohio, counsel for the
Company, and by Winthrop, Stimson, Putnam & Roberts, One Battery
Park Plaza, New York, N.Y., counsel for any agents, underwriters or
dealers. Simpson Thacher & Bartlett and Winthrop, Stimson, Putnam
& Roberts will rely as to matters of Indiana law upon the opinion
of Baker & Daniels, special Indiana counsel to the Company, and as
to matters of Michigan law, upon the opinion of Mollison Law
Offices, P.C., special Michigan counsel to the Company.
EXPERTS
The financial statements and the related financial statement
schedules incorporated by reference or included in the Company's
most recent Annual Report on Form 10-K and incorporated by
reference in this Prospectus have been audited by Deloitte &
Touche, independent auditors, as stated in their reports appearing
in and incorporated by reference in such Annual Report on Form 10-
K, and have been so incorporated herein in reliance upon such
reports given upon the authority of that firm as experts in
accounting and auditing.
The legal conclusions in "Security" under the caption
"Description of Debt Securities", as to those matters governed by
the laws of the State of Indiana, have been reviewed by Baker &
Daniels, Indianapolis, Indiana, and as to those matters governed by
the laws of the State of Michigan, have been reviewed by Mollison
Law Offices, P.C., Niles, Michigan, both special counsel to the
Company. All of such statements are made on the authority of said
firms as experts.
PLAN OF DISTRIBUTION
The Company may sell the Debt Securities in any of three ways:
(i) through underwriters or dealers; (ii) directly to a limited
number of purchasers or to a single purchaser; or (iii) through
agents. The Prospectus Supplement relating to a series of the Debt
Securities will set forth the terms of the offering of the Debt
Securities, including the name or names of any underwriters,
dealers or agents, the purchase price of such Debt Securities and
the proceeds to the Company from such sale, any underwriting
discounts and other items constituting underwriters' or agents'
compensation, any initial public offering price and any discounts
or concessions allowed or reallowed or paid to dealers. Any
initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers may be changed from time to
time after the initial public offering.
If underwriters are used in the sale, the Debt Securities will
be acquired by the underwriters for their own account and may be
resold from time to time in one or more transactions, including
negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of the sale. The
underwriters with respect to a particular underwritten offering of
Debt Securities will be named in the Prospectus Supplement relating
to such offering and, if an underwriting syndicate is used, the
managing underwriters will be set forth on the cover page of such
Prospectus Supplement. Unless otherwise set forth in the
Prospectus Supplement, the obligations of the underwriters to
purchase the Debt Securities will be subject to certain conditions
precedent, and the underwriters will be obligated to purchase all
such Debt Securities if any are purchased.
Debt Securities may be sold directly by the Company or through
agents designated by the Company from time to time. The Prospectus
Supplement will set forth the name of any agent involved in the
offer or sale of the Debt Securities in respect of which the
Prospectus Supplement will be delivered as well as any commissions
payable by the Company to such agent. Unless otherwise indicated
in the Prospectus Supplement, any such agent will be acting on a
reasonable best efforts basis for the period of its appointment.
If so indicated in the Prospectus Supplement, the Company may
authorize agents, underwriters or dealers to solicit offers by
certain specified institutions to purchase Debt Securities from the
Company at the public offering price set forth in the Prospectus
Supplement pursuant to delayed delivery contracts providing for
payment and delivery on a specified date in the future. Such
contracts will be subject to those conditions set forth in the
Prospectus Supplement, and the Prospectus Supplement will set forth
the commission payable for solicitation of such contracts.
Subject to certain conditions, the Company may agree to
indemnify any underwriters, dealers, agents or purchasers and their
controlling persons against certain civil liabilities, including
certain liabilities under the Securities Act of 1933.
