$40,000,000
KENTUCKY POWER COMPANY
8.72% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES
SERIES A, DUE 2025
The Junior Subordinated Deferrable Interest Debentures,
Series A, Due 2025, will mature on June 30, 2025. Interest on
the New Junior Subordinated Debentures is payable quarterly, in
arrears, on each March 31, June 30, September 30 and December 31,
commencing June 30, 1995. The New Junior Subordinated Debentures
will be redeemable at 100% of the principal amount redeemed plus
accrued interest to the redemption date at the option of the
Company in whole or in part on or after April 20, 2000. The New
Junior Subordinated Debentures will be represented by a global
debenture registered in the name of a nominee of The Depository
Trust Company, as Depository, and will be available for purchase
in denominations of $25 and any integral multiple thereof. See
"Description of New Junior Subordinated Debentures" herein.
Payment of the principal of, premium, if any, and interest
on the New Junior Subordinated Debentures is subordinated and
subject in right of payment to the prior payment in full of all
Senior Indebtedness of the Company. As of December 31, 1994,
outstanding Senior Indebtedness of the Company aggregated
approximately $318,500,000.
Application will be made to have the New Junior Subordinated
Debentures listed on the New York Stock Exchange.
SEE "INVESTMENT CONSIDERATIONS" FOR CERTAIN INFORMATION
RELEVANT TO AN INVESTMENT IN THE NEW JUNIOR SUBORDINATED
DEBENTURES, INCLUDING THE PERIODS AND CIRCUMSTANCES DURING AND
UNDER WHICH PAYMENT OF INTEREST ON THE NEW JUNIOR SUBORDINATED
DEBENTURES MAY BE DEFERRED AND THE RELATED FEDERAL INCOME TAX
CONSEQUENCES.
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.
Initial Public Underwriting Proceeds to
Offering Price(1) Discount(2)(4) Company(3)(4)
Per New Junior
Subordinated
Debenture . . . . 100.00% 3.15% 96.85%
Total . . . . . . . $40,000,000 $1,260,000 $38,740,000
(1) Plus accrued interest, if any, from the date of original
issuance.
(2) The Company has agreed to indemnify the Underwriters against
certain liabilities, including certain liabilities under the
Securities Act of 1933, as amended. See "Underwriting" herein.
(3) Before deducting expenses payable by the Company, estimated at
$178,044.
(4) The Underwriting Discount will be 2.00% of the principal amount
of the New Junior Subordinated Debentures sold to certain
institutions. Therefore, to the extent any such sales are made
to such institutions, the actual total Underwriting Discount
will be less than, and the actual total Proceeds to Company will
be greater than, the amounts shown in the table above.
The New Junior Subordinated Debentures are offered severally
by the Underwriters, subject to prior sale, when, as and if
issued and accepted by them, subject to approval of certain legal
matters by counsel for the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in
part. It is expected that delivery of the New Junior
Subordinated Debentures will be made in New York, New York, on or
about April 20, 1995.
Merrill Lynch & Co.
Dean Witter Reynolds Inc.
A.G. Edwards & Sons, Inc.
Morgan Stanley & Co. Incorporated
The date of this Prospectus is April 7, 1995.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-
ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE
MARKET PRICE OF THE NEW JUNIOR SUBORDINATED DEBENTURES OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OPEN
MARKET, ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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, and, if given or made, such information or
represen-tation must not be relied upon as having been authorized
by the Company or any underwriter, agent or dealer. This
Prospectus does not constitute 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 nor any
sale made thereunder shall, under any circumstances, create 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. 20549; Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, IL 60661; and 7 World
Trade Center, 13th Floor, New York, NY 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.
DOCUMENTS INCORPORATED BY REFERENCE
The following document filed by the Company with the SEC is
incorporated in this Prospectus by reference:
-- The Company's Annual Report on Form 10-K for the year
ended December 31, 1994.
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.
Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other
subsequently filed document which is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to
whom a copy of this Prospectus 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 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 relating hereto does not purport to
be comprehensive and should be read together with the information
contained in the documents incorporated by reference.
TABLE OF CONTENTS
Page
Available Information . . . . . . . . . . . . . . . . . . . . 2
Documents Incorporated by Reference . . . . . . . . . . . . . 2
Table of Contents . . . . . . . . . . . . . . . . . . . . . . 3
Investment Considerations . . . . . . . . . . . . . . . . . . 4
The Company . . . . . . . . . . . . . . . . . . . . . . . . . 5
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . 5
Ratio of Earnings to Fixed Charges . . . . . . . . . . . . . 5
Description of New Junior Subordinated Debentures . . . . . . 6
Certain United States Federal Income Tax Consequences . . . . 16
Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . 20
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . 21
INVESTMENT CONSIDERATIONS
Prospective purchasers of New Junior Subordinated Debentures
should carefully review the information contained elsewhere in
this Prospectus and should particularly consider the following
matters:
Subordination of New Junior Subordinated Debentures
Payment of the principal of, premium, if any, and interest
on the New Junior Subordinated Debentures is subordinated and
subject in right of payment to the prior payment in full of all
Senior Indebtedness of the Company. As of December 31, 1994,
outstanding Senior Indebtedness of the Company aggregated
approximately $318,500,000. There are no terms in the New Junior
Subordinated Debentures that limit the Company's ability to incur
additional indebtedness, including indebtedness that ranks senior
to the New Junior Subordinated Debentures. See "Description of
New Junior Subordinated Debentures--Subordination" herein.
Option to Extend Interest Payment Period
The Company has the right under the Indenture to extend the
interest payment period from time to time on the New Junior
Subordinated Debentures to a period not exceeding 20 consecutive
quarters, and as a consequence, quarterly interest payments on
the New Junior Subordinated Debentures would be deferred (but
would continue to accrue with interest thereon compounded
quarterly to the extent permitted by law) during any such
extended interest payment period. In the event that the Company
exercises this right, the Company may not declare or pay
dividends on, or purchase, acquire, or make a liquidation payment
with respect to, any of its capital stock, or make any guarantee
payments with respect to the foregoing. Therefore, the Company
believes that the extension of an interest payment period on the
New Junior Subordinated Debentures is unlikely. Prior to the
termination of any such extension period, the Company may further
extend the interest payment period, provided that such extension
period, together with all such previous and further extensions
thereof, may not exceed 20 consecutive quarters or extend beyond
the maturity of the New Junior Subordinated Debentures. Upon the
termination of any extension period and the payment of all
accrued and unpaid interest then due, the Company may select a
new extension period, subject to the above requirements. See
"Description of Junior Subordinated Debentures--Option to Extend
Interest Payment Period" herein.
Should an extended interest payment period occur, holders of
the New Junior Subordinated Debentures will continue to accrue
income for United States federal income tax purposes even though
interest is not being paid on a current basis. As a result, a
holder will include such interest in gross income for United
States federal income tax purposes in advance of the receipt of
cash, and will not receive the cash from the Company related to
such income if a holder disposes of New Junior Subordinated
Debentures prior to the record date for payment of interest. See
"Certain United States Federal Income Tax Consequences--United
States Holders" herein.
THE COMPANY
The Company is an electric utility operating in an area in
eastern Kentucky. Its principal executive offices are located at
1701 Central Avenue, Ashland, Kentucky 41101 (telephone number:
606-327-1111). 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"). Executive offices of AEP are
located at 1 Riverside Plaza, Columbus, Ohio 43215 (telephone
number: 614-223-1000).
The Company is engaged in the generation, purchase, trans-
mission and distribution of electric power to approximately
163,000 customers in an area in eastern Kentucky and in supplying
electric power at wholesale to other utilities and municipalities
in Kentucky.
USE OF PROCEEDS
The Company proposes to use the proceeds from the sale of
the New Junior Subordinated Debentures to repay short-term
unsecured indebtedness incurred to fund its construction program.
At March 24, 1995, the Company had approximately $61,200,000 of
unsecured short-term debt outstanding. Unsecured debt has been,
and will be, incurred in connection with the Company's
construction program and for other purposes. The Company has
estimated that its construction costs (inclusive of allowance for
funds used during construction) during 1995 will be approximately
$43,600,000.
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 1990 through 1994:
Year Ended Ratio
December 31, 1990 . . . . . . . . . . . . 3.21
December 31, 1991 . . . . . . . . . . . . 2.58
December 31, 1992 . . . . . . . . . . . . 2.29
December 31, 1993 . . . . . . . . . . . . 1.95
December 31, 1994 . . . . . . . . . . . . 2.30
DESCRIPTION OF NEW JUNIOR SUBORDINATED DEBENTURES
The New Junior Subordinated Debentures will be issued as a
series of Junior Subordinated Debentures under an Indenture to be
entered into between the Company and The First National Bank of
Chicago, as Trustee (the "Trustee"), as supplemented by a
Supplemental Indenture (collectively, the "Indenture"). The
following summary does not purport to be complete and is subject
in all respects to the provisions of, and is qualified in its
entirety by reference to, the forms of Indenture and Supplemental
Indenture, which are filed as exhibits to the Registration
Statement of which this Prospectus forms a part. Whenever
particular provisions or defined terms in the Indenture are
referred to herein, such provisions or defined terms are
incorporated by reference herein. Section and Article references
used herein are references to provisions of the Indenture unless
otherwise noted.
General
The New Junior Subordinated Debentures will be unsecured,
subordinated obligations of the Company. The Indenture does not
limit the aggregate principal amount of Junior Subordinated
Debentures that may be issued thereunder and provides that the
Junior Subordinated Debentures may be issued thereunder from time
to time in one or more series.
The Indenture does not contain any provisions that afford
holders of New Junior Subordinated Debentures protection in the
event of a highly leveraged transaction involving the Company.
Principal Amount, Interest and Maturity
The New Junior Subordinated Debentures will be limited in
aggregate principal amount to $40,000,000.
The New Junior Subordinated Debentures will mature June 30,
2025 and will bear interest at the rate per annum shown in the
title thereof from the date on which the New Junior Subordinated
Debentures are originally issued until the principal amount
thereof becomes due and payable. Interest will be payable
quarterly, in arrears, on each March 31, June 30, September 30
and December 31, commencing June 30, 1995. Interest (other than
interest payable on redemption or maturity) will be payable to
the persons in whose names the New Junior Subordinated Debentures
are registered at the close of business on the relevant regular
record dates, which will be one Business Day (as hereinafter
defined) prior to the relevant payment dates, except that if the
New Junior Subordinated Debentures are no longer represented by a
global debenture, the regular record date for such interest
installment shall be the close of business on March 15, June 15,
September 15 or December 15 (regardless of whether it is a
Business Day) next preceding an interest payment date. Interest
payable on redemption or maturity will be payable to the person
to whom the principal is paid. Interest will be computed on the
basis of a 360-day year of twelve 30-day months. In the event
that any date on which interest is payable on the New Junior
Subordinated Debentures is not a Business Day, then payment of
the interest payable on such date will be made on the next
succeeding day which is a Business Day (and without any interest
or other payment in respect of any such delay), except that, if
such Business Day is in the next succeeding calendar year, such
payment shall be made on the immediately preceding Business Day,
in each case with the same force and effect as if made on such
date. A "Business Day" shall mean any day other than a day on
which banking institutions in the Borough of Manhattan, the City
and State of New York are authorized or obligated by law to
close.
Redemption
The New Junior Subordinated Debentures will be redeemable at
the option of the Company, in whole or in part, at any time on or
after April 20, 2000, upon not less than 30 nor more than 60
days' notice, at 100% of the principal amount redeemed together
with accrued and unpaid interest to the redemption date.
Option to Extend Interest Payment Period
The Company shall have the right at any time during the term
of the New Junior Subordinated Debentures from time to time to
extend the interest payment period of the New Junior Subordinated
Debentures for up to 20 consecutive quarters (the "Extension
Period"), at the end of which Extension Period the Company shall
pay all interest accrued and unpaid thereon (together with
interest thereon compounded quarterly at the rate specified for
the New Junior Subordinated Debentures to the extent permitted by
applicable law); provided that during any such Extension Period,
the Company shall not declare or pay any dividend on, or
purchase, acquire or make a liquidation payment with respect to,
any of its capital stock or make any guarantee payments with
respect to the foregoing. Prior to the termination of any such
Extension Period, the Company may further extend the interest
payment period, provided that such Extension Period together with
all such previous and further extensions thereof, may not exceed
20 consecutive quarters or extend beyond the maturity of the New
Junior Subordinated Debentures. Upon the termination of any
Extension Period and the payment of all accrued and unpaid
interest then due, the Company may select a new Extension Period,
subject to the above requirements. No interest during an
Extension Period, except at the end thereof, shall be due and
payable. The Company shall give the holders of the New Junior
Subordinated Debentures notice of its selection of such Extension
Period 10 Business Days prior to the earlier of (i) the next
interest payment date or (ii) the date the Company is required to
give notice to holders of the New Junior Subordinated Debentures
(or, if applicable, to the New York Stock Exchange or other
applicable self-regulatory organization) of the record or payment
date of such interest payment, but in any event not less than two
Business Days prior to such record date.
Subordination
The Indenture provides that payment of the principal of,
premium, if any, and interest on Junior Subordinated Debentures
is subordinated and subject in right of payment to the prior
payment in full of all Senior Indebtedness (as defined below) of
the Company as provided in the Indenture. No payment of
principal of (including redemption and sinking fund payments),
premium, if any, or interest on, Junior Subordinated Debentures
may be made if payment of principal, premium, interest or any
other payment on any Senior Indebtedness is not made when due,
any applicable grace period with respect to such default has
ended and such default has not been cured or waived or ceased to
exist, or if the maturity of any Senior Indebtedness has been
accelerated because of a default. Upon any distribution of
assets of the Company to creditors upon any dissolution, winding
up, liquidation or reorganization, whether voluntary or
involuntary or in bankruptcy, insolvency, receivership or other
proceedings, all principal of, premium, if any, and interest due
or to become due on, all Senior Indebtedness must be paid in full
before any payment is made on Junior Subordinated Debentures.
Subject to the payment in full of all Senior Indebtedness, the
rights of the holders of Junior Subordinated Debentures will be
subrogated to the rights of the holders of Senior Indebtedness to
receive payments or distributions applicable to Senior
Indebtedness until all amounts owing on Junior Subordinated
Debentures are paid in full. (Sections 14.01 to 14.04).
The term "Senior Indebtedness" shall mean the principal of,
premium, if any, interest on and any other payment due pursuant
to any of the following, whether outstanding at the date of
execution of the Indenture or thereafter incurred, created or
assumed:
(a) all indebtedness of the Company evidenced by
notes, debentures, bonds or other securities sold by the
Company for money or other obligations for money borrowed;
(b) all indebtedness of others of the kinds described
in the preceding clause (a) assumed by or guaranteed in any
manner by the Company or in effect guaranteed by the
Company; and
(c) all renewals, extensions or refundings of
indebtedness of the kinds described in either of the
preceding clauses (a) and (b);
unless, in the case of any particular indebtedness, renewal,
extension or refunding, the instrument creating or evidencing the
same or the assumption or guarantee of the same expressly
provides that such indebtedness, renewal, extension or refunding
is not superior in right of payment to or is pari passu with
Junior Subordinated Debentures. Such Senior Indebtedness shall
continue to be Senior Indebtedness and entitled to the benefits
of the subordination provisions irrespective of any amendment,
modification or waiver of any term of such Senior Indebtedness.
(Sections 1.01 and 14.08).
The Indenture does not limit the aggregate amount of Senior
Indebtedness that may be issued. As of December 31, 1994, Senior
Indebtedness of the Company aggregated approximately
$318,500,000.
Covenant of the Company
The Company will not declare or pay any dividend on, or
purchase, acquire or make a distribution or liquidation payment
with respect to, any of its capital stock or make any guarantee
payments with respect thereto, if at such time (i) an Event of
Default under the Indenture has occurred and is continuing or
(ii) the Company has given notice of its selection of an
Extension Period and such period, or any extension thereof, is
continuing.
Form, Exchange, Registration and Transfer
The New Junior Subordinated Debentures initially will be
issued in registered form and will be represented by a global
debenture (the "Global Debenture"). See "Book-Entry Debentures"
herein. If not represented by one or more global debentures, New
Junior Subordinated Debentures may be presented for registration
of transfer (with the form of transfer endorsed thereon duly
executed) or exchange, at the office of the Debenture Registrar,
without service charge and upon payment of any taxes and other
governmental charges as described in the Indenture. Such
transfer or exchange will be effected upon the Company or the
Debenture Registrar being satisfied with the documents of title
and identity of the person making the request. The Company has
appointed the Trustee as Debenture Registrar with respect to New
Junior Subordinated Debentures. (Section 2.05).
The Company shall not be required to (i) issue, register the
transfer of or exchange any New Junior Subordinated Debenture
during a period beginning at the opening of business 15 days
before the day of the mailing of a notice of redemption of less
than all the outstanding New Junior Subordinated Debentures and
ending at the close of business on the day of such mailing or
(ii) register the transfer of or exchange any New Junior
Subordinated Debentures or portions thereof called for
redemption. (Section 2.05).
Payment and Paying Agents
Payment of principal of and premium (if any) on any New
Junior Subordinated Debenture will be made only against surrender
to the Paying Agent of such New Junior Subordinated Debenture.
Principal of and any premium and interest on New Junior
Subordinated Debentures will be payable at the office of such
Paying Agent or Paying Agents as the Company may designate from
time to time, except that at the option of the Company payment of
any interest may be made by check mailed to the address of the
person entitled thereto as such address shall appear in the
Debenture Register with respect to such New Junior Subordinated
Debentures. See "Principal Amount, Interest and Maturity"
herein.
The Trustee will act as Paying Agent with respect to New
Junior Subordinated Debentures. The Company may at any time
designate additional Paying Agents or rescind the designation of
any Paying Agents or approve a change in the office through which
any Paying Agent acts. (Sections 4.02 and 4.03).
All moneys paid by the Company to a Paying Agent for the
payment of the principal of or premium or interest, if any, on
any New Junior Subordinated Debenture that remain unclaimed at
the end of two years after such principal, premium, if any, or
interest shall have become due and payable, subject to applicable
law, will be repaid to the Company and the holder of such New
Junior Subordinated Debenture will thereafter look only to the
Company for payment thereof. (Section 11.05).
Book-Entry Debentures
Except under the circumstances described below, the New
Junior Subordinated Debentures will be issued in whole or in part
in the form of a Global Debenture 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 Debentures represented by a Global Debenture will
not be exchangeable for Certificated Debentures and, except under
the circumstances described below, will not otherwise be issuable
as Certificated Debentures.
So long as the Depository, or its nominee, is the registered
owner of a Global Debenture, such Depository or such nominee, as
the case may be, will be considered the sole owner of the
individual Book-Entry Debentures represented by such Global
Debenture for all purposes under the Indenture. Payments of
principal of and premium, if any, and any interest on individual
Book-Entry Debentures represented by a Global Debenture will be
made to the Depository or its nominee, as the case may be, as the
Owner of such Global Debenture. Except as set forth below,
owners of beneficial interests in a Global Debenture will not be
entitled to have any of the individual Book-Entry Debentures
represented by such Global Debenture registered in their names,
will not receive or be entitled to receive physical delivery of
any such Book-Entry Debentures and will not be considered the
Owners thereof under the Indenture, 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
Debentures in exchange for the Global Debenture representing the
corresponding Book-Entry Debentures. In addition, the Company
may at any time and in its sole discretion determine not to have
any New Junior Subordinated Debentures represented by the Global
Debenture and, in such event, will issue individual Certificated
Debentures in exchange for the Global Debenture representing the
corresponding Book-Entry Debentures. In any such instance, an
owner of a Book-Entry Debenture represented by a Global Debenture
will be entitled to physical delivery of individual Certificated
Debentures equal in principal amount to such Book-Entry Debenture
and to have such Certificated Debentures registered in his or her
name. Individual Certificated Debentures so issued will be
issued as registered Debentures in denomination of $25 and
integral multiples thereof.
DTC has confirmed to the Company and the Underwriters the
following information:
1. DTC will act as securities depository for the
Global Debenture. The New Junior Subordinated Debentures
will be issued as fully-registered securities registered in
the name of Cede & Co. (DTC's partnership nominee). One
fully-registered Global Debenture will be issued for the
series of New Junior Subordinated Debentures, in the
aggregate principal amount of such series, and will be
deposited with DTC.
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 New Junior Subordinated Debentures
under the DTC system must be made by or through Direct
Participants, which will receive a credit for the New Junior
Subordinated Debentures on DTC's records. The ownership
interest of each actual purchaser of each New Junior
Subordinated Debenture ("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 New Junior
Subordinated Debentures 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 New
Junior Subordinated Debentures, except in the event that use
of the book-entry system for the New Junior Subordinated
Debentures is discontinued.
4. To facilitate subsequent transfers, all New Junior
Subordinated Debentures deposited by Participants with DTC
are registered in the name of DTC's partnership nominee,
Cede & Co. The deposit of New Junior Subordinated
Debentures 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 New
Junior Subordinated Debentures; DTC's records reflect only
the identity of the Direct Participants to whose accounts
such New Junior Subordinated Debentures 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 New Junior Subordinated Debentures 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 New Junior Subordinated Debentures.
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
New Junior Subordinated Debentures are credited on the
record date (identified in a listing attached to the Omnibus
Proxy).
8. Principal and interest payments on the New Junior
Subordinated Debentures 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 Underwriters 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 New Junior
Subordinated Debentures 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 Debentures 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
Debentures 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.
None of the Company, the Trustee or any agent for payment on or
registration of transfer or exchange of any Global Debenture 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 Debenture or for maintaining,
supervising or reviewing any records relating to such beneficial
interests.
Modification of the Indenture
The Indenture contains provisions permitting the Company and
the Trustee, with the consent of the holders of not less than a
majority in principal amount of Junior Subordinated Debentures of
each series that are affected by the modification, to modify the
Indenture or any supplemental indenture affecting that series or
the rights of the holders of that series of Junior Subordinated
Debentures; provided, that no such modification may, without the
consent of the holder of each outstanding Junior Subordinated
Debenture affected thereby, (i) extend the fixed maturity of any
Junior Subordinated Debentures of any series, or reduce the
principal amount thereof, or reduce the rate or extend the time
of payment of interest thereon, or reduce any premium payable
upon the redemption thereof or (ii) reduce the percentage of
Junior Subordinated Debentures, the holders of which are required
to consent to any such supplemental indenture. (Section 9.02).
In addition, the Company and the Trustee may execute,
without the consent of any holder of Junior Subordinated
Debentures, any supplemental indenture for certain other usual
purposes including the creation of any new series of Junior
Subordinated Debentures. (Sections 2.01, 9.01 and 10.01).
Events of Default
The Indenture provides that any one or more of the following
described events, which has occurred and is continuing,
constitutes an "Event of Default" with respect to each series of
Junior Subordinated Debentures:
(a) failure for 10 days to pay interest on Junior
Subordinated Debentures of that series when due; provided
that a valid extension of the interest payment period by the
Company shall not constitute a default in the payment of
interest for this purpose; or
(b) failure to pay principal or premium, if any, on
Junior Subordinated Debentures of that series when due
whether at maturity, upon redemption, by declaration or
otherwise, or to make payment required by any sinking or
analogous fund with respect to that series; or
(c) failure by the Company to observe or perform any
other covenant (other than those specifically relating to
another series) contained in the Indenture for 90 days after
written notice to the Company from the Trustee or the
holders of at least 25% in principal amount of the
outstanding Junior Subordinated Debentures of that series;
or
(d) certain events in bankruptcy, insolvency or
reorganization of the Company. (Section 6.01).
The Trustee or the holders of not less than 25% in aggregate
outstanding principal amount of any particular series of Junior
Subordinated Debentures may declare the principal due and payable
immediately upon an Event of Default with respect to such series,
but the holders of a majority in aggregate outstanding principal
amount of such series may annul such declaration and waive the
default with respect to such series if the default has been cured
and a sum sufficient to pay all matured installments of interest
and principal otherwise than by acceleration and any premium has
been deposited with the Trustee. (Sections 6.01 and 6.06).
The holders of a majority in aggregate outstanding principal
amount of any series of Junior Subordinated Debentures have the
right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee for that
series. (Section 6.06). Subject to the provisions of the
Indenture relating to the duties of the Trustee in case an Event
of Default shall occur and be continuing, the Trustee will be
under no obligation to exercise any of its rights or powers under
the Indenture at the request or direction of any of the holders
of the Junior Subordinated Debentures, unless such holders shall
have offered to the Trustee indemnity satisfactory to it.
(Section 7.02).
The holders of a majority in aggregate outstanding principal
amount of any series of Junior Subordinated Debentures affected
thereby may, on behalf of the holders of all Junior Subordinated
Debentures of such series, waive any past default, except a
default in the payment of principal, premium, if any, or interest
when due otherwise than by acceleration (unless such default has
been cured and a sum sufficient to pay all matured installments
of interest and principal otherwise than by acceleration and any
premium has been deposited with the Trustee) or a call for
redemption of Junior Subordinated Debentures of such series.
(Section 6.06). The Company is required to file annually with
the Trustee a certificate as to whether or not the Company is in
compliance with all the conditions and covenants under the
Indenture. (Section 5.03(d)).
Consolidation, Merger and Sale
The Indenture does not contain any covenant that restricts
the Company's ability to merge or consolidate with or into any
other corporation, sell or convey all or substantially all of its
assets to any person, firm or corporation or otherwise engage in
restructuring transactions, provided that the successor
corporation assumes due and punctual payment of principal or
premium, if any, and interest on the Junior Subordinated
Debentures. (Section 10.01).
Defeasance and Discharge
Under the terms of the Indenture, the Company will be
discharged from any and all obligations in respect of the New
Junior Subordinated Debentures (except in each case for certain
obligations to register the transfer or exchange of New Junior
Subordinated Debentures, replace stolen, lost or mutilated New
Junior Subordinated Debentures, maintain paying agencies and hold
moneys for payment in trust) if the Company deposits with the
Trustee, in trust, moneys or Governmental Obligations, or a
combination thereof, in an amount sufficient to pay all the
principal of, and interest on, New Junior Subordinated Debentures
of such series on the dates such payments are due in accordance
with the terms of the New Junior Subordinated Debentures. Such
defeasance or discharge may occur only if, among other things,
the Company has delivered to the Trustee an Opinion of Counsel to
the effect that the holders of the New Junior Subordinated
Debentures will not recognize gain, loss or income for federal
income tax purposes as a result of the satisfaction and discharge
of the Indenture with respect to such series and such holders
will be subject to federal income taxation on the same amounts
and in the same manner and at the same times as if such
satisfaction and discharge had not occurred. (Section 11.01).
Governing Law
The Indenture and New Junior Subordinated Debentures will be
governed by, and construed in accordance with, the laws of the
State of New York. (Section 13.05).
Concerning the Trustee
AEP System companies, including the Company, utilize or may
utilize some of the banking services offered by The First
National Bank of Chicago in the normal course of their
businesses. Among such services are the making of short-term
loans, generally at rates related to the prime commercial
interest rate.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary describes certain United States
federal income tax consequences of the ownership of New Junior
Subordinated Debentures as of the date hereof and represents the
opinion of Simpson Thacher & Bartlett, counsel to the Company,
insofar as it relates to matters of law or legal conclusions.
Except where noted, it deals only with New Junior Subordinated
Debentures held by initial purchasers who have purchased New
Junior Subordinated Debentures at the initial offering price
thereof and who hold such New Junior Subordinated Debentures 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 New
Junior Subordinated Debentures 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) who own
(actually or constructively) ten percent or more of the combined
voting power of all classes of voting stock of the Company, who
are present in the United States or who have any other special
status with respect to the United States. 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. Persons considering the purchase, ownership or
disposition of New Junior Subordinated Debentures 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.
United States Holders
As used herein, a "United States Holder" of a New Junior
Subordinated Debenture 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
or trust the income of which is subject to United States federal
income taxation regardless of its source. A "Non-United States
Holder" is a holder that is not a United States Holder.
Original Issue Discount, Market Discount and Acquisition Premium
Under the terms of the New Junior Subordinated Debentures,
the Company has the option to defer payments of interest for the
Extension Period and to pay as a lump sum at the end of such
period all of the interest that has accrued during such period.
See "Description of New Junior Subordinated Debentures--Option to
Extend Interest Payment Period". Because of this option to
extend the interest payment periods, all of the stated interest
payments on the New Junior Subordinated Debentures will be
treated as original issue discount ("OID"). As a result, United
States Holders will, in effect, be required to accrue interest
income even if the holders are on the cash method of tax
accounting. Consequently, in the event that the interest payment
period is extended, a United States Holder would be required to
include OID in income on an economic accrual basis
notwithstanding that the Company will not make any interest
payments during such period on the New Junior Subordinated
Debentures.
United States Holders other than initial United States
Holders may be deemed to have acquired the New Junior
Subordinated Debentures with market discount or acquisition
premium. Such holders should consult their own tax advisors
concerning the effect of the market discount and premium rules on
their holding of the New Junior Subordinated Debentures.
Sale, Exchange and Retirement of New Junior Subordinated
Debentures
Upon the sale, exchange or retirement of a New Junior
Subordinated Debenture, a United States Holder will recognize
gain or loss equal to the difference between the amount realized
upon the sale, exchange or retirement and the adjusted tax basis
of the New Junior Subordinated Debenture. A United States
Holder's tax basis in a New Junior Subordinated Debenture will,
in general, be the United States Holder's cost therefor,
increased by OID previously included in income by the United
States Holder and reduced by any cash payments on the New Junior
Subordinated Debenture. 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 New Junior Subordinated
Debenture has been held for more than one year. Under current
law, net capital gains of individuals are, under certain
circumstances, taxed at lower rates than items of ordinary
income. The deductibility of capital losses is subject to
limitations.
Non-United States Holders
Under present United States federal income and estate tax
law, and subject to the discussion below concerning backup
withholding:
(a) no withholding of United States federal income tax
will be required with respect to the payment by the Company
or any Paying Agent of principal or interest (which for
purposes of this discussion includes OID) on a New Junior
Subordinated Debenture owned by a Non-United States Holder,
provided (i) the beneficial owner is not a controlled
foreign corporation that is related to the Company through
stock ownership, (ii) the beneficial owner is not a bank
whose receipt of interest on a New Junior Subordinated
Debenture is described in section 881(c)(3)(A) of the Code
and (iii) either (y) the beneficial owner certifies to the
Company or its agent, under the penalties of perjury, that
it is not a U. S. person, citizen or resident and provides
its name and address or (z) a financial institution holding
the New Junior Subordinated Debentures on behalf of the
beneficial owner certifies, under penalties of perjury, that
such statement has been received by it and furnishes the
Company or its agent with a copy thereof;
(b) no withholding of United States federal income tax
will be required with respect to any gain or income realized
by a Non-United States Holder upon the sale, exchange or
retirement of a New Junior Subordinated Debenture; and
(c) a new Junior Subordinated Debenture beneficially
owned by an individual who at the time of death is a Non-
United States Holder will not be subject to United States
federal estate tax as a result of such individual's death,
provided that the interest payments with respect to such
debenture would not have been, if received at the time of
such individual's death, effectively connected with the
conduct of a trade or business by such individual in the
United States.
Backup Withholding and Information Reporting
In general, information reporting requirements will apply to
certain payments of principal, interest and OID paid on New
Junior Subordinated Debentures and to the proceeds of sale of a
New Junior Subordinated Debenture made to United States Holders
other than certain exempt recipients (such as corporations). A 31
percent backup withholding tax will apply to such payments if the
United States Holder fails to provide a taxpayer identification
number or certification of foreign or other exempt status or
fails to report in full dividend and interest income.
No information reporting or backup withholding will be
required with respect to payments made by the Company or any
paying agent to Non-United States Holders if a statement
described in (a)(iii) under "Non-United States Holders" has been
received and the payor does not have actual knowledge that the
beneficial owner is a United States person.
Payments of the proceeds from the sale by a Non-United
States Holder of a New Junior Subordinated Debenture made to or
through a foreign office of a broker will not be subject to
information reporting or backup withholding, except that if the
broker is, for federal income tax purposes, a United States
person, a controlled foreign corporation or a foreign person that
derives 50 percent or more of its gross income for certain
periods from the conduct of a trade or business in the United
States, such payments will not be subject to backup withholding
but may be subject to information reporting. Payments of
proceeds from the sale of a New Junior Subordinated Debenture to
or through the United States office of a broker is subject to
information reporting and backup withholding unless the Non-
United States Holder or the beneficial owner certifies as to its
non-United States status or otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules will
be allowed as a refund or a credit against such holder's U. S.
federal income tax liability provided the required information is
furnished to the Internal Revenue Service.
LEGAL OPINIONS
Opinions with respect to the legality of New Junior
Subordinated Debentures will be rendered by Simpson Thacher &
Bartlett (a partnership which includes professional
corporations), 425 Lexington Avenue, New York, New York, and 1
Riverside Plaza, Columbus, Ohio, counsel for the Company, and by
Dewey Ballantine, 1301 Avenue of the Americas, New York, New
York, counsel for the Underwriters. Additional legal opinions in
connection with the offering of New Junior Subordinated
Debentures may be given by Jeffrey D. Cross or John M. Adams,
Jr., counsel for the Company. Mr. Cross is Assistant General
Counsel, and Mr. Adams is a Senior Attorney, in the Legal
Department of American Electric Power Service Corporation, a
wholly owned subsidiary of AEP.
Statements as to United States taxation in the Prospectus
under the caption, "Certain United States Federal Income Tax
Consequences" have been passed upon for the Company by Simpson
Thacher & Bartlett, counsel to the Company, and are stated herein
on their authority.
EXPERTS
The financial statements and the related financial statement
schedules incorporated in this prospectus by reference from the
Company's Annual Report on Form 10-K have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their
reports, which are incorporated herein by reference, and have
been so incorporated in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.
UNDERWRITING
Subject to the terms and conditions set forth in the
Underwriting Agreement, the Company has agreed to sell to each of
the Underwriters named below ("Underwriters"), and each of the
Underwriters has severally agreed to purchase the number of New
Junior Subordinated Debentures set forth opposite its name below:
Principal Amount of
New Junior
Underwriters Subordinated
Debentures
Merrill Lynch, Pierce, Fenner & Smith
Incorporated . . . . . . . . . . . . . $ 9,375,000
Dean Witter Reynolds Inc. . . . . . . . . . . . . 9,375,000
A.G. Edwards & Sons, Inc. . . . . . . . . . . . . 9,375,000
Morgan Stanley & Co. Incorporated . . . . . . . 9,375,000
Donaldson, Lufkin & Jenrette Securities
Corporation . . . . . . . . . . . . . . . . . . . 625,000
McDonald & Company Securities, Inc. . . . . . . . 625,000
The Ohio Company . . . . . . . . . . . . . . . . . 625,000
Prudential Securities Incorporated . . . . . . . . 625,000
Total $ 40,000,000
The Underwriters are committed to take and pay for all of
the New Junior Subordinated Debentures, if any are taken. The
Underwriting Agreement provides that under certain circumstances
involving a default of Underwriters, less than all of the New
Junior Subordinated Debentures may be purchased.
The Company has been advised by the Underwriters that the
Underwriters propose initially to offer the New Junior
Subordinated Debentures to the public at the public offering
price set forth on the cover page of this Prospectus, and to
certain dealers at such price less a concession not in excess of
2% of the principal amount of the New Junior Subordinated
Debentures. The Underwriters may allow, and such dealers may
reallow, a discount not in excess of 1% of the principal amount
of the New Junior Subordinated Debentures to certain other
dealers. After the initial public offering, the public offering
price, concession and reallowance may be changed.
The New Junior Subordinated Debentures are a new issue of
securities with no established trading market. While the Company
intends to list the New Junior Subordinated Debentures on the New
York Stock Exchange, there can be no assurance that an active
market for the New Junior Subordinated Debentures will develop or
be sustained in the future on such Exchange. Listing will depend
upon satisfaction of such Exchange's listing requirements with
respect to the New Junior Subordinated Debentures. The Company
has been advised by the Underwriters that they intend to make a
market in the New Junior Subordinated Debentures, but are not
obligated to do so and may discontinue market making at any time
without notice. No assurance can be given as to the liquidity of
the trading market for the New Junior Subordinated Debentures.
The Underwriters, and certain affiliates thereof, engage in
transactions with and perform services for the Company and its
affiliates in the ordinary course of business.
The Company has agreed to indemnify the Underwriters against
certain liabilities, including certain liabilities under the
Securities Act of 1933.
