<PAGE>
Rule 424(b)(5)
File No. 333-35767
CUSIP No.: 49138 Q AB 0
Pricing Supplement No. 2 Dated November 4, 1998
(To Prospectus dated September 23, 1997 and
Prospectus Supplement dated September 24, 1997)
$100,000,000
KENTUCKY POWER COMPANY
Unsecured Medium Term Notes, Series A,
Due From Nine Months to Forty-Two Years from Date of Issue
Fixed Rate Notes
Principal Amount: $30,000,000
Public Offering Price: 100%
Agent's Discount or Commission: .625%
Original Issue Date: 11-09-1998
Stated Maturity: 11-10-2008
Interest Rate: 6.45% per annum
Form: Book-Entry
The notes have not been approved by the SEC or any state
securities commission, nor have these organizations
determined that this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
Redemption Provisions:
Redeemable: Yes ____ No __X__
In Whole: Yes ____ No __X__
In Part: Yes ____ No __X__
Selling Agent: Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Agent acting in the capacity as directed below:
[ x ]Agent [ ] Principal
If as Principal:
[ ] the Notes are being offered at varying prices related to
prevailing market prices at the time of resale.
[ ] the Notes are being offered at a fixed initial public offering
price of _____% of the principal amount.
If as Agent:
[ x ] the Notes are being offered at a fixed initial offering
price of 100% of the principal amount.
Recent Developments:
Reference is made to pages 22 and 23 of the Company's
Annual Report on Form 10-K for the year ended December 31,
1997, under the headings NOx SIP Calls and the Ozone
Transport Assessment Group and Section 126 Petitions and to
pages II-1 and II-2 of the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1998 for a discussion of
proposed nitrogen oxides ("NOx") emissions reduction rules
and related proceedings. On September 24, 1998, the U.S.
Environmental Protection Agency ("Federal EPA") announced the
issuance of final rules (the "Final Rules"), adopted
substantially in the form proposed, requiring reductions in
NOx emissions in 22 states in the eastern third of the
country, including the states in which AEP System generating
units are located. It is anticipated that these reductions
will be imposed primarily on utility sources through
revisions in state implementation plans ("SIPs") adopted by
the individual states. The Final Rules assume a reduced NOx
emission rate for utility sources of 0.15/MMBtu
(approximately an 85% reduction) by May 2003. Should the
states fail to adopt the required revisions to their state
plans within one year of the date of the signing of the Final
Rules (September 24, 1999), Federal EPA has proposed to
implement a federal plan to accomplish these NOx reductions.
Federal EPA also proposed the approval of portions of
petitions filed by certain northeastern states under Section
126 of the Clean Air Act. The proposed approval of the
Section 126 petitions also would result in imposition of NOx
emission reductions on utility and industrial sources in the
states in which AEP System generating units are located.
These reductions are substantially the same as those required
by the Final Rules and could be adopted by Federal EPA in the
event the states fail to implement SIPs in accordance with
the Final Rules. The costs of meeting NOx emissions
reduction requirements that would be imposed as a result of
the NOx SIPs or Section 126 petitions cannot be determined at
this time, but such costs are expected to be significant.
<PAGE>
Prospectus Supplement
(To Prospectus Dated September 23, 1997)
$100,000,000
KENTUCKY POWER COMPANY
Unsecured Medium Term Notes, Series A, Due From Nine Months to
Forty-Two Years from Date of Issue
Kentucky Power Company (the "Company") may from time to time offer
its Unsecured Medium Term Notes, Series A (the "Notes"), in the
aggregate principal amount of up to $100,000,000. 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 semi-
annually in arrears on each April 1 and October 1 (each an "Interest
Payment Date") and at redemption, if any, or stated maturity.
The interest rate, if any, Public Offering Price, Stated Maturity,
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 Tranche of Notes will be represented by one or more global Notes
(each a "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"). Benefi-
cial 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 circum-
stances 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. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------
Price to Agents' Proceeds to
Public(1) Commission(2) Company(2)(3)
Per Note . . . . 100.000% .125%-.750% 99.875%-99.250%
Total . . . . .$100,000,000 $125,000 - $99,875,000 -
$750,000 $99,250,000
- -------------------------------------------------------------------
(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 Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co.
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 such
Agent. The Company may also sell Notes to any Agent, as prin-
cipal, 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 pay-
able 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 $250,705, 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 any Agent, as principal, for resale to one
or more investors or other purchasers at varying prices relating 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.
Merrill Lynch & Co. Morgan Stanley & Co. Incorporated
The date of this Prospectus Supplement is September 24, 1997.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE
OF THE NOTES, INCLUDING OVERALLOTMENT, STABILIZING TRANSACTIONS AND
SYNDICATE SHORT COVERING TRANSACTIONS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "PLAN OF DISTRIBUTION".
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 Notes set
forth under "Description of New Notes" in the accompanying
Prospectus, to which description reference is hereby made. Certain
capitalized term used herein are defined under "Description of the
New Notes" 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 as a series of Debt Securities under the
Indenture. The Notes will be limited in aggregate principal amount
to $100,000,000.
The Notes will be issued in fully registered form only, without
coupons. Each Tranche of Notes will be issued initially as one or
more Book-Entry Notes. 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.
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.
The Pricing Supplement relating to a Note will describe the following
terms: (1) the price (expressed as a percentage of the aggregate
principal amount thereof) at which such Note will be offered (the
"Public Offering Price"); (2) the date on which such Note will be
issued (the "Original Issue Date"); (3) the date on which such Note
shall mature (the "Stated Maturity"); (4) the Interest Payment Dates
for such Note; (5) the interest rate for such Note; (6) the terms,
if any, regarding the optional or mandatory redemption of such Note,
including the redemption date or dates of such Note, if any, and the
price or prices applicable to such redemption (including any
premium); (7) any applicable discounts or commissions; and (8) any
other terms of such Note not inconsistent with the provisions of the
Indenture.
"Business Day" with respect to any Note means any day that (a) in
the Place of Payment (as defined in the Indenture) (or in any of the
Places of Payment, if more than one) in which amounts are payable
as specified in the form of such Note and (b) in the city in which
the Trustee administers its corporate trust business, is not a day
on which banking institutions are authorized or required by law or
regulation to close.
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 pro-
vided 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 hereinafter defined)
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 Bankers Trust
Company at Four Albany 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 the 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 March 15 or
September 15, as the case may be, next preceding an Interest Payment
Date for Notes or if such March 15 or September 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 semi-
annually in arrears on each April 1 and October 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
Unless otherwise set forth in a Pricing Supplement, the Notes will
be subject to redemption by the Company on and after the initial
redemption date, if any, fixed at the time of sale and set forth in
the applicable Pricing Supplement (the "Initial Redemption Date").
If no Initial Redemption Date is indicated with respect to a Note,
such Note will not be redeemable prior to Stated Maturity. On and
after the Initial Redemption Date with respect to any Note subject
to redemption, such Note will be redeemable in whole or in part in
increments of $1,000 at the option of the Company at a redemption
price (the "Redemption Price") determined in accordance with the
following paragraph, together with interest thereon payable to the
date of redemption, on notice given no more than 60 nor less than
30 days prior to the date of redemption.
Unless otherwise set forth in a Pricing Supplement, the Initial
Redemption Price for each Note subject to redemption shall initially
be equal to a certain percentage of the principal amount of such Note
to be redeemed and shall decline at each anniversary of the Initial
Redemption Date with respect to such Note by a percentage (the
"Reduction Percentage") of the principal amount to be redeemed until
the Redemption Price is 100% of such principal amount. The Initial
Redemption Price and any Reduction Percentage with respect to each
Note subject to redemption prior to maturity will be fixed at the
time of sale and set forth in the applicable Pricing Supplement.
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 exchange-
able 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
Indenture. 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 Note 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 notes in exchange for the Global
Note 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 the Global note and, in such event,
will issue individual certificated notes in exchange for the Global
Note 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 his or her 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 Tranche of Notes, in
the aggregate principal amount of such Tranche, 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 1934 Act. DTC holds securities that
its participants ("Participants") deposit with DTC. DTC also facili-
tates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through elec-
tronic 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 Partici-
pants 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 Partici-
pant, 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 pur-
chaser 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 regis-
tration 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 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 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 responsi-
bility of the Company or the Trustee, disbursement of such payments
to Direct Participants shall be the responsibility of DTC, and dis-
bursement 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.
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, tax exempt entities, 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 Tranche 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 (i) a citizen or resident of the United States; (ii) a
corporation or partnership created or organized in or under the laws
of the United States or any political subdivision thereof; (iii) an
estate the income of which is subject to United States federal income
taxation regardless of its source; or (iv) any trust if a court
within the United States is able to exercise primary supervision over
the administration of the trust and one or more U.S. persons 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.
Original Issue Discount. A United States Holder of a Note issued
with original issue discount ("OID") will be subject to special tax
accounting rules, as described in greater detail below. United
States Holders of such Notes should be aware that they generally must
include OID in gross income in advance of the receipt of cash
attributable to that income. Notes issued with OID will be referred
to as "Original Issue Discount Notes". Notice will be given in the
applicable Pricing Supplement when the Company determines that a
particular Note will be an Original Issue Discount Note.
This summary is based upon final Treasury regulations addressing
debt instruments issued with OID (the "OID Regulations"). A Note
with an "issue price" that is less than its stated redemption price
at maturity (the sum of all payments to be made on the Note other
than "qualified stated interest") will be issued with OID if such
difference is at least 0.25 percent of the stated redemption price
at maturity multiplied by the number of complete years to maturity.
The "issue price" of each Note in a particular offering will be the
first price at which a substantial amount of that particular offering
is sold (other than to an underwriter, placement agent or
wholesaler). The term "qualified stated interest" means stated
interest that is unconditionally payable in cash or in property
(other than debt instruments of the issuer) at least annually at a
single fixed rate or, subject to certain conditions, based on one
or more interest indices. Interest is payable at a single fixed rate
only if the rate appropriately takes into account the length of the
interval between payments. Notice will be given in the applicable
Pricing Supplement when the Company determines that a particular Note
will bear interest that is not qualified stated interest.
In the case of a Note issued with de minimis OID (i.e., discount
that is not OID because it is less than 0.25 percent of the stated
redemption price at maturity multiplied by the number of complete
years to maturity), the United States Holder generally must include
such de minimis OID in income as principal payments on the Notes are
made in proportion to the stated principal amount of the Note. Any
amount of de minimis OID that has been included in income shall be
treated as capital gain.
Certain of the Notes may be redeemed prior to their Stated
Maturity at the option of the Company. Original Issue Discount Notes
containing such feature may be subject to rules that differ from the
general rules discussed herein. Persons considering the purchase
of Original Issue Discount Notes with such feature should carefully
examine the applicable Pricing Supplement and should consult their
own tax advisors with respect to such feature since the tax
consequences with respect to OID will depend, in part, on the
particular terms and features of the Notes.
United States Holders of Original Issue Discount Notes with a
maturity upon issuance of more than one year must, in general,
include OID in income in advance of the receipt of some or all of
the related cash payments. The amount of OID includible in income
by the initial United States Holder of an Original Issue Discount
Note is the sum of the "daily portions" of OID with respect to the
Note for each day during the taxable year or portion of the taxable
year in which such United States Holder held such Note ("accrued
OID"). The daily portion is determined by allocating to each day
in any "accrual period" a pro rata portion of the OID allocable to
that accrual period. The "accrual period" for an Original Issue
Discount Note may be of any length and may vary in length over the
term of the Note, provided that each accrual period is no longer than
one year and each scheduled payment of principal or interest occurs
on the first day or the final day of an accrual period. The amount
of OID allocable to any accrual period is an amount equal to the
excess, if any, of (a) the product of the Note's adjusted issue price
at the beginning of such accrual period and its yield to maturity
(determined on the basis of compounding at the close of each accrual
period and properly adjusted for the length of the accrual period)
over (b) the sum of any qualified stated interest allocable to the
accrual period. OID allocable to a final accrual period is the
difference between the amount payable at maturity (other than a
payment of qualified stated interest) and the adjusted issue price
at the beginning of the final accrual period. Special rules will
apply for calculating OID for an initial short accrual period. The
"adjusted issue price" of a Note at the beginning of any accrual
period is equal to its issue price increased by the accrued OID for
each prior accrual period (determined without regard to the
amortization of any acquisition or bond premium, as described below)
and reduced by any payments made on such Note (other than qualified
stated interest) on or before the first day of the accrual period.
Under these rules, a United States Holder will have to include in
income increasingly greater amounts of OID in successive accrual
periods (assuming that no payment other than of qualified stated
interest is made prior to maturity). The Company is required to
provide information returns stating the amount of OID accrued on
Notes held of record by persons other than corporations and other
exempt holders.
United States Holders may elect to treat all interest on any
Note as OID and calculate the amount includible in gross income under
the constant yield method described above. For the purposes of this
election, interest includes stated interest, OID and de minimis OID.
The election is to be made for the taxable year in which the United
States Holder acquired the Note, and may not be revoked without the
consent of the Internal Revenue Service (the "IRS"). United States
Holders should consult with their own tax advisors about this
election.
Short-term Notes. In the case of Notes having a term of one year
or less ("Short-Term Notes"), under the OID Regulations all payments
(including all stated interest) will be included in the stated
redemption price at maturity and, thus, United States Holders will
generally be taxable on the discount in lieu of stated interest.
The discount will be equal to the excess of the stated redemption
price at maturity over the issue price of a Short-Term Note, unless
the United States Holder elects to compute this discount using tax
basis instead of issue price. In general, individuals and certain
other cash method United States Holders of a Short-Term Note are not
required to include accrued discount in their income currently unless
they elect to do so (but may be required to include any stated
interest in income as the interest is received). United States
Holders that report income for United States federal income tax
purposes on the accrual method and certain other United States
Holders are required to accrue discount on such Short-Term Notes (as
ordinary income) on a straight-line basis, unless an election is made
to accrue the discount according to a constant yield method based
on daily compounding. In the case of a United States Holder that
is not required, and does not elect, to include discount in income
currently, any gain realized on the sale, exchange or retirement of
the Short-Term Note will generally be ordinary income to the extent
of the discount accrued through the date of sale, exchange or
retirement. In addition, a United States Holder that does not elect
to currently include accrued discount in income may be required to
defer deductions for a portion of the United States Holder's interest
expense with respect to any indebtedness incurred or continued to
purchase or carry such Notes.
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 OID included in income by the United States Holder
and reduced by any cash payments on the Note other than "qualified
stated interest" payments. Except as described above 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. Under recently enacted legislation, capital
gains of individuals derived in respect of capital assets held for
more than one year are eligible for reduced rates of taxation which
may vary depending upon the holding period of such capital assets.
Prospective investors should consult their own tax advisors with
respect to the tax consequences of the new legislation. The deducti-
bility of capital losses is subject to limitations.
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 IRS
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 a Non-United States Holder 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 addi-
tional tax and may be credited against a holder's regular federal
income tax liability or refunded by the IRS where applicable.
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 under-
writers. 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.
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley
& Co. Incorporated and certain affiliates thereof engage in
transactions with and perform services for the Company and its
affiliates in the ordinary course of business.
In connection with the offering of the Notes, the Agents may engage
in overallotment, stabilizing transactions and syndicate covering
transactions in accordance with Regulation M under the 1934 Act.
Overallotment involves sales in excess of the offering size, which
creates a short position for the Agents. Stabilizing transactions
involve bids to purchase the Notes in the open market for the purpose
of pegging, fixing or maintaining the price of the Notes. Syndicate
covering transactions involve purchases of the Notes in the open
market after the distribution has been completed in order to cover
short positions. Such stabilizing transactions and syndicate
covering transactions may cause the price of the Notes to be higher
than it would otherwise be in the absence of such transactions. Such
activities, if commenced, may be discontinued at any time.
<PAGE>
PROSPECTUS
KENTUCKY POWER COMPANY
$100,000,000
Debt Securities
Kentucky Power Company (the "Company") intends to offer, from
time to time, up to $100,000,000 aggregate principal amount of its
unsecured debt securities, consisting of debentures, notes or other
unsecured evidences of indebtedness (collectively, the "New
Notes"). The New Notes will be offered in one or more series in
amounts, at prices and on terms to be determined at the time or
times of sale. The title, aggregate principal amount,
denomination, interest rate or rates (or manner of calculation
thereof), maturity or maturities, initial public offering price, if
any, redemption provisions, if any, any listing on a national
securities exchange and other specific terms of each series of New
Notes in respect of which this Prospectus is being delivered will
be set forth in an accompanying prospectus supplement and/or
pricing supplement thereto ("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 New Notes 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.
See "Plan of Distribution" herein.
The date of this Prospectus is September 23, 1997.
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, 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; Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois, 60661; and 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the
SEC, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The SEC maintains a Web site at http://www.sec.gov
containing reports, proxy statements and information statements and
other information regarding registrants that file electronically
with the SEC, including the Company. Certain of the Company's
securities are listed on the New York Stock Exchange, where reports
and other information concerning the Company may 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, 1996; and
-- The Company's Quarterly Reports on Form 10-Q for the
periods ended March 31, 1997 and June 30, 1997.
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 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, 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 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.
TABLE OF CONTENTS
Page
Available Information............................................2
Documents Incorporated by Reference..............................2
Table of Contents................................................3
The Company......................................................3
Use of Proceeds..................................................4
Ratio of Earnings to Fixed Charges...............................4
Description of New Notes.........................................4
Recent Developments..............................................9
Legal Opinions..................................................10
Experts.........................................................10
Plan of Distribution............................................10
THE COMPANY
The Company is engaged in the generation, purchase,
transmission and distribution of electric power to approximately
167,000 customers in an area in eastern Kentucky, and in supplying
electric power at wholesale to other utilities and municipalities
in Kentucky. Its principal executive offices are located at 1701
Central Avenue, Ashland, Kentucky 41101 (telephone number: 800-572-
Company, Inc. ("AEP") and is a part of the American Electric Power
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 net proceeds from the sale of
the New Notes to redeem or repurchase certain of its outstanding
debt, to fund its construction program, to repay short-term
indebtedness incurred in connection with such purchase or its con-
struction program and for other corporate purposes. Proceeds may
be temporarily invested in short-term instruments pending their
application to the foregoing purposes.
The Company has estimated that its construction costs
(inclusive of allowance for funds used during construction) for
1997 will be approximately $65,000,000. At August 31, 1997, the
Company had approximately $56,425,000 of short-term unsecured
indebtedness outstanding.
RATIO OF EARNINGS TO FIXED CHARGES
Below is set forth the ratio of earnings to fixed charges for
each of the twelve month periods ended December 31, 1992 through
1996 and June 30, 1997:
12-Month
Period Ended Ratio
December 31, 1992 2.29
December 31, 1993 1.95
December 31, 1994 2.30
December 31, 1995 2.22
December 31, 1996 1.88
June 30, 1997 2.10
DESCRIPTION OF NEW NOTES
The New Notes will be issued in one or more series under an
Indenture to be entered into between the Company and Bankers Trust
Company, as Trustee (the "Trustee"), as may be supplemented and
amended from time to time by one or more supplemental indentures
(the "Indenture"). Section and Article references used herein are
references to provisions of the Indenture unless otherwise noted.
All Notes (including the New Notes) to be issued under the
Indenture are herein sometimes referred to as "Notes". Copies of
the Indenture, including the form of supplemental indenture and
Company Order pursuant to which each series of the New Notes may be
issued, are filed as exhibits to the Registration Statement.
The following statements include brief summaries of certain
provisions of the Indenture under which Notes will be issued. Such
summaries do not purport to be complete and reference is made to
the Indenture for complete statements of such provisions. Such
summaries are qualified in their entirety by such reference and do
not relate or give effect to provisions of statutory or common law.
General
The New Notes will be unsecured obligations of the Company and
will rank pari passu with all other unsecured debt of the Company,
except debt that by its terms is subordinated to the unsecured debt
of the Company. The Indenture provides that Notes may be issued
thereunder without limitation as to aggregate principal amount and
may be issued thereunder from time to time in one or more series or
one or more Tranches thereof, as authorized by a Board Resolution
and as set forth in a Company Order or one or more supplemental
indentures creating such series. (Section 2.01).
Substantially all of the fixed properties and franchises of
the Company are subject to the lien of its first mortgage bonds
(the "Bonds") issued under and secured by a Mortgage and Deed of
Trust, dated as of May 1, 1949, as previously supplemented and
amended by supplemental indentures, between the Company and Bankers
Trust Company, as trustee.
The New Notes are not convertible into any other security of
the Company. Except as may otherwise be described in a prospectus
supplement, the covenants contained in the Indenture do not limit
the amount of other debt, secured or unsecured, which may be issued
by the Company. In addition, the Indenture does not contain any
provisions that afford holders of Notes protection in the event of
a highly leveraged transaction involving the Company.
Maturity, Interest, Redemption, Covenants and Restrictions and
Payment
Information concerning the maturity, interest, if any, redemp-
tion provisions, if any, sinking fund, if any, any covenants or
restrictions, such as limitations on liens or dividend
restrictions, and payment with respect to any series of the New
Notes will be contained in a Prospectus Supplement.
Form, Exchange, Registration and Transfer
Unless otherwise specified in a Prospectus Supplement, New
Notes in definitive form will be issued only as registered Notes
without coupons in denominations of $1,000 and in integral
multiples thereof authorized by the Company. New Notes may be
presented for registration of transfer (with the form of transfer
endorsed thereon duly executed) or exchange, at the office of the
Security 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
Security Registrar being satisfied with the documents of title and
identity of the person making the request. The Company has
appointed the Trustee as Security Registrar with respect to New
Notes. The Company may change the place for registration of
transfer and exchange of the New Notes and may designate one or
more additional places for such registration and exchange.
(Sections 2.05 and 4.02).
The Company shall not be required to (i) issue, register the
transfer of or exchange any New Note 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 Notes and
ending at the close of business on the day of such mailing or (ii)
register the transfer of or exchange any New Notes or portions
thereof called for redemption in whole or in part. (Section 2.05).
Payment and Paying Agents
Unless otherwise indicated in a Prospectus Supplement, payment
of principal of and premium, if any, on any New Note will be made
only against surrender to the Paying Agent of such New Note.
Principal of and any premium and interest on New Note 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 Security Register with respect to such New Note.
Unless otherwise indicated in a Prospectus Supplement, the
Trustee initially will act as Paying Agent with respect to New
Notes. 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 and premium, if any, or interest, if
any, on any New Notes 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 Note will thereafter look
only to the Company for payment thereof. (Section 11.04).
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 Notes 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 Notes; provided, that no such
modification may, without the consent of the holder of each
outstanding Note affected thereby, (i) extend the fixed maturity of
any Notes 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
reduce the amount of the principal of a Discount Security (as
defined in the Indenture) that would be due and payable upon a
declaration of acceleration of the maturity thereof pursuant to the
Indenture, (ii) reduce the percentage of Notes, the holders of
which are required to consent to any such supplemental indenture,
or (iii) reduce the percentage of Notes, the holders of which are
required to waive any default and its consequences. (Section
9.02).
In addition, the Company and the Trustee may execute, without
the consent of any holder of Notes, any supplemental indenture for
certain other usual purposes including the creation of any new
series of Notes. (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 Notes:
(a) failure for 30 days to pay interest on Notes of that
series when due and payable; or
(b) failure for 3 Business Days to pay principal or
premium, if any, on Notes of that series when due and payable
whether at maturity, upon redemption, pursuant to any sinking
fund obligation, by declaration or otherwise; 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 33% in principal amount of the outstanding Notes
of that series; or
(d) certain events involving bankruptcy, insolvency or
reorganization of the Company; or
(e) any other event of default provided for in a series
of Notes. (Section 6.01).
The Trustee or the holders of not less than 33% in aggregate
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 Notes have the right to direct the time,
method and place of conducting any proceeding for any remedy avail-
able 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 Notes, 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 Notes affected thereby may, on behalf of
the holders of all Notes 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 Notes 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 Notes. (Section 10.01).
Legal Defeasance and Covenant Defeasance
Notes of any series may be defeased in accordance with their
terms and, unless the supplemental indenture or Company Order
establishing the terms of such series otherwise provides, as set
forth below. The Company at any time may terminate as to a series
all of its obligations (except for certain obligations, including
obligations with respect to the defeasance trust and obligations to
register the transfer or exchange of a Note, to replace destroyed,
lost or stolen Notes and to maintain agencies in respect of the
Notes) with respect to the Notes of such series and the Indenture
("legal defeasance"). The Company at any time also may terminate
as to a series its obligations with respect to the Notes of that
series under any restrictive covenant which may be applicable to
that particular series ("covenant defeasance").
The Company may exercise its legal defeasance option notwith-
standing its prior exercise of its covenant defeasance option. If
the Company exercises its legal defeasance option, the particular
series may not be accelerated because of an Event of Default. If
the Company exercises its covenant defeasance option, a series may
not be accelerated by reference to any restrictive covenant which
may be applicable to that particular series.
To exercise either of its defeasance options as to a series,
the Company must deposit with the Trustee or any paying agent, in
trust: moneys or Eligible Obligations, or a combination thereof,
in an amount sufficient to pay when due the principal of and
premium, if any, and interest, if any, due and to become due on the
Notes of such series that are Outstanding (as defined in the
Indenture). 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 such Notes 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 that such holders will realize gain,
loss or income on such Notes, including payments of interest
thereon, in the same amounts and in the same manner and at the same
time as would have been the case if such satisfaction and discharge
had not occurred. (Section 11.01).
In the event the Company exercises its option to effect a
covenant defeasance with respect to the Notes of any series and the
Notes of that series are thereafter declared due and payable
because of the occurrence of any Event of Default other than an
Event of Default caused by failing to comply with the covenants
which are defeased, the amount of money and Eligible Obligations on
deposit with the Trustee may not be sufficient to pay amounts due
on the Notes of that series at the time of the acceleration
resulting from such Event of Default. However, the Company would
remain liable for such payments. (Section 11.01).
Governing Law
The Indenture and Notes 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 Bankers Trust
Company 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. In addition,
Bankers Trust Company serves as Trustee under the Company's
Mortgage and Deed of Trust, dated as of May 1, 1949.
RECENT DEVELOPMENTS
Reference is made to page 22 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1996 and page II-4 of the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1997 for a discussion of the assessment of long range transport
of ozone precursors. On or about August 14, 1997, eight northeast
states filed petitions with the United States Environmental Protec-
tion Agency ("Federal EPA") under section 126 of the Clean Air Act
alleging that nitrogen oxides ("NOx") emissions from sources in
upwind midwestern states are significantly contributing to non-
attainment of the ambient air quality standards for ozone in the
petitioning states. These petitions seek the development of
controls for the upwind sources in a rulemaking to be undertaken by
Federal EPA. The Company's Big Sandy Plant is included (directly or
indirectly) as a source in each of these petitions and the
rulemaking could require significant reductions of NOx emissions at
this plant. The Company believes that these petitions are without
merit and will take appropriate steps to challenge any adverse
actions taken with respect to these petitions.
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, 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 any underwriters or agents.
Additional legal opinions in connection with the offering of the
Notes may be given by John M. Adams, Jr. or Ann B. Graf, counsel
for the Company. Mr. Adams is Assistant General Counsel, and Ms.
Graf is a Senior Attorney, in the Legal Department of American
Electric Power Service Corporation, a wholly owned subsidiary of
AEP. From time to time, Dewey Ballantine acts as counsel to
affiliates of the Company in connection with certain matters.
EXPERTS
The financial statements and related financial statement
schedule 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.
PLAN OF DISTRIBUTION
The Company may sell the New Notes in any of three ways or in
any combination of such 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 New Notes will set forth the terms of
the offering of the New Notes, including the name or names of any
underwriters, dealers or agents, the purchase price of such New
Notes and the proceeds to the Company from such sale, any
underwriting discounts or agency fees 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 New Notes 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
New Notes 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 several obligations of the underwriters
to purchase the New Notes will be subject to certain conditions
precedent, and the underwriters will be obligated to purchase all
such New Notes if any are purchased.
New Notes 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 New Notes in respect of which the Prospectus
Supplement is 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 will
authorize agents, underwriters or dealers to solicit offers by
certain specified institutions to purchase New Notes 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, as amended.
