PROSPECTUS
$75,000,000
APPALACHIAN POWER COMPANY
8-1/4% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES
SERIES A, DUE 2026
The Junior Subordinated Deferrable Interest Debentures, Series
A, Due 2026, will mature on September 30, 2026 (the "New Junior
Subordinated Debentures"). Interest on the New Junior Subordinated
Debentures is payable quarterly, in arrears, on each March 31, June
30, September 30 and December 31, commencing December 31, 1996. 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
September 17, 2001. 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 June 30, 1996, outstanding Senior
Indebtedness of the Company aggregated approximately $1,400,000,000.
The New Junior Subordinated Debentures have been approved for
listing on the New York Stock Exchange, subject to notice of
issuance. Trading of the New Junior Subordinated Debentures on the
New York Stock Exchange is expected to commence within a 30 day
period after the initial delivery of the New Junior Subordinated
Debentures. See "Underwriting" herein.
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% 3.15% 96.85%
Total ........ $75,000,000 $ 2,362,500 $72,637,500
(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
$195,363.
(4) The Underwriting Discount will be 2% 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 September 17, 1996.
Merrill Lynch & Co.
Dean Witter Reynolds Inc.
Lehman Brothers
PaineWebber Incorporated
Prudential Securities Incorporated
The date of this Prospectus is September 11, 1996.
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 representation 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,
Suite 1300, 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. The SEC
maintains a Web site at http://www.sec.gov containing reports, proxy
and information statements and other information regarding
registrants that file electronically with the SEC, including the
Company. Certain of the Company's securities are listed on the New
York Stock Exchange and on the Philadelphia 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, 1995;
-- The Company's Quarterly Reports on Form 10-Q for the
periods ended March 31, 1996 and June 30, 1996; and
-- The Company's Current Report on Form 8-K dated March 19,
1996.
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 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 . . . . . . . . . . . . . . . . . . 3
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 . . . . . . . . . . . . . . . . . . . . . . . 19
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . 20
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 June 30, 1996, outstanding Senior
Indebtedness of the Company aggregated approximately $1,400,000,000.
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 New 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
(as original issue discount) 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--Original
Issue Discount, Market Discount and Acquisition Premium" herein.
Certain Trading Characteristics of the New Junior Subordinated
Debentures
The New Junior Subordinated Debentures are expected to trade
as equity securities on the New York Stock Exchange. Consequently,
purchasers will not pay and sellers will not receive any accrued and
unpaid interest on the New Junior Subordinated Debentures that is
not included in the trading price. For certain tax consequences with
respect to such sales, see "Certain United States Federal Income Tax
Consequences--Sale, Exchange and Retirement of New Junior
Subordinated Debentures" herein.
THE COMPANY
The Company is engaged in the generation, purchase, transmission
and distribution of electric power to approximately 859,000 customers
in Virginia and West Virginia, and in supplying electric power at
wholesale to other electric utility companies and municipalities in
those states and in Tennessee. Its principal executive offices are
located at 40 Franklin Road, S.W., Roanoke, Virginia 24011 (telephone
number: 540-985-2300). The Company is a subsidiary of American
Electric Power 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 Junior Subordinated Debentures to refund cumulative preferred
stock. The Company's Cumulative Preferred Stock, 7.40% Series, par
value $100 per share (250,000 shares outstanding) may be redeemed
at their regular redemption price of $102.11 per share, plus a sum
computed at the annual dividend rate to the date of redemption. The
Company's Cumulative Preferred Stock, 7.80% Series, par value $100
per share (500,000 shares outstanding) may be redeemed at their
regular redemption price of $107.80 per share on or prior to March
31, 1997 and at $105.20 per share on and after April 1, 1997, plus
a sum computed at the annual dividend rate to the date of redemption.
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, 1991 through 1995
and June 30, 1996:
12-Month
Period Ended Ratio
December 31, 1991 2.85
December 31, 1992 2.58
December 31, 1993 2.69
December 31, 1994 2.37
December 31, 1995 2.54
June 30, 1996 2.72
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 $75,000,000.
The New Junior Subordinated Debentures will mature September
30, 2026 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 December 31, 1996. 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 September 17, 2001, 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 shall be due
and payable during an Extension Period, except at the end thereof.
The Company shall give the holders of the New Junior Subordinated
Debentures notice of its selection of such Extension Period at least
ten 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;
(c) all installment purchase agreements entered into by
the Company in connection with revenue bonds issued by an agency
or political subdivision of a state of the United States of
America; and
(d) all renewals, extensions or refundings of indebtedness
of the kinds described in either of the preceding clauses (a),
(b) and (c);
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 June 30, 1996, Senior
Indebtedness of the Company aggregated approximately $1,400,000,000.
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
11.04).
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 1934
Act. DTC holds securities that its participants ("Partici-
pants") 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 SEC.
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 involving 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 (as defined in the Indenture), 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.
Payments of Interest
Except as set forth below, stated interest on a New Junior
Subordinated Debenture will generally be taxable to a United States
Holder as ordinary income 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, Market Discount and Acquisition Premium
Under income tax regulations that recently became effective,
the Company believes that the New Junior Subordinated Debentures will
not be treated as issued with original issue discount ("OID"). It
should be noted that these regulations have not yet been addressed
in any rulings or other interpretations by the Internal Revenue
Service ("IRS"). Accordingly, it is possible that the IRS could take
a position contrary to the interpretation described above.
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". Should the Company exercise this option
to extend the interest payment periods, the New Junior Subordinated
Debentures would at that time be treated as issued with OID and all
the stated interest payments on the New Junior Subordinated
Debentures would thereafter be treated as OID as long as they
remained outstanding. As a result, United States Holders would, 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 any 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 IRS.
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 the New
Junior Subordinated Debentures may be given by John M. Adams, Jr.
or David C. House, counsel for the Company. Mr. Adams is Assistant
General Counsel, and Mr. House is an 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.
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 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.
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
Subordinated
Underwriters Debentures
Merrill Lynch, Pierce, Fenner & Smith
Incorporated . . . . . . . . . . . . . . . . . . $15,000,000
Dean Witter Reynolds Inc. . . . . . . . . . . . . . . . . . . . $15,000,000
Lehman Brothers Inc. . . . . . . . . . . . . . . . . . . . . . $15,000,000
PaineWebber Incorporated . . . . . . . . . . . . . . . . . . . $15,000,000
Prudential Securities Incorporated . . . . . . . . . . . . . . $15,000,000
Total . . . . . . . . . . . . . . . . . . . . . . $75,000,000
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 1.4%
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. The New Junior
Subordinated Debentures have been approved for listing on the New
York Stock Exchange, subject to notice of issuance. Trading of the
New Junior Subordinated Debentures on the New York Stock Exchange
is expected to commence within a thirty-day period after initial
delivery of 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.
