614/223-1648
Securities and Exchange Commission
450 Fifth Street, N.W.
ATTN: Filing Desk, Stop 1-4
Washington, D.C. 20549-1004
February 6, 1997
Re: Appalachian Power Company
Registration Statement on Form S-3
File No. 333-20305
Gentlemen:
Pursuant to Rule 424(b)(2), transmitted herewith is the
Prospectus, dated January 28, 1997, as supplemented by
the Prospectus Supplement, dated February 4, 1997, and a
Pricing Supplement No. 1 dated February 5, 1997, to be
used in connection with the public offering by the
Company of its First Mortgage Bond, Designated Secured
Medium Term Note, 6.35% Series due March 1, 2000 in the
principal amount of $48,000,000.
Very truly yours,
/s/ Thomas G. Berkemeyer
Thomas G. Berkemeyer
TGB/mms
Rule 424(b)(2)
File No. 333-20305
CUSIP No.: 03774B AX1
Pricing Supplement No. 1 Dated February 5, 1997
(To Prospectus dated January 28, 1997 and
Prospectus Supplement dated February 4, 1997)
$100,000,000
APPALACHIAN POWER COMPANY
First Mortgage Bonds, Designated Secured Medium Term
Notes
Due From Nine Months to Forty-Two Years from Date of
Issue
Principal Amount: $48,000,000
Issue Price: 99.65%
Original Issue Date: 2-19-1997
Stated Maturity: 3-1-2000
Interest Rate: 6.35%
Form: Book-Entry
Agent's Discount or Commission: .350%
Public Offering Price: 100%
Redemption: The Notes are not redeemable prior to their
maturity.
The Company sold $24,000,000 principal amount of the
Notes to Salomon Brothers Inc and $24,000,000 principal
amount of the Notes to Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated as principals
in this transaction for resale to one or more investors,
at the Public Offering Price stated above, or in certain
circumstances, at varying prices related to prevailing
market conditions at the time or times of resale as
determined by Salomon Brothers Inc and Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
as the case may be.
Prospectus Supplement
(To Prospectus Dated January 28, 1997)
$100,000,000
Appalachian Power Company
First Mortgage Bonds, Designated Secured Medium Term
Notes,
Due From Nine Months to Forty-Two Years from Date of
Issue
Appalachian Power Company (the "Company") may from time
to time offer its First Mortgage Bonds, Designated
Secured Medium Term Notes (the "Notes"), in the aggregate
principal amount of up to $100,000,000, subject to
reduction as a result of the sale of other Debt
Securities as described in the accompanying Prospectus.
Each Note will mature from nine months to forty-two years
from its date of issue.
Each Note will bear interest at a fixed rate. Unless
otherwise indicated in a pricing supplement to this
Prospectus Supplement (a "Pricing Supplement"), interest
on each Note will be payable semiannually in arrears on
each April 1 and October 1 and at redemption, if any, or
Stated Maturity.
The interest rate, Issue Price, Stated Maturity, Interest
Payment Dates, redemption provisions, if any, and certain
other terms with respect to each Note will be established
at the time of issuance and set forth in a Pricing
Supplement.
Each series of Notes will be represented by a global Note
("Global Note") registered in the name of a nominee of
The Depository Trust Company, as Depository, or another
depository (such a Note, so represented, being called a
"Book-Entry Note"). Beneficial interests in Global Notes
representing Book-Entry Notes will be shown on, and
transfers thereof will be effected only through, records
maintained by the Depository's participants. Book-Entry
Notes will not be issuable as Certificated Notes except
under the circumstances described herein. See
"Supplemental Description of the Notes--Book-Entry
Notes".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT,
ANY PRICING SUPPLEMENT HERETO OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Price to Agents' Proceeds to
Public(1) 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 Salomon Brothers Inc and
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, each as agent (together, the
"Agents"), a commission of from .125% to .750% of
the principal amount of any Note, depending upon its
Stated Maturity, sold through such Agent. The
Company may also sell Notes to any Agent, as
principal, at a discount for resale to one or more
investors or to another broker-dealer (acting as
principal for purposes of resale) at varying prices
related to prevailing market prices at the time of
resale, as determined by such Agent. Unless
otherwise indicated in the applicable Pricing
Supplement, any Note sold to an Agent as principal
shall be purchased by such Agent at a price equal to
100% of the principal amount thereof less the
percentage equal to the commission applicable to an
agency sale of a Note of identical maturity and may
be resold by such Agent. The Notes may also be sold
by the Company directly to investors, in which case
no commission will be payable to the Agents. The
Company has agreed to indemnify the Agents for
certain liabilities, including certain liabilities
under the Securities Act of 1933, as amended. See
"Plan of Distribution" herein.
(3) Before deduction of expenses payable by the Company
estimated at $311,228, 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 related to
prevailing market prices at the time of resale, as
determined by such Agent. The Company also may sell
Notes directly to investors on its own behalf. The Notes
will not be listed on any securities exchange, and there
is no assurance that the maximum amount of Notes offered
by this Prospectus Supplement will be sold or that there
will be a secondary market for the Notes. The Company
reserves the right to withdraw, cancel or modify the
offer made hereby without notice. The Company or an
Agent may reject an order, whether or not solicited, in
whole or in part. See "Plan of Distribution" herein.
Salomon Brothers Inc Merrill Lynch & Co.
The date of this Prospectus Supplement is February 4,
1997.
IN CONNECTION WITH THIS OFFERING, THE AGENTS MAY OVER-
ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN
THE MARKET PRICES OF THE NOTES OFFERED HEREBY AT LEVELS
ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
____________________
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 First Mortgage Bonds set forth
under "Description of New Bonds" in the accompanying
Prospectus, to which description reference is hereby
made. Certain capitalized terms used herein are defined
under "Description of New Bonds" in the accompanying
Prospectus. The following description of the Notes will
apply, unless otherwise specified in a Pricing
Supplement.
General
The Notes will be issued in one or more series of First
Mortgage Bonds under the Mortgage. The Notes will be
limited in aggregate principal amount to $100,000,000,
subject to reduction as a result of the sale of other
Debt Securities as described in the accompanying
Prospectus.
The Notes will be issued in fully registered form only,
without coupons. Each series of Notes will be issued
initially as a Book-Entry Note. Except as set forth
herein under "Book-Entry Notes" or in any Pricing
Supplement relating to specific Notes, the Notes will not
be issuable as Certificated Notes. The authorized
denominations of Global Notes will be $1,000 and any
integral multiple thereof.
Each Note will mature from 9 months to 42 years from its
date of issue, as selected by the purchaser and agreed to
by the Company. Each Note may also be subject to
redemption at the option of the Company prior to its
Stated Maturity (as defined below).
The Pricing Supplement relating to a Note will describe
the following terms: (i) the price (expressed as a
percentage of the aggregate principal amount thereof) at
which such Note will be issued (the "Issue Price"); (ii)
the date on which such Note will be issued (the "Original
Issue Date"); (iii) the date on which such Note will
mature (the "Stated Maturity"); (iv) the rate per annum
at which such Note will bear interest, and the Interest
Payment Dates (as defined below); (v) any applicable
discounts or commissions; (vi) whether such Note may be
redeemed at the option of the Company prior to Stated
Maturity and, if so, the provisions relating to such
redemption; and (vii) any other terms of such Note not
inconsistent with the provisions of the Mortgage.
"Business Day" with respect to any Note means any day,
other than a Saturday or Sunday, which is not a day on
which banking institutions or trust companies in The City
of New York, New York or the city in which is located any
office or agency maintained for the payment of principal
of or premium, if any, or interest on such Note are
authorized or required by law, regulation or executive
order to remain closed.
Payment of Principal and Interest
Payments of interest on the Notes (other than interest
payable at redemption, if any, or Stated Maturity) will
be made, except as provided below, in immediately
available funds to the Owners of such Notes (which, in
the case of Global Notes representing Book-Entry Notes,
will be a nominee of the Depository, as 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
semiannually 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
The Pricing Supplement relating to each Note will
indicate either that such Note cannot be redeemed prior
to Stated Maturity or that such Note will be redeemable
at the option of the Company in whole or in part, under
the terms and conditions and at the prices specified
therein, together with accrued interest to the date of
redemption. Any such redemption may be made upon not
less than 30 days' notice.
Book-Entry Notes
Except under the circumstances described below, the Notes
will be issued in whole or in part in the form of one or
more Global Notes that will be deposited with, or on
behalf of, The Depository Trust Company, New York, New
York ("DTC"), or such other depository as may be
subsequently designated (the "Depository"), and
registered in the name of a nominee of the Depository.
Book-Entry Notes represented by a Global Note will not be
exchangeable for Certificated Notes and, except under the
circumstances described below, will not otherwise be
issuable as Certificated Notes.
So long as the Depository, or its nominee, is the
registered owner of a Global Note, such Depository or
such nominee, as the case may be, will be considered the
sole owner of the individual Book-Entry Notes represented
by such Global Note for all purposes under the Mortgage.
Payments of principal of and premium, if any, and any
interest on individual Book-Entry Notes represented by a
Global Note will be made to the Depository or its
nominee, as the case may be, as the Owner of such Global
Note. Except as set forth below, owners of beneficial
interests in a Global Note will not be entitled to have
any of the individual Book-Entry Notes represented by
such Global Note registered in their names, will not
receive or be entitled to receive physical delivery of
any such Book-Entry Notes and will not be considered the
Owners thereof under the Mortgage, including, without
limitation, for purposes of consenting to any amendment
thereof or supplement thereto.
If the Depository is at any time unwilling or unable to
continue as depository and a successor depository is not
appointed, the Company will issue individual Certificated
Notes in exchange for the Global Note or Notes
representing the corresponding Book-Entry Notes. In
addition, the Company may at any time and in its sole
discretion determine not to have any Notes represented by
one or more Global Notes and, in such event, will issue
individual Certificated Notes in exchange for the Global
Notes representing the corresponding Book-Entry Notes.
In any such instance, an owner of a Book-Entry Note
represented by a Global Note will be entitled to physical
delivery of individual Certificated Notes equal in
principal amount to such Book-Entry Note and to have such
Certificated Notes registered in its name. Individual
Certificated Notes so issued will be issued as registered
Notes in denominations, unless otherwise specified by the
Company, of $1,000 and integral multiples thereof.
DTC has confirmed to the Company and the Agents the
following information:
1. DTC will act as securities depository for the
Global Notes. The Notes will be issued as fully-
registered securities registered in the name of Cede &
Co. (DTC's partnership nominee). One fully-registered
Global Note will be issued for each series of the Notes,
each in the aggregate principal amount of such series,
and will be deposited with DTC.
2. DTC is a limited-purpose trust company
organized under the New York Banking Law, a "banking
organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform
Commercial Code, and a "clearing agency" registered
pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934. DTC holds securities
that its participants ("Participants") deposit with DTC.
DTC also facilitates the settlement among Participants of
securities transactions, such as transfers and pledges,
in deposited securities through electronic computerized
book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities
certificates. Direct Participants include securities
brokers and dealers, banks, trust companies, clearing
corporations, and certain other organizations. DTC is
owned by a number of its Direct Participants and by the
New York Stock Exchange, Inc., the American Stock
Exchange, Inc., and the National Association of
Securities Dealers, Inc. Access to the DTC system is
also available to others such as securities brokers and
dealers, banks, and trust companies that clear through or
maintain a custodial relationship with a Direct
Participant, either directly or indirectly ("Indirect
Participants"). The Rules applicable to DTC and its
Participants are on file with the Securities and Exchange
Commission.
3. Purchases of Notes under the DTC system must be
made by or through Direct Participants, which will
receive a credit for the Notes on DTC's records. The
ownership interest of each actual purchaser of each Note
("Beneficial Owner") is in turn to be recorded on the
Direct and Indirect Participants' records. Beneficial
Owners will not receive written confirmation from DTC of
their purchase, but Beneficial Owners are expected to
receive written confirmations providing details of the
transaction, as well as periodic statements of their
holdings, from the Direct or Indirect Participant through
which the Beneficial Owner entered into the transaction.
Transfers of ownership interests in the Notes are to be
accomplished by entries made on the books of Participants
acting on behalf of Beneficial Owners. Beneficial Owners
will not receive certificates representing their
ownership interests in Notes, except in the event that
use of the book-entry system for the Notes is
discontinued.
4. To facilitate subsequent transfers, all Notes
deposited by Participants with DTC are registered in the
name of DTC's partnership nominee, Cede & Co. The
deposit of Notes with DTC and their registration in the
name of Cede & Co. effect no change in beneficial
ownership. DTC has no knowledge of the actual Beneficial
Owners of the Notes; DTC's records reflect only the
identity of the Direct Participants to whose accounts
such Notes are credited, which may or may not be the
Beneficial Owners. The Participants will remain
responsible for keeping account of their holdings on
behalf of their customers.
5. Conveyance of notices and other communications
by DTC to Direct Participants, by Direct Participants to
Indirect Participants, and by Direct Participants and
Indirect Participants to Beneficial Owners will be
governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect
from time to time.
6. Redemption notices shall be sent to Cede & Co.
If less than all of the Notes within an issue are being
redeemed, DTC's practice is to determine by lot the
amount of the interest of each Direct Participant in such
issue to be redeemed.
7. Neither DTC nor Cede & Co. will consent or vote
with respect to the Notes. Under its usual procedures,
DTC mails an Omnibus Proxy to the Company as soon as
possible after the record date. The Omnibus Proxy
assigns Cede & Co.'s consenting or voting rights to those
Direct Participants to whose accounts the Notes are
credited on the record date (identified in a listing
attached to the Omnibus Proxy).
8. Principal and interest payments on the Notes
will be made to DTC. DTC's practice is to credit Direct
Participants' accounts on the date on which interest is
payable in accordance with their respective holdings
shown on DTC's records unless DTC has reason to believe
that it will not receive payment on such date. Payments
by Participants to Beneficial Owners will be governed by
standing instructions and customary practices, as is the
case with securities held for the accounts of customers
in bearer form or registered in "street name", and will
be the responsibility of such Participant and not of DTC,
the Agents or the Company, subject to any statutory or
regulatory requirements as may be in effect from time to
time. Payment of principal and interest to DTC is the
responsibility of the Company or the Trustee,
disbursement of such payments to Direct Participants
shall be the responsibility of DTC, and disbursement of
such payments to the Beneficial Owners shall be the
responsibility of Direct and Indirect Participants.
9. DTC may discontinue providing its services as
securities depository with respect to the Notes at any
time by giving reasonable notice to the Company and the
Trustee. Under such circumstances, in the event that a
successor securities depository is not obtained,
Certificated Notes are required to be printed and
delivered.
10. The Company may decide to discontinue use of
the system of book-entry transfers through DTC (or a
successor securities depository). In that event,
Certificated Notes will be printed and delivered.
The information in this section concerning DTC and DTC's
book-entry system has been obtained from sources that the
Company believes to be reliable, but the Company takes no
responsibility for the accuracy thereof.
The Agents are Direct Participants of DTC.
None of the Company, the Trustee or any agent for payment
on or registration of transfer or exchange of any Global
Note will have any responsibility or liability for any
aspect of the records relating to or payments made on
account of beneficial interests in such Global Note or
for maintaining, supervising or reviewing any records
relating to such beneficial interests.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary describes certain material United
States federal income tax consequences of the ownership
of Notes as of the date hereof. Except where noted, it
deals only with Notes held by initial purchasers who have
purchased Notes at the initial offering price thereof and
who hold such Notes as capital assets and does not deal
with special situations, such as those of dealers in
securities or currencies, financial institutions, life
insurance companies, persons holding Notes as a part of a
hedging or conversion transaction or a straddle, United
States Holders (as defined below) whose "functional
currency" is not the U.S. dollar, or Non-United States
Holders (as defined below) owning (actually or
constructively) ten percent or more of the combined
voting power of all classes of voting stock of the
Company. Persons considering the purchase, ownership or
disposition of Notes should consult their own tax
advisors concerning the federal income tax consequences
in light of their particular situations as well as any
consequences arising under the laws of any other taxing
jurisdiction. Furthermore, the discussion below is based
upon the provisions of the Internal Revenue Code of 1986,
as amended (the "Code") and regulations, rulings and
judicial decisions thereunder as of the date hereof, and
such authorities may be repealed, revoked or modified so
as to result in federal income tax consequences different
from those discussed below. Any special United States
federal income tax considerations relevant to a
particular series of the Notes will be provided in the
applicable Pricing Supplement.
United States Holders
As used herein, a "United States Holder" of a Note means
a holder that is a citizen or resident of the United
States, a corporation, partnership or other entity
created or organized in or under the laws of the United
States or any political subdivision thereof, or an estate
the income of which is subject to United States federal
income taxation regardless of its source, or any trust if
a court within the United States is able to exercise
primary jurisdiction over the administration of the trust
and one or more U.S. fiduciaries have the authority to
control all substantial decisions of the trust. A "Non-
United States Holder" is a holder that is not a United
States Holder.
Payments of Interest. Except as set forth below,
interest on a Note will generally be taxable to a United
States Holder as ordinary income from domestic sources at
the time it is paid or accrued in accordance with the
United States Holder's method of accounting for tax
purposes.
Notes with a maturity of one year or less will be subject
to special tax rules that apply to the timing of
inclusion in income of interest on such obligations
("Short-Term Notes"). An obligation which is issued for
an amount less than its "stated redemption price at
maturity" will generally be considered to be issued at a
discount for federal income tax purposes. Under Treasury
Regulations involving original issue discount ("OID"),
all payments (including all stated interest) with respect
to a Short-Term Note will be included in the stated
redemption price at maturity and, thus, holders will be
taxable on discount in lieu of stated interest. This
discount will be equal to the excess of the stated
redemption price at maturity over the initial offering
price to the public at which a substantial amount of the
Notes is sold (for purposes of this section of the
Prospectus Supplement, the "issue price"), unless a
holder elects to compute this discount as acquisition
discount using tax basis instead of issue price. In
general, individual and certain other cash method holders
of a Short-Term Note are not required to include accrued
discount in income before receiving cash unless an
election is made to do so. United States Holders who
report income for federal income tax purposes on the
accrual method and certain other holders, including banks
and dealers in securities, are required to include
discount on such Short-Term Notes in income on a
straight-line method (as ordinary income) unless an
election is made based on daily compounding. The amount
of discount which accrues in respect of a Short-Term Note
while held by a holder will be added to such holder's tax
basis for such Note to the extent included in income.
Sale, Exchange and Retirement of Notes. Upon the sale,
exchange or retirement of a Note, a United States Holder
will recognize gain or loss equal to the difference
between the amount realized upon the sale, exchange or
retirement (excluding any amount attributable to accrued
but unpaid "qualified stated interest") and the adjusted
tax basis of the Note. A United States Holder's tax
basis in a Note will, in general, be the United States
Holder's cost therefor, increased by any discount
included in income by the United States Holder and
reduced by any cash payments on the Note other than
"qualified stated interest" payments. (In general,
"qualified stated interest" includes interest at a single
fixed rate unconditionally payable at least annually,
other than interest on Short-Term Notes.) Except as
described below with respect to certain Short-Term Notes
and except to the extent of any accrued but unpaid
qualified stated interest, such gain or loss will be
capital gain or loss and will be long-term capital gain
or loss if at the time of sale, exchange or retirement
the Note has been held for more than one year. Under
current law, net capital gains are, under certain
circumstances, taxed at lower rates than items of
ordinary income. The deductibility of capital losses is
subject to limitations.
In the case of a cash basis holder who does not include
discount income currently, any gain realized on the sale,
exchange or retirement of the Short-Term Note will be
ordinary interest income to the extent of the discount
accrued on a straight-line basis (or, if elected,
according to a constant yield method based on daily
compounding) through the date of sale, exchange or
retirement. In addition, such non-electing holders which
are not subject to the current inclusion requirement
described above will be required to defer deductions for
any interest paid on indebtedness incurred or continued
to purchase or carry such Short-Term Notes in an amount
not exceeding the deferred interest income, until such
deferred interest income is realized.
Non-United States Holders
Non-United States Holders will not be subject to United
States federal income taxes, including withholding taxes,
on the interest income (including any OID) on, or gain
from the sale or disposition of, any Note provided that
(1) the interest income or gain is not effectively
connected with the conduct by the Non-United States
Holder of a trade or business within the United States,
(2) the Non-United States Holder is not a controlled
foreign corporation related to the Company through stock
ownership, (3) the Non-United States Holder is not a bank
whose receipt of interest on a Note is described in Code
Section 881(c)(3)(A), (4) with respect to any gain, the
Non-United States Holder, if an individual, is not
present in the United States for 183 days or more during
the taxable year and (5) the Non-United States Holder
provides the correct certification of his status (which
may generally be satisfied by providing an Internal
Revenue Service Form W-8 certifying that the beneficial
owner is not a United States Holder and providing the
name and address of the beneficial owner).
An individual holder of a Note who is not a citizen or
resident of the United States at the time of the holder's
death will not be subject to United States federal estate
tax as a result of the holder's death, as long as any
interest received on the Note, if received by the holder
at the time of the holder's death, would not be
effectively connected with the conduct of a trade or
business by such individual in the United States.
Backup Withholding
In general, if a holder other than a corporate holder
fails to furnish a correct taxpayer identification number
or certification of foreign or other exempt status, fails
to report dividend and interest income in full, or fails
to certify that such holder has provided a correct
taxpayer identification number and that the holder is not
subject to backup withholding, a 31 percent federal
backup withholding tax may be withheld from amounts paid
to such holder. An individual's taxpayer identification
number is such individual's social security number. The
backup withholding tax is not an additional tax and may
be credited against a holder's regular federal income tax
liability or refunded by the Internal Revenue Service
where applicable.
RECENT DEVELOPMENTS
On January 30, 1997, American Electric Power
Company, Inc. ("AEP") and the Company filed with the SEC
and mailed to the registered holders of the Company's
cumulative preferred stock their Offer to Purchase and
Proxy Statement. AEP has offered to purchase all the
outstanding shares of the Company's cumulative preferred
stock (the "AEP Offer"). Concurrently with the AEP
Offer, the Board of Directors of the Company is
soliciting proxies for use at a special meeting of
shareholders of the Company on February 28, 1997. The
special meeting is being held to consider an amendment
(the "Proposed Amendment") to the Company's Restated
Articles of Incorporation (the "Articles"). The Proposed
Amendment, if approved, would eliminate in its entirety
Article V, Clause 7(B)(b) of the Articles, which is
described on pages 8 and 9 of the accompanying
Prospectus. Upon the elimination of Article V, Clause
7(B)(b), the restrictions upon the Company's ability to
issue or assume additional indebtedness contained therein
would be lifted. See "Description of New Bonds--Other
Restrictions Upon Creation and/or Issuance of New Bonds
and Other Senior Securities" in the accompanying
Prospectus.
PLAN OF DISTRIBUTION
The Notes are being offered on a continuous basis by the
Company through the Agents, which have agreed to use
their reasonable best efforts to solicit offers to
purchase Notes. Initial purchasers may propose certain
terms of the Notes, but the Company will have the right
to accept offers to purchase Notes and may reject
proposed purchases in whole or in part. The Agents will
have the right, in their discretion reasonably exercised
and without notice to the Company, to reject any proposed
purchase of Notes in whole or in part. The Company will
pay each Agent a commission of from .125% to .750% of the
principal amount of Notes sold through it, depending upon
Stated Maturity. The Company also may sell Notes to any
Agent, acting as principal, at a discount to be agreed
upon at the time of sale, for resale to one or more
investors or to another broker-dealer (acting as
principal for purposes of resale) at varying prices
related to prevailing market prices at the time of such
resale, as determined by such Agent. An Agent may resell
a Note purchased by it as principal to another broker-
dealer at a discount, provided such discount does not
exceed the commission or discount received by such Agent
from the Company in connection with the original sale of
such Note. The Company may also sell Notes directly to
investors on its own behalf at a price to be agreed upon
at the time of sale or through negotiated underwritten
transactions with one or more underwriters. In the case
of sales made directly by the Company, no commission or
discount will be paid or allowed.
No Note will have an established trading market when
issued. The Notes will not be listed on any securities
exchange. The Agents may make a market in the Notes, but
the Agents are not obligated to do so and may discontinue
any market-making at any time without notice. There can
be no assurance of a secondary market for any Notes, or
that the Notes will be sold.
The Agents, whether acting as agent or principal, may be
deemed to be "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Securities
Act"). The Company has agreed to indemnify the Agents
against certain liabilities, including certain
liabilities under the Securities Act.
Salomon Brothers Inc and Merrill Lynch, Pierce, Fenner &
Smith Incorporated and certain affiliates thereof engage
in transactions with and perform services for the Company
and its affiliates in the ordinary course of business.
PROSPECTUS
Appalachian Power Company
$100,000,000
Debt Securities
Appalachian Power Company (the "Company") intends to
offer, from time to time, up to $100,000,000 aggregate
principal amount of its Debt Securities, consisting of
First Mortgage Bonds (the "First Mortgage Bonds"), First
Mortgage Bonds, Designated Secured Medium Term Notes (the
"Notes") and/or its unsecured debt securities (the
"Unsecured Notes"). (The First Mortgage Bonds and the
Notes are hereinafter collectively referred to as the
"New Bonds"). (The First Mortgage Bonds, the Notes and
the Unsecured Notes are hereinafter collectively referred
to as the "Debt Securities"). The Debt Securities 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, rate and
time of payment of interest, maturity, initial public
offering price, if any, redemption provisions, if any,
credit enhancement, if any, improvement fund, if any,
dividend restrictions in addition to those described
herein, if any, and other specific terms of each series
of Debt Securities in respect of which this Prospectus is
being delivered will be set forth in an accompanying
prospectus or pricing supplement ("Prospectus
Supplement").
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Company may sell the Debt Securities through
underwriters, dealers or agents, or directly to one or
more institutional purchasers. A Prospectus Supplement
will set forth the names of underwriters or agents, if
any, any applicable commissions or discounts and the net
proceeds to the Company from any such sale.
The date of this Prospectus is January 28, 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 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, June 30,
1996 and September 30, 1996;
-- The Company's Current Report on Form 8-K dated
March 19, 1996; and
-- The Company's Current Report on Form 8-K dated
December 23, 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 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.
THE COMPANY
The Company is engaged in the generation, purchase,
transmission and distribution of electric power to
approximately 865,000 customers in Virginia and West
Virginia, and in supplying electric power at wholesale to
other electric utility companies and municipalities 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 proceeds from the
sales of the Debt Securities to refund long-term debt, to
fund its construction program, or to repay short-term
unsecured indebtedness incurred in connection with its
construction program. The Company's First Mortgage
Bonds, 9.35% Series due 2021 ($43,250,000 principal
amount outstanding) may be redeemed at their regular
redemption price of 107.02%. Such Bonds may also be
redeemed at a lower special redemption price (but not
lower than 100% of the principal amount thereof) through
the application of cash deposited with the Trustee (as
defined below), pursuant to certain provisions of the
Mortgage (as defined below).
The Company has estimated that its consolidated
construction costs (inclusive of allowance for funds used
during construction) during 1997 will be approximately
$229,000,000. At January 6, 1997, the Company had
approximately $61,000,000 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 years in the period 1991 through
1995 and for the 12 month period ended September 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
September 30, 1996 2.84
DESCRIPTION OF NEW BONDS
The New Bonds will be issued under the Mortgage and
Deed of Trust, dated as of December 1, 1940, made by the
Company to Bankers Trust Company, New York City, as
Trustee, as heretofore supplemented and amended and as to
be further supplemented (the "Mortgage"). All First
Mortgage Bonds (including the New Bonds) issued and to be
issued under the Mortgage are herein sometimes referred
to as "Bonds". Copies of the Mortgage, including the
respective forms of Supplemental Indenture pursuant to
which each series of the New Bonds will be issued (the
"new Supplemental Indenture") are filed as exhibits to
the Registration Statement.
The following statements include brief summaries of
certain provisions of instruments under which securities
of the Company, including Bonds, have been issued.
Certain of these instruments apply to the issuance of New
Bonds. Such instruments, including amendments and
supplements thereto, have been filed by the Company as
exhibits to the Registration Statement. Such summaries
do not purport to be complete and reference is made to
such instruments for complete statements of such
provisions. Such summaries are qualified in their
entirety by such reference and do not relate or give
effect to provisions of statutory or common law.
Form and Exchange
Unless otherwise set forth in a Prospectus
Supplement, New Bonds in definitive form will be issued
only as registered Bonds without coupons in denominations
of $1,000 and in multiples thereof authorized by the
Company. New Bonds will be exchangeable for a like
aggregate principal amount of the same series of New
Bonds of other authorized denominations, and will be
transferable, at the office or agency of the Company in
New York City, and at such other office or agency of the
Company as the Company may from time to time designate,
in either case without payment, until further action by
the Company, of any charge other than for any tax or
taxes or other governmental charge required to be paid by
the Company. Bankers Trust Company is to be designated
by the Company to act as agent for payment, registration,
transfer and exchange of the New Bonds in New York City.
Maturity, Interest, Redemption, Credit Enhancement,
Improvement Fund, Additional Dividend Restrictions and
Payment
Information concerning the maturity, interest,
redemption provisions, if any, credit enhancement, if
any, improvement fund, if any, any dividend restrictions
in addition to those described herein and payment with
respect to any series of the New Bonds will be contained
in a Prospectus Supplement.
Security
The New Bonds will be secured, pari passu with Bonds
of all other series now or hereafter issued, by the lien
of the Mortgage which, except as provided in the
following paragraph, constitutes, in the opinion of
counsel for the Company, a first lien on substantially
all of the fixed physical property and franchises of the
Company, subject only to (a) the conditions and
limitations in the instruments through which the Company
claims title to its properties, (b) "excepted
encumbrances" as defined in Section 6 of the Mortgage,
including claims later perfected into statutory liens or
equitable priorities for taxes, services, materials and
supplies, (c) the prior lien of the Trustee for its
compensation, expenses and liabilities, and (d) in the
case of property acquired of record by the Company since
the recordation of the supplemental indenture dated as of
March 1, 1996 (not affixed to other property so as
thereby to become subject to the Mortgage), recordation
of a supplemental indenture conveying such property to
the Trustee.
Property acquired after the recordation of the most
recent supplemental indenture may be subject to liens,
ranking prior to the lien of the Mortgage, existing
thereon at the time of acquisition of such property, and
the lien thereon of the Mortgage may be subject to the
rights of others which may attach prior to recordation of
a supplemental indenture conveying such property to the
Trustee after its acquisition. The provisions of the
Mortgage, in substance, permit releases of property from
the lien and the withdrawal of cash proceeds of property
released from the lien, not only against new property
then becoming subject to the lien, but also against
property already subject to the lien of the Mortgage,
unless such property was owned at August 31, 1940, or has
been made the basis of the issue of Bonds or a credit
under Sections 20 or 40 of the Mortgage. Accordingly,
any increase in the amount of the mortgaged and pledged
property as a result of the after-acquired property
clause may be eliminated by means of such releases and
withdrawals.
Issuance of Additional Bonds
Additional Bonds of any series may be issued in a
principal amount equal to:
1. 60% of the cost or the then fair value,
whichever is less, of unfunded property additions
after deduction for retirements;
2. The principal amount of Bonds or prior
lien bonds retired or then to be retired; and
3. The amount of cash deposited with the
Trustee;
but, except as otherwise provided in the Mortgage, only
if the net earnings (as defined in Section 7 of the
Mortgage) are at least twice the annual interest
requirement on all outstanding Bonds and indebtedness
having an equal or prior lien, including the additional
issue. However, no Bonds may be issued against property
additions subject to prior liens, as defined in Section 6
of the Mortgage (a) if the principal amount of
outstanding prior lien bonds secured thereby exceeds 40%
of the cost or fair value (whichever is less) of such
property additions or (b) if the principal amount of all
Bonds theretofore issued on such basis and continuing on
such basis, and the amount of certain other items
representing deposited cash withdrawn or property
released on such basis, in the aggregate, exceeds 15% of
the aggregate principal amount of all Bonds theretofore
issued (except Bonds issued under Article VII upon
retirement of Bonds previously outstanding under the
Mortgage), including the additional issue. (See Sections
4, 7, 24, 26, 27, 28, 29, 30, 31 and 40 of the Mortgage
and "Description of New Bonds--Maintenance and
Replacement Provisions" below.)
The requirement, referred to above, that net
earnings be at least twice the annual interest
requirements on all outstanding Bonds and indebtedness
having an equal or prior lien, including a proposed
additional issue of Bonds, is not applicable under
certain circumstances where additional Bonds are issued
in a principal amount equal to the principal amount of
Bonds or prior lien bonds retired or then to be retired
(see Section 30 of the Mortgage). In calculating
earnings coverages under the provisions of the Mortgage,
the Company includes, as a component of earnings,
revenues being collected subject to refund and, to the
extent not limited by the terms of the Mortgage, an
allowance for funds used during construction, including
amounts positioned and classified as an allowance for
borrowed funds used during construction. The coverage
under such requirement calculated as of September 30,
1996 based on the amounts then recorded in the accounts
of the Company, was at least 4.06.
It is estimated that as of January 7, 1997, the
Company had available for use in connection with the
authentication of Bonds approximately $950,000,000 of
unbonded bondable property additions. The Company
expects that the New Bonds will be authenticated upon the
basis of Bonds previously retired or to be retired and/or
property additions.
Other Restrictions Upon Creation and/or Issuance of New
Bonds and Other Senior Securities
There are, in addition to the foregoing
restrictions, additional limitations upon the creation
and/or issuance by the Company of long-term debt
securities and of shares of stock ranking, as to
dividends and distributions of assets, prior to the
common stock equity of the Company.
The issuance of additional securities is limited by
provisions of the Restated Articles of Incorporation of
the Company which require the consent of the holders of
the Cumulative Preferred Stock then outstanding prior to
certain corporate actions.
The favorable vote of holders of at least two-thirds
of the total voting power of the Cumulative Preferred
Stock then outstanding is required (see Restated Articles
of Incorporation, Article V, Paragraph (7)(A)) (a) to
increase the total authorized amount of the Cumulative
Preferred Stock; (b) to create or authorize any series of
stock (other than a series of the Cumulative Preferred
Stock) ranking prior to or on a parity with the
Cumulative Preferred Stock as to assets or dividends, or
to create or authorize any obligation or security
convertible into shares of any such stock, or to issue
any such prior ranking stock or security more than twelve
months after the date as of which the Company was
empowered to create or authorize such stock or security;
or (c) to change any of the express terms of the
Cumulative Preferred Stock or of any outstanding series
thereof in a manner prejudicial to the holders thereof.
Under Paragraph (7)(A)(c) of Article V of the Restated
Articles of Incorporation, if less than all series are
prejudicially affected, only the consent of the holders
of two-thirds of the total number of votes which holders
of the shares of each series so affected are entitled to
cast is required.
The favorable vote of the holders of a majority of
the total voting power of the Cumulative Preferred Stock
then outstanding is required before the Company may (see
Restated Articles of Incorporation, Article V, Paragraph
(7)(B)):
(a) merge or consolidate with or into any
other corporation or corporations, or sell all or
substantially all of its assets, unless such action
has been approved by the SEC or by a successor
regulatory authority;
(b) issue or assume any evidences of
indebtedness, secured or unsecured (other than (i)
Bonds issued under the Company's Mortgage, (ii)
bonds issued under a new mortgage replacing the
Mortgage, (iii) bonds issued under any other new
mortgage, provided the Mortgage shall have been
irrevocably closed against the authentication of
additional Bonds thereunder, (iv) indebtedness
secured by bonds of the Company or by bonds issued
under any such new mortgage, (v) indebtedness
secured by bonds issued under a mortgage existing at
the time of acquisition of property acquired by the
Company, provided such mortgage, or any mortgage
replacing it, is irrevocably closed against
authentication of additional bonds thereunder, or
(vi) obligations to pay the purchase price of
materials or equipment made in the ordinary course
of the Company's business), for purposes other than
the refunding or renewing of evidences of
indebtedness previously issued or assumed by the
Company resulting in equal or longer maturities or
redeeming or otherwise retiring all outstanding
shares of the Cumulative Preferred Stock, if
immediately after such issue or assumption, (x) the
total principal amount of all such indebtedness
(other than those referred to in (i) through (vi)
above) issued or assumed by the Company and then
outstanding (including the evidences of indebtedness
then to be issued or assumed) would exceed 20% of
the sum of (1) the total principal amount of all
debt securities of the character hereinbefore
described in (i) through (vi) above, issued or
assumed by the Company and then to be outstanding,
and (2) the stated capital and surplus of the
Company, or (y) the total outstanding principal
amount of all unsecured debt securities of the
Company (other than obligations of the character
described in (vi) above) would exceed 20% of the sum
of (1) the total outstanding principal amount of all
bonds or other secured debt of the Company, and (2)
the stated capital and surplus of the Company, or
(z) the total outstanding principal amount of all
unsecured debt securities of the Company (other than
obligations of the character described in (vi)
above) of maturities of less than 10 years would
exceed 10% of the sum of (1) the total principal
amount of all bonds or other secured debt of the
Company, and (2) the stated capital and surplus of
the Company; provided that the payment due upon the
maturity of unsecured debt having an original single
maturity of 10 or more years or the payment due upon
the final maturity of any unsecured serial debt
which had original maturities of 10 or more years is
not regarded for purposes of this subparagraph (b)
as unsecured debt of a maturity of less than 10
years until payment thereof is required within 3
years;
(c) issue or reissue any shares of the
Cumulative Preferred Stock or of any other class of
stock ranking on a parity with the outstanding
shares of Cumulative Preferred Stock as to dividends
or assets for any purpose other than to refinance an
amount of outstanding Cumulative Preferred Stock, or
stock ranking prior to or on a parity with the
Cumulative Preferred Stock as to dividends or
assets, having an aggregate involuntary liquidation
amount equal to the aggregate involuntary
liquidation amount of such issued or reissued
shares, unless (i) the net income of the Company,
determined in accordance with generally accepted
accounting principles to be available for the
payment of dividends for a period of 12 consecutive
calendar months within the 15 calendar months
immediately preceding the calendar month of such
issuance, is equal to at least twice the annual
dividend requirements on the Cumulative Preferred
Stock (including dividend requirements on such prior
or parity stock), which will be outstanding
immediately after such issuance; (ii) the gross
income of the Company for the same period determined
in accordance with generally accepted accounting
principles (but in any event after all taxes
including taxes based on income) is equal to at
least one and one-half times the aggregate of annual
interest charges on indebtedness (excluding interest
charges on indebtedness to be retired by the
application of the proceeds from the issuance of
such shares) and the annual dividend requirements on
the Cumulative Preferred Stock (including dividend
requirements on such prior or parity stock), which
will be outstanding immediately after such issuance;
and (iii) the aggregate of the Common Stock Equity,
as defined, is at least equal to the aggregate
amount payable in connection with an involuntary
liquidation of the Company with respect to all
shares of Cumulative Preferred Stock and all shares
of such prior or parity stock, if any, which will be
outstanding immediately after such issuance. No
dividends may be paid on Common Stock which would
result in the reduction of the Common Stock Equity,
as defined, below the requirements of clause (iii).
The restrictions and limitations described or
referred to above, which are designed to protect the
relative positions of the holders of outstanding senior
securities of the Company, can operate in such manner as
to limit substantially the additional amounts of senior
securities which can be issued by the Company. The
Company believes that its ability to issue short and
long-term debt securities and preferred stock in the
amounts required to finance its operations and
construction program may depend upon timely rate
recovery. If the Company is unable to continue the issue
and sale of securities on an orderly basis, the Company
will be required to consider the obtaining of additional
amounts of common equity, the use of possibly more costly
alternative financing arrangements, if available, or the
curtailment of its construction program and other
outlays.
Other than the security afforded by the lien of the
Mortgage and restrictions on the incurrence of additional
debt described above and under "Description of New Bonds-
-Issuance of Additional Bonds" herein, there are no
provisions of the Mortgage which afford holders of New
Bonds protection in the event of a highly leveraged
transaction involving the Company. However, such a
transaction would require regulatory approval and
management of the Company believes such approval would be
unlikely in a transaction which would result in the
Company having a highly leveraged capital structure.
Maintenance and Replacement Provisions
Section 40 of the Mortgage provides (A) in Part I
thereof for the annual deposit by the Company with the
Trustee on or before April 30 of an amount in cash or
principal amount of Bonds of any series equal to the
amount by which a defined percentage (currently 15%) of
the base operating revenues, as defined in Section 40,
less the cost of purchased power during the preceding
calendar year exceeds the aggregate amounts expended
during such period by the Company for repairs and
maintenance and for property substituted for property
retired since August 31, 1940; and (B) in Part II thereof
for the annual deposit (which the Mortgage requires to be
made so long as any of the Bonds of any series issued
prior to December 31, 1992 are outstanding and which,
except as disclosed in a Prospectus Supplement, the new
Supplemental Indenture will not require to be made so
long as any of the New Bonds are outstanding) by the
Company with the Trustee on or before April 30 of an
amount in cash or principal amount of Bonds of any series
equal to the excess of the product of a specified
percentage (currently 2.25% but subject to change as
provided in the Mortgage) and the average of the
Depreciable Property (as defined) of the Company at the
first and the last day of the preceding calendar year
over the sum of (i) the aggregate amount expended during
the preceding calendar year for property substituted for
retired property, (ii) the aggregate of the property
additions certified, and the cash and/or Bonds deposited
pursuant to the requirements of Part I of Section 40 with
respect to such year, and (iii) any credit applicable to
prior years. The Company may under this covenant certify
to the Trustee, in lieu of depositing cash or Bonds,
property additions which are not then funded property
(which thereupon become funded property) at cost or fair
value, whichever is less.
The Supplemental Indenture dated as of May 1, 1979
amended Article XX to provide that the Mortgage may at a
future date be amended (i) to delete the requirement for
annual deposits pursuant to Part I of Section 40 of the
Mortgage and/or (ii) to delete the 15% limit on Bonds
issued on the basis of property additions subject to
prior liens, upon compliance with the provisions of the
Mortgage but without the favorable vote or consent of the
holder of any new Bond or any other Bond issued after
April 30, 1979 or including any such new Bond or other
such Bond in determining whether a quorum exists or a
specified percentage of holders of Bonds participated in
action on any such amendment. The Company, in its
application to the SEC with respect to the issuance of
$70,000,000 principal amount of First Mortgage Bonds, 11%
Series due 1987, proposed, and the SEC approved, a change
in the specified percentage in Part II of Section 40 of
the Mortgage from 2.25% to 2.90%, such change to become
effective on the date the Mortgage is amended as
contemplated in clause (i) above and to continue at 2.90%
until another change in such percentage shall be
authorized or approved upon application by the Company to
the SEC. In connection with the amendment contemplated
by the next two sentences, the Company has elected, and
the SEC has authorized the Company to retain, the
applicable percentage at 2.25%. Since all Bonds issued
prior to April 30, 1979 have matured or been redeemed,
the Company may now amend the Mortgage to make such
changes described above. The Company proposes to amend
the Mortgage to delete (i) the requirement for annual
deposits pursuant to Part I of Section 40 of the Mortgage
and (ii) the 15% limit on Bonds issued on the basis of
property additions subject to prior liens.
Release and Substitution of Property
The Mortgage permits property to be released from
the lien of the Mortgage upon compliance with the
provisions thereof. Such provisions require that, in
certain specified cases, cash be deposited with the
Trustee in an amount equal to the excess of the fair
value of the property to be released over the aggregate
of certain computations required by the Mortgage. (See
Sections 65 and 69 of the Mortgage.) The Mortgage also
contains certain requirements relating to the withdrawal
of release moneys. (See Section 67 of the Mortgage.)
Modification of the Mortgage
Article XX of the Mortgage provides for modifying or
altering the Mortgage with the consent of the Company and
by vote of the holders of at least 75% in principal
amount of the outstanding Bonds which are affected by the
proposed modification or alteration. No modification or
alteration, without the consent of the holder of a Bond,
may modify the terms of payment of the principal amount
of or interest on such Bond or create an equal or prior
lien or deprive such holder of a lien on the mortgaged
property or reduce the above percentage.
Restriction on Common Stock Dividends
Various restrictions on the use of retained earnings
for cash dividends on Common Stock and other purposes are
contained in or result from other covenants in the
charter. At September 30, 1996, the Company's
consolidated unrestricted retained earnings amounted to
$211,865,000. Unless otherwise specified in a Prospectus
Supplement, there will be no additional restrictions on
common stock dividends.
Concerning the Trustee
AEP System companies, including the Company, utilize
many 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 and in
certain cases term loans, generally at rates related to
the prime commercial interest rate, and acting as a
depositary. In addition, Bankers Trust Company will
serve as Trustee under the Company's Indenture for the
Unsecured Notes. (See "Description of Unsecured Notes"
herein.)
The Trustee may, and upon written request of the
holders of a majority in principal amount of the Bonds
shall, declare the principal due upon occurrence of a
completed default, but the holders of a majority in
principal amount of the Bonds may annul such declaration
if the default has been cured. (See Section 71 of the
Mortgage.) The holders of a majority in principal amount
of the Bonds may direct the time, method and place of
conducting any proceeding for the enforcement of the
Mortgage. (See Section 76 of the Mortgage.) No
Bondholder has the right to institute any proceeding for
the enforcement of the Mortgage unless such holder shall
have given the Trustee written notice of a completed
default, the holders of 25% in principal amount of the
Bonds shall have offered to the Trustee indemnity against
costs, expenses and liabilities, requested the Trustee to
take action and given the Trustee reasonable opportunity
to take such action. The foregoing does not affect or
impair the right of a holder of a Bond to enforce the
payment of the principal of and interest on such Bond on
the respective due dates. (See Section 86 of the
Mortgage.) The Trustee is entitled to be indemnified
before taking action to enforce the lien at the request
of such Bondholders. (See Section 75 of the Mortgage.)
Defaults
By Section 71 of the Mortgage, the following are
defined as "completed defaults": default in the payment
of principal; default for 60 days in the payment of
interest; default in payment of principal or interest on
outstanding prior lien bonds in certain cases; certain
events of bankruptcy, insolvency or reorganization; and
default continued for 60 days after notice in the
performance of any other covenant. By Section 59 of the
Mortgage, a failure to provide money for the redemption
of Bonds called for redemption also constitutes a
completed default. The Company is required to furnish
annually to the Trustee a certificate as to compliance
with all conditions and covenants under the Mortgage.
DESCRIPTION OF UNSECURED NOTES
The Unsecured Notes will be issued in series under
an Indenture to be entered into between the Company and
Bankers Trust Company, as Trustee (the "Trustee") (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 form of Indenture, and the form of
Supplemental Indenture thereto, 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 Unsecured Notes will be unsecured obligations of
the Company and will rank pari passu with all other
unsecured and unsubordinated debt of the Company. The
Indenture does not limit the aggregate principal amount
of notes that may be issued thereunder and provides that
Unsecured Notes issued thereunder may be issued
thereunder from time to time in one or more series, as
authorized by a Board Resolution, and set forth in a
Company Order (as defined in the Indenture) or one or
more supplemental indentures creating such series. The
Restated Articles of Incorporation of the Company,
however, limit the issuance of long-term securities.
(See "Description of New Bonds--Other Restrictions Upon
Creation and/or Issuance of New Bonds and Other Senior
Securities" above.)
Substantially all of the fixed properties and
franchises of the Company are subject to the lien of the
Mortgage under which the Company's First Mortgage Bonds
are outstanding. See "Description of New Bonds".
The Unsecured Notes are not convertible into any
other security of the Company. The Indenture does not
contain any provisions that afford holders of Unsecured
Notes protection in the event of a highly leveraged
transaction involving the Company. Such a transaction
would require regulatory approval, and management of the
Company believes such approval would be unlikely in a
transaction which would result in the Company having a
highly leveraged capital structure. The Indenture also
does not contain any provisions that afford holders of
Unsecured Notes protection against the Company incurring
other indebtedness.
Maturity, Interest, Redemption, Credit Enhancement,
Covenants and Restrictions and Payment
Information concerning the maturity, interest,
redemption provisions, if any, sinking fund, if any,
credit enhancement, if any, any covenants or
restrictions, such as limitations on liens or dividend
restrictions, and payment with respect to any series of
the Unsecured Notes will be contained in a Prospectus
Supplement.
Form and Exchange
Unless otherwise set forth in a Prospectus
Supplement, Unsecured Notes in definitive form will be
issued only as registered Unsecured Notes without coupons
in denominations of $1,000 and in integral multiples
thereof authorized by the Company. Unsecured Notes will
be exchangeable for a like aggregate principal amount of
the same series of Unsecured Notes of other authorized
denominations, and will be transferable, at the office or
agency designated by the Company in New York City, or at
such other office or agency designated by the Company, in
either case without payment, until further action by the
Company, of any charge other than for any tax or taxes or
other governmental charge required to be paid by the
Company. Bankers Trust Company is to be designated by
the Company to act as agent for payment, registration,
transfer and exchange of the Unsecured Notes in New York
City.
Payment and Paying Agents
Payment of principal of and premium (if any) on any
Unsecured Note will be made only against surrender to the
Paying Agent of such Unsecured Note. Principal of and
any premium and interest on Unsecured Notes 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 Note Register with respect to such Unsecured
Notes.
The Trustee will initially act as Paying Agent with
respect to Unsecured 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 of the Indenture).
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 Unsecured Note that remains 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 Unsecured Note will thereafter
look only to the Company for payment thereof. (Section
11.04 of the Indenture).
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
Unsecured 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 Unsecured Notes; provided, that
no such modification may, without the consent of the
holder of each outstanding Unsecured Note affected
thereby, (i) extend the fixed maturity of any Unsecured
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 (ii) reduce the percentage of
Unsecured Notes, the holders of which are required to
consent to any such supplemental indenture. (Section
9.02 of the Indenture).
In addition, the Company and the Trustee may
execute, without the consent of any holder of Unsecured
Notes, any supplemental indenture for certain other usual
purposes including the creation of any new series of
notes to be issued under the Indenture. (Sections 2.01,
9.01 and 10.01 of the Indenture).
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 Unsecured Notes:
(a) failure for 30 days to pay interest on
Unsecured Notes of that series when due; or
(b) failure to pay principal or premium, if
any, on Unsecured Notes of that series when due
whether at maturity, upon redemption, by declaration
or otherwise; or
(c) failure for 30 days to pay any sinking
fund obligation on Unsecured Notes of that series;
or
(d) 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
Unsecured Notes of that series; or
(e) certain events involving bankruptcy,
insolvency or reorganization of the Company; or
(f) any other event of default provided for in
a series of Unsecured Notes. (Section 6.01 of the
Indenture).
The Trustee or the holders of not less than 25% in
aggregate outstanding principal amount of any particular
series of Unsecured Notes 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 of the Indenture).
The holders of a majority in aggregate outstanding
principal amount of any series of Unsecured Notes 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 of the
Indenture). 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 Unsecured Notes, unless such
holders shall have offered to the Trustee indemnity
satisfactory to it. (Section 7.02 of the Indenture).
The holders of a majority in aggregate outstanding
principal amount of any series of Unsecured Notes
affected thereby may, on behalf of the holders of all
Unsecured 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
Unsecured Notes of such series. (Section 6.06 of the
Indenture). 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) of the
Indenture).
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 all notes issued under the
Indenture. (Section 10.01 of the Indenture).
Legal Defeasance and Covenant Defeasance Discharge
Unsecured Notes of a series may be defeased in
accordance with their terms and, unless the Supplemental
Indenture or the Company Order establishing the terms of
the 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 an Unsecured Note, to replace destroyed, lost
or stolen Unsecured Notes and to maintain agencies in
respect of the Unsecured Notes) with respect to the
Unsecured Notes of the series and the Indenture ("legal
defeasance"). The Company at any time may terminate as
to a series its obligations with respect to the Unsecured
Notes of the series under any restrictive covenant which
may be applicable to a particular series ("covenant
defeasance").
The Company may exercise its legal defeasance option
notwithstanding its prior exercise of its covenant
defeasance option. If the Company exercises its legal
defeasance option, a 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 a particular series.
To exercise either defeasance option as to a series,
the Company must deposit in trust (the "defeasance
trust") with the Trustee, money or Governmental
Obligations, or a combination, for the payment of
principal, premium, if any, and interest on the Unsecured
Notes of the series to redemption or maturity and must
comply with certain other conditions. In particular, the
Company must obtain an opinion of tax counsel that the
defeasance will not result in recognition of any gain or
loss to holders for Federal income tax purposes.
In the event the Company exercises its option to
effect a covenant defeasance with respect to the
Unsecured Notes of any series as described above and the
Unsecured Notes of that series are thereafter declared
due and payable because of the occurrence of any Event of
Default other than the Event of Default caused by failing
to comply with the covenants which are defeased, the
amount of money and securities on deposit with the
Trustee would be sufficient to pay amounts due on the
Unsecured Notes of that series at the time of their
stated maturity but may not be sufficient to pay amounts
due on the Unsecured 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 of the Indenture).
Governing Law
The Indenture and Unsecured Notes will be governed
by, and construed in accordance with, the laws of the
State of New York. (Section 13.05 of the Indenture).
Concerning the Trustee
AEP System companies, including the Company, utilize
many 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 and in
certain cases term loans, generally at rates related to
the prime commercial interest rate, and acting as a
depositary. In addition, Bankers Trust Company serves as
Trustee under the Company's Mortgage. (See "Description
of New Bonds" herein.)
RECENT DEVELOPMENTS
Reference is made to page C-5 of the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996, for a discussion of a settlement
agreement filed with the Public Service Commission of
West Virginia ("WVPSC") on November 12, 1996, regarding
the Company's rates in West Virginia. The WVPSC on
December 27, 1996, approved the settlement agreement with
certain minor exceptions.
LEGAL OPINIONS
Opinions with respect to the legality of the New
Bonds and/or Unsecured 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, dealers or agents. In connection with
the issuance of New Bonds, Simpson Thacher & Bartlett and
Dewey Ballantine will rely as to matters of Virginia law,
upon the opinion of Hunton & Williams, as to matters of
West Virginia law, upon the opinion of Robinson & McElwee
and as to matters of Tennessee law, upon the opinion of
Hunter, Smith & Davis, LLP, all counsel for the Company.
Additional legal opinions in connection with the offering
of the Unsecured Notes may be given by John M. Adams, Jr.
or Thomas G. Berkemeyer, counsel for the Company. Mr.
Adams is Assistant General Counsel, and Mr. Berkemeyer 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.
The legal conclusions in "Security" under the
caption "Description of New Bonds", as to those matters
governed by the laws of the Commonwealth of Virginia have
been reviewed by Hunton & Williams, Richmond, Virginia;
as to those matters governed by the laws of the State of
West Virginia by Robinson & McElwee, Charleston, West
Virginia; and as to those matters governed by the laws of
the State of Tennessee by Hunter, Smith & Davis, LLP,
Kingsport, Tennessee, all counsel for the Company. All
of said statements are made on the authority of said
firms as experts.
PLAN OF DISTRIBUTION
The Company may sell the New Bonds and/or Unsecured
Notes in any of three ways: (i) through underwriters or
dealers; (ii) directly to a limited number of purchasers
or to a single purchaser; or (iii) through agents. The
Prospectus Supplement relating to a series of the New
Bonds and/or Unsecured Notes will set forth the terms of
the offering of the New Bonds and/or Unsecured Notes,
including the name or names of any underwriters, dealers
or agents, the purchase price of such New Bonds and/or
Unsecured 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 Bonds
and/or Unsecured 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 Bonds and/or Unsecured 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 obligations of
the underwriters to purchase the New Bonds and/or
Unsecured Notes will be subject to certain conditions
precedent, and the underwriters will be obligated to
purchase all such New Bonds and/or Unsecured Notes if any
are purchased.
New Bonds and/or Unsecured 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 Bonds and/or Unsecured 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 Bonds and/or Unsecured 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.
