614/223-1648
Securities and Exchange Commission
450 Fifth Street, N.W.
ATTN: Filing Desk, Stop 1-4
Washington, D.C. 20549-1004
February 5, 1997
Re: Appalachian Power Company
Registration Statement on Form S-3
File No. 333-20305
Gentlemen:
Pursuant to Rule 424(b)(3) and on behalf of Appalachian Power
Company (the "Company"), submitted herewith is the Prospectus,
dated January 28, 1997, as supplemented by the Prospectus
Supplement, dated February 4, 1997, to be used in connection with
the anticipated public offering by the Company of $100,000,000
aggregate principal amount of First Mortgage Bonds, Designated
Secured Medium Term Notes.
Very truly yours,
/s/ Thomas G. Berkemeyer
Thomas G. Berkemeyer
TGB/mms
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 pay-
ments 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 underwrit-
ers, 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.
