-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WHQZDCgGLuLqaBF2EMddwxK+uevPvDNi6Jd3CKq7uQzXt93YyP6ULGON4o7xqgCk V86UQBg90t6eE3Zbbwi8zg== 0000004904-97-000006.txt : 19970130 0000004904-97-000006.hdr.sgml : 19970130 ACCESSION NUMBER: 0000004904-97-000006 CONFORMED SUBMISSION TYPE: U-1 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19970129 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN ELECTRIC POWER COMPANY INC CENTRAL INDEX KEY: 0000004904 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 134922640 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: U-1 SEC ACT: 1935 Act SEC FILE NUMBER: 070-08991 FILM NUMBER: 97512820 BUSINESS ADDRESS: STREET 1: 1 RIVERSIDE PLZ CITY: COLUMBUS STATE: OH ZIP: 43215 BUSINESS PHONE: 6142231000 FORMER COMPANY: FORMER CONFORMED NAME: KINGSPORT UTILITIES INC DATE OF NAME CHANGE: 19660906 U-1 1 File No. 70-____ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _________________________________ FORM U-1 __________________________________ APPLICATION OR DECLARATION under the PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 * * * AMERICAN ELECTRIC POWER COMPANY, INC. 1 Riverside Plaza, Columbus, Ohio 43215 APPALACHIAN POWER COMPANY 40 Franklin Road, Roanoke, Virginia 24022 INDIANA MICHIGAN POWER COMPANY One Summit Square, Fort Wayne, Indiana 46801 OHIO POWER COMPANY 301 Cleveland Avenue, S.W., Canton, Ohio 44702 (Name of company or companies filing this statement and addresses of principal executive offices) * * * AMERICAN ELECTRIC POWER COMPANY, INC. 1 Riverside Plaza, Columbus, Ohio 43215 (Name of top registered holding company parent of each applicant or declarant) * * * G. P. Maloney, Executive Vice President AMERICAN ELECTRIC POWER SERVICE CORPORATION 1 Riverside Plaza, Columbus, Ohio 43215 John F. Di Lorenzo, Jr., Associate General Counsel AMERICAN ELECTRIC POWER SERVICE CORPORATION 1 Riverside Plaza, Columbus, Ohio 43215 (Names and addresses of agents for service) ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION American Electric Power Company, Inc. ("AEP"), a New York corporation and a holding company registered under the Public Utility Holding Company Act of 1935 ("1935 Act"), and Appalachian Power Company ("APCo"), a Virginia corporation, Indiana Michigan Power Company ("I&M"), an Indiana corporation, and Ohio Power Company ("OPCo"), an Ohio corporation (APCo, I&M and OPCo are sometimes collectively referred to herein as the "Subsidiaries"), request authority (i) for each of the Subsidiaries to solicit proxies from the holders of their respective shares of preferred stock and common stock; (ii) for each of the Subsidiaries to amend their respective Articles (as defined herein); (iii) for AEP to make an offer to the holders of each series of the Subsidiaries' outstanding preferred stock to acquire for cash any and all shares of the Subsidiaries' outstanding preferred stock; (iv) for AEP to sell to the Subsidiaries any preferred stock so acquired at AEP's purchase price plus expenses; and (v) to increase the short-term debt authority of AEP to $550,000,000, as more fully described herein. AEP, APCo, I&M and OPCo are sometimes collectively referred to herein as "Applicants". A. Introduction 1. APCo Proxy Solicitation and Tender Offer APCo proposes to solicit proxies from the holders of its outstanding shares of preferred stock and common stock ("APCo Proxy Solicitation") for use at a special meeting of its stockholders ("APCo Special Meeting") to consider a proposed amendment to APCo's restated articles of incorporation ("APCo Articles") that would eliminate in its entirety Article V, Clause 7(B)(b) of the APCo Articles, a provision restricting the amount of debt issuable by APCo ("APCo Proposed Amendment"). If the APCo Proposed Amendment is adopted, APCo proposes to make a special cash payment to each preferred stockholder who voted his or her shares of preferred stock in favor of the APCo Proposed Amendment, provided that such shares have not been tendered pursuant to the concurrent cash tender offer described below. Concurrently with the APCo Proxy Solicitation, AEP proposes to make an offer ("APCo Offer") to the holders of APCo's outstanding preferred stock of each series to acquire for cash any and all shares of APCo outstanding preferred stock of each series, at cash purchase prices which AEP anticipates will include a market premium for each series. AEP anticipates that the APCo Offer for each series of preferred stock will be scheduled to expire at 5:00 P.M. (New York City time) on February 28, 1997, the date of the APCo Special Meeting ("APCo Expiration Date"), unless the APCo Offer is extended. Preferred Stockholders who wish to tender their preferred shares pursuant to the APCo Offer are not required to vote in favor of the APCo Proposed Amendment; however, among the conditions of the APCo Offer is that the APCo Proposed Amendment be approved and adopted at the APCo Special Meeting. 2. I&M Proxy Solicitation and Tender Offer I&M proposes to solicit proxies from the holders of its outstanding shares of preferred stock and common stock ("I&M Proxy Solicitation") for use at a special meeting of its stockholders ("I&M Special Meeting") to consider a proposed amendment to I&M's amended articles of acceptance ("I&M Articles") that would eliminate in its entirety Article 6(A), Subparagraph 7(B)(c) of I&M's Articles, a provision restricting the amount of unsecured debt issuable by I&M ("I&M Proposed Amendment"). If the I&M Proposed Amendment is adopted, I&M proposes to make a special cash payment to each preferred stockholder who voted his or her shares of preferred stock in favor of the I&M Proposed Amendment, provided that such shares have not been tendered pursuant to the concurrent cash tender offer described below. Concurrently with the I&M Proxy Solicitation, AEP proposes to make an offer ("I&M Offer") to the holders of I&M's outstanding preferred stock of each series to acquire for cash any and all shares of I&M outstanding preferred stock of each series, at cash purchase prices which AEP anticipates will include a market premium for shares of each series. AEP anticipates that the I&M Offer for each series of preferred stock will be scheduled to expire at 5:00 P.M. (New York City time) on February 28, 1997, the date of the I&M Special Meeting ("I&M Expiration Date"), unless the I&M Offer is extended. Preferred Stockholders who wish to tender their preferred shares pursuant to the I&M Offer are not required to vote in favor of the I&M Proposed Amendment; however, among the conditions of the I&M Offer is that the I&M Proposed Amendment be approved and adopted at the I&M Special Meeting. 3. OPCo Proxy Solicitation and Tender Offer OPCo proposes to solicit proxies from the holders of its outstanding shares of preferred stock and common stock ("OPCo Proxy Solicitation") for use at a special meeting of its stockholders ("OPCo Special Meeting") to consider a proposed amendment to OPCo's amended articles of incorporation ("OPCo Articles") that would eliminate Article FOURTH, Clause 7(B)(b) of OPCo's Articles, a provision restricting the amount of unsecured debt issuable by OPCo ("OPCo Proposed Amendment"). If the OPCo Proposed Amendment is adopted, OPCo proposes to make a special cash payment to each preferred stockholder who voted his or her shares of preferred stock in favor of the OPCo Proposed Amendment, provided that such shares have not been tendered pursuant to the concurrent cash tender offer described below. Concurrently with the OPCo Proxy Solicitation, AEP proposes to make an offer ("OPCo Offer") to the holders of OPCo's outstanding preferred stock of each series to acquire for cash any and all shares of OPCo outstanding preferred stock of each series, at cash purchase prices which AEP anticipates will include a market premium for each series. AEP anticipates that the OPCo Offer for each series of preferred stock will be scheduled to expire at 5:00 P.M. (New York City time) on February 28, 1997, the date of the OPCo Special Meeting ("OPCo Expiration Date"), unless the OPCo Offer is extended. Preferred Stockholders who wish to tender their preferred shares pursuant to the OPCo Offer are not required to vote in favor of the OPCo Proposed Amendment; however, among the conditions of the OPCo Offer is that the OPCo Proposed Amendment be approved and adopted at the OPCo Special Meeting.FN1 FN1 The APCo Proxy Solicitation, I&M Proxy Solicitation and OPCo Proxy Solicitation are sometimes referred to herein individually as a "Proxy Solicitation" and collectively as the "Proxy Solicitations"; the APCo Special Meeting, I&M Special Meeting and the OPCo Special Meeting are sometimes referred to herein individually as a "Special Meeting" and collectively as the "Special Meetings"; the APCo Articles, I&M Articles and OPCo Articles are sometimes referred to herein individually and collectively as the "Articles"; the APCo Proposed Amendment, I&M Proposed Amendment and OPCo Proposed Amendment are sometimes referred to herein individually as a "Proposed Amendment" and collectively as the "Proposed Amendments"; the APCo Offer, I&M Offer and OPCo Offer are sometimes referred to herein individually as an "Offer" and collectively as the "Offers"; and the APCo Expiration Date, I&M Expiration Date and OPCo Expiration Date are sometimes referred to herein individually as an "Expiration Date" and collectively as the "Expiration Dates." Applicants request that the Commission issue a public notice of the proposed transactions and order authorizing the Proxy Solicitations (collectively, "Proxy Solicitation Order") on January 29, 1997, thereby both affording the Subsidiaries sufficient time to solicit proxies in advance of the Special Meetings and, because the Proxy Solicitations and the Offers will be effected by means of a combined proxy statement and issuer tender offer statement with respect to each Subsidiary pursuant to the Securities Exchange Act of 1934 ("Exchange Act") and applicable rules and regulations thereunder, facilitating commencement of the Offers. Applicants further request that as soon as practicable after the Proxy Solicitation Order, but in any event not later than Tuesday, February 25, 1997, the Commission issue an order authorizing the Proposed Amendments and Cash Payments (as defined herein) together with AEP's proposed acquisition of any and all shares of the Subsidiaries' preferred stock pursuant to the Offers. B. Background: As discussed below, the purpose of the Proxy Solicitations is to eliminate the provision in each Subsidiary's Articles restricting the ability of the Subsidiary to incur certain indebtedness. AEP and each Subsidiary considers this restriction a significant impediment to their ability to adapt to an increasingly competitive market for electricity, maintain financial flexibility and minimize their financing costs. The competitive advantages, financing flexibility and cost benefits resulting from the elimination of these provisions outweigh the one-time cost of the Offers and the Proxy Solicitations. Applicants further believe that the terms of purchase for the outstanding shares of the Subsidiaries' preferred stock pursuant to the Offers will benefit not only tendering preferred stockholders (given the proposed per share purchase price) but also, taking into account all related transaction costs, AEP's investors and the AEP System utility customers by (1) contributing to the elimination of the onerous provisions concerning indebtedness (with the attendant benefits described above) and (2) resulting in the acquisition and retirement of outstanding shares of the Subsidiaries' preferred stock and their potential replacement with comparatively less expensive financing alternatives, such as debt or so-called "hybrid securities". C. Proposed Transactions: Proxy Solicitation and Proposed Amendment 1. Terms of Proxy Solicitation and Proposed Amendment a. APCo APCo has outstanding 13,499,500 shares of common stock, no par value per share ("APCo Common Stock"), all of which are held by AEP. APCo's outstanding preferred stock consists of 2,198,150 shares of cumulative preferred stock, no par value per share (collectively, "APCo Preferred Stock"), issued in five series (each, an "APCo Series")FN2, all of which are traded over-the- counter, except for the 4-1/2% Series, which is traded on the Philadelphia Stock Exchange. The APCo Common Stock and APCo Preferred Stock of each APCo Series are entitled to one vote per share on the matters described herein and constitute APCo's only outstanding securities entitled to vote on the APCo Proposed Amendment. APCo has outstanding no other class of equity securities. FN2 The five series of APCo Preferred Stock consist of a 4-1/2% series, of which 298,150 shares are outstanding ("4-1/2% Series"); a 5.90% series, of which 500,000 shares are outstanding ("5.90% Series"); a 5.92% series, of which 600,000 shares are outstanding ("5.92% Series"); a 6.85% series, of which 300,000 shares are outstanding ("6.85% Series"); and a 7.80% series, of which 500,000 shares are outstanding ("7.80% Series"). Article V, Clause 7(B)(b) of the APCo Articles currently provides that, so long as any shares of APCo's cumulative preferred stock of any Series are outstanding, without the consent of the holders of a majority of the total number of votes which holders of the outstanding shares of APCo Preferred Stock of all series are entitled to cast, APCo shall not issue or assume any evidence of indebtedness, secured or unsecured (other than for purposes of refunding or renewing outstanding evidences of indebtedness or redeeming or otherwise retiring all outstanding shares of APCo Preferred Stock and other than first mortgage bonds and certain secured indebtedness) if, immediately after such issue or assumption, (a) the total principal amount of all such indebtedness issued or assumed by APCo and then outstanding would exceed 20% of the aggregate of (1) the total principal amount of all then- outstanding bonds or other secured debt of APCo (other than certain bonds issued under a mortgage) and (2) the stated capital and surplus of APCo as stated on APCo's books; or (b) the total principal amount of all unsecured debt would exceed 20% of the aggregate of (1) the total principal amount of all then-outstanding bonds or other secured debt of APCo and (2) the stated capital and surplus of APCo as stated on APCo's books; or (c) the total outstanding principal amount of all unsecured debt of maturities of less than ten years would exceed 10% of the aggregate of (1) the total principal amount of all then-outstanding bonds or other secured debt of APCo and (2) the stated capital and surplus of APCo as stated on APCo's books ("APCo Restriction Provision"). The APCo Proposed Amendment would eliminate the APCo Restriction Provision by deleting it in its entirety from the APCo Articles. If the APCo Proposed Amendment is adopted, APCo proposes to make a special cash payment of $1.00 per share (each, an "APCo Cash Payment") to each APCo Preferred Stockholder of any APCo Series, any of whose shares of APCo Preferred Stock (each, an "APCo Share") are properly voted at the APCo Special Meeting (in person by ballot or by proxy) in favor of the APCo Proposed Amendment, provided that such APCo Shares are not tendered pursuant to the APCo Offer. APCo will disburse APCo Cash Payments out of its general funds, promptly after adoption of the APCo Proposed Amendment. b. I&M I&M has outstanding 1,400,000 shares of common stock, par value $100 per share ("I&M Common Stock"), all of which are held by AEP. I&M's outstanding preferred stock consists of 1,569,767 shares of cumulative preferred stock, par value $100 per share ("I&M Preferred Stock"), issued in seven series (each, an "I&M Series")FN3, all of which are traded over-the-counter, except for the 4-1/8% Series, which is traded on the Chicago Stock Exchange. The I&M Common Stock and I&M Preferred Stock of each I&M Series are entitled to one vote per share on the matters described herein and constitute I&M's only outstanding securities entitled to vote on the I&M Proposed Amendment. I&M has outstanding no other class of equity securities. FN3 The seven series of I&M Preferred Stock consist of a 4-1/8% series, of which 119,767 shares are outstanding ("4-1/8% Series"); a 4.12% series, of which 40,000 shares are outstanding ("4.12% Series"); a 4.56% series, of which 60,000 shares are outstanding ("4.56% Series"); a 5.90% series, of which 400,000 shares are outstanding ("5.90% Series"); a 6- 1/4% series, of which 300,000 shares are outstanding ("6-1/4% Series"); a 6-7/8% series, of which 300,000 shares are outstanding ("6-7/8% Series"); and a 6.30% series, of which 350,000 shares are outstanding ("6.30% Series"). Article 6(A), Subparagraph 7(B)(c) of the I&M Articles currently provides that, so long as any shares of I&M cumulative preferred stock of any Series are outstanding, without the consent of the holders entitled to cast a majority of the total number of votes which holders of the outstanding I&M Preferred Stock of all series are entitled to cast, I&M shall not issue or assume any unsecured debt securities (other than for purposes of the reacquisition, redemption or other retirement of any evidences of indebtedness theretofore issued or assumed by I&M or the reacquisition, redemption or other retirement of all outstanding shares of I&M Preferred Stock) if, immediately after such issue or assumption, the total principal amount of all unsecured debt securities (other than the principal amount of all long-term unsecured debt securities not in excess of 10% of the capitalization of I&M)FN4 issued or assumed by I&M and then outstanding would exceed 10% of the capitalization of I&M ("I&M Restriction Provision"). The I&M Proposed Amendment would eliminate the I&M Restriction Provision by deleting it in its entirety from the I&M Articles. FN4 "Capitalization" means an amount equal to the sum of (i) the total principal amount of all bonds or other secured debt securities issued or assumed by I&M outstanding at the time of determination and (ii) the aggregate of the stated capital of all classes of I&M stock outstanding at the time of determination and surplus of I&M at such time. If the I&M Proposed Amendment is adopted, I&M proposes to make a special cash payment of $1.00 per share (each, an "I&M Cash Payment") to each I&M Preferred Stockholder of any I&M Series, any of whose shares of I&M Preferred Stock (each, an "I&M Share") are properly voted at the I&M Special Meeting (in person by ballot or by proxy) in favor of the I&M Proposed Amendment, provided that such I&M Shares are not tendered pursuant to the I&M Offer. I&M will disburse I&M Cash Payments out of its general funds, promptly after adoption of the I&M Proposed Amendment. c. OPCo OPCo has outstanding 27,952,473 shares of common stock, no par value per share ("OPCo Common Stock"), all of which are held by AEP. OPCo's outstanding preferred stock consists of 1,484,316 shares of cumulative preferred stock, par value $100 per share ("OPCo Preferred Stock"), issued in seven series (each, an "OPCo Series")FN5, all of which are traded over-the-counter. The OPCo Common Stock and OPCo Preferred Stock of each OPCo Series are entitled to one vote per share on the matters described herein and constitute OPCo's only outstanding securities entitled to vote on the OPCo Proposed Amendment. OPCo has outstanding no other class of equity securities. FN5 The seven series of OPCo Preferred Stock consist of a 4-1/2% series, of which 202,403 shares are outstanding ("4-1/2% Series"); a 4.08% series, of which 42,575 shares are outstanding ("4.08% Series"); a 4.20% series, of which 51,975 shares are outstanding ("4.20% Series"); a 4.40% series, of which 88,363 shares are outstanding ("4.40% Series"); a 5.90% series, of which 404,000 shares are outstanding ("5.90% Series"); a 6.02% series, of which 395,000 shares are outstanding ("6.02% Series"); and a 6.35% series, of which 300,000 shares are outstanding ("6.35% Series"). Article FOURTH, Clause 7(B)(b) of the OPCo Articles currently provides that, so long as any shares of OPCo's cumulative preferred stock are outstanding, without the consent of the holders of a majority of the total number of votes which holders of the outstanding OPCo Preferred Stock of all series are entitled to cast, OPCo shall not issue or assume any unsecured debt securities (other than for purposes of the reacquisition, redemption or other retirement of any evidences of indebtedness theretofore issued or assumed by OPCo or the reacquisition, redemption or other retirement of all outstanding shares of OPCo Preferred Stock) if, immediately after such issue or assumption, the total principal amount of all unsecured debt securities (other than the principal amount of all long-term unsecured debt securities not in excess of 10% of the capitalization of OPCo)FN6 issued or assumed by OPCo and then outstanding would exceed 10% of the capitalization of OPCo ("OPCo Restriction Provision"). The OPCo Proposed Amendment would eliminate the OPCo Restriction Provision by deleting it in its entirety from the OPCo Articles.FN7 FN6 "Capitalization" means an amount equal to the sum of (i) the total principal amount of all bonds or other secured debt securities issued or assumed by OPCo outstanding at the time of determination and (ii) the aggregate of the stated capital of all classes of OPCo stock outstanding at the time of determination and surplus of OPCo at such time. FN7 The APCo Series, I&M Series and OPCo Series are sometimes referred to herein individually and collectively as the "Series" and the APCo Restriction Provision, I&M Restriction Provision and OPCo Restriction Provision are sometimes referred to herein individually as a "Restriction Provision" and collectively as the "Restriction Provisions." If the OPCo Proposed Amendment is adopted, OPCo proposes to make a special cash payment of $1.00 per share (each, an "OPCo Cash Payment") to each OPCo Preferred Stockholder of any OPCo Series, any of whose shares of OPCo Preferred Stock (each, an "OPCo Share") are properly voted at the OPCo Special Meeting (in person by ballot or by proxy) in favor of the OPCo Proposed Amendment, provided that such OPCo Shares are not tendered pursuant to the OPCo Offer. OPCo will disburse OPCo Cash Payments out of its general funds, promptly after adoption of the OPCo Proposed Amendment.FN8 FN8 The APCo Cash Payment, I&M Cash Payment and OPCo Cash Payment are sometimes referred to herein individually as a "Cash Payment" and collectively as the "Cash Payments" and the APCo Shares, I&M Shares and OPCo Shares are sometimes referred to herein individually and collectively as the "Shares". d. Miscellaneous Adoption of an amendment to the Articles, including the Proposed Amendments, requires the affirmative vote at a Subsidiary's Special Meeting (in person by ballot or by proxy) of the holders of not less than two-thirds of the outstanding shares of each of (1) the Preferred Stock of all Series, voting together as one class, and (2) the Common Stock. AEP will vote its shares of APCo Common Stock, I&M Common Stock and OPCo Common Stock, respectively, in favor of the Proposed Amendments. Abstentions and broker non-votes in respect of the Proposed Amendments will have the effect of votes against the Proposed Amendments. Votes at the Special Meetings will be tabulated preliminarily by First Chicago Trust Company of New York ("First Chicago"). Inspectors of election, duly appointed by the presiding officer at the Special Meetings, will definitively count and tabulate the votes and determine and announce the results at the meeting. The Subsidiaries have engaged Morrow & Co., Inc. ("Morrow") to act as information agent in connection with the Proxy Solicitations for a fee and reimbursement of reasonable out-of- pocket expenses expected not to exceed approximately $27,500. 2. Benefits of Proposed Amendment The Subsidiaries believe that regulatory, legislative, technological and market developments are likely to lead to a more competitive environment in the electric utility industry. The Subsidiaries and AEP's other electric utility subsidiaries believe that they currently have a favorable competitive position because of their relatively low costs. As competition intensifies, flexibility and cost reduction will be even more crucial to success. Because the electric utility industry is extremely capital intensive, control and minimization of financing costs are of particular importance. In response to the competitive forces and regulatory changes faced by the Subsidiaries and AEP's other electric utility subsidiaries, AEP and its public utility subsidiaries have from time to time considered, and expect to continue to consider, various strategies designed to enhance their competitive position and to increase their ability to adapt to and anticipate changes in their utility business. The Subsidiaries believe that adoption of the Proposed Amendments is key to financial flexibility and capital cost reduction. Historically, the Subsidiaries' debt financing generally has been accomplished through the issuance of long-term first mortgage bonds, a modest amount of short-term debt and long- term installment purchase contracts for pollution control bonds. First mortgage bonds represent secured indebtedness placing a first priority lien on substantially all of the Subsidiaries' assets. The Mortgage and Deed of Trust between each Subsidiary and its bondholders contains certain restrictive covenants with respect to, among other things, the disposition of assets and the ability to issue additional first mortgage bonds. Unsecured debt generally has fewer restrictions than first mortgage bonds. Short-term debt, a low cost form of debt available to the Subsidiaries, represents one type of unsecured indebtedness. Pollution control bond financing, a favorable type of financing due to its tax-exempt status, is available only for very limited purposes. The Proposed Amendments will not only allow the Subsidiaries to issue a greater amount of unsecured debt, but also will allow the Subsidiaries to issue a greater amount of total debt. The Subsidiaries, however, presently have no intention of issuing a greater amount of total debt than they would have issued absent the adoption of the Proposed Amendments, except that APCo and I&M expect to, and OPCo may, issue additional unsecured debt to fund the purchase of the Shares from AEP. Rather, it is each of the Subsidiaries' intention to attain flexibility in the mix of its outstanding debt and therefore have the option to use more short- term and unsecured debt and fewer first mortgage bonds. Inasmuch as the Restriction Provisions contained in the Articles limit the Subsidiaries' flexibility in planning and financing their business activities, the Subsidiaries believe they ultimately will be at a competitive disadvantage if the Restriction Provisions are not eliminated. The industry's new competitors (for example, power marketers, exempt wholesale generators, independent power producers and owners of cogeneration facilities) generally are not subject to the type of financing restrictions the Articles impose upon the Subsidiaries. Recently, several other utilities with the same or similar charter restrictions have successfully eliminated such provisions by soliciting their shareholders for the same or similar amendments.FN9 In addition, some potential utility competitors, and other AEP public utility subsidiaries, including Columbus Southern Power Company and Kentucky Power Company, have no comparable provision restricting the use of unsecured debt. Although the Subsidiaries sell relatively low-cost power, they must continue to explore new ways of reducing costs and enhancing flexibility. The Subsidiaries believe that the adoption of the Proposed Amendments will be in the best long-term competitive interests of their customers and shareholders. FN9 The Commission has authorized utility subsidiaries of registered holding companies to solicit their shareholders for similar charter amendments with respect to unsecured debt limitations. See, e.g., Cincinnati Gas & Electric Co., Rel. No. 35-26569 (September 11, 1996); Blackstone Valley Electric Company, Rel. No. 35-26320 (June 28, 1995); Alabama Power Company, Rel. No. 35-26118 (Sept. 7, 1994). a. Financial Flexibility If the Proposed Amendment is adopted, the Subsidiaries will have increased flexibility (i) to choose among different types of debt financing and (ii) to finance projects using the most cost effective means. The Subsidiaries believe that various types of unsecured debt alternatives will increase in importance as an option in financing their construction programs and refinancing first mortgage bonds. The availability and flexibility of unsecured debt is necessary to take full advantage of changing conditions in securities markets. As a result, the Subsidiaries may increase the amount of unsecured debt to more than 20% of capitalization. In addition, although the Subsidiaries' earnings currently are sufficient to meet the earnings coverage tests that must be satisfied before issuing additional first mortgage bonds and Preferred Stock, there is no guarantee that this will be true in the future. Other utilities have been unable to issue first mortgage bonds during certain periods because of restrictive covenants in their mortgages. The Subsidiaries' inability to issue first mortgage bonds or Preferred Stock in the future, combined with the inability to issue additional unsecured debt, would limit the Subsidiaries' financing options to more costly options, including additional common equity. Moreover, continued reliance on the issuance of first mortgage bonds under the Subsidiaries' Mortgages and Deeds of Trust could limit their ability in the future to strategically redeploy their assets. Under the Restrictive Provisions, the Subsidiaries' use of unsecured short-term debt is presently restricted. However, the Subsidiaries believe that the prudent use of such debt in excess of these provisions is vital to effective financial management of their respective businesses. Not only is unsecured short-term debt generally one of the least expensive forms of capital, it also provides flexibility in meeting seasonal fluctuations in cash requirements, acts as a bridge between issues of permanent capital, and can be used when unfavorable conditions prevail in the market for long-term capital. b. Lower Costs As stated above, the Subsidiaries' short-term debt issuances generally represent one of their lowest-cost forms of financing. The Subsidiaries are reassessing their historically modest use of short-term debt. By increasing their use of short- term debt, the Subsidiaries may be able to lower their respective cost structures further, thereby making their products more competitive and reducing their business risks. However, with the Restriction Provisions in place, the availability and corresponding benefits of short-term debt diminish. And although short-term debt may expose the borrower to more volatility in interest rates, it should be noted that the cost of short-term debt seldom exceeds the cost of other forms of capital available at the same time. Under the Restriction Provisions, APCo, I&M and OPCo have available only approximately $230 million, $172 million and $212 million, respectively, of unsecured debt capacity (short-term or otherwise), based on capitalization as of September 30, 1996. Reference is made to Exhibits B-1, B-2 and B-3 (draft Proxy Statement and Offer to Purchase), B-4 (draft Notice of Special Meeting) and B-5 (draft form of Proxy) for more detailed information with respect to the Proxy Solicitations and Proposed Amendments. D. Proposed Transactions: Offer 1. Terms of Offer Concurrently with the commencement of the Proxy Solicitations, subject to the terms and conditions stated in the Offer to Purchase and Proxy Statements, the proxies and the accompanying Letters of Transmittal (see Exhibits B-1, B-2, B-3, B- 5 and B-6) (collectively, "Offer Documents"), AEP proposes to make the Offers, pursuant to which it will offer to acquire from the holders of the Preferred Stock of each Series any and all Shares of that Series at the following cash purchase prices: (i) APCo - $__ per share, in the case of the 4-1/2% Series; $__ per share, in the case of the 5.90% Series; $___ per share, in the case of the 5.92% Series; $___ per share, in the case of the 6.85% Series; and $__ per share, in the case of the 7.80% Series (each, an "APCo Purchase Price"). (ii) I&M - $__ per share, in the case of the 4-1/8% Series; $__ per share, in the case of the 4.12% Series; $___ per share, in the case of the 4.56% Series; $___ per share, in the case of the 5.90% Series; $__ per share, in the case of the 6-1/4% Series; $__ per share, in the case of the 6-7/8% Series; and $__ per share, in the case of the 6.30% Series (each, an "I&M Purchase Price"). (iii) OPCo - $__ per share, in the case of the 4-1/2% Series; $__ per share, in the case of the 4.08% Series; $__ per share, in the case of the 4.20% Series; $__ per share, in the case of the 4.40% Series; $__ per share, in the case of the 5.90% Series; $__ per share, in the case of the 6.02% Series; and $__ per share, in the case of the 6.35% Series (each, an "OPCo Purchase Price")FN10. AEP anticipates that the Offer for each Series of Preferred Stock will be scheduled to expire at 5:00 P.M. (New York City time) on the date of the Special Meetings (i.e., February 28, 1997). As noted below, the Expiration Date may be extended under certain circumstances. FN10 The APCo Purchase Price, I&M Purchase Price and OPCo Purchase Price are sometimes referred to herein individually as a "Purchase Price" and collectively as the "Purchase Prices". The Offers consist of separate offers for each of the five APCo Series, the seven I&M Series and the seven OPCo Series, with the offer for any one Series being independent of the offer for any other Series. The applicable Purchase Price and the other terms and conditions of the Offers apply equally to all Preferred Stockholders of the respective Series. The Offers are not conditioned upon any minimum number of Shares of the applicable Series being tendered, but are conditioned, among other things, on the Proposed Amendments being adopted at the respective Special Meetings. To tender shares in accordance with the terms of the Offer Documents, the tendering Preferred Stockholder must either (1) send to First Chicago, in its capacity as depositary for the Offers ("Depositary"), a properly completed and duly executed Letter of Transmittal and Proxy or facsimile thereof for that Series, together with any required signature guarantees and any other documents required by the Letter of Transmittal and Proxy, and either (a) certificates for the Shares to be tendered must be received by the Depositary at one of its addresses specified in the Offer Documents, or (b) such Shares must be delivered pursuant to the procedures for book-entry transfer described in the Offer Documents (and a confirmation of such delivery must be received by the Depositary), in each case by the Expiration Date; or (2) comply with a guaranteed delivery procedure specified in the Offer Documents.FN11 Tenders of Shares made pursuant to an Offer may be withdrawn at any time prior to the Expiration Date. Thereafter, such tenders are irrevocable, subject to certain exceptions identified in the Offer Documents. FN11 Preferred Stockholders will not be under any obligation to tender Shares pursuant to the Offer; the Offer will not constitute a notice of redemption of any Series pursuant to the Articles. Nor will the Offer operate to waive any option the Subsidiaries have to redeem Shares. For a summary of the redemption provisions of the APCo Preferred Stock, I&M Preferred Stock and OPCo Preferred Stock, please see Exhibit A-7. AEP's obligation to proceed with the Offers and to accept for payment and to pay for any Shares tendered is made in accordance with Rule 51 under the 1935 Act and is subject to various conditions enumerated in the Offer Documents, including, among other conditions, that the Proposed Amendments be adopted at the Special Meetings and that the Commission issue an order under the 1935 Act authorizing the proposed transactions. At any time or from time to time, AEP may extend the Expiration Date applicable to any Series by giving notice of such extension to the Depositary, without extending the Expiration Date for any other Series. During any such extension, all Shares of the applicable Series previously tendered will remain subject to the Offer, and may be withdrawn at any time prior to the Expiration Date as extended. Conversely, AEP may elect in its sole discretion to terminate one or more Offers prior to the scheduled Expiration Date and not accept for payment and pay for any Shares tendered, subject to applicable provisions of Rule 13e-4 under the Exchange Act requiring AEP either to pay the consideration offered or to return the Shares tendered promptly after the termination or withdrawal of an Offer, upon the occurrence of any of the conditions to closing enumerated in the Offer Documents, by giving notice of such termination to the Depositary and making a public announcement thereof. Subject to compliance with applicable law, AEP further reserves the right in the Offer Documents, in its sole discretion, to amend one or more Offers in any respect by making a public announcement thereof. If AEP materially changes the terms of an Offer or the information concerning an Offer, or if AEP waives a material condition of an Offer (such as the condition that the Proposed Amendment be adopted at the Special Meeting), AEP will extend the Expiration Date to the extent required by the applicable provisions of Rule 13e-4 under the Exchange Act. Those provisions require that the minimum period during which an issuer tender offer must remain open following material changes in the terms of the offer or information concerning the offer (other than a change in price or change in percentage of securities sought) will depend on the facts and circumstances, including the relative materiality of such terms or information. If an Offer is scheduled to expire at any time earlier than the expiration of a period ending on the tenth business day from, and including, the date that AEP notifies Preferred Stockholders that it will (a) decrease the number of Shares of any Series of Preferred being sought, (b) increase or decrease the consideration being offered in the Offer to holders of any Series of Preferred or (c) increase or decrease the soliciting dealers' fees, the Expiration Date will be extended until the expiration of such period of ten business days. Shares validly tendered to the Depositary pursuant to an Offer and not withdrawn in accordance with the procedures set forth in the Offer Documents will be held by AEP until the Expiration Date (or returned in the event the Offer is terminated). Subject to the terms and conditions of an Offer, as promptly as practicable after the Expiration Date, AEP will accept for payment (and thereby purchase) and pay for Shares validly tendered and not withdrawn. AEP will pay for Shares that it has purchased pursuant to the Offer by depositing the applicable Purchase Price with the Depositary, which will act as agent for the tendering Preferred Stockholders for the purpose of receiving payment from AEP and transmitting payment to tendering Preferred Stockholders. AEP will pay all stock transfer taxes, if any, payable on account of its acquisition of Shares pursuant to an Offer, except in certain circumstances where special payment or delivery procedures are utilized in conformance with the applicable Letters of Transmittal and Proxy. With respect to Shares validly tendered and accepted for payment by AEP, each tendering Preferred Stockholder will be entitled to receive as consideration from AEP only the applicable Purchase Price (which AEP anticipates will reflect a premium over the current market price at the commencement of the Offers). Any such holder will not be entitled to receive with respect to such tendered Shares additional consideration in the form of a Cash Payment. As stated above in Item 1.C, the latter payment is payable by a Subsidiary solely in respect of Shares voted by Preferred Stockholders at such Subsidiary's Special Meeting in favor of the Proposed Amendment, provided that (a) such Shares have not been tendered pursuant to an Offer and (b) the Proposed Amendment is adopted at the Subsidiary's Special Meeting. Preferred Stockholders who wish to tender their Shares pursuant to an Offer are not required to vote in favor of the Proposed Amendment; however, the Offer is conditioned upon the Proposed Amendment being adopted at the Special Meeting. As noted immediately above, subject to the terms and conditions of an Offer, Shares validly tendered and not withdrawn will be accepted for payment and paid for by AEP as promptly as practicable after the Expiration Date. If a Proposed Amendment is not adopted at the Special Meeting, AEP may elect, but is not obligated, to waive such condition, subject to applicable law.FN12 In that case, as promptly as practicable after AEP's waiver thereof and purchase of any Shares validly tendered pursuant to the Offers, the effected Subsidiary anticipates that it would call another special meeting of its common and preferred stockholders and solicit proxies therefrom for the same purpose as in the instant proceeding, i.e., to secure the requisite two-thirds affirmative vote of stockholders to amend the Articles to eliminate the Restriction Provision. At that meeting, AEP would vote any Shares acquired by it pursuant to the Offer or otherwise FN13 (as well as all of its shares of Common Stock) to eliminate the Restriction Provision. If the proposed amendment is adopted at that meeting, and in any event within one year from the Expiration Date (including any potential extension thereto pursuant to the Offer), AEP will promptly after such meeting or at the expiration of such one-year period, as applicable, sell the Shares to the Subsidiary at the Purchase Price plus expenses paid therefor pursuant to the Offer, and the Subsidiary will thereupon retire and cancel such Shares. FN12 In this regard, as noted above, if AEP waives a material condition of an Offer (such as the condition that a Proposed Amendment be adopted at the Special Meeting), AEP will extend the Expiration Date to the extent required by the applicable provisions of Rule 13e-4 under the Exchange Act. Those provisions require that the minimum period during which an issuer tender offer must remain open following material changes in the terms of the offer or information concerning the offer (other than a change in price or change in percentage of securities sought) will depend on the facts and circumstances, including the relative materiality of such terms or information. FN13 Following the Expiration Date and the consummation of the purchase of Shares pursuant to an Offer, AEP may determine to purchase additional Shares on the open market, in privately negotiated transactions, through one or more tender offers or otherwise. AEP will not undertake any such transactions without receipt of any required Commission authorizations under the 1935 Act in one or more separate proceedings. Likewise, in the event such a further special meeting is necessary, the effected Subsidiary would not undertake any associated proxy solicitation and proposed Articles amendment prior to receipt of any required Commission authorizations under the 1935 Act in a separate proceeding. Merrill Lynch, Pierce, Fenner & Smith Incorporated and Salomon Brothers Inc will act as dealer managers for AEP in connection with the Offers. AEP has agreed to pay the dealer managers a fee of $.50 per Share for any Shares tendered, accepted for payment and paid for pursuant to the Offers and the Subsidiaries have agreed to pay the dealer managers a fee of $.50 per Share for any Shares that are not tendered pursuant to the Offers but which vote in favor of the Proposed Amendment, and AEP has agreed to reimburse the dealer managers for their reasonable out-of-pocket expenses, including attorneys' fees. In addition, AEP has agreed to pay soliciting brokers and dealers a separate fee of (i) $1.50 per Share for any Shares of the APCo 4-1/2% Series, the I&M 4-1/8% Series, 4.12% Series and 4.56% Series, and the OPCo 4-1/2% Series, 4.08% Series, 4.20% Series and 4.40% Series, tendered, accepted for payment and paid for pursuant to the Offers (except that for transactions with beneficial owners equal to or exceeding 5,000 Shares, AEP will pay a solicitation fee of $1.00 per Share for Shares of such Series), and (ii) $.50 per Share for the remaining Series. The Subsidiaries will pay a separate fee of $.50 per Share for any Shares of the APCo 4-1/2% Series, the I&M 4-1/8% Series, 4.12% Series and 4.56% Series, and the OPCo 4-1/2% Series, 4.08% Series, 4.20% Series and 4.40% Series that are not tendered pursuant to the Offers but which are voted in favor of the Proposed Amendment. As set forth in Item 2, AEP proposes to pay the Depositary a fee estimated at approximately $50,000. 2. Benefits of Offer; Utilization of AEP rather than the Subsidiaries as Offeror The proposed acquisition by AEP of Shares pursuant to the Offers will benefit AEP's utility system customers, shareholders and Preferred Stockholders. The Offers allow Preferred Stockholders who may not favor the elimination of the Restriction Provisions an option to sell their Preferred Stock at a price that AEP anticipates will be a premium to the market price and without the usual transaction costs associated with a sale. AEP System utility customers and AEP shareholders will benefit from, among other things, the Subsidiaries lowering their cost of capital through the anticipated reduction in the aggregate amount payable of Preferred Stock dividends and, to the extent Preferred Stock is replaced with debt, realizing benefits from the tax deductibility of interest since preferred stock dividends are not deductible for tax purposes. Moreover, as discussed above in Item 1.C.2, elimination of the Restriction Provisions will (among other benefits) permit the Subsidiaries to redeem and replace a portion of its high-coupon debt with lower cost short-term debt, resulting in additional cost savings. More specifically, assuming only a 50% overall success rate for the Offers, the estimated cash savings to the Subsidiaries thereafter amount to between $____ million each year (based on purchased shares being refinanced entirely with short-term debt at prevailing rates on the date hereof) and $____ million each year (based on purchased Shares being refinanced entirely by long-term tax-deductible preferred securities), after taxes and excluding expenses incurred in connection with the Offers and the Proxy Solicitations. On a cumulative net present value savings basis, assuming (x) a 50% overall success rate for the Offers (and that 25% of all Preferred Stockholders do not tender their Shares pursuant to the Offer but do vote in favor of the Proposed Amendments at the Special Meeting), (y) refinancing of Shares acquired and paid for pursuant to the Offers with a combination of long-term tax deductible hybrid securities and short-term debt at prevailing rates at the date hereof, and (z) a discount rate equal to the new securities after-tax weighted average cost of capital, the proposed transactions are anticipated to yield total after-tax, present value cash savings of about $____ million over approximately the original remaining lives of the Series of Preferred, net of cash expenditures incurred in the Offers and Proxy Solicitations (i.e., Cash Payments, the applicable Purchase Prices paid for validly tendered and accepted Shares, and the other fees and expenses listed in Item 2). A success rate for the Offers higher than the 50% rate assumed above has the potential to generate even further cash savings. Given the significant benefits that will accrue from elimination of the Restriction Provisions, Applicants are committed to using their best efforts to secure that result. A principal aim of the proposed transactions is to accomplish that objective in a cost-effective manner. However, there can be no assurance of success. In that regard, as stated above in Item 1.D.1, in the event any one or more Proposed Amendments are not adopted at the Special Meeting, AEP may elect, subject to applicable law, to waive the Offer condition that such Proposed Amendment be adopted at the Special Meeting. In that case, as promptly as practicable after AEP's waiver thereof and purchase of Shares validly tendered pursuant to the Offer, the relevant Subsidiary anticipates that it would call another special meeting of its common and preferred stockholders and solicit proxies for the same purpose to secure the requisite vote of both classes of stockholders to amend the Articles to eliminate the Restriction Provision. At that meeting, AEP would vote any Shares previously acquired by it pursuant to the Offer or otherwise (together with shares held by it of Common Stock) in favor of such proposed amendment to the Articles, thereby maximizing its prospects for adoption in that event. By contrast, if a Subsidiary, rather than AEP, had acquired its Shares pursuant to the Offer, upon acquisition thereof by such Subsidiary any such Shares would be deemed treasury shares under applicable state law and, as such, the Subsidiary would be precluded from voting those Shares under any circumstance. E. Short-term Debt The Commission previously authorized AEP to incur short- term indebtedness, from time to time prior to December 31, 2000, up to a maximum amount of $150 million.FN14 To finance the purchase of any Shares tendered, accepted for payment and paid for pursuant to the Offer, AEP hereby requests the Commission to authorize AEP to use its general funds and/or incur short-term indebtedness in an amount sufficient to pay the Purchase Price for all tendered Shares, an amount not expected to exceed $540 million. The $550 million authorization requested by AEP for short-term indebtedness is in addition to the authority granted to AEP in Rel. No. 35-26516 in File No. 70-8429 (May 20, 1996).FN15 The additional $400 million of short-term borrowing authority ("New Borrowings") shall decrease by the amount paid to AEP by the Subsidiaries for the repurchase of Shares therefrom, and shall expire no later than February 28, 1998. FN14 American Electric Power Company, Inc., et al., Rel. No. 35- 26424 (December 8, 1995). FN15 Rel. No. 35-26516 authorized AEP to incur short-term indebtedness up to 50% of its consolidated retained earnings and to use the proceeds to invest in EWGs and FUCOs. As noted in Part I(C), supra, the Restriction Provisions require a vote of the holders of the outstanding Preferred Stock of each Series to issue any short-term unsecured debt securities if immediately after such issue the total principal amount of all short-term unsecured debt securities issued and then outstanding would exceed 10% of capitalization. Unless the Proposed Amendments are adopted, APCo, I&M and OPCo, as the case may be, will at no time issue short-term unsecured debt securities in excess of the Restriction Provision even if the amount of short-term indebtedness authorized in this transaction exceeds such Restriction Provision. Notes to Banks and Commercial Paper in Connection with New Borrowings -- It is proposed that such notes and commercial paper with respect to the New Borrowings will be issued from time to time and be renewed from time to time prior to February 28, 1998, as funds may be required, provided that no such notes or commercial paper shall mature later than August 28, 1998. Notes to be issued to banks pursuant to the credit arrangements will mature not more than 270 days after the date of issuance or renewal thereof. Credit arrangements with the banks generally require the payment of a commitment fee. Commitment fees for shared lines of credit or revolving credit obligations are generally borne by AEP and participating subsidiaries in proportion to their respective projected maximum need for such credit facilities. The total annual cost of borrowings under all such bank lines is estimated to be not greater than the effective rate for borrowings bearing interest at the prime commercial rate with compensating balances of up to 10% of the line of credit. Although existing financial conditions do not necessitate the maintenance of such compensating balances, because of the volatility of the financial markets in the recent past, the maintenance of such above-described compensating balances may be required during the time period for which authorization is sought herein. The maximum effective annual interest cost under any of the above arrangements, assuming full use of the line of credit, is estimated not to exceed 125% of the prime commercial rate in effect from time to time, or not more than 10.94% on the basis of a prime commercial rate of 8.75%. AEP may, from time to time, negotiate increases to existing credit arrangements or implementation of new agreements. AEP will seek additional authorization from the Commission by Post- Effective Amendment of any request for an increase in the maximum amount of short-term indebtedness it proposes to incur. Commercial paper will be sold directly by AEP to dealers in commercial paper. The commercial paper will be in the form of promissory notes in denominations of not less than $50,000, and of varying maturities, with no maturity more than 270 days after the date of issue. Such notes will not be prepayable prior to maturity and will be sold at a discount rate not in excess of the discount rate per annum prevailing at the time of issuance for commercial paper of comparable quality and maturity. AEP has designated Lehman Commercial Paper Incorporated as one of its commercial paper dealers to purchase and resell their commercial paper. AEP may designate different or additional commercial paper dealers to purchase and resell its commercial paper. The commercial paper dealers will reoffer the commercial paper to investors, generally at a discount rate of up to 1/8 of 1% per annum less than the discount rate at which such commercial paper notes were purchased from AEP. It is expected that the investors of the dealers will hold the commercial paper notes to maturity. However, if any such investor wishes to resell the commercial paper prior to maturity, the dealers generally will repurchase such commercial paper sold by them and reoffer it to other investors under substantially the same terms and conditions as are herein described. AEP believes that by having flexibility to allocate short-term borrowings between sales of notes to banks and sales of commercial paper to dealers, AEP will be able to realize economies in meeting its short-term financing requirements, and AEP proposes, in general, taking appropriate long and short-term considerations into account, to utilize the most economical means available at any time to meet its short-term financing requirements. F. Purchase of Shares from AEP by the Subsidiaries As noted above, subject to the terms and conditions of an Offer, Shares validly tendered and not withdrawn will be accepted for payment and paid for by AEP as promptly as practicable after the Expiration Date. If a Proposed Amendment is adopted at a Subsidiary's Special Meeting, promptly after consummation of the Offer the Subsidiary will purchase the Shares sold to AEP pursuant to the Offer at the relevant Purchase Price plus expenses incurred in the Offer, and the Subsidiary will thereupon retire and cancel such Shares. G. Additional Matter for OPCo Meeting In addition, OPCo proposes to solicit proxiesFN16 with respect to and, if adopted, to add the following paragraph to the end of ARTICLE FOURTH, Clause 3: The Corporation may from time to time, by action of its Board of Directors and without action by the holders of the Common Stock or any class of the Cumulative Preferred Stock, purchase or otherwise acquire shares of any class of the Cumulative Preferred Stock in such manner, upon such terms and in such amounts as the Board of Directors shall determine; subject, however, to such limitations or restrictions, if any, as are contained in the express terms of any class of the Cumulative Preferred Stock outstanding at the time of the purchase or acquisition in question. FN16 Morrow will act as information agent with respect to the solicitation of proxies. The affirmative vote of the holders of at least a majority of the outstanding shares of OPCo's common stock and cumulative preferred stock, the common stock and preferred stock voting together as one class, is required to approve this amendment. OPCo has proposed this amendment because it believes that to the extent possible (i) the scope of the authority of the Board of Directors set forth in the OPCo Articles, including the authority of the Board of Directors to purchase or otherwise acquire shares of any series of cumulative preferred stock, should be stated as clearly as possible and (ii) any ambiguity in the OPCo Articles regarding such authority should be eliminated. Under Ohio corporation law, which governs OPCo, a corporation by its directors may purchase its stock only in limited circumstances, including (i) when the articles of incorporation authorize the redemption of such shares and do not prohibit such purchase and (ii) when the articles of incorporation authorize such purchase. The OPCo Articles do not limit or prohibit OPCo's purchase of its Preferred Stock, and the OPCo Articles currently authorize the redemption of the 4-1/2% Series, the 4.08% Series, the 4.20% Series and the 4.40% Series, but not the 5.90% Series, the 6.02% Series and the 6.35% Series. The OPCo Articles do not otherwise address the purchase of the OPCo Preferred Stock. As such, although the OPCo Board of Directors believes that it has the authority to repurchase the OPCo Preferred Stock, in light of the magnitude of the purchase contemplated, OPCo prefers to clearly establish that the Board of Directors' authority to purchase shares of cumulative preferred stock is circumscribed only by the express terms of any class of the cumulative preferred stock set forth in the OPCo Articles. The adoption of this amendment would remove any doubt regarding the Board of Directors' authority to purchase shares of the cumulative preferred stock. H. Compliance with Rule 54 Rule 54 provides that in determining whether to approve certain transactions other than those involving exempt wholesale generators ("EWG") or foreign utility companies ("FUCO"), as defined in the 1935 Act, the Commission will not consider the effect of the capitalization or earnings of any subsidiary which is an EWG or FUCO if Rule 53(a), (b) and (c) are satisfied. The requirements of Rule 53(a), (b) and (c) are satisfied. Rule 53(a)(1). Nanyang General Light Electric Co. Ltd. ("Nanyang"), an indirect subsidiary of AEP, is a FUCO. As of December 31, 1996, AEP, through its subsidiary, AEP Resources, Inc., and through AEP Resources' subsidiary, AEP Pushan Power LDC, had invested $700,000 in Nanyang. This investment represents less than 1% of $1,473,000,000, the average of the consolidated retained earnings of AEP reported on Form 10-K or Form 10-Q, as applicable, for the four consecutive quarters ended September 30, 1996. Rule 53(a)(2). Nanyang will maintain books and records and make available the books and records required by Rule 53(a)(2). Rule 53(a)(3). No more than 2% of the employees of the operating company subsidiaries of AEP will, at any one time, directly or indirectly, render services to Nanyang. Rule 53(a)(4). AEP has submitted and will submit a copy of Item 9 and Exhibits G and H of AEP's Form U5S to each of the public service commissions having jurisdiction over the retail rates of AEP's operating company subsidiaries. Rule 53(b). (i) Neither AEP nor any subsidiary of AEP is the subject of any pending bankruptcy or similar proceeding; (ii) AEP's average consolidated retained earnings for the four most recent quarterly periods ($1,473,000,000) represented an increase of approximately $117,000,000 (or 8.6%) in the average consolidated retained earnings from the previous four quarterly periods ($1,356,000,000); and (iii) for the year ended December 31, 1995, there were no losses attributable to AEP's investments in Nanyang. Rule 53(c). Rule 53(c) is inapplicable because the requirements of Rule 53(a) and (b) have been satisfied. ITEM 2. FEES, COMMISSIONS AND EXPENSES Other than the Cash Payments and the applicable Purchase Prices described in Item 1, the fees, commissions and expenses (each, a "fee") to be incurred, directly or indirectly, by the Applicants or any associate company thereof in connection with the proposed transactions, assuming the tender and acceptance of 100% of the Shares, are estimated as follows: SEC filing fees $ 160,000 American Electric Power Service Corporation fees 50,000 Outside counsel fees 300,000 Information agent fees 27,500 Dealer manager fees 2,630,000 Depositary fees 50,000 Broker/dealer fees 3,610,000 Printing, mailing, stock transfer taxes and miscellaneous fees 82,500 TOTAL $6,910,000 ITEM 3. APPLICABLE STATUTORY PROVISIONS Section 12(e) of the 1935 Act and Rules 62 and 65 thereunder are applicable to the Proxy Solicitations. Section 12(e) of the 1935 Act and Rule 65 thereunder are and Section 6(a)(2) may be deemed applicable to Cash Payments. Section 6(a)(2) of the 1935 Act is applicable to the Proposed Amendments. Sections 6(a) and 6(b) of the 1935 Act are applicable to the issuance and sale of short-term indebtedness by AEP. Sections 9(a) and 10 of the 1935 Act and Rule 51 thereunder are applicable to the acquisition by AEP of Shares pursuant to the Offers; AEP hereby represents that the conditions of Rule 51 will be satisfied in respect of the acquisition by AEP of Shares pursuant to the Offers. Sections 12(c) and 12(d) of the 1935 Act and Rules 43 and 44 thereunder are applicable to the sale to the Subsidiaries of the Shares acquired by AEP pursuant to the Offer. The Subsidiaries anticipate that any issuances or sales by them of unsecured debt following adoption of the Proposed Amendments will be exempt from Section 9(a) of the 1935 Act by virtue of Rule 52 thereunder. Rule 54 under the 1935 act is also applicable to the proposed transactions. To the extent that the Commission's "Statement of Policy Regarding Preferred Stock Subject to the Public Utility Holding Company Act of 1935"FN17 may be applicable to the Proposed Amendments, the Applicants hereby request that an exception for such Statement of Policy be granted. FN17 Rel. No. 35-13106 (February 16, 1956) (the "Statement of Policy"). ITEM 4. REGULATORY APPROVAL Other than the jurisdiction of the Commission under the 1935 Act and the Exchange Act, no state or federal regulatory agency has jurisdiction over the proposed transactions. Except for exemptions from the requirements of Rule 13e-3 and Regulation 14A available to the Applicants, Applicants will comply fully with all requirements of the Exchange Act and the rules and regulations thereunder applicable to the Proxy Solicitations, the Offer and the additional OPCo amendment, and acknowledge that any Commission authorization granted under the 1935 Act is conditioned upon such compliance. ITEM 5. PROCEDURE As stated in Item 1, the Special Meetings are scheduled to take place on or about Friday, February 28, 1997. The Subsidiaries need to secure a two-thirds affirmative vote of their respective Preferred Stockholders to secure passage of the Proposed Amendments. In order to afford the Subsidiaries sufficient time in advance of the Special Meetings to solicit proxies and to maximize the prospect for adoption of the Proposed Amendments at the Special Meetings, Applicants request that the Commission issue and publish not later than January 29, 1997 the requisite notice under Rule 23 with respect to the filing of this Application-Declaration, together with an order under Section 12(e) and Rule 62 permitting the Subsidiaries to solicit proxies pursuant to the Proxy Solicitations and the additional OPCo amendment. As explained in Item 1, concurrently with the commencement of the Proxy Solicitations, AEP intends to commence the Offers using a combined issuer tender offer statement/proxy statement under the Exchange Act. Applicants further request that the Proxy Solicitation Order specify a date not later than Friday, February 23, 1997 as the date after which the Commission may issue an order granting and permitting to become effective the other transactions for which authorization is sought herein, namely, the Proposed Amendments and Cash Payments together with AEP's acquisition of Shares pursuant to the Offers. Applicants request that the Commission issue this second order by not later than Tuesday, February 25, 1997 (i.e., three business days before the Special Meetings/Expiration Date). Applicants waive any recommended decision by a hearing officer of or by any other responsible officer of the Commission and waive the 30-day waiting period between the issuance of the Commission's order and the date it is to become effective, since it is desired that the Commission's order, when issued, becomes effective forthwith. Applicants consent to the Staff of the Division of Investment Management assisting in the preparation of the Commission's decision and/or orders in this matter, unless the Staff opposes the matters covered by this Application or Declaration. ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS (a) Exhibits: A-1 Restated Articles of Incorporation of APCo as amended (filed as Exhibit 3(c) to APCo's 1994 Annual Report on Form 10-K in File No. 1-3457 and hereby incorporated by reference). A-2 By-Laws of APCo (filed as Exhibit 3(d) to APCo's 1995 Annual Report on Form 10-K in File No. 1-3457 and hereby incorporated by reference). A-3 Amended Articles of Acceptance of I&M as amended (filed as Exhibit 3(b) to I&M's 1993 Annual Report on Form 10-K in File No. 1-3570 and hereby incorporated by reference). A-4 By-Laws of I&M (filed as Exhibit 3(c) to I&M's 1995 Annual Report on Form 10-K in File No. 1-3570 and hereby incorporated by reference). A-5 Amended Articles of Incorporation of OPCo as amended (filed as Exhibit 3(c) to OPCo's 1994 Annual Report on Form 10-K in File No. 1-6543 and hereby incorporated by reference). A-6 Code of Regulations of OPCo (filed as Exhibit 3(d) to OPCo's 1990 Annual Report on Form 10-K in File No. 1-6543 and hereby incorporated by reference). A-7 Redemption Provisions of APCo Preferred Stock, I&M Preferred Stock and OPCo Preferred Stock B-1 Draft Offer to Purchase and Proxy Statement for APCo. B-2 Draft Offer to Purchase and Proxy Statement for I&M. B-3 Draft Offer to Purchase and Proxy Statement for OPCo. B-4 Draft Notice of Special Meeting (attached as part of Exhibit B-1 (APCo), B-2 (I&M) and B-3 (OPCo)). B-5 Form of Proxy. B-6 Draft Form of Letter of Transmittal. F Preliminary opinion of counsel (to be filed by amendment.) G Form of notice and order permitting proxy solicitation. (b) Financial Statements: Balance Sheets and Statements of Income per books and pro forma, as of and for the 12 months ended September 30, 1996, and Retained Earnings per book for the 12 months ended September 30, 1996, of the Applicants and of AEP and its subsidiaries consolidated, together with journal entries reflecting the proposed transaction will be filed by amendment. ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS. It is believed that the proposed transactions will not have any environmental effects which would require an environmental impact statement under Section 102(c)(2) of the National Environmental Policy Act. No other federal agency has prepared or is preparing an environmental impact statement with respect to the proposed transactions. SIGNATURES Pursuant to the requirements of the Public Utility Holding Company Act of 1935, the undersigned companies have duly caused this statement to be signed on its behalf by the undersigned thereunto duly authorized. AMERICAN ELECTRIC POWER COMPANY, INC. APPALACHIAN POWER COMPANY INDIANA MICHIGAN POWER COMPANY OHIO POWER COMPANY By /s/ G. P. Maloney Vice President Date: January 29, 1997 EXHIBIT A-7 Redemption Provisions of APCo Preferred Stock, I&M Preferred Stock and OPCo Preferred Stock Appalachian Power Company The 4-1/2% Series is not subject to mandatory redemption but presently is callable at $110.00 per Share; commencing in 2003 and continuing through the year 2007, a sinking fund for the 5.90% Series will require the redemption of 25,000 Shares on November 1 of each year and the redemption of the remaining Shares outstanding on November 1, 2008, in each case at $100 per Share; commencing in 2003 and continuing through the year 2007, a sinking fund for the 5.92% Series will require the redemption of 30,000 Shares on November 1 of each year and the redemption of the remaining Shares outstanding on November 1, 2008, in each case at $100 per Share; commencing in 2000 and continuing through the date of redemption, a sinking fund for the 6.85% Series will require the redemption of 60,000 Shares on August 1 of each year, in each case at $100 per Share, and APCo has the noncumulative option to redeem up to 60,000 additional Shares on any sinking fund date at a redemption price of $100 per Share; and commencing in 1998, a sinking fund for the 7.80% Series will require the redemption of 25,000 Shares at $100 per Share on or before May 1 in each year, and APCo has the noncumulative option to redeem up to 25,000 additional Shares on any sinking fund date at a redemption price of $100 per Share. The APCo Shares of each Series have no preemptive or conversion rights. Indiana Michigan Power Company The 4-1/8% Series, 4.12% Series and 4.56% Series are not subject to mandatory redemption, but are callable at $106.125 per Share, $102.728 per Share and $102.00 per Share, respectively. Commencing in 2004 and continuing through the year 2008, a sinking fund for the 5.90% Series will require the redemption of 20,000 Shares on January 1 of each year and the redemption of the remaining Shares outstanding on January 1, 2009, in each case at $100 per Share; commencing in 2004 and continuing through the year 2008, a sinking fund for the 6-1/4% Series will require the redemption of 15,000 Shares on April 1 of each year and the redemption of the remaining Shares outstanding on April 1, 2009, in each case at $100 per Share; commencing in 2004 and continuing through the year 2008, a sinking fund for the 6.30% Series will require the redemption of 17,500 Shares on July 1 of each year and the redemption of the remaining Shares outstanding on July 1, 2009, in each case at $100 per Share; and commencing in 2003 and continuing through the year 2007, a sinking fund for the 6-7/8% Series will require the redemption of 15,000 Shares on April 1 of each year and the redemption of the remaining Shares outstanding on April 1, 2008, in each case at $100 per Share. The I&M Shares of each Series have no preemptive or conversion rights. Ohio Power Company The 4-1/2% Series, 4.08% Series, 4.20% Series and 4.40% Series are not subject to mandatory redemption, but are callable at $110.00 per Share, $103.00 per Share, $103.20 per Share and $104.00 per Share, respectively. Commencing in 2004 and continuing through the year 2008, a sinking fund for the 5.90% Series will require the redemption of 22,500 Shares on January 1 of each year and the redemption of the remaining Shares outstanding on January 1, 2009, in each case at $100 per Share; commencing in 2003 and continuing through the year 2007, a sinking fund for the 6.02% Series will require the redemption of 20,000 Shares on December 1 of each year and the redemption of the remaining Shares outstanding on December 1, 2008, in each case at $100 per Share; commencing in 2003 and continuing through the year 2007, a sinking fund for the 6.35% Series will require the redemption of 15,000 Shares on June 1 of each year and the redemption of the remaining Shares outstanding on June 1, 2008, in each case at $100 per Share. The OPCo Shares of each Series have no preemptive or conversion rights. EX-99 2 1 OFFER TO PURCHASE AND PROXY STATEMENT AMERICAN ELECTRIC POWER COMPANY, INC. OFFER TO PURCHASE FOR CASH ANY AND ALL OUTSTANDING SHARES OF THE FOLLOWING SERIES OF CUMULATIVE PREFERRED STOCK OF APPALACHIAN POWER COMPANY 298,150 SHARES, CUMULATIVE PREFERRED STOCK, 4- 1/2% SERIES AT A PURCHASE PRICE OF $ . PER SHARE, CUSIP NUMBER 037735 107 500,000 SHARES, CUMULATIVE PREFERRED STOCK, 5.90% SERIES AT A PURCHASE PRICE OF $ . PER SHARE, CUSIP NUMBER 037735 842 600,000 SHARES, CUMULATIVE PREFERRED STOCK, 5.92% SERIES AT A PURCHASE PRICE OF $ . PER SHARE, CUSIP NUMBER 037735 859 300,000 SHARES, CUMULATIVE PREFERRED STOCK, 6.85% SERIES AT A PURCHASE PRICE OF $ . PER SHARE, CUSIP NUMBER 037735 834 500,000 SHARES, CUMULATIVE PREFERRED STOCK, 7.80% SERIES AT A PURCHASE PRICE OF $ . PER SHARE, CUSIP NUMBER 037735 867 ------------------------ APPALACHIAN POWER COMPANY PROXY STATEMENT WITH RESPECT TO ITS COMMON STOCK AND CUMULATIVE PREFERRED STOCK ------------------------ THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON FRIDAY, FEBRUARY 28, 1997, UNLESS THE OFFER IS EXTENDED. ------------------------ American Electric Power Company, Inc., a New York corporation ("AEP"), invites the holders of each series of cumulative preferred stock listed above (each a "Series of Preferred," and the holder thereof a "Preferred Shareholder") of Appalachian Power Company, a Virginia corporation and direct utility subsidiary of AEP ("APCo"), to tender any and all of their shares of a Series of Preferred ("Shares") for purchase at the purchase price per Share listed above plus accrued and unpaid dividends for the Shares tendered, net to the seller in cash, upon the terms and subject to the conditions set forth in this Offer to Purchase and Proxy Statement and in the accompanying Letter of Transmittal (which together constitutes the "Offer"). AEP will purchase all Shares validly tendered and not withdrawn, upon the terms and subject to the conditions of the Offer. See "Terms of the Offer -- Certain Conditions of the Offer" and "Terms of the Offer -- Extension of Tender Period; Termination; Amendments." THE OFFER FOR A SERIES OF PREFERRED IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES OF SUCH SERIES OF PREFERRED BEING TENDERED AND IS INDEPENDENT OF THE OFFER FOR ANY OTHER SERIES OF PREFERRED. THE OFFER, HOWEVER, IS CONDITIONED UPON, AMONG OTHER THINGS, THE PROPOSED AMENDMENT, AS DESCRIBED BELOW, BEING APPROVED AND ADOPTED AT THE SPECIAL MEETING. SEE "TERMS OF THE OFFER -- CERTAIN CONDITIONS OF THE OFFER." Concurrently with the Offer, the Board of Directors of APCo is soliciting proxies for use at the Special Meeting of Shareholders of APCo to be held at AEP's principal office, 1 Riverside Plaza, Columbus, Ohio 43215, on February 28, 1997 at 4:00 p.m., or any adjournment or postponement of such meeting (the "Special Meeting"). The Special Meeting is being held to consider an amendment (the "Proposed Amendment") to APCo's Amended Articles of Incorporation (the "Articles") which would remove a provision of the Articles that limits APCo's ability to issue debt. WHILE PREFERRED SHAREHOLDERS WHO WISH TO TENDER THEIR SHARES PURSUANT TO THE OFFER NEED NOT VOTE IN FAVOR OF THE PROPOSED AMENDMENT, THE OFFER IS CONDITIONED UPON THE PROPOSED AMENDMENT BEING APPROVED AND ADOPTED AT THE SPECIAL MEETING. IN ADDITION, PREFERRED SHAREHOLDERS OF RECORD HAVE THE RIGHT TO VOTE FOR OR AGAINST THE PROPOSED AMENDMENT REGARDLESS OF WHETHER THEY TENDER THEIR SHARES. IF THE PROPOSED AMENDMENT IS APPROVED AND ADOPTED BY APCO'S SHAREHOLDERS, APCO WILL MAKE A SPECIAL CASH PAYMENT IN THE AMOUNT OF $1.00 PER SHARE TO EACH PREFERRED SHAREHOLDER WHO VOTED IN FAVOR OF THE PROPOSED AMENDMENT, PROVIDED THAT SUCH SHARES HAVE NOT BEEN TENDERED PURSUANT TO THE OFFER. THOSE PREFERRED SHAREHOLDERS WHO VALIDLY TENDER THEIR SHARES WILL BE ENTITLED ONLY TO THE PURCHASE PRICE PER SHARE LISTED ABOVE. ------------------------ The Company will pay to a Soliciting Dealer (as defined herein) a solicitation fee of $1.50 for any Shares tendered, accepted for payment and paid for pursuant to the Offer, subject to certain conditions. See "Fees and Expenses Paid to Dealers." THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC") NOR HAS THE SEC PASSED UPON THE FAIRNESS OR MERITS OF THIS TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. ------------------------ NEITHER AEP, APCO, THEIR RESPECTIVE BOARDS OF DIRECTORS, NOR ANY OF THEIR RESPECTIVE OFFICERS MAKES ANY RECOMMENDATION TO ANY PREFERRED SHAREHOLDER AS TO WHETHER TO TENDER ANY OR ALL SHARES. EACH PREFERRED SHAREHOLDER MUST MAKE HIS OR HER OWN DECISION AS TO WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER. APCO'S BOARD OF DIRECTORS RECOMMENDS VOTING FOR THE PROPOSED AMENDMENT. ------------------------ This Offer to Purchase and Proxy Statement is first being mailed to Preferred Shareholders on or about January 30, 1997. ------------------------ Questions or requests for assistance may be directed to Morrow & Co., Inc. ("Morrow" or the "Information Agent") or to Merrill Lynch & Co. ("Merrill Lynch") and Salomon Brothers Inc ("Salomon Brothers") (Merrill Lynch and Salomon Brothers collectively the "Dealer Managers") at their respective telephone numbers and addresses set forth on the back cover of this Offer to Purchase and Proxy Statement. Requests for additional copies of this Offer to Purchase and Proxy Statement, the Letter of Transmittal or other tender offer or proxy materials may be directed to the Information Agent, and such copies will be furnished promptly at the companies' expense. Preferred Shareholders may also contact their local broker, dealer, commercial bank or trust company for assistance concerning the Offer. ------------------------ The Dealer Managers for the Offer are: MERRILL LYNCH & CO. SALOMON BROTHERS INC ------------------------ The date of this Offer to Purchase and Proxy Statement is January 30, 1997. 2 NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF AEP OR APCO AS TO WHETHER PREFERRED SHAREHOLDERS SHOULD TENDER OR REFRAIN FROM TENDERING SHARES OF ANY SERIES OF PREFERRED PURSUANT TO THE OFFER. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED HEREIN OR IN THE RELATED LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH RECOMMENDATION AND SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY AEP OR APCO. IMPORTANT Any Preferred Shareholder desiring to accept the Offer and tender all or any portion of his or her Shares should either (i) request his or her broker, dealer, commercial bank, trust company or nominee to effect the transaction for him or her, or (ii) complete and sign the Letter of Transmittal in accordance with the instructions in the Letter of Transmittal, mail or deliver the same and any other required documents to First Chicago Trust Company of New York (the "Depositary"), and deliver the certificates for such Shares to the Depositary, along with the Letter of Transmittal, or tender such Shares pursuant to the procedure for book-entry transfer set forth below under "Terms of the Offer -- Procedure for Tendering Shares," on or prior to the Expiration Date (as defined below). A Preferred Shareholder whose Shares are registered in the name of a broker, dealer, commercial bank, trust company or nominee must contact such broker, dealer, commercial bank, trust company or nominee if he or she desires to tender such Shares. Any Preferred Shareholder who desires to tender Shares and whose certificates for such Shares are not immediately available, or who cannot comply in a timely manner with the procedure for book-entry transfer, should tender such Shares by following the procedures for guaranteed delivery set forth below under "Terms of the Offer -- Procedure for Tendering Shares." EACH SERIES OF PREFERRED HAS ITS OWN LETTER OF TRANSMITTAL, AND ONLY THE APPLICABLE LETTER OF TRANSMITTAL FOR SUCH SERIES OF PREFERRED OR A NOTICE OF GUARANTEED DELIVERY MAY BE USED TO TENDER SHARES OF SUCH SERIES OF PREFERRED. ------------------------ Each Series of Preferred is traded in the over-the-counter market (the "OTC") and is not listed on any national securities exchange, except for the 4- 1/2% Series, which is traded on the Philadelphia Stock Exchange (the "PSE"). On January 28, 1997, the last reported sale prices as reported by the National Quotation Bureau, Inc. were $ for the 4- 1/2% Series of Preferred (on , 199 ); $ for the 5.90% Series of Preferred (on , 199 ); $ for the 5.92% Series of Preferred (on , 199 ); $ for the 6.85% Series of Preferred (on , 199 ); and $ for the 7.80% Series of Preferred (on , 199 ). Preferred Shareholders are urged to obtain a current market quotation, if available, for the Shares. On January 29, 1997, there were issued and outstanding 298,150 Shares of the 4- 1/2% Series of Preferred; 500,000 Shares of the 5.90% Series of Preferred; 600,000 Shares of the 5.92% Series of Preferred; 300,000 Shares of the 6.85% Series of Preferred; and 500,000 Shares of the 7.80% Series of Preferred. 2 3 TABLE OF CONTENTS
PAGE ----- SUMMARY............................................................................... 4 TERMS OF THE OFFER.................................................................... 7 Number of Shares; Purchase Prices; Expiration Date; Dividends....................... 7 Procedure for Tendering Shares...................................................... 7 Withdrawal Rights................................................................... 10 Acceptance of Shares for Payment and Payment of Purchase Price and Dividends........ 10 Certain Conditions of the Offer..................................................... 11 Extension of Tender Period; Termination; Amendments................................. 12 PROPOSED AMENDMENT AND PROXY SOLICITATION............................................. 13 Introduction........................................................................ 13 Voting Securities, Rights and Procedures............................................ 13 Proxies............................................................................. 14 Special Cash Payments............................................................... 14 Security Ownership of Certain Beneficial Owners and Management...................... 15 Business to Come Before the Special Meeting......................................... 16 Explanation of the Proposed Amendment............................................... 16 Reasons for the Proposed Amendment.................................................. 17 Relationship with Independent Public Accountants.................................... 19 PRICE RANGE OF SHARES; DIVIDENDS...................................................... 19 PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER.................................... 20 CERTAIN FEDERAL INCOME TAX CONSEQUENCES............................................... 23 SOURCE AND AMOUNT OF FUNDS............................................................ 25 TRANSACTIONS AND AGREEMENTS CONCERNING THE SHARES..................................... 25 FEES AND EXPENSES PAID TO DEALERS..................................................... 25 CERTAIN INFORMATION REGARDING AEP AND APCO............................................ 26 SUMMARY OF CONSOLIDATED FINANCIAL INFORMATION......................................... 27 MISCELLANEOUS......................................................................... 28
3 4 SUMMARY The following summary is provided solely for the convenience of the Preferred Shareholders. This summary is not intended to be complete and is qualified in its entirety by reference to the full text and more specific details contained in this Offer to Purchase and Proxy Statement and the Letter of Transmittal and any amendments hereto or thereto. Preferred Shareholders are urged to read this Offer to Purchase and Proxy Statement and the Letter of Transmittal in their entirety. Each of the capitalized terms used in this summary and not defined herein has the meaning set forth elsewhere in this Offer to Purchase and Proxy Statement. The Companies.............. AEP, 1 Riverside Plaza, Columbus, Ohio 43215, is a registered holding company under the Public Utility Holding Company Act of 1935, as amended (the "Holding Company Act"), which owns, directly or indirectly, all of the outstanding common stock of its electric utility subsidiaries, including APCo. The service area of AEP's electric utility subsidiaries covers portions of Indiana, Kentucky, Michigan, Ohio, Tennessee, Virginia and West Virginia. APCo, 40 Franklin Road, Roanoke, Virginia 24022, is a utility primarily engaged in the generation, purchase, transmission and distribution of electric power to approximately 859,000 customers in Virginia and West Virginia, and in supplying electric power at wholesale to other electric utility companies and municipalities. The Shares................. 4- 1/2% Cumulative Preferred Stock (no par value) 5.90% Cumulative Preferred Stock (no par value) 5.92% Cumulative Preferred Stock (no par value) 6.85% Cumulative Preferred Stock (no par value) 7.80% Cumulative Preferred Stock (no par value) The Offer and Purchase Price...................... Offer to purchase any or all shares of each Series of Preferred at the price set forth below. $ . per 4- 1/2% Share $ . per 5.90% Share $ . per 5.92% Share $ . per 6.85% Share $ . per 7.80% Share Independent Offer.......... The Offer for one Series of Preferred is independent of the Offer for any other Series of Preferred. The Offer is not conditioned upon any minimum number of Shares of the applicable Series of Preferred being tendered. Preferred Shareholders who wish to tender their Shares are not required to vote in favor of the Proposed Amendment. The Offer is subject, however, to shareholder approval of the Proposed Amendment and certain other conditions. Expiration Date of the Offer...................... The Offer expires at 5:00 p.m., New York City time, February 28, 1997, unless extended (the "Expiration Date"). How to Tender Shares....... See "Terms of the Offer -- Procedure for Tendering Shares". For further information, call the Information Agent or the Dealer Managers or consult your broker for assistance. Withdrawal Rights.......... Tendered Shares of any Series of Preferred may be withdrawn at any time until the Expiration Date with respect to such Series of Preferred and, unless previously accepted for payment, may also be withdrawn after March 28, 1997. See "Terms of the Offer -- Withdrawal Rights." 4 5 Purpose of the Offer....... AEP is making the Offer because AEP believes that the purchase of Shares is economically attractive to APCo and indirectly to AEP and its shareholders. In addition, the Offer gives Preferred Shareholders the opportunity to sell their Shares at a price which AEP believes to be a premium over the market price and without the usual transaction costs associated with a market sale. See "Purpose of the Offer; Certain Effects of the Offer." Dividends.................. APCo has declared the regular quarterly dividend on each Series of Preferred to be paid on February 1, 1997 to holders of record as of the close of business on January 9, 1997 (the "February 1997 Dividend"). A tender and purchase of Shares pursuant to the Offer will not deprive a Preferred Shareholder of his or her right to receive the February 1997 Dividend on his or her Shares held of record as of the close of business on January 9, 1997. Tendering Preferred Shareholders will be entitled to any dividends accrued prior to the Payment Date (as defined herein) in respect of any later dividend periods (or any portion thereof). Brokerage Commissions...... Not payable by Preferred Shareholders. Solicitation Fee........... AEP will pay to each designated Soliciting Dealer (as defined herein) a solicitation fee of $1.50 per Share for any Shares tendered, accepted for payment and paid for pursuant to the Offer (except that for transactions for beneficial owners equal to or exceeding 5,000 Shares, AEP will pay a solicitation fee of (i) $1.00 per Share for Shares of the 4- 1/2% Series and (ii) $.50 per Share for the remaining Series) and APCo will pay a separate fee of $.50 per Share for any Shares of the 4 1/2% Series that are not tendered pursuant to the Offer but which are voted in favor of the Proposed Amendment. A Soliciting Dealer will not be entitled to a solicitation fee or a separate fee for Shares beneficially owned by such Soliciting Dealer; provided that, with respect to solicitation fees paid with respect to transactions for beneficial owners equal to or exceeding 5,000 shares, at least twenty percent (20%) of each such fee shall be paid to the Dealer Managers. Proposed Amendment......... Concurrently with the Offer, the Board of Directors of APCo is soliciting proxies for use at the Special Meeting of Shareholders of APCo. The Special Meeting is being held to consider an amendment to APCo's Articles which would remove a provision that limits APCo's ability to issue debt. If the Proposed Amendment is approved by the shareholders, the clause of the Articles that places restrictions on APCo's ability to issue or assume indebtedness will be eliminated with respect to any Shares that remain outstanding after the consummation of the Offer. See "Purpose of the Offer; Certain Effects of the Offer." Record Date................ January 27, 1997 Special Cash Payment....... Preferred Shareholders of record have the right to vote for or against the Proposed Amendment regardless of whether they tender their Shares. If the Proposed Amendment is approved and adopted by APCo's shareholders, APCo will make a special cash payment of $1.00 per Share to each Preferred Shareholder who voted in favor of the Proposed Amendment but who did not tender his or her Shares (the "Special Cash Payment"). Preferred Shareholders who validly tender their Shares will be entitled only to the purchase price per Share listed on the front cover 5 6 of this Offer to Purchase and Proxy Statement plus an amount in cash equivalent to any dividends accrued prior to the Payment Date. Stock Transfer Tax......... Except as described herein, AEP will pay or cause to be paid any stock transfer taxes with respect to the sale and transfer of any Shares to it or its order pursuant to the Offer. See Instruction 6 of the applicable Letter of Transmittal. See "Terms of the Offer -- Acceptance of Shares for Payment of Purchase Price and Dividends." Payment Date............... Promptly after the Expiration Date or any extension thereof. Further Information........ Additional copies of this Offer to Purchase and Proxy Statement and the applicable Letter of Transmittal may be obtained by contacting Morrow, 909 Third Avenue, New York, NY 10022-4799, telephone (800) 566-9061 (toll-free) and (212) 754-8000 (brokers and dealers). Questions about the Offer should be directed to Merrill Lynch at (888) ML4-TNDR (toll free) (888-654-8637 (toll free)) or to Salomon Brothers at (800) 558-3745 (toll free). 6 7 TERMS OF THE OFFER NUMBER OF SHARES; PURCHASE PRICES; EXPIRATION DATE; DIVIDENDS Upon the terms and subject to the conditions described herein and in the applicable Letter of Transmittal, AEP will purchase any and all Shares that are validly tendered on or prior to the applicable Expiration Date (and not properly withdrawn in accordance with "Terms of the Offer -- Withdrawal Rights") at the purchase price per Share listed on the front cover of this Offer to Purchase and Proxy Statement for the Shares tendered, plus accrued and unpaid dividends for the Shares tendered to the Payment Date, net to the seller in cash. See "Terms of the Offer -- Certain Conditions of the Offer" and "Terms of the Offer -- Extension of Tender Period; Termination." THE OFFER FOR A SERIES OF PREFERRED IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES OF SUCH SERIES OF PREFERRED BEING TENDERED AND IS INDEPENDENT OF THE OFFER FOR ANY OTHER SERIES OF PREFERRED. THE OFFER, HOWEVER, IS CONDITIONED UPON, AMONG OTHER THINGS, THE PROPOSED AMENDMENT, AS DESCRIBED HEREIN, BEING APPROVED AND ADOPTED AT THE SPECIAL MEETING. SEE "TERMS OF THE OFFER -- CERTAIN CONDITIONS OF THE OFFER." The Offer is being sent to all persons in whose names Shares are registered on the books of APCo as of the close of business on January 27, 1997 and transferees of such persons. Only a record holder of Shares on the Record Date (as defined herein) may vote in person or by proxy at the Special Meeting. No record date is fixed for determining which persons are permitted to tender Shares. Any person who is the beneficial owner but not the record holder of Shares must arrange for the record transfer of such Shares prior to tendering. With respect to each Series of Preferred, the Expiration Date is the later of 5:00 p.m. New York City time, on February 28, 1997 or the latest time and date to which the Offer with respect to such Series of Preferred is extended. AEP expressly reserves the right, in its sole discretion, and at any time and/or from time to time, to extend the period of time during which the Offer for any Series of Preferred is open, by giving oral or written notice of such extension to the Depositary and making a public announcement thereof, without extending the period of time during which the Offer for any other Series of Preferred is open. There is no assurance whatsoever that AEP will exercise its right to extend the Offer for any Series of Preferred. If AEP decides, in its sole discretion, to (i) decrease the number of Shares of any Series of Preferred being sought, (ii) increase or decrease the consideration offered in the Offer to holders of any Series of Preferred or (iii) increase or decrease the Soliciting Dealers' fees and, at the time that notice of such increase or decrease is first published, sent or given to holders of such Series of Preferred in the manner specified herein, the Offer for such Series of Preferred is scheduled to expire at any time earlier than the tenth business day from the date that such notice is first so published, sent or given, such Offer will be extended until the expiration of such ten-business-day period. For purposes of the Offer, a "business day" means any day other than a Saturday, Sunday or federal holiday and consists of the time period from 12:00 a.m. through 11:59 p.m., New York City time. NO ALTERNATIVE, CONDITIONAL OR CONTINGENT TENDERS WILL BE ACCEPTED. The February 1997 Dividend has been declared on each Series of Preferred, payable February 1, 1997 to holders of record as of the close of business on January 9, 1997. A tender and purchase of Shares pursuant to the Offer will not deprive such Preferred Shareholder of his or her right to receive the February 1997 Dividend on his or her Shares, regardless of when such tender is made. Tendering Preferred Shareholders will be entitled to any dividends accrued prior to the Payment Date in respect of any later dividend periods (or any portion thereof). PROCEDURE FOR TENDERING SHARES To tender Shares pursuant to the Offer, the tendering owner of Shares must either: (a) send to the Depositary (at one of its addresses set forth on the back cover of this Offer to Purchase and Proxy Statement) a properly completed and duly executed Letter of Transmittal, together with any required signature guarantees and any other documents required by the Letter of Transmittal 7 8 and either (i) certificates for the Shares to be tendered must be received by the Depositary at one of such addresses or (ii) such Shares must be delivered pursuant to the procedures for book-entry transfer described herein (and a confirmation of such delivery must be received by the Depositary), in each case by the Expiration Date; or (b) comply with the guaranteed delivery procedure described under "Guaranteed Delivery Procedure" below. A tender of Shares made pursuant to any method of delivery set forth herein or in the Letter of Transmittal will constitute a binding agreement between the tendering holder and AEP upon the terms and subject to the conditions of the Offer. The Depositary will establish an account with respect to the Shares at The Depository Trust Company and the Philadelphia Depository Trust Company (each a "Book-Entry Transfer Facility") for purposes of the Offer within two business days after the date of this Offer to Purchase and Proxy Statement, and any financial institution that is a participant in the system of a Book-Entry Transfer Facility may make delivery of Shares by causing the Book-Entry Transfer Facility to transfer such Shares into the Depositary's account in accordance with the procedures of such Book-Entry Transfer Facility. Although delivery of Shares may be effected through book-entry transfer, such delivery must be accompanied by either (i) a properly completed and duly executed Letter of Transmittal, together with any required signature guarantees and any other required documents or (ii) an Agent's Message (as hereinafter defined) and, in any case, must be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase and Proxy Statement on or prior to the Expiration Date. DELIVERY OF SUCH LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY OR TO AEP DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. The term "Agent's Message" means a message, transmitted by a Book-Entry Transfer Facility, received by the Depositary and forming a part of the book-entry transfer when a tender is initiated, which states that such Book-Entry Transfer Facility has received an express acknowledgment from a participant tendering Shares that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that AEP may enforce such agreement against such participant. Except as otherwise provided below, all signatures on a Letter of Transmittal must be guaranteed by a firm that is a member of a registered national securities exchange or the National Association of Securities Dealers, Inc., or by a commercial bank or trust company having an office or correspondent in the United States that is a participant in an approved Signature Guarantee Medallion Program (each of the foregoing being referred to as an "Eligible Institution"). Signatures on a Letter of Transmittal need not be guaranteed if (a) the Letter of Transmittal is signed by the registered owner of the shares tendered therewith and such owner has not completed the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" on the Letter of Transmittal or (b) such Shares are tendered for the account of an Eligible Institution. See Instructions 1 and 5 of the Letter of Transmittal. If Shares are registered in the name of a person other than the signatory on the Letter of Transmittal, or if unpurchased Shares are to be issued to a person other than the registered holder(s), the certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered holder(s) appear on the Shares with the signature(s) on the Shares or stock powers guaranteed as stated above. See Instructions 4, 6 and 7 to the Letter of Transmittal. Guaranteed Delivery Procedure. If a Preferred Shareholder desires to tender Shares pursuant to the Offer and such Preferred Shareholder's certificates are not immediately available or the procedures for book-entry transfer cannot be completed on a timely basis or time will not permit all required documents to reach the Depositary prior to the Expiration Date, such Shares may nevertheless be tendered if all of the following guaranteed delivery procedures are complied with: (i) such tender is made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by AEP and APCo herewith, is received (with any required signatures or signature guarantees) by the Depositary as provided below on or prior to the Expiration Date; and 8 9 (iii) the certificates for all tendered Shares in proper form for transfer or a Book-Entry Confirmation with respect to all tendered Shares, together with a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal, are received by the Depositary no later than 5:00 p.m., New York City time, within three business days after the date of execution of such Notice of Guaranteed Delivery. THE NOTICE OF GUARANTEED DELIVERY MAY BE DELIVERED BY HAND OR MAILED TO THE DEPOSITARY AND MUST INCLUDE AN ENDORSEMENT BY AN ELIGIBLE INSTITUTION IN THE FORM SET FORTH IN SUCH NOTICE OF GUARANTEED DELIVERY. In all cases, Shares shall not be deemed validly tendered unless a properly completed and duly executed Letter of Transmittal or, if applicable, an Agent's Message, is received by the Depositary. Notwithstanding any other provision hereof, payment for Shares accepted for payment pursuant to the Offer in all cases will be made only after timely receipt by the Depositary of certificates for (or an Agent's Message with respect to) such Shares, a Letter of Transmittal, properly completed and duly executed, with any required signature guarantees, and all other documents required by the Letter of Transmittal. THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING PREFERRED SHAREHOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. BECAUSE IT IS THE TIME OF RECEIPT, NOT THE TIME OF MAILING, WHICH DETERMINES WHETHER A TENDER HAS BEEN MADE PRIOR TO THE EXPIRATION DATE, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. TO AVOID FEDERAL INCOME TAX BACKUP WITHHOLDING EQUAL TO 31% OF THE GROSS PAYMENTS MADE PURSUANT TO THE OFFER, EACH TENDERING PREFERRED SHAREHOLDER WHO IS A UNITED STATES PERSON MUST NOTIFY THE DEPOSITARY OF SUCH PREFERRED SHAREHOLDER'S CORRECT TAXPAYER IDENTIFICATION NUMBER AND PROVIDE CERTAIN OTHER INFORMATION BY PROPERLY COMPLETING AND EXECUTING THE SUBSTITUTE FORM W-9 INCLUDED IN THE LETTER OF TRANSMITTAL (OR, IN THE CASE OF A FOREIGN PREFERRED SHAREHOLDER, FORM W-8 OBTAINABLE FROM THE DEPOSITARY). SEE "CERTAIN FEDERAL INCOME TAX CONSEQUENCES." EACH PREFERRED SHAREHOLDER IS URGED TO CONSULT WITH HIS OR HER OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF THE OFFER. All questions as to the form of documents and the validity, eligibility (including the time of receipt) and acceptance for payment of any tender of Shares will be determined by AEP, in its sole discretion, and its determination will be final and binding. AEP reserves the absolute right to reject any or all tenders of Shares that (i) it determines are not in proper form or (ii) the acceptance for payment of or payment for which may, in the opinion of AEP's counsel, be unlawful. AEP also reserves the absolute right to waive any defect or irregularity in any tender of Shares. None of AEP, APCo, the Dealer Managers, the Depositary, the Information Agent or any other person will be under any duty to give notice of any defect or irregularity in tenders, nor shall any of them incur any liability for failure to give any such notice. WITHDRAWAL RIGHTS Tenders of Shares made pursuant to the Offer may be withdrawn at any time prior to the Expiration Date. Thereafter, such tenders are irrevocable, except that they may be withdrawn after March 28, 1997, unless previously accepted for payment as provided in this Offer to Purchase and Proxy Statement. To be effective, a written notice of withdrawal must be timely received by the Depositary, at one of its addresses set forth on the back cover of this Offer to Purchase and Proxy Statement, and must specify the name of the person who tendered the Shares to be withdrawn and the number of Shares to be withdrawn. If the Shares to be withdrawn have been delivered to the Depositary, a signed notice of withdrawal with 9 10 signatures guaranteed by an Eligible Institution (except in the case of Shares tendered by an Eligible Institution) must be submitted prior to the release of such Shares. In addition, such notice must specify, in the case of Shares tendered by delivery of certificates, the name of the registered owner (if different from that of the tendering Preferred Shareholder) and the serial numbers shown on the particular certificates evidencing the Shares to be withdrawn or, in the case of Shares tendered by book-entry transfer, the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares and the name of the registered holder (if different from the name of such account). Withdrawals may not be rescinded, and Shares withdrawn will thereafter be deemed not validly tendered for purposes of the Offer. However, withdrawn Shares may be re-tendered by again following one of the procedures described in "Terms of the Offer -- Procedure for Tendering Shares" at any time prior to the Expiration Date. All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by AEP, in its sole discretion, and its determination will be final and binding. None of AEP, APCo, the Dealer Managers, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defect or irregularity in any notice of withdrawal or will incur any liability for failure to give any such notification. ACCEPTANCE OF SHARES FOR PAYMENT AND PAYMENT OF PURCHASE PRICE AND DIVIDENDS Upon the terms and subject to the conditions of the Offer, and as promptly as practicable after the Expiration Date, AEP will accept for payment (and thereby purchase) and pay for Shares validly tendered and not withdrawn as permitted in "Terms of the Offer -- Withdrawal Rights." Thereafter, payment for all Shares validly tendered on or prior to the Expiration Date and accepted pursuant to the Offer will be made by the Depositary by check as promptly as practicable after the Expiration Date. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made promptly but only after timely receipt by the Depositary of certificates for such Shares (or of an Agent's Message), a properly completed and duly executed Letter of Transmittal and any other required documents. For purposes of the Offer, AEP will be deemed to have accepted for payment (and thereby purchased) Shares that are validly tendered and not withdrawn as, if and when it gives oral or written notice to the Depositary of its acceptance for payment of such Shares. AEP will pay for Shares that it has purchased pursuant to the Offer by depositing the purchase price therefor plus accrued and unpaid dividends thereon with the Depositary, which will act as agent for tendering Preferred Shareholders for the purpose of receiving payment from AEP and transmitting payment to tendering Preferred Shareholders. Under no circumstances will interest be paid on amounts to be paid to tendering Preferred Shareholders, regardless of any delay in making such payment. Certificates for all Shares not validly tendered will be returned or, in the case of Shares tendered by book-entry transfer, such Shares will be credited to an account maintained with the Book-Entry Transfer Facility, as promptly as practicable, without expense to the tendering Preferred Shareholder. If certain events occur, AEP may not be obligated to purchase Shares pursuant to the Offer. See "Terms of the Offer -- Certain Conditions of the Offer." AEP will pay or cause to be paid any stock transfer taxes with respect to the sale and transfer of any Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price is to be made to, or Shares not tendered or not purchased are to be registered in the name of, any person other than the registered owner, or if tendered Shares are registered in the name of any person other than the person signing the Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered owner, such other person or otherwise) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes, or exemption therefrom, is submitted. See Instruction 6 of the accompanying Letter of Transmittal. 10 11 CERTAIN CONDITIONS OF THE OFFER AEP WILL NOT BE REQUIRED TO ACCEPT FOR PAYMENT OR PAY FOR ANY SHARES TENDERED IF THE PROPOSED AMENDMENT IS NOT APPROVED AND ADOPTED AT THE SPECIAL MEETING. PREFERRED SHAREHOLDERS OF RECORD HAVE THE RIGHT TO VOTE FOR OR AGAINST THE PROPOSED AMENDMENT REGARDLESS OF WHETHER THEY TENDER THEIR SHARES. IF THE PROPOSED AMENDMENT IS APPROVED AND ADOPTED, APCO WILL MAKE A SPECIAL CASH PAYMENT TO EACH PREFERRED SHAREHOLDER WHO VOTED IN FAVOR OF THE PROPOSED AMENDMENT, PROVIDED THAT THEIR SHARES HAVE NOT BEEN TENDERED PURSUANT TO THE OFFER. PREFERRED SHAREHOLDERS WHO TENDER THEIR SHARES WILL ONLY BE ENTITLED TO THE PURCHASE PRICE PER SHARE LISTED ON THE FRONT COVER OF THIS OFFER TO PURCHASE AND PROXY STATEMENT. In addition, notwithstanding any other provision of the Offer, AEP will not be required to accept for payment or pay for any Shares tendered, and may terminate or amend the Offer (by oral or written notice to the Depositary and timely public announcement) or may postpone (subject to the requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") for prompt payment for or return of Shares) the acceptance for payment of, or payment for, Shares tendered, if at any time after January 29, 1997, and at or before the Expiration Date, any of the following shall have occurred (which shall not have been waived by AEP): (a) there shall have been threatened, instituted or pending any action or proceeding by any government or governmental, regulatory or administrative agency, authority or tribunal or any other person, domestic or foreign, or before any court, authority, agency or tribunal that (i) challenges the acquisition of Shares pursuant to the Offer or otherwise in any manner relates to or affects the Offer or (ii) in the reasonable judgment of AEP, would or might materially and adversely affect the business, condition (financial or otherwise), income, operations or prospects of AEP and its subsidiaries taken as a whole, or otherwise materially impair in any way the contemplated future conduct of the business of AEP or any of its subsidiaries or materially impair the Offer's contemplated benefits to AEP; (b) there shall have been any action threatened, pending or taken, or approval withheld, or any statute, rule, regulation, judgment, order or injunction threatened, proposed, sought, promulgated, enacted, entered, amended, enforced or deemed to be applicable to the Offer or AEP or any of its subsidiaries, by any legislative body, court, authority, agency or tribunal that, in AEP's reasonable judgment, would or might directly or indirectly (i) make the acceptance for payment of, or payment for, some or all of the Shares illegal or otherwise restrict or prohibit consummation of the Offer; (ii) delay or restrict the ability of AEP, or render AEP unable, to accept for payment or pay for some or all of the Shares; (iii) materially impair the contemplated benefits of the Offer to AEP or APCo (including materially increasing the effective interest cost of certain types of unsecured debt); or (iv) materially affect the business, condition (financial or otherwise), income, operations or prospects of AEP and its subsidiaries taken as a whole, or otherwise materially impair in any way the contemplated future conduct of the business of AEP or any of its subsidiaries; (c) there shall have occurred (i) any significant decrease in the market price of the Shares; (ii) any change in the general political, market, economic or financial conditions in the United States or abroad that, in the reasonable judgment of AEP, would or might have a material adverse effect on AEP's business, operations, prospects or ability to obtain financing generally or the trading in the Shares or other equity securities of AEP; (iii) the declaration of a banking moratorium or any suspension of payments in respect of banks in the United States or any limitation on, or any event that, in AEP's reasonable judgment, would or might affect the extension of credit by lending institutions in the United States; (iv) the commencement of war, armed hostilities or other international or national calamity directly or indirectly involving the United States; (v) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or in the over-the-counter market; (vi) in the case of any of 11 12 the foregoing existing at the time of the commencement of the Offer, in AEP's reasonable judgment, a material acceleration or worsening thereof; (vii) any decline in either the Dow Jones Industrial Average or the Standard and Poor's Composite 500 Stock Index by an amount in excess of 15% measured from the close of business on January 29, 1997; or (viii) a decline in the ratings accorded any of AEP's or APCo's securities by Standard & Poor's Rating Services ("S&P"), Moody's Investors Service, Inc. ("Moody's") or Duff & Phelps, Inc. ("D&P") or that S&P, Moody's or D&P has announced that it has placed any such rating under surveillance or review with negative implications. (d) any tender or exchange offer with respect to some or all of the Shares (other than the Offer) or other equity securities of AEP, or a merger, acquisition or other business combination proposal for AEP, shall have been proposed, announced or made by any person or entity; (e) there shall have occurred any event or events that have resulted, or, in AEP's reasonable judgment, may result, in an actual or threatened change in the business, condition (financial or otherwise), income, operations, stock ownership or prospects of AEP and its subsidiaries; or (f) the Securities and Exchange Commission (the "SEC") shall have withheld approval, under the Holding Company Act, of the acquisition of the Shares by AEP pursuant to the Offer or the approval and adoption of the Proposed Amendment at the Special Meeting or the issuance of short-term debt by AEP and/or APCo; and, in the sole judgment of AEP, such event or events make it undesirable or inadvisable to proceed with the Offer or with such acceptance for payment or payment. With respect to the approval of the SEC referenced in clause (f) above, the SEC must find that the acquisition of the Shares by AEP is not detrimental to the public interest or the interests of the investors or consumers, and that the consideration paid in connection with the acquisition and the adoption of the Proposed Amendment, including fees, commissions and other remuneration, is reasonable. The foregoing conditions (including the condition that the Proposed Amendment be approved and adopted at the Special Meeting) are for the sole benefit of AEP and may be asserted by AEP regardless of the circumstances (including any action or inaction by AEP) giving rise to any such condition, and any such condition may be waived by AEP, in whole or in part, at any time and from time to time in its sole discretion. A decision by AEP to terminate or otherwise amend any Offer, following the occurrence of any of the foregoing, with respect to one Series of Preferred will not create an obligation on behalf of AEP to terminate or otherwise amend in a similar manner the Offer with respect to any other Series of Preferred. The failure by AEP at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. Any determination by AEP concerning the events described above will be final and binding on all parties. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENTS AEP expressly reserves the right, in its sole discretion, and at any time and/or from time to time prior to the Expiration Date, to extend the period of time during which the Offer for any Series of Preferred is open by giving oral or written notice of such extension to the Depositary, without extending the period of time during which the Offer for any other Series of Preferred is open. There can be no assurance, however, that AEP will exercise its right to extend the Offer for any Series of Preferred. During any such extension, all Shares of the subject Series of Preferred previously tendered will remain subject to the Offer, except to the extent that such Shares may be withdrawn as set forth in "Terms of the Offer -- Withdrawal Rights." AEP also expressly reserves the right, in its sole discretion, to, among other things, terminate the Offer and not accept for payment or pay for any Shares tendered, subject to Rule 13e-4(f)(5) under the Exchange Act, which requires AEP either to pay the consideration offered or to return the Shares tendered promptly after the termination or withdrawal of the Offer upon the occurrence of any of the conditions specified in "Terms of the Offer -- Certain Conditions of the Offer" by giving oral or written notice of such termination to the Depositary, and making a public announcement thereof. 12 13 Subject to compliance with applicable law, AEP further reserves the right, in its sole discretion, to amend the Offer in any respect. Amendments to the Offer may be made at any time and/or from time to time effected by public announcement thereof, such announcement, in the case of an extension, to be issued no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Any public announcement made pursuant to the Offer will be disseminated promptly to Preferred Shareholders affected thereby in a manner reasonably designed to inform such Preferred Shareholders of such change. Without limiting the manner in which AEP may choose to make a public announcement, except as required by applicable law, AEP shall have no obligation to publish, advertise or otherwise communicate any such public announcement other than by making a release to the Dow Jones News Service. If AEP materially changes the terms of the Offer or the information concerning the Offer, or if it waives a material condition of the Offer, AEP will extend the Offer to the extent required by Rules 13e-4(d)(2) and 13e-4(e)(2) under the Exchange Act. Those rules require that the minimum period during which the Offer must remain open following material changes in the terms of the Offer or information concerning the Offer (other than a change in price, a change in percentage of securities sought or a change in the dealer's solicitation fee) will depend on the facts and circumstances, including the relative materiality of such terms or information. The SEC has stated that, in its view, an offer should remain open for a minimum of five business days from the date that a notice of such a material change is first published, sent or given. If the Offer is scheduled to expire at any time earlier than the expiration of a period ending on the tenth business day from, and including, the date that AEP publishes, sends or gives to Preferred Shareholders a notice that it will (i) increase or decrease the price it will pay for Shares, (ii) decrease the percentage of Shares it seeks, or (iii) increase or decrease the soliciting dealers' fees, the Offer will be extended until the expiration of such period of ten business days. THE OFFER FOR EACH SERIES OF PREFERRED IS INDEPENDENT OF THE OFFER FOR ANY OTHER SERIES OF PREFERRED. IF AEP EXTENDS OR AMENDS ANY OFFER WITH RESPECT TO ONE SERIES OF PREFERRED FOR ANY REASON, AEP WILL HAVE NO OBLIGATION TO EXTEND THE OFFER FOR ANY OTHER SERIES OF PREFERRED. PROPOSED AMENDMENT AND PROXY SOLICITATION INTRODUCTION This Offer to Purchase and Proxy Statement is first being mailed on or about January 30, 1997 to the shareholders of APCo in connection with the solicitation of proxies by the Board of Directors of APCo (the "Board") for use at the Special Meeting. At the Special Meeting, the shareholders of record of APCo will vote upon the Proposed Amendment to the Articles. While Preferred Shareholders who wish to tender their Shares pursuant to the Offer are not required to vote in favor of or against the Proposed Amendment, the Offer is conditioned upon the Proposed Amendment being approved and adopted at the Special Meeting. In addition, Preferred Shareholders of record have the right to vote for or against the Proposed Amendment regardless of whether they tender their Shares. If the Proposed Amendment is approved and adopted by APCo's shareholders, APCo will make a special cash payment in the amount of $1.00 per Share (the "Special Cash Payment") to each Preferred Shareholder of record who voted in favor of the Proposed Amendment, provided that such Shares have not been tendered pursuant to the Offer. If a Preferred Shareholder votes against the Proposed Amendment or abstains, such Preferred Shareholder shall not be entitled to the Special Cash Payment (regardless of whether the Proposed Amendment is approved and adopted). Those Preferred Shareholders who validly tender their Shares will be entitled only to the purchase price per Share listed on the front cover of this Offer to Purchase and Proxy Statement. VOTING SECURITIES, RIGHTS AND PROCEDURES Only holders of record of APCo's voting securities at the close of business on January 27, 1997 (the "Record Date") will be entitled to vote in person or by proxy at the Special Meeting. The outstanding voting securities of APCo are divided into two classes: common stock and cumulative preferred stock. The class of cumulative preferred stock has been issued in the five Series of Preferred with the record holders of all Shares 13 14 of the cumulative preferred stock voting together as one class. The shares outstanding as of the Record Date, and the vote to which each share is entitled in consideration of the Proposed Amendment, are as follows:
CLASS SHARES OUTSTANDING VOTES PER SHARE - ------------------------------------------------------------- ------------------ --------------- Common Stock (No Par Value).................................. 13,499,500 1 vote Cumulative Preferred Stock (No Par Value).................... 2,198,150 1 vote
The affirmative vote of the holders of more than two-thirds of the outstanding shares of each of APCo's (i) common stock and (ii) cumulative preferred stock, all series voting together as one class, is required to approve the Proposed Amendment to be presented at the Special Meeting. Abstentions and broker non-votes will have the effect of votes against the Proposed Amendment. AEP HAS ADVISED APCO THAT IT INTENDS TO VOTE ALL OF THE OUTSTANDING SHARES OF COMMON STOCK OF APCO IN FAVOR OF THE PROPOSED AMENDMENT. Votes at the Special Meeting will be tabulated preliminarily by the Depositary. Inspectors of Election, duly appointed by the presiding officer of the Special Meeting, will definitively count and tabulate the votes and determine and announce the results at the Special Meeting. APCo has no established procedure for confidential voting. There are no rights of appraisal in connection with the Proposed Amendment. PROXIES THE ENCLOSED PROXY IS SOLICITED BY APCO'S BOARD, WHICH RECOMMENDS VOTING FOR THE PROPOSED AMENDMENT. ALL SHARES OF APCO'S COMMON STOCK WILL BE VOTED IN FAVOR OF THE PROPOSED AMENDMENT. Shares of APCo's cumulative preferred stock represented by properly executed proxies received at or prior to the Special Meeting will be voted in accordance with the instructions thereon. If no instructions are indicated, duly executed proxies will be voted in accordance with the recommendation of the Board. It is not anticipated that any other matters will be brought before the Special Meeting. However, the enclosed proxy gives discretionary authority to the proxy holders named therein should any other matters be presented at the Special Meeting, and it is the intention of the proxy holders to act on any other matters in accordance with their best judgment. Execution of a proxy will not prevent a shareholder from attending the Special Meeting and voting in person. Any shareholder giving a proxy may revoke it at any time before it is voted by delivering to the Secretary of APCo written notice of revocation bearing a later date than the proxy, by delivering a duly executed proxy bearing a later date, or by voting in person by ballot at the Special Meeting. Withdrawal of Shares tendered pursuant to the Offer will not revoke a properly executed proxy. APCo will bear the cost of the solicitation of proxies by the Board. APCo has engaged Morrow & Co., Inc. to act as Information Agent in connection with the solicitation of proxies for a fee of $5,900 plus reimbursement of reasonable out-of-pocket expenses. Proxies will be solicited by mail or by telephone. In addition, officers and employees of APCo may also solicit proxies personally or by telephone; such persons will receive no additional compensation for these services. The Information Agent has not been retained to make, and will not make, solicitations or recommendations in connection with the Proposed Amendment. APCo has requested that brokerage houses and other custodians, nominees and fiduciaries forward solicitation materials to the beneficial owners of shares of APCo's cumulative preferred stock held of record by such persons and will reimburse such brokers and other fiduciaries for their reasonable out-of-pocket expenses incurred in connection therewith. The solicitation of proxies has been approved by the SEC under the Holding Company Act. An application has been filed with the SEC under the Holding Company Act requesting approval of the Proposed Amendment and the acquisition of the Shares by AEP pursuant to the Offer. SPECIAL CASH PAYMENTS Subject to the terms and conditions set forth in this Offer to Purchase and Proxy Statement, if (but only if) the Proposed Amendment is approved and adopted by the shareholders of APCo, APCo will make a Special Cash Payment to each Preferred Shareholder who voted in favor of the Proposed Amendment, in person by ballot or by proxy, at the Special Meeting in the amount of $1.00 for each Share held by such 14 15 Preferred Shareholder on the Record Date which is so voted, provided that such Shares have not been tendered pursuant to the Offer. SPECIAL CASH PAYMENTS WILL BE MADE TO PREFERRED SHAREHOLDERS AS OF THE RECORD DATE (IF SUCH SHARES HAVE NOT BEEN TENDERED PURSUANT TO THE OFFER) ONLY IN RESPECT OF EACH SHARE WHICH IS VOTED FOR THE ADOPTION OF THE PROPOSED AMENDMENT; PROVIDED, HOWEVER, THAT THOSE PREFERRED SHAREHOLDERS WHO VALIDLY TENDER THEIR SHARES WILL BE ENTITLED ONLY TO THE PURCHASE PRICE PER SHARE LISTED ON THE FRONT COVER OF THIS OFFER TO PURCHASE AND PROXY STATEMENT. If the Proposed Amendment is approved and adopted, Special Cash Payments will be paid out of APCo's general funds, promptly after the Proposed Amendment shall have become effective. However, no accrued interest will be paid on the Special Cash Payments regardless of any delay in making such payments. Only Preferred Shareholders on the Record Date (or their legal representatives or attorneys-in-fact) are entitled to vote at the Special Meeting and to receive Special Cash Payments from APCo. Any beneficial holder of Shares who is not the registered holder of such Shares as of the Record Date (as would be the case for any beneficial holder whose Shares are registered in the name of such holder's broker, dealer, commercial bank, trust company or other nominee) must arrange with the record Preferred Shareholder to execute and deliver a proxy form on such beneficial owner's behalf. If a beneficial holder of Shares intends to attend the Special Meeting and vote in person, such beneficial holder must obtain a legal proxy form from his or her broker, dealer, commercial bank, trust company or other nominee. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As noted above, AEP owns all the outstanding common stock of APCo. Pursuant to Section 13(d) of the Exchange Act, a beneficial owner of a security is any person who directly or indirectly has or shares voting or investment power over such security. No person or group is known by management of APCo to be the beneficial owner of more than 5% of APCo's cumulative preferred stock as of the Record Date. APCo's directors and executive officers do not beneficially own any Shares as of the Record Date. The beneficial ownership of AEP's common stock held by each director, as well as directors and executive officers as a group, as of December 31, 1996, is set forth in the following table.
NAME (1) SHARES ------------------------------------------------------------------------- -------- P. J. DeMaria............................................................ , E. L. Draper, Jr. ....................................................... , H. W. Fayne.............................................................. , W. J. Lhota.............................................................. , G. P. Maloney............................................................ , J. J. Markowsky.......................................................... , J. H. Vipperman.......................................................... , All directors and executive officers as a group (representing % of the class)............................................................. ,
- --------------- (1) No individual listed beneficially owned more than 0. % of the outstanding shares of common stock of AEP. 15 16 BUSINESS TO COME BEFORE THE SPECIAL MEETING The following Proposed Amendment to the Articles is the only item of business expected to be presented at the Special Meeting: To remove in its entirety ARTICLE V, Clause 7(B)(b), limiting APCo's ability to issue indebtedness. THE FOLLOWING STATEMENTS, UNLESS THE CONTEXT OTHERWISE REQUIRES, ARE SUMMARIES OF THE SUBSTANCE OR GENERAL EFFECT OF A PROVISION OF THE ARTICLES, AND ARE QUALIFIED IN THEIR ENTIRETY BY THE ARTICLES AND CLAUSE 7(B)(B) (AS DESCRIBED BELOW). EXPLANATION OF THE PROPOSED AMENDMENT Article V, Clause 7(B)(b) of the Articles currently provides that, so long as any shares of APCo's cumulative preferred stock of any series are outstanding, without the consent of the holders of a majority of the total number of votes which holders of the outstanding shares of APCo Cumulative Preferred Stock of all series are entitled to cast, APCo shall not issue or assume any evidence of indebtedness, secured or unsecured (other than for purposes of refunding or renewing outstanding evidences of indebtedness or redeeming or otherwise retiring all outstanding shares of APCo Cumulative Preferred Stock and other than first mortgage bonds and certain other secured indebtedness) if, immediately after such issue or assumption: (a) the total principal amount of all such indebtedness issued or assumed by APCo and then outstanding would exceed 20% of the aggregate of (1) the total principal amount of all then-outstanding bonds or other secured debt of APCo (other than certain bonds issued under a mortgage) and (2) the stated capital and surplus of APCo as stated on APCo's books; or (b) the total principal amount of all unsecured debt would exceed 20% of the aggregate of (1) the total principal amount of all then-outstanding bonds or other secured debt of APCo and (2) the stated capital and surplus of APCo as stated on APCo's books; or (c) the total outstanding principal amount of all unsecured debt of maturities of less than ten years would exceed 10% of the aggregate of (1) the total principal amount of all then-outstanding bonds or other secured debt of APCo and (2) the stated capital and surplus of APCo as stated on APCo's books (the "Debt Limitation Provision"). The Proposed Amendment, if adopted, would eliminate in its entirety clause 7(B)(b), as set forth below, from the Articles. Unless otherwise defined, capitalized terms used in Clause 7(B) are used as defined in the Articles. Article V, Clause 7(B) of the Articles states: "(B) So long as any shares of the Cumulative Preferred Stock of any series are outstanding, the Corporation shall not, without the consent (given by vote at a meeting called for that purpose) of the holders of a majority of the total number of votes which holders of the outstanding shares of the Cumulative Preferred Stock of all series are entitled to cast, unless the consent of the holders of shares having some greater proportion of the total vote is required: (b) Issue or assume any evidences of indebtedness, secured or unsecured, other than bonds or other securities representing indebtedness of the character described hereafter in (1), (2), (3), (4), (5) and (6) of this clause (b), for purposes other than the refunding or renewing of outstanding evidences of indebtedness theretofore issued or assumed by the Corporation 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, (I) the total principal amount of all such indebtedness issued or assumed by the Corporation and then outstanding (including the evidences of indebtedness then to be issued or assumed) would exceed twenty per centum (20%) of the aggregate of (i) the total principal amount of all bonds or other securities representing indebtedness of the character described hereafter in (1), (2), (3), (4), (5) and (6) of this 16 17 clause (b), issued or assumed by the Corporation and then to be outstanding, and (ii) the stated capital and surplus of the Corporation as then to be stated on the books of account of the Corporation, unless such evidences of indebtedness are (1) bonds of the Corporation issued under the Mortgage of the Corporation to Bankers Trust Company and R. Gregory Page, as Trustees, dated as of December 1, 1940 (hereinafter referred to as the "bonds of the Corporation"), or (2) any bonds issued under a new mortgage replacing said Mortgage, dated as of December 1, 1940, or (3) any bonds issued under any other new mortgage of the Corporation provided that said Mortgage, dated as of December 1, 1940, or any mortgage replacing it, shall have been irrevocably closed against the authentication of additional bonds thereunder, or (4) any indebtedness secured by bonds of the Corporation or by bonds issued under any such new mortgage, in either case in a principal amount not in excess of the principal amount of such pledged bonds, or (5) any indebtedness secured by bonds issued under a mortgage existing at the time of acquisition on property acquired by the Corporation, whether by consolidation, merger, exchange, purchase, lease, or in any other way whatsoever, provided that said mortgage, or any mortgage replacing it, shall be irrevocably closed against the authentication of additional bonds thereunder, or (6) obligations to pay the purchase price of material or equipment made in the ordinary course of the Corporation's business, or (II) the total outstanding principal amount of all unsecured notes, debentures or other securities representing unsecured debt of the Corporation (other than obligations of the character described in (6) of this clause (b)) would thereby exceed twenty per centum (20%) of the aggregate of (i) the total principal amount of all bonds or other secured indebtedness of the Corporation, and (ii) the stated capital and surplus of the Corporation as then to be stated on the books of account of the Corporation, or (III) the total outstanding principal amount of all unsecured notes, debentures or other securities representing unsecured indebtedness of the Corporation (other than obligations of the character described in (6) of this clause (b)) of maturities of less than 10 years would thereby exceed ten per centum (10%) of the aggregate of (i) the total principal amount of all bonds or other secured indebtedness of the Corporation, and (ii) the stated capital and surplus of the Corporation as then to be stated on the books of account of the Corporation; provided, that, for purposes of this clause (b) only, 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 shall not be regarded as unsecured debt of a maturity of less than 10 years until such payment shall be required to be made within 3 years;" REASONS FOR THE PROPOSED AMENDMENT APCo believes that regulatory, legislative, technological and market developments are likely to lead to a more competitive environment in the electric utility industry. APCo and AEP's other electric utility subsidiaries believe that they currently have a favorable competitive position because of their relatively low costs. As competition intensifies, flexibility and cost reduction will be even more crucial to success. Because the electric utility industry is extremely capital intensive, control and minimization of financing costs are of particular importance. In response to the competitive forces and regulatory changes faced by APCo and AEP's other electric utility subsidiaries, AEP and its public utility subsidiaries have from time to time considered, and expect to continue to consider, various strategies designed to enhance their competitive position and to increase their ability to adapt to and anticipate changes in their utility business. APCo believes that adoption of the Proposed Amendment is key to financial flexibility and capital cost reduction. If adopted, the Debt Limitation Provision will be eliminated. Historically, APCo's debt financing generally has been accomplished through the issuance of long-term first mortgage bonds, a modest amount of unsecured short-term debt and long-term installment purchase contracts for pollution control bonds. First mortgage bonds represent secured indebtedness placing a first priority lien on substantially all of APCo's assets. The Mortgage and Deed of Trust between APCo and its bondholders contains certain restrictive covenants with respect to, among other things, the disposition of assets and the ability to issue additional first mortgage bonds. Unsecured debt generally has fewer restrictions than first mortgage bonds. Short-term debt, a low cost form of debt available to APCo, represents one type of unsecured indebtedness. Pollution control 17 18 bond financing, a favorable type of financing due to its tax-exempt status, is available only for very limited purposes. The Proposed Amendment will not only allow APCo to issue a greater amount of unsecured debt, but also will allow APCo to issue a greater amount of total debt. APCo, however, presently has no intention of issuing a greater amount of total debt than it would have issued absent the adoption of the Proposed Amendment, except that APCo expects to issue additional unsecured debt to fund the purchase of the Shares from AEP. Rather, it is APCo's intention to attain flexibility in the mix of its outstanding debt and therefore have the option to use more short-term and other unsecured debt and less first mortgage bonds. Inasmuch as the Debt Limitation Provision contained in the Articles limits APCo's flexibility in planning and financing its business activities, APCo believes it ultimately will be at a competitive disadvantage if the Debt Limitation Provision is not eliminated. The industry's new competitors (for example, power marketers, exempt wholesale generators, independent power producers and cogeneration facilities) generally are not subject to the type of financing restrictions the Articles impose on APCo. Recently, several other utilities with the same or similar charter restrictions have successfully eliminated such provisions by soliciting their shareholders for the same or similar amendments. In addition, some potential utility competitors, and other AEP public utility subsidiaries, including Columbus Southern Power Company and Kentucky Power Company, have no comparable provision restricting the issuance of unsecured debt. Although APCo sells relatively low-cost power, APCo must continue to explore new ways of reducing costs and enhancing flexibility. APCo believes that the adoption of the Proposed Amendment will be in the best long-term competitive interests of its shareholders. Financial Flexibility. If the Proposed Amendment is adopted, APCo will have increased flexibility (i) to choose among different types of debt financing and (ii) to finance projects using the most cost effective means. APCo believes that various types of unsecured debt alternatives will increase in importance as an option in financing its construction program and refinancing first mortgage bonds. The availability and flexibility of unsecured debt is necessary to take full advantage of changing conditions in securities markets. As a result, APCo may increase the amount of unsecured debt to more than 20% of capitalization. In addition, although APCo's earnings currently are sufficient to meet the earnings coverage tests that must be satisfied before issuing additional first mortgage bonds and preferred stock, there is no guarantee that this will be true in the future. Other utilities have been unable to issue first mortgage bonds during certain periods because of restrictive covenants in their mortgages. APCo's inability to issue first mortgage bonds or preferred stock in the future, combined with the inability to issue additional unsecured debt, would limit APCo's financing options to more costly options, including additional common equity. Moreover, continued reliance on the issuance of first mortgage bonds under APCo's Mortgage and Deed of Trust could limit APCo's ability in the future to strategically redeploy its assets. Under the Debt Limitation Provision, APCo's use of unsecured short-term debt is presently restricted. However, APCo believes that the prudent use of such debt in excess of this provision is vital to effective financial management of its business. Not only is unsecured short-term debt generally one of the least expensive forms of capital, it also provides flexibility in meeting seasonal and business cycle fluctuations in cash requirements, acts as a bridge between issues of permanent capital and can be used when unfavorable conditions prevail in the market for long-term capital. Lower Costs. As previously mentioned, APCo's short-term debt issuances generally represent one of its lowest-cost forms of financing. APCo is reassessing its historically modest use of short-term debt. By increasing its use of short-term debt, APCo may be able to lower its cost structure further, thereby making its products more competitive and reducing its business risks. However, with the Debt Limitation Provision in place, the availability and corresponding benefits of short-term debt diminish. And although short-term debt may expose the borrower to more volatility in interest rates, it should be noted that the cost of short-term debt seldom exceeds the cost of other forms of capital available at the same time. IT IS FOR ALL THE ABOVE REASONS THAT APCO'S BOARD BELIEVES THE BEST LONG-TERM INTERESTS OF SHAREHOLDERS ARE SERVED BY, AND ENCOURAGES SHAREHOLDERS TO VOTE FOR, THE ADOPTION OF THE PROPOSED AMENDMENT. 18 19 RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS Upon recommendation of the Audit Committee of AEP's board of directors, such board employed on January 31, 1996 Deloitte & Touche LLP as independent public accountants for AEP and its subsidiaries, including APCo, for the year 1996. A representative of Deloitte & Touche LLP will not be present at the Special Meeting unless prior to the day of the Special Meeting the Secretary of APCo has received written notice from a Preferred Shareholder addressed to the Secretary at 1 Riverside Plaza, Columbus, Ohio 43215, that such Preferred Shareholder will attend the Special Meeting and wishes to ask questions of a representative of Deloitte & Touche LLP. PRICE RANGE OF SHARES; DIVIDENDS APCo's Cumulative Preferred Stock 4- 1/2% Series is traded on the PSE under the symbol "APPWM", and the 5.90% Series, 5.92% Series, 6.85% Series and 7.80% Series are traded in the over-the-counter market under the symbols "APWRO", "APWRP", "APWRN" and "APPWD", respectively. The last reported sale price on the PSE and the over-the-counter market, as the case may be, as of the close of business on January 28, 1997, for each of the Series of Preferred is shown on the inside front cover of this Offer to Purchase and Proxy Statement. However, Preferred Shareholders should be aware that there is no established trading market for the Shares (other than the 4 1/2% Series) and that the Shares of each Series of Preferred only trade sporadically and, therefore, the last reported sales price may not necessarily reflect the market value of the Shares. PREFERRED SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS, IF AVAILABLE, FOR THE SHARES. The following table sets forth the high and low sales prices of each Series of Preferred on the PSE or in the over-the-counter market, as the case may be, as reported by the National Quotation Bureau, Inc., and the cash dividends paid thereon for the fiscal quarters indicated. DIVIDENDS AND PRICE RANGES OF CUMULATIVE PREFERRED STOCK BY QUARTERS (1996 AND 1995)
1996 -- QUARTERS 1995 -- QUARTERS ------------------------------------- ------------------------------------- 1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH ------- ------- ------- ------- ------- ------- ------- ------- CUMULATIVE PREFERRED STOCK 4 1/2% Series Dividends Paid Per Share.................... $ 1.125 $ 1.125 $ 1.125 $ 1.125 $ 1.125 $ 1.125 $ 1.125 $ 1.125 Market Price -- $ Per Share (PSE) Ask -- High............................... 62 61 59 -- 56 1/2 56 1/2 56 1/2 -- -- Low................................ 61 58 1/4 58 1/2 -- 51 53 3/4 56 1/2 -- Bid -- High............................... 61 1/2 58 3/4 57 58 3/4 54 56 1/2 56 1/2 59 3/8 -- Low................................. 58 3/4 56 5/8 56 1/2 57 48 50 55 55 5.90% Series Dividends Paid Per Share.................... $ 1.475 $ 1.475 $ 1.475 $ 1.475 $ 1.475 $ 1.475 $ 1.475 $ 1.475 Market Price -- $ Per Share (OTC) -- Quotations not available 5.92% Series Dividends Paid Per Share.................... $ 1.48 $ 1.48 $ 1.48 $ 1.48 $ 1.48 $ 1.48 $ 1.48 $ 1.48 Market Price -- $ Per Share (OTC) -- Quotations not available 6.85% Series Dividends Paid Per Share.................... $1.7125 $1.7125 $1.7125 $1.7125 $1.7125 $1.7125 $1.7125 $1.7125 Market Price -- $ Per Share (OTC) -- Quotations not available 7.80% Series Dividends Paid Per Share.................... $ 1.95 $ 1.95 $ 1.95 $ 1.95 $ 1.95 $ 1.95 $ 1.95 $ 1.95 Market Price -- $ Per Share (OTC) -- Quotations not available
- --------------- PSE -- Philadelphia Stock Exchange OTC -- Over-the-Counter Note -- The above bid and asked quotations represent prices between dealers and do not represent actual transactions Market quotations provided by National Quotation Bureau, Inc. Dash indicates quotation not available 19 20 Dividends for a Series of Preferred are payable when, as and if declared by APCo's Board of Directors at the rate per annum included in such title of the Series of Preferred listed on the front cover of this Offer to Purchase and Proxy Statement. The February 1997 Dividend has been declared on each Series of Preferred, payable February 1, 1997 to holders of record as of the close of business on January 9, 1997. A tender and purchase of Shares pursuant to the Offer will not deprive such Preferred Shareholder of his or her right to receive the February 1997 Dividend. Tendering Preferred Shareholders will be entitled to any dividends accrued and unpaid prior to the Payment Date in respect of any later dividend periods (or any portion thereof). PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER AEP believes that the purchase of the Shares at this time represents an attractive economic opportunity that will benefit AEP, its shareholders, and APCo. In addition, the Offer gives Preferred Shareholders the opportunity to sell their Shares at a price which AEP believes to be a premium to the market price on the date of the announcement of the Offer and without the usual transaction costs associated with a sale. After the consummation of the Offer, AEP or APCo may purchase additional Shares on the open market, in privately negotiated transactions, through one or more tender offers or otherwise. Any such purchases may be on the same terms as, or on terms which are more or less favorable to holders of Shares than, the terms of the Offer. However, Rule 13e-4(f)(6) under the Exchange Act prohibits AEP and its affiliates (including APCo) from purchasing any Shares of a Series of Preferred, other than pursuant to the Offer, until at least ten business days after the Expiration Date with respect to that Series of Preferred. Any future purchases of Shares by AEP or APCo would depend on many factors, including the market price of the Shares, AEP's business and financial position, legal restrictions on AEP's ability to purchase Shares as well as general economic and market conditions. Preferred Shareholders are not under any obligation to tender Shares pursuant to the Offer. The Offer does not constitute notice of redemption of any Series of Preferred pursuant to APCo's Articles, nor does AEP or APCo intend to effect any such redemption by making the Offer. Further, the Offer does not constitute a waiver by APCo of any option it has to redeem Shares. The 4- 1/2% Series is not subject to mandatory redemption but presently is callable at $110.00 per Share; commencing in 2003 and continuing through the year 2007, a sinking fund for the 5.90% Series will require the redemption of 25,000 Shares on November 1 of each year and the redemption of the remaining Shares outstanding on November 1, 2008, in each case at $100 per Share; commencing in 2003 and continuing through the year 2007, a sinking fund for the 5.92% Series will require the redemption of 30,000 Shares on November 1 of each year and the redemption of the remaining Shares outstanding on November 1, 2008, in each case at $100 per Share; commencing in 2000 and continuing through the date of redemption, a sinking fund for the 6.85% Series will require the redemption of 60,000 Shares on August 1 of each year, in each case at $100 per Share, and APCo has the noncumulative option to redeem up to 60,000 additional Shares on any sinking fund date at a redemption price of $100 per Share; and commencing in 1998, a sinking fund for the 7.80% Series will require the redemption of 25,000 Shares at $100 per Share on or before May 1 in each year, and APCo has the noncumulative option to redeem up to 25,000 additional Shares on any sinking fund date at a redemption price of $100 per Share. The Shares of each Series of Preferred have no preemptive or conversion rights. Upon liquidation or dissolution of APCo, owners of the Shares would be entitled to receive an amount equal to the liquidation preference per share ($100) plus all accrued and unpaid dividends (whether or not earned or declared) thereon to the date of payment, prior to the payment of any amounts to the holders of APCo's common stock. Shares validly tendered to the Depositary pursuant to the Offer and not withdrawn in accordance with the procedures set forth herein shall be held until the Expiration Date (or returned to the extent the Offer is terminated in accordance herewith). To the extent that the Proposed Amendment is approved and the Shares tendered are accepted for payment and paid for in accordance with the terms hereof, AEP intends to sell its Shares to APCo and, at that time, it is expected that APCo will retire and cancel the Shares. However, in the event the Proposed Amendment is not adopted at the Special Meeting, AEP may elect, but is not obligated to, waive, subject to applicable law, such condition. In that case, subsequent to AEP's waiver and purchase of the Shares, APCo anticipates, as promptly as practicable thereafter, that it would call another special meeting of 20 21 its shareholders and solicit proxies therefrom for an amendment substantially similar to the Proposed Amendment. At that meeting, AEP would vote any Shares acquired by it pursuant to the Offer or otherwise (together with its shares of common stock) in favor of such amendment, thereby maximizing the prospects for the adoption of the amendment. Any such purchase of Shares by AEP will reduce the number of Shares of each of the Series of Preferred that might otherwise trade publicly or become available for purchase and/or sale and likely will reduce the number of owners of Shares of each of the Series of Preferred, which could adversely affect the liquidity and sale value of the Shares not purchased in the Offer. Liquidity of Trading Market. To the extent that Shares of any Series of Preferred are tendered and accepted for payment in the Offer, the trading market for Shares of such Series of Preferred that remain outstanding may be significantly more limited, which might adversely affect the liquidity, market value and price volatility of such Shares. Equity securities with a smaller outstanding market value available for trading (the "float") may command a lower price than would comparable equity securities with a greater float. Therefore, the market price for Shares that are not tendered in the Offer may be affected adversely to the extent that the amount of Shares purchased pursuant to the Offer reduces the float. The reduced float may also make the trading price of the Shares that are not tendered and accepted for payment more volatile. Preferred Shareholders of the remaining Shares may attempt to obtain quotations for the Shares from their brokers; however, there can be no assurance that any trading market will exist for such Shares following consummation of the Offer. To the extent a market continues to exist for the Shares after the Offer, the Shares may trade at a discount compared to present trading depending on the market for Shares with similar features, the performance of APCo, and other factors. There is no assurance that an active market in the Shares will exist and no assurance as to the prices at which the Shares may trade. 4- 1/2% Series. Depending on the number of Shares tendered and purchased pursuant to the Offer, the 4- 1/2% Series may no longer meet the requirements of the PSE for trading, which may adversely affect the market for the Shares of the 4- 1/2% Series. According to its published guidelines, the PSE would consider delisting the 4- 1/2% Series if, among other things, (i) the number of publicly-held Shares of the 4- 1/2% Series should fall below 200,000, (ii) the number of Preferred Shareholders owning Shares of the 4- 1/2% Series should fall below 400 (or 300 round lot shareholders), or (iii) the aggregate market value of the 4- 1/2% Series should fall below $1,000,000. If, as a result of the purchase of Shares pursuant to the Offer or otherwise, the 4- 1/2% Series no longer meets the requirements of the PSE for continued listing and the listing of the 4- 1/2% Series is discontinued, the market for the 4- 1/2% Series could be adversely affected. In the event of the delisting of the 4- 1/2% Series currently listed on the PSE, it is possible that such Series would continue to trade on another securities exchange or in the over-the-counter market and that price quotations would be reported by such exchange, by the National Association of Securities Dealers, Inc. ("NASD") through the National Association of Securities Dealers Automated Quotation System ("NASDAQ") or by other sources. The extent of the public market for the 4- 1/2% Series and the availability of quotations, however, would depend upon such factors as the number of shareholders remaining at such time, the interest in maintaining a market in the 4- 1/2% Series on the part of securities firms, the possible termination of registration under the Exchange Act as described below, and other factors. The Shares of the 4- 1/2% Series are presently "margin securities" under the regulations of the Board of Governors of the Federal Reserve System (the "Federal Reserve"), which has the effect, among other things, of allowing brokers to extend credit on the collateral of such Shares. If the 4- 1/2% Series remains listed on the PSE, the Shares of the 4- 1/2% Series will continue to be "margin securities." If the 4- 1/2% Series is delisted, depending upon factors similar to those described above, the 4- 1/2% Series might no longer constitute "margin securities" for purposes of the margin regulations of the Federal Reserve, in which case, the Shares of the 4- 1/2% Series could no longer be used as collateral for loans made by brokers. In addition, the 4- 1/2% Series is currently registered under Section 12(b) of the Exchange Act. Registration of the Shares of the 4- 1/2% Series under the Exchange Act may be terminated upon the application by APCo to the SEC if such Shares are no longer listed on a national securities exchange. Termination of registration of the Shares of the 4- 1/2% Series under the Exchange Act would substantially 21 22 reduce the information required to be furnished by APCo to Preferred Shareholders and could make certain provisions of the Exchange Act no longer applicable to APCo. If registration of the 4- 1/2% Series under the Exchange Act were terminated, Shares of the 4- 1/2% Series would no longer be "margin securities" or be eligible for NASDAQ reporting. As of December 31, 1996, there were 1,773 registered holders of the 4- 1/2% Series. OTC Series. The purchase of Shares of the 5.90% Series, 5.92% Series, the 6.85% Series and the 7.80% Series (collectively, the "OTC Series") pursuant to the Offer will reduce the number of holders of Shares of the OTC Series and the number of such Shares that might otherwise trade publicly, and, depending upon the number of Shares so purchased, such reduction could adversely affect the liquidity and market value of the remaining Shares of the OTC Series held by the public. The extent of the public market for the Shares of the OTC Series and the availability of price quotations would, however, depend upon such factors as the number of stockholders remaining at such time, the interest in maintaining a market in the Shares of the OTC Series on the part of securities firms and other factors. As of December 31, 1996, there was 1 registered holder of the 5.90% Series, 2 registered holders of the 5.92% Series, 1 registered holder of the 6.85% Series and 3 registered holders of the 7.80% Series. Other Potential Effects of the Proposed Amendment on Preferred Shareholders who do not Tender. If the Proposed Amendment becomes effective, Preferred Shareholders of Shares that are not tendered and purchased pursuant to the Offer will no longer be entitled to the benefits of the Debt Limitation Provision, which will have been deleted by the Proposed Amendment. As discussed above, the Debt Limitation Provision places restrictions on APCo's ability to issue or assume indebtedness. Although APCo's debt instruments may contain certain restrictions on APCo's ability to issue or assume debt, any such restrictions may be waived and the increased flexibility afforded APCo by the deletion of the Debt Limitation Provision may permit APCo to take certain actions that may increase the credit risks with respect to APCo, adversely affecting the market price and credit rating of the remaining Shares or otherwise be materially adverse to the interests of the remaining Preferred Shareholders. In addition, to the extent that APCo elects to fund its purchase of the Shares by issuing additional unsecured debt, the remaining Preferred Shareholders relative position in APCo's capital structure could be perceived to decline, which in turn could adversely affect the market price and credit rating of the remaining Shares. To this end, Moody's has advised APCo that Moody's might reconsider its rating of APCo's preferred stock, absent some mitigating factors, and particularly in light of APCo's plan to fund the purchase of Shares from AEP through the issuance of additional unsecured debt. Following the consummation of the Offer, the business and operations of APCo will be continued substantially as they are currently being conducted. Except as disclosed in this Offer to Purchase and Proxy Statement, AEP and APCo currently have no plans or proposals that relate to or would result in: (a) the acquisition by any person or entity of additional securities of APCo or the disposition of securities of APCo, other than in the ordinary course of business; (b) an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving APCo or any of its subsidiaries other than APCo's plan to merge certain inactive and immaterial coal subsidiaries; (c) a sale or transfer of a material amount of assets of APCo or any of its subsidiaries; (d) any change in the present Board or management of APCo; (e) any material change in the present dividend rate or policy, or indebtedness or capitalization of APCo; (f) any other material change in APCo's corporate structure or business; (g) any change in APCo's Articles or By-Laws or any actions that may impede the acquisition of control of APCo by any person; (h) a class of equity securities of APCo being delisted from a national securities exchange; (i) a class of equity securities of APCo becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Exchange Act; or (j) the suspension of APCo's obligation to file reports pursuant to Section 15(d) of the Exchange Act. NEITHER AEP, APCO, THEIR RESPECTIVE BOARDS OF DIRECTORS, NOR ANY OF THEIR RESPECTIVE OFFICERS MAKES ANY RECOMMENDATION TO ANY PREFERRED SHAREHOLDER AS TO WHETHER TO TENDER ALL OR ANY SHARES. EACH PREFERRED SHAREHOLDER MUST MAKE HIS OR HER OWN DECISION AS TO WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER. 22 23 CERTAIN FEDERAL INCOME TAX CONSEQUENCES In the opinion of Simpson Thacher & Bartlett, tax counsel to AEP and APCo, the following summary describes the principal United States federal income tax consequences of sales of Shares pursuant to the Offer and the receipt of Special Cash Payments in connection with the approval and adoption of the Proposed Amendment. This summary is based on the Internal Revenue Code of 1986, as amended to the date hereof (the "Code"), administrative pronouncements, judicial decisions and existing and proposed Treasury Regulations, changes to any of which subsequent to the date of this Offer to Purchase and Proxy Statement may adversely affect the tax consequences described herein, possibly on a retroactive basis. This summary is addressed to Preferred Shareholders who hold Shares as capital assets within the meaning of Section 1221 of the Code. This summary does not discuss all of the tax consequences that may be relevant to a Preferred Shareholder in light of such Preferred Shareholder's particular circumstances or to Preferred Shareholders subject to special rules (including certain financial institutions, tax-exempt organizations, insurance companies, dealers in securities or currencies, foreign persons or entities selling Shares pursuant to the Offer who own or have owned, actually or constructively, more than five percent of such Shares, Preferred Shareholders who acquired their Shares pursuant to the exercise of stock options or other compensation arrangements with APCo or Preferred Shareholders holding the Shares as part of a conversion transaction, as part of a hedge or hedging transaction, or as a position in a straddle for tax purposes). Preferred Shareholders should consult their tax advisors with regard to the application of the United States federal income tax laws to their particular situations as well as any tax consequences arising under the laws of any state, local or foreign taxing jurisdiction. As used herein, the term "United States Holder" means an owner of a Share that is (i) for United States federal income tax purposes a citizen or resident of the United States; (ii) a corporation, partnership or other entity created or organized in or under the laws of the United States or of any political subdivision thereof; (iii) an estate the income of which is subject to United States federal income taxation regardless of its source; or (iv) any trust if a court within the United States is able to exercise primary supervision over the administration of such trust and one or more United States fiduciaries have the authority to control all substantial decisions of such trust. A "Non-United States Holder" is a Preferred Shareholder that is not a United States Holder. Tax Considerations for Tendering Preferred Shareholders Characterization of the Sale. A sale of Shares by a Preferred Shareholder pursuant to the Offer will be a taxable transaction for Federal income tax purposes. United States Holders. A United States Holder will recognize gain or loss equal to the difference between the tax basis of such Holder's Shares and the amount of cash received in exchange therefor. A United States Holder's gain or loss will be long-term capital gain or loss if the holding period for the Shares is more than one year as of the date of the sale of such Shares. The excess of net long-term capital gains over net short-term capital losses is taxed at a lower rate than ordinary income for certain non-corporate taxpayers. The distinction between capital gain or loss and ordinary income or loss is also relevant for purposes of, among other things, limitations on the deductibility of capital losses. Non-United States Holders. Any gain realized upon the sale of Shares by a Non-United States Holder pursuant to the Offer generally will not be subject to United States Federal income tax unless (i) such gain is effectively connected with a trade or business in the United States of the Non-United States Holder or (ii) in the case of a Non-United States Holder who is an individual, such individual is present in the United States for 183 days or more in the taxable year of such sale and certain other conditions are met. A Non-United States Holder described in clause (i) above will be taxed on the net gain derived from the sale at regular graduated United States Federal income tax rates. If a Non-United States Holder that is a foreign corporation falls under clause (i) above, it may also be subject to an additional "branch profits tax" at a 30% rate (or such lower rate as may be specified by an applicable income tax treaty). Unless an applicable tax treaty provides otherwise, an individual Non-United States Holder described in clause (ii) above will be 23 24 subject to a flat 30% tax on the gain derived from the sale, which may be offset by United States capital losses (notwithstanding the fact that the individual is not considered a resident of the United States). Tax Considerations for Non-Tendering Preferred Shareholders Preferred Shareholders, whether or not they receive Special Cash Payments, will not recognize any taxable gain or loss with respect to the Shares as a result of the modification of the Articles by the Proposed Amendment. United States Holders. There is no direct authority concerning the Federal income tax consequences of the receipt of Special Cash Payments. APCo will, for information reporting purposes, treat Special Cash Payments as ordinary non-dividend income to recipient United States Holders. Non-United States Holders. APCo will treat Special Cash Payments paid to a Non-United States Holder of Shares as subject to withholding of United States Federal income tax at a 30% rate. However, Special Cash Payments that are effectively connected with the conduct of a trade or business by the Non-United States Holder within the United States are not subject to the withholding tax (provided such Non-United States Holder provides two originals of Internal Revenue Service ("IRS") Form 4224 stating that such Special Cash Payments are so effectively connected), but instead are subject to United States Federal income tax on a net income basis at applicable graduated individual or corporate rates. Any such effectively connected Special Cash Payments received by a foreign corporation may, under certain circumstances, be subject to an additional "branch profits tax" at a 30% rate (or such lower rate as may be specified by an applicable income tax treaty). A Non-United States Holder of Shares eligible for a reduced rate of United States withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the IRS. Backup Withholding. ANY TENDERING PREFERRED SHAREHOLDER WHO FAILS TO COMPLETE AND SIGN THE SUBSTITUTE FORM W-9 THAT IS INCLUDED IN THE APPLICABLE LETTER OF TRANSMITTAL (OR, IN THE CASE OF A FOREIGN PREFERRED SHAREHOLDER, FORM W-8 OBTAINABLE FROM THE DEPOSITARY) MAY BE SUBJECT TO A REQUIRED FEDERAL INCOME TAX BACKUP WITHHOLDING OF 31% OF THE GROSS PROCEEDS PAYABLE TO SUCH PREFERRED SHAREHOLDER PURSUANT TO THE OFFER. To prevent backup United States Federal income tax withholding with respect to the purchase price of Shares purchased pursuant to the Offer, a United States Holder must provide the Depositary with the Preferred Shareholder's correct taxpayer identification number and certify that the Preferred Shareholder is not subject to backup withholding of Federal income tax by completing the Substitute Form W-9 included in the applicable Letter of Transmittal. Certain Preferred Shareholders (including, among others, all corporations and certain foreign shareholders) are exempt from backup withholding. For a corporate United States Holder to qualify for such exemption, such Preferred Shareholder must provide the Depositary with a properly completed and executed Substitute Form W-9 attesting to its exempt status. In order for a foreign Preferred Shareholder to qualify as an exempt recipient, the foreign holder must submit a Form W-8, Certificate of Foreign Status, signed under penalties of perjury, attesting to that Preferred Shareholder's exempt status. A copy of Form W-8 may be obtained from the Depositary. Unless a Preferred Shareholder provides the appropriate certification, under the applicable law and regulations concerning "backup withholding" of Federal United States income tax, the Depositary will be required to withhold, and will withhold, 31% of the gross proceeds otherwise payable to such Preferred Shareholder. The amount of any backup withholding from a payment to a Preferred Shareholder will be allowed as a credit against such Preferred Shareholder's United States federal income tax liability and may entitle such Preferred Shareholder to a refund, provided that the required information is furnished to the IRS. 24 25 SOURCE AND AMOUNT OF FUNDS Assuming that AEP purchases all outstanding Shares pursuant to the Offer, the total amount required by AEP to purchase such Shares will be approximately $231 million, exclusive of the accrued and unpaid dividends payments, but including fees and other expenses. AEP intends to fund the Offer through the use of its general funds (which, in the ordinary course, include funds from APCo) and funds borrowed pursuant to AEP's commercial paper program and committed lines of credit, including any bank revolving credit agreements. AEP and APCo sell commercial paper directly to commercial paper dealers who reoffer the commercial paper to investors and issue and sell short-term notes to several domestic and foreign banks through various credit arrangements, including revolving credit agreements or shared lines of credit. AEP and its significant subsidiaries, including APCo, have $500 million of committed lines of credit available for use by AEP and such subsidiaries. If necessary, AEP and its significant subsidiaries may negotiate increases to existing credit arrangements in order to fund the Offer. TRANSACTIONS AND AGREEMENTS CONCERNING THE SHARES Each of AEP and APCo has been advised by its directors and executive officers that no directors or executive officers of the respective companies own any Shares. Based upon the companies' records and upon information provided to each company by its directors and executive officers, neither company nor, to the knowledge of either, any of their subsidiaries, affiliates, directors or executive officers, or associates of the foregoing, has engaged in any transactions involving Shares during the 40 business days preceding the date hereof. Neither company nor, to the knowledge of either, any of its directors or executive officers or an associate of the foregoing is a party to any contract, arrangement, understanding or relationship relating directly or indirectly to the Offer with any other person or entity with respect to any securities of APCo. FEES AND EXPENSES PAID TO DEALERS Dealer Manager Fees. Merrill Lynch and Salomon Brothers will act as Dealer Managers for AEP in connection with the Offer. AEP has agreed to pay the Dealer Managers a fee of $.50 per Share for any Shares tendered, accepted for payment and paid for pursuant to the Offer and a fee of $.50 per Share for any Shares that are not tendered pursuant to the Offer but which vote in favor of the Proposed Amendment. The Dealer Managers will also be reimbursed by AEP for their reasonable out-of-pocket expenses, including attorneys' fees, and will be indemnified against certain liabilities, including certain liabilities under the federal securities laws, in connection with the Offer. The Dealer Managers have rendered, are currently rendering and are expected to continue to render various investment banking and other advisory services to AEP and APCo. The Dealer Managers have received, and will continue to receive, customary compensation from AEP and APCo for such services. AEP has retained First Chicago Trust Company of New York as Depositary and Morrow & Co., Inc. as Information Agent in connection with the Offer. The Depositary and Information Agent will receive reasonable and customary compensation for their services and will also be reimbursed for reasonable out-of-pocket expenses, including attorney fees. AEP has agreed to indemnify the Depositary and Information Agent against certain liabilities, including certain liabilities under the federal securities law, in connection with the Offer. Neither the Depositary nor the Information Agent has been retained to make solicitations or recommendations in connection with the Offer. Solicited Tender Fees and Separate Fees. Pursuant to Instruction 10 of the accompanying Letter of Transmittal, AEP will pay to designated brokers and dealers a solicitation fee of $1.50 per Share for any Shares tendered, accepted for payment and paid for pursuant to the Offer (except that for transactions for beneficial owners equal to or exceeding 5,000 Shares, AEP will pay a solicitation fee of (i) $1.00 per Share for Shares of the 4- 1/2% Series and (ii) $.50 per Share for Shares of the remaining Series) and APCo will pay a separate fee of $.50 per Share for any Shares of the 4 1/2% Series that are not tendered pursuant to the Offer but which are voted in favor of the Proposed Amendment with respect to the entity obtaining the tender or proxy, if the Letter of Transmittal shall include the name of (a) any broker or dealer in securities, including a Dealer 25 26 Manager in its capacity as a dealer or broker, which is a member of any national securities exchange or of the National Association of Securities Dealers, Inc. ("NASD"), (b) any foreign broker or dealer not eligible for membership in the NASD which agrees to conform to the NASD's Rules of Fair Practice in soliciting tenders outside the United States to the same extent as though it were an NASD member, or (c) any bank or trust company (each of which is referred to herein as a "Soliciting Dealer"); provided that, with respect to solicitation fees paid with respect to transactions for beneficial owners equal to or exceeding 5,000 shares, at least twenty percent (20%) of each such fee shall be paid to the Dealer Managers. No solicitation fee or separate fee shall be payable to a Soliciting Dealer with respect to the tender of Shares or the vote of Shares by a holder unless the Letter of Transmittal or proxy accompanying such tender or vote, as the case may be, designates such Soliciting Dealer. No solicitation fee or separate fee shall be payable to a Soliciting Dealer in respect of Shares registered in the name of such Soliciting Dealer unless such Shares are held by such Soliciting Dealer as nominee and such Shares are being tendered or voted for the benefit of one or more beneficial owners identified on the Letter of Transmittal or on the Notice of Solicited Tenders. No solicitation fee or separate fee shall be payable to a Soliciting Dealer if such Soliciting Dealer is required for any reason to transfer the amount of such fee to a depositing holder (other than itself). No solicitation fee shall be paid to a Soliciting Dealer with respect to Shares tendered for such Soliciting Dealer's own account and no separate fee shall be paid to a Soliciting Dealer with respect to Shares voted for such Soliciting Dealer's own account. Soliciting Dealers will not be entitled to a solicitation fee or a separate fee for Shares beneficially owned by such Soliciting Dealer. No broker, dealer, bank, trust company or fiduciary shall be deemed to be the agent of AEP, APCo, the Depositary, the Information Agent or the Dealer Managers for purposes of the Offer. Soliciting Dealers will include any of the organizations described in clauses (a), (b) and (c) above even when the activities of such organizations in connection with the Offer consist solely of forwarding to clients materials relating to the Offer, including the Letter of Transmittal and tendering Shares as directed by beneficial owners thereof. No Soliciting Dealer is required to make any recommendation to holders of Shares as to whether to tender or refrain from tendering in the Offer. No assumption is made, in making payment to any Soliciting Dealer, that its activities in connection with the Offer included any activities other than those described above, and for all purposes noted in all materials relating to the Offer, the term "solicit" shall be deemed to mean no more than "processing shares tendered" or "forwarding to customers materials regarding the Offer." Stock Transfer Taxes. AEP will pay all stock transfer taxes, if any, payable on account of the acquisition of Shares by AEP pursuant to the Offer, except in certain circumstances where special payment or delivery procedures are utilized pursuant to Instruction 6 of the accompanying Letter of Transmittal. CERTAIN INFORMATION REGARDING AEP AND APCO APCo is an operating utility primarily engaged in the generation, 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. All of the common stock of APCo is owned, directly or indirectly, by AEP, a registered holding company under the Holding Company Act. The service area of AEP's electric utility subsidiaries covers portions of Indiana, Kentucky, Michigan, Ohio, Tennessee, Virginia and West Virginia. AEP and APCo are subject to the informational requirements of the Exchange Act and in accordance therewith file reports and other information with 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; 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and Seven World Trade Center, Suite 1300, 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 AEP and APCo. Reports, proxy materials and other information about AEP are also available at the offices of the New York 26 27 Stock Exchange, 20 Broad Street, New York, New York 10005. Reports, proxy materials and other information about APCo are also available at the offices of the PSE, 1900 Market Street, Philadelphia, Pennsylvania 19103. In connection with the Offer AEP has filed an Issuer Tender Offer Statement on Schedule 13E-4 with the SEC that includes certain additional information relating to the Offer. AEP's Schedule 13E-4 will not be available at the SEC's regional offices. SUMMARY OF CONSOLIDATED FINANCIAL INFORMATION Set forth below is certain consolidated historical financial information of APCo and its subsidiaries. The historical financial information (other than the ratios of earnings to fixed charges) was derived from the audited consolidated financial statements included in APCo's Annual Report on Form 10-K for the year ended December 31, 1995 and from the unaudited consolidated financial statements included in APCo's Quarterly Reports on Form 10-Q for the periods ended September 30, 1996 and September 30, 1995. CONDENSED INCOME STATEMENT DATA:
(UNAUDITED) NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ------------------------- ------------------------- 1995 1994 1996 1995 ---------- ---------- ---------- ---------- (THOUSANDS, EXCEPT RATIOS) Operating Revenues........................ $1,545,039 $1,535,500 $1,214,656 $1,151,259 Operating Income.......................... 227,102 205,218 188,115 163,344 Allowance for Borrowed and Equity Funds Used During Construction................ 1,120 1,353 1,254 476 Net Income................................ 115,900 102,345 106,369 78,801 Preferred Stock Dividend Requirements..... 16,405 15,660 12,300 12,303 Earnings Applicable to Common Stock....... 99,495 86,685 94,069 66,498 Ratio of Earnings to Fixed Charges........ 2.54 2.37 2.84(a) 2.32(a)
- --------------- (a) Ratio for the twelve months ended September 30. CONDENSED BALANCE SHEET DATA (AT END OF PERIOD):
(UNAUDITED) DECEMBER 31, SEPTEMBER 30, ------------------------- ------------------------- 1995 1994 1996 1995 ---------- ---------- ---------- ---------- (THOUSANDS) ASSETS: Net Utility Plant In Service.............. $2,783,299 $2,707,422 $2,808,718 $2,763,750 Construction Work In Progress............. 80,391 63,453 81,106 67,576 Cash and Cash Equivalents................. 8,664 5,297 9,825 6,791 Other Current Assets...................... 338,608 296,467 327,245 296,708 Other Assets.............................. 524,416 575,156 503,248 511,972 ---------- ---------- ---------- ---------- $3,735,378 $3,647,795 $3,730,142 $3,646,797 ========== ========== ========== ========== LIABILITIES: Common Equity............................. $ 984,530 $ 971,227 $1,022,999 $ 978,057 Cumulative Preferred Stock................ 245,085 245,300 220,082 245,300 Long-term Debt (less amounts due within one year)............................... 1,278,433 1,228,911 1,365,637 1,278,298 Current Liabilities....................... 372,437 346,532 270,288 301,409(a) Other Liabilities......................... 854,893 855,825 851,136 843,733(a) ---------- ---------- ---------- ---------- $3,735,378 $3,647,795 $3,730,142 $3,646,797 ========== ========== ========== ==========
- --------------- (a) Certain amounts reclassified to conform with current-period presentation. 27 28 The financial statements of AEP and APCo and related information included in their Annual Reports on Form 10-K for the year ended December 31, 1995, and their Quarterly Reports on Form 10-Q for the periods ended March 31, June 30, and September 30, 1996, and APCo's Current Reports on Form 8-K dated March 19, 1996 and January 22, 1997, each as filed with the SEC, are hereby incorporated by reference. All documents subsequently filed by AEP and APCo pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Offer to Purchase and Proxy Statement and prior to the Expiration Date (or any extension thereof) shall be deemed to be incorporated by reference in this Offer to Purchase and Proxy Statement 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 Offer to Purchase and Proxy Statement to the extent that a statement contained herein or in any other subsequently filed documents which is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Offer to Purchase and Proxy Statement. AEP and APCo will provide without charge to each person to whom a copy of this Offer to Purchase and Proxy Statement 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 Offer to Purchase and Proxy Statement, 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 614-223-1000). The information relating to AEP and APCo contained in this Offer to Purchase and Proxy Statement does not purport to be comprehensive and should be read together with the information contained in the documents incorporated by reference. MISCELLANEOUS The Offer is not being made to, nor will AEP accept tenders from, owners of Shares in any jurisdiction in which the Offer or its acceptance would not be in compliance with the laws of such jurisdiction. AEP is not aware of any jurisdiction where the making of the Offer or the tender of Shares would not be in compliance with applicable law. If AEP becomes aware of any jurisdiction where the making of the Offer or the tender of Shares is not in compliance with any applicable law, AEP will make a good faith effort to comply with such law. If, after such good faith effort, AEP cannot comply with such law, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the owners of Shares residing in such jurisdiction. In any jurisdiction in which the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer will be deemed to be made on AEP's behalf by one or more registered brokers or dealers licensed under the laws of such jurisdiction. AMERICAN ELECTRIC POWER COMPANY, INC. APPALACHIAN POWER COMPANY 28 29 Facsimile copies of the Letter of Transmittal will not be accepted. The Letter of Transmittal and, if applicable, certificates for Shares should be sent or delivered by each tendering or voting Preferred Shareholder of APCo or his or her broker, dealer, bank or trust company to the Depositary at one of its addresses set forth below. THE DEPOSITARY IS: FIRST CHICAGO TRUST COMPANY OF NEW YORK By Mail: By Hand: By Overnight Courier: Tender & Exchange Department Tenders & Exchanges Tenders & Exchanges P.O. Box 2569 c/o The Depositary Trust Company 14 Wall Street, 8th Floor Suite 4660 55 Water Street, DTC TAD Suite 4680 Jersey City, New Jersey 07303-2569 Vietnam Veterans Memorial Plaza New York, New York 10005 New York, New York 10041
Any questions or requests for assistance may be directed to the Information Agent or the Dealer Managers at their respective telephone numbers and addresses listed below. Requests for additional copies of this Offer to Purchase and Proxy Statement, the Letter of Transmittal or other tender offer or proxy materials may be directed to the Information Agent and such copies will be furnished promptly at the companies' expense. Preferred Shareholders may also contact their local broker, dealer, commercial bank or trust company for assistance concerning the Offer. THE INFORMATION AGENT: MORROW & CO., INC. 909 Third Avenue New York, New York 10022-4799 (212) 754-8000 (Call Collect) or (800) 566-9061 (Call Toll-Free) THE DEALER MANAGERS: MERRILL LYNCH & CO. SALOMON BROTHERS INC World Financial Center Seven World Trade Center 250 Vesey Street New York, New York 10048 New York, New York 10281 1-800-558-3745 (toll-free) 1-888-ML4-TNDR (toll free) (1-888-654-8637 (toll free))
29 EX-99 3 1 OFFER TO PURCHASE AND PROXY STATEMENT AMERICAN ELECTRIC POWER COMPANY, INC. OFFER TO PURCHASE FOR CASH ANY AND ALL OUTSTANDING SHARES OF THE FOLLOWING SERIES OF CUMULATIVE PREFERRED STOCK OF INDIANA MICHIGAN POWER COMPANY 119,767 SHARES, CUMULATIVE PREFERRED STOCK, 4- 1/8% SERIES AT A PURCHASE PRICE OF $ . PER SHARE, CUSIP NUMBER 454889 304 40,000 SHARES, CUMULATIVE PREFERRED STOCK, 4.12% SERIES AT A PURCHASE PRICE OF $ . PER SHARE, CUSIP NUMBER 454889 205 60,000 SHARES, CUMULATIVE PREFERRED STOCK, 4.56% SERIES AT A PURCHASE PRICE OF $ . PER SHARE, CUSIP NUMBER 454889 825 400,000 SHARES, CUMULATIVE PREFERRED STOCK, 5.90% SERIES AT A PURCHASE PRICE OF $ . PER SHARE, CUSIP NUMBER 454889 858 300,000 SHARES, CUMULATIVE PREFERRED STOCK, 6- 1/4% SERIES AT A PURCHASE PRICE OF $ . PER SHARE, CUSIP NUMBER 454889 841 300,000 SHARES, CUMULATIVE PREFERRED STOCK, 6- 7/8% SERIES AT A PURCHASE PRICE OF $ . PER SHARE, CUSIP NUMBER 454889 866 350,000 SHARES, CUMULATIVE PREFERRED STOCK, 6.30% SERIES AT A PURCHASE PRICE OF $ . PER SHARE, CUSIP NUMBER 454889 833 ------------------------ INDIANA MICHIGAN POWER COMPANY PROXY STATEMENT WITH RESPECT TO ITS COMMON STOCK AND CUMULATIVE PREFERRED STOCK ------------------------ THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON FRIDAY, FEBRUARY 28, 1997, UNLESS THE OFFER IS EXTENDED. ------------------------ American Electric Power Company, Inc., a New York corporation ("AEP"), invites the holders of each series of cumulative preferred stock listed above (each a "Series of Preferred," and the holder thereof a "Preferred Shareholder") of Indiana Michigan Power Company, an Indiana corporation and direct utility subsidiary of AEP ("I&M"), to tender any and all of their shares of a Series of Preferred ("Shares") for purchase at the purchase price per Share listed above plus accrued and unpaid dividends for the Shares tendered, net to the seller in cash, upon the terms and subject to the conditions set forth in this Offer to Purchase and Proxy Statement and in the accompanying Letter of Transmittal (which together constitutes the "Offer"). AEP will purchase all Shares validly tendered and not withdrawn, upon the terms and subject to the conditions of the Offer. See "Terms of the Offer -- Certain Conditions of the Offer" and "Terms of the Offer -- Extension of Tender Period; Termination; Amendments." THE OFFER FOR A SERIES OF PREFERRED IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES OF SUCH SERIES OF PREFERRED BEING TENDERED AND IS INDEPENDENT OF THE OFFER FOR ANY OTHER SERIES OF PREFERRED. THE OFFER, HOWEVER, IS CONDITIONED UPON, AMONG OTHER THINGS, THE PROPOSED AMENDMENT, AS DESCRIBED BELOW, BEING APPROVED AND ADOPTED AT THE SPECIAL MEETING. SEE "TERMS OF THE OFFER -- CERTAIN CONDITIONS OF THE OFFER." Concurrently with the Offer, the Board of Directors of I&M is soliciting proxies for use at the Special Meeting of Shareholders of I&M to be held at AEP's principal office, 1 Riverside Plaza, Columbus, Ohio 43215, on February 28, 1997 at 4:15 p.m., or any adjournment or postponement of such meeting (the "Special Meeting"). The Special Meeting is being held to consider an amendment (the "Proposed Amendment") to I&M's Amended Articles of Acceptance (the "Articles") which would remove a provision of the Articles that limits I&M's ability to issue unsecured debt. WHILE PREFERRED SHAREHOLDERS WHO WISH TO TENDER THEIR SHARES PURSUANT TO THE OFFER NEED NOT VOTE IN FAVOR OF THE PROPOSED AMENDMENT, THE OFFER IS CONDITIONED UPON THE PROPOSED AMENDMENT BEING APPROVED AND ADOPTED AT THE SPECIAL MEETING. IN ADDITION, PREFERRED SHAREHOLDERS OF RECORD HAVE THE RIGHT TO VOTE FOR OR AGAINST THE PROPOSED AMENDMENT REGARDLESS OF WHETHER THEY TENDER THEIR SHARES. IF THE PROPOSED AMENDMENT IS APPROVED AND ADOPTED BY I&M'S SHAREHOLDERS, I&M WILL MAKE A SPECIAL CASH PAYMENT IN THE AMOUNT OF $1.00 PER SHARE TO EACH PREFERRED SHAREHOLDER WHO VOTED IN FAVOR OF THE PROPOSED AMENDMENT, PROVIDED THAT SUCH SHARES HAVE NOT BEEN TENDERED PURSUANT TO THE OFFER. THOSE PREFERRED SHAREHOLDERS WHO VALIDLY TENDER THEIR SHARES WILL BE ENTITLED ONLY TO THE PURCHASE PRICE PER SHARE LISTED ABOVE. ------------------------ The Company will pay to a Soliciting Dealer (as defined herein) a solicitation fee of $1.50 for any Shares Tendered, accepted for payment and paid for pursuant to the Offer, subject to certain conditions. See "Fees and Expenses Paid to Dealers." ------------------------ THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC") NOR HAS THE SEC PASSED UPON THE FAIRNESS OR MERITS OF THIS TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. ------------------------ NEITHER AEP, I&M, THEIR RESPECTIVE BOARDS OF DIRECTORS, NOR ANY OF THEIR RESPECTIVE OFFICERS MAKES ANY RECOMMENDATION TO ANY PREFERRED SHAREHOLDER AS TO WHETHER TO TENDER ANY OR ALL SHARES. EACH PREFERRED SHAREHOLDER MUST MAKE HIS OR HER OWN DECISION AS TO WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER. I&M BOARD OF DIRECTORS RECOMMENDS VOTING FOR THE PROPOSED AMENDMENT. ------------------------ This Offer to Purchase and Proxy Statement is first being mailed to Preferred Shareholders on or about January 30, 1997. ------------------------ Questions or requests for assistance may be directed to Morrow & Co., Inc. ("Morrow" or the "Information Agent") or to Merrill Lynch & Co. ("Merrill Lynch") and Salomon Brothers Inc ("Salomon Brothers") (Merrill Lynch and Salomon Brothers collectively the "Dealer Managers") at their respective telephone numbers and addresses set forth on the back cover of this Offer to Purchase and Proxy Statement. Requests for additional copies of this Offer to Purchase and Proxy Statement, the Letter of Transmittal or other tender offer or proxy materials may be directed to the Information Agent, and such copies will be furnished promptly at the companies' expense. Preferred Shareholders may also contact their local broker, dealer, commercial bank or trust company for assistance concerning the Offer. ------------------------ The Dealer Managers for the Offer are: MERRILL LYNCH & CO. SALOMON BROTHERS INC The date of this Offer to Purchase and Proxy Statement is January 30, 1997. 2 NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF AEP OR I&M AS TO WHETHER PREFERRED SHAREHOLDERS SHOULD TENDER OR REFRAIN FROM TENDERING SHARES OF ANY SERIES OF PREFERRED PURSUANT TO THE OFFER. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED HEREIN OR IN THE RELATED LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH RECOMMENDATION AND SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY AEP OR I&M. IMPORTANT Any Preferred Shareholder desiring to accept the Offer and tender all or any portion of his or her Shares should either (i) request his or her broker, dealer, commercial bank, trust company or nominee to effect the transaction for him or her, or (ii) complete and sign the Letter of Transmittal, in accordance with the instructions in the Letter of Transmittal, mail or deliver the same and any other required documents to First Chicago Trust Company of New York (the "Depositary"), and deliver the certificates for such Shares to the Depositary, along with the Letter of Transmittal, or tender such Shares pursuant to the procedure for book-entry transfer set forth below under "Terms of the Offer -- Procedure for Tendering Shares," on or prior to the Expiration Date (as defined below). A Preferred Shareholder whose Shares are registered in the name of a broker, dealer, commercial bank, trust company or nominee must contact such broker, dealer, commercial bank, trust company or nominee if he or she desires to tender such Shares. Any Preferred Shareholder who desires to tender Shares and whose certificates for such Shares are not immediately available, or who cannot comply in a timely manner with the procedure for book-entry transfer, should tender such Shares by following the procedures for guaranteed delivery set forth below under "Terms of the Offer -- Procedure for Tendering Shares." EACH SERIES OF PREFERRED HAS ITS OWN LETTER OF TRANSMITTAL, AND ONLY THE APPLICABLE LETTER OF TRANSMITTAL FOR SUCH SERIES OF PREFERRED OR A NOTICE OF GUARANTEED DELIVERY MAY BE USED TO TENDER SHARES OF SUCH SERIES OF PREFERRED. Each Series of Preferred is traded in the over-the-counter market (the "OTC") and is not listed on any national securities exchange, except for the 4- 1/8%, which is traded on the Chicago Stock Exchange ("CSE"). On January 28, 1997 (the last trading day prior to the commencement of the Offer), the last reported sale prices as reported by the National Quotation Bureau, Inc. were $ for the 4- 1/8% Series of Preferred (on , 199 ); $ for the 4.12% Series of Preferred (on , 199 ); $ for the 4.56% Series of Preferred (on , 199 ); $ for the 5.90% Series of Preferred (on , 199 ); $ for the 6- 1/4% Series of Preferred (on , 199 ); $ for the 6- 7/8% Series of Preferred (on , 199 ); and $ for the 6.30% Series of Preferred (on , 199 ). Preferred Shareholders are urged to obtain a current market quotation, if available, for the Shares. On January 29, 1997, there were issued and outstanding 119,767 Shares of the 4- 1/8% Series of Preferred; 40,000 Shares of the 4.12% Series of Preferred; 60,000 Shares of the 4.56% Series of Preferred; 400,000 Shares of the 5.90% Series of Preferred; 300,000 Shares of the 6- 1/4% Series of Preferred; 300,000 Shares of the 6- 7/8% Series of Preferred; and 350,000 Shares of the 6.30% Series of Preferred. 2 3 TABLE OF CONTENTS
PAGE ---- SUMMARY............................................................................... 4 TERMS OF THE OFFER.................................................................... 7 Number of Shares; Purchase Prices; Expiration Date; Dividends.................... 7 Procedure for Tendering Shares................................................... 7 Withdrawal Rights................................................................ 9 Acceptance of Shares for Payment and Payment of Purchase Price and Dividends..... 10 Certain Conditions of the Offer.................................................. 11 Extension of Tender Period; Termination; Amendments.............................. 12 PROPOSED AMENDMENT AND PROXY SOLICITATION............................................. 13 Introduction..................................................................... 13 Voting Securities, Rights and Procedures......................................... 13 Proxies.......................................................................... 14 Special Cash Payments............................................................ 15 Security Ownership of Certain Beneficial Owners and Management................... 15 Business to Come Before the Special Meeting...................................... 16 Explanation of the Proposed Amendment............................................ 16 Reasons for the Proposed Amendment............................................... 17 Relationship with Independent Public Accountants................................. 18 PRICE RANGE OF SHARES; DIVIDENDS...................................................... 18 PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER.................................... 20 CERTAIN FEDERAL INCOME TAX CONSEQUENCES............................................... 22 SOURCE AND AMOUNT OF FUNDS............................................................ 24 TRANSACTIONS AND AGREEMENTS CONCERNING THE SHARES..................................... 25 FEES AND EXPENSES PAID TO DEALERS..................................................... 25 CERTAIN INFORMATION REGARDING AEP AND I&M............................................. 26 SUMMARY OF CONSOLIDATED FINANCIAL INFORMATION......................................... 26 MISCELLANEOUS......................................................................... 28
3 4 SUMMARY The following summary is provided solely for the convenience of the Preferred Shareholders. This summary is not intended to be complete and is qualified in its entirety by reference to the full text and more specific details contained in this Offer to Purchase and Proxy Statement and the Letter of Transmittal and any amendments hereto or thereto. Preferred Shareholders are urged to read this Offer to Purchase and Proxy Statement and the Letter of Transmittal in their entirety. Each of the capitalized terms used in this summary and not defined herein has the meaning set forth elsewhere in this Offer to Purchase and Proxy Statement. The Companies.............. AEP, 1 Riverside Plaza, Columbus, Ohio 43215, is a registered holding company under the Public Utility Holding Company Act of 1935, as amended (the "Holding Company Act"), which owns, directly or indirectly, all of the outstanding common stock of its electric utility subsidiaries, including I&M. The service area of AEP's electric utility subsidiaries covers portions of Indiana, Kentucky, Michigan, Ohio, Tennessee, Virginia and West Virginia. I&M, One Summit Square, Fort Wayne, Indiana 46801, is a utility primarily engaged in the generation, purchase, transmission and distribution of electric power to approximately 537,000 customers in Indiana and Michigan, and in supplying electric power at wholesale to other electric utility companies and municipalities. The Shares................. 4- 1/8% Cumulative Preferred Stock (par value $100 per share) 4.12% Cumulative Preferred Stock (par value $100 per share) 4.56% Cumulative Preferred Stock (par value $100 per share) 5.90% Cumulative Preferred Stock (par value $100 per share) 6- 1/4% Cumulative Preferred Stock (par value $100 per share) 6- 7/8% Cumulative Preferred Stock (par value $100 per share) 6.30% Cumulative Preferred Stock (par value $100 per share) The Offer and Purchase Price...................... Offer to purchase any or all shares of each Series of Preferred at the price set forth below. $ . per 4- 1/8% Share $ . per 4.12% Share $ . per 4.56% Share $ . per 5.90% Share $ . per 6- 1/4% Share $ . per 6- 7/8% Share $ . per 6.30% Share Independent Offer.......... The Offer for one Series of Preferred is independent of the Offer for any other Series of Preferred. The Offer is not conditioned upon any minimum number of Shares of the applicable Series of Preferred being tendered. Preferred Shareholders who wish to tender their Shares are not required to vote in favor of the Proposed Amendment. The Offer is subject, however, to shareholder approval of the Proposed Amendment and certain other conditions. Expiration Date of the Offer...................... The Offer expires at 5:00 p.m., New York City time February 28, 1997, unless extended (the "Expiration Date"). How to Tender Shares....... See "Terms of the Offer -- Procedure for Tendering Shares". For further information, call the Information Agent or the Dealer Managers or consult your broker for assistance. 4 5 Withdrawal Rights.......... Tendered Shares of any Series of Preferred may be withdrawn at any time until the Expiration Date with respect to such Series of Preferred and, unless previously accepted for payment, may also be withdrawn after March 28, 1997. See "Terms of the Offer -- Withdrawal Rights." Purpose of the Offer....... AEP is making the Offer because AEP believes that the purchase of Shares is economically attractive to I&M and indirectly to AEP and its shareholders. In addition, the Offer gives Preferred Shareholders the opportunity to sell their Shares at a price which AEP believes to be a premium over the market price and without the usual transaction costs associated with a market sale. See "Purpose of the Offer; Certain Effects of the Offer." Dividends.................. I&M declared and paid the regular quarterly dividend on each Series of Preferred payable on January 2, 1997 to holders of record as of the close of business on December 6, 1996 (the "January 1997 Dividend"). Tendering Preferred Shareholders will be entitled to any dividends accrued prior to the Payment Date (as defined herein), in respect of any later dividend periods (or any portion thereof). Brokerage Commissions...... Not payable by Preferred Shareholders. Solicitation Fee........... AEP will pay to each designated Soliciting Dealer (as defined herein) a solicitation fee of $1.50 per Share for any Shares tendered, accepted for payment and paid for pursuant to the Offer (except that for transactions for beneficial owners equal to or exceeding 5,000 Shares, AEP will pay a solicitation fee of (i) $1.00 per Share for Shares of the 4- 1/8% Series, 4.12% Series and the 4.56% Series and (ii) $.50 per Share for the remaining Series) and I&M will pay a separate fee of $.50 per Share for any Shares of the 4- 1/8 Series, the 4.12% Series and the 4.56% Series that are not tendered pursuant to the Offer but which are voted in favor of the Proposed Amendment. A Soliciting Dealer will not be entitled to a solicitation fee or a separate fee for Shares beneficially owned by such Soliciting Dealer; provided that, with respect to solicitation fees paid with respect to transactions for beneficial owners equal to or exceeding 5,000 shares, at least twenty percent (20%) of each such fee shall be paid to the Dealer Managers. Proposed Amendment......... Concurrently with the Offer, the Board of Directors of I&M is soliciting proxies for use at the Special Meeting of Shareholders of I&M. The Special Meeting is being held to consider an amendment to I&M's Articles which would remove a provision that limits I&M's ability to issue unsecured debt. If the Proposed Amendment is approved by the shareholders, the clause of the Articles that places restrictions on I&M's ability to issue or assume indebtedness will be eliminated with respect to any Shares that remain outstanding after the consummation of the Offer. See "Purpose of the Offer; Certain Effects of the Offer." Record Date................ January 27, 1997. Special Cash Payment....... Preferred Shareholders of record have the right to vote for or against the Proposed Amendment regardless of whether they tender their Shares. If the Proposed Amendment is approved and adopted by I&M's shareholders, I&M will make a special cash payment of $1.00 per Share to each Preferred Shareholder who voted in favor of the Proposed Amendment but who did not tender his or her Shares (the "Special Cash Payment"). 5 6 Preferred Shareholders who validly tender their Shares will be entitled only to the purchase price per Share listed on the front cover of this Offer to Purchase and Proxy Statement plus an amount in cash equivalent to any dividends accrued prior to the Payment Date. Stock Transfer Tax......... Except as described herein, AEP will pay or cause to be paid any stock transfer taxes with respect to the sale and transfer of any Shares to it or its order pursuant to the Offer. See Instruction 6 of the applicable Letter of Transmittal. See "Terms of the Offer -- Acceptance of Shares for Payment of Purchase Price and Dividends." Payment Date............... Promptly after the Expiration Date or any extension thereof. Further Information........ Additional copies of this Offer to Purchase and Proxy Statement and the applicable Letter of Transmittal may be obtained by contacting Morrow, 909 Third Avenue, New York, NY 10022-4799, telephone (800)-566-9061 (toll-free) and (212) 754-8000 (brokers and dealers). Questions about the Offer should be directed to Merrill Lynch at (888) ML4-TNDR (toll free) (888-654-8637 (toll free)) or to Salomon Brothers at (800) 558-3745 (toll free). 6 7 TERMS OF THE OFFER NUMBER OF SHARES; PURCHASE PRICES; EXPIRATION DATE; DIVIDENDS Upon the terms and subject to the conditions described herein and in the applicable Letter of Transmittal, AEP will purchase any and all Shares that are validly tendered on or prior to the applicable Expiration Date (and not properly withdrawn in accordance with "Terms of the Offer -- Withdrawal Rights") at the purchase price per Share listed on the front cover of this Offer to Purchase and Proxy Statement for the Shares tendered, plus accrued and unpaid dividends for the Shares tendered to the Payment Date, net to the seller in cash. See "Terms of the Offer -- Certain Conditions of the Offer" and "Terms of the Offer -- Extension of Tender Period; Termination." THE OFFER FOR A SERIES OF PREFERRED IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES OF SUCH SERIES OF PREFERRED BEING TENDERED AND IS INDEPENDENT OF THE OFFER FOR ANY OTHER SERIES OF PREFERRED. THE OFFER, HOWEVER, IS CONDITIONED UPON, AMONG OTHER THINGS, THE PROPOSED AMENDMENT, AS DESCRIBED HEREIN, BEING APPROVED AND ADOPTED AT THE SPECIAL MEETING. SEE "TERMS OF THE OFFER -- CERTAIN CONDITIONS OF THE OFFER." The Offer is being sent to all persons in whose names Shares are registered on the books of I&M as of the close of business on January 27, 1997 and transferees of such persons. Only a record holder of Shares on the Record Date (as defined herein) may vote in person or by proxy at the Special Meeting. No record date is fixed for determining which persons are permitted to tender Shares. Any person who is the beneficial owner but not the record holder of Shares must arrange for the record transfer of such Shares prior to tendering. With respect to each Series of Preferred, the Expiration Date is the later of 5:00 p.m. New York City time, on February 28, 1997 or the latest time and date to which the Offer with respect to such Series of Preferred is extended. AEP expressly reserves the right, in its sole discretion, and at any time and/or from time to time, to extend the period of time during which the Offer for any Series of Preferred is open, by giving oral or written notice of such extension to the Depositary and making a public announcement thereof, without extending the period of time during which the Offer for any other Series of Preferred is open. There is no assurance whatsoever that AEP will exercise its right to extend the Offer for any Series of Preferred. If AEP decides, in its sole discretion, to (i) decrease the number of Shares of any Series of Preferred being sought, (ii) increase or decrease the consideration offered in the Offer to holders of any Series of Preferred or (iii) increase or decrease the Soliciting Dealers' fees and, at the time that notice of such increase or decrease is first published, sent or given to holders of such Series of Preferred in the manner specified herein, the Offer for such Series of Preferred is scheduled to expire at any time earlier than the tenth business day from the date that such notice is first so published, sent or given, such Offer will be extended until the expiration of such ten-business-day period. For purposes of the Offer, a "business day" means any day other than a Saturday, Sunday or federal holiday and consists of the time period from 12:00 a.m. through 11:59 p.m., New York City time. NO ALTERNATIVE, CONDITIONAL OR CONTINGENT TENDERS WILL BE ACCEPTED. The January 1997 Dividend was declared on each Series of Preferred and was paid on January 2, 1997 to holders of record as of the close of business on December 6, 1996. Tendering Preferred Shareholders will be entitled to any dividends accrued prior to the Payment Date in respect of any later dividend periods (or any portion thereof). PROCEDURE FOR TENDERING SHARES To tender Shares pursuant to the Offer, the tendering owner of Shares must either: (a) send to the Depositary (at one of its addresses set forth on the back cover of this Offer to Purchase and Proxy Statement) a properly completed and duly executed Letter of Transmittal, together with any required signature guarantees and any other documents required by the Letter of Transmittal and either (i) certificates for the Shares to be tendered must be received by the Depositary at one of such addresses or (ii) such Shares must be delivered pursuant to the procedures for book-entry transfer 7 8 described herein (and a confirmation of such delivery must be received by the Depositary), in each case by the Expiration Date; or (b) comply with the guaranteed delivery procedure described under "Guaranteed Delivery Procedure" below. A tender of Shares made pursuant to any method of delivery set forth herein or in the Letter of Transmittal will constitute a binding agreement between the tendering holder and AEP upon the terms and subject to the conditions of the Offer. The Depositary will establish an account with respect to the Shares at The Depository Trust Company and the Philadelphia Depository Trust Company (each a "Book Entry Transfer Facility") for purposes of the Offer within two business days after the date of this Offer to Purchase and Proxy Statement, and any financial institution that is a participant in the system of a Book-Entry Transfer Facility may make delivery of Shares by causing the Book-Entry Transfer Facility to transfer such Shares into the Depositary's account in accordance with the procedures of such Book-Entry Transfer Facility. Although delivery of Shares may be effected through book-entry transfer, such delivery must be accompanied by either (i) a properly completed and duly executed Letter of Transmittal, together with any required signature guarantees and any other required documents or (ii) an Agent's Message (as hereinafter defined) and, in any case, must be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase and Proxy Statement on or prior to the Expiration Date. DELIVERY OF SUCH LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY OR TO AEP DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. The term "Agent's Message" means a message, transmitted by a Book-Entry Transfer Facility, received by the Depositary and forming a part of the book-entry transfer when a tender is initiated, which states that such Book-Entry Transfer Facility has received an express acknowledgment from a participant tendering Shares that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that AEP may enforce such agreement against such participant. Except as otherwise provided below, all signatures on a Letter of Transmittal must be guaranteed by a firm that is a member of a registered national securities exchange or the National Association of Securities Dealers, Inc., or by a commercial bank or trust company having an office or correspondent in the United States that is a participant in an approved Signature Guarantee Medallion Program (each of the foregoing being referred to as an "Eligible Institution"). Signatures on a Letter of Transmittal need not be guaranteed if (a) the Letter of Transmittal or is signed by the registered owner of the shares tendered therewith and such owner has not completed the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" on the Letter of Transmittal or (b) such Shares are tendered for the account of an Eligible Institution. See Instructions 1 and 5 of the Letter of Transmittal. If Shares are registered in the name of a person other than the signatory on the Letter of Transmittal, or if unpurchased Shares are to be issued to a person other than the registered holder(s), the certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered holder(s) appear on the Shares with the signature(s) on the Shares or stock powers guaranteed as stated above. See Instructions 4, 6 and 7 to the Letter of Transmittal. Guaranteed Delivery Procedure. If a Preferred Shareholder desires to tender Shares pursuant to the Offer and such Preferred Shareholder's certificates are not immediately available or the procedures for book-entry transfer cannot be completed on a timely basis or time will not permit all required documents to reach the Depositary prior to the Expiration Date, such Shares may nevertheless be tendered if all of the following guaranteed delivery procedures are complied with: (i) such tender is made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by AEP and I&M herewith, is received (with any required signatures or signature guarantees) by the Depositary as provided below on or prior to the Expiration Date; and 8 9 (iii) the certificates for all tendered Shares in proper form for transfer or a Book-Entry Confirmation with respect to all tendered Shares, together with a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal, are received by the Depositary no later than 5:00 p.m., New York City time, within three business days after the date of execution of such Notice of Guaranteed Delivery. THE NOTICE OF GUARANTEED DELIVERY MAY BE DELIVERED BY HAND OR MAILED TO THE DEPOSITARY AND MUST INCLUDE AN ENDORSEMENT BY AN ELIGIBLE INSTITUTION IN THE FORM SET FORTH IN SUCH NOTICE OF GUARANTEED DELIVERY. In all cases, Shares shall not be deemed validly tendered unless a properly completed and duly executed Letter of Transmittal or, if applicable, an Agent's Message, is received by the Depositary. Notwithstanding any other provision hereof, payment for Shares accepted for payment pursuant to the Offer in all cases will be made only after timely receipt by the Depositary of certificates for (or an Agent's Message with respect to) such Shares, a Letter of Transmittal, properly completed and duly executed, with any required signature guarantees and all other documents required by the Letter of Transmittal. THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING PREFERRED SHAREHOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. BECAUSE IT IS THE TIME OF RECEIPT, NOT THE TIME OF MAILING, WHICH DETERMINES WHETHER A TENDER HAS BEEN MADE PRIOR TO THE EXPIRATION DATE, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. TO AVOID FEDERAL INCOME TAX BACKUP WITHHOLDING EQUAL TO 31% OF THE GROSS PAYMENTS MADE PURSUANT TO THE OFFER, EACH TENDERING PREFERRED SHAREHOLDER WHO IS A UNITED STATES PERSON MUST NOTIFY THE DEPOSITARY OF SUCH PREFERRED SHAREHOLDER'S CORRECT TAXPAYER IDENTIFICATION NUMBER AND PROVIDE CERTAIN OTHER INFORMATION BY PROPERLY COMPLETING AND EXECUTING THE SUBSTITUTE FORM W-9 INCLUDED IN THE LETTER OF TRANSMITTAL (OR, IN THE CASE OF A FOREIGN PREFERRED SHAREHOLDER, FORM W-8 OBTAINABLE FROM THE DEPOSITARY). SEE "CERTAIN FEDERAL INCOME TAX CONSEQUENCES." EACH PREFERRED SHAREHOLDER IS URGED TO CONSULT WITH HIS OR HER OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF THE OFFER. All questions as to the form of documents and the validity, eligibility (including the time of receipt) and acceptance for payment of any tender of Shares will be determined by AEP, in its sole discretion, and its determination will be final and binding. AEP reserves the absolute right to reject any or all tenders of Shares that (i) it determines are not in proper form or (ii) the acceptance for payment of or payment for which may, in the opinion of AEP's counsel, be unlawful. AEP also reserves the absolute right to waive any defect or irregularity in any tender of Shares. None of AEP, I&M, the Dealer Managers, the Depositary, the Information Agent or any other person will be under any duty to give notice of any defect or irregularity in tenders, nor shall any of them incur any liability for failure to give any such notice. WITHDRAWAL RIGHTS Tenders of Shares made pursuant to the Offer may be withdrawn at any time prior to the Expiration Date. Thereafter, such tenders are irrevocable, except that they may be withdrawn after March 28, 1997, unless previously accepted for payment as provided in this Offer to Purchase and Proxy Statement. To be effective, a written notice of withdrawal must be timely received by the Depositary, at one of its addresses set forth on the back cover of this Offer to Purchase and Proxy Statement, and must specify the name of the person who tendered the Shares to be withdrawn and the number of Shares to be withdrawn. If the Shares to be withdrawn have been delivered to the Depositary, a signed notice of withdrawal with 9 10 signatures guaranteed by an Eligible Institution (except in the case of Shares tendered by an Eligible Institution) must be submitted prior to the release of such Shares. In addition, such notice must specify, in the case of Shares tendered by delivery of certificates, the name of the registered owner (if different from that of the tendering Preferred Shareholder) and the serial numbers shown on the particular certificates evidencing the Shares to be withdrawn or, in the case of Shares tendered by book-entry transfer, the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares and the name of the registered holder (if different from the name of such account). Withdrawals may not be rescinded, and Shares withdrawn will thereafter be deemed not validly tendered for purposes of the Offer. However, withdrawn Shares may be re-tendered by again following one of the procedures described in "Terms of the Offer -- Procedure for Tendering Shares" at any time prior to the Expiration Date. All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by AEP, in its sole discretion, and its determination will be final and binding. None of AEP, I&M, the Dealer Managers, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defect or irregularity in any notice of withdrawal or will incur any liability for failure to give a any such notification. ACCEPTANCE OF SHARES FOR PAYMENT AND PAYMENT OF PURCHASE PRICE AND DIVIDENDS Upon the terms and subject to the conditions of the Offer, and as promptly as practicable after the Expiration Date, AEP will accept for payment (and thereby purchase) and pay for Shares validly tendered and not withdrawn as permitted in "Terms of the Offer -- Withdrawal Rights." Thereafter, payment for all Shares validly tendered on or prior to the Expiration Date and accepted pursuant to the Offer will be made by the Depositary by check as promptly as practicable after the Expiration Date. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made promptly but only after timely receipt by the Depositary of certificates for such Shares (or of an Agent's Message), a properly completed and duly executed Letter of Transmittal and any other required documents. For purposes of the Offer, AEP will be deemed to have accepted for payment (and thereby purchased) Shares that are validly tendered and not withdrawn as, if and when it gives oral or written notice to the Depositary of its acceptance for payment of such Shares. AEP will pay for Shares that it has purchased pursuant to the Offer by depositing the purchase price therefor plus accrued and unpaid dividends thereon with the Depositary, which will act as agent for tendering Preferred Shareholders for the purpose of receiving payment from AEP and transmitting payment to tendering Preferred Shareholders. Under no circumstances will interest be paid on amounts to be paid to tendering Preferred Shareholders, regardless of any delay in making such payment. Certificates for all Shares not validly tendered will be returned or, in the case of Shares tendered by book-entry transfer, such Shares will be credited to an account maintained with the Book-Entry Transfer Facility, as promptly as practicable, without expense to the tendering Preferred Shareholder. If certain events occur, AEP may not be obligated to purchase Shares pursuant to the Offer. See "Terms of the Offer -- Certain Conditions of the Offer." AEP will pay or cause to be paid any stock transfer taxes with respect to the sale and transfer of any Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price is to be made to, or Shares not tendered or not purchased are to be registered in the name of, any person other than the registered owner, or if tendered Shares are registered in the name of any person other than the person signing the Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered owner, such other person or otherwise) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes, or exemption therefrom, is submitted. See Instruction 6 of the accompanying Letter of Transmittal. 10 11 CERTAIN CONDITIONS OF THE OFFER AEP WILL NOT BE REQUIRED TO ACCEPT FOR PAYMENT OR PAY FOR ANY SHARES TENDERED IF THE PROPOSED AMENDMENT IS NOT APPROVED AND ADOPTED AT THE SPECIAL MEETING. PREFERRED SHAREHOLDERS OF RECORD HAVE THE RIGHT TO VOTE FOR OR AGAINST THE PROPOSED AMENDMENT REGARDLESS OF WHETHER THEY TENDER THEIR SHARES. IF THE PROPOSED AMENDMENT IS APPROVED AND ADOPTED, I&M WILL MAKE A SPECIAL CASH PAYMENT TO EACH PREFERRED SHAREHOLDER WHO VOTED IN FAVOR OF THE PROPOSED AMENDMENT, PROVIDED THAT THEIR SHARES HAVE NOT BEEN TENDERED PURSUANT TO THE OFFER. PREFERRED SHAREHOLDERS WHO TENDER THEIR SHARES WILL ONLY BE ENTITLED TO THE PURCHASE PRICE PER SHARE LISTED ON THE FRONT COVER OF THIS OFFER TO PURCHASE AND PROXY STATEMENT. In addition, notwithstanding any other provision of the Offer, AEP will not be required to accept for payment or pay for any Shares tendered, and may terminate or amend the Offer (by oral or written notice to the Depositary and timely public announcement) or may postpone (subject to the requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") for prompt payment for or return of Shares) the acceptance for payment of, or payment for, Shares tendered, if at any time after January 29, 1997, and at or before the Expiration Date, any of the following shall have occurred (which shall not have been waived by AEP): (a) there shall have been threatened, instituted or pending any action or proceeding by any government or governmental, regulatory or administrative agency, authority or tribunal or any other person, domestic or foreign, or before any court, authority, agency or tribunal that (i) challenges the acquisition of Shares pursuant to the Offer or otherwise in any manner relates to or affects the Offer or (ii) in the reasonable judgment of AEP, would or might materially and adversely affect the business, condition (financial or otherwise), income, operations or prospects of AEP and its subsidiaries taken as a whole, or otherwise materially impair in any way the contemplated future conduct of the business of AEP or any of its subsidiaries or materially impair the Offer's contemplated benefits to AEP; (b) there shall have been any action threatened, pending or taken, or approval withheld, or any statute, rule, regulation, judgment, order or injunction threatened, proposed, sought, promulgated, enacted, entered, amended, enforced or deemed to be applicable to the Offer or AEP or any of its subsidiaries, by any legislative body, court, authority, agency or tribunal that, in AEP's reasonable judgment, would or might directly or indirectly (i) make the acceptance for payment of, or payment for, some or all of the Shares illegal or otherwise restrict or prohibit consummation of the Offer; (ii) delay or restrict the ability of AEP, or render AEP unable, to accept for payment or pay for some or all of the Shares; (iii) materially impair the contemplated benefits of the Offer to AEP or I&M (including materially increasing the effective interest cost of certain types of unsecured debt); or (iv) materially affect the business, condition (financial or otherwise), income, operations or prospects of AEP and its subsidiaries taken as a whole, or otherwise materially impair in any way the contemplated future conduct of the business of AEP or any of its subsidiaries; (c) there shall have occurred (i) any significant decrease in the market price of the Shares, (ii) any change in the general political, market, economic or financial conditions in the United States or abroad that, in the reasonable judgment of AEP, would or might have a material adverse effect on AEP's business, operations, prospects or ability to obtain financing generally or the trading in the Shares or other equity securities of AEP; (iii) the declaration of a banking moratorium or any suspension of payments in respect of banks in the United States or any limitation on, or any event that, in AEP's reasonable judgment, would or might affect the extension of credit by lending institutions in the United States; (iv) the commencement of war, armed hostilities or other international or national calamity directly or indirectly involving the United States; (v) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or in the over-the-counter market; (vi) in the case of any of the foregoing existing at the time of the commencement of the Offer, in AEP's reasonable judgment, a material acceleration or worsening thereof; (vii) any decline in either the Dow Jones Industrial Average 11 12 or the Standard and Poor's Composite 500 Stock Index by an amount in excess of 15% measured from the close of business on January 29, 1997; or (viii) a decline in the ratings accorded any of AEP's or I&M's securities by Standard & Poor's Rating Services ("S&P"), Moody's Investors Service, Inc. ("Moody's") or Duff & Phelps, Inc. ("D&P") or that S&P, Moody's or D&P has announced that it has placed any such rating under surveillance or review with negative implications. (d) any tender or exchange offer with respect to some or all of the Shares (other than the Offer) or other equity securities of AEP, or a merger, acquisition or other business combination proposal for AEP, shall have been proposed, announced or made by any person or entity; (e) there shall have occurred any event or events that have resulted, or in AEP's reasonable judgment, may result, in an actual or threatened change in the business, condition (financial or otherwise), income, operations, stock ownership or prospects of AEP and its subsidiaries; or (f) the Securities and Exchange Commission (the "SEC") shall have withheld approval, under the Holding Company Act, of the acquisition of the Shares by AEP pursuant to the Offer or the approval and adoption of the Proposed Amendment at the Special Meeting or the issuance of short-term debt by AEP and/or I&M; and, in the sole judgment of AEP, such event or events make it undesirable or inadvisable to proceed with the Offer or with such acceptance for payment or payment. With respect to the approval of the SEC referenced in clause (f) above, the SEC must find that the acquisition of the Shares by AEP is not detrimental to the public interest or the interests of the investors or consumers, and that the consideration paid in connection with the acquisition and the adoption of the Proposed Amendment, including fees, commissions and other remuneration, is reasonable. The foregoing conditions (including the condition that the Proposed Amendment be approved and adopted at the Special Meeting) are for the sole benefit of AEP and may be asserted by AEP regardless of the circumstances (including any action or inaction by AEP) giving rise to any such condition, and any such condition may be waived by AEP, in whole or in part, at any time and from time to time in its sole discretion. A decision by AEP to terminate or otherwise amend any Offer, following the occurrence of any of the foregoing, with respect to one Series of Preferred will not create an obligation on behalf of AEP to terminate or otherwise amend in a similar manner the Offer with respect to any other Series of Preferred. The failure by AEP at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. Any determination by AEP concerning the events described above will be final and binding on all parties. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENTS AEP expressly reserves the right, in its sole discretion, and at any time and/or from time to time prior to the Expiration Date, to extend the period of time during which the Offer for any Series of Preferred is open by giving oral or written notice of such extension to the Depositary, without extending the period of time during which the Offer for any other Series of Preferred is open. There can be no assurance, however, that AEP will exercise its right to extend the Offer for any Series of Preferred. During any such extension, all Shares of the subject Series of Preferred previously tendered will remain subject to the Offer, except to the extent that such Shares may be withdrawn as set forth in "Terms of the Offer -- Withdrawal Rights." AEP also expressly reserves the right, in its sole discretion, to, among other things, terminate the Offer and not accept for payment or pay for any Shares tendered, subject to Rule 13e-4(f)(5) under the Exchange Act, which requires AEP either to pay the consideration offered or to return the Shares tendered promptly after the termination or withdrawal of the Offer upon the occurrence of any of the conditions specified in "Terms of the Offer -- Certain Conditions of the Offer" by giving oral or written notice of such termination to the Depositary, and making a public announcement thereof. Subject to compliance with applicable law, AEP further reserves the right, in its sole discretion, to amend the Offer in any respect. Amendments to the Offer may be made at any time and/or from time to time 12 13 effected by public announcement thereof, such announcement, in the case of an extension, to be issued no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Any public announcement made pursuant to the Offer will be disseminated promptly to Preferred Shareholders affected thereby in a manner reasonably designed to inform such Preferred Shareholders of such change. Without limiting the manner in which AEP may choose to make a public announcement, except as required by applicable law, AEP shall have no obligation to publish, advertise or otherwise communicate any such public announcement other than by making a release to the Dow Jones News Service. If AEP materially changes the terms of the Offer or the information concerning the Offer, or if it waives a material condition of the Offer, AEP will extend the Offer to the extent required by Rules 13e-4(d)(2) and 13e-4(e)(2) under the Exchange Act. Those rules require that the minimum period during which the Offer must remain open following material changes in the terms of the Offer or information concerning the Offer (other than a change in price, a change in percentage of securities sought or a change in the dealer's solicitation fee) will depend on the facts and circumstances, including the relative materiality of such terms or information. The SEC has stated that, in its view, an offer should remain open for a minimum of five business days from the date that a notice of such a material change is first published, sent or given. If the Offer is scheduled to expire at any time earlier than the expiration of a period ending on the tenth business day from, and including, the date that AEP publishes, sends or gives to Preferred Shareholders a notice that it will (i) increase or decrease the price it will pay for Shares, (ii) decrease the percentage of Shares it seeks, or (iii) increase or decrease the soliciting dealers' fees the Offer will be extended until the expiration of such period of ten business days. THE OFFER FOR EACH SERIES OF PREFERRED IS INDEPENDENT OF THE OFFER FOR ANY OTHER SERIES OF PREFERRED. IF AEP EXTENDS OR AMENDS ANY OFFER WITH RESPECT TO ONE SERIES OF PREFERRED FOR ANY REASON, AEP WILL HAVE NO OBLIGATION TO EXTEND THE OFFER FOR ANY OTHER SERIES OF PREFERRED. PROPOSED AMENDMENT AND PROXY SOLICITATION INTRODUCTION This Offer to Purchase and Proxy Statement is first being mailed on or about January 30, 1997 to the shareholders of I&M in connection with the solicitation of proxies by the Board of Directors of I&M (the "Board") for use at the Special Meeting. At the Special Meeting, the shareholders of record of I&M will vote upon the Proposed Amendment to the Articles. While Preferred Shareholders who wish to tender their Shares pursuant to the Offer are not required to vote in favor of or against the Proposed Amendment, the Offer is conditioned upon the Proposed Amendment being approved and adopted at the Special Meeting. In addition, Preferred Shareholders of record have the right to vote for or against the Proposed Amendment regardless of whether they tender their Shares. If the Proposed Amendment is approved and adopted by I&M's shareholders, I&M will make a special cash payment in the amount of $1.00 per Share (the "Special Cash Payment") to each Preferred Shareholder of record who voted in favor of the Proposed Amendment, provided that such Shares have not been tendered pursuant to the Offer. If a Preferred Shareholder votes against the Proposed Amendment or abstains, such Preferred Shareholder shall not be entitled to the Special Cash Payment (regardless of whether the Proposed Amendment is approved and adopted). Those Preferred Shareholders who validly tender their Shares will be entitled only to the purchase price per Share listed on the front cover of this Offer to Purchase and Proxy Statement. VOTING SECURITIES, RIGHTS AND PROCEDURES Only holders of record of I&M's voting securities at the close of business on January 27, 1997 (the "Record Date") will be entitled to vote in person or by proxy at the Special Meeting. The outstanding voting securities of I&M are divided into two classes: common stock and cumulative preferred stock. The class of cumulative preferred stock has been issued in the seven Series of Preferred with the record holders of all 13 14 Shares of the cumulative preferred stock voting together as one class. The shares outstanding as of the Record Date, and the vote to which each share is entitled in consideration of the Proposed Amendment, are as follows:
SHARES VOTES PER CLASS OUTSTANDING SHARE --------------------------------------------------------- ------------- ----------- Common Stock (No Par Value).............................. 1,400,000 1 vote Cumulative Preferred Stock (Par Value $100 Per Share).... 1,569,767 1 vote
The affirmative vote of the holders of at least two-thirds of the outstanding shares of each of I&M's (i) common stock and (ii) cumulative preferred stock, all series voting together as one class, is required to approve the Proposed Amendment to be presented at the Special Meeting. Abstentions and broker non-votes will have the effect of votes against the Proposed Amendment. AEP HAS ADVISED I&M THAT IT INTENDS TO VOTE ALL OF THE OUTSTANDING SHARES OF COMMON STOCK OF I&M IN FAVOR OF THE PROPOSED AMENDMENT. Votes at the Special Meeting will be tabulated preliminarily by the Depositary. Inspectors of Election, duly appointed by the presiding officer of the Special Meeting, will definitively count and tabulate the votes and determine and announce the results at the Special Meeting. I&M has no established procedure for confidential voting. There are no rights of appraisal in connection with the Proposed Amendment. PROXIES THE ENCLOSED PROXY IS SOLICITED BY I&M'S BOARD, WHICH RECOMMENDS VOTING FOR THE PROPOSED AMENDMENT. ALL SHARES OF I&M'S COMMON STOCK WILL BE VOTED IN FAVOR OF THE PROPOSED AMENDMENT. Shares of I&M's cumulative preferred stock represented by properly executed proxies received at or prior to the Special Meeting will be voted in accordance with the instructions thereon. If no instructions are indicated, duly executed proxies will be voted in accordance with the recommendation of the Board. It is not anticipated that any other matters will be brought before the Special Meeting. However, the enclosed proxy gives discretionary authority to the proxy holders named therein should any other matters be presented at the Special Meeting, and it is the intention of the proxy holders to act on any other matters in accordance with their best judgment. Execution of a proxy will not prevent a shareholder from attending the Special Meeting and voting in person. Any shareholder giving a proxy may revoke it at any time before it is voted by delivering to the Secretary of I&M written notice of revocation bearing a later date than the proxy, by delivering a duly executed proxy bearing a later date, or by voting in person by ballot at the Special Meeting. Withdrawal of Shares tendered pursuant to the Offer will not revoke a properly executed proxy. I&M will bear the cost of the solicitation of proxies by the Board. I&M has engaged Morrow & Co., Inc. to act as Information Agent in connection with the solicitation of proxies for a fee of $5,800, plus reimbursement of reasonable out-of-pocket expenses. Proxies will be solicited by mail or by telephone. In addition, officers and employees of I&M may also solicit proxies personally or by telephone; such persons will receive no additional compensation for these services. The Information Agent has not been retained to make, and will not make, solicitations or recommendations in connection with the Proposed Amendment. I&M has requested that brokerage houses and other custodians, nominees and fiduciaries forward solicitation materials to the beneficial owners of shares of I&M's cumulative preferred stock held of record by such persons and will reimburse such brokers and other fiduciaries for their reasonable out-of-pocket expenses incurred in connection therewith. The solicitation of proxies has been approved by the SEC under the Holding Company Act. An application has been filed with the SEC under the Holding Company Act requesting approval of the Proposed Amendment and the acquisition of the Shares by AEP pursuant to the Offer. 14 15 SPECIAL CASH PAYMENTS Subject to the terms and conditions set forth in this Offer to Purchase and Proxy Statement, if (but only if) the Proposed Amendment is approved and adopted by the shareholders of I&M, I&M will make a Special Cash Payment to each Preferred Shareholder who voted in favor of the Proposed Amendment, in person by ballot or by proxy, at the Special Meeting in the amount of $1.00 for each Share held by such Preferred Shareholder on the Record Date which is so voted, provided that such Shares have not been tendered pursuant to the Offer. SPECIAL CASH PAYMENTS WILL BE MADE TO PREFERRED SHAREHOLDERS AS OF THE RECORD DATE (IF SUCH SHARES HAVE NOT BEEN TENDERED PURSUANT TO THE OFFER) ONLY IN RESPECT OF EACH SHARE WHICH IS VOTED FOR THE ADOPTION OF THE PROPOSED AMENDMENT; PROVIDED, HOWEVER, THAT THOSE PREFERRED SHAREHOLDERS WHO VALIDLY TENDER THEIR SHARES WILL BE ENTITLED ONLY TO THE PURCHASE PRICE PER SHARE LISTED ON THE FRONT COVER OF THIS OFFER TO PURCHASE AND PROXY STATEMENT. If the Proposed Amendment is approved and adopted, Special Cash Payments will be paid out of I&M's general funds, promptly after the Proposed Amendment shall have become effective. However, no accrued interest will be paid on the Special Cash Payments regardless of any delay in making such payments. Only Preferred Shareholders on the Record Date (or their legal representatives or attorneys-in-fact) are entitled to vote at the Special Meeting and to receive Special Cash Payments from I&M. Any beneficial holder of Shares who is not the registered holder of such Shares as of the Record Date (as would be the case for any beneficial holder whose Shares are registered in the name of such holder's broker, dealer, commercial bank, trust company or other nominee) must arrange with the record Preferred Shareholder to execute and deliver a proxy form on such beneficial owner's behalf. If a beneficial holder of Shares intends to attend the Special Meeting and vote in person, such beneficial holder must obtain a legal proxy form from his or her broker, dealer, commercial bank, trust company or other nominee. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As noted above, AEP owns all the outstanding common stock of I&M. Pursuant to Section 13(d) of the Exchange Act, a beneficial owner of a security is any person who directly or indirectly has or shares voting or investment power over such security. No person or group is known by management of I&M to be the beneficial owner of more than 5% of I&M's cumulative preferred stock as of the Record Date. I&M's directors and executive officers do not beneficially own any Shares as of the Record Date. The beneficial ownership of AEP's common stock held by each director, as well as directors and executive officers as a group, as of December 31, 1996, is set forth in the following table.
NAME(1) SHARES ------------- C. R. Boyle.................................................. ____,____ G. A. Clark.................................................. ____,____ P. J. DeMaria................................................ ____,____ W. N. D'Onofrio.............................................. ____,____ E. L. Draper, Jr............................................. ____,____ W. J. Lhota.................................................. ____,____ G. P. Maloney................................................ ____,____ J. J. Markowsky.............................................. ____,____ A. H. Potter................................................. ____,____ D. B. Synowiec............................................... ____,____ D. M. Trenary................................................ ____,____ J. H. Vipperman.............................................. ____,____ W. E. Walters................................................ ____,____ All directors and executive officers as a group (representing % of the class)....................................... ____,____
- --------------- (1) No individual listed beneficially owned more than 0. % of the outstanding shares of common stock of AEP. 15 16 BUSINESS TO COME BEFORE THE SPECIAL MEETING The following Proposed Amendment to the Articles is the only item of business expected to be presented at the Special Meeting: To remove in its entirety ARTICLE 6(A), Subparagraph 7(B)(c), limiting I&M's ability to issue unsecured indebtedness. THE FOLLOWING STATEMENTS, UNLESS THE CONTEXT OTHERWISE REQUIRES, ARE SUMMARIES OF THE SUBSTANCE OR GENERAL EFFECT OF A PROVISION OF THE ARTICLES, AND ARE QUALIFIED IN THEIR ENTIRETY BY THE ARTICLES AND SUBPARAGRAPH 7(B)(C) (AS DESCRIBED BELOW). EXPLANATION OF THE PROPOSED AMENDMENT ARTICLE 6(A), Subparagraph 7(B)(c) of the Articles currently provides that, so long as any shares of I&M's cumulative preferred stock of any series are outstanding, I&M shall not, without the consent of the holders of such shares entitled to cast a majority of the total number of votes which holders of the cumulative preferred stock then outstanding are entitled to cast, issue or assume any unsecured debt securities (other than for purposes of the reacquisition, redemption or other retirement of any evidences of indebtedness theretofore issued or assumed by I&M or the reacquisition, redemption or other retirement of all outstanding shares of I&M preferred stock) if, immediately after such issue or assumption, the total principal amount of all unsecured debt securities (other than the principal amount of all long-term unsecured debt securities not in excess of 10% of the capitalization of I&M) issued or assumed by I&M and then outstanding would exceed 10% of the capitalization of I&M (the "Debt Limitation Provision"). The Proposed Amendment, if adopted, would eliminate in its entirety Subparagraph 7(B)(c), as set forth below, from the Articles. Unless otherwise defined, capitalized terms used in Paragraph 7(B) are used as defined in the Articles. ARTICLE 6(A), Paragraph 7(B) of the Articles states: "(B) So long as any shares of the Cumulative Preferred Stock of any series are outstanding, the Corporation shall not, without the consent (given by vote at a meeting called for that purpose) of the holders of such shares entitled to cast a majority of the total number of votes which holder of the Cumulative Preferred Stock then outstanding are entitled to cast: (c) Issue or assume any unsecured debt securities for purposes other than (i) the reacquisition, redemption or other retirement of any evidences of indebtedness theretofore issued or assumed by the Corporation, or (ii) the reacquisition, redemption or other retirement of all outstanding shares of the Cumulative Preferred Stock, if, immediately after such issue or assumption, the total principal amount of all unsecured debt securities (other than the principal amount of all long-term unsecured debt securities not in excess of 10% of the Capitalization of the Corporation) issued or assumed by the Corporation and then outstanding would exceed 10% of the Capitalization of the Corporation. For purposes of this subparagraph (c) only: (I) "unsecured debt securities" shall be deemed to mean any unsecured notes, debentures, or other securities representing unsecured indebtedness, but shall not include contractual commitments and agreements for the purchase of property, materials, power, energy or equipment to be used, consumed or resold in the ordinary course of the Corporation's business; (II) "long-term unsecured debt securities" shall be deemed to mean all unsecured debt securities outstanding, as of any specified time of computation, other than (x) unsecured debt securities maturing by their terms on a date less than ten years subsequent to such time of computation, and (y) the principal amount required under any sinking fund or other debt retirement provision, to be reacquired, redeemed or 16 17 otherwise retired by the Corporation on a date less than ten years subsequent to such time of computation; provided, however, that the principal amount of any class of unsecured debt securities, which at the time of issuance or assumption by the Corporation matured by its terms on a date ten or more years subsequent to such issuance or assumption, and which at the time of such computation (aa) is not required to be reacquired, redeemed or otherwise retired, through sinking fund or other debt retirement provision, prior to maturity of such class or (bb) represents the final maturity of a series of maturities within such class, shall continue to be deemed to be long-term unsecured debt securities until such final requirement or maturity shall occur on a date less than five years subsequent to such time of computation; and (III) the "Capitalization of the Corporation" shall be deemed to mean, as of any specified time of computation, an amount equal to the sum of the total principal amount of all bonds or other debt securities representing secured indebtedness issued or assumed by the Corporation and then to be outstanding, and the aggregate of the par value of, or stated capital represented by, the outstanding shares of all classes of stock and of the surplus of the Corporation, paid in, earned and other, if any;" REASONS FOR THE PROPOSED AMENDMENT I&M believes that regulatory, legislative, technological and market developments are likely to lead to a more competitive environment in the electric utility industry. I&M and AEP's other electric utility subsidiaries believe that they currently have a favorable competitive position because of their relatively low costs. As competition intensifies, flexibility and cost reduction will be even more crucial to success. Because the electric utility industry is extremely capital intensive, control and minimization of financing costs are of particular importance. In response to the competitive forces and regulatory changes faced by I&M and AEP's other electric utility subsidiaries, AEP and its public utility subsidiaries have from time to time considered, and expect to continue to consider, various strategies designed to enhance their competitive position and to increase their ability to adapt to and anticipate changes in their utility business. I&M believes that adoption of the Proposed Amendment is key to financial flexibility and capital cost reduction. If adopted, the Debt Limitation Provision will be eliminated. Historically, I&M's debt financing generally has been accomplished through the issuance of long-term first mortgage bonds, a modest amount of unsecured short-term debt and long-term installment purchase contracts for pollution control bonds. First mortgage bonds represent secured indebtedness placing a first priority lien on substantially all of I&M's assets. The Mortgage and Deed of Trust between I&M and its bondholders contains certain restrictive covenants with respect to, among other things, the disposition of assets and the ability to issue additional first mortgage bonds. Unsecured debt generally has fewer restrictions than first mortgage bonds. Short-term debt, a low cost form of debt available to I&M, represents one type of unsecured indebtedness. Pollution control bond financing, a favorable type of financing due to its tax-exempt status, is available only for very limited purposes. The Proposed Amendment will not only allow I&M to issue a greater amount of unsecured debt, but also will allow I&M to issue a greater amount of total debt. I&M, however, presently has no intention of issuing a greater amount of total debt than it would have issued absent the adoption of the Proposed Amendment, except that I&M expects to issue additional unsecured debt to fund the purchase of the Shares from AEP. Rather, it is I&M's intention to attain flexibility in the mix of its outstanding debt and therefore have the option to use more short-term and other unsecured debt and less first mortgage bonds. Inasmuch as the Debt Limitation Provision contained in the Articles limits I&M's flexibility in planning and financing its business activities, I&M believes it ultimately will be at a competitive disadvantage if the Debt Limitation Provision is not eliminated. The industry's new competitors (for example, power marketers, exempt wholesale generators, independent power producers and cogeneration facilities) generally are not subject to the type of financing restrictions the Articles impose on I&M. Recently, several other utilities with the same or similar charter restrictions have successfully eliminated such provisions by soliciting their shareholders for the same or similar amendments. In addition, some potential utility competitors, and other AEP public utility subsidiaries, including Columbus Southern Power Company and Kentucky Power Company, have no comparable provision restricting the issuance of unsecured debt. 17 18 Although I&M sells relatively low-cost power, I&M must continue to explore new ways of reducing costs and enhancing flexibility. I&M believes that the adoption of the Proposed Amendment will be in the best long-term competitive interests of its shareholders. Financial Flexibility. If the Proposed Amendment is adopted, I&M will have increased flexibility (i) to choose among different types of debt financing and (ii) to finance projects using the most cost effective means. I&M believes that various types of unsecured debt alternatives will increase in importance as an option in financing its construction program and refinancing first mortgage bonds. The availability and flexibility of unsecured debt is necessary to take full advantage of changing conditions in securities markets. As a result, I&M may increase the amount of unsecured debt to more than 20% of capitalization. In addition, although I&M's earnings currently are sufficient to meet the earnings coverage tests that must be satisfied before issuing additional first mortgage bonds and preferred stock, there is no guarantee that this will be true in the future. Other utilities have been unable to issue first mortgage bonds during certain periods because of restrictive covenants in their mortgages. I&M's inability to issue first mortgage bonds or preferred stock in the future, combined with the inability to issue additional unsecured debt, would limit I&M's financing options to more costly options, including additional common equity. Moreover, continued reliance on the issuance of first mortgage bonds under I&M's Mortgage and Deed of Trust could limit I&M's ability in the future to strategically redeploy its assets. Under the Debt Limitation Provision, I&M's use of unsecured short-term debt is presently restricted. However, I&M believes that the prudent use of such debt in excess of this provision is vital to effective financial management of its business. Not only is unsecured short-term debt generally one of the least expensive forms of capital, it also provides flexibility in meeting seasonal and business cycle fluctuations in cash requirements, acts as a bridge between issues of permanent capital and can be used when unfavorable conditions prevail in the market for long-term capital. Lower Costs. As previously mentioned, I&M's short-term debt issuances generally represent one of its lowest-cost forms of financing. I&M is reassessing its historically modest use of short-term debt. By increasing its use of short-term debt, I&M may be able to lower its cost structure further, thereby making its products more competitive and reducing its business risks. However, with the Debt Limitation Provision in place, the availability and corresponding benefits of short-term debt diminish. And although short-term debt may expose the borrower to more volatility in interest rates, it should be noted that the cost of short-term debt seldom exceeds the cost of other forms of capital available at the same time. IT IS FOR ALL THE ABOVE REASONS THAT I&M'S BOARD BELIEVES THE BEST LONG-TERM INTERESTS OF SHAREHOLDERS ARE SERVED BY, AND ENCOURAGES SHAREHOLDERS TO VOTE FOR, THE ADOPTION OF THE PROPOSED AMENDMENT. RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS Upon recommendation of the Audit Committee of AEP's board of directors, such board employed on January 31, 1996 Deloitte & Touche LLP as independent public accountants for AEP and its subsidiaries, including I&M, for the year 1996. A representative of Deloitte & Touche LLP will not be present at the Special Meeting unless prior to the day of the Special Meeting the Secretary of I&M has received written notice from a Preferred Shareholder addressed to the Secretary at 1 Riverside Plaza, Columbus, Ohio 43215, that such Preferred Shareholder will attend the Special Meeting and wishes to ask questions of a representative of Deloitte & Touche LLP. PRICE RANGE OF SHARES; DIVIDENDS I&M's Cumulative Preferred Stock 4- 1/8% is traded on the CSE under the symbol "IMIGO", and the 4.12% Series, 4.56% Series, 5.90% Series, 6- 1/4% Series, 6- 7/8% Series and 6.30% Series are traded in the over-the-counter market under the symbols "IMIGP", "IMIGN", "IMIGL", "IMIGH", "IMIGM", and "IMIGI", respectively. The last reported sale price on the CSE and in the over-the-counter market, as the case may be, as of the close of business on January 28, 1997, for each of the Series of Preferred is shown on the inside front cover of this Offer to Purchase and Proxy Statement. However, Preferred Shareholders should be aware that there is no established trading market for the Shares (other than the 4 1/8% Series) and that the Shares of each Series of Preferred only trade sporadically and, therefore, the last reported sales price may not necessarily reflect the market value of the Shares. 18 19 PREFERRED SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS, IF AVAILABLE, FOR THE SHARES. The following table sets forth the high and low sales prices of each Series of Preferred on the CSE or in the over-the-counter market, as the case may be, as reported by the National Quotation Bureau, Inc., and the cash dividends paid thereon for the fiscal quarters indicated. DIVIDENDS AND PRICE RANGES OF CUMULATIVE PREFERRED STOCK BY QUARTERS (1996 AND 1995)
1996 -- QUARTERS 1995 -- QUARTERS ----------------------------------------- ----------------------------------------- 1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH -------- -------- -------- -------- -------- -------- -------- -------- CUMULATIVE PREFERRED STOCK ($100 Par Value) 4- 1/8% Series Dividends Paid Per Share................. $1.03125 $1.03125 $1.03125 $1.03125 $1.03125 $1.03125 $1.03125 $1.03125 Market Price -- $ Per Share (CSE) -- Quotations not available 4.56% Series Dividends Paid Per Share................. $1.14 $1.14 $1.14 $1.14 $1.14 $1.14 $1.14 $1.14 Market Price -- $ Per Share (OTC) Ask -- High/Low........................ -- -- -- -- -- -- -- -- Bid -- High............................ 51 51 1/4 52 52 46 5/8 47 1/4 47 1/2 49 1/2 -- Low.............................. 49 3/8 51 51 1/4 52 45 1/2 46 1/4 47 1/4 47 1/2 4.12% Series Dividends Paid Per Share................. $1.03 $1.03 $1.03 $1.03 $1.03 $1.03 $1.03 $1.03 Market Price -- $ Per Share (OTC) Ask -- High/Low........................ -- -- -- -- -- -- -- -- Bid -- High............................ 51 49 49 3/4 50 46 1/2 47 51 51 -- Low.............................. 48 1/4 48 3/4 49 49 3/4 43 46 46 46 5.90% Series Dividends Paid Per Share................. $1.475 $1.475 $1.475 $1.475 $1.475 $1.475 $1.475 $1.475 Market Price -- $ Per Share (OTC) -- Quotations not available 6- 1/4% Series Dividends Paid Per Share................. $1.5625 $1.5625 $1.5625 $1.5625 $1.5625 $1.5625 $1.5625 $1.5625 Market Price -- $ Per Share (OTC) -- Quotations not available 6.30% Series Dividends Paid Per Share................. $1.575 $1.575 $1.575 $1.575 $1.575 $1.575 $1.575 $1.575 Market Price -- $ Per Share (OTC) -- Quotations not available 6- 7/8% Series Dividends Paid Per Share................. $1.71875 $1.71875 $1.71875 $1.71875 $1.71875 $1.71875 $1.71875 $1.71875 Market Price -- $ Per Share (OTC) -- Quotations not available
- --------------- CSE -- Chicago Stock Exchange. OTC -- Over-the-Counter. Note -- The above bid and asked quotations represent prices between dealers and do not represent actual transactions. Market quotations provided by National Quotation Bureau, Inc. Dash indicates quotation not available. Dividends for a Series of Preferred are payable when, as and if declared by I&M's Board of Directors at the rate per annum included in such title of the Series of Preferred listed on the front cover of this Offer to Purchase and Proxy Statement. The January 1997 Dividend was declared on each Series of Preferred and was paid on January 2, 1997 to holders of record as of the close of business on December 6, 1996. Tendering Preferred Shareholders will be entitled to any dividends accrued and unpaid prior to the Payment Date in respect of any later dividend periods (or any portion thereof). 19 20 PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER AEP believes that the purchase of the Shares at this time represents an attractive economic opportunity that will benefit AEP, its shareholders, and I&M. In addition, the Offer gives Preferred Shareholders the opportunity to sell their Shares at a price which AEP believes to be a premium to the market price on the date of the announcement of the Offer and without the usual transaction costs associated with a sale. After the consummation of the Offer, AEP or I&M may purchase additional Shares on the open market, in privately negotiated transactions, through one or more tender offers or otherwise. Any such purchases may be on the same terms as, or on terms which are more or less favorable to holders of Shares than, the terms of the Offer. However, Rule 13e-4(f)(6) under the Exchange Act prohibits AEP and its affiliates (including I&M) from purchasing any Shares of a Series of Preferred, other than pursuant to the Offer, until at least ten business days after the Expiration Date with respect to that Series of Preferred. Any future purchases of Shares by AEP or I&M would depend on many factors, including the market price of the Shares, AEP's business and financial position, legal restrictions on AEP's ability to purchase Shares as well as general economic and market conditions. Preferred Shareholders are not under any obligation to tender Shares pursuant to the Offer. The Offer does not constitute notice of redemption of any Series of Preferred pursuant to I&M's Articles, nor does AEP or I&M intend to effect any such redemption by making the Offer. Further, the Offer does not constitute a waiver by I&M of any option it has to redeem Shares. The 4- 1/8% Series, 4.12% Series and 4.56% Series are not subject to mandatory redemption, but presently are callable at $106.125 per Share, $102.728 per Share and $102.00 per Share, respectively. Commencing in 2004 and continuing through the year 2008, a sinking fund for the 5.90% Series will require the redemption of 20,000 Shares on January 1 of each year and the redemption of the remaining Shares outstanding on January 1, 2009, in each case at $100 per Share; commencing in 2004 and continuing through the year 2008, a sinking fund for the 6- 1/4% Series will require the redemption of 15,000 Shares on April 1 of each year and the redemption of the remaining Shares outstanding on April 1, 2009, in each case at $100 per Share; commencing in 2004 and continuing through the year 2008, a sinking fund for the 6.30% Series will require the redemption of 17,500 Shares on July 1 of each year and the redemption of the remaining Shares outstanding on July 1, 2009, in each case at $100 per Share; and commencing in 2003 and continuing through the year 2007, a sinking fund for the 6-7/8% Series will require the redemption of 15,000 Shares on April 1 of each year and the redemption of the remaining Shares outstanding on April 1, 2008, in each case at $100 per Share. The Shares of each Series of Preferred have no preemptive or conversion rights. Upon liquidation or dissolution of I&M, owners of the Shares would be entitled to receive an amount equal to the liquidation preference per share ($100) plus all accrued and unpaid dividends (whether or not earned or declared) thereon to the date of payment, prior to the payment of any amounts to the holders of I&M's common stock. Shares validly tendered to the Depositary pursuant to the Offer and not withdrawn in accordance with the procedures set forth herein shall be held until the Expiration Date (or returned to the extent the Offer is terminated in accordance herewith). To the extent that the Proposed Amendment is approved and the Shares tendered are accepted for payment and paid for in accordance with the terms hereof, AEP intends to sell its Shares to I&M and, at that time, it is expected that I&M will retire and cancel the Shares. However, in the event the Proposed Amendment is not adopted at the Special Meeting, AEP may elect, but is not obligated to, waive, subject to applicable law, such condition. In that case, subsequent to AEP's waiver and purchase of the Shares, I&M anticipates, as promptly as practicable thereafter, that it would call another special meeting of its shareholders and solicit proxies therefrom for an amendment substantially similar to the Proposed Amendment. At that meeting, AEP would vote any Shares acquired by it pursuant to the Offer or otherwise (together with its shares of common stock) in favor of such amendment, thereby maximizing the prospects for the adoption of the amendment. Any such purchase of Shares by AEP will reduce the number of Shares of each of the Series of Preferred that might otherwise trade publicly or become available for purchase and/or sale and likely will reduce the number of owners of Shares of each of the Series of Preferred, which could adversely affect the liquidity and sale value of the Shares not purchased in the Offer. 20 21 Liquidity of Trading Market. To the extent that Shares of any Series of Preferred are tendered and accepted for payment in the Offer, the trading market for Shares of such Series of Preferred that remain outstanding may be significantly more limited, which might adversely affect the liquidity, market value and price volatility of such Shares. Equity securities with a smaller outstanding market value available for trading (the "float") may command a lower price than would comparable equity securities with a greater float. Therefore, the market price for Shares that are not tendered in the Offer may be affected adversely to the extent that the amount of Shares purchased pursuant to the Offer reduces the float. The reduced float may also make the trading price of the Shares that are not tendered and accepted for payment more volatile. Preferred Shareholders of the remaining Shares may attempt to obtain quotations for the Shares from their brokers; however, there can be no assurance that any trading market will exist for such Shares following consummation of the Offer. To the extent a market continues to exist for the Shares after the Offer, the Shares may trade at a discount compared to present trading depending on the market for Shares with similar features, the performance of I&M, and other factors. There is no assurance that an active market in the Shares will exist and no assurance as to the prices at which the Shares may trade. 4- 1/8% Series. Depending on the number of Shares tendered and purchased pursuant to the Offer, the 4- 1/8% Series may no longer meet the requirements of the CSE for trading, which may adversely affect the market for the Shares of the 4- 1/8% Series. According to its published guidelines, the CSE would consider delisting the 4- 1/8% Series if, among other things, (i) the number of publicly-held Shares of the 4- 1/8% Series should fall below 50,000 or (ii) the number of Preferred Shareholders of the 4- 1/8% Series should fall below 500. If, as a result of the purchase of Shares pursuant to the Offer or otherwise, the 4-1/8% Series no longer meets the requirements of the CSE for continued listing and the listing of the 4- 1/8% Series is discontinued, the market for the 4- 1/8% Series could be adversely affected. In the event of the delisting of the 4- 1/8% Series currently listed on the CSE, it is possible that such Series would continue to trade on another securities exchange or in the over-the-counter market and that price quotations would be reported by such exchange, by the National Association of Securities Dealers, Inc. ("NASD") through the National Association of Securities Dealers Automated Quotation System ("NASDAQ") or by other sources. The extent of the public market for the 4 1/8% Series and the availability of quotations, however, would depend upon such factors as the number of share holders remaining at such time, the interest in maintaining a market in the 4- 1/8% Series on the part of securities firms, the possible termination of registration under the Exchange Act as described below and other factors. The Shares of the 4- 1/8% Series are presently "margin securities" under the regulations of the Board of Governors of the Federal Reserve System (the "Federal Reserve"), which has the effect, among other things, of allowing brokers to extend credit on the collateral of such Shares. If the 4- 1/8% Series remains listed on the CSE, the Shares of the 4- 1/8% Series will continue to be "margin securities." If the 4- 1/8% Series is delisted, depending upon factors similar to those described above, the 4- 1/8% Series might no longer constitute "margin securities" for purposes of the margin regulations of the Federal Reserve, in which case, the Shares of the 4- 1/8% Series could no longer be used as collateral for loans made by brokers. In addition, the 4- 1/8% Series is currently registered under Section 12(b) of the Exchange Act. Registration of the Shares of the 4- 1/8% Series under the Exchange Act may be terminated upon the application by I&M to the SEC if such Shares are no longer listed on a national securities exchange. Termination of registration of the Shares of the 4- 1/8% Series under the Exchange Act would substantially reduce the information required to be furnished by I&M to Preferred Shareholders and could make certain provisions of the Exchange Act no longer applicable to I&M. If registration of the 4- 1/8% Series under the Exchange Act were terminated, Shares of the 4- 1/8% Series would no longer be "margin securities" or be eligible for NASDAQ reporting. As of December 31, 1996, there were 712 registered holders of the 4 1/8% Series. OTC Series. The purchase of Shares of the 4.12% Series, 4.56% Series, the 5.90% Series, the 6- 1/4% Series, the 6- 7/8% Series and the 6.30% Series (collectively, the "OTC Series") pursuant to the Offer will reduce the number of holders of Shares of the OTC Series and the number of such Shares that might otherwise trade publicly, and, depending upon the number of Shares so purchased, such reduction could 21 22 adversely affect the liquidity and market value of the remaining Shares of the OTC Series held by the public. The extent of the public market for the Shares of the OTC Series and the availability of price quotations would, however, depend upon such factors as the number of stockholders remaining at such time, the interest in maintaining a market in the Shares of the OTC Series on the part of securities firms and other factors. As of December 31, 1996, there were 95 registered holders of the 4.12% Series, 68 registered holders of the 4.56% Series, 1 registered holder of the 5.90% Series, 1 registered holder of the 6- 1/4% Series, 1 registered holder of the 6- 7/8% Series and 1 registered holder of the 6.30% Series. Other Potential Effects of the Proposed Amendment on Preferred Shareholders who do not Tender. If the Proposed Amendment becomes effective, Preferred Shareholders of Shares that are not tendered and purchased pursuant to the Offer will no longer be entitled to the benefits of the Debt Limitation Provision, which will have been deleted by the Proposed Amendment. As discussed above, the Debt Limitation Provision places restrictions on I&M's ability to issue or assume unsecured indebtedness. Although I&M's debt instruments may contain certain restrictions on I&M's ability to issue or assume debt, any such restrictions may be waived and the increased flexibility afforded I&M by the deletion of the Debt Limitation Provision may permit I&M to take certain actions that may increase the credit risks with respect to I&M, adversely affecting the market price and credit rating of the remaining Shares or otherwise be materially adverse to the interests of the remaining Preferred Shareholders. In addition, to the extent that I&M elects to fund its purchase of the Shares by issuing additional unsecured debt, the remaining Preferred Shareholders' relative position in I&M's capital structure could be perceived to decline, which in turn could adversely affect the market price and credit rating of the remaining Shares. To this end, Moody's has advised I&M that Moody's Investor Service might reconsider its rating of I&M's preferred stock, absent some mitigating factors, and particularly in light of I&M's plan to fund the purchase of shares from AEP through the issuance of additional unsecured debt. Following the consummation of the Offer, the business and operations of I&M will be continued substantially as they are currently being conducted. Except as disclosed in this Offer to Purchase and Proxy Statement, AEP and I&M currently have no plans or proposals that relate to or would result in: (a) the acquisition by any person or entity of additional securities of I&M or the disposition of securities of I&M, other than in the ordinary course of business; (b) an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving I&M or any of its subsidiaries; (c) a sale or transfer of a material amount of assets of I&M or any of its subsidiaries; (d) any change in the present Board or management of I&M; (e) any material change in the present dividend rate or policy, or indebtedness or capitalization of I&M; (f) any other material change in I&M's corporate structure or business; (g) any change in I&M's Articles or By-Laws or any actions that may impede the acquisition of control of I&M by any person; (h) a class of equity securities of I&M being delisted from a national securities exchange; (i) a class of equity securities of I&M becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Exchange Act; or (j) the suspension of I&M's obligation to file reports pursuant to Section 15(d) of the Exchange Act. NEITHER AEP, I&M, THEIR RESPECTIVE BOARDS OF DIRECTORS, NOR ANY OF THEIR RESPECTIVE OFFICERS MAKES ANY RECOMMENDATION TO ANY PREFERRED SHAREHOLDER AS TO WHETHER TO TENDER ALL OR ANY SHARES. EACH PREFERRED SHAREHOLDER MUST MAKE HIS OR HER OWN DECISION AS TO WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER. CERTAIN FEDERAL INCOME TAX CONSEQUENCES In the opinion of Simpson Thacher & Bartlett, tax counsel to AEP and I&M, the following summary describes the principal United States federal income tax consequences of sales of Shares pursuant to the Offer and the receipt of Special Cash Payments in connection with the approval and adoption of the Proposed Amendment. This summary is based on the Internal Revenue Code of 1986, as amended to the date hereof (the "Code"), administrative pronouncements, judicial decisions and existing and proposed Treasury Regulations, changes to any of which subsequent to the date of this Offer to Purchase and Proxy Statement may adversely affect the tax consequences described herein, possibly on a retroactive basis. This summary is addressed to Preferred Shareholders who hold Shares as capital assets within the meaning of Section 1221 of 22 23 the Code. This summary does not discuss all of the tax consequences that may be relevant to a Preferred Shareholder in light of such Preferred Shareholder's particular circumstances or to Preferred Shareholders subject to special rules (including certain financial institutions, tax-exempt organizations, insurance companies, dealers in securities or currencies, foreign persons or entities selling Shares pursuant to the Offer who own or have owned, actually or constructively, more than five percent of such Shares, Preferred Shareholders who acquired their Shares pursuant to the exercise of stock options or other compensation arrangements with I&M or Preferred Shareholders holding the Shares as part of a conversion transaction, as part of a hedge or hedging transaction, or as a position in a straddle for tax purposes). Preferred Shareholders should consult their tax advisors with regard to the application of the United States federal income tax laws to their particular situations as well as any tax consequences arising under the laws of any state, local or foreign taxing jurisdiction. As used herein, the term "United States Holder" means an owner of a Share that is (i) for United States federal income tax purposes a citizen or resident of the United States; (ii) a corporation, partnership or other entity created or organized in or under the laws of the United States or of any political subdivision thereof; (iii) an estate the income of which is subject to United States federal income taxation regardless of its source; or (iv) any trust if a court within the United States is able to exercise primary supervision over the administration of such trust and one or more United States fiduciaries have the authority to control all substantial decisions of such trust. A "Non-United States Holder" is a Preferred Shareholder that is not a United States Holder. Tax Considerations for Tendering Preferred Shareholders Characterization of the Sale. A sale of Shares by a Preferred Shareholder pursuant to the Offer will be a taxable transaction for Federal income tax purposes. United States Holders. A United States Holder will recognize gain or loss equal to the difference between the tax basis of such Holder's Shares and the amount of cash received in exchange therefor. A United States Holder's gain or loss will be long-term capital gain or loss if the holding period for the Shares is more than one year as of the date of the sale of such Shares. The excess of net long-term capital gains over net short-term capital losses is taxed at a lower rate than ordinary income for certain non-corporate taxpayers. The distinction between capital gain or loss and ordinary income or loss is also relevant for purposes of, among other things, limitations on the deductibility of capital losses. Non-United States Holders. Any gain realized upon the sale of Shares by a Non-United States Holder pursuant to the Offer generally will not be subject to United States Federal income tax unless (i) such gain is effectively connected with a trade or business in the United States of the Non-United States Holder, or (ii) in the case of a Non-United States Holder who is an individual, such individual is present in the United States for 183 days or more in the taxable year of such sale and certain other conditions are met. A Non-United States Holder described in clause (i) above will be taxed on the net gain derived from the sale at regular graduated United States Federal income tax rates. If a Non-United States Holder that is a foreign corporation falls under clause (i) above, it may also be subject to an additional "branch profits tax" at a 30% rate (or such lower rate as may be specified by an applicable income tax treaty). Unless an applicable tax treaty provides otherwise, an individual Non-United States Holder described in clause (ii) above will be subject to a flat 30% tax on the gain derived from the sale, which may be offset by United States capital losses (notwithstanding the fact that the individual is not considered a resident of the United States). Tax Considerations for Non-Tendering Preferred Shareholders Preferred Shareholders, whether or not they receive Special Cash Payments, will not recognize any taxable gain or loss with respect to the Shares as a result of the modification of the Articles by the Proposed Amendment. United States Holders. There is no direct authority concerning the Federal income tax consequences of the receipt of Special Cash Payments. I&M will, for information reporting purposes, treat Special Cash Payments as ordinary non-dividend income to recipient United States Holders. 23 24 Non-United States Holders. I&M will treat Special Cash Payments paid to a Non-United States Holder of Shares as subject to withholding of United States Federal income tax at a 30% rate. However, Special Cash Payments that are effectively connected with the conduct of a trade or business by the Non-United States Holder within the United States are not subject to the withholding tax (provided such Non-United States Holder provides two originals of Internal Revenue Service ("IRS") Form 4224 stating that such Special Cash Payments are so effectively connected), but instead are subject to United States Federal income tax on a net income basis at applicable graduated individual or corporate rates. Any such effectively connected Special Cash Payments received by a foreign corporation may, under certain circumstances, be subject to an additional "branch profits tax" at a 30% rate (or such lower rate as may be specified by an applicable income tax treaty). A Non-United States Holder of Shares eligible for a reduced rate of United States withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the IRS. Backup Withholding. ANY TENDERING PREFERRED SHAREHOLDER WHO FAILS TO COMPLETE AND SIGN THE SUBSTITUTE FORM W-9 THAT IS INCLUDED IN THE APPLICABLE LETTER OF TRANSMITTAL (OR, IN THE CASE OF A FOREIGN PREFERRED SHAREHOLDER, FORM W-8 OBTAINABLE FROM THE DEPOSITARY) MAY BE SUBJECT TO A REQUIRED FEDERAL INCOME TAX BACKUP WITHHOLDING OF 31% OF THE GROSS PROCEEDS PAYABLE TO SUCH PREFERRED SHAREHOLDER PURSUANT TO THE OFFER. To prevent backup United States Federal income tax withholding with respect to the purchase price of Shares purchased pursuant to the Offer, a United States Holder must provide the Depositary with the Preferred Shareholder's correct taxpayer identification number and certify that the Preferred Shareholder is not subject to backup withholding of Federal income tax by completing the Substitute Form W-9 included in the applicable Letter of Transmittal. Certain Preferred Shareholders (including, among others, all corporations and certain foreign shareholders) are exempt from backup withholding. For a corporate United States Holder to qualify for such exemption, such Preferred Shareholder must provide the Depositary with a properly completed and executed Substitute Form W-9 attesting to its exempt status. In order for a foreign Preferred Shareholder to qualify as an exempt recipient, the foreign holder must submit a Form W-8, Certificate of Foreign Status, signed under penalties of perjury, attesting to that Preferred Shareholder's exempt status. A copy of Form W-8 may be obtained from the Depositary. Unless a Preferred Shareholder provides the appropriate certification, under the applicable law and regulations concerning "backup withholding" of Federal United States income tax, the Depositary will be required to withhold, and will withhold, 31% of the gross proceeds otherwise payable to such Preferred Shareholder or other payee. The amount of any backup withholding from a payment to a Preferred Shareholder will be allowed as a credit against such Preferred Shareholder's United States federal income tax liability and may entitle such Preferred Shareholder to a refund, provided that the required information is furnished to the IRS. SOURCE AND AMOUNT OF FUNDS Assuming that AEP purchases all outstanding Shares pursuant to the Offer, the total amount required by AEP to purchase such Shares will be approximately $162 million, exclusive of the accrued and unpaid dividends payments, but including fees and other expenses. AEP intends to fund the Offer through the use of its general funds (which, in the ordinary course, include funds from I&M) and funds borrowed pursuant to AEP's commercial paper program and committed lines of credit, including any bank revolving credit agreements. AEP and I&M sell commercial paper directly to commercial paper dealers who reoffer the commercial paper to investors and issue and sell short-term notes to several domestic and foreign banks through various credit arrangements, including revolving credit agreements or shared lines of credit. AEP and its significant subsidiaries, including I&M, have $500 million of committed lines of credit available for use by AEP and such 24 25 subsidiaries. If necessary, AEP and its significant subsidiaries may negotiate increases to existing credit arrangements in order to fund the Offer. TRANSACTIONS AND AGREEMENTS CONCERNING THE SHARES Each of AEP and I&M has been advised by its directors and executive officers that no directors or executive officers of the respective companies own any Shares. Based upon the companies' records and upon information provided to each company by its directors and executive officers, neither company nor, to the knowledge of either, any of their subsidiaries, affiliates, directors or executive officers, or associates of the foregoing, has engaged in any transactions involving Shares during the 40 business days preceding the date hereof. Neither company nor, to the knowledge of either, any of its directors or executive officers or an associate of the foregoing is a party to any contract, arrangement, understanding or relationship relating directly or indirectly to the Offer with any other person or entity with respect to any securities of I&M. FEES AND EXPENSES PAID TO DEALERS Dealer Manager Fees. Merrill Lynch and Salomon Brothers will act as Dealer Managers for AEP in connection with the Offer. AEP has agreed to pay the Dealer Managers a fee of $.50 per Share for any Shares tendered, accepted for payment and paid for pursuant to the Offer and a fee of $.50 per Share for any Shares that are not tendered pursuant to the Offer but which vote in favor of the Proposed Amendment. The Dealer Managers will also be reimbursed by AEP for their reasonable out-of-pocket expenses, including attorneys' fees, and will be indemnified against certain liabilities, including certain liabilities under the federal securities laws, in connection with the Offer. The Dealer Managers have rendered, are currently rendering and are expected to continue to render various investment banking and other advisory services to AEP and I&M. The Dealer Managers have received, and will continue to receive, customary compensation from AEP and I&M for such services. AEP has retained First Chicago Trust Company of New York as Depositary and Morrow & Co., Inc. as Information Agent in connection with the Offer. The Depositary and Information Agent will receive reasonable and customary compensation for their services and will also be reimbursed for reasonable out-of-pocket expenses, including attorney fees. AEP has agreed to indemnify the Depositary and Information Agent against certain liabilities, including certain liabilities under the federal securities law, in connection with the Offer. Neither the Depositary nor the Information Agent has been retained to make solicitations or recommendations in connection with the Offer. Solicited Tender Fees Separate Fees. Pursuant to Instruction 10 of the accompanying Letter of Transmittal, AEP will pay to designated brokers and dealers a solicitation fee of $1.50 per Share for any Shares tendered, accepted for payment and paid for pursuant to the Offer (except that for transactions for beneficial owners equal to or exceeding 5,000 Shares, AEP will pay a solicitation fee of (i) $1.00 per Share for Shares of the 4- 1/8% Series, the 4.12% Series and the 4.56% Series and (ii) $.50 per Share for Shares of the remaining Series) and I&M will pay a separate fee of $.50 per Share for any Shares of the 4- 1/8% Series, the 4.12% Series and the 4.56% Series that are not tendered pursuant to the Offer but which are voted in favor of the Proposed Amendment with respect to the entity obtaining the tender or proxy, if the Letter of Transmittal shall include the name of (a) any broker or dealer in securities, including a Dealer Manager in its capacity as a dealer or broker, which is a member of any national securities exchange or of the National Association of Securities Dealers, Inc. ("NASD"), (b) any foreign broker or dealer not eligible for membership in the NASD which agrees to conform to the NASD's Rules of Fair Practice in soliciting tenders outside the United States to the same extent as though it were an NASD member, or (c) any bank or trust company (each of which is referred to herein as a "Soliciting Dealer"); provided that, with respect to solicitation fees paid with respect to transactions for beneficial owners equal to or exceeding 5,000 shares, at least twenty percent (20%) of each such fee shall be paid to the Dealer Managers.. No solicitation fee or separate fee shall be payable to a Soliciting Dealer with respect to the tenders of Shares or the vote of Shares by a holder unless the Letter of Transmittal or proxy accompanying such tender or vote, as the case may be, designates such Soliciting Dealer. No solicitation fee or separate fee shall be payable to a Soliciting Dealer in respect of Shares registered in the name of such Soliciting Dealer unless such Shares are held by such Soliciting Dealer as nominee and such Shares are being tendered or voted for the benefit of one or more beneficial owners identified on the Letter of Transmittal or on the Notice of Solicited Tenders. No solicitation fee or separate fee shall be payable to a 25 26 Soliciting Dealer if such Soliciting Dealer is required for any reason to transfer the amount of such fee to a depositing holder (other than itself). No solicitation fee shall be paid to a Soliciting Dealer with respect to Shares tendered for such Soliciting Dealer's own account and no separate fee shall be paid to a Soliciting Dealer with respect to Shares voted for such Soliciting Dealer's own account. A Soliciting Dealer shall not be entitled to a solicitation fee or a separate fee for Shares beneficially owned by such Soliciting Dealer. No broker, dealer, bank, trust company or fiduciary shall be deemed to be the agent of AEP, the Depositary, the Dealer Managers or the Information Agent for purposes of the Offer. Soliciting Dealers will include any of the organizations described in clauses (a) (b) and (c) above even when the activities of such organizations in connection with the Offer consist solely of forwarding to clients materials relating to the Offer, including the Letter of Transmittal and tendering Shares as directed by beneficial owners thereof. No Soliciting Dealer is required to make any recommendation to holders of Shares as to whether to tender or refrain from tendering in the Offer. No assumption is made, in making payment to any Soliciting Dealer, that its activities in connection with the Offer included any activities other than those described above, and for all purposes noted in all materials relating to the Offer, the term "solicit" shall be deemed to mean no more than "processing shares tendered" or "forwarding to customers materials regarding the Offer." Stock Transfer Taxes. AEP will pay all stock transfer taxes, if any, payable on account of the acquisition of Shares by AEP pursuant to the Offer, except in certain circumstances where special payment or delivery procedures are utilized pursuant to Instruction 6 of the accompanying Letter of Transmittal. CERTAIN INFORMATION REGARDING AEP AND I&M I&M is an operating utility primarily engaged in the generation, transmission and distribution of electric power to approximately 537,000 customers in Indiana and Michigan, and in supplying electric power at wholesale to other electric utility companies and municipalities. All of the common stock of I&M is owned, directly or indirectly, by AEP, a registered holding company under the Holding Company Act. The service area of AEP's electric utility subsidiaries covers portions of Indiana, Kentucky, Michigan, Ohio, Tennessee, Virginia and West Virginia. AEP and I&M are subject to the informational requirements of the Exchange Act and in accordance therewith file reports and other information with 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; 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and Seven World Trade Center, Suite 1300, 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 AEP and I&M. Reports, proxy materials and other information about AEP are also available at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005. Reports, proxy materials and other information about I&M are also available at the offices of the CSE, One Financial Place, 440 South LaSalle Street, Chicago, Illinois 60605. In connection with the Offer AEP has filed an Issuer Tender Offer Statement on Schedule 13E-4 with the SEC that includes certain additional information relating to the Offer. AEP's Schedule 13E-4 will not be available at the SEC's regional offices. SUMMARY OF CONSOLIDATED FINANCIAL INFORMATION Set forth below is certain consolidated historical financial information of I&M and its subsidiaries. The historical financial information (other than the ratios of earnings to fixed charges) was derived from the audited consolidated financial statements included in I&M's Annual Report on Form 10-K for the year ended December 31, 1995 and from the unaudited consolidated financial statements included in I&M's Quarterly Reports on Form 10-Q for the periods ended September 30, 1996 and September 30, 1995. 26 27 CONDENSED INCOME STATEMENT DATA:
(UNAUDITED) YEAR ENDED NINE MONTHS ENDED DECEMBER 31, SEPTEMBER 30, ----------------------- --------------------- 1995 1994 1996 1995 --------- --------- -------- -------- (THOUSANDS, EXCEPT RATIOS) Operating Revenues........................... $1,283,157 $1,251,309 $993,224 $969,843 Operating Income............................. 205,723 221,969 164,571 162,097 Allowance for Borrowed and Equity Funds Used During Construction........................ 2,755 3,441 2,000 1,886 Net Income................................... 141,092 157,502 113,820 109,572 Preferred Stock Dividend Requirements........ 11,791 11,681 8,264 8,843 Earnings Applicable to Common Stock.......... 129,301 145,821 105,556 100,729 Ratio of Earnings to Fixed Charges........... 2.31 2.23 2.45(a) 2.23(a)
- --------------- (a) Ratio for the twelve months ended September 30. CONDENSED BALANCE SHEET DATA (AT END OF PERIOD):
(UNAUDITED) DECEMBER 31, SEPTEMBER 30, ----------------------- ----------------------- 1995 1994 1996 1995 --------- --------- --------- --------- (THOUSANDS) ASSETS: Net Utility Plant In Service.............. $2,477,012 $2,534,443 $2,449,422 $2,484,117 Construction Work In Progress............. 90,587 74,923 79,103 80,718 Cash and Cash Equivalents................. 13,723 9,907 8,120 6,210 Other Current Assets...................... 271,513 264,247 268,133 256,276(a) Other Assets.............................. 1,075,502 994,515 1,071,233 1,048,555(a) --------- --------- --------- --------- $3,928,337 $3,878,035 $3,876,011 $3,875,876 ========= ========= ========= ========= LIABILITIES: Common Equity............................. $1,022,793 $1,006,892 $1,044,080 $1,021,876 Cumulative Preferred Stock................ 187,000 187,000 156,977 187,000 Long-term Debt (less amounts due within one year)............................... 1,034,048 929,887 1,039,819 1,037,790 Current Liabilities....................... 350,827 441,206 283,375 295,609(a) Other Liabilities......................... 1,333,669 1,313,050 1,351,760 1,333,601(a) --------- --------- --------- --------- $3,928,337 $3,878,035 $3,876,011 $3,875,876 ========= ========= ========= =========
- --------------- (a) Certain amounts reclassified to conform with current-period presentation. The financial statements of AEP and I&M and related information included in their Annual Reports on Form 10-K for the year ended December 31, 1995, and their Quarterly Reports on Form 10-Q for the periods ended March 31, June 30, and September 30, 1996 and I&M's Current Report on Form 8-K dated January 22, 1997, each as filed with the SEC, are hereby incorporated by reference. All documents subsequently filed by AEP and I&M pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Offer to Purchase and Proxy Statement and prior to the Expiration Date (or any extension thereof) shall be deemed to be incorporated by reference in this Offer to Purchase and Proxy Statement 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 Offer to Purchase and Proxy Statement to the extent that a statement contained herein or in any other subsequently filed documents which is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Offer to Purchase and Proxy Statement. 27 28 AEP and I&M will provide without charge to each person to whom a copy of this Offer to Purchase and Proxy Statement 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 Offer to Purchase and Proxy Statement, 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 614-223-1000). The information relating to AEP and I&M contained in this Offer to Purchase and Proxy Statement does not purport to be comprehensive and should be read together with the information contained in the documents incorporated by reference. MISCELLANEOUS The Offer is not being made to, nor will AEP accept tenders from, owners of Shares in any jurisdiction in which the Offer or its acceptance would not be in compliance with the laws of such jurisdiction. AEP is not aware of any jurisdiction where the making of the Offer or the tender of Shares would not be in compliance with applicable law. If AEP becomes aware of any jurisdiction where the making of the Offer or the tender of Shares is not in compliance with any applicable law, AEP will make a good faith effort to comply with such law. If, after such good faith effort, AEP cannot comply with such law, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the owners of Shares residing in such jurisdiction. In any jurisdiction in which the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer will be deemed to be made on AEP's behalf by one or more registered brokers or dealers licensed under the laws of such jurisdiction. AMERICAN ELECTRIC POWER COMPANY, INC. INDIANA MICHIGAN POWER COMPANY 28 29 Facsimile copies of the Letter of Transmittal not will be accepted. The Letter of Transmittal and, if applicable, certificates for Shares should be sent or delivered by each tendering or voting Preferred Shareholder of I&M or his or her broker, dealer, bank or trust company to the Depositary at one of its addresses set forth below. THE DEPOSITARY IS: FIRST CHICAGO TRUST COMPANY OF NEW YORK By Mail: By Hand: By Overnight Courier: Tenders & Exchanges Tenders & Exchanges Tenders & Exchanges P.O. Box 2569 c/o The Depositary Trust Company 14 Wall Street, 8th Floor Suite 4660 55 Water Street, DTC TAD Suite 4680 Jersey City, New Jersey 07303-2569 Vietnam Veterans Memorial Plaza New York, New York 10005 New York, New York 10041
Any questions or requests for assistance may be directed to the Information Agent or the Dealer Managers at their respective telephone numbers and addresses listed below. Requests for additional copies of this Offer to Purchase and Proxy Statement, the Letter of Transmittal and Proxy or other tender offer or proxy materials may be directed to the Information Agent, and such copies will be furnished promptly at the companies' expense. Preferred Shareholders may also contact their local broker, dealer, commercial bank or trust company for assistance concerning the Offer. THE INFORMATION AGENT: MORROW & CO., INC. 909 Third Avenue New York, New York 10022-4799 (212) 754-8000 (Call Collect) or (800) 566-9061 (Call Toll-Free) THE DEALER MANAGERS: MERRILL LYNCH & CO. SALOMON BROTHERS INC World Financial Center Seven World Trade Center 250 Vesey Street New York, New York 10048 New York, New York 10281 (800) 558-3745 (toll free) 1-888-ML4-TNDR (toll free) (1-888-654-8637 (toll free))
29 EX-99 4 1 OFFER TO PURCHASE AND PROXY STATEMENT AMERICAN ELECTRIC POWER COMPANY, INC. OFFER TO PURCHASE FOR CASH ANY AND ALL OUTSTANDING SHARES OF THE FOLLOWING SERIES OF CUMULATIVE PREFERRED STOCK OF OHIO POWER COMPANY 202,403 SHARES, CUMULATIVE PREFERRED STOCK, 4- 1/2% SERIES AT A PURCHASE PRICE OF $ . PER SHARE, CUSIP NUMBER 677415 408 42,575 SHARES, CUMULATIVE PREFERRED STOCK, 4.08% SERIES AT A PURCHASE PRICE OF $ . PER SHARE, CUSIP NUMBER 677415 101 51,975 SHARES, CUMULATIVE PREFERRED STOCK, 4.20% SERIES AT A PURCHASE PRICE OF $ . PER SHARE, CUSIP NUMBER 677415 200 88,363 SHARES, CUMULATIVE PREFERRED STOCK, 4.40% SERIES AT A PURCHASE PRICE OF $ . PER SHARE, CUSIP NUMBER 677415 309 404,000 SHARES, CUMULATIVE PREFERRED STOCK, 5.90% SERIES AT A PURCHASE PRICE OF $ . PER SHARE, CUSIP NUMBER 677415 796 395,000 SHARES, CUMULATIVE PREFERRED STOCK, 6.02% SERIES AT A PURCHASE PRICE OF $ . PER SHARE, CUSIP NUMBER 677415 812 300,000 SHARES, CUMULATIVE PREFERRED STOCK, 6.35% SERIES AT A PURCHASE PRICE OF $ . PER SHARE, CUSIP NUMBER 677415 820 ------------------------ OHIO POWER COMPANY PROXY STATEMENT WITH RESPECT TO ITS COMMON STOCK AND CUMULATIVE PREFERRED STOCK ------------------------ THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON FRIDAY, FEBRUARY 28, 1997, UNLESS THE OFFER IS EXTENDED. ------------------------ American Electric Power Company, Inc., a New York corporation ("AEP"), invites the holders of each series of cumulative preferred stock listed above (each a "Series of Preferred," and the holder thereof a "Preferred Shareholder") of Ohio Power Company, an Ohio corporation and direct utility subsidiary of AEP ("OPCo"), to tender any and all of their shares of a Series of Preferred ("Shares") for purchase at the purchase price per Share listed above plus accrued and unpaid dividends for the Shares tendered, net to the seller in cash, upon the terms and subject to the conditions set forth in this Offer to Purchase and Proxy Statement and in the accompanying Letter of Transmittal (which together constitutes the "Offer"). AEP will purchase all Shares validly tendered and not withdrawn, upon the terms and subject to the conditions of the Offer. See "Terms of the Offer -- Certain Conditions of the Offer" and "Terms of the Offer -- Extension of Tender Period; Termination; Amendments." THE OFFER FOR A SERIES OF PREFERRED IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES OF SUCH SERIES OF PREFERRED BEING TENDERED AND IS INDEPENDENT OF THE OFFER FOR ANY OTHER SERIES OF PREFERRED. THE OFFER, HOWEVER, IS CONDITIONED UPON, AMONG OTHER THINGS, THE PROPOSED AMENDMENT, AS DESCRIBED BELOW, BEING APPROVED AND ADOPTED AT THE SPECIAL MEETING. SEE "TERMS OF THE OFFER -- CERTAIN CONDITIONS OF THE OFFER." Concurrently with the Offer, the Board of Directors of OPCo is soliciting proxies for use at the Special Meeting of Shareholders of OPCo to be held at AEP's principal office, 1 Riverside Plaza, Columbus, Ohio 43215, on February 28, 1997 at 4:30 p.m., or any adjournment or postponement of such meeting (the "Special Meeting"). The Special Meeting is being held (i) to consider an amendment (the "Proposed Amendment") to OPCo's Amended Articles of Incorporation (the "Articles") which would remove a provision of the Articles that limits OPCo's ability to issue unsecured debt and (ii) to consider an amendment (the "Second Proposed Amendment") to the Articles which would clarify the authority of the Board of Directors to purchase or otherwise acquire Shares. WHILE PREFERRED SHAREHOLDERS WHO WISH TO TENDER THEIR SHARES PURSUANT TO THE OFFER NEED NOT VOTE IN FAVOR OF THE PROPOSED AMENDMENT, THE OFFER IS CONDITIONED UPON THE PROPOSED AMENDMENT BEING APPROVED AND ADOPTED AT THE SPECIAL MEETING. IN ADDITION, PREFERRED SHAREHOLDERS OF RECORD HAVE THE RIGHT TO VOTE FOR OR AGAINST THE PROPOSED AMENDMENT REGARDLESS OF WHETHER THEY TENDER THEIR SHARES. IF THE PROPOSED AMENDMENT IS APPROVED AND ADOPTED BY OPCO'S SHAREHOLDERS, OPCO WILL MAKE A SPECIAL CASH PAYMENT IN THE AMOUNT OF $1.00 PER SHARE TO EACH PREFERRED SHAREHOLDER WHO VOTED IN FAVOR OF THE PROPOSED AMENDMENT, PROVIDED THAT SUCH SHARES HAVE NOT BEEN TENDERED PURSUANT TO THE OFFER. THOSE PREFERRED SHAREHOLDERS WHO VALIDLY TENDER THEIR SHARES WILL BE ENTITLED ONLY TO THE PURCHASE PRICE PER SHARE LISTED ABOVE. THE SECOND PROPOSED AMENDMENT IS INDEPENDENT OF THE OFFER AND THE PROPOSED AMENDMENT, AND NEITHER THE OFFER NOR THE PROPOSED AMENDMENT IS IN ANY WAY CONDITIONED UPON THE SECOND PROPOSED AMENDMENT BEING APPROVED AND ADOPTED AT THE SPECIAL MEETING. ------------------------ The Company will pay to a Soliciting Dealer (as defined herein) a solicitation fee of $1.50 for any shares tendered, accepted for payment and paid for pursuant to the Offer, subject to certain conditions. See "Fees and Expenses Paid to Dealers." ------------------------ THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC") NOR HAS THE SEC PASSED UPON THE FAIRNESS OR MERITS OF THIS TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. ------------------------ NEITHER AEP, OPCO, THEIR RESPECTIVE BOARDS OF DIRECTORS, NOR ANY OF THEIR RESPECTIVE OFFICERS MAKES ANY RECOMMENDATION TO ANY PREFERRED SHAREHOLDER AS TO WHETHER TO TENDER ANY OR ALL SHARES. EACH PREFERRED SHAREHOLDER MUST MAKE HIS OR HER OWN DECISION AS TO WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER. OPCO'S BOARD OF DIRECTORS RECOMMENDS VOTING FOR THE PROPOSED AMENDMENT. ------------------------ This Offer to Purchase and Proxy Statement is first being mailed to Preferred Shareholders on or about January 30, 1997. ------------------------ Questions or requests for assistance may be directed to Morrow & Co., Inc. ("Morrow" or the "Information Agent") or to Merrill Lynch & Co. ("Merrill Lynch") and Salomon Brothers Inc ("Salomon Brothers") (Merrill Lynch and Salomon Brothers collectively the "Dealer Managers") at their respective telephone numbers and addresses set forth on the back cover of this Offer to Purchase and Proxy Statement. Requests for additional copies of this Offer to Purchase and Proxy Statement, the Letter of Transmittal or other tender offer or proxy materials may be directed to the Information Agent, and such copies will be furnished promptly at the companies' expense. Preferred Shareholders may also contact their local broker, dealer, commercial bank or trust company for assistance concerning the Offer. ------------------------ The Dealer Managers for the Offer are: MERRILL LYNCH & CO. SALOMON BROTHERS INC The date of this Offer to Purchase and Proxy Statement is January 30, 1997. 2 NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF AEP OR OPCO AS TO WHETHER PREFERRED SHAREHOLDERS SHOULD TENDER OR REFRAIN FROM TENDERING SHARES OF ANY SERIES OF PREFERRED PURSUANT TO THE OFFER. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED HEREIN OR IN THE RELATED LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH RECOMMENDATION AND SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY AEP OR OPCO. IMPORTANT Any Preferred Shareholder desiring to accept the Offer and tender all or any portion of his or her Shares should either (i) request his or her broker, dealer, commercial bank, trust company or nominee to effect the transaction for him or her, or (ii) complete and sign the Letter of Transmittal in accordance with the instructions in the Letter of Transmittal, mail or deliver the same and any other required documents to First Chicago Trust Company of New York (the "Depositary"), and deliver the certificates for such Shares to the Depositary, along with the Letter of Transmittal, or tender such Shares pursuant to the procedure for book-entry transfer set forth below under "Terms of the Offer -- Procedure for Tendering Shares," on or prior to the Expiration Date (as defined below). A Preferred Shareholder whose Shares are registered in the name of a broker, dealer, commercial bank, trust company or nominee must contact such broker, dealer, commercial bank, trust company or nominee if he or she desires to tender such Shares. Any Preferred Shareholder who desires to tender Shares and whose certificates for such Shares are not immediately available, or who cannot comply in a timely manner with the procedure for book-entry transfer, should tender such Shares by following the procedures for guaranteed delivery set forth below under "Terms of the Offer -- Procedure for Tendering Shares." EACH SERIES OF PREFERRED HAS ITS OWN LETTER OF TRANSMITTAL, AND ONLY THE APPLICABLE LETTER OF TRANSMITTAL FOR SUCH SERIES OF PREFERRED OR A NOTICE OF GUARANTEED DELIVERY MAY BE USED TO TENDER SHARES OF SUCH SERIES OF PREFERRED. ------------------------ Each Series of Preferred is traded in the over-the-counter market (the "OTC") and is not listed on any national securities exchange. On January 28, 1997 (the last trading day prior to the commencement of the Offer), the last reported sale prices as reported by the National Quotation Bureau, Inc. were $ for the 4- 1/2% Series of Preferred (on , 199 ); $ for the 4.08% Series of Preferred (on , 199 ); $ for the 4.20% Series of Preferred (on , 199 ); $ for the 4.40% Series of Preferred (on , 199 ); $ for the 5.90% Series of Preferred (on , 199 ); $ for the 6.02% Series of Preferred (on , 199 ); and $ for the 6.35% Series of Preferred (on , 199 ). Preferred Shareholders are urged to obtain a current market quotation, if available, for the Shares. On January 29, 1997, there were issued and outstanding 202,403 Shares of the 4- 1/2% Series of Preferred; 42,575 Shares of the 4.08% Series of Preferred; 51,975 Shares of the 4.20% Series of Preferred; 88,363 Shares of the 4.40% Series of Preferred; 404,000 Shares of the 5.90% Series of Preferred; 395,000 Shares of the 6.02% Series of Preferred; and 300,000 Shares of the 6.35% Series of Preferred. 2 3 TABLE OF CONTENTS
PAGE ----- SUMMARY............................................................................... 4 TERMS OF THE OFFER.................................................................... 7 Number of Shares; Purchase Prices; Expiration Date; Dividends....................... 7 Procedure for Tendering Shares...................................................... 7 Withdrawal Rights................................................................... 9 Acceptance of Shares for Payment and Payment of Purchase Price and Dividends........ 10 Certain Conditions of the Offer..................................................... 11 Extension of Tender Period; Termination; Amendments................................. 12 PROPOSED AMENDMENT AND PROXY SOLICITATION............................................. 13 Introduction........................................................................ 13 Voting Securities, Rights and Procedures............................................ 14 Proxies............................................................................. 14 Special Cash Payments............................................................... 15 Security Ownership of Certain Beneficial Owners and Management...................... 15 Business to Come Before the Special Meeting......................................... 16 Explanation of the Proposed Amendment............................................... 16 Reasons for the Proposed Amendment.................................................. 17 Relationship with Independent Public Accountants.................................... 20 PRICE RANGE OF SHARES; DIVIDENDS...................................................... 20 PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER.................................... 21 CERTAIN FEDERAL INCOME TAX CONSEQUENCES............................................... 24 SOURCE AND AMOUNT OF FUNDS............................................................ 26 TRANSACTIONS AND AGREEMENTS CONCERNING THE SHARES..................................... 26 FEES AND EXPENSES PAID TO DEALERS..................................................... 26 CERTAIN INFORMATION REGARDING AEP AND OPCO............................................ 27 SUMMARY OF CONSOLIDATED FINANCIAL INFORMATION......................................... 28 MISCELLANEOUS......................................................................... 29
3 4 SUMMARY The following summary is provided solely for the convenience of the Preferred Shareholders. This summary is not intended to be complete and is qualified in its entirety by reference to the full text and more specific details contained in this Offer to Purchase and Proxy Statement and the Letter of Transmittal and any amendments hereto or thereto. Preferred Shareholders are urged to read this Offer to Purchase and Proxy Statement and the Letter of Transmittal in their entirety. Each of the capitalized terms used in this summary and not defined herein has the meaning set forth elsewhere in this Offer to Purchase and Proxy Statement. The Companies.............. AEP, 1 Riverside Plaza, Columbus, Ohio 43215, is a registered holding company under the Public Utility Holding Company Act of 1935, as amended (the "Holding Company Act"), which owns, directly or indirectly, all of the outstanding common stock of its electric utility subsidiaries, including OPCo. The service area of AEP's electric utility subsidiaries covers portions of Indiana, Kentucky, Michigan, Ohio, Tennessee, Virginia and West Virginia. OPCo, 301 Cleveland Avenue, S.W., Canton, Ohio 44702, is a utility primarily engaged in the generation, purchase, transmission and distribution of electric power to approximately 668,000 customers in Ohio, and in supplying electric power at wholesale to other electric utility companies and municipalities. The Shares................. 4- 1/2% Cumulative Preferred Stock (par value $100 per share) 4.08% Cumulative Preferred Stock (par value $100 per share) 4.20% Cumulative Preferred Stock (par value $100 per share) 4.40% Cumulative Preferred Stock (par value $100 per share) 5.90% Cumulative Preferred Stock (par value $100 per share) 6.02% Cumulative Preferred Stock (par value $100 per share) 6.35% Cumulative Preferred Stock (par value $100 per share) The Offer and Purchase Price...................... Offer to purchase any or all shares of each Series of Preferred at the price set forth below. $ . per 4- 1/2% Share $ . per 4.08% Share $ . per 4.20% Share $ . per 4.40% Share $ . per 5.90% Share $ . per 6.02% Share $ . per 6.35% Share Independent Offer.......... The Offer for one Series of Preferred is independent of the Offer for any other Series of Preferred. The Offer is not conditioned upon any minimum number of Shares of the applicable Series of Preferred being tendered. Preferred Shareholders who wish to tender their Shares are not required to vote in favor of the Proposed Amendment. The Offer is subject, however, to shareholder approval of the Proposed Amendment and certain other conditions. Expiration Date of the Offer...................... The Offer expires at 5:00 p.m., New York City time February 28, 1997, unless extended (the "Expiration Date"). How to Tender Shares....... See "Terms of the Offer -- Procedure for Tendering Shares". For further information, call the Information Agent or the Dealer Managers or consult your broker for assistance. 4 5 Withdrawal Rights.......... Tendered Shares of any Series of Preferred may be withdrawn at any time until the Expiration Date with respect to such Series of Preferred and, unless previously accepted for payment, may also be withdrawn after March 28, 1997. See "Terms of the Offer -- Withdrawal Rights." Purpose of the Offer....... AEP is making the Offer because AEP believes that the purchase of Shares is economically attractive to OPCo and indirectly to AEP and its shareholders. In addition, the Offer gives Preferred Shareholders the opportunity to sell their Shares at a price which AEP believes to be a premium over the market price and without the usual transaction costs associated with a market sale. See "Purpose of the Offer; Certain Effects of the Offer." Dividends.................. OPCo has declared the regular quarterly dividend on each Series of Preferred to be paid on March 1, 1997 to holders of record as of the close of business on February 12, 1997 (the "March 1997 Dividend"). A tender and purchase of Shares pursuant to the Offer will not deprive a Preferred Shareholder of his or her right to receive the March 1997 Dividend on his or her Shares held of record as of the close of business on February 12, 1997. Tendering Preferred Shareholders will be entitled to any dividends accrued prior to the Payment Date (as defined herein), in respect of any later dividend periods (or any portion thereof). Brokerage Commissions...... Not payable by Preferred Shareholders. Solicitation Fee........... AEP will pay to each designated Soliciting Dealer (as defined herein) a solicitation fee of $1.50 per Share for any Shares tendered, accepted for payment and paid for pursuant to the Offer (except that for transactions for beneficial owners equal to or exceeding 5,000 Shares, AEP will pay a solicitation fee of (i) $1.00 per Share for Shares of the 4- 1/2% Series, the 4.08% Series, the 4.20% Series and the 4.40% Series, and (ii) $.50 per Share for the remaining Series) and OPCo will pay a separate fee of $.50 per Share for any Shares of the 4- 1/2% Series, the 4.08% Series, the 4.20% Series and the 4.40% Series that are not tendered pursuant to the Offer but which are voted in favor of the Proposed Amendment. A Soliciting Dealer will not be entitled to a solicitation fee or a separate fee for Shares beneficially owned by such Soliciting Dealer; provided that, with respect to solicitation fees paid with respect to transactions for beneficial owners equal to or exceeding 5,000 shares, at least twenty percent (20%) of each such fee shall be paid to the Dealer Managers.. Proposed Amendment......... Concurrently with the Offer, the Board of Directors of OPCo is soliciting proxies for use at the Special Meeting of Shareholders of OPCo. The Special Meeting is being held to consider an amendment to OPCo's Articles which would remove a provision that limits OPCo's ability to issue unsecured debt. If the Proposed Amendment is approved by the shareholders, the clause of the Articles that places restrictions on OPCo's ability to issue or assume indebtedness will be eliminated with respect to any Shares that remain outstanding after the consummation of the Offer. See "Purpose of the Offer; Certain Effects of the Offer." Record Date................ January 27, 1997 Special Cash Payment....... Preferred Shareholders of record have the right to vote for or against the Proposed Amendment regardless of whether they tender their Shares. 5 6 If the Proposed Amendment is approved and adopted by OPCo's shareholders, OPCo will make a special cash payment of $1.00 per Share to each Preferred Shareholder who voted in favor of the Proposed Amendment but who did not tender his or her Shares (the "Special Cash Payment"). Preferred Shareholders who validly tender their Shares will be entitled only to the purchase price per Share listed on the front cover of this Offer to Purchase and Proxy Statement plus an amount in cash equivalent to any dividends accrued prior to the Payment Date. Stock Transfer Tax......... Except as described herein, AEP will pay or cause to be paid any stock transfer taxes with respect to the sale and transfer of any Shares to it or its order pursuant to the Offer. See Instruction 6 of the applicable Letter of Transmittal. See "Terms of the Offer -- Acceptance of Shares for Payment of Purchase Price and Dividends." Payment Date............... Promptly after the Expiration Date or any extension thereof. Further Information........ Additional copies of this Offer to Purchase and Proxy Statement and the applicable Letter of Transmittal may be obtained by contacting Morrow, 909 Third Avenue, New York, NY 10022-4799, telephone (800) 566-9061 (toll-free) and (212) 754-8000 (brokers and dealers). Questions about the Offer should be directed to Merrill Lynch at (888) ML4-TNDR (toll-free) (888-654-8637 (toll-free)) or to Salomon Brothers at (800) 558-3745 (toll free). 6 7 TERMS OF THE OFFER NUMBER OF SHARES; PURCHASE PRICES; EXPIRATION DATE; DIVIDENDS Upon the terms and subject to the conditions described herein and in the applicable Letter of Transmittal, AEP will purchase any and all Shares that are validly tendered on or prior to the applicable Expiration Date (and not properly withdrawn in accordance with "Terms of the Offer -- Withdrawal Rights") at the purchase price per Share listed on the front cover of this Offer to Purchase and Proxy Statement for the Shares tendered, plus accrued and unpaid dividends for the Shares tendered to the Payment Date, net to the seller in cash. See "Terms of the Offer -- Certain Conditions of the Offer" and "Terms of the Offer -- Extension of Tender Period; Termination." THE OFFER FOR A SERIES OF PREFERRED IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES OF SUCH SERIES OF PREFERRED BEING TENDERED AND IS INDEPENDENT OF THE OFFER FOR ANY OTHER SERIES OF PREFERRED. THE OFFER, HOWEVER, IS CONDITIONED UPON, AMONG OTHER THINGS, THE PROPOSED AMENDMENT, AS DESCRIBED HEREIN, BEING APPROVED AND ADOPTED AT THE SPECIAL MEETING. SEE "TERMS OF THE OFFER -- CERTAIN CONDITIONS OF THE OFFER." The Offer is being sent to all persons in whose names Shares are registered on the books of OPCo as of the close of business on January 27, 1997 and transferees of such persons. Only a record holder of Shares on the Record Date (as defined herein) may vote in person or by proxy at the Special Meeting. No record date is fixed for determining which persons are permitted to tender Shares. Any person who is the beneficial owner but not the record holder of Shares must arrange for the record transfer of such Shares prior to tendering. With respect to each Series of Preferred, the Expiration Date is the later of 5:00 p.m. New York City time, on February 28, 1997 or the latest time and date to which the Offer with respect to such Series of Preferred is extended. AEP expressly reserves the right, in its sole discretion, and at any time and/or from time to time, to extend the period of time during which the Offer for any Series of Preferred is open, by giving oral or written notice of such extension to the Depositary and making a public announcement thereof, without extending the period of time during which the Offer for any other Series of Preferred is open. There is no assurance whatsoever that AEP will exercise its right to extend the Offer for any Series of Preferred. If AEP decides, in its sole discretion, to (i) decrease the number of Shares of any Series of Preferred being sought, (ii) increase or decrease the consideration offered in the Offer to holders of any Series of Preferred or (iii) increase or decrease the Soliciting Dealers' fees and, at the time that notice of such increase or decrease is first published, sent or given to holders of such Series of Preferred in the manner specified herein, the Offer for such Series of Preferred is scheduled to expire at any time earlier than the tenth business day from the date that such notice is first so published, sent or given, such Offer will be extended until the expiration of such ten-business-day period. For purposes of the Offer, a "business day" means any day other than a Saturday, Sunday or federal holiday and consists of the time period from 12:00 a.m. through 11:59 p.m., New York City time. NO ALTERNATIVE, CONDITIONAL OR CONTINGENT TENDERS WILL BE ACCEPTED. The March 1997 Dividend has been declared on each Series of Preferred, payable March 1, 1997 to holders of record as of the close of business on February 12, 1997. A tender and purchase of Shares pursuant to the Offer will not deprive such Preferred Shareholder of his or her right to receive the March 1, 1997 Dividend on his or her Shares, regardless of when such tender is made. Tendering Preferred Shareholders will be entitled to any dividends accrued prior to the Payment Date in respect of any later dividend periods (or any portion thereof). PROCEDURE FOR TENDERING SHARES To tender Shares pursuant to the Offer, the tendering owner of Shares must either: (a) send to the Depositary (at one of its addresses set forth on the back cover of this Offer to Purchase and Proxy Statement) a properly completed and duly executed Letter of Transmittal, together with any required signature guarantees and any other documents required by the Letter of Transmittal 7 8 and either (i) certificates for the Shares to be tendered must be received by the Depositary at one of such addresses or (ii) such Shares must be delivered pursuant to the procedures for book-entry transfer described herein (and a confirmation of such delivery must be received by the Depositary), in each case by the Expiration Date; or (b) comply with the guaranteed delivery procedure described under "Guaranteed Delivery Procedure" below. A tender of Shares made pursuant to any method of delivery set forth herein or in the Letter of Transmittal will constitute a binding agreement between the tendering holder and AEP upon the terms and subject to the conditions of the Offer. The Depositary will establish an account with respect to the Shares at The Depository Trust Company and the Philadelphia Depository Trust Company (each a "Book-Entry Transfer Facility") for purposes of the Offer within two business days after the date of this Offer to Purchase and Proxy Statement, and any financial institution that is a participant in the system of a Book-Entry Transfer Facility may make delivery of Shares by causing the Book-Entry Transfer Facility to transfer such Shares into the Depositary's account in accordance with the procedures of such Book-Entry Transfer Facility. Although delivery of Shares may be effected through book-entry transfer, such delivery must be accompanied by either (i) a properly completed and duly executed Letter of Transmittal, together with any required signature guarantees and any other required documents or (ii) an Agent's Message (as hereinafter defined) and, in any case, must be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase and Proxy Statement on or prior to the Expiration Date. DELIVERY OF SUCH LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY OR TO AEP DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. The term "Agent's Message" means a message, transmitted by a Book-Entry Transfer Facility, received by the Depositary and forming a part of the book-entry transfer when a tender is initiated, which states that such Book-Entry Transfer Facility has received an express acknowledgment from a participant tendering Shares that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that AEP may enforce such agreement against such participant. Except as otherwise provided below, all signatures on a Letter of Transmittal must be guaranteed by a firm that is a member of a registered national securities exchange or the National Association of Securities Dealers, Inc., or by a commercial bank or trust company having an office or correspondent in the United States that is a participant in an approved Signature Guarantee Medallion Program (each of the foregoing being referred to as an "Eligible Institution"). Signatures on a Letter of Transmittal need not be guaranteed if (a) the Letter of Transmittal is signed by the registered owner of the shares tendered therewith and such owner has not completed the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" on the Letter of Transmittal or (b) such Shares are tendered for the account of an Eligible Institution. See Instructions 1 and 5 of the Letter of Transmittal. If Shares are registered in the name of a person other than the signatory on the Letter of Transmittal, or if unpurchased Shares are to be issued to a person other than the registered holder(s), the certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered holder(s) appear on the Shares with the signature(s) on the Shares or stock powers guaranteed as stated above. See Instructions 4, 6 and 7 to the Letter of Transmittal. Guaranteed Delivery Procedure. If a Preferred Shareholder desires to tender Shares pursuant to the Offer and such Preferred Shareholder's certificates are not immediately available or the procedures for book-entry transfer cannot be completed on a timely basis or time will not permit all required documents to reach the Depositary prior to the Expiration Date, such Shares may nevertheless be tendered if all of the following guaranteed delivery procedures are complied with: (i) such tender is made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by AEP and OPCo herewith, is received (with any required signatures or signature guarantees) by the Depositary as provided below on or prior to the Expiration Date; and 8 9 (iii) the certificates for all tendered Shares in proper form for transfer or a Book-Entry Confirmation with respect to all tendered Shares, together with a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal, are received by the Depositary no later than 5:00 p.m., New York City time, within three business days after the date of execution of such Notice of Guaranteed Delivery. THE NOTICE OF GUARANTEED DELIVERY MAY BE DELIVERED BY HAND OR MAILED TO THE DEPOSITARY AND MUST INCLUDE AN ENDORSEMENT BY AN ELIGIBLE INSTITUTION IN THE FORM SET FORTH IN SUCH NOTICE OF GUARANTEED DELIVERY. In all cases, Shares shall not be deemed validly tendered unless a properly completed and duly executed Letter of Transmittal or, if applicable, an Agent's Message, is received by the Depositary. Notwithstanding any other provision hereof, payment for Shares accepted for payment pursuant to the Offer in all cases will be made only after timely receipt by the Depositary of certificates for (or an Agent's Message with respect to) such Shares, a Letter of Transmittal, properly completed and duly executed, with any required signature guarantees and all other documents required by the Letter of Transmittal. THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING PREFERRED SHAREHOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. BECAUSE IT IS THE TIME OF RECEIPT, NOT THE TIME OF MAILING, WHICH DETERMINES WHETHER A TENDER HAS BEEN MADE PRIOR TO THE EXPIRATION DATE, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. TO AVOID FEDERAL INCOME TAX BACKUP WITHHOLDING EQUAL TO 31% OF THE GROSS PAYMENTS MADE PURSUANT TO THE OFFER, EACH TENDERING PREFERRED SHAREHOLDER WHO IS A UNITED STATES PERSON MUST NOTIFY THE DEPOSITARY OF SUCH PREFERRED SHAREHOLDER'S CORRECT TAXPAYER IDENTIFICATION NUMBER AND PROVIDE CERTAIN OTHER INFORMATION BY PROPERLY COMPLETING AND EXECUTING THE SUBSTITUTE FORM W-9 INCLUDED IN THE LETTER OF TRANSMITTAL (OR, IN THE CASE OF A FOREIGN PREFERRED SHAREHOLDER, FORM W-8 OBTAINABLE FROM THE DEPOSITARY). SEE "CERTAIN FEDERAL INCOME TAX CONSEQUENCES." EACH PREFERRED SHAREHOLDER IS URGED TO CONSULT WITH HIS OR HER OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF THE OFFER. All questions as to the form of documents and the validity, eligibility (including the time of receipt) and acceptance for payment of any tender of Shares will be determined by AEP, in its sole discretion, and its determination will be final and binding. AEP reserves the absolute right to reject any or all tenders of Shares that (i) it determines are not in proper form or (ii) the acceptance for payment of or payment for which may, in the opinion of AEP's counsel, be unlawful. AEP also reserves the absolute right to waive any defect or irregularity in any tender of Shares. None of AEP, OPCo, the Dealer Managers, the Depositary, the Information Agent or any other person will be under any duty to give notice of any defect or irregularity in tenders, nor shall any of them incur any liability for failure to give any such notice. WITHDRAWAL RIGHTS Tenders of Shares made pursuant to the Offer may be withdrawn at any time prior to the Expiration Date. Thereafter, such tenders are irrevocable, except that they may be withdrawn after March 28, 1997, unless previously accepted for payment as provided in this Offer to Purchase and Proxy Statement. To be effective, a written notice of withdrawal must be timely received by the Depositary, at one of its addresses set forth on the back cover of this Offer to Purchase and Proxy Statement, and must specify the name of the person who tendered the Shares to be withdrawn and the number of Shares to be withdrawn. If the Shares to be withdrawn have been delivered to the Depositary, a signed notice of withdrawal with 9 10 signatures guaranteed by an Eligible Institution (except in the case of Shares tendered by an Eligible Institution) must be submitted prior to the release of such Shares. In addition, such notice must specify, in the case of Shares tendered by delivery of certificates, the name of the registered owner (if different from that of the tendering Preferred Shareholder) and the serial numbers shown on the particular certificates evidencing the Shares to be withdrawn or, in the case of Shares tendered by book-entry transfer, the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares and the name of the registered holder (if different from the name of such account). Withdrawals may not be rescinded, and Shares withdrawn will thereafter be deemed not validly tendered for purposes of the Offer. However, withdrawn Shares may be re-tendered by again following one of the procedures described in "Terms of the Offer -- Procedure for Tendering Shares" at any time prior to the Expiration Date. All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by AEP, in its sole discretion, and its determination will be final and binding. None of AEP, OPCo, the Dealer Managers, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defect or irregularity in any notice of withdrawal or will incur any liability for failure to give any such notification. ACCEPTANCE OF SHARES FOR PAYMENT AND PAYMENT OF PURCHASE PRICE AND DIVIDENDS Upon the terms and subject to the conditions of the Offer, and as promptly as practicable after the Expiration Date, AEP will accept for payment (and thereby purchase) and pay for Shares validly tendered and not withdrawn as permitted in "Terms of the Offer -- Withdrawal Rights." Thereafter, payment for all Shares validly tendered on or prior to the Expiration Date and accepted pursuant to the Offer will be made by the Depositary by check as promptly as practicable after the Expiration Date. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made promptly but only after timely receipt by the Depositary of certificates for such Shares (or of an Agent's Message), a properly completed and duly executed Letter of Transmittal and any other required documents. For purposes of the Offer, AEP will be deemed to have accepted for payment (and thereby purchased) Shares that are validly tendered and not withdrawn as, if and when it gives oral or written notice to the Depositary of its acceptance for payment of such Shares. AEP will pay for Shares that it has purchased pursuant to the Offer by depositing the purchase price therefor plus accrued and unpaid dividends thereon with the Depositary, which will act as agent for tendering Preferred Shareholders for the purpose of receiving payment from AEP and transmitting payment to tendering Preferred Shareholders. Under no circumstances will interest be paid on amounts to be paid to tendering Preferred Shareholders, regardless of any delay in making such payment. Certificates for all Shares not validly tendered will be returned or, in the case of Shares tendered by book-entry transfer, such Shares will be credited to an account maintained with the Book-Entry Transfer Facility, as promptly as practicable, without expense to the tendering Preferred Shareholder. If certain events occur, AEP may not be obligated to purchase Shares pursuant to the Offer. See "Terms of the Offer -- Certain Conditions of the Offer." AEP will pay or cause to be paid any stock transfer taxes with respect to the sale and transfer of any Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price is to be made to, or Shares not tendered or not purchased are to be registered in the name of, any person other than the registered owner, or if tendered Shares are registered in the name of any person other than the person signing the Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered owner, such other person or otherwise) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes, or exemption therefrom, is submitted. See Instruction 6 of the accompanying Letter of Transmittal. 10 11 CERTAIN CONDITIONS OF THE OFFER AEP WILL NOT BE REQUIRED TO ACCEPT FOR PAYMENT OR PAY FOR ANY SHARES TENDERED IF THE PROPOSED AMENDMENT IS NOT APPROVED AND ADOPTED AT THE SPECIAL MEETING. PREFERRED SHAREHOLDERS OF RECORD HAVE THE RIGHT TO VOTE FOR OR AGAINST THE PROPOSED AMENDMENT REGARDLESS OF WHETHER THEY TENDER THEIR SHARES. IF THE PROPOSED AMENDMENT IS APPROVED AND ADOPTED, OPCO WILL MAKE A SPECIAL CASH PAYMENT TO EACH PREFERRED SHAREHOLDER WHO VOTED IN FAVOR OF THE PROPOSED AMENDMENT, PROVIDED THAT THEIR SHARES HAVE NOT BEEN TENDERED PURSUANT TO THE OFFER. PREFERRED SHAREHOLDERS WHO TENDER THEIR SHARES WILL ONLY BE ENTITLED TO THE PURCHASE PRICE PER SHARE LISTED ON THE FRONT COVER OF THIS OFFER TO PURCHASE AND PROXY STATEMENT. In addition, notwithstanding any other provision of the Offer, AEP will not be required to accept for payment or pay for any Shares tendered, and may terminate or amend the Offer (by oral or written notice to the Depositary and timely public announcement) or may postpone (subject to the requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") for prompt payment for or return of Shares) the acceptance for payment of, or payment for, Shares tendered, if at any time after January 29, 1997, and at or before the Expiration Date, any of the following shall have occurred (which shall not have been waived by AEP): (a) there shall have been threatened, instituted or pending any action or proceeding by any government or governmental, regulatory or administrative agency, authority or tribunal or any other person, domestic or foreign, or before any court, authority, agency or tribunal that (i) challenges the acquisition of Shares pursuant to the Offer or otherwise in any manner relates to or affects the Offer or (ii) in the reasonable judgment of AEP, would or might materially and adversely affect the business, condition (financial or otherwise), income, operations or prospects of AEP and its subsidiaries taken as a whole, or otherwise materially impair in any way the contemplated future conduct of the business of AEP or any of its subsidiaries or materially impair the Offer's contemplated benefits to AEP; (b) there shall have been any action threatened, pending or taken, or approval withheld, or any statute, rule, regulation, judgment, order or injunction threatened, proposed, sought, promulgated, enacted, entered, amended, enforced or deemed to be applicable to the Offer or AEP or any of its subsidiaries, by any legislative body, court, authority, agency or tribunal that, in AEP's reasonable judgment, would or might directly or indirectly (i) make the acceptance for payment of, or payment for, some or all of the Shares illegal or otherwise restrict or prohibit consummation of the Offer; (ii) delay or restrict the ability of AEP, or render AEP unable, to accept for payment or pay for some or all of the Shares; (iii) materially impair the contemplated benefits of the Offer to AEP or OPCo (including materially increasing the effective interest cost of certain types of unsecured debt); or (iv) materially affect the business, condition (financial or otherwise), income, operations or prospects of AEP and its subsidiaries taken as a whole, or otherwise materially impair in any way the contemplated future conduct of the business of AEP or any of its subsidiaries; (c) there shall have occurred (i) any significant decrease in the market price of the Shares, (ii) any change in the general political, market, economic or financial conditions in the United States or abroad that, in the reasonable judgment of AEP, would or might have a material adverse effect on AEP's business, operations, prospects or ability to obtain financing generally or the trading in the Shares or other equity securities of AEP; (iii) the declaration of a banking moratorium or any suspension of payments in respect of banks in the United States or any limitation on, or any event that, in AEP's reasonable judgment, would or might affect the extension of credit by lending institutions in the United States; (iv) the commencement of war, armed hostilities or other international or national calamity directly or indirectly involving the United States; (v) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or in the over-the-counter market; (vi) in the case of any of 11 12 the foregoing existing at the time of the commencement of the Offer, in AEP's reasonable judgment, a material acceleration or worsening thereof; (vii) any decline in either the Dow Jones Industrial Average or the Standard and Poor's Composite 500 Stock Index by an amount in excess of 15% measured from the close of business on January 29, 1997; or (viii) a decline in the ratings accorded any of AEP's or OPCo's securities by Standard & Poor's Rating Services ("S&P"), Moody's Investors Service, Inc. ("Moody's") or Duff & Phelps, Inc. ("D&P") or that S&P, Moody's or D&P has announced that it has placed any such rating under surveillance or review with negative implications. (d) any tender or exchange offer with respect to some or all of the Shares (other than the Offer) or other equity securities of AEP, or a merger, acquisition or other business combination proposal for AEP, shall have been proposed, announced or made by any person or entity; (e) there shall have occurred any event or events that have resulted, or, in AEP's reasonable judgment, may result, in an actual or threatened change in the business, condition (financial or otherwise), income, operations, stock ownership or prospects of AEP and its subsidiaries; or (f) the Securities and Exchange Commission (the "SEC") shall have withheld approval, under the Holding Company Act, of the acquisition of the Shares by AEP pursuant to the Offer or the approval and adoption of the Proposed Amendment at the Special Meeting or the issuance of short-term debt by AEP and/or OPCo; and, in the sole judgment of AEP, such event or events make it undesirable or inadvisable to proceed with the Offer or with such acceptance for payment or payment. With respect to the approval of the SEC referenced in clause (f) above, the SEC must find that the acquisition of the Shares by AEP is not detrimental to the public interest or the interests of the investors or consumers, and that the consideration paid in connection with the acquisition and the adoption of the Proposed Amendment, including fees, commissions and other remuneration, is reasonable. The foregoing conditions (including the condition that the Proposed Amendment be approved and adopted at the Special Meeting) are for the sole benefit of AEP and may be asserted by AEP regardless of the circumstances (including any action or inaction by AEP) giving rise to any such condition, and any such condition may be waived by AEP, in whole or in part, at any time and from time to time in its sole discretion. A decision by AEP to terminate or otherwise amend any Offer, following the occurrence of any of the foregoing, with respect to one Series of Preferred will not create an obligation on behalf of AEP to terminate or otherwise amend in a similar manner the Offer with respect to any other Series of Preferred. The failure by AEP at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. Any determination by AEP concerning the events described above will be final and binding on all parties. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENTS AEP expressly reserves the right, in its sole discretion, and at any time and/or from time to time prior to the Expiration Date, to extend the period of time during which the Offer for any Series of Preferred is open by giving oral or written notice of such extension to the Depositary, without extending the period of time during which the Offer for any other Series of Preferred is open. There can be no assurance, however, that AEP will exercise its right to extend the Offer for any Series of Preferred. During any such extension, all Shares of the subject Series of Preferred previously tendered will remain subject to the Offer, except to the extent that such Shares may be withdrawn as set forth in "Terms of the Offer -- Withdrawal Rights." AEP also expressly reserves the right, in its sole discretion, to, among other things, terminate the Offer and not accept for payment or pay for any Shares tendered, subject to Rule 13e-4(f)(5) under the Exchange Act, which requires AEP either to pay the consideration offered or to return the Shares tendered promptly after the termination or withdrawal of the Offer upon the occurrence of any of the conditions specified in "Terms of the Offer -- Certain Conditions of the Offer" by giving oral or written notice of such termination to the Depositary, and making a public announcement thereof. 12 13 Subject to compliance with applicable law, AEP further reserves the right, in its sole discretion, to amend the Offer in any respect. Amendments to the Offer may be made at any time and/or from time to time effected by public announcement thereof, such announcement, in the case of an extension, to be issued no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Any public announcement made pursuant to the Offer will be disseminated promptly to Preferred Shareholders affected thereby in a manner reasonably designed to inform such Preferred Shareholders of such change. Without limiting the manner in which AEP may choose to make a public announcement, except as required by applicable law, AEP shall have no obligation to publish, advertise or otherwise communicate any such public announcement other than by making a release to the Dow Jones News Service. If AEP materially changes the terms of the Offer or the information concerning the Offer, or if it waives a material condition of the Offer, AEP will extend the Offer to the extent required by Rules 13e-4(d)(2) and 13e-4(e)(2) under the Exchange Act. Those rules require that the minimum period during which the Offer must remain open following material changes in the terms of the Offer or information concerning the Offer (other than a change in price, a change in percentage of securities sought or a change in the dealer's solicitation fee) will depend on the facts and circumstances, including the relative materiality of such terms or information. The SEC has stated that, in its view, an offer should remain open for a minimum of five business days from the date that a notice of such a material change is first published, sent or given. If the Offer is scheduled to expire at any time earlier than the expiration of a period ending on the tenth business day from, and including, the date that AEP publishes, sends or gives to Preferred Shareholders a notice that it will (i) increase or decrease the price it will pay for Shares, (ii) decrease the percentage of Shares it seeks or (iii) increase or decrease the soliciting dealers' Fees, the Offer will be extended until the expiration of such period of ten business days. THE OFFER FOR EACH SERIES OF PREFERRED IS INDEPENDENT OF THE OFFER FOR ANY OTHER SERIES OF PREFERRED. IF AEP EXTENDS OR AMENDS ANY OFFER WITH RESPECT TO ONE SERIES OF PREFERRED FOR ANY REASON, AEP WILL HAVE NO OBLIGATION TO EXTEND THE OFFER FOR ANY OTHER SERIES OF PREFERRED. PROPOSED AMENDMENT AND PROXY SOLICITATION INTRODUCTION This Offer to Purchase and Proxy Statement is first being mailed on or about January 30, 1997 to the shareholders of OPCo in connection with the solicitation of proxies by the Board of Directors of OPCo (the "Board") for use at the Special Meeting. At the Special Meeting, the shareholders of record of OPCo will vote upon the Proposed Amendment to the Articles and the Second Proposed Amendment to the Articles. The Second Proposed Amendment is Independent of the Offer and the Proposed Amendment, and neither the Offer nor the Proposed Amendment is in any way conditioned upon the Second Proposed Amendment being approved and adopted at the Special Meeting. While Preferred Shareholders who wish to tender their Shares pursuant to the Offer are not required to vote in favor of or against the Proposed Amendment, the Offer is conditioned upon the Proposed Amendment being approved and adopted at the Special Meeting. In addition, Preferred Shareholders of record have the right to vote for or against the Proposed Amendment regardless of whether they tender their Shares. If the Proposed Amendment is approved and adopted by OPCo's shareholders, OPCo will make a special cash payment in the amount of $1.00 per Share (the "Special Cash Payment") to each Preferred Shareholder of record who voted in favor of the Proposed Amendment, provided that such Shares have not been tendered pursuant to the Offer. If a Preferred Shareholder votes against the Proposed Amendment or abstains, such Preferred Shareholder shall not be entitled to the Special Cash Payment (regardless of whether the Proposed Amendment is approved and adopted). Those Preferred Shareholders who validly tender their Shares will be entitled only to the purchase price per Share listed on the front cover of this Offer to Purchase and Proxy Statement. 13 14 VOTING SECURITIES, RIGHTS AND PROCEDURES Only holders of record of OPCo's voting securities at the close of business on January 27, 1997 (the "Record Date") will be entitled to vote in person or by proxy at the Special Meeting. The outstanding voting securities of OPCo are divided into two classes: common stock and cumulative preferred stock. The class of cumulative preferred stock has been issued in the seven Series of Preferred with the record holders of all Shares of the cumulative preferred stock voting together as one class. The shares outstanding as of the Record Date, and the vote to which each share is entitled in consideration of the Proposed Amendment and the Second Proposed Amendment, are as follows:
CLASS SHARES OUTSTANDING VOTES PER SHARE - ------------------------------------------------------------- ------------------ --------------- Common Stock (No Par Value).................................. 27,952,473 1 vote Cumulative Preferred Stock (Par Value $100 Per Share)........ 1,484,316 1 vote
The affirmative vote of the holders of at least two-thirds of the outstanding shares of each of OPCo's (i) common stock and (ii) cumulative preferred stock, all series voting together as one class, is required to approve the Proposed Amendment to be presented at the Special Meeting. Abstentions and broker non-votes will have the effect of votes against the Proposed Amendment. AEP HAS ADVISED OPCO THAT IT INTENDS TO VOTE ALL OF THE OUTSTANDING SHARES OF COMMON STOCK OF OPCO IN FAVOR OF THE PROPOSED AMENDMENT. The affirmative vote of the holders of at least a majority of the outstanding shares of OPCo's common stock and cumulative preferred stock, the common stock and preferred stock voting together as one class, is required to approve the Second Proposed Amendment to be presented at the Special Meeting. Abstentions and broker non-votes will have the effect of votes against the Second Proposed Amendment. AEP HAS ADVISED OPCO THAT IT INTENDS TO VOTE ALL OF THE OUTSTANDING SHARES OF COMMON STOCK OF OPCO IN FAVOR OF THE SECOND PROPOSED AMENDMENT. Votes at the Special Meeting will be tabulated preliminarily by the Depositary. Inspectors of Election, duly appointed by the presiding officer of the Special Meeting, will definitively count and tabulate the votes and determine and announce the results at the Special Meeting. OPCo has no established procedure for confidential voting. There are no rights of appraisal in connection with the Proposed Amendment, or the Second Proposed Amendment. PROXIES THE ENCLOSED PROXY IS SOLICITED BY OPCO'S BOARD, WHICH RECOMMENDS VOTING FOR THE PROPOSED AMENDMENT AND THE SECOND PROPOSED AMENDMENT. ALL SHARES OF OPCO'S COMMON STOCK WILL BE VOTED IN FAVOR OF THE PROPOSED AMENDMENT AND THE SECOND PROPOSED AMENDMENT. Shares of OPCo's cumulative preferred stock represented by properly executed proxies received at or prior to the Special Meeting will be voted in accordance with the instructions thereon. If no instructions are indicated, duly executed proxies will be voted in accordance with the recommendation of the Board. It is not anticipated that any other matters will be brought before the Special Meeting. However, the enclosed proxy gives discretionary authority to the proxy holders named therein should any other matters be presented at the Special Meeting, and it is the intention of the proxy holders to act on any other matters in accordance with their best judgment. THE SECOND PROPOSED AMENDMENT IS INDEPENDENT OF THE OFFER AND THE PROPOSED AMENDMENT, AND NEITHER THE OFFER NOR THE PROPOSED AMENDMENT IS ANY WAY CONDITIONED UPON THE SECOND PROPOSED AMENDMENT BEING APPROVED AND ADOPTED AT THE SPECIAL MEETING. Execution of a proxy will not prevent a shareholder from attending the Special Meeting and voting in person. Any shareholder giving a proxy may revoke it at any time before it is voted by delivering to the Secretary of OPCo written notice of revocation bearing a later date than the proxy, by delivering a duly executed proxy bearing a later date, or by voting in person by ballot at the Special Meeting. Withdrawal of Shares tendered pursuant to the Offer will not revoke a properly executed proxy. 14 15 OPCo will bear the cost of the solicitation of proxies by the Board. OPCo has engaged Morrow & Co., Inc. to act as Information Agent in connection with the solicitation of proxies for a fee of $5,800, plus reimbursement of reasonable out-of-pocket expenses. Proxies will be solicited by mail or by telephone. In addition, officers and employees of OPCo may also solicit proxies personally or by telephone; such persons will receive no additional compensation for these services. The Information Agent has not been retained to make, and will not make, solicitations or recommendations in connection with the Proposed Amendment. OPCo has requested that brokerage houses and other custodians, nominees and fiduciaries forward solicitation materials to the beneficial owners of shares of OPCo's cumulative preferred stock held of record by such persons and will reimburse such brokers and other fiduciaries for their reasonable out-of-pocket expenses incurred in connection therewith. The solicitation of proxies has been approved by the SEC under the Holding Company Act. An application has been filed with the SEC under the Holding Company Act requesting approval of the Proposed Amendment, the Second Proposed Amendment and the acquisition of the Shares by AEP pursuant to the Offer. SPECIAL CASH PAYMENTS Subject to the terms and conditions set forth in this Offer to Purchase and Proxy Statement, if (but only if) the Proposed Amendment is approved and adopted by the shareholders of OPCo, OPCo will make a Special Cash Payment to each Preferred Shareholder who voted in favor of the Proposed Amendment, in person by ballot or by proxy, at the Special Meeting in the amount of $1.00 for each Share held by such Preferred Shareholder on the Record Date which is so voted, provided that such Shares have not been tendered pursuant to the Offer. SPECIAL CASH PAYMENTS WILL BE MADE TO PREFERRED SHAREHOLDERS AS OF THE RECORD DATE (IF SUCH SHARES HAVE NOT BEEN TENDERED PURSUANT TO THE OFFER) ONLY IN RESPECT OF EACH SHARE WHICH IS VOTED FOR THE ADOPTION OF THE PROPOSED AMENDMENT; PROVIDED, HOWEVER, THAT THOSE PREFERRED SHAREHOLDERS WHO VALIDLY TENDER THEIR SHARES WILL BE ENTITLED ONLY TO THE PURCHASE PRICE PER SHARE LISTED ON THE FRONT COVER OF THIS OFFER TO PURCHASE AND PROXY STATEMENT. If the Proposed Amendment is approved and adopted, Special Cash Payments will be paid out of OPCo's general funds, promptly after the Proposed Amendment shall have become effective. However, no accrued interest will be paid on the Special Cash Payments regardless of any delay in making such payments. Only Preferred Shareholders on the Record Date (or their legal representatives or attorneys-in-fact) are entitled to vote at the Special Meeting and to receive Special Cash Payments from OPCo. Any beneficial holder of Shares who is not the registered holder of such Shares as of the Record Date (as would be the case for any beneficial holder whose Shares are registered in the name of such holder's broker, dealer, commercial bank, trust company or other nominee) must arrange with the record Preferred Shareholder to execute and deliver a proxy form on such beneficial owner's behalf. If a beneficial holder of Shares intends to attend the Special Meeting and vote in person, such beneficial holder must obtain a legal proxy form from his or her broker, dealer, commercial bank, trust company or other nominee. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As noted above, AEP owns all the outstanding common stock of OPCo. Pursuant to Section 13(d) of the Exchange Act, a beneficial owner of a security is any person who directly or indirectly has or shares voting or investment power over such security. No person or group is known by management of OPCo to be the beneficial owner of more than 5% of OPCo's cumulative preferred stock as of the Record Date. 15 16 OPCo's directors and executive officers do not beneficially own any Shares as of the Record Date. The beneficial ownership of AEP's common stock held by each director, as well as directors and executive officers as a group, as of December 31, 1996, is set forth in the following table.
NAME (1) SHARES ------------------------------------------------------------------------- -------- P. J. DeMaria............................................................ , E. L. Draper, Jr. ....................................................... , H. W. Fayne.............................................................. , W. J. Lhota.............................................................. , G. P. Maloney............................................................ , J. J. Markowsky.......................................................... , J. H. Vipperman.......................................................... , All directors and executive officers as a group (representing % of the class)................................................................. ,
- --------------- (1) No individual listed beneficially owned more than 0. % of the outstanding shares of common stock of AEP. BUSINESS TO COME BEFORE THE SPECIAL MEETING The following Proposed Amendment to the Articles is one of two items of business expected to be presented at the Special Meeting: To remove in its entirety ARTICLE FOURTH, Clause 7(B)(b), limiting OPCo's ability to issue unsecured indebtedness. The following Second Proposed Amendment to the Articles is the second of two items of business expected to be presented at the Special Meeting: To add a paragraph to the end of ARTICLE FOURTH, Clause 3, clarifying the authority of the Board of Directors to purchase or otherwise acquire Shares. THE FOLLOWING STATEMENTS, UNLESS THE CONTEXT OTHERWISE REQUIRES, ARE SUMMARIES OF THE SUBSTANCE OR GENERAL EFFECT OF A PROVISION OF THE ARTICLES, AND ARE QUALIFIED IN THEIR ENTIRETY BY THE ARTICLES AND CLAUSE 7(B)(B) (AS DESCRIBED BELOW). EXPLANATION OF THE PROPOSED AMENDMENT ARTICLE FOURTH, Clause 7(B)(b) of the Articles currently provides that, so long as any shares of OPCo's cumulative preferred stock are outstanding, OPCo shall not, without the consent of the holders of a majority of the total number of votes which holders of the outstanding shares of OPCo cumulative preferred stock are entitled to cast, issue or assume any unsecured debt securities (other than for purposes of the reacquisition, redemption or other retirement of any evidences of indebtedness theretofore issued or assumed by OPCo or the reacquisition, redemption or other retirement of all outstanding shares of OPCo cumulative preferred stock) if, immediately after such issue or assumption, the total principal amount of all unsecured debt securities (other than the principal amount of all long-term unsecured debt securities not in excess of 10% of the capitalization of OPCo) issued or assumed by OPCo and then outstanding would exceed 10% of the capitalization of OPCo (the "Debt Limitation Provision"). The Proposed Amendment, if adopted, would eliminate in its entirety clause 7(B)(b), as set forth below, from the Articles. Unless otherwise defined, capitalized terms used in Clause 7(B) are used as defined in the Articles. ARTICLE FOURTH, Clause 7(B) of the Articles states: "(B) So long as any shares of the Cumulative Preferred Stock are outstanding, the Corporation shall not, without the consent (given by vote at a meeting called for that purpose) of the holders of a majority of the total number of votes which holders of the outstanding shares of Cumulative Preferred Stock are entitled to cast, voting together for such purpose as a single class: 16 17 . . . (b) Issue or assume any unsecured debt securities for purposes other than (i) the reacquisition, redemption or other retirement of any evidences of indebtedness theretofore issued or assumed by the Corporation, or (ii) the reacquisition, redemption or other retirement of all outstanding shares of the Cumulative Preferred Stock, if, immediately after such issue or assumption, the total principal amount of all unsecured debt securities (other than the principal amount of all long-term unsecured debt securities not in excess of 10% of the Capitalization of the Corporation) issued or assumed by the Corporation and then outstanding would exceed 10% of the Capitalization of the Corporation. For purposes of this subparagraph (b) only: (I) "unsecured debt securities" shall be deemed to mean any unsecured notes, debentures, or other securities representing unsecured indebtedness, but shall not include contractual commitments and agreements for the purchase of property, materials, power, energy or equipment to be used, consumed or resold in the ordinary course of the Corporation's business; (II) "long-term unsecured debt securities" shall be deemed to mean all unsecured debt securities outstanding, as of any specified time of computation, other than (x) unsecured debt securities maturing by their terms on a date less than ten years subsequent to such time of computation, and (y) the principal amount required under any sinking fund or other debt retirement provision, to be reacquired, redeemed or otherwise retired by the Corporation on a date less than ten years subsequent to such time of computation; provided, however, that the principal amount of any class of unsecured debt securities, which at the time of issuance or assumption by the Corporation matured by its terms on a date ten or more years subsequent to such issuance or assumption, and which at the time of such computation (aa) is not required to be reacquired, redeemed or otherwise retired, through sinking fund or other debt retirement provision, prior to maturity of such class or (bb) represents the final maturity of a series of maturities within such class, shall continue to be deemed to be long-term unsecured debt securities until such final requirement or maturity shall occur on a date less than five years subsequent to such time of computation; and (III) the "Capitalization of the Corporation" shall be deemed to mean, as of any specified time of computation, an amount equal to the sum of the total principal amount of all bonds or other debt securities representing secured indebtedness issued or assumed by the Corporation and then to be outstanding, and the aggregate of the par value of, or stated capital represented by, the outstanding shares of all classes of stock and of the surplus of the Corporation, paid in, earned and other, if any;" REASONS FOR THE PROPOSED AMENDMENT OPCo believes that regulatory, legislative, technological and market developments are likely to lead to a more competitive environment in the electric utility industry. OPCo and AEP's other electric utility subsidiaries believe that they currently have a favorable competitive position because of their relatively low costs. As competition intensifies, flexibility and cost reduction will be even more crucial to success. Because the electric utility industry is extremely capital intensive, control and minimization of financing costs are of particular importance. In response to the competitive forces and regulatory changes faced by OPCo and AEP's other electric utility subsidiaries, AEP and its public utility subsidiaries have from time to time considered, and expect to continue to consider, various strategies designed to enhance their competitive position and to increase their ability to adapt to and anticipate changes in their utility business. 17 18 OPCo believes that adoption of the Proposed Amendment is key to financial flexibility and capital cost reduction. If adopted, the Debt Limitation Provision will be eliminated. Historically, OPCo's debt financing generally has been accomplished through the issuance of long-term first mortgage bonds, a modest amount of unsecured short-term debt and long-term installment purchase contracts for pollution control bonds. First mortgage bonds represent secured indebtedness placing a first priority lien on substantially all of OPCo's assets. The Mortgage and Deed of Trust between OPCo and its bondholders contains certain restrictive covenants with respect to, among other things, the disposition of assets and the ability to issue additional first mortgage bonds. Unsecured debt generally has fewer restrictions than first mortgage bonds. Short-term debt, a low cost form of debt available to OPCo, represents one type of unsecured indebtedness. Pollution control bond financing, a favorable type of financing due to its tax-exempt status, is available only for very limited purposes. The Proposed Amendment will not only allow OPCo to issue a greater amount of unsecured debt, but also will allow OPCo to issue a greater amount of total debt. OPCo, however, presently has no intention of issuing a greater amount of total debt than it would have issued absent the adoption of the Proposed Amendment, except that OPCo may issue additional unsecured debt to fund the purchase of the Shares from AEP. Rather, it is OPCo's intention to attain flexibility in the mix of its outstanding debt and therefore have the option to use more short-term and other unsecured debt and less first mortgage bonds. Inasmuch as the Debt Limitation Provision contained in the Articles limits OPCo's flexibility in planning and financing its business activities, OPCo believes it ultimately will be at a competitive disadvantage if the Debt Limitation Provision is not eliminated. The industry's new competitors (for example, power marketers, exempt wholesale generators, independent power producers and cogeneration facilities) generally are not subject to the type of financing restrictions the Articles impose on OPCo. Recently, several other utilities with the same or similar charter restrictions have successfully eliminated such provisions by soliciting their shareholders for the same or similar amendments. In addition, some potential utility competitors, and other AEP public utility subsidiaries, including Columbus Southern Power Company and Kentucky Power Company, have no comparable provision restricting the issuance of unsecured debt. Although OPCo sells relatively low-cost power, OPCo must continue to explore new ways of reducing costs and enhancing flexibility. OPCo believes that the adoption of the Proposed Amendment will be in the best long-term competitive interests of its shareholders. Financial Flexibility. If the Proposed Amendment is adopted, OPCo will have increased flexibility (i) to choose among different types of debt financing and (ii) to finance projects using the most cost effective means. OPCo believes that various types of unsecured debt alternatives will increase in importance as an option in financing its construction program and refinancing first mortgage bonds. The availability and flexibility of unsecured debt is necessary to take full advantage of changing conditions in securities markets. As a result, OPCo may increase the amount of unsecured debt to more than 20% of capitalization. In addition, although OPCo's earnings currently are sufficient to meet the earnings coverage tests that must be satisfied before issuing additional first mortgage bonds and preferred stock, there is no guarantee that this will be true in the future. Other utilities have been unable to issue first mortgage bonds during certain periods because of restrictive covenants in their mortgages. OPCo's inability to issue first mortgage bonds or preferred stock in the future, combined with the inability to issue additional unsecured debt, would limit OPCo's financing options to more costly options, including additional common equity. Moreover, continued reliance on the issuance of first mortgage bonds under OPCo's Mortgage and Deed of Trust could limit OPCo's ability in the future to strategically redeploy its assets. Under the Debt Limitation Provision, OPCo's use of unsecured short-term debt is presently restricted. However, OPCo believes that the prudent use of such debt in excess of this provision is vital to effective financial management of its business. Not only is unsecured short-term debt generally one of the least expensive forms of capital, it also provides flexibility in meeting seasonal and business cycle fluctuations in cash requirements, acts as a bridge between issues of permanent capital and can be used when unfavorable conditions prevail in the market for long-term capital. 18 19 Lower Costs. As previously mentioned, OPCo's short-term debt issuances generally represent one of its lowest-cost forms of financing. OPCo is reassessing its historically modest use of short-term debt. By increasing its use of short-term debt, OPCo may be able to lower its cost structure further, thereby making its products more competitive and reducing its business risks. However, with the Debt Limitation Provision in place, the availability and corresponding benefits of short-term debt diminish. And although short-term debt may expose the borrower to more volatility in interest rates, it should be noted that the cost of short-term debt seldom exceeds the cost of other forms of capital available at the same time. IT IS FOR ALL THE ABOVE REASONS THAT OPCO'S BOARD BELIEVES THE BEST LONG-TERM INTERESTS OF SHAREHOLDERS ARE SERVED BY, AND ENCOURAGES SHAREHOLDERS TO VOTE FOR, THE ADOPTION OF THE PROPOSED AMENDMENT. EXPLANATION OF THE SECOND PROPOSED AMENDMENT ARTICLE FOURTH, Clause 3, concerning OPCo's authority to redeem the cumulative preferred stock, expressly provides that the redemption provisions thereof do not limit any right of OPCo to purchase or otherwise acquire shares of the cumulative preferred stock, provided that OPCo shall not purchase or otherwise acquire any shares of any series of cumulative preferred stock during any period when OPCo is in default in the payment of dividends on any series of the cumulative preferred stock, unless all shares of the cumulative preferred stock then outstanding are concurrently redeemed, purchased or otherwise acquired or unless such redemption purchase or acquisition shall have been ordered, permitted or approved by the SEC. The Second Proposed Amendment, if adopted, would add a paragraph to the end of ARTICLE FOURTH, Clause 3, that would resolve any question concerning the scope of the authority of the Board of Directors to purchase or otherwise acquire shares of the cumulative preferred stock. The adoption of the Second Proposed Amendment will not affect in any way the dividend, voting rights and other rights of the shares of the cumulative preferred stock that are now issued and outstanding. Unless otherwise defined, capitalized terms used in the Paragraph are used as defined in the Articles. If adopted, the Second Proposed Amendment would add the following paragraph to the end of ARTICLE FOURTH, Clause 3: The Corporation may from time to time, by action of its Board of Directors and without action by the holders of the Common Stock or any class of the Cumulative Preferred Stock, purchase or otherwise acquire shares of any class of the Cumulative Preferred Stock in such manner, upon such terms and in such amounts as the Board of Directors shall determine; subject, however, to such limitations or restrictions, if any, as are contained in the express terms of any class of the Cumulative Preferred Stock outstanding at the time of the purchase or acquisition in question. REASONS FOR THE SECOND PROPOSED AMENDMENT OPCO has proposed the Second Proposed Amendment because the Board of Directors believes that to the extent possible (i) the scope of the authority of the Board of Directors set forth in the Articles, including the authority of the Board of Directors to purchase or otherwise acquire shares of any series of the cumulative preferred stock, should be stated as clearly as possible and (ii) any ambiguity in the Articles regarding such authority should be eliminated. Under Ohio corporation law, which governs OPCo, a corporation by its directors may purchase its stock only in limited circumstances, including (i) when the articles of incorporation authorize the redemption of such shares and do not prohibit such purchase and (ii) when the articles of incorporation authorize such purchase. OPCo's Articles do not limit or prohibit OPCo's purchase of its Preferred Shares, and the Articles currently authorize the redemption of the 4 1/2% Series, the 4.08% Series, the 4.20% Series and the 4.40% Series, but not the 5.90% Series, the 6.02% Series and the 6.35% Series. The Articles do not otherwise address the purchase of the Preferred Shares. As such, although the Board of Directors believes that it has the authority to repurchase such Preferred Shares, in light of the magnitude of the purchase contemplated, the Board of Directors prefers to clearly establish that its autority to purchase shares of cumulative preferred stock is circumscribed only by the express terms of any class of the cumulative preferred stock set forth in the 19 20 Articles. The adoption of the Second Proposed Amendment would clarify the scope of the Board of Directors' authority to purchase the shares of the cumulative preferred stock. RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS Upon recommendation of the Audit Committee of AEP's board of directors, such board employed on January 31, 1996 Deloitte & Touche LLP as independent public accountants for AEP and its subsidiaries, including OPCo, for the year 1996. A representative of Deloitte & Touche LLP will not be present at the Special Meeting unless prior to the day of the Special Meeting the Secretary of OPCo has received written notice from a Preferred Shareholder addressed to the Secretary at 1 Riverside Plaza, Columbus, Ohio 43215, that such Preferred Shareholder will attend the Special Meeting and wishes to ask questions of a representative of Deloitte & Touche LLP. PRICE RANGE OF SHARES; DIVIDENDS OPCo's Cumulative Preferred Stock 4- 1/2% Series, 4.08% Series, 4.20% Series, 4.40% Series, 5.90% Series, 6.02% Series and 6.35% Series are traded in the over-the-counter market under the symbols "OHIPM", "OHIPP", "OHIPO", "OHIPN","OHIPI","OHPOP" and "OHIPH", respectively. The last reported sale price in the over-the-counter market, as of the close of business on January 28, 1997, for each of the Series of Preferred is shown on the inside front cover of this Offer to Purchase and Proxy Statement. However, Preferred Shareholders should be aware that there is no established trading market for the Shares and that the Shares of each Series of Preferred only trade sporadically and, therefore, the last reported sales price may not necessarily reflect the market value of the Shares. PREFERRED SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS, IF AVAILABLE, FOR THE SHARES. The following table sets forth the high and low sales prices of each Series of Preferred in the over-the-counter market as reported by the National Quotation Bureau, Inc. and the cash dividends paid thereon for the fiscal quarters indicated. DIVIDENDS AND PRICE RANGES OF CUMULATIVE PREFERRED STOCK BY QUARTERS (1996 AND 1995)
1996 - QUARTERS 1995 - QUARTERS ------------------------------------ ------------------------------------ 1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH ------ ------ ------ ------ ------ ------ ------ ------ CUMULATIVE PREFERRED STOCK ($100 Par Value) 4.08% Series Dividends Paid Per Share......... $1.02 $1.02 $1.02 $1.02 $1.02 $1.02 $1.02 $1.02 Market Price -- $ Per Share (OTC) Ask -- High/Low................ -- -- -- -- -- -- -- -- Bid -- High.................... 50- 1/4 50 50 50 45- 1/4 47- 1/2 47- 3/4 49- 3/4 -- Low...................... 49- 3/4 50 49 49 43- 1/2 44- 1/2 45 46- 3/8 4- 1/2% Series Dividends Paid Per Share......... $1.125 $1.125 $1.125 $1.125 $1.125 $1.125 $1.125 $1.125 Market Price -- $ Per Share (OTC) Ask -- High.................... 62- 1/2 59 59 -- -- -- -- -- -- Low...................... 62- 1/2 58- 1/2 59 -- -- -- -- -- Bid -- High.................... 61- 5/8 58- 3/4 57 57- 1/2 53- 1/4 54- 1/2 56- 1/2 59- 3/8 -- Low...................... 56.5 57 57 57 48 50- 1/2 53 53
20 21
1996 - QUARTERS 1995 - QUARTERS ------------------------------------ ------------------------------------ 1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH ------ ------ ------ ------ ------ ------ ------ ------ 4.20% Series Dividends Paid Per Share......... $1.05 $1.05 $1.05 $1.05 $1.05 $1.05 $1.05 $1.05 Market Price -- $ Per Share (OTC) Ask -- High/Low................ -- -- -- -- -- -- -- -- Bid -- High.................... 55 55 52- 3/8 52- 5/8 47- 3/4 50- 1/2 51 53- 1/4 -- Low...................... 52- 5/8 52- 3/8 52- 3/8 52- 3/8 45- 1/4 47- 1/4 47- 1/4 49- 5/8 4.40% Series Dividends Paid Per Share......... $1.10 $1.10 $1.10 $1.10 $1.10 $1.10 $1.10 $1.10 Market Price -- $ Per Share (OTC) Ask -- High.................... 61- 1/4 -- -- -- -- -- -- -- -- Low...................... 61 -- -- -- -- -- -- -- Bid -- High.................... 60- 1/2 57 56 56- 1/2 51- 3/8 54- 1/2 55- 1/4 58- 1/2 -- Low...................... 55- 1/4 56 56 56 47- 1/2 49- 1/2 52- 5/8 52- 5/8 5.90% Series Dividends Paid Per Share......... $1.475 $1.475 $1.475 $1.475 $1.475 $1.475 $1.475 $1.475 Market Price -- $ Per Share (OTC) -- Quotations not available 6.02% Series Dividends Paid Per Share......... $1.505 $1.505 $1.505 $1.505 $1.505 $1.505 $1.505 $1.505 Market Price -- $ Per Share (OTC) -- Quotations not available 6.35% Series Dividends Paid Per Share......... $1.5875 $1.5875 $1.5875 $1.5875 $1.5875 $1.5875 $1.5875 $1.5875 Market Price -- $ Per Share (OTC) -- Quotations not available
- --------------- OTC -- Over-the-Counter Note -- The above bid and asked quotations represent prices between dealers and do not represent actual transactions. Market quotations provided by National Quotation Bureau, Inc. Dash indicates quotes not available. Dividends for a Series of Preferred are payable when, as and if declared by OPCo's Board of Directors at the rate per annum included in such title of the Series of Preferred listed on the front cover of this Offer to Purchase and Proxy Statement. The March 1997 Dividend has been declared on each Series of Preferred, payable March 1, 1997 to holders of record as of the close of business on February 12, 1997. A tender and purchase of Shares pursuant to the Offer will not deprive such Preferred Shareholder of his or her right to receive the March 1, 1997 Dividend on his or her Shares, regardless when such tender is made. Tendering Preferred Shareholders will be entitled to any dividends accrued prior to the Payment Date in respect of any later dividend periods (or any portion thereof). PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER AEP believes that the purchase of the Shares at this time represents an attractive economic opportunity that will benefit AEP, its shareholders, and OPCo. In addition, the Offer gives Preferred Shareholders the opportunity to sell their Shares at a price which AEP believes to be a premium to the market price on the date of the announcement of the Offer and without the usual transaction costs associated with a sale. After the consummation of the Offer, AEP or OPCo may purchase additional Shares on the open market, in privately negotiated transactions, through one or more tender offers or otherwise. Any such purchases may be on the same terms as, or on terms which are more or less favorable to holders of Shares than, the terms of the Offer. However, Rule 13e-4(f)(6) under the Exchange Act prohibits AEP and its affiliates (including OPCo) from purchasing any Shares of a Series of Preferred, other than pursuant to the Offer, until at least ten business days after the Expiration Date with respect to that Series of Preferred. Any future 21 22 purchases of Shares by AEP or OPCo would depend on many factors, including the market price of the Shares, AEP's business and financial position, legal restrictions on AEP's ability to purchase Shares as well as general economic and market conditions. Preferred Shareholders are not under any obligation to tender Shares pursuant to the Offer. The Offer does not constitute notice of redemption of any Series of Preferred pursuant to OPCo's Articles, nor does AEP or OPCo intend to effect any such redemption by making the Offer. Further, the Offer does not constitute a waiver by OPCo of any option it has to redeem Shares. The 4- 1/2% Series, 4.08% Series, 4.20% Series and 4.40% Series are not subject to mandatory redemption, but presently are callable at $110.00 per Share, $103.00 per Share, $103.20 per Share and $104.00 per Share, respectively. Commencing in 2004 and continuing through the year 2008, a sinking fund for the 5.90% Series will require the redemption of 22,500 Shares on January 1 of each year and the redemption of the remaining Shares outstanding on January 1, 2009, in each case at $100 per Share; commencing in 2003 and continuing through the year 2007, a sinking fund for the 6.02% Series will require the redemption of 20,000 Shares on December 1 of each year and the redemption of the remaining Shares outstanding on December 1, 2008, in each case at $100 per Share; commencing in 2003 and continuing through the year 2007, a sinking fund for the 6.35% Series will require the redemption of 15,000 Shares on June 1 of each year and the redemption of the remaining Shares outstanding on June 1, 2008, in each case at $100 per Share. The Shares of each Series of Preferred have no preemptive or conversion rights. Upon liquidation or dissolution of OPCo, owners of the Shares would be entitled to receive an amount equal to the liquidation preference per share ($100) plus all accrued and unpaid dividends (whether or not earned or declared) thereon to the date of payment, prior to the payment of any amounts to the holders of OPCo's common stock. Shares validly tendered to the Depositary pursuant to the Offer and not withdrawn in accordance with the procedures set forth herein shall be held until the Expiration Date (or returned to the extent the Offer is terminated in accordance herewith). To the extent that the Proposed Amendment is approved and the Shares tendered are accepted for payment and paid for in accordance with the terms hereof, AEP intends to sell its Shares to OPCo and, at that time, it is expected that OPCo will retire and cancel the Shares. However, in the event the Proposed Amendment is not adopted at the Special Meeting, AEP may elect, but is not obligated to, waive, subject to applicable law, such condition. In that case, subsequent to AEP's waiver and purchase of the Shares, OPCo anticipates, as promptly as practicable thereafter, that it would call another special meeting of its shareholders and solicit proxies therefrom for an amendment substantially similar to the Proposed Amendment. At that meeting, AEP would vote any Shares acquired by it pursuant to the Offer or otherwise (together with its shares of common stock) in favor of such amendment, thereby maximizing the prospects for the adoption of the amendment. Any such purchase of Shares by AEP will reduce the number of Shares of each of the Series of Preferred that might otherwise trade publicly or become available for purchase and/or sale and likely will reduce the number of owners of Shares of each of the Series of Preferred, which could adversely affect the liquidity and sale value of the Shares not purchased in the Offer. Liquidity of Trading Market. To the extent that Shares of any Series of Preferred are tendered and accepted for payment in the Offer, the trading market for Shares of such Series of Preferred that remain outstanding may be significantly more limited, which might adversely affect the liquidity, market value and price volatility of such Shares. Equity securities with a smaller outstanding market value available for trading (the "float") may command a lower price than would comparable equity securities with a greater float. Therefore, the market price for Shares that are not tendered in the Offer may be affected adversely to the extent that the amount of Shares purchased pursuant to the Offer reduces the float. The reduced float may also make the trading price of the Shares that are not tendered and accepted for payment more volatile. Preferred Shareholders of the remaining Shares may attempt to obtain quotations for the Shares from their brokers; however, there can be no assurance that any trading market will exist for such Shares following consummation of the Offer. To the extent a market continues to exist for the Shares after the Offer, the Shares may trade at a discount compared to present trading depending on the market for Shares with similar features, the performance of APCo, and other factors. There is no assurance that an active market in the Shares will exist and no assurance as to the prices at which the Shares may trade. 22 23 The 4- 1/2% Series is currently registered under Section 12(g) of the Exchange Act. Registration of the Shares of the 4- 1/2% Series under the Exchange Act may be terminated upon the application by OPCo to the SEC if such Shares are neither listed on a national securities exchange nor held by more than 300 holders of record. Termination of registration of the Shares of the 4- 1/2% Series under the Exchange Act would substantially reduce the information required to be furnished by OPCo to Preferred Shareholders and could make certain provisions of the Exchange Act no longer applicable to OPCo. The purchase of Shares of each Series of Preferred Stock pursuant to the Offer will reduce the number of holders of Shares and the number of such Shares that might otherwise trade publicly, and, depending upon the number of Shares so purchased, such reduction could adversely affect the liquidity and market value of the remaining Shares of each such Series of Preferred Stock held by the public. The extent of the public market for such Shares and the availability of price quotations would, however, depend upon such factors as the number of stockholders remaining at such time, the interest in maintaining a market in the Shares on the part of securities firms and other factors. As of December 31, 1996, there were 1,867 registered holders of the 4- 1/2% Series, 83 registered holders of the 4.08% Series, 123 registered holders of the 4.20% Series, 178 registered holders of the 4.40% Series, 1 registered holder of the 5.90% Series, 1 registered holder of the 6.02% Series and 2 registered holders of the 6.35% Series. Other Potential Effects of the Proposed Amendment on Preferred Shareholders who do not Tender. If the Proposed Amendment becomes effective, Preferred Shareholders of Shares that are not tendered and purchased pursuant to the Offer will no longer be entitled to the benefits of the Debt Limitation Provision, which will have been deleted by the Proposed Amendment. As discussed above, the Debt Limitation Provision places restrictions on OPCo's ability to issue or assume unsecured indebtedness. Although OPCo's debt instruments may contain certain restrictions on OPCo's ability to issue or assume debt, any such restrictions may be waived and the increased flexibility afforded OPCo by the deletion of the Debt Limitation Provision may permit OPCo to take certain actions that may increase the credit risks with respect to OPCo, adversely affecting the market price and credit rating of the remaining Shares or otherwise be materially adverse to the interests of the remaining Preferred Shareholders. In addition, to the extent that OPCo elects to fund its purchase of the Shares by issuing additional unsecured debt, the remaining Preferred Shareholders' relative position in OPCo's capital structure could be perceived to decline, which in turn could adversely affect the market price and credit rating of the remaining Shares. To this end, Moody's has advised OPCo that Moody's might reconsider its rating of OPCo's preferred stock, absent some mitigating factors, and particularly if OPCo funds the purchase of Shares from AEP through the issuance of additional unsecured debt. Following the consummation of the Offer, the business and operations of OPCo will be continued substantially as they are currently being conducted. Except as disclosed in this Offer to Purchase and Proxy Statement, AEP and OPCo currently have no plans or proposals that relate to or would result in: (a) the acquisition by any person or entity of additional securities of OPCo or the disposition of securities of OPCo, other than in the ordinary course of business; (b) an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving OPCo or any of its subsidiaries other than OPCo's continuing studies of its active coal subsidiaries which might result in an extraordinary corporate transaction and OPCo's plan to merge Central Coal Company, an inactive and immaterial coal subsidiary; (c) a sale or transfer of a material amount of assets of OPCo or any of its subsidiaries; (d) any change in the present Board or management of OPCo; (e) any material change in the present dividend rate or policy, or indebtedness or capitalization of OPCo; (f) any other material change in OPCo's corporate structure or business; (g) any change in OPCo's Articles or Regulations or any actions that may impede the acquisition of control of OPCo by any person; (h) a class of equity securities of OPCo being delisted from a national securities exchange; (i) a class of equity securities of OPCo becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Exchange Act; or (j) the suspension of OPCo's obligation to file reports pursuant to Section 15(d) of the Exchange Act. NEITHER AEP, OPCO, THEIR RESPECTIVE BOARDS OF DIRECTORS, NOR ANY OF THEIR RESPECTIVE OFFICERS MAKES ANY RECOMMENDATION TO ANY PREFERRED SHAREHOLDER AS TO WHETHER TO TENDER ALL OR ANY SHARES. EACH PREFERRED SHARE- 23 24 HOLDER MUST MAKE HIS OR HER OWN DECISION AS TO WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER. CERTAIN FEDERAL INCOME TAX CONSEQUENCES In the opinion of Simpson Thacher & Bartlett, tax counsel to AEP and OPCo, the following summary describes the principal United States federal income tax consequences of sales of Shares pursuant to the Offer and the receipt of Special Cash Payments in connection with the approval and adoption of the Proposed Amendment. This summary is based on the Internal Revenue Code of 1986, as amended to the date hereof (the "Code"), administrative pronouncements, judicial decisions and existing and proposed Treasury Regulations, changes to any of which subsequent to the date of this Offer to Purchase and Proxy Statement may adversely affect the tax consequences described herein, possibly on a retroactive basis. This summary is addressed to Preferred Shareholders who hold Shares as capital assets within the meaning of Section 1221 of the Code. This summary does not discuss all of the tax consequences that may be relevant to a Preferred Shareholder in light of such Preferred Shareholder's particular circumstances or to Preferred Shareholders subject to special rules (including certain financial institutions, tax-exempt organizations, insurance companies, dealers in securities or currencies, foreign persons or entities selling Shares pursuant to the Offer who own or have owned, actually or constructively, more than five percent of such Shares, Preferred Shareholders who acquired their Shares pursuant to the exercise of stock options or other compensation arrangements with OPCo or Preferred Shareholders holding the Shares as part of a conversion transaction, as part of a hedge or hedging transaction, or as a position in a straddle for tax purposes). Preferred Shareholders should consult their tax advisors with regard to the application of the United States federal income tax laws to their particular situations as well as any tax consequences arising under the laws of any state, local or foreign taxing jurisdiction. As used herein, the term "United States Holder" means an owner of a Share that is (i) for United States federal income tax purposes a citizen or resident of the United States; (ii) a corporation, partnership or other entity created or organized in or under the laws of the United States or of any political subdivision thereof; (iii) an estate the income of which is subject to United States federal income taxation regardless of its source; or (iv) any trust if a court within the United States is able to exercise primary supervision over the administration of such trust and one or more United States fiduciaries have the authority to control all substantial decisions of such trust. A "Non-United States Holder" is a Preferred Shareholder that is not a United States Holder. Tax Considerations for Tendering Preferred Shareholders Characterization of the Sale. A sale of Shares by a Preferred Shareholder pursuant to the Offer will be a taxable transaction for Federal income tax purposes. United States Holders. A United States Holder will recognize gain or loss equal to the difference between the tax basis of such Holder's Shares and the amount of cash received in exchange therefor. A United States Holder's gain or loss will be long-term capital gain or loss if the holding period for the Shares is more than one year as of the date of the sale of such Shares. The excess of net long-term capital gains over net short-term capital losses is taxed at a lower rate than ordinary income for certain non-corporate taxpayers. The distinction between capital gain or loss and ordinary income or loss is also relevant for purposes of, among other things, limitations on the deductibility of capital losses. Non-United States Holders. Any gain realized upon the sale of Shares by a Non-United States Holder pursuant to the Offer generally will not be subject to United States Federal income tax unless (i) such gain is effectively connected with a trade or business in the United States of the Non-United States Holder, or (ii) in the case of a Non-United States Holder who is an individual, such individual is present in the United States for 183 days or more in the taxable year of such sale and certain other conditions are met. A Non-United States Holder described in clause (i) above will be taxed on the net gain derived from the sale at regular graduated United States Federal income tax rates. If a Non-United States Holder that is a 24 25 foreign corporation falls under clause (i) above, it may also be subject to an additional "branch profits tax" at a 30% rate (or such lower rate as may be specified by an applicable income tax treaty). Unless an applicable tax treaty provides otherwise, an individual Non-United States Holder described in clause (ii) above will be subject to a flat 30% tax on the gain derived from the sale, which may be offset by United States capital losses (notwithstanding the fact that the individual is not considered a resident of the United States). Tax Considerations for Non-Tendering Preferred Shareholders Preferred Shareholders, whether or not they receive Special Cash Payments, will not recognize any taxable gain or loss with respect to the Shares as a result of the modification of the Articles by the Proposed Amendment. United States Holders. There is no direct authority concerning the Federal income tax consequences of the receipt of Special Cash Payments. OPCo will, for information reporting purposes, treat Special Cash Payments as ordinary non-dividend income to recipient United States Holders. Non-United States Holders. OPCo will treat Special Cash Payments paid to a Non-United States Holder of Shares as subject to withholding of United States Federal income tax at a 30% rate. However, Special Cash Payments that are effectively connected with the conduct of a trade or business by the Non-United States Holder within the United States are not subject to the withholding tax (provided such Non-United States Holder provides two originals of Internal Revenue Service ("IRS") Form 4224 stating that such Special Cash Payments are so effectively connected), but instead are subject to United States Federal income tax on a net income basis at applicable graduated individual or corporate rates. Any such effectively connected Special Cash Payments received by a foreign corporation may, under certain circumstances, be subject to an additional "branch profits tax" at a 30% rate (or such lower rate as may be specified by an applicable income tax treaty). A Non-United States Holder of Shares eligible for a reduced rate of United States withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the IRS. Backup Withholding. ANY TENDERING PREFERRED SHAREHOLDER WHO FAILS TO COMPLETE AND SIGN THE SUBSTITUTE FORM W-9 THAT IS INCLUDED IN THE APPLICABLE LETTER OF TRANSMITTAL (OR, IN THE CASE OF A FOREIGN PREFERRED SHAREHOLDER, FORM W-8 OBTAINABLE FROM THE DEPOSITARY) MAY BE SUBJECT TO A REQUIRED FEDERAL INCOME TAX BACKUP WITHHOLDING OF 31% OF THE GROSS PROCEEDS PAYABLE TO SUCH PREFERRED SHAREHOLDER PURSUANT TO THE OFFER. To prevent backup United States Federal income tax withholding with respect to the purchase price of Shares purchased pursuant to the Offer, a United States Holder must provide the Depositary with the Preferred Shareholder's correct taxpayer identification number and certify that the Preferred Shareholder is not subject to backup withholding of Federal income tax by completing the Substitute Form W-9 included in the applicable Letter of Transmittal. Certain Preferred Shareholders (including, among others, all corporations and certain foreign shareholders) are exempt from backup withholding. For a corporate United States Holder to qualify for such exemption, such Preferred Shareholder must provide the Depositary with a properly completed and executed Substitute Form W-9 attesting to its exempt status. In order for a foreign Preferred Shareholder to qualify as an exempt recipient, the foreign holder must submit a Form W-8, Certificate of Foreign Status, signed under penalties of perjury, attesting to that Preferred Shareholder's exempt status. A copy of Form W-8 may be obtained from the Depositary. Unless a Preferred Shareholder provides the appropriate certification, under the applicable law and regulations concerning "backup withholding" of Federal United States income tax, the Depositary will be required to withhold, and will withhold, 31% of the gross proceeds otherwise payable to such Preferred Shareholder or other payee. The amount of any backup withholding from a payment to a Preferred Shareholder will be allowed as a credit against such Preferred Shareholder's United States federal income tax liability and may entitle such Preferred Shareholder to a refund, provided that the required information is furnished to the IRS. 25 26 SOURCE AND AMOUNT OF FUNDS Assuming that AEP purchases all outstanding Shares pursuant to the Offer, the total amount required by AEP to purchase such Shares will be approximately $151 million, exclusive of the accrued and unpaid dividends payments, but including fees and other expenses. AEP intends to fund the Offer through the use of its general funds (which, in the ordinary course, include funds from OPCo) and funds borrowed pursuant to AEP's commercial paper program and committed lines of credit, including any bank revolving credit agreements. AEP and OPCo sell commercial paper directly to commercial paper dealers who reoffer the commercial paper to investors and issue and sell short-term notes to several domestic and foreign banks through various credit arrangements, including revolving credit agreements or shared lines of credit. AEP and its significant subsidiaries, including OPCo, have $500 million of committed lines of credit available for use by AEP and such subsidiaries. If necessary, AEP and its significant subsidiaries may negotiate increases to existing credit arrangements in order to fund the Offer. TRANSACTIONS AND AGREEMENTS CONCERNING THE SHARES Each of AEP and OPCo has been advised by its directors and executive officers that no directors or executive officers of the respective companies own any Shares. Based upon the companies' records and upon information provided to each company by its directors and executive officers, neither company nor, to the knowledge of either, any of their subsidiaries, affiliates, directors or executive officers, or associates of the foregoing, has engaged in any transactions involving Shares during the 40 business days preceding the date hereof. Neither company nor, to the knowledge of either, any of its directors or executive officers or an associate of the foregoing is a party to any contract, arrangement, understanding or relationship relating directly or indirectly to the Offer with any other person or entity with respect to any securities of OPCo. FEES AND EXPENSES PAID TO DEALERS Dealer Manager Fees. Merrill Lynch and Salomon Brothers will act as Dealer Managers for AEP in connection with the Offer. AEP has agreed to pay the Dealer Managers a fee of $.50 per Share for any Shares tendered, accepted for payment and paid for pursuant to the Offer and a fee of $.50 per Share for any Shares that are not tendered pursuant to the Offer but which vote in favor of the Proposed Amendment. The Dealer Managers will also be reimbursed by AEP for their reasonable out-of-pocket expenses, including attorneys' fees, and will be indemnified against certain liabilities, including certain liabilities under the federal securities laws, in connection with the Offer. The Dealer Managers have rendered, are currently rendering and are expected to continue to render various investment banking and other advisory services to AEP and OPCo. The Dealer Managers have received, and will continue to receive, customary compensation from AEP and OPCo for such services. AEP has retained First Chicago Trust Company of New York as Depositary and Morrow & Co., Inc. as Information Agent in connection with the Offer. The Depositary and Information Agent will receive reasonable and customary compensation for their services and will also be reimbursed for reasonable out-of-pocket expenses, including attorney fees. AEP has agreed to indemnify the Depositary and Information Agent against certain liabilities, including certain liabilities under the federal securities law, in connection with the Offer. Neither the Depositary nor the Information Agent has been retained to make solicitations or recommendations in connection with the Offer. Solicited Tender Fees Separate Fees. Pursuant to Instruction 10 of the accompanying Letter of Transmittal, AEP will pay to designated brokers and dealers a solicitation fee of $1.50 per Share for any Shares tendered, accepted for payment and paid for pursuant to the Offer (except that for transactions for beneficial owners equal to or exceeding 5,000 Shares, AEP will pay a solicitation fee of (i) $1.00 per Share for Shares of the 4- 1/2% Series, the 4.08% Series, the 4.20% Series and the 4.40% Series, and (ii) $.50 per Share for Shares of the remaining Series), and OPCo will pay a separate fee of $.50 per Share for any Shares of the 4- 1/2% Series, the 4.08 Series, the 4.20% Series and the 4.40% Series that are not tendered pursuant to the Offer but which are voted in favor of the Proposed Amendment with respect to the entity obtaining the tender 26 27 or proxy, if the Letter of Transmittal shall include the name of (a) any broker or dealer in securities, including a Dealer Manager in its capacity as a dealer or broker, which is a member of any national securities exchange or of the National Association of Securities Dealers, Inc. ("NASD"), (b) any foreign broker or dealer not eligible for membership in the NASD which agrees to conform to the NASD's Rules of Fair Practice in soliciting tenders outside the United States to the same extent as though it were an NASD member, or (c) any bank or trust company (each of which is referred to herein as a "Soliciting Dealer"); provided that, with respect to solicitation fees paid with respect to transactions for beneficial owners equal to or exceeding 5,000 shares, at least twenty percent (20%) of each such fee shall be paid to the Dealer Managers. No solicitation fee or separate fee shall be payable to a Soliciting Dealer with respect to the tender of Shares or the vote of Shares by a holder unless the Letter of Transmittal or proxy accompanying such tender or vote, as the case may be, designates such Soliciting Dealer. No solicitation fee or separate fee shall be payable to a Soliciting Dealer in respect of Shares registered in the name of such Soliciting Dealer unless such Shares are held by such Soliciting Dealer as nominee and such Shares are being tendered or voted for the benefit of one or more beneficial owners identified on the Letter of Transmittal or on the Notice of Solicited Tenders. No solicitation fee or separate fee shall be payable to a Soliciting Dealer if such Soliciting Dealer is required for any reason to transfer the amount of such fee to a depositing holder (other than itself). No solicitation fee shall be paid to a Soliciting Dealer with respect to Shares tendered for such Soliciting Dealer's own account and no separate fee shall be paid to a Soliciting Dealer with respect to Shares voted for such Soliciting Dealer's own account. A Soliciting Dealer shall not be entitled to a solicitation fee or a separate fee for Shares beneficially owned by such Soliciting Dealer. No broker, dealer, bank, trust company or fiduciary shall be deemed to be the agent of AEP, the Depositary, the Dealer Managers or the Information Agent for purposes of the Offer. Soliciting Dealers will include any of the organizations described in clauses (a), (b) and (c) above even when the activities of such organizations in connection with the Offer consist solely of forwarding to clients materials relating to the Offer, including the Letter of Transmittal and tendering Shares as directed by beneficial owners thereof. No Soliciting Dealer is required to make any recommendation to holders of Shares as to whether to tender or refrain from tendering in the Offer. No assumption is made, in making payment to any Soliciting Dealer, that its activities in connection with the Offer included any activities other than those described above, and for all purposes noted in all materials relating to the Offer, the term "solicit" shall be deemed to mean no more than "processing shares tendered" or "forwarding to customers materials regarding the Offer." Stock Transfer Taxes. AEP will pay all stock transfer taxes, if any, payable on account of the acquisition of Shares by AEP pursuant to the Offer, except in certain circumstances where special payment or delivery procedures are utilized pursuant to Instruction 6 of the accompanying Letter of Transmittal. CERTAIN INFORMATION REGARDING AEP AND OPCO OPCo is an operating utility primarily engaged in the generation, transmission and distribution of electric power to approximately 668,000 customers in Ohio, and in supplying electric power at wholesale to other electric utility companies and municipalities. All of the common stock of OPCo is owned, directly or indirectly, by AEP, a registered holding company under the Holding Company Act. The service area of AEP's electric utility subsidiaries covers portions of Indiana, Kentucky, Michigan, Ohio, Tennessee, Virginia and West Virginia. AEP and OPCo are subject to the informational requirements of the Exchange Act and in accordance therewith file reports and other information with 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; 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and Seven World Trade Center, Suite 1300, 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 AEP and OPCo. Reports, proxy materials and other information about AEP are also available at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005. In connection with the Offer AEP has filed 27 28 an Issuer Tender Offer Statement on Schedule 13E-4 with the SEC that includes certain additional information relating to the Offer. AEP's Schedule 13E-4 will not be available at the SEC's regional offices. SUMMARY OF CONSOLIDATED FINANCIAL INFORMATION Set forth below is certain consolidated historical financial information of OPCo and its subsidiaries. The historical financial information (other than the ratios of earnings to fixed charges) was derived from the audited consolidated financial statements included in OPCo's Annual Report on Form 10-K for the year ended December 31, 1995 and from the unaudited consolidated financial statements included in OPCo's Quarterly Reports on Form 10-Q for the periods ended September 30, 1996 and September 30, 1995. CONDENSED INCOME STATEMENT DATA:
(UNAUDITED) NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ----------------------- ----------------------- 1995 1994 1996 1995 --------- --------- --------- --------- (THOUSANDS, EXCEPT RATIOS) Operating Revenues...................... $1,822,997 $1,738,726 $1,438,081 $1,360,319 Operating Income........................ 272,160 244,873 224,379 203,477 Allowance for Borrowed and Equity Funds Used During Construction.............. 1,265 3,944 1,121 1,273 Net Income.............................. 189,447 162,626 165,405 142,348 Preferred Stock Dividend Requirements... 14,668 15,301 6,681 11,578 Earnings Applicable to Common Stock..... 174,779 147,325 158,724 130,770 Ratio of Earnings to Fixed Charges...... 2.95 3.28 3.30(a) 2.92(a)
- --------------- (a) Ratio for the twelve months ended September 30. CONDENSED BALANCE SHEET DATA (AT END OF PERIOD):
(UNAUDITED) DECEMBER 31, SEPTEMBER 30, ----------------------- ------------------------- 1995 1994 1996 1995 --------- --------- --------- --------- (THOUSANDS, EXCEPT RATIOS) ASSETS: Net Utility Plant In Service.......... $2,764,796 $2,810,606 $2,702,574 $2,778,638 Construction Work In Progress......... 59,278 49,889 71,981 65,077 Cash and Cash Equivalents............. 44,000 30,700 72,967 18,651 Other Current Assets.................. 489,099 445,202 487,636 475,959 Other Assets.......................... 799,391 814,743 721,550 761,774 --------- --------- --------- --------- $4,156,564 $4,151,140 $4,056,708 $4,100,099 ========= ========= ========= ========= LIABILITIES: Common Equity......................... $1,298,704 $1,267,523 $1,351,369 $1,291,968 Cumulative Preferred Stock............ 156,240 241,240 153,532 241,240 Long-term Debt (less amounts due within one year).................... 1,138,425 1,188,319 1,002,495 1,089,278 Current Liabilities................... 489,103 425,222 462,568 416,037(a) Other Liabilities..................... 1,074,092 1,028,836 1,086,744 1,061,576(a) --------- --------- --------- --------- $4,156,564 $4,151,140 $4,056,708 $4,100,099 ========= ========= ========= =========
- --------------- (a) Certain amounts reclassified to conform with current-period presentation. 28 29 The financial statements of AEP and OPCo and related information included in their Annual Reports on Form 10-K for the year ended December 31, 1995 and their Quarterly Reports on Form 10-Q for the periods ended March 31, June 30, and September 30, 1996 and OPCo's Current Report on Form 8-K dated January 22, 1997, each as filed with the SEC, are hereby incorporated by reference. All documents subsequently filed by AEP and OPCo pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Offer to Purchase and Proxy Statement and prior to the Expiration Date (or any extension thereof) shall be deemed to be incorporated by reference in this Offer to Purchase and Proxy Statement 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 Offer to Purchase and Proxy Statement to the extent that a statement contained herein or in any other subsequently filed documents which is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Offer to Purchase and Proxy Statement. AEP and OPCo will provide without charge to each person to whom a copy of this Offer to Purchase and Proxy Statement 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 Offer to Purchase and Proxy Statement, 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 614-223-1000). The information relating to AEP and OPCo contained in this Offer to Purchase and Proxy Statement does not purport to be comprehensive and should be read together with the information contained in the documents incorporated by reference. MISCELLANEOUS The Offer is not being made to, nor will AEP accept tenders from, owners of Shares in any jurisdiction in which the Offer or its acceptance would not be in compliance with the laws of such jurisdiction. AEP is not aware of any jurisdiction where the making of the Offer or the tender of Shares would not be in compliance with applicable law. If AEP becomes aware of any jurisdiction where the making of the Offer or the tender of Shares is not in compliance with any applicable law, AEP will make a good faith effort to comply with such law. If, after such good faith effort, AEP cannot comply with such law, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the owners of Shares residing in such jurisdiction. In any jurisdiction in which the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer will be deemed to be made on AEP's behalf by one or more registered brokers or dealers licensed under the laws of such jurisdiction. AMERICAN ELECTRIC POWER COMPANY, INC. OHIO POWER COMPANY 29 30 Facsimile copies of the Letter of Transmittal will not be accepted. The Letter of Transmittal and, if applicable, certificates for Shares should be sent or delivered by each tendering or voting Preferred Shareholder of OPCo or his or her broker, dealer, bank or trust company to the Depositary at one of its addresses set forth below. THE DEPOSITARY IS: FIRST CHICAGO TRUST COMPANY OF NEW YORK By Mail: By Hand: By Overnight Courier: Tenders & Exchanges Tenders & Exchanges Tenders & Exchanges P.O. Box 2569 c/o The Depositary Trust Company 14 Wall Street, 8th Floor Suite 4660 55 Water Street, DTC TAD Suite 4680 Jersey City, New Jersey 07303-2569 Vietnam Veterans Memorial Plaza New York, New York 10005 New York, New York 10041
Any questions or requests for assistance may be directed to the Information Agent or the Dealer Managers at their respective telephone numbers and addresses listed below. Requests for additional copies of this Offer to Purchase and Proxy Statement, the Letter of Transmittal or other tender offer or proxy materials may be directed to the Information Agent, and such copies will be furnished promptly at the companies' expense. Preferred Shareholders may also contact their local broker, dealer, commercial bank or trust company for assistance concerning the Offer. THE INFORMATION AGENT: MORROW & CO., INC. 909 Third Avenue New York, New York 10022-4799 (212) 754-8000 (Call Collect) or (800) 566-9061 (Call Toll-Free) THE DEALER MANAGERS: MERRILL LYNCH & CO. SALOMON BROTHERS INC World Financial Center Seven World Trade Center 250 Versey Street New York, New York 10048 New York, New York 10281 800-558-3745 (toll free) 1-888-ML4-TNDR (toll free) (1-888-654-8637 (toll free))
30 EX-99 5 1 APPALACHIAN POWER COMPANY PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE SPECIAL MEETING TO BE HELD FEBRUARY 28, 1997 SOLICITED FEES Pursuant to the terms of the Offer to Purchase and Proxy Statement, APCO will pay to designated brokers and dealers a solicitation fee of $.50 per share for any shares that (i) are not tendered pursuant to the Offer but which are voted in favor of the Proposed Amendment and P (ii) are voted by or on behalf of a beneficial owner holding less than R 5000 shares. No such fee shall be payable to a broker or dealer with O respect to the vote of shares by a holder unless the Proxy X accompanying the vote designates such broker or dealer. However, Y soliciting brokers and dealers will not be entitled to a solicitation fee for Shares beneficially owned by such broker or dealer. The abovesigned represents that the Soliciting Dealer which solicited and obtained this vote in favor of the proposed amendment is: Name of Firm: --------------------------------------------------------- Please Print Name of Individual Broker or Financial Consultant: ------------------- Telephone Number of Broker or Financial Consultant: ------------------- Identification Number (if known): ------------------------------------- Address: -------------------------------------------------------------- Include Zip Code The following to be completed ONLY if Shares held in nominee name vote in favor of Proposed Amendment. NAME OF BENEFICIAL OWNER NUMBER OF SHARES VOTED IN FAVOR OF PROPOSED AMENDMENT (Attach Additional List if Necessary) ----------------------------------------------------- ----------------------------------------------------- ----------------------------------------------------- -----------------------------------------------------
The acceptance of compensation by such broker or dealer will constitute a representation by it that (a) it has complied with the applicable requirement as the Securities Exchange Act of 1934, as amended and the applicable rules and regulations thereunder, in connection with such solicitation; (b) it is entitled to such compensation for such solicitation under the terms and conditions of the Offer to Purchase and Proxy Statement; (c) in soliciting votes of shares it has used no solicitation materials other than those furnished by AEP; and (d) if it is a foreign broker or dealer not eligible for membership in the National Association of Securities Dealers, Inc. (the NASD), it has agreed to conform to the NASD's Rules of Fair Practice in making solicitations. The payment of compensation to any broker or dealer is dependent on such broker or dealer returning a Notice of Solicited Tenders to the Depositary. SEE REVERSE SIDE 2 [X] Please mark your votes as in this example. The proxy contained herein, when properly executed, will be voted in the manner directed herein by the undersigned shareholder(s). If no direction is made, the proxy will be voted FOR Item 1. An abstention is the equivalent of a vote AGAINST the proposed amendment. Indicate your vote by an (X). The Board of Directors recommends voting FOR Item 1. FOR AGAINST ABSTAIN ITEM 1. TO REMOVE FROM THE AMENDED ARTICLES OF [ ] [ ] [ ] INCORPORATION ARTICLE V. CLAUSE 7(B)(b) IN ITS ENTIRETY, WHICH LIMITS APCO'S ABILITY TO ISSUE INDEBTEDNESS. Please check box if you plan to attend this Special Meeting. [ ] Beneficial holders must obtain a legal proxy form from their Broker or Bank Nominee. The undersigned hereby appoints Armando A. Pena, John D. Di Lorenzo, and Bette Jo Rozsa, or any of them, as proxies for the undersigned, with power of substitution, and hereby authorizes them to represent and to vote as designated above, and in their discretion with respect to any other business properly brought before the Special Meeting, all the shares of cumulative preferred stock of Appalachian Power Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on February 28, 1997, or any adjournment(s) or postponement(s) thereof. ALL HOLDERS OF RECORD SHOULD VOTE THIS PROXY, EVEN IF YOU ARE NOT TENDERING YOUR SHARES. IF YOU ARE VOTING, BUT NOT TENDERING SHARES, DO NOT SEND CERTIFICATES WITH THIS PROXY AND YOU MAY IGNORE THE SEPARATE LETTER OF TRANSMITTAL. AMERICAN ELECTRIC POWER COMPANY INC. ("AEP") WILL NOT BE REQUIRED TO ACCEPT FOR PAYMENT OR PAY FOR ANY SHARES TENDERED IF THE PROPOSED AMENDMENT IS NOT APPROVED AND ADOPTED AT THE SPECIAL MEETING. PREFERRED SHAREHOLDERS OF RECORD HAVE THE RIGHT TO VOTE FOR OR AGAINST THE PROPOSED AMENDMENT, REGARDLESS OF WHETHER THEY TENDER THEIR SHARES, BY CASTING THEIR VOTE AND SIGNING THIS PROXY, OR BY VOTING IN PERSON AT THE SPECIAL MEETING. IF THE PROPOSED AMENDMENT IS APPROVED AND ADOPTED BY APCO'S SHAREHOLDERS, APCO WILL MAKE A SPECIAL CASH PAYMENT TO EACH PREFERRED SHAREHOLDER WHO VOTED IN FAVOR OF THE PROPOSED AMENDMENT, PROVIDED THAT THEIR SHARES ARE NOT TENDERED PURSUANT TO THE OFFER. REMEMBER THAT THE PROXY CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD. Please sign exactly as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. ___________________________________, 1997 ___________________________________, 1997 SIGNATURE(S) DATE Daytime Area Code and Telephone Number_____________________ If the address on this proxy is incorrect, please provide the correct address here: _________________________________________ _________________________________________ EX-99 6 1 LETTER OF TRANSMITTAL TO ACCOMPANY SHARES OF 4- 1/2% SERIES CUMULATIVE PREFERRED STOCK CUSIP NUMBER 037735 107 OF APPALACHIAN POWER COMPANY TENDERED PURSUANT TO THE OFFER TO PURCHASE FOR CASH BY AMERICAN ELECTRIC POWER COMPANY, INC. DATED JANUARY 30, 1997, FOR PURCHASE AT A PURCHASE PRICE OF $ . PER SHARE THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON FRIDAY, FEBRUARY 28, 1997, UNLESS THE OFFER IS EXTENDED. TO: FIRST CHICAGO TRUST COMPANY OF NEW YORK, DEPOSITARY BY MAIL: BY HAND: BY OVERNIGHT COURIER: Tenders & Exchanges Tenders & Exchanges Tenders & Exchanges P.O. Box 2569 c/o The Depository Trust Company 14 Wall Street, 8th Suite 4660 55 Water Street, DTC TAD Floor Jersey City, NJ 07303-2569 Vietnam Veterans Memorial Plaza Suite 4680 New York, NY 10041 New York, NY 10005
AMERICAN ELECTRIC POWER COMPANY, INC. ("AEP") WILL NOT BE REQUIRED TO ACCEPT FOR PAYMENT OR PAY FOR ANY SHARES TENDERED IF THE PROPOSED AMENDMENT IS NOT APPROVED AND ADOPTED AT THE SPECIAL MEETING. PREFERRED SHAREHOLDERS OF RECORD HAVE THE RIGHT TO VOTE FOR OR AGAINST THE PROPOSED AMENDMENT REGARDLESS OF WHETHER THEY TENDER THEIR SHARES BY CASTING THEIR VOTE AND SIGNING THE PROXY ENCLOSED HEREWITH OR BY VOTING IN PERSON AT THE SPECIAL MEETING. IF THE PROPOSED AMENDMENT IS APPROVED AND ADOPTED BY APCO'S SHAREHOLDERS, APCO WILL MAKE A SPECIAL CASH PAYMENT TO EACH PREFERRED SHAREHOLDER WHO VOTED IN FAVOR OF THE PROPOSED AMENDMENT, PROVIDED THAT THEIR SHARES ARE NOT TENDERED PURSUANT TO THE OFFER. - -------------------------------------------------------------------------------- NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDERS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 NOTE: IF SHARES ARE BEING TENDERED, THE REMAINDER OF THIS LETTER OF TRANSMITTAL MUST BE COMPLETED, INCLUDING, IF APPLICABLE, THE SUBSTITUTE FORM W-9 BELOW. DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. YOU MUST SIGN THIS LETTER OF TRANSMITTAL IN THE APPROPRIATE SPACE THEREFOR PROVIDED AND, IF YOU ARE TENDERING ANY SHARES, COMPLETE THE SUBSTITUTE FORM W-9 SET FORTH BELOW OR A FORM W-8, AS APPLICABLE. SEE INSTRUCTION 8 AND "IMPORTANT TAX INFORMATION" BELOW. DO NOT SEND ANY CERTIFICATES TO MERRILL LYNCH & CO., SALOMON BROTHERS INC, MORROW & CO., INC., AMERICAN ELECTRIC POWER COMPANY, INC. OR APPALACHIAN POWER COMPANY. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. QUESTIONS REGARDING AND REQUESTS FOR COPIES OF THE OFFER TO PURCHASE AND PROXY STATEMENT OR THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO MORROW & CO., INC., THE INFORMATION AGENT, AT 909 THIRD AVENUE, NEW YORK, NEW YORK 10022-4799 OR TELEPHONE (800) 566-9061. This Letter of Transmittal is to be used (a) if certificates are to be forwarded to the First Chicago Trust Company of New York ("Depositary") or (b) if delivery of tendered Shares (as defined below) is to be made by book-entry transfer to the Depositary's account at The Depository Trust Company ("DTC") or the Philadelphia Depository Trust Company ("PDTC") (hereinafter collectively referred to as the "Book-Entry Transfer Facilities") pursuant to the procedures set forth under the heading "Terms of the Offer -- Procedure for Tendering Shares" in the Offer to Purchase and Proxy Statement (as defined below). Preferred Shareholders (as defined below) who wish to tender Shares but who cannot deliver their Shares and all other documents required hereby to the Depositary by the Expiration Date (as defined in the Offer to Purchase and Proxy Statement) must tender their Shares pursuant to the guaranteed delivery procedure set forth under the heading "Terms of the Offer -- Procedure for Tendering Shares" in the Offer to Purchase and Proxy Statement. See Instruction 2. DELIVERY OF DOCUMENTS TO AMERICAN ELECTRIC POWER COMPANY, INC., APPALACHIAN POWER COMPANY OR THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE A VALID DELIVERY. - -------------------------------------------------------------------------------- DESCRIPTION OF SHARES TENDERED (IF TENDERING SHARES, PLEASE FILL IN EXACTLY AS INFORMATION APPEARS ON CERTIFICATE(S)) (ATTACH ADDITIONAL SIGNED LIST IF NECESSARY) - ------------------------------------------------------------------------------------------------------------------------------ TOTAL NUMBER OF SHARES CERTIFICATE NUMBER(S)* REPRESENTED BY CERTIFICATE(S) NUMBER OF SHARES TENDERED** - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------
* Need not be completed by shareholders tendering by book-entry transfer. ** Unless otherwise indicated, it will be assumed that all Shares represented by any certificates delivered to the Depositary are being tendered. See Instruction 4. If any of your certificate(s) for Shares have been lost, stolen or destroyed, please call the Depositary at 1-800- - . In addition, you should advise the Depositary of any certificate(s) you have in your possession. You will need to complete an Affidavit of Loss with respect to the lost certificate(s) (which will be provided by the Depositary) and pay an indemnity bond premium fee. (BOXES BELOW FOR USE BY ELIGIBLE INSTITUTIONS ONLY) [ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE DEPOSITARY'S ACCOUNT AT A BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of tendering institution Account No. Transaction Code No. [ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name(s) of tendering shareholder(s) Date of execution of Notice of Guaranteed Delivery Name of institution that guaranteed delivery If delivery is by book-entry transfer: Name of tendering institution Account no. Transaction Code No. 3 NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY. Ladies and Gentlemen: The undersigned hereby tenders to American Electric Power Company, Inc., a New York corporation ("AEP"), the shares in the amount set forth in the box above designated "Description of Shares Tendered" pursuant to AEP's offer to purchase any and all of the outstanding shares of the series of cumulative preferred stock of Appalachian Power Company, a Virginia corporation, and direct utility subsidiary of AEP ("APCo"), shown on the first page hereof as to which this Letter of Transmittal is applicable (the "Shares") at the purchase price per Share shown on the first page hereof plus accrued and unpaid dividends thereon, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase and Proxy Statement, dated January 30, 1997 (the "Offer to Purchase and Proxy Statement"), receipt of which is hereby acknowledged, and in this Letter of Transmittal (which as to the Shares, together with the Offer to Purchase and Proxy Statement, constitutes the "Offer"). WHILE PREFERRED SHAREHOLDERS WHO WISH TO TENDER THEIR SHARES PURSUANT TO THE OFFER NEED NOT VOTE IN FAVOR OF THE PROPOSED AMENDMENT TO APCO'S AMENDED ARTICLES OF INCORPORATION, AS SET FORTH IN THE OFFER TO PURCHASE AND PROXY STATEMENT (THE "PROPOSED AMENDMENT"), THE OFFER IS CONDITIONED UPON THE PROPOSED AMENDMENT BEING APPROVED AND ADOPTED AT THE SPECIAL MEETING (AS DEFINED IN THE OFFER TO PURCHASE AND PROXY STATEMENT). See "Proposed Amendment and Proxy Solicitation", "Terms of the Offer -- Extension of Tender Period; Termination; Amendments" and "Terms of the Offer -- Certain Conditions of the Offer" in the Offer to Purchase and Proxy Statement. Subject to, and effective upon, acceptance for payment of and payment for the Shares tendered herewith in accordance with the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), the undersigned hereby sells, assigns and transfers to, or upon the order of, AEP all right, title and interest in and to all the Shares that are being tendered hereby and hereby constitutes and appoints First Chicago Trust Company of New York (the "Depositary") the true and lawful agent and attorney-in-fact of the undersigned with respect to such Shares, with full power of substitution (such power of attorney being an irrevocable power coupled with an interest), to (a) deliver certificates for such Shares, or transfer ownership of such Shares on the account books maintained by the Book-Entry Transfer Facilities, together, in any such case, with all accompanying evidences of transfer and authenticity, to or upon the order of AEP, (b) present such Shares for registration and transfer on the books of APCo and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares, all in accordance with the terms of the Offer. The Depositary will act as agent for tendering stockholders for the purpose of receiving payment from AEP and transmitting payment to tendering stockholders. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Shares tendered hereby and that, when and to the extent the same are accepted for payment by AEP, AEP will acquire good, marketable and unencumbered title thereto, free and clear of all liens, restrictions, charges, encumbrances, conditional sales agreements or other obligations relating to the sale or transfer thereof, and the same will not be subject to any adverse claims. The undersigned will, upon request, execute and deliver any additional documents deemed by the Depositary or AEP to be necessary or desirable to complete the sale, assignment and transfer of the Shares tendered hereby. 4 All authority herein conferred or agreed to be conferred shall not be affected by, and shall survive the death, bankruptcy or incapacity of the undersigned, and any obligations of the undersigned hereunder shall be binding upon the heirs, legal representatives, successors, assigns, executors and administrators of the undersigned. Except as stated in the Offer, this tender is irrevocable. The undersigned understands that tenders of Shares pursuant to any one of the procedures described under the heading "Terms of the Offer -- Procedure for Tendering Shares" in the Offer to Purchase and Proxy Statement and in the instructions hereto will constitute the undersigned's acceptance of the terms and conditions of the Offer, including the undersigned's representation and warranty that (a) the undersigned has a net long position in the Shares being tendered within the meaning of Rule 14e-4 promulgated under the Securities Exchange Act of 1934, as amended, and (b) the tender of such Shares complies with such Rule 14e-4. AEP's acceptance for payment of Shares tendered pursuant to the Offer will constitute a binding agreement between the undersigned and AEP upon the terms and subject to the conditions of the Offer. The undersigned recognizes that, under certain circumstances set forth in the Offer to Purchase and Proxy Statement, AEP may terminate or amend the Offer or may not be required to purchase any of the Shares tendered hereby. In either event, the undersigned understands that certificate(s) for any Shares not tendered or not purchased will be returned to the undersigned. Unless otherwise indicated in the box below under the heading "Special Payment Instructions", please issue the check for the purchase price of any Shares purchased, and/or return any Shares not tendered or not purchased, in the name(s) of the undersigned (and, in the case of Shares tendered by book-entry transfer, by credit to the account at a Book-Entry Transfer Facility designated above). Similarly, unless otherwise indicated in the box below under the heading "Special Delivery Instructions", please mail the check for the purchase price of any Shares purchased and/or any certificates for Shares not tendered or not purchased (and accompanying documents, as appropriate) to the undersigned at the address shown below the undersigned signature(s). In the event that both "Special Payment Instructions" and "Special Delivery Instructions" are completed, please issue the check for the purchase price of any Shares purchased and/or return any Shares not tendered or not purchased in the name(s) of, and mail said check and/or any certificates to, the person(s) so indicated. The undersigned recognizes that AEP has no obligation, pursuant to the "Special Payment Instructions", to transfer any Shares from the name of the registered holder(s) thereof if AEP does not accept for payment any of the Shares so tendered. ------------------------------------------------------------ SPECIAL PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 1, 4, 5 AND 7) To be completed ONLY if the check for the purchase price of Shares purchased and/or certificates for Shares not tendered or not purchased are to be issued in the name of someone other than the undersigned. Issue: [ ] check and/or [ ] certificate(s) to: Name ---------------------------------------------------- (PLEASE PRINT) Address -------------------------------------------------- ------------------------------------------------------------ (INCLUDE ZIP CODE) ------------------------------------------------------------ (TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER) ------------------------------------------------------------ 5 ------------------------------------------------------------ SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 4, 6 AND 7) To be completed ONLY if the check for the purchase price of Shares purchased and/or certificates for Shares not tendered or not purchased are to be mailed to someone other than the undersigned or to the undersigned at an address other than that shown below the undersigned's signature(s). Mail: [ ] check and/or [ ] certificate(s) to: Name ---------------------------------------------------- (PLEASE PRINT) Address -------------------------------------------------- ------------------------------------------------------------ (INCLUDE ZIP CODE) ------------------------------------------------------------ ------------------------------------------------------------ 6 SIGNATURE(S) OF OWNER(S) X - -------------------------------------------------------------------------------- X - -------------------------------------------------------------------------------- Dated: , 1997 Name(s): - -------------------------------------------------------------------------------- (PLEASE PRINT) Capacity (full title): Address: - -------------------------------------------------------------------------------- (INCLUDE ZIP CODE) DAYTIME Area Code and Telephone No.: (Must be signed by the registered holder(s) exactly as name(s) appear(s) on the stock certificate(s) or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, please set forth full title and see Instruction 5.) GUARANTEE OF SIGNATURE(S) (SEE INSTRUCTIONS 1 AND 5) Authorized Signature: Name: Name of Firm: Address of Firm: Area Code and Telephone No.: Dated: , 1997 IF SHARES ARE BEING TENDERED, PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW OR A FORM W-8, AS APPLICABLE. 7 SOLICITED TENDERS (SEE INSTRUCTION 10) As provided in Instruction 10, AEP will pay to any Soliciting Dealer, as defined in Instruction 10, a solicitation fee of $1.50 per Share (except that for transactions for beneficial owners equal to or exceeding 5,000 Shares, AEP will pay a solicitation fee of $1.00 per Share) for any Shares tendered, accepted for payment and paid pursuant to the Offer. However, Soliciting Dealers will not be entitled to a solicitation fee for Shares beneficially owned by such Soliciting Dealer. The abovesigned represents that the Soliciting Dealer which solicited and obtained this tender is: Name of Firm: (PLEASE PRINT) Name of Individual Broker or Financial Consultant: Telephone Number of Broker or Financial Consultant: Identification Number (if known): Address: (INCLUDE ZIP CODE) The following to be completed ONLY if customer's Shares held in nominee name are tendered. NAME OF BENEFICIAL OWNER NUMBER OF SHARES TENDERED (ATTACH ADDITIONAL LIST IF NECESSARY) - --------------------------------------------- --------------------------------------------- - --------------------------------------------- --------------------------------------------- - --------------------------------------------- ---------------------------------------------
The acceptance of compensation by such Soliciting Dealer will constitute a representation by it that (a) it has complied with the applicable requirements of the Securities Exchange Act of 1934, as amended, and the applicable rules and regulations thereunder, in connection with such solicitation; (b) it is entitled to such compensation for such solicitation under the terms and conditions of the Offer to Purchase and Proxy Statement; (c) in soliciting tenders of Shares, it has used no solicitation materials other than those furnished by AEP; and (d) if it is a foreign broker or dealer not eligible for membership in the National Association of Securities Dealers, Inc. (the "NASD"), it has agreed to conform to the NASD's Rules of Fair Practice in making solicitations. The payment of compensation to any Soliciting Dealer is dependent on such Soliciting Dealer returning a Notice of Solicited Tenders to the Depositary. THIS LETTER OF TRANSMITTAL IS TO BE USED FOR THE TENDER OF SHARES OF THE 4- 1/2% SERIES (AS DEFINED IN THE OFFER TO PURCHASE AND PROXY STATEMENT) ONLY. ANY PERSON DESIRING TO TENDER SHARES OF ANY OTHER SERIES OF CUMULATIVE PREFERRED STOCK FOR WHICH AEP IS MAKING A TENDER OFFER MUST SUBMIT A LETTER OF TRANSMITTAL RELATING TO THAT SPECIFIC SERIES. 8 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all signatures on this Letter of Transmittal must be guaranteed by a firm that is a member of a registered national securities exchange or the National Association of Securities Dealers, Inc., or by a commercial bank or trust company having an office or correspondent in the United States which is a participant in an approved Signature Guarantee Medallion Program (each of the foregoing being referred to as an "Eligible Institution"). Signatures on this Letter of Transmittal need not be guaranteed (a) if this Letter of Transmittal is signed by the registered holder(s) of the Shares (which term, for purposes of this document, shall include any participant in a Book-Entry Transfer Facility whose name appears on a security position listing as the owner of Shares) tendered herewith and such holder(s) has not completed the box above under the heading "Special Payment Instructions" or the box above under the heading "Special Delivery Instructions" on this Letter of Transmittal, or (b) if such Shares are tendered for the account of an Eligible Institution. See Instruction 5. 2. DELIVERY OF LETTER OF TRANSMITTAL AND SHARES. This Letter of Transmittal is to be used if (a) certificates are to be forwarded herewith or, (b) delivery of Shares is to be made by book-entry transfer pursuant to the procedures set forth under the heading "Terms of the Offer -- Procedure for Tendering Shares" in the Offer to Purchase and Proxy Statement. Certificates for all physically delivered Shares, or a confirmation of a book-entry transfer into the Depositary's account at a Book-Entry Transfer Facility of all Shares delivered electronically, as well as a properly completed and duly executed Letter of Transmittal, and any other documents required by this Letter of Transmittal, must be received by the Depositary at one of its addresses set forth on the front page of this Letter of Transmittal on or prior to the Expiration Date (as defined in the Offer to Purchase and Proxy Statement) with respect to all Shares. Preferred Shareholders who wish to tender their Shares yet who cannot deliver their Shares and all other required documents to the Depositary on or prior to the Expiration Date must tender their Shares pursuant to the guaranteed delivery procedure set forth under the heading "Terms of the Offer -- Procedure for Tendering Shares" in the Offer to Purchase and Proxy Statement. Pursuant to such procedure: (a) such tender must be made by or through an Eligible Institution, (b) a properly completed and duly executed Notice of Guaranteed Delivery in the form provided by AEP (with any required signature guarantees) must be received by the Depositary on or prior to the applicable Expiration Date and (c) the certificates for all physically delivered Shares, or a confirmation of a book-entry transfer into the Depositary's account at a Book-Entry Transfer Facility of all Shares delivered electronically, together with a properly completed and duly executed Letter of Transmittal and any other documents required by this Letter of Transmittal must be received by the Depositary by 5:00 p.m. (New York City time) within three New York Stock Exchange trading days after the date of execution of such Notice of Guaranteed Delivery, all as provided under the heading "Terms of the Offer -- Procedure for Tendering Shares" in the Offer to Purchase and Proxy Statement. THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING PREFERRED SHAREHOLDER. IF CERTIFICATES FOR SHARES ARE SENT BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. No alternative, conditional or contingent tenders will be accepted. See "Terms of the Offer -- Number of Shares; Purchase Prices; Expiration Date; Dividends" in the Offer to Purchase and Proxy Statement. By executing this Letter of Transmittal, the tendering stockholder waives any right to receive any notice of the acceptance for payment of the Shares. 3. VOTING. WHILE PREFERRED SHAREHOLDERS WHO WISH TO TENDER THEIR SHARES PURSUANT TO THE OFFER NEED NOT VOTE IN FAVOR OF THE PROPOSED AMENDMENT TO APCO'S AMENDED ARTICLES OF INCORPORATION, AS SET FORTH IN THE OFFER TO PURCHASE AND PROXY STATEMENT (THE "PROPOSED AMENDMENT"), THE OFFER IS CONDITIONED UPON THE PROPOSED AMENDMENT BEING APPROVED AND ADOPTED AT THE SPECIAL MEETING (AS DEFINED IN THE OFFER TO PURCHASE AND PROXY STATEMENT). In addition, Preferred Shareholders have the right to vote for or against the Proposed Amendment regardless of whether they tender their Shares by casting their vote and duly executing 9 the proxy enclosed herewith or by voting in person at the Special Meeting. By executing a Notice of Guaranteed Delivery, a Preferred Shareholder is deemed to have tendered the Shares described in such Notice of Guaranteed Delivery and to have voted such Shares in accordance with the proxy returned therewith, if any. If no vote is indicated on an otherwise properly executed proxy, then all Shares in respect of such proxy will be voted in favor of the Proposed Amendment. See "Proposed Amendment and Proxy Solicitation" in the Offer to Purchase and Proxy Statement. The Offer is being sent to all persons in whose names Shares are registered on the books of APCo on the Record Date (as defined in the Offer to Purchase and Proxy Statement) and transferees thereof. Only a record holder of Shares on the Record Date may vote in person or by proxy at the Special Meeting. No record date is fixed for determining which persons are permitted to tender Shares. Any person who is the beneficial owner but not the record holder of Shares must arrange for the record transfer of such Shares prior to tendering. 4. PARTIAL TENDERS (NOT APPLICABLE TO SHAREHOLDERS WHO TENDER BY BOOK-ENTRY TRANSFER). If fewer than all the Shares represented by any certificate delivered to the Depositary are to be tendered, fill in the number of Shares that are to be tendered in the box above under the heading "Description of Shares Tendered". In such case, a new certificate for the remainder of the Shares represented by the old certificate will be sent to the person(s) signing this Letter of Transmittal, unless otherwise provided in the box above under the heading "Special Payment Instructions" or "Special Delivery Instructions", as promptly as practicable following the expiration or termination of the Offer. All Shares represented by certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. SIGNATURES ON THIS LETTER OF TRANSMITTAL AND/OR NOTICE OF GUARANTEED DELIVERY; STOCK POWERS AND ENDORSEMENTS. If either this Letter of Transmittal or the Notice of Guaranteed Delivery (together, the "Tender Documents") is signed by the registered holder(s) of the Shares tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the certificates without alteration, enlargement or any change whatsoever. If any of the Shares tendered under either Tender Document is held of record by two or more persons, all such persons must sign such Tender Document. If any of the Shares tendered under either Tender Document is registered in different names or different certificates, it will be necessary to complete, sign and submit as many separate applicable Tender Documents as there are different registrations or certificates. If either Tender Document is signed by the registered holder(s) of the Shares tendered hereby, no endorsements of certificates or separate stock powers are required unless payment of the purchase price is to be made to, or Shares not tendered or not purchased are to be registered in the name of, any person other than the registered holder(s). Signatures on any such certificates or stock powers must be guaranteed by an Eligible Institution. See Instruction 1. If this Letter of Transmittal is signed by a person other than the registered holder(s) of the Shares tendered hereby, certificates must be endorsed or accompanied by appropriate stock powers, in either case, signed exactly as the name(s) of the registered holder(s) appear(s) on the certificates for such Shares. Signature(s) on any such certificates or stock powers must be guaranteed by an Eligible Institution. See Instruction 1. If either Tender Document or any certificate or stock power is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to AEP of the authority of such person so to act must be submitted. 6. STOCK TRANSFER TAXES. Except as set forth in this Instruction 6, AEP will pay or cause to be paid any stock transfer taxes with respect to the sale and transfer of any Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price is to be made to, or Shares not tendered or not purchased are to be registered in the name of, any person other than the registered holder(s), or if tendered 10 Shares are registered in the name of any person other than the person(s) signing this Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered holder(s), such other person or otherwise) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes, or exemption therefrom, is submitted. See "Terms of the Offer -- Acceptance of Shares for Payment and Payment of Purchase Price and Dividends" in the Offer to Purchase and Proxy Statement. EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY TO AFFIX TRANSFER TAX STAMPS TO THE CERTIFICATES REPRESENTING SHARES TENDERED HEREBY. 7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If the check for the purchase price of any Shares purchased is to be issued in the name of, and/or any Shares not tendered or not purchased are to be returned to, a person other than the person(s) signing this Letter of Transmittal or if the check and/or any certificate for Shares not tendered or not purchased are to be mailed to someone other than the person(s) signing this Letter of Transmittal or to an address other than that shown in the box above under the heading "Name(s) and Address(es) of Registered Holder(s)", then the "Special Payment Instructions" and/or "Special Delivery Instructions" on this Letter of Transmittal should be completed. Preferred Shareholders tendering Shares by book-entry transfer will have any Shares not accepted for payment returned by crediting the account maintained by such Preferred Shareholder at the Book-Entry Transfer Facility. 8. SUBSTITUTE FORM W-9 AND FORM W-8. The tendering Preferred Shareholder is required to provide the Depositary with either a correct Taxpayer Identification Number ("TIN") on Substitute Form W-9, which is provided under "Important Tax Information" below, or a properly completed Form W-8. Failure to provide the information on either Substitute Form W-9 or Form W-8 may subject the tendering Preferred Shareholder to a $50 penalty imposed by the Internal Revenue Service and to 31% federal income tax backup withholding on the payment of the purchase price for the Shares. The box in Part 2 of Substitute Form W-9 may be checked if the tendering Preferred Shareholder has not been issued a TIN and has applied for a number or intends to apply for a number in the near future. If the box in Part 2 is checked and the Depositary is not provided with a TIN by the time of payment, the Depositary will withhold 31% on all payments of the purchase price for the Shares thereafter until a TIN is provided to the Depositary. 9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Any questions or requests for assistance may be directed to the Information Agent or the Dealer Managers at their respective telephone numbers and addresses listed below. Requests for additional copies of the Offer to Purchase and Proxy Statement, this Letter of Transmittal or other tender offer materials may be directed to the Information Agent and such copies will be furnished promptly at AEP's expense. Preferred Shareholders may also contact their local broker, dealer, commercial bank or trust company for assistance concerning the Offer. 10. SOLICITED TENDERS. AEP will pay a solicitation fee of $1.50 per Share (except that for transactions for beneficial owners tendering more than 5,000 Shares, AEP will pay a solicitation fee of $1.00 per Share) for any Shares tendered, accepted for payment and paid pursuant to the Offer, covered by the Letter of Transmittal which designates, under the heading "Solicited Tenders", as having solicited and obtained the tender, the name of (a) any broker or dealer in securities, including a Dealer Manager in its capacity as a dealer or broker, which is a member of any national securities exchange or of the National Association of Securities Dealers, Inc. (the "NASD"), (b) any foreign broker or dealer not eligible for membership in the NASD which agrees to conform to the NASD's Rules of Fair Practice in soliciting tenders outside the United States to the same extent as though it were an NASD member, or (c) any bank or trust company (each of which is referred to herein as a "Soliciting Dealer"); provided that, with respect to solicitation fees paid with respect to transactions for beneficial owners equal to or exceeding 5,000 Shares, at least twenty percent (20%) of each such fee shall be paid to the Dealer Managers. No such fee shall be payable to a Soliciting Dealer with respect to the tender of Shares by a holder unless the Letter of Transmittal accompanying such tender designates such Soliciting Dealer. No such fee shall be payable to a Soliciting Dealer in respect of Shares registered in the name of such Soliciting Dealer unless such Shares are held by such Soliciting Dealer as nominee and such Shares are being tendered for the benefit of one or more beneficial owners identified on the Letter of Transmittal or on the Notice of Solicited Tenders (included in the materials provided to brokers and dealers). No such fee shall be payable to a Soliciting Dealer with respect to the tender 11 of Shares by the holder of record, for the benefit of the beneficial owner, unless the beneficial owner has designated such Soliciting Dealer. If tendered Shares are being delivered by book-entry transfer, the Soliciting Dealer must return a Notice of Solicited Tenders to the Depositary within three business days after expiration of the Offer to receive a solicitation fee. No such fee shall be payable to a Soliciting Dealer if such Soliciting Dealer is required for any reason to transfer the amount of such fee to a depositing holder (other than itself). No such fee shall be paid to a Soliciting Dealer with respect to Shares tendered for such Soliciting Dealer's own account. No broker, dealer, bank, trust company or fiduciary shall be deemed to be the agent of AEP, the Depositary, the Information Agent or the Dealer Managers for purposes of the Offer. Soliciting Dealers will include any organizations described in clauses (a), (b) or (c) above even when the activities of such organization in connection with the Offer consist solely of forwarding to clients materials relating to the Offer, including this Letter of Transmittal, and rendering Shares as directed by beneficial owners thereof. No Soliciting Dealer is required to make any recommendation to holders of Shares as to whether to tender or refrain from tendering in the Offer. No assumption is made, in making payment to any Soliciting Dealer, that its activities in connection with the Offer included any activities other than those described above, and for all purposes noted in all materials relating to the Offer, the term "solicit" shall be deemed to mean no more than "processing shares tendered" or "forwarding to customers materials regarding the Offer." 11. IRREGULARITIES. All questions as to the form of documents and the validity, eligibility (including time of receipt) and acceptance of any tender of Shares will be determined by AEP, in its sole discretion, and its determination shall be final and binding. AEP reserves the absolute right to reject any and all tenders of Shares that it determines are not in proper form or the acceptance for payment of or payment for Shares that may, in the opinion of AEP's counsel, be unlawful. AEP also reserves the absolute right to waive any of the conditions to the Offer or any defect or irregularity in any tender of Shares and AEP's interpretation of the terms and conditions of the Offer (including these instructions) shall be final and binding. Unless waived, any defects or irregularities in connection with tenders must be cured within such time as AEP shall determine. None of AEP, APCo, the Dealer Managers, the Depositary, the Information Agent or any other person shall be under any duty to give notice of any defect or irregularity in tenders, nor shall any of them incur any liability for failure to give any such notice. Tenders will not be deemed to have been made until all defects and irregularities have been cured or waived. 12. LOST, DESTROYED OR STOLEN CERTIFICATES. If any of your certificate(s) for Shares have been lost, stolen or destroyed, please call the Depositary at 1-800- - . In addition, you should advise the Depositary of any certificate(s) you have in your possession. You will need to complete an Affidavit of Loss with respect to the lost certificate(s) (which will be provided by the Depositary) and pay an indemnity bond premium fee. The tender of Shares pursuant to this Letter of Transmittal will not be valid unless prior to the Expiration Date: (a) such procedures have been completed and a replacement certificate for the Shares has been delivered to the Depositary or (b) a Notice of Guaranteed Delivery has been delivered to the Depositary. See Instruction 2. IMPORTANT: THIS LETTER OF TRANSMITTAL, DULY EXECUTED, TOGETHER WITH, IF APPLICABLE, CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER, AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE DEPOSITARY, OR, IF APPLICABLE, THE NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY, ON OR PRIOR TO THE APPLICABLE EXPIRATION DATE. IMPORTANT TAX INFORMATION Under federal income tax law, a Preferred Shareholder whose tendered Shares are accepted for payment is required to provide the Depositary (as payer) with either such Preferred Shareholder's correct TIN on Substitute Form W-9 below or a properly completed Form W-8. If such Preferred Shareholder is an individual, the TIN is his or her social security number. For businesses and other entities, the number is the federal employer identification number. If the Depositary is not provided with the correct TIN or properly completed Form W-8, the Preferred Shareholder may be subject to a $50 penalty imposed by the Internal 12 Revenue Code. In addition, payments that are made to such Preferred Shareholder with respect to Shares purchased pursuant to the Offer may be subject to 31% backup withholding. Certain Preferred Shareholders (including, among others, all corporations and certain foreign individuals) are exempt from backup withholding. For a corporate United States Holder to qualify for such exemption, such Preferred Shareholder must provide the Depositary with a properly completed and executed Substitute Form W-9 attesting to its exempt status. In order for a foreign Preferred Shareholder to qualify as an exempt recipient, such Preferred Shareholder must submit to the Depositary a properly completed Internal Revenue Service Form W-8 (a "Form W-8"), signed under penalties of perjury, attesting to that Preferred Shareholder exempt status. A Form W-8 can be obtained from the Depositary. See the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional instructions. If federal income tax backup withholding applies, the Depositary is required to withhold 31% of any payments made to the Preferred Shareholder. Backup withholding is not an additional tax. Rather, the Federal income tax liability of persons subject to backup withholding will be reduced by the amount of the tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. PURPOSE OF SUBSTITUTE FORM W-9 AND FORM W-8 To avoid backup withholding on payments that are made to a Preferred Shareholder with respect to Shares purchased pursuant to the Offer, the Preferred Shareholder is required to notify the Depositary of his or her correct TIN by completing the Substitute Form W-9 attached hereto certifying that the TIN provided on Substitute Form W-9 is correct and that (a) the Preferred Shareholder has not been notified by the Internal Revenue Service that he or she is subject to federal income tax backup withholding as a result of failure to report all interest or dividends or (b) the Internal Revenue Service has notified the Preferred Shareholder that he or she is no longer subject to federal income tax backup withholding. Foreign Preferred Shareholders must submit a properly completed Form W-8 in order to avoid the applicable backup withholding. WHAT NUMBER TO GIVE THE DEPOSITARY The Preferred Shareholder is required to give the Depositary the social security number or employer identification number of the registered owner of the Shares. If the Shares are in more than one name or are not in the name of the actual owner, consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional guidance on which number to report. 13 PAYER'S NAME: FIRST CHICAGO TRUST COMPANY OF NEW YORK ------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------------- Part 1 -- PLEASE PROVIDE YOUR TIN IN THE Social Security Number OR BOX AT RIGHT AND CERTIFY BY SIGNING AND Employer Identification Number DATING BELOW. TIN ______________________________ --------------------------------------------------------------------------------------- SUBSTITUTE Name (Please Print) Address Part 2 -- City State _____ Zip Code _____ Awaiting TIN [ ] --------------------------------------------------------------------------------------- FORM W-9 Part 3 -- CERTIFICATION -- UNDER THE PENALTIES OF PERJURY. I CERTIFY THAT: (1) the DEPARTMENT OF THE TREASURY number shown on the form is my correct taxpayer identification number (or a TIN has not INTERNAL REVENUE SERVICE been issued to me but I have mailed or delivered an application to receive a TIN or intend to do so in the near future). (2) I am not subject to backup withholding either because I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends or the IRS has notified me that I am no longer subject to backup withholding and (3) all other information provided on this form is true, correct and complete. SIGNATURE DATE_____________________ 1997 You must cross out item (2) above if you have been notified by the IRS that you are currently subject to backup withholding because of underreporting interest or dividends on your tax return. --------------------------------------------------------------------------------------- PAYER'S REQUEST FOR TAXPAYER NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% IDENTIFICATION NUMBER ("TIN") OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED AND CERTIFICATION GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 2 OF SUBSTITUTE FORM W-9. CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me and either (1) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (2) I intend to do so in the near future. I understand that if I do not provide a taxpayer identification number by the time of payment, 31% of all payments of the purchase price made to me will be withheld until I provide a number. SIGNATURE Date: _____________________ 1997. -------------------------------------------------------------------------------------------------------------------------------
THE DEALER MANAGERS: MERRILL LYNCH & CO. SALOMON BROTHERS INC World Financial Center Seven World Trade Center 250 Vesey Street New York, New York 10048 New York, New York 10281 (800) 558-3745 (toll-free) (888) ML4-TNDR (toll free) ((888) 654-8637 (toll free))
THE INFORMATION AGENT: MORROW & CO., INC. 909 Third Avenue New York, New York 10022-4799 (212) 754-8000 (call collect) (800) 566-9061 (call toll free) EX-99 7 Exhibit G American Electric Power Company, Inc., Appalachian Power Company, Indiana Michigan Power Company and Ohio Power Company Notice of Proposal to Amend Articles and Acquire Preferred Shares pursuant to Cash Tender Offer; Order Authorizing Proxy Solicitation American Electric Power Company, Inc. ("AEP"), a registered holding company, and its utility subsidiaries, Appalachian Power Company, a Virginia corporation ("APCo"), Indiana Michigan Power Company, an Indiana corporation ("I&M"), and Ohio Power Company, an Ohio corporation ("OPCo") (APCo, I&M and OPCo sometimes hereinafter collectively, the "Subsidiaries"), have filed an application- declaration under sections 6(a), 9(a) and 10 of the 1935 Act and rules 62 and 65 thereunder. APCo has outstanding 13,499,500 shares of common stock, no par value per share ("APCo Common Stock"), all of which are held by AEP. APCo's outstanding preferred stock consists of 2,198,150 shares of cumulative preferred stock, no par value per share (collectively, "APCo Preferred Stock"), issued in five series (each, an "APCo Series"), all of which are traded over-the-counter, except for the 4-1/2% Series (as defined herein), which is traded on the Philadelphia Stock Exchange. The five series of APCo Preferred Stock consist of a 4-1/2% series, of which 298,150 shares are outstanding ("4-1/2% Series"); a 5.90% series, of which 500,000 shares are outstanding ("5.90% Series"); a 5.92% series, of which 600,000 shares are outstanding ("5.92% Series"); a 6.85% series, of which 300,000 shares are outstanding ("6.85% Series"); and a 7.80% series, of which 500,000 shares are outstanding ("7.80% Series"). APCo has outstanding no other class of equity securities. APCo's Articles of Incorporation ("APCo Articles") currently provide that, without the consent of the holders of a majority of the total number of votes which holders of the outstanding shares of APCo Preferred Stock of all series are entitled to cast, APCo shall not issue or assume any evidence of indebtedness, secured or unsecured (other than for purposes of refunding or renewing outstanding evidences of indebtedness or redeeming or otherwise retiring all outstanding shares of APCo Preferred Stock) if, immediately after such issue or assumption, (a) the total principal amount of all such indebtedness issued or assumed by APCo and then outstanding would exceed 20% of the aggregate of (1) the total principal amount of all then-outstanding bonds or other secured debt of APCo (other than certain bonds issued under a mortgage) and (2) the stated capital and surplus of APCo as stated on APCo's books, or (b) the total principal amount of all unsecured debt would exceed 20% of the aggregate of (1) the total principal amount of all then-outstanding bonds or other secured debt of APCo and (2) the stated capital and surplus of APCo as stated on APCo's books, or (c) the total outstanding principal amount of all unsecured debt of maturities of less than ten years would exceed 10% of the aggregate of (1) the total principal amount of all then-outstanding bonds or other secured debt of APCo and (2) the stated capital and surplus of APCo as stated on APCo's books ("APCo Restriction Provision"). I&M has outstanding 1,400,000 shares of common stock, par value $100 per share ("I&M Common Stock"), all of which are held by AEP. I&M's outstanding preferred stock consists of 1,569,767 shares of cumulative preferred stock, par value $100 per share ("I&M Preferred Stock"), issued in seven series (each, an "I&M Series"), all of which are traded over-the-counter, except for the 4-1/8% Series (as defined herein), which is traded on the Chicago Stock Exchange. The seven series of I&M Preferred Stock consist of a 4-1/8% series, of which 119,767 shares are outstanding ("4-1/8% Series"); a 4.12% series, of which 40,000 shares are outstanding ("4.12% Series"); a 4.56% series, of which 60,000 shares are outstanding ("4.56% Series"); a 5.90% series, of which 400,000 shares are outstanding ("5.90% Series"); a 6-1/4% series, of which 300,000 shares are outstanding ("6-1/4% Series"); a 6-7/8% series, of which 300,000 shares are outstanding ("6-7/8% Series"); and a 6.30% series, of which 350,000 shares are outstanding ("6.30% Series"). I&M has outstanding no other class of equity securities. I&M's Articles of Acceptance ("I&M Articles") currently provide that, without the consent of the holders entitled to cast a majority of the total number of votes which holders of the outstanding I&M Preferred Stock of all series are entitled to cast, I&M shall not issue or assume any unsecured debt securities (other than for purposes of the reacquisition, redemption or other retirement of any evidences of indebtedness theretofore issued or assumed by I&M or the reacquisition, redemption or other retirement of all outstanding shares of I&M Preferred Stock) if, immediately after such issue or assumption, the total principal amount of all unsecured debt securities (other than the principal amount of all long-term unsecured debt securities not in excess of 10% of the capitalization of I&M) issued or assumed by I&M and then outstanding would exceed 10% of the capitalization of I&M ("I&M Restriction Provision"). OPCo has outstanding 27,952,473 shares of common stock, no par value per share ("OPCo Common Stock"), all of which are held by AEP. OPCo's outstanding preferred stock consists of 1,484,316 shares of cumulative preferred stock, par value $100 per share ("OPCo Preferred Stock"), issued in seven series (each, an "OPCo Series"), all of which are traded over-the-counter. The seven series of OPCo Preferred Stock consist of a 4-1/2% series, of which 202,403 shares are outstanding ("4-1/2% Series"); a 4.08% series, of which 42,575 shares are outstanding ("4.08% Series"); a 4.20% series, of which 51,975 shares are outstanding ("4.20% Series"); a 4.40% series, of which 88,363 shares are outstanding ("4.40% Series"); a 5.90% series, of which 404,000 shares are outstanding ("5.90% Series"); a 6.02% series, of which 395,000 shares are outstanding ("6.02% Series"); and a 6.35% series, of which 300,000 shares are outstanding ("6.35% Series"). OPCo has outstanding no other class of equity securities. OPCo's Articles of Incorporation ("OPCo Articles") currently provide that, without the consent of the holders of a majority of the total number of votes which holders of the outstanding OPCo Preferred Stock of all series are entitled to cast, OPCo shall not issue or assume any unsecured debt securities (other than for purposes of the reacquisition, redemption or other retirement of any evidences of indebtedness theretofore issued or assumed by OPCo or the reacquisition, redemption or other retirement of all outstanding shares of OPCo Preferred Stock) if, immediately after such issue or assumption, the total principal amount of all unsecured debt securities (other than the principal amount of all long-term unsecured debt securities not in excess of 10% of the capitalization of OPCo) issued or assumed by OPCo and then outstanding would exceed 10% of the capitalization of OPCo ("OPCo Restriction Provision"). Each Subsidiary proposes to solicit proxies (a "Proxy Solicitation") from the holders of its outstanding shares of Preferred Stock of each Series and Common Stock for use at a special meeting of its stockholders to be held on or about February 28, 1997 ("Special Meeting") (i) to consider a proposed amendment to its Articles that would eliminate the Subsidiary's Restriction Provision (the "Proposed Amendment") and (ii) in the case of OPCo only, to consider an amendment (the "OPCo Second Proposed Amendment") to the OPCo Articles which would clarify the authority of the board of directors to purchase or otherwise acquire cumulative preferred stock. Adoption of a Proposed Amendment requires the affirmative vote at a Subsidiary's Special Meeting (in person by ballot or by proxy) of the holders of not less than two- thirds of the outstanding shares of each of (1) the Preferred Stock of all Series, voting together as one class, and (2) the Common Stock. Adoption of the OPCo Second Proposed Amendment requires the affirmative vote at OPCo's Special Meeting (in person by ballot or by proxy) of the holders of at least a majority of the outstanding shares of the OPCo Preferred Stock and OPCo Common Stock, the OPCo Preferred Stock and OPCo Common Stock voting together as one class. AEP will vote its shares of Common Stock in favor of the Proposed Amendments and the OPCo Second Proposed Amendment. The Subsidiaries have engaged Morrow & Co., Inc. to act as information agent in connection with the Proxy Solicitations for a fee plus reimbursement of reasonable out-of-pocket expenses. If a Proposed Amendment is adopted, APCo, I&M and OPCo, as the case may be, will make a special cash payment of $1.00 per share (a "Special Cash Payment") to each Preferred Stockholder of any Series, any of whose shares of Preferred Stock (each a "Share") are properly voted at the Special Meeting (in person by ballot or by proxy) in favor of such Proposed Amendment, provided that such Shares have not been tendered pursuant to the concurrent cash tender offer described below. APCo, I&M and OPCo will disburse Special Cash Payments out of their general funds, promptly after adoption of a Proposed Amendment. If adopted, the OPCo Second Proposed Amendment would add the following paragraph to the end of ARTICLE FOURTH, Clause 3: The Corporation may from time to time, by action of its Board of Directors and without action by the holders of the Common Stock or any class of the Cumulative Preferred Stock, purchase or otherwise acquire shares of any class of the Cumulative Preferred Stock in such manner, upon such terms and in such amounts as the Board of Directors shall determine; subject, however, to such limitations or restrictions, if any, as are contained in the express terms of any class of the Cumulative Preferred Stock outstanding at the time of the purchase or acquisition in question. The OPCo Second Proposed Amendment is independent of the Offer (as defined below) and the OPCo Proposed Amendment, and neither the Offer nor the OPCo Proposed Amendment is in any way conditioned upon the OPCo Second Proposed Amendment being approved and adopted at the Special Meeting. OPCo has proposed the OPCo Second Proposed Amendment in order to clarify the scope of the authority of the Board of Directors to purchase or otherwise acquire shares of any series of the cumulative preferred stock. Although the Board of Directors believes that it has the authority to repurchase such Preferred Shares, in light of the magnitude of the purchase contemplated, the Board of Directors prefers to clearly establish that its authority to purchase shares of cumulative preferred stock, including the Shares, is circumscribed only by the express terms of any class of the cumulative preferred stock set forth in the Articles. Concurrently with the commencement of the Proxy Solicitations, subject to the terms and conditions stated in the relevant offering documents/1/, AEP proposes to make offers (each an "Offer") to the holders of APCo's, I&M's and OPCo's Preferred Stock of each Series, pursuant to which AEP will offer to acquire from the holders of the APCo, I&M and OPCo Preferred Stock of each Series any and all Shares of that Series at the cash purchase prices to be specified in the Offer (subject to potential increase or decrease pursuant to the terms of the Offer) together with an amount in cash the equivalent of accrued and unpaid dividends to the date of payment for Shares tendered (each such purchase price and, when applicable, accrued dividend cash-equivalent amount, collectively, a "Purchase Price"). AEP anticipates that the Offer for each Series of Preferred Stock will be scheduled to expire at 5:00 P.M. (New York City time) on the date of the Special Meeting, i.e., on or about February 28, 1997 (the "Expiration Date"). The Offer consists of separate offers for each of the five Series of the APCo Preferred Stock, the seven Series of the I&M Preferred Stock and the seven Series of the OPCo Preferred Stock, with the offer for any one Series being independent of the offer for any other Series. The applicable Purchase Price and the other terms and conditions of the Offers apply equally to all Preferred Stockholders of the respective Series. The Offers are not conditioned upon any minimum number of Shares of the applicable Series being tendered, but are conditioned, among other things, on the Proposed Amendments being adopted at the respective Special Meetings. Subject to the terms of the offering documents, AEP will purchase at the applicable Purchase Price any and all Shares of any Series that are validly tendered and not withdrawn prior to the Expiration Date. To tender Shares in accordance with the terms of the offering documents, the tendering Preferred Stockholder must either (1) send to First Chicago Trust Company of New York, in its capacity as depositary for the Offer ("Depositary"), a properly completed and duly executed Letter of Transmittal for that Series and proxy (if not voting at the Special Meeting in person by ballot), together with any required signature guarantees and any other documents required by the Letter of Transmittal, and either (a) certificates for the Shares to be tendered must be received by the Depositary at one of its addresses specified in the offering documents, or (b) such Shares must be delivered pursuant to the procedures for book- entry transfer described in the offering documents (and a confirmation of such delivery must be received by the Depositary), in each case by the Expiration Date; or (2) comply with a guaranteed delivery procedure specified in the offering documents. Tenders of Shares made pursuant to an Offer may be withdrawn at any time prior to the Expiration Date. Thereafter, such tenders are irrevocable, subject to certain exceptions identified in the offering documents. AEP's obligation to proceed with the Offers and to accept for payment and to pay for any Shares tendered is subject to various conditions enumerated in the offering documents, including, among other conditions, that the Proposed Amendments be adopted at the Special Meetings and that the Commission issue an order under the 1935 Act authorizing the proposed transactions. At any time or from time to time, AEP may extend the Expiration Date applicable to any Series by giving notice of such extension to the Depositary, without extending the Expiration Date for any other Series. During any such extension, all Shares of the applicable Series previously tendered will remain subject to the Offer, and may be withdrawn at any time prior to the Expiration Date as extended. Conversely, AEP may elect in its sole discretion to terminate the Offer prior to the scheduled Expiration Date and not accept for payment and pay for any Shares tendered, subject to applicable provisions of Rule 13e-4 under the Exchange Act requiring AEP either to pay the consideration offered or to return the Shares tendered promptly after the termination or withdrawal of the Offer, upon the occurrence of any of the conditions to closing enumerated in the offering documents, by giving notice of such termination to the Depositary and making a public announcement thereof. Subject to compliance with applicable law, AEP further reserves the right in the offering documents, in its sole discretion, to amend one or more Offers in any respect by making a public announcement thereof. If AEP materially changes the terms of an Offer or the information concerning an Offer, or if it waives a material condition of an Offer, AEP will extend the Expiration Date to the extent required by the applicable provisions of Rule 13e-4 under the Exchange Act. Those provisions require that the minimum period during which an issuer tender offer must remain open following material changes in the terms of the offer or information concerning the offer (other than a change in price or change in percentage of securities sought) will depend on the facts and circumstances, including the relative materiality of such terms or information. If an Offer is scheduled to expire at any time earlier than the expiration of a period ending on the tenth business day from, and including, the date that AEP notifies Preferred Stockholders that it will (a) increase or decrease the price it will pay for Shares, (b) decrease the percentage of Shares it seeks or (c) increase or decrease soliciting dealer's fees, the Expiration Date will be extended until the expiration of such period of ten business days. Shares validly tendered to the Depositary pursuant to an Offer and not withdrawn in accordance with the procedures set forth in the offering documents will be held by AEP until the Expiration Date (or returned in the event the Offer is terminated). Subject to the terms and conditions of the Offer, as promptly as practicable after the Expiration Date, AEP will accept for payment (and thereby purchase) and pay for Shares validly tendered and not withdrawn. AEP will pay for Shares that it has purchased pursuant to the Offer by depositing the applicable Purchase Price with the Depositary, which will act as agent for the tendering Preferred Stockholders for the purpose of receiving payment from AEP and transmitting payment to tendering Preferred Stockholders. AEP will pay all stock transfer taxes, if any, payable on account of its acquisition of Shares pursuant to the Offer, except in certain circumstances where special payment or delivery procedures are utilized in conformance with the applicable Letters of Transmittal. With respect to Shares validly tendered and accepted for payment by AEP, each tendering Preferred Stockholder will be entitled to receive as consideration from AEP only the applicable Purchase Price (which AEP anticipates will reflect a premium over the current market price at the commencement of the Offers). Any such holder will not be entitled to receive with respect to such tendered Shares additional consideration in the form of a Special Cash Payment. As noted above, subject to the terms and conditions of the Offer, Shares validly tendered and not withdrawn will be accepted for payment and paid for by AEP as promptly as practicable after the Expiration Date. If a Proposed Amendment is adopted at a Subsidiary's Special Meeting, promptly after consummation of the Offer the Subsidiary will purchase the Shares sold to AEP pursuant to the Offer at the relevant Purchase Price plus expenses incurred in the Offer, and the Subsidiary will thereupon retire and cancel such Shares. If a Proposed Amendment is not adopted at the Special Meeting, AEP may elect, but is not obligated, to waive such condition, subject to applicable law. In that case, as promptly as practicable after AEP's waiver thereof and purchase of any Shares validly tendered pursuant to the Offers, the effected Subsidiary anticipates that it would call another special meeting of its common and preferred stockholders and solicit proxies therefrom for the same purpose as in the instant proceeding, i.e., to secure the requisite two-thirds affirmative vote of stockholders to amend the Articles to eliminate the Restriction Provision. At that meeting, AEP would vote any Shares acquired by it pursuant to the Offer or otherwise/2/ (as well as all of its shares of Common Stock) in favor of the proposed Articles amendment to eliminate the Restriction Provision./3/ If the proposed amendment is adopted at that meeting, and in any event within one year from the Expiration Date (including any potential extension thereto pursuant to the Offer), AEP will promptly after such meeting or at the expiration of such one-year period, as applicable, sell the Shares to the Subsidiary at the Purchase Price plus expenses paid therefor pursuant to the Offer, and the Subsidiary will thereupon retire and cancel such Shares. To finance its purchase of any Shares tendered, accepted for payment and paid for pursuant to the Offer, AEP intends to use its general funds and/or incur short-term indebtedness in an amount sufficient to pay the Purchase Price for all tendered Shares. The Commission previously authorized AEP to incur short-term indebtedness, from time to time prior to January 1, 2001, up to a maximum amount of $150 million./4/ To finance the purchase of any Shares tendered, accepted for payment and paid for pursuant to the Offer, AEP hereby requests the Commission to authorize AEP to use its general funds and/or incur short-term indebtedness in an amount up to $550 million. The $550 million authorization requested by AEP for short-term indebtedness is in addition to the authority granted to AEP in Rel. No. 35-26516 in File No. 70-8429 (May 20, 1996). Merrill Lynch, Pierce, Fenner & Smith Incorporated and Salomon Brothers Inc will act as dealer managers for AEP in connection with the Offers. AEP proposes to agree to pay the dealer managers a fee for Shares tendered, accepted for payment and paid for pursuant to the Offer and a fee for any Shares that are not tendered pursuant to the Offers but which vote in favor of the Proposed Amendment, and to reimburse the dealer managers for their reasonable out-of- pocket expenses, including attorneys' fees. In addition, AEP proposes to pay soliciting brokers and dealers a separate fee for any Shares tendered, accepted for payment and paid for pursuant to the Offer and a separate fee for any Shares that are not tendered pursuant to the Offers but which vote in favor of the Proposed Amendment. The Subsidiaries state that they consider the Restriction Provisions a significant impediment to their ability to maintain financial flexibility and minimize their financing costs, to the detriment of their utility customers and, indirectly, AEP's shareholders. AEP and the Subsidiaries assert that the ongoing financing flexibility and cost benefits to be gained by the Subsidiaries as a result of elimination of the Restriction Provisions outweigh the one-time cost of the Special Cash Payments and the other costs of the Proxy Solicitation. AEP and the Subsidiaries further represent that the terms of purchase of Shares pursuant to the Offers will benefit not only tendering Preferred Stockholders (by affording Preferred Stockholders who may not favor the elimination of the Restriction Provision an option to exit the Preferred Stock at a premium to the market price and without the usual transaction costs associated with a sale) but also, taking into account all related transaction costs, AEP's shareholders and system utility customers by (1) contributing to the elimination of the Restriction Provisions and (2) resulting in the acquisition and retirement of outstanding Shares and their potential replacement with comparatively less expensive financing alternatives, such as short-term debt. As noted, the Subsidiaries propose to submit the Proposed Amendment for consideration and action at special meetings of stockholders scheduled to take place on or about February 28, 1997 and, in connection therewith, to solicit proxies from the holders of their capital stock. The Subsidiaries request that the effectiveness of the application-declaration with respect to the solicitation of proxies for voting by their stockholders on the Proposed Amendments be permitted to become effective forthwith, pursuant to Rule 62(d). It appearing to the Commission that the application- declaration regarding the proposed solicitation of proxies should be permitted to become effective forthwith, pursuant to Rule 62(d): IT IS ORDERED, that the application-declaration regarding the proposed solicitation of proxies be, and it hereby is, permitted to become effective forthwith pursuant to Rule 62 and subject to the terms and conditions prescribed in Rule 24 under the 1935 Act. For the Commission, by the Division of Investment Management, pursuant to delegated authority. ENDNOTES /1/ The Proxy Solicitation and the Offer will be effected by means of the same core document - a combined proxy statement and issuer tender offer statement under the Securities Exchange Act of 1934 ("Exchange Act") and applicable rules and regulations thereunder. /2/ Following the Expiration Date and the consummation of the purchase of Shares pursuant to the Offer, AEP or one or more Subsidiaries may determine to purchase additional Shares on the open market, in privately negotiated transactions, through one or more tender offers or otherwise. AEP will not undertake any such transactions without receipt of any required Commission authorizations under the 1935 Act in one or more separate proceedings. Likewise, in the event such a further special meeting is necessary, the Subsidiaries would not undertake any associated proxy solicitation and proposed Articles amendment prior to receipt of any required Commission authorizations under the 1935 Act in a separate proceeding. /3/ By contrast, if a Subsidiary, rather than AEP, had acquired Shares pursuant to the Offer, upon acquisition thereof by such Subsidiary any such Shares would be deemed treasury shares under Indiana, Ohio and Virginia law, as the case may be, and, as such, the Subsidiary would be precluded from voting those Shares under any circumstances. /4/ American Electric Power Company, Inc., et al., Rel. No. 35-26424 (December 8, 1995). -----END PRIVACY-ENHANCED MESSAGE-----