Unassociated Document


EXHIBIT 4(a)







PURCHASE AGREEMENT

 

As of
March 8, 2005

 

Merrill
Lynch International

Merrill
Lynch Financial Centre

2 King
Edward Street

London,
England EC1A 1HQ

 

Dear
Ladies and Gentlemen:

 

American
Electric Power Company, Inc., a New York corporation (the “Company”), subject to
the terms and conditions and in reliance upon the representations and warranties
set forth herein, confirms its agreement with Merrill Lynch International
(“Merrill Lynch”) to purchase from Merrill Lynch twelve million five hundred
(12,500,000) shares (the “Initial Shares”) of common stock of the Company, par
value $6.50 per share (the “Common Stock”), at a per share price equal to the
closing price (the “Initial Price”) of the Common Stock on March 8, 2005 as
agreed to by the parties (subject to adjustment as provided herein) or on such
other date and at such other time as the parties may mutually agree (the
“Execution Date”). Prior to the close of business on the first Trading Day (as
hereinafter defined) immediately following the Execution Date (the “Settlement
Date”), (A) the Company will pay for the Initial Shares by delivering an amount
equal to the Aggregate Purchase Price (as hereinafter defined) plus the
Aggregate Commissions (as hereinafter defined) by wire transfer of immediately
available funds to an account designated by Merrill Lynch and (B) Merrill Lynch
will authorize The Depository Trust Company to deliver to an account at a
participant of The Depository Trust Company the Initial Shares for the benefit
of the Company. The parties understand and agree that the delivery of the
Initial Shares by or on behalf of Merrill Lynch upon the payment of the
Aggregate Purchase Price and the Aggregate Commissions by the Company is
irrevocable and that as of the Settlement Date the Company shall be the sole
beneficial owner of the Initial Shares for all purposes.

The
purchases of shares of Common Stock anticipated by this Agreement shall be
pursuant to the requirements of and in conformity with the provisions of Rule
10b5-1 under the Exchange Act (as hereinafter defined). 

Section
1.  Purchase Price
Adjustment.

(a)  On
the Execution Date and contemporaneously with the execution of this Agreement,
each of the Execution Date, the Maturity Date, the Initial Price, the Daily
Share Purchase Amount, the Aggregate Commissions and the Aggregate Purchase
Price (each as previously or hereinafter defined) shall be determined and set
forth on the Purchase Agreement Pricing Supplement attached as Annex A
hereto.

(b)  For
each Trading Day, commencing on the Settlement Date, the Calculation Agent (as
hereinafter defined) shall determine the following amounts, as
applicable:



	(i)  	
      The Purchase Price Adjustment (as hereinafter defined) owed
      to Merrill Lynch by the Company on the Excess Daily Value (as hereinafter
      defined), if any, for each prior Trading
Day;







	(ii)  	
      The Purchase Price Adjustment owed to the Company by Merrill
      Lynch on the Deficit Daily Value (as hereinafter defined), if any, for
      each prior Trading Day; 







	(iii)  	
      The Daily Rebate Value (as hereinafter defined) owed to the
      Company by Merrill Lynch on a Daily Notional Amount (as hereinafter
      defined), if any, for each prior Trading Day;
and







	(iv)  	
      The value (which may be positive or negative) by which the
      sum of the Purchase Price Adjustment pursuant to clause (ii) above and the
      Daily Rebate Value pursuant to clause (iii) above exceeds the Purchase
      Price Adjustment pursuant to clause (i) above with respect to each day
      during the Transaction Term (a “Daily Accrual
Value”).





(c)  On
the third Trading Day immediately following the last day of the Transaction Term
(the “Final Settlement Date”), Merrill Lynch shall pay the Final Settlement
Value if the Final Settlement Value is negative or the Company shall pay the
Final Settlement Value if the Final Settlement Value is positive. 

(d)  In
the event that the Final Settlement Value is positive, prior to the close of
business on the Final Settlement Date, the Company shall cause to be paid an
amount in cash (by wire transfer of immediately available funds) equal to the
sum of the Final Settlement Value. 

In the
event that the Final Settlement Value is negative, Merrill Lynch shall cause
such amount to be paid to the Company. Merrill Lynch shall satisfy such
obligation by paying to the Company an amount in cash (by wire transfer of
immediately available funds) equal to the Final Settlement Value.

If
Merrill Lynch notifies the Company that it is unable to purchase a total number
of shares of Common Stock equal to the Initial Shares by the Maturity Date (a
“Deficiency Notice”), then Merrill Lynch shall accelerate the repurchases of the
shares of Common Stock in order to settle the transaction in accordance with
Section 1(c) as soon as possible following delivery of the Deficiency Notice
without regard to the volume limitation specified in Section 3(b)(ii) below.


Section
2.  Anti-dilution
Adjustments.

(a)  Subdivisions
and Combination of Common Stock. In the event that the outstanding shares of
the Common Stock shall be subdivided or split (including by means of a stock
dividend) into a greater number of shares of Common Stock where the effective
date of such subdivision or the record date for such split occurs during the
Transaction Term, the Initial Shares and the Daily Share Purchase Amount shall
be proportionately increased and the Initial Price shall be deemed to be
proportionately decreased. Conversely, in the event that the outstanding shares
of Common Stock shall each be combined into a smaller number of shares of Common
Stock through a combination of shares of Common Stock or a reverse stock split
where the effective date of such combination or the record date for such reverse
stock split occurs during the Transaction Term, the Initial Shares and the Daily
Share Purchase Amount shall be proportionately decreased and the Initial Price
shall be proportionately increased. Any adjustment pursuant to this Section 2(a)
shall become effective (i) in the case of a subdivision or combination of the
Common Stock, on the effective date of such subdivision or combination or (ii)
in the case of a stock split or reverse stock split, at the close of business on
the record date for such stock split or reverse stock split. Notwithstanding
anything to the contrary contained herein, no adjustment shall be made pursuant
to this Section 2(a) unless a similar adjustment is required to be made to the
number of shares of Common Stock delivered or deliverable to the lender or
lenders of Common Stock to Merrill Lynch. 

(b)  Reclassification,
Consolidation, Merger or Sale of Assets. In the event that during the
Transaction Term the Company shall enter into any agreement, arrangement or
understanding that provides for any recapitalization or reclassification of the
Common Stock (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of an event specified
in Section 2(a)), any consolidation of the Company with, or merger of the
Company into, any other person, any merger of another person into the Company
(other than a merger which does not result in a reclassification, conversion,
exchange or cancellation of outstanding shares of Common Stock), any sale or
transfer of all or substantially all of the assets of the Company or any
compulsory share exchange and pursuant to any of which the Common Stock is
converted into the right to receive other securities, cash or other property
(each of the foregoing, an “Extraordinary Transaction”) then Merrill Lynch and
the Company shall negotiate in good faith to amend this Agreement to give
appropriate effect to the Extraordinary Transaction. In the event that the
parties are unable to reach an agreement on the earlier of (i) twenty (20)
Trading Days prior to the date, if any, that is specified for the consummation
of such transaction under the governing legal agreements for such transaction
and (ii) ten (10) Trading Days after the first public disclosure of the
contemplated Extraordinary Transaction (the “Early Termination Date”), (w) the
Transaction Term shall be deemed to terminate on the twentieth Trading Day after
the Early Termination Date, (x) the provisions of Section 3(b)(i) shall be void
and of no further force or effect from and after the Early Termination Date and
(y) the Final Settlement Date shall be the twenty-sixth Trading Day after the
Early Termination Date. 

(c)  Additional
Acceleration Events. In the event that (i) the Company declares an ordinary
or extraordinary dividend and the ex-dividend date for such event is during the
Transaction Term or (ii) Merrill Lynch is unable to borrow a sufficient number
of shares of Common Stock at a reasonable cost from other lenders (the date of
each such occurrence shall be referred to as a “Trigger Date”), Merrill Lynch
may accelerate the repurchases and settlement of the shares of Common Stock on
the day immediately following the Trigger Date and the provisions of Section
3(b) shall be void and of no further force and effect from and after the date of
acceleration. If Merrill Lynch exercises its option described in this Section
2(c), the date of such exercise shall be referred to as the “Acceleration
Date.”

Section
3.  Covenants.


(a)  The
Company covenants and agrees with Merrill Lynch: 



	(i)  	
      during the Transaction Term, neither the Company nor any of
      its affiliates shall take any action that would cause the purchases by
      Merrill Lynch pursuant to Section 3(b)(i) of this Agreement not to comply
      with the provisions of Rule 10b-18 under the Exchange Act as if such
      provisions applied; 







	(ii)  	
      during the Transaction Term, the Company will not engage in
      a distribution of shares of Common Stock or other securities for which
      Common Stock is a reference security for purposes of Rule 102 of
      Regulation M under the Exchange Act;







	(iii)  	
      during the Transaction Term, the Company shall not (i)
      declare an extraordinary dividend or (ii) set an ex-dividend date prior to
      the Maturity Date; 







	(iv)  	
      (A) within five (5) Trading Days of the date hereof, the
      Company shall have delivered to Merrill Lynch an opinion of In-house
      Counsel of the Company dated as of the date of this Agreement as to the
      matters set forth in Annex B hereto and in form and substance reasonably
      satisfactory to Merrill Lynch; and 







	(v)  	
      the Company will not, and the Company will instruct its
      executive officers to not, disclose to any persons at Merrill Lynch
      effecting purchases under this Agreement, or making decisions with respect
      to any such purchases, any information regarding the Company that might
      impair the applicability of the affirmative defenses provided by Rule
      10b5-1 under the Exchange Act to this Agreement and the Company will
      inform Merrill Lynch as soon as possible of any subsequent legal or
      contractual restrictions affecting the application of Rule 10b5-1 to this
      Agreement. 





(b)  Merrill
Lynch covenants and agrees with the Company:



	(i)  	
      subject to clauses (ii), (iii) and (iv) below, to use its
      best efforts to purchase, or cause to be purchased, on each Trading Day
      during the Transaction Term the Daily Share Purchase Amount on the open
      market at the then market price; 







	(ii)  	
      in connection with bids and purchases pursuant to clause (i)
      above, Merrill Lynch shall comply, or cause compliance, with the timing
      and volume provisions of Rule 10b-18(b)(2) and (4) under the Exchange Act
      as if such provisions applied;







	(iii)  	
      in connection with bids and purchases pursuant to clause (i)
      above, Merrill Lynch will effect purchases at a purchase price that does
      not exceed the highest independent bid or the last independent transaction
      price, whichever is higher, reported in the consolidated system at the
      time such purchases are effected (as those terms are defined in Rule
      10b-18 under the Exchange Act); 







	(iv)  	
      not to purchase shares of Common Stock on any Trading Day
      with respect to which Merrill Lynch reasonably determines in good faith
      that it is appropriate, in light of any legal or regulatory requirements
      or related policies and procedures (including policies or procedures that
      have been voluntarily adopted by Merrill Lynch), for Merrill Lynch to
      refrain from purchasing shares of Common Stock on any such Trading Day.
      Merrill Lynch shall promptly notify the Company upon exercising its rights
      pursuant to this clause (iv) and shall subsequently promptly notify the
      Company on the day Merrill Lynch shall resume purchasing shares of Common
      Stock pursuant to clause (i) above, it being understood that Merrill Lynch
      shall not be required to indicate to the Company the reason for Merrill
      Lynch’s exercise of its rights pursuant to this clause (iv) if Merrill
      Lynch reasonably determines in good faith that disclosing such reason to
      the Company may result in a violation of federal or state securities laws
      or is prohibited by Merrill Lynch’s internal conflicts policies and
      procedures; 







	(v)  	
      all decisions to purchase shares of Common Stock pursuant to
      this Agreement shall be made in the absolute discretion of Merrill Lynch
      and independent of the Company, subject to the provisions of this
      Agreement; and 







	(vi)  	
      in connection with purchases pursuant to clause (i) above,
      Merrill Lynch will effect all purchases through its U.S. broker dealer,
      Merrill Lynch, Pierce, Fenner & Smith Incorporated;






provided,
however, that it is understood and agreed that, if after making reasonable
commercial efforts to borrow shares of Common Stock from other lenders which
efforts are not successful, Merrill Lynch shall not be obligated to comply with
clauses (i), (ii) and (iii) of this paragraph (b) if it is required to purchase
any Shortfall Shares (as hereinafter defined).

Section
4.  Representations and
Warranties.

The
Company hereby represents and warrants to Merrill Lynch that as of the date
hereof and each Trading Day during the Transaction Term:

(a)  the
Company has all power and authority to execute this Agreement and the
transactions contemplated hereby;

(b)  this
Agreement has been duly authorized, validly executed and delivered by the
Company and constitutes a legal, valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms (subject, as to
enforcement of remedies, to applicable bankruptcy, reorganization, insolvency,
moratorium, fraudulent conveyance or other similar laws affecting the rights of
creditors now or hereafter in effect, and to equitable principles that may limit
the right to specific enforcement of remedies);

(c)  the
Company is not entering into this Agreement (i) to create actual or apparent
trading activity in the Common Stock (or any security convertible into or
exchangeable for Common Stock) or (ii) to facilitate a future distribution of
the Common Stock (or any security convertible into or exchangeable for Common
Stock) or in connection with a future issuance of securities as part of a plan,
in either case with the intention to manipulate the price of the Common Stock
(or any security convertible into or exchangeable for Common
Stock);

(d)  the
Company intends this Agreement to be subject to the requirements of Rule 10b5-1
under the Exchange Act and as of the date of this Agreement is not in possession
of material non-public information, understands the proscriptions of Rule 10b5-1
in respect of offsetting and hedging transactions and is not entering into this
Agreement as part of a plan or scheme to evade compliance with the federal
securities laws;

(e)  the
purchase of the Initial Shares by the Company, the compliance by the Company
with all of the provisions of this Agreement and the consummation of the
transactions herein contemplated will not conflict with or result in a breach of
any of the terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or any other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries is bound or to which any of the property or assets of
the Company or any of its subsidiaries is subject, other than such defaults
which would not impair the ability of the Company to perform its obligations
hereunder in all material respects, nor will such action result in any violation
of the provisions of the Restated Articles of Incorporation or Bylaws of the
Company or any statute or any rule or regulation of any court or governmental
agency or body having jurisdiction over the Company or any of its properties;


(f)  no
consent, approval, authorization, order, registration or qualification of or
with any court or governmental agency or body having jurisdiction over the
Company is required for the purchase of the Initial Shares by the Company, the
compliance by the Company with all the terms of this Agreement, or the
consummation by the Company of the transactions contemplated by this Agreement;
and

(g)  the
Company has made its own independent inquiry as to the legal, tax, credit and
accounting aspects of the transactions contemplated by this Agreement and any
related transactions, and the Company has not relied on Merrill Lynch, Merrill
Lynch’s legal counsel or Merrill Lynch’s accounting advisors for legal, tax,
credit or accounting advice in connection with the transactions contemplated by
this Agreement or any related transactions. The Company agrees and acknowledges
that Merrill Lynch and its affiliates may from time to time, not in the capacity
of the Company's agent but in the ordinary course of their business, execute
transactions for their own account or the account of customers and hold and deal
in securities or options on securities of the Company (including, without
limitation, Common Stock) and that Merrill Lynch and its affiliates may continue
to conduct such transactions during the Transaction Term. 

Merrill
Lynch hereby represents and warrants to the Company that:

(a)  Merrill
Lynch has all power and authority to execute this Agreement and to consummate
the transactions contemplated hereby;

(b)  this
Agreement has been duly authorized, validly executed and delivered by Merrill
Lynch and constitutes a legal, valid and binding agreement of Merrill Lynch,
enforceable against Merrill Lynch in accordance with its terms (subject, as to
enforcement of remedies, to applicable bankruptcy, reorganization, insolvency,
moratorium, fraudulent conveyance or other similar laws affecting the rights of
creditors now or hereafter in effect, and to equitable principles that may limit
the right to specific enforcement of remedies);

(c)  Merrill
Lynch has made its own independent inquiry as to the legal, tax, credit and
accounting aspects of the transactions contemplated by this Agreement and any
related transactions, and Merrill Lynch has not relied on the Company or its
legal counsel or accounting advisors for legal, tax, credit or accounting advice
in connection with the transactions contemplated by this Agreement or any
related transactions; and

(d)  Merrill
Lynch acknowledges that its rights under this Agreement (other than Section 5)
do not directly or indirectly give rise to any rights or claims against the
Company as a creditor of the Company. 

Section
5.  Indemnification.

(a) To
the extent permitted by applicable law, the Company agrees to indemnify Merrill
Lynch and its affiliates and their respective directors, officers, employees,
agents and controlling persons, and Merrill Lynch agrees to indemnify the
Company and its affiliates and their respective directors, officers, employees,
agents and controlling persons (the Company or Merrill Lynch, as applicable, an
“Indemnifying Party” and each such indemnified person, as applicable, being an
“Indemnified Party”) from and against any and all losses, claims, damages and
liabilities, joint or several, to which such Indemnified Party may become
subject under any applicable federal or state law, or otherwise, and related to
or arising out of (a) the breach by the Indemnifying Party of any of its
representations or warranties contained in this Agreement and (b) the breach by
the Indemnifying Party of any of its covenants or agreements contained in this
Agreement, and will reimburse any Indemnified Party for all expenses (including
reasonable counsel fees and expenses) in connection with the investigation of,
preparation for or defense or settlement of any pending or threatened claim or
any action or proceeding arising therefrom, whether or not such Indemnified
Party is a party except if such claim, action or proceeding is initiated or
brought by or on behalf of the Indemnifying Party; provided, that in no
event shall Merrill Lynch and its affiliates be required to indemnify an
aggregate amount in excess of the $750,000. The Indemnifying Party will not be
liable under the foregoing indemnification provision for any claim relating to
purchases under Sections 1(d) or 2(c) that vary from the provisions of Section
3(b)(ii) and to the extent that any loss, claim, damage, liability or expense is
found in a final judgment by a court to have resulted directly from willful
misconduct or negligence on the part of the Indemnified Party or on the part of
any other Indemnified Party.

 

(b) If
the indemnification provided for in this Agreement is for any reason held
unenforceable, the Indemnifying Party agrees to contribute to the aggregate
losses, claims, damages and liabilities (including legal or other expenses
reasonably incurred in connection with the same) for which such indemnification
is held unenforceable as shall be appropriate to reflect (1) the relative fault
of the Indemnifying Party on the one hand and the Indemnified Parties on the
other hand in connection with the actions or inactions that have resulted in
such losses, claims, damages, liabilities and expenses, (2) the relative
benefits received by the Indemnifying Party on the one hand and the Indemnified
Party on the other hand from the transactions contemplated by this Agreement and
(3) any other relevant equitable considerations. Relative fault shall be
determined by reference to, among other things, each such party’s relative
intent, knowledge, access to information and opportunity to correct or prevent
such action or inaction. The Company and Merrill Lynch each agree that it would
not be just and equitable if contribution pursuant to this subparagraph (ii)
were to be determined by pro rata allocation or by any other method of
allocation that does not take account of the equitable considerations referred
to above. Notwithstanding the provisions of this Section 5, Merrill Lynch shall
not be required to contribute in excess of the amount equal to the excess of (x)
the compensation received by Merrill Lynch pursuant to this Agreement over (y)
the amount of any damages which Merrill Lynch has otherwise been required to pay
by reason of any such action or inaction. For the avoidance of doubt, the
provisions regarding contribution in this Section 5(ii) do not apply to any
claim relating to purchases under Sections 1(d) or 2(c) that vary from the
provisions of Section 3(b)(ii). 

 

(c) The
Indemnifying Party agrees that without the prior written consent of the
Indemnified Party, which consent shall not be unreasonably withheld, it will not
settle, compromise or consent to the entry of any judgment in any pending or
threatened claim, action or proceeding in respect of which indemnification could
be sought under the indemnification provision of this Agreement unless such
settlement, compromise or consent includes an unconditional release of each
Indemnified Party from all liability arising out of such claim, action or
proceeding.

 

(d) The
provisions of this Section 5 shall survive any termination of this Agreement or
completion of the transactions contemplated hereby for three (3) years.


 

(e)
Promptly after receipt by an Indemnified Party of notice of the commencement of
any action, such Indemnified Party will, if a claim in respect thereof may be
made against the Indemnifying Party under this Section 5, notify the
Indemnifying Party in writing of the commencement thereof, but the omission so
to notify the Indemnifying Party will not relieve it from any liability which it
may have to any Indemnified Party otherwise than under this Section 5 except to
the extent that the Indemnifying Party’s rights are materially prejudiced as a
result of such delay. In case such notice of any such action shall be so given,
the Indemnifying Party shall be entitled to participate at its own expense in
the defense, or if it so elects, to assume the defense of such action, in which
event such defense shall be conducted by counsel chosen by the Indemnifying
Party and satisfactory to the Indemnified Party or Indemnified Parties who shall
be defendant or defendants in such action, and such defendant or defendants
shall bear the fees and expenses of any additional counsel retained by them; but
if the Indemnifying Party shall elect not to assume the defense of such action,
the Indemnifying Party will reimburse such Indemnified Party or Indemnified
Parties for the reasonable fees and expenses of any counsel retained by them;
provided, however, if the defendants in any such action (including
impleaded parties) include both the Indemnified Parties and the Indemnifying
Party and counsel for the Indemnifying Party shall have reasonably concluded
that there may be a conflict of interest involved in the representation by a
single counsel of both the Indemnified Parties and the Indemnifying Party, the
Indemnified Party or Indemnified Parties shall have the right to select separate
counsel, satisfactory to the Indemnifying Party (it being understood, however,
that the Indemnifying Party shall not be liable for the expenses of more than
one separate counsel representing the Indemnified Parties who are parties to
such action.

 

Section
6.  Certain
Definitions.

As used
herein the following terms shall have the meanings set forth below:

“Actual
Share Purchase Amount” shall mean the actual number of shares of
Common Stock purchased by Merrill Lynch pursuant to Section 3(b)(i)
of this Agreement on any given Trading Day.

“Actual
Share Purchase Value” shall mean, on any given Trading Day, the product of the
Actual Share Purchase Amount and the corresponding Settlement
Price.

“Aggregate
Actual Share Purchase Value” shall mean the amount equal to the aggregate value
of all Actual Share Purchase Values, as calculated during the Transaction
Term.

“Aggregate
Commissions” shall have the meaning set forth in Annex A hereto.

“Aggregate
Purchase Price” shall have the meaning set forth in Annex A hereto.

“Aggregate
Purchase Price Adjustment Value” shall mean the sum (which may be positive, if
Merrill Lynch owes the Company value, or negative, if the Company owes Merrill
Lynch value) of all Daily Accrual Values for each Trading Day during the
Transaction Term.

“Applicable
Adjustment Rate” shall mean, for any given Trading Day, an interest rate equal
to the Daily Federal Funds Rate.

“Calculation
Agent” shall mean Merrill Lynch International.

“Daily
Effective Rate” shall mean an amount determined by the Calculation Agent equal
to the Daily Federal Funds Rate less the Spread.

“Daily
Federal Funds Rate” shall mean, with respect to any Trading Day, the rate on
such date for United States dollar federal funds as published in H.15(519) under
the heading “Federal Funds (Effective)”.

“Daily
Notional Amount” shall mean an amount determined by the Calculation Agent equal
to the product of (i) the Initial Price and (ii) the amount by which the Initial
Shares exceeds the sum of all Actual Share Purchase Amounts which have been
executed up to and including the Trading Day preceding the applicable Trading
Day.

“Daily
Rebate Value” shall mean an amount determined by the Calculation Agent equal to
the product of (i) the Daily Effective Rate, (ii) 1/360 and (iii) each
corresponding Daily Notional Amount.

“Daily
Share Purchase Amount” shall mean a number of shares of Common Stock, determined
by Merrill Lynch, to be purchased each day within the range of 200,000 to
400,000 shares which during the Transaction Term is an average of 312,500 shares
per day; provided, that if the daily volume limits of Rule 10b-18 under
the Exchange Act fall below 400,000 shares of Common Stock, Merrill Lynch may,
in accordance with Rule 10b-18(b)(4) as if it applied, purchase a large block of
Common Stock in order to reduce the future Daily Share Purchase Amounts to
comply with the volume limits of Rule 10b-18(b)(4).

“Daily
Share Purchase Value” shall mean the product of the Actual Share Purchase Amount
and the Initial Price.

“Deficit
Daily Value” shall mean, on any given Trading Day, if the Settlement Price is
less than the Initial Price, the positive value by which the Daily Share
Purchase Value exceeds the Actual Share Purchase Value, but in no event less
than zero. 

“Excess
Daily Value” shall mean, on any given Trading Day, if the Settlement Price is
greater than the Initial Price, the positive value by which the Actual Share
Purchase Value exceeds the Daily Share Purchase Value, but in no event less than
zero.

“Exchange
Act” shall mean the Securities Exchange Act of 1934, as amended.

“Final
Settlement Value” shall mean (i) the Aggregate Actual Share Purchase Value minus
(ii) the Aggregate Purchase Price minus (iii) the Aggregate Purchase Price
Adjustment Value.

“Initial Price” shall mean the closing
price of the Common Stock on the Execution Date as agreed to by the
parties.




“Maturity
Date” shall mean the earlier of (A) the date on which the total number of shares
of Common Stock purchased by Merrill Lynch pursuant to and for purposes of
satisfying Merrill Lynch’s obligation under Section 3(b)(i) of this Agreement
(including for purposes of determining the Final Settlement Value) is first
equal to or greater than the Initial Shares, provided, that such date may
not be after May 4, 2005, and (B) an Acceleration Date.

“NYSE”
shall mean the New York Stock Exchange, Inc.

“Purchase
Price Adjustment” shall mean adjustment amounts accrued on the Excess Daily
Value or Deficit Daily Value, as applicable, and excluding the Trading Day on
which such Excess Daily Value or Deficit Daily Value, as applicable, arises up
from the first business day immediately succeeding the Execution Date to and
including the Final Settlement Date at the Applicable Adjustment Rate for such
Trading Day.

“Securities
Act” shall mean the Securities Act of 1933, as amended.

“Settlement
Price” shall mean, on any given Trading Day, the weighted average market price
per share paid by Merrill Lynch to purchase the Actual Share Purchase
Amount.

“Shortfall
Shares” shall mean the shares of Common Stock required to be purchased by
Merrill Lynch and delivered to any lender or lenders of Common Stock in the
event of any Stock Shortfall in order to satisfy Merrill Lynch's obligations to
such lender or lenders.

“Spread”
shall mean 30 basis points.

“Stock
Shortfall” shall mean any period of time during which Merrill Lynch (i) is
required to re-deliver shares of Common Stock to any lender of such shares at
the demand of such lender and (ii) is unable to satisfy such obligation in full
by the use of reasonable commercial efforts to borrow shares of Common Stock
from another lender or lenders.

“Trading
Day” shall mean any day on which the Common Stock is traded on the NYSE, or, if
not then traded on the NYSE, the principal securities exchange or quotation
system on which such securities are then traded or, if not then traded on a
securities exchange or quotation system, in the over-the-counter
market.

“Transaction
Term” shall mean the period commencing on the Settlement Date and terminating
on, and including, the Maturity Date.

Section
7.  Miscellaneous.

(a)  Severability.
If any term, provision, covenant or restriction of this Agreement is held by a
court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and obligations set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated.

(b)  Assignment.
Neither the rights under this Agreement nor the obligations created by this
Agreement shall be assignable or delegable, in whole or in part, by either party
herein without the prior written consent of the other, and any attempt to assign
or delegate any rights or obligations arising under this Agreement without such
consent shall be void.

(c)  Waivers,
etc. No failure or delay on the part of either party in exercising any power
or right hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. No
amendment, modification or waiver of any provision of this Agreement nor consent
to any departure by either party therefrom shall in any event be effective
unless the same shall be in writing, and, in the case of a waiver or consent,
shall be effective only in the specific instance and for the purpose for which
given.

(d)  Beneficiaries.
This Agreement shall be binding upon, and inure solely to the benefit of, the
Company and Merrill Lynch and no other person shall acquire any rights
hereunder. Without limiting the generality of the foregoing, Merrill Lynch’s
obligations under Section 3(b)(i) are solely for the benefit of the Company and
not the holders of any of the Company’s securities.

(e)  Changes
of Law. If, due to any change in applicable law or regulations or the
interpretation thereof by any court of law or other body having jurisdiction
subsequent to the date of this Agreement, performance of any provision of this
Agreement or any transaction contemplated hereby shall become impracticable or
impossible, the parties hereto shall use their commercially reasonable to find
and employ an alternative means to achieve the same or substantially the same
result as that contemplated by such provision.

(f)  Confidentiality.
Subject (i) to any contrary requirement of law or applicable regulator, (ii) to
the right of each party to enforce its rights hereunder in any legal action and
(iii) in the case of the Company, to the determination by its counsel that
disclosure is appropriate or necessary, each party shall keep strictly
confidential and shall cause its employees and agents to keep strictly
confidential the terms of this Agreement and any information of or concerning
the other party which it or any of its agents or employees may acquire pursuant
to, or in the course of performing its obligations under, any provision of this
Agreement.

(g)  Expenses.
The Company will pay or cause to be paid all expenses incident to the
performance of its obligations under this Agreement, including the fees and
disbursements of the Company’s counsel and accountants and other experts.
Merrill Lynch will pay its own expenses incident to the performance of its
obligations under this Agreement.

(h)  Headings.
Descriptive headings herein are for convenience only and shall not control or
affect the meaning or construction of any provision of this
Agreement.

(i)  Counterparts.
This Agreement may be executed by the parties hereto in counterparts, and each
such executed counterpart shall be, and shall be deemed to be, an original
instrument and all such counterparts, taken together, shall constitute one and
the same instrument.

(j)  Notices.
All notices, consents, requests, instructions, approvals and other
communications provided for herein shall be validly given, made or served if in
writing and delivered personally, by telegram, by telecopy or sent by overnight
courier, postage prepaid:

 

if to
Merrill Lynch:

 

4 Vesey
Street, 17th Floor

New York,
New York 10080

Attention:
Brian Carroll

Telecopy
No.: (917) 778-0835

+issgelpnydocumentation@exchange.ml.com

 

and, in
connection with any notices pursuant
to Section 3(a)(ii) by telephone
and telecopy or e-mail to:

 

Merrill
Lynch & Co.

North
Tower

World
Financial Center

New York,
New York 10281

Attention:
Charles Plohn

Telephone
No.: (212) 449-4577

Telecopy
No.: (212) 449-0355

 

with a
copy to:

 

William
R. Massey, Esq.

Sidley
Austin Brown & Wood LLP

787
Seventh Avenue 

New York,
New York 10019




                       
if to the Company:

 

American Electric Power Company, Inc.


1 Riverside Plaza

Columbus, Ohio 43215

Attention: Stephan P. Smith 




Telephone No.: (614) 716-2800

Telecopy No.: (614) 716-2807



or to
such other address as any party may, from time to time, designate in a written
notice given in a like manner. Notice given by telegram or telecopy shall be
deemed delivered when evidence of the transmission is received by the sender and
shall be confirmed in writing by overnight courier, postage prepaid. Notice
given by overnight courier as set out above shall be deemed delivered the
business day after the date the same is mailed.

(k)  Governing
Law. This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York without reference to conflict
of law principles.

If the
foregoing is in accordance with our understanding of our agreement, please sign
and return to us the enclosed duplicate hereof, whereupon this letter and your
acceptance shall represent a binding Agreement between the Company and
you.

 

Very truly yours,

AMERICAN ELECTRIC POWER
COMPANY, INC. 

 




 

By /s/ Stephan T.
Haynes

Name: Stephan T. Haynes

Title: Assistant Treasurer










Accepted
as of the date first
written above.

 

MERRILL
LYNCH INTERNATIONAL

 




 

By /s/
Brian Carroll































Annex
A

 

PURCHASE
AGREEMENT PRICING SUPPLEMENT

 

Execution
Date: March 8, 2005

 

           
Maturity Date: shall mean the earlier of (A) the date on which the total number
of shares of Common Stock purchased by Merrill Lynch pursuant 

                       
to and for purposes of satisfying Merrill Lynch’s obligation under Section
3(b)(i) of this Agreement (including for purposes of determining the Final


                       
Settlement Value) is first equal to or greater than the Initial Shares,
provided, that such date may not be after May 4, 2005, and (B) an


                       
Acceleration Date.

 

Initial
Price (per share): $34.63 

 

Aggregate
Purchase Price: $432,875,000

 

Aggregate
Commissions: $812,500

 

          Daily Share Purchase Amount:
shall mean a number of shares of Common Stock, determined by Merrill Lynch, to
be purchased each day within 

          the range of 200,000 to 400,000
shares which during the Transaction Term is an average of 312,500 shares per
day; provided, that if the daily 

            
volume limits of Rule 10b-18 under the Exchange Act fall below 400,000 shares of
Common Stock, Merrill Lynch may, in accordance with Rule 

            
10b-18(b)(4) as if it applied, purchase a large block of Common Stock in order
to reduce the future Daily Share Purchase Amounts to comply 

            
with the volume limits of Rule 10b-18(b)(4). 

 




 



























Annex B


Opinion
of
                      

 

       (i)  The Company has
been duly formed, is validly existing and in good standing under the laws of the
State of New York and has all requisite 

            corporate
power and authority to own its properties and conduct the business in which it
is engaged.

 

(ii)  The
Agreement has been duly authorized, executed and delivered and constitutes the
valid and binding obligation of the Company, enforceable against the Company in
accordance with its term, subject to applicable bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium, and other laws affecting
creditors’ rights generally from time to time in effect and to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law). I express no opinion as to the validity or
enforceability of the indemnification provisions of the Agreement, to the extent
that the validity or enforceability of such provisions may be limited by the
federal securities laws.

 

(iii)  No
consent, approval, authorization or other order of any governmental or
regulatory body is required in connection with the execution or delivery of the
Agreement or the consummation of the transactions contemplated
thereby.

 

(iv)  The
execution and delivery of the Agreement by the Company and the consummation of
the transactions contemplated thereby will not violate, conflict with, result in
a breach of or constitute a default under (a) any provision of any applicable
law, rule or regulation, (b) the certificate of incorporation or by-laws of the
Company or any of its subsidiaries or (c) except for those violations which
would not have a material adverse effect upon the Agreement, any material
agreement or other material instrument which is binding upon the Company or any
of its subsidiaries or any order, decree or judgment of any court, regulatory
body, administrative agency, governmental body or arbitrator and applicable to
the Company or any of its subsidiaries or by which the Company or any of its
subsidiaries or their property is or may be bound or affected.