Document:

ex10-5.htm

Exhibit 10.5

    

    LC
Capital Master Fund, Ltd.

    680 5th
Ave

    New York,
NY 10019

    Attn: Mr.
Steve Lampe

     

    March 3,
2009

    

    Dear Mr.
Lampe,

    

     

    Reference is hereby made to that
certain Purchase Agreement dated as of February 11, 2009 by and among Particle
Drilling Technologies, Inc. a Nevada corporation (the “Company”), Particle
Drilling Technologies, Inc., a Delaware corporation and a subsidiary of the
Company, the Purchasers named therein (each, a “Purchaser”) and LC
Capital Master Fund, Ltd. (“LC”), as agent and
collateral agent for the holders of the securities issued thereunder (the “Purchase
Agreement”).  Capitalized terms used but not defined herein
shall have the meanings set forth in the Purchase Agreement.

     

    WHEREAS, the Purchasers have
agreed to purchase $400,000 in principal amount of the Notes at the First Draw
Down  (such Notes, the “First Draw Down
Notes”) on March 3, 2009 pursuant to Section 3.01(b) of the Purchase
Agreement.

     

    NOW HERETOFORE, the Company
agrees with LC, as Purchaser, as follows:

     

                          On
the date of the First Draw Down, the Company shall issue to LC, and LC shall
purchase from the Company, an additional Note in the principal amount of
$75,000, such Note (the “Additional Note”)
being in addition to LC’s pro
rata portion of the First Draw Down Notes, for a purchase price of
$75,000 (the “Additional Note Purchase
Price”).

    

    The Company instructs LC to pay the
Additional Note Purchase Price directly to Milbank, Tweed, Hadley & McCloy
LLP, as directed in the separate wire instructions provided by Milbank, Tweed,
Hadley & McCloy LLP, in satisfaction of the Company’s obligations to pay the
reasonable fees and disbursements of LC’s legal counsel incurred prior to the
First Draw Down pursuant to Section 3.02 of the Purchase Agreement.

    

    In
connection with the issuance of the Additional Note, the Company’s obligation to
issue Notes to LC and LC’s obligation to purchase Notes from the Company at the
Second Draw Down pursuant to Section 3.01(c) of the Purchase Agreement shall
each be reduced by an amount of $75,000.

    

    This
letter agreement may not be amended or any provision hereof waived or modified
except by an instrument in writing signed by each of the parties
hereto.

     

    THIS
LETTER AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK.

     

    EACH
OF THE PARTIES TO THIS LETTER AGREEMENT HEREBY AGREES TO WAIVE ITS RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
LETTER AGREEMENT, THE TRANSACTIONS OR ANY DEALINGS BETWEEN THEM RELATING TO THE
SUBJECT MATTER OF THIS LETTER AGREEMENT.

     

    This letter agreement shall not be
construed to affect (a) the Company’s and LC’s respective rights or obligations
under the Purchase Agreement except to the extent described herein, (b) the
rights or obligations of the Company with respect to the Purchasers other than
LC under the Purchaser Agreement, or (c) the rights or obligations  of
such other Purchasers under the Purchase Agreement.

    

    This letter agreement shall be binding
upon and inure to the benefit of the respective successors and assigns of the
Company and LC; provided, however, that the
Company shall not assign or transfer its rights or obligations hereunder without
the prior written consent of LC.

    

    This
letter agreement may be executed in any number of counterparts, each of which
shall be an original and all of which, when taken together, shall constitute one
agreement.

     

    Delivery
of an executed counterpart of a signature page of this letter agreement by
facsimile or email transmission shall be effective as delivery of a manually
executed counterpart of this letter agreement.

     

    This letter agreement and the
Transaction Documents constitute the entire contract between the parties
relating to the subject matter hereof and supersede any and all previous
agreements and understandings, oral or written, relating to the subject matter
hereof.

    

     

    [SIGNATURE
PAGE FOLLOWS]

     

    
      
        
           

        

         

      

      
         

        
          

        

      

      
         

      

    

    If you
are in agreement with the foregoing, please countersign a copy of this letter
agreement in the space provided.

     

    
      	
               
      

            	
              PARTICLE DRILLING
      TECHNOLOGIES, INC., as
Company

            

    

    

    By: /s/ Jim B.
Terry________________________

    Name: Jim
B. Terry

    Title:   Chief
Executive Officer

    

    

    Acknowledged
and Agreed by:

    

    LC CAPITAL MASTER FUND, LTD.,
as Purchaser

    

    
      	
               
      

            	
              By:  /s/ Steve
      Lampe________________________

            

    

    
      	
               
      

            	
              Name:
      Steve Lampe

            

    

    
      	
               
      

            	
              Title:
      Managing Member of General Partner

            

    

    

    

    Further
Acknowledged and Agreed by:

    

    PARTICLE DRILLING
TECHNOLOGIES, INC.,

     as
Delaware Sub

    

    By:  /s/ Jim B.
Terry________________________

     

    Name: Jim
B. Terry

     

    Title:   President

     

    DON A. SANDERS, as
Purchaser

    

    By:  /s/ Don A.
Sanders______________________

    Name: Don
A. Sanders

    

    EDWARD F. HEIL, as
Purchaser

    

    By:  /s/ Edward F.
Heil______________________

     

    Name:
Edward F. Heil

     

    LC CAPITAL MASTER FUND, LTD.,
as Agent

    

    
      	
               
      

            	
              By:  /s/ Steve
      Lampe________________________

            

    

    
      	
               
      

            	
              Name:
      Steve Lampe

            

    

    
      	
               
      

            	
              Title:
      Managing Member of General Partnerexhibit4a.htm

    Exhibit
4(a)

    March 9,
2009

    

    Company
Order and Officers' Certificate

    7.95%
Senior Notes, Series R, due 2020

    

    The Bank
of New York Mellon, as Trustee

    101
Barclay Street – 8W

    New York,
New York 10286

    

    Ladies
and Gentlemen:

    

    Pursuant
to Article Two of the Indenture, dated as of January 1, 1998 (as it may be
amended or supplemented, the "Indenture"), from Appalachian Power Company (the
"Company") to The Bank of New York Mellon, as trustee (the "Trustee"), and the
Board Resolutions dated December 10, 2008, a copy of which certified by the
Secretary or an Assistant Secretary of the Company is being delivered herewith
under Section 2.01 of the Indenture, and unless otherwise provided in a
subsequent Company Order pursuant to Section 2.04 of the Indenture,

    

    
      	
              1.

            	
              the
      Company's 7.95% Senior Notes, Series R, due 2020 (the "Notes") are hereby
      established.    The Notes shall be in substantially
      the form attached hereto as Exhibit 1.

            
	 
      	 
      	 
      
	
              2.

            	
              the
      terms and characteristics of the Notes shall be as follows (the numbered
      clauses set forth below corresponding to the numbered subsections of
      Section 2.01 of the Indenture, with terms used and not defined herein
      having the meanings specified in the Indenture):

            
	 
      	 
      	 
      
	 
      	
              (i)

            	
              the
      aggregate principal amount of Notes which may be authenticated and
      delivered under the Indenture initially shall be limited to $350,000,000,
      except as contemplated in Section 2.01(i) of the Indenture and except that
      such principal amount may be increased from time to time; all Notes need
      not be issued at the same time and the series may be reopened at any time,
      without the consent of any securityholder, for issuance of additional
      Notes, which Notes will have the same interest rate, maturity and other
      terms as those initially issued;

            
	 
      	 
      	 
      
	 
      	
              (ii)

            	
              the
      date on which the principal of the Notes shall be payable shall be January
      15, 2020.

            
	 
      	 
      	 
      
	 
      	
              (iii)

            	
              interest
      shall accrue from the date of authentication of the Notes; the Interest
      Payment Dates on which such interest will be payable shall be January 15
      and July 15, and the Regular Record Date for the determination of holders
      to whom interest is payable on any such Interest Payment Date shall be the
      January 1 or July 1 preceding the relevant Interest Payment Date; provided
      that the first Interest Payment Date shall be July 15, 2009 and interest
      payable on the Stated Maturity Date or any Redemption Date shall be paid
      to the Person to whom principal shall be paid;

            
	 
      	 
      	 
      
	 
      	
              (iv)

            	
              the
      interest rate at which the Notes shall bear interest shall be 7.95% per
      annum.

            
	 
      	 
      	 
      
	 
      	
              (v)

            	
              the
      Notes shall be redeemable at the option of the Company, in whole at any
      time or in part from time to time, upon not less than thirty but not more
      than sixty days' previous notice given by mail to the registered owners of
      the Notes at a redemption price equal to the greater of (i) 100% of the
      principal amount of the Notes being redeemed and (ii) the sum of the
      present values of the remaining scheduled payments of principal and
      interest on the Notes being redeemed (excluding the portion of any such
      interest accrued to the date of redemption) discounted (for purposes of
      determining present value) to the redemption date on a semi-annual basis
      (assuming a 360-day year consisting of twelve 30-day months) at the
      Treasury Rate (as defined below) plus 50 basis points, plus, accrued
      interest thereon to the date of redemption.

               

              "Treasury
      Rate" means (i) the yield, under the heading which represents the average
      for the immediately preceding week, appearing in the most recently
      published statistical release designated “H.15(519)” or any successor
      publication which is published weekly by the Board of Governors of the
      Federal Reserve System and which establishes yields on actively traded
      U.S. Treasury securities adjusted to constant maturity under the caption
      “Treasury Constant Maturities,” for the maturity corresponding to the
      Comparable Treasury Issue (if no maturity is within three months before or
      after the remaining life (as defined below), yields for the two published
      maturities most closely corresponding to the Comparable Treasury Issue
      will be determined and the Treasury Rate will be interpolated or
      extrapolated from such yields on a straight line basis, rounding to the
      nearest month); or (ii) if such release (or any successor release) is not
      published during the week preceding the calculation date or does not
      contain such yields, the rate per annum equal to the semiannual equivalent
      yield to maturity of the Comparable Treasury Issue, calculated using a
      price for the Comparable Treasury Issue (expressed as a percentage of its
      principal amount) equal to the Comparable Treasury Price for such
      redemption date.

               

              "Comparable
      Treasury Issue" means the United States Treasury security selected by an
      Independent Investment Banker as having a maturity comparable to the
      remaining term (“remaining life”) of the Notes that would be utilized, at
      the time of selection and in accordance with customary financial practice,
      in pricing new issues of corporate debt securities of comparable maturity
      to the remaining life of the Notes.

               

              "Comparable
      Treasury Price" means, with respect to any redemption date, (1) the
      average of the Reference Treasury Dealer Quotations for such redemption
      date, after excluding the highest and lowest such Reference Treasury
      Dealer Quotations, or (2) if the Company obtains fewer than four such
      Reference Treasury Dealer Quotations, the average of all such
      quotations.

               

              "Independent
      Investment Banker" means one of the Reference Treasury Dealers appointed
      by the Company and reasonably acceptable to the Trustee.

               

              "Reference
      Treasury Dealer" means each of (i) Goldman, Sachs & Co., (ii)
      Greenwich Capital Markets, Inc. and (iii) a Primary
      Treasury  Dealer (as defined below) selected by Wachovia Capital
      Markets, LLC and their respective successors; provided, however, that if
      any of the foregoing shall cease to be primary U.S. government securities
      dealers in New York City (a “Primary Treasury Dealer”) the Company will
      substitute therefor another Primary Treasury Dealer reasonably acceptable
      to the Trustee.

               

              "Reference
      Treasury Dealer Quotation" means, with respect to each Reference Treasury
      Dealer and any redemption date, the average, as determined by the Trustee,
      of the bid and asked prices for the Comparable Treasury Issue (expressed
      in each case as a percentage of its principal amount) quoted in writing to
      the Trustee by such Reference Treasury Dealer at or before 3:30 p.m., New
      York City time, on the third Business Day preceding such redemption
      date.

            
	 
      	 
      	 
      
	 
      	
              (vi)

            	
              (a)
      the Notes shall be issued in the form of Global Notes; (b) the Depositary
      for such Global Notes shall be The Depository Trust Company; and (c) the
      procedures with respect to transfer and exchange of Global Notes shall be
      as set forth in the forms of Note attached hereto;

            
	 
      	 
      	 
      
	 
      	
              (vii)

            	
              the
      title of the Notes shall be 7.95% Senior Notes, Series R, due
      2020;

            
	 
      	 
      	 
      
	 
      	
              (viii)

            	
              the
      forms of the Notes shall be as set forth in Paragraph 1,
      above;

            
	 
      	 
      	 
      
	 
      	
              (ix)

            	
              not
      applicable;

            
	 
      	 
      	 
      
	 
      	
              (x)

            	
              the
      Notes shall not be subject to a Periodic Offering;

            
	 
      	 
      	 
      
	 
      	
              (xi)

            	
              not
      applicable;

            
	 
      	 
      	 
      
	 
      	
              (xii)

            	
              not
      applicable;

            
	 
      	 
      	 
      
	 
      	
              (xiii)

            	
              not
      applicable;

            
	 
      	 
      	 
      
	 
      	
              (xiv)

            	
              the
      Notes shall be issuable in denominations of $1,000 and any integral
      multiple thereof;

            
	 
      	 
      	 
      
	 
      	
              (xv)

            	
              not
      applicable;

            
	 
      	 
      	 
      
	 
      	
              (xvi)

            	
              the
      Notes shall not be issued as Discount Securities;

            
	 
      	 
      	 
      
	 
      	
              (xvii)

            	
              not
      applicable;

            
	 
      	 
      	 
      
	 
      	
              (xviii)

            	
              not
      applicable; and

            
	 
      	 
      	 
      
	 
      	
              (xix)

            	
              So
      long as any of the Notes are outstanding, the Company will not create or
      suffer to be created or to exist any additional mortgage, pledge, security
      interest, or other lien (collectively "Liens") on any of its utility
      properties or tangible assets now owned or hereafter acquired to secure
      any indebtedness for borrowed money ("Secured Debt"), without providing
      that the Notes will be similarly secured.  This restriction does
      not apply to the Company's subsidiaries, nor will it prevent any of them
      from creating or permitting to exist Liens on their property or assets to
      secure any Secured Debt.  In addition, this restriction does not
      prevent the creation or existence of:

            
	 
      	 
      	 
      
	 
      	 
      	
              (a)

            	
              Liens
      on property existing at the time of acquisition or construction of such
      property (or created within one year after completion of such acquisition
      or construction), whether by purchase, merger, construction or otherwise,
      or to secure the payment of all or any part of the purchase price or
      construction cost thereof, including the extension of any Liens to
      repairs, renewals, replacements, substitutions, betterments, additions,
      extensions and improvements then or thereafter made on the property
      subject thereto;

            	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	
              (b)

            	
              Financing
      of the Company's accounts receivable for electric service;

            	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	
              (c)

            	
              Any
      extensions, renewals or replacements (or successive extensions, renewals
      or replacements), in whole or in part, of liens permitted by the foregoing
      clauses; and

            	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	
              (d)

            	
              The
      pledge of any bonds or other securities at any time issued under any of
      the Secured Debt permitted by the above clauses.

            	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	
              In
      addition to the permitted issuances above, Secured Debt not otherwise so
      permitted may be issued in an amount that does not exceed 15% of Net
      Tangible Assets as defined below.

               

              "Net
      Tangible Assets" means the total of all assets (including revaluations
      thereof as a result of commercial appraisals, price level restatement or
      otherwise) appearing on the Company's balance sheet, net of applicable
      reserves and deductions, but excluding goodwill, trade names, trademarks,
      patents, unamortized debt discount and all other like intangible assets
      (which term shall not be construed to include such revaluations), less the
      aggregate of the Company's current liabilities appearing on such balance
      sheet.  For purposes of this definition, the Company's balance
      sheet does not include assets and liabilities of its
      subsidiaries.

               

              This
      restriction also does not apply to or prevent the creation or existence of
      leases made, or existing on property acquired, in the ordinary course of
      business.

            
	 
      	 
      
	
              3.

            	
              You
      are hereby requested to authenticate $350,000,000 aggregate principal
      amount of 7.95% Senior Notes, Series R, due 2020, executed by the Company
      and delivered to you concurrently with this Company Order and Officers'
      Certificate, in the manner provided by the Indenture.

            
	 
      	 
      
	
              4.

            	
              You
      are hereby requested to hold the Notes as custodian for DTC in accordance
      with the Blanket Issuer Letter of Representations dated June 24, 2004,
      from the Company to DTC.

            
	 
      	 
      
	
              5.

            	
              Concurrently
      with this Company Order and Officers' Certificate, an Opinion of Counsel
      under Sections 2.04 and 13.06 of the Indenture is being delivered to
      you.

            
	 
      	 
      
	
              6.

            	
              The
      undersigned Renee V. Hawkins and Thomas G. Berkemeyer , the Assistant
      Treasurer and Assistant Secretary, respectively, of the Company do hereby
      certify that:

            
	 
      	 
      
	 
      	
              (i)

            	
              we
      have read the relevant portions of the Indenture, including without
      limitation the conditions precedent provided for therein relating to the
      action proposed to be taken by the Trustee as requested in this Company
      Order and Officers' Certificate, and the definitions in the Indenture
      relating thereto;

            
	 
      	 
      	 
      
	 
      	
              (ii)

            	
              we
      have read the Board Resolutions of the Company and the Opinion of Counsel
      referred to above;

            
	 
      	 
      	 
      
	 
      	
              (iii)

            	
              we
      have conferred with other officers of the Company, have examined such
      records of the Company and have made such other investigation as we deemed
      relevant for purposes of this certificate;

            
	 
      	 
      	 
      
	 
      	
              (iv)

            	
              in
      our opinion, we have made such examination or investigation as is
      necessary to enable us to express an informed opinion as to whether or not
      such conditions have been complied with; and

            
	 
      	 
      	 
      
	 
      	
              (v)

            	
              on
      the basis of the foregoing, we are of the opinion that all conditions
      precedent provided for in the Indenture relating to the action proposed to
      be taken by the Trustee as requested herein have been complied
      with.

            

    

    

    Kindly
acknowledge receipt of this Company Order and Officers' Certificate, including
the documents listed herein, and confirm the arrangements set forth herein by
signing and returning the copy of this document attached hereto.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    IN WITNESS WHEREOF, the Company has
caused this Instrument to be duly executed and delivered.

    

    
      
        
          	
                  Very
      truly yours,

                
	 
      
	
                  APPALACHIAN
      POWER COMPANY

                
	 
      
	 
      
	
                  By:         /s/ Renee V.
      Hawkins                       
      

                
	
                  Assistant
    Treasurer

                
	 
      
	 
      
	
                  And:     
      /s/ Thomas G.
      Berkemeyer                
      

                
	
                  Assistant
    Secretary

                
	 
      
	 
      
	
                  Acknowledged
      by Trustee:

                
	 
      
	 
      
	
                  By:        /s/ Mary
      Miselis                                
                                                                      

                
	
                  Authorized
    Signatory

                

        

      

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Exhibit
4(a)

    Exhibit
1

    

    Unless
this certificate is presented by an authorized representative of The Depository
Trust Company (55 Water Street, New York, New York) to the issuer or its agent
for registration of transfer, exchange or payment, and any certificate to be
issued is registered in the name of Cede & Co. or in such other name as is
requested by an authorized representative of The Depository Trust Company and
any payment is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the
registered owner hereof, Cede & Co., has an interest
herein.  Except as otherwise provided in Section 2.11 of the
Indenture, this Security may be transferred, in whole but not in part, only to
another nominee of the Depository or to a successor Depository or to a nominee
of such successor Depository.

    

    No.   R1

    

    APPALACHIAN
POWER COMPANY

    7.95%
Senior Notes, Series R, due 2020

    

    
      
        	
                CUSIP:                            037735CP0

              	
                Original
      Issue
      Date:                           

              	March
      9, 2009 
	 
      	 
      	 
	
                Stated
      Maturity:    January 15, 2020

              	
                Interest
      Rate:                                  

              	7.95%
	 
      	 
      	 
	
                Principal
      Amount:  $350,000,000

              	 
      	 
	 
      	 
      	 
	
                Redeemable:

              	
                Yes

              	
                X

              	
                No

              	 
      	 
      	 
      	 
	
                In
      Whole:

              	
                Yes

              	
                X

              	
                No

              	 
      	 
      	 
      	 
	
                In
      Part:

              	
                Yes

              	
                X

              	
                No

              	 
      	 
      	 
      	 

      

    

    

    APPALACHIAN POWER COMPANY, a
corporation duly organized and existing under the laws of the Commonwealth of
Virginia (herein referred to as the “Company”, which term includes any successor
corporation under the Indenture hereinafter referred to), for value received,
hereby promises to pay to CEDE & CO. or registered assigns, the Principal
Amount specified above on the Stated Maturity specified above, and to pay
interest on said Principal Amount from the Original Issue Date specified above
or from the most recent interest payment date (each such date, an “Interest
Payment Date”) to which interest has been paid or duly provided for,
semi-annually in arrears on January 15 and July 15 in each year, commencing on
July 15, 2009, at the Interest Rate per annum specified above, until the
Principal Amount shall have been paid or duly provided for.  Interest
shall be computed on the basis of a 360-day year of twelve 30-day
months.

    

    The interest so payable, and punctually
paid or duly provided for, on any Interest Payment Date, as provided in the
Indenture, as hereinafter defined, shall be paid to the Person in whose name
this Note (or one or more Predecessor Securities) shall have been registered at
the close of business on the Regular Record Date with respect to such Interest
Payment Date, which shall be the January 1 or July 1 (whether or not a Business
Day) prior to such Interest Payment Date, provided that interest payable on the
Stated Maturity or any redemption date shall be paid to the Person to whom
principal is paid.  Any such interest not so punctually paid or duly
provided for shall forthwith cease to be payable to the Holder on such Regular
Record Date and shall be paid as provided in said Indenture.

    

    If any Interest Payment Date, any
redemption date or Stated Maturity is not a Business Day, then payment of the
amounts due on this Note on such date will be made on the next succeeding
Business Day, and no interest shall accrue on such amounts for the period from
and after such Interest Payment Date, redemption date or Stated Maturity, as the
case may be, with the same force and effect as if made on such
date.  The principal of (and premium, if any) and the interest on this
Note shall be payable at the office or agency of the Company maintained for that
purpose in the Borough of Manhattan, the City of New York, New York, in any coin
or currency of the United States of America which at the time of payment is
legal tender for payment of public and private debts; provided, however, that
payment of interest (other than interest payable on the Stated Maturity or any
redemption date) may be made at the option of the Company by check mailed to the
registered holder at such address as shall appear in the Security
Register.

    

    This Note is one of a duly authorized
series of Notes of the Company (herein sometimes referred to as the “Notes”),
specified in the Indenture, all issued or to be issued in one or more series
under and pursuant to an Indenture dated as of January 1, 1998 duly executed and
delivered between the Company and The Bank of New York Mellon, a corporation
organized and existing under the laws of the State of New York, as Trustee
(herein referred to as the “Trustee”) (such Indenture, as originally executed
and delivered and as thereafter supplemented and amended being hereinafter
referred to as the “Indenture”), to which Indenture and all indentures
supplemental thereto or Company Orders reference is hereby made for a
description of the rights, limitations of rights, obligations, duties and
immunities thereunder of the Trustee, the Company and the holders of the
Notes.  By the terms of the Indenture, the Notes are issuable in
series which may vary as to amount, date of maturity, rate of interest and in
other respects as in the Indenture provided.  This Note is one of the
series of Notes designated on the face hereof.

    

    This Note may be redeemed by the
Company at its option, in whole at any time or in part from time to time, upon
not less than thirty but not more than sixty days’ prior notice given by mail to
the registered owners of the Notes at a redemption price equal to the greater of
(i) 100% of the principal amount of the Notes being redeemed and (ii) the sum of
the present values of the remaining scheduled payments of principal and interest
on the Note being redeemed (excluding the portion of any such interest accrued
to the date of redemption) discounted (for purposes of determining present
value) to the redemption date on a semi-annual basis (assuming a 360-day year
consisting of twelve 30-day months) at the Treasury Rate (as defined below) plus
50 basis points, plus, in each case, accrued interest thereon to the date of
redemption.

    

    “Treasury
Rate” means

    

    
      	
              ·  

            	
              the
      yield, under the heading which represents the average for the immediately
      preceding week, appearing in the most recently published statistical
      release designated “H.15(519)” or any successor publication which is
      published weekly by the Board of Governors of the Federal Reserve System
      and which establishes yields on actively traded U.S. Treasury securities
      adjusted to constant maturity under the caption “Treasury Constant
      Maturities,” for the maturity corresponding to the Comparable Treasury
      Issue (if no maturity is within three months before or after the remaining
      life (as defined below), yields for the two published maturities most
      closely corresponding to the Comparable Treasury Issue will be determined
      and the Treasury Rate will be interpolated or extrapolated from such
      yields on a straight line basis, rounding to the nearest month);
      or

            

    

    

    
      	
              ·  

            	
              if
      such release (or any successor release) is not published during the week
      preceding the calculation date or does not contain such yields, the rate
      per annum equal to the semiannual equivalent yield to maturity of the
      Comparable Treasury Issue, calculated using a price for the Comparable
      Treasury Issue (expressed as a percentage of its principal amount) equal
      to the Comparable Treasury Price for such redemption
  date.

            

    

    

    “Comparable
Treasury Issue” means the United States Treasury security selected by an
Independent Investment Banker as having a maturity comparable to the remaining
term (“remaining life”) of the Notes that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the remaining life
of the Notes.

    

    “Comparable
Treasury Price” means, with respect to any redemption date, (1) the average of
the Reference Treasury Dealer Quotations for such redemption date, after
excluding the highest and lowest such Reference Treasury Dealer Quotations, or
(2) if the Company obtains fewer than four such Reference Treasury Dealer
Quotations, the average of all such quotations.

    

    “Independent
Investment Banker” means one of the Reference Treasury Dealers appointed by the
Company and reasonably acceptable to the Trustee.

    

    “Reference
Treasury Dealer” means each of (i) Goldman, Sachs & Co., (ii) Greenwich
Capital Markets, Inc. and (iii) a Primary Treasury  Dealer (as defined
below) selected by Wachovia Capital Markets, LLC and their respective
successors; provided, however, that if any of the foregoing shall cease to be
primary U.S. government securities dealers in New York City (a “Primary Treasury
Dealer”) the Company will substitute therefor another Primary Treasury Dealer
reasonably acceptable to the Trustee.

    

    “Reference
Treasury Dealer Quotation” means, with respect to each Reference Treasury Dealer
and any redemption date, the average, as determined by the Trustee, of the bid
and asked prices for the Comparable Treasury Issue (expressed in each case as a
percentage of its principal amount) quoted in writing to the Trustee by such
Reference Treasury Dealer at or before 3:30 p.m., New York City time, on the
third Business Day preceding such redemption date.

    

    The Company shall not be required to
(i) issue, exchange or register the transfer of any Notes during a period
beginning at the opening of business 15 days before the day of the mailing of a
notice of redemption of less than all the outstanding Notes of the same series
and ending at the close of business on the day of such mailing, nor (ii)
register the transfer of or exchange of any Notes of any series or portions
thereof called for redemption.  This Global Note is exchangeable for
Notes in definitive registered form only under certain limited circumstances set
forth in the Indenture.

    

    In the event of redemption of this Note
in part only, a new Note or Notes of this series, of like tenor, for the
unredeemed portion hereof will be issued in the name of the Holder hereof upon
the surrender of this Note.

    

    In case an Event of Default, as defined
in the Indenture, shall have occurred and be continuing, the principal of all of
the Notes may be declared, and upon such declaration shall become, due and
payable, in the manner, with the effect and subject to the conditions provided
in the Indenture.

    

    The Indenture contains provisions for
defeasance at any time of the entire indebtedness of this Note upon compliance
by the Company with certain conditions set forth therein.

    

    As described in the Company Order and
Officers’ Certificate, so long as this Note is outstanding, the Company is
subject to a limitation on Liens as described therein.

    

    The Indenture contains provisions
permitting the Company and the Trustee, with the consent of the Holders of not
less than a majority in aggregate principal amount of the Notes of each series
affected at the time outstanding, as defined in the Indenture, to execute
supplemental indentures for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of the Indenture or of any
supplemental indenture or of modifying in any manner the rights of the Holders
of the Notes; provided, however, that no such supplemental indenture shall (i)
extend the fixed maturity of any Notes of any series, or reduce the principal
amount thereof, or reduce the rate or extend the time of payment of interest
thereon, or reduce any premium payable upon the redemption thereof, or reduce
the amount of the principal of a Discount Security that would be due and payable
upon a declaration of acceleration of the maturity thereof pursuant to the
Indenture, without the consent of the holder of each Note then outstanding and
affected; (ii) reduce the aforesaid percentage of Notes, the holders of which
are required to consent to any such supplemental indenture, or reduce the
percentage of Notes, the holders of which are required to waive any default and
its consequences, without the consent of the holder of each Note then
outstanding and affected thereby; or (iii) modify any provision of Section
6.01(c) of the Indenture (except to increase the percentage of principal amount
of securities required to rescind and annul any declaration of amounts due and
payable under the Notes), without the consent of the holder of each Note then
outstanding and affected thereby.  The Indenture also contains
provisions permitting the Holders of a majority in aggregate principal amount of
the Notes of all series at the time outstanding affected thereby, on behalf of
the Holders of the Notes of such series, to waive any past default in the
performance of any of the covenants contained in the Indenture, or established
pursuant to the Indenture with respect to such series, and its consequences,
except a default in the payment of the principal of or premium, if any, or
interest on any of the Notes of such series.  Any such consent or
waiver by the registered Holder of this Note (unless revoked as pro­vided in
the Indenture) shall be conclusive and binding upon such Holder and upon all
future Holders and owners of this Note and of any Note issued in exchange
herefor or in place hereof (whether by registration of transfer or otherwise),
irrespective of whether or not any notation of such consent or waiver is made
upon this Note.

    

    No reference herein to the Indenture
and no provision of this Note or of the Indenture shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
principal of and premium, if any, and interest on this Note at the time and
place and at the rate and in the money herein prescribed.

    

    As provided in the Indenture and
subject to certain limitations therein set forth, this Note is transferable by
the registered holder hereof on the Security Register of the Company, upon
surrender of this Note for registration of transfer at the office or agency of
the Company as may be designated by the Company accompanied by a written
instrument or instruments of transfer in form satisfactory to the Company or the
Trustee duly executed by the registered Holder hereof or his or her attorney
duly authorized in writing, and thereupon one or more new Notes of authorized
denominations and for the same aggregate principal amount and series will be
issued to the designated transferee or transferees.  No service charge
will be made for any such trans­fer, but the Company may require payment of
a sum sufficient to cover any tax or other governmental charge payable in
relation thereto.

    

    Prior to due presentment for
registration of transfer of this Note, the Company, the Trustee, any paying
agent and any Security Registrar may deem and treat the registered Holder hereof
as the absolute owner hereof (whether or not this Note shall be overdue and
notwithstanding any notice of ownership or writing hereon made by anyone other
than the Security Registrar) for the purpose of receiving payment of or on
account of the principal hereof and premium, if any, and interest due hereon and
for all other purposes, and neither the Company nor the Trustee nor any paying
agent nor any Security Registrar shall be affected by any notice to the
contrary.

    

    No recourse shall be had for the
payment of the principal of or the interest on this Note, or for any claim based
hereon, or otherwise in respect hereof, or based on or in respect of the
Indenture, against any incorporator, stockholder, officer or director, past,
present or future, as such, of the Company or of any predecessor or successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the
issuance hereof, expressly waived and released.

    

    The Notes of this series are issuable
only in registered form without coupons in denominations of $1,000 and any
integral multiple thereof.  As provided in the Indenture and subject
to certain limitations, Notes of this series are exchangeable for a like
aggregate principal amount of Notes of this series of a different authorized
denomination, as requested by the Holder surrendering the same.

    

    All terms used in this Note which are
defined in the Indenture shall have the meanings assigned to them in the
Indenture.

    

    This Note shall not be entitled to any
benefit under the Indenture hereinafter referred to, be valid or become
obligatory for any purpose until the Certificate of Authentication hereon shall
have been signed by or on behalf of the Trustee.

    

    IN WITNESS WHEREOF, the Company has
caused this Instrument to be executed.

    

    
      
        
          	 
      	
                  APPALACHIAN
      POWER COMPANY

                
	 
      	 
      	 
      
	 
      	
                  By:

                	
                  /s/ Renee V.
      Hawkins                 
      

                
	 
      	 
      	
                  Assistant
      Treasurer

                
	
                  Attest:

                	 
      	 
      
	 
      	 
      	 
      
	
                  By:       /s/ Thomas G.
      Berkemeyer                      
      

                	 
      	 
      
	
                  Assistant
    Secretary

                	 
      	 
      

        

      

    

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    CERTIFICATE
OF AUTHENTICATION

    

    This is one of the Notes of the series
of Notes designated in accordance with, and referred to in, the within-mentioned
Indenture.

    

    Dated
March 9, 2009

    

    THE BANK
OF NEW YORK MELLON

    

    

    By:___/s/ Mary
Miselis_____________

    Authorized Signatory

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    FOR VALUE RECEIVED, the undersigned
hereby sell(s), assign(s) and transfer(s) unto

    

    (PLEASE
INSERT SOCIAL SECURITY OR OTHER

       IDENTIFYING
NUMBER OF ASSIGNEE)

    

    _______________________________________

    

    ________________________________________________________________

    

    ________________________________________________________________

    (PLEASE
PRINT OR TYPE NAME AND ADDRESS, INCLUDING ZIP CODE, OF

    ________________________________________________________________

    ASSIGNEE)
the within Note and all rights thereunder, hereby

    ________________________________________________________________

    irrevocably
constituting and appointing such person attorney to

    ________________________________________________________________

    transfer
such Note on the books of the Issuer, with full

    ________________________________________________________________

    power of
substitution in the premises.

    

    

    

    Dated:________________________                                                                                     _________________________

    

    

    

    
      	
              NOTICE:

            	
              The
      signature to this assignment must correspond with the name as written upon
      the face of the within Note in every particular, without alteration or
      enlargement or any change whatever and NOTICE:  Signature(s)
      must be guaranteed by a financial institution that is a member of the
      Securities Transfer Agents Medallion Program (“STAMP”), the Stock Exchange
      Medallion Program (“SEMP”) or the New York Stock Exchange, Inc. Medallion
      Signature Program (“MSP”).

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