Document:

ex42.htm

    Exhibit
4.2

    

    OPTION
AGREEMENT

    

    

    THIS AGREEMENT, made as of
this 26th day of October 2004, by and between eLEC COMMUNICATIONS CORP., having
its principal office at 75 South Broadway, Suite 302, White Plains, New York
10601 (the “Company”) and Michael Khalilian, an employee of the Company,
residing at 720 Cricklewood Terrace, Heathrow, Florida 32746, (the
“Optionee”).

    

    W I T N E S S E T
H:

    

    WHEREAS, the Board of
Directors of the Company believes that the interests of the Company will be
advanced by granting an incentive to officers, directors and key employees of
the Company by providing them with the opportunity to purchase shares of the
Company’s Common Stock on terms which will give them a more direct and
continuing interest in the future success of the Company’s
business;

    

    NOW, THEREFORE, in
consideration of the foregoing and other good and valuable consideration, the
parties agree as follows:

    

    1.           Grant of
Options.  Subject to, and pursuant to, all of the terms and
conditions of this Agreement, the Company hereby grants to the Optionee the
right and option (the “Option”) to purchase all or any part of an aggregate of
900,000 shares (the “Shares”) of Common Stock, par value $.10 per share (“Common
Stock”) of the Company, at a purchase price of $0.23 per share.  The
Option granted hereunder is intended to be a non-qualified stock option and
shall not qualify as an “incentive stock option” under Section 422 of the
Internal Revenue Code of 1986, as amended (the “Code”).

    

    2.           Expiration.  The
Option may not be exercised after the fifth anniversary of the date hereof (the
“Expiration Date”).

    

    3.           Exercise of
Option.  The Option may be exercised at any time after the date
hereof and prior to the Expiration Date or the earlier termination of the
Option.  Notwithstanding the foregoing, the Option shall not be
exercisable for more than the number of Shares that are then
vested.  The Option shall vest with respect to 100% of the Shares over
a period ending October 26, 2007 and shall vest in the installments listed
below: In addition, the options shall vest with respect to 100% of the shares
upon a Sale of the Company (as defined in section 9 b (i)).

    

    
      	
              Vesting Date

            	 	
              Shares Vesting

            
	
              October
      26, 2005

            	 	
              450,000

            
	
              October
      26, 2006

            	 	
              225,000

            
	
              October
      26, 2007

            	 	
              225,000

            

    

    

    If the
Option is not exercised to the maximum extent permissible, it shall be
exercisable, in whole or in part, with respect to all Shares not so purchased
prior to the Expiration Date or the earlier termination of the Option. During
the lifetime of the Optionee, the Option shall be exercisable only by the
Optionee and only while the Optionee is continuously a director or employee of
the Company or a Subsidiary (as defined in the Plan), within three months after
the Optionee ceases to be a director or employed or, if disabled (within the
meaning of Section 22(e)(3) of the Code), within one year of such disability
(but not later than the Expiration Date) if and to the extent the Option was
exercisable by the Optionee on the last day that the Optionee served as a
director or employee of the Company or a Subsidiary. Notwithstanding the
foregoing, in the event that the Optionee shall be removed from the Board of
Directors or terminated as an employee for cause, all rights as to that portion
of the Option that is unexercised shall immediately terminate.

    

    4.           Payment of Purchase Price
Upon Exercise.  The Option granted under this Agreement may be
exercised in whole or in part by the Optionee’s delivering or mailing to the
Company at its principal office, or such other place as the Company may
designate, written notice of exercise in the form prescribed by the Committee
and duly signed by the Optionee (the “Exercise Notice”).  Such
exercise shall be effective upon (a) receipt of such written notice by the
Company and (b) payment to the Company of the full purchase price in
cash.  The Optionee shall make appropriate arrangements for the
payment of all applicable withholding taxes.

    

    5.           Issuance and
Delivery.  The Optionee’s Exercise Notice shall state the
number of Shares with respect to which the Option is being exercised and specify
a date, not less than five (5) or more than fifteen (15) days after the date of
the mailing of such notice, on which the Shares will be taken and payment made
therefor.  On the date specified in the Exercise Notice, the Company
shall deliver, or cause to be delivered, to the Optionee (or his personal
representative, as the case may be) stock certificates for the number of Shares
with respect to which the Option is being exercised, against receipt of payment
therefor.  Certificates evidencing the Shares issued upon exercise of
the Option may contain such legends reflecting any restrictions upon transfer of
the Shares evidenced thereby as in the opinion of counsel to the Company may be
necessary for the lawful and proper issuance of such
certificates.  Delivery of the Shares may be made at the office of the
Company or at the office of a transfer agent appointed for the transfer of
shares of Common Stock.

    

    6.           Transferability. The
Option shall not be transferable otherwise than by will or by the laws of
descent and distribution. The Option shall not be subject, in whole or in part,
to attachment, execution or levy of any kind.

    

    7.           No Rights as a
Shareholder. Neither the Optionee nor his legal representative shall be,
nor have any of the rights or privileges of, a shareholder of the Company in
respect of any of the Shares, unless and until certificates representing such
Shares shall have been issued and delivered to the Optionee (or his legal
representative).

    

    8.           Adjustment. In the
event of any change in the outstanding Common Stock by reason of stock
dividends, special dividends, recapitalization, reorganizations, mergers,
consolidations, split-ups, combinations or exchanges of shares and the like, the
number and kind of shares under this Agreement and the purchase price per share
hereof shall be appropriately adjusted consistent with such
change.  The determination of the Committee as to any adjustment shall
be final, binding and conclusive.  It is the intention hereunder to
provide for an equitable adjustment.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

     

    9.           Sale of the Company.
(a) Notwithstanding any provision in this Agreement to the contrary, in the
event of a Sale of the Company (as defined in paragraph (b) below), the Option,
at the election of the Company, may be terminated and, if terminated, the
Optionee shall receive an amount in cash equal to the difference between the
purchase price in effect at the time of such Sale of the Company and the Fair
Market Value (as defined in paragraph (b) below) of the Shares subject to the
then remaining unexercised portion of the Option.

    

    (b) For
purposes of this Section 9 the following terms shall have the indicated
meanings:

    

    (i) “Sale
of the Company” means a Change of Control of the Company (as defined in clause
(ii) below) or a sale of all or substantially all of the assets of the Company
in a single transaction or a series of related transactions.

    

    (ii) “Change of Control” of
the Company will be deemed to have occurred at such time as (A) any person or
entity (a “Person”), including a Person’s affiliates and associates, becomes the
beneficial owner (as defined under Rule 13d-3 or any successor rule or
regulation promulgated under the Securities Exchange Act of 1934, as amended) of
50% or more of the total voting power of the Common Stock, (B) there shall be
consummated any consolidation or merger of the Company in which the Company is
not the continuing or surviving corporation or pursuant to which the Common
Stock would be converted into cash, securities or other property, other than a
merger or consolidation of the Company in which the holders of the Common Stock
outstanding immediately prior to the consolidation or merger hold, directly or
indirectly, at least a majority of the common stock of the surviving corporation
immediately after such consolidation or merger, or (C) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board of Directors (together with any new directors whose election by such
Board or whose nomination for election by the shareholders of the Company has
been approved by 66 2/3% of the directors then still in office who either were
directors at the beginning of such period or whose election or recommendation
for election was previously so approved) cease to constitute a majority of the
Board of Directors.

    

    (iii)  “Fair
Market Value” shall be determined as of the last business day for which the
prices or quotes discussed in this sentence are available prior to the date of
the Sale of the Company and shall mean (A) the closing selling price per share
on that date of the Common Stock on the principal national securities exchange
on which the Common Stock is traded, if the Common Stock is then traded on a
national securities exchange; or (B) the closing selling price per share on that
date of the Common Stock on the NASDAQ quotation system, if the Common Stock is
not then traded on a national securities exchange; or (C) the closing bid price
per share last quoted on that date by an established quotation service for
over-the-counter securities, if the Company Stock is not reported on the NASDAQ
quotation system.

    

    10.           Compliance with Law and
Regulations.  The Option and the obligation of the Company to
sell and deliver Shares hereunder shall be subject to all applicable federal and
state laws, rules and regulations and to such approvals by any governmental or
regulatory agency as may be required.  The Company shall not be
required to issue or deliver any certificates for Shares prior to (i) the
listing of such Shares on any stock exchange on which the Common Stock may then
be listed and (ii) the completion of any registration or qualification of such
Shares under any federal or state law, or any rule or regulation of any
government body which the Board of Directors or the Committee shall, in its sole
discretion, determine to be necessary or advisable.  Moreover, the
Options may not be exercised if their exercise, or the receipt of Shares
pursuant thereto, would be contrary to applicable law.

    

    11.           Investment
Representation.  The Board of Directors or the Committee may
require the Optionee to furnish to the Company, prior to the issuance of any
Shares upon the exercise of any Option, an agreement (in such form as the Board
of Directors or the Committee may specify) in which the Optionee represents that
the Shares acquired by the Optionee upon exercise are being acquired for
investment and not with a view to the sale or distribution thereof.

    

    12.           Continued
Employment.  Neither this Agreement nor any Option granted
hereunder shall confer upon any Employee any right to continue in the employ of
the Company or any Subsi­diary, confer upon any member of the Board of
Directors any right to continue on the Board of Directors or limit in any
respect the right of the Company, the Board of Directors or any Subsidiary to
terminate the employment of any Employee or the service of any member of the
Board of Directors at any time.

    

    13.           Notices.  Any
notice hereunder to the Company shall be addressed to it at its offices, 75
South Broadway, Suite 302, White Plains, New York
10601.  Attention:  Mr. Paul Riss, Chief Executive Officer,
and any notice hereunder to Optionee shall be addressed to him at 720
Cricklewood Terrace, Heathrow, Florida 32746 subject to the right of either
party to designate at any time hereafter in writing some other
address.

    

    14.           Miscellaneous. This
Agreement contains the entire understanding and agreement between the parties
relating to the subject matter hereof and thereof, except as otherwise referred
to herein, and supersedes any prior agreement between the parties, whether
written or oral.  Neither this Agreement nor any provision hereof may
be waived, modified, amended, changed, discharged or terminated, except by an
agreement in writing signed by the party against whom enforcement of any waiver,
modification, change, amendment, discharge or termination is
sought.  To the extent that any one or more of the provisions of this
Agreement shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any manner be affected or impaired thereby.

    

    15.           Governing
Law.  This Agreement shall be interpreted, and the rights and
liabilities of the parties hereto determined, in accordance with the internal
laws of the State of New York, without regard to the conflicts of law principles
thereof.

    

    

    16.           Counterparts.  This
Agreement may be executed in two counterparts each of which shall constitute one
and the same instrument.

     

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

     

     

    IN WITNESS WHEREOF, the
undersigned have signed this Agreement as of the date and year first above
written.

    

     

     

    ELEC
COMMUNICATIONS CORP.

    

    

    By: /s/ Paul H.
Riss

    Name:
Paul H. Riss

    Title:
Chief Executive Officer

    

    

    /s/ Michael
Khalilian

    Michael
KhalilianUnassociated Document

    EXHIBIT
4(a)

    March 25,
2008

    

    Company
Order and Officers' Certificate

    7.00%
Senior Notes, Series Q, due 2038

    

    

    

    The Bank
of New York, 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, as trustee (the "Trustee"), and the Board
Resolutions dated January 29, 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 7.00% Senior Notes, Series Q, due 2038 (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 $500,000,000,
      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 April
      1, 2038.

            
	 
      	 
      	 
      
	 
      	
              (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 April 1 and
      October 1, and the Regular Record Date for the determination of holders to
      whom interest is payable on any such Interest Payment Date shall be the
      March 15 or September 15 preceding the relevant Interest Payment Date;
      provided that the first Interest Payment Date shall be October 1, 2008 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 7.00% 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, with respect to any redemption date, the rate per annum equal
      to the semi-annual equivalent yield to maturity of the Comparable Treasury
      Issue, assuming 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 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 term 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 fewer than four such Reference Treasury
      Dealer Quotations are obtained, 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 a primary U.S. government securities dealer in New
      York City selected by the Company and reasonably acceptable to the
      Trustee.

               

              "Reference
      Treasury Dealer Quotation" means, with respect to the 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 5:00 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 7.00% Senior Notes, Series Q, due
      2038;

            
	 
      	 
      	 
      
	 
      	
              (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 $500,000,000 aggregate principal
      amount of 7.00% Senior Notes, Series Q, due 2038, 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/ Jeffrey D. Cross

            
	
              Assistant
    Secretary

            
	 
      
	 
      
	
              Acknowledged
      by Trustee:

            
	 
      
	 
      
	
              By:
      /s/ Mary LaGumina

            
	
              Authorized
    Signatory

            

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXHIBIT 1
to EXHIBIT 4(a)

    

    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

    7.00%
Senior Notes, Series Q, due 2038

    

    
      	
              CUSIP:                                037735
      CM 7

            	
              Original
      Issue
      Date:                                           March
      25, 2008

            
	 
      	 
      
	
              Stated
      Maturity:                                           April
      1, 2038

            	
              Interest
      Rate                                :                      7.00%

            
	 
      	 
      
	
              Principal
      Amount:                                           $500,000,000

            	 
      
	 
      	 
      
	
              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 April 1 and October 1 in each year, commencing on
October 1, 2008, 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 March 15 or September 15 (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, 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’ previous notice given by mail
to the registered owners of the Note at a redemption price equal to the greater
of (i) 100% of the principal amount of the Note 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, with respect to any redemption date, the rate per annum equal to
the semi-annual equivalent yield to maturity of the Comparable Treasury Issue,
assuming 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 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 term 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 fewer than four such Reference Treasury Dealer Quotations are obtained,
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 a primary U. S. government securities dealer in New York
City selected by the Company and reasonably acceptable to the
Trustee.

    

    “Reference
Treasury Dealer Quotation” means, with respect to the 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 5:00 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 Note 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 Note 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 Note 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 Note 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:

            	 
      
	 
      	 
      	
                  Assistant
      Treasurer

            
	
              Attest:

            	 
      	 
      
	 
      	 
      	 
      
	
              By:

            	 
      	 
      
	
              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 25, 2008

    

    THE BANK
OF NEW YORK

    

    

    By:___________________________

    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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