Document:

exhibit4c

Exhibit 4(c)
[Date]

Company Order and Officers’ Certificate
[Senior Notes], Series ___, due 20___

The Bank of New York Mellon Trust Company, N.A., as Trustee
ATTN:  Corporate Trust Division
2 North LaSalle Street
Chicago, IL 60602

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”), between Appalachian Power Company (the “Company”) to The Bank of New York Mellon Trust Company, N.A. (as successor to The Bank of New York), as trustee (the “Trustee”), and the Board Resolutions dated __________ ___, _____, 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 [Senior Notes], Series ___, due 20___ (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 $__________, except as contemplated in Section 2.01(i) of the Indenture;

(ii)    The date on which the principal of the Notes shall be payable shall be ________ ___, _____;

(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 __________ ___ and __________ ___, and the Regular Record Date for the determination of holders to whom interest is payable on any such Interest Payment Date shall be the __________ ___ or __________ ___, respectively; provided that the first Interest Payment Date shall be __________ ___ 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 ______ % per annum;

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(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 30 but not more than 60 days’ prior notice given by mail to the registered owners of the Notes.   At any time prior to __________ ___, 20___, the Company may redeem the Notes either as a whole or in part at a redemption price equal to the greater of (1) 100% of the principal amount of the Notes being redeemed and (2) 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 ___ basis points, plus, in each case, accrued interest thereon to the date of redemption.
 
At any time on or after __________ ___, 20___, the Company may redeem the Notes in whole or in part at 100% of the principal amount of the Notes being redeemed, plus accrued interest thereon to the date of redemption.

“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 notified by the Company to the Trustee.

“Reference Treasury Dealer” means a primary U.S. government securities dealer selected by the Company and notified by the Company 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 Company and notified to 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 Company and 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.

“Treasury Rate” means:
		
	•
	the yield, under the heading which represents the average for the week immediately preceding the date on which the notice of redemption is mailed to 

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the registered holders of the securities (the “calculation date”), 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 above), 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.]

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

		
	(vii)
	the title of the Notes shall be “[Senior Notes], Series ___, due 20___”;

		
	(viii)
	the form 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 $______ and any integral multiple thereof;

		
	(xv)
	not applicable;

		
	(xvi)
	the Notes shall not be issued as Discount Securities;

(xvii)        not applicable;

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	(xviii)
	not applicable; and

(xix)        Limitations on Liens:

So long as any of the Notes are outstanding, the Company will not create or suffer to be created or to exist any mortgage, pledge, security interest, or other lien (collectively “Liens”) on any of the Company’s 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:

		
	•
	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; 

		
	•
	Financing of the Company’s accounts receivable for electric service; 

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

		
	•
	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 $__________ aggregate principal amount of 

    

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_____% [Senior Notes], Series ___, due 20___, 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, _______________ and _______________, 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 (a) 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 and (b) the form and terms of the Notes have been established in conformity with the provisions of the Indenture.

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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.

APPALACHIAN POWER COMPANY

By:     _______________________________
        
_______________________________
Assistant Treasurer

And:    _______________________________
        
_______________________________
Assistant Secretary

Acknowledged:

THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A.

By:       _______________________________
Authorized Signatory

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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
[Senior Notes], Series ___, due 20___

CUSIP:                              Original Issue Date:  

Stated Maturity:                          Interest Rate:    

Principal Amount:  

Redeemable:    Yes          No  
In Whole:    Yes          No  
In Part:        Yes          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 __________ ___ and __________ ___ in each year, commencing on __________ ___, 20___, 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 __________ ___ or __________ ___ (whether or not a Business Day) prior to such Interest 

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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, except that if such Business Day is in the next succeeding calendar year, then payment will be made on the immediately preceding Business Day.  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 Securities 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 Trust Company, N.A. (as successor to The Bank of New York), a national banking association formed under the laws of the United States, 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 any time prior to __________ ___, _____,the Company may redeem this Note either as a whole or in part at a redemption price equal to the greater of (1) 100% of the principal amount of the Notes being redeemed and (2) 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 ___ basis points, plus, in each case, accrued interest thereon to the date of redemption.
 
At any time on or after __________ ___, _____ the Company may redeem this Note in whole or in part at 100% of the principal amount of the Notes being redeemed, plus accrued 

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interest thereon to the date of redemption.

“Treasury Rate” means:
		
	•
	the yield, under the heading which represents the average for the week immediately preceding the date on which the notice of redemption is mailed to the registered holders of the securities (the “calculation date”), 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 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 notified by the Company to the Trustee.

“Reference Treasury Dealer” means a primary U.S. government securities dealer in New York City selected by the Company and notified by the Company 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 Company and notified to 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 Company and 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.

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None of the Company, the Trustee or the Securities Registrar shall 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 Security 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 authorizing and setting forth the terms of this Note, 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 

4

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 pro-vided 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 Security Registrar 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 trans-fer, 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 $______ 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 the same 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 

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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

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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:  __________ ___, 20___

THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Trustee

By:___________________________
   Authorized Signatory

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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”).

8Ex 10.1 Third Amendment to Credit Agreement

Exhibit 10.1
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "Third Amendment") is entered into as of December 3, 2014, by and among Wells Fargo BANK, National association, a national banking association, as administrative agent ("Agent") for the Lenders (as defined in the Credit Agreement referred to below), the Lenders party hereto, and PROS, INC., a Delaware corporation ("Borrower").
WHEREAS, Borrower, Agent, and Lenders are party to that certain Credit Agreement dated as of July 2, 2012 (as has been, and may hereafter be, amended, restated, modified or supplemented from time to time, the "Credit Agreement"); and
WHEREAS, Borrower has requested that Agent and Lenders amend the Credit Agreement in certain respects as set forth herein, and Agent and Lenders have agreed to the foregoing, on the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the premises and mutual agreements herein contained, the parties hereto agree as follows:
1.Defined Terms.  Unless otherwise defined herein, capitalized terms used herein and not otherwise defined shall have the meanings ascribed to such terms in the Credit Agreement as amended hereby.
2.Amendments to Credit Agreement.  In reliance upon the representations and warranties of Borrower set forth in Section 6 below, and subject to the satisfaction of the conditions to effectiveness set forth in Section 5 below, the Credit Agreement is hereby amended as follows: 

(a)Section 6.7 of the Credit Agreement is hereby amended to replace the first paragraph thereof in its entirety with the following:

6.7    Restricted Payments.  Borrower will not, and will not permit Parent or any other Subsidiary of Parent to make any Restricted Payment; provided, that, so long as it is permitted by law, and so long as (i)  except with respect to clauses (d), (f), (g), (h), (i), and (j) below, no Default or Event of Default shall have occurred and be continuing or would result therefrom, (ii) except with respect to clauses (d), (f), (g), (h), (i), and (j) below, Liquidity equals or exceeds $15,000,000 (and, with respect to clause (e) below, Liquidity equals or exceeds $20,000,000) after giving effect to the making of such Restricted Payment, (iii) except with respect to clauses (f), (g), (h), (i), and (j) below, Parent and its Subsidiaries would have been in compliance with the financial covenants in Section 7 for the 12 month period ended immediately prior to the date of such proposed Restricted Payment as if a Financial Covenant Period was in effect, (iv) with respect to clause (f) below, no Default or Event of Default pursuant to Sections 8.4 and 8.5 shall have occurred and be continuing or would result therefrom, and (v) with respect to clause (g) below, no Default or Event of Default pursuant to Sections 8.1, 8.2(a)(iii), 8.4, and 8.5 shall have occurred and be continuing or would result therefrom:

(b)Section 6.7 of the Credit Agreement is further amended to (1) delete the "and" at the end of clause (d) thereof, (2) replace the period at the end of clause (e) thereof with a semicolon, and (3) insert the following new clauses (f), (g), (h), (i), and (j) immediately after clause (e) thereof:

(f)    Borrower may make cash distributions to Parent in amounts necessary for Parent to reasonably concurrently make, and Parent may make cash interest payments when and as required by the terms of the Senior Notes Debt and the Senior Notes Documents; 
(g)    Borrower may make cash distributions to Parent in amounts necessary for Parent to reasonably concurrently make, and Parent may make, payments of principal or cash settlement payments as required by the terms of the Senior Notes Debt and the Senior Notes Documents, in each case upon conversion of the Senior Notes Debt;
(h)    Borrower may make cash distributions to Parent in amounts necessary for Parent to reasonably concurrently make, and Parent may make, payments of principal on the Senior Notes Debt as required by the terms of the Senior Notes Debt and the Senior Notes Documents, upon acceleration, required repurchase, or at maturity of such Senior Notes Debt;
(i)    Borrower may make cash distributions to Parent in amounts necessary for Parent to reasonably concurrently make, and Parent may make, cash payments when and as required by the terms of the Convertible Bond Hedge Transactions, the Convertible Bond Hedge Documents; the Warrant Transactions, and the Warrant Transaction Documents; and
(j)    Parent may make payments of premium under the Convertible Bond Hedge Transactions; provided, that such payments are funded in their entirety by proceeds received by Parent pursuant to the Senior Notes Documents and the Warrant Transaction Documents.
(c)Section 6.12 of the Credit Agreement is amended and restated in its entirety as follows:

6.12.    Limitation on Issuance of Equity Interests.  Except for the issuance or sale of Qualified Equity Interests, the Senior Notes Debt and the Warrant Transactions by Parent, Borrower will not, and will not permit Parent or any other Subsidiary of Parent to issue or sell or enter into any agreement or arrangement for the issuance or sale of any of its Equity Interests.
(d)Section 6.13 of the Credit Agreement is amended and restated in its entirety as follows:

6.13.    Parent as a Holding Company.  Borrower will not permit Parent to incur any liabilities (other than liabilities arising under the Senior Notes Documents, the Convertible Bond Hedge Documents, the Warrant Transaction Documents and the Loan Documents to which it is a party), own or acquire any assets (other than (i) the Equity Interests the Borrower or of any Loan Party or any other Subsidiary (provided that Borrower has complied with Section 5.11 with respect to each such Subsidiary) acquired in connection with the consummation of Permitted Acquisitions, (ii) proceeds of issuances of Equity Interests to the extent such issuances are permitted under this Agreement, (iii) proceeds of Restricted Payments received from Subsidiaries and permitted under this Agreement, so long as the proceeds of any such Restricted Payment are used substantially concurrently by Parent for such permitted purpose or (iv) its rights under the Convertible Bond Hedge Documents) or engage itself in any operations or business, except in connection with its ownership of 

Borrower, its rights and obligations under the Loan Documents, its rights and obligations under each of the Senior Notes Documents, the Convertible Bond Hedge Documents and the Warrant Transaction Documents, and its operations as a holding company  to the extent such operations are expressly permitted to be engaged in by Parent under this Agreement.
(e)Article 8 of the Credit Agreement is hereby amended to (1) delete the "or" at the end of Section 8.10 thereof, (2) delete the period at the end of Section 8.11 thereof and insert "; or" in its place, and (3) insert a new Section 8.12 therein immediately following Section 8.11 thereof as follows:

8.12.    Senior Notes Debt; Convertible Bond Hedge Transactions; Warrant Transactions.  
(a)    If at any time the difference between (i) the sum of (1) Liquidity plus (2) Parent's unrestricted cash and Cash Equivalents minus (ii) the aggregate amount of all outstanding obligations of Parent then due and payable in cash by Parent in respect of the Senior Notes Debt and the Senior Notes Documents fails to equal at least $20,000,000;
(b)    If at any time the difference between (i) the sum of (1) Liquidity plus (2) Parent's unrestricted cash and Cash Equivalents minus (ii) the aggregate amount of all outstanding obligations of Parent then due and payable in cash in respect of the Convertible Bond Hedge Transactions and the Convertible Bond Hedge Documents (including, in each case, outstanding obligations of Parent then due and payable in cash in respect of a termination thereof) fails to equal at least $20,000,000; or
(c)    If at any time the difference between (i) the sum of (1) Liquidity plus (2) Parent's unrestricted cash and Cash Equivalents minus (ii) the aggregate amount of all outstanding obligations of Parent then due and payable in cash in respect of the Warrant Transactions and the Warrant Transaction Documents (including, in each case, outstanding obligations of Parent then due and payable in cash in respect of a termination thereof) fails to equal at least $20,000,000.
(f)Schedule 1.1 of the Credit Agreement is hereby amended to add the following defined terms in the appropriate alphabetical order:

"Convertible Bond Hedge Documents" means one or more convertible bond hedge confirmation agreements by and between Parent and the option counterparties party thereto and dated on or about the date or dates of issuance of the Senior Note Debt, and all other agreements, instruments and documents relating thereto.
"Convertible Bond Hedge Transactions" means the transactions evidenced by the Convertible Note Hedge Documents.
"Indenture" means that certain Indenture dated on or before December 19, 2014 by and between Senior Notes Trustee and the Parent.
"Senior Notes" means the convertible senior notes issued pursuant to the Senior Notes Documents and evidencing the Senior Notes Debt.
"Senior Notes Debt" means the convertible Indebtedness issued on or before December 19, 2014 pursuant to the Indenture in an original principal amount of up to 

$125,000,000 and an additional principal amount of up to $18,750,000 issued on or before January 18, 2015 pursuant to the exercise of an option granted to the note purchasers identified in the Senior Notes Documents, in each case issued by Parent and evidenced by the Senior Notes Documents.
"Senior Notes Documents" means the Indenture and all other agreements, instruments and documents relating thereto.
"Senior Notes Trustee" means Wilmington Trust, National Association.
"Third Amendment" means that certain Third Amendment to Credit Agreement dated as of the Third Amendment Closing Date among the Borrower, Agent, and the Lenders party thereto.
"Third Amendment Closing Date" means December 3, 2014.
"Warrant Transaction Documents" means one or more warrant transaction confirmation agreements by and between Parent and the option counterparties party thereto and dated on or about the date or dates of issuance of the Senior Note Debt, and all other agreements, instruments and documents relating thereto.
"Warrant Transactions" means the transactions evidenced by the Warrant Transaction Documents. 
(g)The definition of "Permitted Indebtedness" set forth in Schedule 1.1 of the Credit Agreement is hereby amended to (1) delete the "and" at the end of clause (u) thereof, (2) redesignate clause (v) thereof as clause (w), and (3) insert a new clause (v) therein immediately following clause (u) thereof as follows:

(v)    Indebtedness of Parent consisting of each of the Senior Notes Debt, the Convertible Bond Hedge Transactions and the Warrant Transactions; and
(h)The definition of "Permitted Investments" set forth in Schedule 1.1 of the Credit Agreement is hereby amended to (1) redesignate clause (q) thereof as clause (r) and (2) insert a new clause (q) therein immediately following clause (p) thereof as follows:

(q)    Investments of Parent resulting from entering into the Convertible Bond Hedge Documents; and
(i)Schedule P-2 of the Credit Agreement is hereby amended to replace the reference to "clause (v)" with a reference to "clause (w)".

(j)Schedule 4.14 of the Credit Agreement is hereby amended to replace the reference in clause (b) to "clause (v)" with a reference to "clause (w)".

3.Continuing Effect.  Except as expressly set forth in Section 2 of this Third Amendment, nothing in this Third Amendment shall constitute a modification or alteration of the terms, conditions or covenants of the Credit Agreement or any other Loan Document, or a waiver of any other terms or provisions thereof, and the Credit Agreement and the other Loan Documents shall remain unchanged and shall continue in full force and effect, in each case as amended hereby.

4.Reaffirmation and Confirmation; Additional Covenant.

(a)Borrower hereby ratifies, affirms, acknowledges and agrees that the Credit Agreement and the other Loan Documents to which it is a party represent the valid, enforceable and collectible obligations of Borrower, and further acknowledges that there are no existing claims, defenses, personal or otherwise, or rights of setoff whatsoever with respect to the Credit Agreement or any other Loan Document.  Borrower hereby agrees that this Third Amendment in no way acts as a release or relinquishment of the Liens and rights securing payments of the Obligations.  The Liens and rights securing payment of the Obligations are hereby ratified and confirmed by Borrower in all respects.

(b)The Borrower hereby agrees to deliver complete copies of the Senior Notes Documents (which shall be in form and substance satisfactory to the Agent and shall include all exhibits, schedules and disclosure letters referred to therein or delivered pursuant thereto, if any) and all written amendments thereto, written waivers relating thereto and other side letters or written agreements affecting the terms thereof to the Agent within five (5) business days after the effective date of such Senior Notes Documents.  The Borrower acknowledges that each Senior Notes Document will constitute a valid and binding obligation of the Parent and each other Loan Party party to the Senior Notes Documents and further agrees that none of the execution, delivery or performance of the Senior Notes Documents will (a) conflict with or result in a breach of any of the provisions of; (b) constitute a default under; (c) result in the violation of; (d) give any third party the right to terminate, modify, cancel or to accelerate any obligations under; or (e) require any authorization, consent, approval, execution or other action by a notice to any governmental authority under any material agreement to which the Borrower, the Parent, or any Loan Party is bound or affected, the Borrower's, the Parent's, or any Loan Party's respective organizational documents or any statute regulation, rule, judgment, governmental order, decree or other restriction of any governmental authority to which the Borrower, the Parent, or any Loan Party is subject.  Any failure of the Borrower to satisfy the requirements set forth in this Section 4(b) within the time period specified herein shall constitute an immediate Event of Default under the Credit Agreement.

5.Conditions to Effectiveness.  This Third Amendment shall become effective upon the satisfaction of each of the following conditions precedent:

(a)Agent shall have received a copy of this Third Amendment executed and delivered by Agent, Required Lenders and Borrower;

(b)Agent shall have received such documents, agreements and instruments as may be reasonably required by Agent in connection with this Third Amendment, each in form and substance reasonably satisfactory to Agent; 

(c)Agent shall have received a certified calculation (1) demonstrating in reasonable detail that Parent had a Fixed Charge Coverage Ratio of not less than 1.50:1.00 as of the four fiscal quarter period most recently ended prior to the date hereof calculated on a pro forma basis after giving effect to the incurrence of the Senior Notes Debt and (2) demonstrating in reasonable detail that Parent will have a Fixed Charge Coverage Ratio of not less than 1.50:1.00 for each of the four fiscal quarter periods ending during the one year period following the incurrence of the Senior Notes Debt (giving effect to the incurrence of such Senior Notes Debt), each such calculation to be reasonably acceptable to Agent; and

(d)no Default or Event of Default shall have occurred and be continuing on the date hereof or as of the date of the effectiveness of this Third Amendment.

6.Representations and Warranties.  In order to induce Agent and Lenders to enter into this Third Amendment, Borrower hereby represents and warrants to Agent and Lenders that:

(a)after giving effect to this Third Amendment, all representations and warranties contained in the Loan Documents to which Borrower is a party are true, correct and complete in all material respects (except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof) on and as of the date of this Third Amendment, as though made on and as of such date (except to the extent that such representations and warranties relate solely to an earlier date, in which case such representations and warranties shall be true, correct and complete in all material respects (except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof) on and as of such earlier date);

(b)no Default or Event of Default has occurred and is continuing; and

(c)this Third Amendment and the Loan Documents, as amended hereby, constitute legal, valid and binding obligations of Borrower and are enforceable against Borrower in accordance with their respective terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally.

7.Miscellaneous.

(a)Expenses.  Borrower agrees to pay on demand all reasonable documented out-of-pocket costs and expenses of Agent (including reasonable documented attorneys' fees) incurred in connection with the preparation, negotiation, execution, delivery and administration of this Third Amendment and all other instruments or documents provided for herein or delivered or to be delivered hereunder or in connection herewith.  All obligations provided herein shall survive any termination of this Third Amendment and the Credit Agreement as amended hereby.

(b)Choice of Law and Venue; Jury Trial Waiver; Reference Provision.  Without limiting the applicability of any other provision of the Credit Agreement or any other Loan Document, the terms and provisions set forth in Section 12 of the Credit Agreement are expressly incorporated herein by reference.

(c)Counterparts.  This Third Amendment may be executed in any number of counterparts, and by the parties hereto on the same or separate counterparts, and each such counterpart, when executed and delivered, shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Third Amendment.

8.Release.

(a)In consideration of the agreements of Agent and Lenders contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, each of Borrower and Parent, on behalf of itself and its successors, assigns, and other legal representatives, hereby absolutely, unconditionally and irrevocably releases, remises and forever discharges Agent and Lenders, and their successors and assigns, and their present and former shareholders, affiliates, subsidiaries, divisions, predecessors, directors, officers, attorneys, employees, agents and other representatives (Agent, each Lender and all such other Persons being hereinafter referred to collectively as the "Releasees" and individually as a "Releasee"), of and from all demands, actions, causes of action, suits, controversies, damages and any and all other claims, counterclaims, defenses, rights of set‐off, demands and liabilities whatsoever (individually, 

a "Claim" and collectively, "Claims") of every name and nature, known or unknown, suspected or unsuspected, both at law and in equity, which Borrower, Parent, or any of their respective successors, assigns, or other legal representatives may now or hereafter own, hold, have or claim to have against the Releasees or any of them for, upon, or by reason of any circumstance, action, cause or thing whatsoever which arises at any time on or prior to the day and date of this Third Amendment for or on account of, or in relation to, or in any way in connection with any of the Credit Agreement, or any of the other Loan Documents or transactions thereunder or related thereto.

(b)Each of Borrower and Parent understands, acknowledges and agrees that the release set forth above may be pleaded as a full and complete defense and may be used as a basis for an injunction against any action, suit or other proceeding which may be instituted, prosecuted or attempted in breach of the provisions of such release.

(c)Each of Borrower and Parent agrees that no fact, event, circumstance, evidence or transaction which could now be asserted or which may hereafter be discovered shall affect in any manner the final, absolute and unconditional nature of the release set forth above.

(Signature page follows.)

IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to be executed by their respective officers thereunto duly authorized and delivered as of the date first above written.

	
	
	PROS, INC., a Delaware corporation

By:             /s/ Andres Reiner                      
Title:           President and CEO                  

	
	
	WELLS FARGO BANK, NATIONAL ASSOCIATION, as Agent and sole Lender

By:             /s/ Nichol Shuart                        
Title:               Director                                 

CONSENT AND REAFFIRMATION
The undersigned hereby (i) acknowledges receipt of a copy of the foregoing Third Amendment to Credit Agreement (terms defined therein and used, but not otherwise defined, herein shall have the meanings assigned to them therein); (ii) consents to Borrower's execution and delivery thereof; (iii) agrees to be bound by the terms of the Third Amendment, including Section 8 thereof; and (iv) affirms that nothing contained therein shall modify in any respect whatsoever any Loan Document to which the undersigned is a party and reaffirms that each such Loan Document is and shall continue to remain in full force and effect.  Although the undersigned has been informed of the matters set forth herein and has acknowledged and agreed to same, the undersigned understands that Agent and Lenders have no obligation to inform the undersigned of such matters in the future or to seek the undersigned's acknowledgment or agreement to future consents, amendments or waivers, and nothing herein shall create such a duty.
IN WITNESS WHEREOF, the undersigned has executed this Consent and Reaffirmation on and as of the date of such Third Amendment.

	
	
	PROS HOLDINGS, INC., a Delaware corporation

	By:                /s/ Andres Reiner                        

	Title:            President and CEO

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